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, 1998 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 March 4, 1998, there were 2,881,227 shares of the Registrant's Common Stock outstanding.
2 SIGMATRON INTERNATIONAL, INC. Index <TABLE> <CAPTION> Page No. PART 1. FINANCIAL INFORMATION: -------- <S> <C> <C> Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets--January 31, 1998 and April 30, 1997 3 Condensed Consolidated Statements of Income--Three and Nine Months Ended January 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows--Nine Months Ended January 31, 1998 and 1997 5 Notes to Condensed 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 9 PART II. OTHER INFORMATION Item 6. Exhibits 10 </TABLE>
3 SIGMATRON INTERNATIONAL, INC. Condensed Consolidated Balance Sheets <TABLE> <CAPTION> January 31, April 30, 1998 1997 (UNAUDITED) (Audited) ----------- ------------ <S> <C> <C> ASSETS Current assets: Cash $222,381 $323,223 Accounts receivable, less allowance for doubtful accounts of $15,000 at January 31, 1998 and $80,000 at April 30,1997 14,668,320 8,770,457 Inventories 17,336,791 17,665,600 Equipment lease receivables from affiliate 1,408,323 892,435 Prepaid expenses 390,268 225,780 Refundable income taxes - 98,666 Deferred income taxes 231,245 231,245 Other assets 1,015,486 512,206 ----------- ----------- Total current assets 35,272,814 28,719,612 Machinery and equipment, net 11,363,573 10,343,060 Intangible assets, net of amortization of $178,119 at April 30,1997 - 14,136 Equipment lease receivables from affiliate, less current portion 1,549,438 1,467,336 Investment and advances with affiliate 384,813 527,238 Other assets 1,151,249 1,017,057 ----------- ----------- Total assets $49,721,887 $42,088,439 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - Bank 152,779 166,668 Notes payable - Related parties - 42,596 Trade accounts payable 7,587,841 3,244,537 Trade accounts payable - Related parties 295,263 736,893 Accrued expenses 1,338,118 1,680,721 Income taxes payable 40,159 - Capital lease obligations 1,991,712 1,199,212 ----------- ----------- Total current liabilities 11,405,872 7,070,627 Notes payable - Banks, less current portion 16,017,720 14,714,943 Capital lease obligations, less current portion 3,950,498 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 - - Common stock, $.01 par value; 6,000,000 shares authorized, 2,881,227 and 2,875,227 shares issued and outstanding at January 31, 1998 and April 30, 1997, respectively 28,812 28,752 Capital in excess of par value 9,415,699 9,373,759 Retained earnings 8,084,433 7,612,133 ----------- ----------- Total stockholders' equity 17,528,944 17,014,644 ----------- ----------- Total liabilities and stockholders' equity $49,721,887 $42,088,439 =========== =========== </TABLE> See accompanying notes. 3
4 SIGMATRON INTERNATIONAL, INC. Condensed Consolidated Statements of Income ( Unaudited) <TABLE> <CAPTION> THREE MONTHS Three Months NINE MONTHS Nine Months ENDED Ended ENDED Ended JANUARY 31, 1998 January 31, 1997 JANUARY 31, 1998 January 31, 1997 ---------------- ---------------- ---------------- ---------------- <S> <C> <C> <C> <C> Net sales $22,632,041 $21,910,286 $65,534,233 $70,086,628 Cost of products sold 20,740,001 19,051,065 59,387,383 59,861,218 --------------- --------------- --------------- --------------- 1,892,040 2,859,221 6,146,850 10,225,410 Selling and administrative expenses 1,367,459 1,185,831 4,139,505 4,546,409 --------------- --------------- --------------- --------------- Operating income 524,581 1,673,390 2,007,345 5,679,001 Equity in net (income) loss of affiliate 131,004 26,841 142,426 52,805 Interest expense - banks and capital lease 514,788 483,980 1,428,191 1,399,110 obligations Interest expense - related party 0 2,006 523 8,699 Interest income - related party (138,891) (101,167) (352,671) (300,259) --------------- --------------- --------------- --------------- 375,897 384,819 1,076,043 1,107,550 --------------- --------------- --------------- --------------- Income before income taxes 17,680 1,261,730 788,876 4,518,646 Income taxes 7,072 504,692 316,576 1,807,458 --------------- --------------- --------------- --------------- Net income $10,608 $757,038 $472,300 $2,711,188 =============== =============== =============== =============== Net income per common share - basic $0.00 $0.27 $0.16 $0.97 =============== =============== =============== =============== Weighted average number of common shares outstanding - basic 2,881,227 2,807,534 2,881,097 2,787,459 =============== =============== =============== =============== Net income per common share - diluted $0.00 $0.25 $0.16 $0.93 =============== =============== =============== =============== Weighted average number of common and common equivalent shares outstanding - diluted 2,951,210 2,982,201 2,987,930 2,920,158 =============== =============== =============== =============== </TABLE> See accompanying notes. 4
