Letter from the CEO and President

To Our Stockholders,

Fiscal 2009 was a tale of two halves.  During the first six months of the year, our operational and financial performance was excellent, building on the positive momentum we established in fiscal 2008.  We were growing along with our existing customers and we added several new customers who are producing leading-edge, environmentally friendly products.  Each of our operations was heading in the right direction.  Then, at the very beginning of the third quarter, our sales plummeted, cash became tight, our backlog was volatile, and we had to take drastic action, which included lay-offs and salary reductions.

Clearly, the worldwide economic slowdown has affected our customer base dramatically.  Regardless of the end market served, demand has softened and become more volatile.  We are fortunate that less than one percent of our sales are to the automobile market.  In addition, our customers appear to have the financial ability to ride out the storm and none has filed for bankruptcy.  Some of our newer customers require equity capital to accelerate their market penetration but the financial markets are not working in their favor.  Future demand remains uncertain at best, and growth will probably be slower in all of the markets we serve.

Given the current economic climate, we have focused on cost reductions.  At the end of the third quarter we instituted salary reductions for our non-union U.S. payroll employees and significant lay-offs were necessary.  Some of our plants went to reduced work weeks, and we had further lay-offs in April, May, and June as demand continued to fall.

In response to the dramatic reduction in revenue, we were able to lower our costs in the third and fourth quarters.  The result was a nominal loss for the last six months of fiscal 2009, which I believe was an excellent result given the circumstances.  However, we clearly face ongoing challenges, and we need to continue to reduce our cost structure until the overall economy turns around.

Following are updates on activities at our various plants:

Elk Grove Village, Illinois:  Our Elk Grove Village plant had a good year, although the trend is currently negative.  Lower revenue led to lay-offs in January and pricing pressures are making it necessary for us to move production to our offshore locations.  On the positive side, Elk Grove acquired several new customers who have the potential to become significant.  For several of our longstanding customers, Elk Grove continues to serve as a gateway to our offshore locations and as such is a valuable asset.  The challenge for Elk Grove in 2010 will be to maintain its financial performance while confronting pressures to downsize the scope of its operations.

Acuna, Mexico and Del Rio, Texas:  Acuna remains our largest operation, although it too has reduced its production hours and number of employees.  Nevertheless, we will launch several new customer programs this summer.  This new activity, together with business that will move from Elk Grove to Acuna and the assembly services we expanded during fiscal 2009, gives us reason to expect that Acuna will to continue to perform well during fiscal 2010.

Suzhou-Wujiang, China:  Our plant in Wujiang remains busy, with the number of employees holding steady.  As a result of its current backlog and new programs scheduled to begin during fiscal 2010, I expect Wujiang to perform well during fiscal 2010.  Our plans to expand the plant were put on hold last December, but we remain prepared to turn the project back on if demand makes it necessary.

Hayward, California:  Our Hayward plant had an excellent fiscal 2009, but, like our other U.S. plants, ended the year in trouble.  Demand remains soft, although new projects are scheduled to begin soon.  Because of pricing pressures, some work from Hayward has migrated to Tijuana. Hayward shares with Elk Grove the same challenges for fiscal 2010.

Tijuana, Mexico:  Tijuana’s financial performance remains our biggest challenge and significant lay-offs and reduced work-weeks have been necessary.  We have acquired several new customers, but ramp-up remains slow. 

 Taipei, Taiwan:  Our international purchasing office in Taipei continues to be a significant asset, allowing us to be cost-competitive, responsive, and flexible in managing our largest expense—raw material.

In summary, as we find ourselves in difficult and uncertain times heading into fiscal 2010, our focus remains on performance and cost reduction.  When the economy recovers, we believe we will be well positioned to take advantage of many opportunities.  Our international footprint remains integral to our future success.  I want to thank our supply chain partners, our customers, our bank, Bank of America, and our employees for working together to meet these challenges head-on.  I also want to thank our stockholders for their continuing support as we work our way through the challenges of the current economy.  Finally, I want to thank Frank Sove, who has served as our Chairman since we went public and recently decided to retire from our Board of Directors.  We appreciate his sage advice and his dedication and support of SigmaTron over the past fifteen years.  He will be missed and we wish him well in retirement.

Sincerely,

Gary R. Fairhead
President and Chief Executive Officer