UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
FORM 10-K
(Mark
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
| | |
| þ | | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the fiscal year ended April 30, 2007.
2009.
Or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
| | |
| o | | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the transition period from ___________ to ___________.
.
Commission file number 0-23248
SIGMATRON INTERNATIONAL, INC.
(Exact (Exact name of registrant as specified in its charter)
| | |
| Delaware | | 36-3918470
(State |
| | |
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) | | (I.R.S. Employer
Identification Number) |
| | |
| 2201 Landmeier Rd., Elk Grove Village, IL | | 60007
(Address |
| | |
(Address of principal executive offices) (Zip | | (Zip Code) |
Registrant'sRegistrant’s telephone number, including area code: 847-956-8000
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.01 par value per share
Title of each class
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ]o Yes [X]þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ]o Yes [X]þ No
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. [X]þ Yes [ ]o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant'sRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company. See definition of "accelerated
filer"“accelerated filer” “large accelerated filer” and "large accelerated filer"“smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]
Act.
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o
(Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act.)
[ ]o Yes
[X]þ No
The aggregate market value of the voting common equity held by non-affiliates of the registrant as of October 31, 20062008 (the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter) was $36,317,729$10,320,226 based on the closing sale price of $9.57$3.34 per share as reported by Nasdaq Capital Market as of such date.
The number of outstanding shares of the registrant'sregistrant’s Common Stock, as of July 13, 2007,2009, was 3,794,956.
3,822,556.
DOCUMENTS INCORPORATED BY REFERENCE
Those
Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in connection with its
20072009 annual meeting of stockholders, which
will be filedthe Company intends to file within 120 days of the fiscal year ended April 30,
2007,2009, are incorporated by reference into Part III of this Form 10-K.
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PART 1
ITEM 1. BUSINESS
CAUTIONARY NOTE:
In addition to historical financial information, this discussion of the business of SigmaTron International, Inc., its wholly ownedwholly-owned subsidiaries Standard Components de Mexico S.A., and AbleMex S.A. de C.V., acquired in July
2005,SigmaTron International Trading Co., and its wholly ownedwholly-owned foreign enterprise Wujiang SigmaTron Electronics Co., Ltd. ("(“SigmaTron China"China”), and its procurement branch SigmaTron Taiwan (collectively the "Company"“Company”) and other itemsItems in this Annual Report on Form 10-K contain forward-looking statements concerning the Company'sCompany’s business or results of operations. Words such as "continue," "anticipate," "will," "expects,"
"believe," "plans,"“continue,” “anticipate,” “will,” “expect,” “believe,” “plan,” and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of SigmaTron (including its subsidiaries).the Company. Because these forward-looking statements involve risks and uncertainties, the Company'sCompany’s plans, actions and actual results could differ materially. Such statements should be evaluated in the context of the risks and uncertainties inherent in the Company'sCompany’s business including ourthe Company’s continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; pricing pressures from our customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of our operating results; the results of long-lived assets impairment testing; the variability of our customers'customers’ requirements; the availability and cost of necessary components and materials; the Company's ability to continue to produce products that are in
compliance with the European Standard of "Restriction of Use of Hazardous
Substance ("RoHS"); the ability of the Company and our customers to keep current with technological changes within our industries; regulatory compliance; the continued availability and sufficiency of our credit arrangements; changes in U.S., Mexican, Chinese or Taiwanese regulations affecting the Company'sCompany’s business; the continuedcurrent turmoil in the global economy and financial markets; the stability of the U.S., Mexican, Chinese and Taiwanese economic systems, labor and political conditions; currency exchange fluctuations; and the ability of the Company to manage its growth, including its expansion into China and its integration of
the operation of Able Electronics Corp. ("Able") acquired in July 2005.growth. These and other factors which may affect the Company'sCompany’s future business and results of operations are identified throughout the Company'sCompany’s Annual Report on Form 10-K and as risk factors and may be detailed from time to time in the Company'sCompany’s filings with the Securities and Exchange Commission. These statements speak as of the date of this report,such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise.
OVERVIEWotherwise unless otherwise required by law.
Overview
The Company operates in one business segment as an independent provider of electronic manufacturing services ("EMS"(“EMS”), which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) design, manufacturing and test engineering support; (4) warehousing and shipment services; and (5) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China and Taiwan.
The Company provides manufacturing and assembly services ranging from the assembly of individual components to the assembly and testing of box-build electronic products. The Company has the ability to produce assemblies requiring mechanical as well as electronic capabilities. The products assembled by the Company are then incorporated into finished products sold in various industries, particularly appliance, consumer electronics, gaming, fitness, industrial electronics, life sciences, semiconductor, telecommunications and automotive.
During August and September 2004 the Company acquired all the interests of
the outside investors in its affiliate, SMT Unlimited L.P. ("SMTU"), and the
general partner of SMTU, SMT Unlimited, Inc. On
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October 1, 2004, SMT Unlimited, Inc. was liquidated and on November 1, 2004 SMT
Unlimited, Inc. was merged into the Company, resulting in SMTU becoming an
operating division of the Company. Prior to the acquisition by the Company, SMTU
was consolidated under FASB Interpretation No. 46 ("FIN 46R") Consolidation of
Variable Interest Entities.
In July 2005 the Company closed on the purchase of all of the outstanding
stock of Able, a company headquartered in Hayward, California, and its wholly
owned subsidiary, AbleMex S.A. de C.V., located in Tijuana, Mexico. Able is an
ISO 9001:2000 certified EMS company serving Original Equipment Manufacturers
("OEMs") in the life sciences, telecommunications and industrial electronics
industries. The acquisition of Able has allowed the Company to make strides
towards achieving four objectives: (1) diversify markets, capabilities and
customer base, (2) adding a third low-cost manufacturing facility (Tijuana,
Mexico), (3) creating an opportunity to consolidate the California operations
into one facility, and (4) generating incremental revenue from Able's customers
as they become familiar with the Company's broader array of services. The
effective date of the transaction was July 1, 2005. Able was merged into the
Company on November 1, 2005 and operates as a division of the Company. The
purchase price was approximately $16,800,000 and was recorded as a stock
purchase transaction in the first quarter of fiscal year 2006. The transaction
was financed by the Company's amended credit facility and resulted in an
increase of approximately $8,500,000 in goodwill.
In June 2005 the Company closed on the sale of its Las Vegas, Nevada
operation. The Las Vegas facility operated as a complete EMS center specializing
in the assembly of electronic products and cables for a broad range of customers
primarily in the gaming industry. The effective date of the transaction was May
30, 2005. The transaction was structured as an asset purchase, and included a
$2,000,000 cash payment to the Company for the buyer's purchase of the
machinery, equipment and other assets of the Las Vegas operation. The
transaction was recorded by the Company in the first quarter of fiscal year 2006
and included a gain on the transaction of approximately $311,000. The gain was
offset by a loss of approximately $383,000 from discontinued operations for the
Las Vegas operation for the period ended April 30, 2006. The Company operates manufacturing facilities in Elk Grove Village, Illinois; Hayward, California; Acuna and Tijuana, Mexico; and Wujiang,Suzhou-Wujiang, China. The Company maintains materials sourcing offices
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in Elk Grove Village, Illinois; Hayward, California; and Taipei, Taiwan. The Company provides warehousing
servicesalso has a warehouse in Del Rio, Texas and Huntsville, Alabama.Texas.
The Company is a Delaware corporation, which was organized on November 16, 1993, and commenced operations when it became the successor to all of the assets and liabilities of SigmaTron L.P., an Illinois limited partnership, through a reorganization on February 8, 1994.
PRODUCTS AND SERVICES
Products and Services
The Company provides a broad range of manufacturing related outsourcing solutions for its customers on both a turnkey basis (material purchased by the Company) and consignment basis (material provided by the customer). These solutions incorporate the Company'sCompany’s knowledge and expertise in the EMS industry to provide its customers with advanced manufacturing technologies and high quality, responsive and flexible manufacturing services. The Company'sCompany’s EMS solutions provide services from product inception through the ultimate delivery of a finished good. Such technologies and services include the following:
Supply Chain Management.Management. The Company is primarily a turnkey manufacturer and directly sources all, or a substantial portion, of the components necessary for its product assemblies, rather than receiving the raw materials from its customers on consignment. Turnkey services involve a greater investment in resources and an increased inventory risk compared to consignment services. Supply chain management includes the purchasing, management, storage and delivery of raw components required for the manufacture or assembly of a
customer'scustomer’s product based upon the
customer'scustomer’s orders. The Company procures components from a select group of vendors which meet its standards for timely delivery, high quality and cost effectiveness, or as directed by its customers. Raw materials used in the assembly and manufacture of printed circuit boards and electronic assemblies are generally available from several suppliers, unless restricted by the customer. The Company does not enter into purchase agreements with the majority of its major or single-source suppliers.
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The Company believes ad-hoc negotiations with its suppliers provides the flexibility needed to source inventory based on the needs of its customers. The Company believes that its ability to source and procure competitively priced, quality components is critical to its ability to effectively compete. In addition to obtaining materials in North America, the Company uses its Taiwanese procurement office and agents to source materials from the Far East. The Company believes this office allows it to more effectively manage its relationships with key suppliers in the Far East by permitting it to respond more quickly to changes in market dynamics, including fluctuations in price, availability and quality.
Assembly and Manufacturing.Manufacturing. The Company'sCompany’s core business is the assembly of printed circuit boardsboard assemblies through the automated and manual insertion of components on toonto raw printed circuit boards. The Company offers its assembly services using both pin-through-hole ("PTH"(“PTH”) and surface mount ("SMT"(“SMT”) interconnect technologies at all of its manufacturing locations. SMT is an assembly process which allows the placement of a higher density of components directly on both sides of a printed circuit board. The SMT process is an advancement over the mature PTH technology, which normally permits electronic components to be attached to only one side of a printed circuit board by inserting the component into holes drilled through the board. The SMT process allows OEMs to useOriginal Equipment Manufacturers (“OEMs”) advanced circuitry, while at the same time permitting the placement of a greater number of components on a printed circuit board without having to increase the size of the board. By allowing increasingly complex circuits to be packaged with the components in closer proximity to each other, SMT greatly enhances circuit processing speed, and, thus, board and system performance.
The Company performs PTH assembly both manually and with automated component insertion and soldering equipment. Although SMT is a more sophisticated interconnect technology, the Company intends to continue providing PTH assembly services for its customers as the Company'sCompany’s customers continue to require both PTH and SMT capabilities. The Company is also capable of assembling fine pitch and ball grid array ("BGA"(“BGA”) components. BGA is used for more complex circuit boards required to perform at higher speeds.
Manufacturing and Related Services.Services. The Company offers RoHS compliantrestriction of hazardous substances (“RoHS”) assembly services in order to complycompliance with the European Union environmental mandate that became effective 2006 and is currently performing RoHS compliant
assembly services at each of its
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manufacturing locations. The Company also provides quick turnaround, turnkey prototype services at all of its locations. In Elk Grove Village, the Company offers touch screen / LCD assembly services in a clean room environment. In Acuna, Mexico, the Company offers parylene coating services. In Tijuana, Mexico, the Company offers diagnostic, repair and rework services for power supplies. In all locations, the Company offers box-build services, which integrate its printed circuit board and other manufacturing and assembly technologies into higher level sub-assemblies and end products.
Finally, the Company designs and manufactures DC to AC inverters.
Product Testing.Testing. The Company has the ability to perform both in-circuit and functional testing of its assemblies and finished products. In-circuit testing verifies that the correct components have been properly inserted and that the electrical circuits are complete. Functional testing determines if a board or system assembly is performing to customer specifications. The Company seeks to provide customers with highly sophisticated testing services that are at the forefront of current test technology.
Warehousing and Distribution.Distribution. In response to the needs of select customers, the Company has the ability to provide in-house warehousing, shipping and receiving and customer brokerage services in Del Rio, Texas for goods manufactured or assembled in Acuna, Mexico. The Company also has the ability to provide custom-tailored delivery schedules and services to fulfill the just-in-time inventory needs of its customers.
MARKETS AND CUSTOMERS
Markets and Customers
The
Company'sCompany’s customers are in the appliance, gaming, industrial electronics, fitness, life sciences, semiconductor, telecommunications, consumer electronics and automotive industries. As of April 30,
2007,2009, the Company had approximately
140105 active customers ranging from Fortune 500 companies to small, privately held enterprises.
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The following table shows, for the periods indicated, the percentage of net sales to the principal end-user markets it serves.
PERCENT OF NET SALES
------------------------
TYPICAL FISCAL FISCAL FISCAL
MARKETS OEM APPLICATION 2005 2006 2007
- ------- --------------- ------ ------ ------
Appliances Household appliance controls 37.1% 37.6% 37.6%
Industrial Electronics Motor controls, power supplies 15.6 18.8 23.9
Fitness Treadmills, exercise bikes 18.5 20.0 16.7
Telecommunications Routers 10.0 11.1 6.3
Gaming Slot machines, lighting displays 11.6 2.3 5.7
Life Sciences Clinical diagnostic systems and instruments -- 5.0 4.2
Semiconductor Equipment Process control and yield management
solutions for semiconductor productions -- 3.9 4.1
Consumer Electronics Carbon monoxide alarms, sprinkler systems,
battery backup sump pumps 6.4 1.1 0.8
Automotive Automobile interior lighting 0.8 0.2 0.7
--- --- ---
Total 100% 100% 100%
=== === ===
| | | | | | | | | | | |
| | | | | Percent of Net Sales |
| | | Typical | | Fiscal | | Fiscal |
| Markets | | OEM Application | | 2008 | | 2009 |
| Appliances | | Household appliance controls | | | 35.8 | % | | | 40.9 | % |
| Industrial Electronics | | Motor controls, power supplies | | | 27.3 | | | | 27.0 | |
| Fitness | | Treadmills, exercise bikes, cross trainers | | | 20.6 | | | | 18.2 | |
| Telecommunications | | Routers | | | 6.1 | | | | 6.5 | |
| Gaming | | Slot machines, lighting displays | | | 2.9 | | | | 2.4 | |
| Life Sciences | | Clinical diagnostic systems and instruments | | | 3.7 | | | | 1.7 | |
| Semiconductor Equipment | | Process control and yield management equipment for semiconductor productions | | | 2.6 | | | | 2.2 | |
| Consumer Electronics | | Battery backup sump pumps, electric bikes | | | 0.7 | | | | 1.0 | |
| Automotive | | Automobile lighting | | | 0.3 | | | | 0.1 | |
| | | | | | | | | | | |
| Total | | | | | 100 | % | | | 100 | % |
| | | | | | | | | | | |
For the fiscal year ended April 30, 2007,2009, Spitfire Controls, Inc. and Life Fitness accounted for 24.8%27.5% and 16.9%18.2%, respectively, of the Company'sCompany’s net sales. For the fiscal year ended April 30, 2006,2008, Spitfire Controls, Inc. and Life Fitness accounted for 30.1%23.0% and 19.7%20.6%, respectively, of the Company'sCompany’s net sales.
For the fiscal year ended April 30, 2005, Spitfire Controls, Inc. and Life
Fitness accounted for 31.5% and 17.5%, respectively, of the Company's net sales.
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Although the Company does not have long term contracts with these two customers, the Company expects that these customers will continue to account for a significant percentage of the Company'sCompany’s net sales, although the individual percentages may vary from period to period.
SALES AND MARKETING
Sales and Marketing
The Company markets its services through 1113 independent manufacturers'manufacturers’ representative organizations that together currently employ approximately 3736 sales personnel in the United States and Canada. Independent manufacturers'manufacturers’ representative organizations receive variable commissions based on orders received by the Company and are assigned specific accounts, not territories. The members of the Company'sCompany’s senior management are actively involved in sales and marketing efforts, and the Company has 5 direct sales employees.
Sales can be a misleading indicator of the
Company'sCompany’s financial performance. Sales levels can vary considerably among customers and products depending on the type of services (consignment and turnkey) rendered by the Company and the demand by customers. Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit. In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly. Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold. Variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the
Company'sCompany’s revenue levels. However, the Company does not believe that such variations are a meaningful indicator of the
Company'sCompany’s gross
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margins. Consignment orders accounted for less than 5% of the Company'sCompany’s revenues for each of the fiscal yearyears ended April 30, 2007.2009 and 2008. In the past, the timing and rescheduling of orders has caused the Company to experience significant quarterly fluctuations in its revenue and earnings; such fluctuations may continue.
MEXICO AND CHINA OPERATIONS
Mexico and China Operations
The Company'sCompany’s wholly-owned subsidiary, Standard Components de Mexico, S.A, a Mexican corporation, is located in Acuna, Coahuila Mexico, a border town across the Rio Grande River from Del Rio, Texas, and is 155 miles west of San Antonio. Standard Components de Mexico, S.A. was incorporated and commenced operation in 1968. The Company's wholly ownedCompany’s wholly-owned subsidiary, AbleMex S.A. de C.V., a Mexican corporation, is located in Tijuana, Baja California Mexico, a border town south of San Diego, California. AbleMex S.A. de C.V. was incorporated and commenced operations in 2000. The Company believes that one of the key benefits to having operations in Mexico is its access to cost-effective labor resources while having geographic proximity to the United States.
The Company provides funds for salaries, wages, overhead and capital
expenditure items as necessary to operate its wholly-owned Mexican and Chinese
subsidiaries. The Company provides funding to its Mexican and Chinese
subsidiaries in U.S. dollars, which are exchanged for pesos and RMB as needed.
The fluctuation of currencies from time to time, without an equal or greater
increase in inflation, has not had a material impact on the financial results of
the Company. In fiscal year 2007 the Company paid approximately $19,400,000 to
its subsidiaries for services provided.
In May 2002 the Company acquired a plant in Acuna, 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 acquiring that plant, the Company rented the facility. At April
30, 2007, approximately $531,500 was outstanding in connection with the
financing of that facility.
The Company'sCompany’s wholly-owned foreign enterprise, Wujiang SigmaTron ChinaElectronics Co., Ltd., is located in Wujiang, China. Wujiang is located approximately 15 miles south of Suzhou, China and 60 miles west of Shanghai, China. The Company has entered into an agreement with governmental authorities in the economic development zone of Wujiang, Jiangsu Province, Peoples Republic of China, pursuant to which the Company became the lessee of a parcel of land of approximately 100 Chinese acres. The term of the land lease is 50 years
(Footnote J, contingencies).years. The Company built a manufacturing plant, office space and dormitories on this site during 2004. The manufacturing plant and office space is approximately 80,000 square feet, which can be expanded if conditions require. The Company decided to postpone the planned expansion of the China facility announced in July 2008 in response to the current economic conditions. SigmaTron China operates at this site as the Company'sCompany’s wholly-owned foreign enterprise. At April 30, 2007,2009, this operation had 213207 employees.
COMPETITION
The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican and Chinese subsidiaries and the Taiwan procurement branch. The Company provides funding in U.S. dollars, which are exchanged for Pesos, Renminbi, and New Taiwan dollars as needed. The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company. The impact of currency fluctuation for
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the fiscal year ended April 30, 2009 resulted in approximately $135,000 in income. In fiscal year 2009, the Company’s U.S. operations paid approximately $15,100,000 to its foreign subsidiaries for services provided.
Competition
The EMS industry is highly competitive and subject to rapid change. Furthermore, both large and small companies compete in the industry, and many have significantly greater financial resources, more extensive business experience and greater marketing and production capabilities than the Company. The significant competitive factors in this industry include price, quality, service, timeliness, reliability, the ability to source raw components, and manufacturing and technological capabilities. The Company believes it can competitively provideaddress all of these services.factors.
In addition, the Company may be operating at a cost disadvantage compared to manufacturers who have greater direct buying power with component suppliers or who have lower cost structures. Current and prospective customers continually evaluate the merits of manufacturing products internally and will from time to time offer manufacturing services to third parties in order to utilize excess capacity. During downturns in the electronics industry, OEMs may become more price sensitive.
There can be no assurance that competition from existing or potential competitors will not have a material adverse impact on the
Company'sCompany’s business, financial condition or results of operations. The
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introduction of lower priced competitive products, significant price reductions by the Company'sCompany’s competitors or significant pricing pressures from its customers could adversely affect the Company'sCompany’s business, financial condition, and results of operations, as would the introduction of new technologies which render the Company'sCompany’s manufacturing process technology less competitive or obsolete.
CONSOLIDATIONConsolidation
The consolidated financial statements include the accounts and transactions of the Company, its wholly-owned subsidiaries, Standard Components de Mexico, S.A. and AbleMex S.A. de C.V., SigmaTron International Trading Co., its wholly-owned foreign enterprise Wujiang SigmaTron Electronics Co., Ltd. and its procurement branch, SigmaTron Taiwan. The functional currency of the Mexican subsidiaries, Chinese foreign enterprise and Taiwanese procurement branch is the U.S. dollar.
As a result of consolidation and other transactions involving competitors and other companies in the Company'sCompany’s markets, the Company occasionally reviews potential transactions relating to its business, products and technologies. Such transactions could include mergers, acquisitions, strategic alliances, joint ventures, licensing agreements, co-promotion agreements, financing arrangements or other types of transactions. The Company completed one such transaction in
July 2005 with the acquisition of Able. In the future, the Company may choose to enter into other transactions at any time depending on available sources of financing, and such transactions could have a material impact on the Company, its business or operations. Recent transactions are disclosed in Footnote K of
the financial statements included with this Annual Report on Form 10-K.
GOVERNMENTAL REGULATIONS
Governmental Regulations
The Company'sCompany’s operations are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management, labor and health and safety matters. Management believes that the Company'sCompany’s business is operated in material compliance with all such regulations. To date, the cost to the Company of such compliance has not had a material impact on the Company'sCompany’s business, financial condition or results of operations. However, there can be no assurance that violations will not occur in the future as a result of human error, equipment failure or other causes. Further, the Company cannot predict the nature, scope or effect of environmental legislation or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered or interpreted. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by the Company and could have a material impact on the Company'sCompany’s business, financial condition and results of operations. In addition, effective mid-2006, the Company'sCompany’s customers were required to be in compliance with the European Standard of RoHS directive for all of their products that ship to the European marketplace. The Company has RoHS-dedicated manufacturing capabilities at all of its manufacturing operations.
BACKLOG
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Backlog
The Company'sCompany’s backlog as of April 30, 2007,2009, was approximately $47,680,000.$36,200,000. The Company currently expects to ship substantially all of the remaining April 30, 2007,2009 backlog by the end of the 20082010 fiscal year. Backlog as of April 30, 2006,2008, totaled approximately $52,875,000.$49,100,000. Variations in the magnitude and duration of contracts, forecasts and purchase orders received by the Company and delivery requirements generally may result in substantial fluctuations in backlog from period to period. Because customers may cancel or reschedule deliveries, backlog may not be a meaningful indicator of future revenue.
EMPLOYEES
Employees
The Company employed approximately 2,4701,700 people as of April 30, 2007,2009, including 128129 engaged in engineering or engineering related services, 2,0371,316 in manufacturing and 305255 in administrative and marketing functions.
