ONE SOURCE. GLOBAL OPTIONS.®
SigmaTron’s diversified global footprint – unique for a company our
size in electronic manufacturing services (EMS) – benefits a growing
customer base with the most sophisticated needs in our history.
For more than 20 years as a publicly traded company, SigmaTron
has grown organically and by strategically acquiring businesses
that expand our capacity to serve EMS customers.
We continue to advance our capabilities, including design and
engineering, industry-certified manufacturing practices, and by
the latest IT and process technologies.
SigmaTron’s corporate strategy centers on delivering end-to-end
customer service, with optimized global performance.
And so for the foreseeable future, we seek to drive our market
positioning: “One Source. Global Options”, to new levels and in each
division of our growing operations. Our experienced global team is
committed to making SigmaTron the EMS partner of choice.
SIGMATRON INTERNATIONAL, INC.
2014 ANNUAL REPORT
20 YEARS OF TRADING
AS A PUBLIC COMPANY
NASDAQ: SGMA
ABOUT THE COVER
AT THE 20-YEAR MARK: SUSTAINED MOMENTUM
Celebrating 20 years as a publicly traded company on the NASDAQ Exchange, the second
largest trading market in the world, SigmaTron serves EMS customers worldwide with an
efficient network of manufacturing plants in North America and Asia. Our global footprint,
with increasingly integrated process and information technologies, offers the scale and
range of cost structures to optimize performance for our existing and future customers.
WORLDWIDE EMS MaRKET SIZE* ( DollarS in billionS )
1994 $ 35
2013 $ 440
2018 $ 639**
The EMS industry’s compound annual growth rate is
approximately 7.7%.
* Source: New Venture Research Corporation
** Projected
TO OUR STOCKHOLDERS,
SigmaTron celebrated important
achievements in Fiscal 2014, includ-
ing our 20th anniversary as a publicly
traded company on NASDAQ. During
more than two decades in the public
markets, we have expanded and diversi-
fied SigmaTron as a world-class provider
of electronic manufacturing services
(EMS) – growing in global reach, techni-
cal sophistication and the value we add
for customers.
Fiscal 2014 revenues reached $222
million, a record in SigmaTron’s history.
Earnings were stronger than in any of
the preceding eight years, as we lever-
aged higher revenues with increased
efficiency and productivity in our opera-
tions. While the world economy contin-
ued to perform sluggishly, our business
moved forward based on actions Sigma-
Tron has taken to build our capabilities
and reputation.
The SigmaTron of today provides EMS
solutions for the most technically
sophisticated mix of customers in our
history. We stand out from our competi-
tors by offering a value proposition that
directly responds to the changing needs
of our customers – “One source. Global
options.” We continue to grow, both
organically and by acquisition, through
skilled stewardship of each of our
customers’ EMS projects.
Going forward, we plan to execute on sig-
nificant opportunities created during
Fiscal 2014:
• The increased agility of SigmaTron’s
network of manufacturing sites in
North America and Asia
• Enhanced design and engineering
services that augment our excellence
in manufacturing
• Technology and process system
upgrades that differentiate SigmaTron
from our competitors
• Supply chain management tools that
deliver value to the right place at the
right time
• Technical capabilities to pursue growth
in the medical, industrial and aerospace/
defense sectors.
SigmaTron provides design, engineering
and manufacturing services throughout
the electronic lifecycle for products
ranging from printed circuit board
assemblies to complex, high-value
“box-builds.” We serve customers in
nine diverse markets: medical, aero-
space/ defense, industrial, telecom,
semiconductors, home appliances,
consumer electronics, fitness
and gaming.
GLObaL, yET LOCaL
“ SigmaTron is an EMS provider
large enough to provide a
global network of manu-
facturing options and cost-
competitive supply chain
management, yet flexible
enough that senior man-
agement adds superior
customer service...”
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 1
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 3
SigmaTron BUiLdS VaLUE wiTH worLd-CLaSS EmS SErViCES
20 yEarS oF Trading
aS a PUBLiC ComPany
NASDAQ: SGMA
SigmaTron’S HiSTory and growTH
Established:
First Mexico operation in Acuña / Del Rio
Illinois operation in Elk Grove Village
Asian sourcing center in Taipei, Taiwan
Las Vegas, Nevada location
California operation in Fremont
China operation In Suzhou, China
Tijuana, Mexico operation
1968
1988
1991
1992
1994
2004
2005
Timeline events concur with SigmaTron’s fiscal years ending April 30.
First day of trading
on the NASDAQ
Exchange under the
symbol “SGMA”.
SMT Unlimited
became a 42.5%
owned affiliate
adding operations
in Fremont and
Hollister, California.
SigmaTron added
x-ray laminography,
BGA assembly &
rework to its array of
service offerings.
SMT
U n l i m i t e d
SigmaTron acquired
Able Electronics,
July 1, 2005.
SMT Unlimited L.P.
became a wholly-
owned entity by
the company.
Launched iSCORE,
an internal portal
and SCORE®, the
customer version.
Complex box-build
skill sets were of-
fered to customers.
Achieved ISO 13485
certification and
served first
life science/
medical customers.
SigmaTron customers represented
six market sectors: Consumer,
Appliances, Fitness, Gaming,
Telecom and Industrial.
Our global footprint grew and
extended to four countries:
U.S., China, Mexico & Taiwan.
1994
1996
2000
2001
2003
2004
2005
2006
SigmaTron’s Taiwan
sourcing center
offered agents
in Singapore,
South Korea and
Hong Kong.
The Las Vegas,
Nevada operation
moved to a 33,000
square foot facility,
doubling its prod-
uction capacity.
The $35 billion EMS market grows
at more than 22 percent annually.
2 SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT
Opened Suzhou, China
operation, an important
milestone adding 147,500
square feet of space.
The company achieved AS
9100 certification; served first
semiconductor customers.
Each plant was RoHS-compli-
ant, completing the transition to
lead-free capabilities.
The California plants relocated
from Fremont and Hollister
and were consolidated into
the Hayward operation.
SIGMATRON BUILDS VALUE WITH WORLD-CLASS EMS SERVICES
Established:
First Mexico operation in Acuña / Del Rio
Illinois operation in Elk Grove Village
Asian sourcing center in Taipei, Taiwan
Las Vegas, Nevada location
California operation in Fremont
China operation In Suzhou, China
Tijuana, Mexico operation
1968
1988
1991
1992
1994
2004
2005
Purchased Able Electronics in Hayward, California
Expanded manufacturing operations in Union City, California
Established domestic China operation
Purchased Spitfire Controls design operation, Elgin, Illinois
Purchased Spitfire Controls manufacturing operations, Chihuahua, Mexico
Purchased Spitfire Controls manufacturing operations, Ho Chi Minh City, Vietnam
Expanded manufacturing operations in Tijuana, Mexico
Announced plans for further expansion of the Suzhou, China operation
2005
2010
2012
2012
2012
2012
2012
2014
The California operation
relocated from Hayward
to Union City.
SigmaTron enhanced its high-tech
manufacturing expertise by
adding 01005 capabilities.
SigmaTron expanded
its Taipei, Taiwan
purchasing office.
SigmaTron received ITAR
registration, adding military/
aerospace to markets served.
Tijuana, SigmaTron’s third plant in
Mexico, relocated and expanded.
A new tagline, “One Source. Global
Options.®” with a new website and
marketing materials help communicate
SigmaTron’s place in the world.
SigmaTron offered customers
its newest Fuji line with
part-on-part technology.
2007
2008
2011
2012
2013
2014
In Fiscal Year 2006, the
company added Tijuana, its
second Mexico operation.
SigmaTron’s Union City, California
operation achieved ISO 13485
(medical) certification, expanding
the number of markets served.
SigmaTron established a
domestic China operation.
SigmaTron acquired Spitfire
Controls, adding manufacturing
operations in Chihuahua,
Mexico and Ho Chi Minh City,
Vietnam, while extending the
company’s design and
engineering capabilities.
13 4 8 5
Elk Grove Village, Illinois
became the third
SigmaTron operation
to earn ISO 13485
(medical) certification.
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 3
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 3
ExTENDING ‘ONE SOURCE’
CAPABILITIES
In FY14, SigmaTron’s offered
customers its new Fuji AIMEX
surface mount part-on-part
technology, offering superior
quality, production flexibility
and increased capabilities.
Our commitment, for every customer,
is quality at every step of the process.
We strive to deliver product excellence,
optimal performance and end-to-end
customer service. With this determina-
tion, SigmaTron has persevered and suc-
ceeded, through economic booms and
challenges, for more than two decades.
‘ONE SOURCE’ DELIVERS
‘GLOBAL OPTIONS’
At the heart of SigmaTron’s business
model is our market positioning: “One
Source. Global Options.” Our sustained
momentum through Fiscal 2014 con-
firms that this is a potent com-
petitive strategy.
As a single source of EMS services with
a diversified global footprint, we offer
our customers a team with deep experi-
ence, broad capabilities and
the flexibility to optimize
performance for
each project.
“Our cOmmitment, fOr every
custOmer, is quality at
every step Of the prOcess.”
Our network of seven manufacturing
plants in four countries, with centers
for design and engineering and global
sourcing, provides the scale and range
of cost structures to meet varied needs.
To support our market positioning, we
4 SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT
redesigned our www.sigmatronintl.com
website in Fiscal 2014 and have seen
increased traffic from customers and
prospects exploring SigmaTron’s diverse
offerings. We also developed new mar-
keting materials and ads showcasing our
capabilities. SigmaTron’s newsletter,
The Source, highlights our services and
emphasizes one of our greatest resourc-
es: our employees.
