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)

 

 

 

 

 

ASDAQ Capital Market

Title of each class

Common Stock $0.01 par value per share

Name of each exchange on which registered

The N ASDAQ 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.

 

 

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TABLE OF CONTENTS

 

 

 

 

 

PART I

 

 

 

 

ITEM 1 .

BUSINESS

 

ITEM 1A .

RISK FACTORS

11 

 

ITEM IB .

UNRESOLVED STAFF COMMENTS

17 

 

ITEM 2 .

PROPERTIES

17 

 

ITEM 3 .

LEGAL PROCEEDINGS

18 

 

ITEM 4 .

MINE SAFETY DISCLOSURES

19 

 

 

 

 

PART II

 

 

 

 

 

 

 

 

ITEM 5 .

MARKET FOR REGISTRANT’S COMMON EQUITY , RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

19 

 

 

 

 

ITEM 6 .

SELECTED FINANCIAL DATA

20 

 

ITEM 7 .

MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDI TION AND RESULTS OF OPERATIONS

20 

 

 

 

 

ITEM 7A .

QUANTITATIVE AND QUALITATIVE DISCLOSURE S ABOUT MARKET RISKS

29 

 

 

 

 

ITEM 8 .

FINANCIAL STATEMENTS AND SUPPLEMEN TARY DATA

29 

 

ITEM 9 .

CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

30 

 

 

 

 

ITEM 9A .

CONTROLS AND PROCEDURES

30 

 

ITEM 9B .

OTHER INFORMATION

30 

 

 

 

 

PART III

 

 

 

 

 

 

 

 

ITEM 10 .

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

31 

 

ITEM 11 .

EXECUTIVE COMPENSATION

31 

 

ITEM 12 .

SECURITY OW NERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

31 

 

 

 

 

ITEM 13 .

CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

31 

 

 

 

 

ITEM 14 .

PRINCIPAL ACCOUNTANT FEES AND SERVICES

31 

 

 

 

 

PART IV

 

 

 

 

 

 

 

 

ITEM 15 .

E XHIBITS AND FINANCIAL STATEMENT SCH E DULES

31 

 

 

 

 

SIGNATURES  

35 

 

 

 

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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 th is 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

 

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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   allow s 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 qu arter of fiscal   year 201 5 .  T he Company did however launch new programs in the fourth quarter of fiscal year 2015.  T he new orders c ame from both existing and new customer s .     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, ma rgin 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:

 

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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 Serv i ces:     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:     T he 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.

 

 

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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

Fiscal 2015 %

Fiscal 2014 %

Appliances

Household appliance controls

49.9 
48.6 

Industrial Electronics

Motor controls, power supplies, lighting products, scales, joysticks

31.2 
31.2 

Fitness

Treadmills, exercise bikes, cross trainers

6.7 
7.0 

Consumer Electronics

Personal grooming, computers

4.7 
5.5 

Semiconductor Equipment

Process control and yield management equipment for semiconductor productions

2.9 
2.4 

Medical/Life Sciences

Clinical diagnostic systems and instruments

2.6 
3.0 

Telecommunications

Routers, communication

1.7 
1.4 

Gaming

Slot machines, lighting displays

0.3 
0.9 

Total

 

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 8 25 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 1 94 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 3 75 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.

 

 

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The Company’s wholly-owned foreign enterprise s,   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 3 10 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, t he 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 ear nings, 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 credit s 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, 201 5 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 enterprise s 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.

 

 

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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, Authorizati on 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, wo lframite 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.

 

 

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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.

 

 

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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 1 A. 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 r apidly, the uncertain economic climate continues o r 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

 

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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 th e 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 th e 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 investment s 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 earn ings 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 co nsummate 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.

 

 

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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 sche dules, 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.

 

 

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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.

 

 

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Approximately 15 .1 %   and 1 5.7 %   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

 

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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 a nd 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

Leased

Taipei, Taiwan

4,685 

International procurement office

Leased

Elgin, IL

45,000 

Design services

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 po rtion 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

 

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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 agreement s .  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 cus tomers 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.

 

 

 

 

 

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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, 201 5 and 201 4 .

 

 

Common Stock as Reported

by NASDAQ

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

 

High

 

 

Low

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2015

 

 

 

 

 

 

 

 

Fourth Quarter

 

$

8.08 

 

$

5.84 

 

 

Third Quarter

 

 

8.24 

 

 

5.55 

 

 

Second Quarter

 

 

11.49 

 

 

6.29 

 

 

First Quarter

 

 

12.44 

 

 

8.12 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2014

 

 

 

 

 

 

 

 

Fourth Quarter

 

$

12.92 

 

$

7.53 

 

 

Third Quarter

 

 

9.54 

 

 

5.03 

 

 

Second Quarter

 

 

6.00 

 

 

4.18 

 

 

First Quarter

 

 

4.49 

 

 

3.86 

 

 

 

 

 

 

 

 

 

 

 

As of July 2 2 , 201 5 , 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  

 

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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) m anufacturing 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 faciliti es 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

 

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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   allow s 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 qu arter of fiscal   year 201 5 .  T he Company did however launch new programs in the fourth quarter of fiscal year 2015.  T he new orders c a me from both existing and new customer s .     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, ma rgin 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 reve nue 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

 

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the inventory was stored off-site , or transferred from the segregated part of the cust omer’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 .  T he 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, 201 5 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 review s 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.

 

 

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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, 201 7 and early adoption is not permitted Accordingly, the Company will adopt this ASU on May 1, 201 8 .  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 f iscal 2016, and reports for interim and annual periods thereafter.  Early adoption is perm itted. The Company does not expect the impact of adoption of this ASU to have a material impact on its consolidated financial statements.

 

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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, 20 15 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:

 

 

 

 

 

 

 

Fiscal Years

 

2015

 

2014

 

 

 

 

Net sales

100.0%

 

100.0%

Operating expenses:

 

 

 

Cost of products sold

90.4

 

89.7

Selling and administrative expenses

8.5

 

8.7

Total operating expenses

98.9

 

98.4

Operating income

1.1%

 

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 de creased 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

 

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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 201 4 .  The effective rate for the years ended April 30, 201 5 and 201 4 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 $1 4,412,734 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 earn ings 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.

