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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 October 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 (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
- --------------------------------------------------------------------------------
(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 14, 1998, there were 2,881,227 shares of the Registrant's Common
Stock outstanding.
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SigmaTron International, Inc.
Index
PART 1. FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets--October 31, 1998
and April 30, 1998 3
Condensed Consolidated Statements of Income--
Six Months Ended October 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows--Six Months
Ended October 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 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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SIGMATRON INTERNATIONAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31, April 30,
1998 1998
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 78,512 $ 284,679
Accounts receivable 15,790,427 11,977,973
Inventories 20,722,076 18,972,587
Prepaid expenses 1,189,471 418,464
Deferred income taxes 218,788 218,788
Other assets 393,046 331,461
------------ -----------
Total current assets 38,392,320 32,203,952
Machinery and equipment, net 11,424,186 11,249,550
Due from SMTU:
Investment and advances 216,761 311,107
Equipment lease receivables 3,368,011 3,207,691
Other receivables 1,074,781 650,695
------------ -----------
4,659,553 4,169,493
Other assets 1,452,055 1,018,211
------------ -----------
Total assets $ 55,928,114 $48,641,206
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Banks 27,774 111,108
Trade accounts payable 11,767,940 6,751,886
Trade accounts payable - Related Parties 499,410 915,475
Accrued expenses 1,429,561 1,575,434
Income tax payable 400,644 60,025
Capital lease obligations 2,200,484 2,081,338
------------ -----------
Total current liabilities 16,325,813 11,495,266
Notes payable - Banks , less current portion 17,783,242 15,177,695
Capital lease obligations, less current portion 3,014,447 3,604,793
Deferred income taxes 760,061 760,061
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 out 28,812 28,812
at October 31, 1998 and April 30, 1998
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 8,579,185 8,138,025
------------ -----------
Total stockholders' equity 18,044,551 17,603,391
Total liabilities and stockholders' equity $ 55,928,114 $48,641,206
============ ===========
</TABLE>
See accompanying notes
3
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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, 1998 October 31, 1997 October 31 1998 October 31, 1997
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $23,036,784 $26,746,874 $41,564,216 $42,902,192
Cost of products sold 20,821,519 23,376,367 37,490,389 38,647,382
----------- ----------- ----------- -----------
2,415,265 2,370,507 4,073,827 4,254,810
Selling and administrative expenses 1,339,574 1,516,859 25,893,828 2,772,046
----------- ----------- ----------- -----------
Operating income 1,075,691 853,648 1,479,999 1,482,764
Equity in net loss of affiliate 69,957 15,904 94,346 11,422
Interest expense - banks and capital lease obligations 477,588 504,612 551,108 913,403
Interest expense - related party -- -- -- 523
Interest income - related party (162,819) (117,452) (300,773) (213,780)
----------- ----------- ----------- -----------
314,769 387,160 650,335 700,146
Income before income taxes 697,666 450,584 735,318 771,196
Income taxes 279,032 180,234 294,158 309,504
----------- ----------- ----------- -----------
Net income $ 418,533 270,350 441,160 $ 461,692
=========== =========== =========== ===========
Net income per common share - basic $ 0.15 $ 0.09 $ 0.15 $ 0.16
=========== =========== =========== ===========
Weighted average number of common
shares outstanding - basic 2,881,227 2,881,227 2,881,227 2,881,227
=========== =========== =========== ===========
Net income per common share - diluted $ 0.15 $ 0.09 $ 0.15 $ 0.15
=========== =========== =========== ===========
Weighted average number of common shares and
common equivalent shares outstanding - diluted 2,881,227 3,028,099 2,881,227 3,029,980
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
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SIGMATRON INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 31,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 441,160 $ 461,692
Adjustments to reconcile net income
to net cash (used in) operating activities:
Depreciation 696,218 604,709
Equity in net loss of affiliate 94,346 11,422
Amortization -- 10,942
Provision for doubtful accounts -- 90,000
Changes in operating assets and liabilities:
Accounts receivable (3,812,454) (7,404,496)
Inventories (1,749,489 9,929
Prepaid expenses (771,007) (209,162)
Other assets (919,515) (1,309,415)
Trade accounts payable 5,016,054 4,233,585
Trade accounts payable - related parties (416,065) (297,744)
Accrued expenses (145,873) 46,118
Income tax payable 340,619 33,086
----------- -----------
Net cash(used in) operating activities (1,226,006) (3,719,334)
INVESTING ACTIVITIES:
Purchases of machinery and equipment (430,381) (528,046)
Proceeds from sale and leaseback of machinery
and equipment -- (1,429,899)
Proceeds from affiliate subleases -- 263,999
Net cash used in investing activities (430,381) 1,165,852
FINANCING ACTIVITIES:
Repayment of term loan and other notes payable -- (42,596)
Net payments under capital lease obligations (1,071,993) (712,988)
Issuance of common stock -- 42,000
Net proceeds under line of credit 2,522,213 3,136,506
----------- -----------
Net cash provided by financing activities 1,450,220 2,422,922
Change in cash (206,167) (130,560)
Cash at beginning of period 284,679 323,223
----------- -----------
Cash at end of period $ 78,512 $ 192,663
=========== ===========
</TABLE>
See accompanying notes.
