-----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, B+ym6PdlsUb6Jl3wogfWyXROey2CKHGcivsN7g/3LHmS6du5dB5TrdIDpd5dnUq4 YGggiJeaYd1y5l19F7URAQ== 0000950124-98-003953.txt : 19980729 0000950124-98-003953.hdr.sgml : 19980729 ACCESSION NUMBER: 0000950124-98-003953 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980727 FILED AS OF DATE: 19980727 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGMATRON INTERNATIONAL INC CENTRAL INDEX KEY: 0000915358 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 363918470 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-23248 FILM NUMBER: 98671557 BUSINESS ADDRESS: STREET 1: 2201 LANDMEIER RD CITY: ELK GROVE VILLAGE STATE: IL ZIP: 60007 BUSINESS PHONE: 7089568000 MAIL ADDRESS: STREET 1: 2201 LANDMEIER ROAD CITY: ELK GROVE VILLAGE STATE: IL ZIP: 60007 10-K/A 1 AMENDMENT TO FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 (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, 1998 or X 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 36-3918470 -------- ---------- (State or other Jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 2201 Landmeier Rd., Elk Grove Vlge., IL 60007 - --------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 847-956-8000 Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.01 par value per share -------------------------------------- Title of each class 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 --- --- 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 ( X ). --- The aggregate market value of the voting and non-voting stock held by nonaffiliates of the registrant as of June 30, 1998 (based on the closing sale price as reported by Nasdaq National Market as of such date) was $14,467,478. The number of outstanding shares of the registrant's Common Stock, as of June 30, 1998, was 2,881,227. DOCUMENTS INCORPORATED BY REFERENCE Those sections or portions of the definitive proxy statement of SigmaTron International, Inc., for use in connection with its annual meeting of stockholders to be held September 18, 1998, which will be filed within 120 days of the fiscal year ended April 30, 1998, are incorporated by reference into Part III of this Form 10-K. 2 - -------------------------------------------------------------------------------- PART I - ----------------------------------------------------------------------------- ITEM 1. BUSINESS CAUTIONARY NOTE: In addition to historical financial information, this discussion of SigmaTron International, Inc.'s ("Company") business and other Items in this Annual Report on Form 10-K contain forward-looking statements concerning the Company's business or results of operations. These statements should be evaluated in the context of the risks and uncertainties inherent in the Company's business, including the Company's continued dependence on certain significant customers, including Nighthawk Systems, Incorporated ("NSI"); the continued market acceptance of products and services offered by the Company and its customers; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of the Company's operating results; the availability and cost of necessary components; the continued availability and sufficiency of the Company's credit arrangements; changes in U.S. or Mexican regulations affecting the Company's business; the continued stability of the Mexican economic, labor and political conditions; and the ability of the Company to manage its growth. These and other factors which may affect the Company's future business and results of operations are identified throughout this Annual Report on Form 10-K and in the prospectus issued in connection with the Company's February 1994 initial public offering of securities (Registration No. 33-72100), and may be detailed from time to time in the Company's filings with the Securities and Exchange Commission. OVERVIEW The Company is an independent contract manufacturer of electronic components, printed circuit board assemblies and completely assembled (box-build) electronic products. Included among the wide range of services the Company offers its customers are (1) automatic and manual assembly and testing of products, (2) material sourcing and procurement, (3) design, manufacturing and test engineering support, (4) warehousing and shipment services, and (5) assistance in obtaining product approvals from governmental and other regulatory bodies. The Company provides these services through facilities located in North America and the Far East. The Company provides manufacturing and assembly services ranging from the assembly of individual components to the assembly and testing of box-build electronic products. The Company has the ability to produce assemblies requiring mechanical as well as electronic capabilities. The products assembled by the Company are then incorporated into finished products sold in various marketplaces, particularly consumer electronics, gaming, fitness, industrial electronics, telecommunications, home appliances and automotive. The Company operates manufacturing facilities in Elk Grove Village, Illinois; Las Vegas, Nevada; and Acuna, Mexico. The Company maintains materials sourcing offices in Elk Grove Village, Illinois and Taipei, Taiwan. The Company provides warehousing services in Del Rio, Texas and Huntsville, Alabama. In addition, the Company's 42.5% owned affiliate, SMT Unlimited L.P. (SMTU), provides contract manufacturing services in Fremont, California. 2 3 The Company is a Delaware corporation which was organized on November 16, 1993 and commenced business 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. On February 9, 1994, the Company and certain stockholders commenced an initial public offering for the sale of 1,265,000 shares of common stock. PRODUCTS AND SERVICES The Company provides a broad range of manufacturing-related outsourcing solutions for its customers on both a turnkey (material purchased by the Company) and consignment basis (material provided by the customer). These solutions incorporate the Company's knowledge and expertise in the electronic manufacturing services industry to provide its customers with advanced manufacturing technologies and high quality, responsive and flexible manufacturing services. SigmaTron's outsourcing solutions provide services from product inception through the ultimate delivery of a finished good. Such technologies and services include the following: Manufacturing and Related Services. As its customers experience greater competition and shorter product life cycles in their respective industries, the Company has responded by expanding its prototype services. The Company also provides quick-turnaround, turnkey prototype services from dedicated resources located within the Company's Elk Grove Village facility and through SMTU, its affiliate that it makes available to customers which it believes will lead to significant orders. Materials Procurement. The Company is primarily a turnkey manufacturer and directly sources all, or a substantial portion, of the components necessary for its product assemblies, rather than receiving the raw materials from its customers on consignment. Material procurement includes the purchasing, management, storage and delivery of raw components required for the manufacture or assembly of a customer's product based upon the customer's orders. The Company procures components from a select group of vendors which meet its standards for timely delivery, high quality and cost effectiveness, or as directed by its customers. Raw material used in the assembly and manufacture of printed circuit boards and electronic assemblies are generally available from several suppliers, unless restricted by the customer. The Company believes that its ability to source and procure competitively priced, quality components is critical to its ability to effectively compete. In addition to obtaining materials in North America, the Company utilizes its Taiwanese procurement office and agents to source materials from the Far East. SigmaTron believes this office allows the Company to more effectively manage its relationships with key suppliers in the Far East by allowing the Company to respond more quickly to changes in market dynamics, including fluctuations in price, availability and quality. Assembly and Manufacturing. The Company's core business is the assembly of printed circuit boards through the automated and manual insertion of components onto raw printed circuit boards. The Company offers its assembly services using both pin-through-hole ("PTH") and surface mount ("SMT") interconnect technologies. SMT is an assembly process which allows the placement of a higher density of components directly on both sides of a printed circuit board. The SMT process is a more recent advancement over the mature PTH technology, which normally permits electronic components to be attached to only one side of a printed circuit board by inserting the component into 3 4 holes drilled through the board. The SMT process allows original equipment manufacturers ("OEMs") to use advanced circuitry, while at the same time permitting the placement of a greater number of components on a printed circuit board without having to increase the size of the board. By allowing increasingly complex circuits to be packaged with the components in closer proximity to each other, SMT greatly enhances circuit processing speed, and thus, board and system performance. The Company performs PTH assembly both manually and with automated component insertion and soldering equipment. Although SMT is a newer and more sophisticated interconnect technology, the Company intends to continue providing PTH assembly services for its customers because it believes that SMT will not entirely eliminate the need for PTH technology. The Company believes that OEMs with products not limited by internal space constraints will continue to favor PTH over SMT. Through SMTU SigmaTron possesses ball grid array ("BGA") technology and fine pitch SMT, which is used for more complex circuit boards required to perform at higher speeds. In addition to printed circuit board assemblies, the Company also manufactures DC-to-AC inverters, coils, transformers and cable and harness assemblies. These products are manufactured using both automated and semi-automated preparation and insertion equipment and manual assembly techniques. In response to the needs of its OEM customers, the Company also offers "box-build" services which integrate its printed circuit board and other manufacturing and assembly technologies into higher level sub-assemblies and end products. Product Testing. The Company has the ability to perform both in-circuit and functional testing of its assemblies and finished products. In-circuit testing verifies that the correct components have been properly inserted and that the electrical circuits are complete. Functional testing determines if a board or system assembly is performing to customer specifications. The Company provides X-ray laminography services through its affiliate SMTU. Generally, the Company either designs or procures test fixtures. The Company seeks to provide customers with highly sophisticated testing services that are at the forefront of current test technology. Warehousing and Distribution. In response to the needs of select customers, the Company has the ability to provide in-house warehousing, shipping and receiving and customer brokerage services for goods manufactured or assembled in Mexico and for goods manufactured for a customer in Huntsville, Alabama. The Company also has the ability to provide custom-tailored delivery schedules to fulfill the just-in-time inventory needs of its customers. MARKETS AND CUSTOMERS SigmaTron's customers are in the consumer electronics, gaming, industrial electronics, fitness, telecommunications, automotive and home appliance industries. As of April 30, 1998, the Company had approximately 125 active customers ranging from Fortune 500 companies to small, privately held enterprises. The following table shows, for the periods indicated, the percentage of net sales to the principal end-user markets it serves. 4 5
================================================================================= PERCENT OF NET SALES - --------------------------------------------------------------------------------- TYPICAL FISCAL FISCAL FISCAL MARKETS OEM APPLICATION 1996 1997 1998 - --------------------------------------------------------------------------------- Consumer Electronics Carbon monoxide detectors 37.7% 38.0% 37.9% dart board games - --------------------------------------------------------------------------------- Gaming Slot machines, 21.6 21.8 22.0 lighting displays - --------------------------------------------------------------------------------- Industrial Electronics Blower motors, elevators 20.1 18.3 14.2 - --------------------------------------------------------------------------------- Fitness Treadmills, exercise bikes 11.0 12.1 13.3 - --------------------------------------------------------------------------------- Telecommunications Pagers, microphones and 5.0 5.1 5.1 modems - --------------------------------------------------------------------------------- Appliances Irons, toasters, ranges and dryers 3.2 2.1 5.1 - --------------------------------------------------------------------------------- Automotive Automobile interior lighting 1.4 2.6 2.4 - --------------------------------------------------------------------------------- Total 100% 100% 100% =================================================================================
For the fiscal year ended April 30, 1998, NSI and Life Fitness accounted for 29.4% and 13.3% respectively, of the Company's net sales. In fiscal 1997 NSI, Bally Gaming and Life Fitness accounted for 29.8%, 13.5% and 10.8%, respectively, of net sales. In addition, NSI, Bally Gaming and Life Fitness accounted for 28.2%, 15.0% and 10.4%, respectively, of the Company's net sales for the fiscal year ended April 30, 1996. The Company expects that these customers as a group will continue to account for a significant percentage of the Company's net sales, although the individual percentages may vary from period to period. NSI is a leading U.S. manufacturer of residential carbon monoxide detection systems. The Company's agreement with NSI calls for the Company to function as the exclusive contract manufacturer for all models of NSI's proprietary carbon monoxide detectors on a turnkey basis through June 1998. The Company has agreed that during the term of the agreement and for three months thereafter it will not produce carbon monoxide detectors for any other customer. Although there has been no written extension of the agreement, the parties continue to operate under its terms. The amount of sales to NSI beyond fiscal 1999 remains unclear and if the relationship is not continued it could significantly impact the Company's revenues and earnings. However, the Company expects that sales to NSI will continue to account for a significant percentage of the 5 6 Company's net sales in fiscal 1999. Sales to NSI are seasonal due to the nature of the product and the Company experiences stronger sales to NSI in the second and third fiscal quarters. The NSI market is an emerging market which could lead to volatility in NSI's forecast having the effect of causing the Company's revenues to fluctuate significantly on a seasonal basis. SALES AND MARKETING The Company markets its services through 24 independent manufacturers' representative organizations, that currently employ approximately 75 sales personnel in the United States and Canada. Independent manufacturers' representative organizations receive variable commissions based on orders received by the Company. The members of the Company's senior management are actively involved in sales and marketing efforts. In addition, the Company attends trade shows related to its industry and its major customer industries. Sales volume and gross profit margins can vary considerably among customers and products depending on the type of services rendered by the Company. Specifically, variations in orders for turnkey services versus consignment services and