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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 January 31, 2000
Commission File Number 0-23248
SigmaTron International, Inc.
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<TABLE>
<S> <C>
(Exact Name of Registrant, as Specified in its Charter)
Delaware 36-3918470
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(State or other Jurisdiction of Incorporation or Organization) (I.R.S. Employer
Identification Number)
</TABLE>
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, 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 14, 2000 there were 2,881,227 shares of the Registrant's Common Stock
outstanding.
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SigmaTron International, Inc.
Index
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION: Page No.
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<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-January 31, 2000
and April 30, 1999 3
Consolidated Statements of Income-Nine
Months Ended January 31, 2000 and 1999 4
Consolidated Statements of Cash Flows-Nine
Months Ended January 31, 2000 and 1999 5
Notes to 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 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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SIGMATRON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 1999
(UNAUDITED)
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ASSETS
<S> <C> <C>
Current assets: $ 2,500 $ 280,071
Cash
Accounts receivable, less allowance for doubtful
accounts of $671,980 and $575,000 at January 31, 2000
and April 30, 1999, respectively 18,818,509 13,563,836
Inventories 17,786,982 16,240,502
Prepaid 702,716 498,675
Deferred income taxes 147,514 147,514
Receivable from insurance reimbursement - 2,453,235
Other receivables 268,765 1,013,982
Other assets 204,347 366,220
----------- -----------
Total current assets 37,931,333 34,564,035
=========== ===========
Machinery and equipment, net 13,301,735 13,434,789
Due from SMTU:
Investment and advances 701,732 448,545
Equipment receivable 4,204,038 4,201,823
Other receivable 1,316,298 1,511,372
Other assets 897,834 1,115,893
----------- -----------
Total assets $58,352,970 $55,276,457
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 8,769,525 8,003,377
Trade accounts payable - Related parties 1,276,327 1,256,000
Accrued expenses 1,617,500 1,721,932
Income tax payable 15,524 644,101
Capital lease obligations 1,822,890 2,271,693
----------- -----------
Total current liabilities 13,501,766 13,897,103
Notes payable - Bank, less current portion 20,713,405 17,382,681
Capital lease obligations, less current portion 2,158,549 3,538,721
Deferred Income taxes 1,157,460 1,157,460
----------- -----------
Total liabilities 37,531,180 35,975,965
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 per value; 500,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value; 8,000,000 shares
authorized, 2,881,227 shares issued and outstanding
at January 31, 2000 and April 30, 1999 28,812 28,812
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 11,356,424 9,835,126
----------- -----------
Total stockholders' equity 20,821,790 19,300,492
Total liabilities and stockholders' equity $58,352,970 $55,276,457
=========== ===========
</TABLE>
See accompanying notes.
3
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SigmaTron International, Inc.
Consolidated Statements Of Income
Unaudited
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
January 31, 2000 January 31, 1999 January 31, 2000 January 31, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 24,972,991 $ 23,019,878 $ 72,344,179 $ 64,584,094
Cost of products sold 23,146,272 21,171,334 65,054,631 58,661,723
------------ ------------ ------------ ------------
1,826,719 1,848,544 7,289,548 5,922,371
Selling and administrative expenses 1,411,479 1,484,456 4,493,107 4,078,296
------------ ------------ ------------ ------------
Operating income 415,240 364,088 2,796,441 1,844,075
Equity in net (income) loss of affiliate (178,200) (4,404) (253,187) 89,935
Interest expense - Banks and capital lease obligations 572,779 547,401 1,618,666 1,498,509
Interest income - Related parties (158,564) (148,094) (466,352) (448,836)
Gain on flood proceeds -- (436,948) - (436,948)
------------ ------------ ------------ ------------
Income before income tax expense and extraordinary item 179,225 406,133 1,897,314 1,141,415
Income tax expense (363,751) 162,456 288,484 456,578
------------ ------------ ------------ ------------
Income before extraordinary item 542,976 243,677 1,608,830 684,837
Extraordinary item - extinguishment of debt, net of
taxes of $58,333 - - 87,500 -
------------ ------------ ------------ ------------
Net income 542,976 243,677 1,521,330 684,837
============ ============ ============ ============
Net income per common share - basic $ 0.19 $ 0.08 $ 0.53 $ 0.24
============ ============ ============ ============
Net income per common share - diluted $ 0.19 $ 0.08 $ 0.53 $ 0.24
============ ============ ============ ============
Weighted average number of common shares
outstanding - basic 2,881,227 2,881,227 2,881,227 2,881,227
============ ============ ============ ============
Weighted average number of common shares
outstanding - diluted 2,883,921 2,881,227 2,881,227 2,881,227
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
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SIGMATRON INTERNATIONAL, INC.
