2013 Annu Al Repo Rt
ONE SOuRCE.
2201 Landmeier Road, Elk Grove Village, IL 60007 | Tel 847.956.8000, Fax 847.956.8001
CORPORATE OFFICES SigmaTron International, Inc.
INVESTOR RELATIONS 800.700.9095
www.sigmatronintl.com
GLObAL OPTIONS.
U.S.A.
ijuana, Chihuahua,
Acuña/Manufacturing
CHINA
Suzhou/Manufacturing
TAIWAN
Taipei City/
Purchasing Office
VIETNAM
Biên Hòa/
Manufacturing
One sOurce. Global options.
sigmatron’s global perspective is supported by numerous facilities in the
United states, asia and Mexico. our global it infrastructure and local program
managers allow us to respond to our customers in real time, wherever they
are in the world.
unITeD sTATes
ManUfaCtURinG/DesiGn
SigmaTron International, Inc.
Corporate Headquarters
Midwest Operations
elk Grove Village, illinois
West Coast Operations
Union City, California
Spitfire Controls Division
elgin, illinois
WaReHoUses
Del Rio, texas
el paso, texas
MeXIcO
ManUfaCtURinG
Acuña Operations
Chihuahua Operations
Tijuana Operations
AsIA
ManUfaCtURinG
SigmaTron International, Inc.
China Operations
suzhou, China
SigmaTron International, Inc.
Vietnam Operations
biên Hòa, Vietnam
inteRnational
pURCHasinG offiCe
SigmaTron International, Inc.
Taiwan Purchasing Office
taipei City, taiwan
ABOuT THe cOVer
Real-tiMe infoRMation fRoM a sinGle point
on a single computer screen, operations
management at any one of our plants can plan
a project and view each manufacturing line to
see the product it is building and the time to
completion. We can also view manufacturing
statistics, identify the volume of finished goods
and monitor employee productivity. With this
information, we assure quality at every point.
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CHINASuzhou/ManufacturingTAIWANTaipei City/ Purchasing OfficeVIETNAMBiên Hòa/ManufacturingU.S.A.ijuana, Chihuahua, Acuña/Manufacturing
U.S.A.
ijuana, Chihuahua,
Acuña/Manufacturing
CHINA
Suzhou/Manufacturing
TAIWAN
Taipei City/
Purchasing Office
VIETNAM
Biên Hòa/
Manufacturing
STRaTEGy, STREnGTH, GRoWTH anD VaLUE.
as our customers’ needs for electronic manufacturing
services (EMS) evolve, so do our corporate strategies,
our industry-certified manufacturing practices, our testing
capabilities and our commitment to seamless customer
service and support.
our customers, new and established, represent industry
sectors that are crucial today and will be even more so
tomorrow—aerospace, defense, medical, industrial and telecom-
munications. our recent acquisition of Spitfire Control and
our expanding design and engineering capabilities and
global footprint are examples of how we are keeping pace.
Whatever the economic climate worldwide, high-quality
EMS requires a commitment to innovative design,
highest-quality production, exceptional customer support
and above all, excellence in all facets of our business.
our customers deserve nothing less.
“this new market positioning is helping us communicate Sigmatron’s place
in the world. We continue to strengthen our commitment to being ‘one source’
for new and existing customers who seek ‘global options’ for electronic
manufacturing services.”
— Gary R. Fairhead
president and Chief executive officer
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CHINASuzhou/ManufacturingTAIWANTaipei City/ Purchasing OfficeVIETNAMBiên Hòa/ManufacturingU.S.A.ijuana, Chihuahua, Acuña/Manufacturing
DesiGn anD enGineeRinG SERVICES
infoRmation technoloGy SYSTEMS
SigmaTron designs total solutions that solve problems and
enhance product value. We excel at product design and develop-
ment and contract manufacturing of customer-designed products.
Our engineers are systems integrators, with the ability to
develop solutions that match performance specifications
with other key components of the end product and enable the
product to perform as a system. We test our designs under
the most rigorous conditions, and what we learn translates into
improvements that lower costs, enhance functionality, and
assure a product’s reliability, durability and value.
“Our Design and Engineering Center in Elgin, Illinois, is a
corporate-wide resource that secures programs for our
global manufacturing facilities. Our engineers are seasoned
professionals in hardware, software, mechanical and printed
circuit design who work with a customer’s specifications
to develop a complete, finished product; or, a customer can
give us a wish list and we’ll prepare a fully functional prototype
for consumer trials. Our team provides turnkey solutions
and keeps our new and existing customers competitive in
technology and cost.”
— Gregory J. Ramsey, Consultant to SigmaTron and
Former Owner of Spitfire Control, Inc.
Our robust supply chain management portal, known as iSCORE,
tracks demand, materials on order, inventory, work in progress,
finished goods and shipments. Using SCORE, our customers
can view their product’s order through the manufacturing
process and view its shipping status 24/7. SigmaTron Direct
Ship, a new tool to enhance customer fulfillment options, has
been rolled out in Union City, California, and Acuña, Mexico.
More than at any time in our history of almost a quarter-century,
SigmaTron and its IT capabilities are equipped to keep pace
with the needs of our customers anywhere in the world and to
meet the challenge of their expectations.
“Our IT infrastructure relies on proprietary software that
connects our multiple manufacturing plants in four countries
and supports a production process that is seamless, beginning
to end. Our IT professionals blend off-the-shelf solutions
with tools we have developed to achieve that goal. Consistent
systems across all SigmaTron divisions ensure uniform
customer touch points.”
— thomas f. Rovtar, Vice President,
Information Technology
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GLObAL SOuRCING SERVICES 24/7
MANuFACTuRING AND TEST SERVICES
SigmaTron uses a mix of global and local resources to ensure
efficient procurement of high-quality materials that align with
the needs of customers who have global clients and products
with increasingly complex manufacturing requirements and
supply chains. We obtain components from original electronic
manufacturer (oEM) and franchised distribution sources all over
the world and route them to the appropriate SigmaTron facility.
SigmaTron has many advantages not found in regional manu-
facturing and development facilities, including our high-tech
global infrastructure. our clients can depend on us for efficient
manufacturing operations, high-quality, customized products,
and reduced time from design to market.
“our supply chain reaches beyond procurement and supplier
quality assurance activity to support all customers’ material-
related needs. Sigmatron’s Supply Chain Management provides
global and local resources that ensure comprehensive,
customer-focused procurement for all operations. Customer
demands, Sigmatron operations and component suppliers
are strongly linked. our global sourcing supports international
and local sustainability regulations in addition to social
responsibility initiatives.”
— John P. Sheehan, Vice president,
Director of Materials and Supply Chain
as a single source providing options for global customers,
we are dedicated to manufacturing products that will be useful
and consistently dependable well into the future. Dependability
relies on scrupulous testing.
for customers who want to improve their product’s quality
or reduce its manufacturing costs, SigmaTron provides a manu-
facturability review that analyzes and integrates engineering
data and information about the product’s materials, then
optimizes the product design for manufacturability and assembly.
our engineers combine their skills and experience to improve
productivity and hasten the time to product launch.
“A high-quality product begins with a design that is efficient
to test and cost-effective to manufacture. Sigmatron’s
test engineering team at each of our manufacturing sites
functions as an extension of the customer’s design team.
Wherever our customers are in the world, we are fully equipped
to manufacture and test their electronic products and
committed to excellence at every point in the process.”
— yousef M. Heidari, Vice president, engineering
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One sOurce. Global options.
serving as a global network of manufacturing options
is our reality today, and for the future. For customers whose
needs span the product development cycle, we are a single
source for design and engineering, information technology
systems, global sourcing, manufacturing and testing.
at every level, we are dedicated to excellence. through our
global network of facilities, we are large enough to embrace
the most complex projects, yet small enough to partner
closely with our customers as we guide their projects from
beginning to end. Wherever we are around the globe, we
are committed to providing consistent product quality,
performance and value, and to offering our clients the
ultimate in service.
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oFFICerS
Gary R. Fairhead*
Chairman of the Board,
president and
Chief executive officer
Linda K. Frauendorfer*
Chief Financial officer,
Vice president, Finance,
treasurer and Secretary
Gregory A. Fairhead*
executive Vice president
and assistant Secretary
BoarD oF DIreCtorS
Gary R. Fairhead
Chairman of the Board,
president and Chief
executive officer,
Sigmatron International, Inc.
Linda K. Frauendorfer
Chief Financial officer,
Vice president, Finance,
treasurer and Secretary
Sigmatron International, Inc.
John P. Sheehan*
Vice president,
Director of Supply Chain
and assistant Secretary
Daniel P. Camp*
Vice president,
acuña operations
Rajesh B. Upadhyaya*
executive Vice president,
West Coast operations
Hom-Ming Chang*
Vice president,
China operations
Curtis W. Campbell
Vice president of Sales,
West Coast operations
Yousef M. Heidari
Vice president,
engineering
Donald G. Madsen
Vice president,
Customer Service
union City operations
Dennis P. McNamara
Vice president,
engineering
Stephen H. McNulty
Vice president,
Sales
Thomas F. Rovtar
Vice president,
Information technology
Keith D. Wheaton
Vice president,
Business Development
West Coast operations
*executive officers
Thomas W. Rieck 1,3
partner,
rieck and Crotty, p.C.
Dilip S. Vyas 2,3,4
Independent Consultant
Paul J. Plante 1,2
president and owner
Florida Fresh Vending, llC
Bruce J. Mantia2
retired partner
ernst & Young llp
Barry R. Horek1,3
retired partner
ernst & Young llp
1 Member of the
audit Committee
2 Member of the
Compensation Committee
3 Member of the
nominating Committee
4 lead Director
Corporate InForMatIon
SEC Counsel
Greenberg traurig, llp
77 West Wacker Drive
Chicago, Illinois 60601
Corporate Counsel
Howard & Howard
attorneys pllC
200 South Michigan avenue
Chicago, Illinois 60604
Independent
Public Accountants
BDo uSa, llp
330 north Wabash avenue
Chicago, Illinois 60611
Form 10-K
If you would like a free copy of
the Form 10-K report filed with
the Securities and exchange
Commission, please call
linda K. Frauendorfer at the
Sigmatron corporate office,
1.800.700.9095.
Stock Transfer Agent
and Registrar
american Stock transfer &
trust Company, llC
6201 15th avenue
Brooklyn, new York 11219
Stock Information
the Company’s common stock
has been trading on the nasdaq
System under the symbol SGMa
since the Company’s initial
public offering in February 1994.
the Company has more than
3.9 million shares of common
stock outstanding.
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.
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annual report 2013 | 8
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ONE SOURCE.
GLOBAL OPTIONS.
CORPORATE OFFICES SigmaTron International, Inc.
2201 Landmeier Road, Elk Grove Village, IL 60007 | Tel 847.956.8000 Fax 847.956.9801
INVESTOR RELATIONS 800.700.9095
www.sigmatronintl.com
SIGMATRON INTERNATIONAL, INC.
2201 Landmeier Road
Elk Grove Village, Illinois 60007
TEL (847) 956-8000
FAX (847) 956-9801
www.sigmatronintl.com
August 15, 2013
To Our Stockholders,
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Our Headquarters in Elk Grove Village, Illinois, Prepares for New Markets
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Acuña, Mexico, and Del Rio, Texas, Are Positioned for Increased Growth
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Our Plant in Suzhou, China, Welcomes Additional Employees with New Skills
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Union City, California, Establishes New Working Relationships
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Our Operation in Tijuana, Mexico, Looks to the Future
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The Plant in Chihuahua, Mexico, Offers Attractive Options
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In Ho Chi Minh City, Vietnam, New Business Is Coming On Line
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Preparing for SigmaTron’s Future
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Gary R. Fairhead
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the fiscal year ended April 30, 2013.
Or
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 name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
2201 Landmeier Rd., Elk Grove Village, IL
(Address of principal executive offices)
Registrant’s telephone number, including area code: 847-956-8000
Securities registered pursuant to Section 12(b) of the Act:
36-3918470
(I.R.S. Employer
Identification Number)
60007
(Zip Code)
Title of each class
Common Stock $0.01 par value per share
Name of each exchange on which registered
The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. (cid:134)Yes (cid:58) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
(cid:134)Yes (cid:58) 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.
(cid:58) Yes (cid:134) 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). (cid:58) Yes (cid:134) 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'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. (cid:58)
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 (cid:134) Accelerated filer (cid:134) Non-accelerated (cid:134) Smaller reporting company (cid:58)
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act.) (cid:134)Yes (cid:58) No
The aggregate market value of the voting common equity held by non-affiliates of the registrant as of October 31,
2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was $15,751,335
based on the closing sale price of $4.53 per share as reported by Nasdaq Capital Market as of such date.
The number of outstanding shares of the registrant’s Common Stock, $0.01 par value, as of July 26, 2013 was
3,961,232.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in connection
with its 2013 annual meeting of stockholders, which the Company intends to file within 120 days of the fiscal year
ended April 30, 2013, are incorporated by reference into Part III of this Form 10-K.
2
PART I
TABLE OF CONTENTS
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
BUSINESS .................................................................................................................... 4
RISK FACTORS ........................................................................................................... 11
UNRESOLVED STAFF COMMENTS ........................................................................ 17
PROPERTIES................................................................................................................ 17
LEGAL PROCEEDINGS .............................................................................................. 18
MINE SAFETY DISCLOSURES ................................................................................. 18
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES .................... 18
SELECTED FINANCIAL DATA ................................................................................. 19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................................................. 19
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS ...................................................................................................... 27
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................... 27
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ................................................ 27
CONTROLS AND PROCEDURES .............................................................................. 27
OTHER INFORMATION ............................................................................................. 28
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ....... 28
EXECUTIVE COMPENSATION ................................................................................. 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ............... 28
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE ................................................................................ 28
PRINCIPAL ACCOUNTANT FEES AND SERVICES ............................................... 28
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ..................................... 29
SIGNATURES ......................................................................................................................................................... 33
3
PART I
ITEM 1.
BUSINESS
CAUTIONARY NOTE:
In addition to historical financial information, this discussion of the business of SigmaTron International, Inc.
(“SigmaTron”), its wholly-owned subsidiaries Standard Components de Mexico S.A., AbleMex, S.A. de C.V.,
Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls
(Cayman) Co. Ltd. and SigmaTron International Trading Co., wholly-owned foreign enterprises Wujiang
SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron
China”) and international procurement office SigmaTron Taiwan branch (collectively, the “Company”) and
other Items in this Annual Report on Form 10-K contain forward-looking statements concerning the Company’s
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 Company’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’s business including, but not necessarily
limited to, the 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 and
goodwill 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, including conflict minerals; the continued
availability and sufficiency of our credit arrangements; changes in U.S., Mexican, Chinese, Vietnamese or
Taiwanese regulations affecting the Company’s business; the turmoil in the global economy and financial
markets; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political
systems and conditions; currency exchange fluctuations; and the ability of the Company to manage its growth,
including its integration of the Spitfire operation acquired in May 2012. These and other factors which may
affect the Company’s future business and results of operations are identified throughout this Annual Report and
as risk factors, and may be detailed from time to time in the Company’s 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
SigmaTron 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.