The Company has a labor contract with Production Workers Union Local No. 10, AFL-CIO, covering the
Company'sCompany’s workers in Elk Grove Village, Illinois which expires on November 30, 2009. The
Company's
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Company’s Mexican subsidiary, Standard Components de Mexico S.A., has a labor contract with Sindicato De Trabajadores de la Industra Electronica, Similares y Conexos del Estado de Coahuila, C.T.M. covering the Company'sCompany’s workers in Acuna, Mexico which expires on January 15, 2008.February 1, 2010. The Company’s subsidiary located in Tijuana Mexico, has a labor contract with Sindicato Mexico Moderno De Trabajadores De La, Baja California, C.R.O.C. The contract does not have an expiration date. Since the time the Company commenced operations, it has not experienced any union-related work stoppages. The Company believes its relations with both unions and its other employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANTS
Executive Officers of the Registrants
NAME AGE POSITION
- ---- --- --------
| | | | | | |
| Name | | Age | | Position |
| | | | | | |
Gary R. Fairhead 55 | | | 57 | | | President and Chief Executive Officer. Gary R. Fairhead has been the President of the Company since January 1990. Gary R. Fairhead is the brother of Gregory A. Fairhead. |
| | | | | | |
Linda K. Blake 46 Frauendorfer | | | 48 | | | Chief Financial Officer, Vice President - Finance, Treasurer and Secretary since February 1994. |
| | | | | | |
Gregory A. Fairhead 51 | | | 53 | | | Executive Vice President - Operations and Assistant Secretary. Gregory A. Fairhead has been Executive Vice President since February 2000 and Assistant Secretary since 1994. Mr. Fairhead was Vice President - Mexican— Acuna Operations for the Company from February 1990 to February 2000. Gregory A. Fairhead is the brother of Gary R. Fairhead. |
| | | | | | |
John P. Sheehan 46 | | | 48 | | | Vice President, - Director of MaterialsSupply Chain and Assistant Secretary since February 1994. |
| | | | | | |
Daniel P. Camp 58 | | | 60 | | | Vice President, - ChinaAcuna Operation since 2007. Vice President — China Operations from 2003 andto 2007. General Manager/Manager / Vice President of MexicanAcuna Operations from 1994 to 2003. |
| | | | | | |
Raj B. Upadhyaya 52 | | | 54 | | | Executive Vice President, - Hayward / TijuanaWest Coast Operations since 2005. Mr. Upadhyaya was the Vice President of the Fremont operation (SMTU)Operation from 2001 until 2005. |
| | | | | | |
| Hom-Ming Chang | | | 49 | | | Vice President, China Operation since 2007. Vice President — Hayward Materials / Test / IT from 2005 — 2007. Vice President of Fremont Operation from 2001 to 2005. |
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ITEM 1 A.1A. RISK FACTORS
The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, operations, industry or financial position or our future financial performance. While the Company believes it has identified and discussed below the key risk factors affecting its business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect its business, operations, industry, financial position and financial performance in the future.
THE COMPANY'S ABILITY TO SECURE AND MAINTAIN SUFFICIENT CREDIT ARRANGEMENTS IS
KEY TO ITS CONTINUED OPERATIONS.
On July 31, 2006, the
The Company’s ability to secure and maintain sufficient credit arrangements is key to its continued operations.
The Company
amended the credit facility to increase thehas a revolving credit facility
from $22,000,000 to $27,000,000. The Company also has
a term loanunder which
was increased in July 2006 to $4,000,000 from $2,750,000 on
July 31, 2006. Interest payments only are due monthly through June 30, 2007 and
quarterly principal payments of $250,000 are due each quarter beginning with the
quarter ending June 30 2007, through the quarter ending June 30, 2011. Interest
payments continue to be due monthly throughout the term. In October 2006, the Company
amended the credit facility to increase the revolving credit facility
from $27,000,000 to $32,000,000. The increase of $5,000,000 was for a term of
six months and expired on April 30, 2007. In April 2007, the amended revolving
credit facility was renewed in the amount of $32,000,000 and will expire on
September 30, 2009. The amended revolving credit facility is limitedmay borrow up to the lesser
of:of (i)
$32,000,000$32 million or (ii) an amount equal to the sum of 85% of the receivable borrowing base and the lesser of
$16,000,000$16 million or a percentage of the inventory
borrowing base.
In January and April 2007, the Company's financial covenants
were amended. OnAs of April 30,
2007, $24,219,0152009, $18,746,696 was outstanding under the revolving credit
facility
10
and $4,000,000 under the term loan.facility. There was approximately $5,100,000$7.8 million of unused availability under the revolving credit availablefacility as of April 30, 2007.2009. In June 2008, the Company amended the revolving credit facility to extend the term of the agreement until September 30, 2010 from September 30, 2009 and amended certain financial covenants. The Company was in compliance with the required financial covenants as of April 30, 2009. Historically, the Company has renegotiated its financial covenants for the current fiscal year during the first quarter of that fiscal year in connection with the Company’s annual budgeting process. As of July 10, 2009, the Company is in the preliminary stages of negotiating revised financial covenants for fiscal 2010. The existing financial covenants remain in place until a new agreement has been reached. The Company is currently working with its lender to amend the financial covenants for its revolving credit facility, based upon the Company’s most recent projections for the 2010 fiscal year. At this time, it is possible that the Company would not be in compliance with an existing financial covenant for the quarter ended July 31, 2009. Therefore, if the Company is not successful in amending its financial covenants, the Company could be in violation of its revolving credit facility agreement at that time. In the event the Company was unable to amend the required financial covenants or obtain alternative financing, the Company may be unable to access lines of credit and its debt obligations could be accelerated. These events would likely have a material adverse effect on the Company’s future results of operations, financial position and liquidity.
The Company also has a term loan with an outstanding balance of $2 million and $3 million as of April 30, 2007.2009 and 2008, respectively with quarterly principal payments of $250,000 due each quarter through the quarter ending June 30, 2011. Borrowings under the term loan bear an interest rate of LIBOR plus 2%, which ranged from 2.41% to 6.47% during fiscal year 2009. During fiscal year 2008, borrowings under the term loan were at an interest rate of 6.47%.
The Company anticipatesfinancial crisis affecting the banking system and capital markets have resulted in a tightening in the credit facilities, cash flow from operationsmarkets, a low level of liquidity in many financial markets and leasing resources will be adequateextreme volatility in credit. Disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulations, reduced alternatives, or failures of significant financial institutions could adversely affect the Company’s ability to meetsecure, maintain or renew sufficient credit arrangements to support its working capital requirements in
fiscal year 2008. Into continue operations.
The financial crisis and global economic slowdown could negatively impact the event theCompany’s business, grows rapidly or the Company
considers an acquisition, additional financing resources could be necessaryresults of operations and financial condition.
The Company’s sales and gross margins depend significantly on market demand for its customers’ products. A continued slow down in the current or future fiscal years. There is no assurance thatglobal economy and the related decline in demand for our customers’ products in any industry has resulted in decreasing sales levels and gross margins which have negatively impacted the Company’s business, results of operations and financial conditions and this trend may continue.
9
The Company will
be able to obtain equity or debt financing at acceptable terms in the future.
THE COMPANY EXPERIENCES VARIABLE OPERATING RESULTS.experiences variable operating results.
The Company'sCompany’s results of operations have varied and may continue to fluctuate significantly from period to period, including on a quarterly basis. Consequently, results of operations in any period should not be considered indicative of the results for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company'sCompany’s common stock.
The Company'sCompany’s quarterly and annual results may vary significantly depending on numerous factors, many of which are beyond the Company'sCompany’s control. These factors include:
- Changes in sales mix to customers
- Changes in availability and cost of components
-
| • | | Changes in sales mix to customers |
|
| • | | Changes in availability and cost of components |
|
| • | | Volume of customer orders relative to capacity |
|
| • | | Market demand and acceptance of our customers’ products |
|
| • | | Price erosion within the EMS marketplace |
|
| • | | Capital equipment requirements needed to remain technologically competitive |
|
| • | | Volatility of the global economy and financials markets |
The Company’s customer orders relative to capacity
- Market demand and acceptance of our customers' products
- Price erosion within the EMS marketplace
- Capital equipment requirements needed to remain technologically
competitive
THE COMPANY'S CUSTOMER BASE IS CONCENTRATED.base is concentrated.
Sales to the Company'sCompany’s five largest customers accounted for 56%, 64% and 63% of net sales for the fiscal years ended April 30, 2007, 20062009 and 2005,
respectively. Further, the Company's2008. The Company’s two largest customers accounted for 24.8%27.5% and 16.9%18.2% of net sales for the fiscal year ended April 30, 2007.2009 compared to 23.0% and 20.6% of net sales for the fiscal year ended April 30, 2008. Significant reduction in sales to any of the Company'sCompany’s major customers or the loss of a major customer could have a material impact on the Company'sCompany’s operations. If the Company cannot replace canceled or reduced orders, sales will decline, which could have a material impact on the results of operations. There can be no assurance that the Company will retain any or all of its large customers. This risk may be further complicated by pricing pressures and intense competition prevalent in our industry.
THERE IS VARIABILITY IN THE REQUIREMENTS OF THE COMPANY'S CUSTOMERS.
There is variability in the requirements of the Company’s customers.
The Company does not generally obtain long-term purchase contracts. The timing of purchase orders placed by the Company'sCompany’s customers is affected by a number of factors, including variation in demand for the customers'customers’ products, regulatory changes affecting customer industries, customer attempts to manage inventory, changes in the customers'customers’ manufacturing strategies and customers'customers’ technical problems or issues. Many of these factors are outside the control of the Company. THE COMPANY AND ITS CUSTOMERS MAY BE UNABLE TO KEEP CURRENT WITH THE INDUSTRY'S
TECHNOLOGICAL CHANGES.If the Company cannot replace canceled or reduced orders, sales will decline, which could have a material impact on the results of operations.
The Company and its customers may be unable to keep current with the industry’s technological changes.
The market for the Company'sCompany’s manufacturing services is characterized by rapidly changing technology and continuing product development. The future success of the Company'sCompany’s business will depend in large part upon its customers'customers’ ability to maintain and enhance their technological capabilities, develop and market manufacturing services which meet changing customer needs and successfully anticipate or respond to technological changes in manufacturing processes on a cost-effective and timely basis.
Effective mid-2006, the
Company'sCompany’s customers were required to be in compliance with the European Standard of RoHS for all products shipped to the European marketplace. The purpose of the directive is to restrict the use of hazardous substances in electrical and electronic equipment and to contribute to the environmentally sound recovery and disposal of electrical and electronic equipment waste. In addition,
11
electronic component manufacturers must produce electronic components which are lead-free. The Company relies on numerous third-party suppliers for components used in the Company'sCompany’s production process. Customers'Customers’ specifications may require the Company to obtain components from a single source or a small number of suppliers. The inability to utilize any such suppliers could have a material impact on the Company'sCompany’s results of operations.
THE COMPANY FACES INTENSE INDUSTRY COMPETITION AND DOWNWARD PRICING PRESSURES.10
The Company faces intense industry competition and downward pricing pressures.
The EMS industry is highly fragmented and characterized by intense competition. Many of the Company'sCompany’s competitors have substantially greater experience, as well as greater manufacturing, purchasing, marketing and financial resources than the Company.
There can be no assurance that competition from existing or potential competitors will not have a material adverse impact on the Company'sCompany’s business, financial condition or results of operations. The introduction of lower priced competitive products, significant price reductions by the Company'sCompany’s competitors or significant pricing pressures from its customers could adversely affect the Company'sCompany’s business, financial condition, and results of operations.
THE COMPANY HAS FOREIGN OPERATIONS THAT MAY POSE ADDITIONAL RISKS.
The Company has foreign operations that may pose additional risks.
A substantial part of the Company'sCompany’s manufacturing operations is based in Mexico. Therefore, the Company'sCompany’s business and results of operations are dependent upon numerous related factors, including the stability of the Mexican economy, the political climate in Mexico and Mexico'sMexico’s relations with the United States, prevailing worker wages, the legal authority of the Company to own and operate its business in Mexico, and the ability to identify, hire, train and retain qualified personnel and operating management in Mexico.
The Company has opened an operation in China in order to better supportChina. Therefore, the Company’s business and grow its customer base. The successresults of operations are dependent upon numerous related factors, including the stability of the operation is dependent onChina economy, the
Company's ability to obtain new business; to hire and train qualified personnel;
and to implement an efficient manufacturing environment. Other factors could
have a material impact on the business, including the Chinese political climate in China and itsChina’s relations with the United States, prevailing worker wages, the legal authority of the Company to own and operate its business in China, and the stability of the Chinese
economy.ability to identify, hire, train and retain qualified personnel and operating management in China.
The Company obtains many of its materials and components through its office in Taipei, Taiwan and, therefore, the Company'sCompany’s access to these materials and components is dependent on the continued viability of its Asian suppliers.
INABILITY TO MANAGE GROWTH.
The Company may be unable to manage its growth.
The Company may not effectively manage its growth and successfully integrate the management and operations of its acquisition.acquisitions. Acquisitions involve significant financial and operating risks that could have a material adverse effect on the Company'sCompany’s results of operations.
DISCLOSURE AND INTERNAL CONTROLS.
Disclosure and internal controls may not detect all errors or fraud.
The Company'sCompany’s management, including the CEOChief Executive Officer and CFO,Chief Financial Officer, do not believe that itsthe Company’s disclosure controls and internal controls will prevent all errors and all fraud. Controls can provide only reasonable assurance that the procedures will meet the control objectives. Controls are limited in their effectiveness by human error, including faulty judgments in decision-making. Further, controls can be circumvented by collusion of two or more people or by management override of controls. Because of the limitations of a cost effective control system, error and fraud may occur and not be detected. In July 2007,
There is a risk of fluctuation of various currencies integral to the Company amended
its Code of Conduct policy to include a fraud prevention policy, requiring
diligence and reporting to senior management any suspected fraud activity. In
addition, the Company has a number of internal control policies designed to
discover and deal with potential fraud activities.
THERE IS A RISK OF FLUCTUATION OF VARIOUS CURRENCIES INTEGRAL TO THE COMPANY'S
OPERATIONS.
12
Company’s operations. The Company purchases some of its material components and funds some of its operations in foreign currencies. From time to time the currencies fluctuate against the U.S. dollar. Such fluctuations could have a measurable impact on the
Company'sCompany’s results of operations and performance.
The impact of currency fluctuation for the year ended April 30, 2009 resulted in approximately $135,000 in income. These fluctuations are expected to continue. The Company
doesdid not utilize derivatives or hedge foreign currencies to reduce the risk of such fluctuations.
13
THE AVAILABILITY OF RAW COMPONENTS MAY AFFECT THE COMPANY'S OPERATIONS.11
The availability of raw components may affect the Company’s operations.
The Company relies on numerous third-party suppliers for components used in the Company'sCompany’s production process. Certain of these components are available only from single sources or a limited number of suppliers. In addition, a customer'scustomer’s specifications may require the Company to obtain components from a single source or a small number of suppliers. The loss of any such suppliers or increases in component cost could have a material impact on the Company'sCompany’s results of operations. The Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers.
THE COMPANY IS DEPENDENT ON KEY PERSONNEL.
The Company is dependent on key personnel.
The Company depends significantly on its President and Chief Executive Officer, Gary R. Fairhead, and on other executive officers. The loss of the services of any of these key employees could have a material impact on the Company'sCompany’s business and results of operations. In addition, despite significant competition, continued growth and expansion of the Company'sCompany’s EMS business will require that it attract, motivate and retain additional skilled and experienced personnel. The inability to satisfy such requirements could have a negative impact on the Company'sCompany’s ability to remain competitive in the future.
FAVORABLE LABOR RELATIONS ARE IMPORTANT TO THE COMPANY.
Favorable labor relations are important to the Company.
The Company currently has labor union contracts with its employees constituting approximately 70%45% of its workforce. Although the Company believes its labor relations are good, any labor disruptions, whether union-related or otherwise, could significantly impair the Company'sCompany’s business, substantially increase the Company'sCompany’s costs or otherwise have a material impact on the Company'sCompany’s results of operations.
FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD SUBJECT THE COMPANY TO
LIABILITY.
Failure to comply with environmental regulations could subject the Company to liability.
The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process. Any failure by the Company to comply with present or future regulations could subject it to future liabilities or the suspension of production which could have a material negative impact on the Company'sCompany’s results of operations.
THE PRICE OF THE COMPANY'S STOCK IS VOLATILE.
The price of the Company'sCompany’s stock is volatile.
The price of the Company’s common stock historically has experienced significant volatility due to fluctuations in the Company'sCompany’s revenue and earnings, other factors relating to the Company'sCompany’s operations, the market'smarket’s changing expectations for the Company'sCompany’s growth, overall equity market conditions and other factors unrelated to the Company'sCompany’s operations. In addition, the limited float of the Company'sCompany’s common stock and the limited number of market makers also affect the volatility of the Company'sCompany’s common stock. Such fluctuations are expected to continue in the future.
THE COMPANY'S GOODWILL MAY BE IMPAIRED IN FUTURE PERIODS.
Current accounting standards require an annual assessment of goodwill for
impairment. This annual assessment requires
Being a public company increases the Company to determine the fair
value of its reporting unit and compare this fair value to the carrying value of
the reporting unit. In the event the carrying value exceeds the fair value of
the reporting unit, the Company would be required to calculate a goodwill
impairment charge. Determination of the fair value of the reporting unit
involves consideration of several factors, including the market price of the
Company's common stock, as well as current and projected performance of the
Company. The Company completed its annual goodwill impairment test for the year
ended April 30, 2007. The goodwill impairment analysis indicated there was no
goodwill impairment for the year ended April 30, 2007 as the fair value of the
reporting unit exceeded the carrying value of the reporting unit by
approximately 1%. However, in the event the Company does not achieve projected
performance or there is a decline in the market price of the Company's stock, we
may be required to record an impairment charge for goodwill in the future, which
charge would reduce net income and earnings per share.
14
BEING A PUBLIC COMPANY INCREASES THE COMPANY'S ADMINISTRATIVE COSTS.Company’s administrative costs. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"(“Sarbanes-Oxley”), as well as rules subsequently implemented by the Securities and Exchange Commission and listing requirements subsequently adopted by Nasdaq in response to Sarbanes-Oxley, have required changes in corporate governance practices, internal control policies and audit committee practices of public companies. These rules, regulations, and
requirements have increased the Company's legal expenses, financial compliance
and administrative costs, made many other activities more time consuming and
costly and diverted the attention of senior management. These rules and regulations could also make it more difficult for us to attract and retain qualified members for our board of directors, particularly to serve on our audit committee. In addition, if the Company receives a qualified opinion on the adequacy of its internal control over financial reporting, shareholders and the Company’s lenders could lose confidence in the reliability of the Company'sCompany’s financial statements, whichstatements. This could have a material adverse impact on the value of the Company's stock.
ITEM 1B. Company’s stock and the Company’s liquidity.
12
| | |
| ITEM 1B. | | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2.
At April 30, 2007,2009, the Company had manufacturing facilities located in Elk Grove Village, Illinois, Hayward, California, and Acuna and Tijuana, Mexico and Wujiang,Suzhou-Wujiang, China. In addition, the Company provides inventory management services through its Del Rio, Texas, warehouse facilities and materials procurement services through its Elk Grove Village, Illinois; Acuna, Mexico; Hayward, California; and Taipei, Taiwan offices and a warehouse facility in Huntsville,
Alabama.offices.
Certain information about the Company'sCompany’s manufacturing, warehouse and purchasing facilities is set forth below:
SQUARE OWNED/
LOCATION FEET SERVICES OFFERED LEASED
-------- ------- ---------------- ------
| | | | | | | | |
| | Square | | | | Owned/ |
| Location | | Feet | | Services Offered | | Leased |
| Suzhou-Wujiang, China | | | 147,500 | | | High volume assembly, and testing of PTH and *
SMT, box-build, BGA | | * |
| | | | | | | | |
| Hayward, CA | | | 126,000 | | | Assembly and testing of PTH, SMT and BGA, Leased
box-build, prototyping, warehousing | | Leased |
| | | | | | | | |
| Elk Grove Village, IL | | | 118,000 | | | Corporate headquarters, assembly and testing Owned of PTH, SMT and BGA, box-build, prototyping, warehousing | | Owned |
| | | | | | | | |
| Acuna, Mexico | | | 115,000 | | | High volume assembly, and testing of PTH and Owned
SMT, box-build, transformers **
| | Owned
** |
| | | | | | | | |
| Las Vegas, NV | | | 38,250 | | | N/A | | Leased
**
*** |
| | | | | | | | |
Del Rio, TX 36,000 | | | 44,000 | | | Warehouse, portion of which is bonded | | Leased |
| | | | | | | | |
| Tijuana, Mexico | | | 67,700 | | | High volume assembly, and testing of PTH and Leased
SMT, box-build
Fremont, CA 24,500 N/A | | Leased
****
|
| | | | | | | | |
| Taipei, Taiwan | | | 2,900 | | | Materials procurement, alternative sourcing Leased
assistance and quality control
Huntsville, AL | | Leased |
| | |
| * | | The Company’s Suzhou-Wujiang, China building is owned by the Company and **the land is leased from the Chinese government for a 50 year term. |
|
| ** | | A portion of the facility is leased. |
|
*** Just-in-time inventory management | | During fiscal year 2006, the Las Vegas operation was sold. The Company continues to be obligated under the primary lease agreement for the facility and delivery *****
Tlaquepaque, Mexico
sublets the property to other occupants. The Company will not renew this lease when it expires in October 2009. |
* The Company's Wujiang, China building is owned by the Company and the land
is leased from the Chinese government for a 50 year term (Footnote J,
contingencies).
** A portion of the facility is leased.
15
*** During fiscal year 2006 the Las Vegas operation was sold. The Company
continues to be obligated under the primary lease agreement for the
facility and sublets the property to other occupants.
**** In fiscal year 2006 the Fremont operation was consolidated into the Hayward
operation. The Company was obligated under the primary lease until December
31, 2006.
***** There is no lease for this facility. The Company has entered into a
service agreement whereby contracted warehouse personnel provide services
for the Company and its customer. The Hayward, California and Tijuana, Mexico properties and a portion of the Del Rio, Texas propertyproperties are occupied pursuant to leases of the premises. The lease agreements for the Nevada Texas and California properties expire October 2009 December 2015 and September 2010, respectively. The lease agreements for the Del Rio, Texas properties expire April 2011 and December 2015. The Tijuana, Mexico leases expire June 2009.2011. The Alabama space is provided under a service agreement. The
Company'sCompany’s manufacturing facilities located in Acuna, Mexico and Elk Grove Village, Illinois are owned by the Company, except for a portion of the facility in Mexico, which is leased. The propertiesproperty in Acuna, Mexico andElk Grove Village, Illinois areis financed under a separate mortgage agreements,agreement, which maturematures in November 2008.April 2013. The Company through an agent, leases the purchasing and engineering office in Taipei, Taiwan to coordinate Far East purchasing and design activities. The Company believes the existingits current facilities willare adequate to meet its futurecurrent needs. However,In addition, the Company is considering expandingbelieves it can find alternative facilities to meet its Acuna manufacturing operation
during fiscal 2008. All facilities are adequately insured.
ITEM 3. LEGAL PROCEEDINGS
Sinceneeds in the beginningfuture, if required.
13
As of the 2007 fiscal year,April 30, 2009, the Company was not a party to any material legal proceedings.
From time to time the Company is involved in legal proceedings, claims or investigations that are incidental to the conduct of the Company'sCompany’s business. In future periods, the Company could be subjected to cash cost or non-cash charges to earnings if any of these matters isare resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including ourmanagement’s assessment of the merits of theany particular claim, the Company does not expect that these legal proceedings or claims will have any material adverse impact on its future consolidated financial position or results of operations.
