<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the fiscal year ended June 29, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from _______ to ______
Commission file number: 0-24170
SIGMA CIRCUITS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0107167
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
393 Mathew Street
Santa Clara, California 95050
(408) 727-9169
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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 approximate aggregate value of the common stock held by non-
affiliates of the Registrant, based upon the last sale price of the
common stock reported on the Nasdaq National Market was $16,664,575 as
of September 13, 1996.
The number of shares outstanding of the Registrant's common stock,
$.001 par value, was 4,000,740 at September 13, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
this Report on Form 10-K:
Definitive Proxy Statement in connection with 1996 Annual Meeting of
Stockholders to be filed with the Commission pursuant to Regulation
14A is incorporated by reference in Part III.
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PART I
Item 1. Business
The Company
The following discussion of the Company's business contains forward-
looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed herein, as well as
those discussed in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section in Part II.
Sigma Circuits, Inc. ("Sigma" or the "Company") is a leading quick-
turn manufacturer of specialized electronic interconnect products,
including multilayer rigid printed circuit boards ("PCBs"), backplane
assemblies and subassemblies and flexible circuits. The Company's
quick-turn manufacturing capabilities are designed to meet the time-to-
market and time-to-volume requirements of electronic original
equipment manufacturers ("OEMs") whose markets and products are
characterized by high growth rates and short product development
cycles. The Company's customers include electronic OEMs such as Bay
Networks, Ericsson Raynet Corporation, Hewlett-Packard Company, Iomega
Corporation and Proxima Corporation and contract manufacturers such as
Galgon Industries, Inc., Micron CMS and SCI Systems, Inc. Customer
relationships established by providing quick-turn services during the
prototype stage of the product life cycle give the Company an
advantage in securing subsequent higher volume pre-production and
production orders. Management believes that the Company is one of a
limited number of companies that can produce a broad range of
electronic interconnect products on both a quick-turn and production
basis.
The Company offers a wide array of sophisticated manufacturing,
engineering and systems integration services to meet its customers'
electronic interconnect needs. The Company has established a
reputation in the quick-turn market for consistently providing high
quality, on-time services using advanced process technologies. As
product life cycles and lead times continue to shorten, the Company is
well positioned to leverage its core competency in quick-turn
manufacturing to serve its customers through a product's entire life
cycle. The Company accomplishes this "one stop shopping" approach
through a focused manufacturing strategy for each facility. The
Company's Santa Clara PCB division in northern California focuses on
quick-turn opportunities for multilayer PCBs while the recently
acquired Stockton PCB division in central California utilizes its
lower cost base to manufacture higher production volumes on a time
critical basis. The Company has also established divisions dedicated
to the manufacture of backplane assemblies and flexible circuits
products in Santa Clara, California.
The Company has benefited from industry trends such as the increased
demand for complex electronic products, shorter product life cycles,
the increasing complexity and miniaturization of electronic products,
increased reliance of customers on a narrower supplier base and
industry consolidation. The Company intends to expand its reputation
as a reliable, high quality quick-turn manufacturer of electronic
interconnects and leverage that position to serve its fast growing
customers across the spectrum of interconnect solutions and throughout
the volume requirements of the product life cycle. The Company's
strategy also includes improving its profitability through an
increasingly focused manufacturing approach that should improve the
product mix between the Santa Clara quick-turn PCB operation and the
Stockton volume PCB operation and increase capacity utilization in the
Company's Systems Integration (including backplane assemblies) and
Flexible Circuits divisions.
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Item 1. Business (Continued)
Industry Overview and Trends
Electronic interconnects such as PCBs, backplane assemblies and
flexible circuits are used in a wide variety of industries, including
data communications, telecommunications, networking, instrumentation,
computer, medical, transportation and defense. Electronic
interconnect products are sold to both OEMs and contract manufacturers
in volumes that range from several units for prototypes, small
quantities for pre-production to large quantities for production
volumes. The lead times for PCBs generally fall into two categories,
"quick-turn" and "standard." Quick-turn lead times range from as
little as one day to 15 days for prototype and pre-production
quantities. Standard lead times typically run from six to twelve
weeks and are generally associated with larger volumes.
Printed Circuit Boards PCBs are the basic platform used in
virtually all advanced electronic equipment to direct, sequence and
control electronic signals between semiconductor devices (such as
microprocessors, memory and logic devices) and passive components
(such as resistors and capacitors). PCBs consist of one or more
layers of circuitry laminated to rigid insulating material composed of
fiberglass epoxy. Multilayer PCBs provide a three-dimensional system
with electronic signals traveling along horizontal planes of multiple
layers of copper circuitry patterns as well as along the vertical
plane through plated holes or vias.
According to the Institute for Interconnecting and Packaging
Electronic Circuits ("IPC"), the U.S. market for PCBs was estimated at
approximately $6.5 billion in 1995, an increase of 10% from 1994.
According to the IPC, multilayer PCBs, the fastest growing segment
(19% growth from 1994 to 1995), accounted for approximately 71% of all
PCBs shipped in 1995. Despite its large size, the PCB market is
fragmented with no dominant independent manufacturer. In 1995, only
seven of the approximately 670 independent PCB manufacturers had
annual sales in excess of $100 million which, in the aggregate,
represented only 22% of the PCB market. With the move to outsourcing
nearly complete in the PCB industry, suppliers to the U.S. PCB market
consist almost entirely of independent manufacturers such as the
Company with only a small number of manufacturing facilities owned by
OEMs.
Backplane Assemblies Backplane assemblies are configurations of
stamped and plated pins, plastic housings and other components mounted
on large, complex, multilayer PCBs. Backplane assemblies are used to
connect and supply power to other PCBs. Backplane assemblies are used
in data communications and telecommunications infrastructures, network
hubs, bridges, routers, semiconductor testing equipment and computer
peripheral devices such as servers and RAID Systems.
According to the IPC, the U.S. market for electronics manufacturing
services ("EMS") was estimated at approximately $11.4 billion in 1995,
an increase of 20% from 1994. The assembly component of the EMS
market was estimated at approximately $2.5 billion or 22% of the total
EMS market. Backplane assembly, as a major subset, was estimated at
approximately one-half of the assembly component of the EMS market.
Flexible Circuits Flexible circuits provide electrical connections
between components in electronic systems and are fabricated with a
thin, flexible polyimid or polyester laminate systems. Flexible
circuits can conform to difficult packaging requirements and can bend
repeatedly without damage, which are important characteristics in both
portable and miniature electronic interconnect applications. Flexible
circuits are used in a variety of products including disk drives,
medical equipment and high-end consumer products such as cellular
telephones, CD players, camcorders, notebook computers, pagers,
printers, scanners and personal digital assistants.
According to the IPC, the U.S. market for flexible circuits was
estimated at approximately $600 million in 1995, an increase of 28%
from 1994.
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Item 1. Business (Continued)
The Company believes it is well positioned to capitalize on the
following trends in the electronic interconnect product market:
Increased Demand for Complex Electronic Products The market for
electronic products is growing rapidly as a result of new product
introductions, constant technological change, demands for a wider
variety of electronic product features and increasingly powerful and
less expensive electronic components. New markets have emerged in
data communications, telecommunications, computing and multimedia
while existing industries have significantly expanded applications in
areas such as digital and mobile communications, computer networking
and peripherals, instrumentation and industrial controls. The
proliferation of electronic products has resulted in a greater
emphasis on electronic product development and increased demand for
electronic interconnects in the prototype and pre-production
development stage.
Shorter Product Life Cycles for Electronic Products Rapid changes
in technology have significantly shortened the life cycle of complex
electronic products and have placed increased pressure on OEMs to
develop products as rapidly as possible. The time-to-market
considerations of OEMs have increased emphasis on the engineering and
quick-turn production of small unit volumes of electronic
interconnects in the prototype stage of product development. At the
next stage of the product life cycle, interconnect customers require
larger quantities of PCBs on a timely basis to satisfy the time-to-
volume needs of its customers. OEMs and contract manufacturers also
seek the services of quick-turn suppliers when undelivered orders from
volume suppliers threaten to create unacceptable production delays.
These time-to-market and time-to-volume trends have highlighted the
importance of front-end engineering of electronic products, flexible
manufacturing and the collaboration among OEM designers and electronic
interconnect manufacturers.
Increasing Complexity and Miniaturization of Electronic Products
Electronic component manufacturers have introduced successive
generations of higher performance devices in smaller configurations
enabling electronic OEMs to design more compact and portable products.
These high performance products have created a rapidly expanding
market for sophisticated electronic interconnects such as multilayer
PCBs and flexible circuits. The complexity of these products demands
higher sophistication in PCB manufacturing including narrower line
widths and spacing, smaller vias to connect the internal circuitry and
the precise positioning of traces and pads to accommodate a greater
density of surface mount components. The trend toward increasingly
sophisticated products requires considerable engineering support,
technological process investment and manufacturing expertise from
suppliers to produce sufficient high-quality electronic interconnects
in a timely fashion at acceptable costs.
Increased Demand for Providers of Multiple Electronic Interconnect
Solutions In order to avoid delays and costs during the product
life cycle, OEM's are increasingly turning to suppliers capable of
producing electronic interconnect products through all stages of
product development from design to volume production. Time-to-market
and time-to-volume considerations of OEMs have resulted in an increase
in the level of collaboration with suppliers. To meet their rapidly
changing electronic interconnect needs, many OEMs have moved to limit
their vendor base to technically qualified suppliers capable of
reliable, on-time delivery of a wide variety of electronic
interconnects and services including engineering, production, assembly
and testing for PCBs, backplane assemblies and flexible circuits.
Industry Consolidation According to the IPC, the number of PCB
manufacturers has decreased from approximately 1,800 companies in the
late 1970s to approximately 670 in the mid 1990s. The Company
believes this ongoing consolidation is primarily due to the
substantial capital investment and additional engineering and
manufacturing expertise required to make increasingly sophisticated
electronic interconnect products. As a result, many PCB manufacturers
cannot compete in these attractive market segments and have recognized
the need to merge or acquire to reach acceptable critical mass. OEMs
and contract manufacturers have also moved
</PAGE>
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Item 1. Business (Continued)
to narrow their supplier base and form strategic relationships with
suppliers capable of providing a broad range of products and services.
These increasing relationships between OEMs and suppliers have
resulted in faster growth for the larger public electronic
interconnect companies in the industry.
Products and Services
The Company provides electronic interconnects such as multilayer PCBs,
backplane assemblies and flexible circuits on a time critical basis at
three levels of production: prototype, pre-production and volume
production. The Company's strategy is to assist customers in meeting
their increasingly important time-to-market and time-to-volume
requirements by translating its quick-turn expertise into larger
production volumes across multiple electronic interconnect solutions.
The Company estimates that 33% of its dollar volume is shipped on a
quick-turn basis (less than 15 days), and believes a majority of its
volume production relates to prior quick-turn business with a
customer.
Prototypes typically require short lead times of 24 hours to 15 days.
The Company provides prototype services to the product development
groups of rapidly growing companies that require small test quantities
(less than 50 pieces). Because these prototypes are critical to
product development, the customer is generally more concerned with on-
time delivery and high quality than with price.
Pre-production requirements involve the manufacture of limited
quantities of electronic interconnects (ranging from 50 to 5,000
pieces) during the transition period from prototype and testing to
volume production. Pre-production generally requires quick-turn
delivery to accommodate overall time-to-volume pressures or as a
temporary solution in the event of production delay. Although price
is a factor in selecting a pre-production manufacturer, the Company
believes that quality and on-time delivery are the critical factors
for OEMs and contract manufacturers.
Much of the Company's volume production represents subsequent
production for part numbers previously supplied in prototype or pre-
production volumes to the customer. The Company's volume production
is characterized by longer lead times than the prototype and pre-
production volumes but considerably less than the six to twelve week
standard lead times for volume production in the industry. With the
increased emphasis on lower cost as the product moves to full-scale
production, the Company believes that cost, quality and process
capability are the primary competitive factors. As product life
cycles continue to shorten, on-time delivery becomes an increasingly
important consideration.
Rigid Printed Circuit Boards The Company's Santa Clara PCB division
manufactures prototype and pre-production quantities on a quick-turn
basis and its Stockton PCB division manufactures volume production
quantities. This focused manufacturing strategy enables the Company
to accommodate large quick-turn orders to support customers' line
shortage or line start-up requirements. The Company believes this
focused approach differs from that of most of its competition and
allows it to respond quickly to customers' specific product
requirements.
The Company's current capabilities include the manufacture of
sophisticated PCBs of up to 22 layers with trace widths and spaces as
narrow as four mils (.004 inches). The Company's customers often
require complex multilayer PCBs requiring strict adherence to
electrical operating characteristics. Compliance with very tight
tolerances becomes more critical as the layer count increases beyond
eight layers. The Company has advanced technological process
capabilities such as ball grid array ("BGA"), chip on board ("COB"),
tape automated bonding ("TAB") and flip chip which enable production
of integrated circuit packages with higher lead counts, finer lead
pitch and alternative packaging systems.
