-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4kka8rhq/1WqpjGUp3EetskgS3Zy49iCdE+iTHIdwa7T8S4+l7AqgQZ8YPFCN1P JrWVUP54XqaRs4rHly2suA== 0000732026-97-000005.txt : 19970918 0000732026-97-000005.hdr.sgml : 19970918 ACCESSION NUMBER: 0000732026-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970627 FILED AS OF DATE: 19970916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIO TECH INTERNATIONAL CENTRAL INDEX KEY: 0000732026 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 952086631 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13914 FILM NUMBER: 97681056 BUSINESS ADDRESS: STREET 1: 355 PARKSIDE DR CITY: SAN FERNANDO STATE: CA ZIP: 91340 BUSINESS PHONE: 8183659200 MAIL ADDRESS: STREET 1: 355 PARKSIDE DRIVE CITY: SAN FERNANDO STATE: CA ZIP: 91340 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 27, 1997 Commission file number 0-13914 TRIO-TECH INTERNATIONAL ----------------------- (Exact name of registrant as specified in its charter) California 95-2086631 ----------------------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 355 Parkside Drive San Fernando, California 91340 ----------------------------------- ------ (Address of principal executive offices) (Zip Code) (818) 365-9200 ----------------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None ------ Title of Class Securities registered pursuant to Section 12(g) of the Act: Common stock 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 X NO --- Based on the closing sales price on August 22, 1997, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $ 6,037,805. The number of shares outstanding of the registrant's common stock was 1,291,064 at August 22, 1997. Documents incorporated by reference: 1.Notice of 1997 Annual Meeting and Proxy Statement (Part III of Form 10-K). 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 the definitive proxy statement incorporated by reference in Part III of this Form 10-K. [ X ] The number of pages in this filing is 39. The Exhibit Index begins on page 14. PART I ITEM 1 - BUSINESS - ----------------- General - ------- Trio-Tech International (the Company or the Registrant) was incorporated in California in 1958. The Company is a designer, producer and marketer of environmental testing equipment used to test the structural integrity of semiconductor devices that must meet high-reliability specifications and rate of turn test equipment for aerospace, geographical, laboratory and other applications. In addition, the Company owns and operates facilities where a broad range of structural and electronic tests are performed for manufacturers and end-users of merchant and high-reliability semiconductor devices. In 1976, the Company formed Trio-Tech International Pte Ltd (TTIPte), a wholly owned subsidiary, and it in turn formed Trio-Tech Test Services Pte Ltd (TTTSPte), its wholly owned subsidiary. They autonomously operate in the Republic of Singapore, for the purpose of selling testing equipment and providing testing services to integrated circuit manufacturers located in Singapore and elsewhere in the Pacific Basin. The Singapore facility benefits from moderate labor costs, the absence of currency and tariff restrictions, and the presence of the semiconductor manufacturing industry in Southeast Asia and the Pacific Basin. In August 1984, the Company formed a wholly owned Cayman Islands subsidiary, European Electronic Test Centre (EETC). In July 1985, EETC commenced operating a semiconductor testing facility in Dublin, Ireland. The Company obtained a grant from the Industrial Development Authority of the Republic of Ireland to provide 30% of actual expenditures for building modifications and fixed assets up to a maximum of $1,279,000. In 1985, the Company's Singapore subsidiary entered into a joint-venture agreement with a group of Malaysian investors to operate a testing facility in Penang, Malaysia. Under this agreement, the Singapore subsidiary provides the equipment and management for the Penang facility. The operations of this entity are included in the consolidated financial statements. In July l990, the joint venture opened another testing facility in Kuala Lumpur, Malaysia. This facility is primarily involved in the testing business. In March 1994, this facility started a new operation in Batang Kali, Malaysia. This new operation is set up primarily to handle sub-contract work on optoelectronic assemblies. On September 1, 1988, the Company acquired the Rotating Test Equipment Product Line of Genisco Technology Corporation. On November 1, 1990, Trio-Tech acquired Express Test Corporation (Express Test). Express Test is a manufacturer of pressurized vessels (autoclaves) designed for humidity stress testing of integrated circuits. Whereas most of Trio-Tech's integrated circuit testing devices are for hermetically sealed ceramic devices, Express Test machines are designed to test plastic sealed devices. In October 1992, the Company's Singapore subsidiary formed a wholly owned subsidiary to provide testing services in Bangkok, Thailand. The Singapore subsidiary provides the equipment and management for this operation. In October 1993, the Company's Singapore subsidiary entered into a joint-venture agreement with a Chinese Company to operate a crude oil chemical processing business in Wuhan, China. This business involves a value added production process in which crude oil is chemically processed, repackaged and distributed to industrial users. In December 1996, the Company's Singapore subsidiary reduced its equity interest in this joint-venture to 49%. In November 1993, the Company's Singapore subsidiary acquired a 73% equity interest in Prestal Enterprise Sdn Bhd, an investment holding company which owned a 6% indirect share holding in Trio-Tech Malaysia (TTM). The purpose was to acquire an additional 5% share holding in TTM. The following table sets forth the percentage of revenues derived from product sales, testing services and industry segments during the last three fiscal years and the breakdown of revenues derived from customers in the United States, Southeast Asia and Europe. The amounts represented in product sales and service include revenues derived from the test equipment distribution business in Singapore. See Note 12, Business Segments, for a more detailed description.
Year Ended ---------- June 27, 1997 June 28, 1996 June 30, 1995 -------- --------- ----------- (Dollar amounts in thousands) Product sales and service: United States $ 2,409 11 % $ 2,466 11 % $ 2,574 13 % Southeast Asia 6,694 31 7,691 33 7,287 38 Europe 441 2 272 1 802 4 ---------- --- -------- --- ------- --- Total $ 9,544 44% $ 10,429 45% $ 10,663 55% =========== === ========= === ======== === Testing services: United States $ 215 1% $ 205 1% $ 201 1% Southeast Asia 11,305 53 11,642 50 8,407 43 Europe 484 2 909 4 217 1 ---------- --- --------- --- ------- --- Total $ 12,004 56% $ 12,756 55% $ 8,825 45% ========== === ======== === ======= === Net sales: Manufacturing $ 5,158 24% $ 4,929 21% $ 5,784 30% Testing 12,004 56 12,756 55 8,825 45 Distribution 4,386 20 5,500 24 4,879 25 ---------- --- -------- --- -------- --- Total net sales $ 21,548 100% $ 23,185 100% $ 9,488 100% ========== ==== ======== ==== ======== ====
Background Technology - --------------------- Semiconductors are fundamental building blocks used in electronic equipment and systems. Integrated circuits consist of silicon "chips" of semiconductor material that perform electronic functions, encapsulated in packaging material, usually plastic or ceramic, having lead wires that connect to a printed circuit board. Integrated circuits have become increasingly complex, with greater capacity, versatility and smaller size. The protective packaging, whether ceramic, plastic or some other material, is intended to hold the device in place and protect it against corrosion, oxidization, shock, handling, temperature and other problems that can result in the failure of the device. A minute defect in the packaging can cause a semiconductor device to fail prematurely. The Registrant manufactures test equipment for reliability analysis of both ceramic and plastic encapsulated integrated devices. Hermetically sealed packaging is required by military, aerospace, telecommunications and other commercial users for semiconductor devices that must have high reliability and long life. It is also used for hybrid circuits and certain other specialized devices, and for semiconductor devices that are produced in smaller quantities. There have been significant advances in the plastics industry, thereby making plastic sealed devices as reliable as ceramic ones. Plastic is the material of choice in the commercial integrated circuit markets, because polymers are less expensive and easier to process than ceramic materials. Many manufacturers and purchasers of high-reliability integrated circuits follow government-defined reliability standards, including rigorous military standard specifications. Military specifications, which are detailed and precise, have brought about considerable standardization of quality assurance programs in the semiconductor industry. Military and commercial specifications include, among other things, environmental testing, which is aimed at both detecting defective devices and accelerating failure in potentially defective ones. An additional