Letter from the CEO and President

To Our Stockholders,

For SigmaTron fiscal 2011 was a mirror image of fiscal 2010.  At the beginning of fiscal year 2011, we continued the momentum that began in fiscal 2010 and posted excellent results for the first two quarters.  At the start of the third quarter, our momentum turned downward and has continued trending downward.  Lower revenue, together with continuing margin pressures from our customers and our supply chain, have negatively affected our performance for the second half of the year.

 When we compare our performance in fiscal 2011 to fiscal 2010, this year’s results are lower on an EPS basis in spite of significantly higher revenue.  However, two major events skewed these results. In fiscal 2010, an insurance settlement affected our income significantly.  In fiscal 2011, relocating our plant in Hayward, California to nearby Union City required a great expense.  Adjusting the results of fiscal 2010 and 2011 for each event shows that continuing operations improved overall in fiscal 2011.  Although we are pleased with these results, our performance during the second half of the year and the current short-term outlook have dampened our enthusiasm.

That said, and in spite of the slowing economy, we can report significant accomplishments during fiscal 2011.  In January 2011, we were successful in extending our financing arrangement with Wells Fargo Bank.  Our arrangement now extends to September 2013, giving us access to the working capital we need to continue to grow the Company.  We also relocated our California operation from Hayward to Union City, and have invested in a team and infrastructure at the new location, giving us an opportunity to grow our business in more attractive, long-term markets.  In fiscal 2011, we also attracted new customers at each location and continue to work on several exciting potential new customer relationships in markets that have the potential to further diversify our customer base.

Following are updates on the activities at our various locations.

Elk Grove Village, Illinois

Our Elk Grove Village plant had a difficult year.  Several long-term, domestic customers made the decision to move their business internal to SigmaTron from our plant in Elk Grove Village to our facilities in Acuna, Mexico.  Although this decision is good news for SigmaTron as a whole and plays to our footprint, which is one of our strengths, it also had a negative effect on the Elk Grove Village plant’s year-end results.  In response, Elk Grove Village attracted a significant new customer, and we have begun the process of finding several others.  During the year at Elk Grove Village, we finalized our contract with our union, which now extends to December 1, 2012.  The union has been with SigmaTron for many years, and we appreciate the excellent working relationship that has developed.  Fiscal 2012 will continue to be challenging, but we are confident that Elk Grove Village will re-establish itself as a positive contributor to our bottom line.

Acuna, Mexico, and Del Rio, Texas

Our largest operation––Acuna, Mexico––remains our most successful.  During fiscal 2011, Acuna continued to grow its revenue, partly from business that transferred from Elk Grove Village.  Last year’s worldwide economic trends have continued to make Mexico an attractive manufacturing location, particularly for products that supply North American markets.  We believe that our relatively low cost structure, complemented by our long-term group of core employees, will allow Acuna to continue to grow.  Although concerns about violence in Mexico are very real, Acuna has reported fewer incidents than other locations in Mexico.  We are optimistic that this will continue to be the case.

Wujiang-Suzhou, China

Our operation in Wujiang, China had an interesting fiscal 2011.  Several new customers in Wujiang released new orders producing a dramatic increase in sales to these customers and the new markets they represent.  The challenge in China continues to be a rapidly growing cost structure, which has created margin pressure for our Wujiang customers.  We expect that this trend will continue for several years at a minimum, and in an attempt to offset some of the pressure, we are looking for ways to increase our sales to companies in China, while maintaining the business we currently export from China.  Towards that end, we are looking at setting up a new company in China that would allow our customers to pay us in Chinese renminbi (RMB).  We believe that the ability to accept payment in RMB will further increase our sales and diversify the markets we serve.

Union City, California

Our greatest change in fiscal 2011 took place in the second quarter in California, when we relocated our plant from Hayward to Union City.  The new facility is superior in terms of efficiency, particularly in our ability to lay out production lines and other manufacturing processes.  We accomplished the relocation in a very short period of time and without any disruption to our customers.  We believe that the new Union City facility will enhance our efforts to grow our business in the industry sectors of medical and life sciences, and aerospace and defense industries; recent quoting activity seems to be supporting that belief.

Tijuana, Mexico

I am pleased to report that our facility in Tijuana made significant progress during fiscal 2011.  Revenues increased during the second half of the year, in part because we transferred business from Union City. Tijuana also has several new opportunities, which I believe will come to fruition.  As I mentioned when discussing Acuna, we believe that Mexico has the potential to be the manufacturing location of choice for North America, which bodes well for Tijuana over the long term.

Taipei, Taiwan

As in previous years, our international purchasing office in Taipei remains an important asset and continues to support all of our manufacturing operations.  The cost of raw materials remains the largest percentage of our sales dollar, and it is critical that we source raw material competitively, or better yet, that we offer cost savings to our customers.  We have continued to grow this operation modestly, with the goal of supporting increased customer supply chain requirements.

In summary, the results of fiscal 2011 are satisfactory, but the trend for the second half of the year is disappointing.  Our perspective is that the economy is stable but sluggish and growing our operations without increasing capital expenditures remains our priority.  Assuming that the economy does improve, we believe that we are attractive vis-à-vis our competition and well positioned for the future.

Once again I want to thank our employees, our Board of Directors and our professional firms for their continuing support and dedication.  I also thank our customers, both new and long-term, for their confidence in us. Our supply chain deserves special thanks for continuing to help us lower our working capital requirements, and we are grateful for the confidence Wells Fargo has shown by extending our financial arrangement for more than two years.  In particular, we appreciate our Stockholders and their continuing support in a volatile worldwide economy.

Sincerely,

Gary R. Fairhead
President and Chief Executive Officer