Sigmatron International Inc. has a market cap of $26.5 million; its shares were traded at around $6.91 with a P/E ratio of 40.7 and P/S ratio of 0.2. SGMA is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Selling and administrative expenses decreased in fiscal year 2010 to $10,826,880 or 8.8% of net sales compared to $11,591,440 or 8.7% of net sales in fiscal year 2009. The decrease in total 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 due to the decreased sales volume in fiscal year 2010 compared to fiscal year 2009.
The Company reported net income of $2,244,543 in fiscal year 2010 compared to a net income of $1,955,847 for fiscal year 2009. Basic and diluted earnings per share were $0.59 and $0.58 respectively for fiscal year 2010 compared to basic and diluted earnings per share of $0.51 for the year ended April 30, 2009.
Cash flow provided by operating activities was $8,061,036 for the year ended April 30, 2010, compared to $10,136,480 for the prior fiscal year. Cash flow provided by operating activities in fiscal year 2010 was primarily the result of net income adjusted for the non-cash effect of depreciation and amortization and an increase in trade accounts payable. Trade accounts payable increased due to increased purchases of raw material. Net cash provided by operations 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 Companys inventories increased by $1,358,301 due to increased demand for product in the fourth quarter of 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 decrease in accounts payable and accounts receivable was due to payments in the ordinary course of business, coupled with the Companys 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 Companys working capital requirements decreased primarily as a result of the decrease in sales volume during fiscal 2009.
Through January 2010, the Company had a revolving credit facility with Bank of America under which the Company could borrow up to the lesser of: (i) $32 million; or (ii) an amount equal to the sum of 85% of the eligible receivable borrowing base and the lesser of $16 million or 50% of the eligible inventory borrowing base. The revolving credit facility was due to expire on September 30, 2010. The outstanding balance on this revolving credit line was $18,746,696 at April 30, 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, 2010. As of April 30, 2010, there was $15,125,058 outstanding under the credit facility and approximately $9,800,000 of unused availability.
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.
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