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.
2010.
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(b) of the Act:
| | |
|
| Title of each class | | Name of each exchange on which registered |
| | |
| Common Stock $0.01 par value per share | | The Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.01 par value per share
Title of each class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] oYes [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. [ ] oYes [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).o 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 filero | | Accelerated filero | | Non-acceleratedo | | Smaller reporting companyþ |
| | | | (Do not check if a smaller reporting company) | | |
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act.)
[ ] oYes
[X]þ No
The aggregate market value of the voting common equity held by non-affiliates of the registrant as of October 31, 20062009 (the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter) was $36,317,729$10,213,130 based on the closing sale price of $9.57$3.30 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, 2007,2010, 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
20072010 annual meeting of stockholders, which
will be filedthe Company intends to file within 120 days of the fiscal year ended April 30,
2007,2010, 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, andSigmaTron International Trading Co., 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 warehouses 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
long-term purchase agreements with the majority of its major or single-source suppliers.
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The Company believes ad-hoc negotiationsshort-term purchase orders with its suppliers providesprovide 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 Taiwaneseinternational procurement office (“IPO”) in Taiwan and agents to source materials from the Far East. The Company believes this officeits IPO 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 designsAll manufacturing locations have ISO 9001:2008 certifications. The Hayward operation has medical ISO 13485:2003 and manufactures DC to AC inverters.
aerospace AS9100 certifications.
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 April��30,
2007,2010, 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 |
| | | | | Fiscal | | Fiscal |
| | | Typical | | 2009 | | 2010 |
| Markets | | OEM Application | | % | | % |
| Appliances | | Household appliance controls | | | 40.9 | | | | 47.5 | |
| Industrial Electronics | | Motor controls, power supplies | | | 27.1 | | | | 23.2 | |
| Fitness | | Treadmills, exercise bikes, cross trainers | | | 18.2 | | | | 13.9 | |
| Telecommunications | | Routers | | | 6.5 | | | | 7.9 | |
| Gaming | | Slot machines, lighting displays | | | 2.4 | | | | 3.2 | |
| Life Sciences | | Clinical diagnostic systems and instruments | | | 1.7 | | | | 1.8 | |
| Semiconductor Equipment | | Process control and yield management equipment for semiconductor productions | | | 2.2 | | | | 2.3 | |
| Consumer Electronics | | Battery backup sump pumps, electric bikes | | | 1.0 | | | | 0.2 | |
| | | | | | | | | | | |
| Total | | | | | 100 | % | | | 100 | % |
| | | | | | | | | | | |
For the fiscal year ended April 30, 2007,2010, Spitfire Controls, Inc. and Life Fitness, Inc. accounted for 24.8%33.4% and 16.9%13.9%, respectively, of the Company'sCompany’s net sales. For the fiscal year ended April 30, 2006,2009, Spitfire Controls, Inc. and Life Fitness, Inc. accounted for 30.1%27.5% and 19.7%18.2%, 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 1112 independent manufacturers'manufacturers’ representative organizations that together currently employ approximately 3735 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, 2007.2010 and 2009. 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 1968.1968 and had 928 employees at April 30, 2010. 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 operation had 108 employees at April 30, 2010. 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. SigmaTron China operates at this site as the Company'sCompany’s wholly-owned foreign enterprise. At April 30, 2007,2010, this operation had 213239 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, 2010 resulted in an expense of approximately $276,000. In fiscal year 2010, the Company’s U.S. operations paid approximately $13,100,000 to its foreign subsidiaries for services provided.
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. Intercompany transactions are eliminated in the consolidated financial statements.
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.
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'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's competitors or significant pricing pressures from its customers
could adversely affect the Company's business, financial condition, and results
of operations, as would the introduction of new technologies which render the
Company's manufacturing process technology less competitive or obsolete.
CONSOLIDATION
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., 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.factors.Consolidation
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,
itsCompany’s business, financial condition 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'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's business, financial condition and results of
operations. In addition, effectiveEffective 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
Backlog
The Company'sCompany’s backlog as of April 30, 2007,2010, was approximately $47,680,000.$99,100,000. Beginning November 2009, backlog includes forecasted orders. Our customer’s forecasted orders vary in the length of time they are projected. In some cases forecasted orders extend twelve months and in some circumstances they extend for a limited number of months. The Company currently expects to ship substantially all of the remaining April 30, 2007,2010 backlog by the end of the 20082011 fiscal year. Backlog as of April 30, 2006,2009, totaled approximately $52,875,000.$36,200,000, which did not include forecasted orders. 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, 2007,2010, including 128133 engaged in engineering or engineering related services, 2,0371,311 in manufacturing and 305256 in administrative and marketing functions. The Company has reduced its total headcount by 220 employees which is 11% of its total work force in the past 16 months.
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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,
2009.2012. 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, 2008.31, 2011. 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 | | | 58 | | | 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 | | | 49 | | | Chief Financial Officer, Vice President - Finance, Treasurer and Secretary since February 1994. |
| | | | | | |
Gregory A. Fairhead 51 | | | 54 | | | 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 | | | 49 | | | Vice President, - Director of MaterialsSupply Chain and Assistant Secretary since February 1994. |
| | | | | | |
Daniel P. Camp 58 | | | 61 | | | Vice President, -Acuna Operations since 2007. Vice President – China Operation sinceOperations from 2003 andto 2007. General Manager/Manager / Vice President of MexicanAcuna Operations from 1994 to 2003.
Raj |
| | | | | | |
Rajesh B. Upadhyaya 52 | | | 55 | | | 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 | | | 50 | | | Vice President, China Operation since 2007. Vice President – Hayward Materials / Test / IT from 2005 – 2007. Vice President of Fremont Operation from 2001 to 2005. |
ITEM 1 A. 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,
8
The Company’s ability to secure and maintain sufficient credit arrangements is key to its continued operations.
There is no assurance that the Company
amended thewill be able to retain or renew its credit
facility to increase the
revolving credit facility from $22,000,000 to $27,000,000. The Company also has
a term loan 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 renewedagreements in the
amount of $32,000,000 and will expire on
September 30, 2009. The amended revolving credit facility is limited to the
lesser of: (i) $32,000,000 or (ii) an amount equal to the sum of 85% of the
receivable borrowing base and the lesser of $16,000,000 or a percentage of the
inventory base. In January and April 2007, the Company's financial covenants
were amended. On April 30, 2007, $24,219,015 was outstanding under the revolving
credit facility
10
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.
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.future. In the event the business grows rapidly, the current unstable economic climate continues for an extended period or the Company considers an acquisition, additional financing resources could be necessary 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, or at all in the future.
THE COMPANY EXPERIENCES VARIABLE OPERATING RESULTS.
The Company'sfinancial crisis and global economic slowdown could negatively impact the Company’s business, results of operations and financial condition.
The Company’s sales and gross margins depend significantly on market demand for its customers’ products. The uncertainty in the U.S. and global economy could result in a decline in demand for our customers’ products in any industry and could result in decreasing sales levels and gross margins which could negatively impact the Company’s business, results of operations and financial conditions.
The Company experiences variable operating results.
The Company’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. TheseSome of these factors include:
- Changes in sales mix to customers
- Changes
| • | | changes in sales mix to customers |
|
| • | | changes in availability and cost of components
- Volume 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%68% and 63% of net sales for the fiscal years ended April 30, 2007, 20062010 and 2005,2009, respectively. Further, the Company'sThe Company’s two largest customers accounted for 24.8%33.4% and 16.9%13.9% of net sales for the fiscal year ended April 30, 2007.2010 compared to 27.5% and 18.2% of net sales for the fiscal year ended April 30, 2009. 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.
The Company doeshas a significant amount of trade accounts receivable from some of its customers due to customer concentration. If any of the Company’s customers have financial difficulties, the Company could encounter delays or defaults in payment amounts owed. This could have a significant adverse impact on the Company’s results of operations.
9
Most of the Company’s customers do not generally obtaincommit to long-term purchase contracts. The
timing of purchase orders placed by the Company's customers is affected by a
number of factors, including variation in demand for the customers' products,
regulatory changes affecting customer industries, customer attemptsproduction schedules, which makes it difficult to schedule production and achieve maximum efficiency at its manufacturing facilities and to manage inventory levels.
The volume and timing of sales to the Company’s customers may vary due to:
| • | | customers’ attempts to manage their inventory |
|
| • | | variation in demand for the Company’s customers’ products |
|
| • | | design changes, or |
|
| • | | acquisitions of or consolidations among customers |
Many of the Company’s customers do not commit to firm production schedules. The Company’s inability to forecast the level of customer orders with certainty can make it difficult to schedule production and maximize utilization of manufacturing capacity and manage inventory levels. The Company could be required to increase or decrease staffing and more closely manage other expenses in order to meet the anticipated demand of its customers. Orders from the Company’s customers could be cancelled or delivery schedules could be deferred as a result of changes in our customers’ demand, adversely affecting the customers' manufacturing strategiesCompany’s results of operations and customers'
technical problems or issues. Many of these factors are outsideresulting in higher inventory levels.
The Company and its customers may be unable to keep current with the control of
the Company.
THE COMPANY AND ITS CUSTOMERS MAY BE UNABLE TO KEEP CURRENT WITH THE INDUSTRY'S
TECHNOLOGICAL CHANGES.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'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's production process. 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's results of operations.
