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.
(Fee Required)
For the fiscal year ended April 30, 1997
or
Transition Report pursuant to Section 13 or 15(d) of the
----- Securities Exchange Act of 1934.
(No Fee Required)
For the transition period from to .
------ -----
Commission file number 0-15047
CIRCUIT SYSTEMS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-2663010
------------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2350 E. Lunt Ave., Elk Grove Village, IL 60007
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 439-1999
--------------
Securities registered pursuant to Section 12(g) of the Act:
Common, no par value per share
Title of class
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non
affiliates of the registrant as of June 30, 1997 (based on the
closing price as quoted by NASDAQ as of such date) was $15,668,856.
The number of outstanding shares of the registrant's common stock,
no par value per share, as of June 30, 1997, was 5,069,273.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the definitive proxy statement of
Circuit Systems, Inc., for use in connection with its annual
meeting of stockholders to be held September 19, 1997 are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1.BUSINESS ...................................... 3
ITEM 2.PROPERTIES ................................... 6
ITEM 3.LEGAL PROCEEDINGS ............................. 7
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ........................ 7
PART II
ITEM 5.MARKET FOR THE REGISTRANT ' S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS .... 7
ITEM 6.SELECTED FINANCIAL DATA ...................... 8
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS .............................. 9
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..... 12
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE .... 12
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT .............................. 12
ITEM 11.EXECUTIVE COMPENSATION ....................... 12
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ................... 12
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS ............................ 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K ................ 12
SIGNATURES .............................................. 13
<PAGE>
This Form 10-K includes certain statements that may be deemed
to be "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements in
this Form 10-K which address activities, events or developments
that the Company expects or anticipates will or may occur in the
future, including such things as future acquisitions (including the
amount and nature thereof), business strategy, expansion and growth
of the Company's business and operations and other such matters are
forward-looking statements. Although the Company believes the
expectations expressed in such forward-looking statements are based
on reasonable assumptions within the bounds of its knowledge of its
business, a number of factors could cause actual results to differ
materially from those expressed in any forward-looking statements,
whether oral or written, made by or on behalf of the Company. Many
of these factors have previously been identified in filings or
statements made by or on behalf of the Company.
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PART I
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ITEM 1. BUSINESS
Circuit Systems, Inc. was incorporated in Illinois on May 26, 1967.
In September, 1985, the Company successfully completed its initial
public offering and became a publicly-owned company. The Company's
Common Stock is traded over-the-counter on NASDAQ under the symbol
CSYI.
The Compans manufactures and sells single-sided, double-sided,
and multilayer printed circuit boards. All of the Company's printed
circuit boards are specially designed by the customer and are
manufactured to exacting customer specifications. The boards
are sold primarily to original equipment and contract
manufacturers ("OEM's") of computers and peripherals, consumer
and industrial electronic equipment and telecommunications
equipment by the Company's in-house sales force and independent
sales representatives. The Company is a U.L. recognized
manufacturer of single-sided, double-sided and multilayer printed
circuit boards.
In September, 1995, the Company entered into an agreement with
Gujarat Apollo Industries and Finance Limited, of Ahmedabad, India,
a company registered under the Indian Companies Act, to form
Circuit Systems (India) Limited ("CSI (India)") to produce
primarily single-sided printed circuit boards in large volume in
Gandinagar, India, at competitive prices for the existing customers
in the international marketplace and in head-to-head competition
with Far East manufacturers. The Company's 70% investment consists
of a cash investment of $1,000,000 and approximately $250,000 of
both new and used equipment which it shipped to India. Operations
commenced in the fourth quarter of fiscal year 1997. CSI(India) is
expecting to generate approximately $1,200,000 in sales in the first
full year of operations and $2,000,000 in the second year.
The Company also purchased the leasehold rights to a 150,000 square
foot vacant parcel of land from the Maharashtra Industrial
<PAGE>
Development Corporation in the electronics zone near the airport in
Bombay, India. The Company expects to build a facility on the site
when the Company has determined that its customers have a need for
printed circuit board production for their Far East facilities.
The Company may also share the facility with a electronics
component manufacturer or assembler.
On May 22, 1997, the Company announced that it entered into a
definitive agreement to purchase the printed circuit board
manufacturing operation of Philips Consumer Electronics Company, a
division of Philips North America Operation. The purchase will
consist of all of the equipment and 93,360 square foot plant
located in Greeneville Tennessee, which is presently dedicated to
the production of single-sided printed circuit boards ("pcb") for
Philips television sets. This is a "state of the art" single-
sided pcb facility that has ISO 9002 and 14002 certification which
will bolster the Company's position as a single-sided pcb
manufacturing company in North America. Even though the facility
will continue producing Philips' requirements, there is sufficient
capacity so that additional single-sided customers can be
immediately added. The agreement also requires Philips to purchase
certain of its North American television sets requirements from
Circuit Systems for two years after the closing. The transaction
is expected to close at the end of July, 1997, after the completion
of due diligence.
The Company also owns 488,413 shares of SigmaTron International,
Inc. ("SigmaTron"), an electronics contract manufacturer,
representing an approximate 17% interest. Sigma's common stock
trades on the NASDAQ national market system under the symbol
"SGMA".
* PRINTED CIRCUIT BOARDS
Printed circuit boards consist of metallic interconnecting paths on
a nonconductive material, typically laminated epoxy glass. Holes
drilled in the laminate and plated-through with conductive material
from one surface to another, called plated-through holes, are used
to receive component leads and to interconnect the circuit layers.
Printed circuit boards are used in large quantities in the
electronics industry to mount and interconnect microprocessors,
integrated circuits and other electronic components.
The quality and design of printed circuit boards have evolved to
meet the changing needs of the electronics industry. The
development of electronic components with increased speed, higher
performance and smaller size has stimulated a demand for printed
circuit boards with increased reliability, density and complexity.
Double-sided printed circuit boards are manufactured with a
different circuit pattern on each side. Multilayer printed circuit
boards consist of three or more layers of circuitry laminated
together and interconnected by plated-through holes.
* MARKETS
The Illinois based Institute of Interconnecting and Packaging
Electronic Circuits ("IPC") reported that the total U.S. printed
circuit board industry grew in 1996 to approximately $7.9 billion
<PAGE>
from approximately $7.1 billion in 1995. Independent printed
circuit board manufacturers continued to keep a large share of the
total printed circuit board market. The independent's share,
according to the IPC, reached 86% in 1996 from 85% in 1995. The
IPC continues to be confident about future growth prospects for the
printed circuit board industry and estimates the industry sales
dollars to continue to grow between 7% to 8% for the years 1997 and
1998.
The printed circuit board market is segmented by type of circuit
boards, namely single-sided, double-sided, multilayer, backplane
and flexible. The Company currently does not manufacture any
backplane or flexible circuit boards. Historically, the Company
has operated primarily in the double-sided plated through hole
segment of the market, but as a marketing strategy, the Company
offers its customers a "one-stop shopping" capability since the
Company also serves the single-sided and multilayer segments of the
printed circuit board market. The Company also offers its
customers quick turn around prototype services to complement its
full range of services. Company's primary market in double sided
printed circuit boards has shown relatively slower growth rate than
overall pcb market.
For the year ended April 30, 1997, 7% of the Company's sales were
represented by single-sided, 81% by double-sided plated through,
and 12% by multilayer printed circuit boards. The IPC estimates
that single-sided, double-sided and multilayer printed circuit
boards represent 4%, 22% and 74%, respectively, of the total
printed circuit board market. Management will continue to pursue
additional market share in all three segments of the market.
* CUSTOMERS AND MARKETING
The Company had approximately 100 active customers as of April 30,
1997. These customers include small to large-size companies and
represent a cross-section of the electronics equipment industry.
The Company's customers are typically OEMs and subcontractors for
OEMs. The customers include American Power Conversion, Lucent
Technologies (formerly AT & T), General Instrument Corporation.,
Honeywell, Inc., Motorola, Inc., SCI Systems, Inc., SigmaTron
International, Inc., 3Com (formerly U. S. Robotics Corporation),
Zenith Electronics Corp., and many other accounts.
Lucent Technologies, American Power Conversion and SigmaTron
International, Inc. accounted for approximately 25.6%, 20.4% and
10.9%, respectively, of the Company's net sales for the year ended
April 30, 1997. Lucent Technologies and 3Com (formerly U.S. Robotics
Corporation), accounted for approximately 18.6% and 12.1%,
respectively, of the Company's net sales for the year ended April
30, 1996.
