UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended July 31, 2009
Commission File Number 0-23248
SigmaTron International, Inc.
(Exact Name of Registrant, as Specified in its Charter)
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Delaware
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36-3918470
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(State or other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer
Identification Number)
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2201 Landmeier Road, Elk Grove Village, Illinois
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60007
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants Telephone Number, Including Area Code: (847) 956-8000
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 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
þ
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of accelerated filer,
large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting
company
þ
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Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act) Yes
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No
þ
On September 10, 2009, there were 3,822,556 shares of the Registrants Common Stock outstanding.
SigmaTron International, Inc.
Index
SigmaTron International, Inc.
Consolidated Balance Sheets
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July 31,
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2009
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April 30,
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(Unaudited)
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2009
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Current assets:
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Cash
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$
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3,783,563
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$
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3,781,252
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Accounts receivable, less allowance for doubtful
accounts of $150,000 at July 31, 2009 and
$167,788 at April 30, 2009
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18,315,641
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16,785,079
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Inventories, net
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34,182,153
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36,230,555
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Prepaid expenses and other assets
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1,108,504
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923,911
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Deferred income taxes
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1,562,756
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1,560,425
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Other receivables
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384,742
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341,310
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Total current assets
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59,337,359
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59,622,532
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Property, machinery and equipment, net
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26,352,093
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26,200,578
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Other assets
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567,600
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699,379
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Intangible assets, net of amortization of $2,234,447
at July 31, 2009 and $2,161,113 at April 30, 2009
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535,553
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608,887
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Total assets
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$
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86,792,605
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$
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87,131,376
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Liabilities and stockholders equity:
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Current liabilities:
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Trade accounts payable
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$
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11,934,479
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$
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10,531,553
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Accrued expenses
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1,602,022
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1,602,913
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Accrued wages
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1,502,204
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1,555,736
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Income taxes payable
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272,750
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Notes payable bank
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1,000,000
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1,000,000
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Notes payable buildings
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140,250
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140,250
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Notes payable other
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147,577
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Capital lease obligations
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884,170
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951,983
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Total current liabilities
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17,210,702
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16,055,185
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Notes payable bank, less current portion
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18,569,119
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19,746,696
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Notes payable buildings, less current portion
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2,486,125
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2,521,188
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Notes payable other, less current portion
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295,155
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Capital lease obligations, less current portion
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1,310,469
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1,490,773
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Deferred income taxes
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1,915,649
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1,915,649
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Total long-term liabilities
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24,576,517
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25,674,306
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Total liabilities
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41,787,219
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41,729,491
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Commitments and contingencies:
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Stockholders equity:
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Preferred stock, $.01 par value; 500,000 shares
authorized, none issued and outstanding
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Common stock, $.01 par value; 12,000,000 shares
authorized, 3,822,556 shares issued and
outstanding at July 31, 2009 and April 30, 2009
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38,226
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38,226
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Capital in excess of par value
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19,636,556
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19,630,580
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Retained earnings
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25,330,604
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25,733,079
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Total stockholders equity
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45,005,386
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45,401,885
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Total liabilities and stockholders equity
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$
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86,792,605
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$
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87,131,376
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The accompanying notes to financial statements are an integral part of these statements.
3
SigmaTron International, Inc.
Consolidated Statements Of Operations
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Three Months Ended
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Three Months Ended
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July 31,
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July 31,
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2009
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2008
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Unaudited
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Unaudited
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Net sales
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$
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26,330,054
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$
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38,478,118
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Cost of products sold
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24,070,201
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33,828,920
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Gross profit
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2,259,853
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4,649,198
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Selling and administrative expenses
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2,576,841
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3,192,503
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Operating (loss) income
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(316,988
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)
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1,456,695
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Other expense (income) net
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77,697
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(42,819
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Interest expense
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244,096
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521,611
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(Loss) income from operations before income tax expense
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(638,781
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)
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977,903
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Income tax (benefit) expense
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(236,306
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)
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398,579
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Net (loss) income
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($402,475
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$
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579,324
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(Loss) earnings per share basic
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($0.11
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$
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0.15
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(Loss) earnings per share diluted
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($0.11
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$
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0.15
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Weighted average shares of common stock outstanding
Basic
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3,822,556
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3,822,556
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Weighted average shares of common stock outstanding
Diluted
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3,822,556
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3,884,075
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The accompanying notes to financial statements are an integral part of these statements.
4
SigmaTron International, Inc.