THE COMPANY FACES INTENSE INDUSTRY COMPETITION AND DOWNWARD PRICING PRESSURES.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 onChinese 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 officeIPO 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.
10
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, 2010 resulted in an expense of approximately $276,000. 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.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.In fiscal year 2010, the Company experienced an increase in lead times for various types of components, due to increased demand. Increased demand for components and rising commodity prices have resulted in upward pricing pressure from the Company’s supply chain. The Company does not enter into long-term purchase agreements with major or single-source suppliers. The Company believes that short-term purchase orders with its suppliers provides flexibility, given that the Company’s orders are based on the needs of its customers, which constantly change.
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%50% 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.
11
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. To date, the cost to the Company of such compliance has not had a material impact on the Company’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’s business, financial condition and results of operations. 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
An adverse change in the interest rates for our borrowings could adversely affect our results of goodwill for
impairment. This annual assessment requires 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.operations.
The Company
completedpays interest on outstanding borrowings under 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,senior secured credit facility and certain other long term debt obligations at interest rates that fluctuate. An adverse change in the
event the Company does not achieve projected
performance or there isCompany’s interest rates could have a
decline in the market pricematerial adverse effect on its results 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.operations.Inadequate internal control over financing reporting.
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, ifIf the Company receivesidentifies and reports a qualified opinion on the
adequacy ofmaterial weakness in its internal controlcontrols 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.
| | |
| ITEM 1B. | | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2.
At April 30, 2007,2010, 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.
12
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 | | | 103,000 | | | 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 **
Las Vegas, NV 38,250 N/A Leased
** | | Owned
** |
| | | | | | | | |
Del Rio, TX 36,000 Warehouse, | | | 44,000 | | | Warehousing, 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 | | | 4,685 | | | 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. |
|
*** Just-in-time inventory management and delivery *****
Tlaquepaque, Mexico
| | A portion of the facility is leased. |
* 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,Del Rio, Texas, expire April 2011 and December 2015. The lease agreement for the California properties expire October
2009, December 2015 andproperty expires September 2010, respectively.2010. 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 propertiesCompany has an option to buy the leased facility in Acuna, Mexico andMexico. The property in Elk Grove Village, Illinois areis financed under a separate mortgage agreements,loan agreement, the final payment on which mature in November 2008.is January 2015. The Company through an agent, leases the purchasing and engineeringIPO 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.
As of the 2007 fiscal year,April 30, 2010, 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. 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
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S
| | |
| ITEM 5. | | MARKET FOR REGISTRANT’S COMMON 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, 2007,2010, and 2006.
2009.
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 2010: | | | | | | | | |
| Fourth Quarter | | $ | 7.44 | | | $ | 5.44 | |
| Third Quarter | | | 6.85 | | | | 3.15 | |
| Second Quarter | | | 3.79 | | | | 2.05 | |
| First Quarter | | | 2.44 | | | | 1.41 | |
| | | | | | | | | |
| 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 | |
As of July 13, 2007,2010, 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 1,6901,246 beneficial owners of the Company'sCompany’s common stock.
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
For information concerning securities authorized for 2006 includesissuance under our equity compensation plans, see Part III, Item 12 of this Annual Report, under the Haywardcaption “Security Ownership of Certain Beneficial Owners and Tijuana operations,
which were acquiredManagement and Related Stockholders Matters” and that information is incorporated herein by reference.
14
| | |
| 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, as amended (The “Exchange Act”), 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
businessanalysis of financial condition and results of operations 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, andSigmaTron International Trading Co., 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
containcontains 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, 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 or increases in component cost could have a material impact on the Company'sCompany’s results of operations, and theoperations. The Company may be
required tocould operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers. In fiscal year 2010, the Company has experienced an increase in lead times for various types of components, due to increased demand. The Company does not enter into long-term purchase agreements with the majority of its major or single-sourcesingle-sourced suppliers. The Company believes that ad-hoc negotiationsshort-term purchase orders with its suppliers provides flexibility given that the
Company's orders areneeded to source inventory based on the needs of its customers, which constantly
change.
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 could lose confidence in the reliability
of the Company's financial statements, which could have a material adverse
impact on the value of the Company's stock.customers.
15
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, 2007.2010. 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 makes forecasting difficult. Short-term customer demands remain volatile. The Company experienced an increase in demand in the third and fourth quarters of fiscal year 2010 and it expects continued momentum heading into the first quarter of fiscal year 2011.
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 (“U.S. GAAP”) 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 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 offsiteoff-site 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 from time to time may ship an order from its facilities which is also the same point that title passes under the terms of the purchase order and invoice the customer at the end of the calendar month. This is done only in special circumstances to accommodate a specific customer. 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.
16
Impairment of Long-Lived Assets- The Company reviews long-lived assets, including amortizable intangible 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
New Accounting Standards:
In September 2006, 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
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. Statement of Financial Accounting Standards
(SFAS) No.
142, "GoodwillBoard (“FASB”) issued Accounting Standards Codification (“ASC” or the “Codification”) 820-10 Fair Value Measurements and
Other Intangible Assets"Disclosures (formerly SFAS 157, “Fair Value Measurements”),
requireswhich defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. In November 2007, the
CompanyFASB agreed to
20
assess goodwilla one-year deferral of the effective date of ASC 820-10 for impairmentall non-financial assets and liabilities, except those that are recognized or disclosed at least annuallyfair value in the absence of an indicator
of possible impairment and immediately upon an indicator of possible impairment.
During the fourth quarter of fiscal 2007, the Company completed its annual
assessment of impairment regarding the goodwill recorded. The Company calculates
fair value of the reporting unit utilizingfinancial statements on a combination of a discounted cash
flow approach and certain market approaches which considered both the Company's
market capitalization and trading multiples of comparable companies. The
calculations of fair value of the reporting unit involves significant judgment
and different underlying assumptions could result in different calculated fair
values. The goodwill impairment analysis indicated thererecurring basis. There was no goodwill
impairmentsignificant impact from adoption of ASC 820-10 for non-financial assets and liabilities on the year ended April 30,Company’s financial statements. In December 2007, 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 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.
NEW ACCOUNTING STANDARDS -
In February 2006, the FASB issued StatementASC 810-10 Consolidation (formerly SFAS 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of Financial Accounting StandardResearch Bulletin No. 155, "Accounting51”), which establishes accounting reporting standards for Certain Hybrid Instruments" (SFAS 155). FASB
155 allows financial instrumentsownership 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. ASC 810-10 also establishes disclosure requirements that have embedded derivatives to be accounted
for as a whole (eliminatingclearly identify and distinguish between 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 beginninginterests of the entity's first fiscal year that begins after
September 15, 2006. The Company does not expectparent and the adoptioninterests 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 48noncontrolling owners. ASC 810-10 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 as2008. There was no significant impact from adoption 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.
In September 2006, FASB issued SFAS No. 157 (SFAS 157), "Fair Value
Measurements". SFAS 157 establishes a common definition for fair value to be
applied to U.S. GAAP guidance requiring useASC 810-10 on the Company’s consolidated results 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 of SFAS 157 may have on
its financial statements.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Options for
Financial Assets and Financial Liabilities (SFAS No. 159). SFAS 159 permits
entities to choose to measure many financial assetsoperations 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 is effective for fiscal
years beginning after November 15, 2007. The Company is currently assessing the
impactcondition.
Results of SFAS 159 may have on financial statements.
RESULTS OF OPERATIONS:
Operations:
FISCAL YEAR ENDED APRIL 30, 20072010 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 20062009
Net sales
increased 32.9%decreased 8.4% to
$165,909,106$122,476,340 in fiscal year
20072010 from
$124,786,476$133,744,642 in the prior year. The
Company'sCompany’s sales
increaseddecreased in fiscal year 2010 in the
consumer and industrial electronics,
appliance, gaming, telecommunications, fitness,
semiconductor and life sciences,
and semiconductor marketplaces
during fiscal year 2007 as compared to the prior year. The
increasedecrease in sales
volumefor these marketplaces was partially offset by
price reductions to
customers. The Company anticipates pricing pressures from customers will
continue in fiscal year 2008. The 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. Thean increase in sales in the appliance,
gaming, telecommunications and
fitness marketplacesgaming marketplaces. The decrease in revenue for the fiscal year 2010 is
primarily due
to sales to customers existing priora result of our customers’ decreased demand for product in the first and second quarters of fiscal year 2010 based on their forecast, which the Company believes is attributable to the
Able acquisition.global economic slowdown. The
Company experienced an increase in
sales fordemand in the third and fourth quarters of 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.2010. 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,cancellations, the life cycle of customer products and product transition. Sales to the Company’s five largest customers accounted for 68% and 63% of net sales for fiscal years 2010 and 2009, respectively.
Gross profit decreased to $13,757,237 or 11.2% of net sales in fiscal year 2010 compared to $15,974,903 or 11.9% of net sales in the prior year. The decrease in the Company’s gross profit is due to decreased revenue levels, decreased plant capacity utilization and increasing commodity prices. The increasing commodity prices and demand for raw components has resulted in upward pricing pressure from the Company’s supply chain. There can be no assurance that sales levels orand gross margins will remain stablenot decrease in future periods. Salesquarters. Customer pricing pressures continue at all locations.