variations in the number of orders for products with high raw material costs can lead to significant fluctuations in the Company's operating results. Further, customers' orders can be delayed, rescheduled or canceled at any time, which can significantly impact the operating results of the Company. The ability to replace such delayed or lost sales in a short period of time is not assured. MEXICAN OPERATIONS The Company's wholly-owned subsidiary, Standard Components de Mexico, S.A. ("Standard Components"), a Mexican corporation, is located in Acuna, Mexico, a border town along the Rio Grande River next to Del Rio, Texas, which is 155 miles west of San Antonio. Standard Components was incorporated and commenced operation in 1969. The Company believes that one of the key benefits to having operations in Mexico is its access to cost effective labor resources. Standard Components is a maquiladora, which is the status afforded a corporation under a trade agreement between the United States of America and Mexico. The Company believes economic events affecting the Mexican economy and the implementation of NAFTA have not had a material effect on the Company or its financial position. In 1995 the Mexican Ministry of Finance and Public Credit (Hacienda) adopted rules which require arms length pricing for transactions between maquiladoras and their U.S. affiliated companies. The impact of these regulations requires Standard Components to allocate costs and profits on an arms length basis. Its operating results continue to be consolidated with the Company's financial results. The effect of the rules had an immaterial impact on the Company's consolidated results. The Company provides funds for salaries, wages, overhead and capital expenditure items as necessary to operate Standard Components. Since the Company provides funding to Standard Components in U.S. dollars, which are exchanged for pesos as needed, the devaluation of the peso from time to time, without an equal or greater increase in Mexican inflation, has not had a material 6 7 impact on the financial results of the Company. In fiscal 1998 the Company funded approximately $8,160,000. COMPETITION The electronic manufacturing services 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. Also, foreign companies, especially companies with production operations in the Far East, have substantially lower costs and thus are able to offer their services at lower prices. 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 provide all of these services. In addition, the Company may be operating at a cost disadvantage compared to manufacturers who have greater direct buying power with component suppliers or who have lower cost structures. Current and prospective customers continually evaluate the merits of manufacturing products internally and will from time to time offer manufacturing services to third parties in order to utilize excess capacity. During downturns in the electronics industry, OEMs may become more price sensitive. There can be no assurance that competition from existing or potential competitors will not have a material adverse effect on the Company's business, financial condition, or results of operations. The introduction of lower priced competitive products or significant price reductions by the Company's competitors could result in price reductions that would adversely affect the Company's business, financial condition, and results of operations, as would the introduction of new technologies which render the Company's manufacturing process technology less competitive or obsolete. GOVERNMENTAL REGULATIONS The Company's operations are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management and health and safety matters. Management believes that the Company's business is operated in material compliance with all such regulations. The cost to the Company of such compliance to date has not materially affected 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. 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 adversely affect the Company's business, financial condition and results of operations. 7 8 BACKLOG The Company's backlog as of April 30, 1998 was approximately $46,184,000. Backlog consists of contracts or purchase orders with delivery dates scheduled within the next twelve months. The Company currently expects to ship substantially all of the April 30, 1998 backlog by the end of the 1999 fiscal year. Backlog as of April 30, 1997 totaled $38,108,380. Variations in the magnitude and duration of contracts and purchase orders received by the Company and delivery requirements generally may result in substantial fluctuations in backlog from period to period. Because customers may cancel or reschedule deliveries, backlog may not be a meaningful indicator of future financial results. EMPLOYEES The Company employed approximately 1,700 people as of April 30, 1998, including 31 engaged in engineering, 1,554 in manufacturing and 115 in administrative and marketing functions. The Company has a labor contract with Production Workers Union Local No. 10, AFL-CIO, covering the Company's workers in Elk Grove Village, Illinois which expires on November 30, 2000. The Company's Mexican subsidiary 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 January 15, 2000. Since the time the Company commenced operations, it has not experienced any work stoppages. The Company believes its relations with both unions and its other employees are good. ITEM 2. PROPERTIES The Company, in combination with its wholly-owned subsidiary and affiliate, has manufacturing facilities located in Elk Grove Village, Illinois, Las Vegas, Nevada, Fremont, California and Acuna, Mexico. In addition, the Company provides inventory management services through its Del Rio, Texas, warehouse facilities and materials procurement services through its Taipei, Taiwan office. Certain information about the Company's manufacturing, warehouse and purchasing facilities is set forth below: 8 9
=========================================================== LOCATION SQUARE FEET SERVICES OFFERED - ----------------------------------------------------------- Elk Grove Village, IL 61,000 Corporate Headquarters, assembly and testing of PTH and SMT, box-build, prototyping - ----------------------------------------------------------- Acuna, Mexico 156,000 High volume assembly, and testing of PTH and SMT, box-build, transformers - ----------------------------------------------------------- Las Vegas, NV 33,360 Automatic insertion and cable assembly - ----------------------------------------------------------- Del Rio, TX 25,000 Warehouse, portion of which is bonded - ----------------------------------------------------------- Fremont, CA 24,030 High volume assembly and testing of both PTH and SMT and ball grid array ("BGA") - ----------------------------------------------------------- Taipei, Taiwan 2,900 Materials procurement, alternative sourcing assistance and quality control - ----------------------------------------------------------- Huntsville, AL * Just-in-time inventory management and delivery ===========================================================
* There is no lease for this facility. The Company has entered into a service agreement whereby contracted warehouse personnel provide services for the Company and its customer. The Company leases its executive offices and manufacturing facility in Elk Grove Village, Illinois from Circuit Systems, Inc. ("CSI"), a significant shareholder of the Company. The Company, through an agent, maintains the purchasing and engineering office in Taipei, Taiwan to coordinate Far East purchasing and design activities. In addition, the Company's affiliate, SMTU, leases the facility in Fremont, California. The Company has guaranteed lease payments of approximately $1.63 million for SMTU, and has been indemnified by one of the SMTU limited partners to the extent of 50% of the lease payment guaranty. ITEM 3. LEGAL PROCEEDINGS To the Company's knowledge, there are no pending legal proceedings to which it is a party or to which any of its property is subject. 9 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders in the fourth quarter of fiscal 1998. ITEM 4.(A) EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION - ---- --- --------- Gary R. Fairhead 46 President and Chief Executive Officer Gary R. Fairhead has been the President of the Company since January 1990. Linda K. Blake 37 Chief Financial Officer, Vice President- Finance, Treasurer and Secretary Linda K. Blake is the Company's Vice President of Finance, Treasurer, Secretary and Chief Financial Officer and was Controller of the Company from June 1991 to February 1994. Nunzio A. Truppa 60 Vice President -- Domestic Operations Nunzio A. Truppa has been Vice President -- Domestic Operations for the Company, or held equivalent management positions with the Company's predecessor, since January 1987. Gregory A. Fairhead 42 Vice President Mexican Operations and Assistant Secretary Gregory A. Fairhead has been Vice President -- Mexican Operations for the Company since February 1990 and is Assistant Secretary. John P. Sheehan 37 Vice President -- Director of Materials and Assistant Secretary John P. Sheehan has been Vice President --Director of Materials of the Company since April, 1990 and is Assistant Secretary.
10 11 - -------------------------------------------------------------------------------- PART II - -------------------------------------------------------------------------------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the Nasdaq National Market System under the symbol SGMA. The following table sets forth the range of quarterly high and low bid information for the Common Stock for the periods ended April 30, 1997 and 1998. Common Stock as Reported by Nasdaq
Period High Low ------ ------ -------- Fiscal 1998: Fourth Quarter 10-7/8 7-3/4 Third Quarter 13-7/8 9-1/4 Second Quarter 17-1/2 11-5/8 First Quarter 17-1/8 11-57/64 Fiscal 1997: Fourth Quarter 25-3/8 14 Third Quarter 23-1/8 10-3/4 Second Quarter 12-1/2 8-3/4 First Quarter 17-1/2 7-1/2
As of June 30, 1998, there were approximately 145 holders of record of the Company's common stock, which does not include shareholders whose stock is held through securities position listings. 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 cash or other dividends on any of its capital stock, except stock dividends, without the written consent of the lender under the facility. 11 12 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended April 30 --------------------------------------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (In thousands except per share data) Net Sales $36,690 $45,345 $69,558 $87,216 $85,651 Income before income tax expense 2,389 3,032 3,752 5,161 837 Net Income (1) 1,862 1,891 2,367 3,255 526 Total Assets 17,838 28,235 38,378 42,088 48,641 Long-term debt and capital lease obligations (including current maturities) 4,716 12,763 16,528 18,593 20,975 Pro Forma Net income per common equivalent share (unaudited) - basic and assuming dilution (2) 0.59 - - - - Net income per common and common equivalent share for the period from February 9, 1994 to April 30, 1994 - basic and assuming dilution $0.04 - - - - Net income per common share- basic - $0.69 $0.86 $1.16 $0.18 Net income per common share- assuming dilution - $0.69 $0.86 $1.11 $0.18
(1) Net income for the fiscal year 1994 reflects a charge of $527,000 for income tax expense. Income tax expense includes a charge of approximately $262,000 to recognize the initial effect of adopting Financial Accounting Standards Board Statement No. 109 "Accounting for Income Taxes" (FAS No. 109) and has been calculated based on earnings of the Company since February 8, 1994, the date of its reorganization from a limited partnership to a C-Corporation. Prior to the reorganization, income was passed through to the partners of SigmaTron L.P., who were responsible for any federal and state income taxes due. (2) Pro-forma net income per share was determined assuming the reorganization from a limited partnership to a C-Corporation had occurred on May 1, 1993, resulting in the Company being a C- Corporation for tax purposes as of that date and to reflect the use of proceeds of the public offering to retire debt. 12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY NOTE: The following discussion provides an analysis of the Company's financial condition and results of operations, and should be read in conjunction with the Selected Consolidated Financial Data and the Consolidated Financial Statements of the Company, and the Notes thereto, appearing in this Annual Report on Form 10-K, as well as in conjunction with the cautionary note concerning forward-looking information which appears at the beginning of Item 1. OVERVIEW The Company is an independent contract manufacturer of electronic components, printed circuit board assemblies, and box-build (completely assembled) electronic products. Included among the wide range of services the Company offers its customers are (1) automatic and manual assembly and testing of customer products, (2) material sourcing, procurement and control, (3) design, manufacturing and test engineering support, (4) warehousing and shipment services, and (5) assistance in obtaining product approvals from governmental and other regulatory bodies. The Company provides these services through facilities located in North America and the Far East. Sales volume and gross profit margins can vary considerably among customers and products depending on the type of services rendered by the Company. Specifically, variations in orders for turnkey services versus consignment services and variations in the number of orders for products with high raw material costs can lead to significant fluctuations in the Company's operating results. Further, customers' orders can be delayed, rescheduled or canceled at any time, which can significantly impact the operating results of the Company. In addition, the ability to replace such delayed or lost sales in a short period of time cannot be assured. As a manufacturing company, the Company includes all fixed manufacturing overhead in cost of goods sold. The inclusion of fixed manufacturing overhead in cost of goods sold magnifies the fluctuations in gross profit margin percentages caused by fluctuations in net sales and capital expenditures. Specifically, fluctuations in the mix of consignment and turnkey contracts could have an effect on the cost of goods sold and the resulting gross profit as a percentage of net sales. 