ITEM 4.
| | |
| ITEM 4. | | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matter was submitted to a vote of security holders in the fourth quarter of fiscal year
2007.
16
2009.PART II
ITEM 5. MARKET FOR REGISTRANT'S
| | |
| ITEM 5. | | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY |
SECURITIES
Market Information
The Company'sCompany’s common stock is traded on the NasdaqNASDAQ Capital Market System under the symbol SGMA. The following table sets forth the range of quarterly high and low bidsales price information for the common stock for the periods ended April 30, 2007,2009, and 2006.
2008.
Common Stock as Reported
by
Nasdaq
Period High Low
- ------ ---- ---
Fiscal 2007:
Fourth Quarter $10.95 $7.90
Third Quarter 11.00 8.56
Second Quarter 10.94 7.32
First Quarter 10.19 7.11
Fiscal 2006:
Fourth Quarter $12.03 $8.60
Third Quarter 12.34 6.61
Second Quarter 11.17 6.15
First Quarter 11.96 9.75
NASDAQ| | | | | | | | | |
| Period | | High | | Low |
| | | | | | | | | |
| Fiscal 2009: | | | | | | | | |
| Fourth Quarter | | $ | 2.60 | | | $ | 1.27 | |
| Third Quarter | | | 3.48 | | | | 1.58 | |
| Second Quarter | | | 7.15 | | | | 2.82 | |
| First Quarter | | | 7.29 | | | | 5.00 | |
| | | | | | | | | |
| Fiscal 2008: | | | | | | | | |
| Fourth Quarter | | $ | 7.85 | | | $ | 5.25 | |
| Third Quarter | | | 12.50 | | | | 6.88 | |
| Second Quarter | | | 13.37 | | | | 8.44 | |
| First Quarter | | | 11.64 | | | | 8.95 | |
As of July 13, 2007,2009, there were approximately 6561 holders of record of the Company'sCompany’s common stock, which does not include shareholders whose stock is held through securities position listings. The Company estimates there to be approximately 1,6901,595 beneficial owners of the Company'sCompany’s common stock.
14
Dividend Information
The Company has not paid cash dividends on its common stock since completing its February 1994 initial public offering and does not intend to pay any dividends in the foreseeable future. So long as any indebtedness remains unpaid under the
Company'sCompany’s revolving loan facility,
(Footnote G), the Company is prohibited from paying or declaring any dividends on any of its capital stock, except stock dividends, without the written consent of the lender under the facility.
17
ITEM 6. SELECTED FINANCIAL DATA
Years Ended April 30
(In thousands except per share data)
-------------------------------------------------
2007 *2006 2005 2004 2003
-------- -------- ------- ------- -------
Net Sales $165,909 $124,786 $94,312 $84,178 $84,342
Income before income tax
expense (benefit), minority
interest and discontinued operations 2,595 2,862 8,150 8,446 6,432
Net Income from continuing
operations 1,698 1,926 4,840 4,934 4,063
Net Income (loss) from discontinued
operation -- (44) (141) 467 1,651
Net Income 1,698 1,882 4,699 5,406 5,714
Earnings (loss) per share-basic
Continuing operations 0.45 0.51 1.29 1.44 1.41
Discontinued operations (0.00) (0.01) (0.04) 0.14 0.57
------- ------ ------ ------ ------
Total 0.45 0.50 1.25 1.58 1.98
======= ====== ====== ====== ======
Earnings (loss) per share-diluted
Continuing operations 0.44 0.49 1.27 1.39 1.21
Discontinued operations (0.00) (0.01) (0.04) 0.14 0.49
------- ------ ------ ------ ------
Total 0.44 0.48 1.23 1.53 1.70
======= ====== ====== ====== ======
Total assets 109,402 98,940 66,543 62,998 53,400
Long-term debt and capital lease
obligations (including current
maturities 36,551 30,396 7,194 7,025 9,911
* The financial dataEquity Compensation Plan Information
Information concerning securities authorized for 2006 includesissuance under our equity compensation plans is set forth in Part III, Item 12 of this Annual Report, under the Haywardcaption “Securities Authorized for Issuance under Equity Compensation Plans” and Tijuana operations,
which were acquiredthat information is incorporated herein by reference.
| | |
| ITEM 6. | | SELECTED FINANCIAL DATA |
As a smaller reporting company, as defined in July 2005.
ITEM 7. MANAGEMENT'SRule 12b-2 of the Securities Exchange Act of 1934, we are not required to provide the information required by this item.
| | |
| ITEM 7. | | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In addition to historical financial information, this discussion of the business of SigmaTron International, Inc., its wholly-owned subsidiaries Standard Components de Mexico S.A., and AbleMex S.A. de C.V.,
acquired in July
2005,SigmaTron International Trading Co., and its wholly-owned foreign enterprise Wujiang SigmaTron Electronics Co., Ltd.
("(“SigmaTron
China"China”), and its procurement branch SigmaTron Taiwan (collectively the
"Company"“Company”) and other Items in this Annual Report on Form 10-K contain forward-looking statements concerning the
Company'sCompany’s business or results of operations. Words such as
"continue," "anticipate," "will," "expects,"
"believe," "plans,"“continue,” “anticipate,” “will,” “expect,” “believe,” “plan,” and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of
SigmaTron (including its subsidiaries).the Company. Because these forward-looking statements involve risks and uncertainties, the
Company'sCompany’s plans, actions and actual results could differ materially. Such statements should be evaluated in the context of the risks and uncertainties inherent in the
Company'sCompany’s business including
ourthe Company’s continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; pricing pressures from our customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of our operating results; the
results of long-lived assets impairment testing; the variability of our
customers'customers’ requirements; the availability and cost of necessary components and materials; the
Company's ability to continue to produce products that are in
compliance with RoHS; the ability of the Company and our customers
18
to keep current with technological changes within our industries; regulatory compliance; the continued availability and sufficiency of our credit arrangements; changes in U.S., Mexican, Chinese or Taiwanese regulations affecting the Company'sCompany’s business; the continuedcurrent turmoil in the global economy and financial markets; the stability of the U.S., Mexican, Chinese and Taiwanese economic systems, labor and political conditions; currency exchange fluctuations; and the ability of the Company to manage its growth, including its expansion into China
and its integration of the Able operation acquired in July 2005.growth. These and other factors which may affect the Company'sCompany’s future business and results of operations are identified throughout the Company'sCompany’s Annual Report on Form 10-K and as risk factors and may be detailed from time to time in the Company'sCompany’s filings with the Securities and Exchange Commission. These statements speak as of the date of this reportsuch filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise.
OVERVIEWotherwise unless otherwise required by law.Overview
The Company operates in one business segment as an independent provider of EMS, which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) design,
15
manufacturing and test engineering support; (4) warehousing and shipment services; and (5) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China and Taiwan.
As the demand for electronic products has continued to increase over the
past several months, the lead-time for many components has increased. Pricing
for some components and related commodities has escalated due to the increased
demand and the transition to RoHS components and may continue to increase in the
future periods. The impact of these price increases could have a negative effect
on the Company's gross margins and operating results.
The Company relies on numerous third-party suppliers for components used in the Company'sCompany’s production process. Certain of these components are available only from single sources or a limited number of suppliers. In addition, a customer'scustomer’s specifications may require the Company to obtain components from a single source or a small number of suppliers. The loss of any such suppliers could have a material impact on the Company'sCompany’s results of operations, and the Company may be required to operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers. The Company does not enter into purchase agreements with major or single-source suppliers. The Company believes that ad-hoc negotiations with its suppliers provides flexibility, given that the Company'sCompany’s orders are based on the needs of its customers, which constantly change.
The Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission and listing requirements subsequently adopted by Nasdaq in response to Sarbanes-Oxley, have required changes in corporate governance practices, internal control policies and audit committee practices of public companies. These rules, regulations, and requirements have increased the
company's legal expenses, financial compliance and administrative costs, made
many other activities more time consuming and costly and diverted the attention
of senior management. These rules and regulations could also make it more difficult for us to attract and retain qualified members for our board of directors, particularly to serve on our audit committee. In addition, if the Company receives a qualified opinion on the adequacy of its internal control over financial reporting, shareholders and the Company’s lenders could lose confidence in the reliability of the Company'sCompany’s financial statements, whichstatements. This could have a material adverse impact on the value of the Company's stock.Company’s stock and the Company’s liquidity.
Sales can be a misleading indicator of the
Company'sCompany’s financial performance. Sales levels can vary considerably among customers and products depending on the type of services (consignment and turnkey) rendered by the Company and the demand by customers. Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit. In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly. Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold. Variations in the number of turnkey
19
orders compared to consignment orders can lead to significant fluctuations in the Company'sCompany’s revenue levels. However, the Company does not believe that such variations are a meaningful indicator of the Company'sCompany’s gross margins. Consignment orders accounted for less than 5% of the Company'sCompany’s revenues for the year ended April 30, 2007.2009. In the past, the timing and rescheduling of orders have caused the Company to experience significant quarterly fluctuations in its revenues and earnings, and the Company expects such fluctuations to continue. CRITICAL ACCOUNTING POLICIES
The uncertainty associated with the worldwide economy in general and the United States economy specifically make forecasting difficult. All of the Company’s customer’s markets remain volatile. The Company believes it will continue to see lower revenues and more volatility until at least the fall of 2009.
Critical Accounting Policies:
Management Estimates and Uncertainties -— The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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, reserves for inventory and valuation of goodwill.long-lived assets. Actual results could materially differ from these estimates.
Revenue Recognition -— Revenues from sales of product including the Company'sCompany’s electronic manufacturing services business are recognized when the product is shipped to the customer. In general, it is the Company'sCompany’s policy to
16
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 except for consignment inventory. Consignment inventory is shipped from the Company to an independent warehouse for storage or shipped directly to the customer and stored in a segregated part of the customer'scustomer’s own facility. Upon the customer'scustomer’s request for inventory, the consignment inventory is shipped to the customer if the inventory was stored offsite or transferred from the segregated part of the customer'scustomer’s facility for consumption, or use, by the customer. The Company recognizes revenue upon such transfer. The Company does not earn a fee for storing the consignment inventory. The Company generally provides a ninety (90)90 day warranty for workmanship only and does not have any installation, acceptance or sales incentives, although the Company has negotiated extendedlonger warranty terms in certain instances. The Company assembles and tests assemblies based on customers'customers’ specifications. Historically, the amount of returns for workmanship issues has been de minimusminimis under the Company'sCompany’s standard or extended warranties. Any returns for workmanship issues received after each period end are accrued in the respective financial statements.
Inventories -— Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. The Company establishes inventory reserves for valuation, shrinkage, and excess and obsolete inventory. The Company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss. Actual results differing from these estimates could significantly affect the Company'sCompany’s inventories and cost of products sold. The Company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions. Actual product demand or market conditions could be different than that projected by management.
Impairment of Long-Lived Assets -— The Company reviews its 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 undiscounted 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 its fair market value. The Company has adopted SFAS No.
144, which establishes a single accounting model for the impairment or disposal
of long-lived assets, including discontinued operations.
Goodwill and Other Intangibles - The Company adopted on June 1, 2001, SFAS
No. 141 "Business Combinations". Under SFAS No. 141, a purchaser must allocate— In December 2007, the
total consideration paid in a business combination to the acquired tangible
and intangible assets based on their fair value. The Company adopted SFAS No.
142, "Goodwill and Other Intangible Assets" effective January 1, 2002. Goodwill
represents the purchase price in excess of the fair value of assets acquired in
business combinations.Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standard (“SFAS”) No. 141(R), Accounting Standards
(SFAS)Codification (“ASC”) (805-10-10-1) “Business Combinations” (“SFAS 141(R)”) which replaces SFAS No.
142, "Goodwill141, “Business Combinations.” The FASB has since codified FASB 141(R) as Accounting Standards Codification (“ASC”) 805-10-10-1. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (formerly referred to as purchase method) is to be used for all business combinations and
Other Intangible Assets",that an acquirer is identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as of the date that the acquirer achieves control. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquire at the acquisition date, measured at their fair values. This Statement requires the
acquirer to recognize acquisition-related costs and restructuring costs separately from the business combination as period expense. This Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company
will implement SFAS No. 141(R) for any business combinations occurring subsequent to
20
assessApril 30, 2009. In January 2008, the Company changed the date of its annual goodwill for impairment at least annually intest from the absencelast day of an indicatorthe fiscal year to the first day of possiblethe fiscal fourth quarter. The impairment and immediately upon an indicator of possible impairment.
Duringtest procedures were carried out during the fourth quarter of fiscal 2007,year 2008 and up to the time of the filing of the Company’s Form 10-K for fiscal year 2008, which allowed the Company completedadditional time to complete the required analysis. The Company believes that the resulting change in accounting principle related to the annual testing date did not delay, accelerate or avoid an impairment charge. The Company determined that the change in accounting principle related to the annual testing date was preferable under the circumstances and did not result in adjustments to the Company’s financial statements when applied retrospectively. During the fiscal year 2008, the Company performed its annual assessmentgoodwill impairment testing and the carrying value of impairment regardingthe Company’s reporting unit exceeded the fair value indicating a goodwill impairment. The Company completed the second step of the goodwill recorded. The Company calculatesimpairment test used to measure the amount of the impairment loss by comparing the implied fair value of the reporting unit utilizing a combination of a discounted cash
flow approach and certain market approaches which considered bothgoodwill with the Company's
market capitalization and trading multiples of comparable companies. The
calculations of fair valuecarrying amount of the reporting unit involves significant judgment
and different underlying assumptions couldgoodwill. As a result in different calculated fair
values. The goodwill of this
17
impairment analysis, indicated there was nothe Company recorded an impairment charge for the full amount of goodwill impairment for($9.3 million) during the fiscal year ended April 30, 20072008. The impairment was due to continuing customer pricing pressures and uncertain economic conditions as well as the fair value of the reporting
unit exceeded the carrying value of the reporting unity by approximately 1%.
However, in the event the Company does not achieve projected performance or
there is a decline in the marketCompany’s declining stock price of the Company's stock, we may be
required to record an impairment charge for goodwill in the future, which charge
would reduce net income and earnings per share.
NEW ACCOUNTING STANDARDS -
In February 2006, the FASB issued Statement of Financialduring fiscal 2008.
New Accounting Standard No. 155, "Accounting for Certain Hybrid Instruments" (SFAS 155). FASB
155 allows financial instruments that have embedded derivatives to be accounted
for as a whole (eliminating the need to bifurcate the derivative from its host)
if the holder elects to account for the whole instrument on a fair value basis.
This statement is effective for all financials instruments acquired or issued
after the beginning of the entity's first fiscal year that begins after
September 15, 2006. The Company does not expect the adoption of SFAS 155 will
have a material impact on its consolidated financial statements.
In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income
Taxes" to create a single model to address accounting for uncertainty in tax
positions. FIN 48 clarifies the accounting for income taxes by prescribing a
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance and
derecognition, classification, interest and penalties, accounting in interim
periods, disclosures, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company adopted FIN 48 as of May 1, 2007,
as required. The Company has estimated that its potential impact to retained
earnings is expected to be no greater than $500,000.Standards:
In September 2006, the FASB issued SFAS No. 157, (SFAS 157)“Fair Value Measurements” (“SFAS 157”), "Fair Value
Measurements". SFAS 157 establishes a common definition for fair value to be
applied to U.S. GAAP guidance requiring use of(ASC 820-10-05-1), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosuredisclosures about such fair value measurements. SFAS 157 is effective for fiscal yearsthe Company beginning afteron May 1, 2008. In November 15, 2007. The Company is currently assessing2007, the impactFASB agreed to a one-year deferral of the effective date of SFAS 157 may havefor all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on itsa recurring basis. There was no significant impact from adoption of SFAS 157 for financial statements.assets and liabilities on the Company’s financial statements and none are expected when SFAS 157 is adopted for non-financial assets and liabilities.
In February 2007, the FASB issued SFAS No. 159 "The“The Fair Value Options for Financial Assets and Financial Liabilities (SFASLiabilities”(“SFAS No. 159)159”), (ASC 820-10-10-1). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 iswas effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option pursuant to SFAS 159.
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 141(R), Accounting Standards Codification (“ASC”) (805-10-10-1) “Business Combinations” (“SFAS 141(R)”) which replaces SFAS No. 141, “Business Combinations.” The FASB has since codified FASB 141(R) as Accounting Standards Codification (“ASC”) 805-10-10-1. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (formerly referred to as purchase method) is currently assessingto be used for all business combinations and that an acquirer is identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as of the date that the acquirer achieves control. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquire at the acquisition date, measured at their fair values. This Statement requires the acquirer to recognize acquisition-related costs and restructuring costs separately from the business combination as period expense. This Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will implement SFAS No. 141(R) for any business combinations occurring subsequent to April 30, 2009.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”), (ASC 810-10-65-1). SFAS 160 establishes accounting reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has determined that SFAS 160 will not have a material impact on its consolidated results of SFAS 159 may have onoperations and financial statements.
RESULTS OF OPERATIONS:
condition.
Results of Operations:
FISCAL YEAR ENDED APRIL 30, 20072009 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 20062008
Net sales increased 32.9%decreased 20.3% to $165,909,106$133,744,642 in fiscal year 20072009 from $124,786,476$167,810,994 in the prior year. The Company'sCompany’s sales increaseddecreased in fiscal year 2009 in the industrial electronics, fitness, telecommunications, life sciences, appliance, gaming telecommunications, fitness,and semiconductor and
life sciences marketplaces during fiscal year 2007 as compared to the prior year. The increasedecrease in sales volume was partially offset by price reductionsrevenue for the fiscal year end 2009 is a result of our customers’ decreased demand for product based on
18
their forecast, which we believe is attributable to customers.the global economic slowdown and the recent financial crisis. The Company anticipates pricing pressures from customerssales will continueremain soft in the first quarter of fiscal year 2008. The2010 and anticipates sales to slowly increase in the industrial electronics,
semiconductor and life sciences industries is primarily due to sales to
customers as the result of the acquisition of Able.late calendar 2009.
The
increase in sales in the
appliance, gaming, telecommunications and fitness marketplaces is primarily due
to sales to customers existing prior to the Able acquisition. The increase in
sales for fiscal year
21
2007 was also due to short term demand related to the RoHS standard transition
and the addition of several new significant customers.
The Company'sCompany’s sales in a particular industry are driven by the fluctuating forecasts and end-market demand of the customers within that industry. Sales to customers are subject to variations from period to period depending on customer order terminations, the life cycle of customer products and product transition. Sales to the Company’s five largest customers accounted for 63% of net sales for fiscal years 2009 and 2008. Gross profit decreased to $15,974,902 or 11.9% of net sales in fiscal year 2009 compared to $19,563,390 or 11.7% of net sales in the prior year. The decrease in the Company’s gross profit in total dollars is due to decreased revenue levels and decreased plant capacity utilization. The Company has continued to lower its cost structure during the fourth quarter of fiscal year 2009 and will continue cost cutting initiatives based on customer’s demand for product. During the third and fourth quarters of fiscal year 2009, the Company reduced its worldwide headcount, through attrition and lay-offs. Further the Company implemented salary reductions for all non-union U.S. employees beginning February 2009. There can be no assurance that sales levels or gross margins will remain stablenot continue to decrease in future periods. Sales
Selling and administrative expenses decreased in fiscal year 2009 to
the Company's five largest customers accounted for
56% and 64%$11,591,440 or 8.7% of net sales
for fiscal years 2007 and 2006, respectively.
Gross profit increasedcompared to
$17,758,756$12,375,458 or
10.7%7.4% of net sales in fiscal year
2007 compared to $14,800,099 or 11.9% of net sales in the prior period.2008. The decrease in
the Company's gross profit as a percentage of sales is the result of
the operating inefficiencies caused by the RoHS conversion required by many
customers, and the longer than expected integration of Able into SigmaTron. The
Company also experienced increased raw material cost for various integrated
circuits, plastics and stamping due to soaring commodity prices, for steel and
precious metals, and continuous pricing pressures from customers. Transportation
and regulatory costs also escalated.
Selling and administrative expenses increased in fiscal year 2007 to
$12,872,353 or 7.8% of net sales compared to $10,925,646 or 8.8% of net sales in
fiscal year 2006. The increasetotal dollars is primarily due to
additional personnela decrease in
the
sales
commissions, insurance expense, amortization expense, bonus expense, legal fees and
purchasing departments andother professional fees. This decrease in total dollars was partially offset by an increase in
commission expense.
Amortization expense increased in fiscal 2007 due to the intangibles related to
the acquisition of Able. The Company anticipates it will incur additional
professional fees related to Sarbanes-Oxley, specifically in compliance with the
requirements of Section 404, Internal Control Over Financial Reporting, in
future periods.
Interest expense increased to $2,574,180sales and IT salaries in fiscal year
2007 compared to
$1,421,455 in fiscal year 2006. The interest expense increased due to increased
borrowings under the Company's lines of credit to support working capital
requirements, additional capital leases for machinery and equipment and rising
interest rates. Interest expense for fiscal year 2008 is expected to be
comparable to the amount of interest expense recorded in fiscal year 2007.
In fiscal year 2007 tax expense from continuing operations was $896,179
which resulted in an effective rate of 34.5% compared to $935,589 in income tax
expense and an effective rate of 32.7% in fiscal year 2006. The tax rate in
fiscal years 2007 and 2006 is impacted by the Company's operations in foreign
countries.
In June 2005 the Company closed on the sale of its Las Vegas, Nevada
operation. The Las Vegas facility operated as a complete EMS center specializing
in the assembly of electronic products and cables for a broad range of customers
primarily in the gaming industry. The effective date of the transaction was May
30, 2005. The transaction was structured as an asset sale, and included a
$2,000,000 cash payment to the Company for the buyer's purchase of the
machinery, equipment and other assets of the Las Vegas operation. The
transaction was recorded by the Company in the first quarter of fiscal year 2006
and included a gain on the transaction of approximately $311,000. The gain was
offset by a loss of approximately $383,000 on discontinued operations for the
Las Vegas operation for the period ended April 30, 2006.
Net income decreased to $1,698,324 in fiscal year 2007 compared to
$1,882,132 in fiscal year 2006. Diluted earnings per share for the year ended
April 30, 2007, was $0.44 compared to $0.48 in fiscal year 2006. Basic earnings
per share was $0.45 and $0.50 for the year ended April 30, 2007 and 2006,
respectively.
FISCAL YEAR ENDED APRIL 30, 2006 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2005
Net sales increased 32.3% to $124,786,476 in fiscal year 2006 from
$94,312,573 in the prior year. The Company's sales increased in the industrial
electronics, fitness, life sciences, semiconductor and appliance marketplaces
during fiscal year 2006 as2009 compared to the prior year. The increase in
sales
volume in the applianceselling and
fitness industries was partially offset by price
reductions to customers. The Company anticipates pricing pressures from
customers will continue in fiscal year 2007. The increase in the industrial
electronics, life sciences and semiconductor industries is primarily due to
sales to new customersadministrative expenses as
the results of acquisition of Able. The acquisition of
Able has allowed the Company to make strides towards achieving four objectives:
(1) to further diversify its markets, capabilities and customer base, (2) adding
a
third low-cost
22
manufacturing facility in Tijuana, (3) creating an opportunity to consolidate
the California operations into one facility, and (4) to generate incremental
revenue from Able's customers as they become familiar with the Company's broader
array of services.
The Company's sales in a particular industry are driven by the fluctuating
forecasts and end-market demand of the customers within that industry. Sales to
customers are subject to variations from period to period depending on customer
order terminations, the life cycle of customer products and product transition.