17
Selling and administrative expenses decreased in fiscal year 2010 to the Company's five largest customers accounted for
56% and 64%$10,826,880 or 8.8% of net sales for fiscal years 2007 and 2006, respectively.
Gross profit increasedcompared to $17,758,756$11,591,440 or 10.7%8.7% of net sales in fiscal year 2007 compared to $14,800,099 or 11.9% of net sales in the prior period.2009. The decrease in the Company's gross profittotal dollars for fiscal year 2010 is primarily due to a decrease in salaries, travel, amortization and other selling and administrative expenses totaling approximately $1,300,000. This decrease in total dollars was partially offset by an increase of $535,000 in depreciation expense, banks fees and bonus expense. The increase in selling and administrative expense as a percentage of net 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 increasedthe decreased sales volume in fiscal year 2007 to
$12,872,353 or 7.8% of net sales2010 compared to $10,925,646fiscal year 2009.
During fiscal 2010, the Company filed an insurance claim due to damage incurred at one of its buildings. The claim was settled in April 2010 and the Company recorded a gain from this involuntary conversion of $1,233,830 which is included in other income on the consolidated statement of income for the year ended April 30, 2010. The insurance proceeds not representing the reimbursement of expenses are classified as an investing cash flow in the statement of cash flows for the year ended April 30, 2010. The Company does not anticipate any additional proceeds, gains or 8.8% of net saleslosses to be recorded related to this settlement.
Interest expense decreased to $821,263 in fiscal year 2006. The increase is primarily due2010 compared to additional personnel in the
sales and purchasing departments and 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 $2,574,180$1,710,817 in fiscal year 2007 compared to
$1,421,455 in fiscal year 2006.2009. The interest expense increaseddecreased due to increaseddecreased borrowings under the Company's lines of credit to support working capital
requirements, additionalits banking agreements, capital leases for machinery and equipment and risinglower interest rates. Interest expense for fiscal year 2008 is expected to be
comparable to the amount of2011 may increase if interest expense recorded inrates or borrowings increase during fiscal year 2007.2011.
In fiscal year 20072010, income tax expense from continuing operations was $896,179
which resulted in an effective rate of 34.5%$1,120,786 compared to $935,589$936,278 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.2009. 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 sharetax rate for the year ended April 30, 2007,2010 and 2009 was $0.44 compared to $0.4833.3% and 32.0%, respectively.
The Company reported net income of $2,244,543 in fiscal year 2006.2010 compared to a net income of $1,955,847 for fiscal year 2009. Basic and diluted earnings per share was $0.45were $0.59 and $0.50$0.58 respectively for fiscal year 2010 compared to basic and diluted earnings per share of $0.51 for the year ended April 30, 20072009.
Liquidity 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 as compared to the prior year. The increase in sales
volume in the appliance 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 customers 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% of net sales in fiscal year
2006 compared to $17,958,154 or 19.0% of net sales in the prior period. The
decrease in the Company's gross profit is the result of pricing pressures within
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 facilities during fiscal
year 2007. In addition, the Company is currently expanding its Tijuana
manufacturing operation and will transfer specific production from Hayward 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 in fiscal year 2006 to
$10,925,646 or 8.8% of net sales compared to $10,076,082 or 10.6% of net sales
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. The interest expense increased due to significant
increased borrowings under the Company's lines of credit, primarily due to the
Able acquisition, additional capital leases for machinery and equipment and
rising interest rates. Interest expense for fiscal year 2007 is expected to be
comparable to the amount of interest expense recorded in fiscal year 2006 or
possibly higher.
In fiscal year 2006 tax expense from continuing operations was $935,589
which resulted in an effective rate of 32.7% compared to $3,173,635 in income
tax expense and an effective rate of 38.9% in fiscal year 2005. 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, was $0.48 compared to $1.23 in fiscal year 2005. Basic earnings
per share was $0.50 and $1.25 for the years ended April 30 2006, and 2005,
respectively.
LIQUIDITY AND CAPITAL RESOURCES:
Cash flow (used in) operating activities was ($2,308,847) for the year
ended April 30, 2007 compared to cash flow provided by operations of $1,997,144
in fiscal 2006. Cash used in operations was the result of a significant increase
in inventories of $10,075,504 and an increase in accounts receivable of
$2,549,567. The increase in inventories is attributable to an increase in the
number 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 increase in trade payables.Capital Resources: Operating Activities.
Cash flow provided by operating activities was $1,997,144$8,061,036 for the year ended April 30, 2006,2010, compared to $1,337,081$10,136,480 for the prior fiscal year. DuringCash flow provided by operating activities in fiscal year 2006, cash provided by operations2010 was primarily the result of net income adjusted for the non-cash effect of depreciation and amortization and an increase in trade accounts payable. CashTrade accounts payable increased due to increased purchases of raw material. Net cash provided by operating activitiesoperations in fiscal year 2010 was partially offset by an increase in accounts receivable of $8,144,893 due to increased sales volume in the fourth quarter of fiscal 2010 and timing of cash receipts from a significant customer. The Company’s inventories increased by $1,358,301 due to increased demand for product in the fourth quarter of approximately $6,100,000.fiscal year 2010.
Cash flow provided by operating activities was $10,136,480 for the year ended April 30, 2009. Cash flow provided by operating activities in fiscal year 2009 was primarily the result of a $9,944,685 decrease in accounts receivable, a reduction in inventory levels, the results of the non-cash effect of depreciation and amortization and net income. Net cash provided by operations in fiscal year 2009 was partially offset by a $9,898,407 reduction in accounts payable. The increasedecrease in inventories is primarilyaccounts payable and accounts receivable was 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 was attributable to the global economic slowdown and financial crisis. The Company’s working capital requirements decreased primarily as a result of the decrease in sales volume during fiscal 2009.
18
Investing Activities.
During fiscal 2010, the Company filed an increaseinsurance claim due to damage incurred at one of its buildings. The claim was settled in customer required safety
stockApril 2010 and the start upCompany recorded a gain from this involuntary conversion of $1,233,830 which is included in other income on the Company's China facility.
INVESTING ACTIVITIES.consolidated statement of income for the year ended April 30, 2010. These insurance proceeds are classified as an investing cash flow in the statement of cash flows for the year ended April 30, 2010. The Company does not anticipate any additional proceeds, gains or losses to be recorded related to this settlement.
In fiscal year 20072010, the Company purchased approximately $4,500,000$3,000,000 in machinery and equipment and itfor various operating facilities. Approximately $440,000 of the purchases is a financed licensing agreement for software through a note payable. 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 2007.2011 of approximately $4.5 million.
In fiscal 2006year 2009, the Company purchased approximately $6,300,000$1,180,000 in machinery and equipment. The Company executed three toa five year capital leaseslease to finance several ofapproximately $360,000 for certain purchases made during fiscal year 2009.
Financing Activities.
Cash used in financing activities was $6,444,673 for the purchasesyear ended April 30, 2010, compared to $9,386,202 in fiscal year 2006.
In July 20052009. Cash used in financing activities was primarily the result of net payments made to reduce the balance outstanding under the Company’s banking agreements and lease agreements.
Debt:
Through January 2010, the Company
closed on the purchase of all of the outstanding
stock of Able,had 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 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 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 loanwith Bank of America under 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 limitedcould borrow up to the lesser of: (i) $32,000,000$32 million; or (ii) an amount equal to the sum of 85% of the eligible receivable borrowing base and the lesser of $16,000,000$16 million or a percentage50% of the eligible inventory borrowing base. In January and April 2007, the Company's financial covenants
were amended. On April 30, 2007, $24,219,015 was outstanding under theThe revolving credit facility and $4,000,000 under the term loan. There was approximately
$5,100,000 of unuseddue to expire on September 30, 2010. The outstanding balance on this revolving credit available as ofline was $18,746,696 at April 30, 2007.2009. In October 2009, the Company conducted a strategic review of its financing arrangements to determine the best long-term alternatives. Based on that evaluation, the Company decided to reduce the overall size of its credit facility to $25 million. Effective October 31, 2009, the Company was in violation of a financial covenant under its agreements with Bank of America. In December 2009, Bank of America provided a forbearance on the covenant violation until January 8, 2010 to allow the Company to transition to a new bank. On January 8, 2010, the Company entered into a $25 million senior secured credit facility with Wells Fargo International Banking and Trade Solutions (IBTS) (“Wells Fargo”). The term of the credit facility extends for two years, through January 8, 2012, and allows the Company to choose the interest rates at which it may borrow funds. The interest rate can be the prime rate plus one half percent (3.75% at April 30, 2010) or LIBOR plus two and three quarter percent (3.1% at April 30, 2010). At no time can LIBOR be less than .35%. The credit facility is collateralized by substantially all of the domestically located assets of the Company and requires the Company to be in compliance with several financial covenants. The Company was in compliance with its financial covenants at April 30, 2007.
Cash provided by financing activities was $4,106,815 for the year ended2010. As of April 30, 2007, compared to $22,345,050 in fiscal 2006. Cash provided by
financing2010, there was the result of increased borrowing$15,125,058 outstanding under the revolving credit
facility 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 the revolving credit facility and approximately $9,800,000 of unused availability. Through January 7, 2010, the Company also had a term loan with Bank of America with an outstanding balance at January 7, 2010 and April 30, 2009 of $1,500,000 and $2,000,000, respectively. The term loan required quarterly principal payments of $250,000 due each quarter through the quarter ending June 30, 2011 and interest payable monthly throughout the term of the loan. On January 8, 2010, the Company repaid this debt using proceeds from the mortgage loan credit facility from Wells Fargo.