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. However, turnkey contracts typically have lower gross margins due to the large material content. Historically, more than 90% of the Company's sales have been from turnkey orders. In June 1995, the Company signed a three-year exclusive manufacturing agreement with NSI relating to the production of carbon monoxide detection systems. Sales to NSI have accounted for a significant percentage of the Company's net sales in fiscal 1996 through 1998. Although there has been no written extension of the agreement, the parties continue to operate under its terms, however, 13 14 the Company expects sales to NSI will be significant in fiscal 1999. The amount of sales to NSI beyond fiscal 1999 remains unclear and if the relationship is not continued it could significantly impact the Company's revenues and earnings. RESULTS OF OPERATIONS: FISCAL YEAR ENDED APRIL 30, 1998 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1997 Net sales for fiscal 1998 were $85,650,598 compared to $87,216,343 for fiscal 1997. The 2% decrease in net sales was due to softer sales to some of the Company's key customers. NSI accounted for approximately $25,191,000 or 29.4% of the Company's fiscal 1998 net sales compared to $25,952,000 or 29.8% in fiscal 1997. Timing and rescheduling of orders has caused the Company to experience significant quarterly fluctuations in its revenues and earnings and the Company expects such fluctuations to continue. In addition, the Company's fourth and first quarters have historically been the weakest periods and the Company expects the first quarter of fiscal 1999 to be soft. Gross profit decreased to $8,456,834 in fiscal 1998 from $12,639,082 in fiscal 1997. Gross profit as a percent of net sales was 9.9% and 14.5% for fiscal 1998 and 1997, respectively. The decrease is partly due to the increase in the Company's overhead structure over the past 18 months and partly due to the lower sale volume. This expansion included increased manufacturing space, manufacturing personnel and equipment which was necessary in order to competitively position the Company for the future. The Company's short term objective is to increase sales to take advantage of the structure put in place, which may lead to a stronger fiscal 1999. Selling and administrative expenses decreased from $5,624,346 in fiscal 1998 to $5,961,184 in fiscal 1998. The decrease is due to a reduction in bonus accruals and a decrease in commission expense related to the lower sales volume. Selling and administrative expenses as a percent of net sales decreased for fiscal 1998 to 6.6% from 6.8% for fiscal 1997. Interest expense increased in fiscal 1998 to $1,898,488 from $1,836,967 in fiscal 1997. The overall increase was primarily due to the higher outstanding balance on the Company's line of credit due to the Companys increased working capital requirements. Interest expense as a percent of net sales increased from 2.1% in fiscal 1997 to 2.2% in fiscal 1998. The Company recorded a $360,000 loss in investment and receivables for LC in fiscal 1998. LC distributes a variety of electronic and molded plastic components for use in the sign and lighting industries. The Company owns approximately 12% of LC. Income tax expense decreased to $310,962 in fiscal 1998 from $1,905,584 in fiscal 1997. The effective tax rate for fiscal 1998 and 1997 was 37.2% and 36.9%, respectively. As a result of the foregoing, net income decreased to $525,892 in fiscal 1998 from $3,255,058 in fiscal 1997. Basic earnings per share for the year ended April 30, 1998 was $.18 compared to $1.16 in fiscal 1997. Diluted earnings per share for fiscal 1998 was $.18. 14 15 FISCAL YEAR ENDED APRIL 30, 1997 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1996 Net sales for fiscal year 1997 were $87,216,343 compared to $69,558,384 for fiscal year 1996. The 25% increase in net sales was due to sales to new and existing customers primarily in the consumer electronics, gaming and fitness industries. NSI accounted for approximately $25,952,000 or 29.8% of the Company's fiscal 1997 net sales compared to $19,605,000 or 28.2% in fiscal 1996. The volatility of NSI orders may cause the Company's revenues and earnings to fluctuate significantly on a seasonal basis. Gross profit increased from $10,142,298 in fiscal year 1996 to $12,639,082 in fiscal year 1997. Gross profit as a percent of net sales was 14.5% and 14.6% for fiscal 1997 and 1996, respectively. Selling and administrative expenses increased from $4,943,478 in fiscal year 1996 to $5,961,184 in fiscal year 1997. The increase is due to the increase in sales commissions attributable to the increase in net sales. In addition, insurance expense increased for general insurance requirements and increased levels of product liability insurance. Additional customer service and material procurement personnel were added to support the growth of the Company. Selling and administrative expenses as a percent of net sales decreased for the fiscal year ended April 30, 1997 to 6.8% from 7.1% for the year ended 1996. Interest expense increased in fiscal 1997 to $1,846,928 from $1,630,238 in fiscal 1996. The overall increase was primarily due to the higher outstanding balance on the Company's line of credit. Interest expense as a percent of net sales decreased from 2.3% in fiscal 1996 to 2.1% in fiscal 1997. Income tax expense increased from $1,385,000 in fiscal year 1996 to $1,905,584 in fiscal year 1997. The effective tax rate for fiscal years 1997 and 1996 was 36.9%. As a result of the foregoing, net income increased 37.5% from $2,366,822 in fiscal 1996 to $3,255,058 in fiscal 1997. Basic earnings per share for the year ended April 30, 1997 was $1.16 compared to $ .86 in fiscal 1996. Diluted earnings per share for fiscal 1997 was $1.11 compared to $.86 in fiscal 1996. QUARTERLY RESULTS AND SEASONALITY Historically, the Company's highest levels of sales are achieved in its second and third quarters. This is due to the seasonal nature of the business for several of the Company's customers. In particular, NSI's sales of carbon monoxide detectors generally coincide with the heating season, and several other customers have sales tied to the holidays. This trend has caused the Company to experience generally stronger second and third quarters in each fiscal year. However, regardless of seasonal fluctuations, there can be no assurance that the Company will be profitable in any particular quarter. The Company's results of operations have varied significantly and may continue to fluctuate from quarter to quarter. Operating results are affected by a number of factors, including timing of 15 16 orders from and shipments to major customers, availability of materials and components, the volume of orders as related to the Company's capacity, timing of expenditures in anticipation of future sales, the gain or loss of significant customers and variations in the demand for products in the industries served by the Company. A significant portion of the Company's expenses are relatively fixed in nature and planned expenditures are based in part on anticipated orders. The inability to adjust expenditures to compensate for a decline in net sales may magnify the adverse impact of such decline in the Company's results of operations. The Company's customers generally require short delivery cycles. In the absence of substantial backlog, quarterly sales and operating results depend on the volume and timing of orders received during the quarter which can be difficult to forecast. In addition, variations in the size and delivery schedules of purchase orders received by the Company, as well as changes in customers' delivery requirements or the rescheduling or cancellations of orders and commitments, may result in substantial fluctuations in backlog from period to period. Accordingly, the Company believes that backlog cannot be considered a meaningful indicator of future operating results. LIQUIDITY AND CAPITAL RESOURCES: In fiscal 1998 the Company financed its growth and operations through cash flow generated from borrowings from its secured lender and cash provided by operations and a sale/leaseback transaction. The Company had working capital of $20,708,686 April 30, 1998 and $21,648,985 at April 30, 1997. This represents a current ratio of 2.8 and 4.1 for the years ended April 30, 1998 and 1997, respectively. The Company has a credit arrangement in place which is comprised of a revolving loan facility and a term loan. Under the revolving loan facility, the Company may borrow certain percentages of the Company's accounts receivable and inventory, up to a maximum of $25.0 million. At April 30, 1998, based upon those percentages, there was approximately $2,334,000 of unused credit available under the revolving loan facility. Outstanding borrowings under the revolving loan facility bear interest at the Company's option of either the London Interbank Offered Rate ("LIBOR") plus 2.0% or the bank's prime rate of interest. The revolving loan facility is collateralized under a loan and security agreement by substantially all of the domestically located assets of the Company. The agreement contains certain financial covenants pertaining to the maintenance of tangible net worth and net income. The revolving loan facility matures on September 30, 2000. The maximum amount which could be borrowed under the term loan was $111,108 which was the outstanding balance at April 30, 1998. The amount outstanding under the term loan is collateralized by some of the Company's machinery and equipment located in the United States and is payable in 60 monthly installments of approximately $13,890 plus accrued interest due December 1998. The outstanding principal under the term loan bears interest at the bank's prime rate of interest. To the extent that the Company provides funds for salaries, wages, overhead and capital expenditure items necessary to operate its Mexican operations, the amount of funds available for use in the Company's domestic operations may be depleted. The funds, which ordinarily derive from the Company's cash from operations and borrowings under its revolving credit facility, is approximately $8,160,000 for a typical 12 month period. The Company provides funding in U.S. dollars, which are exchanged for pesos as needed. 16 17 The Company is a 42.5% limited partner in SMTU, a California limited partnership, based in Fremont, California. SMTU has negative working capital of approximately $2,557,000 at April 30, 1998, and an accumulated deficit of approximately $1,795,000. From the formation of SMTU in September 1994 until January 1995, SMTU had no sales. Since fiscal 1995, sales have increased so that SMTU was achieving operating income for the year ended April 30, 1998 . While the management of SMTU expects sales to increase further in 1999 and also expects these sales will lead to overall profitability, it is possible that management's efforts in this regard will not be successful. In January 1998, the Company entered into a guaranty agreement with SMTU's leader to guaranty the obligation of SMTU under its revolving line of credit to a maximum of $500,000 plus interest and related costs associated with the enforcement of the guaranty. The Company has been indemnified by one of the limited partners for 50% of the obligation under this guaranty. The Company's investment and advances to and receivables from SMTU totaled approximately $4,169,000 at April 30, 1998, and has been classified as long -term assets in the Company's April 30, 1998 balance sheet. SMTU was eleven months delinquent in their equipment lease payments to the Company and therefore, due to the uncertainty surrounding the timing of collection of these future minimum rental, the Company has classified these equipment lease receivables as long-term at April 30, 1998. At April 30, 1998, SMTU was in violation of various covenants under its revolving line of credit. SMTU's management expects to be able to renegotiate these covenants to prevent noncompliance and to obtain waivers for all covenants violated in fiscal 1998. On August 1, 1995 the Company entered into a limited partnership agreement forming Lighting Components L.P. ("LC"). The Company owns approximately 12% of LC , which distributes a variety of electronic and molded plastic components for use in the sign and lighting industries. At April 30, 1998 the Company had invested $280,000 in the venture. The initial investment, subordinated debentures, promissory notes, and accrued interest totaling approximately $335,000 are included in other long-term assets in the consolidated balance sheet as of April 30, 1998. In addition, the Company also has miscellaneous and trade receivables recorded in the consolidated balance sheet at April 30, 1998 from LC totaling approximately $491,000. The Company's receivables from LC's are secured by a security interest in substantially all of LC's assets. At April 30, 1998, the assets recorded in the Company's balance sheet were written down by approximately $360,000 to net realizable value leaving approximately $466,000 of assets in the consolidated balance sheet at April 30, 1998. The Company has formed a committee of Executive Officers and others to examine Year 2000 compliance issues relating to the Company, and to plan for implementation of changes appropriate to insure compliance in a timely manner. The Company believes that its compliance with Year 2000 issues will not have material impact on its business, operations or financial condition. The impact of inflation for the past three fiscal years has been minimal. 17 18 ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not applicable ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA SigmaTron International, Inc. Consolidated Financial Statements Contents Report of Independent Auditors............................. F-2 Consolidated Financial Statements Consolidated Balance Sheets at April 30, 1998 and 1997..... F-3 Consolidated Statements of Income for the Years Ended April 30, 1998, 1997, and 1996............................ F-5 Consolidated Statements of Equity for the Years Ended April 30, 1998, 1997, and 1996............................ F-6 Consolidated Statements of Cash Flows for the Years Ended April 30, 1998, 1997, and 1996............................ F-7 Notes to Consolidated Financial Statements................. F-9 Schedule II Valuation and Qualifying Accounts......................... F-25
Financial statement schedules not listed above are omitted because they are not applicable or required. The response to this item is included in Item 14(a) of this Report. 19 Report of Independent Auditors The Board of Directors and Stockholders SigmaTron International, Inc. We have audited the accompanying consolidated balance sheets of SigmaTron International, Inc. as of April 30, 1998 and 1997, and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended April 30, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and 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 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 consolidated financial position of SigmaTron International, Inc., at April 30, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended April 30, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Chicago, Illinois June 19, 1998, except for Note 16, as to which the date is July 1, 1998, and Note 6, as to which the date is July 14, 1998 F-2 20 SigmaTron International, Inc. Consolidated Balance Sheets
April 30 1998 1997 --------------------------- Assets Current assets: Cash $ 284,679 $ 323,223 Accounts receivable, less allowance for doubtful accounts of $80,000 at April 30, 1997 11,977,973 8,770,457 Inventories 18,972,587 17,665,600 Equipment lease receivables from SMTU - 892,435 Prepaid expenses 418,464 225,780 Refundable income taxes - 98,666 Deferred income taxes 218,788 231,245 Other assets 331,461 512,206 --------------------------- Total current assets 32,203,952 28,719,612 Machinery and equipment, net 11,249,550 10,343,060 Due from SMTU: Investment and advances 311,107 527,238 Equipment lease receivables, less current portion 3,207,691 1,467,336 Other receivables 650,695 - --------------------------- 4,169,493 1,994,574 Other assets 1,018,211 1,031,193 --------------------------- Total assets $48,641,206 $42,088,439 ===========================
F-3 21
April 30 1998 1997 --------------------------- Liabilities and stockholders' equity Current liabilities: Notes payable - Banks $111,108 $166,668 Notes payable - Related parties - 42,596 Trade accounts payable 6,751,886 3,244,537 Trade accounts payable - Related parties 915,475 736,893 Accrued expenses 1,575,434 1,680,721 Income tax payable 60,025 - Capital lease obligations 2,081,338 1,199,212 -------------------------- Total current liabilities 11,495,266 7,070,627 Notes payable - Banks, less current portion 15,177,695 14,714,943 Capital lease obligations, less current portion 3,604,793 2,469,372 Deferred income taxes 760,061 818,853 -------------------------- Total liabilities 31,037,815 25,073,795 Stockholders' equity: Preferred stock, $.01 par value; 500,000 shares authorized, none issued and outstanding - - Common stock, $.01 par value; 6,000,000 shares authorized, 2,881,227 and 2,875,227 shares issued and outstanding at April 30, 1998 and 1997, respectively 28,812 28,752 Capital in excess of par value 9,436,554 9,373,759 Retained earnings 8,138,025 7,612,133 --------------------------- Total stockholders' equity 17,603,391 17,014,644 --------------------------- Total liabilities and stockholders' equity $48,641,206 $42,088,439 ===========================
See accompanying notes. F-4 22 SigmaTron International, Inc. Consolidated Statements of Income