The progress in each of SigmaTron’s
operations in Fiscal 2014 directly sup-
ports our value proposition of “One
Source. Global Options.”
SIGmATRON UNITED STATES
Our U.S. headquarters site in Elk Grove
Village, Illinois, earned ISO 13485
medical certification in Fiscal 2014 and
signed a number of new customers in
various sectors with projects extending
well into Fiscal 2015, so the plant’s out-
look is cautiously optimistic. Elk Grove
Village has continued to upgrade its
capabilities as a high-end EMS provider,
targeting medical and aerospace/
defense sectors.
As Fiscal 2014 progressed, Elk Grove
Village increasingly leveraged our
Spitfire Design and Engineering Center
to serve several key customers. The
plant also added technology upgrades
2004
growTh in SigmaTron’S
work Force
1994
705
1,255
2014
2,800
and new equipment to support product
development and pre-production plan-
ning for high-end customers
and prospects.
SigmaTron’s “high-technology hub” in
Union City, California, continues to of-
fer the technology and service required
for leading-edge customer needs. The
Union City team continually pursues
opportunities in the medical and aero-
space/defense market sectors.
Union City supports new product
introductions and often works with a
second SigmaTron operation, such as
our Tijuana plant in Mexico, to transi-
tion products for lower-cost production
and ensure a seamless transition as
manufacturing volumes increase.
We completed the post-acquisition inte-
gration of Spitfire Controls’ Design and
Engineering Center in Elgin, Illinois, in
Fiscal 2014, reinforcing our business
model of full product support from con-
cept through maturity. We have begun
to see synergies for EMS customers who
need value-added services in product
development and system integration as
part of SigmaTron’s end-to-end offering.
To add further value, Spitfire upgraded
“SigmaTron’S ‘high-Technology hub’ in
union ciTy, california, conTinueS To offer
The Technology and Service required
for leading-edge cuSTomer needS.”
its Computer-aided Design (CAD)
capabilities in Fiscal 2014 with software
that enables us to work efficiently with
customers’ existing designs to pursue
cost-reduction or other strategies. The
upgrade also enhances our ability to de-
liver advanced turnkey product designs.
SigmaTron mexico
SigmaTron’s three operations in Mexico
all experienced growth in Fiscal 2014
and expect increased revenues going
forward. Mexico is evolving as a region
of choice for North American EMS
customers as they evaluate their
supply chain requirements.
Our three Mexican operations Acuña,
Chihuahua and Tijuana offer custom-
ers the ability to shorten their cycle
time in response to their market needs
while providing a competitive global
cost structure. All three manufacturing
operations expanded their capacity
and capabilities during Fiscal 2014.
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 5
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 3
groWTH in SigmaTron’S
‘gLoBaL oPTionS’
Suzhou provides an alterna-
tive for low-cost assembly
operations and continues to
evolve, adding value through
higher-technology services.
SigmaTron aSia
The Ho Chi Minh City, Vietnam, plant
joined SigmaTron with the integration
of Spitfire and delivered solid growth
in Fiscal 2014. Vietnam is an attractive
manufacturing option for select EMS
customers, and our experienced team
there is skilled at managing the benefits
of a lower cost structure to meet cus-
tomers’ specific supply chain needs.
Our operation in Suzhou, China con-
tinues to build its reputation and plans
to break ground soon for expansion.
Suzhou provides an alternative for low-
cost assembly operations and continues
to evolve adding value, through higher-
technology services. The operation
expects to achieve some additional
growth as an important manufacturing
connection to China’s domestic market
for U.S.-based companies.
Suzhou also serves as a global hub for
design for manufacturability (DFM)
and hosts our green initiative center
to facilitate data gathering and
monitor compliance with social
responsibility initiatives.
“Better technology increases sigmatron’s
manufacturing agility, reduces costs and
creates Better products across the Board.”
6 SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT
HigH-TECH CaPaBiLiTiES
DriVE oPPorTUniTiES
SigmaTron made important strides in
upgrading technologies in Fiscal 2014 –
information and production systems
and supply chain management tools –
and we plan to continue to invest in
technology as we pursue opportunities
to meet increasingly sophisticated cus-
tomer needs. In addition, we continue
to add the technical capabilities to
propel performance in higher-end
manufacturing engagements.
informaTion anD
ProCESS TECHnoLogiES
We view IT and manufacturing systems
through the lens of our customers’
needs: Better technology increases
SigmaTron’s manufacturing agility, re-
duces costs and creates better products
across the board.
IT and production systems stand out as
key differentiators between SigmaTron
and similar-sized EMS companies, capa-
bilities that help us attract more mid-
sized customers. For example, our online
portal increasingly provides customers
with 24/7 visibility into project status.
These systems also make our operations
expanding ouR CuSToMeRS’
‘global opTionS’
SigmaTron’s three operations in Mexico
experienced growth in Fiscal 2014 and
the operation is evolving as a region of choice
for North American EMS customers as they
evaluate their supply chain requirements.
more efficient. Linkages in IT and pro-
duction technologies, for example, en-
able us to seamlessly transfer projects
from nearshore development in the
United States to offshore facilities in
Mexico or Asia as volumes scale up. We
plan to continue to optimize IT and pro-
cess systems, aligned with the business
needs of our customers.
Supply Chain ToolS
In Fiscal 2014 we strengthened our sup-
ply chain management systems to bring
additional value to customers. Our sys-
tems also provide the data that custom-
ers need for supply chain compliance
and green initiatives.
Our international purchasing office (IPO)
in Taipei, Taiwan, coordinates materials
procurement and logistics throughout
Southeast Asia, while global and local
engineering and procurement teams
oversee sourcing and needs worldwide.
SigmaTron systems continue to enhance
plant efficiency by monitoring real-time
production status, quality trends and
shipments. The latest software links
decision-making to forecasted require-
ments, actual demand, material on
order and inventories – and automati-
cally adjusts as demand trends change.
Automated supplier software keeps our
supply chain partners in touch.
“IT and producTIon sysTems sTand ouT as
key dIfferenTIaTors beTween sIgmaTron
and sImIlar-sIzed ems companIes.”
Our supply chain delivers value in
the right place at the right time
for customers.
TeChniCal CapabiliTieS
SigmaTron’s seven manufacturing
operations around the world have each
earned recent updates or new approvals
under industry certification programs,
a critical validation of our technologies
and skills in producing high-quality elec-
tronics and specialized devices. We are
pursuing expansion in higher-end indus-
trial, medical and aerospace markets,
and SigmaTron’s technical capabilities
support these goals.
For example, ISO 13485 (medical)
certifications in three plants – Elk Grove
Village, Union City and Tijuana – open
the door for SigmaTron to efficiently
serve the domestic U.S. medical market.
Union City earned International Traffic in
Arms Regulations (ITAR) registration, as
well as AS9100C aerospace certification.
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 7
LOOKING AHEAD
Our accomplishments of more than two
decades, together with the breadth and
geographical diversity of our operations,
bode well for the future of SigmaTron as
we add value for customers.
SIGMATRON BUILDS ON
SUSTAINED MOMENTUM
Fiscal 2014 marked a year of sustained
momentum for SigmaTron. From $37
million in sales in Fiscal 1994, our
first year as a public company, to six
times that size in 2014, SigmaTron has
achieved significant long-term growth.
“ ... stability drives enhanced employee
knowledge and program continuity, factors
that show in the quality of our products...”
SigmaTron’s global footprint is unique
for an EMS provider of our size. We are
large enough to offer customers a range
of options from our experienced teams
in North America and Asia. Yet we are
flexible enough to see every client as
critical to our success and to tailor ser-
vices to each project’s requirements.
The depth of our people’s experience
also distinguishes SigmaTron. At each
of our locations, low turnover among
senior management, plant and non-
supervisory personnel compares
favorably with industry trends. This
kind of stability drives enhanced
employee knowledge and program
continuity, factors that show in
the quality of our products – and are
important to all of our customers.
Our accomplishments of more than
two decades, together with the
breadth and geographical diversity
of our operations, bode well for the
future of SigmaTron as we strive to
add value for customers.
As always at fiscal year-end, I want
to take this opportunity to thank our
dedicated team of employees around the
world and others who have contributed
to our success – SigmaTron customers,
partners in our supply chain, professional
firms, Wells Fargo Bank, N.A., and our
Board of Directors.
And thank you for your support as
a stockholder.
Sincerely,
Gary R. Fairhead
President and Chief Executive Officer
SigmaTron International, Inc.
August 15, 2014
8 SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT
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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.
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
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
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
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
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
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 4 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.
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 9
SIGMATRON INTERNATIONAL | 2014 ANNUAL REPORT 3
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
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, 2014.
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
Act. (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:133)
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,
2013 (the last business day of the registrant’s most recently completed second fiscal quarter) was $18,336,611
based on the closing sale price of $5.21 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 21, 2014 was
4,035,317.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in
connection with its 2014 annual meeting of stockholders, which the Company intends to file within 120 days of the
fiscal year ended April 30, 2014, are incorporated by reference into Part III of this Form 10-K.
2
TABLE OF CONTENTS
BUSINESS
ITEM 1
ITEM 1A RISK FACTORS
ITEM IB UNRESOLVED STAFF COMMENTS
ITEM 2
ITEM 3
ITEM 4 MINE SAFETY DISCLOSURES
PROPERTIES
LEGAL PROCEEDINGS
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
SELECTED FINANCIAL DATA
ITEM 6
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
ITEM 8
ITEM 9
MARKET RISKS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A CONTROLS AND PROCEDURES
ITEM 9B OTHER INFORMATION
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
ITEM 11 EXECUTIVE COMPENSATION
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13 CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND
ITEM 14
DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART I
PART II
PART III
PART IV
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
3
4
11
16
16
17
18
18
19
19
28
28
28
28
29
29
29
29
29
29
30
33
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., 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 the Company’s 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. 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
Company are then incorporated into finished products sold in various industries, particularly appliance,
4
consumer electronics, gaming, fitness, industrial electronics, medical/life sciences, semiconductor,
telecommunications and automotive.
