SIGMATRON INTERNATIONAL, INC. 2015 ANNUAL REPORT
TARGETING CUSTOMER VALUE
GLOBAL VERSATILIT Y + PERSONALIZED SUPPORT = CUSTOMER-CENTERED SOLUTIONS
SigmaTron is an electronic manufacturing services (EMS)
company that provides printed circuit board assemblies and
completely assembled electronic products to eight end-user
markets through a global network of seven facilities located
in four countries. Focused on service excellence, our scale allows us to embrace
the most complex projects, yet our flexibility ensures we partner closely with customers
to tailor and guide their projects from beginning to end. Wherever we are around the globe,
we offer design and engineering, integrated real-time information and process systems,
manufacturing and test. Our high value supply chain team provides component sourcing
at internationally-competitive prices with expertise in green, regulatory compliance and
documentation services.
CUSTOMER-CENTERED SOLUTIONS
For fiscal 2015, SigmaTron is on target to deliver superior EMS value to our customers and
prospects through an integrated array of system-level technologies, scale and range of cost
structures and personalized support. This winning formula helps animate our “One Source.
Global Options.®”positioning both in the present EMS marketplace and in the foreseeable future.
SIGMATRON INTERNATIONAL, INC. (NASDAQ: SGMA)
TO OUR STOCKHOLDERS,
In fiscal 2015, we continued our year-to-year commitment to the growth and success of our
customers with the goal to make SigmaTron’s solutions for electronic manufacturing services
(EMS) the clear choice for customers and prospects in North America and in expanding
markets worldwide. Our strong culture, dedicated employees and investment in technology
for key areas of the business remain integral to our progress and forward momentum.
While a tough industry environment and world economy continues to drive up margin
pressures, we took steps to address this from a manufacturing and supply chain perspective.
For a second consecutive year, revenues exceeded that of the prior year. In fiscal 2015, we
reported revenues of $230 million, a modest increase over 2014 revenues of $222 million.
Despite disappointing profitability in the fourth quarter of fiscal 2015 and overall, we believe
that we continue to do an excellent job navigating a choppy U.S. and global economy and
positioning SigmaTron for future financial success.
The global EMS industry in which we compete was sized at just $35 billion as SigmaTron began
trading as a public company over 20 years ago. Today, we see outstanding opportunities as
the EMS market is reported to be growing at a compound annual growth rate of 6.2 percent,
surpassing a historic high of $620 billion in 2014. Net-net, both the EMS and the eight markets
we currently target are growing, fueling optimism in both the industry environment and the
customer base we serve. The SigmaTron of today is well positioned to remain in stride with
the demands of a fast-growing EMS industry and on course to compete now and well into
the 21st century.
We anticipate improved revenues and profitability in fiscal 2016, based on existing customer
programs that began to emerge from their pipelines in the fourth quarter, plus several new
customer programs that are just beginning to launch. Once these new and existing programs
ramp up, we expect SigmaTron’s “One Source. Global Options.®” positioning and “customer
at the center” service commitment to take hold at new levels, benefiting our customers,
employees and investors alike.
GROWTH IN
INVESTMENT IN
MANUFACTURING
FACILITIES
OUR TOTAL EXPANSION
BY SQUARE FOOTAGE
72%
INCREASE SINCE 2005
SIGMATRON INTERNATIONAL 2015 1
2 SIGMATRON INTERNATIONAL 20 15
CUSTOMER-CENTERED EMS SOLUTIONS
COMPANIES THAT PERSEVERE amidst year-to-year economic challenges and deliver
leadership levels of growth are those with strong productivity cultures. Innovation begins with
and is advanced by people. During the recent past and the current fiscal year, our global teams
served the EMS needs of eight, diverse end-user markets: appliances, industrial electronics, fitness,
consumer electronics, medical/life sciences, semiconductor, telecommunications and gaming.
Moving forward, we will further advance our commitment to quality by serving customer programs
that demand the very best of SigmaTron. The enhanced technologies and processes required by
our customers, especially in the medical and industrial markets, are driving execution efficiencies
at every level of our company and in each market served.
We invite you to read more about how our talented and growing workforce further refined
SigmaTron’s business strategy to execute on opportunities identified in fiscal 2014 and to add
value for customers throughout fiscal 2015. Among the many steps taken during the year to
help position the company for future growth, the following stand out:
CUSTOMIZED, SCALABLE MANUFACTURING SOLUTIONS. Our program teams offer
customers the flexibility to optimize performance for each project. We customize what we view
as an optimum mix of services and locations for manufacturing through each step of the program
lifecycle – from new product introduction through testing and fulfillment. Our versatility allows
customers to scale-up manufactured volumes to meet rapid changes in market demand.
“ONE SOURCE. GLOBAL OPTIONS.®” Our global teams led by management offer depth
of experience, broad capabilities and multi-facility account options within a single network.
SigmaTron’s global presence provides seven manufacturing facilities in four countries in North
America, Mexico and Asia. We add value for customers who seek highly customized global
options yet are not a service fit with larger EMS providers.
COMMUNICATIONS, INFORMATION TECHNOLOGY AND PROCESSES . Our robust
information technology (IT) and production systems tie together SigmaTron’s global locations so
they function as an interconnected network, with full intra-facility communications and reporting.
Our operations teams efficiently and comprehensively connect customers to their programs, a key
point of differentiation from other EMS providers.
CUSTOMER-CENTERED VALUE ADDED SERVICES. Established nearly two decades ago,
our customized Supply Chain Solutions are driving superior value for customers who seek reliable,
internationally competitive pricing for materials and component sourcing. Our International
Procurement Office (IPO) in Taipei, Taiwan reached a pinnacle in value this fiscal year as it
supported sourcing and the quoting process for all SigmaTron facilities. For the foreseeable future,
our highly experienced IPO team will continue to leverage strategic relationships and manage the
best sourcing channels based on geography, price and quality available.
GROWTH IN
EMS MARKET SIZE
WORLDWIDE*
$35B
1994: $35 BILLION
$460B
2014: $460 BILLION
$621B
2019: $621 BILLION**
In fiscal 2015, we relocated our Green Compliance Service Center (GCSC) from Suzhou, China
to our International Procurement Office (IPO) in Taiwan. Our customers increasingly draw upon the
center’s depth of expertise in meeting a growing range of federally and internationally mandated
regulatory and green compliance requirements for disclosure and documentation in manufacturing.
THE GLOBAL EMS MARKET IS EXPAND-
ING AT APPROXIMATELY 6.2% A YEAR,
A PROJECTED FIVE-YEAR COMPOUND
ANNUAL GROWTH RATE (CAGR).
*Source: New Venture Research Corp.
** Projected
SIGMATRON INTERNATIONAL 2015 3
4 SIGMATRON INTERNATIONAL 20 15
TARGETING CUSTOMER VALUE
WELL POSITIONED FOR GROWTH; OUR OPERATING RESULTS
In recent years our extended global footprint combined with our operating flexibility and
experience positioned us to compete successfully in the fast-growing EMS industry. To keep
pace with or ahead of our customer demands, the growth statistics in this report point to a
sustained investment in our facilities, technology and workforce, with added emphasis to serve
programs in key markets such as in the medical, life sciences and industrial market sectors.
SigmaTron continued to execute on our decades-long strategy to build on key operating
strengths – a global footprint and manufacturing infrastructure often associated with much
larger organizations. In fiscal 2015, our positioning “One Source. Global Options.®” was not only
a factor in business expansion, but netted an end product (design) that is increasingly more
manufacturable, testable and efficient. Our manufacturing sites in the United States, Mexico,
China and Vietnam enable us to provide an attractive range of near shore and offshore program
options. We invite you to take a closer look at strides we achieved in our global network of
manufacturing sites.
SIGMATRON UNITED STATES
Elk Grove Village, Illinois. Our Company headquarters in Elk Grove Village, Illinois continued
to upgrade its capabilities in fiscal 2015 and expanded its customer base to include the Mid-
Atlantic States. Leveraging its ISO 13485 medical certification since fiscal 2013, the facility saw
a modest increase in customers and programs in medical equipment and diagnostics. In fiscal
2016, Elk Grove will also focus on expanding its stable base of customers in the industrial,
telecommunications, consumer electronics, and medical markets, including dental and
veterinary equipment.
The facility also extended its box-build, next-generation printed circuit board assemblies and
value-added services to a wider customer base. As Elk Grove looks to build momentum in the
year ahead, we expect to leverage the operation’s growing box-build capabilities. The operation
plans to advance its Design for Manufacturability (DFM) capabilities through close collaboration
with Spitfire Control’s Design and Engineering Center in nearby Elgin, Illinois.
INNOVATION
BEGINS WITH PEOPLE
Our Growing Work Force:
A 56% INCREASE
IN THE PAST 10 YEARS
1994 EMPLOYEES
705
1,740
2,710
2005 EMPLOYEES
2015 EMPLOYEES
SIGMATRON INTERNATIONAL 2015 5
Spitfire Controls Design and Engineering Center, Elgin, Illinois. In fiscal 2015, Spitfire
Controls’ value-added Design and Engineering Center in Elgin, Illinois achieved new strides
to fully integrate and leverage synergies with our seven manufacturing facilities. Building on its
upgraded, computer-aided design (CAD) capability in fiscal 2014, the division progressed in its
plan to begin offering 3-D imaging to New Product Introduction (NPI) services as a cost-effective
alternative before launch of the hard tooling stage. The Center’s advanced turnkey product
designs are showing signs of being of increased value across the organization, by addressing
key goals that optimize program commercialization, drive innovation and reduce costs.
Union City, California. During fiscal 2015 our Union City, California facility once again served
as our high technology hub. For our customers who require it, we expect that Union City, often
joined by our facility in Tijuana, Mexico, will seamlessly deliver value to the company’s most
sophisticated EMS programs. Beginning in Union City, but extending to other facilities, our
manufacturing engineering team develops innovative approaches that reduce or eliminate
production inefficiencies. We also supported Union City technology advancements with capital
investments made in manufacturing equipment.
The facility also drove new levels of quality and efficiency in NPI and leveraged ISO 13485
certification and ITAR, acquired in 2008 and 2011 respectively. Union City gained new medical
equipment accounts during the fiscal year, earning a Platinum Supplier Award for service
excellence from a world leader in mechanical circulatory support systems. Yet, the long lead
times that hallmark these industries are expected to present challenge and opportunity both
now, and into the future.
SIGMATRON MEXICO
GROWTH IN
INVESTMENT IN
SMT LINES
Surface Mount Technology
(SMT) Manufacturing Lines
OUR 10-YEAR GROWTH IN
ADVANCED CIRCUIT
ASSEMBLY CAPABILITIES
1
2005
49
2015
Acuña, Chihuahua and Tijuana, Mexico. In fiscal 2015, we offered U.S. and global
customers the option to manufacture complex system-level projects in our three plants
in Mexico. These plants provide an ideal mix of near-shoring services, including depth of
experience in sourcing materials, configuration management and traceability. As in prior fiscal
year 2014, SigmaTron’s plants in Acuña, Chihuahua and Tijuana each experienced growth
tied to the merits of current and past investments in technology and efficiency. We expect
this market environment will bode well as the facilities target an increasingly diverse mix of
customers and industries in the future. Our Acuña operation continues to be one of the largest,
most cost-competitive and experienced plants in SigmaTron’s global network. This year, Acuña
added a number of technology upgrades that allow the plant to offer customized test solutions
to a wider customer base.
SigmaTron’s recently expanded Tijuana facility often works with a second SigmaTron location,
Union City, California, to enhance programs in need of lower-cost production, especially
as manufacturing volumes scale-up. In fiscal 2015 the Tijuana facility took further steps
to advance as one of the company’s high-tech manufacturing regions of choice for EMS
customers based in North America. We plan to continue to leverage Tijuana’s strengths
including optimal labor costs, manufacturing efficiency and customizable test solutions.