Consolidated Statements of Cash Flows
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Three
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Three
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Months Ended
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Months Ended
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July 31,
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July 31,
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2009
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2008
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Unaudited
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Unaudited
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Operating activities:
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Net (loss) income
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($402,475
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$
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579,324
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Adjustments
to reconcile net (loss) income to net cash provided by operating activities:
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Depreciation and amortization
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1,004,259
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1,026,296
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Stock-based compensation
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5,975
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13,154
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Provision for doubtful accounts
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(17,788
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)
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(26,106
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)
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Provision for inventory obsolescence
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(28,140
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)
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8,459
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Deferred income taxes
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(2,331
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)
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(150,721
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Amortization of intangible assets
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73,334
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105,120
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Changes in operating assets and liabilities
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Accounts receivable
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(1,512,774
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)
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4,125,540
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Inventories
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2,076,542
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(1,160,281
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Prepaid expenses and other assets
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(96,246
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(33,497
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)
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Trade accounts payable
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1,402,926
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(2,236,687
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)
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Accrued expenses and payroll
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(54,422
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)
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(1,125,748
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)
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Income taxes payable
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(272,750
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)
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(46,325
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Net cash provided by operating activities
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2,176,110
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1,078,528
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Investing activities:
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Purchases of machinery and equipment
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(713,042
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(273,865
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Net cash used in investing activities
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(713,042
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(273,865
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Financing activities:
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Payments under capital lease obligations
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(248,117
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(470,601
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Payments under term loan
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(250,000
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)
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(250,000
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Net payments under lines of credit
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(927,577
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)
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(504,458
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)
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Payments under building notes payable
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(35,063
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)
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(129,260
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)
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Net cash used in financing activities
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(1,460,757
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)
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(1,354,319
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)
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Change in cash
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2,311
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(549,656
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)
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Cash at beginning of period
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3,781,252
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3,833,627
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Cash at end of period
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$
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3,783,563
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$
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3,283,971
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Supplementary disclosures of cash flow information
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Cash paid for interest
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$
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252,338
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$
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584,311
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Cash paid for income taxes, net of refunds
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65,557
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552,616
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Non Cash
Financing Activity:
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The Company
financed a licensing agreement through a
note payable
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$
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442,732
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The accompanying notes to financial statements are an integral part of these statements.
5
SigmaTron International, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
July 31, 2009
Note A Basis of Presentation
The accompanying unaudited consolidated financial statements of SigmaTron International, Inc.
(SigmaTron), wholly-owned subsidiaries Standard Components de Mexico S.A., and AbleMex, S.A. de
C.V., SigmaTron International Trading Co., and its wholly-owned foreign enterprise Wujiang
SigmaTron Electronics Co. Ltd. (SigmaTron China), and its procurement branch SigmaTron Taiwan
(collectively, the Company) have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the consolidated financial statements do not include all of the information and
footnotes required by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been included. The
Company has evaluated subsequent events through September 10, 2009, which is the date the financial
statements were issued. Operating results for the three month period ended July 31, 2009 are not
necessarily indicative of the results that may be expected for the year ending April 30, 2010. For
further information, refer to the consolidated financial statements and footnotes thereto included
in the Companys Annual Report on Form 10-K for the year ended April 30, 2009.
Note B Inventories
The components of inventory consist of the following:
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July 31,
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April 30,
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2009
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2009
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Finished products
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$
|
11,683,619
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$
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11,644,129
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Work-in-process
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1,816,309
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2,391,559
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Raw materials
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20,682,225
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22,194,867
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$
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34,182,153
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$
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36,230,555
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6
Note C Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
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Three Months Ended
|
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|
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July 31,
|
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July 31,
|
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2009
|
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2008
|
|
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|
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|
|
|
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Net (loss) income
|
|
$
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(402,475
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)
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|
$
|
579,324
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Weighted-average shares
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|
|
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Basic
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|
|
3,822,556
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|
3,822,556
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|
Effect of dilutive stock options
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|
|
|
61,519
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|
|
|
|
|
|
|
|
|
|
|
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|
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Diluted
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3,822,556
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|
|
3,884,075
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|
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|
|
|
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|
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|
|
|
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Basic (loss) earnings per share
|
|
$
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(0.11
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)
|
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$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.11
|
)
|
|
$
|
0.15
|
|
Options to purchase 503,707 shares of common stock were outstanding at July 31, 2009 and 2008.
Note D Critical Accounting Policies:
Management Estimates and Uncertainties
- The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant estimates made in preparing the consolidated financial statements include depreciation
and amortization periods, the allowance for doubtful accounts, reserves for inventory and valuation
of long-lived assets. Actual results could materially differ from these estimates.