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) manufacturing and test engineering support; (4) design services; (5)
warehousing and distribution services; and (6) 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, Vietnam 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
4
Company are then incorporated into finished products sold in various industries, particularly appliance,
consumer electronics, gaming, fitness, industrial electronics, medical/life sciences, semiconductor,
telecommunications and automotive.
The Company operates manufacturing facilities in Elk Grove Village, Illinois; Union City, California;
Acuna, Chihuahua and Tijuana, Mexico; Suzhou, China; and Ho Chi Minh City, Vietnam. In addition, the
Company maintains materials sourcing offices in Elk Grove Village, Illinois; Union City, California; and Taipei,
Taiwan and also has warehouses in Del Rio, Texas. The Company also provides design services at
Carpentersville and Crystal Lake, Illinois. Effective May 2013, the Company combined both locations into a
new building in Elgin, Illinois.
In an effort to facilitate the growth of our China operation, the Company established a new Chinese
entity in October 2011 that allows the Company to provide services competitively to the domestic market in
China. Nonetheless, in fiscal year 2012 and 2013, the Company continued to see a trend of Chinese costs
increasing, thereby making Mexico a more competitive manufacturing location to service North America.
Indications suggest that this trend will continue. We feel the Company’s international footprint provides our
customers with flexibility within the Company to manufacture in China, Mexico or Vietnam. We believe this
strategy has continued to serve the Company well during these difficult economic times as its customers
continuously evaluate their supply chain strategies.
On May 31, 2012, SigmaTron acquired certain assets and assumed certain liabilities of Spitfire.
Spitfire was a privately held Illinois corporation headquartered in Carpentersville, Illinois with captive
manufacturing sites in Chihuahua, Mexico and Ho Chi Minh City, Vietnam. Both manufacturing sites were
among the assets acquired by the Company. Spitfire was an original equipment manufacturer (“OEM”) of
electronic controls, with a focus on the major appliance (white goods) industry. Although North America is
currently its primary market, Spitfire has applications that can be used worldwide. The Company provided
manufacturing solutions for Spitfire since 1994, and was a strategic partner to Spitfire as it developed its OEM
electronic controls business.
Spitfire provides cost effective designs as control solutions for its customers, primarily in high volume
applications of domestic cooking ranges, dishwashers, refrigerators, and portable appliances. The Company’s
Spitfire division is a member of the Association of Home Appliance Manufacturers (“AHAM”), as well as other
industry related trade associations and is ISO 9001:2008 certified. The Spitfire acquisition has enabled the
Company to offer design services for the first time in specific markets.
Due to the acquisition of Spitfire, effective June 1, 2012, the Company discontinued selling to Spitfire
and instead began selling directly to Spitfire’s former customers.
The Company expects continuing pressures on margins. The Company is hopeful to see a sustained
recovery in the second half of calendar 2013. Until that time, the Company will continue to carefully manage its
cost structure. The Company continues to add new customers and new programs with existing customers, some
of which are not launching or transitioning as quickly as initially forecasted by the Company’s customers, but
the Company believes they will eventually add to its revenue base. We continue to work on integrating Spitfire
into SigmaTron, which we believe is proceeding on plan and has started to add to our menu of services that we
can offer customers.
Products and Services
The Company provides a broad range of electronic and electromechanical manufacturing related
outsourcing solutions for its customers. These solutions incorporate the Company’s knowledge and expertise in
the EMS industry to provide its customers with the most advanced manufacturing technologies, complete supply
chain management, responsive and flexible customer service, as well as product design, test and engineering
support. The Company’s EMS solutions are available from inception of product concept through the ultimate
delivery of a finished good. Such technologies and services include the following:
5
Manufacturing and Testing Services: The Company’s core business is the assembly and testing of all
types of electronic printed circuit board assemblies (“PCBA”s) and often incorporating these PCBAs into
electronic modules used in all types of devices and products that depend on electronics for their operation. This
assembly work utilizes state of the art manufacturing and test equipment to deliver highly reliable products to
the Company’s customers. The Company supports new product introduction (“NPI”), low volume / high mix as
well as high volume/ low mix assembly work at all levels of complexity. Assembly services include pin-
through-hole (“PTH”) components, surface mount (“SMT”) components, including ball grid array (“BGA”),
part-on-part components, conformal coating, parylene coating and others. Test services include and are not
limited to, in-circuit, automated optical inspection (“AOI”), functional, burn-in, hi-pot and boundary scan. From
simple component assembly through the most complicated industry testing, the Company offers every service
required to build electronic devices commercially available in the market place today.
Design Services: To compliment the manufacturing services it offers its customers, the Company also
offers DMF, design for manufacturing and DFT, design for test review services to help customers ensure that the
products they have designed are optimized for production and testing. In addition, through its Spitfire Control
division, the Company offers complete product design services for a variety of industries and applications,
including appliance controls.
Supply Chain Management: The Company provides complete supply chain management for the
procurement of components needed to build customers’ products. This includes the procurement and
management of all types of electronic components and related mechanical parts such as plastics and metals. The
Company’s resources supporting this activity are provided both on a plant specific basis as well as globally
through its international procurement office (“IPO”) in Taipei, Taiwan. Each of its sites is linked together using
the same Enterprise Resource Planning (“ERP”) system and custom IScore software tools with real-time on-line
visibility for customer access. The Company procures material from virtually every major manufacturer and
distributor of electronic parts in the world today.
Warehousing and Distribution: The Company provides in-house and third party warehousing,
shipping, and customs brokerage for border crossings as part of its service offering. This includes international
shipping, drop shipments to the end customer, as well as, support of inventory optimization activities such as
kanban and consignment.
Green, Sustainability, and Social Responsible Initiatives: The Company supports initiatives that
promote sustainability, green environment and social responsibility. The Company requires its supply chain to
meet all government imposed requirements in these areas and helps its customers in achieving effective
compliance. This includes, but is not limited to, Restrictions of Hazardous Substances (“RoHS”), Restriction of
Chemicals (“Reach”) and Conflict Minerals regulations.
Manufacturing Location and Certifications: The Company’s manufacturing and warehousing
locations are strategically located to support our customers with locations in Elk Grove Village, Illinois; Union
City, California; Acuna, Chihuahua and Tijuana, Mexico; Del Rio, Texas; Suzhou, China and Ho Chi Minh
City, Vietnam. The Company’s ability to transition manufacturing to lower cost regions without jeopardizing
flexibility and service, differentiate it from the competition. Manufacturing certifications and registrations are
location specific, and include ISO 9001:2008, ISO 14001:2004, medical ISO 13485:2003, Aerospace AS9100C
and International Traffic in Arms Regulations (“ITAR”) certifications.
Markets and Customers
The Company’s customers are in the appliance, gaming, industrial electronics, fitness, medical/life
sciences, semiconductor, telecommunications and consumer electronics industries. As of April 30, 2013, the
Company had approximately 110 active customers ranging from Fortune 500 companies to small, privately held
enterprises.
6
The following table shows, for the periods indicated, the percentage of net sales to the principal end-
user markets it serves.
Markets
Industrial Electronics
Typical
OEM Application
Motor controls, power supplies, lighting products, scales,
joysticks
Appliances
Household appliance controls
Fitness
Treadmills, exercise bikes, cross trainers
Semiconductor Equipment
Process control and yield management equipment for
semiconductor productions
Gaming
Slot machines, lighting displays
Telecommunications
Routers, communication
Consumer Electronics
Battery backup sump pumps, electric bikes, personal
grooming, computers
Medical/Life Sciences
Clinical diagnostic systems and instruments
Percent of Net Sales
Fiscal
2012
%
Fiscal
2013
%
36.9
41.4
10.2
2.6
2.5
1.8
2.7
1.9
40.4
32.9
14.0
3.5
3.2
2.7
1.8
1.5
Total
100%
100%
For the fiscal year ended April 30, 2013, Electrolux and Life Fitness, Inc. accounted for 26.8% and
9.6%, respectively, of the Company’s net sales. For the fiscal year ended April 30, 2012, Spitfire and Life
Fitness, Inc., the Company’s largest two customers, accounted for 21.0% and 14.0%, respectively, of the
Company’s net sales. As discussed above, on May 31, 2012, the Company acquired Spitfire. As of June 1,
2012, the Company discontinued selling to Spitfire and instead began selling to Spitfire’s former customers.
Although the Company does not have a long term contract with Electrolux or Life Fitness, the Company expects
that Electrolux and Life Fitness will continue to account for a significant percentage of the Company’s net sales,
although the percentage of net sales may vary from period to period.
Sales and Marketing
The Company markets its services through 13 independent manufacturers’ representative organizations
that together currently employ approximately 41 sales personnel in the United States and Canada. Independent
manufacturers’ representatives organizations receive variable commissions based on orders received by the
Company and are assigned specific accounts, not territories. Many of the members of the Company’s senior
management are actively involved in sales and marketing efforts, and the Company has 6 direct sales employees.
Sales can be a misleading indicator of the Company’s financial performance. Sales levels can vary
considerably among customers and products depending on the type of services (consignment versus 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’s revenue and gross
margin levels. Consignment orders accounted for less than 5% of the Company’s revenues for each of the fiscal
years ended April 30, 2013 and 2012.
7
In the past, the timing of production and delivery of orders, primarily at the direction of its customers,
has caused the Company to experience significant quarterly fluctuations in its revenue and earnings, and the
Company expects such fluctuations to continue.
Mexico, Vietnam and China Operations
The Company’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 and had 779 employees at April 30, 2013. The Company’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 154 employees at April 30, 2013. The Company’s wholly-owned
subsidiary, Digital Appliance Controls de Mexico S.A., a Mexican corporation, is located in Chihuahua,
Mexico, located approximately 235 miles from El Paso, Texas. Digital Appliance Controls de Mexico S.A. was
incorporated and commenced operations in 1997. The operation had 473 employees at April 30, 2013. 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’s wholly-owned foreign enterprises, Wujiang SigmaTron Electronics Co., Ltd. and
SigmaTron Electronic Technology Co., Ltd., are located in Suzhou, 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. The Company built a manufacturing
plant, office space and dormitories on this site during 2004. Both SigmaTron China entities operate at this site.
At April 30, 2013, this operation had 406 employees.
The Company’s wholly-owned subsidiary, Spitfire Controls (Vietnam) Co. Ltd. is located in Amata
Industrial Park, Bien Hoa City, Dong Nai Province, Vietnam, and is 18 miles east of Ho Chi Minh City. Spitfire
Controls (Vietnam) Co. Ltd. was incorporated and commenced operation in 2005 and had 366 employees as of
April 30, 2013.
The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary
to operate its wholly-owned Mexican, Vietnam and Chinese subsidiaries and the Taiwan IPO. The Company
provides funding in U.S. dollars, which are exchanged for Pesos, Dong, 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 fiscal
year ended April 30, 2013 resulted in a foreign currency loss of approximately $359,000 representing a material
change from the prior year’s foreign currency gain. In fiscal year 2013, the Company’s U.S. operations paid
approximately $36,920,000 to its foreign subsidiaries for services provided. In fiscal year 2013, the Company’s
wholly-owned trading company, SigmaTron International Trading Co. was liquidated. The Company received a
distribution of approximately $180,000 as a result of this liquidation. In fiscal year 2012, the Company received
a distribution of previously taxed earnings of approximately $1,039,000 from a foreign subsidiary based in
Mexico. The Company did not incur any U.S. income taxes on the distribution as the earnings were previously
subject to U.S. tax.
The Company has not recorded U.S. income taxes for a significant portion of undistributed earnings of
the Company’s foreign subsidiaries, since these earnings have been, and under current plans will continue to be,
permanently reinvested in these foreign subsidiaries. The cumulative amount of unremitted earnings for which
U.S. income taxes have not been recorded is approximately $11,300,000.
The consolidated financial statements as of April 30, 2013 include the accounts and transactions of
SigmaTron, its wholly-owned subsidiaries, Standard Components de Mexico, S.A., AbleMex S.A. de C.V.,
Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls
(Cayman) Co. Ltd. and SigmaTron International Trading Co., wholly-owned foreign enterprises Wujiang
8
SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd., and international
procurement office, SigmaTron Taiwan Branch. The functional currency of the Mexican and Vietnam
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 address all of these factors.
Consolidation
As a result of consolidation and other transactions involving competitors and other companies in the
Company’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. In the
future, the Company may choose to enter into these types of or other transactions at any time depending on
available sources of financing, and such transactions could have a material impact on the Company’s business,
financial condition or operations.
On May 31, 2012, SigmaTron acquired certain assets and assumed certain liabilities of Spitfire.
Spitfire was a privately held Illinois corporation with captive manufacturing sites in Chihuahua, Mexico and
suburban Ho Chi Minh City, Vietnam. Both manufacturing sites were among the assets acquired by the
Company. Spitfire was an OEM of electronic controls, with a focus on the major appliance (white goods)
industry. Although North America was its primary market, Spitfire has applications that can be used worldwide.
The Company provided manufacturing solutions for Spitfire since 1994, and was a strategic partner to Spitfire
as it developed its OEM electronic controls business.
Governmental Regulations
The Company’s operations are subject to certain foreign, federal, state and local regulatory
requirements relating to, among others, environmental, waste management, labor and health and safety matters.
Management believes that the Company’s business is operated in material compliance with all such regulations.
Effective mid-2006, the Company’s customers were required to comply with RoHS, directives for all of
products that ship to the European marketplace. RoHS prohibits the use of lead, mercury and certain other
specified substances in electronics products. The Company has RoHS-dedicated manufacturing capabilities at
all of its manufacturing operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”),
introduced reporting requirements for verification of whether the Company directly (or indirectly through
suppliers of components) is purchasing the minerals or metals gold, columbite-tantalite, cassiterite, wolframite
and their derivatives: tin, tungsten, and tantalum that are being provided by sources in the conflict region of the
Democratic Republic of Congo. The Company is working with its suppliers and customers to comply with the
due diligence reporting requirements to comply with the Dodd-Frank Act.
To date, the Company’s costs of compliance and environmental remediation have not been material.
However, additional or modified requirements may be imposed in the future. If such additional or modified
requirements are imposed, or if conditions requiring remediation are found to exist, the Company may be
required to incur additional expenditures.