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Item 1. Business (Continued)
Systems Integration The Company's Systems Integration division
follows a similar time-sensitive manufacturing strategy as used in its
PCB divisions. Integrated systems include PCB assemblies, backplane
assemblies and subassemblies and card cages fabricated from steel or
aluminum. Backplane complexity has increased significantly as
semiconductor speeds have increased and design requirements have
become more stringent. As backplanes become more complex, they
require the use of large multilayer PCBs of six or more layers. The
Company manufactures sophisticated backplanes of up to 22 layers and
.2 inches of thickness. The Company has added a fine pitch surface
mount assembly line to support the increasingly sophisticated
backplane assembly requirements. The Company's backplane assembly
operations include press-fit, pin-through-hole and surface mount
technology. Materials procurement and management services are critical
to the timely delivery of the Company's systems integration products
and services. The Company has invested heavily in the planning,
purchasing and the warehousing systems for electronic components and
card cages. The Company also manages a substantial consignment
inventory supplied by certain customers, primarily for use on their
quick-turn backplane assemblies and subassemblies.
Flexible Circuits The Company's Flexible Circuits division follows
a similar time-sensitive manufacturing strategy as used in its PCB
divisions. Flexible circuits are thin, lightweight circuits used to
interconnect other circuit boards and electronic devices within
electronic equipment. Flexible circuits are used in high speed
computers and other electronic equipment as replacements to cables and
other interconnect devices to improve product reliability and
performance. The Company produces high density, mechanically complex
flexible circuits that offer the advantages of improved signal speeds
and circuit densities, reduced part size, reduced weight, and
flexibility.
Manufacturing and Engineering Services The manufacture of today's
high technology electronic interconnects requires that the Company
provide sophisticated, computer integrated manufacturing services,
consisting of production tooling, manufacturing and electrical test
capabilities for its customers' products. The Company provides design
and engineering services in the early stages of product development.
These services assure that both mechanical and electrical
considerations are integrated to produce a high quality, cost
effective and manufacturable product. In addition, the Company also
performs comprehensive design for manufacturability and assembly
analysis and recommends appropriate changes to reduce production lead
times and manufacturing costs, and to improve manufacturing yields and
quality of PCBs or integrated systems.
Materials and Supplies
The Company orders certain materials and supplies based on purchase
orders received and accepted and seeks to minimize its inventory of
other materials that are not identified for use in filling specific
orders. In addition, the Company works closely with certain suppliers
to improve the materials and supplies used in its operations. Although
the Company uses a select group of suppliers, the materials and
supplies used in manufacturing and assembling its products are
generally readily available in the open market. The Company has also
established strategic alliances and stocking arrangements with key
vendors to increase protection against shortages. However, shortages
of certain materials and supplies have occurred in the past, and there
can be no assurance that future shortages, price increases that cannot
be passed through to customers or delays in obtaining materials will
not have a material adverse effect on the Company's business,
financial condition and results of operations.
Patents
The Company holds no patents, and believes that patents and trademarks
are not important competitive factors in its industry.
</PAGE>
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Item 1. Business (Continued)
Sales and Marketing
As part of its sales and marketing strategy, the Company targets
electronic OEMs who require a broad range of high-value added
services. The Company markets its manufacturing services through a
direct sales force of 22 salespersons and managers, supplemented by
three manufacturers' representative firms, and an in-house staff of 23
customer service representatives and applications engineers. Direct
sales personnel are located in California, Colorado, Massachusetts,
Texas and Virginia. The Company uses its direct sales and customer
service personnel to promote the Company's value added systems
integration, flexible circuits and PCB products and services. The
Company has an in-house manufacturing and customer service training
program for its direct sales and customer service personnel in order
to develop a comprehensive working knowledge of the electronics
industry and the Company's products and services.
Customers
The Company's quick-turn manufacturing capabilities are designed to
meet the time-to-market and time-to-volume requirements of electronic
OEMs and contract manufacturers who are characterized by high growth
rates and short product development cycles. The Company's diversified
customer base is primarily composed of OEMs and contract manufacturers
in the data communications, telecommunications, computer and
peripherals and industrial and medical segments of the electronics
industry.
The Company seeks to serve a sufficiently diversified group of
customers to avoid dependence on any one major customer or market
segment. In fiscal years 1996 and 1995, none of the Company's
customers accounted for more than 10% of net sales. During fiscal
year 1994, the Hewlett-Packard Company accounted for approximately 13%
of net sales. In addition, the Company's ten largest customers in the
aggregate accounted for approximately 40% of its net sales during such
periods.
Competition
The electronics industry is characterized by intense competition. The
Company faces significant competition in its quick-turn PCB and
flexible circuits product lines primarily from a number of regional
privately-held manufacturers. As the Company increasingly expands its
volume production of PCBs, backplane assemblies and flexible circuits
products, it will continue to face much larger competitors. Many of
these competitors have significantly greater financial, technical and
marketing resources, greater name recognition and a larger installed
customer base than the Company. These competitors include Altron
Incorporated, Hadco Corporation, Zycon Corporation, Elexsys
International, Inc. and Sanmina Corporation. In addition, these
competitors may have the ability to respond more quickly to new or
emerging technologies and may adapt more quickly to changes in
customer requirements and may devote greater resources to the
development, promotion and sale of their products than the Company.
The Company competes on the basis of a number of factors including
quality, time-sensitive delivery and high-technology manufacturing
processes. These factors vary in importance depending on the product
or service being offered by the Company. The Company believes that
when it competes in the standard lead-time volume production of its
PCBs, backplane assemblies and flexible circuits products, it will
encounter greater price sensitivity from potential customers.
Consolidation of smaller competitors may also result in increased
competition, which could result in price reductions, reduced margins
or loss of market share, any of which could materially and adversely
affect the Company's business, financial condition and results of
operations.
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Item 1. Business (Continued)
Furthermore, from time to time the Company operates in the lower
technology, higher volume segments of the PCB market, where it may be
at a competitive disadvantage when competing with manufacturers with
lower cost structures, particularly those with offshore facilities
where labor and other costs are generally lower. During periods of
recession or economic slowdown in the electronics industry, the
Company's competitive advantages in the areas of quick-turn
manufacturing and responsive customer service may be of reduced
importance to the Company's customers, who may become more price
sensitive. Although capital barriers to entry are relatively high for
manufacturing technologically complex interconnect products, the basic
interconnect technology is generally not protected by patents or
copyrights, and companies with significant resources or international
operations may enter the market. Increased competition could result
in price reductions, reduced margins or loss of market share, any of
which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Backlog
Because of the rapid delivery times associated with the quick-turn
market segment for electronic interconnects, the Company generally
ships products within 30 days of receipt of a customer order and the
Company historically has not had a material backlog of orders. As
orders for certain quantities or products such as volume production of
PCBs and backplane assemblies increase, backlogs in the Stockton PCB
division and the Systems Integration division may grow based on the
longer lead times typical of those products. Currently, the Company
does not consider backlog to be meaningful to its business.
Environmental Matters
The Company utilizes many raw materials in the manufacturing process
which require compliance with various federal, state and local
regulations. The Company is also subject to environmental laws
relating to the storage, use and disposal of chemicals, solid waste
and other hazardous materials, as well as air quality regulations.
Proper disposal of waste including metals and chemicals used in the
manufacturing process is a major consideration for electronic
interconnect product manufacturers. Although the Company believes
that its facilities are currently in material compliance with
applicable environmental laws, and although it monitors its operations
to avoid violations arising from human error or equipment failures,
there can be no assurance that violations will not occur. In the
event of a violation of environmental laws, the Company could be held
liable for damages and for the costs of remedial actions and could
also be subject to revocation of permits necessary to conduct its
business. Any such revocations could require the Company to cease or
limit production at one or more of its facilities, which could have a
material adverse effect on the Company's business, financial condition
and results of operations.
Environmental laws could become more stringent over time, imposing
greater compliance costs and increasing risks and penalties associated
with a violation. The Company operates in an environmentally
sensitive geographic location and is subject to potentially
conflicting and changing regulatory agenda of political, business and
environmental groups. Changes or restriction on discharge limits,
emissions levels, or material storage or handling might require a high
level of unplanned capital investment and/or subsequent relocation to
another geographical location. For example, a Santa Clara City
ordinance has significantly lowered the discharge limits of various
metals including copper and nickel that the Company may discharge into
the City's sanitary sewer. These new limits will affect the Company's
Santa Clara, California operations. The Company believes it will be
able to comply with these limits without major capital investments.
However, there can be no assurance that the Company will be able to
comply with the reduced discharge levels mandated by the ordinance or
that the costs of complying with the new ordinance will not require
additional capital expenditures. Furthermore, there can be no
assurance that compliance with the ordinance or with regulations which
may be imposed in the future will not have a material adverse effect
on the Company's business, financial condition and results of
operations.
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Item 1. Business (Continued)
Employees
As of June 30, 1996, the Company had approximately 740 full-time
employees, of which approximately 88% were engaged in manufacturing
and engineering, 7% in sales and marketing and 5% in administration
and finance. The Company is not subject to any collective bargaining
agreements and none of its employees are represented by a labor union.
The Company has never experienced a disruption of operations due to a
labor related work stoppage or dispute. The Company considers
relations with its employees to be good.
Acquisitions
The Company acquired substantially all of the assets and certain
liabilities of three related manufacturers of electronic interconnect
products, Citation Circuits, Inc., Citation Enterprises, Inc. and
Citron Inc. (collectively, "Citation Companies" or "Citation") on
September 30, 1995 (the "Citation Acquisition"), which are now being
operated as the Company's Stockton PCB division. As a result of the
Citation Acquisition, the Company acquired approximately 79,000 square
feet of manufacturing space and hired approximately 340 former
Citation employees. The Stockton PCB division has required, and will
continue to require, the integration and coordination of
manufacturing, administration, accounting and sales and marketing
efforts. In particular, the Company continues to implement certain
Company-wide administrative, accounting and operational procedures at
this division. There can be no assurance that the Company will be
able to retain key personnel formerly with Citation. In addition,
there can be no assurance that the Company will operate the acquired
business profitably during the next year. Accordingly, operating
expenses associated with the acquired business may have a material
adverse effect on the Company's operating results in the future. In
February 1996, as part of the Company's strategic plan, the Stockton,
California backplane assembly operation (formerly Citron, Inc.) was
consolidated into the Systems Integration division located in Santa
Clara, California.
The Company may from time to time pursue the acquisition of other
companies, assets or product lines that would complement or expand its
existing business. Certain of these acquisitions may involve business
in which the Company lacks experience. Acquisitions involve a number
of risks that could adversely affect the Company's operating results,
including the diversion of management's attention, the assimilation of
the operations, products and personnel of the acquired companies, the
amortization of acquired intangible assets and the potential loss of
key employees of the acquired companies. There can be no assurance
that the Company will be able to manage one or more acquisitions
successfully, or that the Company will be able to integrate the
operations, products or personnel gained through such acquisition
without a material adverse effect on the Company's business, financial
condition and results of operations.
Recent Developments
On May 22, 1996, the Company announced the closure of its Costa Mesa
PCB division, which occupied approximately 43,000 square feet in
southern California, and the consolidation of certain resources into
the Santa Clara PCB and Stockton PCB divisions. The Company believed
that the duplicity that existed between the Santa Clara and Costa Mesa
quick-turn PCB operations was not an efficient utilization of the
Company's resources. With the acquisition of the Stockton PCB division
and the related available capacity for volume work historically placed
in the higher cost quick-turn facilities, management believed that
closure of the Costa Mesa PCB division would give the Company an
opportunity to improve job loading and margins without a loss of
capacity following the consolidation and redeployment of resources.
The Company's consolidation plan resulted in facility closing costs
and a write-off of goodwill associated with the division's operations
of approximately $3.0 million and $800,000, respectively, during the
fourth quarter of the fiscal year ended June 30, 1996.
</PAGE>
<PAGE> 10
Item 1. Business (Continued)
Risk Factors
In addition to the other information in this Report on Form 10-K, the
following risk factors should be considered carefully in evaluating
the Company and its business.