 

 

 

 

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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. 62 5% 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.

 

 

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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 $2,201,63 8 , 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 4.5 1 % 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, 201 4 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 $589,08 3 .  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

 

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$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 earn ings 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 earn ings 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 co nsummate 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 9 A .     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) an d 15(d)-15(e)) as of April 30, 201 5 The Company’s disclosure controls and procedures are designed to provide reasonable assurance of ach ieving 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, 201 5 .

 

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 accordan ce 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 control s over financial reporting w ere effective at the reasonable assurance level as of April 30, 201 5 .

 

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 accou nting 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, 201 5 , 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 9 B .     OTHER INFORMATION

 

N o t Applicable .

 

30

 


 

 

 

 

PART III

 

 

 

I TEM 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, 201 5 .

 

 

ITEM 1 1 .     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, 201 5 .

 

 

ITEM 1 2 .     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, 201 5 .

 

 

IT EM 1 3 .     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, 201 5 .

 

 

ITEM 1 4 .     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, 201 5 .

 

 

 

PART IV

 

 

 

ITEM 1 5 .   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) ( 1 )  

The financial stateme nts are listed in the I ndex to Financial Statements filed as part of th is Annual   Report on       Form 10-K beginning on Page F-1.

 

 

31

 


 

 

 

Index to Exhibits

 

(a) ( 2 )

(a) ( 3 ) and (b)

 

 

 

3.1 

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.

 

 

3.2 

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.

 

 

10.1 8

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.

 

 

10.1 9

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.

 

 

 

33

 


 

 

10. 26

First Amendment to Third Amended and Restated Credit Agreement entered into as of March 7, 2015, 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

L ease 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.

 

 

10.2 8

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, 20 15 ).**

 

 

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

 


 

 

SIGNATURES

 

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.

 

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

Title

Date

 

 

 

/s/ Gary R. Fairhead

Chairman of the Board of Directors,

July 24, 2015

Gary R. Fairhead

President and Chief Executive Officer,

 

 

(Principal Executive Officer) and Director

 

 

 

 

/s/ Linda K. Frauendorfer

Chief Financial Officer, Secretary and Treasurer

July 24 2015

Linda K. Frauendorfer

(Principal Financial Officer and Principal

 

 

Accounting Officer) and Director

 

 

 

 

/s/ Thomas W. Rieck

Director

July 24, 2015

Thomas W. Rieck

 

 

 

 

 

/s/ Dilip S. Vyas

Director

July 24, 2015

Dilip S. Vyas

 

 

 

 

 

/s/ Paul J. Plante

Director

July 24, 2015

Paul J. Plante

 

 

 

 

 

/s/ Barry R. Horek

Director

July 24, 2015

Barry R. Horek

 

 

 

 

 

/s/ Bruce J. Mantia

Director

July 24, 2015

Bruce J. Mantia

 

 

 

 

 

 

35

 


 

 

INDEX TO FINANCIAL STATEMENTS

 

 

Page

 

SigmaTron International, Inc. and Subsidiaries

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

F- 2

 

 

CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

CONSOLIDATED BALANCE SHEETS  

F- 3

CONSOLIDATED STATEMENTS OF INCOME  

F- 5

CONSOLIDATED STATEMENTS OF CHANGES IN  

 

STOCKHOLDERS’ EQUITY  

F- 6

CONSOLIDATED STATEMENTS OF CASH FLOWS  

F- 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

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, 201 5 and 201 4   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, 20 15 and 20 14 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.

 

 

/s/ BDO USA, LLP

Chicago, Illinois

July 24, 201 5

 

F- 2

 


 

 

SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

APRIL 30, 2015 and 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

2015

 

 

2014

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

$

2,868,217 

 

$

5,440,319 

Accounts receivable, less allowance for doubtful accounts of

 

 

 

 

 

  $186,844 and $150,000 at April 30, 2015 and 2014,

 

 

 

 

 

respectively

 

20,170,723 

 

 

19,293,791 

Inventories, net

 

68,669,709 

 

 

53,728,377 

Prepaid expenses and other assets

 

2,103,367 

 

 

1,826,254 

Deferred income taxes

 

2,179,178 

 

 

2,524,993 

Other receivables

 

486,085 

 

 

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

 

5,174,144 

 

 

5,602,754 

Goodwill

 

3,222,899 

 

 

3,222,899 

Other assets

 

1,319,901 

 

 

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

$

35,838,275 

 

$

27,141,079 

Accrued expenses

 

592,644 

 

 

584,050 

Accrued wages

 

5,140,851 

 

 

5,969,024 

Income taxes payable

 

302 

 

 

80,936 

Current portion of long-term debt

 

165,000 

 

 

2,126,017 

Current portion of capital lease obligations

 

1,245,632 

 

 

765,961 

Current portion of contingent consideration

 

275,288 

 

 

331,429 

Current portion of deferred rent

 

150,594 

 

 

12,302 

 

 

 

 

 

 

Total current liabilities

 

43,408,586 

 

 

37,010,798 

 

 

 

 

 

 

Long-term debt,

 

 

 

 

 

less current portion

 

31,252,793 

 

 

24,198,500 

Capital lease obligations,

 

 

 

 

 

less current portion

 

3,401,913 

 

 

2,423,001 

Contingent consideration,

 

 

 

 

 

less current portion

 

1,223,697 

 

 

1,533,571 

Other long-term liabilities

 

536,209 

 

 

525,739 

Deferred rent, less current portion

 

999,929 

 

 

1,163,819 

Deferred income taxes

 

2,550,236 

 

 

3,217,660 

 

 

 

 

 

 

Total long-term liabilities

 

39,964,777 

 

 

33,062,290 

 

 

 

 

 

 

Total liabilities

 

83,373,363 

 

 

70,073,088 

 

 

 

 

 

 

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

 

40,703 

 

 

40,215 

Capital in excess of par value

 

21,239,641 

 

 

20,864,497 

Retained earnings

 

35,405,043 

 

 

34,501,631 

 

 

 

 

 

 

Total stockholders’ equity

 

56,685,387 

 

 

55,406,343 

 

 

 

 

 

 

TOTAL LIABILITIES AND

 

 

 

 

 

  STOCKHOLDERS’ EQUITY

$

140,058,750 

 

$

125,479,431 

 

 

 

 

 

The accompanying notes are an integral part of these statements.