5 SIGMATRON INTERNATIONAL, INC. Condensed Consolidated Statements of Cash Flow (Unaudited) <TABLE> <CAPTION> NINE MONTHS ENDED JANUARY 31, 1998 1997 OPERATING ACTIVITIES: ----------- ---------- <S> <C> <C> Net income $472,300 $2,711,188 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 917,194 739,836 Equity in net loss of affiliate 142,426 52,805 Amortization 14,136 17,856 Compensation expense related to stock options - 75,000 Changes in operating assets and liabilities: Provision for doubtful accounts 130,502 - Write-off of uncollectible accounts (195,502) - Accounts receivable (5,832,863) 975,328 Inventories 328,809 (4,971,463) Prepaid expenses (164,456) (56,423) Other assets (538,806) (1,029,373) Trade accounts payable 4,343,304 2,571,698 Trade accounts payable - related parties (441,630) (365,705) Accrued expenses (342,603) (372,423) Income tax payable 40,159 641,803 ----------- ---------- Net cash provided by (used in) operating activities (1,127,030) 990,127 INVESTING ACTIVITIES: Purchases of machinery and equipment (797,246) (2,397,566) Proceeds from sale of investment in affiliate - 250 Proceeds from sale and leaseback of machinery and equipment 1,429,899 - Advances to affiliate - (100,000) Proceeds from affiliate subleases 263,999 370,620 ----------- ---------- Net cash provided by (used in) investing activities 896,652 (2,126,696) FINANCING ACTIVITIES: Repayment of term loan and other notes payable (42,596) (119,913) Net payments under capital lease obligations (1,158,756) (761,354) Issuance of common stock 42,000 472,500 Net proceeds under line of credit 1,288,888 1,545,336 ----------- ---------- Net cash provided by financing activities 129,536 1,136,569 Change in cash (100,842) 0 Cash at beginning of period 323,223 2,500 ----------- ---------- Cash at end of period $222,381 $2,500 =========== ========== Supplementary disclosure of cash flow information: Acquisition of machinery and equipment 2,637,040 348,713 =========== ========== </TABLE> See accompanying notes. 5
6 SIGMATRON INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) January 31, 1998 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 nine-month period ended January 31, 1998 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> January 31, April 30, 1998 1997 ------------ ------------ <S> <C> <C> Finished products $ 1,560,551 $ 2,966,415 Work-in-process 2,157,869 1,079,985 Raw materials 13,618,371 13,619,200 ----------- ----------- $17,336,791 $17,665,600 =========== =========== </TABLE> NOTE C -- GUARANTY AND SURETY AGREEMENT On January 31, 1998 the Company entered into a Guaranty and Surety Agreement with Marine Midland Business Loans, Inc. ("MMBLI") to guaranty a portion of its affiliate's debt. The Company owns approximately 42.5% of SMT Unlimited L.P. ("SMTU"), which provides service mount and ball grid array assembly services in the electronic manufacturing services industry. The Company has agreed to guaranty up to $500,000 of SMTU's debt with MMBLI. The Company has been indemnified by one of the other SMTU limited partners in the amount of $250,000. The Company will be released from the guaranty provided SMTU attains specified financial covenants at April 30, 1998. 6
7 NOTE D -- ADOPTION OF ACCOUNTING PRINCIPLE During the quarter ended January 31, 1998, the Company adopted FASB Statement 128 "Earnings Per Share" which was issued in 1997. FASB 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the FASB 128 requirements. The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> Three Months Ended Nine Months Ended January 31, 1998 January 31, 1997 January 31, 1998 January 31, 1997 ---------------- ---------------- ---------------- ---------------- <S> <C> <C> <C> <C> Numerator: Net Income $ 10,608 $ 757,038 $ 472,300 $2,711,188 ========= ========= ========== ========== Denominator: Denominator for basic earnings per share- weight average shares outstanding 2,881,227 2,807,534 2,881,097 2,787,459 Dilutive potential common shares 69,983 174,667 106,833 132,699 Denominator for diluted earnings per share- adjusted weighted average shares and assumed conversions 2,951,210 2,982,201 2,987,930 2,920,158 ========= ========= ========== ========== Basic earnings per share $ 0.0 $ 0.27 $ 0.16 $ 0.97 ========= ========= ========== ========== Diluted earnings per share $ 0.0 $ 0.25 $ 0.16 $ 0.93 ========= ========= ========== ========== </TABLE> 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 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 increased from $21,910,286 for the three month period ended January 31, 1997 to $22,632,041 for the three month period ended January 31, 1998. For the first nine months of fiscal 1998 net sales decreased to $65,534,233 from $70,086,628 for the comparable period of the prior year. The decrease in sales for the nine months ended January 31, 1998 was due to softer demand from some of the Company's key customers. Historically the Company 's highest level of revenues are achieved in its second and third quarters due to seasonal trends. Timing and rescheduling of orders has caused the Company to experience significant quarterly fluctuations in its revenues and earnings. However, based on the current customer schedules the fourth quarter of 1998 is expected to be soft. Gross profit decreased during the three month period ended January 31, 1998 to $1,892,040 from $2,859,221 for the same period of the prior fiscal year. For the nine months ended January 31, 1998 gross profit decreased to $6,146,850 as compared to $10,225,410 for the same period in 1997. The decrease in gross profit for the nine months ended January 31, 1998 is due to lower sales volume, product mix and an increase in manufacturing overhead cost. In fiscal 1998 the Company increased its capacity and surface mount technology capabilities in the U.S. and Mexico. The expansion has caused the Company to continue to incur higher expenses. Selling and administrative expenses increased from $1,185,831 or 5.4% of net sales for the three month period ended January 31, 1997 to $1,367,459 or 6.0% of net sales in fiscal 1998. Selling and administrative expenses for the nine month period ended January 31, 1998 decreased as a percent of net sales to 6.3% from 6.5% as compared to the same period in the prior year. The 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 January 31, 1998 was $514,788 compared to $483,980 for the same period in the prior year. For the nine months ended January 31, 1998 interest expense increased to $1,428,191 from $1,399,110 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. 8
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -con't As a result of the foregoing, net income decreased from $757,038 for the three month period ended January 31, 1997 to $10,608. Diluted net earnings per share for the third fiscal quarter ended January, 1998 were $.00 compared to $.25 for the same period in the prior year. For the first nine months of fiscal 1998, net income decreased to $472,300 compared to $2,711,188 for the same period in the prior year. Diluted net earnings per share were $.16 for the nine months ended January 31, 1998 compared to $.93 for the comparable period in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES: The Company's primary source of liquidity has been borrowings from its secured lender and cash provided by net income. The Company had working capital of $23,866,942 at January 31, 1998 and $21,247,057 at January 31, 1997. This represents a current ratio of 3.09 and 2.75 for these periods, respectively. For the nine month period ended January 31, 1998, the primary use of cash from operations was an increase in accounts receivable. The net cash provided by investing activities for the same period was $896,652, which was primarily attributable to proceeds received under a machinery and equipment leaseback agreement. 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 reduced. The funds, for Mexican operations which ordinarily derive from the Company's cash from operations and borrowings under its revolving credit facility, equal approximately $1,978,000 for the three month period ended January 31, 1998 and $6,365,500 for the nine month period ended January 31, 1998. Net cash provided by financing activities totaled $129,536 for the nine months ended January 31, 1998 compared to $1,136,569 for the same period in the prior year. The decrease was caused primarily by increased payments under capital lease obligations. ITEM 3. Quantitative and Qualitative Disclosures About Market Risks - Not applicable 9
10 SIGMATRON INTERNATIONAL, INC. PART II - OTHER INFORMATION January 31, 1998 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 10.38 Lease Agreement between the Company and International Financial Services lease number 97-185 dated December 22, 1997. Exhibit 10.39 Lease Agreement between the Company and General Electric Capital Corporation lease number E002 dated December 31, 1997. Exhibit 10.40 Guaranty and Surety Agreement between SigmaTron International, Inc. and Midland Business Loans Inc. dated January 31, 1998. Exhibit 27 - Financial Data Schedule (EDGAR version only) (b) No report on Form 8-K was filed during the quarter ended January 31, 1998. 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 3/4/98 - -------------------------------------------- ------------------- Gary R. Fairhead Date President and CEO (Principal Executive Officer) /s/ Linda K. Blake 3/4/98 - -------------------------------------------- ------------------- Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)