9
Backlog
The Company relies on customers’ forecasted orders and purchase orders (firm orders) from its
customers to estimate backlog. Historically customers rescheduled or cancelled firm orders and consequently
there is little or no financial significance between forecasted orders or firm orders. The Company has eliminated
the distinction in its accounting system between the two types of orders, and only estimates firm orders. The
Company’s backlog of forecasted and firm orders as of April 30, 2013 and 2012 was approximately
$119,300,000 and $89,600,000, respectively. The Company estimates its firm orders at April 30, 2013 and
2012 to be $84,600,000 and $57,100,000, respectively. The Company anticipates a significant portion of the
backlog at April 30, 2013 will ship in fiscal year 2014. Because customers may cancel or reschedule deliveries,
backlog may not be a meaningful indicator of future revenue. 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.
Employees
The Company employed approximately 2,700 people as of April 30, 2013, including 179 engaged in
engineering or engineering-related services, 2,131 in manufacturing and 390 in administrative and marketing
functions.
The Company has a labor contract with Production Workers Union Local No. 10, AFL-CIO, covering
the Company’s workers in Elk Grove Village, Illinois which expires on November 30, 2015. The 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’s
workers in Acuna, Mexico which expires on February 1, 2014. 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. The Company’s subsidiary located in Ho Chi Minh
City, Vietnam, has a labor contract with Labor Union of Dong Nai All Industrial Zones, Province of Dong Nai,
Vietnam. 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.
10
Executive Officers of the Registrant
Name
Gary R. Fairhead
Age
61
Position
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. Frauendorfer
52
Chief Financial Officer, Vice President Finance, Treasurer and Secretary
since February 1994.
Gregory A. Fairhead
57
Executive Vice President and Assistant Secretary. Gregory A. Fairhead
has been Executive Vice President since February 2000 and Assistant
Secretary since 1994. Mr. Fairhead was Vice President – Acuna
Operations for the Company from February 1990 to February 2000.
Gregory A. Fairhead is the brother of Gary R. Fairhead.
John P. Sheehan
Daniel P. Camp
52
64
Vice President, Director of Supply Chain and Assistant Secretary since
February 1994.
Vice President, Acuna Operations since 2007. Vice President – China
Operations from 2003 to 2007. General Manager / Vice President of
Acuna Operations from 1994 to 2003.
Rajesh B. Upadhyaya
58
Executive Vice President, West Coast Operations since 2005. Mr.
Upadhyaya was the Vice President of the Fremont Operation from 2001
until 2005.
Hom-Ming Chang
53
Vice President, China Operation since 2007. Vice President – Hayward
Materials / Test / IT from 2005 – 2007. Vice President of Engineering,
Fremont Operation from 2001 to 2005.
ITEM 1A.
RISK FACTORS
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.
There is no assurance that the Company will be able to retain or renew its credit agreements and other
finance agreements in the future. In the event the business grows rapidly, the uncertain economic climate
continues or the Company considers another 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 has a senior secured credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”), with a
credit limit up to $30 million and an initial term through September 30, 2013. The facility allows the Company
to choose among interest rates at which it may borrow funds. The interest rate is the prime rate plus one half
percent (effectively, 3.75% at April 30, 2013) or LIBOR plus two and three quarter percent (effectively, 3.0% at
11
April 30, 2013), which is paid monthly. 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 conjunction with the Spitfire acquisition, two of the financial covenants required by terms of the
Company’s senior secured credit facility were amended as of May 31, 2012. The Company was in violation of
certain of its financial covenants at July 31, 2012 and received a waiver for the financial covenant violations.
The Company renegotiated its financial covenants during the quarter ended October 31, 2012 with Wells Fargo
and extended the credit facility through September 30, 2014. As of April 30, 2013, the Company again
amended its credit agreement and renegotiated two of the financial covenants required by the terms of the
Company’s senior secured credit facility. At April 30, 2013, the Company was in compliance with its amended
financial covenants. As of April 30, 2013, there was an $18,500,000 outstanding balance and $11,500,000 of
unused availability under the credit facility.
The Company anticipates its credit facilities, cash flow from operations and leasing resources will be
adequate to meet its working capital requirements and capital expenditures for the next twelve months. There is
no assurance that the Company will be able to retain or renew its credit agreements in the future, or that any
retention or renewal will be on the same terms as currently exist. In the event the business grows rapidly, the
current economic climate deteriorates, customers delay payments, 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.
Adverse changes in the economy or political conditions 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 international economic and political environment could result in a
decline in demand for our customers’ products in any industry. Further, any adverse changes in tax rates and
laws affecting our customers could result in decreasing gross margins. Any of these factors could negatively
impact the Company’s business, results of operations and financial condition.
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’s common stock.
The Company’s quarterly and annual results may vary significantly depending on numerous factors,
many of which are beyond the Company’s control. Some of these factors include:
changes in sales mix to customers
changes in availability and rising component costs
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 in the U.S. and international economic and financial markets
The Company’s customer base is concentrated.
Sales to the Company’s five largest customers accounted for 53% and 57% of net sales for the fiscal
years ended April 30, 2013 and 2012, respectively. The Company’s two largest customers accounted for 26.8%
and 9.6% of net sales for the fiscal year ended April 30, 2013 compared to 21.0% and 14.0% of net sales for the
fiscal year ended April 30, 2012. Significant reduction in sales to any of the Company’s major customers or the
loss of a major customer could have a material impact on the Company’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.
12
The Company has 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 the payment of amounts owed. This could have a significant adverse impact on
the Company’s results of operations and financial condition.
Most of the Company’s customers do not commit to long-term production schedules, which makes it difficult
to schedule production and achieve maximum efficiency at the Company’s 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 consolidation 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, thereby adversely affecting the Company’s results of
operations, and resulting in higher inventory levels.
The Company and its customers may be unable to keep current with the industry’s technological changes.
The market for the Company’s manufacturing services is characterized by rapidly changing technology
and continuing product development. The future success of the Company’s business will depend in large part
upon its 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.
Our customers have competitive challenges, including rapid technological changes, pricing pressure and
decreasing demand from their customers, which could adversely affect their business and the Company’s.
Factors affecting the industries that utilize our customers’ products could negatively impact our
customers and the Company. These factors include:
-
-
-
-
-
increased competition among our customers and their competitors
the inability of our customers to develop and market their products
recessionary periods in our customers’ markets
the potential that our customers’ products become obsolete
our customers’ inability to react to rapidly changing technology
Any such factor or a combination of factors could negatively impact our customers’ need for or ability
to pay for our products, which could, in turn, affect the Company’s results of operations.
Customer relationships with start-up companies present more risk.
A small portion of the Company’s current customer base is comprised of start-up companies. Customer
relationships with start-up companies may present heightened risk due to the lack of product history. Slow
market acceptance of their products could result in demand fluctuations causing inventory levels to rise.
Further, the current economic environment could make it difficult for such emerging companies to obtain
additional funding. This may result in additional credit risk including, but not limited to, the collection of trade
account receivables and payment for their inventory. If the Company does not have adequate allowances
recorded, the results of operations may be negatively affected.
13
The Company faces intense industry competition and downward pricing pressures.
The EMS industry is highly fragmented and characterized by intense competition. Many of the
Company’s competitors have greater experience, as well as greater manufacturing, purchasing, marketing and
financial resources than the Company.
Competition from existing or potential new competitors may have a material adverse impact on the
Company’s business, financial condition or results of operations. The 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.
The Company has foreign operations that may pose additional risks.
The Company has substantial manufacturing operations in multiple countries. Therefore, the
Company’s foreign businesses and results of operations are dependent upon numerous related factors, including
the stability of the foreign economies, the political climate, relations with the United States, prevailing worker
wages, the legal authority of the Company to own and operate its business in a foreign country, and the ability to
identify, hire, train and retain qualified personnel and operating management in Mexico.
The Company obtains many of its materials and components through its IPO in Taipei, Taiwan. The
Company’s access to these materials and components is dependent on the continued viability of its Asian
suppliers.
Approximately 9% and 10% of the total consolidated assets of the Company are located in foreign
jurisdictions outside the United States as of April 30, 2013 and 2012, respectively.
The Company may not achieve expected profitability from its acquisitions.
The Company acquired Spitfire Control in May 2012. Acquisitions involve significant financial and
operating risks that could have a material adverse effect on the Company’s results of operations.
Acquisitions involve significant risks, which could have a material adverse effect on the Company
including:
Financial risks, include (1) the payment of a purchase price that exceeds the future value that
we may realize from the acquired operations and businesses; (2) an increase in the Company’s
expenses and working capital requirements, which could reduce our return on invested capital;
(3) potential known and unknown liabilities of the acquired businesses; (4) costs associated
with integrating acquired operations and business; (5) the incurrence of additional debt; (6) the
financial impact of incorrectly valuing goodwill and other intangible assets involved in any
acquisitions, potential future impairment write-downs of goodwill and other intangible assets
and the amortization of other intangible assets; (7) possible adverse tax and accounting
effects; and (8) the risk that the Company will spend substantial amounts purchasing these
manufacturing facilities and assume significant contractual and other obligations with no
guaranteed levels of revenue or that the Company may have to close or sell acquired facilities
at its costs, which may include substantial employee severance costs and asset write-offs,
which may result, in our incurring significant losses.
The Company must implement its management information systems, operating systems and internal
controls, and assimilate and manage the personnel of the acquired operations. The difficulties of this integration
may be further complicated by geographic distances. The integration of acquired businesses may not be
successful and could result in disruption to other parts of our business. To date the integration has proceeded as
planned and completion is expected in the second fiscal quarter of 2014.
14
Disclosure and internal controls may not detect all errors or fraud.
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, do not
believe that the Company’s disclosure controls and internal controls will prevent all errors and all fraud. The
Company’s disclosure controls and internal 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.
Inadequate internal control over financial reporting could result in a reduction in the value of our common
stock.
If the Company identifies and reports a material weakness in its internal control over financial
reporting, shareholders and the Company’s lenders could lose confidence in the reliability of the Company’s
financial statements. This could have a material adverse impact on the value of the Company’s stock and the
Company’s liquidity.
There is a risk of fluctuation of various currencies integral to the 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’s results of operations and performance. The impact of currency fluctuation
for the year ended April 30, 2013 resulted in a currency loss of approximately $359,000 representing a material
change from the prior year’s foreign currency gain. These fluctuations are expected to continue and could have
a negative impact on the Company’s results of operations. The Company did not, and is not expected to, utilize
derivatives or hedge foreign currencies to reduce the risk of such fluctuations.
The availability of raw components or an increase in their price may affect the Company’s operations and
profits.
The Company relies on numerous third-party suppliers for components used in the Company’s
production process. Certain of these components are available only from single-sources or a limited number of
suppliers. In addition, a customer’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 could have a material impact on the
Company’s results of operations. Further, the Company could operate at a cost disadvantage compared to
competitors who have greater direct buying power from suppliers. 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 changing needs
of its customers.
The Company depends on management and skilled personnel.
The Company depends significantly on its President/CEO and other executive officers. The
Company’s employees generally are not bound by employment agreements and the Company cannot assure that
it will retain its executive officers or skilled personnel. The loss of the services of any of these key employees
could have a material impact on the Company’s business and results of operations. In addition, despite
significant competition, continued growth and expansion of the Company’s EMS business will require that the
Company attract, motivate and retain additional skilled and experienced personnel. The inability to satisfy such
requirements could have a negative impact on the Company’s ability to remain competitive in the future.
Favorable labor relations are important to the Company.
The Company currently has labor union contracts with its employees constituting approximately 43%
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’s business, substantially increase the
Company’s costs or otherwise have a material impact on the Company’s results of operations.
15
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’s results
of operations.
Compliance with government regulations regarding the use of conflict minerals may result in increased cost
and risk to the Company.
As part of the Dodd-Frank Act, the Securities and Exchange Commission (“SEC”) has issued
disclosure requirements regarding the use of certain minerals mined from the Democratic Republic of Congo,
known as conflict minerals. The Disclosure for the Company is required in May 2014. The Company could
incur significant costs related to implementing a procedure that will meet the requirements of the Dodd-Frank
Act. The Company’s material sourcing is broad-based and uses many suppliers. As a result, the Company may
not be able to verify the origins of the minerals used in components it purchases and uses in products it sells.
Customers may demand that the products they purchase be free of conflict minerals and implementation of this
requirement could affect the sourcing and availability of components the Company purchases from its suppliers.
This could reduce the number of suppliers that provide conflict mineral-free components. The Company may not
be able to obtain components in sufficient quantities to meet customer demand or at a competitive price.
The price of the Company’s stock is volatile.
The price of the Company’s common stock historically has experienced significant volatility due to
fluctuations in the Company’s revenue and earnings, other factors relating to the Company’s operations, the
market’s changing expectations for the Company’s growth, overall equity market conditions and other factors
unrelated to the Company’s operations. In addition, the limited float of the Company’s common stock and the
limited number of market makers also affect the volatility of the Company’s common stock. Such fluctuations
are expected to continue in the future.
An adverse change in the interest rates for our borrowings could adversely affect our results of operations.
The Company pays interest on outstanding borrowings under its senior secured credit facility and
certain other long-term debt obligations at interest rates that fluctuate. An adverse change in the Company’s
interest rates could have a material adverse effect on its results of operations.
Changes in securities laws and regulations may increase costs.
The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and listing
requirements subsequently adopted by Nasdaq in response to Sarbanes-Oxley, have required changes in
corporate governance practices, internal control policies and securities disclosure and compliance practices of
public companies. More recently the Dodd-Frank Act requires changes to our corporate governance,
compliance practices and securities disclosures. Compliance following the implementation of these rules has
increased our legal and financial accounting costs. The Company expects increased costs related to these new
regulations to continue, including, but not limited to, legal, financial and accounting costs. These developments
may result in the Company having difficulty in attracting and retaining qualified members of the board or
qualified officers. Further, the costs associated with the compliance with and implementation of procedures
under these laws and related rules could have a material impact on the Company’s results of operations.
16
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
At April 30, 2013, the Company, operating in one business segment as an independent EMS provider,
had manufacturing facilities located in Elk Grove Village, Illinois, Union City, California, Acuna, Chihuahua
and Tijuana, Mexico, Ho Chi Minh City, Vietnam and Suzhou, 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, Union City, California, and Taipei, Taiwan offices.
Certain information about the Company’s manufacturing, warehouse and purchasing facilities is set
forth below:
Location
Square
Feet
Services Offered
Suzhou, China
147,500
Electronic and electromechanical manufacturing solutions
Elk Grove Village, IL
124,300
Corporate headquarters and electronic and electromechanical
manufacturing solutions
Union City, CA
117,000
Electronic and electromechanical manufacturing solutions
Acuna, Mexico
115,000
Electronic and electromechanical manufacturing solutions
Chihuahua, Mexico
113,000
Electronic and electromechanical manufacturing solutions
Tijuana, Mexico
67,700
Electronic and electromechanical manufacturing solutions
Ho Chi Minh City, Vietnam
24,475
Electronic and electromechanical manufacturing solutions
Del Rio, TX
44,000 Warehousing and distribution
Taipei, Taiwan
4,685
International procurement office
Owned/
Leased
*
Owned
Leased
Owned
**
Leased
Leased
Leased
Leased
Leased
*The Company’s Suzhou, China building is owned by the Company and the land is leased from the Chinese
government for a 50 year term.