objective of environmental testing is to determine and to evaluate statistically the ultimate reliability and integrity of integrated circuits and to predict their performance and durability under ordinary or adverse conditions. The devices are tested before incorporating them into the finished product. The tests vary according to the use for which the device is intended but usually include visual inspection, stabilization bake, thermal shock temperature cycling, mechanical shock, centrifugal force testing, fine and gross leak testing, burn-in testing and electrical testing. Products - -------- The Registrant designs and manufactures environmental testing equipment for testing of ceramic and plastic packaged integrated circuits. The Registrant's products are sold both as separate products and as part of an integrated system for environmental testing. Centrifuges The Registrant manufactures a line of centrifuges that tests the mechanical integrity of hermetic encased electronic parts. The Registrant's centrifuges are used to identify mechanical weaknesses of devices by spinning them at a specified acceleration, creating a pressure of up to 30,000 g's (900,000 pounds per square inch). This pressure will crack or break packages having certain defects in the hermetic packages. The Registrant also designs the fixtures that are inserted into the centrifuge to hold the semiconductors while they are being tested. Leak Testers The Registrant also manufactures systems for leak detection in hermetically packaged semiconductor devices. Certain defects may appear in some tests but not in others, so that thorough testing requires three separate leak procedures using different equipment. The Registrant manufactures a range of equipment and systems designed to detect leaks in hermetic packaging by means of visual scanning for bubble trails emanating from defective devices and radioactive detection for ultra fine leaks. Rate of Turn Tables This product line includes centrifuges and rate of turn tables that are used in applications for aerospace, electronics, instrumentation, environmental laboratory, medical and geographical fields. Among the commercial applications of these centrifuges are gravity simulation testing of components, assemblies and systems for aerospace, military hardware (accelerometers, devices, fuses, etc.), biomedical research, geophysical testing, automotive components, fluid removal from sensitive components, gas removal from liquids and other large-scale separation requirements. One prominent example of the product line is the use of the 1100 Centrifuge at the Pittsburgh Eye and Ear Hospital in rotational testing of the vestibule of the inner-ear system that causes dizziness and unsteady eye and body movements when diseased. Typical rate of turn table application is gyroscope calibration and testing, angular accelerometers, turn and bank indicators, inertial platforms and direction sensing equipment. Burn-in Equipment and Fixtures Trio-Tech International Singapore is a leading burn-in system manufacturer in the Pacific Basin. Burn-in equipment is used to subject all types of integrated circuits to sustained heat while testing them electrically in order to identify early product failures ("infant moralities") as well as to assure long-term reliability. Burn-in testing approximates, in a compressed time frame, the electrical and thermal conditions to which the device would be subjected during its normal life. The Singapore operation also offers test fixtures for its Cobis burn-in systems and other brands of burn-in systems. Burn-in boards are used as fixture devices for the purpose of electrically exercising test devices during high temperature environmental stressing. Pressurized Humidity Testing Equipment The Registrant manufactures a range of pressurized humidity test equipment and specialized test fixtures which it continues to market under the name of Express Test Corporation. Pressurized humidity test equipment utilizes a pressurized vessel (autoclave) as the main test chamber in order to force moisture into the plastic encapsulate and thereby determine the moisture resistance of the test devices much more rapidly than non pressurized conventional humidity test systems. Highly accelerated temperature and humidity stress test systems offer reliability data for commercial IC manufacturers and end-users such as computer, automotive and other commercial customers. Temperature Controlled Wafer Chucks The Artic Temperature Controlled Chucks are used for test, characterization and failure analysis of semiconductor wafers and other components at accurately controlled temperatures. The systems utilize thermoelectric technology to achieve wide temperature ranges without the need for special refrigerants and cooling fluids. Several models are available which provide temperature ranges from -65.C to +400.C. A unique mechanical design, for which patents are pending, provides excellent mechanical stability across the temperature ranges. Product Development - ------------------- Rate of Turn Tables The new Series 2000 rate table controller offers touch screen control and an IEEE 488.2 (industry standard) computer interface. This controller, integrated with existing rate tables, provides user friendly, accurate and reliable rate tables for a wide range of automatic test equipment and sensor test applications. Artic Temperature Controlled Chucks Development of the Artic Temperature Controlled Chucks is ongoing. During 1997, the Company introduced two new models. The new triaxial chucks provide a high isolation environment for low current measurements on wafers. The rapid cool down systems provide cool down from +350.C to +35.C in less than 10 minutes. Ongoing development will focus on improved thermal performance and expanded temperature ranges. Burn-in Equipment The Registrant is also developing a new range of dynamic burn-in systems. Burn- in has always represented a large segment of the Company's business both in terms of testing services and equipment sales. These new systems are designed to meet the changing needs of the Company's test laboratories and customers. Testing Services The Registrant owns and operates facilities that provide testing services for ceramic and plastic encased semiconductor devices and other electronic components to meet the requirements of military, aerospace, industrial and commercial applications. The Registrant uses its own proprietary equipment for certain burn-in, centrifugal and leak tests, and commercially available equipment for the various other environmental tests. The Registrant conducts its testing operations at its facilities located in San Fernando, California;the Republic of Singapore; Dublin, Ireland; Penang and Kuala Lumpur, Malaysia; and Bangkok, Thailand. The testing services are used by manufacturers and purchasers of semiconductors and other components who either do not have any testing capabilities or whose in-house screening facilities are not sufficient to test devices to military or certain commercial specifications. In addition, the Registrant provides overflow testing and independent verification for companies that have their own in-house capabilities. The laboratories perform a variety of tests, including stabilization bake, thermal shock, temperature cycling, mechanical shock, constant acceleration, gross and fine leak tests, electrical testing, static and dynamic burn-in tests, and vibration testing. The laboratories also perform qualification testing, consisting of intense tests conducted on small samples of output from manufacturers who must obtain periodic qualification under the terms of their contracts. The Registrant delivers written certification to customers reporting on the test results. Distribution Activities Besides its manufacturing and testing business, the Company's Singapore subsidiary continues to develop its international distribution division. This distribution business purchases products from European and Pacific Basin manufacturers for resale. Specifically, since 1987, Heraeus-Votsch of West Germany has been utilizing Trio-Tech International Pte. Ltd. in Singapore as a distributor of its products. The Singapore subsidiary also represents several Japanese and American manufacturers. It affords Trio-Tech additional sales penetration opportunities in the Pacific Basin for the remainder of the Trio-Tech product line. Marketing, Distribution and Service The Company markets its products and services worldwide, both directly and through independent sales representatives. There are approximately 12 of these representatives that operate within the United States and 7 in various foreign countries. The Company's marketing efforts in the United States are coordinated from its headquarters in San Fernando, and its Far East and European marketing efforts are assigned to its subsidiaries in Singapore and Ireland, respectively. The Registrant advertises in trade journals and participates in trade shows. The Company's products and services are purchased by independent testing laboratories and by users and manufacturers of high-reliability semiconductor devices, including Hyundai, TRW Teledyne, Allied Signal, AMD, Motorola, National Semiconductor, SGS Thomson and Texas Instruments. During the year ended June 27, 1997, the Company had sales of $2,827,000 and $4,659,000 to two different customers. Backlog The following table sets forth the Company's backlog at the dates indicated (amounts in thousands):