On November 19, 2003, the Company purchased the property that serves as the Company’s corporate headquarters and its Midwestern manufacturing facility. The additional working capital was required primarily forCompany executed a mortgage with Bank of America in the acquisitionamount of Able
and to support revenue growth.
SigmaTron China$3,600,000, which had an April 30, 2009 balance of $2,661,438. On January 8, 2010, the Company entered into a loanmortgage agreement in April 2005, which provided
for a linethe amount 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$2,500,000 with Wells Fargo to refinance the property. The loan was paidnote bears interest at a fixed rate of 6.42% per year and is payable in full in July 2006.sixty monthly
19
installments. A final payment of approximately $2,000,000 is due on or before January 8, 2015. The Company repaid the prior Bank of America mortgage, the outstanding obligations under which equaled $2,565,413 as of January 8, 2010, using proceeds from the Wells Fargo mortgage and credit facility.
Through January 7, 2010, the Company had capital leases with Bank of America with an outstanding balance at January 7, 2010 and April 30, 2009 of $1,287,407 and $1,669,616, respectively. On January 8, 2010, the Company repaid the Bank of America capital leases using proceeds from the credit facility with Wells Fargo. On January 19, 2010, the Company entered into a leasing transaction with Wells Fargo Equipment Finance, Inc. to finance $1,287,407 of equipment and paid down the Wells Fargo credit facility by the same amount. The term of the lease financing agreement extends to January 18, 2012 with monthly payments of $55,872 and a fixed interest rate of 4.29%. At April 30, 2010, the balance outstanding of Wells Fargo leases was $1,076,574. The Company has other capital leases in the amount of $366,780 and $773,140 at April 30, 2010 and 2009, respectively.
The Company anticipates that its new credit facilities, cash flow from operations and leasing resources will be adequate to meet its working capital requirements inand capital expenditures for the balance of fiscal year 2008.2011. There is no assurance that the Company will be able to retain or renew its credit agreements in the future. In the event the business grows rapidly, the current economic climate continues for an extended period or the Company considers an acquisition, additional financing resources could be necessary in the current unstable or future fiscal years. There is no assurance that the Company will be able to obtain equity or debt financing at acceptable terms, or at all in the future.
The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican and Chinese subsidiaries.subsidiaries and the Taiwan procurement branch. The Company provides funding to its Mexican and Chinese
subsidiaries in U.S. dollars, which are exchanged for pesosPesos, Renminbi, and RMBNew Taiwan dollars as needed. The fluctuation of currencies from time to time, without an equal or greater increase in inflation, has not hadcould have a material impact on the financial results of the Company. The impact of currency fluctuation for the fiscal year ended April 30, 2010 resulted in an expense of approximately $276,000. In fiscal year 20072010, the CompanyCompany’s U.S. operations paid approximately $19,400,000$13,100,000 to its foreign 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 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, andExchange Act, 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 Exchange Act, 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.
20
| | |
| 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)15-(d)-15(e)) as of April 30, 2007.2010. Disclosure controls are designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. GAAP. 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") 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, 2007.2010. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). 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 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, 2010. 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 Securities and Exchange Commission 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, 2007,2010, 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. 2010.
| | |
| 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. 2010.
21
| | |
| 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. 2010. | | |
| 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. 2010.
| | |
| 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.
2010.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| | |
| ITEM 15. | | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| | |
| (a) 1 | | The financial statements are listed in the Index to Financial Statements filed as part of this Annual Report on Form 10-K beginning on Page F-1. |
22
Index to Exhibits
(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)
The financial statements, including required supporting schedule, are
listed in the index 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
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 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 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.
(c) Exhibits
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, incorporated herein by reference to Exhibit 3.2 to the Company’s Form 10-K for the fiscal year ended April 30, 2000. |
|
| 10.1 | | Form of 1993 Stock Option Plan, incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, File No. 33-72100.* |
|
| 10.2 | | Form of Incentive Stock Option Agreement for the Company’s 1993 Stock Option Plan , incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1, File No. 33-72100.* |
|
| 10.3 | | Form of Non-Statutory Stock Option Agreement for the Company’s 1993 stock Option Plan, incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1, File No. 33-72100.* |
|
| 10.4 | | 2000 Outside Directors’ Stock Option Plan, incorporated herein by reference to Appendix 1 to the Company’s 2000 Proxy Statement filed on August 21, 2000.* |
|
| 10.5 | | 2004 Directors’ Stock Option Plan, incorporated herein by reference to Appendix C to the Company’s 2004 Proxy Statement filed on August 16, 2004.* |
|
| 10.6 | | 2004 Employee Stock Option Plan, incorporated herein by reference to Appendix B to the Company’s 2004 Proxy Statement filed on August 16, 2004. * |
|
| 10.7 | | Change in Control Plan dated May 30, 2002, incorporated herein by reference to Exhibit 10.15 to the Company’s Form 10-K for the fiscal year ended April 30, 2005.* |
|
| 10.8 | | Credit Agreement between SigmaTron International, Inc. and Wells Fargo International Banking and Trade Solutions (IBTS), dated January 8, 2010, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 14, 2010. |
|
| 10.9 | | Revolving Line of Credit Note issued by SigmaTron International, Inc. to Wells Fargo International Banking and Trade Solutions (IBTS), dated January 8, 2010 incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 14, 2010. |
|
| 10.10 | | Promissory Note issued by SigmaTron International, Inc. to Wells Fargo International Banking and Trade Solutions (IBTS), dated January 8, 2010, incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K filed on January 14, 2010. |
|
| 21.0 | | Subsidiaries of the Registrant, incorporated herein by reference to the Company’s Form 10-K for the fiscal year ended April 30, 2007, filed on July 24, 2007. |
|
| 23.1 | | Consent of BDO USA, LLP.** |
|
| 24.0 | | Power of Attorney of Directors and Executive Officers (included on the signature page of this Form 10-K for the fiscal year ended April 30, 2010).** |
|
| 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.** |
23
| 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).** |
|
| 99.1 | | Forbearance Agreement, dated December 11, 2009, by and between SigmaTron International, Inc. and Bank of America, incorporated herein by reference to Exhibit 99.1 to the Company’s Form 10-Q filed on December 15, 2009. |
| | |
| * | | 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
24
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
------------------------------------
Gary R. Fairhead, President and
Chief Executive Officer,
Principal Executive Officer and
Director
Dated: July 24, 2007
| | | | |
| SIGMATRON INTERNATIONAL, INC.
| |
| By: | /s/ Gary R. Fairhead | |
| | Gary R. Fairhead, President and Chief Executive Officer, | |
| | Principal Executive Officer and Director
Dated: July 16, 2010 | |
|
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/ Franklin D. Sove |
|
| /s/ John P. Chen | | Chairman of the Board of Directors | | July 24, 2007
- --------------------------------
Franklin D. Sove
/s/16, 2010 |
| | | | |
| | | | |
| /s/ Gary R. Fairhead | | President and Chief Executive Officer, | | July 24, 2007
- -------------------------------- Principal Executive Officer and Director
16, 2010 |
| | (Principal Executive Officer) and Director | | |
| | | | |
/s/ Linda K. Blake Frauendorfer | | Chief Financial Officer, Secretary and Treasurer | | July 24, 2007
- -------------------------------- Treasurer16, 2010 |
| | (Principal Financial Officer Linda K. Blake and Principal Accounting Officer)
/s/ John P. Chen Director July 24, 2007
- --------------------------------
John P. Chen
/s/ | | |
| | | | |
| /s/ Thomas W. Rieck | | Director | | July 24, 2007
- --------------------------------
16, 2010 |
| | | | |
| | | | |
| /s/ Dilip S. Vyas | | Director | | July 24, 2007
- --------------------------------
16, 2010 |
| | | | |
| | | | |
| /s/ Carl A. Zemenick | | Director | | July 24, 2007
- --------------------------------
16, 2010 |
| | | | |
31
25
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, 20072010 and 20062009 and the related consolidated statements of income, stockholders'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, 2010 and subsidiaries2009 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 USA, 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
16, 2010 F-2
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
APRILApril 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
| | | | | | | | | |
| | | 2010 | | | 2009 | |
CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents | | $ | 4,052,572 | | | $ | 3,781,252 | |
| Accounts receivable, less allowance for doubtful accounts of $150,000 and $167,788 at April 30, 2010 and 2009, respectively | | | 24,929,972 | | | | 16,785,079 | |
| Inventories, net | | | 37,406,056 | | | | 36,230,555 | |
| Prepaid expenses and other assets | | | 928,551 | | | | 923,911 | |
| Deferred income taxes | | | 1,844,188 | | | | 1,560,425 | |
| Other receivables | | | 171,593 | | | | 341,310 | |
| | | | | | | |
| | | | | | | | | |
| Total current assets | | | 69,332,932 | | | | 59,622,532 | |
| | | | | | | | | |
PROPERTY, MACHINERY AND EQUIPMENT, NET | | | 25,176,664 | | | | 26,200,578 | |
| | | | | | | | | |
LONG-TERM ASSETS | | | | | | | | |
| Other assets | | | 822,341 | | | | 699,379 | |
| Intangible assets, net of amortization of $2,406,329 and $2,161,113 at April 30, 2010 and 2009, respectively | | | 363,671 | | | | 608,887 | |
| | | | | | | |
| | | | | | | | | |
| Total long-term assets | | | 1,186,012 | | | | 1,308,266 | |
| | | | | | | |
| | | | | | | | | |
TOTAL ASSETS | | $ | 95,695,608 | | | $ | 87,131,376 | |
| | | | | | | |
The accompanying notes are an integral part of these statements.