5
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SigmaTron International, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 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 six-month period ended October 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending April 30, 1999. 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, 1998.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
October 31, April 30,
1998 1998
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<S> <C> <C>
Finished products $ 2,721,300 $ 3,292,442
Work-in-process 1,284,743 1,887,517
Raw materials 16,716,033 13,792,628
----------- -----------
$20,722,076 $18,972,587
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</TABLE>
NOTE C -- FLOOD DAMAGE IN DEL RIO, TEXAS AND ACUNA, MEXICO
In late August the Company's warehousing operation in Del Rio, Texas and one of
its manufacturing operations in Acuna, Mexico were significantly damaged by a
flash flood. The Company has expedited replacement machinery and equipment and
inventory to its damaged facilities. The Company has made significant progress
in its recovery from the flash flood. Most of the damaged equipment used in the
manufacturing process was replaced with new or upgraded equipment. The
manufacturing operation in Acuna is running at pre-flood levels and all raw
material issues have been resolved.
6
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The Company's management believes the losses related to the flood damage are
substantially covered by its general insurance, including business interruption
coverage. The results for the quarter ended October 31, 1998 include expenses
and a reduction in revenues that management believes will be covered by
insurance. However, in the interest of being conservative, nothing will be
recorded until the loss is settled with the insurance companies. The Company
believes the final settlement will not have a negative impact on the income
statement or balance sheet. The Company will continue to work closely with its
insurance adjusters and insurance companies.
NOTE D -- EQUIPMENT LEASE - SUBSEQUENT EVENT
In November 1998, the Company entered into a financing agreement to lease
approximately $1,091,000 of machinery and equipment. The lease has a term of
three years and requires monthly payments of $34,024. The Company has the option
to purchase the machinery and equipment at the end of the lease for $1.
NOTE E -- SMT UNLIMITED AND LIGHTING COMPONENTS
The Company has amounts due from SMT Unlimited and Lighting Components of
$4,442,792 and $676,288 respectively, at October 31, 1998. The Company has an
equity interest of 42.5% and 12% in SMT Unlimited and Lighting Components,
respectively.
At April 30, 1998 the Company recorded a write down of $360,000 related to the
investment in Lighting Components. To date the Company has not recorded any
additional losses on the past due amounts owed by Lighting Components.
Management does not believe any additional losses should be recorded at October
31, 1998. However, if Lighting Components fails to make progress and management
believes the past due amounts are not recoverable at the end of fiscal year 1999
the Company may recognize additional losses.
While management of SMT Unlimited expects sales to increase in fiscal 1999 and
also expects these sales will lead to overall profitability, it is possible
management's efforts will not be successful. At fiscal year end, April 30, 1999
the Company will review SMT Unlimited's progress and determine if the amounts
past due are recoverable.
NOTE 5 -- EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the
previously reported 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
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
NOTE: To the extent any statements in this quarterly report 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 extent of
the damage to the Company's facilities in Texas and Mexico, the timing and cost
of repairs to the damaged facilities, the receipt of adequate insurance
coverage, and the availability and utilization of sufficient production
alternatives, occasioned by the flood at the Company's Acuna, Mexico location;
the Company's continuing dependence on certain major customers; the availability
and cost of components; the anticipated seasonality of its business; the timing
and rescheduling of customer orders for SigmaTron International, Inc. and SMT
Unlimited and other risks and uncertainties set forth in the Company's periodic
reports filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS:
Net sales decreased for the three month period ended October 31, 1998 to
$23,036,784 from $25,746,874 for the three month period ended October 31, 1997.
The Company has continued to expedite equipment and inventory to its Texas and
Mexico facilities which were hit by a flood in late August. The Company's
damaged operations were primarily operating at pre-flood levels by the end of
the second fiscal quarter of 1999. However, the results for the quarter ended
October 31, 1998 include expenses and a reduction in revenues related to the
flood that management believes will be covered by insurance. During the first
six months of fiscal 1999 net sales decreased to $41,564,216 from $42,902,192
compared to the same period in the prior year. Historically, the Company's first
and fourth quarters have been the weakest periods. The timing and rescheduling
of orders has caused the Company to experience significant quarterly
fluctuations in its revenue and earnings and the Company expects such
fluctuations to continue.
Gross profit increased during the three month period ended October 31, 1998 to
$2,415,265, or 10.5% of net sales, compared to $2,370,507 for the same period of
the prior fiscal year. For the six month period ended October 31, 1998, gross
profit decreased from $4,254,810, or 9.9% of net sales, to $4,073,827 or 9.8% of
net sales. The variation in gross profit for the six months ended October 31,
1998 is primarily related to product mix.
Selling and administrative expenses decreased to $1,339,574 or 5.8% of net sales
for the three month period ended October 31, 1998 compared to $1,516,859 or 5.9%
of net sales in the second quarter of fiscal 1998. Selling and administrative
expense for the six month period ended October 31, 1998 decreased as a percent
of net sales to 6.2% from 6.5% for the same
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -con't
period in the prior fiscal year. This decrease is due to a reduction in other
professional fees and commission expense.