6 SIGMATRON INTERNATIONAL 20 15
SIGMATRON ASIA
Suzhou, China. Our Suzhou, China facility continued driving important differentiation
in SigmaTron’s global footprint in fiscal 2015. With a workforce of over 500 employees
and growing, we hired a dedicated sales manager to help develop domestic business in
China, augmenting our pipeline of EMS business for export. Our broad focus in Suzhou
remains select customers who value both quality and service, whether they are growing
their businesses domestically or globally. During the past year, we expanded the facility,
namely its warehouse and manufacturing space, by 40,000 square feet in direct response
to our customers’ needs. Our Suzhou team also progressed in its pursuit of ISO 13485
medical certification. If confirmation remains on target, we plan to begin medical equipment
manufacturing here for U.S. and domestic China customers in fiscal 2016.
In addition, the Suzhou facility invested in other specialized, high technology, driving next
levels of quality and efficiency for a growing customer base in the consumer, fitness, appliance
and industrial markets. New technologies include two new Surface Mount Technology (SMT)
manufacturing lines for a total of nine SMT lines, the second highest number in the company
after our Acuña, Mexico facility.
Ho Chi Minh City, Vietnam. Our strategically situated plant in Ho Chi Minh City, Vietnam
promotes easy access from the Company’s substantive regional supply base in China, while
capitalizing on the low cost structure of Southeast Asia. As a continuation of its progress from
the prior fiscal year, the Vietnam facility remains focused on contributing quality, cost-effective
manufacturing services, deepening SigmaTron’s global reach.
Taipei, Taiwan, International Procurement Office. Our International Procurement Office
(IPO) in Taipei is crucial to each of our operations by sourcing raw materials at internationally
competitive pricing from channels around the world. Our Taiwan team does a particularly
good job representing SigmaTron to our vendors throughout Southeast Asia, which facilitates
communication and enhances our response time for the benefit of our customers. During
fiscal 2015, we relocated our Green Compliance Service Center from our manufacturing site
in China to our IPO in Taiwan, consolidating these services. As was the case in fiscal 2015,
we believe our Taiwan IPO will be one of our keys to success in fiscal 2016.
GROWTH
IN PROCUREMENT
DOLLARS*
Increase in Corporate
Purchases Since 2005:
Our International Procurement
Office (IPO) in Taipei, Taiwan.
$3.3M
1997: $3.3 MILLION
$66.5M
2014: $66.5 MILLION
*FIGURES SHOWN ARE PRESENTED
IN U.S. DOLLARS (USD) AND
REPORTED BY CALENDAR YEAR.
SIGMATRON INTERNATIONAL 2015 7
SIGMATRON INTERNATIONAL, INC. (NASDAQ: SGMA)
SIGMATRON DELIVERS ON MOMENTUM, A LOOK TO THE FUTURE
We are SigmaTron, centered on the customer, delivering excellence in EMS for more than
20 years. Looking ahead with measured optimism, we expect as of fourth quarter of fiscal
2015 to deliver even higher revenues in fiscal 2016 based on the impact of new EMS
programs already emerging from the pipeline. We plan to target gross margin improvement
and higher earnings from a combination of revenue growth and strong leadership by our
well-seasoned management team and employees at every level.
Today SigmaTron is a strong, focused and global EMS provider with the comprehensive
resources and technical versatility to handle any project. Evidences of SigmaTron’s
operational strategy, depth and agility — manifested in our “One Source. Global Options.®”
positioning — is now an even greater reality than in any time in the company’s history.
We anticipate that each of our key audiences will recognize our operational strengths in the
form of new business at every facility in our Company. Valuing our current customers, we
also plan to grow revenues and profits by way of a long-term, gradual shift of business mix
to higher-technology, higher-margin markets including industrial, medical/life sciences and
military/aerospace. We expect SigmaTron’s global footprint and technical capabilities, unique
for an EMS provider of our size, will continue to fuel growth in our share of the EMS market
space. While the outlook for growth in each of the markets we serve is at a historic high, EMS
remains a challenging industry with intensified competition amidst a slow-growing, world
economy. Yet we are highly confident SigmaTron will remain well positioned globally and well
aligned technologically to respond to new opportunities that enhance growth of our bottom line.
As we further commit to and refine our strategy in the year ahead, I express my thanks to our
dedicated and talented global employees and others who are steadfast in their commitment
to our success — SigmaTron customers and stockholders, strategic supply chain partners,
professional firms, Wells Fargo Bank, N.A. and our Board of Directors.
Sincerely,
Gary R. Fairhead
President and Chief Executive Officer
SigmaTron International, Inc.
August 14, 2015
8 SIGMATRON INTERNATIONAL 20 15
CORPORATE INFORMATION
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
John P. Sheehan*
Vice President,
Director of Supply Chain
and Assistant Secretary
Daniel P. Camp*
Vice President,
Acuña Operations
Rajesh B. Upadhyaya*
Executive Vice President,
West Coast Operations
Hom-Ming Chang*
Vice President,
China Operations
Curtis W. Campbell
Vice President of Sales,
West Coast Operations
James E. Barnes
Vice President of Operations,
Elk Grove Village
Yousef M. Heidari
Vice President,
Engineering
Donald G. Madsen
Vice President,
Customer Service
Union City Operations
Dennis P. McNamara
Vice President,
Engineering
Thomas F. Rovtar
Vice President,
Information Technology
Keith D. Wheaton
Vice President,
Business Development
West Coast Operations
*Executive Officers
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.
Thomas W. Rieck 1,3
Partner,
Rieck and Crotty, P.C.
Dilip S. Vyas 2,3,4
Independent Consultant
Paul J. Plante 1,2
President and Owner
Florida Fresh Vending, LLC
Bruce J. Mantia2
Retired Partner
Ernst & Young LLP
Barry R. Horek1,3
Retired Partner
Ernst & Young LLP
1 Member of the Audit Committee
2 Member of the
Compensation Committee
3 Member of the
Nominating Committee
4 Lead Director
CORPORATE INFORMATION
SEC Counsel
Greenberg Traurig, LLP
77 West Wacker Drive
Chicago, Illinois 60601
Corporate Counsel
Howard & Howard
Attorneys PLLC
200 South Michigan Avenue
Chicago, Illinois 60604
Independent
Public Accountants
BDO USA, LLP
330 North Wabash Avenue
Chicago, Illinois 60611
Form 10-K
If you would like a free copy of
the Form 10-K report filed with
the Securities and Exchange
Commission, please call Linda K.
Frauendorfer at the SigmaTron
corporate office, 1.800.700.9095.
Stock Transfer Agent
and Registrar
American Stock Transfer &
Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
Stock Information
The Company’s common stock
has been trading on the Nasdaq
System under the symbol SGMA
since the Company’s initial public
offering in February 1994.
The Company has 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.
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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, 2015.
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
ASDAQ Capital Market
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. Yes 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. Yes 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.
Yes 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). Yes 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.
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 Accelerated filer Non-accelerated Smaller reporting company
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes No
The aggregate market value of the voting common equity held by non-affiliates of the registrant as of October 31,
2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was $25,246,669
based on the closing sale price of $7.00 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 22, 2015 was
4,162,285.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in
connection with its 2015 annual meeting of stockholders, which the Company intends to file within 120 days of the
fiscal year ended April 30, 2015, 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.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
ITEM 5.
ITEM 6.
ITEM 7.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
SELECTED FINANCIAL DATA
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
4
11
17
17
18
19
19
20
20
29
29
30
30
30
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
ITEM 11.
ITEM 12.
GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
31
31
31
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND
ITEM 14.
DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART I
PART II
PART III
PART IV
31
31
31
35
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
3
PART I
ITEM 1. BUSINESS
CAUTIONARY NOTE:
In addition to historical financial information, this discussion of the business of SigmaTron International, Inc.
(“SigmaTron”), its wholly-owned subsidiaries Standard Components de Mexico S.A., AbleMex, S.A. de C.V.,
Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls
(Cayman) Co. Ltd., 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 the Company’s
Annual Report on Form 10-K, and as risk factors, and may be detailed from time to time in the Company’s
filings with the Securities and Exchange Commission. These statements speak as of the date of such filings,
and the Company undertakes no obligation to update such statements in light of future events or otherwise
unless otherwise required by law.
Overview
SigmaTron is a Delaware corporation, which was organized on November 16, 1993, and commenced operations
when it became the successor to all of the assets and liabilities of SigmaTron L.P., an Illinois limited
partnership, through a reorganization on February 8, 1994.
The Company operates in one business segment as an independent provider of electronic manufacturing
services (“EMS”), which includes printed circuit board assemblies and completely assembled (box-build)
electronic products. In connection with the production of assembled products, the Company also provides
services to its customers, including (1) automatic and manual assembly and testing of products; (2) material
sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing
and distribution services; and (6) assistance in obtaining product approval from governmental and other
regulatory bodies. The Company provides these manufacturing services through an international network of
facilities located in the United States, Mexico, China, Vietnam and Taiwan.
The Company provides manufacturing and assembly services ranging from the assembly of individual
components to the assembly and testing of box-build electronic products. The Company has the ability to
produce assemblies requiring mechanical as well as electronic capabilities. The products assembled by the
4
Company are then incorporated into finished products sold in various industries, particularly appliance,
consumer electronics, gaming, fitness, industrial electronics, medical/life sciences, semiconductor and
telecommunications.
The Company operates manufacturing facilities in Elk Grove Village, Illinois United States of America
(“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 and
in fiscal year 2015 expanded the Company’s manufacturing facility. The Company expects the China operation
to continue to grow despite increasing costs of operation.
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's overall results reflect the choppy economy in both the United States and globally. In the first
quarter of 2015, the gross domestic product (GDP) for the United States actually contracted and the Company
believes the contraction caused the Company’s customers to adjust their orders and requirements, which had a
negative impact on the Company's results. The rescheduling of orders negatively impacted what the Company
thought would be a much stronger fourth quarter of fiscal year 2015. The Company did however launch new
programs in the fourth quarter of fiscal year 2015. The new orders came from both existing and new customers.
The Company has seen gains in markets that it has been actively pursuing during the past two fiscal years and
believes both revenues and pre-tax income will increase in fiscal year 2016. However, margin pressures
continue from both customers and vendors and will likely continue in fiscal year 2016.
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 product. 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, 2015, the Company
had approximately 115 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
Semiconductor Equipment
Medical/Life Sciences
Telecommunications
Gaming
Total
Household appliance controls
Motor controls, power supplies, lighting products, scales,
joysticks
Treadmills, exercise bikes, cross trainers
Personal grooming, computers
Process control and yield management equipment for
semiconductor productions
Clinical diagnostic systems and instruments
Routers, communication
Slot machines, lighting displays
Fiscal
2015
%
Fiscal
2014
%
49.9
48.6
31.2
31.2
6.7
4.7
2.9
2.6
1.7
0.3
7.0
5.5
2.4
3.0
1.4
0.9
100% 100%
For the fiscal year ended April 30, 2015, the Company’s largest two customers, Electrolux and Whirlpool Inc.,
accounted for 36.8% and 9.9%, respectively, of the Company’s net sales. 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.
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 9 independent manufacturers’ representative organizations that
together currently employ 18 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 3 direct sales employees. In addition, the
Company markets itself through its website and tradeshows.
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 825 employees at April 30, 2015. 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
194 employees at April 30, 2015. The Company’s wholly-owned subsidiary, Digital Appliance Controls de
Mexico S.A., a Mexican corporation, operates in Chihuahua, Mexico, located approximately 235 miles from El
Paso, Texas. Digital Appliance Controls de Mexico S.A. was incorporated and commenced operations in 1997.
The operation had 375 employees at April 30, 2015. 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.
7
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. In fiscal 2015, the China facility expanded and added 40,000 square
feet in warehouse and manufacturing. The total square footage of the facility is 202,000 and has 537 employees
as of April 30, 2015. Both SigmaTron China entities operate at this site.
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 310 employees as of April 30,
2015.
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,
except for the Acuna Mexico operation, which is funded in Pesos. 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, 2015 resulted in a net
foreign currency gain of $40,000 compared to a net foreign currency loss of $128,000 in the prior year. In
fiscal year 2015, the Company paid approximately $52,220,000 to its foreign subsidiaries.