F- 4

 


 

 

SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

Years ended April 30, 2015 and 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

Net sales

$

230,237,161 

 

$

222,485,940 

 

 

 

 

 

 

 

 

Cost of products sold

 

208,168,323 

 

 

199,658,942 

 

 

 

 

 

 

 

 

Gross profit

 

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

 

(148,583)

 

 

(124,378)

 

Interest expense

 

1,081,323 

 

 

966,038 

 

 

 

 

 

 

 

 

Income before income tax expense

 

1,704,461 

 

 

2,784,824 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

801,049 

 

 

(133,867)

 

 

 

 

 

 

 

 

NET INCOME

$

903,412 

 

$

2,918,691 

 

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

 

   Basic

$

0.22 

 

$

0.74 

 

 

 

 

 

 

 

 

   Diluted

$

0.22 

 

$

0.72 

 

 

 

 

 

 

 

 

Weighted-average shares of common

 

 

 

 

 

 

stock outstanding

 

 

 

 

 

 

Basic

 

4,046,988 

 

 

3,969,391 

 

 

 

 

 

 

 

 

Diluted

 

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, 201 5 and 201 4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of stock-based
compensation

 

 -

 

 

 -

 

 

89,219 

 

 

 -

 

 

89,219 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 -

 

 

436 

 

 

158,357 

 

 

 -

 

 

158,793 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance and vesting of restricted
stock

 

 -

 

 

 -

 

 

54,997 

 

 

 -

 

 

54,997 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax benefit from exercise of options

 

 -

 

 

 -

 

 

200,912 

 

 

 -

 

 

200,912 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

2,918,691 

 

 

2,918,691 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2014

 

 -

 

 

40,215 

 

 

20,864,497 

 

 

34,501,631 

 

 

55,406,343 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of stock-based
compensation

 

 -

 

 

 -

 

 

59,648 

 

 

 -

 

 

59,648 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 -

 

 

136 

 

 

57,825 

 

 

 -

 

 

57,961 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance and vesting of restricted
stock

 

 -

 

 

150 

 

 

61,796 

 

 

 -

 

 

61,946 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchases

 

 -

 

 

202 

 

 

126,612 

 

 

 -

 

 

126,814 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax benefit from contingent
consideration

 

 -

 

 

 -

 

 

69,263 

 

 

 -

 

 

69,263 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

903,412 

 

$

2,918,691 

Adjustments to reconcile net income to net

 

 

 

 

 

 

cash (used in) provided by operating activities

 

 

 

 

 

 

Depreciation

 

 

4,985,272 

 

 

4,791,663 

Stock-based compensation

 

 

59,648 

 

 

89,219 

Restricted stock expense

 

 

61,946 

 

 

54,997 

Employee stock purchases

 

 

126,814 

 

 

 -

Provision for doubtful accounts

 

 

36,844 

 

 

 -

(Write-off) provision for inventory obsolescence

 

 

(528,598)

 

 

34,884 

Tax benefit from option exercises

 

 

 -

 

 

(200,912)

Tax benefit from contingent consideration

 

 

(69,263)

 

 

 -

Deferred income tax benefit

 

 

(252,347)

 

 

(623,233)

Amortization of intangible assets

 

 

428,610 

 

 

346,680 

Fair value adjustment of contingent consideration

 

 

(106,015)

 

 

 -

Loss from disposal or sale of machinery and equipment

 

 

52,615 

 

 

37,603 

Stock option repurchase expense

 

 

 -

 

 

300,410 

 

 

 

 

 

 

 

Changes in assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

(913,776)

 

 

127,461 

Inventories

 

 

(14,412,734)

 

 

(3,118,520)

Prepaid expenses and other assets

 

 

(935,963)

 

 

343,580 

Income taxes payable/refundable

 

 

(80,634)

 

 

509,874 

Trade accounts payable

 

 

8,697,196 

 

 

(4,206,275)

Deferred rent

 

 

(25,598)

 

 

79,849 

Accrued expenses and wages

 

 

(809,109)

 

 

470,860 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

 

 

(2,781,680)

 

 

1,956,831 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of machinery and equipment

 

 

(4,802,389)

 

 

(8,366,039)

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(4,802,389)

 

 

(8,366,039)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from exercise of common stock options

 

 

57,961 

 

 

158,793 

Repurchase of stock options

 

 

 -

 

 

(300,410)

Proceeds under sale leaseback agreements

 

 

1,102,317 

 

 

2,281,354 

Payments of contingent consideration

 

 

(260,000)

 

 

(260,000)

Payments under capital lease and sale leaseback agreements

 

 

(1,050,850)

 

 

(488,357)

Proceeds under building notes payable

 

 

834,481 

 

 

1,275,000 

Payments under building notes payable

 

 

(157,998)

 

 

(125,496)

Borrowings under lines of credit

 

 

165,496,222 

 

 

121,696,357 

Payments under lines of credit

 

 

(161,079,429)

 

 

(117,196,357)

Tax benefit from option exercises

 

 

 -

 

 

200,912 

Tax benefit from contingent consideration

 

 

69,263 

 

 

 -

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

5,011,967 

 

 

7,241,796 

 

 

 

 

 

 

 

Change in cash

 

 

(2,572,102)

 

 

832,588 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

5,440,319 

 

 

4,607,731 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

$

2,868,217 

 

$

5,440,319 

 

The accompanying notes are an integral part of these statements.

F- 7

 


 

 

 

 

SigmaTron International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

Years ended April 30, 2015 and 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

Supplementary disclosures of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

1,018,419 

 

$

893,967 

Cash paid for income taxes

 

 

915,115 

 

 

271,502 

Cash refunded for income taxes

 

 

 -

 

 

(689,298)

Purchase of machinery and equipment financed

 

 

 

 

 

 

under capital leases

 

 

1,407,116 

 

 

2,870,437 

Puchase of machinery and equipment financed

 

 

 

 

 

 

under sale leaseback agreements

 

 

1,102,317 

 

 

 -

 

 

 

 

The accompanying notes are an integral part of these statements.

