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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 July 31, 2002
Commission File Number 0-23248
SigmaTron International, Inc.
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(Exact Name of Registrant, as Specified in its Charter)
Delaware 36-3918470
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2201 Landmeier Road, Elk Grove Village, Illinois 60007
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (847) 956-8000
No Change
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(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
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 September 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.
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Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -- July 31, 2002
and April 30, 2002 3
Condensed Consolidated Statements of Operations -- Three
Months Ended July 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows -- Three
Months Ended July 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
Item 4. Controls and Procedures 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGMATRON INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
JULY 31, April 30,
2002 2002
UNAUDITED Audited
----------- -----------
Current assets:
Cash $ 2,500 $ 344,880
Accounts receivable, less allowance for doubtful
accounts of $70,000 and $194,786 at July 31, and
April 30, 2002, respectively 9,322,975 9,568,947
Inventories 11,868,244 12,052,390
Prepaid and other assets 401,796 480,127
Deferred income taxes 323,940 323,940
Other receivables 132,136 100,322
----------- -----------
Total current assets 22,051,591 22,870,606
Property, machinery and equipment, net 14,189,104 12,581,595
Due from SMTU:
Investment and advances 1,208,465 1,152,826
Equipment receivable 2,538,097 2,692,737
Other receivable 820,015 835,054
Other assets 1,150,994 718,177
----------- -----------
Total assets $41,958,266 $40,850,995
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 4,516,906 5,260,132
Accrued expenses 2,369,501 2,514,767
Income taxes payable 328,374 17,093
Notes payable- banks 8,494,422 -
Notes payable - other 250,000 -
Capital lease obligations 912,237 921,444
----------- -----------
Total current liabilities 16,871,440 8,713,436
Notes payable - banks - 9,234,015
Notes payable- other 1,635,021 -
Capital lease obligations, less current portion 1,157,094 1,225,034
Deferred income taxes 1,225,079 1,225,079
----------- -----------
Total liabilities 20,888,634 20,397,564
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 July 31, 2002 and April 30, 2001
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 11,604,266 10,988,065
----------- -----------
Total stockholders' equity 21,069,632 20,453,431
----------- -----------
Total liabilities and stockholders' equity $41,958,266 $40,850,995
=========== ===========
See accompanying notes.
3
SIGMATRON INTERNATIONAL, INC.
Condensed Consolidated Statements Of Operations
Unaudited
THREE MONTHS Three Months
ENDED Ended
JULY 31, 2002 July 31, 2001
--------------- ---------------
Net sales $19,236,716 $17,114,358
Cost of products sold 16,418,547 15,977,254
------------ ------------
2,818,169 1,137,104
Selling and administrative expenses 1,753,812 1,394,318
------------ ------------
Operating income (loss) 1,064,357 (257,214)
Equity in net (income) of SMTU (55,639) (102,886)
Interest expense - Banks and capital lease obligations 197,622 405,099
Interest income - SMTU and LC (87,791) (115,424)
------------ ------------
Income (loss) before income tax expense 1,010,165 (444,003)
Income tax expense (benefit) 393,964 (173,161)
------------ ------------
Net income (loss) $616,201 ($270,842)
============ ============
Net income (loss) per common share - Basic $0.21 ($0.09)
============ ============
Net income (loss) per common share - Assuming dilution $0.19 ($0.09)
============ ============
Weighted average shares of common stock outstanding
Basic 2,881,227 2,881,227
============ ============
Diluted 3,275,227 2,881,227
============ ============
See accompanying notes.
4
SIGMATRON INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
Unaudited
THREE MONTHS Three Months
ENDED Ended
2002 2001
------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $616,201 ($270,842)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 504,537 507,449
Equity in net income of SMTU (55,639) (102,886)
Deferred income taxes - (173,161)
Changes in operating assets and liabilities:
Accounts receivable 245,972 (85,503)
Inventories 184,146 1,435,953
Prepaid expenses and other assets (216,621) 362,066
Trade accounts payable (743,226) 368,053
Trade accounts payable - related parties - (747,946)
Income taxes payable 311,281 (60,007)
Accrued expenses (145,266) (282,458)
----------- -----------
Net cash provided by operating activities 701,385 950,718
INVESTING ACTIVITIES:
Purchases of machinery and equipment (162,046) (115,628)
----------- -----------
Net cash used in investing activities (162,046) (115,628)
FINANCING ACTIVITIES:
Net payments under note payable obligation (64,979) -
Net payments under capital lease obligations (77,147) (370,387)
Net payments under line of credit (739,593) (567,589)
----------- -----------
Net cash used in financing activities (881,719) (937,976)
----------- -----------
Change in cash (342,380) -
Cash at beginning of period 344,880 2,500
----------- -----------
Cash at end of period $2,500 $2,500
=========== ===========
Noncash investing and financing activities:
A loan obligation of $1,950,000 was incurred when the
Company acquired certain property under seller financing.