June 27, 1997 June 28, 1996 ------------ ------------- Manufacturing backlog $1,980 $1,925 Testing service backlog 2,339 1,322 Distribution backlog 1,543 1,372 ------- ------ $5,862 $4,619 ====== ======
Based upon past experience, the Company does not anticipate any significant cancellations. The purchase orders for equipment call for delivery within the next 12 months. The testing services backlog is scheduled to be performed within the next year. The Company does not anticipate any difficulties in meeting the above delivery schedule. Manufacturing and Supply The Registrant's products are designed by its engineers and are assembled and tested at its facilities in San Fernando, California, the Republic of Singapore and the Republic of Ireland. All parts and certain components are purchased from outside sources for assembly by the Company. The Registrant uses Fluorinert, a special indicator fluid sold by the 3M Company, in its gross leak equipment, and Krypton 85, sold by Amersham, in its Tracer-Flo. The Registrant has not experienced any difficulty in obtaining Fluorinert or Krypton 85 to date. There can be no assurance that the Registrant will not experience difficulties or delays in obtaining Fluorinert or Krypton 85 in the future. Competition Management believes that the Company is one of the leading manufacturers in the specific areas of fine leak and gross leak testers for ceramic and plastic packaged semiconductor devices and constant acceleration centrifuges used for structural testing of such devices. Because of the importance of testing as part of the manufacturing process for high-reliability semiconductor devices, management believes that the quality, accuracy and reputation of its products and services, and to a lesser extent price, are the bases of competition in the product and service areas served by the Company. There are numerous testing laboratories in the areas in which the Company operates that perform a range of testing services similar to those offered by the Company. Since the Company has sold and will continue to sell its leak testing systems and centrifuges to competing laboratories, the Company's competitors can offer the same capabilities in testing. The Company also sells its products and systems to semiconductor manufacturers and users who might otherwise have used outside testing laboratories, including the Company, to perform environmental testing. The existence of competing laboratories and the purchase of testing equipment by semiconductor manufacturers and users are potential threats to the Company's future revenues and earnings from testing. Patents The Registrant holds a U.S. Patent granted in 1987 in relation to its pressurization humidity testing equipment. The Registrant also holds a U.S. Patent granted in 1994 on certain aspects of its Artic Temperature test systems. In addition, the Registrant has recently filed a new patent application for certain aspects of its new Artic Temperature test products. Government Regulation The Tracer-Flo process uses Krypton 85, an inert radioactive gas, the supply and handling of which are subject to regulation by the United States Nuclear Regulatory Commission (NRC) and the California Department of Health Physics. The Company must, therefore, train the Tracer-Flo operators, which are licensed by the State of California, and must maintain records and control its supplies of Krypton 85. The California agency conducts periodic site inspections, and the NRC monitors interstate shipments and can inspect the Company's shipping records. No security clearance is required to handle the gas, which has a low level of radioactivity. Employees As of June 27, 1997, the Company had 33 employees in the United States, 176 in Singapore, 254 in Malaysia, 119 in Bangkok, and 20 in Ireland. None of the Company's employees are represented by a labor union. ITEM 2 - PROPERTIES - ------------------- The following table sets forth information as to the location and general character of the principal manufacturing and testing facilities of the Registrant:
Owned (O) Approx. or Leased (L) Sq. Ft. Expiration Location Principal Use Occupied Date - -------- ------------- -------- ------ 355 Parkside Dr. Headquarters/ 21,000 (L) Jan. 1998 San Fernando, CA 9l340 Manufacturing/ Testing Abbey Road Testing/Manufac- Deansgrange Co. turing 18,400 (O) *1 Dublin, Ireland No. 5, Kian Teck Road Manufacturing 30,000 (L) *2 Jurong Town, Singapore 1004, Toa Payoh North, Testing 6,833 (L) month to HEX 07-01/07, month Singapore Plot 1A, Phase 1 Testing 49,924 (L) Aug. 2030 Bayan Lepas Free Trade Zone 11900 Penang Lot No. 6. Lorong Testing 23,000 (L) June 1998 Enggang 37 Ulu Kelang Ampang Industrial Area. Ulu Kelang, Selangor, Kuala Lumpur 327, Chalongkrung Road, Testing 11,300 (O) *3 Lamplathew, Lat Krabang, Bangkok 10520, Thailand Lot No. B7, Kawasan MIELManufacturing 24,142 (O)*4 Batang Kali, Phase II, 43300 Batang Kali Selangor Darul Ehsan, Malaysia
*1 Purchased for 270,000 Irish Pounds, equivalent to approximately U.S. $261,000 based on the exchange rate as of June 28, 1985, of which approximately 30% was recovered by the Company as part of the grant monies received from the Industrial Development Authority of the Republic of Ireland. *2 Purchased for S$1 million, equivalent to approximately U.S.$ 447,000 based on the exchange rate as of June 28,1985. This amount was completely repaid in fiscal year 1991. However, under Singapore law, this land may not be purchased outright. Accordingly, the term for this land lease will expire in December 2030. The Company has acquired the fullest ownership rights possible under Singapore law which includes an option to renew the lease at that time. *3 Purchased for Thai Baht 13,500,000, equivalent to approximately U.S.$533,000 based on the exchange rate as of June 25, 1993. The mortgage agreement commenced in October 1992 and will expire in September 1998. *4 Purchased for Malaysia Ringgit 1,000,000, equivalent to U.S.$387,000 based on the exchange rate as at June 24, 1994. ITEM 3 - LEGAL PROCEEDINGS - -------------------------- On August 24, 1995, the Company was served in a civil action brought by HM Holdings, Inc. (HM) against 106 defendants, including the Company. HM has paid $3,750,000 to the Federal Environmental Protection Agency to settle a proceeding alleging that HM's predecessor company caused soil and groundwater contamination of the North Hollywood (California) Superfund Site and may have additional liabilities. HM alleges that the 106 defendants caused or contributed to the contamination. An additional legal matter may arise in part out of a related suit by Lockheed Martin Corporation against HM and other defendants, possibly including the Company (which has not been served in this related suit), involving the nearby Burbank Superfund Site, which HM is seeking to settle and to assign its claim against the 106 defendants to Lockheed Martin. The Company vacated its Burbank location in 1987. The Company and its counsel have not yet had the opportunity to investigate the allegations. The Company believes its liability insurance should cover this claim, but its insurers have not yet made a decision regarding this matter. Management, based on its present information, believes that the outcome of this litigation will not materially affect the Company's consolidated financial position or results of operations. There are no material proceedings to which any director, officer or affiliate of the Registrant, any beneficial owner of more than five percent of the Registrant's common stock or any associate of such person is a party that is adverse to the Registrant or its properties. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK - --------------------------------------------- The Registrant's common stock is traded on the over-the-counter Market. The range of bid information as quoted by the NASDAQ is as follows:
Quarter Ended High Low ------------- ---- --- September 29, 1995 $ 6.88 $ 3.38 December 29, 1995 4.25 3.75 March 29, 1996 4.25 3.50 June 28, 1996 4.50 4.00 September 27, 1996 5.75 3.75 December 27, 1996 6.50 5.25 March 28, 1997 7.88 6.00 June 27, 1997 8.13 7.38
The Registrant's common stock is held by approximately 387 shareholders of record as of June 27, 1997. 608,985 shares are held by Cede and Co., a clearinghouse that holds stock certificates in "street" name for an unknown number of shareholders. The Company has not declared any cash dividends on its common stock. Any future determinations as to cash dividends will depend upon the earnings and financial position of the Company at that time and such other factors as the Board of Directors may deem appropriate. It is anticipated that no dividends will be paid to holders of common stock in the foreseeable future. ITEM 6 - SELECTED FINANCIAL DATA - -------------------------------- (In thousands except per share data)