 

 

 

 

 

 

 

F- 8

 


 

DRAFT - A

DRAFT - A

SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

April 30, 201 5 and 201 4

 

 

NOTE A - DESCRIP TION 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 1 5.7 % 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, 201 5 and 201 4

 

 

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 C ompany 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 

20 years

Machinery and equipment 

5 - 12 years

Office equipment and software

  3 - 5 years

Tools and dies

  12 months

Leasehold improvements

  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, 201 5 and 201 4

 

 

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.  T here 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, 201 5 and 201 4

 

 

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.  T he 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, 201 5 and 201 4

 

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

 

Intangible Assets

 

Intangible assets are comprised of finite life intangible assets including patents,   trade names, backlog, non-compete agreements, and customer relationships.  Finite life intangible assets are amortized on a straight line or accelerated basis over their estimated useful lives of five years for patents, 20 year s 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, 201 7 and early adoption is not permitted.  Accordingly, the Company will adopt this ASU on May 1, 201 8 .  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, 201 5 and 201 4

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

Beginning Balance

 

$

150,000

 

$

150,000

 

 

Bad debt expense

 

 

36,844

 

 

-

 

 

Write-offs

 

 

-

 

 

-

 

 

 

 

$

186,844

 

$

150,000

 

 

 

 

 

 

 

 

 

 

 

 

 

F- 14

 


 

SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 201 5 and 201 4

 

 

NOTE D - INVENTORIES

 

Inventories consist of the following at April 30:

 

 

 

 

 

 

 

 

 

2015

 

2014

 

 

 

 

 

 

Finished products

$

24,316,404 

 

$

18,553,112 

Work-in-process

 

2,966,846 

 

 

3,126,596 

Raw materials

 

42,662,845 

 

 

33,853,653 

 

 

69,946,095 

 

 

55,533,361 

Less obsolescence reserve

 

1,276,386 

 

 

1,804,984 

 

$

68,669,709 

 

$

53,728,377 

 

Changes in the Company’s inventory obsolescence reserve are as follows:

 

 

 

 

 

 

 

 

 

2015

 

2014

 

 

 

 

 

 

Beginning balance

$

1,804,984 

 

$

1,770,100 

Provision for obsolescence

 

 -

 

 

34,884 

Write-offs

 

(528,598)

 

 

 -

 

$

1,276,386 

 

$

1,804,984 

 

 

 

 

F- 15

 


 

SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 201 5 and 201 4

 

 

NOTE E - PROPERTY, MACHINERY AND EQUIPMENT, NET

 

Property, machinery and equipment consist of the following at April 30:

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

Land and buildings

$

15,265,758 

 

$

14,707,780 

Machinery and equipment

 

56,142,919 

 

 

54,933,857 

Office equipment and software

 

8,640,964 

 

 

7,413,077 

Leasehold improvements

 

2,540,693 

 

 

2,539,193 

Equipment under capital leases

 

6,746,668 

 

 

4,237,235 

 

 

 

 

 

 

 

 

89,337,002 

 

 

83,831,142 

 

 

 

 

 

 

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

 

55,472,475 

 

 

51,138,234 

 

 

 

 

 

 

Property, machinery and

 

 

 

 

 

equipment, net

 

 

 

 

 

 

$

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, 201 5 and 201 4

 

 

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

 

Gross

 

 

 

 

Amortization

 

Carrying

 

Accumulated

 

Period (Years)

 

Amount

 

Amortization

 

 

 

 

 

 

 

 

Other intangible assets – Able

-

 

$

375,000 

 

$

375,000 

Customer relationships – Able

-

 

 

2,395,000 

 

 

2,395,000 

Spitfire:

 

 

 

 

 

 

 

Non-contractual customer relationships

12.08

 

 

4,690,000 

 

 

548,781 

Backlog

-

 

 

22,000 

 

 

22,000 

Trade names

17.08

 

 

980,000 

 

 

142,905 

Non-compete agreements

4.08

 

 

50,000 

 

 

20,825 

Patents

2.08

 

 

400,000 

 

 

233,345 

Total

 

 

$

8,912,000 

 

$

3,737,856 

 

Intangible assets subject to amortization are summarized as of April 30, 2014 as follows:

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

Remaining

 

Gross

 

 

 

 

Amortization

 

Carrying

 

Accumulated

 

Period (Years)

 

Amount

 

Amortization

 

 

 

 

 

 

 

 

Other intangible assets – Able

-

 

$

375,000 

 

$

375,000 

Customer relationships – Able

-

 

 

2,395,000 

 

 

2,395,000 

Spitfire:

 

 

 

 

 

 

 

Non-contractual customer relationships

13.08

 

 

4,690,000 

 

 

256,311 

Backlog

-

 

 

22,000 

 

 

22,000 

Trade names

18.08

 

 

980,000 

 

 

93,909 

Non-compete agreements

5.08

 

 

50,000 

 

 

13,685 

Patents

3.08

 

 

400,000 

 

 

153,341 

Total

 

 

$

8,912,000 

 

$

3,309,246 

F- 17

 


 

SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 201 5 and 201 4

 

 

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

 

$

470,899 

 

2017

 

 

490,010 

 

2018

 

 

435,043 

 

2019

 

 

423,721 

 

2020

 

 

411,406 

 

Thereafter

 

 

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 o perating 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, 201 5 and 201 4

 

 

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 investment s 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 earn ings 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 co nsummate 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, 201 5 and 201 4

 

 

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 un der 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 Ap ril 30, 2014 , the balance outstanding under the capital lease agreement was $581,415 .  The net book value of the equipment unde r 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, 201 5 and 201 4

 

 

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 outstand ing 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, 201 5 and 201 4

 

 

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

$

165,000 

 

 

2017

 

165,000 

 

 

2018

 

27,581,793 

 

 

2019

 

1,159,500 

 

 

2020

 

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 s ubsidiaries.