Year ended April 30 1998 1997 1996 ------------------------------------------------ Net sales $85,650,598 $87,216,343 $69,558,384 Cost of products sold 77,193,764 74,577,261 59,416,086 ------------------------------------------------ 8,456,834 12,639,082 10,142,298 Selling and administrative expenses 5,624,346 5,961,184 4,943,478 ------------------------------------------------ Operating income 2,832,488 6,677,898 5,198,820 Equity in net loss of SMTU (216,131) (75,036) (242,677) Interest expense - Banks and capital lease obligations (1,898,488) (1,836,967) (1,598,705) Interest expense - Related parties (523) (9,961) (31,533) Interest income - SMTU and LC 479,508 404,708 425,917 Loss on investment and receivables with LC (360,000) - - ------------------------------------------------ Income before income tax expense 836,854 5,160,642 3,751,822 Income tax expense (310,962) (1,905,584) (1,385,000) ------------------------------------------------ Net income $ 525,892 $ 3,255,058 $ 2,366,822 ================================================ Net income per common share - Basic $ .18 $ 1.11 $ .86 ================================================ Net income per common share -Assuming dilution $ .18 $ 1.11 $ .86 =================================================
See accompanying notes. F-5 23 SigmaTron International, Inc. Consolidated Statements of Equity
Capital in Excess Total Preferred Stock Common Stock of Par Retained Stockholders' Shares Amount Shares Amount Value Earnings Equity ------------------------------------------------------------------------------- Balance at April 30, 1995 - $- 2,737,500 $27,375 $8,384,089 $1,990,253 $10,401,717 Net income - - - - - 2,366,822 2,366,822 ------------------------------------------------------------------------------- Balance at April 30, 1996 - - 2,737,500 27,375 8,384,089 4,357,075 12,768,539 Issuance of common stock for exercise of options and warrants - - 137,727 1,377 471,123 - 472,500 Net income - - - - - 3,255,058 3,255,058 Tax benefit from options and warrants exercised - - - - 518,547 - 518,547 ------------------------------------------------------------------------------- Balance at April 30, 1997 - - 2,875,227 28,752 9,373,759 7,612,133 17,014,644 Issuance of common stock for exercise of options - - 6,000 60 41,940 - 42,000 Net income - - - - - 525,892 525,892 Tax benefit from options exercised - - - - 20,855 - 20,855 ------------------------------------------------------------------------------- Balance at April 30, 1998 - $- 2,881,227 $28,812 $9,436,554 $8,138,025 $17,603,391 ===============================================================================
See accompanying notes. F-6 24 SigmaTron International, Inc. Consolidated Statements of Cash Flows
Year ended April 30 1998 1997 1996 ---------------------------------------- Operating activities Net income $ 525,892 $ 3,255,058 $ 2,366,822 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 1,262,297 1,047,262 766,467 Equity in net loss of SMTU 216,131 75,036 242,677 Amortization 14,136 23,778 25,618 Provision for doubtful accounts 113,454 - 306,888 Loss on investment and receivables with LC 360,000 - - Deferred income taxes (46,335) 382,844 (57,509) Changes in operating assets and liabilities: Accounts receivable (3,400,970) 2,310,028 (3,410,538) Inventories (1,306,987) (2,811,550) (5,567,159) Prepaid expenses (192,684) (58,094) 40,823 Other assets (751,104) (418,761) (252,497) Trade accounts payable 3,507,349 (2,881,853) 3,439,734 Trade accounts payable Related parties 178,582 (57,417) 47,058 Accrued expenses (105,287) 237,687 313,658 Income taxes 179,546 353,645 201,009 ---------------------------------------- Net cash provided by (used in) operating activities 554,020 1,457,663 (1,536,949) Investing activities Purchases of machinery and equipment (934,692) (2,950,725 (2,293,961) Proceeds from the sale and leaseback of machinery 1,429,898 - - Proceeds from the sale of machinery and equipment - - 37,513 Proceeds from SMTU subleases 196,895 424,412 378,367 Advances to SMTU - (100,000) (50,000) Proceeds from the sale of investment in SMTU - 250 - Notes receivable from SMTU - - (300,000) ---------------------------------------- Net cash provided by (used in) investing activities 692,101 (2,626,063) (2,228,081)
F-7 25 SigmaTron International, Inc. Consolidated Statements of Cash Flows (continued)
Year ended April 30 1998 1997 1996 ------------------------------------------ Financing activities Repayment of term loan and other notes payable $ (42,596) $ (151,860) $ (363,013) Proceeds from exercise of stock options and warrants 42,000 472,500 - Net proceeds under line of credit 407,192 2,181,772 4,555,271 Net payments under capital lease obligations (1,691,261) (1,013,289) (427,228) ------------------------------------------- Net cash (used in) provided by financing activities (1,284,665) 1,489,123 3,765,030 ------------------------------------------- Change in cash (38,544) 320,723 - Cash at beginning of period 323,223 2,500 2,500 ------------------------------------------- Cash at end of period $ 284,679 $ 323,223 $ 2,500 =========================================== Supplementary disclosure of cash flow information: Cash paid for interest $ 1,900,073 $ 1,834,946 $ 1,602,494 =========================================== Cash paid for income taxes $ 177,750 $ 1,169,854 $ 1,241,500 =========================================== Acquisition of machinery and equipment financed under capital leases $ 1,234,095 $ $840,429 $ 432,437 ===========================================
See accompanying notes. F-8 26 SigmaTron International, Inc. Notes to Consolidated Financial Statements 1. Description of the Business SigmaTron International, Inc. (the Company) was incorporated on November 16, 1993. The Company is an independent contract manufacturer of electronic components, printed circuit board assemblies, and completely assembled (boxbuild) electronic products. Included among the wide range of services the Company, its wholly owned subsidiary, Standard Components de Mexico, S.A., and its affiliate, SMT Unlimited L.P. (SMTU), offer their customers are: (1) manual and automatic assembly and testing of products; (2) material sourcing, procurement, and control; (3) design, manufacturing, and test engineering support; (4) warehousing and shipment services; and (5) assistance in obtaining product approval from governmental and other regulatory bodies. The Company provides these services through an international network of facilities located in North America and the Far East. 2. Summary of Significant Accounting Policies Consolidation Policy The consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiary, Standard Components de Mexico, S.A. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first in, first out (FIFO) method. F-9 27 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Machinery and Equipment Machinery and equipment are stated at cost. The Company provides for depreciation and amortization using the straight-line method over the estimated useful life of the assets which range from 3 to 15 years. Income Taxes The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Earnings Per Share In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented and, where appropriate, restated to conform to the Statement 128 requirements. Fair Value of Financial Instruments The Company's financial instruments include trade accounts receivable, long-term receivables, accounts payable, notes payable, capital lease obligations, and accrued expenses. The fair values of all financial instruments were not materially different from their carrying values. Revenue Recognition The Company recognizes revenue at the time goods are shipped. Reclassifications Certain reclassifications were made to the 1997 and 1996 consolidated financial statements to conform with the 1998 presentation. F-10 28 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 3. Inventories Inventories consist of the following:
April 30 1998 1997 --------------------------- Finished products $3,292,442 $2,966,415 Work in process 1,887,517 1,079,985 Raw materials 13,792,628 13,619,200 -------------------------- $18,972,587 $17,665,600 ==========================
4. Machinery and Equipment Machinery and equipment consist of the following:
April 30 1998 1997 ---------------------------- Machinery and equipment $7,225,671 $8,130,150 Office equipment 1,090,763 896,408 Tools and dies 123,251 123,251 Leasehold improvements 2,030,129 1,815,210 Equipment under capital lease 5,415,725 2,751,733 ---------------------------- 15,885,539 13,716,752 Less: Accumulated depreciation and amortization, including amortization of assets under capital leases of $852,836 and $441,418 at April 30, 1998 and 1997, respectively 4,635,989 3,373,692 ---------------------------- $11,249,550 $10,343,060 ============================
F-11 29 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 5. Investment and Advances With SMTU The Company's investment in SMTU consists of a 42.5% ownership interest in SMTU, which was formed on September 15, 1994, in Fremont, California, as a joint venture to provide surface mount technology assembly services primarily to electronic original equipment manufacturers. During fiscal year 1995, the Company invested $49,500 in exchange for a 45% limited partnership interest in SMTU and $2,500 in SMT Unlimited, Inc. (SMT, Inc.), which is the general partner of SMTU, in exchange for 50% of its capital stock. During fiscal year 1997, the Company sold 2.5% of its interest to a key employee of SMTU. One of the limited partners of SMTU is also an equal shareholder of SMT, Inc., along with the Company. The Company made advances to SMTU in exchange for subordinated debentures in the face amount of $100,000 and $50,000 in 1997 and 1996, respectively (none in 1998). In 1996, the Company also made advances to SMTU in exchange for promissory notes in the face amount of $300,000. These promissory notes were converted into subordinated debentures during 1997. Debentures totaling $650,000 outstanding at April 30, 1998, bear interest at 8%, and are to be repaid on December 31, 1999. The remaining $400,000 of these debentures bears interest at 12% and is to be repaid on December 31, 2001. The Company guarantees lease payments of approximately $1,633,000 for SMTU. The Company has been indemnified by one of the other limited partners in the amount of $816,500 for the guaranteed lease payments. SMTU pays the Company a $12,500 monthly administrative fee for administrative services. See also Note 12. The investment in SMTU is carried at cost plus equity in undistributed earnings or losses since acquisition. The Company has recorded its share of the losses in SMTU first as a reduction of the investment in SMTU and then as a reduction in the carrying value of the subordinated debentures. In January 1998, the Company entered into a guaranty agreement with SMTU's lender to guaranty the obligation of SMTU under its revolving line of credit to a maximum of $500,000 plus interest and related costs associated with the enforcement of the guaranty. The Company may be released from its guaranty within 120 days of any fiscal year-end if SMTU attains $500,000 of net profit after partnership distributions and specific cash flow levels as defined in the agreement. The Company has been indemnified by one of the limited partners for 50% of the obligation under this guaranty. The Company's investment and advances to and receivables from SMTU totalled approximately $4,169,000 at April 30, 1998, and no amount was recorded by the Company related to its guaranty of SMTU's revolving line of credit. SMTU has negative working capital of approximately $2,557,000 at April 30, 1998, and an accumulated F-12 30 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 5. Investment and Advances With SMTU (continued) deficit of approximately $1,795,000 at April 30, 1998. From the formation of SMTU in September 1994 until January 1995, SMTU had no sales. Since fiscal 1995, sales have increased so that SMTU was achieving operating income for the year ended April 30, 1998. While the management of SMTU expects sales to increase further in 1999 and also expects these sales will lead to overall profitability, it is possible that management's efforts in this regard will not be successful. At April 30, 1998, SMTU was in violation of various covenants under its revolving line of credit. SMTU's management expects to be able to renegotiate these covenants to prevent future noncompliance and to obtain waivers for all covenants violated in 1998. 6. Notes Payable Notes payable consist of the following:
April 30 1998 1997 ----------------------------------- Banks: Revolving line of credit, interest payable monthly $15,177,695 $14,603,835 Term loan, interest payable monthly at prime (8.50% at April 30, 1998 and 1997), due December 1, 1998 11,108 277,776 ----------------------------------- 15,288,803 14,881,611 Less: Current portion 111,108 166,668 ----------------------------------- $15,177,695 $14,714,943 =================================== Related Party: Subordinated, secured term loans, interest payable monthly at varying interest rates (9.25% to 9.77% at April 30, 1997), due at varying intervals through August 1, 1997 $- $42,596 ----------------------------------- - 42,596 Less: Current portion - 42,596 ----------------------------------- $- $ - ===================================
The Company's credit facility included a revolving line-of-credit facility and a term loan. The Company's amended and restated loan and security agreement allow the maximum borrowing limit under the revolving line-of-credit agreement to be limited to the lesser of: (i) $25,000,000; or (ii) an amount equal to the sum of up to 85% of the receivables borrowing base and the lesser of $8,000,000 or the amount of the inventory borrowing F-13 31 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 6. Notes Payable (continued) base, as defined. Under the current terms, borrowings under the revolving line-of-credit bear interest at rates equal to the London Interbank Offered Rate (5.78% to 5.97% at April 30, 1998) plus 2% or at the prime rate (8.50% of April 30, 1998) at the option of the Company. At April 30, 1998, there was approximately $2,334,000 of unused credit available under the terms of the agreement. On July 14, 1998, the Company entered into an amendment to their loan and security agreement whereby the maturity date of the revolving line of credit was extended to September 30, 2000, and automatically renews from year to year thereafter, unless otherwise terminated at the option of the Company or the lender in writing with at least 90 days' notice. The revolving line-of-credit facility is collateralized by substantially all of the assets of the Company, except for the machinery and equipment acquired from a related party, machinery and equipment acquired through capital leases, and inventory and machinery and equipment located outside the United States. The agreement contains certain financial covenants, including specific covenants pertaining to the maintenance of minimum tangible net worth and net income. The agreement restricts annual lease rentals and capital expenditures and the payment of dividends or distributions of any cash or other property on any of its capital stock, except that common stock dividends may be distributed by a stock split or dividends pro rata to its stockholders. The term loan portion of the credit facility is payable in sixty (60) monthly installments of approximately $13,890 and is collateralized by the Company's domestically located machinery and equipment. Aggregate annual maturities of notes payable as of April 30, 1998, are as follows: 1999 $111,108 2000 - 2001 15,117,695 ------------- $15,228,803 =============
F-14 32 SigmanTron International, Inc. Notes to Consolidated Financial Statements (continued) 7. Accrued Expenses Accrued expenses consist of the following:
April 30 1998 1997 ------------------------ Payroll $1,174,290 $ 403,902 Bonuses 50,000 792,031 Interest payable 112,939 114,002 Commissions 142,791 116,044 Professional fees 95,414 120,492 Other - 134,250 ------------------------ $1,575,434 $1,680,721 ========================