**A portion of the facility is leased and the Company has an option to purchase it.
At April 30, 2013, the Company also provided design services from locations in Carpentersville and
Crystal Lake, Illinois. Effective May 2013, the Company combined both locations into a new building in Elgin,
Illinois, owned by the Company, with approximately 44,500 square feet.
The Union City, California, Tijuana and Chihuahua, Mexico, Ho Chi Minh City, Vietnam and Del Rio,
Texas properties are occupied pursuant to leases of the premises. The lease agreements for the Del Rio, Texas
properties expire December 2015. The lease agreement for the California property expires March 2021. The
Chihuahua, Mexico lease expires July 2015. The Tijuana, Mexico lease expires October 2018. The lease
agreement for the Ho Chi Minh City, Vietnam property expires March 2015. The Company’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 Acuna, Mexico, which is leased. The Company has an option to buy the leased portion
of the facility in Acuna, Mexico. The property in Elk Grove Village, Illinois is financed under a separate
mortgage loan agreement, the final payment on which is January 2015. The Company leases the IPO office in
Taipei, Taiwan to coordinate Far East purchasing activities. The Company believes its current facilities are
17
adequate to meet its current needs. In addition, the Company believes it can find alternative facilities to meet its
needs in the future, if required.
ITEM 3.
LEGAL PROCEEDINGS
As of April 30, 2013, 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’s business. In future periods, the Company could be subjected to cash
cost or non-cash charges to earnings if any of these matters are resolved on unfavorable terms. However,
although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present
information, including management’s 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.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock is traded on the NASDAQ Capital Market System under the symbol
SGMA. The following table sets forth the range of quarterly high and low sales price information for the
common stock for the periods ended April 30, 2013, and 2012.
Common Stock as Reported
by NASDAQ
Period
Fiscal 2013:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2012:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
$6.22
5.75
5.28
4.15
$4.40
4.12
4.93
5.40
Low
$3.76
4.01
3.35
3.04
$3.66
3.15
3.15
4.52
As of July 22, 2013, there were approximately 53 holders of record of the Company’s common stock,
which does not include shareholders whose stock is held through securities position listings. The Company
estimates there to be approximately 1,245 beneficial owners of the Company’s common stock.
18
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’s revolving loan facility, 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.
Equity Compensation Plan Information
For information concerning securities authorized for issuance under our equity compensation plans, see
Part III, Item 12 of this Annual Report, under the caption “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholders Matters” as well as the Company’s audited financial statements and
notes thereto, including Note O, filed herewith and all such information is incorporated herein by reference.
ITEM 6.
SELECTED FINANCIAL DATA
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under 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 business of SigmaTron
International, Inc. (“SigmaTron”), its wholly-owned subsidiaries Standard Components de Mexico S.A.,
AbleMex, S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co.
Ltd., Spitfire Controls (Cayman) Co. Ltd. and SigmaTron International Trading Co., wholly-owned foreign
enterprises Wujiang SigmaTron Electronics Co., Ltd. and SigmaTron Electronic Technology Co., Ltd.
(collectively, “SigmaTron China”) and international procurement office SigmaTron Taiwan branch (collectively,
the “Company”) and other Items in this Annual Report on Form 10-K contain forward-looking statements
concerning the Company’s 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 Company’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’s business including, but not necessarily limited to, the 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 and goodwill 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, including conflict
minerals; the continued availability and sufficiency of our credit arrangements; changes in U.S., Mexican,
Chinese, Vietnamese or Taiwanese regulations affecting the Company’s business; the turmoil in the global
economy and financial markets; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese
economic, labor and political systems and conditions; currency exchange fluctuations; and the ability of the
Company to manage its growth, including its integration of the Spitfire operation acquired in May 2012. These
and other factors which may affect the Company’s future business and results of operations are identified
throughout this Annual Report and as risk factors, and may be detailed from time to time in the Company’s
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.
19
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) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services;
and (6) 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, Vietnam and Taiwan.
On May 31, 2012, SigmaTron acquired certain assets and assumed certain liabilities of Spitfire.
Spitfire was a privately held Illinois corporation with captive manufacturing sites in Chihuahua, Mexico and
suburban Ho Chi Minh City, Vietnam. Both manufacturing sites were among the assets acquired by the
Company. Spitfire was an original equipment manufacturer of electronic controls, with a focus on the major
appliance (white goods) industry. Although North America is currently its primary market, Spitfire has
applications that can be used worldwide. The Company provided manufacturing solutions for Spitfire since
1994, and was a strategic partner to Spitfire as it developed its OEM electronic controls business.
The Company’s Spitfire division provides cost effective designs as control solutions for its customers,
primarily in high volume applications of domestic cooking ranges, dishwashers, refrigerators, and portable
appliances. It is a member of the Association of Home Appliance Manufacturers (“AHAM”), as well as other
industry related trade associations and is ISO 9001:2008 certified. The acquisition has enabled the Company to
offer design services for the first time in specific markets.
The Company relies on numerous third-party suppliers for components used in the Company’s
production process. Certain of these components are available only from single-sources or a limited number of
suppliers. In addition, a customer’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 could have a material impact on the
Company’s results of operations. Further, the Company could operate at a cost disadvantage compared to
competitors who have greater direct buying power from suppliers. 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 changing needs
of its customers.
Sales can be a misleading indicator of the Company’s financial performance. Sales levels can vary
considerably among customers and products depending on the type of services (consignment versus 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’s revenue and gross
margin levels. Consignment orders accounted for less than 5% of the Company’s revenues for the year ended
April 30, 2013.
In an effort to facilitate growth of our China operation, the Company established a new Chinese entity
in October 2011 that allows the Company to provide services competitively to the domestic market in China.
Nonetheless, in fiscal year 2012 and 2013, the Company continued to see a trend of Chinese costs increasing,
thereby making Mexico a more competitive manufacturing location to service North America. Indications
suggest that this trend will continue. We feel the Company’s international footprint provides our customers with
flexibility within the Company to manufacture in China, Mexico or Vietnam. We believe this strategy has
continued to serve the Company well during these difficult economic times as its customers continuously
evaluate their supply chain strategies.
20
In the past, the timing of production and delivery of orders, primarily at the direction of its customers,
has caused the Company to experience significant quarterly fluctuations in its revenues and earnings. The
Company continued to experience pricing pressures from both its customer and suppliers. The Company
expects continuing pressure on margins until the economy achieves a sustained recovery. The Company is
hopeful to see that start the second half of calendar 2013. Until that time, the Company will continue to
carefully manage its cost structure. The Company continues to add new customers and new programs with
existing customers. Some are not launching or transitioning as quickly as initially forecasted by the Company’s
customers, but the Company believes they will eventually add to its revenue base. We continue to work on
integrating Spitfire into SigmaTron, which the Company believes is proceeding on plan and has started to add to
our menu of services that we can offer customers.
Due to the acquisition of Spitfire, effective June 1, 2012, the Company discontinued selling to Spitfire
and instead began selling directly to Spitfires’ customers.
On May 8, 2012, the Company entered into a real estate lease agreement to relocate its Tijuana,
Mexico operation to a new facility within Tijuana, Mexico. The relocation was completed in July 2012. As of
April 30, 2013, the Company has incurred approximately $424,000 in relocation expenses as a result of the
move as of April 30, 2013. All incentives realized under the lease will be recognized over the term of the lease,
which is five years.
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 long-lived assets. Actual results could materially differ from
these estimates.
Revenue Recognition - Revenues from sales of the Company's electronic manufacturing services
business are recognized when the finished good product is shipped to the customer. In general, and except for
consignment inventory, it is the Company's policy to recognize revenue and related costs when the finished
goods have been shipped from its facilities, which is also the same point that title passes under the terms of the
purchase order. Finished goods inventory for certain customers 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’s own
facility. Upon the customer’s request for finished goods inventory, the inventory is shipped to the customer if
the inventory was stored off-site, or transferred from the segregated part of the customer’s facility for
consumption or use by the customer. The Company recognizes revenue upon such shipment or transfer. The
Company does not earn a fee for such arrangements. The Company from time to time may ship finished goods
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. Further, from time to time customers request the Company hold finished
goods after they have been invoiced to consolidate finished goods for shipping purposes. 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 Company’s 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. In the event of an inventory write-down, the Company records expense to state the inventory
at lower of cost or market. 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’s inventories and cost of products sold. The Company records provisions for excess and obsolete
21
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.
Goodwill - Goodwill represents the purchase price in excess of the fair value of assets acquired in
business combinations. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 350, “Goodwill and other Intangible Assets,” requires the Company to assess goodwill and other
indefinite-lived intangible assets for impairment at least annually in the absence of an indicator of possible
impairment and immediately upon an indicator of possible impairment. The Company is permitted the option to
first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is
more likely than not that the fair value of any reporting unit is less than its corresponding carrying value. If,
after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not
that the fair value of any reporting unit is less than its corresponding carrying value then the Company is not
required to take further action. However, if the Company concludes otherwise, then it is required to perform a
quantitative impairment test, including computing the fair value of the reporting unit and comparing that value to
its carrying value. If the fair value is less than its carrying value, a second step of the test is required to
determine if recorded goodwill is impaired. The Company also has the option to bypass the qualitative
assessment for goodwill in any period and proceed directly to performing the quantitative impairment test. The
Company will be able to resume performing the qualitative assessment in any subsequent period. The Company
performed its annual goodwill impairment test as of February 1, 2013 and determined no impairment existed as
of the date of the impairment test.
Impairment of Long-Lived Assets - The Company reviews long-lived assets, including amortizable
intangible assets for impairment. Property, machinery and equipment and finite life intangible assets are
reviewed whenever events or changes in circumstances occur that indicate possible impairment. If events or
changes in circumstances occur that indicate possible impairment, the Company’s impairment review is based on
an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely
independent of other groups of its assets and liabilities. This analysis requires management judgment with
respect to changes in technology, the continued success of product lines, and future volume, revenue and
expense growth rates. The Company conducts annual reviews for idle and underutilized equipment, and review
business plans for possible impairment. Impairment occurs when the carrying value of the assets exceeds the
future undiscounted cash flows expected to be earned by the use of the asset group. When impairment is
indicated, the estimated future cash flows are then discounted to determine the estimated fair value of the asset
or asset group and an impairment charge is recorded for the difference between the carrying value and the
estimated fair value.
Income Tax - The Company’s income tax expense, deferred tax assets and liabilities and reserves for
unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. The
Company is subject to income taxes in both the U.S. and several foreign jurisdictions. Significant judgments
and estimates by management are required in determining the consolidated income tax expense assessment.
Deferred income taxes arise from temporary differences between the tax and financial statement
recognition of revenue and expense and tax credit carryforwards. In evaluating our ability to recover our
deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive
and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income,
tax planning strategies and recent financial operations. In projecting future taxable income, the Company begins
with historical results adjusted for the results of discontinued operations and changes in accounting policies, and
incorporates assumptions including the amount of future state, federal and foreign pretax operating income, the
reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These
assumptions require significant judgment and estimates by management about the forecasts of future taxable
income and are consistent with the plans and estimates the Company uses to manage the underlying businesses.
In evaluating the objective evidence that historical results provide, the Company considers three years of
cumulative operating income and/or loss.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex
tax laws and regulations in a multitude of jurisdictions across our global operations. Changes in tax laws and
22
rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any
such changes that would have a material effect on the Company’s results of operations, cash flows or financial
position.
A tax benefit from an uncertain tax position may only be recognized when it is more likely than not that
the position will be sustained upon examination, including resolutions of any related appeals or litigation
processes, based on the technical merits.
The Company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new
information not previously available. Due to the complexity of some of these uncertainties, the ultimate
resolution may result in a payment that is materially different from our current estimate of the tax liabilities.
These differences will be reflected as increases or decreases to income tax expense in the period in which they
are determined.
New Accounting Standards:
There are no recent accounting standards that had, or are expected to have, a significant effect on the
Company’s consolidated financial statements.
Results of Operations:
FISCAL YEAR ENDED APRIL 30, 2013 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2012
The following table sets forth the percentage relationships of expense items to net sales for the years
indicated:
Net sales
Operating expenses:
Cost of products sold
Selling and administrative expenses
Total operating expenses
Operating income
Fiscal Year 2013:
Fiscal Years
2013
2012
100.0%
100.0%
90.0
9.3
99.3
90.3
8.0
98.3
0.7%
1.7%
Net sales increased 26.7% to $198,439,534 in fiscal year 2013 from $156,635,984 in the prior year.
The Company’s sales increased in fiscal year 2013 in industrial and consumer electronics, appliance and
medical/life sciences marketplaces as compared to the prior year. The increase in sales dollars for these
marketplaces was partially offset by a decrease in sales dollars in the fitness, gaming, telecommunications and
semiconductor marketplaces. The increase in net sales for the fiscal year 2013 is a result of sales to customers
due to the Spitfire acquisition, as well as our existing customers’ increased demand for product.
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 cancellations, the life cycle of customer products and product transition. Sales to
the Company’s five largest customers accounted for 53% and 57% of net sales for fiscal years 2013 and 2012,
respectively.
Gross profit increased to $19,925,646, or 10.0% of net sales, in fiscal year 2013 compared to
$15,254,541, or 9.7% of net sales, in the prior fiscal year. The increase in gross profit for fiscal year 2013 was
primarily the result of gross profits earned on sales to customers due to the Spitfire acquisition, as well as
23
increased sales revenue from our existing customers. The Company has carefully managed its cost structure and
has begun to achieve economies of scale integrating Spitfire into SigmaTron. The increase in gross profit in
fiscal year 2013 was partially offset by relocation expenses of approximately $399,000 for the Tijuana, Mexico
move, and a foreign currency loss of $359,149 compared to a foreign currency gain of $133,979 in the prior
fiscal year.
Selling and administrative expenses increased in fiscal year 2013 to $18,358,354, or 9.3% of net sales,
compared to $12,611,673, or 8.0% of net sales, in fiscal year 2012 or an increase of $5,746,681. Of the
increase noted above, for the fiscal year ended April 30, 2013, $4,469,106 was attributable to salaries and other
administrative expenses for the Spitfire operations and $803,006 was transaction costs for the Spitfire
Transaction. Other increases in selling and administrative expenses for the fiscal year ended April 30, 2013,
were due to increases in commissions, freight out, computer maintenance, insurance and amortization expense.
The increase in the foregoing selling and administrative expenses were partially offset by a decrease in bonus
expense, depreciation and paper and supply expenses.
Interest expense decreased to $832,126 in fiscal year 2013 compared to $1,025,325 in fiscal year 2012.