There can be no assurance that sales levels or gross margins will remain stable
in future periods. Sales to the Company's five largest customers accounted for
64% and 63% of net sales for fiscal years 2006 and 2005, respectively.
Gross profit decreased to $14,800,099 or 11.9%percent of net sales in fiscal year 2006 compared2009 is due to $17,958,154 or 19.0% of net sales in the prior period. The20% decrease in net sales. During fiscal year 2008, the Company's gross profit isCompany performed its annual goodwill impairment testing and the carrying value of the Company’s reporting unit exceeded the fair value indicating a goodwill impairment. The Company completed the second step of the goodwill impairment test used to measure the amount of impairment loss by comparing the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill. As a result of this impairment analysis, the Company recorded an impairment charge for the full amount of goodwill ($9.3 million) during the year ended April 30, 2008. The impairment was due to continuing customer pricing pressures withinand uncertain economic conditions as well as the EMS industry, an increase in manufacturing supplies and component pricing
and inefficiencies related to the integration of the Able operation acquired in
July 2005. The consolidation of the Fremont and Able Hayward locations was
completed in March 2006. The Company believes operational efficiencies will
improve at both the Hayward and Tijuana manufacturing facilitiesCompany’s declining stock price during fiscal year 2007. In addition, the Company is currently expanding its Tijuana
manufacturing operation and will transfer specific production from Hayward2008.
Interest expense decreased to Tijuana. The Company believes this realignment of production will assist in
increasing the operating margins for the Hayward and Tijuana operations.
Selling and administrative expenses increased$1,710,817 in fiscal year 2006 to
$10,925,646 or 8.8% of net sales2009 compared to $10,076,082 or 10.6% of net sales$2,667,473 in fiscal year 2005. The increase is primarily due to additional personnel in
the sales department and increased insurance costs incurred in conjunction with
the acquisition of Able. The increase in selling and administrative expenses is
partially offset by a $1,053,000 reduction in bonus expense. The Company
anticipates it will incur additional professional fees related to
Sarbanes-Oxley, specifically Section 404, Internal Control Over Financial
Reporting.
Interest expense increased to $1,421,455 in fiscal year 2006 compared to
$283,137 in fiscal year 2005.2008. The interest expense increaseddecreased due to significant
increaseddecreased borrowings under the Company's lines ofits revolving credit primarily due to the
Able acquisition, additionalfacility, term loan and capital leases for machinery and equipment and
risinglower interest rates. Interest expense for fiscal year 2007 is expected to be
comparable to the amount of2010 may increase if interest expense recorded inrates or borrowings increase during fiscal year 2006 or
possibly higher.2010.
In fiscal year
20062009, the income tax expense from
continuing operations was
$935,589
which resulted in an effective rate of 32.7%$936,278 compared to
$3,173,635$1,655,518 in income tax expense
and an effective rate of 38.9% in fiscal year
2005.2008. The effective tax rate
in fiscal year 2006 has decreased compared to prior periods due to
income earned in China. The Company has tax incentives related to its wholly
owned foreign enterprise in China. The Company is currently using an estimate to
calculate the amount of profits for tax purposes generated in China.
In June 2005 the Company closed on the sale of its Las Vegas, Nevada
operation. The Las Vegas facility operated as a complete EMS center specializing
in the assembly of electronic products and cables for a broad range of customers
primarily in the gaming industry. The effective date of the transaction was May
30, 2005. The transaction was structured as an asset sale, and included a
$2,000,000 cash payment to the Company for the buyer's purchase of the
machinery, equipment and other assets of the Las Vegas operation. The
transaction was recorded by the Company in the first quarter of fiscal year 2006
and included a gain on the transaction of approximately $311,000. The gain was
offset by a loss of approximately $383,000 on discontinued operations for the
Las Vegas operation for the period ended April 30, 2006.
23
The following amounts related to the discontinued operation and have been
segregated from continuing operations and reflected as discontinued operations
in each periods consolidated statement of income (in thousands):
2006 2005 2004
---- ------ ------
Sales 522 11,764 16,316
Income (loss) before tax expense (benefit) (383) (234) 773
Net Income (loss) from discontinued operation 355 (142) 467
Gain on sale of business 311 -- --
Net income (loss) from discontinued operation (44) (142) 467
Net income decreased to $1,882,132 in fiscal year 2006 compared to
$4,698,799 in fiscal year 2005. Diluted earnings per share for the year ended April 30, 2006,2009 was $0.48 compared32%. The lower effective tax rate was a result of the tax holiday for the China operation. The Company recorded income tax expense in fiscal 2008 despite a pre-tax loss due primarily to $1.23the fact that the goodwill impairment charge of $9.3 million related to non-deductible goodwill which is treated as a permanent difference between book and tax income (loss). The Company reported net income of $1,955,847 in fiscal year 2005.2009. Basic and diluted earnings per share was $0.50$0.51 for fiscal year 2009 compared to basic and $1.25 for the years ended April 30 2006, and 2005,
respectively.
LIQUIDITY AND CAPITAL RESOURCES:
Cash flow (used in) operating activities wasdiluted loss per share of ($2,308,847)1.69) for the year ended April 30, 20072008. Excluding the goodwill impairment charge, net income was $2,842,109 for fiscal year 2008, which resulted in diluted earnings per share of $0.74 for fiscal year 2008 compared to $0.51 for the fiscal year ended April 30, 2009. We believe the Non-Gaap measure is a meaningful disclosure of the operating performance of the Company as it is an alternative measure utilized by investors, management and the Board of Directors. See the following Non-Gaap Reconciliation.
19
| | | | | |
| | | Non-Gaap Reconciliation* | |
| | | Twelve Months | |
| | | Ended | |
| | | April 30, 2008 | |
| | | | | |
Income (loss) Reconciliation: | | | | |
| | | | | |
| Net income before goodwill impairment | | $ | 2,842,109 | |
| | | | | |
| Goodwill impairment charge | | | 9,298,945 | |
| | | | |
| | | | | |
| Net loss | | | ($6,456,836 | ) |
| | | | |
| | | | | |
EPS Reconciliation: | | | | |
| | | | | |
| Net income per common share — assuming dilution before goodwill impairment | | $ | 0.74 | |
| | | | | |
| Goodwill impairment charge | | | ($2.43 | ) |
| | | | |
| | | | | |
| Net loss per common share — assuming dilution | | | ($1.69 | ) |
| | | | |
| | | | | |
| Weighted average number of common equivalent shares outstanding — assuming dilution | | | 3,811,832 | |
| | | | |
| | |
| * | | A non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. |
Liquidity and Capital Resources:
Operating Activities.
Cash flow provided by operations of $1,997,144operating activities was $10,844,265 for the year ended April 30, 2009, compared to $4,163,469 for the prior fiscal year. Cash flow provided by operating activities in fiscal 2006. Cash used in operationsyear 2009 was primarily the result of a significant increase
in inventories of $10,075,504 and an increase$9,944,685 decrease in accounts receivable, of
$2,549,567. The increasea reduction in inventories is attributable to an increase ininventory levels, the numberresult of customers, customer required safety stock, RoHS transition, and
inefficiencies at the Company's Hayward and Tijuana operations. The
inefficiencies were due to the integration of Able into SigmaTron and the
expansion of the Tijuana operations. Cash used in operating activities was
partially offset by net income, the non-cash effect of depreciation and amortization and an increasenet income. Net cash provided by operations in trade payables.fiscal year 2009 was partially offset by a $9,190,622 reduction in accounts payable. The decrease in accounts payable and accounts receivable is due to payments in the ordinary course of business, coupled with the Company’s reduced sales in fiscal year 2009. The decrease in inventory was the result of our customers’ decreased demand for product based on their forecasts, which we believe is attributable to the global economic slowdown and financial crisis. The Company’s working capital requirements have decreased primarily as a result of the decrease in sales volume during fiscal 2009.
Cash flow provided by operating activities was $1,997,144$4,163,469 for the year ended April 30, 2006, compared to $1,337,081 for the prior fiscal year. During
fiscal year 2006, cash2008. Cash provided by operationsoperating activities was primarily the result of net income (excluding the goodwill impairment charge) net of the non-cash effect of depreciation and amortization and an increase in trade accounts payable. Trade accounts payable increased due to timing of payment to vendors. Cash provided by operating activities in 2008 was partially offset by an increase in accounts receivable of $6,530,677 due to timing of cash receipts from a significant customer. The Company’s inventories of approximately $6,100,000.increased by $1,774,698. The primary reason for the increase in inventories is primarily attributable to an increase inwas customer required safety stock requirements and the start upstartup of the Company's China facility.
INVESTING ACTIVITIES.
Innew programs with new and existing customers.
20
Investing Activities.
During fiscal year 20072009, the Company purchased approximately $4,500,000$1,180,000 in machinery and equipment and itfor various operating facilities. The Company executed a five year capital lease to finance approximately $360,000 of these acquisitions in fiscal year 2009. The Company decided to postpone the planned expansion of the China facility announced in July 2008 in response to the current economic conditions. The Company anticipates that it will make additional machinery and equipment acquisitions during fiscal year 2008. The Company executed three to
five year capital leases to finance approximately $2,100,000 of the acquisitionspurchases in fiscal year 2007.2010 of approximately $2 million.
In fiscal 2006year 2008, the Company purchased approximately $6,300,000$2,400,000 in machinery and equipment. The Company executed three toa five year capital leases to finance
several of the purchases insale lease back agreement for approximately $615,000 for certain acquisitions made during fiscal year 2006.
In July 2005 the Company closed on the purchase of all of the outstanding
stock of Able, a company headquartered in Hayward California and its wholly
owned subsidiary, AbleMex S.A. de C.V., located in Tijuana, Mexico. The
effective date of the transaction was July 1, 2005. Able was merged into the
Company on November 1, 2005 and operates2008, which has been treated for accounting purposes as a division of the Company.capital lease.
Financing Activities.
The
purchase price was approximately $16,800,000 and was recorded asCompany has a
stock
purchase transaction in the first quarter of fiscal year 2006. The transaction
was financed by the Company's amended credit facility and resulted in an
increase of approximately $8,500,000 in goodwill.
In June 2005 the Company closed on the sale of its Las Vegas, Nevada
operation. The transaction was recorded by the Company in the first quarter of
fiscal year 2006 and included a gain on the transaction of approximately
$311,000. The gain was offset by a loss of approximately $383,000 from
discontinued operations for the Las Vegas operation for the period ended April
30, 2006.
24
FINANCING TRANSACTIONS.
On July 31, 2006, the Company amended the credit facility to increase the revolving credit facility from $22,000,000 to $27,000,000. The Company also has
a term loanunder which was increased in July 2006 to $4,000,000 from $2,750,000 on
July 31, 2006. Interest payments only are due monthly through June 30, 2007 and
quarterly principal payments of $250,000 are due each quarter beginning with the
quarter ending June 30 2007, through the quarter ending June 30, 2011. Interest
payments continue to be due monthly throughout the term. In October 2006, the Company amended the credit facility to increase the revolving credit facility
from $27,000,000 to $32,000,000. The increase of $5,000,000 was for a term of
six months and expired on April 30, 2007. In April 2007, the amended revolving
credit facility was renewed in the amount of $32,000,000 and will expire on
September 30, 2009. The amended revolving credit facility is limitedmay borrow up to the lesser of:of (i) $32,000,000$32 million or (ii) an amount equal to the sum of 85% of the receivable borrowing base and the lesser of $16,000,000$16 million or a percentage of the inventory borrowing base. In January and April 2007, the Company's financial covenants
were amended. OnAs of April 30, 2007, $24,219,0152009, $18,746,696 was outstanding under the revolving credit facility and $4,000,000 under the term loan.facility. There was approximately $5,100,000$7.8 million of unused availability under the revolving credit availablefacility as of April 30, 2007.2009. In June 2008, the Company amended the revolving credit facility to extend the term of the agreement until September 30, 2010 from September 30, 2009 and to amend certain financial covenants. The Company was in compliance with the required financial covenants as of April 30, 2009. Historically, the Company has renegotiated its financial covenants at April 30, 2007.
Cash provided by financing activities was $4,106,815 for the current fiscal year ended
April 30, 2007, comparedduring the first quarter of that fiscal year in connection with the Company’s annual budgeting process. As of July 10, 2009, the Company is in the preliminary stages of negotiating revised financial covenants for fiscal 2010. The existing financial covenants remain in place until a new agreement has been reached. The Company is currently working with its lender to $22,345,050 in fiscal 2006. Cash provided by
financing wasamend the result of increased borrowing under thefinancial covenants for its revolving credit facility, based upon the Company’s most recent projections for the 2010 fiscal year. At this time, it is possible that the Company would not be in compliance with an existing financial covenant for the quarter ended July 31, 2009. Therefore, if the Company is not successful in amending its financial covenants, the Company could be in violation of $5,057,115 and an increase of $1,000,000 in the term loan during
fiscal year 2007 The cash provide by financing activities was partially offset
by payments made for capital lease and building mortgage obligations. In fiscal
year 2006 cash provided by financing activities was primarily the result of
increased borrowings under theits revolving credit facility and term loan. The
additional working capital was required primarily for the acquisition of Able
and to support revenue growth.
SigmaTron China entered into a loan agreement in April 2005, which provided
for a line of credit from the China Construction Bank. The interest rate under
the agreement was 5.76%. The line of credit was collateralized by the Company's
building in Suzhou-Wujiang China and 60 of the 100 Chinese acres leased at the
property. The loan was paid in full in July 2006.
The Company anticipates credit facilities, cash flow from operations and
leasing resources will be adequate to meet its working capital requirements in
fiscal year 2008.that time. In the event the business grows rapidlyCompany was unable to amend the required financial covenants or obtain alternative financing, the Company considers an acquisition, additional financing resourcesmay be unable to access lines of credit and its debt obligations could be necessaryaccelerated. These events would likely have a material adverse effect on the Company’s future results of operations, financial position and liquidity.
The Company also has a term loan with an outstanding balance of $2 million as of April 30, 2009 with quarterly principal payments of $250,000 due each quarter through the quarter ending June 30, 2011. Borrowings under the term loan bear an interest rate of LIBOR plus 2%, which ranged from 2.41% to 6.47% during fiscal year 2009. During fiscal year 2008, borrowings under the term loan were at an interest rate of 6.47%.
On November 19, 2003, the Company purchased the property that serves as the Company’s corporate headquarters and its Midwestern manufacturing facility. The Company executed a note and mortgage with LaSalle Bank N.A., (now Bank of America) in the current or future fiscal years. There is no assurance that the Company will
be able to obtain equity or debt financing at acceptable terms in the future.amount of $3,600,000. The Company provides funds for salaries, wages, overheadrefinanced the property on April 30, 2008. The new note bears a fixed interest rate of 5.59% and capital
expenditure items as necessary to operate its wholly-owned Mexicanis payable in sixty monthly installments. A final payment of approximately $2,115,438 is due on or before April 30, 2013. At April 30, 2009, $2,661,438 and Chinese
subsidiaries. The Company provides funding to its Mexican and Chinese
subsidiaries in U.S. dollars, which are exchanged for pesos and RMB as needed.
The fluctuation of currencies from time to time, without an equal or greater
increase in inflation, has not had a material impact on the financial results of
the Company. In fiscal year 2007 the Company paid approximately $19,400,000 to
its subsidiaries for services provided.at April 30, 2008, $2,805,000 was outstanding.
In May 2002, the Company acquired a plant in Acuna, Mexico through seller financing. The loan of $1,950,000 iswas 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 acquiring that plant, the Company rented the facility. At April 30, 2007,2008 there was $183,372 outstanding under the loan. The loan was paid in full in October 2008.
Cash used in financing activities was $10,093,987 for the year ended April 30, 2009, compared to $711,871 in fiscal year 2008. Cash used in financing activities was primarily the result of net payments made
21
to reduce the balance outstanding under the Company’s revolving credit facility by $7,129,559. Cash used in financing activities also was due to payments under the Company’s lease agreements, term loan, and building mortgage obligations.
The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican and Chinese subsidiaries and the Taiwan procurement branch. The Company provides funding in U.S. dollars, which are exchanged for Pesos, Renminbi, and New Taiwan dollars as needed. The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company. The impact of currency fluctuation for the fiscal year ended April 30, 2009 resulted in approximately $531,500 was outstanding$135,000 in connection withincome. In fiscal year 2009, the financing of that facility.Company’s U.S. operations paid approximately $15,100,000 to its foreign subsidiaries for services provided.
The impact of inflation for the past three fiscal years has been minimal.
OFF-BALANCE SHEET TRANSACTIONS:
Off-balance Sheet Transactions:
The Company has no off-balance sheet transactions.
25
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS:
The following table summarizesContractual Obligations and Commercial Commitments:
As a smaller reporting company, as defined in Rule 12b-2 of the Company's contractual obligations at
April 30, 2007, andSecurities Exchange Act of 1934, we are not required to provide the effect such obligationsinformation required by this item.
| | |
| ITEM 7A. | | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, we are
expectednot required to
have on its
liquidity and cash flows in future periods.
Payment Obligations
Less than After 5
Total 1 Year 1-3 Years 3-5 Years Years
---------- --------- ---------- --------- -------
Notes Payable, including
current maturities 3,796,345 714,751 3,081,594 0 0
Capital Leases, including
current maturities 5,451,210 2,000,508 3,161,065 289,637 0
Operating leases 4,523,350 1,449,590 3,015,480 58,280 0
Bank debt 30,952,347 3,283,333 27,669,014 0 0
---------- --------- ---------- ------- ---
Total contractual cash
obligations 44,723,252 7,448,182 36,927,153 347,917 0
========== ========= ========== ======= ===
Maturities for notes payable and bank debt include estimated interest payments
based on prevailing interest rates at April 30, 2007.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates is due
primarily to its short-term investments and borrowings under its credit
agreements. The Company's borrowings are at a variable rate and an increase in
interest rates of 1% would result in interest expense increasingprovide the information required by
approximately $282,000 for the year ended April 30, 2007. As of April 30, 2007,
the Company had no short-term investments and approximately $28,000,000
borrowings under its credit agreements. The Company does not use derivative
financial investments. The Company's cash equivalents, if any, are invested in
overnight commercial paper. The Company does not have any significant cash flow
exposure due to rate changes for its cash equivalents, as these instruments are
short-term.
ITEM 8. this item. | | |
| ITEM 8. | | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The response to this item is included in Item 15(a) of this Report.
ITEM 9.
| | |
| ITEM 9. | | CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
ITEM 9A.
| | |
| ITEM 9A (T). | | CONTROLS AND PROCEDURES |
Our management, including our President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
26
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of April 30, 2007.2009. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports filed by the Company under the Securities Exchange Act of 1934 (the "Exchange Act"“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission'sCommission’s rules and forms and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our President and Chief Executive Officer and Chief Financial Officer concluded that the Company'sCompany’s disclosure controls and procedures were effective as of April 30, 2007.2009. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
22
control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of April 30, 2009. This report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
There has been no change in our internal control over financial reporting during the quarter ended April 30, 2007,2009, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B
| | |
| ITEM 9B. | | OTHER INFORMATION |
Not Applicable
Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
| | |
| ITEM 10. | | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required under this item is incorporated herein by reference to the Company'sCompany’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company'sCompany’s fiscal year ended April 30, 2007.
ITEM 11. 2009.
| | |
| ITEM 11. | | EXECUTIVE COMPENSATION |
The information required under this item is incorporated herein by reference to the Company'sCompany’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company'sCompany’s fiscal year ended April 30, 2007.
ITEM 12. 2009.
| | |
| ITEM 12. | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required under this item is incorporated herein by reference to the
Company'sCompany’s definitive proxy statement,
to be filed with the Securities and Exchange Commission not later than 120 days after the close of the
Company'sCompany’s fiscal year ended April 30,
2007.
27
ITEM 13. 2009. | | |
| ITEM 13. | | CERTAIN RELATIONSHIPS, AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required under this item is incorporated herein by reference to the Company'sCompany’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company'sCompany’s fiscal year ended April 30, 2007.
ITEM 14. 2009.
23
| | |
| ITEM 14. | | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required under this item is incorporated herein by reference to the Company'sCompany’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company'sCompany’s fiscal year ended April 30, 2007.
2009.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| | |
| ITEM 15. | | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Exhibits:
Exhibit 10.16 - Fifteenth Amendment to Loan and Security Agreement between
SigmaTron International, Inc. and LaSalle Bank National Association, dated as of
April 30, 2007, filed as Exhibit 10.16.
(a)(1) and (a)(2)
1
The financial statements, including required supporting schedule, are listed in the
indexIndex to Financial Statements
and Financial Schedule filed as part of this Annual Report on Form 10-K beginning on Page F-1.
28
INDEX TO EXHIBITS
(a)(3)
3.1 Certificate of Incorporation of the Company, incorporated herein by
reference24
Index to Exhibit 3.1 to Registration Statement on Form S-1, File No.
33-72100, dated February 9, 1994.
3.2 Exhibits
(a) 2
| | |
| 3.1 | | Certificate of Incorporation of the Company, incorporated herein by reference to Exhibit 3.1 to Registration Statement on Form S-1, File No. 33-72100, dated February 9, 1994. |
| | |
| 3.2 | | Amended and Restated By-laws of the Company, adopted on September 24, 1999, filed as Exhibit 3.2 to the Company’s Form 10-K for the fiscal year ended April 30, 2000, and hereby incorporated by reference. |
| | |
| 10.1 | | Form of 1993 Stock Option Plan — filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-1, File No. 33-72100, and hereby incorporated by reference. * |
| | |
| 10.2 | | Form of Incentive Stock Option Agreement for the Company’s 1993 Stock Option Plan — filed as Exhibit 3.2 to the Company's Form 10-K for the fiscal year
ended April 30, 2000, and hereby incorporated by reference.