 

 

 

 

F- 22

 


 

SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 201 5 and 201 4

 

 

NOTE H - ACCRUED EXPENSES AND WAGES

 

Accrued expenses   consist of the following at April 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Interest

 

$

74,395 

 

$

69,467 

 

Commissions

 

 

57,681 

 

 

48,043 

 

Professional fees

 

 

304,864 

 

 

262,755 

 

Other

 

 

155,704 

 

 

203,785 

 

 

 

 

 

 

 

 

 

 

 

$

592,644 

 

$

584,050 

 

 

Accrued wages consist of the following at April 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Wages

 

$

1,544,959 

 

$

1,812,049 

 

Bonuses

 

 

409,549 

 

 

510,159 

 

Foreign wages

 

 

1,689,934 

 

 

1,704,821 

 

Foreign benefits

 

 

1,496,409 

 

 

1,941,995 

 

 

 

 

 

 

 

 

 

 

 

$

5,140,851 

 

$

5,969,024 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F- 23

 


 

SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 201 5 and 201 4

 

 

NOTE I - INCOME TAX

 

U.S. and foreign income (loss) before income tax expense for the years ended April 30 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Domestic

 

$

(2,481,049)

 

$

(545,501)

 

Foreign

 

 

4,185,510 

 

 

3,330,325 

 

 

 

 

 

 

 

 

 

 

 

$

1,704,461 

 

$

2,784,824 

 

 

Provision (benefit) for Income Taxes

 

The income tax provision (benefit) for the years ended April 30 consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

Federal

 

$

2,963 

 

$

(203,951)

 

State

 

 

29,613 

 

 

28,726 

 

Foreign

 

 

1,020,820 

 

 

664,591 

 

Total Current

 

 

1,053,396 

 

 

489,366 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

Federal

 

 

(138,335)

 

 

365,008 

 

State

 

 

(154,208)

 

 

64,952 

 

Foreign

 

 

40,196 

 

 

(1,053,193)

 

Total Deferred

 

 

(252,347)

 

 

(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, 201 5 and 201 4

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

U.S Federal Provision:

 

 

 

 

 

 

 

At statutory rate

 

$

579,516 

 

$

951,623 

 

State taxes

 

 

(86,377)

 

 

61,828 

 

Change in valuation allowance

 

 

46,615 

 

 

 -

 

Foreign tax differential

 

 

(256,343)

 

 

(465,835)

 

Impact of state tax rate change

 

 

(42,471)

 

 

 -

 

Change in foreign valuation allowance

 

 

(53,011)

 

 

 -

 

Foreign profit sharing

 

 

32,912 

 

 

(60,626)

 

Foreign dividends

 

 

643,708 

 

 

295,522 

 

Other

 

 

22,996 

 

 

20,175 

 

Foreign currency exchange gain/loss

 

 

136,299 

 

 

 -

 

Impact of tax legislation

 

 

 -

 

 

(828,175)

 

Impact of foreign permanent items

 

 

(123,987)

 

 

(25,099)

 

Foreign inflation adjustment

 

 

(98,808)

 

 

 -

 

Insurance reserves

 

 

 -

 

 

(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, 201 5 and 201 4

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Deferred Tax Assets

 

 

 

 

 

 

 

Federal & State NOL carryforwards

 

$

449,325 

 

$

 -

 

Foreign NOL carryforwards

 

 

 -

 

 

98,254 

 

Research & Other Credits

 

 

78,100 

 

 

 -

 

Reserves and accruals

 

 

795,721 

 

 

944,454 

 

Stock based compensation

 

 

133,744 

 

 

137,343 

 

Inventories

 

 

1,154,335 

 

 

1,340,302 

 

Other intangible assets

 

 

207,044 

 

 

338,014 

 

Deferred rent

 

 

263,703 

 

 

293,242 

 

Allowance for doubtful accounts

 

 

72,271 

 

 

61,515 

 

Other

 

 

22,978 

 

 

305,335 

 

Total Gross Deferred Tax Assets

 

 

3,177,221 

 

 

3,518,459 

 

Less: Valuation allowance

 

 

(95,295)

 

 

(101,691)

 

 

 

 

 

 

 

 

 

Net Deferred Tax Assets

 

$

3,081,926 

 

$

3,416,768 

 

 

 

 

 

 

 

 

 

Deferred Tax Liabilities

 

 

 

 

 

 

 

Other assets

 

$

(272,409)

 

$

(474,768)

 

Property, machinery & equipment

 

 

(3,180,575)

 

 

(3,384,821)

 

Undistributed foreign earnings

 

 

-

 

 

(249,846)

 

Total Deferred Tax Liabilities

 

$

(3,452,984)

 

$

(4,109,435)

 

 

 

 

 

 

 

 

 

Net Deferred Tax Liability

 

$

(371,058)

 

$

(692,667)

 

 

As of April 30, 2015, the Company had net operating loss carryforwards for federal income tax purposes of approximately   $65 8,000 , portions of which will begin to expire in 2035 . The Company had a total state net operating loss carryforward   of approximately $2,318,0 00 , 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, 201 5 and 201 4

 

 

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, 201 5 and 201 4

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

Current assets:

 

 

 

 

 

 

 

Deferred income taxes

 

$

2,179,178 

 

$

2,524,993 

 

Non-current liabilities:

 

 

 

 

 

 

 

Deferred income taxes

 

 

(2,550,236)

 

 

(3,217,660)

 

Net Deferred Tax Liability

 

$

(371,058)

 

$

(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, 201 5 and 201 4

 

 

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.  Th e 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, 201 5 and 201 4

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

Operating

 

Years ending April 30,

 

Leases

 

 

Leases

 

 

 

 

 

 

 

 

2016

$

1,429,205 

 

$

1,840,697 

 

2017

 

1,253,770 

 

 

2,026,999 

 

2018

 

1,167,522 

 

 

1,960,493 

 

2019

 

924,596 

 

 

1,651,233 

 

2020

 

310,012 

 

 

950,166 

 

Thereafter

 

 -

 

 

603,437 

 

 

 

 

 

 

 

 

Total future minimum lease payments

$

5,085,105 

 