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 was reflected in the
Company’s tax provision for the fiscal year ended April 30, 2014. The Company has not recorded U.S.
income taxes on the undistributed earnings of the Company’s foreign subsidiaries. Since the earnings of the
foreign subsidiaries have been, and under fiscal April 30, 2015 plans, will continue to be indefinitely reinvested,
no deferred tax liability has been recorded. With respect to fiscal April 30, 2016, as a result of the uncertainty
of the Company’s financing arrangements and its domestic liquidity profile, the Company has determined that
it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic
funding needs but will not need to repatriate prior earnings based on current forecasts. The cumulative amount
of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of April 30,
2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of
the hypothetical calculation.
During fiscal year 2015, the Company reflected tax expense of $643,708 related to the inability to realize the
tax benefit recorded in fiscal year 2014 for potential foreign tax credits related to the above distribution from
Mexico. The Company’s current estimate of cumulative taxable income during the foreign tax credit
carryforward period is insufficient to support that the tax benefit from the foreign tax credit is more likely than
not to be realized.
The consolidated financial statements as of April 30, 2015 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.
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”) and Registration, Evaluation, Authorization and Restriction of
Chemicals (“REACH"). 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. REACH is a European Union Regulation enacted as of December 2006. The regulation imposes
information reporting requirements on 163 listed SVHCs (substances of very high concern) as of June 2015.
From time-to-time the Company's customers request REACH required information and certifications on the
assemblies the Company manufactures for them. These requests require the Company to gather information
from component suppliers to verify the presence and level of mass of any SVHCs greater than 0.1% in the
assemblies the Company manufactures based on customer specifications. If any SVHCs are present at more
than 0.1% of the mass of the item, the specific concentration and mass of the SVHC must be reported to proper
authorities by the Company's customer.
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 June 1, 2015, 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
$550,000. 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. The Company’s backlog of firm orders as of April 30, 2015 and 2014 was approximately
$142,520,000 and $114,420,000, respectively. The Company anticipates a significant portion of the backlog at
April 30, 2015 will ship in fiscal year 2016. 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 2,710 people as of April 30, 2015, including 181 engaged in
engineering or engineering-related services, 2,154 in manufacturing and 375 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 expires December 31, 2015.
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
63
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
54
Chief Financial Officer, Vice President of Finance, Treasurer and Secretary
since February 1994. Director of the Company since August 2011.
Gregory A. Fairhead
59
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
54
Vice President, Director of Supply Chain and Assistant Secretary since
February 1994.
Daniel P. Camp
66
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
60
Executive Vice President, West Coast Operations since 2005. Mr.
Upadhyaya was the Vice President of the West Coast Operations from 2001
until 2005.
Hom-Ming Chang
55
Vice President, China Operations since 2007. Vice President – West Coast
Materials / Test / IT from 2001 - 2006.
ITEM 1A. RISK FACTORS
The following risk factors should be read carefully in connection with evaluating our business and the forward-
looking information contained in this Annual Report on Form 10-K. Any of the following risks could
materially adversely affect our business, operations, industry or financial position or our future financial
performance. While the Company believes it has identified and discussed below the key risk factors affecting
its business, there may be additional risks and uncertainties that are not presently known or that are not
currently believed to be significant that may adversely affect its business, operations, industry, financial
position and financial performance in the future.
The Company’s ability to secure and maintain sufficient credit arrangements is key to its continued
operations.
There is no assurance that the Company will be able to retain or renew its credit agreements and other finance
agreements in the future. In the event the business grows rapidly, the uncertain economic climate continues or
the Company considers another acquisition, additional financing resources could be necessary in the current or
future fiscal years. There is no assurance that the Company will be able to obtain equity or debt financing at
acceptable terms, or at all in the future.
The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000
and current term through October 31, 2017. 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
11
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. Pursuant to the
agreement, financial covenants were amended, an unused line fee was added, and the borrowing interest rate
was changed. The facility allows the Company to choose among interest rates at which it may borrow
funds. The interest rate is the bank fixed rate of two and one quarter percent plus one percent (effectively
3.25% at April 30, 2015) or LIBOR plus two and one quarter percent (effectively 2.625% at April 30,
2015). Interest is paid monthly. Under the senior secured credit facility, the Company may borrow up to the
lesser of (i) $30,000,000 or (ii) an amount equal to the sum of 85% of the receivable borrowing base plus a
percentage of the inventory borrowing base (collectively, “Borrowing Base”, which cannot exceed 50% of
combined eligible receivables and inventory). Further, in specific circumstances, the Company is entitled to an
over advance of up to $5,000,000 through October 31, 2015; however, at no time can the borrowings under the
credit facility exceed $30,000,000. The effective interest rate for the over advance facility was LIBOR plus two
and three quarter percent. Effective December 31, 2014, the Company amended its senior secured credit
facility agreement to temporarily increase the total Borrowing Base limit to 60% through June 30, 2015 and
reverting to 50% of total Borrowing Base after June 30, 2015. Further, the senior secured credit facility
agreement was modified to allow specific foreign receivables to become eligible collateral. The receivable
modification is effective until June 30, 2015. The Company agreed to an increase in the effective interest rate
for the over advance facility and a $5,000 amendment fee. The interest rate for the over advance facility
increased from LIBOR plus two and three quarter percent (effectively 3.125% at April 30, 2015) or the bank
fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) to LIBOR plus
three and one half percent (effectively 3.875% at April 30, 2015) or the bank fixed rate of two and one quarter
percent plus one percent (effectively 3.25% at April 30, 2015). As of April 30, 2015, there was a $27,416,793
outstanding balance and $2,583,207 of unused availability under the credit facility agreement. At April 30,
2015, the Company was 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 2016 at the Company’s current
level of business. The Company has received forecasts from current customers for increased business that
would require additional investments in inventory. To the extent that these forecasts come to fruition, the
Company intends to meet any increased capital requirements by raising capital from other sources of debt or
equity. The Company has selected an investment banker for the purpose of completing a capital raise in the
third fiscal quarter of 2016. The capital raise, if successful, may consist of debt, equity or a combination of debt
and equity. If the capital raise is not completed, the Company has determined that it might be required to
repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not
need to repatriate prior earnings based on current forecasts. The cumulative amount of unremitted earnings for
which U.S. income taxes have not been recorded is $12,163,000 as of April 30, 2015. The amount of U.S.
income taxes on these earnings is impractical to compute due to the complexities of the hypothetical
calculation.
In addition, in the event the Company desires to expand its operations, its business grows more rapidly than
expected, the current economic climate deteriorates, customers delay payments, or the Company desires to
consummate an acquisition, additional financing resources may 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.
12
The Company experiences variable operating results.
The Company’s results of operations have varied and may continue to fluctuate significantly from period to
period, including on a quarterly basis. Consequently, results of operations in any period should not be
considered indicative of the results for any future period, and fluctuations in operating results may also result in
fluctuations in the price of the Company’s common stock.
The Company’s quarterly and annual results may vary significantly depending on numerous factors, many of
which are beyond the Company’s control. Some of these factors include:
- changes in sales mix to customers
- changes in availability and rising component costs
- volume of customer orders relative to capacity
- market demand and acceptance of our customers’ products
- price erosion within the EMS marketplace
- capital equipment requirements needed to remain technologically competitive
- volatility in the U.S. and international economic and financial markets
The Company’s customer base is concentrated.
Sales to the Company’s five largest customers accounted for 62.5% and 60.0% of net sales for the fiscal years
ended April 30, 2015 and 2014, respectively. For the year ended April 30, 2015, two customers respectively
accounted for 36.8% and 9.9% of net sales of the Company, and 9.6% and 5.5% of accounts receivable at April
30, 2015. For the year ended April 30, 2014, two customers respectively accounted for 31.6% and 12.0% of net
sales of the Company and 11.2% and 4.5%, respectively, of accounts receivable at April 30, 2014. Significant
reductions 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 for accounts receivable and inventory obligations. 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 in any given quarter.
13
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
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.
14
Approximately 15.1% and 15.7% of the total non-current consolidated assets of the Company are located in
foreign jurisdictions outside the United States as of April 30, 2015 and 2014, respectively.
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.
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 year ended April 30, 2015 resulted in a net foreign currency gain of approximately $40,000 compared to
a net foreign currency loss of $128,000 in the prior year. 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 45% and 48%
of its workforce for fiscal years 2015 and 2014, respectively. Although the Company believes its labor relations
15
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.
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
16
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, 2015, 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.
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
202,000 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
112,100 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 2016. The lease agreement for the California property expires March 2021. The
17
Chihuahua, Mexico lease expires July 2017. The Tijuana, Mexico lease expires November 2018. The lease
agreement for the Ho Chi Minh City, Vietnam property expires July 2020. The Company’s manufacturing
facilities located in Acuna, Mexico, Elgin, Illinois 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 properties in Elk Grove Village, Illinois and Elgin, Illinois
are financed under separate mortgage loan agreements. 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
In November 2008, the Company received notice of an Equal Employment Opportunity Commission (“EEOC”)
claim based on allegations of discrimination, sexual harassment, and retaliation filed by Maria Gracia, a former
employee. On December 5, 2008, Ms. Gracia’s employment as an assembly supervisor was terminated after
she knowingly permitted an assembly line to run leaded boards in a lead-free room with lead-free solder,
contrary to the customer’s specifications and prohibited by Company policy. The use of lead-free solder for
leaded components can lead to devices that fail and significant penalties to the Company and its customers from
regulatory bodies. The parts were quarantined and were not shipped. Ms. Gracia openly admitted to permitting
this to take place.
The EEOC declined to pursue Ms. Gracia’s charges against the Company, but on July 26, 2011, Ms. Gracia
received a right to sue letter from the EEOC. On October 25, 2011, Ms. Gracia filed suit against the Company
in the U.S. District Court for the Northern District of Illinois under Title VII of the Civil Rights Act. The
Complaint alleged claims that Ms. Gracia was subject to discrimination, harassment, and hostile work
environment based on sex and national origin. In the Complaint, Ms. Gracia alleged that her supervisor
engaged in a pattern of unwanted sexual advances and that he sent her emails that were offensive to her gender
and national origin. Further, the Complaint also alleged that the Company retaliated by terminating Ms.
Gracia’s employment after she filed her initial charge of discrimination with the EEOC. Ms. Gracia sought
relief in the form of (a) damages sufficient to compensate her injuries; (b) attorney’s fees; (c) costs of the
action; (d) and equitable remedies.
In the court’s October 25, 2013 ruling on the Company’s Motion for Summary Judgment, the court limited
plaintiff’s claims to two: (1) hostile work environment caused by gender (sexual harassment), and (2)
retaliation. In December 2014, a jury trial found in favor of the Company with respect to the first claim and for
the plaintiff with respect to the second claim, awarding plaintiff damages totaling $307,000. In post-trial
motions, the judge reduced the verdict to $300,000. The judge will now consider plaintiff’s claim for equitable
remedies and attorneys’ fees and costs, along with the Company’s motion for sanctions, as the plaintiff
introduced knowingly altered documents as evidence during the trial which had not been previously disclosed.
It is uncertain when these claims will be ruled upon by the court.
18
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, 2015 and 2014.
Common Stock as Reported
by NASDAQ
Period
High
Low
Fiscal 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$ 8.08
8.24
11.49
12.44
$ 12.92
9.54
6.00
4.49
$ 5.84
5.55
6.29
8.12
$ 7.53
5.03
4.18
3.86
As of July 22, 2015, there were approximately 47 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 3,312 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.
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
19
Management and Related Stockholders Matters” as well as the Company’s audited financial statements and
notes thereto, including Note M, 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”), the Company is 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 the Company’s
Annual Report on Form 10-K, 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.
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
20
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 (turnkey versus consignment)
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, 2015 and 2014.
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 and
in fiscal year 2015 expanded the Company’s manufacturing facility. The Company expects the China operation
to continue to grow despite increasing costs of operation.