F-4
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-3
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS -— CONTINUED
APRIL
April 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
| | | | | | | | | |
| | | 2010 | | | 2009 | |
CURRENT LIABILITIES | | | | | | | | |
| Trade accounts payable | | $ | 20,479,495 | | | $ | 10,531,553 | |
| Accrued expenses | | | 1,786,360 | | | | 1,602,913 | |
| Accrued payroll | | | 2,475,552 | | | | 1,555,736 | |
| Income taxes payable | | | 1,288,617 | | | | 272,750 | |
| Notes payable — bank | | | — | | | | 1,000,000 | |
| Notes payable — buildings | | | 99,996 | | | | 140,250 | |
| Notes payable — other | | | 160,994 | | | | — | |
| Capital lease obligations | | | 874,116 | | | | 951,983 | |
| | | | | | | |
| | | | | | | | | |
| Total current liabilities | | | 27,165,130 | | | | 16,055,185 | |
| | | | | | | | | |
NOTES PAYABLE — BANK, LESS CURRENT PORTION | | | 15,125,058 | | | | 19,746,696 | |
| | | | | | | | | |
NOTES PAYABLE — BUILDINGS, LESS CURRENT PORTION | | | 2,375,005 | | | | 2,521,188 | |
| | | | | | | | | |
NOTES PAYABLE — OTHER, LESS CURRENT PORTION | | | 187,826 | | | | — | |
| | | | | | | | | |
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION | | | 569,240 | | | | 1,490,773 | |
| | | | | | | | | |
DEFERRED INCOME TAXES | | | 2,610,142 | | | | 1,915,649 | |
| | | | | | | | | |
| | | | | | | |
| Total liabilities | | | 48,032,401 | | | | 41,729,491 | |
| | | | | | | | | |
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, 2010 and 2009 | | | 38,226 | | | | 38,226 | |
| Capital in excess of par value | | | 19,647,359 | | | | 19,630,580 | |
| Retained earnings | | | 27,977,622 | | | | 25,733,079 | |
| | | | | | | |
| | | | | | | | | |
| Total stockholders’ equity | | | 47,663,207 | | | | 45,401,885 | |
| | | | | | | |
| | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 95,695,608 | | | $ | 87,131,376 | |
| | | | | | | |
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 APRILYears 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
============ ============ ===========
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Net sales | | $ | 122,476,340 | | | $ | 133,744,642 | |
| | | | | | | | | |
| Cost of products sold | | | 108,719,103 | | | | 117,769,739 | |
| | | | | | | |
| | | | | | | | | |
| Gross profit | | | 13,757,237 | | | | 15,974,903 | |
| | | | | | | | | |
| Selling and administrative expenses | | | 10,826,880 | | | | 11,591,440 | |
| | | | | | | |
| | | | | | | | | |
| Operating income | | | 2,930,357 | | | | 4,383,463 | |
| | | | | | | | | |
| Other income | | | (1,256,235 | ) | | | (219,479 | ) |
| Interest expense | | | 821,263 | | | | 1,710,817 | |
| | | | | | | |
| | | | | | | | | |
| Income before income tax expense | | | 3,365,329 | | | | 2,892,125 | |
| | | | | | | | | |
| Income tax expense | | | 1,120,786 | | | | 936,278 | |
| | | | | | | |
| | | | | | | | | |
NET INCOME | | $ | 2,244,543 | | | $ | 1,955,847 | |
| | | | | | | |
| | | | | | | | | |
| Earnings per common share | | | | | | | | |
| Basic | | $ | 0.59 | | | $ | 0.51 | |
| | | | | | | |
| | | | | | | | | |
| Diluted | | $ | 0.58 | | | $ | 0.51 | |
| | | | | | | |
| | | | | | | | | |
| Weighted-average shares of common stock outstanding | | | | | | | | |
| Basic | | | 3,822,556 | | | | 3,822,556 | |
| | | | | | | |
| | | | | | | | | |
| Diluted | | | 3,863,505 | | | | 3,859,526 | |
| | | | | | | |
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 APRILTwo 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
2010 and 2009 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Capital in | | | | | | | Total | |
| | | Preferred | | | Common | | | excess of par | | | Retained | | | stockholders’ | |
| | | stock | | | stock | | | value | | | earnings | | | equity | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation | | | — | | | | — | | | | 16,779 | | | | — | | | | 16,779 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | | | — | | | | — | | | | — | | | | 2,244,543 | | | | 2,244,543 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at April 30, 2010 | | $ | — | | | $ | 38,226 | | | $ | 19,647,359 | | | $ | 27,977,622 | | | $ | 47,663,207 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these statement.
F-6
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWSYears ended April 30, | | | | | | | | | |
| | | 2010 | | | 2009 | |
| Cash flows from operating activities | | | | | | | | |
| Net income | | $ | 2,244,543 | | | $ | 1,955,847 | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | |
| Depreciation and amortization | | | 4,007,026 | | | | 4,035,804 | |
| Stock-based compensation | | | 16,779 | | | | 31,079 | |
| Provision for doubtful accounts | | | — | | | | 17,788 | |
| Provision for inventory obsolescence | | | 182,800 | | | | 157,000 | |
| Deferred income tax expense (benefit) | | | 410,730 | | | | (518,981 | ) |
| Amortization of intangible assets | | | 245,216 | | | | 349,182 | |
| Amortization of financing fees | | | 40,511 | | | | — | |
| Insurance gain | | | (1,233,830 | ) | | | — | |
| Loss from disposal or sale of machinery and equipment | | | 38,493 | | | | 279,521 | |
| | | | | | | | | |
| Changes in operating assets and liabilities | | | | | | | | |
| Accounts receivable | | | (8,144,893 | ) | | | 9,944,685 | |
| Inventories | | | (1,358,301 | ) | | | 5,759,215 | |
| Prepaid expenses and other assets | | | 1,604 | | | | 147,945 | |
| Trade accounts payable | | | 9,491,228 | | | | (9,898,407 | ) |
| Accrued expenses and wages | | | 1,103,263 | | | | (1,722,331 | ) |
| Income taxes | | | 1,015,867 | | | | (401,867 | ) |
| | | | | | | |
| | | | | | | | | |
| Net cash provided by operating activities | | | 8,061,036 | | | | 10,136,480 | |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Proceeds from insurance | | | 1,233,830 | | | | — | |
| Proceeds from sale of machinery and equipment | | | — | | | | 18,052 | |
| Purchases of machinery and equipment | | | (2,578,873 | ) | | | (820,705 | ) |
| | | | | | | |
| | | | | | | | | |
| Net cash used in investing activities | | | (1,345,043 | ) | | | (802,653 | ) |
| | | | | | | | | |
| Cash flows from financing activities | | | | | | | | |
| Payments of financing fees | | | (243,073 | ) | | | — | |
| Proceeds under capital lease obligations | | | 1,287,407 | | | | — | |
| Payments under capital lease obligations | | | (2,286,807 | ) | | | (1,637,494 | ) |
| Payments under other notes payable | | | (93,912 | ) | | | — | |
| Proceeds under building notes payable | | | 2,500,000 | | | | — | |
| Payments under building notes payable | | | (2,686,437 | ) | | | (326,934 | ) |
| Payments under term loan | | | (2,000,000 | ) | | | (1,000,000 | ) |
| Net payments under lines of credit | | | (3,621,638 | ) | | | (7,129,559 | ) |
| Change in bank overdraft | | | 699,787 | | | | 707,785 | |
| | | | | | | |
| | | | | | | | | |
| Net cash used in financing activities | | | (6,444,673 | ) | | | (9,386,202 | ) |
| | | | | | | |
| | | | | | | | | |
INCREASE (DECREASE) IN CASH | | | 271,320 | | | | (52,375 | ) |
| | | | | | | | | |
| Cash and cash equivalents at beginning of year | | | 3,781,252 | | | | 3,833,627 | |
| | | | | | | |
| | | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 4,052,572 | | | $ | 3,781,252 | |
| | | | | | | |
| | | | | | | | | |
| Supplementary disclosures of cash flow information | | | | | | | | |
| Cash paid for interest | | $ | 818,453 | | | $ | 1,810,000 | |
| Cash paid for income taxes, net of (refunds) | | | (548,028 | ) | | | 1,560,243 | |
| Purchase of machinery and equipment financed under capital lease obligations | | | — | | | | 358,627 | |
| | | | | | | | | |
| Non Cash Financing Activity: | | | | | | | | |
| The Company financed a licensing agreement through a note payable | | $ | 442,732 | | | | — | |
The accompanying notes are an integral part of these statements.