10.1 Form of 1993 Stock Option Plan - filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1, File No. 33-72100, and hereby
incorporated by reference. *
10.2 Form of Incentive Stock Option Agreement for the Company's 1993 Stock
Option Plan - filed as Exhibit 10.5 to the Company's Registration
Statement on Form S-1, File No. 33-72100, and hereby incorporated by
reference. *
10.3 Form of Non-Statutory Stock Option Agreement for the Company's 1993 stock
Option Plan - filed as Exhibit 10.6 to the Company's Registration
Statement on Form S-1, File No. 33-72100, and hereby incorporated by
reference. *
10.4 2000 Outside Directors' Stock Option Plan and hereby incorporated by
reference - filed as Appendix 1 to the Company's 2000 Proxy Statement
filed on August 21, 2000. 10.5 to the Company’s Registration Statement on Form S-1, File No. 33-72100, and hereby incorporated by reference. * |
| | |
| 10.3 | | Form of Non-Statutory Stock Option Agreement for the Company’s 1993 stock Option Plan — filed as Exhibit 10.6 to the Company’s Registration Statement on Form S-1, File No. 33-72100, and hereby incorporated by reference. * |
| | |
| 10.4 | | 2000 Outside Directors’ Stock Option Plan and hereby incorporated by reference — filed as Appendix 1 to the Company’s 2000 Proxy Statement filed on August 21, 2000*. |
| | |
| 10.5 | | Loan and Security Agreement between SigmaTron International, Inc. and LaSalle National Bank dated August 25, 1999, filed as Exhibit 10.26 to the Company’s Form 10-Q for the quarter ended October 31, 1999, and hereby incorporated by reference. |
| | |
| 10.6 | | 2004 Directors’ Stock Option Plan and hereby incorporated by reference — filed as Appendix C to the Company’s 2004 Proxy Statement filed on August 16, 2004. * |
| | |
| 10.7 | | 2004 Employee Stock Option Plan and hereby incorporated by reference — filed as Appendix B to the Company’s 2004 Proxy Statement filed on August 16, 2004. * |
| | |
| 10.8 | | Change in Control Plan dated May 30, 2002, filed as Exhibit 10.15 to the Company’s Form 10-K for the fiscal year ended April 30, 2005, and hereby incorporated by reference.* |
| | |
| 10.9 | | Tenth Amendment to Loan and Security Agreement between SigmaTron International, Inc. and LaSalle Bank National Association, dated July 14, 2005, filed as Exhibit 10.18 to the Company’s Form 10-Q for the quarter ended October 31, 2005, and hereby incorporated by reference. |
| | |
| 10.10 | | Eleventh Amendment to Loan and Security Agreement between SigmaTron International, Inc. and LaSalle Bank National Association, dated September 12, 2005, filed as Exhibit 10.19 to the Company’s Form 10-Q for the quarter Ended October 31, 2005, and hereby incorporated by reference. |
| | |
| 10.11 | | Twelfth Amendment to Loan and Security Agreement between SigmaTron International, Inc. and LaSalle Bank National Association, dated July 31, 2006, filed as Exhibit 10.21 to the Company’s Form 10-Q for the quarter ended July 31, 2006, and hereby incorporated by reference. |
| | |
| 10.12 | | Thirteen Amendment to Loan and Security Agreement between SigmaTron International, Inc. and LaSalle Bank National Association, dated October 20, 2006, filed as Exhibit 10.22 to the Company’s Form 10-Q for the quarter ended October 31, 2006, and hereby incorporated by reference. |
| | |
| 10.13 | | Fourteenth Amendment to Loan and Security Agreement between SigmaTron International, Inc. and LaSalle Bank National Association, dated January 2007, filed as Exhibit 10.23 to the Company’s Form 10-Q for the quarter ended January 31, 2007, and hereby incorporated by reference. |
25 1999, filed as Exhibit 10.26 to the
Company's Form 10-Q for the quarter ended October 31, 1999, and hereby
incorporated by reference.
10.6 Mortgage and Security Agreement between SigmaTron International, Inc. and
LaSalle Bank National Association, dated November 17, 2003, filed as
Exhibit 10.19 to the Company's Form 10-Q for the quarter ended October 31,
2003, and hereby incorporated by reference.
10.7 2004 Directors' Stock Option Plan and hereby incorporated by reference -
filed as Appendix C to the Company's 2004 Proxy Statement filed on August
16, 2004. *
10.8 2004 Employee Stock Option Plan and hereby incorporated by reference -
filed as Appendix B to the Company's 2004 Proxy Statement filed on August
16, 2004. *
10.9 Change in Control Plan dated May 30, 2002, filed as Exhibit 10.15 to the
Company's Form 10-K for the fiscal year ended April 30, 2005, and hereby
incorporated by reference.
10.10 Tenth Amendment to Loan and Security Agreement between SigmaTron
International, Inc. and LaSalle Bank National Association, dated July 14,
2005, filed as Exhibit 10.18 to the Company's Form 10-Q for the quarter
ended October 31, 2005, and hereby incorporated by reference.
10.11 Eleventh Amendment to Loan and Security Agreement between SigmaTron
International, Inc. and LaSalle Bank National Association, dated September
12, 2005, filed as Exhibit 10.19 to the Company's Form 10-Q for the
quarter Ended October 31, 2005, and hereby incorporated by reference.
10.12 Lease Agreement, Number 12, between SigmaTron International, Inc. and
General Electric Capital Corporation, dated November 22, 2005, filed as
Exhibit 10.20 to the Company's Form 10-Q for the quarter ended January 31,
2006, and hereby incorporated by reference.
10.13 Twelfth Amendment to Loan and Security Agreement between SigmaTron
International, Inc. and LaSalle Bank National Association, dated July 31,
2006, filed as Exhibit 10.21 to the Company's Form 10-Q for the quarter
ended July 31, 2006, and hereby incorporated by reference.
29
10.14 Thirteen Amendment to Loan and Security Agreement between SigmaTron
International, Inc. and LaSalle Bank National Association, dated October
20, 2006, filed as Exhibit 10.22 to the Company's Form 10-Q for the
quarter ended October 31, 2006, and hereby incorporated by reference.
10.15 Fourteenth Amendment to Loan and Security Agreement between SigmaTron
International, Inc. and LaSalle Bank National Association, dated January
2007, filed as Exhibit 10.23 to the Company's Form 10-Q for the quarter
ended January 31, 2007, and hereby incorporated by reference.
10.16 Fifteenth Amendment to Loan and Security Agreement between SigmaTron
International, Inc. and LaSalle Bank National Association, dated
April 30, 2007, filed as Exhibit 10.16.
21.1 Subsidiaries of the Registrant to the Company's Form 10-K for the fiscal
year ended April 30, 2006, and hereby incorporated by reference.
21.2 Subsidiaries of the Registrant.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Grant Thornton LLP.
31.1 Certification of Principal Executive Officer of the Company Pursuant to
Rule 13a-14(a) under the Exchange Act, as adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer of the Company Pursuant to
Rule 13a-14(a) under the Exchange Act, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification by the Principal Executive Officer of SigmaTron
International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2 Certification by the Principal Financial Officer of SigmaTron
International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
* Indicates management contract or compensatory plan.
| | |
| 10.14 | | Amended and Restated Mortgage Note between SigmaTron International, Inc. and LaSalle Bank National Association dated April 30, 2008, and hereby incorporated by reference. |
| | |
| 10.15 | | Sixteenth Amendment to Loan and Security Agreement between SigmaTron International, Inc. and LaSalle Bank National Association, dated March 7, 2008, and hereby incorporated by reference. |
| | |
| 10.16 | | Seventeenth Amendment to Loan and Security Agreement between SigmaTron International, Inc. and LaSalle Bank National Association, dated June 25, 2008, filed as Exhibit 10.17 to the Company’s Form 10-Q for the quarter ended July 31, 2008, and hereby incorporated by reference. |
| | |
| 21.0 | | Subsidiaries of the Registrant to the Company’s Form 10-K for the fiscal year ended April 30, 2007, and hereby incorporated by reference. |
| | |
| 23.1 | | Consent of BDO Seidman, LLP.** |
| | |
| 31.1 | | Certification of Principal Executive Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** |
| | |
| 31.2 | | Certification of Principal Financial Officer of the Company Pursuant to Rule 13a-14(a) under the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** |
| | |
| 32.1 | | Certification by the Principal Executive Officer of SigmaTron International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).** |
| | |
| 32.2 | | Certification by the Principal Financial Officer of SigmaTron International, Inc. Pursuant to Rule 13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).** |
| | |
| * | | Indicates management contract or compensatory plan. |
|
| ** | | Filed herewith |
(c) Exhibits
The Company hereby files as exhibits to this Report the exhibits listed in Item 15(a)(3) above, which are attached hereto or incorporated herein.
(d) Financial Statements Schedules
The Company hereby files a schedule to this Report the financial
schedules in Item 15, which are attached hereto.
30
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Gary R. Fairhead
------------------------------------
| | | | |
| SIGMATRON INTERNATIONAL, INC.
| |
| By: | /s/ Gary R. Fairhead | |
| | Gary R. Fairhead, President and Chief Executive Officer, Principal Executive Officer and Director | |
|
Dated: July 24, 200717, 2009
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned directors and officers of SigmaTron International, Inc., a Delaware corporation, which is filing an Annual Report on Form 10-K with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934 as amended, hereby constitute and appoint Gary R. Fairhead and Linda K. Blake,Frauendorfer, and each of them, each of their true and lawful attorneys-in fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in all capacities, to sign any or all amendments to the report to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as each of them might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities, and on the dates indicated.
| | | | |
| Signature | | Title | | Date
--------- ----- ----
/s/ |
| | | | |
/s/ Franklin D. Sove Franklin D. Sove | | Chairman of the Board of Directors | | July 24, 2007
- --------------------------------
Franklin D. Sove
/s/17, 2009 |
| | | | |
/s/ Gary R. Fairhead Gary R. Fairhead | | President and Chief Executive Officer, July 24, 2007
- --------------------------------
(Principal Executive OfficerOfficer) and Director
Gary R. Fairhead
/s/ | | July 17, 2009 |
| | | | |
/s/ Linda K. Blake FrauendorferLinda K. Frauendorfer | | Chief Financial Officer, Secretary and July 24, 2007
- -------------------------------- Treasurer (Principal
(Principal Financial Officer
Linda K. Blake and Principal Accounting Officer)
/s/ | | July 17, 2009 |
| | | | |
/s/ John P. Chen Director July 24, 2007
- --------------------------------
John P. Chen
/s/ | | Director | | July 17, 2009 |
| | | | |
/s/ Thomas W. Rieck Director July 24, 2007
- --------------------------------
Thomas W. Rieck
/s/ | | Director | | July 17, 2009 |
| | | | |
/s/ Dilip S. Vyas Director July 24, 2007
- --------------------------------
Dilip S. Vyas
/s/ | | Director | | July 17, 2009 |
| | | | |
/s/ Carl Zemenick Director July 24, 2007
- --------------------------------
Carl Zemenick | | Director | | July 17, 2009 |
31
27
INDEX TO FINANCIAL STATEMENTS
PAGE
-------
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
REPORTS | | |
| | Page |
| | |
SigmaTron International, Inc. and Subsidiaries | | |
| | |
| | F-2 |
| | |
| CONSOLIDATED FINANCIAL STATEMENTS | | |
| | |
| | F-3 |
| | F-4 |
| | F-5 |
| | F-6 |
| | F-7 |
| | F-8 |
Financial statement schedules not listed above are omitted because they are not applicable or required.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS AND STOCKHOLDERS
SIGMATRON INTERNATIONAL, INC.
ELK GROVE, ILLINOIS
Board of Directors and Stockholders
SigmaTron International, Inc.
Elk Grove, Illinois
We have audited the accompanying consolidated balance sheets of SigmaTron International, Inc. as of April 30, 20072009 and 20062008 and the related consolidated statements of income, stockholders'operations, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SigmaTron
International, Inc. at April 30, 2007 and 2006 and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
As described in Note Q to the consolidated financial statements, effective May
1, 2006, the Company adopted the fair value method of accounting provisions of
Statement of Financial Accounting Standard No. 123 (revised 2004), "Share Based
Payment."
BDO Seidman, LLP
Chicago, Illinois
July 16, 2007
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
SigmaTron International, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of SigmaTron International, Inc. and
subsidiaries (a Delaware corporation) for the year ended April 30, 2005. These
2005 financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flowsfinancial position of SigmaTron International, Inc. at April 30, 2009 and subsidiaries2008 and the results of its operations and its cash flows for the yearyears then ended, April 30, 2005 in conformity with accounting principles generally accepted in the United States of America.
GRANT THORNTON
/s/ BDO Seidman, LLP
Chicago, Illinois
July
8, 2005, except for Note C, related to "discontinued operations" which is
dated July 19, 2006
F-3
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
10, 2009 F-2
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
APRIL
April 30,
2007 2006
------------ -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,769,653 $ 3,269,925
Accounts receivable, less allowance for doubtful
accounts of $150,000 and $268,920 at April 30,
2007 and 2006, respectively 20,279,874 17,747,414
Inventories, net 40,849,791 31,250,050
Prepaid and other assets 1,289,207 1,329,774
Refundable income taxes -- 476,000
Deferred income taxes 1,251,241 957,069
Other receivables 224,189 332,298
------------ -----------
Total current assets 66,663,956 55,362,530
PROPERTY, MACHINERY AND EQUIPMENT, NET 30,971,107 30,544,307
LONG-TERM ASSETS
Other assets 1,006,126 1,548,240
Intangible assets, net of amortization of $1,308,228
and $583,650 at April 30, 2007 and 2006, respectively 1,461,772 2,186,350
Goodwill 9,298,945 9,298,945
------------ -----------
Total long-term assets 11,766,843 13,033,535
------------ -----------
TOTAL ASSETS $109,401,906 $98,940,372
============ ===========
| | | | | | | | | |
| ASSETS | | 2009 | | | 2008 | |
| | | | | | | | | |
CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents | | $ | 3,781,252 | | | $ | 3,833,627 | |
| Accounts receivable, less allowance for doubtful accounts of $167,788 and $213,000 at April 30, 2009 and 2008, respectively | | | 16,785,079 | | | | 26,747,552 | |
| Inventories, net | | | 36,230,555 | | | | 42,146,770 | |
| Prepaid expenses and other assets | | | 923,911 | | | | 1,039,607 | |
| Deferred income taxes | | | 1,560,425 | | | | 1,453,007 | |
| Other receivables | | | 341,310 | | | | 38,783 | |
| | | | | | | |
| | | | | | | | | |
| Total current assets | | | 59,622,532 | | | | 75,259,346 | |
| | | | | | | | | |
PROPERTY, MACHINERY AND EQUIPMENT, NET | | | 26,200,578 | | | | 29,354,623 | |
| | | | | | | | | |
LONG-TERM ASSETS | | | | | | | | |
| Other assets | | | 699,379 | | | | 1,034,155 | |
| Intangible assets, net of amortization of $2,161,113 and $1,811,931 at April 30, 2009 and 2008, respectively | | | 608,887 | | | | 958,069 | |
| | | | | | | |
| | | | | | | | | |
| Total long-term assets | | | 1,308,266 | | | | 1,992,224 | |
| | | | | | | |
| | | | | | | | | |
TOTAL ASSETS | | $ | 87,131,376 | | | $ | 106,606,193 | |
| | | | | | | |
The accompanying notes are an integral part of these statements.
F-4
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-3
SigmaTron International, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETS -— CONTINUED
APRILApril 30,
2007 2006
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 15,473,660 $13,444,928
Accrued expenses 2,613,636 2,163,542
Accrued payroll 2,241,287 1,743,076
Income taxes payable 243,596 839,438
Notes payable - bank 1,000,000 1,000,000
Notes payable - buildings 528,092 430,000
Capital lease obligations 1,690,437 1,408,485
------------ -----------
Total current liabilities 23,790,708 21,029,469
NOTES PAYABLE - BANKS 27,219,015 21,161,900
NOTES PAYABLE - BUILDINGS,
LESS CURRENT PORTION 2,988,372 3,591,088
CAPITAL LEASE OBLIGATIONS,
LESS CURRENT PORTION 3,125,297 2,804,345
DEFERRED INCOME TAXES 2,537,493 2,458,759
------------ -----------
Total liabilities 59,660,885 51,045,561
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value; 12,000,000 shares
authorized, 3,794,956 and 3,786,956 shares issued and
outstanding at April 30, 2007 and 2006, respectively 37,950 37,870
Capital in excess of par value 19,315,104 19,167,289
Retained earnings 30,387,967 28,689,652
------------ -----------
Total stockholders' equity 49,741,021 47,894,811
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $109,401,906 $98,940,372
============ ===========
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | 2009 | | | 2008 | |
| | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | |
| Trade accounts payable | | $ | 10,531,553 | | | $ | 19,722,175 | |
| Accrued expenses | | | 1,602,913 | | | | 2,297,601 | |
| Accrued payroll | | | 1,555,736 | | | | 2,583,379 | |
| Income taxes payable | | | 272,750 | | | | 555,380 | |
| Notes payable — bank | | | 1,000,000 | | | | 1,000,000 | |
| Notes payable — buildings | | | 140,250 | | | | 326,935 | |
| Capital lease obligations | | | 951,983 | | | | 1,595,931 | |
| | | | | | | |
| | | | | | | | | |
| Total current liabilities | | | 16,055,185 | | | | 28,081,401 | |
| | | | | | | | | |
NOTES PAYABLE — BANK, LESS CURRENT PORTION | | | 19,746,696 | | | | 27,876,255 | |
| | | | | | | | | |
NOTES PAYABLE — BUILDINGS, LESS CURRENT PORTION | | | 2,521,188 | | | | 2,661,437 | |
| | | | | | | | | |
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION | | | 1,490,773 | | | | 2,125,692 | |
| | | | | | | | | |
DEFERRED INCOME TAXES | | | 1,915,649 | | | | 2,446,449 | |
| | | | | | | | | |
| | | | | | | |
| Total liabilities | | | 41,729,491 | | | | 63,191,234 | |
| | | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
| Preferred stock, $.01 par value; 500,000 shares authorized, none issued and outstanding | | | — | | | | — | |
| Common stock, $.01 par value; 12,000,000 shares authorized, 3,822,556 shares issued and outstanding at April 30, 2009 and 2008 | | | 38,226 | | | | 38,226 | |
| Capital in excess of par value | | | 19,630,580 | | | | 19,599,501 | |
| Retained earnings | | | 25,733,079 | | | | 23,777,232 | |
| | | | | | | |
| | | | | | | | | |
| Total stockholders’ equity | | | 45,401,885 | | | | 43,414,959 | |
| | | | | | | |
| | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 87,131,376 | | | $ | 106,606,193 | |
| | | | | | | |
The accompanying notes are an integral part of these statements.
F-5
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-4
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED APRILOPERATIONS
Years ended April 30,
2007 2006 2005
------------ ------------ -----------
Net sales $165,909,106 $124,786,476 $94,312,573
Cost of products sold 148,150,350 109,986,377 76,354,419
------------ ------------ -----------
Gross profit 17,758,756 14,800,099 17,958,154
Selling and administrative expenses 12,872,353 10,925,646 10,076,082
------------ ------------ -----------
Operating income 4,886,403 3,874,453 7,882,072
Other income (282,280) (408,889) (550,270)
Interest expense - banks and capital lease obligations 2,574,180 1,421,455 283,137
------------ ------------ -----------
Income from continuing operations before income tax expense 2,594,503 2,861,887 8,149,205
Income tax expense 896,179 935,589 3,173,635
------------ ------------ -----------
Income before minority interest of affiliate 1,698,324 1,926,298 4,975,570
Minority interest in income of affiliate -- -- 134,334
------------ ------------ -----------
Income before discontinued operations 1,698,324 1,926,298 4,841,236
------------ ------------ -----------
Discontinued operations
Gain on sale of Las Vegas operation -- (310,731) --
(Income) loss from operations of discontinued Las Vegas location -- 383,134 233,504
Income tax (benefit) expense -- (28,237) (91,067)
------------ ------------ -----------
(Loss) income on discontinued operation -- (44,166) (142,437)
------------ ------------ -----------
NET INCOME $ 1,698,324 $ 1,882,132 $ 4,698,799
============ ============ ===========
Earnings (loss) per share - basic
Continuing operations $ 0.45 $ 0.51 $ 1.29
Discontinuing operations 0.00 (0.01) (0.04)
------------ ------------ -----------
Total $ 0.45 $ 0.50 $ 1.25
============ ============ ===========
Earnings (loss) per share - diluted
Continuing operations $ 0.44 $ 0.49 $ 1.27
Discontinuing operations 0.00 (0.01) (0.04)
------------ ------------ -----------
Total $ 0.44 $ 0.48 $ 1.23
============ ============ ===========
Weighted-average shares of common
stock outstanding
Basic 3,791,077 3,756,804 3,751,792
============ ============ ===========
Diluted 3,879,155 3,894,731 3,815,549
============ ============ ===========
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Net sales | | $ | 133,744,642 | | | $ | 167,810,994 | |
| Cost of products sold | | | 117,769,739 | | | | 148,247,604 | |
| | | | | | | |
| Gross profit | | | 15,974,903 | | | | 19,563,390 | |
| Selling and administrative expenses | | | 11,591,440 | | | | 12,375,458 | |
| Goodwill impairment charge | | | — | | | | 9,298,945 | |
| | | | | | | |
| Operating income (loss) | | | 4,383,463 | | | | (2,111,013 | ) |
| Other (income) expense | | | (219,479 | ) | | | 22,832 | |
| Interest expense | | | 1,710,817 | | | | 2,667,473 | |
| | | | | | | |
| Income (loss) before income tax expense | | | 2,892,125 | | | | (4,801,318 | ) |
| Income tax expense | | | 936,278 | | | | 1,655,518 | |
| | | | | | | |
NET INCOME (LOSS) | | $ | 1,955,847 | | | $ | (6,456,836 | ) |
| | | | | | | |
| | | | | | | | | |
| Earnings (loss) per common share | | | | | | | | |
| Basic | | $ | 0.51 | | | $ | (1.69 | ) |
| | | | | | | |
| Diluted | | $ | 0.51 | | | $ | (1.69 | ) |
| | | | | | | |
| | | | | | | | | |
| Weighted-average shares of common stock outstanding | | | | | | | | |
| Basic | | | 3,822,556 | | | | 3,811,832 | |
| | | | | | | |
| Diluted | | | 3,859,526 | | | | 3,811,832 | |
| | | | | | | |
The accompanying notes are an integral part of these statements.
F-6
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-5
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS'STOCKHOLDERS’ EQUITY
THREE YEARS ENDED APRIL
Two years ended April 30, 2007, 2006 AND 2005
Capital in Total
Preferred Common excess of Retained stockholders'
stock stock par value earnings equity
--------- ------- ----------- ----------- -------------
Balance at May 1, 2004 $-- $37,510 $19,056,525 $22,108,712 $41,202,747
Exercise of options -- 44 17,774 -- 17,818
Tax benefit of exercise of option -- -- 12,721 -- 12,721
Net income -- -- -- 4,698,799 4,698,799
--- ------- ----------- ----------- -----------
Balance at April 30, 2005 -- 37,554 19,087,020 26,807,511 45,932,085
Exercise of options -- 316 80,269 -- 80,585
Net income -- -- -- 1,882,132 1,882,132
--- ------- ----------- ----------- -----------
Balance at April 30, 2006 -- 37,870 19,167,289 28,689,643 47,894,802
Tax benefit of exercise of options -- -- 96,000 -- 96,000
Exercise of options -- 80 17,520 -- 17,600
Stocked-based compensation -- -- 34,295 -- 34,295
Net income -- -- -- 1,698,324 1,698,324
--- ------- ----------- ----------- -----------
Balance at April 30, 2007 $-- $37,950 $19,315,104 $30,387,967 $49,741,022
=== ======= =========== =========== ===========
The accompanying notes are an integral part of this statement.