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JANUARY 31,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,521,330 $ 684,837
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 1,341,703 1,116,472
Equity in net (income) loss of affiliate (253,187) 89,935
Provision for doubtful accounts 96,960 -
Provision for inventory obsolescence 50,000 250,000
Changes in operating assets and liabilities:
Accounts receivable (5,351,633) (9,719,674)
Inventories (1,596,480) (688,793)
Prepaid expenses (204,041) (751,815)
Other assets 1,318,012 (2,846,705)
Trade accounts payable 766,148 7,766,405
Trade accounts payable - related parties 20,327 (648,396)
Accrued expenses (104,432) (175,679)
Receivable from flood insurance proceeds 2,453,235 -
Income tax payable (628,577) 503,100
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Net cash used in operating activities (570,635) (4,420,313)
INVESTING ACTIVITIES:
Purchases of machinery and equipment (1,208,685) (2,021,098)
Proceeds from insurance advances - 5,500,000
Proceeds from gain on insurance - 563,318
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Net cash (used in) provided by investing activities (1,208,685) 4,042,220
FINANCING ACTIVITIES:
Net payments under capital lease obligations (1,828,975) (1,717,284)
Net proceeds under line of credit 3,330,724 1,857,124
----------- -----------
Net cash provided by financing activities 1,501,749 139,840
Change in cash (277,571) (238,253)
Cash at beginning of period 280,071 284,679
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Cash at end of period $ 2,500 $ 46,426
=========== ===========
</TABLE>
See accompanying notes.
5
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SigmaTron International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
January 31, 2000
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,
2000 are not necessarily indicative of the results that may be expected for the
year ending April 30, 2000. 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, 1999.
NOTE B - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
January 31, April 30,
2000 1999
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<S> <C> <C>
Finished products $ 2,096,213 $ 1,359,207
Work-in-process 1,451,251 1,709,482
Raw materials 14,239,518 13,171,813
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$17,786,982 $16,240,502
</TABLE>
NOTE C - SMT UNLIMITED L.P.
The Company owns approximately 42.5% of SMT Unlimited L.P. ("SMTU"), an
affiliate located in Fremont, California. At January 31, 2000 the Company has
amounts due from SMTU of approximately $6,222,000. SMTU was profitable for the
year ended April 30, 1999 and for the nine months ended January 31, 2000.
6
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NOTE D - LIGHTING COMPONENTS
The Company has an equity interest of 12% in Lighting Components L.P. The
Company has amounts due from Lighting Components of approximately $1,523,750 at
January 31, 2000. In prior periods the Company reduced the carrying value of its
investment in Lighting Components to approximately $975,000 in the accompanying
balance sheet at January 31, 2000. The Company has a security interest in
substantially all of Lighting Component's assets.
Lighting Components distributes a variety of electronic and molded plastic
components for use in the sign and lighting industries. Field trials for
Lighting Component's new product have been positive and the level of orders is
increasing, which is critical to a turnaround in its financial performance.