Dependence on Electronics Industry The Company's principal
customers are OEMs and contract manufacturers in the data
communications, telecommunications, computer and computer peripherals,
industrial and medical industries. These industry segments, and the
electronics industry as a whole, are characterized by intense
competition, relatively short product-life cycles and significant
fluctuations in product demand. In addition, the electronics industry
is generally subject to rapid technological change and product
obsolescence. Discontinuance or modifications of products containing
components manufactured by the Company could adversely affect the
Company's business, financial condition and results of operations. In
addition, the electronics industry has in the past, and is likely in
the future, to experience recessionary periods. A recession or any
other event leading to excess capacity in the electronics industry
would likely result in intensified price competition and a decrease in
unit volume, both of which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Fluctuations in Quarterly Operating Results The Company's quarterly
operating results have varied and may continue to fluctuate
significantly. At times in the past, the Company's net sales and net
income have decreased from the prior quarter. Operating results are
affected by a number of factors, including the timing and volume of
orders from and shipments to customers relative to the Company's
manufacturing capacity, level of product and price competition,
product mix, the number of working days in a particular quarter and
general economic factors. In recent years, the Company's gross margins
have varied primarily as a result of capacity utilization, product
mix, start-up costs in its two new divisions, lead times, volume
levels and complexity of customer orders. Although the Company has
recently acquired facilities through the Citation Acquisition that
could allow the Company to produce products at lower cost, there can
be no assurance that the Company will be able to manage the
utilization of manufacturing capacity or product mix in a manner that
would improve gross margins or the Company's business, financial
condition and results of operations. The timing and volume of orders
placed by the Company's OEM customers vary due to customer attempts to
manage inventory, changes in the OEM's manufacturing strategy and
variation in demand for customer products. An interruption in
manufacturing resulting from shortages of parts or equipment, fire,
natural disaster, equipment failure or otherwise would have a material
adverse effect on the Company's business, financial condition and
results of operations. Results of operations in any period should not
be considered indicative of the results to be expected for any future
period. Due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event,
the price of the Company's common stock would likely be materially
adversely affected.
Customer Concentration Since its inception, the Company's net sales
to a small number of its customers have accounted for a high
percentage of the Company's annual net sales. During fiscal years
1994, 1995 and 1996, the Company's ten largest customers together
accounted for approximately 40% of net sales. Although no single
customer accounted for more than 10% of the Company's net sales in
fiscal years 1995 and 1996, the Hewlett-Packard Company accounted for
approximately 13% of the Company's net sales in fiscal year 1994.
This concentration on certain customers is particularly evident in the
Company's Systems Integration and Flexible Circuits divisions. Given
the Company's manufacturing strategy, concentration, and therefore,
dependence on a number of its most significant customers may increase.
The Company's past growth has resulted, in part, from its ability to
identify and attract customers in rapidly growing segments of the
electronics industry. The Company has manufactured products for some
of these customers for a relatively short period of time. There can
be no assurance that the Company will continue to be
</PAGE>
<PAGE> 11
Item 1. Business (Continued)
able to identify, attract and retain customers with high growth rates
or that the customers that it does attract and retain will continue to
grow at their historical rates or at all. Although there can be no
assurance that the Company's principal customers will continue to
purchase products and services from the Company at current levels, if
at all, the Company expects to continue to depend upon its principal
customers for a significant portion of its net sales. The loss of or
decrease in orders from one or more major customers could have a
material adverse effect on the Company's business, financial condition
and results of operations.
Variability of Orders The Company does not obtain long term
purchase commitments from its customers and a substantial portion of
net sales in a given quarter depends on obtaining orders for products
to be manufactured and shipped in the same quarter in which those
orders are received. Customers may cancel orders and change or delay
delivery schedules at any time. The timely replacement of canceled,
delayed or reduced orders with new orders cannot be assured.
Significant or numerous cancellations, reductions or delays in orders
by a customer or group of customers could adversely affect the
Company's business, financial condition and results of operations.
Because the Company has historically operated with virtually no
backlog, net sales for any quarter are substantially dependent on
orders booked in that quarter and revenues for any future quarter are
not predictable with any significant degree of certainty. The
Company's expense levels are relatively fixed and are based, in part,
on expectations of future revenues. Consequently, if revenue levels
are below expectations, the Company's business, financial condition
and results of operations are likely to be adversely affected.
Limited Operating History in New Divisions In fiscal year 1994, the
Company formed the Systems Integration and Flexible Circuits
divisions. The costs associated with the start-up and integration of
these divisions have adversely affected recent operating results and
could adversely affect future operating results. or example, net
income in fiscal years 1994 and 1995 was significantly affected by
costs associated with the creation of these divisions and the time
required for these divisions to achieve volume production. Although
the financial impact of these divisions on operations has improved in
fiscal year 1996, there can be no assurance that these divisions will
experience net sales growth or will be profitable on a quarterly or
annual basis, or that the costs of operating and managing these
divisions will not continue to have a material adverse effect on the
Company's business, financial condition and results of operations in
the future. Any inability to adjust spending quickly enough to
compensate for any revenue shortfall may magnify the adverse impact of
such shortfall on the Company's results of operations and result in a
material adverse effect on the Company's business, financial condition
and results of operations.
Technological Change and Process Development The market for the
Company's manufacturing products and services is characterized by
rapidly changing technology and continuing process development. The
future success of the Company's business will depend in large part
upon its ability to maintain and enhance its technological
capabilities, develop and market manufacturing products and services
that meet changing customer needs and successfully anticipate or
respond to technological changes in manufacturing processes, on a cost-
effective and timely basis. In addition, the electronics industry
could in the future encounter competition from new technologies that
render existing electronic interconnect technology less competitive or
obsolete, including technologies that may reduce the number of PCBs
required in electronic components. Increasingly, the Company faces
technological pressure from sophisticated design, verification and
simulation capabilities in the electronics design automation industry.
These advances may reduce the demand for services such as those
provided by the Company, particularly the number of prototypes
required before a product is ready for market. Reductions in the
volume of products produced in prototype form could have a material
adverse effect on the Company's business, financial condition and
results of operations. Although management believes the Company's
operations utilize the assembly and testing technologies and equipment
currently required by the Company's customers, there can be no
assurance that the Company will effectively respond to the
technological requirements of the changing market. To the extent the
Company determines that new assembly and testing technologies and
equipment are required to remain competitive, the acquisition and
implementation of such technologies and equipment are likely to
continue to require significant capital investment by the Company.
There can be no assurance that this
</PAGE>
<PAGE> 12
Item 1. Business (Continued)
capital will be available in the future or that investments in new
technologies, such as the Company's investment in its backplane
assembly and flexible circuits operations, will be utilized to the
extent necessary to make such investments profitable.
Management of Growth The Company has experienced a period of rapid
growth that has placed, and is expected to continue to place, a
significant strain on the Company's management, operational and
financial resources. This situation is compounded by the Citation
Acquisition. The Company's growth is expected to require the addition
of new management personnel and the development of additional
expertise by existing management personnel. The Company's ability to
manage growth effectively, particularly given the increasing scope of
its operations, will require it to continue to implement and improve
its operational, financial and management information systems as well
as to develop the management skills of its managers and supervisors
and to train, motivate and manage its employees. The Company's
failure to effectively manage growth could have a material adverse
effect on the Company's business, financial condition and results of
operations. Competition for personnel is intense and there can be no
assurance that the Company will be able to attract, assimilate or
retain additional highly qualified employees in the future. The
failure to hire and retain such personnel could have a material
adverse effect on the Company's business, financial condition and
results of operations.
Dependence on Key Personnel The Company's future success depends to
a large extent upon the continued services of key managerial and
technical employees, none of whom is bound by an employment agreement.
The loss of the services of the Company's key employees could have a
material adverse effect on the Company. The Company believes that its
future success depends on its continuing ability to attract and retain
highly qualified technical, managerial and marketing personnel.
Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract, assimilate or
retain such personnel. If the Company is unable to hire and retain
new personnel, the Company's business, financial condition and results
of operations may be materially adversely affected.
Availability of Raw Materials and Components and Dependence on Key
Suppliers While the Company has not entered into any supply
agreements and does not have any guaranteed sources of raw materials
or components, it routinely purchases raw materials and components
from several key material suppliers. Although alternative material
suppliers are available, a significant unplanned event at a major
supplier could have an adverse impact on the Company's operations.
Shortages of certain types of raw materials have occurred in the past
and may occur in the future. To date, raw material shortages have not
materially affected the Company's business. Future shortages or price
fluctuations in raw materials could have an adverse impact on the
Company's manufacturing operations, thereby adversely affecting the
Company's results of operations. Electronic components used by the
Company in producing backplane assemblies and subassemblies are
purchased by the Company and, in certain circumstances, the Company
may be required to bear the risk of component price fluctuations.
Shortages of certain types of electronic components have occurred in
the past and may occur in the future. Component shortages or price
fluctuations could have an adverse effect on the Company's backplane
assembly operations, thereby adversely affecting the Company's growth
plans. To date, component price fluctuations or shortages have not
materially affected the Company. To the extent that the Company's
backplane assembly operations expands as a percentage of the Company's
net sales, component shortages and price fluctuations could, to a
greater extent, materially adversely affect the Company's business,
financial condition and results of operations.
Item 2. Properties
The Company maintains all of its manufacturing facilities and most of
its offices in California. The Company also maintains sales offices
in Massachusetts and Texas.
The Company's headquarters and northern quick-turn PCB manufacturing
division occupy approximately 40,000 square feet in Santa Clara,
California. Approximately 10,000 square feet is allocated to office
space, while the
</PAGE>
<PAGE> 13
Item 2. Properties (Continued)
remaining 30,000 square feet is used for manufacturing and
warehousing. The Company's headquarters and manufacturing operations
are comprised of four buildings owned by the Company and one building
leased for warehousing. The monthly lease payments are approximately
$3,100 under an agreement that will expire in August 1997.
The Company's central volume PCB manufacturing division occupies
approximately 79,000 square feet in Stockton, California. The
manufacturing operations are comprised of one building owned and two
buildings leased by the Company. The monthly lease payments are
approximately $7,300, per building, and are leased under separate
agreements that will expire in October 2003. Additionally, the
Company leases one building for warehousing. The monthly lease
payments are approximately $1,800 under an agreement that will expire
in November 1997.
The Company's Systems Integration division leases approximately 21,000
square feet in Santa Clara, California. The monthly lease payments are
approximately $16,500 under an agreement that will expire in June
1999.
The Company's Flexible Circuits division leases approximately 18,000
square feet in Santa Clara, California. The monthly lease payments are
approximately $14,600 under an agreement that will expire in May 1998.
The Company leases office space in Franklin, Massachusetts and
Richardson, Texas for its regional sales staffs. It also leases office
space in Newport Beach, California, for its regional engineering and
customer service personnel.
Item 3. Legal Proceedings
In connection with the acquisition of the Citation Companies on
September 30, 1995, the Company assumed certain environmental
contingent liabilities pertaining to operations prior to that date. As
of the acquisition date, the Citation Companies had accrued $303,000
for the two known claims.
The first contingent liability relates to allegations by the City of
Stockton of violations of its City Code regarding discharge of waste
water into the City's sewer system in excess of allowed limits during
several months in 1992. As of June 30, 1996, no further action has
taken place between the City of Stockton and the Company. The Company
has established a reserve for this contingency and in the opinion of
its management, any settlement would not likely result in a loss that
would have a material adverse effect on the Company's business,
financial condition and results of operations.
The second contingent liability relates to the United States
Environmental Protection Agency ("EPA") issuance of an administrative
civil complaint regarding the timely submission of required federal
forms under the Emergency Planning and Community Right-to-Know Act of
1986 ("EPCRA"). On April 15, 1996, the Company entered into a
tentative "Consent Agreement and Consent Order" ("CACO") with the EPA
pertaining to its complaint. In the CACO, the Company has certified
that it has completed and submitted all required federal forms to the
EPA under the EPCRA, and that it has complied with all other EPCRA
requirements at all of its facilities. In addition, the Company will
also purchase and test certain equipment to aid in its environmental
regulatory requirements within twelve months of the effective date of
the CACO. The minimum aggregate cost associated with the purchase,
installation and testing of this equipment is $220,250 and if the
actual aggregate cost is lower, the difference between the actual cost
and such minimum threshold, will be remitted to the EPA. As of June
30, 1996, the Company had incurred approximately $146,000 of costs
associated with the minimum threshold. In relation to the testing of
the equipment, the Company is subject to additional filing
requirements with the EPA pertaining to the functionality of the
equipment. Further, the Company paid a civil penalty of $65,000 upon
execution of and as required by the CACO in July 1996. Terms of the
CACO constitute a full and final settlement of the complaint.
</PAGE>
<PAGE> 14
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended June 30, 1996,
there were no matters submitted to a vote of security holders.