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's overall results reflect the choppy economy in both the United States and globally. In the first
quarter of 2015, the gross domestic product (GDP) for the United States actually contracted and the Company
believes the contraction caused the Company’s customers to adjust their orders and requirements, which had a
negative impact on the Company's results. The rescheduling of orders negatively impacted what the Company
thought would be a much stronger fourth quarter of fiscal year 2015. The Company did however launch new
programs in the fourth quarter of fiscal year 2015. The new orders came from both existing and new customers.
The Company has seen gains in markets that it has been actively pursuing during the past two fiscal years and
believes both revenues and pre-tax income will increase in fiscal year 2016. However, margin pressures
continue from both customers and vendors and will likely continue in fiscal year 2016.
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
21
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 determined by an average
cost method and the Company allocates labor and overhead to work-in-process and finished goods. 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.
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, 2015 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. As of April 30, 2015, there was no impairment of long-lived assets.
22
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.
The Company has a foreign tax credit carry-forward of $78,100 and $112,327 at April 30, 2015 and 2014,
respectively, that will begin to expire in fiscal year April 30, 2024. The Company determined it is more likely
than not that it will realize the foreign tax credit due to the reversal of federal deferred tax liabilities.
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 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.
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 May 2014, the FASB issued Accounting Standards Update (“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, 2017 and early adoption is not permitted. Accordingly, the
Company will adopt this ASU on May 1, 2018. 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 the Company’s future consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern
(Subtopic 205-40). The amendments in this ASU provide guidance about management’s responsibility to
evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to
provide related footnote disclosures. An entity’s management should evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going
concern within one year after the date that the financial statements are issued (or are available to be issued,
when applicable). ASU 2014-15 is effective for the Company beginning with the annual reporting for fiscal
2016, and reports for interim and annual periods thereafter. Early adoption is permitted. The Company does not
expect the impact of adoption of this ASU to have a material impact on its consolidated financial statements.
23
In April 2015, the FASB issued ASU No. 2015- 03, “Interest — Imputation of Interest (Subtopic 835-30) —
Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 simplifies the presentation of debt
issuance costs by requiring that these costs related to a recognized debt liability be presented in the statement of
financial condition as a direct reduction from the carrying amount of that liability. ASU No. 2015-03 is
effective for annual reporting periods beginning after December 15, 2015, including interim periods within that
reporting period. ASU No. 2015-03 is required to be applied retrospectively to all periods presented beginning
in the year of adoption. Adoption will not materially affect the firm’s financial condition, results of operations,
or cash flows. The Company does not expect the impact of adoption of this ASU to have a material impact on
its consolidated financial statements.
Results of Operations:
FISCAL YEAR ENDED APRIL 30, 2015 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 2014
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
2015
2014
100.0%
100.0%
90.4
8.5
98.9
1.1%
89.7
8.7
98.4
1.6%
Net sales increased 3.5% to $230,237,161 in fiscal year 2015 from $222,485,940 in the prior year. The
Company’s sales increased in fiscal year 2015 in appliance, telecommunication and semiconductor
marketplaces as compared to the prior year. The increase in sales dollars for these marketplaces was partially
offset by a decrease in sales dollars in the fitness, medical/life sciences and gaming marketplaces. The modest
increase in revenues is from sales to existing customers and new customers and from new programs with
various customers that were launched in the fourth quarter of fiscal year 2015. The Company has also seen
gains in markets that it has been pursuing during the past two fiscal years and is optimistic revenues in fiscal
year 2016 will increase.
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 62.5% and 60.0% of net sales for fiscal years 2015 and 2014,
respectively.
Gross profit decreased to $22,068,838, or 9.6% of net sales, in fiscal year 2015 compared to $22,826,998, or
10.3% of net sales, in the prior fiscal year. The decrease in gross profit dollars for fiscal year 2015 was the
result of product mix and margin pressures. Margin pressures continue from both customers and vendors and
will likely continue in fiscal year 2016.
Selling and administrative expenses increased in fiscal year 2015 to $19,431,637, or 8.5% of net sales compared
to $19,200,514, or 8.7% of net sales, in fiscal year 2014. The increase was attributable to salaries and other
administrative expenses for the Elgin division, increased IT salaries, and increased other general and
administration expenses, including an accrual for the aforementioned lawsuit. The increase in the foregoing
24
selling and administrative expenses were partially offset by a decrease in general office salaries and bonus
expense.
Interest expense, net, increased to $1,081,323 in fiscal year 2015 compared to $966,038 in fiscal year 2014.
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 2016 may increase if
interest rates or borrowings, or both, increase during fiscal year 2016.
In fiscal year 2015, the income tax expense was $801,049 compared to an income tax benefit of $133,867 in
fiscal year 2014. The effective rate for the years ended April 30, 2015 and 2014 was 47.0% and (4.8%),
respectively. The increase in the effective rate for the year ended April 30, 2015 is due to the impact of foreign
tax rates, unrealized foreign currency losses and the impact of the Company’s inability to utilize a foreign tax
credit resulting from a foreign dividend repatriation. Additionally, for the year ended April 30, 2014, the
Company realized a tax benefit of $828,175 related to the impact of a change in Mexican Tax Law which
became effective on January 1, 2014.
The Company reported net income of $903,412 in fiscal year 2015 compared to $2,918,691 for fiscal year 2014.
Basic and diluted earnings per share for fiscal year 2015 were $0.22 each compared to basic and diluted
earnings per share of $0.74 and $0.72, respectively, for the year ended April 30, 2014.
Liquidity and Capital Resources:
Operating Activities.
Cash flow used in operating activities was $2,781,680 for the fiscal year ended April 30, 2015 compared to cash
flow provided by operating activities of $1,956,831 for the prior fiscal year. Cash flow used in operating
activities was primarily the result of increased inventories and accounts receivable and a decrease in accrued
expenses and wages. Net cash used in operating activities was partially offset by the result of net income
adjusted by the non-cash effects of depreciation and amortization and an increase in accounts payable. The
increase in inventory of $14,412,734 and increase in accounts receivable of $913,776 is primarily due to
additional customer orders and the startup of new programs. The increase in accounts payable is due to
renegotiated vendor terms with several of the Company’s largest vendors.
Cash flow provided by operating activities was $1,956,831 for the fiscal year ended April 30, 2014. Cash flow
provided by operating activities was primarily the result of net income, adjusted by 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 $3,118,520, 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.
Investing Activities.
In fiscal year 2015, the Company purchased approximately $4,800,000 in machinery and equipment to be used
in the ordinary course of business. The Company anticipates it may purchase in fiscal year 2016 up to
$6,000,000 in machinery and equipment, which will be funded by lease transactions 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. With respect to fiscal 2016, and the uncertainty of the Company’s
financing arrangements and its domestic liquidity profile, the Company has determined that it might be
required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs
but will not need to repatriate prior earnings based on current forecasts.
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 purchases were funded by lease transactions and its bank line
of credit.
25
Financing Activities.
Cash provided by financing activities was $5,011,967 for the fiscal year ended April 30, 2015 compared to cash
provided by financing activities of $7,241,796 in fiscal year 2014. Cash provided by financing activities in
fiscal year 2015 was primarily the result of increased net borrowings of approximately $4,400,000 under the
credit facility, proceeds received from a sale leaseback transaction for machinery and equipment and
refinancing the mortgage for the Company’s facility in Elk Grove Village, Illinois. The additional borrowings
were required to support the increase in inventory.
Cash provided by financing activities was $7,241,796 for the fiscal year ended April 30, 2014. Cash provided
by financing activities in fiscal year 2014 was primarily the result of increased net borrowings of $4,500,000
under the credit facility; proceeds received from a sale leaseback transaction for machinery and equipment and
proceeds from 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.
Financing Summary.
The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000
and current term through October 31, 2017. 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. Pursuant to the
agreement, financial covenants were amended, an unused line fee was added, and the borrowing interest rate
was changed. The facility allows the Company to choose among interest rates at which it may borrow
funds. The interest rate is the bank fixed rate of two and one quarter percent plus one percent (effectively
3.25% at April 30, 2015) or LIBOR plus two and one quarter percent (effectively 2.625% at April 30,
2015). Interest is paid monthly. Under the senior secured credit facility, the Company may borrow up to the
lesser of (i) $30,000,000 or (ii) an amount equal to the sum of 85% of the receivable borrowing base plus a
percentage of the inventory borrowing base (collectively, “Borrowing Base”, which cannot exceed 50% of
combined eligible receivables and inventory). Further, in specific circumstances, the Company is entitled to an
over advance of up to $5,000,000 through October 31, 2015; however, at no time can the borrowings under the
credit facility exceed $30,000,000. The effective interest rate for the over advance facility was LIBOR plus two
and three quarter percent. Effective December 31, 2014, the Company amended its senior secured credit
facility agreement to temporarily increase the total Borrowing Base limit to 60% through June 30, 2015 and
reverting to 50% of total Borrowing Base after June 30, 2015. Further, the senior secured credit facility
agreement was modified to allow specific foreign receivables to become eligible collateral. The receivable
modification is effective until June 30, 2015. The Company agreed to an increase in the effective interest rate
for the over advance facility and a $5,000 amendment fee. The interest rate for the over advance facility
increased from LIBOR plus two and three quarter percent (effectively 3.125% at April 30, 2015) or the bank
fixed rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) to LIBOR plus
three and one half percent (effectively 3.875% at April 30, 2015) or the bank fixed rate of two and one quarter
percent plus one percent (effectively 3.25% at April 30, 2015). As of April 30, 2015, there was a $27,416,793
outstanding balance and $2,583,207 of unused availability under the credit facility agreement. At April 30,
2015, the Company was in compliance with its financial covenants.
The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000, with Wells
Fargo, N.A. to refinance the property that serves as the Company’s corporate headquarters and its Illinois
manufacturing facility. The Wells Fargo, N.A. note historically boar interest at a fixed rate of 6.42% per year
and was amortized over a sixty month period. A final payment of approximately $2,000,000 was due on or
before January 8, 2015. On November 24, 2014, the Company refinanced the mortgage agreement with Wells
Fargo, N.A. The note requires the Company to pay monthly principal payments in the amount of $9,500, bears
an interest rate of LIBOR plus two and one-quarter percent (effectively 2.625% at April 30, 2015) and is
payable over a sixty month period. Final payment of approximately $2,289,500 is due on or before November
8, 2019. The outstanding balance as of April 30, 2014 was $2,075,017. The outstanding balance as of April 30,
2015 was $2,802,500.
26
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 $825,330, extends to August
2016 with monthly payments of $13,207 and a fixed interest rate of 4.36%. At April 30, 2015, $81,809 and
$192,296 was outstanding under the lease finance and sale leaseback agreements, respectively. The net book
value at April 30, 2015 of the equipment under the lease finance agreement and sale leaseback agreement was
$194,843 and $481,805, respectively.
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 the fiscal year ended April 30, 2015 was $33,950. In addition, the landlord provided the
Company tenant incentives of $418,000, which are being amortized over the life of the lease.
In November 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, 2015, the balance outstanding under the
capital lease agreement was $62,778. The net book value of the equipment under this lease at April 30, 2015
was $140,676.
On May 31, 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 income for the
fiscal year ended April 30, 2015 was $8,353.
On October 3, 2013, the Company entered into two sale leaseback agreements with Associated Bank, National
Association in the amount of $2,281,355 to finance equipment purchased in June 2012. The term of the first
agreement, with an initial principal amount of $2,201,638, 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, 2015, $1,543,684 and $55,894 was outstanding under the first and second
agreements, respectively. The net book value at April 30, 2015 of the equipment under each of the two
agreements was $1,736,474 and $61,448, respectively.
The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000, with Wells
Fargo, N.A. to finance the property that serves as the Company’s engineering and design center in Elgin,
Illinois. The Wells Fargo, N.A. note requires the Company to pay monthly principal payments in the amount of
$4,250, bears interest at a fixed rate of 4.51% per year and is payable over a sixty month period. A final
payment of approximately $1,030,000 is due on or before October 24, 2018. The outstanding balance as of
April 30, 2014 was $1,249,500. The outstanding balance as of April 30, 2015 was $1,198,500.