The Company operates manufacturing facilities in Elk Grove Village, Illinois U.S.; Union City, California U.S.;
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 U.S.; Union City, California U.S.;
and Taipei, Taiwan. The Company also provides design services 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 2013 and 2014, 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.
The Company’s international footprint provides our customers with flexibility within the Company to
manufacture in China, Mexico, Vietnam or the U.S. 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 Control, Inc.
(“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 had a better year financially in fiscal 2014 compared to fiscal 2013. The improvement was
driven in part by leveraging higher revenues while continuing to drive increased efficiency and productivity into
the Company’s operations, including the integration of the Spitfire acquisition. The Company’s industry
remains challenging and pricing pressures continue from both its customers and supply chain. The Company
intends to continue to attempt to make progress in terms of productivity and increased revenues. The Company
believes revenue growth will continue with its current customers and through the recent addition of several new
customers, which it hopes will become long term valued relationships. The Company believes it has
opportunity for new revenue, but nothing is certain and the stagnant economy tends to slow the process. In the
past, the timing of production and delivery of orders, primarily at the direction of customers, has caused, and
will likely continue the cause, the Company to experience significant quarterly fluctuations in its revenues and
earnings.
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”) 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 virtually
every service required to build electronic devices commercially available in the market today.
Design Services: To compliment the manufacturing services it offers its customers, the Company also
offers DFM, 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 generally procures material from major manufacturers and
distributors of electronic parts.
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 U.S.;
Union City, California U.S.; Acuna, Chihuahua and Tijuana, Mexico; Suzhou, China and Ho Chi Minh City,
Vietnam. The Company’s ability to transition manufacturing to lower cost regions without jeopardizing
flexibility and service, differentiates it from many competitors. 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, 2014, the Company
had approximately 100 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.
Percent of Net Sales
Markets
Typical OEM Application
Appliances
Industrial Electronics
Fitness
Consumer Electronics
Medical/Life Sciences
Semiconductor Equipment
Telecommunications
Gaming
Total
Household appliance controls
Motor controls, power supplies, lighting products, scales,
joysticks
Treadmills, exercise bikes, cross trainers
Personal grooming, computers
Clinical diagnostic systems and instruments
Process control and yield management equipment for
semiconductor productions
Routers, communication
Slot machines, lighting displays
Fiscal
2014
%
Fiscal
2013
%
48.6
41.4
31.2
36.9
7.0
5.5
3.0
2.4
1.4
0.9
10.2
2.7
1.9
2.6
1.8
2.5
100% 100%
For the fiscal year ended April 30, 2014, Electrolux and Whirlpool Inc. accounted for 31.6% and 12.0%,
respectively, of the Company’s net sales. For the fiscal year ended April 30, 2013, Electrolux and Life Fitness,
Inc., the Company’s largest two customers, accounted for 26.8% and 9.6%, respectively, of the Company’s net
sales. On May 31, 2012, the Company acquired Spitfire and 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 Whirlpool, the Company expects that Electrolux and Whirlpool
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 10 independent manufacturers’ representative organizations that
together currently employ approximately 27 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 5 direct sales
employees. In addition, the Company markets itself through its website and tradeshows.
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 903 employees at April 30, 2014. 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
160 employees at April 30, 2014. 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
7
El Paso, Texas. Digital Appliance Controls de Mexico S.A. was incorporated and commenced operations in
1997. The operation had 413 employees at April 30, 2014. 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, 2014,
this operation had 477 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 369 employees as of April 30,
2014.
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 years ended April 30, 2014 and April 30, 2013 resulted in a foreign currency loss of approximately
$128,000 and $359,000, respectively. In fiscal year 2014, the Company paid approximately $51,200,000 to its
foreign subsidiaries. In fiscal year 2013, the Company’s wholly-owned trading company, SigmaTron
International Trading Co. was liquidated. The Company received a distribution of approximately $188,000 as a
result of this liquidation.
During fiscal year 2014, the Company realized a distribution of approximately $3,006,825 from foreign
subsidiaries based in Mexico. The U.S. income tax on the distribution was $333,128 which is reflected in the
Company’s tax provision for the fiscal year ended April 30, 2014. The distribution from the foreign
subsidiaries based in Mexico does not change the Company’s intentions to indefinitely reinvest the income from
the Company’s foreign subsidiaries. The Company’s intent is to keep unrepatriated funds indefinitely
reinvested outside of the United States and current plans do not demonstrate a need to fund U.S. operations.
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 $12,300,000 as of April 30, 2014.
The consolidated financial statements as of April 30, 2014 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., wholly-owned foreign enterprises Wujiang 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.
8
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, including
Restriction of Hazardous Substances (“RoHS”). 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 (“DRC”). On May 30, 2014, the Company filed Form SD with the Securities
and Exchange Commission stating the Company’s supply chain remains DRC conflict undeterminable.
To date, the Company’s costs of compliance for conflict minerals reporting is estimated to be $350,000.
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 have 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 firm orders as of April 30, 2014 and 2013 was approximately $114,420,000 and
$119,300,000, respectively. The Company anticipates a significant portion of the backlog at April 30, 2014 will
ship in fiscal year 2015. 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 2,800 people as of April 30, 2014, including 192 engaged in
engineering or engineering-related services, 2,204 in manufacturing and 404 in administrative and marketing
functions.
The Company has a labor contract with Chemical & Production Workers Union Local No. 30, 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, 2016. 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 CONG DOAN CO SO CONG TY TNHH Spitfire Controls
Vietnam. The contract remains active.
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
Age
Position
Gary R. Fairhead
62
President and Chief Executive Officer. Gary R. Fairhead has been the
President of the Company since January 1990 and Chairman of the Board of
Directors of the Company since August 2011. Gary R. Fairhead is the
brother of Gregory A. Fairhead.
Linda K. Frauendorfer
53
Chief Financial Officer, Vice President of Finance, Treasurer and Secretary
since February 1994. Director of the company since August 2011.
Gregory A. Fairhead
58
Executive Vice President and Assistant Secretary. Gregory A. Fairhead has
been the 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
53
Vice President, Director of Supply Chain and Assistant Secretary since
February 1994.
Daniel P. Camp
65
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
59
Executive Vice President, West Coast Operations since 2005. Mr.
Upadhyaya was the Vice President of the Fremont Operations from 2001
until 2005.
Hom-Ming Chang
54
Vice President, China Operations 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.
11
The Company has a senior secured credit facility with Wells Fargo Bank National Association (“Wells Fargo”)
with a credit limit up to $30,000,000 and a term through September 30, 2013. The facility allows the Company
to choose among interest rates at which it may borrow funds. The credit facility is collateralized by
substantially all of the domestically located assets of the Company and the Company has pledged 65% of its
equity ownership interest in some of its foreign entities. The Company is required to be in compliance with
several financial covenants. In conjunction with the 2012 Spitfire acquisition, two of the financial covenants
required by terms of the senior secured credit facility were amended as of May 31, 2012. During the quarter
ended October 31, 2013, the Company renewed its senior secured credit facility. The facility was revised to
extend the term of the agreement to October 31, 2015, amend its capital expenditure covenant, terminate the
unused line fee and reduced its borrowing interest rates. The renewed facility allows the Company to choose
among interest rates at which it may borrow funds. The interest rate is prime rate (effectively, 3.25% at April
30, 2014) or LIBOR plus two and a half percent (effectively, 2.75% at April 30, 2014), which is paid monthly.
In April 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, 2014, the Company was in
compliance with its amended financial covenants. As of April 30, 2014, there was a $23,000,000 outstanding
balance and $7,000,000 of unused availability under the credit facility, assuming the Company remained in
compliance with its financial covenants.
The Company anticipates that its credit facilities, cash flow from operations and leasing resources are adequate
to meet its working capital requirements and capital expenditures for fiscal year 2015 at the Company’s current
level of business. The Company has received forecasts from current customers for increased business that
would require additional investment in inventory, capital equipment and facilities. To the extent that these
forecasts come to fruition, the Company intends to meet any increased capital requirements by seeking an
increase in its secured line of credit or raising capital from other sources of debt or equity. In addition, in the
event the Company expands its operations, its business grows rapidly, the current economic climate
deteriorates, customers delay payments, or the Company considers an acquisition, additional financing
resources would 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. 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.
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
12
The Company’s customer base is concentrated.
Sales to the Company’s five largest customers accounted for 60% and 53% of net sales for the fiscal years
ended April 30, 2014 and 2013, respectively. For the year ended April 30, 2014, two customers accounted for
31.6% and 12.0% of net sales of the Company, and 11.2% and 4.5% of accounts receivable at April 30, 2014.
For the year ended April 30, 2013, two customers accounted for 26.8% and 9.6% of net sales of the Company
and 11.0% and 6.4% of accounts receivable at April 30, 2013. 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 largest customers. This risk may be further complicated by pricing pressures and intense competition
prevalent in our industry.
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
our 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
13
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.
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, China and Vietnam.
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% of the total non-current consolidated assets of the Company are located in foreign
jurisdictions outside the United States as of April 30, 2014 and 2013.
Disclosure and internal controls may not detect all errors or fraud.
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that
the Company’s disclosure controls and internal controls may not 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.