F-8
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-7
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
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 9%10% of the consolidated non-current assets of the Company are located in foreign jurisdictions outside the United States.
States as of April 30, 2010 and 2009.
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. Intercompany transactions are eliminated in the consolidated financial statements. The Company adoptedimpact of currency fluctuation for the provisionsfiscal year ended April 30, 2010 resulted in an expense of Financial Accounting Standards Board ("FASB") Interpretation
No. 46R ("FIN 46R"), "Consolidationapproximately $276,000 and for the fiscal year ending April 30, 2009, was approximately $135,000 in income. The transactions are recorded in other income.
Use 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
2010 and 2009
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 three 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
2010 and 2009
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 5and software | | 3-5 years |
| Tools and dies | | 12 months |
| Leasehold improvements | | term of lease |
INCOME TAXES
Deferred Financing Costs
Deferred financing cost consist of costs incurred to obtain the Company’s long-term debt and are amortized using the straight-line method over the term of the related debt. Deferred financing fees of $202,562 and $0, net of accumulated amortization of $40,511 and $0 as of April 30, 2010 and 2009, respectively are classified in other assets on the Company’s balance sheet.
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
F-10
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2010 and 2009
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
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 sharesstock equivalents such as stock options had been issued.exercised. At April 30, 2005, 2006,2010 and 20072009, there were 3,100, 33,100400,190 and 419,790413,090 anti-dilutive shares, respectively.
REVENUE RECOGNITION
common stock equivalents, respectively, which have been excluded from the calculation of diluted earnings per share.
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
offsiteoff-site 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 from time to time may ship an order from its facilities which is also the same point that title passes under the terms of the purchase order and invoice the customer at the end of the calendar month. This is done only in special circumstances to accommodate a specific customer. 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 financial statements for the
period in which the return was received.
SHIPPING AND HANDLING COSTS
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
2010 or 2009.
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.
F-11
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2010 and 2009
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
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. 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 with SFAS No. 141 "Business Combinations" a purchaser must
allocate the total consideration paid in a business combination to the acquired
tangible and intangible assets based on their fair value. Goodwill represents
the purchase price in excess of the fair value of assets acquired in business
combinations. SFAS No. 142, requires the Company to assess 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, the Company completed its annual assessment of
impairment regarding the goodwill recorded. The Company calculates fair value of
the reporting unit utilizing a combination of a discounted cash flow approach
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
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
Intangibles Assets
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
| | | | | |
| | | Customer |
| | | Relationship |
| Balance as of April 30, 2008 | | $ | 958,069 | |
| | | | | |
| Amortization expense 2009 | | | (349,182 | ) |
| | | | | |
| | | | | |
| Balance as of April 30, 2009 | | | 608,887 | |
| | | | | |
| Amortization expense 2010 | | | (245,216 | ) |
| | | | | |
| | | | | |
| Balance as of April 30, 2010 | | $ | 363,671 | |
| | | | | |
| | | | | |
| Amortization period | | 8 years |
F-12
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
NOTE B -— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
GOODWILL AND OTHER INTANGIBLES - CONTINUED
— Continued
Intangibles Assets — Continued
The estimated intangible amortization expenses for the next five years are as follows:
Years Ended 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
| | | | | |
| Years Ended April 30, | | | | |
| 2011 | | $ | 163,998 | |
| 2012 | | | 112,746 | |
| 2013 | | | 75,850 | |
| 2014 | | | 11,077 | |
| 2015 | | | — | |
| | | | | |
| | | $ | 363,671 | |
| | | | | |
The Company adopted Financial Accounting Standards Board, Share-Based Payment
("SFAS 123 (R)") Accounting for Company’s intangible assets include customer lists and are amortized utilizing accelerated amortization methods.
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.
Prior toThe Company measures the
adoptioncost of
SFAS 123 (R),employee services received in exchange for an equity award based on the
Company had elected to apply
Accounting Principles Board Opinion 25 to account 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 options
and other awards granted to employees. Had thegrant date 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 2005records that cost over 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 therespective vesting 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
In February 2007 the FASB issued SFAS No. 159 ("SFAS 159") "The Fair Value
Option for Financial Assets and Financial Liabilities". 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 is effective for fiscal
years beginning after November 15, 2007. The Company is currently assessing the
impact of SFAS 159 may have on its financial statements.
award.New Accounting Standards
In September 2006, FASBthe Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 ("SFAS 157"Accounting Standards Codification (“ASC” or the “Codification”) "Fair820-10 Fair Value Measurements".Measurements and Disclosures (formerly SFAS 157, establishes a common definition for fair value to be
applied to U.S. GAAP guidance requiring use of“Fair Value Measurements”), 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 isIn November 2007, the FASB agreed to a one-year deferral of the effective date of ASC 820-10 for fiscal years beginning after November
15, 2007. The Company is currently assessingall 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 SFAS 157 may havefrom adoption of ASC 820-10 for non-financial assets and liabilities on itsthe Company’s financial statements.
F-13
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2010 and 2009
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
New Accounting Standards — Continued
In
July 2006,December 2007, the FASB issued
FIN 48,ASC 810-10 Consolidation (formerly SFAS 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51”), which establishes accounting reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to
createthe parent and to the noncontrolling interest, changes in 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. ASC 810-10 also establishes disclosure requirements that clearly identify and
transition. FIN 48distinguish between the interests of the parent and the interests of the noncontrolling owners. ASC 810-10 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. The Company has estimated that its potential2008. There was no significant 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 does not expect the adoption of SFAS 155 will have a material
impactASC 810-10 on itsthe Company’s 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
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Beginning balance | | $ | 167,788 | | | $ | 213,000 | |
| Bad debt expense | | | — | | | | 17,788 | |
| Write-offs | | | (17,788 | ) | | | (63,000 | ) |
| | | | | | | |
| | | | | | | | | |
| | | $ | 150,000 | | | $ | 167,788 | |
| | | | | | | |
F-14
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
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
=========== ===========
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Finished products | | $ | 8,364,010 | | | $ | 11,644,129 | |
| Work in process | | | 1,925,880 | | | | 2,391,559 | |
| Raw materials | | | 29,013,486 | | | | 23,993,727 | |
| | | | | | | |
| | | | | | | | | |
| | | | 39,303,376 | | | | 38,029,415 | |
| | | | | | | | | |
| Less obsolescence reserve | | | 1,897,320 | | | | 1,798,860 | |
| | | | | | | |
| | | | | | | | | |
| | | $ | 37,406,056 | | | $ | 36,230,555 | |
| | | | | | | |
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
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Beginning balance | | $ | 1,798,860 | | | $ | 1,723,019 | |
| Provision for obsolescence | | | 182,800 | | | | 157,000 | |
| Write-offs | | | (84,340 | ) | | | (81,159 | ) |
| | | | | | | |
| | | $ | 1,897,320 | | | $ | 1,798,860 | |
| | | | | | | |
F-15
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
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 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
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Land and buildings | | $ | 12,145,447 | | | $ | 12,021,913 | |
| Machinery and equipment | | | 41,724,734 | | | | 38,670,381 | |
| Office equipment and software | | | 4,541,291 | | | | 3,947,899 | |
| Tools and dies | | | 295,095 | | | | 288,598 | |
| Leasehold improvements | | | 3,345,106 | | | | 3,089,065 | |
| Equipment under capital leases | | | 3,748,580 | | | | 4,899,539 | |
| | | | | | | |
| | | | | | | | | |
| | | | 65,800,253 | | | | 62,917,395 | |
| | | | | | | | | |
| Less accumulated depreciation and amortization, including amortization of assets under capital leases of $1,126,162 and $1,218,393 at April 30, 2010 and 2009, respectively | | | 40,623,589 | | | | 36,716,817 | |
| | | | | | | |
| | | | | | | | | |
| Property, machinery and equipment, net | | $ | 25,176,664 | | | $ | 26,200,578 | |
| | | | | | | |
Depreciation and amortization expense was $4,007,026 and $4,035,804 for the years ended April 30, 2010 and 2009, respectively.
F-16
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
NOTE G - NOTES PAYABLE
On July 31, 2006,F — LONG — TERM DEBT
Note Payable — Bank
Through January 7, 2010, the Company
amended the credit facility to increase thehad a revolving credit facility
from $22,000,000 to $27,000,000. The Company also has
a term loanwith Bank of America under 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 limitedcould borrow up to the lesser of: (i)
$32,000,000$32 million; or (ii) an amount equal to the sum of 85% of the
eligible receivable borrowing base and the lesser of
$16,000,000$16 million or
a percentage50% of the
eligible inventory
borrowing base.
In January and April 2007, the Company's financial covenants
were amended. On April 30, 2007, $24,219,015 was outstanding under theThe revolving credit facility
and $4,000,000 under the term loan. There was
approximately
$5,100,000 of unuseddue to expire on September 30, 2010. The outstanding balance on this revolving credit
available as ofline was $18,746,696 at April 30,
2007. The2009. In October 2009, the Company conducted a strategic review of its financing arrangements to determine the best long-term alternatives. Based on that evaluation, the Company decided to reduce the overall size of its credit facility to $25 million. Effective October 31, 2009, the Company was in
complianceviolation of a financial covenant under its agreements with
its financial covenantsBank of America. In December 2009, Bank of America provided a forbearance on the covenant violation until January 8, 2010 to allow the Company to transition to a new bank. On January 8, 2010, the Company entered into a $25 million senior secured credit facility with Wells Fargo International Banking and Trade Solutions (IBTS) (“Wells Fargo”). The term of the credit facility extends for two years, through January 8, 2012, and allows the Company to choose the interest rates at which it may borrow funds. The interest rate can be the prime rate plus one half percent (3.75% at April 30,
2007.