On March 6, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $589,083. 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, 2015, the balance outstanding under the capital lease
agreement was $486,541. The net book value of the equipment under the lease as of April 30, 2015 was
$524,248.
On May 7, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $108,971. The term of the lease extends to May 2019 with monthly payments of
$1,931 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease
was $92,996. The net book value of the equipment under the lease as of April 30, 2015 was $99,890.
On August 1, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $609,179. The term of the lease extends to July 2019 with monthly payments of
27
$10,797 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease
was $536,459. The net book value of the equipment under the lease as of April 30, 2015 was $566,875.
On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National
Association in the amount of $664,676 to finance equipment purchases. The term of lease extends to August
2019 with monthly payments of $12,163 and a fixed interest rate of 3.87%. At April 30, 2015, the balance
outstanding under the lease was $581,419. The net book value of the equipment under the lease as of April 30,
2015 was $567,067.
On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National
Association in the amount of $437,641 to finance equipment purchases. The term of lease extends to August
2019 with monthly payments of $8,008 and a fixed interest rate of 3.87%. At April 30, 2015, the balance
outstanding under the lease was $382,822. The net book value of the equipment under the lease as of April 30,
2015 was $395,868.
On September 22, 2014, the Company entered into a capital lease agreement with Associated Bank, National
Association in the amount of $106,346 to finance equipment purchases. The term of lease extends to August
2019 with monthly payments of $1,947 and a fixed interest rate of 3.89%. At April 30, 2015, the balance
outstanding under the lease was $93,030. The net book value of the equipment under the lease as of April 30,
2015 was $99,700.
On October 27, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $501,590. The term of lease extends to October 2019 with monthly payments of
$8,890 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the lease was
$461,954. The net book value of the equipment under the lease as of April 30, 2015 was $470,460.
On January 16, 2015, the Company entered into a capital lease agreement with Associated Bank, National
Association in the amount of $81,030 to finance equipment purchases. The term of lease extends to December
2019 with monthly payments of $1,487 and a fixed interest rate of 4.01%. At April 30, 2015, the balance
outstanding under the lease was $75,864. The net book value of the equipment under the lease as of April 30,
2015 was $77,654.
The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to
operate its wholly-owned Mexican, Vietnam and Chinese subsidiaries and the Taiwan international
procurement office. The Company provides funding, as needed, in U.S. dollars, which are exchanged for Pesos,
Dong, Renminbi, and New Taiwan dollars, except for the Acuna Mexico operation, which is funded in Pesos.
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, 2015 resulted in a net foreign currency gain of $40,000 compared to a net foreign currency loss
of approximately $128,000 for the same period in the prior year. During fiscal year 2015, the Company’s U.S.
operations paid approximately $52,220,000 to its foreign subsidiaries for services provided.
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 Company has not recorded U.S. income
taxes on the undistributed earnings of the Company’s foreign subsidiaries. Since the earnings of the foreign
subsidiaries have been, and under fiscal April 30, 2015 plans, will continue to be indefinitely reinvested, no
deferred tax liability has been recorded. With respect to fiscal April 30, 2016, as a result of the uncertainty of
the Company’s financing arrangements and its domestic liquidity profile, the Company has determined that
it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic
funding needs but will not need to repatriate prior earnings based on current forecasts. The cumulative amount
of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of April 30,
2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the complexities of
the hypothetical calculation.
During fiscal year 2015, the Company reflected tax expense of $643,708 related to the inability to realize the
tax benefit of a foreign tax credit related to this distribution. The Company’s estimate of cumulative taxable
28
income during the foreign tax credit carryforward period is insufficient to support that the tax benefit from the
foreign tax credit is more likely than not to be realized.
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 2016 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. To the extent that these forecasts come to fruition, the
Company intends to meet any increased capital requirements by raising capital from other sources of debt or
equity. The Company has selected an investment banker for the purpose of completing a capital raise in the
third fiscal quarter of 2016. The capital raise, if successful, may consist of debt, equity or a combination of debt
and equity. If the capital raise is not completed, the Company has determined that it might be required to
repatriate from offshore cash, fiscal 2016 foreign earnings, to meet certain domestic funding needs but will not
need to repatriate prior earnings based on current forecasts. The cumulative amount of unremitted earnings for
which U.S. income taxes have not been recorded is $12,163,000 as of April 30, 2015. The amount of U.S.
income taxes on these earnings is impractical to compute due to the complexities of the hypothetical
calculation.
In addition, in the event the Company desires to expand its operations, its business grows more rapidly than
expected, the current economic climate deteriorates, customers delay payments, or the Company desires to
consummate an acquisition, additional financing resources may 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.
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, the
Company is 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, the
Company is 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.
29
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls:
The Company’s management, including its President and Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of its 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, 2015. The Company’s disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives and its 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, 2015.
Internal Controls:
The Company’s 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). The Company’s 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 the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, the Company 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 the Company’s
evaluation, management concluded that its internal controls over financial reporting were effective at the
reasonable assurance level as of April 30, 2015.
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 the Company’s internal control over financial reporting during the quarter ended
April 30, 2015, that has materially affected or is reasonably likely to materially affect, its internal control over
financial reporting.
On May 14, 2013, COSO issued an updated version of its Internal Control - Integrated Framework (the “2013
Framework”) which officially superseded the 1992 Framework on December 15, 2014. Originally issued in
1992, the framework helps organizations design, implement and evaluate the effectiveness of internal control
concepts and simplify their use and application. Neither COSO, the Securities and Exchange Commission or
any other regulatory body has mandated adoption of the 2013 Framework by a specified date. We intend to
perform an analysis to evaluate what changes to our control environment, if any, would be needed to
successfully implement the 2013 Framework. Until such time as such analysis and any related transition to the
2013 Framework is complete, we will continue to use the 1992 Framework in connection with our assessment
of internal control.
ITEM 9B. OTHER INFORMATION
Not Applicable.
30
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, 2015.
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, 2015.
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, 2015.
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, 2015.
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, 2015.
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.
31
(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.*
32
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, incorporated herein by reference to Exhibit 10.17 to the Company’s Form
10-K filed on July 24, 2014.
10.18 Schedule # 1217927 to Master Lease Agreement Number 81344 entered into between CIT Finance
LLC and SigmaTron International, Inc. dated May 7, 2014, incorporated herein by reference to Exhibit
10.1 to the Company’s Form 10-Q filed on September 11, 2014.
10.19 Third Amended and Restated Credit Agreement entered into as of October 31, 2014, by and between
SigmaTron International, Inc., and Wells Fargo Bank, National Association, incorporated herein by
reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 10, 2014.
10.20 Second Amended and Restated Promissory Note dated November 24, 2014 issued by the Company to
Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 10.2 to the
Company’s Form 8-K filed on December 10, 2014.
10.21 Schedule # 1223197 to Master Lease Agreement Number 81344 entered into by and between CIT
Finance LLC and SigmaTron International, Inc. dated August 1, 2014, incorporated herein by reference
to Exhibit 10.1 to the Company’s Form 10-Q filed on December 12, 2014.
10.22 Lease No. 003 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between
Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014,
incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on December 12,
2014.
10.23 Lease No. 004 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between
Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014,
incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on December 12,
2014.
10.24 Lease No. 005 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between
Associated Bank, National Association and SigmaTron International, Inc. dated September 22, 2014,
incorporated herein by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on December 12,
2014.
10.25 Schedule # 1246045 to Master Lease Agreement Number 81344 entered into by and between CIT
Finance LLC and SigmaTron International, Inc. dated October 27, 2014, incorporated herein by
reference to Exhibit 10.5 to the Company’s Form 10-Q filed on December 12, 2014.
10.26 First Amendment to Third Amended and Restated Credit Agreement entered into as of March 7, 2015,
33
by and between SigmaTron International, Inc. and Wells Fargo Bank, National Association,
incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on March 12, 2015.
10.27 Lease No. 006 is an attachment to Master Lease No. 2170 dated October 17, 2013 by and between
Associated Bank, National Association and SigmaTron International, Inc. dated January 16, 2015,
incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on March 16, 2015.
10.28 SigmaTron International, Inc. Employee Bonus Plan for Fiscal Year 2016 dated July 9, 2015,
incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 10, 2015.*
10.29 Schedule # 1284094 to Master Lease Agreement Number 81344 entered into by and between CIT
Finance LLC and SigmaTron International, Inc. dated June 2, 2015.**
21.0 Subsidiaries of the Registrant, incorporated herein by reference to Exhibit 21 to the Company’s Form
10-K for the fiscal year ended April 30, 2014, filed on July 24, 2014.
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, 2015).**
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.
34
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, 2015
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
/s/ Gary R. Fairhead
Gary R. Fairhead
Title
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
35
Date
July 24, 2015
July 24 2015
July 24, 2015
July 24, 2015
July 24, 2015
July 24, 2015
July 24, 2015
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, 2015 and 2014 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, 2015 and 2014 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, 2015
F-2
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2015 and 2014
ASSETS
2015
2014
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$186,844 and $150,000 at April 30, 2015 and 2014,
respectively
Inventories, net
Prepaid expenses and other assets
Deferred income taxes
Other receivables
$
2,868,217
$
5,440,319
20,170,723
68,669,709
2,103,367
2,179,178
486,085
19,293,791
53,728,377
1,826,254
2,524,993
356,746
Total current assets
96,477,279
83,170,480
PROPERTY, MACHINERY AND EQUIPMENT, NET
33,864,527
32,692,908
OTHER LONG-TERM ASSETS
Intangible assets, net of amortization of $3,737,856
and $3,309,246 at April 30, 2015 and 2014, respectively
Goodwill
Other assets
5,174,144
3,222,899
1,319,901
5,602,754
3,222,899
790,390
Total other long-term assets
9,716,944
9,616,043
TOTAL ASSETS
$
140,058,750
$
125,479,431
The accompanying notes are an integral part of these statements.
F-3
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
APRIL 30, 2015 and 2014
LIABILITIES AND STOCKHOLDERS’ EQUITY
2015
2014
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
Current portion of deferred rent
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, less current portion
Deferred income taxes
Total long-term liabilities
Total liabilities
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, 4,075,785 and 4,012,319 shares issued
and outstanding at April 30, 2015 and 2014, respectively
Capital in excess of par value
Retained earnings
Total stockholders’ equity
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of these statements.
F-4
$
$
35,838,275
592,644
5,140,851
302
165,000
1,245,632
275,288
150,594
27,141,079
584,050
5,969,024
80,936
2,126,017
765,961
331,429
12,302
43,408,586
37,010,798
31,252,793
24,198,500
3,401,913
2,423,001
1,223,697
536,209
999,929
2,550,236
1,533,571
525,739
1,163,819
3,217,660
39,964,777
33,062,290
83,373,363
70,073,088
-
-
40,703
21,239,641
35,405,043
40,215
20,864,497
34,501,631
56,685,387
55,406,343
$
140,058,750
$
125,479,431
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended April 30, 2015 and 2014
Net sales
Cost of products sold
Gross profit
2015
2014
$
230,237,161
$
222,485,940
208,168,323
199,658,942
22,068,838
22,826,998
Selling and administrative expenses
19,431,637
19,200,514
Operating income
2,637,201
3,626,484
Other income
Interest expense
(148,583)
1,081,323
(124,378)
966,038
Income before income tax expense
1,704,461
2,784,824
Income tax expense (benefit)
801,049
(133,867)
NET INCOME
Earnings per common share
Basic
Diluted
Weighted-average shares of common
stock outstanding
Basic
Diluted
$
$
$
903,412
0.22
0.22
$
$
$
2,918,691
0.74
0.72
4,046,988
3,969,391
4,116,424
4,074,487
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, 2015 and 2014
Capital in
Total
Preferred Common excess of par
Retained
stockholders’
stock
stock
value
earnings
equity
Balance at May 1, 2013
$
- $ 39,779 $
20,361,012 $ 31,582,940 $ 51,983,731
-
2,918,691
2,918,691
40,215
20,864,497
34,501,631
55,406,343
Recognition of stock-based
compensation
-
-
89,219
Exercise of stock options
-
436
158,357
Issuance and vesting of restricted
stock
Tax benefit from exercise of options
Net income
Balance at April 30, 2014
Recognition of stock-based
compensation
Exercise of stock options
Issuance and vesting of restricted
stock
Employee stock purchases
Tax benefit from contingent
consideration
Net income
-
-
-
-
-
-
-
-
-
-
54,997
200,912
-
59,648
136
57,825
150
61,796
202
126,612
69,263
-
-
-
-
-
-
-
-
-
89,219
158,793
54,997
200,912
-
-
-
-
-
59,648
57,961
61,946
126,814
69,263
-
903,412
903,412
Balance at April 30, 2015
$
- $ 40,703 $
21,239,641 $ 35,405,043 $ 56,685,387
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, 2015 and 2014
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net
cash (used in) provided by operating activities
Depreciation
Stock-based compensation
Restricted stock expense
Employee stock purchases
Provision for doubtful accounts
(Write-off) provision for inventory obsolescence
Tax benefit from option exercises
Tax benefit from contingent consideration
Deferred income tax benefit
Amortization of intangible assets
Fair value adjustment of contingent consideration
Loss from disposal or sale of machinery and equipment
Stock option repurchase expense
Changes in assets and liabilities
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes payable/refundable
Trade accounts payable
Deferred rent
Accrued expenses and wages
Net cash (used in) provided by operating activities
Cash flows from investing activities
Purchases 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 of contingent consideration
Payments under capital lease and sale leaseback agreements
Proceeds under building notes payable
Payments under building notes payable
Borrowings under lines of credit
Payments under lines of credit
Tax benefit from option exercises
Tax benefit from contingent consideration
Net cash provided by financing activities
Change in cash
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an integral part of these statements.