The Company's marketing strategy is to become a supplier to
potential customers who utilize printed circuit boards in volume
and build long-term relationships with those customers. Most of
the Company's customers require the Company to undergo a
qualification process before acceptance as a supplier. The Company
encourages the customer to use its production and engineering
facility in connection with the development of printed circuit
<PAGE>
boards for their new projects. In this way, the Company becomes
involved with the customer's engineers in the early stages of new
product design. The Company's Indian subsidiary CSI(India) intends
to market single-sided, double-sided and multilayer pcbs in India
and in the Far East. Once properly organized, CSI(India) can serve
some of the company's customers in USA who have long term needs for
simpler printed circuit boards.
The Company markets its products through 16 independent sales
representatives and through a sales and customer service staff
consisting of 10 full time individuals.
The Company's printed circuit boards are typically sold on terms
where the invoiced amounts are due within 30 days of invoice. The
Company generally warrants its boards for 30 days from date of
shipment.
* COMPETITION
The printed circuit board market is highly competitive and
fragmented. Over 650 independent manufacturers in the U.S. compete
primarily on the basis of price, quality, reliability and timely
deliveries rather than on patent protection. According to the IPC
report, there were 25 independent manufacturers of printed circuit
boards in the U.S. which had sales in excess of $50 million
in 1996. Manufacturing processes are complex and, therefore, it is
important to maintain a skilled and motivated work force. The
technology used in the manufacture of most boards is widely
available. Double-sided and multilayer circuit boards produced in
large volumes involve a higher level of material and process
technology and, therefore, a substantially larger investment in
plant and equipment is required.
Major in-house printed circuit board producers are also considered
competitors. In-house producers include companies which are
electronics equipment manufacturers significantly larger than the
Company and with significantly greater financial, technical and
other resources. Printed circuit board users having in-house
sources of supply also rely on independent board manufacturers to
supply a portion of their demand. There is a risk that the
Company's customers will make greater use of their own facilities
rather than purchasing from the Company.
* EMPLOYEES
At April 30, 1997, the Company had approximately 515 people
employed in the United States and approximately 40 in India on a
full-time basis in manufacturing, sales, engineering and
administrative functions. The Company believes that its employee
relations are good. The Company's employees are not represented by
a union and the Company has never experienced a work stoppage.
<PAGE>
* BACKLOG
As of June 30, 1997, the Company's backlog was approximately
$9,396,000 in contrast to $12,599,000 as of June 30, 1996. Backlog
is comprised of orders which have a scheduled shipment date. Some
orders in backlog may be canceled under certain conditions. The
majority of the June 30, 1997 backlog is scheduled to be shipped
within approximately 4 months. The reliability of backlog as an
indicator of future sales varies substantially with the make-up of
customers' orders and the Company's scheduled production and
delivery dates.
* MANUFACTURING PROCESS
The Company uses a variety of raw materials in its processes
including sheets of copper-clad epoxy glass, various chemicals, dry
film photo resists and gold used for sliding connector surfaces on
the printed circuit board. The raw materials used in the Company's
product consist chiefly of inorganic chemicals, copper foil,
copper-clad laminate stock and various core materials. Adequate
amounts of raw material have been readily available to the Company
in the past, and the Company believes it would, if necessary, be
able to qualify additional sources for supplies without a material
adverse effect on its business.
More than thirty sequential steps can be required in the printed
circuit board manufacturing process. Certain stages are entirely
manual and depend on operator skill, while others require
mechanical, electrical, chemical and metallurgical know-how and
high-precision photography.
All of the Company's products are designed by the customer and
manufactured to their specifications. Research and development
activities are related to advancing its manufacturing technology.
* COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS
Waste treatment and disposal is a major consideration for printed
circuit board manufacturers since the manufacturing processes
utilize substantial quantities of metals, acids, other toxic
substances and water. In order to comply with emerging
environmental regulations, the Company continues to invest in
equipment, materials and training of employees as required. From
time to time, unexpected minor violations have occurred which the
Company has promptly corrected. The Company also believes that all
of its manufacturing facilities currently materially comply with
all regulatory environmental laws.
<PAGE>
<TABLE>
ITEM 2. PROPERTIES
The Company owns five production facilities and one warehouse. The
following table lists the administrative and printed circuit board
production facilities of the Company:
Location Function Square Footage
-------------------------------------------------------------------
<S> <S> <C>
2350 E. Lunt Avenue Administrative and 48,000
Elk Grove Village, IL primarily double-sided
2201 Landmeier Road Primarily single-sided 140,000
Elk Grove Village, IL and double-sided
896 Anita Avenue Primarily multilayer 47,000
Antioch, IL
2450 E. Lunt Avenue Warehouse 38,000
Elk Grove Village, IL
2400 E. Lunt Avenue Primarily 61,000
Elk Grove Village, IL Double-Sided
CSI(India) Single-sided, Double-sided 60,000
Gandhinagar, India and Multilayer
** Approximately 75,000 square feet are leased to SigmaTron,
which paid an aggregate rental of approximately $336,000 to the
Company in 1997.
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal actions arising in the ordinary
course of its business, none of which, individually or in the
aggregate, in the opinion of management, after consulting with
counsel, will have a material adverse effect on the business or
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth
quarter of fiscal 1997.
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the National Association of
Securities Dealers National Market System ("NASDAQ") under the
symbol CSYI. The following table sets forth the closing prices in
the NASDAQ National Market System for the Common Stock, as reported
by NASDAQ.
<TABLE>
PERIOD HIGH LOW
-------------- --------- ---------
<S> <C> <C>
Fiscal 1996
First Quarter 4 1/4 3 1/8
Second Quarter 5 1/8 3 1/8
Third Quarter 7 7/8 4 1/4
Fourth Quarter 7 1/2 4 3/8
Fiscal 1997
First Quarter 7 4 1/2
Second Quarter 5 7/8 4 1/4
Third Quarter 5 1/4 3 5/8
Fourth Quarter 5 5/8 4 3/8
</TABLE>
The Company has not paid dividends on its Common Stock since fiscal
1980. Declarations of dividends is within the discretion of the
Company's Board of Directors, which will review its dividend policy
from time to time. The Company's loan agreements currently
contain certain restrictions that may have the effect of limiting
the amount of dividends which the Company could pay in the future.
See Note C of Notes to Consolidated Financial Statements.
As of June 30, 1997 there were approximately 220 holders of
record of the Common Stock of the Company, which does not include
shareholders whose stock is held through securities position
listings.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Year Ended April 30,
(In thousands, except for per share amounts)
1993 1994 1995 1996 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $51,419 $60,411 $59,586 $65,130 $63,414
Net Earnings 3,056 4,989 2,242 3,084 2,119
Net Earnings per
common share(1) .59 .95 .42 .58 .40
Total Assets 26,074 33,102 39,411 45,816 45,758
Long -Term 7,406 5,612 11,622 14,536 10,640
Obligations
</TABLE>
(1) Earnings per common share have been determined using the
weighted average number of common and common equivalent shares
outstanding. The weighted average number of common and common
equivalent shares outstanding for the years ended April 30, 1993,
1994, 1995, 1996 and 1997 were 5,185,145, 5,261,766, 5,328,719,
5,353,428, and 5,338,240 respectively.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Selected Financial Data and Consolidated Financial Statements and
Notes thereto appearing elsewhere herein.
<TABLE>
Year Ending April 30,
(In thousands, except for per share amounts)
1995 1996 1997
----------------- ------- ------- -------
<S> <C> <C> <C>
Net Sales $59,586 $65,130 $63,414
Cost of Sales 50,772 54,392 55,077
Gross Profit 8,814 10,738 8,337
Operating Expenses 5,017 5,328 5,553
Operating Profit 3,797 5,410 2,784
Other Deductions
(Income)-Net 133 408 (552)
Income Tax Expense 1,422 1,918 1,217
Net Earnings $2,242 $3,084 $2,119
Net Earnings
per Common Share $ .42 $ .58 $ .40
</TABLE>
* RESULTS OF OPERATIONS 1997 COMPARED TO 1996
General
During the year ended April 30, 1997, the Company completed its
investment of machinery and equipment in its 70% owned foreign
subsidiary, Circuit Systems (India) Limited ("CSI(India)"). In
January 1997, the Company invested $1,000,000 in cash in CSI(India)
and CSI(India) acquired the pcb manufacturing facility, leasehold
land and machinery and equipment of the electronics division of
Stovec Industries Limited for approximately $1,250,000. The
acquisition was accounted for as a purchase and the purchase price
was allocated to property, plant and equipment based upon
appraisals, and relevant facts. The accounts of CSI(India) have
been included in the consolidated financial statements based upon a
March 31 year end. CSI(India) commenced operations and began
training personnel and producing prototype and trial run orders
near the end of the Company's fiscal year 1997.