NOTE E - PATENTS AND TRADEMARKS
The Company generally does not produce its own proprietary products but
assembles custom products to the specifications of its customers. The Company
relies primarily upon the patents, confidential designs and proprietary know-how
of its customers and its own proprietary know-how in order to establish and
maintain its competitive advantage. The Company owns no patents or registered
trademarks. The Company relies on confidentiality agreements with its customers
and its employees as well as other incentives to its employees to maintain its
proprietary information. There can be no assurance that the steps taken by the
Company will be adequate to protect its proprietary rights or that a competitor
will not independently develop know-how or processes similar or superior to
those of the Company.
The Company has obtained a license from the Lemelson Medical, Education &
Research Foundation, Limited Partnership (Lemelson) to permit the Company to
continue to operate as it has in the past. The Company expensed in the third
fiscal quarter the initial license fee amount and will expense in subsequent
periods the balance of the license fee. The license fees over the life of the
agreement will not have a material impact on the Company's financial position.
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 continuing dependence on certain major customers; the Company's
ability to obtain financing; the availability and cost of components; the
anticipated seasonality of its business; the timing and re-scheduling of
customer orders for the Company and its affiliate 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 and cautionary note contained therein for the fiscal year
ended April 30, 1999. Any forward looking statements speak as of the date of
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -con't
this report and the Company makes 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 January 31, 2000 to
$24,972,991 from $23,019,878 for the three month period ended January 31, 1999.
The increase in net sales is primarily due to additional sales to some of the
Company's existing customers. 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. Historically,
the Company's highest level of sales are achieved in its second and third
quarters. During the first nine months of fiscal 2000 net sales increased by
10.7% to $72,344,179 from $64,584,094 compared to the same period in the prior
year. The increase in sales is the result of additional sales to existing
customers and new customers. In the Electronic Manufacturing Services industry
the sales level can be misleading as an indication of the Company's
profitability. Sales levels can fluctuate due to labor only orders compared to
turnkey orders. Turnkey orders require the Company to procure the necessary
components for assembly, which increases the selling price compared to labor
only services. A turnkey order may have a higher selling price but may not be as
profitable as a labor only order.
Gross profit decreased slightly during the three month period ended January 31,
2000 to $1,826,719, compared to $1,848,544 for the same period in the prior
fiscal year. For the nine month period ended January 31, 2000, gross profits
increased to $7,289,548 or 10.1% of net sales from $5,922,371 or 9.2% of net
sales. The variation in gross profit for the nine months ended January 31, 2000
is primarily related to the increase in net sales and product mix.
Selling and administrative expenses decreased to $1,411,479 or 5.7% of net sales
for the three month period ended January 31, 2000 compared to $1,484,456 or 6.5%
of net sales in the third quarter of fiscal 1999. Selling and administrative
expense for the nine month period ended January 31, 2000 increased to $4,493,107
from $4,078,296 for the same period in the prior fiscal year. The increase for
the nine month period is due to an increase in the allowance for doubtful
account reserve as well as the patent license expense and a bonus accrual.
Interest expense for bank debt and capital lease obligations for the three month
period ended January 31, 2000 was $572,779 compared to $547,401 for the same
period in the prior year. This increase is attributable to a higher outstanding
balance on the line of credit and a higher interest rate. For the nine month
period ended January 31, 2000 interest expense for bank and capital lease
obligations increased to $1,618,666 compared to $1,498,509 for the same period
in fiscal 1999. This increase was attributable to a higher outstanding balance
on the line of credit, a higher interest rate and interest expense for increased
capital lease obligations.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -con't
In the third quarter of fiscal 1999 a gain on flood proceeds of $563,000 was
recorded. This gain distorts the quarterly comparison for the third quarter of
the current fiscal year to fiscal 1999.
The reduction in income tax expense during the quarter ended January 31, 2000
was the result of the finalization of certain transfer pricing accounting.