14
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
material impact on the Company’s results of operations and performance. The impact of currency fluctuation
for the years ended April 30, 2014 and April 30, 2013 resulted in a currency loss of approximately $128,000
and $359,000, respectively. 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 48% 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.
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.
15
Conflict minerals regulations may cause the Company to incur additional expenses and could increase the
cost of components contained in its products and adversely affect its inventory supply chain.
The Dodd-Frank Act, and the rules promulgated by the Securities and Exchange Commission (“SEC”)
thereunder, requires the Company to determine and report annually whether any conflict minerals contained in
our products originated from the DRC or an adjoining country. The Dodd-Frank Act and these rules could affect
our ability to source components that contain conflict minerals at acceptable prices and could impact the
availability of conflict minerals, since there may be only a limited number of suppliers of conflict-free conflict
minerals. Our customers may require that our products contain only conflict-free conflict minerals, and our
revenues and margins may be negatively impacted if we are unable to meet this requirement at a reasonable
price or are unable to pass through any increased costs associated with meeting this requirement. Additionally,
the Company may suffer reputational harm with our customers and other stakeholders if our products are not
conflict-free. The Company could incur significant costs in the event we are unable to manufacture products
that contain only conflict-free conflict minerals or to the extent that we are required to make changes to
products, processes, or sources of supply due to the foregoing requirements or pressures.
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, financial and 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
At April 30, 2014, the Company, operating in one business segment as an independent EMS provider, had
manufacturing facilities located in Elk Grove Village, Illinois U.S., Union City, California U.S., Acuna,
Chihuahua and Tijuana, Mexico, Ho Chi Minh City, Vietnam and Suzhou, China. In addition, the Company
provides materials procurement services through its Elk Grove Village, Illinois U.S., Union City, California
U.S, and Taipei, Taiwan offices. The Company provides design services in Elgin, Illinois U.S.
16
Certain information about the Company’s manufacturing, warehouse, purchasing and design facilities
is set forth below:
Location
Square
Feet
Services Offered
Owned/Leased
Suzhou, China
147,500 Electronic and electromechanical manufacturing solutions *
Elk Grove Village, IL
124,300 Corporate headquarters and electronic and
electromechanical manufacturing solutions
***
Owned
Union City, CA
117,000 Electronic and electromechanical manufacturing solutions Leased
Acuna, Mexico
115,000 Electronic and electromechanical manufacturing solutions Owned **
Chihuahua, Mexico
113,000 Electronic and electromechanical manufacturing solutions Leased
Tijuana, Mexico
67,700 Electronic and electromechanical manufacturing solutions Leased
Ho Chi Minh City, Vietnam 24,475 Electronic and electromechanical manufacturing solutions Leased
Del Rio, TX
44,000 Warehousing and distribution
Taipei, Taiwan
4,685 International procurement office
Elgin, IL
45,000 Design services
Leased
Leased
Owned
*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.
***Total square footage includes 70,000 square feet of dormitories.
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 November 2018. The lease
agreement for the Ho Chi Minh City, Vietnam property expires July 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 due January 2015. The Company leases the IPO office
in Taipei, Taiwan to coordinate Far East purchasing activities. The Company believes its current facilities are
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, 2014, 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
17
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, 2014 and 2013.
Common Stock as Reported
by NASDAQ
Period
High
Low
Fiscal 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$ 12.92
9.54
6.00
4.49
$ 6.22
5.75
5.28
4.15
$ 7.53
5.03
4.18
3.86
$ 3.76
4.01
3.35
3.04
As of July 21, 2014, there were approximately 50 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 1,240 beneficial owners of the Company’s common stock.
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.
18
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 P, 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., 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 the Company’s 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. 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
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.
19
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 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 each of the fiscal
years ended April 30, 2014 and 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 2013 and 2014, the Company continued to see a trend of Chinese costs increasing,
thereby making Mexico a more cost-competitive manufacturing location to service North America. Indications
suggest that this trend will continue.
The Company’s international footprint provides our customers with flexibility within the Company to
manufacture in China, Mexico, Vietnam or the U.S. 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.
The Company had a better year financially in fiscal 2014 compared to fiscal 2013. The improvement was
driven in part by leveraging higher revenues while continuing to drive increased efficiency and productivity into
the Company’s operations, including the integration of the Spitfire acquisition. The Company’s industry
remains challenging and pricing pressures continue from both its customers and supply chain. The Company
intends to continue to attempt to make progress in terms of productivity and increased revenues. The Company
believes revenue growth will continue with its current customers and through the recent addition of several new
customers, which it hopes will become long term valued relationships. The Company believes it has
opportunity for new revenue, but nothing is certain and the stagnant economy tends to slow the process. In the
past, the timing of production and delivery of orders, primarily at the direction of customers, has caused, and
likely will continue to cause, the Company to experience significant quarterly fluctuations in its revenues and
earnings.
20
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. In fiscal 2013,
the Company incurred approximately $424,000 in relocation expenses as a result of the move. 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, except for products with proprietary design 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 calculated as average cost.
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
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.
21
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, 2014 and determined no impairment
existed as of that date.
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
reviews 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 carry forwards. 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 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.
22
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:
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic
360)." ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional
disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift
in operations or that have a major effect on the Company's operations and financial results should be presented
as discontinued operations. This new accounting guidance is effective for annual periods beginning after
December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the
Company's results of operations or financial condition.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This ASU is a
comprehensive new revenue recognition model that requires a company to recognize revenue to depict the
transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in
exchange for those goods or services. This ASU is effective for annual reporting periods beginning after
December 15, 2016 and early adoption is not permitted. Accordingly, we will adopt this ASU on May 1, 2017.
Companies may use either a full retrospective or modified retrospective approach to adopt this ASU and we are
currently evaluating which transition approach to use and the full impact this ASU will have on our future
financial statements.
Results of Operations:
FISCAL YEAR ENDED APRIL 30, 2014 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2013
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 Years
2014
2013
100.0%
100.0%
89.7
8.7
98.4
1.6%
90.0
9.3
99.3
0.7%
Net sales increased 12.1% to $222,485,940 in fiscal year 2014 from $198,439,534 in the prior year. The
Company’s sales increased in fiscal year 2014 in 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 industrial electronics, fitness, gaming, telecommunications and
semiconductor marketplaces. The increase in net sales for the fiscal year 2014 is a result of sales to customers
23
from the Spitfire acquisition, as well as the Company’s existing customers’ increased demand for product and
new customers added during the fiscal year.
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 60% and 53% of net sales for fiscal years 2014 and 2013,
respectively.
Gross profit increased to $22,826,998, or 10.3% of net sales, in fiscal year 2014 compared to $19,925,646, or
10.0% of net sales, in the prior fiscal year. The increase in gross profit for fiscal year 2014 was primarily the
result of increased sales to customers arising out of the Spitfire acquisition, as well as increased sales revenue
from other existing customers. The Company has achieved economies of scale integrating Spitfire into its
operations, resulting in greater manufacturing efficiency. The increase in gross profit in fiscal year 2014 was
partially offset by a foreign currency loss of $128,000.
Selling and administrative expenses increased in fiscal year 2014 to $19,200,514, or 8.7% of net sales,
compared to $18,358,354, or 9.3% of net sales, in fiscal year 2013. The increase was attributable to salaries and
other administrative expenses for the Spitfire operations, increased purchasing and accounting expenses and
increased bonus expense. The increase in the foregoing selling and administrative expenses were partially
offset by a decrease in sales salaries and commission expenses and a reduction in professional legal and
accounting fees.
Interest expense, net increased to $966,038 in fiscal year 2014 compared to $832,126 in fiscal year 2013. The
interest expense increased primarily due to the increased borrowings under the Company’s banking
arrangements, capital lease and mortgage obligations. Interest expense for fiscal year 2015 may increase if
interest rates or borrowings, or both, increase during fiscal year 2015.
In fiscal year 2014, the income tax benefit was $133,867 compared to $321,363 in income tax expense in the
fiscal year 2013. The effective rate for the years ended April 30, 2014 and 2013 was (4.8%) and 39.5%,
respectively. The decrease in the effective rate for the year ended April 30, 2014 is due to the foreign tax
differential and the $828,175 impact of recent tax legislation in Mexico which became effective on January 1,
2014. The decrease in the effective tax rate was partially offset by a realized distribution from foreign
subsidiaries resulting in income tax expense of $333,128 in fiscal 2014.
The Company reported net income of $2,918,691 in fiscal year 2014 compared to a net income of $492,961 for
fiscal year 2013. Basic and diluted earnings per share for fiscal year 2014 were $0.74 and $0.72, respectively,
compared to basic and diluted earnings per share of $0.13 and $0.12 respectively, for the year ended April 30,
2013.
Liquidity and Capital Resources:
Operating Activities.
Cash flow provided by operating activities was $1,696,831 for the fiscal year ended April 30, 2014, compared
to cash flow provided by operating activities of $3,710,531 for the prior fiscal year. Cash flow provided by
operating activities was primarily the result of net income, and the non-cash effects of depreciation and
amortization. Net cash provided by operations in fiscal year 2014 was partially offset by an increase of
inventories of $3,083,636, and a $4,206,275 decrease in accounts payable. The increase in inventory is
primarily due to additional customer orders and the reduction of trade accounts payable is due to payments in
the ordinary course of business.
24
Cash flow provided by operating activities was $3,710,531 for the fiscal year ended April 30, 2013. 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 primarily related to additional sales volume resulting from the Spitfire acquisition.
Investing Activities.