<PAGE>
Operations
The net sales in 1997 decreased by 2.6% to $63,414,000 from
$65,130,000 in the prior year. The decrease in sales is primarily
due to a general decrease in business activity within the existing
customer base. Net sales to three customers accounted for
approximately $36,035,000 or 56.8% of net sales in 1997 compared to
1996 in which four customers accounted for approximately
$29,832,000 or 45.8% of net sales.
The gross profit in 1997 was $8,337,000 or 13.1% of net sales,
compared to $10,738,000 or 16.5% of net sales for the prior year.
The lower gross profit is attributed to a change in product mix,
very competitive pricing, and realignment of its current facilities
which increased expenses as a percentage of sales.
Selling, General and Administrative expense in 1997 was $5,553,000
or 8.8% of net sales, compared to $5,328,000 or 8.2% of net sales
in the prior year. The increase in the expenses as a percentage of
net sales is due to increases in salaries, professional services,
and commissions (higher commissionable sales base) and CSI(India)'s
administrative expenses of $72,000, while the provision for bad
debts decreased.
Other Deductions (Income) reflected income of $552,000 in 1997
compared to a deduction of $408,000 in the prior year. Income in
1997 was the result of a gain of $1,092,000 on the sale of 68,000
shares of SigmaTron's common stock and equity in the earnings of
SigmaTron, increased to $636,000 from $478,000 in the prior year.
The increases in other income were offset by increased interest
expense to $1,613,000 from $1,527,000 in the prior year, and
decreased rental income from $552,000 in the prior year to $339,000
(due to the non-rental of the 2400 and 2450 E. Lunt Avenue
locations).
The 1997 effective income tax rate was 36.5% as compared to 38.4%
in the prior year. The effective rate has decreased due to certain
state credits and increased utilization of the foreign sales
corporation.
The net earnings and earnings per share for 1997 were $2,119,000
and $.40, respectively, compared to $3,084,000 and $.58,
respectively, for the prior year.
The Company's backlog of orders at June 30, 1997 is $9,396,000
compared to $12,599,000 at June 30, 1996. Backlog represents
orders scheduled to be shipped within approximately six months,
but most of which is shipped in four months or less. The
reliability of backlog as an indicator of future sales varies
substantially with the make-up of customer orders and the Company's
scheduled production and delivery dates.
SigmaTron net sales, gross profit and net earnings for the year
ended April 30, 1997 were $87,216,000, $12,639,000, and $3,255,000,
respectively, as compared to $69,558,000, $10,142,000 and
$2,367,000, respectively, for the year ended April 30, 1996.
<PAGE>
* RESULTS OF OPERATIONS 1996 COMPARED TO 1995
The net sales in 1996 increased by 9.3% to $65,130,000 from
$59,586,000 in the prior year. The increase in sales was not as a
result of price increases but is primarily due to four individual
customers which accounted for approximately $29,832,000 or 45.8% of
net sales in 1996 compared to 1995 in which two customers accounted
for approximately $12,964,000 or 21.5% of net sales.
The gross profit in 1996 was $10,738,000 or 16.5% of net sales,
compared to $8,814,000 or 14.8% of net sales for the prior year.
The higher gross profit percentage in 1996 is attributed to the
higher volume of sales and a decrease in materials and factory
supplies that were partially offset by increases in overhead
expenses as a percentage of sales. The lower gross profit
percentage in 1995 was attributed to a higher level of returns and
rework and continuation of very competitive pricing within the
industry, which had resulted in higher costs as a percentage of
sales.
Selling, General and Administrative expense in 1996 was $5,328,000
or 8.2% of net sales, compared to $5,017,000 or 8.4% of net sales
in the prior year. Commission expense, provision for bad debts and
overhead expenses increased, while salaries and professional
services decreased when compared to the prior year.
Other Deductions - Net in 1996 was $408,000 compared to $133,000 in
the prior year. Additional borrowings on equipment notes and
leases increased interest expense to $1,527,000 from $924,000 in
the prior year. This increase was partially offset by the equity
in the net earnings of the unconsolidated affiliate, SigmaTron to
$478,000 compared to $384,000 in the prior year. Rental income
increased to $552,000 compared to $425,000 in the prior year and
sundry items had income of $82,000 in 1996 compared to an expense
of $24,000 in the prior year.
The 1996 effective income tax rate was 38.4% as compared to 38.8%
in the prior year.
The Net Earnings and Earnings Per Share for 1996 were $3,084,000
and $.58, respectively, compared to $2,242,000 and $.42,
respectively, for the prior year.
The Company's backlog of orders at June 30, 1996 was $12,599,000
compared to $12,060,000 at June 30, 1995. Backlog represents
orders scheduled to be shipped within approximately 6 months, but
most of which is shipped in 4 months or less. The reliability of
backlog as an indicator of future sales varies substantially with
the make-up of customer orders and the Company's scheduled
production and delivery dates.
SigmaTron net sales, gross profit and net earnings for the year
ended April 30, 1996 were $69,558,000, $10,142,000 and $2,367,000,
respectively, as compared to $45,345,000, $8,412,000 and
$1,891,000, respectively, for the year ended April 30, 1995.
<PAGE>
* LIQUIDITY AND CAPITAL RESOURCES
During 1997 the Company generated positive cash flow from operating
activities of $7,553,000. This amount together with proceeds from
long-term obligations of $5,851,000, proceeds of $1,475,00 from the
sale of SigmaTron stock and the minority interest capital
contribution of $501,000 was used for the net
decrease in the line of credit of $4,388,000, payments on long-term
obligations of $4,220,000 and capital expenditures of $5,810,000.
The Company has line of credit for $10,000,000 consisting of
$6,000,000 which matures on August 31, 1998 and $4,000,000 which
matures on August 31, 1997, and is expected to be renewed. The
maximum borrowings of $10,000,000, is limited to 80% of eligible
accounts receivable, 50% of eligible raw materials inventory not to
exceed $2,000,000 and 75% of eligible finished goods inventory not
to exceed $3,000,000. The agreement contains certain covenants
restricting the amount of dividends the Company could pay, capital
stock redemption, capital expenditures, financial covenants
pertaining to the maintenance of current ratio, debt ratio and net
income as defined. There were no borrowings on the line as of
April 30,1997.
The Company is in the process of finalizing negotiations to acquire
the domestic pcb operations of Philips Consumer Electronics
Company. The purchase would consist of land, building, machinery
and inventory located in Greeneville, Tennessee and would require
Philips to purchase certain of its pcb requirements from the
Company. The purchase price would be approximately $10,000,000 and
would be funded through committed term and mortgage notes as well
as the Company's line of credit. It is anticipated that this
facility will provide the Company with a high volume "state-of-
the-art" singled-sided pcb production facility.
The Company has purchase commitments as of June 30, 1997 of
approximately $3,300,000 for future deliveries of machinery and
equipment and $350,000 for building improvements to the 2400 E.
Lunt Avenue property. The Company intends to finance such
purchases through collateralized borrowings, installment loans and
existing cash flow.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Response to this Item is included in Item 14(a) of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
<PAGE>
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in
the Company's proxy statement relating to the annual meeting of
shareholders to be held September 19, 1997, and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in
the Company's proxy statement relating to the annual meeting of
shareholders to be held September 19, 1997, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial
owners and management will be set forth in the Company's proxy
statement relating to the annual meeting of shareholders to be held
September 19, 1997, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions will be set forth in the Company's proxy statement
relating to the annual meeting of shareholders to be held September
19, 1997, and is incorporated herein by reference.
*******************************************************************
PART IV
*******************************************************************
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) and (a)(2) The financial statements including supporting
schedules, are listed in the Index to Financial Statements and
Financial Statement Schedules filed as part of this Form 10-K on
Page F-1 and include the following:
(a)(1) Consolidated Financial Statements - Circuit Systems, Inc.
and Subsidiaries.
(a)(2) Schedule II - Valuation and Qualifying Accounts
Separate financial statements of subsidiaries not
consolidated and 50% or less owned persons - Consolidated
Financial Statements of SigmaTron International, Inc.
(a)(3) See Index to Exhibits filed as part of this Form 10-K.
(b) Reports on Form 8-K: None.
(c) Exhibits: Included in Item 14(a)(3) above.
(d) Financial Statement Schedules required by Regulation S-X.
Included in Items 14(a)(1) & 14(a)(2) above.
<PAGE>
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.
Circuit Systems, Inc.
Dated: July 25, 1997 By: /s/ D.S. Patel
-------------------------
D.S. Patel, President and
Chief Executive Officer
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 on the dates
indicated.