The interest expense decreased primarily due to the decreased borrowings under the Company’s banking
arrangements and capital lease obligations. Interest expense for fiscal year 2014 may increase if interest rates or
borrowings, or both, increase during fiscal year 2014.
In fiscal year 2013, income tax expense was $321,363 compared to $522,171 in income tax expense in
fiscal year 2012. The effective tax rate for the years ended April 30, 2013 and 2012 was 39.5% and 31.5%,
respectively. The increase in the effective tax rate for the year ended April 30, 2013 is due to the tax impact of
additional profit from the Company’s U.S. entities and a dividend payment from its wholly-owned trading
company, SigmaTron International Trading Co.
The Company reported net income of $492,961 in fiscal year 2013 compared to a net income of
$1,134,324 for fiscal year 2012. Basic and diluted earnings per share for fiscal year 2013 were $0.13 and $0.12,
respectively, compared to basic and diluted earnings per share of $0.29 for the year ended April 30, 2012.
Liquidity and Capital Resources:
Operating Activities.
Cash flow provided by operating activities was $3,751,631 for the fiscal year ended April 30, 2013,
compared to cash flow provided by operating activities of $9,808,310 for the prior fiscal year. Cash flow
provided by operating activities was the result of net income, the non-cash effects of depreciation and
amortization, stock-based compensation expense, an increase in trade accounts payable and deferred rent
expenses. The increase in accounts payable was due to timing of payments in the ordinary course of business.
Net cash provided by operations in fiscal year 2013 was partially offset by an increase of inventories of
$5,615,748 and accounts receivable of $5,242,863, primarily related to additional sales volume resulting from
the Spitfire acquisition.
Cash flow provided by operating activities was $9,808,310 for the fiscal year ended April 30, 2012.
Cash flow provided by operating activities in fiscal year 2012 was primarily the result of net income, the non-
cash effects of depreciation and amortization, a decrease in inventory and an increase in accounts payable. The
decrease in inventory of $7,147,110 was the result of the improvement of inventory management practices. The
increase in accounts payable of $1,402,892 was due to timing of payments in the ordinary course of business.
Net cash provided by operations in fiscal year 2012 was partially offset by an increase in accounts receivable.
The increase in accounts receivable of $4,381,326 was due to increased sales volume and timing of cash receipts
from a significant customer.
Investing Activities.
In fiscal year 2013, the Company purchased approximately $7,200,000 in machinery and equipment to
be used in the ordinary course of business. The Company anticipates that it will make additional machinery and
equipment purchases in fiscal year 2014 of approximately $13,500,000 to support its anticipated growth. The
24
Company anticipates the purchases will be funded by lease transactions and its bank line of credit. The
Company received approximately $1,142,000 in cash in conjunction with the Spitfire purchase. In addition, the
Company received $22,000 in cash for proceeds related to the sale of machinery and equipment.
In fiscal year 2012, the Company purchased approximately $2,300,000 in machinery and equipment
used in the ordinary course of business.
Financing Activities.
Cash provided by financing activities was $2,193,615 for the fiscal year ended April 30, 2013,
compared to cash used in financing activities of $6,970,338 in fiscal year 2012. Cash provided by financing
activities in fiscal year 2013 was primarily the result of increased borrowings of $2,500,000 under the credit
facility. The additional borrowings were required to support the purchases of machinery and equipment and the
increases in both accounts receivable and inventory.
Cash used in financing activities in fiscal year 2012 was primarily the result of $6,900,000 in payments
under the credit facility and for capital lease obligations.
Financing Summary.
The Company has a senior secured credit facility with Wells Fargo with a credit limit up to $30 million
and an initial term through September 30, 2013. The facility allows the Company to choose among interest rates
at which it may borrow funds. The interest rate is the prime rate plus one half percent (effectively, 3.75% at
April 30, 2013) or LIBOR plus two and three quarter percent (effectively, 3.0% at April 30, 2013), which is
paid monthly. 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 conjunction with
the Spitfire acquisition, two of the financial covenants required by terms of the Company’s senior secured credit
facility were amended as of May 31, 2012. The Company was in violation of certain of its financial covenants
at July 31, 2012 and received a waiver for the financial covenant violations. The Company renegotiated its
financial covenants during the quarter ended October 31, 2012 with Wells Fargo and extended the credit facility
through September 30, 2014. As of April 30, 2013, the Company again amended its credit agreement and
renegotiated two of the financial covenants required by the terms of the Company’s senior secured credit
facility. At April 30, 2013, the Company was in compliance with its amended financial covenants. As of April
30, 2013, there was an $18,500,000 outstanding balance and $11,500,000 of unused availability under the credit
facility.
The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000,
with Wells Fargo to refinance the property that serves as the Company’s corporate headquarters and its Illinois
manufacturing facility. The Company repaid the prior Bank of America mortgage, which equaled $2,565,413,
as of January 8, 2010, using proceeds from the Wells Fargo mortgage and senior secured credit facility. The
Wells Fargo note bears interest at a fixed rate of 6.42% per year and is amortized over a sixty month period. A
final payment of approximately $2,000,000 is due on or before January 8, 2015. The outstanding balance as of
April 30, 2013 was $2,175,013.
On January 19, 2010, the Company entered into a leasing transaction with Wells Fargo Equipment
Finance, Inc. to refinance $1,287,407 of equipment. The term of the lease financing agreement extended to
January 18, 2012 with monthly payments of $55,872 and a fixed interest rate of 4.29%. This lease financing
arrangement was paid in full as of January 31, 2012. The net book value of the equipment was $1,210,226 at
April 30, 2013.
On August 20, 2010 and October 26, 2010, the Company entered into two capital leasing transactions
(a lease finance agreement and a sale leaseback agreement) with Wells Fargo Equipment Finance, Inc., to
purchase equipment totaling $1,150,582. The term of the lease finance agreement, with an initial principal
amount of $315,252, extends to September 2016 with monthly payments of $4,973 and a fixed interest rate of
4.28%. The term of the sale leaseback agreement, with an initial principal payment amount of $835,330,
extends to August 2016 with monthly payments of $13,207 and a fixed interest rate of 4.36%. At April 30,
2013, $188,955 and $478,417 was outstanding under the lease finance and sale leaseback agreements,
25
respectively. The net book value at April 30, 2013 of the equipment under each of the lease finance agreement
and sale leaseback agreement was $247,385 and $626,791, respectively.
On November 29, 2010, the Company entered into a capital lease with Wells Fargo Equipment
Finance, Inc., to purchase equipment totaling $226,216. The term of the lease agreement extends to October
2016 with monthly payments of $3,627 and a fixed interest rate of 4.99%. At April 30, 2013, the balance
outstanding under the capital lease agreement was $139,510. The net book value of the equipment under this
lease at April 30, 2013 was $178,379.
The total amount outstanding at April 30, 2013 for the three remaining equipment lease transactions
discussed above was $806,882. The Company had two other capital leases not discussed above, one of which
was paid in full in August 2011 and the other was paid in full in November 2011. The total net book value of
the equipment under these other leases at April 30, 2013 was $475,979.
In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to rent
116,993 square feet of manufacturing and office space. Under the terms of the lease agreement, the Company
receives incentives over the life of the lease, which extends through March 2021. The amount of the deferred
rent income recorded for fiscal year 2013 was $2,140. In addition, the landlord provided the Company tenant
incentives of $418,000, which are being amortized over the life of the lease.
On May 2012, the Company entered into a lease agreement in Tijuana, MX, to rent 112,000 square feet
of manufacturing and office space. Under the terms of the lease agreement, the Company receives incentives
over the life of the lease, which extends through November 2018. The amount of the deferred rent expense
recorded for fiscal year 2013 was $362,796.
On May 31, 2012, the Company completed the acquisition of Spitfire, an OEM of electronic controls,
with a focus on the major appliance industry. The acquisition added two manufacturing operations in locations
that augment the Company’s footprint and add Spitfire’s design capabilities which allows the Company to offer
design service for the first time in specific markets. In conjunction with the Spitfire acquisition, the Company
recorded goodwill and other intangible assets of $3,222,899 and $6,142,000, respectively.
The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary
to operate its wholly-owned Mexican, Vietnam and Chinese subsidiaries and the Taiwan international
procurement office. The Company provides funding, as needed, in U.S. dollars, which are exchanged for Pesos,
Dong, Renminbi, and New Taiwan dollars as applicable. 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 fiscal year ended April 30, 2013 resulted in a foreign
currency loss of approximately $359,000. In fiscal year 2013, the Company’s U.S. operations paid
approximately $36,920,000 to its foreign subsidiaries for services provided. In fiscal year 2013, the Company’s
wholly-owned trading company, SigmaTron International Trading Co., was liquidated. The Company received
a distribution of approximately $180,000 as a result of this liquidation. In fiscal year 2012, the Company
received a distribution of previously paid taxed earnings of approximately $1,039,000 from a foreign subsidiary
based in Mexico. The Company did not incur any U.S. income taxes on the distribution as the earnings were
previously subject to U.S. tax.
The Company has not recorded U.S. income taxes for a significant portion of undistributed earnings of
the Company’s foreign subsidiaries, since these earnings have been, and under current plans will continue to be,
permanently reinvested in these foreign subsidiaries. The cumulative amount of unremitted earnings for which
U.S. income taxes have not been recorded is approximately $11,300,000.
The Company anticipates that its credit facilities, cash flow from operations and leasing resources will
be adequate to meet its working capital requirements and capital expenditures for the next twelve months. There
is no assurance that the Company will be able to retain or renew its credit agreements in the future, or that any
retention or renewal will be on the same terms as currently exist. In the event the business grows rapidly, the
current economic climate deteriorates, customers delay payments, or the Company considers an acquisition,
26
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 impact of inflation on the Company’s net sales, revenues and incomes from continuing operations
for the past two fiscal years has been minimal.
Off-balance Sheet Transactions:
The Company has no off-balance sheet transactions.
Tabular Disclosure of Contractual Obligations:
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Exchange
Act, we are not required to provide the information required by this item.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Exchange
Act, we are not required to provide the information required by 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.
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls:
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
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15(d)-15(e))
as of April 30, 2013. Our disclosure controls and procedures are designed to provide reasonable assurance of
achieving their objectives and our President and Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of
April 30, 2013.
Internal Controls:
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). Our internal controls over
financial reporting 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. 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 (1992) 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 at the reasonable assurance level as of
April 30, 2013.
27
This annual 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 the 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, 2013, that has materially affected or is reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B.
OTHER INFORMATION
Not Applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days
after the close of the Company’s fiscal year ended April 30, 2013.
ITEM 11.
EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days
after the close of the Company’s fiscal year ended April 30, 2013.
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’s
definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days
after the close of the Company’s fiscal year ended April 30, 2013.
ITEM 13.
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days
after the close of the Company’s fiscal year ended April 30, 2013.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days
after the close of the Company’s fiscal year ended April 30, 2013.
28
PART IV
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.
29
(a) 2
(a) 3 and (b)
Index to Exhibits
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
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.
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.
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.*
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.*
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.*
2004 Directors’ Stock Option Plan, incorporated herein by reference to Appendix C to the
Company’s 2004 Proxy Statement filed on August 16, 2004.*
2004 Employee Stock Option Plan, incorporated herein by reference to Appendix B to the
Company’s 2004 Proxy Statement filed on August 16, 2004. *
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.*
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.
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.
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.
Third Amendment to the Credit Agreement between SigmaTron International, Inc. and Wells Fargo
Bank, National Association, dated August 6, 2010, incorporated herein by reference to Exhibit 10.11
to the Company’s Form 10-Q filed on December 14, 2010.
SigmaTron International, Inc. 2011 Employee Stock Option Plan dated September 16, 2011,
incorporated herein by reference to Exhibit 10.14 to the Company’s Registration Statement on Form
S-8 filed on December 14, 2011.
Purchase Agreement between SigmaTron International, Inc., and its nominees and Spitfire Control,
Inc., dated as of May 31, 2012, incorporated herein by reference to Exhibit 2.1 to the Company’s
Form 8-K filed on June 4, 2012.
30
10.13
10.14
10.15
10.16
10.17
21.0
Fourth Amendment to Amended and Restated Credit Agreement; Second Amendment to Amended
and Restated Continuing Security Agreement: Rights to Payment and Inventory; And First
Amendment to Amended and Restated Security Agreement: Equipment and Fixtures between
SigmaTron International, Inc., and Wells Fargo Bank, National Association, dated May 31, 2012,
incorporated herein by reference to Exhibit 10.14 to the Company’s Form 8-K filed on June 4, 2012.
Sixth Amendment to Amended and Restated Credit Agreement between SigmaTron International,
Inc., and Wells Fargo Bank, National Association, dated October 31, 2012, incorporated herein by
reference to Exhibit 99.3 to the company’s Form 10-Q filed on December 13, 2012.
SigmaTron International, Inc. 2013 Employee Bonus Plan dated February 5, 2013, incorporated
herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 6, 2013.*
Eighth Amendment to Amended and Restated Credit Agreement between SigmaTron International,
Inc., and Wells Fargo Bank, National Association, dated April 30, 2013.*
SigmaTron International, Inc. 2014 Employee Bonus Plan dated May 21, 2013, incorporated herein
by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 23, 2013.*
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
31.1
31.2
32.1
32.2
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, 2013).**
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.**
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.**
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).**
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).**
101.INS XBRL Instance Document†
101.SCH XBRL Taxonomy Extension Scheme Document†
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document†
101.DEF XBRL Taxonomy Extension Definition Linkbase Document†
101.LAB XBRL Taxonomy Extension Label Linkbase Document†
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document†
*
**
Indicates management contract or compensatory plan.
Filed herewith
31
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as
amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and otherwise are not subject to liability under those sections.
(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.
32
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.
SIGNATURES
SIGMATRON INTERNATIONAL, INC.
By: /s/ Gary R. Fairhead
Gary R. Fairhead, President and Chief Executive Officer,
Principal Executive Officer and Director
Dated: July 26, 2013
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. 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
/s/ Gary R. Fairhead
Gary R. Fairhead
Chairman of the Board of Directors,
President and Chief Executive Officer,
(Principal Executive Officer) and Director
/s/ Linda K. Frauendorfer
Linda K. Frauendorfer
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer) and Director
/s/ Thomas W. Rieck
Thomas W. Rieck
/s/ Dilip S. Vyas
Dilip S. Vyas
/s/ Paul J. Plante
Paul J. Plante
/s/ Barry R. Horek
Barry R. Horek
/s/ Bruce J. Mantia
Bruce J. Mantia
Director
Director
Director
Director
Director
33
Date
July 26, 2013
July 26, 2013
July 26, 2013
July 26, 2013
July 26, 2013
July 26, 2013
July 26, 2013
INDEX TO FINANCIAL STATEMENTS
Page
SigmaTron International, Inc. and Subsidiaries
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ............
F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS ........................................................................................................................