Executive Officers of the Registrant
The executive officers of the Company who are elected by and serve at
the discretion of the Board of Directors, and their ages as of June
30, 1996, are as follows:
<TABLE>
Name Age Position
<S> <C> <C>
B. Kevin Kelly 42 President, Chief Executive
Officer and Director
Philip S. Bushnell 45 Senior Vice President, Finance
and Administration,
Chief Financial Officer,
Secretary and Director
Douglas B. Crerar 38 Vice President, Sales and
Marketing
</TABLE>
Mr. Kelly has served as President and Chief Executive Officer and a
Director of the Company since October 1992. Prior to joining Sigma,
Mr. Kelly held the position of Vice President of Operations at Lundahl
Astro Circuits, Inc., a high volume manufacturer of printed circuit
boards, from December 1991 to October 1992. Prior to that time, from
December 1990 to December 1991, Mr. Kelly was a founder and President
of Vitesse Engineering, a supplier of electrical test fixtures for the
printed circuit board industry. From March 1988 to December 1990,
Mr. Kelly was Vice President of Sales and Operations at West Coast
Circuits, Inc., a quick-turn manufacturer of printed circuit boards.
Mr. Bushnell has served as Senior Vice President, Finance and
Administration of the Company since January 1994. From August 1992
until January 1994, Mr. Bushnell served as Vice President, Finance. He
was elected Secretary and Chief Financial Officer in October 1992 and
has been a Director since June 1993. From July 1987 to August 1992,
Mr. Bushnell was employed in various finance positions with the
Company. Prior to joining Sigma, Mr. Bushnell held various finance
positions at Varian Associates, a diversified electronics company from
1978 until 1986.
Mr. Crerar has served as Vice President, Sales and Marketing of the
Company since December 1995. Prior to joining Sigma, Mr. Crerar held
the position of Vice President of Sales at Elexsys International,
Inc., a manufacturer of printed circuit boards and backplane
assemblies, from May 1995 until November 1995. From September 1987
until May 1995, Mr. Crerar held various sales positions at Zycon
Corporation, a high volume manufacturer of printed circuit boards.
</PAGE>
<PAGE> 15
PART II
Item 5. Market Price of and Dividends on the for Registrant's Common
Equity and Related Stockholder Matters
The Company's common stock is traded on the Nasdaq National Market
under the trading symbol "SIGA."
The price range for the Company's common stock from July 1, 1994
through June 30, 1996 (adjusted to reflect a two-for-one stock split
effected as a 100% stock dividend in February 1996) was:
<TABLE>
Quarters Ended
Sep. Dec. Mar. Jun. Sep. Dec. Mar. Jun.
30, 31, 31, 30, 30, 31, 31, 30,
1994 1994 1995 1995 1995 1995 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $2.63 $2.25 $2.50 $3.38 $7.00 $10.13 $14.38 $11.88
Low $2.00 $1.75 $1.82 $1.88 $2.94 $ 5.13 $ 9.25 $ 5.88
</TABLE>
The reported last sale price of the Company's common stock on the
Nasdaq National Market on September 13, 1996 was $5.00. As of
September 13, 1996, there were 94 holders of record of the Company's
common stock.
The Company has never declared or paid a cash dividend on its common
stock. The Company presently intends to retain its earnings to fund
the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
Additionally, a credit agreement between the Company and a particular
financial institution contains a covenant prohibiting the payment of
cash dividends without prior bank approval.
Item 6. Selected Financial Data
<TABLE>
Statements of Operations Data:
(In thousands, except per share amounts)
Year Ended June 30,
1996(1) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $87,705 $48,246 $38,906 $36,429 $30,045
Cost of Sales 71,471 39,317 30,783 28,947 26,495
Gross Profit 16,234 8,929 8,123 7,482 3,550
Selling, General and
Administrative Expenses 11,495 7,759 6,394 6,143 5,956
Amortization of Goodwill 477 200 200 200 200
Facility Closing Costs
(Including $800
of Associated Goodwill) 3,775 -- -- -- --
Operating Income (Loss) 487 970 1,529 1,139 (2,606)
Interest and Other Expense, 2,125 350 364 492 652
Net
Income (Loss) Before Income (1,638) 620 1,165 647 (3,258)
Taxes
Provision (Benefit) for Income (562) 394 558 295 (1,045)
Taxes
Net Income (Loss) $(1,076) $ 226 $ 607 $ 352 $(2,213)
Income (Loss) Applicable to $(1,076) $ 226 $ 557 $ 234 $(2,331)
Common Stock
Income (Loss) Per Share $ (.28) $ .06 $ .37 $ .29 $ (2.86)
Number of Shares Used In
Computing Per
Share Information 3,797 3,640 1,514 814 814
(1) Includes the operations of the Citation Companies acquired on
September 30, 1995.
</TABLE>
</PAGE>
<PAGE> 16
Item 6. Selected Financial Data (Continued)
Balance Sheet Data:
<TABLE>
June 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Working Capital (Deficiency) $ 2,764 $ 5,121 $ 2,537 $ (317) $(1,323)
Total Assets $49,960 $24,400 $19,078 $17,152 $19,680
Long-Term Debt, Less Current
Portion $14,345 $ 5,774 $ 1,425 $ 3,134 $ 4,454
Redeemable Preferred Stock $ -- $ -- $ -- $ 2,588 $ 2,572
Stockholders' Equity $12,918 $10,987 $10,612 $ 2,981 $ 2,747
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
This discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or
contribute to such differences, include, but are not limited to, those
discussed herein, as well as those discussed in the "Business" section
in Part I. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only
as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
With the advent of new senior management in fiscal year 1993, the
Company made a number of operational changes that resulted in
increased manufacturing efficiencies, greater capacity utilization and
improved margins in its PCB operations. The Company also increased
net sales by expanding its customer base in targeted growth markets.
Beginning in fiscal year 1994, the Company adopted a strategy to
service more of the electronic interconnect needs of its strategic
customers by broadening its product offerings and increasing its
capacity. The Company believed that its reputation as a high quality,
reliable quick-turn supplier of PCBs would generate demand among its
customers for additional product offerings. The Company also believed
that the customer relationships established by providing quick-turn
services during the prototype stage of the product life cycle would
give it an advantage in securing the larger volume pre-production and
production orders of such products. Assisted by the proceeds of a
private equity financing and its initial public offering, the Company
established its Systems Integration and Flexible Circuits divisions
during the latter part of fiscal year 1994 in order to broaden its
product offerings. The Company completed the Citation Acquisition
during the first quarter of fiscal year 1996 in order to obtain the
manufacturing capacity required to service its customers' higher
volume production jobs in a lower cost operating environment. See
Note 3 of Notes to Financial Statements for a description of the
financial terms relating to the Citation Acquisition.
During fiscal year 1995, the Company's gross margin and operating
expenses were negatively affected by the underutilization and start-up
costs of the Systems Integration and Flexible Circuits divisions.
During the first half of fiscal year 1996, net sales and gross profit
increased significantly as a result of the additional capacity
obtained in the Citation Acquisition and the products offered by its
two new divisions. During the second half of fiscal year 1996, the
electronic interconnect industry has experienced a softening period
which adversely impacted the Company. The Company, along with many of
its competitors, has experienced a decline in the demand for its
products and services during recent months. As a result, the Company
announced on May 22, 1996, the closure closure of its Costa Mesa PCB
division and the consolidation of certain capital and selected
personnel into its Santa Clara PCB and Stockton PCB divisions. This
consolidation is estimated to be completed
</PAGE>
<PAGE> 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
during the first quarter of fiscal year 1997. The Company believes
that its available capacity will return to pre-consolidation levels
once the consolidation is complete. During June 1996, the Company
recorded a one-time charge of approximately $3.8 million for facility
closing costs.
The Company's operating results have been and are expected to continue
to be affected by a number of factors, including the timing and volume
of orders from and shipments to customers relative to the Company's
manufacturing capacity, level of product and price competition,
product mix, the number of working days in a particular quarter,
economic conditions in the electronic interconnect industry and
general economic factors. The lead times, volume levels and
complexity of customer orders have also affected overall gross
margins.
Results of Operations
The following table sets forth, for the periods indicated, certain
statements of operations data expressed as a percentage of net sales.
The table and the discussion below should be read in conjunction with
the financial statements and the notes thereto, that appear elsewhere
in this report.
<TABLE>
Years Ended June 30,
1996 1995
Pro Pro
1996 Forma(1) 1995 Forma(1) 1994
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 81.5 81.6 81.5 83.2 79.1
Gross Margin 18.5 18.4 18.5 16.8 20.9
Selling, General and
Administrative Expenses 13.1 13.1 16.0 14.2 16.5
Amortization of Goodwill 0.5 0.7 0.5 -- 0.5
Facility Closing Costs 4.3 3.1 -- -- --
Operating Income 0.6 0.7 2.0 1.8 3.9
Interest and Other Expense,
Net 2.4 2.1 0.7 2.3 0.9
Income (Loss) Before Income
Taxes (1.8) (1.4) 1.3 (0.5) 3.0
Provision (Benefit) for Income
Taxes (0.6) (0.4) 0.8 -- 1.4
Net Income (Loss) (1.2)% (1.0)% 0.5% (0.5)% 1.6%
(1) The pro forma financial data give effect to the acquisition of
the Citation Companies as if it had occurred at the beginning of
fiscal year 1995.
</TABLE>
Net Sales
Net sales for the fiscal year ended June 30, 1996 were $87.7 million,
an increase of $39.5 million or 81.8% from the prior fiscal year.
Approximately 61.5% of the increase in net sales was the result of the
Citation Acquisition with the balance principally from net sales
growth in the Systems Integration and Flexible Circuits divisions.
Net sales for the fiscal year ended June 30, 1995 were $48.2 million,
an increase of $9.3 million or 24.0% from the prior fiscal year. All
of the Company's divisions contributed to this overall net sales
growth. Net sales in the core PCB manufacturing operations increased
approximately 13.0% on stable average unit prices. The combined net
sales for the new Systems Integration and Flexible Circuits divisions
accounted for approximately $4.3 million or 8.9% of total net sales
for fiscal year 1995.
</PAGE>
<PAGE> 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Gross Profit
Gross profit for the fiscal year ended June 30, 1996 was $16.2
million, an increase of $7.3 million or 81.8% from the prior fiscal
year. The increase in gross profit was primarily due to the increase
in net sales growth. Gross margin for fiscal years 1996 and 1995 was
18.5%. Gross margin for fiscal year 1996 was adversely impacted by
manufacturing costs at the Systems Integration and Flexible Circuits
divisions. Although these two newer operations combined contributed
to gross profit in fiscal year 1996, as compared to fiscal year 1995,
net sales volume remained lower than that of many of the Company's
major competitors. Additionally, decreased demand for PCBs together
with the closure of the Costa Mesa PCB division had a negative impact
on gross profit and margins for the PCB operations.
Gross profit for the fiscal year ended June 30, 1995 was $8.9 million,
an increase of $806,000 or 9.9% from the prior fiscal year. Gross
margins for fiscal years 1995 and 1994 were 18.5% and 20.9%,
respectively. Manufacturing costs for the Systems Integration and
Flexible Circuits divisions totaled approximately $5.3 million on net
sales of $4.3 million for the fiscal year ended June 30, 1995 and
lowered the fiscal year 1995 gross margin by approximately 2.4% of net
sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal year ended
June 30, 1996 were $11.5 million, an increase of $3.7 million or 48.2%
from the prior fiscal year. Selling, general and administrative
expenses as a percentage of net sales decreased due to the relatively
fixed nature of certain general and administrative expenses. However,
in the aggregate, these expenses increased primarily as a result of
the Citation Acquisition and to support the growth in the Systems
Integration and Flexible Circuits divisions.
Selling, general and administrative expenses for the fiscal year ended
June 30, 1995 were $7.8 million, an increase of $1.4 million or 21.3%
from the prior fiscal year. This increase was primarily the result of
additional commissions on higher net sales, costs associated with
public company reporting requirements and additional staffing and
expenses of approximately $875,000 to support the Systems Integration
and Flexible Circuits divisions.
Interest and Other Expense, Net
Net interest expense for the fiscal year ended June 30, 1996 was $1.7
million, an increase of $1.3 million from the prior fiscal year. The
increase is primarily attributable to debt incurred by the Company in
financing the Citation Acquisition during the first quarter of fiscal
year 1996. The Company obtained $10.0 million in variable rate bank
term loans bearing interest rates of approximately 9.5% for the nine
months ended June 30, 1996. Additionally, in connection with the
Citation Acquisition, the Company issued approximately $4.2 million in
two 12.0% subordinated notes to the seller of the Citation Companies.
During the fourth quarter of fiscal year 1996, the Company recorded a
one time charge of approximately $436,000 for expenses incurred in
connection with a withdrawn public offering of the Company's common
stock.
Net interest expense for the fiscal year ended June 30, 1995 was
$350,000, a decrease of $14,000 or 3.8% from the prior fiscal year.
Interest expense decreased during the fiscal year primarily due to
scheduled repayments of outstanding debt and capital lease
obligations.