Borrowings under the revolving line of credit bear interest at either the prime
rate less 0.25% (8.00%2010) or LIBOR plus two and three quarter percent (3.1% at April 30,
2007) or2010). At no time can LIBOR
plus 2% (7.11% and 7.38% at
April 30, 2007), as elected by the Company.be less than .35%. The
Company must also pay an unused
commitment fee equal to 0.20% on the revolving credit
facility. As of April 30,
2007, the Company had excess availability on the line of 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
under the term loan was $4,000,000 and $3,000,000 at April 30, 2007 and 2006,
respectively.
The loan and security agreementfacility is collateralized by substantially all of the domestically located assets of the Company and
contains certainrequires the Company to be in compliance with several financial
covenants, including specific covenants pertaining to the maintenance of minimum
tangible net worth and net income.covenants. The
agreement also restricts annual lease
rentals and capital expenditures and the payment of dividends. At April 30,
2007, the Company was in compliance with its financial
covenants.
F-22
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
covenants at April 30, 2010. As of April 30, 2010, there was $15,125,058 outstanding under the senior secured credit facility and approximately $9,800,000 of unused availability. Through January 7, 2010, the Company also had a term loan with Bank of America with an outstanding balance at January 7, 2010 and April 30, 2009 of $1,500,000 and $2,000,000, respectively. The term loan required quarterly principal payments of $250,000 due each quarter through the quarter ending June 30, 2011 and interest payable monthly throughout the term of the loan. On January 8, 2010, the Company repaid this debt using proceeds from the credit facility from Wells Fargo.
Capital Lease Obligations
Through January 7, 2010, the Company had capital leases with Bank of America with an outstanding balance at January 7, 2010 and April 30, 2009 of $1,287,407 and $1,669,616, respectively. On January 8, 2010, the Company repaid the Bank of America capital leases using proceeds from the credit facility with Wells Fargo. On January 19, 2010, the Company entered into a leasing transaction with Wells Fargo Equipment Finance, Inc. to finance $1,287,407 of
F-17
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
NOTE G - NOTES PAYABLE - CONTINUED
SigmaTron China entered intoF — LONG TERM DEBT — Continued
Capital Lease Obligations — Continued
equipment and paid down the Wells Fargo credit facility by the same amount. The term of the lease financing agreement extends to January 18, 2012 with monthly payments of $55,872 and a loan agreement in April 2005, which provides
approximately $1,300,000 U.S. dollars under a line of credit with the China
Construction Bank. Thefixed interest rate under the agreement was 5.76%of 4.29%. At April 30, 2006, SigmaTron China had $1,237,753 U.S. dollars2010, the balance outstanding underof Wells Fargo leases was $1,076,574. The Company has other capital leases in the loan.
The loan was collateralized by the Company's building in Suzhou-Wujiang Chinaamount of $366,780 and 60 of the 100 Chinese acres leased$773,140 at the property. The loan was paid in
full in July 2006.
April 30, 2010 and 2009, respectively.
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 notemortgage with LaSalle Bank N.A.of America in the amount of $3,600,000.$3,600,000, which had an April 30, 2009 balance of $2,661,438. On January 8, 2010 the Company entered into a mortgage agreement in the amount of $2,500,000 with Wells Fargo to refinance the property. The notePromissory Note bears interest at a fixed interest rate of 5.43%6.42% per year and is payable in sixty monthly installments. A final payment of approximately $2,700,000$2,000,000 is due on or before November 30, 2008.January 8, 2015. The Company repaid the prior Bank of America mortgage, the outstanding obligations under which equaled $2,565,413 as of January 8, 2010, using proceeds from the Wells Fargo mortgage and credit facility.
Other Debt
In October 2009, the Company entered into a financial licensing agreement for software. The term of the note payable is for 36 months, with monthly payments of approximately $13,415, and no interest is payable under the agreement. At April 30, 2007, $2,985,0002010, there was $348,820 outstanding under the note payable.
F-18
SigmaTron International, Inc. and at Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2006,
$3,165,000 was outstanding.
In May 2002, the Company acquired a plant in Mexico through seller financing.
The loan of $1,950,000 is payable in equal monthly installments of approximately
$31,000 over six2010 and a half years at a rate of 7% interest per annum. Prior to
the acquisition of the plant the Company rented the facility. At April 30, 2007,
$531,464 and at April 30, 2006, $856,089 was outstanding.
2009
NOTE F — LONG TERM DEBT — Continued
Other Debt — Continued
The aggregate amount of debt maturing
(excluding capital lease obligations) in each of the next five 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
| | | | | |
| Fiscal Year | | | | |
| 2011 | | $ | 260,990 | |
| 2012 | | | 15,386,048 | |
| 2013 | | | 126,828 | |
| 2014 | | | 99,996 | |
| 2015 | | | 2,075,017 | |
| Thereafter | | | — | |
| | | | |
| | | | | |
| | | $ | 17,948,879 | |
| | | | |
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,| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Wages | | $ | 1,800,552 | | | $ | 1,555,736 | |
| Bonuses | | | 675,000 | | | | — | |
| Interest payable | | | 55,831 | | | | 41,101 | |
| Commissions | | | 45,339 | | | | 36,514 | |
| Professional fees | | | 247,287 | | | | 228,161 | |
| Foreign payroll accruals | | | 870,080 | | | | 708,433 | |
| Other | | | 567,823 | | | | 588,704 | |
| | | | | | | |
| | | | | | | | | |
| | | $ | 4,261,912 | | | $ | 3,158,649 | |
| | | | | | | |
F-19
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, 2006,2010 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
2009 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
========= ========= ==========
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Current | | | | | | | | |
| Federal | | $ | 393,250 | | | $ | 1,037,422 | |
| State | | | 67,007 | | | | 179,311 | |
| Foreign | | | 249,799 | | | | 238,526 | |
| Deferred | | | | | | | | |
| Federal | | | 358,076 | | | | (452,450 | ) |
| State | | | 52,654 | | | | (66,531 | ) |
| | | | | | | |
| | | | | | | | | |
| | | $ | 1,120,786 | | | $ | 936,278 | |
| | | | | | | |
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 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
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Income tax at | | | | | | | | |
| Federal rate | | $ | 1,144,212 | | | $ | 983,322 | |
| State income tax, net of federal | | | 55,108 | | | | 51,814 | |
| Differential in foreign and federal tax rates | | | (124,734 | ) | | | (113,246 | ) |
| Other, net | | | 46,200 | | | | 14,388 | |
| | | | | | | |
| | | | | | | | | |
| | | $ | 1,120,786 | | | $ | 936,278 | |
| | | | | | | |
F-20
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
NOTE L -H — INCOME TAX - CONTINUED
— Continued
U.S. and foreign income before income tax expense for the years ended April 30 are as follows:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| U.S. | | $ | 2,263,760 | | | $ | 1,857,492 | |
| Foreign | | | 1,101,569 | | | | 1,034,633 | |
| | | | | | | |
| | | | | | | | | |
| Total | | $ | 3,365,329 | | | $ | 2,892,125 | |
| | | | | | | |
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)
=========== ===========
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Allowance for doubtful accounts | | $ | 58,499 | | | $ | 65,436 | |
| Inventory obsolescence reserve | | | 739,945 | | | | 701,546 | |
| Accruals not currently deductible | | | 732,673 | | | | 461,619 | |
| Inventory | | | 381,834 | | | | 402,765 | |
| | | | | | | |
| | | | | | | | | |
| Current deferred tax asset | | | 1,912,951 | | | | 1,631,366 | |
| | | | | | | | | |
| Prepaid insurance | | | (68,763 | ) | | | (70,941 | ) |
| | | | | | | |
| | | | | | | | | |
| Current deferred tax liability | | | (68,763 | ) | | | (70,941 | ) |
| | | | | | | |
| | | | | | | | | |
| Net current deferred tax asset | | $ | 1,844,188 | | | $ | 1,560,425 | |
| | | | | | | |
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Intangible assets | | $ | (141,830 | ) | | $ | (237,463 | ) |
| Machinery and equipment | | | (2,517,676 | ) | | | (1,670,023 | ) |
| Other | | | 49,364 | | | | (8,163 | ) |
| | | | | | | |
| | | | | | | | | |
| Net long-term deferred tax liability | | $ | (2,610,142 | ) | | $ | (1,915,649 | ) |
| | | | | | | |
F-21
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2010 and 2009
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 atJanuary 2005, but not in effect after December 31, 2008.
As a result2009.