LIABILITIES AND STOCKHOLDERS’ EQUITY .....................................................
CONSOLIDATED STATEMENTS OF INCOME .........................................................
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY ......................................................................................
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................................
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .....................................
F-3
F-4
F-5
F-6
F-7
F-8
Financial statement schedules 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 Village, Illinois
We have audited the accompanying consolidated balance sheets of SigmaTron International, Inc.
as of April 30, 2013 and 2012 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company'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 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 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 financial statement
presentation. 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, 2013 and
2012 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.
BDO USA, LLP
Chicago, Illinois
July 26, 2013
F-2
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
April 30,
ASSETS
2013
2012
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $150,000 and $164,103 at April 30, 2013
and 2012, respectively
Inventories, net
Prepaid expenses and other assets
Refundable income taxes
Deferred income taxes
Other receivables
$
4,607,731
$
4,668,931
19,421,252
50,644,741
1,882,680
228,026
1,630,809
524,268
27,916,288
37,838,378
1,170,537
465,653
1,840,751
238,592
Total current assets
78,939,507
74,139,130
PROPERTY, MACHINERY AND EQUIPMENT, NET
28,567,052
24,373,494
OTHER LONG-TERM ASSETS
Intangible assets, net of amortization of $2,962,566
and $2,683,075 at April 30, 2013 and 2012, respectively
Goodwill
Other assets
Total other long-term assets
5,949,434
3,222,899
910,025
10,082,358
86,925
-
547,334
634,259
TOTAL ASSETS
$
117,588,917
$
99,146,883
The accompanying notes are an integral part of these statements.
F-3
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
April 30,
LIABILITIES AND STOCKHOLDERS’ EQUITY
2013
2012
CURRENT LIABILITIES
Trade accounts payable
Accrued expenses
Accrued wages
Current portion of long-term debt
Current portion of capital lease obligations
Current portion of contingent consideration
$
31,347,354
2,486,819
3,633,900
99,996
229,661
331,429
$
20,233,521
1,012,549
2,974,607
126,828
219,457
-
Total current liabilities
38,129,159
24,566,962
LONG-TERM DEBT,
LESS CURRENT PORTION
CAPITAL LEASE OBLIGATIONS,
LESS CURRENT PORTION
CONTINGENT CONSIDERATION,
LESS CURRENT PORTION
OTHER LONG-TERM LIABILITIES
DEFERRED RENT
20,575,017
18,175,013
577,221
806,882
1,793,571
487,236
1,096,272
-
363,520
735,616
DEFERRED INCOME TAXES
2,946,710
3,477,819
Total long-term liabilities
27,476,027
23,558,850
Total liabilities
65,605,186
48,125,812
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued or outstanding
Common stock, $.01 par value; 12,000,000 shares
authorized, 3,940,402 and 3,909,572 shares issued
and outstanding at April 30, 2013 and 2012, respectively
Capital in excess of par value
Retained earnings
-
-
39,779
20,361,012
31,582,940
39,096
19,891,996
31,089,979
Total stockholders’ equity
51,983,731
51,021,071
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of these statements.
$
117,588,917
$
99,146,883
F-4
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended April 30,
Net sales
Cost of products sold
Gross profit
2013
2012
$
198,439,534
$
156,635,984
178,513,888
141,381,443
19,925,646
15,254,541
Selling and administrative expenses
18,358,354
12,611,673
Operating income
1,567,292
2,642,868
Other income
Interest expense
Income before income tax expense
Income tax expense
(79,158)
832,126
814,324
321,363
(38,952)
1,025,325
1,656,495
522,171
NET INCOME
$
492,961
$
1,134,324
Earnings per common share
Basic
Diluted
Weighted-average shares of common
stock outstanding
Basic
Diluted
$
0.13
$
0.29
$
0.12
$
0.29
3,930,268
3,878,207
4,003,887
3,906,279
The accompanying notes are an integral part of these statements.
F-5
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years ended April 30, 2013 and 2012
Preferred
stock
Common
stock
Capital in
excess of par
value
Retained
earnings
Total
stockholders’
equity
Balance at April 30, 2011
$
-
$
38,643
$
19,749,279
$
29,955,655
$
49,743,577
Recognition of stock-based compensation
Exercise of stock options
Tax benefit from exercise of options
Net income
Balance at April 30, 2012
Recognition of stock-based compensation
Exercise of stock options
Issuance and vesting of restricted stock awards
Net income
-
-
-
-
-
-
-
-
-
-
453
-
-
2,414
99,203
41,100
-
-
-
2,414
99,656
41,100
-
1,134,324
1,134,324
39,096
19,891,996
31,089,979
51,021,071
-
100
583
-
189,305
39,800
239,911
-
-
-
-
492,961
189,305
39,900
240,494
492,961
Balance at April 30, 2013
$
-
$
39,779
$
20,361,012
$
31,582,940
$
51,983,731
The accompanying notes are an integral part of this statement.
F-6
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization
Stock-based compensation
Restricted stock expense
Provision for doubtful accounts
Provision for inventory obsolescence
Deferred income tax provision (benefit)
Amortization of intangible assets
(Gain) loss from disposal or sale of machinery and equipment
Changes in assets and liabilities, net of business acquisition
Accounts receivable
Inventories
Prepaid expenses and other assets
Refundable income taxes
Trade accounts payable
Deferred rent
Accrued expenses and wages
2013
2012
$
492,961
$
1,134,324
4,375,397
189,305
71,483
-
-
(321,167)
279,491
(19,662)
(5,242,863)
(5,615,748)
(1,194,355)
237,627
9,254,671
360,656
883,835
4,069,944
2,414
-
14,103
36,352
337,580
112,750
52,855
(4,381,326)
7,147,110
(114,311)
(38,141)
1,402,892
13,057
18,707
Net cash provided by operating activities
3,751,631
9,808,310
Cash flows from investing activities
Purchases of machinery and equipment
Cash received in conjunction with acquisition
Proceeds from sale of machinery and equipment
(7,171,043)
1,142,597
22,000
(2,307,143)
-
-
Net cash used in investing activities
(6,006,446)
(2,307,143)
Cash flows from financing activities
Proceeds from exercise of common stock options
Payments under capital lease obligations
Payments under other notes payable
Payments under building notes payable
Change in lines of credit
Tax benefit from exercise of options
39,900
(219,457)
(26,832)
(99,996)
2,500,000
-
99,656
(850,104)
(160,994)
(99,996)
(6,000,000)
41,100
Net cash provided (used in) by financing activities
2,193,615
(6,970,338)
(DECREASE) INCREASE IN CASH
(61,200)
530,829
Cash and cash equivalents at beginning of year
4,668,931
4,138,102
Cash and cash equivalents at end of year
$
4,607,731
$
4,668,931
Supplementary disclosures of cash flow information
Cash paid for interest
Cash paid for income taxes
Cash refunded for income taxes
$
795,502
34,535
(286,695)
$
968,478
66,713
(160,000)
Non-Cash Transaction - Acquisition of Spitfire Control, Inc.
SigmaTron International, Inc. A/R Trade forgiven
SigmaTron International, Inc. Foreign A/R Trade forgiven
Contingent consideration
Issuance of Restricted stock
Total Cost of Acquisition
The accompanying notes are an integral part of these statements.
F-7
$
$
15,312,904
1,142,392
2,320,000
169,011
18,944,307
-
$
-
-
-
$
-
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2013 and 2012
NOTE A - DESCRIPTION OF THE BUSINESS
SigmaTron International, Inc., its subsidiaries, foreign enterprises and international procurement
office (collectively, 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) manufacturing and test engineering support; (4) design services; (5)
warehousing and distribution services; and (6) assistance in obtaining product approval from
governmental and other regulatory bodies. As of April 30, 2013, the Company provided these
manufacturing services through an international network of facilities located in the United States,
Mexico, China, Vietnam and Taiwan. Approximately 9% and 10% of the total consolidated
assets of the Company are located in foreign jurisdictions outside the United States as of April
30, 2013 and 2012, respectively.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts and transactions of SigmaTron
International, Inc. (“SigmaTron”), its wholly-owned subsidiaries, Standard Components de
Mexico, S.A., AbleMex S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V.,
Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls (Cayman) Co. Ltd. and SigmaTron
International Trading Co., wholly-owned foreign enterprises Suzhou SigmaTron Electronics Co.
Ltd., and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron China”), and its
international procurement office, SigmaTron Taiwan. The functional currency of the Mexican,
Vietnamese and Chinese subsidiaries and procurement branch is the U.S. dollar. Intercompany
transactions are eliminated in the consolidated financial statements. The impact of currency
fluctuation for the fiscal year ended April 30, 2013 resulted in a loss of approximately $359,000,
compared to a gain of approximately $134,000 for the prior fiscal year.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America (“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
F-8
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Use of Estimates - Continued
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.
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
The majority of the Company’s accounts receivable are due from companies in the consumer
electronics, gaming, fitness, industrial electronics, medical/life sciences, semiconductor,
telecommunications and appliance industries. Credit is extended based on evaluation of a
customer’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 are
determined to be uncollectible.
Allowance for Doubtful Accounts
The Company’s allowance for doubtful accounts relates to receivables not expected to be
collected from its customers. This allowance is based on management’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’s customers, or if actual defaults are higher than provided for, an
addition to the allowance may be necessary.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out
method. In the event of an inventory write-down, the Company records expense to state the
inventory at lower of cost or market. 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’s inventories and cost of
F-9
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Inventories - Continued
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.
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
Machinery and equipment
Office equipment and software
Tools and dies
Leasehold improvements
20 years
5-12 years
3-5 years
12 months
term of lease
Expenses for repairs and maintenance are charged to selling and administrative expenses as
incurred.
Deferred Financing Costs
Deferred financing costs 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 $70,776 and $8,756, net of accumulated amortization of $270,983 and $238,354 as of
April 30, 2013 and 2012, respectively, are classified in other long-term 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 are expected to 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.
F-10
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes - Continued
A tax benefit from an uncertain tax position may only be recognized when it is more likely than
not that the position will be sustained upon examination, including resolutions of any related
appeals or litigation processes, based on the technical merits.
The Company adjusts its tax liabilities when its judgment changes as a result of the evaluation of
new information not previously available. Due to the complexity of some of these uncertainties,
the ultimate resolution may result in a payment that is materially different from its current
estimate of the tax liabilities. These differences will be reflected as increase or decreases to
income tax expense in the period in which they are determined.
Earnings per Share
Basic earnings per share are computed by dividing net income (the numerator) by the weighted-
average number of common shares outstanding (the denominator) for the period. The
computation of diluted earnings per share is similar to the 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 stock equivalents
such as stock options and restricted stock, had been exercised or vested. At April 30, 2013 and
2012, there were 400,190 anti-dilutive common stock equivalents, which have been excluded
from the calculation of diluted earnings per share.
Revenue Recognition
Revenues from sales of the Companys’ electronic manufacturing services business are
recognized when the finished good product is shipped to the customer. In general, and except for
consignment inventory, it is the Companys’ policy to recognize revenue and related costs when
the finished goods have been shipped from our facilities, which is also the same point that title
passes under the terms of the purchase order. Finished goods inventory for certain customers 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’s own facility. Upon the customer’s
request for finished goods inventory, the inventory is shipped to the customer if the inventory
was stored off-site, or transferred from the segregated part of the customer’s facility for
consumption or use by the customer. The Company recognizes revenue upon such shipment or
transfer. The Company does not earn a fee for such arrangements. The Company from time to
time may ship finished goods 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. Further, from
F-11
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revenue Recognition - Continued
time to time customers request the Company hold finished goods after they have been invoiced to
consolidate finished goods for shipping purposes. 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 Company’s standard or
extended warranties.
Shipping and Handling Costs
The Company records shipping and handling costs as 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 2013 or 2012.
Fair Value Measurements
Fair value measurements are determined based upon the exit price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants
exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the
observability of inputs used in valuation techniques as follows:
Level 1:
Level 2:
Level 3:
Observable inputs such as quoted prices in active markets;
Inputs, other than quoted prices in active markets, that are observable either
directly or indirectly; and
Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, receivables, accounts
payable and accrued expenses which approximate fair value at April 30, 2013, due to their short-
term nature. The carrying amounts of the Company’s debt obligations approximate fair value
based on future payments discounted at current interest rates for similar obligations or interest
rates which fluctuate with the market.
F-12
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Fair-Value of Financial Instruments - Continued
The Company measured the net assets included in the Spitfire acquisition under the fair value
standard (primarily using level 3 measurement inputs) including the contingent consideration.
The Company currently does not have any other non-financial assets and non-financial liabilities
that are required to be measured at fair value on a recurring basis.
Goodwill and Other Intangible Assets
Goodwill represents the purchase price in excess of the fair value of assets acquired in business
combinations. The Company assesses goodwill for impairment at least annually in the absence
of an indicator of possible impairment and immediately upon an indicator of possible
impairment. The Company is permitted the option to first assess qualitative factors to determine
whether the existence of events and circumstances indicates that it is more likely than not that the
fair value of any reporting unit is less than its corresponding carrying value. If, after assessing
the totality of events and circumstances, the Company concludes that it is not more likely than
not that the fair value of any reporting unit is less than its corresponding carrying value then the
Company is not required to take further action. However, if the Company concludes otherwise,
then it is required to perform a quantitative impairment test, including computing the fair value
of the reporting unit and comparing that value to its carrying value. If the fair value is less than
its carrying value, a second step of the test is required to determine if recorded goodwill is
impaired. The Company also has the option to bypass the qualitative assessment for goodwill in
any period and proceed directly to performing the quantitative impairment test. The Company
will be able to resume performing the qualitative assessment in any subsequent period. The
Company performed its annual goodwill impairment test as of February 1, 2013 and determined
that no impairment existed as of the date of the impairment test.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including amortizable intangible assets for impairment.
Property, machinery and equipment and finite life intangible assets are reviewed whenever events
or changes in circumstances occur that indicate possible impairment. If events or changes in
circumstances occur that indicate possible impairment, the Company’s impairment review is
based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-
lived assets are largely independent of other groups of its assets and liabilities. This analysis
requires management judgment with respect to changes in technology, the continued success of
product lines, and future volume, revenue and expense growth rates. The Company conducts
annual reviews for idle and underutilized equipment, and review business plans for possible
impairment. Impairment occurs when the carrying value of the assets exceeds the future
F-13
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Impairment of Long-Lived Assets - Continued
undiscounted cash flows expected to be earned by the use of the asset group. When impairment
is indicated, the estimated future cash flows are then discounted to determine the estimated fair
value of the asset or asset group and an impairment charge is recorded for the difference between
the carrying value and the estimated fair value.
Stock Incentive Plans
Under the Company’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. The Company measures the cost of employee services received in
exchange for an equity award based on the grant date fair value and records that cost over the
respective vesting period of the award.