</PAGE>
<PAGE> 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Provision (Benefit) for Income Taxes
The Company's combined federal and state effective income tax
(benefit) rates were (34.3)%, 63.6%, and 47.9% for the fiscal years
ended 1996, 1995 and 1994, respectively. The effective income tax
(benefit) rates differ from the federal statutory income tax (benefit)
rates primarily due to state taxes, net of federal benefit,
amortization of goodwill and deferred stock compensation, and the
goodwill write-off which are not deductible in determining taxable
income or loss. Additionally, the amount of pre-tax income can have a
material effect on the Company's effective income tax (benefit) rate.
Further impacting the fiscal year 1996 state effective benefit rate
was the State of California's Machinery and Equipment tax credit.
Net Income (Loss) Applicable to Common Stock
As required by its terms, the Company's Series A Redeemable Preferred
Stock earned dividends during the fiscal year ended June 30, 1994 of
approximately $34,000. The Company also accreted $16,000 during the
first quarter of fiscal year 1994 for the redemption value of its
Series A and B Redeemable Preferred Stock. Such amounts are deducted
from net income to derive income applicable to common stock for
computing net income per common share. The Series A Redeemable
Preferred Stock was redeemed in full in connection with the issuance
of Series C Redeemable Preferred Stock in September 1993. The Series C
Redeemable Preferred Stock did not require dividend payments. All
outstanding Series B and C Redeemable Preferred Stock was converted to
common stock effective upon the closing of the Company's initial
public offering of common stock on June 10, 1994.
Financial Condition
The Company has historically financed its operations primarily through
bank borrowings, issuances of debt and equity securities and cash
generated from operations.
Liquidity
The Company generated (used) cash from operating activities was
approximately $3.6 million, $(120,000), and $2.2 million in fiscal
years 1996, 1995 and 1994, respectively. Cash generated from
operations in fiscal year 1996 was primarily attributable to a non-
cash depreciation and amortization expense of approximately $5.1
million, a goodwill write-off of $800,000, and other working capital
changes. Cash used for operations in fiscal year 1995 was primarily
the result of start-up costs for the new Systems Integration and
Flexible Circuits divisions.
The Company used cash in investing activities of approximately $14.5
million, $4.7 million and $2.4 million in fiscal years 1996, 1995 and
1994, respectively. Cash used in investing activities in fiscal year
1996 was primarily attributable to approximately $9.1 million in
expenditures for the purchase of the Citation Companies and
approximately $5.4 million used for the purchase of property and
equipment. Cash used in investing activities in fiscal years 1995 and
1994 was primarily for purchases of capital equipment.
The Company generated cash from financing activities of approximately
$10.8 million, $4.6 million and $571,000 in fiscal years 1996, 1995
and 1994, respectively. Cash generated from financing activities in
fiscal year 1996 was primarily attributable to $10.6 million in long-
term borrowings of which $10.0 million was used to finance the
Citation Acquisition. Cash generated from financing activities in
fiscal year 1995 was primarily attributable to approximately $900,000
in long-term borrowings,net of debt repayments, and approximately $3.8
</PAGE>
<PAGE> 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
million in increased borrowings under the long-term revolving line of
credit. Cash generated from financing activities in fiscal year 1994
was approximately $571,000. During fiscal year 1994, the Company
received approximately $4.1 million from sale of its common stock in
its initial public offering in June 1994. The proceeds from the
offering were used to substantially reduce the Company's long-term
debt by fiscal year end
As of June 30, 1996 the Company had long-term debt outstanding of
approximately $22.0 million, consisting primarily of $5.7 million
outstanding under the Company's long-term revolving line of credit,
$12.3 million of debt issued in connection with the Citation
Acquisition and $4.0 million of real estate and other equipment
obligations. The Company has an $8.0 million long-term revolving line
of credit with Comerica Bank ("Comerica"). The Company's credit
agreement limits borrowings under the line of credit to the maximum of
$8.0 million or 75% of the Company's eligible trade accounts
receivable as contractually defined. The current line of credit
expires on October 2, 1997 and bears interest at Comerica's base rate
plus 0.25%. In connection with the Citation Acquisition, the Company
borrowed $8.5 million and $1.5 million from Comerica under two
variable rate installment notes, which have terms of five and two
years, respectively, and bear interest at the Bank's base rate plus
1.0%. Under both notes, principal and interest payments are due
monthly. Additionally, in connection with the Citation Acquisition,
the Company issued two 12.0% subordinated notes to the seller of the
Citation Companies in the amounts of approximately $2.6 million and
$1.5 million. These notes and accrued interest are payable in June
1997. As of June 30, 1996, the Company was in non-compliance with the
profitability and working capital convenants of its revolving line of
credit agreement with the Bank. The Company has obtained a waiver
with respect to such convenants from the Bank as of that date, and an
amendment of its working capital limits for the remaining term of the
agreement. The Company believes it will remain in compliance with
these revised terms during fiscal year 1997; however, in the event
that a covenant is violated and not cured to the Bank's satisfaction,
the Bank would be entitled to accelerate the indebtedness owed by the
Company.
The Company believes that its existing funds, borrowings available
under its revolving line of credit and funds expected to be generated
from operations will be sufficient to meet its working capital needs
for the next twelve months. There can be no assurance, however, that
events in the future will not require the Company to seek additional
capital sooner or, if so required, that it will be available on terms
acceptable to the Company. To the extent that cash generated from
operations is not sufficient to meet the Company's projected capital
expenditures or future working capital needs, the Company's business,
financial condition and results of operations may be materially and
adversely affected.
Capital Resources
During fiscal year 1996, the Company purchased approximately $5.4
million of property and equipment which was funded through long-term
borrowings, capital leases and cash generated from operations.
Management expects the Company's level of future capital expenditures
to remain at levels consistent with the Company's operational projects
mitigated by the redeployment of selected capital equipment from the
closed Costa Mesa PCB division. Excluding the financial impact of any
acquisition or establishment of new facilities, the Company expects to
incur capital expenditures of approximately $2.5 million in the
aggregate in fiscal year 1997.
Item 8. Financial Statements and Supplementary Data
Certain information required by this item is included on pages 23 to
40 in Item 14 of Part IV of this Report on Form 10-K and is
incorporated into this part by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
Not applicable.
</PAGE>
<PAGE> 21
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning the Company's directors required by this
item is included under the caption "Election of Directors" in the
Company's 1996 Definitive Proxy Statement to be filed with the
Commission pursuant to Regulation 14A and incorporated herein by
reference.
The information concerning the Company's executive officers required
by this item is included in Part I under the caption "Executive
Officers of the Registrant."
Item 11. Executive Compensation
The information required by this item is included under the caption
"Executive Compensation" and "Stock Option Grants and Exercises" in
the Company's 1996 Definitive Proxy Statement to be filed with the
Commission pursuant to Regulation 14A and incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is included under the caption
"Security Ownership of Certain Beneficial Owners and Management" in
the Company's 1996 Definitive Proxy Statement to be filed with the
Commission pursuant to Regulation 14A and incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included under the caption
"Certain Transactions" in the Company's 1996 Definitive Proxy
Statement to be filed with the Commission pursuant to Regulation 14A
and incorporated herein by reference.
</PAGE>
<PAGE> 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) The following documents are filed as part of this Report on
Form 10-K:
Page
1. Financial Statements. The following financial
statements of the Company and the Report of Deloitte &
Touche LLP, Independent Auditors, are included in Part
IV of this Report on Form 10-K on the pages indicated:
Independent Auditors' Report 23
Balance Sheets as of June 30, 1996 and 1995 24
Statements of Operations for the Years ended June 30,
1996, 1995 and 1994 25
Statements of Stockholders' Equity for the Years ended
June 30, 1996, 1995 and 1994 26
Statements of Cash Flows for the Years ended June 30,
1996, 1995 and 1994 27
Notes to Financial Statements 29
2. Financial Statement Schedules. The following financial
statement schedule of the Company for the years ended
June 30, 1996, 1995 and 1994 is filed as part of this
Report on Form 10-K and should be read in conjunction
with the financial statements.
Schedule Title
II Valuation and Qualifying Accounts 40
Schedules not listed above have been omitted because
they are not applicable, not required, or the information
required to be set forth therein is included in the
financial statements or notes thereto.
3. Exhibits. See Exhibit Index on page 42 hereof for a
list of exhibits filed or incorporated by reference as
a part of this Report on Form 10-K.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by
the Company in the fourth quarter of the fiscal year ended
June 30, 1996.
(c) Exhibits. The exhibits required by this item are listed
under Item 14(a)(3) above.
(d) Financial Statement Schedules. The financial statement
schedule required by this item is listed under Item 14(a)(2) above.
</PAGE>
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Sigma Circuits, Inc.:
We have audited the accompanying balance sheets of Sigma Circuits,
Inc. as of June 30, 1996 and 1995, and the related statements of
operations, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1996. Our audits also included the
financial statement schedule listed at the Index at Item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Sigma Circuits, Inc. as
of June 30, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended June 30,
1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE LLP
July 31, 1996
(September 26, 1996 as to Paragraph 5 of Note 7)
San Jose, California
</PAGE>
<PAGE> 24
<TABLE>
SIGMA CIRCUITS, INC.
BALANCE SHEETS
(In thousands, except per share data)
June 30,
1996 1995
ASSETS
<S> <C> <C>
Current Assets:
Cash and Equivalents $ -- $ 106
Accounts Receivable (Net of
Allowances of $598 and
$310, Respectively) 11,987 7,737
Income Taxes Receivable 1,393 --
Other Receivables 46 403
Inventories 4,753 2,177
Prepaid Expenses 268 298
Deferred Income Taxes 2,660 460
Total Current Assets 21,107 11,181
Property and Equipment, Net 18,899 10,789
Goodwill (Net of Accumulated
Amortization of $2,322 and
$1,840, Respectively) 6,615 2,154
Deposits and Other Assets 339 276
Total $46,960 $24,400
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Cash Overdraft $ 297 $ --
Current Portion of Long-Term
Debt 7,681 396
Accounts Payable 4,418 3,094
Accrued Liabilities 5,947 2,047
Income Taxes Payable -- 523
Total Current Liabilities 18,343 6,060
Long-Term Debt 14,345 5,774
Deferred Income Taxes 1,354 1,579
Commitments (Note 9) -- --
Stockholders' Equity:
Preferred Stock, $0.001 Par Value:
Shares Authorized: 5,000
Share Outstanding: None -- --
Common Stock, $0.001 Par Value:
Shares Authorized: 20,000
Shares Outstanding: 3,998 and
3,438, Respectively 10,604 7,743
Deferred Stock Compensation (180) (326)
Retained Earnings 2,494 3,570
Total Stockholders' Equity 12,918 10,987
Total $46,960 $24,400
See notes to financial statements.
</TABLE>
</PAGE>
<PAGE> 25
<TABLE>
SIGMA CIRCUITS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Net Sales $87,705 $48,246 $38,906
Cost of Sales 71,471 39,317 30,783
Gross Profit 16,234 8,929 8,123
Selling, General and
Administrative Expenses 11,490 7,759 6,394
Amortization of Goodwill 482 200 200
Facility Closing Costs
(Including $800 of
Associated Goodwill) 3,775 -- --
Operating Income 487 970 1,529
Interest Expense, Net 1,689 350 364
Withdrawn Public Offering
Costs 436 -- --
Income (Loss) Before
Income Taxes (1,638) 620 1,165
Provision (Benefit) for
Income Taxes (562) 394 558
Net Income (Loss) (1,076) 226 607
Preferred Stock Dividends
and Accretion -- -- (50)
Net Income (Loss) Applicable
to Common Stock $(1,076) $ 226 $ 557
Net Income (Loss) Per Share $ (.28) $ .06 $ .37
Number of Shares Used in
Computing Per Share
Information 3,797 3,640 1,514
See notes to financial statements.
</TABLE>
</PAGE>
<PAGE> 26
<TABLE>
SIGMA CIRCUITS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Deferred
Stock Stock Retained
Share Amount Compensation Earnings Total
<S> <C> <C> <C> <C> <C>
Balances at July 1, 1993 238 $ 194 $ -- $ 2,787 $ 2,981
Series A Preferred Stock (34) (34)
Dividends
Accretion of Series B
Redemption Price (16) (16)
Deferred Stock Compensation
Expense 478 (478) --
Initial Public Offering,
(Net of Offering Costs of
$1,366) 2,000 4,134 4,134
Conversion of Redeemable
Preferred Stock 1,162 2,896 2,896
Exercise of Common Stock
Options 4 -- --
Amortization of Deferred
Stock Compensation 44 44
Net Income 607 607
Balances at June 30, 1994 3,404 7,702 (434) 3,344 10,612
Exercise of Common Stock
Options 20 16 16
Issuance of Common Stock
Under Employee Stock
Purchase Plan 14 25 25
Amortization of Deferred
Stock Compensation 108 108
Net Income 226 226
Balances at June 30, 1995 3,438 7,743 (326) 3,570 10,987
Exercise of Common Stock
Options 83 96 96
Issuance of Common Stock
Under Employee Stock
Purchase Plan 98 324 324
Issuance of Common Stock in
Connection with Citation
Companies Acquisition 379 2,500 2,500
Amortization of Deferred
Stock Compensation 87 87
Forfeitures of Common Stock
Options (59) 59 --
Net Loss (1,076) (1,076)
Balances at June 30, 1996 3,998 $10,604 $(180) $2,494 $12,918
See notes to financial statements.