In fiscal year 2014, the Company purchased approximately $8,400,000 in machinery and equipment to be used
in the ordinary course of business. The Company has received forecasts from current customers for increased
business that would require additional investment in inventory, capital equipment and facilities. To the extent
that these forecasts come to fruition the Company anticipates that it will make additional machinery and
equipment purchases and potentially expand two manufacturing operations in fiscal year 2015 in the amount of
$15,900,000. The Company anticipates purchases and expansions will be funded by lease transactions, its
senior secured credit facility or raising capital from other sources. 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. 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 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 purchases were 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.
Financing Activities.
Cash provided by financing activities was $7,501,796 for the fiscal year ended April 30, 2014, compared to
cash provided by financing activities of $2,234,715 in fiscal year 2013. Cash provided by financing activities in
fiscal year 2014 was primarily the result of increased borrowings of $4,500,000 under the credit facility,
proceeds received from a sale leaseback transaction for machinery and equipment and obtaining a mortgage for
the Company’s facility in Elgin, Illinois. The additional borrowings were required to support the purchases of
machinery and equipment and the increase in inventory.
Cash provided by financing activities was $2,234,715 for the fiscal year ended April 30, 2013. 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.
Financing Summary.
The Company has a senior secured credit facility with Wells Fargo with a credit limit up to $30,000,000 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 credit facility is collateralized by substantially all of the domestically located
assets of the Company and the Company has pledged 65% of its equity ownership interest in some of its foreign
entities. The Company is required to be in compliance with several financial covenants. In conjunction with
Spitfire acquisition, two of the financial covenants required by terms of the senior secured credit facility were
amended as of May 31, 2012. During the quarter ended October 31, 2013, the Company renewed its senior
secured credit facility. The facility was revised to extend the term of the agreement to October 31, 2015, amend
its capital expenditure covenant, terminate the unused line fee and reduced its borrowing interest rates. The
renewed facility allows the Company to choose among interest rates at which it may borrow funds. The interest
rate is prime rate (effectively, 3.25% at April 30, 2014) or LIBOR plus two and a half percent (effectively,
2.75% at April 30, 2014), which is paid monthly. In April 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, 2014, the Company was in compliance with its amended financial
covenants. As of April 30, 2014, there was a $23,000,000 outstanding balance and $7,000,000 of unused
availability under the credit facility, assuming the Company remained in compliance with its financial
covenants.
25
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, 2014 was $2,075,017.
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, 2014, $136,561 and
$338,562 was outstanding under the lease finance and sale leaseback agreements, respectively. The net book
value at April 30, 2014 of the equipment under each of the lease finance agreement and sale leaseback
agreement was $221,114 and $550,583, 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, 2014, the balance outstanding under the
capital lease agreement was $102,099. The net book value of the equipment under this lease at April 30, 2014
was $159,528.
The total amount outstanding at April 30, 2014 for the three remaining equipment lease transactions discussed
above was $577,222.
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 2014 was $17,770. 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 2014 was $97,619.
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.
On October 3, 2013, the Company entered into two capital leases (sale leaseback agreements) with Associated
Bank, National Association to finance equipment purchased in June 2012 in the amount of $2,281,354. The
term of the first agreement, with an initial principal amount of $2,201,637, extends to September 2018 with
monthly payments of $40,173 and a fixed interest rate of 3.75%. The term of the second agreement, with an
initial principal payment amount of $79,717, extends to September 2018 with monthly payments of $1,455 and
a fixed interest rate of 3.75%. At April 30, 2014, $1,959,381 and $70,945 was outstanding under the first and
second agreements, respectively. The net book value at April 30, 2014 of the equipment under each of the two
agreements was $1,828,038 and $68,092, respectively.
26
The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000, with Wells
Fargo to finance the property that serves as the Company’s engineering and design center in Elgin, Illinois. The
Wells Fargo note requires the Company to pay monthly principal payments in the amount of $4,250 and bears
interest at a fixed rate of 4.5% per year and is payable over a sixty month period. A final payment of
approximately $1,030,000 is due on or before October 2018. The outstanding balance as of April 30, 2014 was
$1,249,500.
On March 6, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $589,082. The term of the lease extends to March 2019 with monthly payments of
$10,441 and a fixed interest rate of $5.65%. At April 30, 2014, the balance outstanding under the capital lease
agreement was $581,415. The net book value of the equipment under the lease of April 30, 2014 was $573,338.
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, 2014 and April 30, 2013 resulted in a foreign currency loss of approximately
$128,000 and $359,000, respectively. In fiscal year 2014, the Company paid approximately $51,200,000 to its
foreign subsidiaries. In fiscal year 2013, the Company’s wholly-owned trading company, SigmaTron
International Trading Co. was liquidated. The Company received a distribution of approximately $188,000 as a
result of this liquidation.
During fiscal year 2014, the Company realized a distribution of approximately $3,006,825 from foreign
subsidiaries based in Mexico. The U.S. income tax on the distribution was $333,128 which is reflected in the
Company’s tax provision for the fiscal year ended April 30, 2014. The distribution from the foreign
subsidiaries based in Mexico does not change the Company’s intentions to indefinitely reinvest the income from
the Company’s foreign subsidiaries.
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 $12,300,000, as of the end of fiscal year 2014. The
Company’s intent is to keep unrepatriated funds indefinitely reinvested outside of the United States and current
plans do not demonstrate a need to fund U.S. operations.
The Company anticipates that its credit facilities, cash flow from operations and leasing resources are adequate
to meet its working capital requirements and capital expenditures for fiscal year 2015 at the Company’s current
level of business. The Company has received forecasts from current customers for increased business that
would require additional investment in inventory, capital equipment and facilities. To the extent that these
forecasts come to fruition, the Company intends to meet any increased capital requirements by seeking an
increase in its secured line of credit or raising capital from other sources of debt or equity. In addition, in the
event the Company expands its operations, its business grows rapidly, the current economic climate
deteriorates, customers delay payments, or the Company considers an acquisition, additional financing
resources would 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. 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.
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.
27
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, 2014. 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, 2014.
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, 2014.
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,
2014, that has materially affected or is reasonably likely to materially affect, our internal control over financial
reporting.
28
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, 2014.
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, 2014.
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, 2014.
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, 2014.
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, 2014.
29
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.
30
(a) 2
(a) 3 and (b)
Index to Exhibits
3.1
3.2
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.
10.1 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.*
10.2 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.*
10.3 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.*
10.4
2004 Directors’ Stock Option Plan, incorporated herein by reference to Appendix C to the Company’s
2004 Proxy Statement filed on August 16, 2004.*
10.5
2004 Employee Stock Option Plan, incorporated herein by reference to Appendix B to the Company’s
2004 Proxy Statement filed on August 16, 2004. *
10.6 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.
10.7 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.
10.8 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.*
10.9 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.
10.10 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.*
10.11 SigmaTron International, Inc. 2013 Employee Stock Purchase Plan dated September 20, 2013,
incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 25,
2013.*
10.12 SigmaTron International, Inc. 2013 Non-Employee Director Restricted Stock Plan dated September 20,
2013, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September
25, 2013.*
31
10.13 Mortgage and Assignment of Rents and Leases executed as of October 24, 2013, by SigmaTron
International, Inc., to Wells Fargo Bank, National Association, incorporated herein by reference to
Exhibit 10.18 to the Company’s Form 10-Q filed on December 13, 2013.
10.14 Second Amended and Restated Credit Agreement entered into as of October 24, 2013, by and between
SigmaTron International, Inc., and Wells Fargo Bank, National Association, incorporated herein by
reference to Exhibit 10.19 to the Company’s Form 10-Q filed on December 13, 2013.
10.15 Master Lease Agreement # 2170 entered into between Associated Bank, National Association, a
national banking association and SigmaTron International, Inc., dated October 3, 2013, incorporated
herein by reference to Exhibit 10.20 to the Company’s Form 10-Q filed on December 13, 2013.
10.16 SigmaTron International, Inc. Amended and Restated Change in Control Severance Payment Plan dated
March 11, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K/A filed
on March 14, 2014.*
10.17 Master Lease Number 81344 entered into between CIT Finance LLC and SigmaTron International,
Inc., dated March 6, 2014.**
21.0 Subsidiaries of the Registrant.**
23.1 Consent of BDO USA, LLP.**
24.0 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, 2014).**
31.1 Certification of Principal Executive Officer of the Company Pursuant to Rule 13a-14(a) under the
Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
31.2 Certification of Principal Financial Officer of the Company Pursuant to Rule 13a-14(a) under the
Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
32.1 Certification by the Principal Executive Officer of SigmaTron International, Inc. Pursuant to Rule 13a-
14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).**
32.2 Certification by the Principal Financial Officer of SigmaTron International, Inc. Pursuant to Rule 13a-
14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).**
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
(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 24, 2014
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 24, 2014
July 24 2014
July 24, 2014
July 24, 2014
July 24, 2014
July 24, 2014
July 24, 2014
INDEX TO FINANCIAL STATEMENTS
SigmaTron International, Inc. and Subsidiaries
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2
Page
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
F-5
F-6
F-7
F-9
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, 2014 and 2013 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, 2014 and 2013 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 24, 2014
F-2
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
APRIL 30,
ASSETS
2014
2013
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $150,000 at April 30, 2014 and 2013
Inventories, net
Prepaid expenses and other assets
Refundable income taxes
Deferred income taxes
Other receivables
$
5,440,319
$
4,607,731
19,293,791
53,728,377
1,826,254
-
2,524,993
356,746
19,421,252
50,644,741
1,882,680
228,026
1,630,809
524,268
Total current assets
83,170,480
78,939,507
PROPERTY, MACHINERY AND EQUIPMENT, NET
32,692,908
28,567,052
OTHER LONG-TERM ASSETS
Intangible assets, net of amortization of $3,309,246
and $2,962,566 at April 30, 2014 and 2013, respectively
Goodwill
Other assets
5,602,754
3,222,899
790,390
5,949,434
3,222,899
910,025
Total other long-term assets
9,616,043
10,082,358
TOTAL ASSETS
$
125,479,431
$
117,588,917
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
2014
2013
CURRENT LIABILITIES
Trade accounts payable
Accrued expenses
Accrued wages
Income taxes payable
Current portion of long-term debt
Current portion of capital lease obligations
Current portion of contingent consideration
Total current liabilities
LONG-TERM DEBT,
LESS CURRENT PORTION
CAPITAL LEASE OBLIGATIONS,
LESS CURRENT PORTION
CONTINGENT CONSIDERATION,
LESS CURRENT PORTION
OTHER LONG-TERM LIABILITIES
DEFERRED RENT
DEFERRED INCOME TAXES
$
$
27,141,079
2,526,045
4,027,029
80,936
2,126,017
765,961
331,429
31,347,354
2,486,819
3,633,900
-
99,996
229,661
331,429
36,998,496
38,129,159
24,198,500
20,575,017
2,423,001
577,221
1,533,571
525,739
1,176,121
3,217,660
1,793,571
487,236
1,096,272
2,946,710
Total long-term liabilities
33,074,592
27,476,027
Total liabilities
70,073,088
65,605,186
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, 4,012,319 and 3,940,402 shares issued
and outstanding at April 30, 2014 and 2013, respectively
Capital in excess of par value
Retained earnings
-
-
40,215
20,864,497
34,501,631
39,779
20,361,012
31,582,940
Total stockholders’ equity
55,406,343
51,983,731
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
$
125,479,431
$
117,588,917
The accompanying notes are an integral part of these statements.