Revenue Recognition
- Revenues from sales of the Companys electronic manufacturing services
business are recognized when the product is shipped to the customer. In general, it is the
Companys 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 customers own facility. Upon the customers request for inventory, the consignment
inventory is shipped to the customer if the inventory was stored off-site or transferred from the
segregated part of the customers facility for consumption, or use, by the customer. The Company
recognizes revenue upon such transfer. The Company does not earn a fee for storing the consignment
inventory. The Company generally provides a 90 day warranty for workmanship only and does not have
any installation, acceptance or sales incentives, although the Company has negotiated longer
warranty terms in certain instances. The Company assembles and tests assemblies based on
customers specifications. Historically, the amount of returns for workmanship issues has been de
minimis under the Companys standard or extended warranties.
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
7
could significantly affect the Companys inventories and cost of products sold. The Company
records provisions for excess and obsolete inventories for the difference between the cost of
inventory and its estimated realizable value based on assumptions about future product demand and
market conditions. Actual product demand or market conditions could be different than that
projected by management.
Impairment of Long-Lived Assets
- The Company reviews 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 exceeds its fair market value.
New Accounting Standards:
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), (ASC
820-10-05-1), which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements.
SFAS 157 is effective for the Company beginning on May 1, 2008. In November 2007, the FASB agreed
to a one-year deferral of the effective date of SFAS 157 for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. There was no significant impact from adoption of SFAS 157 for
financial assets and liabilities on the Companys financial statements.
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 141(R), Accounting Standards Codification (ASC) (805-10-10-1)
Business Combinations (SFAS 141(R)) which replaces SFAS No. 141, Business Combinations. The
FASB has since codified FASB 141(R) as Accounting Standards Codification (ASC) 805-10-10-1. This
Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of
accounting (formerly referred to as purchase method) is to be used for all business combinations
and that an acquirer is identified for each business combination. This Statement defines the
acquirer as the entity that obtains control of one or more businesses in the business combination
and establishes the acquisition date as of the date that the acquirer achieves control. This
Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquire at the acquisition date, measured at their fair values.
This Statement requires the acquirer to recognize acquisition-related costs and restructuring costs
separately from the business combination as period expense. This Statement is effective for
business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008. The Company will implement SFAS
No. 141(R) for any business combinations occurring beginning May 1, 2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS 160), (ASC 810-10-65-1).
SFAS 160 establishes accounting reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parents ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years
beginning
after December 15, 2008. There was no significant impact from adoption of SFAS 160 on the
Companys consolidated results of operations and financial condition.
8
In May 2009, the FSAB issued SFAS 165, Subsequent Events. (SFAS 165), (ASC855.10.10.1). SFAS
165 establishes standards of accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to be issued. SFAS 165 is
effective for interim and annual periods ending after June 15, 2009. The Company adopted the
provisions of SFAS 165 for the first quarter of fiscal 2010, in accordance with the effective date.
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
In addition to historical financial information, this discussion of the business of SigmaTron
International, Inc., its wholly-owned subsidiaries Standard Components de Mexico S.A., and AbleMex
S.A. de C.V., SigmaTron International Trading Co., and its wholly-owned foreign enterprise Wujiang
SigmaTron Electronics Co., Ltd. (SigmaTron China), and its procurement branch SigmaTron Taiwan
(collectively the Company) and other Items in this Quarterly Report on Form 10-Q contain
forward-looking statements concerning the Companys business or results of operations. Words such
as continue, anticipate, will, expect, believe, plan, and similar expressions identify
forward-looking statements. These forward-looking statements are based on the current expectations
of the Company. Because these forward-looking statements involve risks and uncertainties, the
Companys plans, actions and actual results could differ materially. Such statements should be
evaluated in the context of the risks and uncertainties inherent in the Companys business
including the Companys 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
requirements; the availability and cost of necessary components and materials; 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 Companys business; the
current 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. These and other factors which
may affect the Companys future business and results of operations are identified throughout the
Companys Annual Report on Form 10-K and as risk factors and may be detailed from time to time in
the Companys filings with the Securities and Exchange Commission. These statements speak as of
the date of such filings, and the Company undertakes no obligation to update such statements in
light of future events or otherwise unless otherwise required by law.