Reclassifications
Certain reclassifications have been made to the previously reported 2012 financial statements to
conform to the 2013 presentation.
New Accounting Standards
There are no recent accounting standards that had, or are expected to have, a significant effect on
these consolidated financial statements.
F-14
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE C - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the Company’s allowance for doubtful accounts are as follows:
Beginning balance
Bad debt expense
Write-offs
2013
2012
$164,103
-
(14,103)
$150,000
14,103
-
$150,000
$164,103
F-15
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE D - INVENTORIES
Inventories consist of the following at April 30:
Finished products
Work in process
Raw materials
2013
2012
$13,167,117
2,959,144
36,288,580
$10,271,704
2,101,341
27,343,433
52,414,841
39,716,478
Less obsolescence reserve
1,770,100
1,878,100
$50,644,741
$37,838,378
Changes in the Company’s inventory obsolescence reserve are as follows:
Beginning balance
Provision for obsolescence
Write-offs
2013
2012
$1,878,100
-
(108,000)
$1,841,748
36,352
-
$1,770,100
$1,878,100
F-16
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE E - PROPERTY, MACHINERY AND EQUIPMENT, NET
Property, machinery and equipment consist of the following at April 30:
Land and buildings
Machinery and equipment
Office equipment and software
Tools and dies
Leasehold improvements
Equipment under capital leases
Less accumulated depreciation
and amortization, including
amortization of assets under
capital leases of $324,244
and $209,510 at April 30,
2013 and 2012, respectively
Property, machinery and
equipment, net
2013
2012
$12,366,119
51,999,266
6,806,305
-
2,482,038
1,376,799
$12,311,942
49,582,841
5,591,497
295,095
3,085,887
1,376,799
75,030,527
72,244,061
46,463,475
47,870,567
$28,567,052
$24,373,494
Depreciation and amortization expense was $4,375,397 and $4,069,944 for the years ended April
30, 2013 and 2012, respectively.
NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in carrying amount of goodwill for the fiscal year ended April 30, 2013, are as
follows:
Total
Balance at April 30, 2012
Goodwill due to Spitfire acquisition May 31, 2012
Balance at April 30, 2013
$ -
3,222,899
$3,222,899
F-17
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS - Continued
Other Intangible Assets
Intangible assets subject to amortization are summarized as of April 30, 2013 as follows:
Weighted
Average
Remaining
Amortization
Period
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
-
.2
$ 375,000
2,395,000
$ 375,000
2,383,923
14.1
.1
19.1
6.1
4.1
4,690,000
22,000
980,000
50,000
400,000
$8,912,000
58,685
20,163
44,913
6,545
73,337
$2,962,566
Other intangible assets – Able
Customer relationships – Able
Spitfire:
Customer relationships
Backlog
Trade names
Non-compete agreements
Patents
Total
Net intangible assets as of April 30, 2012 consisted of Able customer relationships with a net
balance of $86,925.
Estimated aggregate amortization expense for our intangible assets, which become fully
amortized in 2032, for the remaining fiscal years is as follows:
For the fiscal year ended April 30:
2014
2015
2016
2017
2018
Thereafter
$346,680
428,610
470,899
490,010
435,043
3,778,192
$5,949,434
F-18
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE G - ACQUISITION
Spitfire Control, Inc.
The Purchase Agreement
SigmaTron signed a Purchase Agreement on May 31, 2012 with Spitfire Control, Inc., an Illinois
corporation (“Seller”), regarding the acquisition of certain assets of the Seller by the Company
(the “Transaction”). Prior to the date of the Purchase Agreement, the Seller and its affiliates
were customers and strategic partners of the Company, with such relationships dating back to
1994.
Seller, on its own and through its subsidiaries Digital Appliance Controls de Mexico, S.A. de
C.V., a Mexico corporation (“DAC”), and Spitfire Controls (Cayman) Co. Ltd., a Cayman
Islands exempted company (“Cayman”), their subsidiaries and Seller’s affiliated entities, was
engaged in the business of the design, manufacture, sale and distribution of electrical or
electronic controls for appliances (the “Business”).
The acquired assets consisted of (i) all of the equity securities of DAC and Cayman and (ii) all of
the assets used by or useful in the conduct of the Business. In addition the Company also
obtained from the Seller an agreement not to compete against the Business as it is operated by the
Company after the closing of the Transaction.
In consideration, the Company agreed to pay a purchase price consisting of: (i) the satisfaction
and release of the account payable of $16,455,000 owed by Seller to the Company; (ii) future
payments, which are based upon the annual post-closing performance of the Business during
each of the Company’s fiscal years 2013 through 2019; and (iii) the issuance of 50,000 shares of
restricted common stock of SigmaTron, 12,500 of which vested upon the closing of the
Transaction and 12,500 of which will vest on each of the first, second and third anniversaries of
the closing of the Transaction.
In addition to the foregoing, the Company agreed to assume (i) the Seller’s obligations under
certain specified contracts and Governmental Authorizations (as defined in the Purchase
Agreement), (ii) specified trade accounts payable and accrued expenses of the Seller as agreed
upon by the parties and (iii) specified inter-company payables involving the Seller, DAC,
Cayman and/or their subsidiaries and associated companies. Further, each of DAC and Cayman
retained the liabilities associated with its respective operations, which is customary in
transactions involving the purchase or sale of all of the equity securities of an entity. As a result,
the Company indirectly acquired such liabilities.
F-19
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE G - ACQUISITION - Continued
Spitfire Control, Inc.
The Credit Amendment
Concurrent with the Transaction, the Company entered into amendments of its credit facility with
Wells Fargo (“the Credit Amendment”). The Credit Amendment modified certain financial
covenant thresholds applicable to the Company, added property acquired in the Transaction as
collateral for the loan to the Company, permitted the Company to acquire certain inter-company
payables involving the Seller, DAC, Cayman or the subsidiaries and associated companies and
permitted the Company to discharge and release the account payable owed by the Seller to the
Company in partial consideration for the Transaction.
Reasons for the Transaction
The Company believes its acquisition of the Business will allow a comprehensive approach to
solving major appliance producers’ issues with integrating electronics into their platforms. The
acquisition also added two manufacturing operations in locations that the Company believes will
augment the Company’s international footprint. In addition, the acquisition of the Business will
allow the Company to offer design services for the first time in specific markets. In conjunction
with the acquisition, professional fees incurred during fiscal 2013 and 2012, were $803,006 and
$530,565, respectively. The professional fees were recorded as selling and administrative
expenses.
Accounting
The acquisition was recorded using the purchase method of accounting, and on the date of the
acquisition, the Company assessed the fair value of the acquired assets and assumed liabilities
(primarily using level 3 measurement inputs) and an allocated purchase price of $18,944,307.
The allocation of the purchase considerations was based upon estimates made by the Company
with the assistance of independent valuation specialists. The revised purchase price allocation as
of May 31, 2012, was as follows:
F-20
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE G - ACQUISITION - Continued
Spitfire Control, Inc.
Accounting - Continued
Cash
Current assets
Property, machinery and equipment
Current liabilities
Customer relationships
Backlog
Trade names
Non-compete agreements
Patents
Goodwill
Total Net Assets
Estimated Fair Value
$ 1,142,597
10,074,168
1,400,250
(3,037,607)
4,690,000
22,000
980,000
50,000
400,000
3,222,899
$18,944,307
The amounts allocated to relationships, backlog, trade names, non-compete agreements and
patents are estimated by the Company based on the analysis performed by independent valuation
specialists, primarily through the use of discounted cash flow techniques. Appraisal assumptions
utilized under these methods include a forecast of estimated future net cash flows, as well as
discounting the future net cash flows to their present value. Acquired intangible assets are being
amortized over the estimated useful lives as set forth in the following table:
Customer relationships
Backlog
Trade names
Non-compete agreements
Patents
Goodwill
Method
Life
Accelerated
Straight-line
Straight-line
Straight-line
Straight-line
N/A
15 Years
1 Year
20 Years
7 Years
5 Years
Indefinite
F-21
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE G - ACQUISITION - Continued
Spitfire Control, Inc.
Accounting - Continued
The estimated asset lives are determined based on projected future economic benefits and
expected life cycles of the acquired intangible assets. The amount assigned to goodwill is not
being amortized, but will be tested for impairment annually or under circumstances that may
indicate a potential impairment. Goodwill is deductible for federal income tax purposes over a
period of 15 years.
The Company’s estimate of the fair value of the contingent consideration ($2,320,000 as of the
acquisition date) was based on expected operating results of the Business through fiscal 2019 and
the specific terms of when such consideration would be earned. Those terms provide for
additional consideration to be paid to Seller or its owner based on a percentage of sales and pre-
tax profits over those years in excess of certain minimums. The Company discounted expected
payments by its weighted average cost of capital of 11.5%. Payments are to be made quarterly
each year and adjusted after each year end audit. The Company has made three quarterly
payments of $65,000 each in fiscal 2013. As of April 30, 2013, the Company had not changed its
estimated aggregate consideration expected to be earned under this arrangement. Any changes in
the Company’s estimate will be reflected as a change in the contingent consideration liability and
as additional or credits to selling and administrative expenses, as will changes in the current fair
value caused by the continual decrease in the discount period between the current balance sheet
date and the estimated payout dates. Such fair value changes were not material during fiscal
2013. The value of the 50,000 shares of restricted stock issued as part of the purchase price was
$169,011 based on the trading price of the Company’s common stock on the acquisition date
discounted by 15% to account for the restrictions associated with that issuance.
Due to the acquisition of Spitfire, effective June 1, 2012, the Company discontinued selling to
Spitfire and instead began selling directly to Spitfire’s former customers.
The results of the Business for the period June 1, 2012 through April 30, 2013 have been
included in the consolidated financial statement for the twelve month period ended April 30,
2013 and includes sales of $26,779,273 and a net loss of $2,513,151. Offsetting some of such
sales are the sales that SigmaTron would have recorded to Spitfire had SigmaTron not acquired
the Business.
F-22
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE G - ACQUISITION - Continued
Spitfire Control, Inc.
Pro forma Results
While the results of the Business have been included in the consolidated financial statements of
the Company for the period subsequent to the acquisition, the following unaudited pro forma
condensed combined results of operations for the years ended April 30, 2013 and 2012 are based
on the historical financial statements of the Company and Spitfire giving effect to the business
combination as if it had occurred on May 1, 2011. Therefore, this pro forma data includes
adjustments to sales, amortization, depreciation, compensation expense and tax expense. This
data is not necessarily indicative of the results of operations that would have been generated if
the transaction had occurred on May 1, 2011. Moreover, this data is not intended to be indicative
of future results of operations.
Year Ended
April 30,
2013
2012
Net sales
Net income (loss)
Income (loss) per share:
Basic
Diluted
$199,219,596
657,613
$174,450,929
(1,202,375)
$ 0.16 $ (0.31)
$ 0.16 $ (0.31)
NOTE H - LONG-TERM DEBT
Note Payable - Bank
The Company has a senior secured credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”),
with a credit limit up to $30 million and an initial term through September 30, 2013. The facility
allows the Company to choose among interest rates at which it may borrow funds. The interest
rate is the prime rate plus one half percent (effectively, 3.75% at April 30, 2013) or LIBOR plus
two and three quarter percent (effectively, 3.0% at April 30, 2013), which is paid monthly. 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
conjunction with the Spitfire acquisition, two of the financial covenants required by terms of the
F-23
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE H - LONG-TERM DEBT - Continued
Note Payable - Bank - Continued
Company’s senior secured credit facility was amended as of May 31, 2012. The Company was in
violation of certain of its financial covenants at July 31, 2012 and received a waiver for the
financial covenant violations. The Company renegotiated its financial covenants during the
quarter ended October 31, 2012 with Wells Fargo and extended the credit facility through
September 30, 2014. As of April 30, 2013, the Company again amended its credit agreement and
renegotiated two of the financial covenants required by the terms of the Company’s senior
secured credit facility. At April 30, 2013, the Company was in compliance with its amended
financial covenants. As of April 30, 2013, there was an $18,500,000 outstanding balance and
$11,500,000 of unused availability under the credit facility.
Capital Lease Obligations
On January 19, 2010, the Company entered into a leasing transaction with Wells Fargo
Equipment Finance, Inc. to refinance $1,287,407 of equipment. The term of the lease financing
agreement extended to January 18, 2012 with monthly payments of $55,872 and a fixed interest
rate of 4.29%. This lease financing arrangement was paid in full as of January 31, 2012. The net
book value of the related equipment was $1,210,226 at April 30, 2013.
On August 20, 2010 and October 26, 2010, the Company entered into two capital leasing
transactions (a lease finance agreement and a sale leaseback agreement) with Wells Fargo
Equipment Finance, Inc., to purchase equipment totaling $1,150,582. The term of the lease
finance agreement, with an initial principal payment of $315,252, extends to September 2016
with monthly payments of $4,973 and a fixed interest rate of 4.28%. The term of the sale
leaseback agreement, with an initial principal payment of $835,330, extends to August 2016 with
monthly payments of $13,207 and a fixed interest rate of 4.36%. At April 30, 2013, $188,955
and $478,417 was outstanding under the lease finance and sale leaseback agreements,
respectively. The net book value at April 30, 2013 for the equipment under each of the lease
finance agreement and sale leaseback agreement was $247,385 and $626,791, respectively.
On November 29, 2010, the Company entered into a capital lease with Wells Fargo Equipment
Finance, Inc., to purchase equipment totaling $226,216. The term of the lease agreement extends
to October 2016 with monthly payments of $3,627 and a fixed interest rate of 4.99%. At April
30, 2013, the balance outstanding under the capital lease agreement was $139,510. The net book
value of the equipment under this lease at April 30, 2013 was $178,379.
F-24
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE H - LONG-TERM DEBT - Continued
Capital Lease Obligations - Continued
The total amount outstanding at April 30, 2013 for the three remaining equipment lease
transactions discussed above was $806,882. The Company had two other capital leases not
discussed above, one of which was paid in full in August 2011 and the other was paid in full in
November 2011. The total net book value of the equipment under these other leases at April 30,
2013 was $475,979.
Note Payable - Buildings
The Company entered into a mortgage agreement on January 8, 2010, in the amount of
$2,500,000 with Wells Fargo to refinance the property that serves as the Company’s corporate
headquarters and its Illinois manufacturing facility. The Company repaid the prior Bank of
America mortgage, which equaled $2,565,413, as of January 8, 2010, using proceeds from the
Wells Fargo mortgage and senior secured credit facility. The Wells Fargo note bears interest at a
fixed rate of 6.42% per year and is amortized over a sixty month period. A final payment of
approximately $2,000,000 is due on or before January 8, 2015. The outstanding balance as of
April 30, 2013 was $2,175,013.
Other Debt
In October 2009, the Company entered into a financial licensing agreement for software. The
term of the note payable was for 36 months, with monthly payments of approximately $13,415,
and no interest was payable under the agreement. This agreement was paid in full in June 2012.