$

9,033,025 

 

 

 

 

 

 

 

 

Less amounts representing interest

 

437,560 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,647,545 

 

 

 

 

 

 

 

 

 

 

 

Less Current Portion

 

1,245,632 

 

 

 

 

 

 

 

 

 

 

 

Long Term Portion

$

3,401,913 

 

 

 

 

F- 30

 


 

SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 201 5 and 201 4

 

 

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, 201 5 and 201 4

 

 

NOTE M - STOCK COMPENSATION - Continued

 

The Company offered to purchase 395,190   o ptions 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   o ptions 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

0% 

 

 

Expected stock price volatility

78% 

 

 

Average risk-free interest rate

4.49% 

 

 

Weighted-average expected life of options  

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, 201 5 and 201 4

 

 

NOTE M - STOCK COMPENSATION - Continued

 

The table below summarizes option activity through April 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

Number of

 

 

securities to be

 

 

 

 

options

 

 

issued upon

 

 

Weighted-

 

exercisable

 

 

exercise of

 

 

average

 

at end

 

 

outstanding options

 

 

exercise price

 

of year

Outstanding at April 30, 2013

 

515,192 

 

$

8.02 

 

438,142 

Options granted during 2014

 

25,000 

 

 

4.24 

 

 

Options exercised during 2014

 

(43,588)

 

 

3.64 

 

 

Options expired during 2014

 

(850)

 

 

4.24 

 

 

Options repurchased during 2014

 

(394,200)

 

 

9.34 

 

 

Outstanding at April 30, 2014

 

101,554 

 

 

3.88 

 

48,304 

Options exercised during 2015

 

(13,600)

 

 

4.26 

 

 

Options expired during 2015

 

(2,000)

 

 

4.24 

 

 

Outstanding at April 30, 2015

 

85,954 

 

$

3.81 

 

76,954 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding

 

 

 

Number

 

Weighted-average

 

Weighted-

 

 

 

outstanding at

 

remaining

 

average

 

 

 

April 30, 2015

 

contract life

 

exercise price

Range of exercise prices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3.60-5.40

 

84,963 

 

7.87 years

$

3.75 

$

9.17-11.56

 

991 

 

.38 years

 

9.17 

 

 

 

 

 

 

 

 

 

 

 

85,954 

 

 

$

3.81 

 

 

 

 

 

F- 33

 


 

SigmaTron International, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

April 30, 201 5 and 201 4

 

 

NOTE M - STOCK COMPENSATION - Continued

 

Information with respect to stock options outstanding and exercisable at April 30, 2015 follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding and exercisable

 

 

 

Number

 

Weighted-average

 

Weighted-

 

 

 

outstanding at

 

remaining

 

average

 

 

 

April 30, 2015

 

contract life

 

exercise price

Range of exercise prices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3.60-5.40

 

75,963 

 

7.87 years

$

3.69 

$

9.17-11.56

 

991 

 

.38 years

 

9.17 

 

 

 

 

 

 

 

 

 

 

 

76,954 

 

 

$

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 $1,7 50 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, 201 5 and 201 4

 

 

NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

 

The following is a summary of unaudited quarterly financial data for fiscal year 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

2015

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

54,947,477 

 

$

61,533,519 

 

$

53,702,613 

 

$

60,053,552 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income

 

 

15,566 

 

 

723,254 

 

 

562,123 

 

 

403,518 

tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 201 5 and 201 4

 

 

NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued

 

The following is a summary of unaudited quarterly financial data for fiscal year 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

2014

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

56,166,061 

 

$

56,577,287 

 

$

54,175,196 

 

$

55,567,396 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income

 

 

 

 

 

 

 

 

 

 

 

 

tax (benefit) expense

 

 

1,240,339 

 

 

949,811 

 

 

(130,182)

 

 

724,856 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

967,464 

 

 

784,654 

 

 

743,794 

 

 

422,779 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.24 

 

$

0.20 

 

$

0.19 

 

$

0.11 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

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, 201 5 and 201 4

 

 

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

 


 

 

 

 

Exhibit 10. 29

Product   Schedule   to   Master   Lease   Agreement

PICTURE 58

 

This   Schedule   # 12 84094   to   Master   Lease   Agreement   # 81344   (the   “Schedule”) contains   the   terms   of   your   agreement   with   us.   Please   read   it   carefully   and   ask   us   any   questions   you   may   have.   The   words   you,   your   and   lessee   mean you,   the Lessee   listed   below   who   are   our   customer.   The   words   we,   us,   our   and   the   lessor ,   mean   CIT   Finance   LLC

 

 

 

 

 

 

Product   Description

 

 

  Product Address

 

 

 

(1) Yamaha YCP 10-S Automatic Screen Printer, SN: Y33396

 

Miguel De Cervantes No. 151

Complejo Industrial Chihuahua

Chihuahua, Chih. Mexico

C.P. 31109

(2) Yamaha YSM20-2/FES Dual Stage Compact High-Speed Modular Mounter, SN: Y33361 & Y33362

 

(102)8mm Tape Feeder – ZS Type, (15) 12MM/16MM Tape Feeder – ZS Type, (6) 24MM Tape Feeder – ZS Type, (1)

 

Feeder set-up/power station for external set-up

 

(3) Nutek Linking Conveyor L Size 600MM and (1) Nutek Inspection Conveyor L Size 1000MM

 

 

(1) P-TOOL Data Programming Package,(1) IT System Server Utility, (1) Basic Package Software for Printer PW R-2 - Power

 

 

Module

 

 

TPCXICU20 - PC W in XP, LCD monitor, USB system module, industrial 20-slot chassis

 

 

Hot Air Station 120V, Ref # JT-1B, with 2 Tools Control Unit 120V, Ref # DD-1B, Compact Soldering St. 120V, Ref # CD-1BC

 

 

 

 

 

 

For   additional   equipment   and   accessories,   attach   addendum.

 

 

Supplier   Info : Trans-Tec America, LLC

 

 

 

End of Lease Purchase

Lessee

  10% Purchase Upon Termination

SigmaTron International, Inc.  