F-7
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30,
2007 2006 2005
------------ ------------ -----------
Cash flows from operating activities
Net income $ 1,698,324 $ 1,882,132 $ 4,698,799
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 4,033,619 3,635,643 3,249,055
Stock-based compensation 34,286 -- --
Provision for doubtful accounts 17,107 296,918 --
Provision for inventory obsolescence 475,763 390,087 (319,445)
Deferred income taxes (215,438) (358,435) 1,876,218
Amortization of intangibles 724,578 595,900 --
Gain on sale of discontinued operation -- (310,731) --
Forgiveness of SMTU interest payable -- -- (145,841)
Changes in operating assets and liabilities, net of acquisition
Accounts receivable (2,549,567) (559,175) (1,624,036)
Inventories (10,075,504) (6,121,916) (6,980,704)
Prepaid expenses and other assets 1,166,790 (146,594) 408,394
Refundable income taxes -- (476,000) 275,583
Minority interest in affiliate -- -- (439,787)
Trade accounts payable 2,028,732 3,207,340 (79,915)
Tax benefits of options exercised -- -- 12,721
Accrued expenses and wages 948,305 (469,753) (1,671)
Income taxes (595,842) 431,728 407,710
------------ ------------ -----------
Net cash (used in) provided by operating activities (2,308,847) 1,997,144 1,337,081
Cash flows from investing activities
Acquisition of Able, net of cash -- (16,771,755) --
Proceeds from sale of machinery and equipment -- 182,244 --
Proceeds from sale of Las Vegas operation -- 1,705,695 --
Purchases of machinery and equipment (2,298,240) (6,372,467) (3,816,935)
Purchase of SMTU interest -- -- (1,338,858)
------------ ------------ -----------
Net cash used in investing activities (2,298,240) (21,256,283) (5,155,793)
Cash flows from financing activities
Proceeds from exercise of options 17,600 80,587 17,774
Proceeds under building notes payable -- -- --
Payments under building notes payable (504,624) (482,740) (462,289)
Payments from other notes payable -- (300,000) (1,030,000)
Proceeds under capital lease obligations -- 2,720,415 1,729,073
Payments under capital lease obligations (1,559,276) (1,322,154) (792,090)
Proceeds under term loan 1,250,000 3,000,000 --
Payments under term loan (250,000) -- --
Tax benefit from exercise of stock options 96,000 -- --
Net proceeds (payments) under lines of credit 5,057,115 18,648,942 (605,556)
------------ ------------ -----------
Net cash provided by (used in)
financing activities 4,106,815 22,345,050 (1,143,088)
------------ ------------ -----------
INCREASE (DECREASE) IN CASH (500,272) 3,085,911 (4,961,800)
Cash at beginning of year 3,269,925 184,014 5,145,814
------------ ------------ -----------
Cash at end of year $ 2,769,653 $ 3,269,925 $ 184,014
============ ============ ===========
Supplementary disclosures of cash flow information
Cash paid for interest $ 1,890,947 $ 886,652 $ 412,324
Cash paid for income taxes, net of (refunds) 1,415,033 1,135,078 333,518
Acquisition of buildings financed under bank notes -- -- --
Purchase of machinery and equipment financed under capital leases 2,162,179 2,720,415 1,729,073
Non Cash Investing Activities 2005
Acquisition of SMTU $ 2,814,699
Forgiveness of interest payable of SMTU (145,841)
Cash paid for acquisition (1,338,858)
-----------
Notes issued for acquisition $ 1,330,000
Forgiveness of subordinated debenture 1,050,000
Forgiveness of accrued interest payable 593,582
Reduction of long lived assets from purchase of SMTU 344,155
Goodwill created 756,959
2009 and 2008 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Capital in | | | | | | | Total | |
| | | Preferred | | | Common | | | excess of par | | | Retained | | | stockholders’ | |
| | | stock | | | stock | | | value | | | earnings | | | equity | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at May 1, 2007 | | $ | — | | | $ | 37,950 | | | $ | 19,315,104 | | | $ | 30,387,968 | | | $ | 49,741,022 | |
| Adjustment to initially apply FIN 48, Accounting for Uncertainty in Income Taxes | | | — | | | | — | | | | — | | | | (153,900 | ) | | | (153,900 | ) |
| Exercise of options | | | — | | | | 276 | | | | 252,816 | | | | — | | | | 253,092 | |
| Stock-based compensation | | | — | | | | — | | | | 31,581 | | | | — | | | | 31,581 | |
| Net loss | | | — | | | | — | | | | — | | | | (6,456,836 | ) | | | (6,456,836 | ) |
| | | | | | | | | | | | | | | | |
| Balance at April 30, 2008 | | | — | | | | 38,226 | | | | 19,599,501 | | | | 23,777,232 | | | | 43,414,959 | |
| Stock-based compensation | | | — | | | | — | | | | 31,079 | | | | — | | | | 31,079 | |
| Net income | | | — | | | | — | | | | — | | | | 1,955,847 | | | | 1,955,847 | |
| | | | | | | | | | | | | | | | |
| Balance at April 30, 2009 | | $ | — | | | $ | 38,226 | | | $ | 19,630,580 | | | $ | 25,733,079 | | | $ | 45,401,885 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these statements.
F-8
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-6
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| Cash flows from operating activities | | | | | | | | |
| Net income (loss) | | $ | 1,955,847 | | | $ | (6,456,836 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | | | | | | |
| Depreciation and amortization | | | 4,035,804 | | | | 4,004,108 | |
| Goodwill impairment charge | | | — | | | | 9,298,945 | |
| Stock-based compensation | | | 31,079 | | | | 31,581 | |
| Provision for doubtful accounts | | | 17,788 | | | | 63,000 | |
| Provision for inventory obsolescence | | | 157,000 | | | | 477,719 | |
| Deferred income tax benefit | | | (518,981 | ) | | | (490,787 | ) |
| Amortization of intangible assets | | | 349,182 | | | | 503,703 | |
| Loss from sale of machinery and equipment | | | 279,521 | | | | — | |
| | | | | | | | | |
| Changes in operating assets and liabilities | | | | | | | | |
| Accounts receivable | | | 9,944,685 | | | | (6,530,677 | ) |
| Inventories | | | 5,759,215 | | | | (1,774,698 | ) |
| Prepaid expenses and other assets | | | 147,945 | | | | 406,977 | |
| Trade accounts payable | | | (9,190,622 | ) | | | 4,248,515 | |
| Accrued expenses and wages | | | (1,722,331 | ) | | | 26,057 | |
| Income taxes | | | (401,867 | ) | | | 355,862 | |
| | | | | | | |
| | | | | | | | | |
| Net cash provided by operating activities | | | 10,844,265 | | | | 4,163,469 | |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Proceeds from sale of machinery and equipment | | | 18,052 | | | | 12,396 | |
| Purchases of machinery and equipment | | | (820,705 | ) | | | (2,400,020 | ) |
| | | | | | | |
| | | | | | | | | |
| Net cash used in investing activities | | | (802,653 | ) | | | (2,387,624 | ) |
| | | | | | | | | |
| Cash flows from financing activities | | | | | | | | |
| Proceeds from exercise of options | | | — | | | | 253,092 | |
| Payments under building notes payable | | | (326,934 | ) | | | (528,092 | ) |
| Proceeds under sale lease back agreements | | | — | | | | 615,855 | |
| Payments under capital lease obligations | | | (1,637,494 | ) | | | (1,709,966 | ) |
| Payments under term loan | | | (1,000,000 | ) | | | (1,000,000 | ) |
| Net (payments) proceeds under lines of credit | | | (7,129,559 | ) | | | 1,657,240 | |
| | | | | | | |
| | | | | | | | | |
| Net cash used in financing activities | | | (10,093,987 | ) | | | (711,871 | ) |
| | | | | | | |
| | | | | | | | | |
(DECREASE) INCREASE IN CASH | | | (52,375 | ) | | | 1,063,974 | |
| |
| Cash and cash equivalents at beginning of year | | | 3,833,627 | | | | 2,769,653 | |
| | | | | | | |
| | | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 3,781,252 | | | $ | 3,833,627 | |
| | | | | | | |
| | | | | | | | | |
| Supplementary disclosures of cash flow information | | | | | | | | |
| Cash paid for interest | | $ | 1,810,000 | | | $ | 2,512,453 | |
| Cash paid for income taxes, net of (refunds) | | | 1,560,243 | | | | 1,594,771 | |
| Purchase of machinery and equipment financed under capital lease obligations | | | 358,627 | | | | — | |
| Purchase of machinery and equipment financed under sale lease back agreements | | | — | | | | 615,855 | |
The accompanying notes are an integral part of these statements.
F-7
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE A -— DESCRIPTION OF THE BUSINESS
The Company operates
SigmaTron International, Inc. and its subsidiaries (the “Company”) operate in one business segment as an independent provider of electronic manufacturing services ("EMS"(“EMS”), which includes printed circuit board assemblies and completely assembled (box-build) electronic products. In connection with the production of assembled products, the Company also provides services to its customers including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) design, manufacturing and test engineering support; (4) warehousing and shipment services; and (5) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these manufacturing services through an international network of facilities located in North America, China and Taiwan. Approximately 10% and 9% of the consolidated non-current assets of the Company are located in foreign jurisdictions outside the United States.
States as of April 30, 2009 and 2008, respectively.
NOTE B -— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY
Consolidation Policy
The consolidated financial statements include the accounts and transactions of the Company, its wholly-owned subsidiaries, Standard Components de Mexico, S.A., and AbleMex S.A. de C.V., SigmaTron International Trading Co., its wholly ownedwholly-owned foreign enterprise Wujiang SigmaTron Electronics Co. Ltd., (" (“SigmaTron China"China”), and its procurement branch, SigmaTron Taiwan. The functional currency of the Mexican and Chinese subsidiaries and procurement branch SigmaTron Taiwan, is the U.S. dollar. The Company adopted
the provisions
Use of Financial Accounting Standards Board ("FASB") Interpretation
No. 46R ("FIN 46R"), "Consolidation of Variable Interest Entities. The Company
adopted FIN 46R as of November 1, 2003, as it relates to its former affiliate
SMT Unlimited L.P. ("SMTU"). On September 2, 2004, the remaining minority
interest in SMTU was acquired. On October 1, 2004, SMTU was liquidated, thereby
becoming an operating division of the Company.
USE OF ESTIMATES
Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 and
estimates used in goodwill impairment
test.valuation of long-lived assets. Actual results could materially differ from these estimates.
F-9
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-8
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE B -— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CASH AND CASH EQUIVALENTS
— Continued
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid short-term investments maturing within threetwelve months of the purchase date.
ACCOUNTS RECEIVABLE
Accounts Receivable
The majority of the Company'sCompany’s accounts receivable are due from companies in the consumer electronics, gaming, fitness, industrial electronics, life sciences, semiconductor, telecommunications, appliance and automotive industries. Credit is extended based on evaluation of a customer'scustomer’s financial condition, and, generally, collateral is not required. Accounts receivable are due in accordance with agreed upon terms, and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payments terms are considered past due. The Company writes off accounts receivable when they become uncollectible, and payments subsequently
received on such receivables are crediteddetermined to the allowancebe uncollectible.
Allowance for doubtful
accounts.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Doubtful Accounts
The Company'sCompany’s allowance for doubtful accounts relates to receivables not expected to be collected from our customers. This allowance is based on management'smanagement’s assessment of specific customer balances, considering the age of receivables and financial stability of the customer and a five year average of prior uncollectible amounts. If there is an adverse change in the financial condition of the Company'sCompany’s customers, or if actual defaults are higher than provided for, an addition to the allowance may be necessary.
INVENTORIES
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. The
inventory includes an allocation of labor and
overhead, including direct and indirect labor, freight and other overhead costs.
The Company establishes inventory reserves for valuation, shrinkage, and excess and obsolete inventory.
The Company records provisions for inventory shrinkage
based on historical experience to account for unmeasured usage or loss. Actual results differing from these estimates could significantly affect the
Company'sCompany’s inventories and cost of products sold. The Company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions. Actual product demand or market conditions could be different than
that projected by management.
F-10
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-9
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE B -— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
MACHINERY AND EQUIPMENT— Continued
Inventory Policies
The Company’s inventories include parts and components that may be specialized in nature or subject to customers’ future usage requirements. The Company has programs to minimize the required inventories on hand and actively monitors customer purchase orders, forecasts and backlog. The Company uses estimated allowances to reduce recorded amounts to market values; such estimates could change in the future.
Property, Machinery and Equipment
Property, machinery and equipment are valued at cost. The Company provides for depreciation and amortization using the straight-line method over the estimated useful life of the assets:
| | |
| Buildings | | 20 years |
| Machinery and equipment | | 5-12 years |
| Office equipment | | 5 years |
| Tools and dies | | 12 months |
| Leasehold improvements | | term of lease |
INCOME TAXES
Income Taxes
Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets to an amount more likely than not to be realized.
EARNINGS PER SHARE
Earnings per Share
Basic earnings per share are computed by dividing income (loss) available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of the diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. At April 30, 2005, 2006,2009 and 20072008, there were 3,100, 33,100413,090 and 419,790498,707 anti-dilutive shares, respectively.
REVENUE RECOGNITION
F-10
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2009 and 2008
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
Revenue Recognition
Revenues from sales of
product including the
Company'sCompany’s electronic manufacturing services business are recognized when the product is
shipped.shipped to the customer. In general, it is the
Company'sCompany’s policy to recognize revenue and related costs when the order has been shipped from
itsour facilities, which is also the same point that title passes under the terms of the purchase order except for consignment inventory. Consignment inventory is shipped from the Company to an independent warehouse for storage or shipped directly to the customer and stored in a segregated part of the
customer'scustomer’s own facility. Upon the
customer'scustomer’s request for inventory, the consignment inventory is shipped to the customer if the inventory was stored offsite or transferred from the segregated part of the
F-11
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REVENUE RECOGNITION - CONTINUED
customer'scustomer’s facility for consumption, or use, by the customer. The Company recognizes revenuesrevenue upon such transfer. The Company does not earn a fee for storing the consignment inventory. The Company generally provides a ninety (90)90 day warranty for workmanship only and does not have any installation, acceptance or sales incentives, although the Company has negotiated extendedlonger warranty terms in certain instances. The Company assembles and tests assemblies based on customer'scustomers’ specifications. Historically, the amount of returns for workmanship issues has been de minimusminimis under the Company'sCompany’s standard or extended warranties. Any returns for workmanship issues received after each period end are accrued in the respective financial statements for the
period in which the return was received.
SHIPPING AND HANDLING COSTS
statements.Shipping and Handling Costs
The Company records shipping and handling costs net, within selling and administrative expenses. Customers are typically invoiced for shipping costs. Shipping and handling costs were not material to the financial statements for fiscal years 2007 and 2006.
FAIR VALUE OF FINANCIAL INSTRUMENTS
2009 or 2008.
Fair Value of Financial Instruments
The Company'sCompany’s financial instruments include receivables, notes payable,debt, accounts payable, and accrued liabilities.expenses. The fair values of financial instruments are not materially different from their carrying values.
LONG-LIVED ASSETS
values, due to the short-term nature of receivables, accounts payable and accrued expenses and the market interest rates charged on the Company’s long-term debt.
Long-Lived Assets
The Company reviews its 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
F-11
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2009 and 2008
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
Long-Lived Assets — Continued
considered impaired if its carrying amount exceeds the future undiscounted 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 its fair market value. The Company has adopted
Goodwill and Other Intangibles
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 141(R), Accounting Standards Codification (“ASC”) (805-10-10-1) “Business Combinations” (“SFAS
No 144,141(R)”) which
establishes a single
accounting model for the impairment or disposal of long-lived assets, including
discontinued operations. There were no impairments for the fiscal years ended
April 30, 2007, 2006 and 2005.
F-12
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
GOODWILL AND OTHER INTANGIBLES
In accordance withreplaces SFAS No. 141, "Business Combinations" a purchaser must
allocate“Business Combinations.” The FASB has since codified FASB 141(R) as Accounting Standards Codification (“ASC”) 805-10-10-1. This Statement retains the total consideration paidfundamental requirements in aSFAS No. 141 that the acquisition method of accounting (formerly referred to as purchase method) is to be used for all business combinations and that an acquirer is identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as of the date that the acquirer achieves control. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquire at the acquisition date, measured at their fair values. This Statement requires the acquirer to recognize acquisition-related costs and restructuring costs separately from the business combination as period expense. This Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will implement SFAS No. 141(R) for any business combinations occurring subsequent to April 30, 2009. In January 2008, the Company changed the date of its annual goodwill impairment test from the last day of the fiscal year to the acquired
tangiblefirst day of the fiscal fourth quarter. The impairment test procedures were carried out during the fourth quarter and intangible assets based on their fair value. Goodwill representsup to the purchase pricetime of the filing of the Company’s Form 10-K for fiscal year 2008, which allowed the Company additional time to complete the required analysis. The Company believes that the resulting change in excessaccounting principle related to the annual testing date did not delay, accelerate or avoid an impairment charge. The Company determined that the change in accounting principle related to the annual testing date was preferable under the circumstances and did not result in adjustments to the Company’s financial statements when applied retrospectively. During the fiscal year 2008, the Company performed its annual goodwill impairment testing and the carrying value of the Company’s reporting unit exceeded the fair value of assets acquired in business
combinations. SFAS No. 142, requires the Company to assessindicating a goodwill for
impairment at least annually in the absence of an indicator of possible
impairment and immediately upon an indicator of possible impairment. During the
fourth quarter of fiscal 2007, theThe Company completed its annual assessmentthe second step of
impairment regarding the goodwill recorded. The Company calculatesimpairment test used to measure the amount of the impairment loss by comparing the implied fair value of the reporting unit utilizing a combination of a discounted cash flow approachgoodwill with
F-12
SigmaTron International, Inc. and a market approach which considers both the Company's market capitalization
and trading multiples of comparable companies. The calculation of fair value of
the reporting unit involves significant judgment and utilization of different
underlying assumptions could result in different calculated fair values. The
goodwill impairment analysis indicated there was no goodwill impairment for the
year ended April 30, 2007 as the fair value of the reporting unit exceeded the
carrying value of the reporting unit by approximately 1%. However, in the event
the Company does not achieve projected performance or there is a decline in the
market price of the Company's stock, we may be required to record an impairment
charge for goodwill in the future, which charge would reduce net income and
earnings per share.
Goodwill
----------
May 1, 2004 $ --
SMTU acquisition 756,959
----------
April 30, 2005 756,959
Able acquisition 8,541,986
----------
April 30, 2006 and April 30, 2007 $9,298,945
==========
F-13
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRILApril 30, 2007, 2006 AND 2005
2009 and 2008 NOTE B -— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
GOODWILL AND OTHER INTANGIBLES - CONTINUED
— Continued
Goodwill and Other Intangibles — Continued
the carrying amount of the goodwill. As a result of this impairment analysis, the Company recorded an impairment charge for the full amount of goodwill ($9.3 million) during the fiscal year ended April 30, 2008. The impairment was due to continuing customer pricing pressures and uncertain economic conditions as well as the Company’s declining stock price during fiscal 2008.
The following are the changes in the carrying amount of intangible assets, net of accumulated amortization:
Internally Non-
Developed competes and Customer
Software Backlog Relationships Total
---------- ------------ ------------- -----------
Balance as of April 30, 2005 $ -- $ -- $ -- $ --
Acquisition 115,000 260,000 2,395,000 2,770,000
Amortization expense 2006 (115,000) (219,170) (249,480) (583,650)
Amortization expense 2007 -- (35,004) (689,574) (724,578)
--------- --------- ---------- -----------
Balance as of April 30, 2007 $ 0 $ 5,826 $1,455,946 $ 1,461,772
========= ========= ========== ===========
Amortization period 1 year 2 years 8 years N/A
F-14
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
GOODWILL AND OTHER INTANGIBLES - CONTINUED
| | | | | | | | | | | | | |
| | | Non- | | | | | |
| | | competes and | | | Customer | | | | |
| | | Backlog | | | Relationships | | | Total | |
| Balance as of May 1, 2007 | | $ | 5,826 | | | $ | 1,455,946 | | | $ | 1,461,772 | |
| Amortization expense 2008 | | | (5,826 | ) | | | (497,877 | ) | | | (503,703 | ) |
| | | | | | | | | | |
| Balance as of April 30, 2008 | | | — | | | | 958,069 | | | | 958,069 | |
| Amortization expense 2009 | | | — | | | | (349,182 | ) | | | (349,182 | ) |
| | | | | | | | | | |
| Balance as of April 30, 2009 | | $ | — | | | $ | 608,887 | | | $ | 608,887 | |
| | | | | | | | | | |
| Amortization period | | 2 years | | 8 years | | | N/A | |
The estimated intangible amortization expenses for the next five years are as follows:
Years Ended
| | | | | |
| Years Ended April 30, | | | | |
| | | | | |
| 2010 | | $ | 245,216 | |
| 2011 | | | 163,998 | |
| 2012 | | | 112,746 | |
| 2013 | | | 75,850 | |
| 2014 | | | 11,077 | |
| | | | |
| | | $ | 608,887 | |
| | | | |
The Company’s intangible assets are amortized utilizing accelerated amortization methods.
F-13
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30,
2008 503,697
2009 349,186
2010 245,216
2011 163,998
2012 112,746
Thereafter 86,929
----------
$1,461,772
==========
STOCK INCENTIVE PLANS
The Company adopted Financial Accounting Standards Board, Share-Based Payment
("SFAS 123 (R)") Accounting for 2009 and 2008 NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
Stock Based Compensation on May 1, 2006, and
implemented the new standard utilizing the modified prospective application
transition method. SFAS 123 (R) requires the Company to measure the cost of
employee services received in exchange for an equity award based on the grant
date fair value. Options for which the requisite service requirement has not
been rendered and that are outstanding as of May 1, 2006 are valued in
accordance with SFAS 123 "Accounting for Stock Based Compensation" and will be
recognized over the remaining service period. Stock based compensation expense
for all stock-based awards granted subsequent to May 1, 2006 was based on the
grant date fair value estimated in accordance with the provisions of SFAS No.
123 (R). The Company granted 16,000 options to non-executive employees and
recognized approximately $34,000 in stock compensation expense associated with
the grants and a tax benefit of approximately $13,000 in fiscal year 2007.
Incentive Plans
Under the Company'sCompany’s stock option plans, options to acquire shares of common stock have been made available for grant to certain employees and directors. Each option granted has an exercise price of not less than 100% of the market value of the common stock on the date of grant. The contractual life of each option is generally 10 years. The vesting of the grants varies according to the individual options granted. PriorThe Company measures the cost of employee services received in exchange for an equity award based on the grant date fair value.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), (ASC 820-10-05-1), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for the Company beginning on May 1, 2008. In November 2007, the FASB agreed to
a one-year deferral of the
effective date of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. There was no significant impact from adoption of SFAS
123 (R),157 for financial assets and liabilities on the
Company had elected to apply
Accounting Principles Board Opinion 25 to accountCompany’s financial statements and none are expected when SFAS 157 is adopted for
its stock-based
compensation plans, as permitted under SFAS No. 123, Accounting for Stock-Based
Compensation. This method applied the intrinsic value method for stock optionsnon-financial assets and
other awards granted to employees. Had the fair value method
F-15
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
STOCK INCENTIVE PLANS - CONTINUED
been used during twelve months ended April 30, 2006 and 2005 the following pro
forma net income would be as reported:
The following table also provides the amount of stock-based compensation expense
included in net earnings as reported.
2006 2005
----------- ----------
Net income as reported $ 1,882,132 $4,698,799
Add total stock-based employee compensation expense
recorded in the period
5,248 --
Deduct total stock-based employee compensation
expense determined under fair value-based method for
awards granted, modified, or settled, net of related tax
effects (2,342,955) (217,322)
----------- ----------
Pro forma net income $ (455,575) $4,481,477
----------- ==========
In April 2006, in response to the issuance of SFAS 123 (R), the Company's
Compensation Committee of the Board of Directors approved accelerating the
vesting of 349,695 unvested stock options held by current employees and
executive officers. Under FIN 44, a modification to accelerate the vesting of a
fixed award effectively results in the renewal of that award if, after the
modification, an employee is able to exercise/vest in an award that under the
original terms, would have expired unexercisable/vested. If the employee
continues to provide service and would have vested in the awards under the
original vesting provisions, the modification does not cause an effective
renewal of the awards and, accordingly, any incremental compensation expense
measured as of the modification date should not be recognized. The Company
determined approximately 15,900 options were effectively renewed and
compensation expense of $5,248 was recognized in fiscal year 2006.