Signature Title Date
/s/ D.S. Patel Chairman of the Board of July 25, 1997
---------- Directors; President and
D.S. Patel Chief Executive Officer
(Principal Executive
Officer)
/s/ Richard J. Augustine Director July 25, 1997
--------------------
Richard J. Augustine
/s/ Gary R. Fairhead Director July 25, 1997
----------------
Gary R. Fairhead
/s/ C. Joseph Incrocci Director July 25, 1997
------------------
C. Joseph Incrocci
/s/ Magan H. Patel Executive Vice President, July 25, 1997
-------------- Assistant Secretary and
Magan H. Patel Director
/s/ Thomas W. Rieck Secretary and Director July 25, 1997
---------------
Thomas W. Rieck
/s/ Dilip S. Vyas Vice President-Business July 25, 1997
------------- Development, and Director
Dilip S. Vyas (Principal Financial Officer)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........ F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS ................................................. F-3
LIABILITIES ............................................ F-4
CONSOLIDATED STATEMENTS OF EARNINGS ..................... F-5
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY .......... F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS ................... F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .............. F-9
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ......... F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Circuit Systems, Inc.
We have audited the accompanying consolidated balance sheets of
Circuit Systems, Inc. (an Illinois Corporation) and Subsidiaries
as of April 30, 1996 and 1997, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended April 30, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Circuit Systems, Inc. and Subsidiaries as of April 30,
1996 and 1997, and the consolidated results of their operations
and their consolidated cash flows for each of the three years in
the period ended April 30, 1997, in conformity with generally
accepted accounting principles.
We have also audited Schedule II of Circuit Systems, Inc. and
Subsidiaries for each of the three years in the period ended April
30, 1997. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth
therein.
GRANT THORNTON LLP
Chicago, Illinois
July 3, 1997
<PAGE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
April 30,
<TABLE>
ASSETS 1996 1997
---------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .................. $ 243,269 $ 294,204
Receivables
Trade .................................... 7,951,621 6,308,699
Affiliate ................................ 628,641 727,986
Other .................................... 13,872 25,097
---------- ----------
8,594,134 7,061,782
Less allowance for doubtful receivables .. 475,000 500,000
---------- ----------
8,119,134 6,561,782
Inventories
Raw material ............................. 3,909,818 2,797,845
Work in process .......................... 2,094,047 2,129,627
Finished goods ........................... 1,596,777 1,709,349
---------- ----------
7,600,642 6,636,821
Deferred income taxes ...................... 408,000 363,000
Prepaid expenses ........................... 193,137 215,674
---------- ----------
Total current assets .................. 16,564,182 14,071,481
INVESTMENT IN AFFILIATE...................... 2,587,609 2,841,193
PROPERTY, PLANT AND EQUIPMENT - AT COST
Building and improvements ................ 8,397,345 9,446,475
Machinery and equipment .................. 26,482,833 33,724,712
Automotive equipment ..................... 64,789 83,796
Equipment not placed in service .......... 3,488,394 146,502
---------- ----------
38,433,361 43,401,485
Less accumulated depreciation
and amortization ........................ 15,894,629 18,442,154
---------- ----------
22,538,732 24,959,331
Land ..................................... 2,351,703 2,814,613
---------- ----------
24,890,435 27,773,944
OTHER ASSETS
Cash surrender value of officers'
life insurance policies .............. 352,868 409,738
Equipment and land deposits ................ 841,504 119,608
Sundry ..................................... 579,656 542,135
---------- ----------
1,774,028 1,071,481
---------- ----------
$45,816,254 $45,758,099
========== ==========
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
April 30,
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1997
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations $ 3,523,979 $ 4,662,289
Accounts payable ........................... 3,659,482 4,095,791
Accrued expenses ........................... 1,012,121 1,193,969
Income taxes payable ....................... 322,432 384,745
---------- ----------
Total current liabilities............... 8,518,014 10,336,794
LONG-TERM OBLIGATIONS........................ 14,535,823 10,640,363
DEFERRED INCOME TAXES........................ 1,560,000 1,848,000
MINORITY INTEREST............................ - 471,246
COMMITMENTS AND CONTINGENCIES................ - -
SHAREHOLDERS' EQUITY
Common stock - authorized, 20,000,000 shares
without par value; issued and outstanding,
5,321,973 shares in 1996 and
5,158,073 shares in 1997 .................. 3,002,599 2,882,322
Retained earnings .......................... 18,199,818 19,596,240
Cumulative foreign currency
translation adjustment - (16,866)
---------- ----------
21,202,417 22,461,696
---------- ----------
$45,816,254 $45,758,099
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended April 30,
<TABLE>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................. $59,586,492 $65,130,099 $63,414,341
Cost of goods sold.................... 50,772,539 54,391,753 55,077,512
---------- ---------- ----------
Gross profit.................... 8,813,953 10,738,346 8,336,829
Sales and marketing expenses.......... 2,786,894 3,035,967 3,168,551
Administrative expense................ 2,177,404 1,915,492 2,347,444
Provision for doubtful receivables.... 52,303 377,159 36,761
---------- ---------- ----------
5,016,601 5,328,618 5,552,756
Operating profit................. 3,797,352 5,409,728 2,784,073
Other deductions (income)
Interest expense...................... 924,080 1,527,467 1,612,854
Interest income....................... (6,143) (7,414) (14,031)
Equity in earnings of unconsolidated
affiliate........................... (384,361) (478,384) (636,260)
Realized gain on sale of
common stock of affiliate........... - - (1,092,215) -
Minority interest in loss of subsidiary - - (30,113)
Rental income ........................ (424,691) (551,650) (338,620)
Sundry ............................... 24,482 (82,172) (53,492)
---------- ---------- ----------
133,367 407,847 (551,877)
Earnings before income taxes 3,663,985 5,001,881 3,335,950
Income tax expense............... 1,422,000 1,918,000 1,217,000
---------- ---------- ----------
NET EARNINGS..................... $ 2,241,985 $ 3,083,881 $ 2,118,950
========== ========== ==========
Per share data
Net earnings .................. $.42 $.58 $.40
=== === ===
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended April 30, 1995, 1996 and 1997
Cumulative
foreign
currency
Common Retained translation
stock earnings adjustment Total
--------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Balance at May 1, 1994........ $2,644,849 $12,873,952 $ - $15,518,801
Issuance of 54,000 shares of
common stock .............. 357,750 - - 357,750
Net earnings for the year..... - 2,241,985 - 2,241,985
---------- ---------- ------- ----------
Balance at April 30, 1995..... 3,002,599 15,115,937 - 18,118,536
Net earnings for the year..... - 3,083,881 - 3,083,881
---------- ---------- ------- ----------
Balance at April 30, 1996..... 3,002,599 18,199,818 - 21,202,417
Net earnings for the year..... - 2,118,950 - 2,118,950
Purchase and retirement of
163,900 shares of common stock (120,277) (722,528) - (842,805)
Foreign currency
translation adjustment....... - - (16,866) (16,866)
---------- ---------- ------- ----------
Balance at April 30, 1997.....$ 2,882,322 $19,596,240 $(16,866) $22,461,696
========== ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
<TABLE>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings .......................... $2,241,985 $3,083,881 $2,118,950
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization........ 2,912,922 3,144,759 3,648,827
Deferred income taxes................ 327,000 269,000 333,000
Loss (gain) on sale/disposition
of equipment........................ 3,786 (31,271) (5,500)
Equity in earnings of
unconsolidated affiliates........... (384,361) (478,384) (636,260)
Realized gain on sale of common stock
of affiliate........................ - - (1,092,215)
Minority interest in loss of subsidiary - - (30,113)
Changes in assets and liabilities
Receivables.......................... (1,222,464) 1,888,041 1,557,352
Inventories.......................... (846,353) (3,518,617) 963,821
Prepaid expenses..................... (107,322) 59,889 (22,537)
Other assets......................... (1,022,101) 16,744 37,521
Accounts payable, accrued expenses
and income taxes payable............ (47,451) (1,186,806) 680,470
--------- --------- ---------
Total adjustments........... (386,344) 163,355 5,434,366
--------- --------- ---------
Net cash provided by operating activities 1,855,641 3,247,236 7,553,316
Cash flows from investing activities:
Capital expenditures ................ (4,755,409) (7,452,816) (5,810,440)
Proceeds from sale of equipment ..... 53,392 165,666 5,500
Dissolution of partnership .......... 53,552 - -
Repayment of note receivable
from affiliate...................... 55,000 - -
Proceeds from sale of common stock
of affiliate........................ - - 1,474,891
Minority interest capital
contribution to subsidiary.......... - - 501,359
Increase in cash surrender value .... (22,085) (51,809) (56,870)
--------- --------- ---------
Net cash used in investing activities (4,615,550) (7,338,959) (3,885,560)
Cash flows from financing activities:
Net borrowings (payments) under
line of credit....................... 1,258,024 (489,275) (4,388,274)
Proceeds from issuance of
long-term obligations................ 6,300,000 7,984,895 5,850,638
Payments on long-term obligations..... (4,703,574) (3,288,493) (4,219,514)
Purchase of common stock.............. - - (842,805)
--------- --------- ---------
Net cash provided by (used in)
financing activities............... 2,854,450 4,207,127 (3,599,955)
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
<TABLE>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Effect of foreign exchange rate changes $ - $ - $ (16,866)
--------- --------- ---------
INCREASE IN CASH AND
CASH EQUIVALENTS .......... 94,541 115,404 50,935
Cash and cash equivalents at
beginning of year..................... 33,324 127,865 243,269
-------- --------- ---------
Cash and cash equivalents at end of year $ 127,865 $ 243,269 $ 294,204
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................ $ 921,380 $1,538,567 $1,564,242
Income taxes........................ 1,230,171 1,535,739 821,687
Supplemental schedule of non-cash investing
and financing activities:
Issuance of capital stock in
satisfaction of accrued compensation
and benefits....................... $ 357,750 $ - $ -
Capital leases for new equipment. .. 954,330 - -
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1996 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies applied
in the preparation of the accompanying consolidated financial
statements follows.