Overview:
The Company operates in one business segment as an independent provider of electronic manufacturing
services (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 relies on numerous third-party suppliers for components used in the Companys
production process. Certain of these components are available only from single sources or a
limited
9
number of suppliers. In addition, a customers specifications may require the Company to obtain
components from a single source or a small number of suppliers. The loss of any such suppliers
could have a material impact on the Companys results of operations, and the Company may be
required to operate at a cost disadvantage compared to competitors who have greater direct buying
power from suppliers. The Company does not enter into purchase agreements with major or
single-source suppliers. The Company believes that ad-hoc negotiations with its suppliers provides
flexibility, given that the Companys orders are based on the needs of its customers, which
constantly change.
Sales can be a misleading indicator of the Companys 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 Companys revenue
levels. However, the Company does not believe that such variations are a meaningful indicator of
the Companys gross margins. Consignment orders accounted for less than 5% of the Companys
revenues for the three months ended July 31, 2009 and 2008.
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. Due to the uncertainty associated with the worldwide economy in general
and the United States economy specifically makes forecasting difficult. Generally speaking the
markets of all of the Companys customers remain volatile. The Company believes sales have
bottomed out and are starting to slowly recover. Demand remains volatile and unpredictable.
Results of Operations:
Net Sales
Net sales decreased for the three month period ended July 31, 2009 to $26,330,054 from $38,478,118
for the three month period ended July 31, 2008. Sales volume decreased for the three month period
ended July 31, 2009 as compared to the same period in the prior year in the appliance,
telecommunications, fitness, consumer electronics, industrial and life sciences marketplaces. The
decrease in revenue for the three month period ended July 31, 2009 is a result of our customers
decreased demand for product based on their forecasts, which we believe is attributable to the
global economic slowdown and the recent financial crisis.
Gross Profit
Gross profit decreased during the three month period ended July 31, 2009 to $2,259,853 or 8.6% of
net sales, compared to $4,649,198 or 12.1% of net sales for the same period in the prior fiscal
year. The decrease in gross margin in total dollars for the three month period ended July 31, 2009
compared to the prior period is due to decreased revenue levels and decreased plant capacity
utilization.
The Company has reduced its worldwide headcount, through attrition and lay-offs. Further, the
Company implemented salary reductions for all non-union U.S. employees beginning February 2009.
The Company lowered its cost structure during fiscal year 2009 and will continue cost cutting
initiatives based on customers demand for product. The continuing soft demand resulted in layoffs
at
10
the Hayward and Tijuana locations. During the first fiscal quarter of 2010 $133,000 in severance
expense was recorded. There can be no assurance that sales levels and gross margins will not
decrease in future quarters. Pricing pressures continue at all locations.
Selling and Administrative Expenses
Selling and administrative expenses decreased to $2,576,841 or 9.8% of net sales for the three
month period ended July 31, 2009 compared to $3,192,503 or 8.3% of net sales in the same period
last year. The decrease in total dollars for the three month period ended July 31, 2009, is
primarily due to a decrease in bonus expense, accounting, IT, and office salaries, and accounting
fees and amortization expense, which was approximately $341,000. The decrease in total dollars was
partially offset by an increase in legal fees and insurance expense compared to the same period in
the prior fiscal year, which was approximately $50,000. The increase in selling and administrative
expenses as a percent of net sales for the three month period ended July 31, 2009 compared to the
prior period is due to the 32% decrease in net sales.
Interest Expense
Interest expense for bank debt and capital lease obligations for the three month period ended July
31, 2009 was $244,096 compared to $521,611 for the same period in the prior year. These changes
were attributable to the Companys decreased borrowings under its revolving credit facility, term
loan and capital leases, and decreasing interest rates. Interest expense for future quarters in
fiscal year 2010 may increase if interest rates or borrowings increase during fiscal year 2010.
Taxes
The income tax benefit from operations was $236,306 for the three month period ended July 31, 2009
compared to income tax expense $398,579 in the same period of the prior fiscal year.
Net Income/Loss
The Company recorded a net loss from operations of $402,475 for the three month period ended July
31, 2009 compared to a net income of $579,324 for the same period in the prior year. Basic and
diluted loss per share for the first fiscal quarter of 2010 were $0.11, compared to basic and
diluted earnings per share of $0.15 for the same period in the prior year.
Liquidity and Capital Resources:
Operating Activities.