Bonuses represent discretionary management and other employee bonuses, of which $50,000 and $280,000 was accrued during the fourth quarter of 1998 and 1997, respectively. 8. Related Party Transactions and Commitments During the years ended April 30, 1998, 1997, and 1996, the Company was involved in transactions with Circuit Systems, Inc. (CSI), a shareholder of the Company. These transactions primarily involved the purchase of raw materials and the leasing of operating space. Purchases of raw materials were approximately $6,380,000, $6,895,000, and $4,755,000, for the years ended April 30, 1998, 1997, and 1996, respectively. The Company leases space in Elk Grove Village, Illinois, owned by CSI at a base rental of $33,500 per month, with an additional $7,000 per month for property taxes. The lease requires the Company to pay maintenance and utility expenses. The lease expires in February 2001 and contains an option to renew for an additional five-year period. Rent and property tax expense totaled approximately $486,000, $423,000, and $406,000 for the years ended April 30, 1998, 1997, and 1996, respectively. At April 30, 1998 and 1997, the Company had non-interest-bearing receivables of approximately $190,000 and $205,000, respectively, for advances to a company in which an officer of the Company is an investor. The balance has been recorded as an other long-term asset at April 30, 1998. F-15 33 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 8. Related Party Transactions and Commitments (continued) During 1996, the Company invested $1,200 in exchange for a 12% limited partnership interest in Lighting Components, L.P. (LC) and invested $1,300 in Lighting Components, Inc., which is the general partner of LC, in exchange for 13% of its capital stock. At April 30, 1998, the Company had also made advances to LC in exchange for subordinated debentures and promissory notes totaling $280,000. Approximately $60,000 in subordinated debentures are due at various dates beginning on October 15, 2000, and approximately $220,000 of promissory notes are due on August 1, 2000. Both the subordinated debentures and promissory notes bear interest at 12% with interest payments beginning on August 1, 2000. The initial investment, subordinated debentures, promissory notes, and accrued interest totaling approximately $335,000 are included in other long-term assets in the accompanying balance sheet. In addition, the Company also has miscellaneous and trade receivables recorded in the accompanying balance sheet from LC at April 30, 1998, totaling approximately $491,000. The Company's miscellaneous and trade receivables are secured by a security interest in substantially all of LC's assets. At April 30, 1998, the assets recorded in the Company's balance sheet were written down by approximately $360,000 to net realizable value leaving approximately $466,000 of assets in the accompanying balance sheet at April 30, 1998. 9. Income Taxes The income tax provision for the years ended April 30, 1998, 1997, and 1996, consists of the following:
1998 1997 1996 ------------------------------------- Current: Federal $292,536 $1,231,639 $1,249,173 State 64,761 291,101 193,336 Deferred: Federal (40,395) 333,761 (50,195) State (5,940) 49,083 (7,314) ------------------------------------- $310,962 $1,905,584 $1,385,000 ======================================
F-16 34 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 9. Income Taxes (continued) The reasons for the differences between the income tax provision and the amounts computed by applying the statutory federal income tax rates to income before income taxes for the years ended April 30, 1998, 1997, and 1996, are as follows: 1998 1997 1996 --------------------------------- Income tax at statutory federal rate $ 284,530 $1,754,618 $1,275,619 Effect of: State income taxes, net of federal tax benefit 38,663 238,421 187,591 Other, net (12,231) (87,455) (78,210) --------------------------------- $310,962 $1,905,584 $1,385,000 =================================
Significant temporary differences which result in deferred tax assets and deferred tax liabilities at April 30, 1998 and 1997, are as follows: 1998 1997 -------------------------- Allowance for doubtful accounts $ - $ 31,200 Inventory obsolescence reserve 129,285 129,285 Accruals not currently deductible 75,856 68,128 Inventory 58,891 55,213 Other (45,244) (52,581) -------------------------- Net deferred tax asset $218,788 $231,245 ========================== Machinery and equipment $835,556 $694,261 Other (75,495) 124,592 -------------------------- Net deferred tax liability $760,061 $818,853 ==========================
10. 401(k) Retirement Savings Plan The Company sponsors a 401(k) retirement savings plan which is available to all nonunion employees who complete 1,000 hours of service annually. Participants are allowed to contribute up to 15% of their annual compensation, and the Company may elect to match participant contributions up to the greater of 6% of the participant's compensation or $300. The Company contributed $32,904 and $34,554 to the plan during the fiscal years ended April 30, 1998 and 1997, respectively. The Company made no contributions to the plan for the fiscal year ended April 30, 1996; however, the Company paid total expenses of $13,500, $8,000 and $8,000 for the fiscal years ended April 30, 1998, 1997, and 1996, respectively, relating to costs associated with the Plan's administration. F-17 35 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 11. Major Customers and Concentration of Credit Risks Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of uncollateralized accounts receivable. For the year ended April 30, 1998, four customers accounted for 9%, 13%, 29%, and 9% of net sales of the Company, and 21%, 4%, 24%, and 11% of accounts receivable at April 30, 1998. For the year ended April 30, 1997, three customers accounted for 30%, 14%, and 11% of net sales of the Company, and 20%, 10%, and 4% of accounts receivable at April 30, 1997. For the year ended April 30, 1996, three customers accounted for 28%, 15%, and 10% of net sales of the Company, and 18%, 21%, and 3% of accounts receivable at April 30, 1996. 12. Leases The Company leases its facilities under various operating leases. 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 at April 30, 1998: Capital Operating Leases Leases --------------------------- 1999 $2,543,640 $970,328 2000 1,939,122 966,828 2001 1,290,794 892,854 2002 718,853 420,984 2003 119,250 216,984 Thereafter - 392,076 --------------------------- 6,611,659 $3,860,054 ============ Less: Amounts representing interest 925,528 -------------- 5,686,131 Less: Current portion 2,081,338 -------------- $3,604,793 ==============
The Company subleased the machinery and equipment relating to 11 of the above capital lease agreements to its affiliate, SMTU. These sublease agreements contain the same maturity dates as the original underlying lease agreements. The effective interest rates on these leases are approximately 2% higher than the effective interest rates (ranging from 7.850% to 10.57%) implicit in the original lease to cover various administrative expenses F-18 36 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 12. Leases (continued) of the Company. The equipment lease receivables are collateralized by the underlying machinery and equipment. Management believes the machinery and equipment would be readily usable in the Company's manufacturing operations if necessary. Future minimum rentals to be received under subleases with SMTU with terms of one year or more are as follows: 1999 $1,899,124 2000 813,430 2001 350,901 2002 299,184 2003 47,628 -------------- 3,410,267 Less: Amounts representing interest 202,576 -------------- $3,207,691 ==============
As a result of the uncertainty surrounding the timing of collection of these future minimum rentals, the Company has classified these equipment lease receivables as long-term at April 30, 1998. Rent expense incurred under operating leases was $714,027, $557,456, and $560,756 for the years ended April 30, 1998, 1997, and 1996, respectively. In July 1997, the Company refinanced some machinery and equipment under a sale/leaseback arrangement. The equipment was sold for approximately $1.4 million in cash. The Company has the option to purchase the equipment at the end of the lease term for $1. The transaction has been accounted for as a financing lease, wherein the property remains on the balance sheet and will continue to be depreciated, and a financing obligation equal to the proceeds has been recorded. 13. Capital Stock At April 30, 1998, authorized but unissued shares have been reserved for future issuance as follows: Stock Option Plans 698,500 Warrants 35,000 ------------ 733,500 ============
F-19 37 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 14. Warrants and Stock Options On February 9, 1994, the Company sold warrants, for nominal consideration, to purchase up to an aggregate of 55,000, 25,000, and 70,000 shares of common stock to certain underwriters, consultants, and directors, respectively. All warrants are exercisable during the five-year period commencing: (i) in the case of the underwriters' warrants on February 9, 1994; (ii) in the case of the consultant's warrant on February 16, 1994, and (iii) in the case of the directors' warrants on August 9, 1994. All warrants will terminate on February 9, 1999, and have an exercise price of $8.40 per share which was equal to the fair market value of a share of the Company's common stock on the date of grant. As of April 30, 1998, 115,000 warrants have been exercised. On February 8, 1994, the stockholders of the Company approved the formation of two stock option plans (Option Plans) under which certain members of management and outside nonmanagement directors may acquire up to 698,500 shares of common stock of the Company. The Option Plans are interpreted and administered by the Compensation Committee (the Committee). The maximum term of options granted under the Option Plans generally is ten years. Options granted under the Option Plans are either incentive stock options or nonqualified options. 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 Committee approved grants to certain members of the Company's management effective February 9, 1994, of options to purchase all of the 625,000 shares of common stock available under the management option plan at an exercise price equal to $7.00. Of the options granted to management, options to purchase up to 200,000 shares of common stock will vest at a rate of 20% each year following the date of grant, provided the optionee remains an employee of the Company. As of April 30, 1998 and 1997, management vested in options to purchase 160,000 and 120,000 shares, respectively. The remaining options to purchase up to 425,000 shares of common stock will vest only on the Company's attainment of certain earnings per share levels over the five fiscal years beginning with fiscal year 1995. None of these options became exercisable during fiscal year 1997 or 1996 as the earnings per share level goal was not met, and options to purchase 100,000 and 75,000 shares were forfeited in 1997 and 1996, respectively. On June 11, 1997, options to purchase up to 425,000 shares of common stock were canceled (225,000 of these options had been forfeited prior to April 30, 1998) and returned to the pool of ungranted options to be granted as service-based options at a date to be determined by the Committee. On July 1, 1997, 352,000 service-based options were granted at an exercise price equal to $12.25. F-20 38 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 14. Warrants and Stock Options (continued) The Company also has a stock option plan for the benefit of directors who are not salaried employees of the Company or full-time consultants to the Company. Seventy-three thousand five hundred shares of common stock were reserved for issuance upon exercise of such options. As of April 30, 1998, all options reserved for issuance under this plan have been granted. An option may be exercised at any time within ten years from the date of grant. On June 11, 1997, a new outside nonmanagement director option plan was adopted and later obtained shareholder approval to grant options to purchase up to 105,000 shares of common stock in a manner similar to the old plan. In September 1997, 35,000 options were granted under this new plan at an exercise price equal to $14.50. The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), in accounting for its employee stock options because, as discussed below, the alternative fair value accounting method provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation, requires the use of option-valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options approximates the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by Statement 123 as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994, under the fair value method of that Statement. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The Company's pro forma information follows: 1998 1997 1996 ---------------------------------- Net income $525,892 $3,255,058 $2,366,822 Pro forma net income 302,389 3,167,740 2,308,772 Basic earnings per share $.18 $1.16 $.86 Pro forma basic earnings per share $.10 $1.13 $.84
F-21 39 SigmaTron International, Inc. Notes to Consolidated Financial (continued) 14. Warrants and Stock Options (continued) The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-valuation model with the following assumptions: 1998 1997 1996 ---------------------------- Expected dividend yield .0% .0% .0% Expected stock price volatility 0.512 0.529 0.529 Risk-free interest rate 6.31% 6.54% 6.54% Weighted-average expected life of options 5 years 5 years 5 years
Option-valuation models require the input of highly subjective assumptions. Because the Company's employee 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 employee stock options. F-22 40 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 14. Warrants and Stock Options (continued) A summary of the Company's stock option activity and related information for the years ended April 30 follows:
1998 1997 1996 --------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Options Exercise Price Options Exercise Price Options Exercise Price --------------------------------------------------------------------------------------- Outstanding - Beginning of year 374,500 $ 7.13 549,000 $ 7.06 599,500 $7.06 Granted 387,000 12.45 24,500 10.25 24,500 6.81 Exercised (6,000) 7.00 (99,000) 7.64 - - Forfeited - - (100,000) 7.00 (75,000) 7.00 Canceled (200,000) 7.00 - - - - ------------- ----------- ----------- Outstanding - End of year 555,500 10.88 374,500 7.13 549,000 7.06 ============= =========== =========== Exercisable at end of year 163,500 8.89 94,500 7.50 129,000 7.24 Weighted-average fair value of options granted during the year 6.47 5.40 3.59
Exercise prices for options outstanding as of April 30, 1998, ranged from $6.81 to $14.50 (352,000 of the options outstanding at April 30, 1998, have an exercise price of $12.25 with a remaining contractual life of 9.2 years, and 35,000 of the options outstanding at April 30, 1998, have an exercise price of $14.50 with a remaining contractual life of 9.4 years). The weighted-average remaining contractual life of all options outstanding at April 30, 1998, is 8.2 years. F-23 41 SigmaTron International, Inc. Notes to Consolidated Financial Statements (continued) 15. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: 1998 1997 1996 ---------------------------------------------- Net income available to common stockholders $ 525,892 $3,255,058 $2,366,822 ============================================== Weighted average shares: Basic 2,881,128 2,808,848 2,737,500 Effect of dilutive warrants and stock options 91,264 131,441 - ---------------------------------------------- Diluted 2,972,392 2,940,289 2,737,500 ============================================== Basic earnings per share $ .18 $ 1.16 $ .86 ============================================== Diluted earnings per share $ .18 $ 1.11 $ .86 ==============================================