Interest expense for bank debt and capital lease obligations for the three month
period ended October 31, 1998 was $477,588 compared to $504,612 for the same
period in the prior year. The decrease is primarily attributable to a lower
outstanding balance on the line of credit. For the six month period ended
October 31, 1998 interest expense for bank and capital lease obligations
increased to $951,108 compared to $913,403 for the same period in fiscal 1998.
This increase was attributable to a higher outstanding balance on the line of
credit and interest expense for increased capital lease obligations.
As a result of the factors above, net income increased to $418,533 for the three
month period ended October 31, 1998 from $270,350 for the same period in the
prior year. Basic earnings per share for the second fiscal quarter of 1999 were
$0.15 compared to $0.09 for the same period in the prior year. For the first six
months of fiscal 1999 net income decreased to $441,160 compared to $461,692 for
the same period in the prior year. Basic earnings per share for the six month
period ended October 31, 1998 were $0.15 compared to $0.16 for the same period
in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES:
For the six months ended October 31, 1998 the primary source of liquidity was
cash provided by borrowings from the Company's secured lender and net income
from operations. The net cash used in operations was $1,226,006 for the six
months ended October 31, 1998 compared to net cash used for operations of
$3,719,334 for the same period in the prior year.
Net cash provided by financing activities was $1,450,220 for the six month
period ended October 31, 1998 compared to $2,422,922 in the prior year. Net
proceeds under the line of credit decreased to $2,522,233 for the six months
ended October 31, 1998 from $3,136,506 for the six months ended October 31,
1997.
To the extent that the Company provides funds for salaries, wages, overhead and
capital expenditure items 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, total
approximately $3,300,000 for a typical six month period. The Company provides
funding in U.S. dollars, which are exchanged to pesos as needed.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -con't
YEAR 2000 COMPLIANCE:
The Company has formed a committee of executive officers and others to examine
Year 2000 compliance issues. The scope of the program is focused on the
Company's primary business applications. The Company is in the process of
executing a strategy to evaluate and enhance its information technology systems.
In addition, the Company is reviewing other systems including production
equipment, to determine possible risk. Based on assurances received to date
provided by vendors, the Company does not believe significant modifications to
production equipment or information systems will be required. However, the
Company cannot verify assurances it has been provided by third parties.
The Company has implemented a review process to ensure that the delivery of raw
material and services will not be disrupted due to non-compliance by a key third
party supplier. Initial communication with these suppliers have been favorable.
However, non-compliance by any key supplier could have an adverse effect on the
Company and its results of operations or financial condition.
In addition, the Company cannot anticipate if a significant portion of its key
customers will be Year 2000 compliant. The Company's customers inability to
process timely payments could have an adverse effect on the Company's cash flow
and liquidity.
Based on its internal review the Company does not anticipate that current or
future costs related to the Year 2000 issue will have a material impact on its
financial condition. The Company intends to develop a contingency plan which
will be implemented in the event of any problems.
The foregoing is a Year 2000 readiness disclosure entitled to protection as
provided in the Year 2000 Information and Readiness Disclosure Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS -
Not applicable
10
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PART II - OTHER INFORMATION
October 31, 1998
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 18, 1998, the Company held its 1998 Annual Meeting of Stockholders.
The following persons were elected as directors to hold office until the 2001
Annual Meeting of Stockholders: John P. Chen and D.S. Patel. The number of
shares cast for, withheld and abstained with respect to each of the nominees
were as follows:
Nominee For Against Abstained
------- --- ------- ---------
John P. Chen 2,762,868 52,020 --
D.S. Patel 2,762,868 52,020 --
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, 1999. 2,783,423 shares were cast for such selection, 16,300 shares
were cast against such selection, and 15,165 shares abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (EDGAR version only)
(b) No reports on Form 8-K were filed during the quarter ended October 31,
1998
11
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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 12/15/98
- ------------------------------------------------- --------------------
Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
/s/ Linda K. Blake 12/15/98
- ------------------------------------------------- --------------------
Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF 10/31/98 AND THE CONSOLIDATED EARNINGS FOR THE
QUARTER ENDED 10/31/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 78,512
<SECURITIES> 0
<RECEIVABLES> 15,790,427
<ALLOWANCES> 0
<INVENTORY> 20,722,076
<CURRENT-ASSETS> 38,392,320
<PP&E> 16,928,005
<DEPRECIATION> 5,503,819
<TOTAL-ASSETS> 55,928,114
<CURRENT-LIABILITIES> 16,325,813
<BONDS> 0
0
0
<COMMON> 28,812
<OTHER-SE> 18,015,739
<TOTAL-LIABILITY-AND-EQUITY> 55,928,114
<SALES> 23,036,784
<TOTAL-REVENUES> 23,036,784
<CGS> 20,621,519
<TOTAL-COSTS> 21,961,903
<OTHER-EXPENSES> 63,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314,769
<INCOME-PRETAX> 697,565
<INCOME-TAX> 279,032
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 418,533
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