Industry
The Company operates in a single industry segment, the electronics
industry, including the manufacture and sale of printed electronic
circuit boards.
Principles of Consolidation
The accounts of wholly-owned and majority-owned subsidiaries are
included in the consolidated financial statements. Investments in
affiliates owned 20 percent or more are accounted for under the
equity method. Investments owned less than 20 percent are
generally carried at cost, unless management determines that the
Company exercises significant influence over the operations of the
affiliate, in which case, such investments are accounted for under
the equity method.
The Company records gains or losses in earnings on the sale of
common stock of its affiliates and on the Company's proportionate
share of increases (decreases) in the net book value of its
investees resulting from such investees' stock issuances.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property and Equipment
Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations
over their estimated service lives, principally on a straight-line
basis.
The principal estimated lives used in determining depreciation are
as follows:
Machinery and equipment.............................. 5 to 7 years
Buildings and improvements...........................5 to 39 years
Automotive equipment................................. 3 years
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Property and Equipment - Continued
Leased property under capital leases is amortized over the lives
of the respective leases or over the service lives of the assets.
Accelerated depreciation methods are used for tax purposes.
Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards Board Statement No.
109-"Accounting for Income Taxes" ("SFAS No.109"). Deferred tax
assets and liabilities are provided for temporary differences
between the financial reporting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to
be in effect when such amounts are realized or settled.
Earnings Per Common Share
Earnings per common share have been determined using the weighted
average number of common and common equivalent shares outstanding.
The weighted average number of common and common equivalent shares
outstanding for the years ended April 30, 1995, 1996 and 1997 was
5,328,719, 5,353,428, and 5,338,240, respectively.
Foreign Subsidiaries
Foreign currency adjustments, arising from the translation of the
foreign subsidiaries' financial statements to U.S. dollars, are
recorded in the cumulative foreign currency translation accounts
as a separate component of stockholders' equity. Assets and
liabilities are translated to U.S. dollars using exchange rates in
effect at the balance sheet date. The results of operations are
translated using the monthly average exchange rates for the year.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company has a broad customer base representing many types of
businesses within the electronics industry throughout North
America, Western Europe and Southern Asia. Consequently, in
management's opinion, no significant concentration of credit risk
exists for the Company.
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash
equivalents, cost-basis investments, and long-term debt. The
carrying value of the cash and cash equivalents and long-term
obligations approximates their estimated fair values based upon
quoted market prices. Management believes the estimated fair value
of a cost-basis investment equals or exceeds its carrying value
although there can be no assurances that this is the case.
Management's Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Future Accounting Changes
In February, 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share," which requires presentation
of basic and diluted earnings per share together with disclosure
of how the per share amounts were computed. Basic earnings per
share excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised and converted
into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. The adoption of SFAS
No. 128 is effective for financial statements issued after
December 15, 1997. Early adoption of this new standard is not
permitted. The adoption of SFAS No. 128 is not expected to have a
material impact on the disclosure of earnings per share in the
financial statements.
NOTE B - ACQUISITION
In January, 1997, the Company's 70% owned subsidiary, Circuit
Systems (India) Limited acquired the printed circuit board
manufacturing facility, leasehold land and machinery and equipment
of the electronics division of Stovec Industries Limited for
approximately $1,250,000. The acquisition is accounted for as a
purchase; accordingly, the results of operations are included in
the consolidated financial statements from the date of
acquisition. The purchase price was allocated to property, plant
and equipment based upon appraisals and relevant facts.
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE C - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
April 30,
1996 1997
---------- ----------
<S> <C> <C>
Five mortgage notes, payable in monthly
installments of approximately $87,000 through
November, 2001, with interest rates ranging
from 7.7% to 10.75%, collateralized by buildings
and land. Two mortgage notes have balloon payments
totaling approximately $2,974,000 due in
March and April, 2000.............................. $ 4,961,396 $ 5,888,356
Various installment notes, payable through
April, 2001 in monthly payments of approximately
$342,000 collateralized by certain machinery
and equipment. Interest rates range
from 7.4% to 10.5%................................. 7,933,732 8,691,982
Various capital lease obligations, payable in
monthly payments of approximately $27,000 plus
interest through December, 1998, and collateralized
by certain machinery and equipment................. 711,400 446,317
Revolving credit agreement (1)..................... 4,388,274 -
Pollution control revenue bonds with an
interest rate of 5.2% (2).......................... 65,000 65,000
Other.............................................. - 210,997
---------- ----------
18,059,802 15,302,652
Less current maturities............................ 3,523,979 4,662,289
---------- ----------
$14,535,823 $10,640,363
========== ==========
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE C - LONG-TERM OBLIGATIONS - Continued
(1)Consists of a line of credit dated August 30,1996 which
provides for maximum borrowings of $10,000,000, which is
limited to 80% of eligible accounts receivable and 50% of
eligible raw material inventories (up to $2,000,000) and 75%
of eligible finished goods inventories (up to $3,000,000), at
the bank's prime rate (8.5% at April 30, 1997). In addition,
the Company may borrow in $1,000,000 increments under this
line of credit for 30, 60, or 90 days at the bank's cost of
funds plus 2%. Interest is paid monthly. Under the
agreement, $6,000,000 matures on August 31, 1998 and
$4,000,000 matures on August 31, 1997. There were no
borrowings on the line as of April 30, 1997.
The loan is collateralized by a security agreement covering
substantially all of the assets of the Company. Certain loan
covenants restrict or limit, among other things, the amount of
dividends which could be paid, the amount of capital stock
redemptions, formation of subsidiaries, investments in and
accounts receivable from affiliates and financial covenants
pertaining to the maintenance of current ratio, debt ratio and
net income as defined. The Company was in violation of a
covenant at April 30, 1997, which restricts its investment and
advances to affiliates and has been waived by the bank. At
April 30, 1997, the Company's eligible borrowing base was
approximately $7,700,000.
(2)Consists of a Pollution Control Revenue Bond agreement with
the Illinois Industrial Pollution Control Financing Authority
for the purchase of certain pollution control equipment.
These bonds, which were issued in 1977, mature on December 1,
1997.
The capitalized lease obligations represent a method of financing
certain machinery and equipment. The following is an analysis of
the leased machinery and equipment under capital leases:
<TABLE>
April 30,
1996 1997
-------- --------
<S> <C> <C>
Machinery and equipment.................... $954,330 $954,330
Less accumulated amortization.............. 204,499 340,832
------- -------
$749,831 $613,498
======= =======
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE C - LONG-TERM OBLIGATIONS - Continued
The following is a schedule by years of future minimum lease
payments under capital leases, together with the present value of
the net minimum lease payments as of April 30, 1997:
<TABLE>
<S> <C>
Year ending April 30,
1998 ...............................................$ 296,518
1999 ............................................... 188,710
-------
Net minimum lease payments............................ 485,228
-------
Less amount representing interest..................... 38,912
-------
Present value of net minimum lease payments...........$ 446,317
=======
Scheduled annual maturities of total long-term obligations as of
April 30, 1997 are as follows:
Year ending April 30,
1998.............................................$ 4,662,289
1999............................................. 4,270,537
2000............................................. 5,539,096
2001............................................. 751,024
2002............................................. 79,706
----------
$15,302,652
==========
</TABLE>
NOTE D - INCOME TAXES
Income tax expense consists of the following:
<TABLE>
Year ended April 30,
1995 1996 1997
<S> <C> <C> <C>
Current
Federal .........................$ 885,000 $1,339,000 $ 788,000
State ........................... 210,000 310,000 96,000
Deferred........................... 327,000 269,000 333,000
--------- --------- ---------
$1,422,000 $1,918,000 $1,217,000
========= ========= =========
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE D - INCOME TAXES
The Federal income tax returns of the Company have been examined
and cleared by the Internal Revenue Service through 1994. Results
of the examination were not material. A reconciliation of the
Federal statutory income tax rate to the Company's effective tax
expense rate is as follows:
Percent of pretax earnings
Year ended April 30,
1995 1996 1997
---- ---- ----
[S] [C] [C] [C]
Statutory Federal income tax rate....... 34.0% 34.0% 34.0%
State income taxes, net of Federal
benefit and state credits..................4.8 4.7 3.1
Effect of Foreign Sales Corporation..... (.7) (.5) (1.2)
Other - net............................. .7 .2 .6
---- ---- ----
Effective income tax expense rate.. 38.8% 38.4% 36.5%
==== ==== ====
The Company utilized net operating loss carryforwards of $118,000
during the year ended April 30, 1995.