Year Ended - --------------------------------------------------------------------- June 27, June 28,June 30, June 24, June 25, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Statement of Operations - ----------------------- Net sales $21,548 $23,185 $19,488 $15,165 $15,722 Income from operations 3,057 2,712 1,547 1,204 929 Net income 1,002 806 570 2,040 103 Net income per share : Primary: Continuing operations .77 .63 .47 .28 .13 Extraordinary items 1.72 ----- ----- ---- ---- ---- Net income per share .77 .63 .47 2.00 .13 ===== ===== ==== ===== ==== Balance Sheet - -------------- Current assets $ 13,843 $ 11,760 $ 6,848 $ 5,525 $ 5,936 Current liabilities 7,039 8,169 5,159 5,014 8,975 Working capital 6,804 3,591 1,689 511 (3,039) Total assets 18,528 17,416 12,646 11,298 12,243 Long-term debt and capitalized leases 723 688 597 939 1,161 Shareholders' equity 6,463 5,207 4,419 3,626 532
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS - ------------- Year Ended June 27 1997 ("1997") Compared to Year Ended June 28, 1996 ("1996") - ------------------------------------------------------------------------------ Net sales decreased by $1,637,000 or 7.1% from $23,185,000 in 1996 to $21,548,000 in 1997. This is attributable to the general slowdown in the semiconductor industry. Net sales for the Far East operations decreased $1,334,000 or 6.9% from $19,333,000 in 1996 to $17,999,000 in 1997 due partly to lower testing volume in Singapore and Malaysia. Cost of sales decreased $1,947,000 or 13.3% from $14,665,000 in 1996 to $12,718,000 in 1997. As a percentage of sales, it has decreased 4.3% from 63.3% in 1996 to 59.0% in 1997. This is a result of stringent cost controls and scale down of operations in the Far East region. Interest expense continued to decrease in 1997, from $141,000 in 1996 to $110,000 in 1997. This is a direct result of reduced interest rates and reduced average outstanding debt balances. Other income has increased significantly from $287,000 in 1996 to $460,000 in 1997 primarily due to interest income earned on certificates of deposit and service income earned by providing administrative services to a customer in Thailand. Net income has improved by $196,000 or 24.3% from $806,000 in 1996 to $1,002,000 in 1997. Year Ended June 28, 1996 ("1996") Compared to Year Ended June 30, 1995 ("1995") - ------------------------------------------------------------------------------- Net sales increased by $3,697,000 or 19.0% from $19,488,000 in 1995 to $23,185,000 in 1996. This is attributable to improved performance from the testing services segment. Net sales related to the Far East operations increased $3,193,000 or 20.3% as a result of higher testing volume in Singapore and Malaysia. In addition, the U.S operation experienced growth of $293,000 or 10.6%. Cost of sales increased $1,921,000 or 15.1% from $12,744,000 in 1995 to $14,665,000 in 1996. However, stated as a percentage of sales, it has decreased 2.1% from, 65.4% in 1995 to 63.3% as a result of continued focus on cost controls. Operating expenses increased $611,000 or 11.8% to $5,808,000 in 1996. As a percentage of net sales, operating expenses have decreased 1.6% from 26.7% in 1995 to 25.1% in 1996. Interest expense continued to decrease in 1996, from $183,000 in 1995 to $141,000 in 1996. This is a direct result of reduced interest rates and reduced average outstanding debt balances. Other income has increased from $320,000 in 1995 to $287,000 in 1996 primarily due to lower exchange gains. Net income after tax has improved by $236,000 or 41.4% from $570,000 in 1995 to $806,000 in 1996. Year Ended June 30, 1995 ("1995") Compared to Year Ended June 24, 1994 ("1994") - ------------------------------------------------------------------------------- Sales increased by $4,323,000 or 28.5% from $15,165,000 in 1994 to $19,488,000 in 1995 as a result of improved operations in each of the business segments. Sales for the Far East operations increased $3,249,000 or 26.1% due primarily to improved operations in Malaysia as the volume of testing services in that region increased. Additionally, there was an increase in manufacturing revenues in the Far East as a result of the sale of additional systems during 1995. The U.S. operations sales increased $710,000 or 34.4% due to increased sales volume in the manufacturing segment. Sales for Ireland improved $364,000 or 55.6% as a result of increases in the volume of testing services performed in the current year. Cost of sales increased $2,783,000 or 27.9% from $9,961,000 in 1994 to $12,,744,000 in 1995. However, cost of sales as a percentage of sales decreased slightly from 65.7% in 1994 to 65.4% in 1995 as a result of continued cost cutting efforts. Operating expenses increased $1,197,000 or 29.9% to $5,197,000 in 1995. As percentage of sales, operating expenses were almost the same at 26.7% in 1995 as compared to 26.4% in 1994. Interest expense decreased $331,000 in 1995 as compared to 1994 due to the significant reduction in average outstanding debt balances during the current year. During 1994, the Company entered into an agreement with its previous lender which resulted in reduced bank borrowings. Other income increased $284,000 primarily due to currency exchange losses experienced in the prior year. The effective tax rate in 1995 was 26% which approximates the foreign income tax rate for the Far East operations. Liquidity and Capital Resources - ------------------------------- The Company's working capital improved significantly from $3,591,000 as of June 28, 1996 to $6,804,000 as of June 27, 1997. The improvement in working capital is attributable to the increase in profitability and improved cash collections during fiscal year 1997. The Company has a secured credit agreement with Standard Chartered Bank which provides for a total line of credit of approximately $655,000 which can be used to finance the Company's Far East operations. The interest rate on borrowings is at the bank's prime rate (6.5% at June 27, 1997) plus 2%. The Company's subsidiary, TTM, has obtained a line of credit facility from Public Bank which provides for borrowings of approximately $118,000. Interest on the line is at the bank's base lending rate (9.6% at June 28, 1996) plus 2%. There were no borrowings against this line as of June 27, 1997. The Company's subsidiary, TTBK, has a line of credit which provides for borrowings of approximately $78,000. Interest on the line is at the bank's reference rate (13.25% at June 27, 1997) plus 1.5%. There were no borrowings against this line as of June 27, 1997. The Company has secured a revolving line of credit with a bank bearing interest at 1.8% above the bank's reference rate (10.0% at June 27, 1997). Borrowings under the line amounted to $150,000 as of June 27, 1997. The Company's subsidiary, Ireland has a credit agreement with a Bank which provides a term loan of $555,000. Paydown balance under the term loan is $338,000 as of June 27, 1997. Interest is at the bank's prime rate (5.84% at June 27, 1997) plus 3.5%. Forward-Looking Statements - -------------------------- The discussions of the Company's business and activities set forth in this report and in other past and future reports and announcements by the Company may contain forward-looking statements and assumptions regarding future activities and results of operations of the Company. In light of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company hereby identifies the following factors which could cause actual results to differ materially from those reflected in any forward-looking statement made by or on behalf of the Company; market acceptance of Company products and services; changing business conditions or technologies in the semiconductor industry, which could affect demand for the Company's products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company's products and services; difficulties in profitability integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally, including currency fluctuations, local laws and restrictions and possible social, political and economic instability; general and economic conditions; and other economic, financial and regulatory factors beyond the Company's control. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The information called for by this item is included in the Company's consolidated financial statements beginning on page xx of this Annual Report on Form 10-K. ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------------- None PART III The information required by Part III is hereby incorporated by reference from the Company's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of fiscal 1997. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) (1) FINANCIAL STATEMENTS: The following financial statements, including notes thereto and the independent auditors' report with respect thereto, are filed as part of this Annual Report on Form 10-K, starting on page 18 hereof: 1. Independent Auditors' Report 2. Consolidated Balance Sheets 3. Consolidated Statements of Income 4. Consolidated Statements of Shareholders' Equity 5. Consolidated Statements of Cash Flows 6. Notes to Consolidated Financial Statements (a) (2) FINANCIAL STATEMENT SCHEDULES: The following schedules are filed as part of this Annual Report on Form 10-K, starting on page 38 hereof: 1. Schedule VIII - Valuation and Qualifying Accounts and Reserves No other schedules have been included because they are not applicable, not required, or because information is included in the consolidated financial statements or notes thereto. (b) REPORTS ON FORM 8-K: The Registrant has filed no reports on Form 8-K for the fiscal year ended June 27, 1997. (c) EXHIBITS: Number Description Page Number - ------ ----------- ----------- 3.1 Articles of Incorporation, as currently in effect. [Previously filed as Exhibit 3.1 to the Annual Report on Form 10-K for June 24, 1988.] - 3.2 Bylaws, as currently in effect. [Previously filed as Exhibit 3.2 to the Annual Report on Form 10-K for June 24, 1988.] - 10.1 Trio-Tech Stock Option Plan. [Previously filed as Exhibit 10.1 to the Registration Statement on Form S-8 (No. 2-87606).] - 10.2 Real Estate Lease, dated September 29, 1987, between Stierlin Industrial Center and Registrant. [Previously filed as Exhibit 10.5 to the Registration Statement on Form S-1 (No. 2-87606).] - 10.3 Tenancy of Flatted Factory Unit, dated December 2, 1982, between Jurong Town Corporation and Registrant. [Previously filed as Exhibit 10.8 to the Registration Statement on Form S-1 (No. 2-87606).] - 10.4 Tenancy of Flatted Factory Unit, dated September 10, 1982, between Jurong Town Corporation and Registrant. [Previously filed as Exhibit 10.9 to the Registration Statement on Form S-1 (No. 2-8766).] - 10.5 Real Estate Lease, dated December 15, 1986, between San Fernando Associates and Registrant. [Previously filed as Exhibit 10.17 to the Annual Report on Form 10-K for June 28, 1987.] - 10.6 Deferred Compensation Agreement, dated March 1, 1986, between the Company and A. Charles Wilson. [Previously filed as Exhibit 10.16 to the Annual Report on Form 10-K for June 24, 1988.] - 10.7 Deferred Compensation Agreement, dated March 1, 1986, between the Company and John C. Guy. [Previously filed as Exhibit 10.17 to the Annual Report on Form 10-K for June 24, 1988.] - 10.9 Credit Facility Letter dated November 2, 1993, between Trio-Tech International Pte. Ltd. and Standard Chartered Bank. ___ Number Description Page Number - ------ ----------- ----------- 11.1 Statement re: Computation of Per Share Earnings 39 22.1 Subsidiaries of the Registrant (100% owned by the Registrant except as otherwise stated): Trio-Tech International Pte. Ltd., a Singapore Corporation Trio-Tech Test Services Pte. Ltd., a Singapore Corporation Trio-Tech Reliability Services, a California Corporation Express Test Corporation, A California Corporation European Electronic Test Center, Ltd., A Cayman Islands Corporation Trio-Tech Malaysia, a Malaysia Corporation (55% owned by the Registrant) Trio-Tech Kualala Lumpur, a Malaysia Corporation (100% owned by Trio-Tech Malaysia) Trio-Tech Bangkok, a Thailand Corporation Prestal Enterprise Sdn Bhd, a Malaysia Corporation (73% owned by the Registrant) 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. TRIO-TECH INTERNATIONAL By: /S/ VICTOR H.M. TING ----------------------- VICTOR H.M. TING Vice President and Chief Financial Officer Date: SEPTEMBER 12, 1997 Pursuant to the requirement 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. /S/ A. CHARLES WILSON _________________________ SEPTEMBER 12, 1997 A. Charles Wilson, Director Chairman of the Board /S/ S.W. YONG _________________________ SEPTEMBER 12, 1997 S. W. Yong, Director President and Chief Executive Officer /S/ VICTOR H.M. TING _________________________ SEPTEMBER 12, 1997 Victor H.M. Ting Vice President, Chief Financial Officer and Principal Accounting Officer /S/ JASON T. ADELMAN _________________________ SEPTEMBER 12, 1997 Jason T. Adelman, Director /S/ FRANK S. GAVIN _________________________ SEPTEMBER 12, 1997 Frank S. Gavin, Director /S/ RICHARD C. HOROWITZ _________________________ SEPTEMBER 12, 1997 Richard C. Horowitz, Director /S/ F.D. (CHUCK) ROGERS _________________________ SEPTEMBER 12, 1997 F.D. (Chuck) Rogers, Director /S/ WILLIAM L. SLOVER _________________________ SEPTEMBER 12, 1997 William L. Slover, Director INDEPENDENT AUDITORS' REPORT Board of Directors Trio-Tech International San Fernando, California: We have audited the accompanying consolidated balance sheets of Trio-Tech International and subsidiaries (the Company) as of June 27, 1997 and June 28, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended June 27, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, based on our audits, such consolidated financial statements present fairly, in all material respects, the financial position of Trio-Tech International and subsidiaries as of June 27, 1997 and June 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 27, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP /S/ DELOITTE & TOUCHE LLP Los Angeles, California September 5, 1997 TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------
June 27, June 28, ASSETS Notes 1997 1996 ----- ------- --------- CURRENT ASSETS: Cash $ 868,000 $ 2,114,000 Cash deposits 7,104,000 3,114,000 Trade accounts receivable, less allowance for doubtful accounts of $404,000 in 1997 and $177,000 in 1996 3,646,000 4,783,000 Notes and other receivables 161,000 179,000 Inventories 2 1,784,000 1,430,000 Prepaid expenses and other current assets 280,000 140,000 ------------ ---------- Total current assets 5,7 13,843,000 11,760,000 PROPERTY, EQUIPMENT AND CAPITALIZED LEASES, net 3, 5, 7 4,421,000 5,330,000 OTHER ASSETS 4 264,000 326,000 ----------- ----------- TOTAL ASSETS $18,528,000 $17,416,000 =========== =========== (Continued) See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------
June 27, June 28, LIABILITIES AND SHAREHOLDERS' EQUITY Notes 1997 1996 - ------------------------------------ ----- ---- ---- CURRENT LIABILITIES: Notes payable 5 $ 150,000 $ 245,000 Accounts payable 1,121,000 1,813,000 Accrued expenses 6 3,605,000 4,032,000 Income taxes payable 1,965,000 1,598,000 Current portion of long-term debt and capitalized leases 7,9 198,000 481,000 ----------- --------- Total current liabilities 7,039,000 8,169,000 ----------- --------- LONG-TERM DEBT AND CAPITALIZED LEASES, net of current portion 7,9 723,000 688,000 ----------- --------- DEFERRED TAXES 8 776,000 771,000 ----------- --------- MINORITY INTEREST 3,527,000 2,581,000 ---------- --------- COMMITMENTS AND CONTINGENCIES 9 SHAREHOLDERS' EQUITY: 10, 11 Common stock; authorized, 10,000,000 shares; issued and outstanding, 1,291,064 shares (1997) and 1,205,804 shares (1996) stated at 5,075,000 4,878,000 Accumulated deficit (334,000) (1,336,000) Cumulative currency translation 1,722,000 1,665,000 ------------- ----------- Total shareholders' equity 6,463,000 5,207,000 ------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,528,000 $17,416,000 =========== =========== (Concluded) See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - ---------------------------------------------------------------------
Year Ended ------------------------------- June 27, June 28, June 30, Notes 1997 1996 1995 ----- --------- --------- --------- NET SALES 12 $21,548,000 $23,185,000 $19,488,000 COST OF SALES 12,718,000 14,665,000 12,744,000 ----------- ----------- ------------ GROSS PROFIT 8,830,000 8,520,000 6,744,000 OPERATING EXPENSES: General and administrative 3,780,000 4,506,000 3,674,000 Selling 1,993,000 1,302,000 1,523,000 ----------- ---------- ---------- Total 5,773,000 5,808,000 5,197,000 ------------- ----------- ----------- INCOME FROM OPERATIONS 3,057,000 2,712,000 1,547,000 OTHER INCOME (EXPENSES): Interest expense 5,7 (110,000) (141,000) (183,000) Other income (expenses) 460,000 287,000 320,000 ------- --------- --------- Total 350,000 146,000 137,000 ------- --------- --------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 3,407,000 2,858,000 1,684,000 INCOME TAXES 8 1,264,000 1,109,000 443,000 ---- ---------- ----------- ------------- INCOME BEFORE MINORITY INTEREST 2,143,000 1,749,000 1,241,000 MINORITY INTEREST (1,141,000) (943,000) (671,000) --- ------------- ----------- ----------- NET INCOME $ 1,002,000 $ 806,000 $ 570,000 ============ =========== ========== (Continued) See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - -----------------------------------------------------------------
Year Ended ------------------------------- June 27, June 28, June 30, Notes 1997 1996 1995 ----- ------- ---- ------ EARNINGS PER SHARE: Primary $ .77 $ .63 $.47 ===== ====== ===== Pro forma 11 $ .52 $ .42 $.31 ===== ====== ===== Fully diluted $ .77 $ .63 $.46 ===== ======= ===== Pro forma 11 $ .51 $ .42 $.30 ===== ======= ===== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Primary 1,297,000 1,275,000 1,214,000 Fully Diluted 1,307,000 1,284,000 1,247,000 (Concluded) See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - -----------------------------------------------
COMMON STOCK CUMULATIVE NUMBER OF ACCUMULATED CURRENCY SHARES AMOUNT DEFICIT TRANSLATION TOTAL BALANCE, JUNE 24, 1994 1,151,562 $ 4,753,000 $(2,712,000)$1,585,000 $3,626,000 Net income 570,000 570,000 Issuance of common stock 2,065 7,000 7,000 Exercise of stock options (Note 10) 27,375 62,000 62,000 Foreign currency translation adjustment 154,000 154,000 --------- ---------- ----------- --------- --------- BALANCE, JUNE 30, 1995 1,181,002 $ 4,822,000 $ 2,142,000)$ 1,739,000 $ 4,419,000 Net income 806,000 806,000 Issuance of common stock (445) (2,000) (2,000) Exercise of stock options (Note 10) 25,247 58,000 58,000 Foreign currency translation adjustment (74,000) (74,000) --------- ---------- ----------- --------- --------- BALANCE, JUNE 28, 1996 1,205,804 $4,878,000 $(1,336,000)$1,665,000 $5,207,000 Net income 1,002,000 1,002,000 Issuance of common stock (240) 0 Exercise of stock options (Note 10) 85,500 197,000 197,000 Foreign currency translation adjustment 57,000 57,000 --------- ---------- ----------- --------- --------- BALANCE, JUNE 27, 1997 1,291,064 $5,075,000 $ (334,000)$ 1,722,000 $ 6,463,000 ========= ========= ============ ========== =========== See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------