</TABLE>
</PAGE>
<PAGE> 27
<TABLE>
SIGMA CIRCUITS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,076) $ 226 $ 607
Reconciliation to Cash Provided by (Used
for) Operating Activities:
Depreciation and Amortization 4,555 2,681 2,093
Amortization and Write-Off of Goodwill 1,282 200 200
Loss on Disposal of Assets 292 208 232
Amortization of Deferred Stock Compensation 87 108 44
Deferred Income Taxes (2,425) (711) (349)
Accrue Facility Closing Costs, Net of
Payments 2,559 -- --
Changes in Assets and Liabilities:
Accounts Receivable 826 (2,516) (1,397)
Other Receivables 357 (403) --
Inventories (738) (633) (62)
Prepaid Expenses 95 (168) (63)
Accounts Payable (720) 257 576
Accrued Liabilities 121 199 191
Income Taxes Payable / Refundable (1,599) 432 91
Cash Provided by (Used for)
Operating Activities 3,616 (120) 2,163
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment (5,415) (4,550) (2,729)
Purchase of Citation Companies, Net of
Cash Acquired (9,092) -- --
Proceeds from Sale of Property and
Equipment 63 4 144
Deposits and Other Assets (50) (178) 216
Cash Used for Investing Activities (14,494) (4,724) (2,369)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of Credit, Net 1,957 3,750 (1,000)
Proceeds from Long-Term Borrowings 10,638 1,074 --
Repayment of Long-Term Borrowings (2,540) (280) (2,494)
Increase/(Decrease) in Cash Overdraft 297 -- (182)
Common Stock Transactions, Net 420 41 4,134
Redeemable Preferred Stock Transactions,
Net -- -- 113
Cash Provided by Financing Activities 10,772 4,585 571
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (106) (259) 365
CASH AND EQUIVALENTS:
Beginning of Year 106 365 --
End of Year $ -- $ 106 $ 365
</TABLE>
</PAGE>
<PAGE> 28
<TABLE>
SIGMA CIRCUITS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment Acquired Under Capital Lease $ 648 $ 241
Obligations
Issuance of Series C Redeemable Preferred
Stock in Exchange for Series A Redeemable
Preferred Stock and Related Accrued Dividends $1,836
Conversion of Redeemable Preferred Stock to
Common Stock $2,896
PURCHASE OF THE CITATION COMPANIES:
Cash Paid, Net of Cash Acquired $ 9,092
Stock Issued to Seller 2,500
Debt Issued to Seller 4,092
Liabilities Assumed 5,190
Assets Acquired (including Goodwill $20,874
of $5,744)
See notes to financial statements.
</TABLE>
</PAGE>
<PAGE> 29
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1996, 1995 and 1994
Note 1. Organization of the Company
Sigma Circuits, Inc. (the "Company") was incorporated in the State of
California in April 1986 under the name Sigma Circuits Holding Company
to acquire its predecessor company ("Predecessor") which had been in
the rigid printed circuit board business since 1974. The acquisition
("Sigma Acquisition") of the Predecessor was completed in April 1986
via a purchase for approximately $11,500,000 and gave rise to
approximately $4,000,000 in goodwill. The Company reincorporated in
the State of Delaware in December 1987 under the name Sigma Circuits,
Inc.
Note 2. Summary of Significant Accounting Policies
Fiscal Year The Company uses a 52-53 week fiscal year ending on the
Saturday nearest the end of the month of June. The fiscal years ended
June 29, 1996, July 1, 1995 and July 2, 1994 each consisted of 52
weeks. In addition, the Company's fiscal quarters end on the Saturday
nearest the end of the months of September, December, March and June.
For reporting purposes, the Company presents its fiscal year end as
June 30 and its quarter ends as September 30, December 31, March 31
and June 30.
Use of Estimates The Company's management has made certain
estimates and assumptions relating to the reporting of assets and
liabilities, as well as the disclosure of contingent assets and
liabilities to prepare its financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
Reclassifications Certain reclassifications have been made to the
prior years' financial statements to conform with the current year's
presentation. The reclassification of these amounts had no effect on
the results of operations or retained earnings.
Cash and Equivalents Cash and equivalents include demand deposits
and money market accounts since they represent highly liquid
investments with maturities of three months or less when purchased.
The carrying amount of these investments approximated fair value as of
June 30, 1996 and 1995.
Concentrations of Credit Risk Financial instruments that
potentially subject the Company to concentrations of credit risk
consist principally of trade accounts receivable. The risk is limited
due to the fact that the Company's trade accounts receivable are
derived from sales in various geographic areas to numerous companies
varying in size within the electronics industry. The Company has
developed and maintained credit policies and procedures to reflect the
electronics industry's growth, as well as its inherent risk.
Additionally, the Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require
collateral, such as letters of credit or security agreements. Credit
losses consistently have been within management's expectations.
Inventories Inventories are stated at the lower of cost (first-in,
first-out basis) or market. Cost includes material, labor and
manufacturing overhead.
Property and Equipment Property and equipment are stated at cost
less accumulated depreciation and amortization. Buildings and
equipment are depreciated over the estimated useful life of the
underlying assets and generally range from twenty five years for
buildings and three to ten years for equipment. Improvements are
amortized over the shorter of the estimated useful lives of the
underlying property or the contractual lives of the applicable leases.
Depreciation is computed on the straight-line method for financial
reporting purposes and the various accelerated methods, as required
</PAGE>
<PAGE> 30
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 2. Summary of Significant Accounting Policies (Continued)
by law, for income tax purposes. Effective July 1, 1995, the Company
adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." There was no cumulative
effect in the adoption of this standard.
Goodwill Goodwill resulted from the Sigma Acquisition (Note 1) and
the Citation Acquisition (Note 3) and represents the excess of the
aggregate purchase price over the fair value of net assets acquired.
The goodwill is being amortized over 20 and 15 years, respectively,
using the straight-line method. The Company annually evaluates the
realizability of goodwill based upon projections of its undiscounted
net cash flows. Based upon its evaluations, the Company believes that
no material impairment of goodwill existed as of June 30, 1996 and
1995.
Revenue Recognition Revenue is recognized by the Company at the
time its products are shipped.
Income Taxes Income taxes are provided using the liability method
under which deferred income taxes are recorded based upon enacted tax
laws and rates applicable to the periods in which the taxes become
payable per SFAS No. 109, "Accounting for Income Taxes". Under the
provisions of SFAS No. 109, a valuation allowance should be provided
when it is more likely than not that some portion or all of the
deferred tax assets recorded will not be recognized. Based upon its
evaluations, the Company believes that no valuation allowance was
needed as of June 30, 1996 and 1995.
Net Income (Loss) Per Share Net income per share is based on the
weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares include common
stock options (using the treasury stock method) and are excluded in
loss periods as they are anti-dilutive for computing per share
information. Pertaining to periods prior to the Company's initial
public offering on June 10, 1994 and pursuant to rules of the
Securities and Exchange Commission, all stock issued and stock options
(using the treasury stock method) granted by the Company at a price
less than its initial public offering price during the twelve months
preceding the June 10, 1994 offering have been included in the
calculation for periods prior to the effective date as if they were
outstanding for all periods presented.
Environmental Compliance and Remediation Environmental compliance
costs include ongoing maintenance, monitoring and similar costs and
relate to current operations or conditions caused by past operations.
These costs are expensed as incurred. Environmental remediation costs
are accrued, except to the extent costs can be capitalized, when
environmental assessments and/or remedial efforts are probable, and
the costs can be reasonably estimated. These liabilities are
determined on a site by site basis and are not discounted.
Environmental costs which improve the condition or extend the life of
related property or prevent future environmental contamination are
capitalized.
Recent Accounting Standard In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 123 "Accounting
for Stock-Based Compensation". The new standard defines a fair value
method of accounting for stock options and other equity instruments,
such as stock purchase plans. Under this method, compensation cost is
measured based on the fair value of the stock award when granted and
is recognized as an expense over the service period, which is usually
the vesting period. This standard will be effective for the Company
beginning in fiscal year 1997 and requires measurement of awards made
beginning in fiscal year 1996.
</PAGE>
<PAGE> 31
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 2. Summary of Significant Accounting Policies (Continued)
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but
requires disclosure in a note to the financial statements of the pro
forma net income and earnings per share as if the Company had applied
the new method of accounting. The Company intends to follow the
disclosure requirements of SFAS No. 123. As a result, adoption of the
new standard will not impact reported earnings or earnings per share,
and will have no effect on the Company's cash flows.
Note 3. Acquisition of Citation Companies
On September 30, 1995, the Company acquired substantially all of the
assets and assumed certain liabilities of Citation Circuits, Inc.,
Citation Enterprises, Inc. and Citron Inc. (collectively, the
"Citation Companies"), all of which were owned by a common shareholder
and engaged in the manufacture and sale of printed circuit boards and
backplane assemblies (the "Citation Acquisition"). The purchase price
of $16,544,000 was paid in cash of $9,952,000 (financed through
$10,000,000 of variable rate installment notes), 378,786 shares of
common stock with a fair market value of $2,500,000 and two 12.0%
subordinated notes payable to the seller due in June 1997 totaling
approximately $4,092,000, of which $1,500,000 is convertible into
200,000 shares of common stock at the option of the seller. In the
event the Company completes a public offering of common stock meeting
certain defined criteria, the $1,500,000 note will become due upon the
closing of the offering, and the $2,591,658 note will become due in
December 1996. The total estimated purchase price of the Citation
Companies was approximately $17,278,000 (including approximately
$734,000 of acquisition expenses). Of the excess of the purchase price
over the estimated fair value of the tangible net assets acquired,
approximately $300,000 has been allocated to a two year non-compete
agreement with the seller and approximately $5,744,000 has been
allocated to goodwill which is being amortized over 15 years.
The reported results of operations of the Company for the fiscal year
ended June 30, 1996 includes nine months of the operating results of
what was formerly known as the Citation Companies as the acquisition
occurred on September 30, 1995. Unaudited pro forma results of
operations as if the acquisition had occurred at the beginning of
fiscal year 1995 are as follows (in thousands, except per share data):
<TABLE>
Year Ended June 30,
1996 1995
<S> <C> <C>
Net Sales $95,366 $73,253
Gross Profit 17,553 12,328
Net Loss (922) (386)
Net Loss Per Share $ (.23) $ (.10)
Number of Shares Used in Computing
Per Share Information 3,987 3,802
</TABLE>
The unaudited pro forma financial information does not give effect to
any potential benefits that might have been realized through the
combination of operations and are not necessarily indicative of the
consolidated results which would have been reported if the acquisition
of the Citation Companies had actually occurred at the beginning of
the fiscal year 1995.
</PAGE>
<PAGE> 32
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 3. Acquisition of Citation Companies (Continued)
The liabilities assumed in the acquisition of the Citation Companies
included certain environmental contingent liabilities pertaining to
the prior operations of the Citation Companies. The Citation Companies
had been notified of certain alleged discharge and reporting
violations by the City of Stockton and the U.S. Environmental
Protection Agency (EPA). At the time of the acquisition, the Citation
Companies had accrued approximately $303,000, their best estimate of
the penalties owed under such claims. On April 15, 1996, the Company
entered into a tentative "Consent Agreement and Consent Order" with
the EPA, agreeing to pay a fine of $65,000 (which was paid in July
1996) and installing equipment to aid in its environmental
requirements with a minimum cost of approximately $220,000. As of
June 30, 1996, the Company had incurred approximately $146,000 of
costs which qualify towards such minimum. The Company believes that
its remaining accrual continues to be adequate and that the settlement
of the City of Stockton claim will not have a material adverse affect
on the Company's business, financial condition and results of
operations.