F-16
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
STOCK INCENTIVE PLANS - CONTINUED
2006 2005
----- -----
Earnings per share
Basic - as reported $0.50 $1.25
Basic - pro forma (.12) 1.19
Diluted - as reported 0.48 1.21
Diluted - pro forma (.12) 1.17
RISKS AND UNCERTAINTIES
The Company's inventories include parts and components that may be specialized
in nature or subject to customers' future usage requirements. The Company has
programs to minimize the required inventories on hand and actively monitors
customer purchase orders and backlog. The Company uses estimated allowances to
reduce recorded amounts to market values; such estimates could change in the
future.
NEW ACCOUNTING STANDARDS
liabilities. In February 2007, the FASB issued SFAS No. 159 ("SFAS 159") "The“The Fair Value OptionOptions for Financial Assets and Financial Liabilities"Liabilities”(“SFAS No. 159”). (ASC 820-10-10-1) SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 iswas effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option pursuant to SFAS 159.
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 141(R), Accounting Standards Codification (“ASC”) (805-10-10-1) “Business Combinations” (“SFAS 141(R)”) which replaces SFAS No. 141, “Business Combinations.” The FASB has since codified FASB 141(R) as Accounting Standards Codification (“ASC”) 805-10-10-1. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (formerly referred to as purchase method) is currently assessingto be used for all business combinations and that an acquirer is identified for each business combination. This Statement defines the impactacquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as of the date that the acquirer achieves control. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquire at the acquisition date, measured at their fair values. This Statement requires the acquirer to recognize
F-14
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2009 and 2008
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
New Accounting Standards — Continued
acquisition-related costs and restructuring costs separately from the business combination as period expense. This Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will implement SFAS 159 may have on its financial statements.
No. 141(R) for any business combinations occurring subsequent to April 30, 2009.
In
September 2006,December 2007, the FASB issued SFAS No.
157 ("160, “Noncontrolling interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS
157"160”)
"Fair Value
Measurements", (ASC 810-10-65-1). SFAS
157160 establishes
accounting reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a
common definition for fair value to be
applied to U.S. GAAP guidance requiring use of fair value, establishes a
framework for measuring fair value, and expands disclosure about such fair value
measurements. SFAS 157 is effective for fiscal years beginning after November
15, 2007. The Company is currently assessing the impact SFAS 157 may have on its
financial statements.
In July 2006, the FASB issued FIN 48, to create a single model to address
accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for
income taxes by prescribing a minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. FIN 48
also provides guidance on derecognition, classification,parent’s ownership interest, and
penalties,
accounting in interim periods, disclosures,the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and
transition. FIN 48distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15,
2006. The Company will adopt FIN
48 as of May 1, 2007,
F-17
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NEW ACCOUNTING STANDARDS - CONTINUED
as required.2008. The Company has estimateddetermined that its potential impact to retained
earnings is expected to be no greater than $500,000.
In June 2006, FASB Interpretation 48 ("FASB 48") "Accounting for Uncertainty in
Income Taxes" was issued, which clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FASB 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FASB 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition.
In February 2006, the FASB issued Statement of Financial Accounting Standard No.
155, "Accounting for Certain Hyrid Instruments" ("SFAS 155"). SFAS 155 allows
financial instruments that have embedded derivatives to be accounted for as a
whole (eliminating the need to bifurcate the derivative from its host) if the
holder elects to account for the whole instrument on a fair value basis. This
statement is effective for all financial instruments acquired or issued after
the beginning of the entity's first fiscal year that begins after September 15,
2006. The Company does160 will not expect the adoption of SFAS 155 will have a material impact on its consolidated results of operations and financial statements.
condition.NOTE C - DISCONTINUED OPERATIONS
In June 2005, the Company closed on the sale of its Las Vegas, Nevada operation.
The Las Vegas facility operated as a complete EMS center specializing in the
assembly of electronic products and cables for a broad range of customers
primarily in the gaming industry. The effective date of the transaction was May
30, 2005. The transaction was structured as an asset sale, and included a
$2,000,000 cash payment to the Company for the buyer's purchase of the
machinery, equipment and other assets of the Las Vegas operation. The
transaction was recorded by the Company in the first quarter of fiscal year 2006
and included a gain on the transaction of approximately $311,000. The gain was
offset by a loss of approximately $383,000 on discontinued operations for the
Las Vegas operation for the period ended April 30, 2006.
F-18
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE C - DISCONTINUED OPERATIONS - CONTINUED
The following amounts related to the discontinued operation and have been
segregated from continuing operations and reflected as discontinued operations
in each periods' consolidated statement of income (in thousands):
2007 2006 2005
---- ----- -------
Sales $-- $ 522 $11,764
Income (loss) before tax expense (benefit) -- (383) (234)
Net Income (loss) from discontinued operation -- 355 (142)
Gain on sale of business -- 311 --
--- ----- -------
Net income (loss) from discontinued operation $-- $ (44) $ (142)
NOTE D -— ALLOWANCE FOR DOUBTFUL ACCOUNTS Changes in the
Company'sCompany’s allowance for doubtful accounts are as follows:
2007 2006 2005
--------- --------- --------
Beginning balance $ 268,917 $ 120,000 $120,000
Bad debt expense 17,107 296,918 22,281
Write-offs (136,024) (148,001) (22,281)
--------- --------- --------
$ 150,000 $ 268,917 $120,000
========= ========= ========
F-19
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Beginning balance | | $ | 213,000 | | | $ | 150,000 | |
| Bad debt expense | | | 17,788 | | | | 63,000 | |
| Write-offs | | | (63,000 | ) | | | — | |
| | | | | | | |
| | | | | | | | | |
| | | $ | 167,788 | | | $ | 213,000 | |
| | | | | | | |
F-15
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE E -D — INVENTORIES
Inventories consist of the following at April 30:
2007 2006
----------- -----------
Finished products $10,359,223 $ 8,216,317
Work in process 3,002,970 2,563,334
Raw materials 28,732,898 21,239,935
----------- -----------
42,095,091 32,019,586
Less obsolescence reserve 1,245,300 769,536
----------- -----------
$40,849,791 $31,250,050
=========== ===========
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Finished products | | $ | 11,644,129 | | | $ | 18,735,846 | |
| Work in process | | | 2,391,559 | | | | 2,542,762 | |
| Raw materials | | | 23,993,727 | | | | 22,591,181 | |
| | | | | | | |
| | | | | | | | | |
| | | | 38,029,415 | | | | 43,869,789 | |
| | | | | | | | | |
| Less obsolescence reserve | | | 1,798,860 | | | | 1,723,019 | |
| | | | | | | |
| | | | | | | | | |
| | | $ | 36,230,555 | | | $ | 42,146,770 | |
| | | | | | | |
Changes in the
Company'sCompany’s inventory obsolescence reserve are as follows:
2007 2006 2005
---------- -------- ---------
Beginning balance $ 769,536 $379,449 $ 698,894
Provision for obsolescence 475,764 390,087 --
Recoveries -- -- (319,445)
---------- -------- ---------
$1,245,300 $769,536 $ 379,449
========== ======== =========
F-20
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Beginning balance | | $ | 1,723,019 | | | $ | 1,245,300 | |
| Provision for obsolescence | | | 157,000 | | | | 477,719 | |
| Write-offs | | | (81,159 | ) | | | — | |
| | | | | | | |
| | | $ | 1,798,860 | | | $ | 1,723,019 | |
| | | | | | | |
F-16
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE F -E — PROPERTY, MACHINERY AND EQUIPMENT, NET
Property, machinery and equipment consist of the following at April 30:
2007 2006
----------- -----------
Land and buildings $11,418,021 $10,941,318
Machinery and equipment 34,648,320 32,488,194
Office equipment 3,597,142 3,303,053
Tools and dies 284,070 262,916
Leasehold improvements 3,006,914 2,798,257
Equipment under capital leases 7,359,817 6,060,128
----------- -----------
60,314,284 55,853,866
Less accumulated depreciation and
amortization, including amortization of
assets under capital leases of $1,100,311
and $1,317,681 at| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Land and buildings | | $ | 12,021,913 | | | $ | 11,920,435 | |
| Machinery and equipment | | | 38,670,381 | | | | 36,046,726 | |
| Office equipment | | | 3,947,899 | | | | 3,764,374 | |
| Tools and dies | | | 288,598 | | | | 288,598 | |
| Leasehold improvements | | | 3,089,065 | | | | 3,019,545 | |
| Equipment under capital leases | | | 4,899,539 | | | | 7,445,202 | |
| | | | | | | |
| | | | | | | | | |
| | | | 62,917,395 | | | | 62,484,880 | |
| Less accumulated depreciation and amortization, including amortization of assets under capital leases of $1,218,393 and $1,631,488 at April 30, 2009 and 2008, respectively | | | 36,716,817 | | | | 33,130,257 | |
| | | | | | | |
| | | | | | | | | |
| Property, machinery and equipment, net | | $ | 26,200,578 | | | $ | 29,354,623 | |
| | | | | | | |
Depreciation and amortization expense was $4,035,804 and $4,004,108 for the years ended April 30, 2007 and
2006, respectively 29,343,177 25,309,559
----------- -----------
Property, machinery and equipment, net $30,971,107 $30,544,307
=========== ===========
F-21
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
2009 and 2008, respectively.NOTE G - NOTES PAYABLE
On July 31, 2006, theF — LONG-TERM DEBT
Note Payable — Bank
The Company amended the credit facility to increase thehas a revolving credit facility from $22,000,000 to $27,000,000. The Company also has
a term loanunder which was increased in July 2006 to $4,000,000 from $2,750,000 on
July 31, 2006. Interest payments only are due monthly through June 30, 2007 and
quarterly principal payments of $250,000 are due each quarter beginning with the
quarter ending June 30 2007, through the quarter ending June 30, 2011. Interest
payments continue to be due monthly throughout the term. In October 2006, the Company amended the credit facility to increase the revolving credit facility
from $27,000,000 to $32,000,000. The increase of $5,000,000 was for a term of
six months and expired on April 30, 2007. In April 2007, the amended revolving
credit facility was renewed in the amount of $32,000,000 and will expire on
September 30, 2009. The amended revolving credit facility is limitedmay borrow up to the lesser of:of (i) $32,000,000$32 million or (ii) an amount equal to the sum of 85% of the receivable borrowing base and the lesser of $16,000,000$16 million or a percentage of the inventory borrowing base. In January and April 2007, the Company's financial covenants
were amended. OnAs of April 30, 2007, $24,219,0152009 and 2008, $18,746,696 and $25,876,255, respectively, was outstanding under the revolving credit facility and $4,000,000 under the term loan. There was approximately
$5,100,000 of unused credit available as of April 30, 2007. The Company was in
compliance with its financial covenants at April 30, 2007.facility. Borrowings under thethis revolving line of credit facility bear interest at either the prime rate less 0.25% (8.00%(3% at April 30, 2007)2009) or LIBOR plus 2% (7.11% and 7.38%(3.12% at April 30, 2007)2009), as elected by the Company. The Company must also pay an unused commitment fee equal to 0.20% on the revolving credit facility. AsThere was approximately $7.8 million of unused
F-17
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2009 and 2008
NOTE F — LONG TERM DEBT — Continued
Note Payable — Bank — Continued
availability under the revolving credit facility as of April 30, 2007,2009. In June 2008, the Company had excess availability onamended the line ofrevolving credit of approximately
$5,100,000. The outstanding balance under the line of credit was $24,219,015 and
$17,924,327 at April 30, 2007, and 2006, respectively. The outstanding balance
underfacility to extend the term of the agreement until September 30, 2010 from September 30, 2009 and amended certain financial covenants.
The revolving credit facility and term loan was $4,000,000 and $3,000,000 at April 30, 2007 and 2006,
respectively.
The loan and security agreement isare collateralized by substantially all of the domestically located assets of the Company and containscontain certain financial covenants, including specific covenants pertaining to the maintenance of minimum tangible net worth and net income. The agreement also restricts annual lease rentals and capital expenditures and the payment of dividends. At April 30,
2007, the
The Company was in compliance with
the required financial covenants as of April 30, 2009. Historically, the Company has renegotiated its financial
covenants.
F-22
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE G - NOTES PAYABLE - CONTINUED
SigmaTron China entered intocovenants for the current fiscal year during the first quarter of that fiscal year in connection with the Company’s annual budgeting process. As of July 10, 2009, the Company is in the preliminary stages of negotiating revised financial covenants for fiscal 2010. The existing financial covenants remain in place until a loannew agreement has been reached. The Company is currently working with its lender to amend the financial covenants for its revolving credit facility, based upon the Company’s most recent projections for the 2010 fiscal year. At this time, it is possible that the Company would not be in April 2005, which provides
approximately $1,300,000 U.S. dollars under a linecompliance with an existing financial covenant for the quarter ended July 31, 2009. Therefore, if the Company is not successful in amending its financial covenants, the Company could be in violation of its revolving credit facility agreement at that time. In the event the Company was unable to amend the required financial covenants or obtain alternative financing, the Company may be unable to access lines of credit and its debt obligations could be accelerated. These events would likely have a material adverse effect on the Company’s future results of operations, financial position and liquidity. The Company also has a term loan with an outstanding balance of $2 million and $3 million as of April 30, 2009 and 2008, respectively with quarterly principal payments of $250,000 due each quarter through the China
Construction Bank. Thequarter ending June 30, 2011. Borrowings under the term loan bear an interest rate of LIBOR plus 2%, which ranged from 2.41% to 6.47% during fiscal year 2009. During fiscal year 2008, borrowings under the agreement was 5.76%. At April 30,
2006, SigmaTron China had $1,237,753 U.S. dollars outstanding under the loan.
Theterm loan was collateralized by the Company's building in Suzhou-Wujiang China
and 60were at an interest rate of the 100 Chinese acres leased at the property. The loan was paid in
full in July 2006.
6.47%.
Note Payable — Buildings
On November 19, 2003, the Company purchased the property that serves as the Company'sCompany’s corporate headquarters and its Midwestern manufacturing facility. The Company executed a note with LaSalle Bank N.A., (now Bank of America) in the amount of $3,600,000. The Company refinanced the property on April 30, 2008. The new note bears a fixed interest rate of 5.43%5.59% and
F-18
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2009 and 2008
NOTE F — LONG TERM DEBT — Continued
Note Payable — Buildings — Continued
is payable in sixty monthly installments. A final payment of approximately $2,700,000$2,115,438 is due on or before NovemberApril 30, 2008.2013. At April 30, 2007, $2,985,0002009, $2,661,438 and at April 30, 2006,
$3,165,0002008, $2,805,000 was outstanding.
In May 2002, the Company acquired a plant in Acuna, Mexico through seller financing. The loan of $1,950,000 iswas 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 theacquiring that plant, the Company rented the facility. At April 30, 2007,
$531,464 and at April 30, 2006, $856,0892008 there was outstanding.
$183,372 outstanding under the loan. The loan was paid in full in October 2008.
The aggregate amount of debt maturing
(excluding capital lease obligations) in each of the next
fivefour fiscal years
and
thereafter is as follows:
Fiscal
Year
- ------
2008 1,528,092
2009 28,207,387
2010 1,000,000
2011 1,000,000
2012 --
-----------
$31,735,479
===========
F-23
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
| | | | | |
| Fiscal Year | | | | |
| | | | | |
| 2010 | | $ | 1,140,250 | |
| 2011 | | | 19,886,946 | |
| 2012 | | | 140,250 | |
| 2013 | | | 2,240,688 | |
| | | | |
| | | $ | 23,408,134 | |
| | | | |
F-19
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE H -G — ACCRUED EXPENSES AND WAGES
Accrued expenses and wages consist of the following at April 30:
2007 2006
---------- ----------
Wages $1,505,077 $1,146,418
Bonuses 736,210 596,658
Interest payable 481,812 168,097
Commissions 83,474 58,262
Professional fees 426,296 306,505
Other 1,622,054 1,630,678
---------- ----------
$4,854,923 $3,906,618
========== ==========
NOTE I - BLOCK SHIELD WARRANTS
The Company expended $25,000 to investigate the feasibility of manufacturing a
product for WaveZero,| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Wages | | $ | 1,555,736 | | | $ | 1,638,659 | |
| Bonuses | | | — | | | | 944,720 | |
| Interest payable | | | 41,101 | | | | 144,046 | |
| Commissions | | | 36,514 | | | | 42,298 | |
| Professional fees | | | 228,161 | | | | 335,202 | |
| Foreign payroll accruals | | | 708,433 | | | | 734,790 | |
| Other | | | 588,704 | | | | 1,021,265 | |
| | | | | | | |
| | | | | | | | | |
| | | $ | 3,158,649 | | | $ | 4,860,980 | |
| | | | | | | |
F-20
SigmaTron International, Inc., the owner of design rights to certain shielding
products. In exchange the Company received warrants convertible into 153,781
shares of common stock of Block Shield Corporation, PLC (BLS; London Stock
Exchange), the parent of WaveZero, Inc. Those warrants were subject to
forfeiture upon the occurrence of certain events. During the quarter ending
January 31, 2005, the risk of forfeiture terminated. Upon such termination SFAS
No. 138 provides that this security be marked to market. Accordingly, the
Company recorded an unrealized gain of approximately $303,810 to reflect the
increase in the fair market value of said warrants since the date of acquisition
through April 30, 2005. During fiscal year 2006 the Company exercised the
warrants and sold the underlying shares for $395,675, resulting in income of
$74,491 for fiscal year 2006.
NOTE J - CONTINGENCIES
On July 16, 2003, the Company signed a land use rights contract with the Wujiang
Land Administration Bureau to obtain the use rights of land in Yao Jiazhuang
Village, Wujiang Province, People's Republic of China. This particular contract
covered the 40 Chinese acres of land that was adjacent to 60 Chinese acres of
land for which the Company had already signed a separate land use rights
contract. For the 40 acre parcel, the Company paid the transfer fee for
F-24
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE J - CONTINGENCIES - CONTINUED
the land and subsequently built a dormitory, canteen and power station on the
land. In December 2004 the Company received an administration penalty notice of
approximately $16,000 from the Wujiang Land Resources Bureau which stated that
the Company was occupying the 40 acres without its permission. Under Chinese law
the Wujiang Land Resources Bureau may seek penalties for this violation, which
includes one or more of the following: 1) levying a fine, 2) confiscating any
Company property on the land and 3) requiring the land to be returned. The
Company has not received any other administrative notifications other than the
penalty notice. The Company estimates the value of the land and building to be
$1,100,000 to $1,200,000 in aggregate. The Company received a letter from the
Business Development Department of Wujiang Developing District under the
Management Committee of Wujiang Developing District which stated that the
Company acted properly and that it will indemnify the Company against any
penalties assessed against it by the Wujiang Land Resources Bureau. On January
5, 2005, the Company paid the penalty which was assessed against it by the
Wujiang Land Resources Bureau. Prior to its payment, the Wujiang Financial
Bureau paid the Company the amount of the fine, which is consistent with the
terms of the indemnity letter. On August 25, 2006, the Company received land
certificates for both the 40 and 60 Chinese acres.
NOTE K - STRATEGIC TRANSACTIONS
In July 2005 the Company closed on the purchase of all of the outstanding stock
of Able, a company headquartered in Hayward California and its wholly owned
subsidiary, AbleMex S.A. de C.V., located in Tijuana, Mexico. Able is an ISO
9001:2000 certified EMS company serving Original Equipment Manufacturers in the
life sciences, telecommunications and industrial electronics industries. The
acquisition of Able has allowed the Company to make strides towards achieving
four objectives: (1) to further diversify its markets, capabilities and customer
base, (2) adding a third low-cost manufacturing facility in Tijuana, Mexico, (3)
creating an opportunity to consolidate the California operations into one
facility, and (4) to generate incremental revenue from Able's customers as they
become familiar with the Company's broader array of services. The effective date
of the transaction was July 1, 2005. Able was merged into the Company on
November 2005 and operates as a division of the Company. The purchase price was
approximately $16,800,000 and was recorded as a stock purchase transaction in
the first quarter of fiscal year 2006. The transaction was financed by the
Company's amended credit facility and resulted in an increase of approximately
$8,500,000 in goodwill. This goodwill is non-deductible for income tax purposes.
F-25
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE K - STRATEGIC TRANSACTIONS - CONTINUED
Assuming the purchase was recorded as of the first period reported, May 1, 2004,
unaudited revenues for the year ended
April 30, 2006,2009 and 2005 would have been
$128,050,591 and $122,908,102, respectively. Unaudited pro-forma net income
would have been $1,785,722 and $5,043,064 for the periods ended April 30, 2006,
and 2005, respectively. Dilutive earnings per share would have been $0.46 and
$1.32 for the periods ended April 30, 2006, and 2005, respectively.