F-4
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended April 30,
Net sales
Cost of products sold
Gross profit
2014
2013
$
222,485,940
$
198,439,534
199,658,942
178,513,888
22,826,998
19,925,646
Selling and administrative expenses
19,200,514
18,358,354
Operating income
3,626,484
1,567,292
Other income
Interest expense, net
(124,378)
966,038
(79,158)
832,126
Income before income tax expense
2,784,824
814,324
Income tax (benefit) expense
(133,867)
321,363
NET INCOME
Earnings per common share
Basic
Diluted
Weighted-average shares of common
stock outstanding
Basic
Diluted
$
$
$
2,918,691
0.74
0.72
$
$
$
492,961
0.13
0.12
3,969,391
3,930,268
4,074,487
4,003,887
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, 2014 and 2013
Capital in
Total
Preferred Common excess of par
Retained
stockholders’
stock
stock
value
earnings
equity
Balance at April 30, 2012
$
- $ 39,096 $
19,891,996 $ 31,089,979 $ 51,021,071
Recognition of stock-based
compensation
-
-
189,305
Exercise of stock options
-
100
39,800
-
-
189,305
39,900
Issuance and vesting of restricted
stock
-
583
239,911
-
240,494
Net income
-
-
-
492,961
492,961
Balance at April 30, 2013
-
39,779
20,361,012
31,582,940
51,983,731
Recognition of stock-based
compensation
Exercise of stock options
Issuance and vesting of restricted
stock
Tax benefit from exercise of options
Net income
-
-
-
-
-
-
89,219
436
158,357
54,997
200,912
-
-
-
-
-
-
-
89,219
158,793
54,997
200,912
-
2,918,691
2,918,691
Balance at April 30, 2014
$
- $ 40,215 $
20,864,497 $ 34,501,631 $ 55,406,343
The accompanying notes are an integral part of these statements.
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
Deferred income tax benefit
Amortization of intangible assets
Loss (gain) from disposal or sale of machinery and equipment
Stock option repurchase expense
Changes in assets and liabilities, net of business acquisition
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes payable/refundable
Tax benefit from option exercises
Trade accounts payable
Deferred rent
Accrued expenses and wages
2014
2013
$
2,918,691 $
492,961
4,791,663
89,219
54,997
(623,233)
346,680
37,603
300,410
127,461
(3,083,636)
343,580
509,874
(200,912)
(4,206,275)
79,849
210,860
4,375,397
189,305
71,483
(321,167)
279,491
(19,662)
-
(5,242,863)
(5,615,748)
(1,194,355)
237,627
(41,100)
9,254,671
360,656
883,835
Net cash provided by operating activities
1,696,831
3,710,531
Cash flows from investing activities
Purchases of machinery and equipment
Cash received in conjunction with acquisition
Proceeds from sale of machinery and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from exercise of common stock options
Repurchase of stock options
Proceeds under sale leaseback agreements
Payments under sale leaseback agreements
Payments under other notes payable
Proceeds under building notes payable
Payments under building notes payable
Change in lines of credit
Tax benefit from option exercises
(8,366,039)
-
-
(7,171,043)
1,142,597
22,000
(8,366,039)
(6,006,446)
158,793
(300,410)
2,281,354
(488,357)
-
1,275,000
(125,496)
4,500,000
200,912
39,900
-
-
(219,457)
(26,832)
-
(99,996)
2,500,000
41,100
Net cash provided by financing activities
7,501,796
2,234,715
INCREASE (DECREASE) IN CASH
832,588
(61,200)
Cash and cash equivalents at beginning of year
4,607,731
4,668,931
Cash and cash equivalents at end of year
$
5,440,319
$
4,607,731
The accompanying notes are an integral part of these statements.
F-7
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended April 30,
Supplementary disclosures of cash flow information
Cash paid for interest
Cash paid for income taxes
Cash refunded for income taxes
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
$
$
$
893,967
4,200
(689,298)
-
-
-
-
-
$
$
$
795,502
34,535
(286,695)
15,312,904
1,142,392
2,320,000
169,011
18,944,307
The accompanying notes are an integral part of these statements.
F-8
SigmaTron International, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2014 and 2013
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, 2014, the Company provided these manufacturing services through an international network of facilities
located in the United States, Mexico, China, Vietnam and Taiwan. Approximately 9% of the total non-current
consolidated assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2014
and 2013.
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, 2014 and
April 30, 2013 resulted in a loss of approximately $128,000 and $359,000 respectively.
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 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.
F-9
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 an average cost 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 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 $52,484 and $70,776 net of
accumulated amortization of $332,352 and $270,983 as of April 30, 2014 and 2013, respectively, are classified in
other long-term assets on the Company’s balance sheet.
F-10
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
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, 2014 and 2013,
there were 991 and 400,190, respectively, 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 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, except for products with proprietary designs 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.
F-11
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 2014 or 2013.
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: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: 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, accounts receivable, receivables, accounts
payable and accrued expenses which approximate fair value at April 30, 2014, 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.
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
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, 2014 and determined that no impairment existed as of that date.
F-12
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Intangible Assets
Intangible assets are comprised of finite life intangible assets including patents, trade names, backlog, non-compete
agreements, and customer relationships. Finite life intangible assets are amortized on a straight line or accelerated
basis over their estimated useful lives of five years for patents, 20 year for trade names, 1 year for backlog, 7 years
for non-compete agreements and 15 years for customer relationships.
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.
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.
New Accounting Standards
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)." ASU
2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about
discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that
have a major effect on the Company's operations and financial results should be presented as discontinued
operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The
Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or
financial condition.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This ASU is a
comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer
of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for
those goods or services. This ASU is effective for annual reporting periods beginning after December 15, 2016 and
early adoption is not permitted. Accordingly, the Company will adopt this ASU on May 1, 2017. Companies may
use either a full retrospective or modified retrospective approach to adopt this ASU and the Company is currently
evaluating which transition approach to use and the full impact this ASU will have on our future financial
statements.
F-13
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
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
2014
150,000
$
-
-
$
150,000
2013
164,103
-
(14,103)
150,000
$
$
NOTE D - INVENTORIES
Inventories consist of the following at April 30:
2014
2013
Finished products
Work-in-process
Raw materials
Less obsolescence reserve
$
$
18,553,112
3,126,596
33,853,653
55,533,361
1,804,984
53,728,377
Changes in the Company’s inventory obsolescence reserve are as follows:
Beginning balance
Provision for obsolescence
Write-offs
2014
1,770,100
34,884
-
1,804,984
$
$
$
$
$
$
13,167,117
2,959,144
36,288,580
52,414,841
1,770,100
50,644,741
2013
1,878,100
-
(108,000)
1,770,100
F-14
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
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
Leasehold improvements
Equipment under capital leases
Less Accumulated depreciation
and amortization, including
amortization of assets under
capital leases of $729,723
and $ 324,244 at April 30,
2014 and 2013, respectively
Property, machinery and
equipment, net
2014
2013
$
14,707,780 $
55,040,676
7,413,077
2,539,193
4,130,416
12,366,119
51,999,266
6,806,305
2,482,038
1,376,799
83,831,142
75,030,527
51,138,234
46,463,475
$
32,692,908 $
28,567,052
Depreciation expense was $4,791,663 and $4,375,397 for the years ended April 30, 2014 and 2013, respectively.
NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in carrying amount of goodwill for the fiscal years ended April 30 are as follows:
Beginning balance
Spitfire acquisition
Ending balance
2014
3,222,899
-
3,222,899
$
$
2013
-
3,222,899
3,222,899
$
$
F-15
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS - Continued
Other Intangible Assets
Intangible assets subject to amortization are summarized as of April 30, 2014 as follows:
Weighted Average
Remaining
Amortization
Period (Years)
Gross
Carrying
Amount
Accumulated
Amortization
Other intangible assets – Able
Customer relationships – Able
Spitfire:
Non-contractual customer relationships
Backlog
Trade names
Non-compete agreements
Patents
Total
-
-
13.08
-
18.08
5.08
3.08
$
375,000 $
2,395,000
4,690,000
22,000
980,000
50,000
400,000
8,912,000 $
$
375,000
2,395,000
256,311
22,000
93,909
13,685
153,341
3,309,246
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
Other intangible assets – Able
Customer relationships – Able
Spitfire:
Non-contractual customer relationships
Backlog
Trade names
Non-compete agreements
Patents
Total
-
.2
14.1
.1
19.1
6.1
4.1
$
375,000 $
2,395,000
4,690,000
22,000
980,000
50,000
400,000
8,912,000 $
$
375,000
2,383,923
58,685
20,163
44,913
6,545
73,337
2,962,566
F-16
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS - Continued
Estimated aggregate amortization expense for the Company’s intangible assets, which become fully amortized in
2032, for the remaining fiscal years is as follows:
For the fiscal year ending April 30:
2015
2016
2017
2018
2019
Thereafter
$
$
428,610
470,899
490,010
435,043
423,721
3,354,471
5,602,754
Amortization expense was $346,680 and $279,491 for the years ended April 30, 2014 and 2013, respectively.
F-17
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
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.
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 were
$803,006 and were recorded as selling and administrative expenses.
F-18
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE G - ACQUISITION - Continued
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:
Cash
Current Assets
Property, machinery and equipment
Current liabilities
Customer relationships
Backlog
Trade names
Non-compete agreements
Patents
Goodwill
Total Net Assets
Estimated Fair
$
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
Accelerated
Straight-line
Straight-line
Straight-line
Straight-line
N/A
Life
15 Years
1 Year
20 Years
7 Years
5 Years
Indefinite
F-19
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE G - ACQUISITION - 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 made four quarterly payments of $65,000 each in
fiscal 2014 and made three quarterly payments of $65,000 each in fiscal 2013. As of April 30, 2014, 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 2014 or 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-20
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE H - LONG-TERM DEBT
Note Payable - Bank
The Company has a senior secured credit facility with Wells Fargo with a credit limit up to $30,000,000 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 credit facility is collateralized by substantially all of the domestically located assets of the
Company and the Company has pledged 65% of its equity ownership interest in some of its foreign entities. The
Company is required to be in compliance with several financial covenants. In conjunction with Spitfire acquisition,
two of the financial covenants required by terms of the senior secured credit facility were amended as of May 31,
2012. During the quarter ended October 31, 2013, the Company renewed its senior secured credit facility. The
facility was revised to extend the term of the agreement to October 31, 2015, amend its capital expenditure
covenant, terminate the unused line fee and reduced its borrowing interest rates. The renewed facility allows the
Company to choose among interest rates at which it may borrow funds. The interest rate is prime rate (effectively,
3.25% at April 30, 2014) or LIBOR plus two and a half percent (effectively, 2.75% at April 30, 2014), which is paid
monthly. In April 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, 2014, the Company
was in compliance with its amended financial covenants. As of April 30, 2014, there was a $23,000,000 outstanding
balance and $7,000,000 of unused availability under the credit facility, assuming the Company remained in
compliance with its financial covenants.
Capital Lease Obligations
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, 2014, $136,561 and $338,562 was
outstanding under the lease finance and sale leaseback agreements, respectively. The net book value at April 30,
2014 for the equipment under each of the lease finance agreement and sale leaseback agreement was $221,114 and
$550,583, 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, 2014, the balance outstanding under the capital
lease agreement was $102,099. The net book value of the equipment under this lease at April 30, 2014 was
$159,528.
The total amount outstanding at April 30, 2014 for the three remaining equipment lease transactions discussed above
was $577,222. 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, 2014 was $388,106.
On October 3, 2013, the Company entered into two capital leases (sale leaseback agreements) with Associated Bank,
National Association to finance equipment purchased in June 2012 in the amount of $2,281,354. The term of the
first agreement, with an initial principal amount of $2,201,637, extends to September 2018 with monthly payments
of $40,173 and a fixed interest rate of 3.75%. The term of the second agreement, with an initial principal payment
amount of $79,717, extends to September 2018 with monthly payments of $1,455 and a fixed interest rate of 3.75%.
At April 30, 2014, $1,959,381 and $70,945 was outstanding under the first and second agreements, respectively.
The net book value at April 30, 2014 of the equipment under each of the two agreements was $1,828,038 and
$68,092, respectively.
F-21
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE H - LONG-TERM DEBT- Continued
Capital Lease Obligations - Continued
On March 6, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $589,082. The term of the lease extends to March 2019 with monthly payments of
$10,441 and a fixed interest rate of $5.65%. At April 30, 2014, the balance outstanding under the capital lease
agreement was $581,415. The net book value of the equipment under the lease of April 30, 2014 was $573,338.
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, 2014 was $2,075,017.
The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000, with Wells
Fargo to finance the property that serves as the Company’s engineering and design center in Elgin, Illinois. The
Wells Fargo note requires the Company to pay monthly principal payments in the amount of $4,250 and bears
interest at a fixed rate of 4.5% per year and is payable over a sixty month period. A final payment of approximately
$1,030,000 is due on or before October 2018. The outstanding balance as of April 30, 2014 was $1,249,500.
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
2015
2016
Thereafter
Total
2,126,017
23,051,000
1,147,500
26,324,517
$
$
Other Long-Term Liabilities
As of April 30, 2014 and 2013, the Company had recorded $525,739 and $487,236, respectively, for seniority
premiums.
See Note O - Leases, Page F-29 for future maturities under capital lease obligations.
F-22
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
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
2014
2013
$
$
1,812,049
510,159
1,704,821
69,467
48,043
262,755
1,941,995
203,785
$
6,553,074
$
1,656,540
316,500
1,660,860
58,765
61,288
209,532
1,970,143
187,091
6,120,719
F-23
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
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
2014
(545,501)
3,330,325
2,784,824
$
$
2013
(2,443,040)
3,257,364
814,324
$
$
(Benefit) 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
2014
2013
$
(203,951)
28,726
664,591
489,366
$
(125,215)
66,525
701,220
642,530
365,008
64,952
(1,053,193)
(623,233)
(552,921)
(181,220)
412,974
(321,167)
Provision (benefit) for income taxes
$
(133,867)
$
321,363
F-24
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE K - INCOME TAX - Continued
(Benefit) 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
Foreign profit sharing
Foreign dividends
Insurance reserves
Impact of tax legislation
Impact of foreign permanent items
Transaction costs
Other
2014
2013
$
951,623
61,828
(465,835)
(60,626)
295,522
(83,280)
(828,175)
(25,099)
-
20,175
$
276,870
(75,700)
25,024
-
37,639
-
-
-
26,118
31,412
Other Total
$
(133,867)
$
321,363
The Company realized a distribution of approximately $3,006,825 from foreign subsidiaries based in Mexico. The
U.S. income tax on the distribution was $333,128 which is reflected in the Company’s tax provision for the fiscal
year ended April 30, 2014. The distribution from the foreign subsidiaries based in Mexico does not change the
Company’s intentions to indefinitely reinvest the income from the Company’s foreign subsidiaries. The Company’s
intent is to keep unrepatriated funds indefinitely reinvested outside of the United States and current plans do not
demonstrate a need to fund U.S. operations.
Effective January 2014, the Mexican federal income tax law changes were enacted eliminating the statutory income
tax rate reduction scheduled to start in 2014, and leaving the 30% statutory income tax rate in effect for future years.
In addition, the Entrepreneurial Tax of Unique Rate (flat tax) was appealed as of January 31, 2014. The Company
has revalued its deferred income tax assets and liabilities as a result of the tax reform, which resulted in a net
discrete tax benefit for the period of $828,175.
F-25
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
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 follow:
Deferred Tax Assets
Federal & State NOL carryforwards
Foreign NOL carryforwards
Reserves and accruals
Stock based compensation
Inventories
Other intangible assets
Deferred rent
Allowance for doubtful accounts
Other
Total Gross Deferred Tax Assets
Less: Valuation allowance
Net Deferred Tax Assets
Deferred Tax Liabilities
Other assets
Property, machinery & equipment
Undistributed foreign earnings
Deferred flat tax liability (net)
Total Deferred Tax Liabilities
Net Deferred Tax Asset/(Liability)
2014
2013
$
-
98,254
944,454
137,343
1,340,302
338,014
293,242
61,515
305,335
3,518,459
(101,691)
620,284
85,690
437,069
125,946
1,116,638
366,459
297,550
60,795
166,111
3,276,542
(87,328)
3,416,768
$
3,189,214
(474,768)
(3,384,821)
(249,846)
-
(4,109,435)
(692,667)
$
$
$
(277,190)
(3,567,695)
-
(660,230)
(4,505,115)
(1,315,901)
$
$
$
$
$
F-26
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
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)
2014
2013
2,524,993
$
1,630,809
(3,217,660)
(692,667)
$
(2,946,710)
(1,315,901)
$
$
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 $12,300,000 as of April 30, 2014. The amount of U.S.
income taxes on these earnings is impractical to compute.
During fiscal year 2014, the Company recorded a $249,846 deferred tax liability related to $3,006,825 undistributed
earnings from foreign subsidiaries based in Mexico, that are not considered permanently reinvested. The U.S.
income tax on the distribution was $333,128 which is reflected in the Company’s tax provision for the fiscal year
ended April 30, 2014. The distribution from the foreign subsidiaries based in Mexico does not change the
Company’s intentions to indefinitely reinvest the income from the Company’s foreign subsidiaries. The Company’s
intent is to keep unrepatriated funds indefinitely reinvested outside of the United States and current plans do not
demonstrate a need to fund U.S. operations.