Note 4. Inventories
<TABLE>
Inventories consist of (in thousands):
June 30,
1996 1995
<S> <C> <C>
Raw Materials $2,641 $ 915
Work in Process 1,880 1,186
Finished Goods 232 76
Inventories $4,753 $2,177
</TABLE>
Note 5. Property and Equipment
<TABLE>
Property and equipment consist of (in thousands):
June 30,
1996 1995
<S> <C> <C> <C>
Land $ 1,057 $ 885
Buildings and Improvements 7,902 5,776
Machinery and Equipment 25,549 16,913
Total Property and Equipment 34,508 23,574
Accumulated Depreciation and (15,609) (12,785)
Amortization
Property and Equipment, Net $ 18,899 $ 10,789
</TABLE>
Note 6. Accrued Liabilities
<TABLE>
Accrued liabilities consist of (in thousands):
June 30,
1996 1995
<S> <C> <C>
Accrued Compensation and
Related Liabilities $2,277 $2,047
Accrued Facility Closing Costs 2,559 --
Accrued Interest Expense 436 26
Other Accrued Expenses 675 485
Accrued Liabilities $5,947 $2,047
</TABLE>
</PAGE>
<PAGE> 33
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 7. Long-Term Debt
<TABLE>
Long-term debt consists of (in thousands):
June 30,
1996 1995
<S> <C> <C>
Real Estate Term Notes $ 1,804 $1,355
Revolving Line of Credit 5,707 3,750
Acquisition-Related 8,163 --
Installment Notes
Subordinated Note 2,592 --
Convertible Subordinated Note 1,500 --
Other Equipment Debt and
Capital Leases 2,260 1,065
Total Debt 22,026 6,170
Current Portion of Long-Term
Debt (7,681) (396)
Long-Term Debt $14,345 $5,774
</TABLE>
The Company has a real estate term note with Comerica Bank (the
"Bank"). The note bears interest at the Bank's base rate (8.25% at
June 30, 1996) plus 1.0%. Principal and interest payments are due
monthly with a balloon payment of approximately $790,000 due in August
1999. As part of the Citation Acquisition, the Company assumed a real
estate note with a trust. The note bears interest at 8.5%. Interest
payments are due annually in December with the principal balance of
approximately $607,000 due in December 2005. Both of the notes are
collateralized by their respective underlying buildings and
improvements.
The Company issued to the seller of the Citation Companies two 12.0%
subordinated notes due in June 1997 totaling approximately $4,092,000,
of which $1,500,000 is convertible into 200,000 shares of common stock
at the option of the seller. In the event the Company completes a
public offering, and the certain defined criteria, the $1,500,000 note
will become due upon the closing of the offering, and the $2,591,658
note will become due in December 1996.
During September 1995, in connection with the definitive purchase
agreement of the Citation Companies, the Bank increased the long-term
revolving line of credit to $8,000,000. Under the long-term revolving
line of credit, borrowings are limited to the maximum of $8,000,000 or
75% of the Company's eligible trade accounts receivable as
contractually defined. The long-term revolving line of credit expires
on October 2, 1997 and bears interest at the Bank's base rate plus
.25%. In addition, the Bank made variable rate installment loans of
$8,500,000 and $1,500,000 respectively, to assist in the acquisition
of the Citation Companies. The notes of $8,500,000 and $1,500,000 have
terms of five and two years, respectively, and both bear interest at
the Bank's base rate plus 1.0%. Under both term notes, principal and
interest payments are due monthly.
All notes and credit arrangements with Comerica Bank are
collateralized by a lien on substantially all of the Company's assets
and do not require any compensating balances. Additionally, the long-
term revolving line of credit agreement prohibits the payment of any
cash dividends without prior bank approval and requires the Company to
meet certain financial covenants, as contractually defined, on either
a monthly or quarterly basis which include: maximum working capital
deficiency, minimum tangible net worth, maximum liabilities to
tangible net worth ratio, minimum cash flow coverage and minimum
profitability.
</PAGE>
<PAGE> 34
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 7. Long-Term Debt (Continued)
As of June 30, 1996, the Company was in non-compliance with the
profitability and working capital convenants of its revolving line of
credit agreement with the Bank. The Company has obtained a waiver
with respect to such convenants from the Bank as of that date, and an
amendment of its working capital limits for the remaining term of the
agreement. The Company believes it will remain in compliance with
these revised terms during fiscal year 1997; however, in the event
that a covenant is violated and not cured to the Bank's satisfaction,
the Bank would be entitled to accelerate the indebtedness owed by the
Company.
The Company has entered into certain financing arrangements including
equipment term notes and capital lease obligations with various
lenders with terms expiring through September 2000. These arrangements
bear interest ranging from 5.0% to 11.6%. Principal and interest or
lease payments are due monthly. Each financing arrangement is
collateralized by the applicable underlying machinery equipment
purchased by the Company.
Future debt and capital lease payments for all outstanding debt
obligations is as follows (in thousands):
<TABLE>
Fiscal year ending June 30:
<S> <C>
1997 $ 7,681
1998 8,063
1999 2,314
2000 2,849
2001 512
Thereafter 607
Total $22,026
</TABLE>
Cash paid for interest was approximately $1,403,000, $405,000 and
$310,000 in fiscal years 1996, 1995 and 1994, respectively.
Note 8. Stockholders' Equity
Preferred Stock
In connection with the completion of the Company's initial public
offering on June 10, 1994, all outstanding shares of the Company's
Series B and C Redeemable Preferred Stock were converted to common
stock.
The Company's Certificate of Incorporation authorized the issuance of
5,000,000 shares of preferred stock at $.001 par value, which may be
designated as to powers, preferences, rights, limitations or
restrictions. As of June 30, 1996 and 1995, no shares of preferred
stock have been issued.
Common Stock
The Company's Certificate of Incorporation authorized the issuance of
20,000,000 shares of common stock at $.001 par value, which may be
designated as to powers, preferences, rights, limitations or
restrictions.
</PAGE>
<PAGE> 35
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 8. Stockholders' Equity (Continued)
On January 30, 1996, the Board of Directors authorized a two-for-one
common stock split, in the form of a common stock dividend,
distributed on February 26, 1996 to stockholders of record at the
close of business on February 12, 1996. The per share amounts and
numbers of shares have been restated to reflect the common stock split
for all periods presented.
On June 10, 1994, the Company completed an initial public offering of
2,000,000 shares of common stock. The net proceeds to the Company of
$4,134,000 were used, in part, to repay the Company's outstanding
balances under one of its term loans and long-term revolving line of
credit. If this debt repayment and a related stock sale sufficient to
cover such payment had occurred at the beginning of fiscal year 1994,
net income applicable to stock would have been approximately $697,000
or $.24 per share on 2,964,000 weighted average common and common
equivalent shares outstanding. In connection with the offering, the
Company granted the underwriter a warrant to purchase 200,000 shares
of common stock at $3.30 per share. This warrant expires in June
1998.
The number of shares of common stock reserved for future issuances as
of June 30, 1996 was as follows (in thousands):
<TABLE>
<S> <C>
Employee Stock Options Outstanding 1,042
Reserved for Future Grants Under the 1988 Stock
Option Plan 155
Director Stock Options Outstanding 37
Reserved for Future Grants Under 1994 Non-Employee
Directors' Stock Option Plan 63
Reserved for Issuance Under the 1994 Employee Stock
Purchase Plan 178
Reserved for Issuance Pertaining to Underwriter's
Warrant 200
Reserved for Conversion of Convertible Subordinated
Note 200
Total Reserved for Future Issuance 1,875
</TABLE>
1988 Stock Option Plan
Under the 1988 Stock Option Plan, incentive or nonstatutory common
stock options to purchase common stock may be granted to key
employees, directors or consultants of the Company. Incentive stock
options must be granted at not less than fair market value, and
nonstatutory stock options must be granted at not less than 85% of
fair market value at the date of grant as determined by the Board of
Directors. Options generally become exercisable over a five-year
period and generally expire ten years after the date of grant.
In June and September 1995, the Board of Directors authorized, and the
stockholders subsequently approved, an additional 372,728 and 200,000
shares, respectively, under the 1988 Stock Option Plan.
1994 Non-Employee Directors' Stock Option Plan
In March 1994, the Company adopted the 1994 Non-Employee Directors'
Stock Option Plan (the "Directors' Plan") to provide for automatic
grant of options to purchase shares of common stock to non-employee
directors of the Company. The Directors' Plan is administered by the
Board of Directors, unless the Board of Directors delegates
administration to a committee of disinterested directors. The maximum
number of shares of common stock that may be issued pursuant to
options granted under the
</PAGE>
<PAGE> 36
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 8. Stockholders' Equity (Continued)
Directors' Plan is 34,908. Pursuant to the terms of the Directors'
Plan, each non-employee director of the Company was granted an option
to purchase 4,362 shares of common stock upon the closing of the
public offering. Any person elected as a director of the Company who
is not otherwise employed by the Company was automatically granted an
option to purchase 4,362 shares of common stock at the fair market
value on the date of grant. Each non-employee director thereafter was
automatically granted an option to purchase 1,454 shares of common
stock at the fair market value, on December 31 of each year that such
person was a non-employee director of the Company. In September 1995,
the Board of Directors authorized, and the stockholders subsequently
approved, an additional 65,092 shares under the Directors' Plan. In
addition, the terms of the Directors' Plan were amended to increase
the level of grants to 10,000 (for new directors) and 3,000 (for
existing directors) from 4,362 and 1,454, respectively.
Details of activity under the aforementioned plans are as follows
(shares in thousands):
<TABLE>
Shares
Under
Option Price
<S> <C> <C>
Options Outstanding at July 1, 1993 62 $.54 - $8.05
Granted 344 $.54 - $2.15
Exercised (4) $.54
Canceled (16) $.54 - $8.05
Options Outstanding at June 30, 1994 386 $.54 - $2.15
Granted 512 $1.88 - $2.88
Exercised (20) $.54
Canceled (60) $.54 - $2.75
Options Outstanding at June 30, 1995 818 $.54 - $2.88
Granted 635 $6.25 - $10.13
Exercised (83) $.54 - $6.25
Canceled (291) $.54 - $6.88
Options Outstanding at June 30, 1996 1,079 $.54 - $10.13
As of June 30, 1996, 181,716 outstanding options were exercisable.
</TABLE>
1994 Employee Stock Purchase Plan
In March 1994, the Company adopted the Employee Stock Purchase Plan
(the "Purchase Plan") which provides for the issuance of up to 290,908
shares of common stock. The Purchase Plan is intended to qualify as
an employee stock purchase plan within the meaning of Section 423 of
the Internal Revenue Code.
The Purchase Plan will terminate in December 2004. The Board of
Directors has the authority to amend, suspend or terminate the
Purchase Plan, subject to the limitation that no such action may
adversely affect any outstanding rights to purchase common stock.
Under the Purchase Plan, the Board
</PAGE>
<PAGE> 37
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 8. Stockholders' Equity (Continued)
of Directors may authorize participation by eligible employees,
including officers, in periodic offerings following the commencement
of the Purchase Plan. As of June 30, 1996, 112,473 shares had been
issued under the Purchase Plan.
Deferred Stock Compensation
In March 1994, the Company recorded deferred stock compensation
expense for the difference between the grant price and deemed fair
value of the Company's common stock for options granted subsequent to
December 31, 1992 through June 30, 1994. Such deferred stock
compensation expense is being amortized, on the straight-line method,
over the five-year vesting period of the underlying options.
Note 9. Income Taxes
<TABLE>
The provision (benefit) for income taxes consists of (in thousands):
Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 1,100 $ 862 $ 700
State 12 243 207
Total Current Income Taxes 1,112 1,105 907
Deferred:
Federal (1,078) (530) (269)
State (596) (181) (80)
Total Deferred Income Taxes (1,674) (711) (349)
Provision (Benefit) for Income Taxes $ (562) $ 394 $ 558
</TABLE>
<TABLE>
Deferred income tax assets (liabilities) are comprised of (in
thousands):
Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Gross Deferred Income Tax Assets,
Principally Accruals Deductible in
Different Periods $ 2,660 $ 460 $ 244
Gross Deferred Income Tax
Liabilities, Principally
Depreciation and Amortization (1,354) (1,579) (2,074)
Total Net Deferred Income Tax Assets
(Liabilities) $ 1,306 $(1,119) $(1,830)
</TABLE>
</PAGE>
<PAGE> 38
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 9. Income Taxes (Continued)
The Company's effective income tax (benefit) rate differs from the
federal statutory income tax (benefit) rate as follows:
<TABLE>
Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Federal Statutory Income Tax
(Benefit) Rate (35.0)% 35.0% 35.0%
State Taxes, Net of Federal Benefit (1.7) 9.8 7.2
Amortization and Write-Off of
Goodwill 21.3 11.3 6.0
Amortization of Deferred Stock
Compensation 1.9 6.1 1.3
State Tax Credits (22.6) -- --
Other 1.8 1.4 (1.6)
Effective Income Tax (Benefit)
Rate (34.3)% 63.6% 47.9%
</TABLE>
Cash paid for taxes was approximately $3,050,000, $672,000 and
$800,000 in fiscal years 1996, 1995 and 1994, respectively.