YEAR ENDED ----------------------------------- JUNE 27, JUNE 28, JUNE 30, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,002,000 $ 806,000 $ 570,000 Adjustments to reconcile net loss to cash provided by operations: Depreciation and amortization 1,359,000 1,561,000 1,644,000 Loss on sale of property and equipment 67,000 82,000 2,000 Effect of exchange rate changes on operating assets (64,000) (120,000) 148,000 Changes in assets and liabilities: Accounts receivable: net 1,137,000 (643,000) (868,000) Notes and other receivables 18,000 7,000 106,000 Inventories (354,000)( 238,000) (127,000) Prepaid expenses and other current assets (140,000) (37,000) (15,000) Other assets 14,000 136,000 (23,000) Accounts payable and accrued expenses (752,000)2,962,000 399,000 Deferred taxes 5,000 (99,000) 17,000 ------- ---------- --------- Total adjustment 1,290,000 3,611,000 1,283,000 --------- --------- --------- Net cash provided by operating activities 2,292,000 4,417,000 1,853,000 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of cash deposits (3,990,000) (2,561,000) (266,000) Capital expenditures, net (926,000) (1,821,000)(1,394,000) Minority interest 991,000 1,014,000 696,000 Proceeds from sale of property and equipment 131,000 256,000 218,000 ------------ --------- ----------- Net cash used in investing activities $ (3,794,000) $(3,112,000) $(746,000) ----------- --------- ----------- (Continued) See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ----------------------------------------------------------------------
YEAR ENDED ----------------------------------- JUNE 27, JUNE 28, JUNE 30, 1997 1996 1995 CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable and lines of credit $ (120,000) (99,000) (111,000) Borrowings under notes payable 25,000 125,000 Principal payments of long-term obligations and capitalized leases (461,000) (379,000) (508,000) Proceeds from long-term obligations and capitalized leases 213,000 492,000 23,000 Issuance of common stock 197,000 58,000 69,000 Repurchase of common stock (2,000) ----------- ------------- --------- Net cash (used in) provided by financing activities (146,000) 195,000 (527,000) ------------ ------------- ---------- EFFECT OF EXCHANGE RATE ON CASH 402,000 (60,000) (427,000) ------------ ------------- ---------- NET (DECREASE) /INCREASE IN CASH (1,246,000) 1,440,000 153,000 CASH, BEGINNING OF PERIOD 2,114,000 674,000 521,000 ------------ ------------- ---------- CASH, END OF PERIOD 868,000 2,114,000 674,000 ============ ============= ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 117,000 $ 144,000 $ 162,000 Income taxes $ 845,000 $ 225,000 $ 440,000 (Concluded) See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 27, 1997 JUNE 28 1996 AND JUNE 30, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - Trio-Tech International and subsidiaries (the "Company" or "TTI") is a designer and manufacturer of equipment used to test the structural integrity of semiconductor devices that must meet high-reliability specifications. The Company also owns and operates testing facilities that perform structural and electronic testing of semiconductor devices and acts as a distributor of electronic testing equipment in Singapore and other Southeast Asian countries. The consolidated financial statements include the accounts of the Company and its principal subsidiaries: Trio-Tech International Pte Ltd (TTI Pte), Trio-Tech Test Services Pte Ltd (TTTS Pte), Express Test, European Electronic Test Centre (EETC), Trio-Tech Bangkok (TTBk), Trio-Tech Malaysia (TTM) (a 55% owned subsidiary of TTI Pte) and Prestal Enterprise Sdn Bhd (PESB) (a 73% owned subsidiary of TTI Pte). All material intercompany transactions, profits and balances have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Period - The Company's fiscal reporting period coincides with the 52-53 week period ending on the last Friday in June. Cash and Cash Deposits - Cash and cash deposits consists of bank balances and amounts invested in interest earning instruments having a maturity of 12 months or less. Approximately $6,000,000 of cash is held in the Company's 55% owned Malaysian subsidiary and is denominated in the currency of Malaysia. Inventories- Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market. Property, Equipment and Capitalized Leases - Property, equipment and capitalized leases are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided over the estimated useful lives of the assets or the terms of the leases, whichever is shorter, using the straight-line method. Estimated useful lives range from 3 to 45 years. Capital grants from the Industrial Development Authority in Ireland are accounted for when claimed by reducing the cost of the related assets. The grants are amortized over the depreciable lives of those assets. Foreign Currency Translation - All assets and liabilities of operations outside the United States have been translated at the foreign exchange rates in effect at year-end. Revenues and expenses for the year are translated at average exchange rates in effect during the year. Unrealized translation gains and losses are not included in determining net income but are accumulated and reported as a separate component of shareholders' equity. Net realized gains and losses resulting from foreign currency transactions are credited or charged to income. Other Assets - The excess of cost over net assets acquired is included in other assets and is being amortized over 5-10 years. The Company reviews the carrying value of all intangible assets on a regular basis, and if future cash flows are believed insufficient to recover the remaining carrying value of an intangible asset, the carrying value is written down in the period the impairment is identified to its future recoverable value. Taxes on Income - Deferred taxes are computed annually for differences between the financial statement basis and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. It is the intention of the Company to reinvest earnings of its foreign subsidiaries in the operations of those subsidiaries. Accordingly, no provision has been made for U.S. income and foreign withholding taxes which would result if such earnings were repatriated. The amount of earnings retained in foreign subsidiaries approximates $7,180,000. Research and Development Costs - The Company incurred research and development costs of $18,782 in 1997, $46,000 in 1996 and $51,000 in 1995, which were charged to cost of sales as incurred. Earnings per Share - Earnings per share is based upon the weighted average number of shares outstanding and common stock equivalents (consisting of stock options), excluding those common stock equivalents which would be anti-dilutive. The following amounts would have been presented had the Company computed earnings per share under Statement of Financial Accounting Standards No. 128, Earnings per Share: YEAR ENDED June 27, 1997 June 28, 1996 June 30, 1995 Basic $0.81 $0.67 $0.49 Diluted 0.77 0.63 0.47 New Accounting Pronouncements - In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. The Company has determined that it will not change to the fair value method and will continue to use Accounting Principles Board Opinion No. 25 for measurement and recognition of employee stock-based transactions. In February 1997, The FASB issued SFAS No. 128, Earnings per Share. This Statement is effective for financial statements for both interim and annual periods ending after December 15, 1997. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. The Company anticipates adopting this standard in June 1998 and does not expect that adoption will have a material impact on the financial position or results of operations of the Company. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information which the Company anticipates adopting in June 1998. Reclassification - Certain reclassifications have been made to the previous year's financial statements to conform to current year presentation. 2. INVENTORIES Inventories consist of the following:
June 27, June 28, 1997 1996 ----------- ----------- Raw materials $ 551,000 $ 640,000 Work in progress 526,000 294,000 Finished goods 707,000 496,000 ------------ ---------- $1,784,000 $1,430,000 ========== ==========
Included in the inventory balance as of June 27, 1997 and June 28, 1996 are amounts totaling approximately $98,000 and $211,000, respectively, which are not expected to be sold within one year. 3. PROPERTY, EQUIPMENT AND CAPITALIZED LEASES Property, equipment and capitalized leases consist of the following:
June 27, June 28, 1997 1996 ------- ------------ Building and improvements $ 2,308,000 $ 2,755,000 Leasehold improvements 1,020,000 1,035,000 Machinery and equipment 10,084,000 11,094,000 Furniture and fixtures 1,853,000 1,787,000 Equipment under capital leases 1,328,000 1,210,000 ------------ ---------- 16,593,000 17,881,000 Less: Accumulated depreciation and amortization 11,080,000 11,477,000 Accumulated amortization on equipment under capital leases 1,092,000 1,074,000 ------------ ----------- $ 4,421,000 $ 5,330,000 =========== ===========