Options to purchase 397,500 shares of common stock were outstanding during 1998 but were not included in the computation of diluted earnings per share for all or part of the year because the options exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options and warrants to purchase 399,000 shares of common stock were outstanding during 1996 but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. The 425,000 shares reserved for issuance under the management stock option plan in 1997 and 1996 were not considered common stock equivalents as the earnings per share goals were not reached. 16. Subsequent Event On July 1, 1998, the Committee approved grants of options to certain employees and members of the Company's management to purchase 52,000 shares of common stock at an exercise price equal to $7.375. These options will vest at a rate of 20% each year following the date of grant, provided the optionee remains an employee of the Company. F-24 42 SigmaTron International, Inc. Schedule II - Valuation and Qualifying Accounts
Balance at Charges to Charges to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period - -------------------------------------------------------------------------------------------------- Year ended April 30, 1998: Reserves and allowance deducted from asset accounts: Allowance for doubtful accounts $ 80,000 $ - $ - $ 80,000 (1) $ - Reserve for obsolete inventory 331,500 - - - 331,500 Year ended April 30, 1997: Reserves and allowance deducted from asset accounts: Allowance for doubtful accounts 492,126 80,000 - 492,126 (1) 80,000 Reserve for obsolete inventory 411,500 (80,000) - - 331,500 Year ended April 30, 1996: Reserves and allowance deducted from asset accounts: Allowance for doubtful accounts 185,238 328,000 - 21,112 492,126 Reserve for obsolete inventory 411,500 - - - 411,500
(1) Uncollectible accounts written off. F-25 43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants on accounting or financial disclosure matters during the Company's fiscal years ended April 30, 1998 and 1997. - -------------------------------------------------------------------------------- PART III - -------------------------------------------------------------------------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required under this item is incorporated herein by reference to the Company's definitive proxy statement, filed with the Commission not later than 120 days after the close of the Company's fiscal year ended April 30, 1998. ITEM 11. EXECUTIVE COMPENSATION The information required under this item is incorporated herein by reference to the Company's definitive proxy statement, filed with the Commission not later than 120 days after the close of the Company's fiscal year ended April 30, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required under this item is incorporated herein by reference to the Company's definitive proxy statement, filed with the Commission not later than 120 days after the close of the Company's fiscal year ended April 30, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required under this item is incorporated herein by reference to the Company's definitive proxy statement, filed with the Commission not later than 120 days after the close of the Company's fiscal year ended April 30, 1998. 18 44 - -------------------------------------------------------------------------------- PART IV - -------------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) and (a)(2) The financial statements, including required supporting schedule, are listed in the index to Consolidated Financial Statements and Financial Schedule filed as part of the Form 10-K on Page F-1. 19 45 INDEX TO EXHIBITS (a)(3) 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 By-laws of the Company, incorporated herein by reference to Exhibit 3.2 to Registration Statement on Form S-1, File No. 33-72100 dated February 9, 1994. 10.1 Lease Agreement dated as of February 13, 1990 between the Company and CSI and amendments and addenda thereto - Filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby incorporated by reference. * 10.2 401(K) Retirement Savings Plan of the Company - Filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby incorporated by reference. * 10.3 Form of 1993 Stock Option Plan - Filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby incorporated by reference. * 10.4 Form of Incentive Stock Option Agreement for the Company's 1993 Stock Option Plan - Filed as Exhibit 10.5 to the Company's Registration Statement on Form S- 1 Reg. 33-72100 and hereby incorporated by reference. * 10.5 Form of Non-Statutory Stock Option Agreement for the Company's 1993 stock Option Plan - Filed as Exhibit 10.6 to the Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby incorporated by reference. * 10.6 1994 Outside Directors Stock Option Plan - Filed as Exhibit 10.15 to the Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby incorporated by reference. 10.7 The Company's 1997 Directors' Stock Option Plan - filed as Exhibit A to the Company's 1997 Proxy Statement filed on August 18, 1997 and hereby incorporated by reference. 10.8 Form of Director's Stock Option Agreement for the Company's 1997 Directors' Stock Option Plan and hereby incorporated by reference. 10.9 Organization Agreement between the Company and other Partners of SMT Unlimited L.P. dated September 15, 1994 - Filed as Exhibit 10.23 to the Company's Form 10-K for the fiscal year ended April 30, 1995 and hereby incorporated by reference. 10.10 Agreement between SigmaTron International, Inc. and Nighthawk Systems, Incorporated dated July 9, 1995 - Filed as Exhibit 10.33 to the Company's Form 20 46 10-Q for the quarter ended July 31, 1995 and hereby incorporated by reference. 10.11 Putnam Flexible 401(K) and Profit Sharing Plan Agreement #001 dated March 22, 1996 between SigmaTron International, Inc. and Putnam Defined Contribution Plans - Filed as Exhibit 10.35 to the Company's Form 10-Q for the quarter ended July 31, 1996 and hereby incorporated by reference. 10.12 Amended and Restated Agreement between SigmaTron International, Inc. and Nighthawk Systems, Incorporated dated November 15, 1996 - filed as Exhibit 10.41 to the Company's Form 10-Q for the quarter ended January 31, 1997 and hereby incorporated by reference. 10.13 Lease Agreement between SigmaTron International, Inc. and Industrias Irvin DeMexico S.A. dated January 15, 1997 and filed as Exhibit 10.42 to the Company's Form 10-Q for the quarter ended January 31, 1997 and hereby incorporated by reference. 10.14 Lease Agreement between SigmaTron International, Inc. and G E Capital dated July 14, 1997 and hereby incorporated by reference. 10.15 Lease Agreement # 97-054 between SigmaTron International, Inc. and International Financial Services dated June 6, 1997 and hereby incorporated by reference. 10.16 Lease Agreement # 97-087 between SigmaTron International, Inc. and International Financial Services dated June 26, 1997 and hereby incorporated by reference. 10.17 Lease Agreement # 97-097 between SigmaTron International, Inc. and International Financial Services dated August 11, 1997 and hereby incorporated by reference. 10.18 Lease Agreement # 97-185 between SigmaTron International, Inc. and International Financial Services dated December 22, 1997 and hereby incorporated by reference. 10.19 Lease Agreement # E002 between SigmaTron International, Inc. and G E Capital dated December 31, 1997 and hereby incorporated by reference. 10.20 Guaranty and Surety Agreement between SigmaTron International, Inc. and HSBC Business Loans Inc. dated January 31, 1998 and hereby incorporated by reference. 10.21 Lease Agreement # 98-10 between SigmaTron International, Inc. and International Financial Services dated February 2, 1998. 22.1 Subsidiaries of the Registrant - Filed as Exhibit 22.1 of the Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby incorporated by reference. 23.1 Consent of Ernst & Young LLP. 21 47 27.1 Financial Data Schedule (EDGAR only) * Indicates management contract or compensatory plan. (b) No reports on Form 8-K were filed during the 1998 fiscal year. (c) Exhibits The Company hereby files as exhibits to this Report the exhibits listed in Item 14 (a) (3) above, which are attached hereto. (d) Financial Statements Schedules The Company hereby files a schedule to this Report the financial schedule in Item 14, which are attached hereto. 22 48 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended 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 Dated: July 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this amended 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/ Franklin D. Sove Chairman of the Board of Directors July 27, 1998 - -------------------- Franklin D. Sove /s/ Gary R. Fairhead President and Chief Executive Officer July 27, 1998 - -------------------- Gary R. Fairhead /s/ Linda K. Blake Chief Financial Officer, Secretary and July 27, 1998 - ------------------ Treasurer (Principal Financial Officer and Linda K. Blake Principal Accounting Officer) /s/ D.S. Patel Director July 27, 1998 - -------------- D.S. Patel /s/ John P. Chen Director July 27, 1998 - ---------------- John P. Chen /s/ Dilip S. Vyas Director July 27, 1998 - ----------------- Dilip S. Vyas /s/ William C. Mitchell Director July 27, 1998 - ----------------------- William C. Mitchell /s/ Thomas W. Rieck Director July 27, 1998 - ------------------- Thomas W. Rieck /s/ Steven Rothstein Director July 27, 1998 - -------------------- Steven Rothstein
23 EX-10.21 2 TERMS AND CONDITIONS OF LEASE 1 EXHIBIT 10.21 INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048 SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #98-010 ADDRESS: 2201 LANDMEIER ROAD CONTACT: MS. LINDA BLAKE ELK GROVE VILLAGE, IL 60007 PHONE #: 847-956-8000 EQUIPMENT LOCATION IF OTHER THAN ADDRESS OF LESSEE: SMT UNLIMITED L.P. , 47650 WESTINGHOUSE DR., TYPE OF COMPANY: CORPORATION FREMONT, CA 94539 - --------------------------------------------------------------------------------------------------------------------------- EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A" TERM: 60 $4,862.00 per period for the first 60 periods PERIODS ARE: MONTHLY ADVANCE RENTALS, $9,724.00 payable at the signing of this lease to be applied TOTAL # OF LEASE PAYMENTS: 60 to the last two rental payments. EFFECTIVE DATE: SEE PARAGRAPH 25 - ---------------------------------------------------------------------------------------------------------------------------
TERMS AND CONDITIONS OF LEASE 1. LEASE. LESSOR hereby leases to LESSEE and LESSEE hereby hires and takes from LESSOR, the personal property set forth on the EQUIPMENT Schedule above and any Schedule attached hereto with all accessories incorporated therein and/or affixed thereto, hereinafter referred to as EQUIPMENT. 2. RENTALS. During and for the original term hereof LESSEE hereby agrees to pay LESSOR as and for rental of the EQUIPMENT the amounts specified above as monthly or other calendar period rental multiplied by the number of months or periods specified above. The first rental payment shall be made on the effective date as set forth above. In the event the effective date is omitted when the LEASE is executed by the LESSEE, the LESSOR is authorized to and shall insert the effective date of this LEASE which shall be the date of delivery of EQUIPMENT. Subsequent monthly or other period rental payments shall be due on the same day of subsequent months or other calendar periods as the effective date of this LEASE. All payments shall be made at the office of the LESSOR at 1113 S. Milwaukee Avenue, Libertyville, IL 60048, or as otherwise directed by the LESSOR or assignee in writing. 3. TERM. The original term of this LEASE shall commence on the date that the EQUIPMENT is delivered to LESSEE and shall terminate upon the expiration of the number of months, or other calendar periods, set forth above from said date. Said rent shall be payable monthly in advance. 4. EQUIPMENT AND LIABILITY. LESSOR, at the request of LESSEE, has ordered or shall order the EQUIPMENT described above from a supplier selected by LESSEE. LESSOR shall not be liable for specific performance of this LEASE or for damages, if , for any reason, supplier fails to accept such order or delays or fails to fill the order. LESSEE agrees to accept such EQUIPMENT and to complete the acceptance notice provided by LESSOR. 5. PLACE OF USE; INSPECTION. LESSEE shall keep the EQUIPMENT at its place of business as specified above. LESSEE covenants and agrees not to allow the use of EQUIPMENT by other than the employees of the LESSEE and covenants and agrees not to rent or sublet the EQUIPMENT or any part thereof to others for their own use. Whenever requested by LESSOR, LESSEE shall promptly advise LESSOR as to the exact location of the EQUIPMENT. LESSOR, from time to time, may enter the premises where the EQUIPMENT is located and inspect same upon 1 business day's notice and subject to LESSEE's security rules. 6. ADVANCE RENTALS. At the LESSOR'S option any advance rentals made hereunder may be applied by LESSOR to cure any default of LESSEE. LESSEE will from time to time promptly provide any additional credit or financial information that the LESSOR deems necessary to this transaction. 7. DISCLAIMER OF WARRANTY. LESSOR not being the manufacturer or the supplier of the EQUIPMENT, nor a dealer in similar equipment, has not made and does not make any representation warranty or covenant, express or implied, with respect to the design, condition, durability, suitability, fitness for use or merchantability of the EQUIPMENT in any respect. As between LESSOR and LESSEE, the EQUIPMENT shall be accepted and leased by LESSEE "AS IS" and "WITH ALL FAULTS". LESSEE agrees to settle all such claims directly with the supplier and will not assert any such claims or defenses against LESSOR or LESSOR'S assignee. LESSOR assigns to, authorizes and appoints LESSEE to enforce, in its own name and at its own expense, any claim, warranty, agreement or representation which may be made against the supplier, but LESSOR assumes no obligation as to the extent or enforceability thereof. LESSOR agrees to cooperate with LESSEE in the enforcement of any manufacturer warranty to the extent LESSOR'S cooperation is necessary under the terms of any such warranty. No defect or unfitness of the EQUIPMENT, loss or damage thereto or any other circumstances shall relieve LESSEE of its obligations under this LEASE which are absolute and unconditional. In no event shall LESSOR or LESSEE be liable for any consequential damages. Supplier is not an agent of LESSOR and no employee of supplier is authorized to waive, supplement or otherwise alter, any provision of this LEASE. 8. ERRORS IN ESTIMATED COST. The amount of each rent payment and the advance rental initially set forth above are based upon the estimated total cost of the EQUIPMENT (excluding taxes, transportation and any other charges) which is an estimate, and each shall be adjusted proportionally if the actual cost of the EQUIPMENT differs from said estimate. LESSEE hereby authorizes LESSOR to correct the figures set forth above when the actual cost is known. If the actual cost of the EQUIPMENT differs from the estimated cost by more than ten percent (10%)thereof, however, either party at its option may terminate this LEASE by giving written notice to the other party within fifteen (15) days after receiving notice of the actual cost or the corrected rent. 9. USE AND RETURN OF EQUIPMENT. The LESSEE shall exercise due and proper care in the use, repair and servicing of the EQUIPMENT and at all times and at its expense shall keep and maintain the leased property in good working condition, order, and repair. LESSEE may alter and upgrade the EQUIPMENT provided that such alteration or upgrade does not reduce the value or impair the capability of the EQUIPMENT. LESSEE shall have the right to remove any such alteration or upgrade before returning the EQUIPMENT to LESSOR so long as the removal does not damage the EQUIPMENT. LESSEE shall bear all costs associated with the acquisition, installation and removal of any such alteration or upgrade. Upon the expiration or termination of this LEASE, LESSEE at its sole expense shall forthwith properly pack and return the EQUIPMENT to LESSOR, or to such place designated by LESSOR within 30 miles of EQUIPMENT location, in the same condition as when received by LESSEE, reasonable wear and tear alone excepted. All replacement parts, incorporated in or affixed to the EQUIPMENT after the commencement of this LEASE shall become the property of LESSOR. 10. TITLE; LIENS; TAXES. The Equipment is, and shall at all times be and remain (i) the sole and exclusive property of LESSOR; and the LESSEE shall have no right, title or interest therein or thereto except as expressly set forth in this LEASE; (ii) personal property notwithstanding that the EQUIPMENT or any part thereof may now be or hereafter become, in any manner affixed or attached to or imbedded in, or permanently resting upon, real property or any building thereon. LESSEE agrees to affix nameplates or decals to the EQUIPMENT indicating LESSOR'S ownership thereof if requested and supplied by LESSOR. THIS LEASE IS SUBJECT TO THE TERMS AND CONDITIONS PRINTED ABOVE AND ON THE FOLLOWING PAGES AND RIDERS WHICH ARE MADE PART THEREOF AND WHICH LESSEE ACKNOWLEDGES THAT IT HAS READ. IN WITNESS WHEREOF THE LESSEE HAS HEREBY EXECUTED THIS NON CANCELLABLE LEASE THIS _____DAY OF _________________ 19___ ACCEPTED _____________ 19_____ LESSEE NAME: SIGMATRON INTERNATIONAL, INC. ------------------------------------------------- INTERNATIONAL FINANCIAL SERVICES CORP., Lessor SIGNED BY: /s/ ---------------------------------------------------- BY TITLE: President and Chief Executive Officer -------------------------------------------------- -------------------------------------------------------- TITLE (INDICATE CORPORATE OFFICE, GENERAL PARTNER, OWNER, ETC) ----------------------------------------------- LESSEE'S ORIGINAL SIGNATURE IN INK IS REQUIRED ON DATE: --------------------------------------------------------- LEASE PAGES 1,2,3 ,4,5 - MUST BE ORIGINAL SIGNATURES