 

Lessee Legal Name (a “Lessee”)

Term and Lease

 

Term (Months) 60

2201 Landmeier Road  

Lease Payment 60 payments at $12,764.45, plus PUT amount of $70,322.88  

Billing Street Address

(plus taxes, if applicable)

Elk Grove Village, IL 60007  

Payment Frequency   Monthly

Billing City, State, Zip

 

 

Variable Payment Schedule if applicable

Billing Contact Name &Phone No.

 

 

 

Lessee Phone Number (if different from above)

 

 

 

 

 

 

 

1.    LEASE OF PRODUCT; FEE : W e agree to lease to you and you agree to lease from us the Products shown above for the number of months and monthly payment identified above ("Lease Payment"). You agree to pay the Documentation Fee with your first invoice. This  Schedule will commence on the date  that any of the Products are delivered to you ("Inception Date"). Your first Lease Payment is due 30 days from the Acceptance Date, and your remaining Lease Payments shall be due on the same day of each subsequent month until you have paid all the Lease Payments due under the Schedule. Each day between the Inception Date and the Acceptance Date is an "Interim Rent Day". You shall pay us interim rent for each Interim Rent Day at 1/30th of the Lease Payment. You will make all payments required under the Lease at the address set forth in our Lease invoice. You will execute a Delivery and Acceptance Certificate upon receipt of the Products, if we provide one to you, and if not, you expressly agree that you accepted the Products no later than 10 days after it was delivered to you (collectively, the "Acceptance Date") unless you have notified us of your non-acceptance in writing.

2.    LESSEE REPRESENTATIONS : By execution of this Schedule, you confirm that

(a) no Event of Default exists under the Master Lease as of the date hereof, and (b) the Products will be used for a business purpose, and not for personal, family or household purposes.

3.    CELLULAR PHONES : You agree that providing a telephone number to a cellular or other wireless device, you are expressly consenting to receiving communications from us, our affiliates and agents (for non-marketing purposes) at that number, including, but not limited to, prerecorded and artificial voice messages, text messages, and calls from automated telephone dialing systems; these calls may incur fees from your cellular provider; and this consent applies to each telephone number you provide to us now or in the future.

4.    FINANCIAL STATEMENTS :  You agree to provide us copies of your balance

sheet, income statement and other financial reports as we may reasonably request.

5.    PRODUCTS PLACED OUTSIDE OF UNITED STATES . Products may be relocated from the United States to within a “Maquiladora Zone” in Mexico. If a Schedule lists a Product location outside of the United States (“Foreign Use Product”). Lessee agrees that in addition to its obligations under the Agreement, Lessee will be obligated to pay, or to reimburse Lessor for the payment of, any and all taxes applicable to the Foreign Use Product and the periodic Payments described in the Schedule which are assessed by any taxing authorities. Tax This includes any withholding tax, goods and services tax, value added tax, or any other taxes that may arise out of any Foreign Use Product being located in the Approved Location (“Relevant Tax”) together with any penalty and/or interest thereon. Lessee agrees to self-assess any Relevant Tax and remit such tax to the relevant taxing authorities on a monthly basis.  Lessee agrees that Lessor will receive from Lessee a net amount equal to the full amount which Lessor would have received had the Payments not been made subject to any Relevant Tax. Lessee will cooperate with Lessor in obtaining any relevant documentation necessary to substantiate payment of such Relevant Tax and in providing original or certified copies thereof. If any income, franchise,  turnover or other taxes are  due  and payable  to  any taxing authority as a result of the lease of Foreign Use Product, Lessee agrees to register and file all necessary returns, on Lessor’s behalf, and pay all such taxes and associated costs. Lessee agrees to act as importer / exporter of record and pay all costs of customs, duties and other fees with respect to the import and export of any Foreign Use Product (whether in connection with the delivery or return of the

 

 

The following additional payments are due on the date you sign this agreement:

One-time Documentation Fee $ n/a Payable with First Invoice

Advanced Payment                 $ n/a due at Lease signing

                                               (plus taxes, if applicable)

 

 

 

 

DATA SECURITY: Some or all of the items of Equipment returned to us at any time may contain sensitive information or data belonging to your organization, or your customer/clients/patients, that is stored, recorded, or in any way contained within or on the Equipment. You specifically agree that before the Equipment is shipped to or retrieved by us or our agents, or removed by a supplier, you will, at your sole cost and expense, permanently destroy, delete and remove all such information and data that is stored, recorded or in any way contained within or on the Equipment, to the extent that further recovery of any of such data and information is not possible. You have the sole responsibility to so destroy, delete, and remove all data and information stored in or on the Equipment. We have absolutely no liability for any data or information that you fail to so destroy, delete, and remove. All hard drives and other data retention components must function as originally installed after data removal.

 

 

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW

ACCOUNT: To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: W hen you open an account, we will ask for (i) if you are a legal entity, your name, address, and other information that will allow us to identify you; (ii) if you are an individual, your name, address, and date of birth. We may also ask to see your driver’s license or other identifying documents.

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Use Product from the Approved Location, or otherwise).

5.1       DELIVERY AND RETURN OF FOREIGN USE PRODUCT : Upon termination or expiring of the Schedule, and notwithstanding any other provision hereof limiting such costs, you will, at its full cost and expense, act as importer / exporter of record and return the Foreign Use Product pursuant to the terms of the Agreement to a location designated by us in the United States and will obtain (at your cost) all appropriate export and import permits and licenses with respect to the   export of  the Foreign  Use  Product, and  ensuring  that Foreign  Use  Product is properly marked for import. Provided, however, that if you are not in Default under this Schedule and in the event you have either a nominal purchase option or a fixed purchase price a PUT, title will pass to you upon payment of such purchase price.

5. 2       EXPORT CONTROL : You acknowledges that the export of Foreign Use Product supplied hereunder (which may include technology and software licensed for use on or with such Foreign Use Product), is subject to such export control laws and regulations, including by not limited to the United States Export Control Act of 1079 and the Export Administration Act of 1985, together with such further United States, local, or other export laws and regulations as may be in force from time to time and applicable to the Foreign Use Product and software when being delivered to or returned from the Approved Location. You agree to comply with all such laws.