The tax effects of existing temporary differences that give rise
to significant portions of the deferred tax liabilities and
deferred tax assets are as follows at April 30:
<TABLE>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful receivables .........$ 180,000 $ 190,000
Employee benefits .......................... 165,000 166,000
Accrued expenses and other ................. 121,000 89,000
--------- ---------
466,000 445,000
Deferred tax liabilities:
Depreciation ............................... (1,059,000) (1,224,000)
Equity in earnings of affiliate ............ (336,000) (510,000)
Unrealized gain on public stock offering
by affiliate............................... (223,000) (196,000)
--------- ---------
(1,618,000) (1,930,000)
--------- ---------
Net deferred tax liability ................. $(1,152,000) $(1,485,000)
========= =========
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE E - EMPLOYEE BENEFIT PLANS
The Circuit Systems, Inc. Employee Stock Ownership Plan ("ESOP")
covers substantially all employees of the Company. The ESOP is a
noncontributory plan designed to invest primarily in the common
stock of the Company and to distribute retirement benefits (or
benefits in the event of death or disability) in the form of such
stock or cash. The ESOP is subject to the provisions of the
Employee Retirement Income Security Act of 1974.
The Company may make contributions to the ESOP in the form of
cash, Company stock or other property, solely at the discretion of
the Board of Directors. The contribution expense for each of the
years ended April 30, 1995 and 1996 was $125,000. No contribution
was made for the year ended April 30, 1997. The plan holds
233,714 shares of Company stock as of April 30, 1996 and 1997.
All of these shares are allocated to participant accounts and are
considered to be outstanding shares for computing the Company's
weighted average number of shares outstanding. The Company has
approved a resolution to terminate the ESOP in fiscal year 1998.
Effective May 1, 1995, the Company adopted the Circuit Systems,
Inc. 401(k) Plan covering substantially all employees of the
Company who have completed one year of service. Participants may
elect to defer up to 15% of their eligible compensation. The
Company contributes 25% of the participants' deferrals, up to 6%
of eligible compensation. The Company's contribution to the Plan
amounted to approximately $80,000, $79,000 and $78,000 for the
years ended April 30 1995, 1996 and 1997, respectively.
NOTE F - CONTINGENCIES
The Company's operations are subject to extensive and rapidly
changing Federal and state environmental regulations governing air
emissions, waste water discharges, and solid and hazardous waste
management activities. The Company's policy is to accrue
environmental and cleanup related costs when it is both probable
that a liability has been incurred and the amount can be
reasonably estimated. Although the level of future expenditures
for environmental and cleanup matters is impossible to determine
with any degree of probability, and such costs could be
significant within any one year, it is management's opinion that
such costs, when finally determined, will not have a material
adverse effect on the consolidated financial position of the
Company.
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE G - STOCK OPTIONS
The 1993 Stock Option Plan was approved by shareholders of the
Company in September, 1993. The 1993 plan provides for the
granting of a maximum of 500,000 stock options to employees of the
Company at prices not less than 100% of the market price at the
date of grant. The maximum term of an option may not exceed ten
years. The options vest in 25% increments every six month period
after the date of grant.
The 1994 Directors' Stock Option Plan was approved by the
shareholders of the Company in September 1994 and reserved 100,000
shares of common stock for issuance pursuant to this plan. All
directors of the Company who are not full-time employees of the
Company are eligible for the plan. Each eligible director in
office at each annual shareholders' meeting beginning in 1994 is
automatically granted an option to purchase 5,000 shares of stock
at an exercise price equal to the fair market value on the date of
grant. The term of the options shall be ten years but may not be
exercised within the first six months following the grant of the
option.
In addition, during 1993 the Company granted 95,000 nonqualified
stock options to certain unaffiliated investment advisors. The
options were granted at the fair market value on the date of
grant. During the years ended April 30, 1995 and 1996, 50,000 and
20,000 options, respectively, expired. The option price on the
remaining options is $4.00 per share and they expire in fiscal
year 1998. None of the options have been exercised through April
30, 1997.
In accordance with the provisions of Statement of Financial
Accounting Standards No.123,"Accounting for Stock-Based Compensation"
(``SFAS 123''), the Company has elected to continue to account for
stock-based compensation under the intrinsic value based method
of accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Under APB 25, generally, no cost is recorded for stock options
issued to employees unless the option price is below market at
the time options are granted. The following pro forma net income
and earnings per share are presented for informational purposes
and have been computed using the fair value method of
accounting for stock-based compensation as set forth in SFAS 123:
<TABLE>
April 30,
1996 1997
--------- ---------
<S> <C> <C>
Net earnings............................... $3,083,881 $2,118,950
Pro forma net earnings..................... 2,973,525 1,833,926
Net earnings per share..................... .58 .40
Pro forma net earnings per share........... .56 .34
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE G - STOCK OPTIONS - Continued
These pro forma amounts may not be representative of future
disclosures because they do not take into effect pro forma
compensation expense related to grants made before 1995. The pro
forma results include expense related to the fair value of stock
options estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions:
1996 1997
Expected dividend yield........................... 0% 0%
Expected stock price volatility................... 71.6% 82.4%
Risk-free interest rate........................... 6.4% 6.9%
Weighted average expected life of options......... 9 years 9 years
Option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate in management's opinion, the existing
method does not necessarily provide a reliable single measure of
the fair value of its employee stock options.
Information relating to stock option transactions over the past
three years is summarized as follows:
<TABLE>
Options outstanding Options exercisable
---------------------- -----------------------
Weighted Weighted
average average
Number price Number price per
outstanding per share exercisable share
------------------------------------------------
<S> <C> <C> <C> <C>
Balance, May 1, 1994 125,000 $6.29
Granted ............ 115,000 5.61
Exercised .......... - -
Canceled ........... - -
-------
Balance, April 30, 1995 240,000 5.96 127,500 $6.00
Granted ............ 120,000 3.71 ======= =====
Exercised .......... - -
Canceled ........... - -
-------
Balance, April 30, 1996 360,000 5.21 260,000 $5.65
Granted ............ 120,000 6.39 ======= =====
Exercised .......... - -
Canceled ........... - -
-------
Balance, April 30, 1997 480,000 $5.51 380,000 $5.40
======= ======= =====
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE G - STOCK OPTIONS - Continued
Further information about stock options outstanding at April 30,
1997 is summarized as follows:
<TABLE>
------------------------Options outstanding------ --Options exercisable--
Weighted Weighted Weighted
average average average
Range of Number remaining price per Number price per
exercise outstanding contractual share exercisable share
prices life
----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$3.25 - $4.50 145,000 6.85 years $3.76 120,000 $3.80
4.51 - 6.00 185,000 7.39 years 5.57 185,000 5.57
6.01 - 8.00 150,000 8.21 years 7.12 75,000 7.55
</TABLE>
NOTE H - MAJOR CUSTOMERS
Sales to individual unaffiliated customers, which exceeded 10% of
net sales, were approximately $6,512,000 and $6,452,000 for the
year ended April 30, 1995, $12,089,000 and $7,880,000 for the year
ended April 30, 1996, and $16,231,000 and $12,909,000 for the year
ended April 30, 1997. Sales to affiliates are separately
identified in note I. The percentage composition of the accounts
receivable for these customers bears a similar relationship to net
sales.
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE I - RELATED PARTY AND SIGNIFICANT SUBSIDIARY INFORMATION
During the year ended April 30, 1997, the Company sold 68,000
shares of common stock of SigmaTron International, Inc. ("SGMA")
and recognized a gain on the sale of approximately $1,093,000.
The Company currently holds 488,413 shares or approximately 17% of
the outstanding stock of SGMA and continues to account for this
investment under the equity method. The quoted market price per
share of SGMA was $16.75 on April 30, 1997.