LEASE ORIGINAL - 1 2 LESSEE shall keep the EQUIPMENT free and clear of levies, liens and encumbrances and shall pay all license and registration fees, assessments, filing or recording fees, documentary stamp tax, sale/use taxes, personal property taxes, gross receipt taxes, excise taxes including value added taxes and all other taxes (local, state and federal) which may now or hereafter be imposed upon the ownership, leasing, rental, sale, purchase, possession or use of the EQUIPMENT whether assessed to LESSOR or LESSEE excluding, however, all taxes on or measured by LESSOR'S net income. If such taxes are levied against the LESSOR, the LESSOR shall have the right, subject to the following paragraph, but not the obligation, to pay any such taxes, whether levied against the LESSOR or the LESSEE. In such event the LESSEE shall reimburse the LESSOR therefor within five (5) days after receipt of invoice and for the failure to make such reimbursement when due the LESSOR shall have all remedies provided herein with respect to the nonpayment of the rental hereunder. LESSEE shall give LESSOR immediate notice of any attachment or other judicial process, liens or encumbrances affecting the EQUIPMENT and shall indemnify and save LESSOR harmless from any loss or damage caused thereby. Notwithstanding the foregoing, LESSEE shall have the right, at its expense and by appropriate legal proceedings, to contest the validity, applicability or amount of any fees, assessments or taxes imposed upon the EQUIPMENT provided that LESSEE shall not cause a tax lien to be levied against the EQUIPMENT or LESSOR. LESSOR agrees to cooperate with LESSEE in any such contest and will permit LESSEE to contest the same in the name of LESSOR (if required by law) or in the name of LESSEE, all at LESSEE'S cost and expense. The non-payment of any fee, tax or assessment by LESSEE in connection with such contest shall not be deemed a default hereunder until final determination of such contest and expiration of any due date established therein. 11. FILING. LESSEE hereby authorizes LESSOR to file financing statements with respect to the EQUIPMENT or any collateral provided by LESSEE to LESSOR prior to or following LESSOR's acceptance of this LEASE, in any State of the United States in which the EQUIPMENT is located. LESSEE shall execute such supplemental instruments and financing statements if LESSOR deems such to be necessary or advisable and shall otherwise cooperate to defend the title of the LESSOR by filing or otherwise. LESSEE, upon demand, shall promptly pay to LESSOR all filing costs and fees incurred or paid by LESSOR. 12. INSURANCE. Commencing on the date risk passes to LESSOR from the supplier and continuing until LESSEE has redelivered possession of the EQUIPMENT to LESSOR, LESSEE, at its expense, shall keep the EQUIPMENT insured against all risks of loss or damage from every cause whatsoever for the greater of the total rent for the full term of this LEASE or the full undepreciated replacement value (new) of the EQUIPMENT, and shall carry public liability insurance, both personal injury and property damage, covering the EQUIPMENT and its use. All insurance shall be of a type, form, in amounts, with companies and contain terms and conditions reasonably satisfactory to LESSOR. Certificates of insurance or other evidence satisfactory to LESSOR, including the original or certified copies of the actual policies showing the existence of insurance in accordance herewith, and the terms, conditions and payments therefor shall be delivered to LESSOR upon LESSOR's request. Said insurance shall provide for loss, if any, payable to LESSOR and LESSEE as their interests may appear and shall name LESSOR as an additional insured for purposes of liability insurance. The proceeds of insurance payable as a result of loss of or damage to EQUIPMENT shall be applied, at the option of LESSEE: (a) toward the replacement, restoration or repair of EQUIPMENT which may be lost, stolen, destroyed or damaged; or (b) toward payment of the obligations of LESSEE hereunder. In the event the LESSEE elects to apply insurance proceeds to the repair or to the replacement of the damaged EQUIPMENT, this LEASE shall continue in full force and effect. In the event LESSEE elects to apply insurance proceeds to the payment of LESSEE'S obligations for rent hereunder, the LESSEE's obligations for the rent hereunder shall be reduced by the amount of such insurance proceeds, but the LESSEE shall be liable for any additional rents due. Such reduction of rents shall be allocated solely to the item or items lost, stolen, damaged or destroyed. 13. LOSS; DAMAGE. LESSEE assumes and shall bear the risk of loss and damage to the EQUIPMENT from every cause whatsoever, whether or not insured. In the event of any loss or damage to the EQUIPMENT, LESSEE, at the option of LESSEE, shall (a) place the same in good repair, condition and working order; or (b) replace the same with new EQUIPMENT; or (c) immediately pay to LESSOR the following amount: the greater of (x) the total unpaid rentals for the entire term hereof (discounted to present value at the rate of six (6) percent per annum plus any amount due LESSOR pursuant to Section 18 hereof or (y) the fair market value of the EQUIPMENT immediately prior to the loss or damage. Upon such payment, together with payment of all other sums owing on said LEASE to and including such payment date, LESSOR will transfer title to the affected EQUIPMENT to LESSEE "as is", "where is", and without warranty, express or implied but including the warranty of good and marketable title. 14. INDEMNITY. Lessee does hereby assume liability for and does agree to indemnify, protect, save and keep harmless LESSOR, and any assignee of LESSOR from and against any and all liabilities, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements, including court costs and reasonable legal expenses, of whatever kind and nature, imposed on, incurred by or asserted against LESSOR, and any assignee of LESSOR (whether or not also indemnified against by any other person) in any way relating to or arising out of this LEASE or the manufacture, purchase, ownership, delivery, lease, possession, use, operation, condition, return or other disposition of the EQUIPMENT by LESSEE, including without limitation any claim alleging latent or other defects, whether or not discoverable by LESSOR or LESSEE; any claim for patent, trademark or copyright infringement; any claim arising out of strict liability in tort; and any taxes for which LESSEE is responsible pursuant to this LEASE, but excluding any such claims arising from acts or omissions of LESSOR or its assignees. 15. DEFAULT. Any of the following events or conditions shall constitute an event of default hereunder; (a) LESSEE'S failure to pay when due any rent or other amount due hereunder within 30 days after receipt by LESSEE of notice of default: (b) LESSEE'S default in performing any other term, covenant or condition hereof if such default is not cured within 30 days after receipt by LESSEE of notice of default; (c) seizure of any EQUIPMENT under legal process; (d) the filing by or against LESSEE of a petition for reorganization or liquidation under the Bankruptcy Code or any amendment thereto or under any other insolvency law providing for the relief of debtors; (e) the voluntary or involuntary making of an assignment of a substantial portion of its assets by LESSEE for the benefit of creditors, appointment of a receiver or trustee for LESSEE or for any of LESSEE'S asset institution by or against LESSEE of any formal or informal proceeding for dissolution, liquidation, settlement of claims against or winding up of the affairs of LESSEE, or the making by LESSEE of a transfer of all or a material portion of LESSEE's assets or inventory not in the ordinary course of business and not for equivalent consideration. 16. REMEDIES. Upon LESSEE'S default, LESSOR shall have the right to exercise any one or more of the following remedies; (a) without affecting LESSOR'S title or right to possession of the EQUIPMENT, declare due, sue for and recover all rents and other amounts then accrued or thereafter accruing for the entire lease term, discounted to present value at 8% per annum or the sum calculated per paragraph 27 below, whichever is greater, (b) require LESSEE to promptly redeliver the EQUIPMENT in the manner specified in Section 9 hereof; or (c) repossess the EQUIPMENT without notice, legal process, prior judicial hearing or liability for trespass (which rights LESSEE hereby voluntarily, intelligently and knowingly waives). Such return or repossession of EQUIPMENT shall not terminate this LEASE unless LESSOR so notifies LESSEE in writing. LESSOR, at its option may sell or re-lease the EQUIPMENT upon such terms as it reasonably determines and apply the proceeds to LESSEE's obligations hereunder, after deducting from such proceeds all costs and expenses of repossession and disposition, reasonable attorney's fees, plus any amounts due LESSOR pursuant to Section 18 hereof. LESSEE shall promptly pay any resulting deficiency, together with interest at the lesser of sixteen (16%) percent and LESSOR's reasonable attorneys' fees if legal action is required to collect such deficiency. If LESSOR is unable to repossess the EQUIPMENT for any reason, the EQUIPMENT shall be deemed a total loss and LESSEE shall pay to LESSOR the amount due pursuant to Section 13 (c). All such remedies are cumulative and may be enforced separately or concurrently and are in addition to any other rights or remedies available to LESSOR at law or in equity. The foregoing provisions of this Section 16 are subject to any mandatory requirement of applicable law then in effect. 17. ASSIGNMENT. Without the prior written consent of LESSOR, LESSEE shall not assign, transfer, pledge or hypothecate this LEASE and EQUIPMENT or any interest in this LEASE or in and to the EQUIPMENT or permit its rights under this LEASE to be subject to any lien, charge or encumbrance of any nature. Notwithstanding the foregoing, LESSEE may assign the LEASE, the EQUIPMENT and its interest in this LEASE and the EQUIPMENT to an affiliate or in connection with a sale of all or substantially all of its assets to, or consolidation with or merger of LESSEE into, any entity so long as such entity assumes the obligations of LESSEE hereunder and immediately following such event is, in the reasonable opinion of LESSOR, no less creditworthy than was LESSEE immediately prior to such event. LESSOR shall have the right to assign this LEASE or any part thereof. If LESSOR assigns the rents reserved herein or all or any of the LESSOR's other rights hereunder, or amounts equal thereto, the right of the assignee to receive the rentals as well as any other right of the assignee shall not be subject to any defense, setoff, counterclaim or recoupment which may arise out of any breach or obligation of LESSOR or by reason of any other indebtedness or liability at any time owing by LESSOR to LESSEE. All rentals due hereunder shall be payable to assignee by LESSEE in accordance with the terms hereof. On receipt of notification of such assignment, LESSEE, subject to its rights hereunder, shall become the pledgeholder of the EQUIPMENT for and on behalf of the assignee and will relinquish possession thereof only to the assignee or pursuant to its written order subject to LESSEE's rights hereunder. LESSEE, on receiving notice of any such assignment, shall make payments as may therein be directed. Following such assignments, the term "LESSOR" shall be deemed to include or refer to LESSOR'S assignee, provided that no such assignee shall be deemed to assume any obligation or duty imposed upon LESSOR hereunder and LESSEE shall look only to LESSOR for performance thereof. There shall be only one executed counterpart of this LEASE marked "Original" and all other counterparts shall be marked "Duplicate". To the extent that LEASE constitutes chattel paper (as defined in the Uniform Commercial Code) no security interest in this lease may be created through the transfer or possession of any counterpart other than the original. 18. DEPRECIATION AND INVESTMENT TAX CREDIT INDEMNITY. (THIS SECTION DOES NOT APPLY IF LESSOR HAS AGREED IN WRITING TO PASS THE INVESTMENT TAX CREDIT (ITC) TO LESSEE.) If, as to any EQUIPMENT, under any circumstances and for any reason whatsoever, except through the fault of the LESSOR, LESSOR shall lose or shall not have the right to claim, or there shall be disallowed or recaptured (collectively a "loss") (1) any portion of the maximum ITC, allowable under the Internal Revenue Code of 1954, as amended, for new property with a useful life equivalent to the lease term for such EQUIPMENT; or (2) any prortion of the claimed depreciation deductions for such EQUIPMENT, based on the cost thereof, LESSEE agrees to pay LESSOR upon demand an amount which, in the reasonable opinion of LESSOR, will cause LESSOR's after tax net yield in respect of such equipment to equal the net yield that LESSOR would have received if LESSOR had not suffered such loss. TERMS AND CONDITIONS OF LEASE #97-185 CONTINUED LESSEE'S INITIALS /s/ ---------- LEASE ORIGINAL - 1 3 19. ENTIRE AGREEMENT; NON-WAIVER; NOTICES; SEVERABILITY. This LEASE and each rider hereto initialed by LESSEE contains the entire and only understanding between LESSOR and LESSEE relating to the subject matter hereof. Any representation, promises or conditions not contained herein shall not be binding unless in writing and signed by duly authorized representatives of each party. No covenant or condition of this LEASE can be waived except by the written consent of LESSOR. Any notices required to be given hereunder shall be given in writing at the address of each party herein set forth, or to such other address as either party may substitute by written notice to the other with a copy of any such notice sent to LESSEE sent to Henry J. Underwood, Jr., Esq., Defrees & Fiske, 200 South Michigan, Suite 1100, Chicago, Illinois 60604. Whenever reference is made herein to the "LEASE," it shall be deemed to include any Schedules attached hereto identifying all items of EQUIPMENT and the applicable term and rent, and each rider hereto initialed by LESSEE, all of which constitute one indivisible lease of equipment to which all the terms and provisions hereof apply. If any provision of this LEASE is held invalid, such invalidity shall not affect any other provisions hereof. 