5.3       TAX INDEMNIFICATION . You agree that the indemnification rights of ours under the Agreement shall include, and you shall indemnify, defend and hold harmless us from and against any claim, demand, action, proceeding, investigation, loss, liability, cost or expense, including attorneys’ fees, suffered or incurred by us or any such persons arising out of or related to the location, use or possession of Foreign Use Product and Relevant Taxes. The parties will cooperate with each other with respect to any tax audits conducted by a taxing jurisdiction and other matters involving taxes, including without limitation any tax related credits due to or from a taxing jurisdiction and evidence of tax exemption certificates. If we are subjected to a Tax audit with respect to this Agreement or the Products, you agree to promptly provide evidence of the Relevant Taxes paid to the jurisdiction relating to the Master Lease or the Products leased hereunder and the basis for such Tax payment.

6.    Custodial Agreement .  Following the acceptance of the Products and origination of this Lease, Lessee shall cause its Authorized Affiliate to execute a Custodial Agreement, in such form as reasonably agreed by the parties, within 10 days of Lessor’s execution of the document and have the agreement returned to Lessor. The failure of Lessee to obtain the execution of the Custodial Agreement within the presubscribed timeframe shall be an additional event of default under Section 13(b) of the Master Lease.

7.    PURCHASE UPON TERMINATION (“PUT”) : For value received, receipt of which is hereby acknowledged, Lessee hereby agrees to purchase, at the end of the original 60 month term of the Lease, Lessor’s interest in the Equipment on an AS-IS, WHERE-IS basis, for $ 5 0, 158 . 99 or 10% of the Equipment’s original cash price (“PUT Price”).

Customer will pay to Lessor the PUT Price and all other unpaid obligations of the Customer under the Lease, plus any applicable tax within 15 days of the expiration of the original term of the Lease and upon receipt of such payment, Lessor will transfer to Customer its interest in the Equipment on an AS-IS, W HERE-IS basis, without any warranty or representation of any kind, express or implied.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LESSOR

CIT Finance LLC

 

Lessee: SigmaTron International, Inc.

 

 

10201 Centurion Parkway N. #100

 

 

 

 

 

Jacksonville, FL 32256

 

 

 

 

 

 

 

 

 

 

/s/ Magalie Gilbert

 

 

X /s/ Linda K. Frauendorfer

 

 

Authorized Signature

 

 

Authorized Signature

 

 

 

 

 

 

 

 

Magalie Gilbert

 

 

X Linda K. Frauendorfer

 

 

Printed Name

 

 

Print Signer’s Name

 

 

 

 

 

 

 

 

Authorized Signatory

6/2/15

 

X Chief Financial Officer

X 6/2/15

 

Print Title

Date Signed

 

Signer’s Title

Date Signed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank   T100S   rev.   7-24-13

 

 

 

 


 

PICTURE 7

Tel:  312-856-9100

330 N. Wabash, Suite 3200

Fax: 312-856-1379

Chicago, IL 60611

www.bdo.com

 

 

 

 

 

 

 

 

EXHIBIT 23.1

 

 

Consent of Independent Registered Public Accounting Firm

 

SigmaTron International, Inc.

Elk Grove Village, IL

 

 

We hereby consent to the incorporation by referenc e in the Registration Statements on Form S ­ 8   (No s .   33-80147, 333-166210 and 333-178478 )   of SigmaTron International, Inc. of our report dated July 2 4, 20 1 5 , relating to the consolidated   fi nancial statement s which appear in this Form 10-K.

 

/s/ BDO USA, LLP

 

BDO USA , LLP

Chicago ,   IL

July 24, 201 5

 

 

 

 

 

 

 

 

 

 

 

 

 

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

 

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

 

 


 

 

                             EXHIBIT 31.1

 

Certification of Principal Executive Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(a) under the Exchange Act,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Gary R. Fairhead , President and Chief Executive Officer of SigmaTron International, Inc., certify that:

 

1. I have reviewed this Annual Report on Form 10-K of SigmaTron International, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely

 

 


 

affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  July 24 , 201 5

 

 

 

 

 

/s/ Gary R. Fairhead

 

Gary R. Fairhead

 

President and Chief Executive Officer of

 

SigmaTron International, Inc.

 

 


EXHIBIT 31.2

 

Certification of Principal Financial Officer of

SigmaTron International, Inc.

Pursuant to Rule 13a-14(a) under the Exchange Act,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Linda K. Frauendorfer , Chief Financial Officer, Secretary and Treasurer of SigmaTron International, Inc., certify that:

 

1. I have reviewed this Annual Report on Form 10-K of SigmaTron International, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 


 

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  July 24 ,   2015

 

 

 

 

 

/s/ Linda K. Frauendorfer

 

Linda K. Frauendorfer

 

Chief Financial Officer, Secretary and

 

Treasurer of SigmaTron International, Inc.

 

 

 

 

 

 

 


 

 

 

 

EXHIBIT 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)

 

I, Gary R. Fairhead , am President and Chief Executive Officer of SigmaTron International, Inc. (the “Company”).

 

This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Company’s Annual Report on Form 10-K for the year ended April 30, 201 5 (the “Report”).

 

I hereby certify that to the best of my knowledge:

 

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78 m(a) or 78o(d)); and

 

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date:  July 2 4 , 201 5

 

 

 

 

 

/s/ Gary R. Fairhead

 

Gary R. Fairhead

 

President and Chief Executive Officer of

 

SigmaTron International, Inc.

 

 

 

 


EXHIBIT 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)

 

 

I, Linda K. Frauendorfer , am Chief Financial Officer, Secretary and Treasurer of SigmaTron International, Inc. (the “Company”).

 

This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Company’s Annual Report on Form 10-K for the year ended April 30, 201 5   (the “Report”).

 

I hereby certify that to the best of my knowledge:

 

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78 m(a) or 78o(d)); and

 

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date:  July 2 4 , 201 5

 

 

 

 

 

/s/ Linda K. Frauendorfer

 

Linda K. Frauendorfer

 

Chief Financial Officer, Secretary and

 

Treasurer of SigmaTron International, Inc.