Note 10. Facility Closing Costs
During the fourth quarter of fiscal year 1996, the Company recorded
facility closing costs of $3,775,000 ($2,585,000 after tax or $.68 per
share) due to the closure of its Costa Mesa facility. The charge
included approximately $488,000 related to the write down of long-
lived assets to their expected net realizable values, $800,000 for the
portion of goodwill from the Sigma Acquisition related to the Costa
Mesa quick-turn PCB operations, as well as amounts for severance and
related benefits, real and personal property lease terminations and
other items. As of June 30, 1996, approximately $2,559,000 of the
liability had not been paid. It is currently anticipated that the
remaining balance will be expended within the next twelve months,
except for amounts related to longer term real and personal property
lease commitments to be paid over two years.
Note 11. Commitments
The Company leases certain of its operational facilities, offices and
machinery and equipment under noncancelable operating leases with
terms expiring through fiscal year 2004. The Company is responsible
for utilities, maintenance, insurance and property taxes under most of
its leases.
Future minimum lease payments for all operating leases are as follows
(in thousands):
<TABLE>
Fiscal year ending June 30:
<S> <C>
1997 $ 691
1998 599
1999 378
2000 178
2001 175
Thereafter 409
Total $2,430
</TABLE>
Rent expense under all operating leases was approximately $1,215,000,
$1,114,000 and $900,000 in fiscal years 1996, 1995 and 1994,
respectively.
</PAGE>
<PAGE> 39
SIGMA CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 12. Employee Benefit Plan
The Company provides an employee savings and retirement plan that is
designed to qualify under Section 401(k) of the Internal Revenue Code.
Under the plan, eligible employees may contribute up to 15% of their
pre-tax earnings, not to exceed the Internal Revenue Service annual
contribution limit. Further, the plan allows the Company to make
discretionary contributions. No contributions were made by the
Company in the fiscal years ended June 30, 1996, 1995 or 1994.
Note 13. Segment Information and Significant Customers
The Company operates in one business segment which is the manufacture
of rigid printed circuit boards, backplane assemblies and
subassemblies and flexible circuits products. The Company sells its
customized interconnect products to original equipment manufacturers
and contract manufacturers in the electronics industry.
No single customer accounted for over 10% of net sales for the fiscal
years ended June 30, 1996 and 1995. The Hewlett-Packard Company
accounted for approximately 13% of net sales for fiscal year 1994.
Note 14. Quarterly Results (Unaudited)
The following summarized unaudited results of operations for the
quarters in the fiscal years ended June 30, 1996 and 1995 have been
accounted for using generally accepted accounting principles for
interim reporting purposes and reflect adjustments (consisting of
normal recurring adjustments) which the Company considers necessary
for the fair presentation of results of operations for these interim
periods.
<TABLE>
(In thousands, except per share amounts)
Quarters Ended
Sep. Dec. Mar. Jun. Sep. Dec. Mar. Jun.
30, 31, 31, 30, 30, 31, 31, 30,
1994 1994 1995 1995 1995 1995 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $10,161 $11,360 $13,145 $13,580 $16,076 $26,711 $24,330 $20,588
Gross Profit $ 1,426 $ 2,029 $ 2,542 $ 2,932 $ 3,563 $ 5,882 $ 4,936 $ 1,853
Operating
Income(Loss) $ (463) $ 146 $ 462 $ 825 $ 1,133 $ 2,445 $ 2,163 $(5,255)
Net Income
(Loss) $ (285) $ 32 $ 189 $ 290 $ 566 $ 1,148 $ 1,120 $(3,911)
Net Income
(Loss) Per
Share $ (.08) $ .01 $ .05 $ .08 $ .14 $ .24 $ .23 $ (.99)
Number of
Shares
Used in
Computing
Per Share
Information 3,408 3,668 3,678 3,802 4,150 4,766 4,845 3,936
</TABLE>
</PAGE>
<PAGE> 40
Schedule II
Sigma Circuits, Inc.
Valuation And Qualifying Accounts (In Thousands)
<TABLE>
Balance Charged
at to Balance
Beginning Costs at
of and Deduction/ End of
Period Expenses Write-Off Other Period
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended June 30, 1994:
Accounts Receivable Allowance $200 $171 $171 -- $200
Fiscal Year Ended June 30, 1995:
Accounts Receivable Allowance $200 $139 $ 29 -- $310
Fiscal Year Ended June 30, 1996:
Accounts Receivable Allowance $310 $385 $244 $147 $598
(1) Represents the cumulative balance of the Citation Companies'
accounts receivable allowance for doubtful accounts as of September
30, 1995.
</TABLE>
</PAGE>
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Santa Clara, County of Santa Clara, State of California,
on the 27th day of September, 1996.
Sigma Circuits, Inc.
By /s/ B. Kevin Kelly
B. Kevin Kelly
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints B. Kevin Kelly and Philip S.
Bushnell, or any of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any
amendments to this Report, and to file the same, with exhibits thereto
and other documents in connections therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of
said attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
<S> <C> <C>
President, Chief Executive
Officer and Director September 27, 1996
/s/ B. Kevin Kelly (Principal Executive Officer
B. Kevin Kelly
Senior Vice President,
Finance and Administration,
Chief Financial Officer
Secretary and Director September 27, 1996
(Principal Financial and
/s/ Philip S. Bushnell Accounting Officer)
Philip S. Bushnell
/s/ Robert P. Cummins Chairman of the Board September 27, 1996
Robert P. Cummins
/s/ Thomas J. Bernard Director September 27, 1996
Thomas J. Bernard
/s/ William W. Boyle Director September 27, 1996
William W. Boyle
</TABLE>
</PAGE>
<PAGE> 42
INDEX OF EXHIBITS
<TABLE>
Exhibit
Number Description
<C> <S>
3.1 Restated Certificate of Incorporation of the Registrant.(1)
3.2 Bylaws of the Registrant.(1)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Registration Agreement among the Registrant and certain other
parties named therein, dated April 15, 1986.(1)
4.3 Series C Registration Rights Agreement among the Registrant and
certain other parties named therein, dated September 30, 1993.(1)
4.5 Specimen stock certificate.(1)
10.1 Form of Indemnity Agreement entered into between the Registrant
and its directors and officers, with related schedule.(1)
10.2 Registrant's 1988 Stock Option Plan, as amended to date.(1)
10.3 Form of Incentive Stock Option under the 1988 Stock Option
Plan.(1)
10.4 Form of Nonstatutory Stock Option under the 1988 Stock Option
Plan.(1)
10.5 Form of Notice of Exercise under the 1988 Stock Option Plan.(1)
10.6 Registrant's 1994 Non-Employee Directors' Stock Option Plan, as
amended to date.(1)
10.7 Registrant's 1994 Employee Stock Purchase Plan, as amended to
date.(1)
10.9 Form of Stock Warrant granted to Cruttenden & Company.(1)
10.10 Note Secured by Deed of Trust granted to Plaza Bank of
Commerce, dated March 29, 1990.(1)
10.11 Promissory Notes granted Comerica Bank-California, dated
June 1, 1993 and November 12, 1993.(1)
10.13 Master Lease between the Registrant and CIT Group/Equipment
Financing, Inc., dated October 6, 1993, and Schedule 1 thereto.(1)
10.15 Lease Agreement between the Registrant and Anthony and
Cydelle Drago, dated December 30, 1986, as amended to date.(1)
10.17 Equipment Lease between the Registrant and Copelco Leasing
Corporation, dated January 9, 1993.(1)
10.19 Lease Agreement between the Registrant and Retail Control
Systems, Inc., dated December 15, 1984, as amended to date.(1)
10.21 Lease Agreement between the Registrant and The Kontrabecki
Group, dated May 3, 1994, and attachments thereto.(1)
10.22 Lease Agreement between the Registrant and The Kontrabecki
Group, dated June 9, 1995, and attachments thereto.(2)
</TABLE>
</PAGE>
<PAGE> 43
INDEX OF EXHIBITS
<TABLE>
Exhibit
Number Description
<S> <C>
10.24 Lease Agreement Extension and Modification dated September 30,
1995, between the Registrant and Anthony and Cydelle Drago to
Lease Agreement dated December 30, 1986, as amended.(2)
10.25 Consulting Agreement between the Registrant and Robert P.
Cummins, dated July 1, 1995.(4)
10.26 Change-in-Control Severance Agreement between the Registrant
and B. Kevin Kelly, dated October 26, 1995.(4)
10.27 Change-in-Control Severance Agreement between the Registrant
and Philip S. Bushnell, dated October 26, 1995.(4)
10.28 Revolving Credit Loan & Security Agreement between the
Registrant and Comerica Bank-California, with exhibits, dated
September 29, 1995,.(4)
10.29 Variable Rate Installment Notes granted to Comerica Bank-
California, dated September 29, 1995.(4)
10.30 Subordinated Promissory Note granted to Citation Circuits,
Inc., dated September 30, 1995.(4)
10.31 Convertible Subordinated Promissory Note granted to Citation
Circuits, Inc., dated September 30, 1995.(4)
10.32 Lease Agreement between Registrant and Dockside, dated June 23,
1989.(4)
10.33 Asset Purchase Agreement between the Registrant, Citation
Circuits, Inc., Citation Enterprises, Inc., Citron Inc. and Carl
Brockl, dated September 8, 1995.(3)
11.1 Statements Regarding Calculation of Net Income (Loss) Per Share.
23.1 Consent of Deloitte & Touche LLP.1
24.1 Power of Attorney. Reference is made to the signatures page.
____________________________________
(1) Incorporated by reference to the corresponding Exhibit previously
filed as an Exhibit to the Company's Registration Statement on Form
S-1, as amended, filed May 26, 1994 (File No. 33-76606).
(2) Incorporated by reference to the corresponding Exhibit previously
filed as an Exhibit to the Company's Form 10-K, as amended, filed
September 28, 1995 (File No. 0-24170).
(3) Incorporated by reference to the corresponding Exhibit previously
filed as an Exhibit to the Company's Form 8-K, as amended, filed
October 11, 1995 (File No. 0-24170).
(4) Incorporated by reference to the corresponding exhibit previously
filed as an exhibit to the Company's Registration Statement on Form
S-1, as amended, filed February 16, 1996 (File No. 333-1262).
</TABLE>
</PAGE>
<PAGE> 44
EXHIBIT 11.1
SIGMA CIRCUITS, INC.
<TABLE>
STATEMENTS REGARDING CALCULATION
OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share amounts)
Year Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Net Income (Loss) $(1,076) $ 226 $ 607
Preferred Stock Dividends and
Accretion -- -- (50)
Net Income (Loss) Applicable to
Common Stock $(1,076) $ 226 $ 557
Weighted Average Common Stock
Outstanding 3,797 3,424 488
Common Stock Equivalents:
Dilutive Effect of Stock Options -- 216 66
Dilutive Effect of Underwriter's
Warrant -- -- --
Weighted Average Series B Redeemable
Preferred Stock Outstanding 324
Weighted Average Series C Redeemable
Preferred Stock Outstanding -- -- 542
Staff Accounting Bulletin Common
Stock Equivalents:
Series C Redeemable Preferred Stock
Issued September 1993,
Calculated Using the Treasury Stock
Method at $5.50 Per Share -- -- 22
Dilutive Effect of Stock Options
Granted in the Twelve Months
Preceding the Offering, Calculated
Using the Treasury Stock
Method at $5.50 Per Share -- -- 72
Number of Shares Used in Computing
Per Share Information 3,797 3,640 1,514
Net Income (Loss) Per Share $ (.28) $ .06 $ .37
</TABLE>
</PAGE>
<PAGE> 45
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
(No. 33-76606) of Sigma Circuits, Inc. on Form S-8 of our report dated
July 31, 1996, (September 26, 1996 as to Paragraph 5 of Note 7)
appearing in this Annual Report on Form 10-K of Sigma Circuits, Inc.
for the year ended June 30, 1996.
DELOITTE & TOUCHE LLP
San Jose, California
September 26, 1996
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Operations filed as part of the Report on Form 10-K and
is qualified in its entirety by reference to such Report on Form 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> (297)
<SECURITIES> 0
<RECEIVABLES> 12,585
<ALLOWANCES> 598
<INVENTORY> 4,753
<CURRENT-ASSETS> 21,107
<PP&E> 39,508
<DEPRECIATION> 15,609
<TOTAL-ASSETS> 46,960
<CURRENT-LIABILITIES> 18,343
<BONDS> 0
0
0
<COMMON> 10,604
<OTHER-SE> 2,314
<TOTAL-LIABILITY-AND-EQUITY> 46,960
<SALES> 87,705
<TOTAL-REVENUES> 87,705
<CGS> 71,471
<TOTAL-COSTS> 71,471
<OTHER-EXPENSES> 16,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,689
<INCOME-PRETAX> (1,638)
<INCOME-TAX> (562)
<INCOME-CONTINUING> (1,076)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,076)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