The Company has identified uncertain tax positions taken or expected to be taken in the Company’s tax returns. The Company has not recognized the benefit for those positions in its consolidation financial statements. A reconciliation of the purchasebeginning and ending amount of Able, netunrecognized tax benefits, excluding interest and penalties, is as follows:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Balance at May 1, | | $ | 72,115 | | | $ | 145,591 | |
| Additions based on tax positions related to current year | | | — | | | | — | |
| Additions for tax positions in prior years | | | 1,672 | | | | 2,248 | |
| Reductions for tax positions of prior years | | | (23,749 | ) | | | (75,724 | ) |
| | | | | | | |
| | | | | | | | | |
| Balance at April 30, | | $ | 50,038 | | | $ | 72,115 | |
| | | | | | | |
The entire amount of the consolidated worldwide liability for uncertain tax positions could affect the Company’s effective tax rate upon favorable resolution of the uncertain tax positions. As the Company expects these uncertain tax positions to be resolved within the next twelve months, the full amount is classified as a current liability within income tax operating losses were
carried back, generating anpayable as of April 30, 2010
Interest related to tax positions taken in the Company’s tax returns are recorded in income tax
receivableexpense in the Consolidated Statements of
$476,000 at April 30, 2006.
F-28
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
Operations. The Company did not record penalties, if any, in the Consolidated Statements of Operations. F-22
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2010 and 2009
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 2007 through 2010 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 AND 2005
tax year. The Company’s Chinese enterprise operates under a 50% tax holiday for tax years 2007 through 2009, which tax years are open under the statue of limitations. In Mexico, tax years from 2006 through 2010 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$72,612 and $82,961$95,569 to the plans during the fiscal years ended April 30, 2007, 20062010 and 2005,2009, respectively. The Company paid total expenses of $15,870, $24,716$9,900 and $15,063$9,400 for the fiscal years ended April 30, 2007, 20062010 and 2005,2009, respectively, relating to costs associated with the administration of the plans.
NOTE N -J — OTHER INCOME
During fiscal 2010, the Company filed an insurance claim due to damage incurred at one of its buildings. The claim was settled in April 2010 and the Company recorded a gain from this involuntary conversion of $1,233,830 which is included in other income on the consolidated statement of income for the year ended April 30, 2010. The insurance proceeds not representing the reimbursement of expenses are classified as an investing cash flow in the statement of cash flows for the year ended April 30, 2010. The Company does not anticipate any additional proceeds, gains or losses to be recorded related to this settlement.
F-23
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
April 30, 2010 and 2009
NOTE K — 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,
2007,2010, two customers accounted for
24.8%33.4% and
16.9%13.9% of net sales of the Company, respectively, and 49.3% and 4.9% of accounts receivable as of April 30, 2010, respectively. For the year ended April 30, 2009, two customers accounted for 27.5% and 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. For the fiscal year ended April 30, 2006, two customers accounted for
30.1% and 19.7% of net sales of the Company, and 35.3% and 6.2% of accounts
receivable at April 30, 2006.
F-29
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 2007, 2006 AND 2005
2009.NOTE O -L — 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
==========
2010:| | | | | | | | | |
| | | Capital | | | Operating | |
| Years ending April 30, | | leases | | | leases | |
| 2011 | | $ | 931,310 | | | $ | 1,493,520 | |
| 2012 | | | 579,907 | | | | 1,173,185 | |
| 2013 | | | — | | | | 503,151 | |
| 2014 | | | — | | | | 87,444 | |
| 2015 | | | — | | | | 87,444 | |
| Thereafter | | | — | | | | 7,200 | |
| | | | | | | |
| | | | | | | | | |
| | | | 1,511,217 | | | $ | 3,351,944 | |
| | | | | | | | |
| Less amounts representing interest | | | 67,861 | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | | 1,443,356 | | | | | |
| | | | | | | | | |
| Less current portion | | | 874,116 | | | | | |
| | | | | | | | |
| | | | | | | | | |
| | | $ | 569,240 | | | | | |
| | | | | | | | |
Rent expense incurred under operating leases was approximately
$1,669,000,
$1,272,000$1,566,000 and
$669,000$1,533,000 for the years ended April 30,
2007, 20062010 and
2005,2009, respectively.
F-30
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
F-24
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
NOTE P -M — 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, 2007,2010, the Company has 53,46455,134 shares available for future issuance to employees under the Option Plans.employee plan and none under the non-employee director plan. 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
There were no options 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 induring fiscal year
2007.2010. The weighted-average grant date fair value of the options granted during fiscal
years 2007, 2006 and 2005year 2009 was
$9.47, $5.80 and $7.06, 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
$5.40. 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
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| Expected dividend yield | | | N/A | | | | 0 | % |
| Expected stock price volatility | | | N/A | | | | .750 | |
| Average risk-free interest rate | | | N/A | | | | 1.70 | % |
| Weighted-average expected life of options | | | N/A | | | 6.5 years |
Option-valuation models require the input of highly subjective assumptions. Because the
Company's employeeCompany’s 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's employeeCompany’s 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 dividend, volatility and forfeitures rates of options are based on historical experience and expected future results.F-25
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
NOTE P -M — 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
=======
The aggregate intrinsic2010:| | | | | | | | | | | | | |
| | | | | | | | | | | Number of | |
| | | | | | | Weighted- | | | options | |
| | | | | | | average | | | exercisable | |
| | | Number of | | | exercise | | | at end | |
| | | options | | | price | | | of year | |
| 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 | |
| | | | | | | | | | | | | |
| Options expired during 2010 | | | (1,670 | ) | | | 5.63 | | | | | |
| | | | | | | | | | | | |
| Outstanding at April 30, 2010 | | | 502,037 | | | | 7.90 | | | | 498,910 | |
| | | | | | | | | | | | |
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, 20062010 and
2005,2009, the aggregate intrinsic value of options exercised was
$57,920,
$224,252 and $30,101, respectively.$0. The aggregate intrinsic value of
in the money options outstanding was
$813,983 for year ended$377,594 as of April 30,
2007.
F-33
SIGMATRON INTERNATIONAL, INC. AND SUBSIDIARIES
2010. F-26
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
NOTE P -M — STOCK OPTIONS - CONTINUED
— Continued
Information with respect to stock options outstanding and stock options exercisable at April 30,
2007,2010, 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, 2010 | | | contractual life | | | exercise price | |
| $2.20 — 5.40 | | | 106,845 | | | 2.92 years | | $ | 2.60 | |
| 9.17 — 11.56 | | | 395,192 | | | 5.82 years | | | 9.34 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | 502,037 | | | | | | | $ | 7.90 | |
| | | | | | | | | | | |
| | | | | | | | | |
| | | Options exercisable | |
| | | Number | | | Weighted- | |
| | | exercisable at | | | average | |
| Range of exercise prices | | April 30, 2010 | | | exercise price | |
| $2.20 — 5.40 | | | 104,345 | | | $ | 2.53 | |
| 9.17 — 11.56 | | | 394,565 | | | | 9.18 | |
| | | | | | | | |
| | | | | | | | | |
| | | | 498,910 | | | $ | 7.79 | |
| | | | | | | |
The
following table summarizes the activity of the non-vestedCompany did not grant any options in fiscal year 2010 and granted 5,000 options to non-executive employees in fiscal year 2009. The Company recognized approximately $17,000 and $31,000 in 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
compensation expense in fiscal years 2010 and 2009, respectively.As of April 30, 20072010, there was approximately $68,500$12,100 of unrecognized compensation cost related to the Company'sCompany’s stock option plans. This compensation
costplans, which is being amortized over a threefour year vesting period using a straight-line basis.
NOTE Q - EARNINGS PER SHARE
The following table sets forth the computation of basic
F-27
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
Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009 NOTE R -N — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal years 2007year 2010:
| | | | | | | | | | | | | | | | | |
| | | First | | | Second | | | Third | | | Fourth | |
| | | quarter | | | quarter | | | quarter | | | quarter | |
| 2010 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net sales | | $ | 26,330,054 | | | $ | 30,564,267 | | | $ | 30,599,499 | | | $ | 34,982,520 | |
| | | | | | | | | | | | | | | | | |
| (Loss) income before income tax expense | | | (638,781 | ) | | | 821,021 | | | | 664,360 | | | | 2,518,729 | |
| | | | | | | | | | | | | | | | | |
| Net (loss) income | | | (402,475 | ) | | | 517,298 | | | | 415,468 | | | | 1,714,252 | |
| | | | | | | | | | | | | | | | | |
| (Loss) earnings per share—Basic | | $ | (0.11 | ) | | $ | 0.14 | | | $ | 0.11 | | | $ | 0.45 | |
| | | | | | | | | | | | | | | | | |
| (Loss) earnings per share-Diluted | | $ | (0.11 | ) | | $ | 0.13 | | | $ | 0.12 | | | $ | 0.44 | |
| | | | | | | | | | | | | | | | | |
| Total shares—Basic | | | 3,822,556 | | | | 3,822,556 | | | | 3,822,556 | | | | 3,822,556 | |
| | | | | | | | | | | | | | | | | |
| Total shares—Diluted | | | 3,822,556 | | | | 3,851,395 | | | | 3,873,531 | | | | 3,883,645 | |
F-28
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
Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009 NOTE R -N — 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 2009:
| | | | | | | | | | | | | | | | | |
| | | First | | | Second | | | Third | | | Fourth | |
| | | quarter | | | quarter | | | quarter | | | quarter | |
| 2009 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| 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 Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— CONTINUED
APRIL
April 30, 2007, 2006 AND 2005
2010 and 2009
NOTE S -O — LITIGATION
Since the beginning
As of the 2007 fiscal year,April 30, 2010, 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-30