4. OTHER ASSETS Other assets consist of the following:
June 27, June 28, 1997 1996 -------- -------- Cost in excess of net assets acquired, net of accumulated amortization of $459,000 (1997) and $411,000 (1996) $178,000 $228,000 Other 86,000 98,000 ---------- --------- Total $264,000 $326,000 ========= ========
5. NOTES PAYABLE The Company's subsidiary, TTI Pte, has a secured credit agreement with a bank which provides for a total line of credit of $655,000. The agreement contains certain debt covenants including maintaining a minimum net worth of $2,400,000 at TTI Pte. Borrowings under the line were nil and $120,000 at the end of fiscal 1997 and 1996, respectively. The interest rate on borrowings is at the bank's prime rate (6.5% at June 27, 1997) plus 2%. Borrowings under this agreement are collateralized by substantially all of TTI Pte's assets. The Company's subsidiary, TTM has a secured credit agreement with a bank which provides for a total line of credit of $118,000. At June 27, 1997, there were no borrowings outstanding. The line of credit bears interest at the bank's reference rate (9.6% at June 27, 1997) plus 2%. The Company's subsidiary, TTBK, has a line of credit which provides for borrowings of approximately $78,000. Interest on the line is at the bank's reference rate (13.25% at June 27, 1997) plus 1.5%. There were no borrowings against this line as of June 27, 1997. The Company's subsidiary, TT Ireland, has a credit agreement which provides for a term loan of $232,000 Borrowings under the line amounted to $221,000 as of June 27, 1997. Interest is at the bank's prime rate (5.84% at June 27, 1997) plus 3.5%. The Company obtained a revolving line of credit of $150,000 from Wells Fargo Bank bearing interest at 1.8% above the bank's reference rate (10.0% at June 27, 1997). Borrowings under the line amounted to $150,000 as of June 27, 1997. 6. ACCRUED EXPENSES Accrued expenses consist of the following:
June 27, June 28, 1997 1996 ---- ------ Payroll and related $1,655,000 $2,140,000 Other 1,950,000 1,892,000 ---------- ----------- Total $3,605,000 $4,032,000 ========== ==========
7. LONG-TERM DEBT AND CAPITALIZED LEASES Long-term debt and capitalized leases consist of the following:
June 27, June 28, 1997 1996 ---- ---- Capitalized lease obligations, due in various installments through 1997, bearing interest at approximately 8% and 12.6%, collateralized by leased assets (see Note 9) $ 289,000 $ 120,000 Term notes payable, bearing interest at 2% above bank reference rate (6.5% at June 28, 1996), collateralized by substantially all of TTI Pte's assets. 138,000 Term notes payable, due in monthly installments through 2007, bearing interest at 9.34%. 338,000 375,000 Mortgage loan, due in monthly installments through 1997, bearing interest at 1.5% above bank reference rate (12.75% at June 27, 1997), collateralized by land and building in TTBk. 254,000 286,000 Term notes payable bearing interest at 1.22% above bank reference rate (13.18% at June 28, 1996) 210,000 Note payable to officer and share- holder, bearing interest at 10%, due January 1, 1998, unsecured. 40,000 40,000 ---------- --------- 921,000 1,169,000 Less current portion 198,000 481,000 ------------ --------- $ 723,000 $ 688,000 =========== ===========
Maturities of long-term debt as of June 27, 1997 are as follows (exclusive of capital lease obligations):
Fiscal Year ---- 1998 $ 140,000 1999 134,000 2000 171,000 2001 118,000 2002 69,000 ------- $ 632,000 ==========
8. TAXES ON INCOME The provision for income taxes consists of the following:
Year Ended ------------------------------ June 27,June 28, June 30, 1997 1996 1995 ---- ---- ---- Current: Domestic $ ( 157,000) $ 1,000 $ 3,000 Foreign 1,426,000 1,009,000 457,000 --------------- --------- ---------- 1,269,000 1,010,000 460,000 --------------- --------- ---------- Deferred: Domestic Foreign (5,000) 99,000 (17,000) ---------------- ------- --------- $1,264,000 $1,109,000 $443,000 ================ ========== =========
The pre-tax income (loss) before minority interest related to domestic and foreign operations is as follows:
Year Ended -------------------------------------- June 27, June 28, June 30, 1997 1996 1995 ----- ----- ----------- Domestic $( 137,000) $ 380,000 $ 320,000 Foreign 3,544,000 2,478,000 1,364,000 ----------- ---------- ------------ $3,407,000 $2,858,000 $1,684,000 ========== ========== ==========
The reconciliation between the U.S. federal statutory tax rate and the effective income tax rate is as follows:
Year Ended -------------------------- June 27, June 28, June 30, 1997 1996 1995 ----- ----- ---- Statutory federal tax rate 35% 35% 35% Foreign income taxed at lower rates 26% 26% 27% Utilization of federal net operating loss carryforwards (24%) (22%) (35%) Other (1%) ---- ----- ----- Effective rate 37% 39% 26% === === ===
The Company files income tax returns in several countries. Income in one country is not offset by losses in another country. Accordingly, no benefit is provided for losses in countries except where the loss can be carried back against income recognized in previous years. Income taxes are provided in those countries where income is earned. The effect of providing tax against profits while not providing benefit for losses results in an effective tax rate which differs from the federal statutory rate. Deferred income taxes arise from temporary differences in the recognition of certain revenues and expenses for tax and financial statement purposes. The components of deferred tax assets (liabilities) are as follows:
June 27, June 28, 1997 1996 ---- ---- Deferred tax assets: Net operating loss carry forward $1,087,000 $847,000 Provision for local tax 153,000 Provision for bad debts 100,000 Reserve for obsolescence 82,000 Other 58,000 45,000 --------- --------- Total deferred tax assets 1,480,000 892,000 Deferred tax liabilities: Depreciation (367,000) (449,000) Other (409,000) (331,000) ---------- ----------- Total tax liabilities (776,000) (780,000) ---------- ---------- Subtotal 704,000 112,000 Valuation allowance (1,480,000) (883,000) ----------- --------- Net deferred tax liability $ (776,000) $(771,000)
At June 27, 1997 the Company has net operating loss carryforwards of approximately $3,022,000 available to offset future U.S. federal taxes, which primarily expire between 2005 and 2008. 9. COMMITMENTS AND CONTINGENCIES The Company leases certain of its facilities and equipment under long-term agreements expiring at various dates through 2030. Certain of these leases require the Company to pay real estate taxes and insurance and provide for escalation of lease costs based on certain indices. Future minimum payments under capital leases and noncancellable operating leases as of June 27, 1997 are as follows:
Capital Rental Fiscal Year Leases Commitment ---------- ------ ---------- 1998 $ 98,000 $ 196,000 1999 136,000 128,000 2000 41,000 66,000 2001 14,000 66,000 2002 66,000 Thereafter 2,529,000 --------- ---------- Total minimum lease payments 289,000 $3,051,000 ========= ==========
Total rental expense on all operating leases, both cancelable and noncancelable, amounted to $371,000 in 1997, $768,000 in 1996 and $461,000 in 1995. Total rental income under sublease was $138,000 in 1997, $232,000 in 1996 and $124,000 in 1995. On August 24, 1995, the Company was named in a civil action brought against 106 defendants alleging that they may have caused or contributed to soil and groundwater contamination that required the plaintiff to pay $3,750,000 to the Federal Environmental Protection Agency to settle. The Company has not yet had the opportunity to investigate the allegations. In the opinion of management, based on its present information, this matter should not have a material impact on the Company's consolidated financial position or results of operations. 10. STOCK OPTIONS The Company has a qualified stock option plan (the Plan) under which officers, directors and employees are eligible to receive options to purchase shares of the Company's common stock at a price that is not less than 100 percent of the fair market value at the date of grant. There are 125,000 shares authorized for grant under the Plan. Additionally, the Board of Directors issues non-qualified options at their discretion at a price not less than fair market value at the date of grant. The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its Plan. Accordingly, no compensation expense has been recognized. Had compensation cost for the Company's Plan been determined based upon the fair value at the grant date for awards under this Plan consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: Year Ended June 27, 1997 Net Income: As Reported $1,002,000 Pro forma 440,000 Earnings per Share: As Reported $ 0.77 Pro forma 0.34 The fair value of the options granted during fiscal 1997 is $5.50 on the date of grant using the Black Scholes option-pricing model with the assumptions listed below. Year Ended June 27, 1997 Volatility 41.7% Risk free interest rate 6.1% Expected Life (years) 7 Discount rate 6.1% The following tables summarize information concerning outstanding and exercisable options at June 27, 1997 and June 28, 1996.