In fiscal year 2014, income tax (benefit) was ($133,867) compared to $321,363 in income tax expense in the fiscal
year 2013. The effective rate for the years ended April 30, 2014 and 2013 was (4.8%) and 39.5%, respectively. The
decrease in the effective rate for the year ended April 30, 2014 is due to the foreign tax rate differential and the
impact of recent tax legislation in Mexico which became effective on January 1, 2014.
Unrecognized Tax Benefits
The Company has not identified any uncertain tax positions or expects any to be taken in the Company’s tax returns.
For the fiscal year ended April 30, 2014 and 2013, the amount of consolidated worldwide liability for uncertain tax
positions that impacted the Company’s effective tax rate was $0 for each year.
F-27
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE K - INCOME TAX - Continued
Other
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 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 2009.
The Company is no longer subject to U.S. Federal examinations by tax authorities for fiscal years before 2011.
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 per participant annually. The Company
contributed $93,452 and $93,795 to the plans during the fiscal years ended April 30, 2014 and 2013, respectively.
The Company paid total expenses of $6,850 and $6,675 for the fiscal years ended April 30, 2014 and 2013,
respectively, relating to costs associated with the administration of the plans.
NOTE M- EMPLOYEE STOCK PURCHASE PLAN
The Company implemented an employee stock purchase plan, (“ESPP”), for all eligible employees on February 1,
2014. Under the ESPP, employees may purchase shares of the Company’s common stock at three-month intervals
at 85% of the lower of the fair market value of the Company’s common stock on the first day or the last day of the
offering period (calculated in the manner provided in the plan). Employees purchase such stock using payroll
deductions, which may not be less than 1% nor exceed 15% of their total gross compensation. Shares of common
stock are offered under the ESPP through a series of successive offering periods. The plan imposes certain
limitations upon an employee’s right to acquire common stock, including the following: (i) termination of
employment for any reason immediately terminates the employee’s participation in the plan, (ii) no employee may
be granted rights to purchase more than $25,000 worth of common stock for each calendar year that such rights are
at any time outstanding, and (iii) the maximum number of shares of common stock purchasable in total by all
participants in the ESPP on any purchase date is limited to 500,000 shares. The number of shares of common stock
reserved for issuance under the plan automatically increases on the first day of the Company’s fiscal years by 25,000
shares. During fiscal year 2014, 2,158 shares were issued under the ESPP and the Company recorded $4,151 in
compensation expense.
NOTE N - 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, 2014, two customers accounted for 31.6% and
12.0% of net sales of the Company, and 11.2% and 4.5% of accounts receivable at April 30, 2014. For the year
ended April 30, 2013, two customers accounted for 26.8% and 9.6% of net sales of the Company and 11.0% and
6.4% of accounts receivable at April 30, 2013.
F-28
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE O - LEASES
The Company leases certain facilities under various operating leases expiring at various dates 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:
Years ending April 30,
2015
2016
2017
2018
2019
Thereafter
Capital
Leases
Operating
Leases
$
$
886,507
886,507
711,072
624,824
381,898
-
1,660,708
1,339,800
1,375,399
1,387,694
1,078,434
1,215,571
Total future minimum lease payments
$
3,490,808
$
8,057,606
Less amounts representing interest
Less Current Portion
301,846
3,188,962
765,961
Long Term Portion
$
2,423,001
F-29
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE O- LEASES - Continued
Rent expense incurred under operating leases was $1,981,977 and $1,679,467 for the years ended April 30, 2014
and 2013, 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 $17,770
for the fiscal year ended April 30, 2014 compared to deferred rent income of $2,140 recorded as of April 30, 2013.
In addition, the landlord provided the Company tenant incentives of $418,000, which are 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, 2014
and April 30, 2013 was $97,619 and $362,796, respectively.
NOTE P - 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, 2014, the Company has 400,914
shares available for future issuance to employees under the employee plans and 60,000 under the non-employee
director plans. 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.
The Company granted 25,000 options to employees in fiscal year 2014. The weighted average grant date fair value
of the options granted was $3.02 The Company recognized approximately $30,200 in compensation expense in
fiscal year 2014. The balance of unrecognized compensation expense at April 30, 2014 was approximately $44,215.
In fiscal year 2013, 115,000 options were granted to employees. The weighted average grant date value of the
options granted was $3.60. The Company recognized approximately $54,860 and $189,305 of compensation
expense in fiscal years 2014 and 2013, respectively. The balance of unrecognized compensation expense at April
30, 2014 and 2013 was approximately $13,800 and $70,600, respectively.
The Company offered to purchase 395,190 Eligible Options (as defined below) from Eligible Holders (as defined
below) upon the terms stated in Schedule TO (“TO”) filed with the SEC on October 1, 2013. The stock options
subject to the TO were those options to purchase SigmaTron common stock which had not expired or terminated
prior to the Expiration Time (as defined below) having the grant dates and exercise prices set forth in the TO (the
“Eligible Options”). Eligible Options, all of which were fully vested, were granted under the following Company
stock option plans: 1993 Stock Option Plan, 2004 Employee Stock Option Plan, 2000 Directors’ Stock Option Plan
and 2004 Directors’ Stock Option Plan.
“Eligible Holders” were: (a) those current or former employees, including all officers, who hold Eligible Options as
of the Expiration Time; and (b) all current or former directors of the Company who hold Eligible Options as of the
Expiration Time. “Expiration Time” means 11:59 p.m., Eastern Time, on October 29, 2013.
F-30
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE P - STOCK OPTIONS - Continued
The Company offered to pay a cash amount ranging from $0.18 to $1.35 per Eligible Option, totaling up to
$301,500, as specifically set forth in the TO. Each Eligible Holder who participated in the TO received cash
payment (subject to tax and other withholding for employees) for each properly tendered Eligible Option promptly
following the Expiration Time.
The Company made this offer subject to the terms and conditions stated in the TO and 394,200 Eligible Options
were tendered and purchased for a total cash payment of $300,410.
On October 1, 2013, the Company granted 1,500 shares to each non-employee director pursuant to the 2013 Non-
Employee Director Restricted Stock Plan. A total of 7,500 restricted shares were granted and the shares vested in
six months from the date of grant. The Company recognized approximately $39,700 in compensation expense in
fiscal year 2014. There was no unrecognized compensation expense related to the 7,500 shares of restricted stock at
April 30, 2014.
The Company issued 25,000 shares of restricted stock on June 1, 2012, of which 8,330 vested in June 2012 and
8,330 vested in June 2013. The Company recognized approximately $15,325 and $71,500 in compensation expense
for the years ended April 30, 2014 and 2013, respectively. The balance of unrecognized compensation expense
related to the Company’s restricted stock award was approximately $1,750 and $17,050 at April 30, 2014 and 2013,
respectively.
During the quarter ended July 31, 2012, the Company issued 50,000 shares of restricted stock as additional
consideration in conjunction with the May 31, 2012 Spitfire acquisition.
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
2014
2013
0%
78%
4.49%
6.0 years
0%
75%
.72%
5.5 years
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-31
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE P - STOCK OPTIONS - Continued
The table below summarizes option activity through April 30, 2014:
Number of
securities to be
issued upon
exercise of
outstanding options
Weighted-
average
exercise
i
410,192 $
115,000
(10,000)
515,192
25,000
(43,586)
(850)
(394,200)
101,554 $
9.16
3.60
3.99
8.02
4.24
3.64
4.24
9.34
3.88
Number of
options
exercisable
at end
of year
410,192
438,142
48,304
Outstanding at April 30, 2012
Options granted during 2013
Options exercised during 2013
Outstanding at April 30, 2013
Options granted during 2014
Options exercised during 2014
Options expired during 2014
Options repurchased during 2014
Outstanding at April 30, 2014
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, 2014 and 2013, the aggregate
intrinsic value of options exercised was $291,025 and $1,400, respectively. As of April 30, 2014 and 2013, the
aggregate intrinsic value of in the money options outstanding was $653,803 and $60,950, respectively.
F-32
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE P - STOCK OPTIONS - Continued
Information with respect to stock options outstanding at April 30, 2014 follows:
Range of exercise prices
$ 3.60-5.40
$ 9.17-11.56
Number
outstanding at
April 30, 2014
Options outstanding
Weighted-average
remaining
contract life
Weighted-
average
exercise price
100,563
991
101,554
7.71 years
1.38 years
$
$
3.83
9.17
3.88
Information with respect to stock options outstanding and exercisable at April 30, 2014 follows:
Number
outstanding at
April 30, 2014
Options outstanding and exercisable
Weighted-average
remaining
contract life
Weighted-
average
exercise price
Range of exercise prices
$ 3.60-5.40
$ 9.17-11.56
47,313
991
48,304
9.76 years
1.38 years
$
$
3.89
9.17
3.99
F-33
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE Q - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal year 2014:
2014
Net sales
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 56,166,061 $ 56,577,287 $ 54,175,196 $ 55,567,396
Income (loss) before income
1,240,339
949,811
(130,182)
724,856
tax (benefit) expense
Net income
967,464
784,654
743,794
422,779
Earnings per share
$
0.24 $
0.20 $
0.19 $
0.11
Basic
Earnings per share
$
0.24 $
0.19 $
0.18 $
0.10
Diluted
Total shares- Basic
3,961,232
3,961,232
3,966,814
3,988,923
Total shares- Diluted
4,011,001
4,037,627
4,088,695
4,107,736
F-34
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2014 and 2013
NOTE Q - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
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
$
(0.02) $
0.13 $
(0.06) $
0.08
(Loss) earnings per share
Diluted
$
(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
NOTE R - LITIGATION
As of April 30, 2014, 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-35