Cash flow provided by operating activities was $2,176,110 for the three months ended July 31, 2009,
compared to $1,078,528 for the same period in the prior year. During the first three months of
fiscal year 2010, cash flow provided by operating activities was due to a decrease in inventory and
the result of the non-cash effect of depreciation and amortization and an increase in accounts
payable. Net cash provided by operations was partially offset by an increase in accounts
receivable. The change in accounts payable and accounts receivable is due to timing of payments in
the ordinary course of business. The decrease in inventory was the result of our customers
decreased demand for product based on their forecasts, which we believe is attributable to the
global economic slowdown and financial crisis.
During the first quarter of fiscal year 2009, cash flow provided by operating activities was the
result of net income, the non-cash effect of depreciation and amortization and a decrease in
accounts receivable.
11
The decrease in accounts receivable was a result of cash receipts from a significant customer.
Cash flow provided by operating activities was partially offset by a decrease in accrued expenses
and wages. The accrued wages decreased as a result of bonuses paid in the first quarter of fiscal
year 2009. The Companys inventories increased by $1,160,281. The primary reason for the increase
in inventories was the start up of new programs with new and existing customers.
Investing Activities.
During the first quarter of fiscal year 2010, the Company purchased approximately $700,000 in
machinery and equipment to be used in the ordinary course of business. The Company expects to make
additional machinery and equipment purchases of approximately $1,000,000 during the balance of
fiscal year 2010. During the first quarter of fiscal year 2009, the Company purchased
approximately $274,000 in machinery and equipment in the ordinary course of business. The Company
decided to postpone the planned expansion of the China facility announced in July 2008 in response
to the current economic conditions.
Financing Transactions.
The Company has a revolving credit facility under which the Company may borrow up to the lesser of
(i) $32 million or (ii) an amount equal to the sum of 85% of the receivable borrowing base and the
lesser of $16 million or a percentage of the inventory borrowing base. In June 2008, the Company
amended the revolving credit facility to extend the term of the agreement until September 30, 2010
from September 30, 2009 and to amend certain financial covenants. As of July 31, 2009,
$17,819,119 was outstanding under the revolving credit facility. There was approximately $8.6
million of unused availability under the revolving credit facility as of July 31, 2009.
The Company was in compliance with the required financial covenants as of July 31, 2009.
Historically, the Company has renegotiated its financial covenants for the current fiscal year
during the first quarter of that fiscal year in connection with the Companys annual budgeting
process. The existing financial covenants remain in place until a new agreement has been reached.
The Company is currently working with its lender to amend the financial covenants for its
revolving credit facility, based upon the Companys most recent projections for the 2010 fiscal
year. At this time, it is possible that the Company would not be in compliance with an existing
financial covenant for the quarter ended October 31, 2009. Therefore, if the Company is not
successful in amending its financial covenants, the Company could be in violation of its revolving
credit facility agreement at that time. In the event the Company was unable to amend the required
financial covenants or obtain alternative financing, the Company may be unable to access lines of
credit and its debt obligations could be accelerated. These events would likely have a material
adverse effect on the Companys future results of operations, financial position and liquidity.
The Company also has a term loan with an outstanding balance of $1,750,000 as of July 31, 2009
with 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 November 19, 2003, the Company purchased the property that serves as the Companys corporate
headquarters and its Midwestern manufacturing facility. The Company executed a note and mortgage
with LaSalle Bank N.A. (now Bank of America) in the amount of $3,600,000. The Company refinanced
the property on April 30, 2008. The new note bears a fixed interest rate of 5.59% and is payable
in sixty monthly installments. A final payment of approximately $2,115,438 is due on or
before April 30, 2013. The outstanding balances were $2,626,375 and $2,766,625 at July 31, 2009
and July 31, 2008, respectively.
12
Cash used in financing activities was $1,460,757 for the first quarter ended July 31, 2009,
compared to $1,354,319 for the same period in the prior fiscal year. Cash used in financing
activities was primarily the result of net payments made to reduce the balance outstanding under
the Companys revolving credit facility by $927,577. Cash used in financing activities also was
due to payments under the Companys lease agreements, term loan, and building mortgage
obligations.
The Company anticipates its current credit facilities, cash flow from operations and leasing
resources will be adequate to meet its working capital requirements and capital expenditures, if
any, in fiscal year 2010. There is no assurance that the Company can retain its current credit
agreements. 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 or future fiscal years. There is no assurance that the Company will be
able to obtain equity or debt financing at acceptable terms in the future.
The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary
to operate its wholly-owned Mexican and Chinese subsidiaries and the Taiwan procurement branch.