F-7
2015
2014
$
903,412 $
2,918,691
4,985,272
59,648
61,946
126,814
36,844
(528,598)
-
(69,263)
(252,347)
428,610
(106,015)
52,615
-
(913,776)
(14,412,734)
(935,963)
(80,634)
8,697,196
(25,598)
(809,109)
(2,781,680)
(4,802,389)
(4,802,389)
57,961
-
1,102,317
(260,000)
(1,050,850)
834,481
(157,998)
165,496,222
(161,079,429)
-
69,263
5,011,967
(2,572,102)
5,440,319
4,791,663
89,219
54,997
-
-
34,884
(200,912)
-
(623,233)
346,680
-
37,603
300,410
127,461
(3,118,520)
343,580
509,874
(4,206,275)
79,849
470,860
1,956,831
(8,366,039)
(8,366,039)
158,793
(300,410)
2,281,354
(260,000)
(488,357)
1,275,000
(125,496)
121,696,357
(117,196,357)
200,912
-
7,241,796
832,588
4,607,731
$
2,868,217
$
5,440,319
SigmaTron International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended April 30, 2015 and 2014
Supplementary disclosures of cash flow information
Cash paid for interest
Cash paid for income taxes
Cash refunded for income taxes
Purchase of machinery and equipment financed
under capital leases
Puchase of machinery and equipment financed
under sale leaseback agreements
The accompanying notes are an integral part of these statements.
2015
2014
$
$
1,018,419
915,115
-
893,967
271,502
(689,298)
1,407,116
2,870,437
1,102,317
-
F-8
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2015 and 2014
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, 2015, the Company provided these manufacturing services through an international network of facilities
located in the United States, Mexico, China, Vietnam and Taiwan. Approximately 15.1% and 15.7% of the total
non-current consolidated assets of the Company are located outside of the United States as of April 30, 2015 and
2014, respectively.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts and transactions of SigmaTron International, Inc.
(“SigmaTron”), its wholly-owned subsidiaries, Standard Components de Mexico, S.A., AbleMex S.A. de C.V.,
Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., Spitfire Controls
(Cayman) Co. Ltd. and SigmaTron International Trading Co., wholly-owned foreign enterprises Suzhou SigmaTron
Electronics Co. Ltd., and SigmaTron Electronic Technology Co., Ltd. (collectively, “SigmaTron China”), and its
international procurement office, SigmaTron Taiwan. The functional currency of the Mexican, Vietnamese and
Chinese subsidiaries and procurement branch is the U.S. dollar. Intercompany transactions are eliminated in the
consolidated financial statements. The impact of foreign currency fluctuation for the fiscal year ended April 30,
2015 resulted in a net gain of approximately $40,000 compared to a net foreign currency loss of $128,000 in the
prior year.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant 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, 2015 and 2014
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 and the
Company allocates labor and overhead to work-in-process and finished goods. 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
lesser of lease term or useful life
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 $147,537 and $52,484 net of
accumulated amortization of $390,266 and $332,352, respectively, as of April 30, 2015 and 2014, 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, 2015 and 2014
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 for tax credit carryforwards, 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 increases 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. There were 991, anti-dilutive
common stock equivalents, at both April 30, 2015 and 2014, which have been excluded from the calculation of
diluted earnings per share.
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 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, 2015 and 2014
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 2015 or 2014.
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, other receivables,
accounts payable and accrued expenses which approximate fair value at April 30, 2015 and 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 fiscal 2013 Spitfire acquisition under the fair value standard
(primarily using level 3 measurement inputs) including the contingent consideration which continues to be measured
and reported at fair value at each period end. 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, 2015 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, 2015 and 2014
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 years 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 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. As of April 30, 2015, there was no impairment of long-lived assets.
Stock Incentive Plans
Under the Company’s stock option plans, options to acquire shares of common stock have been made available for
grant to certain employees and directors. Each option granted has an exercise price of not less than 100% of the
market value of the common stock on the date of grant. The contractual life of each option is generally 10 years.
The vesting of the grants varies according to the individual options granted. The Company measures the cost of
employee services received in exchange for an equity award based on the grant date fair value and records that cost
over the respective vesting period of the award.
Reclassifications
Certain reclassifications have been made to the previously reported 2014 financial statements to conform to the 2015
presentation.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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, 2017 and early adoption is not permitted.
Accordingly, the Company will adopt this ASU on May 1, 2018. 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 the Company’s future consolidated financial statements.
F-13
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Accounting Standards - Continued
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern
(Subtopic 205-40). The amendments in this ASU provide guidance about management’s responsibility to evaluate
whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related
footnote disclosures. An entity’s management should evaluate whether there are conditions or events, considered in
the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year
after the date that the financial statements are issued (or are available to be issued, when applicable). ASU 2014-15
is effective for the Company beginning with the annual reporting for fiscal 2016, and reports for interim and annual
periods thereafter. Early adoption is permitted. The Company does not expect the impact of adoption of this ASU
will have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015- 03, “Interest — Imputation of Interest (Subtopic 835-30) —
Simplifying the Presentation of Debt Issuance Costs.” ASU No. 2015-03 simplifies the presentation of debt issuance
costs by requiring that these costs related to a recognized debt liability be presented in the statement of financial
condition as a direct reduction from the carrying amount of that liability. ASU No. 2015-03 is effective for annual
reporting periods beginning after December 15, 2015, including interim periods within that reporting period. ASU
No. 2015-03 is required to be applied retrospectively to all periods presented beginning in the year of adoption.
Adoption will not materially affect the firm’s financial condition, results of operations, or cash flows. The Company
does not expect the impact of adoption of this ASU to have a material impact on its consolidated financial
statements.
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
$
2015
150,000
36,844
-
2014
150,000
$
-
-
$
186,844
$
150,000
F-14
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE D - INVENTORIES
Inventories consist of the following at April 30:
2015
2014
Finished products
Work-in-process
Raw materials
Less obsolescence reserve
$
$
24,316,404
2,966,846
42,662,845
69,946,095
1,276,386
68,669,709
Changes in the Company’s inventory obsolescence reserve are as follows:
Beginning balance
Provision for obsolescence
Write-offs
2015
1,804,984
-
(528,598)
1,276,386
$
$
$
$
$
$
18,553,112
3,126,596
33,853,653
55,533,361
1,804,984
53,728,377
2014
1,770,100
34,884
-
1,804,984
F-15
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
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 $1,329,661
and $729,723 at April 30,
2015 and 2014, respectively
Property, machinery and
equipment, net
$
2015
2014
15,265,758 $ 14,707,780
56,142,919
54,933,857
8,640,964
7,413,077
2,540,693
2,539,193
6,746,668
4,237,235
89,337,002
83,831,142
55,472,475
51,138,234
$
33,864,527 $ 32,692,908
Depreciation and amortization expense was $4,985,272 and $4,791,663 for the years ended April 30, 2015 and
2014, respectively.
F-16
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
There were no changes in carrying amount of tax deductible goodwill in the amount of $3,222,899 for the fiscal
years ended April 30, 2015 and 2014, respectively.
Other Intangible Assets
Intangible assets subject to amortization are summarized as of April 30, 2015 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
-
-
12.08
-
17.08
4.08
2.08
$
375,000 $
2,395,000
4,690,000
22,000
980,000
50,000
400,000
8,912,000 $
$
375,000
2,395,000
548,781
22,000
142,905
20,825
233,345
3,737,856
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
F-17
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
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:
2016
2017
2018
2019
2020
Thereafter
$
$
470,899
490,010
435,043
423,721
411,406
2,943,065
5,174,144
Amortization expense was $428,610 and $346,680 for the years ended April 30, 2015 and 2014, respectively.
In conjunction with the May 2012 acquisition of Spitfire, the estimate of the fair value of the contingent
consideration ($2,320,000) was based on expected operating results through fiscal 2019 and the specific terms of
when such consideration would be earned. Those terms provide for additional consideration to be paid based on a
percentage of sales and pre-tax profits over those years in excess of certain minimums. Payments are made
quarterly each year and adjusted after each year end audit. The Company made four quarterly payments of $65,000
each in fiscal 2015 and 2014 and made three quarterly payments of $65,000 each in fiscal 2013. As of April 30,
2015, the Company had not materially changed its estimated aggregate consideration expected to be earned under
this arrangement. Any changes in the Company’s estimate is reflected as a change in the contingent consideration
liability and as additional or credits to selling and administrative expenses. As of April 30, 2015, the contingent
consideration liability was $1,498,985.
F-18
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE G - LONG-TERM DEBT
Note Payable - Bank
The Company has a senior secured credit facility with Wells Fargo, N.A. with a credit limit up to $30,000,000 and
current term through October 31, 2017. 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. Pursuant to the agreement, financial
covenants were amended, an unused line fee was added, and the borrowing interest rate was changed. The facility
allows the Company to choose among interest rates at which it may borrow funds. The interest rate is the bank fixed
rate of two and one quarter percent plus one percent (effectively 3.25% at April 30, 2015) or LIBOR plus two and
one quarter percent (effectively 2.625% at April 30, 2015). Interest is paid monthly. Under the senior secured credit
facility, the Company may borrow up to the lesser of (i) $30,000,000 or (ii) an amount equal to the sum of 85% of
the receivable borrowing base plus a percentage of the inventory borrowing base (collectively, “Borrowing Base”,
which cannot exceed 50% of combined eligible receivables and inventory). Further, in specific circumstances, the
Company is entitled to an over advance of up to $5,000,000 through October 31, 2015; however, at no time can the
borrowings under the credit facility exceed $30,000,000. The effective interest rate for the over advance facility was
LIBOR plus two and three quarter percent. Effective December 31, 2014, the Company amended its senior secured
credit facility agreement to temporarily increase the total Borrowing Base limit to 60% through June 30, 2015 and
reverting to 50% of total Borrowing Base after June 30, 2015. Further, the senior secured credit facility agreement
was modified to allow specific foreign receivables to become eligible collateral. The receivable modification is
effective until June 30, 2015. The Company agreed to an increase in the effective interest rate for the over advance
facility and a $5,000 amendment fee. The interest rate for the over advance facility increased from LIBOR plus two
and three quarter percent (effectively 3.125% at April 30, 2015) or the bank fixed rate of two and one quarter
percent plus one percent (effectively 3.25% at April 30, 2015) to LIBOR plus three and one half percent (effectively
3.875% at April 30, 2015) or the bank fixed rate of two and one quarter percent plus one percent (effectively 3.25%
at April 30, 2015). As of April 30, 2015, there was a $27,416,793 outstanding balance and $2,583,207 of unused
availability under the credit facility agreement. At April 30, 2015, the Company was 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 2016 at the Company’s current level of
business. The Company has received forecasts from current customers for increased business that would require
additional investments in inventory. To the extent that these forecasts come to fruition, the Company intends to meet
any increased capital requirements by raising capital from other sources of debt or equity. The Company has
selected an investment banker for the purpose of completing a capital raise in the third fiscal quarter of 2016. The
capital raise, if successful, may consist of debt, equity or a combination of debt and equity. If the capital raise is not
completed, the Company has determined that it might be required to repatriate from offshore cash, fiscal 2016
foreign earnings, to meet certain domestic funding needs but will not need to repatriate prior earnings based on
current forecasts. The cumulative amount of unremitted earnings for which U.S. income taxes have not been
recorded is $12,163,000 as of April 30, 2015. The amount of U.S. income taxes on these earnings is impractical to
compute due to the complexities of the hypothetical calculation.