See accompanying notes.
5
SigmaTron International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 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. 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 three month period ended July 31, 2002 are not necessarily
indicative of the results that may be expected for the year ending April 30,
2003. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended April 30, 2002.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
July 31, April 30,
2002 2002
--------------- ----------------
Finished products $ 2,609,010 $ 2,055,222
Work-in-process 2,043,590 1,519,873
Raw materials 7,215,644 8,477,295
--------------- ---------------
$ 11,868,244 $ 12,052,390
=============== ===============
NOTE C -- LINE OF CREDIT
The Company has a loan and security agreement that provides for a revolving
line-of-credit facility. The maximum borrowing limit under the revolving
line-of-credit facility is limited to the lesser of: (i) $20,000,000; or (ii) an
amount equal to the sum of up to 85% of the receivables borrowing base and the
lesser of $9,000,000, or up to 50% of the inventory borrowing base, as defined.
At July 31, 2002 there was approximately $2,800,000 of unused credit under the
terms of the agreement.
The revolving credit facility matures May 1, 2003. The outstanding loan balance
of $8,494,422 has been classified as a short-term liability in the Company's
balance sheet at July
6
31, 2002. The Company is negotiating with its current lender and anticipates the
loan and security agreement will be extended for a longer period. At July 31,
2002, the Company was in compliance with its financial covenants.
NOTE D -- NOTES PAYABLE -- OTHER
The Company acquired a plant in Mexico through seller financing. The loan of
$1,950,000 is payable in equal monthly installments of approximately $31,000
over six and a half years at a rate of 7% interest per annum. Prior to the
acquisition of the plant the Company rented the facility.
CRITICAL ACCOUNTING POLICES
Management Estimates and Uncertainties - The preparation of consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Significant estimates made in preparing the consolidated financial statements
include depreciation and amortization periods, the allowance for doubtful
accounts, and reserves for inventory. Actual results could materially differ
from these estimates.
Revenue Recognition - Revenues from sales of product including the Company's
contract manufacturing business are recognized when the product is shipped. The
Company's policy is to recognize revenue and related costs when the order has
been shipped from our facilities, which is also the same point that title passes
under the terms of the purchase order. Based on the Company's history of
providing contract manufacturing services, we believe that collectibility is
reasonable assured.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market. Cost includes labor, material and manufacturing overhead.
Provisions are based on assumptions about future product life cycles, product
demand and market conditions. When required, provisions are made to reduce
excess inventories to their estimated net realizable values. It is possible that
estimates of net realizable values can change in the near term.
Impairment of Long-Lived Assets - The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An asset is considered
impaired if its carrying amount exceeds the future net cash flow the asset is
expected to generate. If such asset is considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the
asset, if any, exceeds it fair market value.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets, " which
establishes a single accounting model for the impairment or disposal of
long-lived assets, including
7
discontinued operations. SFAS 144 supersedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" and
APB Option No. 30, "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions for the Disposal of a Segment of
a Business." The provisions of SFAS 144 are effective in fiscal years beginning
after December 15, 2001, with early adoption permitted and, in general, are to
be applied prospectively. The Company adopted SFAS No. 144 at May 1, 2002, and
has determined that adoption did not have a material effect on its results of
operations or financial position.
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 July 31, 2002 to
$19,236,716 from $17,114,358 for the three month period ended July 31, 2001.
Sales increased for the three months ended July 31, 2002 primarily due to an
increase in orders from existing 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,
customers' orders can generally 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 July 31, 2002 to
$2,818,169 or 14.6% of net sales, compared to $1,137,104 or 6.6 % of net sales
for the same period in the prior fiscal year. The increase in the Company's
gross margin for the three month period ended July 31, 2002 is the result of a
number of factors, including labor cost and overhead efficiencies, component
pricing, increased capacity utilization and product mix. Management continues to
re-evaluate and align its overhead structure with current customer requirements.