Transactions and balances with this unconsolidated affiliate as of
and for the years ended April 30, 1995, 1996 and 1997 are as follows:
<TABLE>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Investment in affiliate............$2,109,225 $2,587,609 $2,841,193
Accounts receivable................ 417,939 628,641 727,986
Net sales.......................... 3,292,000 4,755,000 6,895,000
Rental income...................... 300,000 302,000 339,000
</TABLE>
The Company subleases a portion of one of its manufacturing
facilities to SGMA. The lease has a base rental of $30,000 per
month and requires SGMA to pay maintenance, utilities and real
estate taxes. The lease continues through February, 2001 and has
a five year renewal option.
The following is summarized financial information for SGMA, as of
and for the years ended April 30:
<TABLE>
1995 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Current assets.................. $19,071,273 $27,946,589 $28,719,612
Noncurrent assets............... 9,164,223 10,431,900 13,368,827
Current liabilities............. 5,778,519 9,662,064 7,070,627
Noncurrent liabilities.......... 12,055,260 15,947,886 18,003,168
Net sales....................... 45,344,903 69,558,384 87,216,343
Gross profit ................... 8,411,771 10,142,298 12,639,082
Net earnings.................... 1,890,611 2,366,822 3,255,058
</TABLE>
<PAGE>
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1995, 1996 and 1997
NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)
The unaudited quarterly results of operations are as follows for
the fiscal years ended April 30,
<TABLE>
1996
Quarter ended
July 31, October 31, January 31, April 30,
<S> <C> <C> <C> <C>
Net sales ............. $16,982,260 $18,000,901 $17,189,073 $12,957,865
Gross profit .......... 2,917,619 3,091,527 2,802,426 1,926,774
Net earnings .......... 946,072 1,103,714 755,292 278,803
Net earnings per share .18 .20 .14 .06
1997
Quarter ended
July 31, October 31, January 31, April 30,
Net sales.............. $14,335,410 $18,399,817 $16,623,829 $14,055,285
Gross profit........... 1,956,889 2,073,489 2,828,218 1,478,233
Net earnings........... 224,162 319,744 745,566 829,478
Net earnings per share .04 .06 .14 .16
</TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 1997, 1996 AND 1995
<TABLE>
--------Additions-------
Balance Charged to Charged to Balance
at beginning costs and other Deduction at end
of period expenses accounts (1) of period
- ------------------------------------------------------------------------------
Allowance for doubtful receivables:
<S> <C> <C> <C> <C> <C>
Year ended
April 30, 1997.. $475,000 $ 36,760 $ - $ 11,760 $500,000
Year ended
April 30, 1996.. 350,000 377,158 - 252,158 475,000
Year ended
April 30, 1995.. 275,000 52,303 - (22,697) 350,000
Note (1) Uncollectable receivables charged off, net of recoveries
</TABLE>
<PAGE>
Consolidated Financial Statements
SigmaTron International, Inc.
Years ended April 30, 1997, 1996, and 1995
with Report of Independent Auditors
SigmaTron International, Inc.
Consolidated Financial Statements
Contents
Report of Independent Auditors.......................................F-2
Consolidated Financial Statements
Consolidated Balance Sheets at April 30, 1997 and 1996...............F-3
Consolidated Statements of Income for the Years Ended
April 30, 1997, 1996, and 1995......................................F-5
Consolidated Statements of Equity for the Years Ended
April 30, 1997, 1996, and 1995......................................F-6
Consolidated Statements of Cash Flows for the Years Ended
April 30, 1997, 1996, and 1995......................................F-7
Notes to Consolidated Financial Statements...........................F-9
Schedule II
Valuation and Qualifying Accounts...................................F-23
Financial statement schedules not listed above are omitted because they
are not applicable or required.
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
SigmaTron International, Inc.
We have audited the accompanying consolidated balance sheets of
SigmaTron International, Inc., as of April 30, 1997 and 1996, and the
related consolidated statements of income, equity, and cash flows for
each of the three years in the period ended April 30, 1997. Our audits
also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of SigmaTron International, Inc., at April 30, 1997 and 1996,
and the consolidated results of its operations and its cash flows for
each of the three years in the period ended April 30, 1997, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
June 20, 1997,
except for Note 16, as to which the date is
July 1, 1997
<PAGE>
<TABLE>
SigmaTron International, Inc.
Consolidated Balance Sheets
April 30,
1997 1996
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash $ 323,223 $ 2,500
Accounts receivable, less allowance for
doubtful accounts of $80,000 and $492,126 at
April 30, 1997 and 1996, respectively 8,770,457 11,080,485
Inventories 17,665,600 14,854,050
Equipment lease receivables from affiliate 892,435 655,913
Notes receivable from affiliate --- 300,000
Prepaid expenses 225,780 167,686
Refundable income taxes 98,666 ---
Deferred income taxes 231,245 446,871
Other assets 512,206 439,084
---------- ----------
Total current assets 28,719,612 27,946,589
Machinery and equipment, net 10,343,060 7,599,168
Intangible assets, net of amortization of
$178,119 and $154,341 at April 30, 1997
and 1996 respecitlvely 14,136 37,914
Equipment lease receivables from affiliate,
less current portion 1,467,336 1,920,876
Investment and advances with affiliate 527,238 202,524
Other assets 1,017,057 671,418
---------- ----------
Total assets $42,088,439 $38,378,489
========== ==========
</TABLE>
<PAGE>
<TABLE>
SIGMATRON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
April 30,
1997 1996
---------- ----------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable - Banks $ 166,668 $ 166,668
Notes payable - Related parties 42,596 151,860
Trade accounts payable 3,244,537 6,126,390
Trade accounts payable - Related parties 736,893 794,310
Accrued expenses 1,680,721 1,443,034
Income tax payable --- 66,236
Capital lease obligations 1,199,212 913,566
---------- ----------
Total current liabilities 7,070,627 9,662,064
Notes payable - Banks, less current portion 14,714,943 12,533,171
Notes payable - Related parties, less --- 42,596
current portion
Capital lease obligations, less current portion 2,469,372 2,720,484
Deferred income taxes 818,853 651,635
---------- ----------
Total liabilities 25,073,795 25,609,950
Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued and outstanding --- ---
Common stock, $.01 par value; 6,000,000 shares
authorized, 2,875,227 and 2,737,500
shares issued and outstanding at April 30, 1997
and 1996, respectively 28,752 27,375
Capital in excess of par value 9,373,759 8,384,089
Retained earnings 7,612,133 4,357,075
---------- ----------
Total stockholders' equity 17,014,644 12,768,539
---------- ----------
Total liabilities and stockholders' equity $42,088,439 $38,378,489
</TABLE> ========== ==========
See accompanying notes.
<PAGE>
<TABLE>
SigmaTron International, Inc.
Consolidated Statements of Income
Year ended April 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $87,216,343 $69,558,384 $45,344,903
Cost of products sold 74,577,261 59,416,086 36,933,132
---------- ---------- ----------
12,639,082 10,142,298 8,411,771
Selling and administrative expenses 5,961,184 4,943,478 4,379,987
---------- ---------- ----------
Operating income 6,677,898 5,198,820 4,031,784
Equity in net loss of affiliate (75,036) (242,677) (256,799) (
Interest expense - Banks and capital
lease obligations (1,836,967) (1,598,705) (759,973)
Interest expense - Related parties (9,961) (31,533) (79,534) (
Interest income - Related parties 404,708 425,917 96,133
---------- ---------- ----------
Income before income tax expense 5,160,642 3,751,822 3,031,611
Income tax expense (1,905,584) (1,385,000) (1,141,000) (
---------- ---------- ----------
Net income $ 3,255,058 $ 2,366,822 $ 1,890,611
========== ========== ==========
Net income per common and
common equivalent share $ 1.11 $ .86 $ .69
========== ========== ==========
Weighted-average number of common
and common equivalent
shares outstanding 2,940,289 2,737,500 2,758,099
========== ========== ==========
Net income per common and common
equivalent share - fully diluted $ 1.08
==========
Weighted average number of common
common and common equivalent shares-
fully diluted 3,000,680
==========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
SigmaTron International, Inc.