The aggregate amount of debt maturing (excluding capital lease obligations) in each of the next
two fiscal years and thereafter is as follows:
Fiscal Year
2014
2015
Thereafter
$ 99,996
20,575,017
-
$20,675,013
F-25
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE H - LONG - TERM DEBT - Continued
Other Long-Term Liabilities
The Company recorded seniority premiums of $487,236 and $363,520 as of April 30, 2013 and
2012, respectively.
See Note N - Leases, Page F-32 for future maturities under capital lease obligations.
NOTE I - TIJUANA, MX OPERATION MOVE
During the first quarter of fiscal year 2013, the Company relocated its Tijuana, MX operation to a
new facility within Tijuana, MX. The Company incurred a total of approximately $424,000 in
relocation expenses as a result of the move during fiscal 2013, of which, approximately $399,000
of the relocation expenses were included in cost of products sold and consist primarily of moving
expenses related to equipment, the write-off of leasehold improvements and the restoration of the
prior Tijuana facility. Of the total relocation expenses, approximately $25,000 was recorded in
selling and administrative expenses.
NOTE J - ACCRUED EXPENSES AND WAGES
Accrued expenses and wages consist of the following at April 30:
Wages
Bonuses
Foreign wages
Interest
Commissions
Professional fees
Foreign accruals
Other
2013
2012
$1,656,540
316,500
1,660,860
58,765
61,288
209,532
1,970,143
187,091
$1,346,151
534,271
1,094,185
54,771
56,267
267,369
492,907
141,235
$6,120,719
$3,987,156
F-26
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE K - INCOME TAX
U.S. and foreign income (loss) before income tax expense for the years ended April 30 are as
follows:
Domestic
Foreign
2013
2012
$(2,443,040)
3,257,364
$ 106,965
1,549,530
Income before Income Taxes
$ 814,324
$1,656,495
Provision for Income Taxes
The income tax provision for the years ended April 30 consists of the following:
Current:
Federal
State
Foreign
Total Current
Deferred:
Federal
State
Foreign
Total Deferred
2013
2012
$(125,215)
66,525
701,220
642,530
(552,921)
(181,220)
412,974
(321,167)
$(78,639)
(9,698)
272,928
184,591
65,388
38,102
234,090
337,580
Provision for income taxes
$321,363
$522,171
F-27
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE K - INCOME TAX - Continued
Provision for Income Taxes - Continued
The difference between the income tax provision and the amounts computed by applying the
statutory Federal income tax rates to income before tax expense for the years ended April 30 are
as follows:
U.S. Federal provision:
At Statutory Rate
State Taxes
Foreign Tax Differential
Employment Credits
Foreign Dividends
Transaction Costs
Other
Total
2013
2012
$276,870
(75,700)
25,024
-
37,639
26,118
31,412
$563,246
18,748
(19,823)
(71,944)
-
-
31,944
$321,363
$522,171
F-28
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE K - INCOME TAX - Continued
Deferred Tax Assets and Liabilities
Significant temporary differences that result in deferred tax assets and liabilities at April 30, are
as follows:
Deferred Tax Assets:
Federal & State NOL carryforwards
Foreign NOL carryforwards
Reserves and accruals
Stock based compensation
Inventories
Other intangibles
Deferred rent
Allowance for doubtful accounts
Other
Total Gross Deferred Tax Assets
Less: Valuation allowance
2013
2012
$ 620,284
85,690
437,069
125,946
1,116,638
366,459
297,550
60,795
166,111
3,276,542
(87,328)
$ -
39,783
605,366
51,201
1,148,245
(87,310)
408,965
69,186
30,296
2,265,732
(12,342)
Net Deferred Tax Assets
$3,189,214
$2,253,390
Deferred Tax Liabilities:
Other intangibles
Property, machinery & equipment
Deferred flat tax liability (Net)
Total Deferred Tax Liabilities
$ (277,190)
(3,567,695)
(660,230)
$(4,505,115)
$ (36,648)
(3,561,010)
(292,800)
$(3,890,458)
Net Deferred Tax Asset/(Liability)
$(1,315,901)
$(1,637,068)
F-29
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE K - INCOME TAX - Continued
Deferred Tax Assets and Liabilities - Continued
The above amounts are classified in the Consolidated Balance Sheets at April 30, are as follows:
Current assets:
Deferred income taxes
Non-current liabilities:
Deferred income taxes
Net Deferred Tax Asset/(Liability)
2013
2012
$ 1,630,809
$ 1,840,751
(2,946,710)
(3,477,819)
$(1,315,901)
$(1,637,068)
The Company has not recorded U.S. income taxes for a significant portion of undistributed
earnings of the Company’s foreign subsidiaries, since these earnings have been and under current
plans will continue to be, permanently reinvested in these foreign subsidiaries. The cumulative
amount of unremitted earnings for which U.S. income taxes have not been recorded is
approximately $11,300,000. It is not practicable to estimate the amount of additional taxes that
may be payable upon distribution.
At April 30, 2013, the Company had unused Federal net operating loss carryforwards totaling
approximately $1,500,000 that will expire in the fiscal year ended April 30, 2033. The Company
has unused state net operating loss carryforwards of approximately $1,290,000 that will begin to
expire in the fiscal year ended April 30, 2023. The Company has unused foreign net operating
loss carryforwards of approximately $1,090,000 that will begin to expire in the calendar year
2013. A full valuation allowance has been provided against the foreign net operating loss
carryforwards.
The Company operates under a tax incentive arrangement in Vietnam which provided for a 0%
tax rate through December 2012 and provides a reduced tax rate ranging from 7.5% to 12.5%
from January 2013 through December 2019. The tax holiday is conditioned upon meeting
certain investment thresholds which have thus far been met.
F-30
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE K - INCOME TAX - Continued
Other
The Company has no unrecognized tax benefits at April 30, 2013 and 2012 and none were
recorded or reversed in either fiscal year.
Interest related to tax positions taken in the Company’s tax returns are recorded in income tax
expense in the Consolidated Statements of Income. The Company did not record penalties in the
Consolidated Statements of Income.
The Company completed an examination with the Internal Revenue Service related to fiscal years
2008 and 2009. The completion of the examination had no impact on the amount of the
unrecognized tax benefits. The settlement of the examination resulted in an increase to tax
expense of $6,143 related to interest on a deficiency notice.
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. With
few exceptions, the Company is no longer subject to state, local or foreign examinations by tax
authorities for fiscal years before 2008. The Company is no longer subject to U.S. Federal
examinations by tax authorities for fiscal years before 2010.
NOTE L - 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 up to $300 annually.
The Company contributed $93,795 and $87,160 to the plans during the fiscal years ended April
30, 2013 and 2012, respectively. The Company paid total expenses of $6,675 and $6,500 for the
fiscal years ended April 30, 2013 and 2012, respectively, relating to costs associated with the
administration of the plans.
F-31
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE M - 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 year ended April 30, 2013, two
customers accounted for 26.8% and 9.6% of net sales of the Company, respectively, and 11.0%
and 6.4% of accounts receivable at April 30, 2013, respectively. For the fiscal year ended April
30, 2012, two customers accounted for 21.0% and 14.0% of net sales of the Company and 50.7%
and 7.4% of accounts receivable as of April 30, 2012, respectively.
NOTE N - LEASES
The Company leases certain facilities under various operating leases expiring at various date
through March 2021. 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, 2013:
Years ending April 30,
2014
2015
2016
2017
2018
Thereafter
Less amounts representing interest
Less current portion
F-32
Capital
leases
$261,683
261,683
261,683
86,247
-
-
Operating
leases
$1,238,779
1,270,970
1,273,929
1,274,702
1,387,694
2,294,004
871,296
$8,740,078
64,414
806,822
229,661
$577,221
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE N - LEASES - Continued
Rent expense incurred under operating leases was $1,679,467 and $1,412,455 for the years ended
April 30, 2013 and 2012, respectively.
In September 2010, the Company entered into a real estate lease agreement in Union City, CA, to
rent manufacturing and office space. Under the terms of the lease agreement, the Company
receives incentives over the life of the lease, which extends through March 2021. The amount of
the deferred rent income recorded was $2,140 for the fiscal year ended April 30, 2013 compared
to deferred rent expense of $13,057 recorded as of April 30, 2012. In addition, the landlord
provided the Company tenant incentives of $418,000, which is being amortized over the life of
the lease.
On May 8, 2012, the Company entered into a lease agreement in Tijuana, MX, for manufacturing
and office space. Under the terms of the lease agreement, the Company receives incentives over
the life of the lease, which extends through November 2018. The amount of the deferred rent
expense recorded for the fiscal year ended April 30, 2013 was $362,796.
NOTE O - STOCK OPTIONS
The Company has stock option plans (“Option Plans”) under which certain employees and non-
employee directors may acquire up to 1,753,500 shares of common stock. Options available for
grant under the employee plans total 1,357,500, with the non-employee director plans allowing
for a total of 396,000 options available for grant. All Option Plans have been approved by the
Company’s shareholders. At April 30, 2013, the Company has 90,864 shares available for future
issuance to employees under the 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. Each Option under the Option Plans is exercisable for one share of stock. 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’s
common stock on the date of grant.
There were 115,000 options granted during fiscal year 2013. The weighted-average grant date
fair value of the options granted during fiscal year 2013 was $3.60. There were no options
granted during fiscal year 2012.
F-33
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE O - STOCK OPTIONS - Continued
The Company issued 25,000 shares of restricted stock during fiscal year 2013. In addition, the
Company issued 50,000 shares of restricted stock as additional consideration with the May 31,
2012 Spitfire acquisition. There were no shares of restricted stock issued during fiscal year 2012.
The fair value of each option grant is estimated on the grant date using the Black-Scholes option
pricing model with the following assumptions:
Expected dividend yield
Expected stock price volatility
Average risk-free interest rate
Weighted-average expected life of options
2013
2012
0%
.75%
.72%
5.5 years
N/A
N/A
N/A
N/A
Option-valuation models require the input of highly subjective assumptions. Because the
Company’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’s opinion, the existing method does not necessarily provide a reliable
single measure of the fair value of the Company’s stock options. When the Company does grant
stock options, it uses the U.S. Treasury yield in effect at the time of the option grant to calculate
the risk-free interest rate and the simplified method to calculate the weighted-average expected
life, due to limited history. The expected dividend, volatility and forfeitures rates of options are
based on historical experience and expected future results. The vesting period of the stock
options ranges from three to five years.
F-34
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE O - STOCK OPTIONS - Continued
The table below summarizes option activity through April 30, 2013:
Number of
securities to be
issued upon
exercise of
outstanding options
Weighted-
average
exercise
price
Number of
options
exercisable
at end
of year
459,589
(45,298)
(4,099)
410,192
115,000
(10,000)
515,192
$8.42
2.20
3.69
9.16
3.60
3.99
$8.02
458,337
410,192
438,142
Outstanding at April 30, 2011
Options exercised during 2012
Options expired during 2012
Outstanding at April 30, 2012
Options granted during 2013
Options exercised during 2013
Outstanding at April 30, 2013
Intrinsic value is calculated as the positive difference between the market price of the Company’s
common stock and the exercise price of the underlying options. During the fiscal years ended
April 30, 2013 and 2012, the aggregate intrinsic value of options exercised was $1,400 and
$71,118 respectively. As of April 30, 2013 and 2012, the aggregate intrinsic value of in the
money options outstanding was $60,950 and $0, respectively.
Information with respect to stock options outstanding at April 30, 2013, follows:
Range of exercise prices
$3.60 – 5.40
$9.17 – 11.56
Number
outstanding at
April 30, 2013
Options outstanding
Weighted-average Weighted-
remaining
contractual life
average
exercise price
120,000
395,192
515,192
7.21 years
2.82 years
$3.68
9.34
$8.02
F-35
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE O - STOCK OPTIONS - Continued
Information with respect to stock options outstanding and exercisable at April 30, 2013, follows:
Range of exercise prices
$3.60 – 5.40
$9.17 – 11.56
Options outstanding and exercisable
Number
outstanding at
April 30, 2013
Weighted-average Weighted-
remaining
contractual life
average
exercise price
42,950
395,192
438,142
7.21 years
2.82 years
$3.81
9.34
$8.79
The Company recognized approximately $189,300 and $2,400 in stock compensation expense in
fiscal years 2013 and 2012, respectively.
As of April 30, 2013, the balance of unrecognized compensation cost related to the Company’s
stock option plans was approximately $70,600.
The Company issued 25,000 shares of restricted stock on June 1, 2012, of which 8,330 was
vested upon issuance. The Company recognized approximately $71,500 in compensation
expense for the fiscal year ended April 30, 2013. The balance of unrecognized compensation
expense related to the Company’s restricted stock award was approximately $17,050 at April 30,
2013.
NOTE P - SUBSEQUENT EVENTS
Building Purchase
In May 2013, the Company purchased a building in Elgin, Illinois. The facility is occupied by
the Company’s Spitfire Control division and includes quality engineers, program managers and
customer service and a portion of the premises is sub-leased. The purchase price for the property
was $1,700,000. The Company paid cash for the building and intends to secure a mortgage for
the property.
F-36
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE Q - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal year 2013:
2013
Net sales
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
$47,629,229
$52,729,395
$46,758,568
$51,322,342
(Loss) income before income
tax (benefit) expense
(147,844)
506,545
(479,124)
934,747
Net (loss) income
(93,144)
482,834
(216,776)
320,047
(Loss) earnings per share-
Basic
(Loss) earnings per share-
Diluted
$ (0.02)
$ 0.12
$ (0.06)
$ 0.08
$ (0.02)
$ 0.12
$ (0.06)
$ 0.08
Total shares-Basic
3,922,478
3,930,402
3,930,402
3,938,042
Total shares-Diluted
3,922,478
4,002,264
3,930,402
4,027,881
F-37
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE Q - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
The following is a summary of unaudited quarterly financial data for fiscal year 2012:
2012
Net sales
Income before income tax
expense
Net income
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
$38,892,011
$39,902,653
$38,099,493
$39,741,827
382,487
251,128
136,042
886,838
240,961
158,267
85,656
649,440
Earnings per share-Basic
$ 0.06
$ 0.04
$ 0.02
$ 0.17
Earnings per share-Diluted
$ 0.06
$ 0.04
$ 0.02
$ 0.17
Total shares-Basic
3,864,274
3,864,412
3,875,253
3,909,572
Total shares-Diluted
3,890,760
3,883,683
3,895,111
3,909,572
F-38
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 2013 and 2012
NOTE R - LITIGATION
As of April 30, 2013, 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’s business. In future periods, the Company could be
subjected to cash cost or non-cash charges to earnings if any of these matters are resolved on
unfavorable terms. However, although the ultimate outcome of any legal matter cannot be
predicted with certainty, based on present information, including management’s 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.
F-39