The purchase price was allocated to the fair value of the assets and liabilities
acquired as follows (000s omitted):
Amount
--------
Cash $ 40
Trade receivables, net 3,210
Inventories 4,049
Other current assets 139
Property and equipment 2,707
Deferred tax asset 688
Goodwill 8,542
Intangible assets 2,770
Other assets 207
Accounts payable and accrued liabilities (3,407)
Obligations under capital leases (938)
Deferred tax liability (1,234)
--------
Total consideration $ 16,773
========
F-26
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
2008 NOTE L -H — INCOME TAXES
The income tax provision (benefit)
for the income from continuing operations for the years ended April 30 consists of the following:
2007 2006 2005
--------- --------- ----------
Current
Federal $ 761,278 $ 892,477 $ 816,920
State 153,914 226,551 352,753
Foreign 196,425 174,996 168,395
Deferred
Federal (187,819) (304,670) 1,600,258
State (27,619) 53,765) 235,309
--------- --------- ----------
$ 896,179 $ 935,589 $3,173,635
========= ========= ==========
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| Current | | | | | | | | |
| Federal | | $ | 1,037,422 | | | $ | 1,707,890 | |
| State | | | 179,311 | | | | 242,740 | |
| Foreign | | | 238,526 | | | | 195,675 | |
| Deferred | | | | | | | | |
| Federal | | | (452,450 | ) | | | (438,236 | ) |
| State | | | (66,531 | ) | | | (52,551 | ) |
| | | | | | | |
| | | | | | | | | |
| | | $ | 936,278 | | | $ | 1,655,518 | |
| | | | | | | |
The
reason for the differences between the income tax provision
for the income
from continuing operations and the amounts computed by applying the statutory Federal income tax rates to income
(loss) before income tax expense for the years ended April 30 are as follows:
2007 2006 2005
-------- -------- ----------
Income tax at
Federal rate $882,131 $973,042 $2,770,729
State income tax, net of federal 111,647 89,475 384,703
Benefit of Chinese tax holiday (24,993) (66,197) (100,675)
Benefit of stock option exercise -- 6,413 12,721
Other, net (72,606) (67,144) 106,157
-------- -------- ----------
$896,179 $935,589 $3,173,635
======== ======== ==========
F-27
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| Income tax at | | | | | | | | |
| Federal rate | | $ | 983,322 | | | $ | (1,632,448 | ) |
| State income tax, net of federal | | | 51,814 | | | | (143,867 | ) |
| Goodwill impairment charge | | | — | | | | 3,626,589 | |
| Benefit of Chinese tax holiday | | | (81,438 | ) | | | — | |
| Other, net | | | (17,420 | ) | | | (194,756 | ) |
| | | | | | | |
| | | | | | | | | |
| | | $ | 936,278 | | | $ | 1,655,518 | |
| | | | | | | |
F-21
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE L -H — INCOME TAX - CONTINUED
— Continued
U.S. and foreign income (loss) before income tax expense for the years ended April 30 are as follows:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| U.S. | | $ | 1,857,492 | | | $ | (5,513,683 | ) |
| Foreign | | | 1,034,633 | | | | 712,365 | |
| | | | | | | |
| | | | | | | | | |
| Total | | $ | 2,892,125 | | | $ | (4,801,318 | ) |
| | | | | | | |
Significant temporary differences that result in deferred tax assets and (liabilities) at April 30,
2007, and 2006, are as follows:
2007 2006
---------- ----------
Allowance for doubtful accounts $ 58,499 $ 104,876
Inventory obsolescence reserve 485,661 300,116
Net operating loss carry-forward - from Able acquisition 127,998 115,440
Accruals not currently deductible 300,278 250,903
Inventory 371,390 302,480
---------- ----------
Current deferred tax asset 1,343,826 1,073,815
Prepaid insurance (92,585) (116,746)
---------- ----------
Current deferred tax liability (92,585) (116,746)
---------- ----------
Net current deferred tax asset $1,251,241 $ 957,069
---------- ----------
2007 2006
----------- -----------
Intangible assets - Able acquisition $ (570,084) $ (852,665)
Machinery and equipment (1,967,409) (1,606,094)
----------- -----------
Net long-term deferred tax liability $(2,537,493) $(2,458,759)
=========== ===========
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Allowance for doubtful accounts | | $ | 65,436 | | | $ | 83,069 | |
| Inventory obsolescence reserve | | | 701,546 | | | | 671,969 | |
| Accruals not currently deductible | | | 461,619 | | | | 325,478 | |
| Inventory | | | 402,765 | | | | 402,539 | |
| | | | | | | |
| | | | | | | | | |
| Current deferred tax asset | | | 1,631,366 | | | | 1,483,055 | |
| | | | | | | | | |
| Prepaid insurance | | | (70,941 | ) | | | (30,048 | ) |
| | | | | | | |
| | | | | | | | | |
| Current deferred tax liability | | | (70,941 | ) | | | (30,048 | ) |
| | | | | | | |
| | | | | | | | | |
| Net current deferred tax asset | | $ | 1,560,425 | | | $ | 1,453,007 | |
| | | | | | | |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Intangible assets | | $ | (237,463 | ) | | $ | (373,642 | ) |
| Machinery and equipment | | | (1,670,023 | ) | | | (2,072,807 | ) |
| Other | | | (8,163 | ) | | | — | |
| | | | | | | |
| | | | | | | | | |
| Net long-term deferred tax liability | | $ | (1,915,649 | ) | | $ | (2,446,449 | ) |
| | | | | | | |
F-22
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2009 and 2008
NOTE H — INCOME TAX — Continued
The Company's wholly ownedCompany’s wholly-owned foreign enterprise, SigmaTron China, is subject to a reduction in income taxes within China due to its foreign investment. The reduction in taxes is for a five year period commencing in the period the operation becomes profitable, due to expire atbut not in effect after December 31, 2008.
As2009.
In June 2006, the FASB issued an interpretation of FASB Statement No. 109 (“FIN 48”), (ASC 740-10-05-06) that clarifies the accounting and recognition for income tax positions taken or expected to be taken in the Company’s tax returns. The Company adopted FIN 48 on May 1, 2007. The Company recorded the cumulative effect of a resultchange in accounting principle by recording an increase in the liability for uncertain tax positions of $153,900 that was accounted for as a debit to opening retained earnings. The entire amount of the purchaseconsolidated worldwide liability for uncertain tax positions could affect the Company’s effective tax rate upon favorable resolution of Able, netthe uncertain tax positions. Absent new experience in defending these uncertain tax positions in the various jurisdictions to which they relate, the Company cannot currently estimate a range of possible change of the April 30, 2009 liability over the next twelve months.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Balance at May 1, | | $ | 145,591 | | | $ | 153,900 | |
| Additions based on tax positions related to current year | | | — | | | | — | |
| Additions for tax positions in prior years | | | — | | | | 6,494 | |
| Reductions for tax positions of prior years | | | — | | | | (14,803 | ) |
| | | | | | | |
| | | | | | | | | |
| Balance at April 30, | | $ | 145,591 | | | $ | 145,591 | |
| | | | | | | |
Interest related to tax positions taken in the Company’s tax returns are recorded in income tax
operating losses were
carried back, generating an income tax receivableexpense in the Consolidated Statements of
$476,000 at April 30, 2006.
F-28
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
Operations. F-23
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2009 and 2008
NOTE H — INCOME TAX — Continued
The Company files a U.S. income tax return and tax returns in various states. The Company’s subsidiaries also file tax returns in various foreign jurisdictions. In addition to the U.S., the Company’s major taxing jurisdictions include China and Mexico. In the U.S., fiscal years 2006 through 2009 are open under the statue of limitations. The Company’s Chinese enterprise operated under a tax holiday, resulting in no uncertain tax positions for that entity for the 2005 and 2006 tax year. The Company’s Chinese enterprise operates under a 50% tax holiday for tax years 2007 2006 ANDthrough 2009, which tax years are open under the statue of limitations. In Mexico, tax years from 2005 through 2009 remain open.
NOTE M - 401(K)I — 401(k) RETIREMENT SAVINGS PLAN
The Company sponsors 401(k) retirement savings plans, which are available to all non-union U.S. employees. The Company may elect to match participant contributions ranging fromup to $300 - $500 annually. The Company contributed $83,745, $91,749$95,569 and $82,961$96,905 to the plans during the fiscal years ended April 30, 2007, 20062009 and 2005,2008, respectively. The Company paid total expenses of $15,870, $24,716$9,400 and $15,063$8,830 for the fiscal years ended April 30, 2007, 20062009 and 2005,2008, respectively, relating to costs associated with the administration of the plans.
NOTE N -J — MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of uncollateralized accounts receivable. For the
fiscal year ended April 30,
2007,2009, two customers accounted for
24.8%27.5% and
16.9%18.2% of net sales of the Company, and
39.1%49.1% and
6.4%6.9% of accounts receivable at April 30,
2007.2009. For the
fiscal year ended April 30,
2006,2008, two customers accounted for
30.1%23.0% and
19.7%20.6% of net sales of the Company, and
35.3%33.7% and
6.2%17.5% of accounts receivable at April 30,
2006.
F-29
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
2008.F-24
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE O -K — LEASES
The Company leases certain facilities under various operating leases. The Company also leases various machinery and equipment under capital leases.
Future minimum lease payments under leases with terms of one year or more are as follows at April 30,
2007:
Capital Operating
Years ending April 30, leases leases
- ---------------------- ---------- ----------
2008 $2,000,508 $1,449,590
2009 1,663,814 1,460,392
2010 864,415 1,108,281
2011 632,836 446,807
2012 289,637 18,680
Thereafter 0 39,600
---------- ----------
5,451,210 $4,523,350
==========
Less amounts representing interest 635,476
----------
4,815,734
Less current portion 1,690,437
----------
$3,125,297
==========
2009:| | | | | | | | | |
| | | Capital | | | Operating | |
| Years ending April 30, | | leases | | | leases | |
| | | | | | | | | |
| 2010 | | $ | 1,088,826 | | | $ | 1,503,348 | |
| 2011 | | | 857,245 | | | | 819,889 | |
| 2012 | | | 514,047 | | | | 101,994 | |
| 2013 | | | 200,934 | | | | 10,800 | |
| 2014 | | | 27,856 | | | | 10,800 | |
| Thereafter | | | — | | | | 18,000 | |
| | | | | | | |
| | | | | | | | | |
| | | | 2,688,908 | | | $ | 2,464,831 | |
| | | | | | | | |
| | | | | | | | | |
| Less amounts representing interest | | | 246,152 | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | | 2,442,756 | | | | | |
| | | | | | | | | |
| Less current portion | | | 951,983 | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | $ | 1,490,773 | | | | | |
| | | | | | | | |
Rent expense incurred under operating leases was approximately
$1,669,000,
$1,272,000$1,533,000 and
$669,000$1,505,000 for the years ended April 30,
2007, 20062009 and
2005,2008, respectively.
F-30
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-25
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE P -L — STOCK OPTIONS
The Company has stock option plans ("(“Option Plans"Plans”) under which certain employees and outside non-employee directors may acquire up to 1,603,500 shares of common stock. Options available for grant under the employee plans total 1,207,500, with the non-employee director plans allowing for a total of 396,000 options available for grant. At April 30, 2007,2009, the Company has 53,464 shares available for future issuance to employees under the Option Plans. The Option Plans are interpreted and administered by the Compensation Committee of the Board of Directors. The maximum term of options granted under the Option Plans is generally 10 years. Options granted under the Option Plans are either incentive stock options or nonqualified options. Options forfeited under the Option Plans are available for reissuance. Options granted under these plans are granted at an exercise price equal to the fair market value of a share of the Company'sCompany’s common stock on the date of grant.
The Company adopted Financial Accounting Standards Board, Share-Based Payment
("SFAS 123 (R)") on May 1, 2006, and implemented the new standard utilizing the
modified prospective application transition method. SFAS 123 (R) requires the
Company to measure the cost of employee services received in exchange for an
equity award based on the grant date fair value. Compensation expense for which
the requisite service requirement that has not been rendered and are outstanding
as of the option grant date will be recognized over the remaining service
period. The Company granted 16,000 options to non-executive employees and
recognized approximately $34,000 in stock compensation expense associated with
the grants and a tax benefit of approximately $13,000 in fiscal year 2007.
The weighted-average grant date fair value of the options granted during fiscal years
2007, 20062009 and
20052008 was
$9.47, $5.80$5.40 and
$7.06,$11.56, respectively.
There were
16,000, 390,700 and 45,000 options granted in fiscal years 2007, 2006 and 2005,
respectively. The weighted average exercise price of the options issued in
fiscal 2007, 2006 and 2005 was $9.47, $9.17 and $10.88, respectively.
F-31
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE P - STOCK OPTIONS - CONTINUED
The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:
2007 2006 2005
--------- ------- -------
Expected dividend yield 0% .0% 0%
Expected stock price volatility .750 .750 .800
Average risk-free interest rate 5.11% 3.37% 2.20%
Weighted-average expected life of options 6.5 years 5 years 5 years
| | | | | | | | | |
| | | 2009 | | 2008 |
| | | | | | | | | |
| Expected dividend yield | | | 0 | % | | | 0 | % |
| Expected stock price volatility | | | .750 | | | | .750 | |
| Average risk-free interest rate | | | 1.70 | % | | | 3.91 | % |
| Weighted-average expected life of options | | 6.5 years | | | 6.5 years | |
Option-valuation models require the input of highly subjective assumptions. Because the
Company'sCompany’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in
management'smanagement’s opinion the existing method does not necessarily provide a reliable single measure of the fair value of the
Company'sCompany’s employee stock options. The Company used the U.S. Treasury yield in effect at the time of the option grant to calculate the risk-free interest rate. The weighted-average expected life of options was calculated using the simplified
Method.
F-32
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
method, due to limited history. The expected volatility and forfeitures of options is based on historical experience and expected future results.F-26
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE P -L — STOCK OPTIONS - CONTINUED
— Continued
The table below summarizes option activity through April 30,
2007:
Number of
Weighted- options
average exercisable
Number of exercise at end
options price of year
--------- --------- -----------
Outstanding at April 30, 2004 150,619 2.71 137,284
Options granted during 2005 45,000 10.88
Options exercised during 2005 (4,466) 3.99
Options forfeited during 2005 (15,000) 10.64
-------
Outstanding at April 30, 2005 176,153 169,485
Options granted during 2006 390,700 9.17
Options exercised during 2006 (31,537) 2.39
Options forfeited during 2006 (12,009) 9.17
-------
Outstanding at April 30, 2006 523,307 523,307
Options granted during 2007 16,000 9.47
Options exercised during 2007 (8,000) 2.20
-------
Outstanding at April 30, 2007 531,307 502,701
=======
2009:| | | | | | | | | | | | | |
| | | | | | | | | | | Number of |
| | | | | | | Weighted- | | options |
| | | | | | | average | | exercisable |
| | | Number of | | exercise | | at end |
| | | options | | price | | of year |
| | | | | | | | | | | | | |
| Outstanding at April 30, 2007 | | | 531,307 | | | $ | 8.00 | | | | 502,701 | |
| | | | | | | | | | | | | |
| Options granted during 2008 | | | 2,500 | | | | 11.56 | | | | | |
| Options exercised during 2008 | | | (27,600 | ) | | | 9.17 | | | | | |
| Options forfeited during 2008 | | | (4,400 | ) | | | 9.17 | | | | | |
| Options expired during 2008 | | | (3,100 | ) | | | 12.25 | | | | | |
| | | | | | | | | | | | | |
| Outstanding at April 30, 2008 | | | 498,707 | | | | 7.92 | | | | 477,847 | |
| | | | | | | | | | | | | |
| Options granted during 2009 | | | 5,000 | | | | 5.40 | | | | | |
| | | | | | | | | | | | | |
| Outstanding at April 30, 2009 | | | 503,707 | | | | 7.89 | | | | 496,671 | |
| | | | | | | | | | | | | |
The aggregate intrinsic value is calculated as the difference between the market price of the
Company'sCompany’s common stock
as of April 30, 2007 and the exercise price of the underlying options. During the fiscal years ended April 30,
2007, 20062009 and
2005,2008, the aggregate intrinsic value of options exercised was
$57,920,
$224,252$0 and
$30,101,$67,620, respectively. The aggregate intrinsic value of
in the money options outstanding was
$813,983 for year ended$0 as of April 30,
2007.
F-33
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
2009.F-27
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE P -L — STOCK OPTIONS - CONTINUED
— Continued
Information with respect to stock options outstanding and stock options exercisable at April 30,
2007,2009, follows:
Options outstanding
-----------------------------------------------------
Number Weighted-average Weighted-
outstanding at remaining average
Range of exercise prices April 30, 2007 contractual life exercise price
- ------------------------ -------------- ------------------- --------------
$2.20 - 5.63 103,515 4.60 years $2.51
9.17 - 12.25 427,792 7.79 years 9.33
-------
531,307
=======
Options exercisable
--------------------------------
Number Weighted-
exercisable at average
Range of exercise prices April 30, 2007 exercise price
- ------------------------ -------------- --------------
$2.20 - 5.63 103,515 $2.51
9.17 - 12.25 399,186 9.33
-------
502,701
=======
| | | | | | | | | | | | | |
| | | Options outstanding |
| | | Number | | | Weighted-average | | | Weighted- | |
| | | outstanding at | | | remaining | | | average | |
| Range of exercise prices | | April 30, 2009 | | | contractual life | | | exercise price | |
| | | | | | | | | | | | | |
| $2.20 - 5.63 | | | 108,515 | | | 3.64 years | | $ | 2.64 | |
| 9.17 - 11.56 | | | 395,192 | | | 6.82 years | | | 9.34 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | 503,707 | | | | | | | $ | 7.89 | |
| | | | | | | | | | | |
| | | | | | | | | |
| | | Options exercisable |
| | | Number | | | Weighted- | |
| | | exercisable at | | | average | |
| Range of exercise prices | | April 30, 2009 | | | exercise price | |
| | | | | | | | | |
| $2.20 - 5.63 | | | 104,765 | | | $ | 2.54 | |
| 9.17 - 11.56 | | | 391,906 | | | | 9.22 | |
| | | | | | | | |
| | | | | | | | | |
| | | | 496,671 | | | $ | 7.82 | |
| | | | | | | |
The
following table summarizes the activityCompany granted 5,000 and 2,500 options to non-executive employees and recognized approximately $31,000 and $32,000 in stock compensation expense in fiscal years 2009 and 2008, respectively. The Company recognized a tax benefit of
the non-vested stock for the year
ended April 30, 2007:
Weighted-
average
fair value at
Options grant date
------- -------------
Non-vested at April 30, 2006 15,904 9.17
Granted 16,000 9.47
Vested (8,550) 9.17
------
Non-vested at April 30, 2007 23,354 9.37
F-34
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
NOTE P - STOCK OPTIONS - CONTINUED
approximately $12,000 in fiscal years 2009 and 2008.As of April 30, 20072009, there was approximately $68,500$28,850 of unrecognized compensation cost related to the Company'sCompany’s stock option plans. This compensationCompensation cost of $7,120 is being amortized over a threethree-year vesting period using a straight-line basis and compensation cost of $21,730 is being amortized over a four year vesting period using a straight-line basis.
NOTE Q - EARNINGS PER SHARE
The following table sets forth the computation of basic
F-28
SigmaTron International, Inc. and diluted earnings per
share:
2007 2006 2005
---------- ---------- ----------
Net income $1,698,324 $1,882,132 $4,698,799
========== ========== ==========
Weighted-average shares
Basic 3,791,077 3,756,804 3,751,792
Effect of dilutive stock options 88,078 137,927 117,063
---------- ---------- ----------
Diluted 3,879,155 3,894,731 3,868,855
========== ========== ==========
Basic earnings per share $ 0.45 $ 0.50 $ 1.25
Diluted earnings per share $ 0.44 $ 0.48 $ 1.23
Options to purchase 531,307 523,307 and 176,153 shares of common stock were
outstanding at April 30, 2007, 2006 and 2005, respectively.
F-35
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRILApril 30, 2007, 2006 AND 2005
2009 and 2008 NOTE R -M — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal years 2007year 2009:
| | | | | | | | | | | | | | | | | |
| | | First | | Second | | Third | | Fourth |
| 2009 | | quarter | | quarter | | quarter | | quarter |
| | | | | | | | | | | | | | | | | |
| Net sales | | $ | 38,478,118 | | | $ | 41,132,728 | | | $ | 26,970,927 | | | $ | 27,162,869 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income tax expense | | | | | | | | | | | | | | | | |
| | | | 977,903 | | | | 2,070,389 | | | | (160,585 | ) | | | 4,418 | |
| | | | | | | | | | | | | | | | | |
| Net income (loss) | | | 579,324 | | | | 1,505,316 | | | | (265,458 | ) | | | 136,665 | |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per share-Basic | | $ | 0.15 | | | $ | 0.39 | | | $ | (0.07 | ) | | $ | 0.04 | |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per share-Diluted | | $ | 0.15 | | | $ | 0.39 | | | $ | (0.07 | ) | | $ | 0.04 | |
| | | | | | | | | | | | | | | | | |
| Total shares-Basic | | | 3,822,556 | | | | 3,822,556 | | | | 3,822,556 | | | | 3,822,556 | |
| | | | | | | | | | | | | | | | | |
| Total shares-Diluted | | | 3,884,075 | | | | 3,874,643 | | | | 3,822,556 | | | | 3,822,556 | |
F-29
SigmaTron International, Inc. and 2006:
First Second Third Fourth
quarter quarter quarter quarter
----------- ----------- ----------- -----------
2007
Net sales $36,959,865 $44,858,662 $44,584,513 $39,506,066
Income before income tax
expense (benefit), and discontinued
operations 381,086 1,203,671 125,509 884,238
Income from continuing operations 258,670 708,011 76,572 655,072
Income (loss) from discontinued operation -- -- -- --
Net income 258,669 708,011 76,572 655,072
Earnings (loss) per share-Basic
Continuing operations $ 0.07 $ 0.19 $ 0.02 $ 0.17
Discontinued operation 0.00 0.00 0.00 0.00
----------- ----------- ----------- -----------
Total $ 0.07 $ 0.19 $ 0.02 $ 0.17
=========== =========== =========== ===========
Earnings (loss) per share-Diluted
Continuing operations $ 0.07 $ 0.18 $ 0.02 $ 0.17
Discontinued operation 0.00 0.00 0.00 0.00
----------- ----------- ----------- -----------
Total $ 0.07 $ 0.18 $ 0.02 $ 0.17
=========== =========== =========== ===========
Total shares-Basic 3,786,956 3,787,251 3,794,956 3,794,956
Total shares-Diluted 3,866,783 3,872,654 3,895,939 3,885,055
F-36
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRILApril 30, 2007, 2006 AND 2005
2009 and 2008 NOTE R -M — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - CONTINUED
First Second Third Fourth
quarter quarter quarter quarter
----------- ----------- ----------- -----------
2006
Net sales $21,312,693 $34,893,265 $34,061,657 $34,518,861
Income before income tax
expense (benefit), and discontinued
operations 311,164 1,743,474 437,963 369,286
Income from continuing
operations 189,798 1,223,893 287,335 225,272
Income (loss) from discontinued operation
(24,731) (2,561) (9,159) (7,715)
Net income 166,067 1,221,332 278,176 217,557
Earnings (loss) per share-Basic
Continuing operations $ 0.05 $ 0.33 $ 0.08 $ 0.06
Discontinued operation (0.01) 0.00 (0.01) 0.00
----------- ----------- ----------- -----------
Total $ 0.04 $ 0.33 $ 0.07 $ 0.06
=========== =========== =========== ===========
Earnings (loss) per share-Diluted
Continuing operations $ 0.05 $ 0.29 $ 0.07 $ .06
Discontinued operation (0.01) 0.00 0.00 0.00
----------- ----------- ----------- -----------
Total $ 0.04 $ 0.29 $ 0.07 $ 0.06
=========== =========== =========== ===========
Total shares-Basic 3,755,420 3,755,420 3,755,420 3,759,958
Total shares-Diluted 3,822,577 4,187,632 4,192,229 3,905,791
F-37
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
— Continued The following is a summary of unaudited quarterly financial data for fiscal year 2008:
| | | | | | | | | | | | | | | | | |
| | | First | | Second | | Third | | Fourth |
| 2008 | | quarter | | quarter | | quarter | | quarter |
| | | | | | | | | | | | | | | | | |
| Net sales | | $ | 39,843,813 | | | $ | 42,815,107 | | | $ | 41,131,744 | | | $ | 44,020,330 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income tax expense | | | 1,276,100 | | | | 1,070,014 | | | | 517,023 | | | | (7,664,455 | ) |
| | | | | | | | | | | | | | | | | |
| Net income (loss) | | | 826,988 | | | | 693,274 | | | | 312,464 | | | | (8,289,562 | ) |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per share-Basic | | $ | 0.22 | | | $ | 0.18 | | | $ | 0.08 | | | $ | (2.17 | ) |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per share-Diluted | | $ | 0.21 | | | $ | 0.18 | | | $ | 0.08 | | | $ | (2.17 | ) |
| | | | | | | | | | | | | | | | | |
| Total shares-Basic | | | 3,794,956 | | | | 3,807,492 | | | | 3,822,556 | | | | 3,822,556 | |
| | | | | | | | | | | | | | | | | |
| Total shares-Diluted | | | 3,889,274 | | | | 3,962,531 | | | | 3,897,314 | | | | 3,822,556 | |
F-30
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2009 and 2008
NOTE S -N — LITIGATION
Since the beginning
As of the 2007 fiscal year,April 30, 2009, the Company was not a party to any material legal proceedings.
From time to time the Company is involved in legal proceedings, claims or investigations that are incidental to the conduct of the Company'sCompany’s business. In future periods, the Company could be subjected to cash cost or non-cash charges to earnings if any of these matters isare resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including ourmanagement’s assessment of the merits of theany particular claim, the Company does not expect that these legal proceedings or claims will have any material adverse impact on its future consolidated financial position or results of operations.
F-38
F-31