In addition, in the event the Company desires to expand its operations, its business grows more rapidly than
expected, the current economic climate deteriorates, customers delay payments, or the Company desires to
consummate an acquisition, additional financing resources may 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.
F-19
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE G - LONG-TERM DEBT - Continued
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 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 the lease finance agreement and sale leaseback agreement was $221,114 and
$550,583, respectively. At April 30, 2015, $81,809 and $192,296 was outstanding under the lease finance and sale
leaseback agreements, respectively. The net book value at April 30, 2015 of the equipment under the lease finance
agreement and sale leaseback agreement was $194,843 and $481,805, 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. At April 30, 2015, the balance outstanding under the capital lease agreement was $62,777. The net book
value of the equipment under this lease at April 30, 2015 was $140,676.
On October 3, 2013, the Company entered into two sale leaseback agreements with Associated Bank, National
Association in the amount of $2,281,355 to finance equipment purchased in June 2012. The term of the first
agreement, with an initial principal amount of $2,201,638, 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. At April 30, 2015, $1,543,684 and $55,894 was outstanding under the first and second
agreements, respectively. The net book value at April 30, 2015 of the equipment under each of the two agreements
was $1,736,474 and $61,448, respectively.
On March 6, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $589,083. 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 as of April 30, 2014 was $573,338.
At April 30, 2015, the balance outstanding under the capital lease agreement was $486,541. The net book value of
the equipment under the lease as of April 30, 2015 was $524,248.
On May 7, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase equipment
in the amount of $108,971. The term of the lease extends to May 2019 with monthly payments of $1,931 and a
fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease was $92,996. The
net book value of the equipment under the lease as of April 30, 2015 was $99,890.
On August 1, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $609,179. The term of the lease extends to July 2019 with monthly payments of
$10,797 and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the capital lease was
$536,459. The net book value of the equipment under the lease as of April 30, 2015 was $566,875.
F-20
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE G - LONG-TERM DEBT - Continued
Capital Lease Obligations - Continued
On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National
Association in the amount of $664,676 to finance equipment purchases. The term of lease extends to August 2019
with monthly payments of $12,163 and a fixed interest rate of 3.87%. At April 30, 2015, the balance outstanding
under the lease was $581,419. The net book value of the equipment under the lease as of April 30, 2015 was
$567,067.
On September 22, 2014, the Company entered into a sale leaseback agreement with Associated Bank, National
Association in the amount of $437,641 to finance equipment purchases. The term of lease extends to August 2019
with monthly payments of $8,008 and a fixed interest rate of 3.87%. At April 30, 2015, the balance outstanding
under the lease was $382,822. The net book value of the equipment under the lease as of April 30, 2015 was
$395,868.
On September 22, 2014, the Company entered into a capital lease agreement with Associated Bank, National
Association in the amount of $106,346 to finance equipment purchases. The term of lease extends to August 2019
with monthly payments of $1,947 and a fixed interest rate of 3.89%. At April 30, 2015, the balance outstanding
under the lease was $93,030. The net book value of the equipment under the lease as of April 30, 2015 was
$99,700.
On October 27, 2014, the Company entered into a capital lease agreement with CIT Finance LLC to purchase
equipment in the amount of $501,590. The term of lease extends to October 2019 with monthly payments of $8,890
and a fixed interest rate of 5.65%. At April 30, 2015, the balance outstanding under the lease was $461,954. The net
book value of the equipment under the lease as of April 30, 2015 was $470,460.
On January 16, 2015, the Company entered into a capital lease agreement with Associated Bank, National
Association in the amount of $81,030 to finance equipment purchases. The term of lease extends to December 2019
with monthly payments of $1,487 and a fixed interest rate of 4.01%. At April 30, 2015, the balance outstanding
under the lease was $75,864. The net book value of the equipment under the lease as of April 30, 2015 was
$77,654.
Note Payable - Buildings
The Company entered into a mortgage agreement on January 8, 2010, in the amount of $2,500,000, with Wells
Fargo, N.A. to refinance the property that serves as the Company’s corporate headquarters and its Illinois
manufacturing facility. The Wells Fargo, N.A. note historically boar interest at a fixed rate of 6.42% per year and
was amortized over a sixty month period. A final payment of approximately $2,000,000 was due on or before
January 8, 2015. On November 24, 2014, the Company refinanced the mortgage agreement with Wells Fargo, N.A.
The note requires the Company to pay monthly principal payments in the amount of $9,500, bears an interest rate of
LIBOR plus two and one-quarter percent (effectively 2.625% at April 30, 2015) and is payable over a sixty month
period. Final payment of approximately $2,289,500 is due on or before November 8, 2019. The outstanding
balance as of April 30, 2014 was $2,075,017. The outstanding balance as of April 30, 2015 was $2,802,500.
The Company entered into a mortgage agreement on October 24, 2013, in the amount of $1,275,000, with Wells
Fargo, N.A. to finance the property that serves as the Company’s engineering and design center in Elgin, Illinois.
The Wells Fargo, N.A. note requires the Company to pay monthly principal payments in the amount of $4,250,
bears interest at a fixed rate of 4.51% per year and is payable over a sixty month period. A final payment of
approximately $1,030,000 is due on or before October 24, 2018. The outstanding balance as of April 30, 2014 was
$1,249,500. The outstanding balance as of April 30, 2015 was $1,198,500.
F-21
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE G - LONG-TERM DEBT - Continued
The aggregate amount of debt maturing in each of the following fiscal years and thereafter is as follows:
Fiscal Year
Total
2016
2017
2018
2019
2020
$
$
165,000
165,000
27,581,793
1,159,500
2,346,500
31,417,793
See Note L - Leases, Page F-30 for future maturities under capital lease obligations.
Other Long-Term Liabilities
As of April 30, 2015 and 2014, the Company had recorded $536,209 and $525,739, respectively, for seniority
premiums and retirement accounts related to benefits for employees working in the Company’s foreign subsidiaries.
F-22
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE H - ACCRUED EXPENSES AND WAGES
Accrued expenses consist of the following at April 30:
Interest
Commissions
Professional fees
Other
2015
2014
$
$
$
74,395
57,681
304,864
155,704
592,644
$
69,467
48,043
262,755
203,785
584,050
Accrued wages consist of the following at April 30:
Wages
Bonuses
Foreign wages
Foreign benefits
2015
2014
$
$
1,544,959
409,549
1,689,934
1,496,409
1,812,049
510,159
1,704,821
1,941,995
$
5,140,851
$
5,969,024
F-23
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE I - INCOME TAX
U.S. and foreign income (loss) before income tax expense for the years ended April 30 are as follows:
Domestic
Foreign
2015
2014
$
$
(2,481,049)
4,185,510
1,704,461
$
$
(545,501)
3,330,325
2,784,824
Provision (benefit) for Income Taxes
The income tax provision (benefit) for the years ended April 30 consists of the following:
Current
Federal
State
Foreign
Total Current
Deferred
Federal
State
Foreign
Total Deferred
2015
2014
$
2,963
29,613
1,020,820
1,053,396
$
(203,951)
28,726
664,591
489,366
(138,335)
(154,208)
40,196
(252,347)
365,008
64,952
(1,053,193)
(623,233)
Provision (benefit) for income taxes
$
801,049
$
(133,867)
F-24
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE I - INCOME TAX - Continued
Provision (benefit) for Income Taxes - Continued
The difference between the income tax provision (benefit) 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
Change in valuation allowance
Foreign tax differential
Impact of state tax rate change
Change in foreign valuation allowance
Foreign profit sharing
Foreign dividends
Other
Foreign currency exchange gain/loss
Impact of tax legislation
Impact of foreign permanent items
Foreign inflation adjustment
Insurance reserves
2015
2014
$
579,516
(86,377)
46,615
(256,343)
(42,471)
(53,011)
32,912
643,708
22,996
136,299
-
(123,987)
(98,808)
-
$
951,623
61,828
-
(465,835)
-
-
(60,626)
295,522
20,175
-
(828,175)
(25,099)
-
(83,280)
Provision (benefit) for income taxes
$
801,049
$
(133,867)
F-25
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE I - INCOME TAX - Continued
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the deferred tax assets for federal and state income taxes are as follows:
Deferred Tax Assets
Federal & State NOL carryforwards
Foreign NOL carryforwards
Research & Other Credits
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
Total Deferred Tax Liabilities
Net Deferred Tax Liability
2015
2014
$
449,325
-
78,100
795,721
133,744
1,154,335
207,044
263,703
72,271
22,978
3,177,221
(95,295)
-
98,254
-
944,454
137,343
1,340,302
338,014
293,242
61,515
305,335
3,518,459
(101,691)
3,081,926
$
3,416,768
(272,409)
(3,180,575)
-
(3,452,984)
(371,058)
$
$
$
(474,768)
(3,384,821)
(249,846)
(4,109,435)
(692,667)
$
$
$
$
$
As of April 30, 2015, the Company had net operating loss carryforwards for federal income tax purposes of
approximately $658,000, portions of which will begin to expire in 2035. The Company had a total state net
operating loss carryforward of approximately $2,318,000, which will begin to expire in 2023 to 2031. Utilization of
some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the
“change in ownership” provisions of Section 382 the Internal Revenue Code of 1986 and similar state provisions.
The annual limitations may result in the expiration of net operating losses and credits before utilization.
At April 30, 2015, the Company has federal net operating loss carry-forward totaling approximately $657,529 that
will expire on April 30, 2035. The Company recognizes a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The
Company determined it is more likely than not that it will realize the federal deferred tax assets due to the reversal of
F-26
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE I - INCOME TAX - Continued
Deferred Tax Assets and Liabilities-Continued
federal deferred tax liabilities. The federal deferred tax liabilities exceed the federal deferred tax assets and based on
the reversing pattern, the Company has concluded that substantially all of the federal deferred tax liabilities are
expected to reverse and be a sufficient source of future federal taxable income within the period of time available for
existing net operating loss carry-forwards and other federal deferred tax assets. The federal deferred tax liability is
of the same character as the differences giving rise to the federal deferred tax assets. If the Company experiences
substantial changes in ownership, the net operating loss carry-forwards would be subject to an annual limitation
pursuant to Section 382 which may impact the realization of the net operating loss carry-forwards.
The Company also has state net operating loss carry-forwards totaling approximately $2,318,000 at April 30, 2015,
that will begin to expire in fiscal year April 30, 2022. The Company recorded a valuation allowance related to state
net operating loss carry-forwards of $46,615 as of the year ended April 30, 2015. The state deferred tax liabilities
exceed the state deferred tax assets and based on the reversing pattern the Company has concluded that substantially
all of the state deferred tax liabilities are expected to reverse within the period of time available to fully utilize all
state deferred tax assets except for certain state net operating losses, with shorter expirations. Based on the reversing
schedule performed on a state by state basis, the Company has concluded that a valuation allowance of $46,615 is
required as of April 30, 2015, related to state net operating loss carryforwards that are expected to expire before
being utilized. These states required a valuation allowance because the net operating loss carry-forward periods are
expected to expire before being utilized, based upon the scheduled reversal of the deferred tax liabilities.