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 $1,753,812 or 9.1% of net sales
for the three month period ended July 31, 2002 compared to $1,394,318 or 8.1% of
net sales in the same period last year. The increase is due to an increase in
legal and bonus expenses for the three month period ended July 31, 2002.
Interest expense for bank debt and capital lease obligations for the three month
period ended July 31, 2002 was $197,622 compared to $405,099 for the same period
in the prior year. This decrease was attributable to a decrease in interest
rates and a decrease in the balance outstanding on the Company's line of credit.
Income tax expense for the period ended July 31, 2002 was $393,964 or an
effective rate of 39% compared to a tax benefit of $173,161 for the same period
in the prior year.
As a result of the factors described above, net income increased to $616,201 for
the three month period ended July 31, 2002 compared to a net loss of $270,842
for the same period in the prior year. Basic earnings per share for the first
fiscal quarter of 2002 were $0.21 compared to $<0.09> for the same period in the
prior year. Diluted earnings per share for the first quarter of fiscal 2002 were
$0.19 compared to $<0.09> for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES:
In the first quarter of fiscal 2003 the Company financed operations through cash
provided by operating activities. During the period, cash provided by operating
activities was primarily related to a reduction in inventory and accounts
receivable, which was offset by a decrease in accounts payable. An increase in
net income to $616,202 in the three month period ended July 31, 2002 compared to
a net loss of $270,842 in the prior fiscal year contributed to the increase in
net cash provided by operating activities.
The Company used $162,046 in cash for investing activities in the first quarter
of fiscal 2003 to purchase machinery and equipment. The Company anticipates
additional machinery and equipment will be purchased during fiscal 2003, which
will result in additional cash being used for investing activities.
9
Net cash used in financing activities was primarily used for payments under the
line of credit, capital lease obligations and note payable obligations. A loan
obligation of $1,950,000 was incurred when the Company acquired certain property
under seller financing.
The Company has a loan and security agreement that provides for a revolving
line-of-credit facility. The maximum borrowing limit under the revolving
line-of-credit facility is limited to the lesser of: (i) $20,000,000; or (ii) an
amount equal to the sum of up to 85% of the receivables borrowing base and the
lesser of $9,000,000, or up to 50% of the inventory borrowing base, as defined.
The revolving credit facility matures May 1, 2003. The outstanding loan balance
of $8,494,422 has been classified as a short-term liability in the Company's
balance sheet at July 31, 2002. The Company is negotiating with its current
lender and anticipates the loan and security agreement will be extended for a
longer period. At July 31, 2002, the Company was in compliance with its
financial covenants.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
Not applicable
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 99.1 -- Certification by the Principal Executive Officer of
SigmaTron International, Inc. Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
Exhibit 99.2 -- Certification by the Principal Financial Officer of
SigmaTron International, Inc. Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002(18 U.S.C. 1350).
(b) A report on Form 8-K (Item 4) reflecting Changes in Registrant's
Certifying Accountant dated October 31, 2001 was filed on November
7, 2001 and amended on Form 8-K/A No. 1 filed November 14, 2001 and
on Form 8-K/A No. 2 filed November 21, 2001.
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.
/s/ Gary R. Fairhead 9/12/02
- ------------------------------------------------ --------------------------
Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
/s/ Linda K. Blake 9/12/02
- ------------------------------------------------ --------------------------
Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
CERTIFICATIONS
I, Gary R. Fairhead, President and Chief Executive of SigmaTron
International, Inc., certify that;
1. I have reviewed this quarterly report on Form 10-Q of SigmaTron
International, Inc.:
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 12, 2002
/s/ Gary R. Fairhead
-------------------------------------------
Gary R. Fairhead
President and Chief Executive Officer of
SigmaTron International, Inc.
I, Linda K. Blake, Chief Financial Officer, Secretary and Treasurer of
SigmaTron International, Inc., certify that;
1. I have reviewed this quarterly report on Form 10-Q of SigmaTron
International, Inc.:
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 12, 2002
/s/ Linda K. Blake
-------------------------------------------
Linda K. Blake
Chief Financial Officer, Secretary and
Treasurer of SigmaTron International, Inc.