Year Ended June 27, 1997 Options Outstanding Options Exercisable Number Weighted Weighted Number Average Outstanding Remaining Average Exercisable Weighted Average 6/27/97 Contractual Exercise 6/27/97 Exercise Life Price Price 28,39 $ 0.84 2.28 28,391 $ 2.28 37,50 1.45 2.40 37,500 2.40 16,00 2.44 3.25 16,000 3.25 27,75 3.45 4.50 13,875 4.50 19,00 4.46 5.50 4,750 5.50 128,64 $ 2.31 3.39 100,516 $ 2.94
Year Ended June 28, 1996 Options Outstanding Options Exercisable Number Weighted Weighted Number Average Outstanding Remaining Average Exercisable Weighted Average 6/28/96 Contractual Exercise 6/28/96 Exercise Price Life Price 119,24 1.02 $ 2.28 119,247 $ 2.28 37,50 2.45 2.40 28,125 2.40 16,00 3.44 3.25 8,000 3.25 28,45 4.45 4.50 6,938 4.50 201,19 1.40 $ 2.69 162,310 $ 2.94
The following table summarizes the stock option activity for the three years ended June 27, 1997:
Number of Shares Option Price ------------------------------- ----------- Non-qualified Qualified ------------- --------- Balance, June 24, 1994 113,750 97,469 $ 2.28 to $3.00 Options granted 16,000 $ 3.25 Options exercised (15,000) (12,375) $ 2.28 Options expired (750) (1,900) $ 2.28 ---------- ------- Balance, June 30, 1995 114,000 83,194 $ 2.28 to $3.25 Shares exercisable 81,315 77,498 ====== ====== Options granted 27,000 3,500 $ 4.50 Options exercised (8,500) (16,747) $ 2.28 Options expired (1,250) $2.28 -------- ----------- Balance, June 28, 1996 132,500 68,697 $ 2.28 to $4.50 Shares exercisable 79,565 64,000 ====== ====== Options granted 15,000 4,000 $ 5.50 Options exercised (35,750) (49,750) $ 2.28 to $4.50 Options expired (1,500) (4,556) $2.28 ---------- ----------- Balance, June 27, 1997 110,250 18,391 $ 2.28 to $5.50 ======= ========= Shares exercisable 86,875 13,641 ====== ======
11. In July 1997, the Board of Directors approved a three-for-two stock split. The date of distribution of the pending stock split has not been determined. The pro forma earnings per share amounts show the effect of the pending stock split. 12. BUSINESS SEGMENTS The Company operates principally in three industry segments, the designing and manufacturing of equipment that tests the structural integrity of integrated circuits and other products which measure the rate of turn, the testing service industry that performs structural and electronic tests of semiconductor devices and the distribution of various products from other manufacturers in Singapore and Southeast Asia. The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made on the basis of the primary purpose for which the equipment was acquired. The Company's wholly owned subsidiary, TTI Pte. in Singapore (including TTI Pte.'s wholly owned subsidiaries TTTS Pte and TTBk, 55% owned joint venture of Trio-Tech Malaysia, another subsidiary wholly owned by Trio-Tech Malaysia and 73% owned PESB), operates in the manufacturing, the testing service and the distribution industry segments. All intersegment sales are sales from the manufacturing segment to the testing and distribution segment. Corporate assets mainly consist of cash and prepaid expenses. Corporate expenses mainly consist of salaries, insurance, professional expenses and directors' fees.
1997 1996 1995 ---- ---- ---- Net sales: Manufacturing $ 5,158,000 $ 4,929,000 $ 5,784,000 Testing 12,004,000 12,756,000 8,825,000 Distribution 4,386,000 5,500,000 4,879,000 ---------- ------------ ---------- Total net sales $21,548,000 $23,185,000 $19,488,000 =========== =========== =========== Operating profit (loss): Manufacturing $ (881,000) $ (367,000) 35,000 Testing 3,772,000 3,238,000 1,476,000 Distribution 20,000 (363,000) (86,000) ---------- ----------- ----------- Total operating profit 2,911,000 2,508,000 1,425,000 Corporate income (expenses) 146,000 204,000 122,000 ---------- ---------- --------- Total operating profit $ 3,057,000 $ 2,712,000 $ 1,547,000 ============ =========== =========== Depreciation and amortization: Manufacturing $ 263,000$ 206,000 $ 194,000 Testing 1,074,000 1,316,000 1,417,000 Distribution 22,000 39,000 33,000 ------------ ----------- ---------- Total depreciation and amortization $ 1,359,000 $ 1,561,000 $ 1,644,000 ============ ========== =========== Capital expenditures: Manufacturing $ 469,000 $ 234,000 $ 648,000 Testing 452,000 1,050,000 745,000 Distribution 5,000 537,000 1,000 ------------ ---------- ----------- Total capital expenditures $ 926,000 $ 1,821,000 $ 1,394,000 ========== ========== =========== Identifiable assets: Manufacturing $ 4,027,000 $ 3,650,000 $ 3,648,000 Testing 10,667,000 9,562,000 7,649,000 Distribution 3,818,000 4,145,000 1,309,000 Corporate 16,000 59,000 40,000 ----------- ---------- ---------- Total assets $18,528,000 $17,416,000 $12,646,000 =========== =========== =========== Net sales: United States $ 2,624,000$ 2,671,000 $ 2,775,000 Southeast Asia 17,999,000 19,333,000 15,694,000 Ireland 925,000 1,181,000 1,019,000 ------------ ----------- ---------- Total net sales $21,548,000 $23,185,000 $19,488,000 ========== =========== =========== Operating profit (loss): United States $ (151,000)$ 176,000$ 151,000 Southeast Asia 3,077,000 2,311,000 1,276,000 Ireland (15,000) 21,000 (2,000) -------------- ------------ ------------- Total operating profit 2,911,000 2,508,000 1,425,000 Corporate income (expenses) 146,000 204,000 122,000 -------- ------------ ------------- Total operating profit $ 3,057,000 $ 2,712,000 $ 1,547,000 =========== ============ ============ Assets: United States $ 1,855,000 $ 2,143,000 $ 1,468,000 Southeast Asia 15,951,000 14,422,000 10,368,000 Ireland 722,000 851,000 810,000 ----------- ---------- ---------- $18,528,000 $17,416,000 $12,646,000 =========== =========== ===========
The Company exports a portion of its equipment. Export sales by geographic area are as follows:
Year Ended ------------------------------------------- June 27, June 28, June 30, 1997 1996 1995 ---- ---- ---- Southeast Asia $ 1,179,000 $ 957,000 $ 976,000 Europe 153,000 646,000 595,000 All others 108,000 157,000 153,000 ------------ --------- ------------ $1,440,000 $1,760,000 $1,724,000 ========== ========== ==========
The Company had two major customers which accounted for 13% and 22% of the Company's sales during fiscal year 1997. Two customers accounted for 14% and 20% of sales during fiscal year 1996. Two customers accounted for 15% and 12% of sales during fiscal year 1995. The Company has no significant concentration of credit risks other than discussed above. TRIO-TECH INTERNATIONAL AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - ----------------------------------------------------------------------
ALLOWANCE FOR RESERVE DOUBTFUL FOR ACCOUNTS INVENTORY Balance at June 24, 1994 57,000 445,000 additions charged to cost and expenses 4,000 11,000 Recoveries (11,000) (22,000) Write-offs (40,000) (6,000) ------- ------- Balance at June 30, 1995 10,000 428,000 Additions charged to cost and expenses 178,000 Recoveries (11,000) (420,000) --------- --------- Balance at June 28, 1996 177,000 8,000 Additions charged to cost and expenses 376,000 190,000 Recoveries (149,000) ------- -------- Balance at June 27, 1997 404,000 198,000 ======= =======
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED JUNE 27, JUNE 28, JUNE 30, 1997 1996 1995 Net income $1,002,000 $806,000 $570,000 Primary earnings per share: Weighted average number of common shares 1,233,000 1,195,000 1,162,000 outstanding Dilutive effect of stock options after application of treasury stock method 64,000 80,000 52,000 Number of shares used to compute primary earnings per share 1,297,000 1,275,000 1,214,000 Primary earnings per share $ 0.77 $ 0.63 $ 0.47 Pro forma $ 0.52 $ 0.42 $ 0.31 Fully diluted earnings per share: Weighted average number of common shares 1,233,000 1,195,000 1,162,000 outstanding Dilutive effect of stock options after application of treasury stock method 74,000 89,000 85,000 Number of shares used to compute fully diluted earnings per 1,307,000 1,284,000 1,247,000 share Fully diluted earnings per $ 0.77 $ 0.63 $ 0.46 share Pro forma $ 0.51 $ 0.42 $ 0.30
EX-27 2
5 0000732026 TRIO-TECH INTERNATIONAL 1000 YEAR JUN-27-1997 JUN-28-1996 JUN-27-1997 868 7,104 4,050 (404) 1,784 13,843 16,593 (12,172) 18,528 7,039 0 5,075 0 0 1,388 18,528 21,548 21,548 12,718 5,773 681 0 110 2,266 1,264 0 0 0 0 1,002 .77 .77
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