20. GENDER; NUMBER; JOINT AND SEVERAL LIABILITY; AUTHORIZATION. Whenever the context of this LEASE requires, the masculine gender includes the feminine or neuter and the singular number includes the plural; whenever the word "LESSOR" is used herein, it shall include all assignees of LESSOR; whenever the word "herein" is used referring to this LEASE, it shall include the applicable Schedules hereto and each rider hereto initialed by LESSEE. If there is more than one LESSEE named in this LEASE, the liability of each shall be joint and several. LESSEE hereby authorizes LESSOR to insert equipment serial numbers and other identification in the equipment description, when known. 21. SURVIVAL. LESSEE'S indemnities shall survive the expiration or other termination of this LEASE. 22. CHOICE OF LAW, SERVICE OF PROCESS. This LEASE shall be binding and effective on LESSOR only when signed by an officer of LESSOR at its home office in Libertyville, Illinois, and except for local filing requirements, shall be governed by Illinois law and shall be deemed to have been made in Libertyville, Illinois. LESSEE does hereby submit to the jurisdiction of any courts (federal, state or local) having situs within the State of Illinois with respect to any dispute, claim or suit arising out of or relating to this LEASE or LESSEE'S obligations hereunder. 23. QUIET ENJOYMENT. LESSOR represents and warrants to LESSEE that LESSOR has good title to the EQUIPMENT with the full and unencumbered right to lease the same to LESSEE. LESSOR covenants with LESSEE that so long as LESSEE is not in default under this Lease, neither LESSOR nor any third party shall interfere with LESSEE'S right to quiet possession and enjoyment of the EQUIPMENT. LESSOR shall protect and defend LESSEE'S right to the quiet possession and enjoyment of the EQUIPMENT against all claims and liens of LESSOR'S creditors. Upon expiration of the term of this LEASE and exercise by LESSEE of its purchase option, LESSOR shall transfer title to the EQUIPMENT to LESSEE pursuant to a bill of sale providing for LESSOR'S warranty of good and marketable title to the EQUIMENT but excluding any warranties relating to the physical condition of the EQUIPMENT, including but not limited to the warranties of merchantability or fitness for a particular purpose. 24. PURCHASE OPTION. LESSEE shall have the option, exercisable upon notice to Lessor, to purchase all of the EQUIPMENT for one dollar ($1.00) effective upon the expiration of the original term of this LEASE. 25. EFFECTIVE DATE OF LEASE. The effective date of this LEASE for purposes of commencing LESSEE'S obligation to pay monthly rent shall occur upon LESSEE'S acceptance of the EQUIPMENT. 26. EARLY TERMINATION OPTION. After acceptance of the EQUIPMENT in accordance with this LEASE, LESSEE shall have the right to terminate its obligations under this LEASE at any time upon 30 days prior notice to LESSOR and payment of the balance as set forth on the amortization schedule attached hereto as Exhibit A opposite the date two months after the pre-payment is effective plus the Prepayment Penalty set forth on Exhibit A. The amortization schedule shall be adjusted as necessary if the monthly rental is adjusted under paragraph 27 hereof. 27. RENTAL ADJUSTMENT. When LESSEE accepts the EQUIPMENT, the monthly rental amount of $4,862.00 will be adjusted in proportion to any increase or decrease in five year treasury rates from January 5, 1998 until the effective date. Said monthly payment, adjusted as necessary, shall be payable in advance for 60 months commencing on the first day of the month immediately following the effective date. Whenever any monthly rental payment is not paid when due and continues unpaid 15 days after notice of non-payment is received by LESSEE, LESSEE agrees to pay LESSOR on demand (as a fee to offset LESSOR'S collection and administrative expenses) the greater of twenty-five dollars ($25.00) or three and one-half percent (3 1/2%) of the overdue amount to the extent permitted by applicable law. TERMS AND CONDITIONS OF LEASE #97-185 LESSEE'S INITIALS /s/ ------------- LEASE ORIGINAL - 1 4 INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048 SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #98-010 ADDRESS: 2201 LANDMEIER ROAD CONTACT: MS. LINDA BLAKE, ELK GROVE VILLAGE, IL 60007 PHONE #: 847-956-8000 EQUIPMENT LOCATION IF OTHER THAN ADDRESS OF LESSEE: SMT UNLIMITED L.P. , 47650 WESTINGHOUSE DR., TYPE OF COMPANY: CORPORATION FREMONT, CA 94539 - --------------------------------------------------------------------------------------------------------------------------- EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A" TERM: 60 $4,862.00 per period for the first 60 periods PERIODS ARE: MONTHLY ADVANCE RENTALS, $9,724.00 payable at the signing of this lease to be applied TOTAL # OF LEASE PAYMENTS: 60 to the last two rental payments. EFFECTIVE DATE: SEE PARAGRAPH 25 - ---------------------------------------------------------------------------------------------------------------------------
ACCEPTANCE NOTICE INTERNATIONAL FINANCIAL SERVICES CORPORATION 1113 Milwaukee Avenue Libertyville, IL 60048 GENTLEMEN: All items referred to above were received by us and were and are in good order and condition and acceptable to us. The decals, labels, etc., if required and supplied have been affixed to the above items. We approve payment by you to the supplier. Lessee hereby certifies that the lessor has fully and satisfactorily performed all covenants and conditions to be performed by it under said lease agreement as of the date hereof. Very Truly Yours,
LEASE DATED __ DAY OF _________________ , 199__ VENDOR: This acceptance must be signed by lessee and returned to us before your LESSEE NAME: SIGMATRON INTERNATIONAL, INC. invoice can be paid. -------------------------------------------------- SIGNED BY: /s/ ----------------------------------------------------- TITLE: President and Chief Executive Officer --------------------------------------------------------- LESSEE'S ORIGINAL SIGNATURE IN INK IS REQUIRED ON (INDICATE CORPORATE OFFICE, GENERAL PARTNER, OWNER, ETC) LEASE PAGES 1,2,3 ,4,5 - MUST BE ORIGINAL SIGNATURES DATE: ----------------------------------------------------------
ACCEPTANCE NOTICE - 3 5 INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048 SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #98-010 ADDRESS: 2201 LANDMEIER ROAD CONTACT: MS. LINDA BLAKE ELK GROVE VILLAGE, IL 60007 PHONE #: 847-956-8000 EQUIPMENT LOCATION IF OTHER THAN ADDRESS OF LESSEE: SMT UNLIMITED L.P. , 47650 WESTINGHOUSE DR., TYPE OF COMPANY: CORPORATION FREMONT, CA 94539 - --------------------------------------------------------------------------------------------------------------------------- EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A" TERM: 60 $4,862.00 per period for the first 60 periods PERIODS ARE: MONTHLY ADVANCE RENTALS, $9,724.00 payable at the signing of this lease to be applied TOTAL # OF LEASE PAYMENTS: 60 to the last two rental payments. EFFECTIVE DATE: SEE PARAGRAPH 25 - ---------------------------------------------------------------------------------------------------------------------------
EQUIPMENT DISCLAIMER AND AGREEMENT INTERNATIONAL FINANCIAL SERVICES CORPORATION 1113 Milwaukee Avenue Libertyville, IL 60048 GENTLEMEN: This will advise that LESSEE is aware of its obligations with reference to the above lease and that LESSEE agrees in its name to enforce all warranties, agreements, or representations, if any, which may be made by the supplier to LESSEE. LESSEE agrees that INTERNATIONAL FINANCIAL SERVICES CORPORATION makes no expressed or implied warranties as to any matter whatsoever, including, without limitation the condition of the equipment, its merchantability or its fitness for any particular purpose except as set forth in the LEASE. No defect or unfitness of equipment shall release LESSEE of the obligation to pay rental payments or of any other obligations under this lease agreement. Very Truly Yours, LEASE DATED DAY OF , 199 ---- -------- - LESSEE NAME: SIGMATRON INTERNATIONAL, INC. ----------------------------------------------- SIGNED BY: /s/ ------------------------------------------------- TITLE: President and Chief Executive Officer ----------------------------------------------------- (INDICATE CORPORATE OFFICE, GENERAL PARTNER, OWNER, ETC) DATE: ------------------------------------------------------- LESSEE'S ORIGINAL SIGNATURE IN INK IS REQUIRED ON LEASE PAGES 1,2,3 ,4,5 - MUST BE ORIGINAL SIGNATURES EQUIPMENT DISCLAIMER AND AGREEMENT - 4 6 INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048 SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #98-010 ADDRESS: 2201 LANDMEIER ROAD CONTACT: MS. LINDA BLAKE ELK GROVE VILLAGE, IL 60007 PHONE #: 847-956-8000 EQUIPMENT LOCATION IF OTHER THAN ADDRESS OF LESSEE: SMT UNLIMITED L.P. , 47650 WESTINGHOUSE DR., TYPE OF COMPANY: CORPORATION FREMONT, CA 94539 - --------------------------------------------------------------------------------------------------------------------------- EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A" TERM: 60 $4,862.00 per period for the first 60 periods PERIODS ARE: MONTHLY ADVANCE RENTALS, $9,724.00 payable at the signing of this lease to be applied TOTAL # OF LEASE PAYMENTS: 60 to the last two rental payments. EFFECTIVE DATE: SEE PARAGRAPH 25 - ---------------------------------------------------------------------------------------------------------------------------
LESSEE'S ACKNOWLEDGEMENT INTERNATIONAL FINANCIAL SERVICES CORPORATION 1113 Milwaukee Avenue Libertyville, IL 60048 GENTLEMEN: As Lessee under the lease referred to above with International Financial Services Corporation, the undersigned hereby acknowledges the Lessor's right to assign its interest under the Lease and that Assignee does not assume any of the obligations of the Lessor thereunder, consents to any such assignment and, in consideration of the assignee having advanced funds to the Lessor to finance the equipment described in the Lease, and in consideration of Assignee's covenant with Lessee that so long as Lessee is not in default under the Lease, Lessee will quietly possess the Equipment, free of interference from third parties, agrees as follows: (a) that its obligation to pay directly to the Assignee the amounts (whether designated as rentals or otherwise) which become due from the Lessee as set forth in the Lease so assigned shall be absolutely unconditional and shall be payable in strict accordance with the Lease, and it promises so to pay the same notwithstanding any defense, set-off or counterclaim whatsoever, whether by reason of breach of the Lease, the exercise of any right or option thereunder, or otherwise, which it may or might now or hereafter have as against the Lessor (the Lessee reserving its right to have recourse directly against the Lessor on account of any such defense, set-off or counterclaim); and (b) that, subject to and without impairment of the Lessee's leasehold rights in and to the Equipment described in said Lease, Lessee holds said Equipment and the possession thereof for the Assignee to the extent of the Assignee's rights therein. There shall be only one executed counterpart of this lease marked "Original" and all other counterparts shall be marked "Duplicate." To the extent that Lease constitutes chattel paper (as defined in the Uniform Commercial Code) no security interest in this lease may be created through the transfer or possession of any counterpart other than the original. Very Truly Yours, LEASE DATED DAY OF , 199 --- -------- -- LESSEE NAME: SIGMATRON INTERNATIONAL, INC. -------------------------------- SIGNED BY: /s/ ---------------------------------- TITLE: President and Chief Executive Officer -------------------------------------- LESSEE'S ORIGINAL SIGNATURE IN (INDICATE CORPORATE OFFICE, GENERAL INK IS REQUIRED ON PARTNER, OWNER, ETC) LEASE PAGES 1,2,3 ,4,5 - MUST BE ORIGINAL SIGNATURES DATE: --------------------------------------- LESSEE'S ACKNOWLEDGMENT - 5 7 INTERNATIONAL FINANCIAL SERVICES CORPORATION 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048 SCHEDULE "A" TO LEASE #98-010 AND/OR SECURITY AGREEMENT-MORTGAGE ON GOODS & CHATTELS AND UNIFORM COMMERCIAL CODE #1 & #3 FILING FORM DATED 2/2/98 LESSEE: Sigmatron International, Inc. LESSOR: INTERNATIONAL FINANCIAL SERVICES CORPORATION EQUIPMENT AS DESCRIBED BELOW: FINAL ASSY ESI-1004 4-HEAD FP TERADYNE ESI 1004 FLYING PROBER IN-CIRCUIT TESTER includes: 4-Head, 4 Probe Model, 3 Phase Surface Linear Motors (4) Feedback Stepping Motors (4) for Z-axis control; Operations, programming and maintenance software, AC, DC measurement system, Tandem measurement mode option, Soft Landing Control measurement stroke, 19.7" x 23.6" (500mm x 600mm) probable area, Fiducial camera system, Position monitoring camera, Automatic conveyor width adjustment, Programmable pass/fail marker, Status light tower, Panelization software, utomatic probing alignment, Calibration board for probe to probe distance, Pentium PC Main controller with diagnostic printer, AC 200-V-240V switchable single-phase power supply; SPARES KIT 1 FLYING PROBER, Spares Kit 1 consists of both consumable spares and recommended on-site parts. Consumables include probes, timing belt (6 types) printer paper, Recommended parts include PCB's for DC Measurement, AC Measurement, Scanner, Linear Motor Driver and several other sub-assemblies. FABMASTER 1 I/P Teradyne Flying Prober FABMASTER Software for processing CAD data for the generation of input lies for Teradyne Flying Prober Systems including One CAD Input Processor, Graphics Engine, Job Screen, Penalization Mode, Probe Selector, Short Circuit Emulation, Teradyne Flying Probar Output Processor, One Software Security Key attaches to parallel port. CURRENTLY SUPPORTED CAD INPUT PROCESSORS OPT, DELTASCAN FOR ES1-1004 DeltaScan Option for ESI-1004 Teradyne's DeltaScan for ESI-1004 adds Delta Scan vectorless test capablility to the Teradyne Flying Prober. DeltaScan provides fault coverage for open pins, cold solder and device orientation errors on a wide range of device, package, and component types, including BGA's and devices with heatsinks. 5 DAY APPLICATIONS CONSULTING AGREEMENT Including all accessories and attachments thereto and all proceeds thereof. INTERNATIONAL FINANCIAL SERVICES CORPORATION SIGMATRON INTERNATIONAL, INC. By: By: /s/ ??????????????? --------------------------- ----------------------------------------- Title: Title: President and Chief Executive Officer ------------------------ -------------------------------------- SCHEDULE - 2 EX-23 3 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-80147) pertaining to the 1993 Stock Option Plan, 1994 Directors' Stock Option Plan and Directors' Warrants of SigmaTron International, Inc. of our report dated June 19, 1998, except for Note 16, as to which the date is July 1, 1998 and Note 6, as to which the date is July 14, 1998, with respect to the consolidated financial statements and schedule of SigmaTron International, Inc. included in the Annual Report (Form 10-K) for the year ended April 30, 1998. ERNST & YOUNG LLP Chicago, Illinois July 22, 1998 EX-27 4 FINANCIAL DATA SCHEDULE
5 The Consolidated Balance Sheet as of April 30, 1998 and the Statement of Consolidated Earnings for the year ended April 30, 1998 and is qualified in its entirety by reference to such Financial Statements. YEAR APR-30-1998 MAY-01-1997 APR-30-1998 284679 0 11977973 0 18972587 32203952 16018839 4769289 48641206 11495266 0 0 0 28812 0 48641206 85650598 85650598 77193764 5624346 1995634 0 0 836854 310962 0 0 0 0 525892 .18 .18
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