SigmaTron International Inc. Reports Operating Results (10-Q)
Sigmatron International Inc. has a market cap of $25.2 million; its shares were traded at around $6.6 with a P/E ratio of 9.6 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 increased to $2,989,832 for the three month period ended October 31, 2010 compared to $2,368,409 in the same period in the prior fiscal year; however, the percentage of net sales represented by such expenses remained constant, at 7.8% of net sales, for each such period. Selling and administrative expenses increased to $6,043,018 for the six month period ended October 31, 2010 compared to $4,945,250 in the same period in the prior fiscal year; however, the percentage of net sales represented by such expenses dropped to 7.9% of net sales from 8.7% of net sales, during those respective periods. The increase in total dollars of such expenses for the three month and six month periods ended October 31, 2010, was approximately $882,200 and $1,306,500 respectively, and is primarily due to a restoration of salary reductions previously implemented in response to the downturn in business, bonus expense, travel and professional fees. The increase in selling and administrative expenses in total dollars for the three and six month periods ended October 31, 2010 was partially offset by a decrease of approximately $260,750 and $208,700 respectively, in amortization expense, insurance and other selling and administrative expenses.
Net income from operations increased to $586,050 for the three month period ended October 31, 2010 compared to $517,298 for the same period in the prior year. Net income from operations increased to $1,444,039 for the six months ended October 31, 2010 compared to $114,823 in the same period last year. Basic and diluted earnings per share for the second fiscal quarter of 2011 were both $0.15 compared to basic and diluted earnings per share of $0.14 and $0.13, respectively, for the same period in the prior year. Basic and diluted earnings per share for the six months ended October 31, 2010 were both $0.37 compared to basic and diluted earnings per share of $0.03 and $0.02, respectively, for the same period in the prior year.
During the second fiscal quarter of 2011, the Company relocated its Hayward, CA operation to Union City, CA. The Company incurred relocation expenses as a result of the move. Net income adjusted on a pro-forma basis to exclude relocation expenses for the three and six month periods ended October 31, 2010 was $1,007,763 and $1,999,627, respectively. The Non-GAAP basic and diluted earnings per share, as adjusted, for the first and second quarters of fiscal 2011 equated to $0.26 and $0.51, respectively (see the Non-GAAP Reconciliation on page 8).
During the first six months of fiscal year 2011, the Company purchased approximately $4,300,000 in machinery and equipment to be used in the ordinary course of business. Of the total purchases approximately $315,000 and $835,000 of equipment purchases in the first six months of fiscal year 2011 is financed under a capital lease and a sale lease back agreement, respectively. The balance of the purchases was funded by working capital. The Company expects to make additional machinery and equipment purchases of approximately $1,500,000 during the balance of fiscal year 2011.
In January 2010, the Company entered into a senior secured credit facility with Wells Fargo Bank, National Association (Wells Fargo), with a credit limit up to $25 million. The term of the credit facility extends for two years, through January 8, 2012, and allows the Company to choose among interest rates at which it may borrow funds. The interest rate can be the prime rate plus one half percent (3.75% at October 31, 2010) or LIBOR plus two and three quarter percent (3.1% at October 31, 2010). The LIBOR rate has a floor of 0.35%. 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. In August 2010, the Company and Wells Fargo increased the Companys senior secured credit facility from $25 million to $30 million. The Company was in compliance with its financial covenants at October 31, 2010. As of October 31, 2010, there was a $28,425,126 outstanding balance under the credit facility and approximately $1,570,000 of unused availability.
On August 20, 2010 and October 26, 2010, the Company entered into two capital leasing transactions to purchase equipment (a lease finance agreement and a sale lease back agreement) with Wells Fargo Equipment Finance, Inc. totaling $1,150,582. The term of the lease finance agreement of $315,252 extends to September 2016 with monthly payments of $4,973 and a fixed interest rate of 4.28%. The term under the sale lease back agreement of $835,330 extends to August 2016 with monthly payments of $13,207 and a fixed interest rate of 4.36%. The net book value at October 31, 2010 for the equipment under the lease finance agreement and sale lease back agreement was $313,063 and $800,818, respectively. At October 31, 2010, the balance outstanding of Wells Fargo leases was $1,937,988.
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