During the nine month period ended January 31, 2000 an extraordinary item for
the early extinguishment of debt was recorded in the amount of $87,500, net of
taxes of $58,333.
As a result of the factors described above, basic and diluted earnings per share
for the third fiscal quarter of 2000 were $0.19 compared to $0.08 for the same
period in the prior year. For the first nine months of fiscal 2000 basic and
diluted earnings per share were $0.53 compared to $0.24 for the same period in
fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES:
For the nine months ended January 31, 2000 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 $570,635 for the nine
months ended January 31, 2000 compared $4,420,313 for the same period in the
prior year.
Net cash provided by financing activities was $1,501,749 for the nine month
period ended January 31, 2000 compared to $139,840 in the prior year. Net
proceeds under the line of credit increased to $3,330,724 for the nine months
ended January 31, 2000 from $1,857,124 for the nine months ended January 31,
1999.
YEAR 2000 COMPLIANCE:
The Company uses computer software programs and operating systems in its
internal operations, including information technology (IT) and non-IT systems.
To date the Company has incurred approximately $30,000 of expense in year 2000
compliance issues. The Company does not anticipate that current or future cost
related to the year 2000 issue will have a material impact on its financial
condition.
The Company relies on major distributors, suppliers, customers, vendors, and
financial service organizations which may not be year 2000 compliant. To date
neither the Company or outside service organizations has experienced any major
problems. Due to the general uncertainty
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -con't
inherent in the year 2000 readiness of third-parties the Company cannot ensure
reliance on third-parties will not affect its operations and business, or expose
it to third-party liability.
The foregoing is a year 2000 readiness disclosure entitled to protection as
provided in the Year 2000 Information and Disclosure Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS:
Not applicable
SIGMATRON INTERNATIONAL, INC.
PART II - OTHER INFORMATION
January 31, 2000
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 24, 1999, the Company held its 1999 Annual Meeting of Stockholders.
The following persons were elected as directors to hold office until the 2002
Annual Meeting of Stockholders: Gary R. Fairhead, Franklin D. Sove and Dilip S.
Vyas. The number of shares cast for, withheld and abstained with respect to each
of the nominees were as follows:
Nominee For Against Abstained
------- --- ------- ---------
Gary R. Fairhead 2,526,379 31,000 0
Franklin D. Sove 2,526,379 31,000 0
Dilip S. Vyas 2,526,379 31,000 0
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, 2000. 2,529,157 shares were cast for such selection, 16,622 shares
were cast against such selection, and 11,600 shares abstained.
10
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ITEM 5. OTHER INFORMATION
In the third quarter the Company entered into a license agreement with Lemelson,
which resolves the patent infringement claims
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data schedule (EDGAR version only)
(b) No report on Form 8-K was filed during the quarter ended January 31,
2000.
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 3/14/00
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Gary R. Fairhead Date
President and CEO (Principal Executive Officer)
/s/ Linda K. Blake 3/14/00
- ------------------------------------------------ ------------------
Linda K. Blake Date
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF 1/31/00 AND THE CONSOLIDATED EARNINGS FOR THE
QUARTER ENDED 1/31/00 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 2,500
<SECURITIES> 0
<RECEIVABLES> 19,490,469
<ALLOWANCES> 671,960
<INVENTORY> 17,786,982
<CURRENT-ASSETS> 37,931,333
<PP&E> 20,352,052
<DEPRECIATION> 7,050,316
<TOTAL-ASSETS> 58,352,970
<CURRENT-LIABILITIES> 13,501,766
<BONDS> 0
0
0
<COMMON> 28,812
<OTHER-SE> 20,792,978
<TOTAL-LIABILITY-AND-EQUITY> 20,821,790
<SALES> 24,972,991
<TOTAL-REVENUES> 24,972,991
<CGS> 23,146,272
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,411,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,015
<INCOME-PRETAX> 179,225
<INCOME-TAX> (363,751)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542,976
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