F-27
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE I - 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 Liability
2015
2014
2,179,178
$
2,524,993
(2,550,236)
(371,058)
$
(3,217,660)
(692,667)
$
$
The Company has not recorded U.S. income taxes on the undistributed earnings of the Company’s foreign
subsidiaries. Since the earnings of the foreign subsidiaries have been, and under fiscal April 30, 2015 plans, will
continue to be indefinitely reinvested, no deferred tax liability has been recorded. With respect to fiscal April 30,
2016, as a result of the uncertainty of the Company’s financing arrangements and its domestic liquidity profile, the
Company has determined that it might be required to repatriate from offshore cash, fiscal 2016 foreign earnings, to
meet certain domestic funding needs but will not need to repatriate prior earnings based on current forecasts . The
cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $12,163,000 as of
April 30, 2015. The amount of U.S. income taxes on these earnings is impractical to compute due to the
complexities of the hypothetical calculation.
Effective January 1, 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 repealed as of January 31, 2014.
During fiscal year 2015, the Company reflected tax expense of $643,708 related to the inability to realize the tax
benefit recorded in fiscal year 2014 for potential foreign tax credits related to the above distribution from Mexico.
The Company’s current estimate of cumulative taxable income during the foreign tax credit carryforward period is
insufficient to support that the tax benefit from the foreign tax credit is more likely than not to be realized.
F-28
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE I - INCOME TAX - Continued
Deferred Tax Assets and Liabilities - Continued
The Company has a foreign tax credit carry-forward of $78,100 and $112,327 at April 30, 2015 and 2014,
respectively, that will begin to expire in fiscal year April 30, 2024. The Company determined it is more likely than
not that it will realize the foreign tax credit due to the reversal of federal deferred tax liabilities.
The Company’s Vietnam subsidiary has a net operating loss carry-forward of $221,274 and $399,109 at April 30,
2015 and 2014, respectively, that will begin to expire within the fiscal year April 30, 2017. A portion of the net
operating loss carry-forward, $147,594, expired in the fiscal year ended April 30, 2015. Vietnam has a tax holiday
and is at a 0% tax rate currently. The Company anticipates that it will use the net operating loss before the tax
holiday expires, which resulted in no benefit being booked.
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, 2015 and 2014, the amount of consolidated worldwide liability for uncertain tax
positions that impacted the Company’s effective tax rate was $0 for each year.
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 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 tax years before 2011.
The Internal Revenue Service is currently examining fiscal year 2013. The Company is no longer subject to U.S.
Federal examinations by tax authorities for tax years before 2012.
NOTE J - 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 $114,207 and $93,452 to the plans during the fiscal years ended April 30, 2015 and 2014, respectively.
The Company paid total expenses of $8,500 and $6,850 for the fiscal years ended April 30, 2015 and 2014,
respectively, relating to costs associated with the administration of the plans.
NOTE K - 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, 2015, two customers accounted for 36.8% and
9.9% of net sales of the Company, and 9.6% and 5.5%, respectively, of accounts receivable at April 30, 2015. 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%, respectively, of accounts receivable at April 30, 2014. Further, the Company has $2,462,057 in
cash in China as of April 30, 2015. These funds are not insured by a guaranteed deposit insurance system. Effective
May 1, 2015, China implemented a deposit insurance program to insure up to approximately $81,000 in deposits.
F-29
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE L - LEASES
The Company leases certain facilities and office space 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,
2016
2017
2018
2019
2020
Thereafter
Capital
Leases
Operating
Leases
$
$
1,429,205
1,253,770
1,167,522
924,596
310,012
-
1,840,697
2,026,999
1,960,493
1,651,233
950,166
603,437
Total future minimum lease payments
$
5,085,105
$
9,033,025
Less amounts representing interest
Less Current Portion
437,560
4,647,545
1,245,632
Long Term Portion
$
3,401,913
F-30
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE L - LEASES - Continued
Rent expense incurred under operating leases was $2,102,312 and $1,981,977 for the years ended April 30, 2015
and 2014, 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 $33,950
for the fiscal year ended April 30, 2015, compared to deferred rent income of $17,770 recorded for the year ended
April 30, 2014.
On May 31, 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 income for the fiscal year
ended April 30, 2015 was $8,353. Deferred rent expense in the amount of $8,353 was recorded for the twelve
month period ended April 30, 2015.
NOTE M - STOCK COMPENSATION
The Company has stock option plans (“Option Plans”) under which certain employees and non-employee directors
may acquire shares of common stock. All Option Plans have been approved by the Company’s shareholders. At
April 30, 2015, the Company has 402,914 shares available for future issuance to employees under the employee
plans and none are available 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 Company recognized approximately
$18,100 in compensation expense in fiscal year 2015 and 2014. The balance of unrecognized compensation expense
at April 30, 2015 was approximately $21,700.
In fiscal year 2013, 115,000 options were granted to employees. The Company recognized approximately $13,800
and $54,860 of compensation expense in fiscal years 2015 and 2014, respectively. The balance of unrecognized
compensation expense at April 30, 2015 and 2014 was approximately $0 and $13,800, respectively.
F-31
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE M - STOCK COMPENSATION - Continued
The Company offered to purchase 395,190 options 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 SGMA common stock
which had not expired or terminated prior to October 29, 2013. 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. The Company offered to pay a
cash amount ranging from $0.18 to $1.35 per Eligible Option, totaling up to $301,500 and 394,200 options were
tendered and purchased for a total cash payment of $300,410 as of October 31, 2013.
The fair value of each option grant in fiscal 2014 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
0%
78%
4.49%
6.0 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-32
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE M - STOCK COMPENSATION - Continued
The table below summarizes option activity through April 30, 2015:
Number of
securities to be
issued upon
exercise of
outstanding options
Weighted-
average
exercise
price
515,192 $
25,000
(43,588)
(850)
(394,200)
101,554
(13,600)
(2,000)
85,954 $
8.02
4.24
3.64
4.24
9.34
3.88
4.26
4.24
3.81
Number of
options
exercisable
at end
of year
438,142
48,304
76,954
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
Options exercised during 2015
Options expired during 2015
Outstanding at April 30, 2015
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, 2015 and 2014, the aggregate
intrinsic value of options exercised was $51,520 and $291,025, respectively. As of April 30, 2015 and 2014, the
aggregate intrinsic value of in the money options outstanding was $365,245 and $653,803, respectively.
Information with respect to stock options outstanding at April 30, 2015 follows:
Range of exercise prices
$ 3.60-5.40
$ 9.17-11.56
Number
outstanding at
April 30, 2015
Options outstanding
Weighted-average
remaining
contract life
Weighted-
average
exercise price
84,963
991
85,954
7.87 years
.38 years
$
$
3.75
9.17
3.81
F-33
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE M - STOCK COMPENSATION - Continued
Information with respect to stock options outstanding and exercisable at April 30, 2015 follows:
Number
outstanding at
April 30, 2015
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
75,963
991
76,954
7.87 years
.38 years
$
$
3.69
9.17
3.76
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. There were 18,118 and 2,158 shares issued under the ESPP and the Company recorded $27,747 and $4,151
in compensation expense, for fiscal years ended April 30, 2015 and 2014, respectively.
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 $1,745 and $15,325 in compensation expense
for the years ended April 30, 2015 and 2014, respectively. The balance of unrecognized compensation expense
related to the Company’s restricted stock award was approximately $0 and $1,750 at April 30, 2015 and 2014,
respectively.
On October 1, 2014, the Company granted 1,750 shares to each non-employee director pursuant to the 2013 Non-
Employee Director Restricted Stock Plan. A total of 8,750 restricted shares were granted and the shares vest in six
months from the date of grant. The Company recognized $60,200 in compensation expense in fiscal year 2015.
There was no unrecognized compensation expense related to the 8,750 shares of restricted stock at April 30, 2015.
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 no compensation expense in fiscal year 2015 and there
was no unrecognized compensation expense related to the 7,500 shares of restricted stock at April 30, 2015.
F-34
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal year 2015:
2015
Net sales
Income before income
tax expense
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 54,947,477 $ 61,533,519 $ 53,702,613 $ 60,053,552
15,566
723,254
562,123
403,518
Net income
16,810
146,429
564,080
176,093
Earnings per share
$
0.00 $
0.04 $
0.14 $
0.04
Basic
Earnings per share
$
0.00 $
0.04 $
0.14 $
0.04
Diluted
Total shares- Basic
4,028,535
4,044,240
4,054,146
4,061,504
Total shares- Diluted
4,105,627
4,120,178
4,116,015
4,117,600
F-35
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
The following is a summary of unaudited quarterly financial data for fiscal year 2014:
2014
Net sales
Income (loss) before income
tax (benefit) expense
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 56,166,061 $ 56,577,287 $ 54,175,196 $ 55,567,396
1,240,339
949,811
(130,182)
724,856
Net income
967,464
784,654
743,794
422,779
Earnings per share
Basic
Earnings per share
Diluted
$
0.24 $
0.20 $
0.19 $
0.11
$
0.24 $
0.19 $
0.18 $
0.10
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
NOTE O – LITIGATION
In November 2008, the Company received notice of an Equal Employment Opportunity Commission (“EEOC”)
claim based on allegations of discrimination, sexual harassment, and retaliation filed by Maria Gracia, a former
employee. On December 5, 2008, Ms. Gracia’s employment as an assembly supervisor was terminated after she
knowingly permitted an assembly line to run leaded boards in a lead-free room with lead-free solder, contrary to the
customer’s specifications and prohibited by Company policy. The use of lead-free solder for leaded components can
lead to devices that fail and significant penalties to the Company and customers from regulatory bodies. The parts
were quarantined and were not shipped. Ms. Gracia openly admitted to permitting this to take place.
The EEOC declined to pursue Ms. Gracia’s charges against the Company but on July 26, 2011, Ms. Gracia received
a right to sue letter from the EEOC. On October 25, 2011, Ms. Gracia filed suit against the Company in the U.S.
District Court for the Northern District of Illinois under Title VII of the Civil Rights Act. The Complaint alleged
claims that Ms. Gracia was subject to discrimination, harassment, and hostile work environment based on sex and
national origin. In the Complaint, Ms. Gracia alleged that her supervisor engaged in a pattern of unwanted sexual
advances and that he sent her emails that were offensive to her gender and national origin. Further, the Complaint
also alleged that the Company retaliated by terminating Ms. Gracia’s employment after she filed her initial charge of
F-36
SigmaTron International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
April 30, 2015 and 2014
NOTE O – LITIGATION - Continued
discrimination with the EEOC. Ms. Gracia sought relief in the form of (a) damages sufficient to compensate her
injuries; (b) attorney’s fees; (c) costs of the action; (d) and equitable remedies.
In the court’s October 25, 2013 ruling on the Company’s Motion for Summary Judgment, the court limited
plaintiff’s claims to two: (1) hostile work environment caused by gender (sexual harassment), and (2) retaliation. In
December 2014, a jury trial found in favor of the Company with respect to the first claim and for the plaintiff with
respect to the second claim, awarding plaintiff damages totaling $307,000. In post-trial motions, the judge reduced
the verdict to $300,000. The judge will now consider plaintiff’s claim for equitable remedies and attorneys’ fees
and costs, along with the Company’s motion for sanctions, as the plaintiff introduced knowingly altered documents
as evidence during the trial which had not been previously disclosed. It is uncertain when these claims will be ruled
upon by the court.
The plaintiff has offered to accept $607,000 in settlement of all claims. The Company has rejected that offer and
intends to await the final judgment. The Company has not waived its right to appeal that judgment and will
determine its next steps once it is entered. As of April 30, 2015, the Company has accrued $300,000 in recognition
of the jury’s verdict and the judge’s subsequent adjustment to that verdict.
Even with a favorable ruling for the Company with regard to sanctions, the Company believes it will be required to
pay plaintiff a minimum of $300,000. While the plaintiff has offered to accept $607,000 in settlement of all claims,
it is not possible to predict where, within the range of $300,000 to $607,000 that the judge may enter the judgment.
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-37