The Company provides funding in U.S. dollars, which are exchanged for Pesos, Renminbi, and New
Taiwan dollars as needed. The fluctuation of currencies from time to time, without an equal or
greater increase in inflation, could have a material impact on the financial results of the
Company. The impact of currency fluctuation for the first quarter of fiscal year 2010 resulted in
a loss of approximately $36,000. During the first quarter of fiscal year 2010, the Companys U.S.
operations paid approximately $3,100,000 to its foreign subsidiaries for services provided.
Off-balance Sheet Transactions:
The Company has no off-balance sheet transactions.
Contractual Obligations and Commercial Commitments
:
As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, we
are not required to provide the information required by this item.
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosures About Market Risk.
|
As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, we
are not required to provide the information required by this item.
|
|
|
Item 4.
|
|
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 Exchange Act Rules 13a-15(e) and 15d-15(e)) as of April 30, 2009. Our disclosure
controls and procedures are designed to ensure that information required to be disclosed by the
Company in the reports filed by the Company under the Securities Exchange Act of 1934 (the
Exchange Act) is recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions 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 Companys
disclosure controls and procedures were effective as of July 31, 2009.
13
There has been no change in our internal control over financial reporting during the quarter ended
July 31, 2009, that has materially affected or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
|
|
|
Item 1.
|
|
Legal Proceedings.
|
As of July 31, 2009, the Company was not a party to any material legal proceedings.
From time to time the Company is involved in legal proceedings, claims or investigations that are
incidental to the conduct of the Companys business. In future periods, the Company could be
subjected to charges to earnings if any of these matters is resolved on unfavorable terms.
However, although the ultimate outcome of any legal matter cannot be predicted with certainty,
based on present information, including managements assessment of the merits of any 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.
The information presented below includes any material changes to the description of the risk
factors affecting our business as previously disclosed in Item 1A. to Part 1 of our Annual Report
on Form 10-K for the fiscal year ended April 30, 2009.
The Companys business could be adversely affected by worldwide economic conditions.
The current negative worldwide economic conditions could adversely affect the Companys business,
and/or operating results by:
|
|
|
reduced sales,
|
|
|
|
|
increased operating costs,
|
|
|
|
|
customers inability to accurately forecast orders,
|
|
|
|
|
increased inventory carrying costs,
|
|
|
|
|
increased risk of uncollectible customer accounts receivable and unpaid customer
inventory obligations, and limiting the Companys access to affordable financing.
|
Sales:
If the current worldwide economic downturn continues, many of the Companys customers may further
delay or reduce their orders. In addition, many of the Companys customers may rely on credit
financing in order operate their businesses. If the negative conditions in the global credit
markets reduce our customers access to credit, orders may decrease, which could result in lower
revenue.
Operating Costs:
If the Companys suppliers have difficulty obtaining credit required to finance their businesses,
they may become unable to continue to manufacture, or supply the components used to manufacture,
our
14
customers products. These disruptions could decrease the Companys revenue and increase operating
costs, which could adversely affect the Companys results of operations and financial condition.
Inventory Carrying Costs:
The negative worldwide economic conditions and market instability make it increasingly difficult
for the Companys customers to accurately forecast future order trends. This condition could result
in customers pushing back their product order acceptance schedules, which could result in increased
inventory carrying costs. The increased carrying costs could have a negative impact on the
Companys financial results.
Uncollectible Accounts:
The Company could suffer significant losses if a customer is unable to pay its accounts receivable
or if the customer is unable to pay for its inventory procured by the Company on its behalf. An
increase in uncollectible accounts receivable or customers inability to pay the Company for
inventory obligations would have a negative impact on the Companys financial results.
Access to Credit:
If credit markets continue to tighten, the Companys bank could be unwilling to continue to extend
credit to the Company at the current level of the credit facility, if at all. The Companys
ability to finance its operations could be negatively affected in such an event. (See page 12,
Financing Transaction
).
|
|
|
Item 2.
|
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
None.
|
|
|
Item 3.
|
|
Defaults Upon Senior Securities.
|
None.
|
|
|
Item 4.
|
|
Submission of Matters to a Vote of Security Holders.
|
None.
|
|
|
Item 5.
|
|
Other Information.
|
None.
15
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).
|
16
SIGNATURES
:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
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|
SIGMATRON INTERNATIONAL, INC.
|
|
|
/s/ Gary R. Fairhead
|
|
September 10,
2009
|
Gary R. Fairhead
|
|
Date
|
President and CEO (Principal Executive Officer)
|
|
|
|
|
|
|
/s/ Linda K. Frauendorfer
|
|
September 10,
2009
|
Linda K. Frauendorfer
|
|
Date
|
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
|
|
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