Consolidated Statements of Equity
Capital
in Excess
Preferred Stock --Common Stock-- of Par Retained
Shares Amount Shares Amount Value Earnings
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at --- $ --- 2,737,500 $ 27,375 $8,384,089 $ 99,642 $ $
April 30, 1994
Net income --- --- --- --- --- 1,890,611
------------------------------------------------------------
Balance at --- --- 2,737,500 27,375 8,384,089 1,990,253
April 30, 1995
Net income --- --- --- --- --- 2,366,822
------------------------------------------------------------
Balance at --- --- 2,737,500 27,375 8,384,089 4,357,075
April 30, 1996
Issuance of common
stock for exercise
of options and
warrants --- --- 137,727 1,377 471,123 ---
Net income --- --- --- --- --- 3,255,058
Tax benefit
from options and
warrants excercised --- --- --- --- 518,547 ---
---------------------------------------------------------------
Balance at
April 30, 1997 $ --- $ --- 2,875,227 $28,752 $9,373,759 $7,612,133
===============================================================
</TABLE>
<PAGE>
<TABLE>
Total Stockholders' Equity
------------
<S> <C>
Balance at $ 8,511,106 $ $
April 30, 1994
Net income 1,890,611
-----------
Balance at 10,401,717
April 30, 1995
Net income 2,366,822
-----------
Balance at 12,768,539
April 30, 1996
Issuance of common
stock for exercise
of options and
warrants 472,500
Net income 3,255,058
Tax benefit
from options and
warrants excercised 518,547
-----------
Balance at
April 30, 1997 $17,014,644
===========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE> SigmaTron International, Inc.
Consolidated Statements of Cash Flows
Year ended April 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities
Net income $3,255,058 $2,366,822 $1,890,611
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 1,047,262 766,467 566,179
Equity in net loss of affiliate 75,036 242,677 256,799
Amortization 23,778 25,618 52,332
Provision for doubtful accounts --- 306,888 12,632
Provision for obsolete inventory --- --- 235,000
Gain on sale of machinery and equipment --- --- (1,394)
Deferred income taxes 382,844 (57,509) 842
Changes in operating assets
and liabilities:
Accounts receivable 2,310,028 (3,410,538) (839,991)
Inventories (2,811,550) (5,567,159) (3,594,229)
Prepaid expenses (58,094) 40,823 (15,960)
Refundable income taxes 419,881 134,773 (134,773)
Other assets (418,761) (252,497) (356,196)
Trade accounts payable (2,881,853) 3,439,734 268,532
Trade accounts payable -
Related parties (57,417) 47,058 368,782
Accrued expenses 237,687 313,658 (64,129)
Income tax payable (66,236) 66,236 (265,569)
---------- ---------- ----------
Net Cash provided by (used in)
operating activities 1,457,663 (1,536,949) (1,620,532)
Investing activities
Purchases of machinery & equipment (2,950,725) (2,293,961) (1,567,656)
Proceeds from the sale of
machinery and equipment --- 37,513 93,800
Proceeds from affiliate subleases 424,412 378,367 136,677
Advances to affiliate (100,000) (50,000) (600,000)
Proceeds from the sale of
investment in affiliate 250 --- ---
Investment in affiliate --- --- (52,000)
Notes receivable from affiliate --- (300,000) ---
---------- ---------- ----------
Net cash used in investing activities (2,626,063) (2,228,081) (1,989,179)
activities
</TABLE>
<PAGE>
SigmaTron International, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
Year ended April 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Financing activities
Repayment of term loan and
other notes payable $ (151,860) $ (363,013) $ (893,679)
Proceeds from exercise of
stock options and warrants 472,500 --- ---
Net proceeds under line of credit 2,181,772 4,555,271 4,956,003
Net payments under capital (1,013,289) (427,228) (452,613)
lease obligations
----------- ----------- -----------
Net cash provided by financing
activities 1,489,123 3,765,030 3,609,711
---------- ---------- -----------
Change in cash 320,723 --- ---
Cash at beginning of period 2,500 2,500 2,500
----------- ----------- -----------
Cash at end of period $ 323,223 $ 2,500 $ 2,500
========== ========== ===========
Supplementary disclosure of
cash flow information
Cash paid for interest $1,834,946 $1,602,494 $ 717,688
=========== =========== ===========
Cash paid for income taxes $1,169,854 $1,241,500 $1,540,500
=========== =========== ===========
Acquisition of machinery and
equipment financed under
capital leases $ 840,429 $ 432,437 $1,345,750
=========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements
1. Description of the Business
SigmaTron International, Inc. (the Company) was incorporated on
November 16, 1993. The Company is an independent contract manufacturer
of electronic components, printed circuit board assemblies, and
completely assembled (boxbuild) electronic products. Included among the
wide range of services the Company, its wholly owned subsidiary,
Standard Components de Mexico, S.A. and its affiliate, SMT Unlimited
L.P. (SMTU), offer their customers are (1) manual and automatic assembly
and testing of products; (2) material sourcing, procurement, and
control; (3) design, manufacturing, and test engineering support; (4)
warehousing and shipment services; and (5) assistance in obtaining
product approval from governmental and other regulatory bodies. The
Company provides these services through an international network of
facilities located in North America and the Far East.
2. Summary of Significant Accounting Policies
Consolidation Policy
The consolidated financial statements include the accounts and
transactions of the Company and its wholly owned subsidiary, Standard
Components de Mexico, S.A. Significant intercompany accounts and
transactions have been eliminated in consolidation. Investments in
affiliates which are at least 20% owned are carried at cost plus equity
in undistributed earnings or losses since acquisition.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first in, first out (FIFO) method.
Machinery and Equipment
Machinery and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over the
estimated useful life of the asset.
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Intangible Assets
Intangible assets consist primarily of deferred financing costs and
organizational costs. These items are being amortized by the straight-
line method over the estimated useful lives of the assets, which range
from one to five years.
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact is expected to result in a $.05 increase in
primary earnings per share for the year ended April 30, 1997 and no
effect on primary earnings per share for the years ended April 30, 1996
and 1995. The impact of Statement 128 on the calculation of fully
diluted earnings per share for 1997 is not material.
Fair Value of Financial Instruments
The Company's financial instruments include trade accounts receivable,
notes receivable, long-term receivables, accounts payable, notes
payable, capital lease obligations, and accrued expenses. The fair
values of all financial instruments were not materially different from
their carrying values.
Revenue Recognition
The Company recognizes revenue at the time goods are shipped.
2. Summary of Significant Accounting Policies (continued)
Reclassifications
Certain reclassifications were made to the 1996 and 1995 consolidated
financial statements to conform with the 1997 presentation.
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements
3. Inventories
Inventories consist of the following:
<TABLE>
April 30,
1997 1996
---------- ----------
<S> <C> <C>
Finished products $ 2,966,415 $ 556,157
Work in process 1,079,985 1,407,996
Raw materials 13,619,200 12,889,897
---------- ----------
$17,665,600 $14,854,050
========== ==========
</TABLE>
4. Machinery and Equipment
Machinery and equipment consist of the following:
<TABLE>
April 30,
1997 1996
---------- ----------
<S> <C> <C>
Machinery and equipment $ 8,130,150 $ 5,895,335
Office equipment 896,408 646,391
Tools and dies 123,251 121,649
Leasehold improvements 1,815,210 1,350,472
Equipment under capital lease 2,751,733 1,911,751
---------- ----------
$13,716,752 $ 9,925,598
Less: Accumulated depreciation and
amortization, including amortization
of assets under capital leases of
$441,418 and $243,188 at April 30,
1997 and 1996, respectively (3,373,692) (2,326,430)
---------- ----------
$10,343,060 $ 7,599,168
========== ==========
</TABLE>
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
5. Investment and Advances With Affiliate
The Company's investment in affiliate consists of a 42.5% ownership
interest in SMTU, which was formed on September 15, 1994, in Fremont,
California, as a joint venture to provide surface mount technology
assembly services primarily to electronic original equipment
manufacturers. During fiscal year 1995, the Company invested $49,500 in
exchange for a 45% limited partnership interest in SMTU and $2,500 in
SMT Unlimited, Inc. (SMT, Inc.), which is the general partner of SMTU,
in exchange for 50% of its capital stock. During fiscal year 1997, the
Company sold 2.5% of its interest to a key employee of SMTU. One of the
limited partners of SMTU is also an equal shareholder of SMT, Inc.,
along with the Company. The Company made advances to SMTU in exchange
for subordinated debentures in the face amount of $100,000, $50,000, and
$600,000 in 1997, 1996, and 1995, respectively. In 1996, the Company
also made advances to SMTU in exchange for promissory notes in the face
amount of $300,000. These promissory notes were converted into
subordinated debentures during 1997. Debentures totaling $650,000
outstanding at April 30, 1997 bear interest at 8%, and are to be repaid
on December 31, 1999. The remaining $400,000 of these debentures bear
interest at 12% and are to be repaid on December 31, 2001. The Company
guarantees lease payments of approximately $1,831,000 for SMTU. The
Company has been indemnified by one of the other limited partners in the
amount of $915,500 for the guaranteed lease payments. SMTU pays the
Company a $12,500 monthly administrative fee for administrative
services.
SMTU has negative working capital of approximately $1,161,000 at
April 30, 1997, and an accumulated deficit of approximately $1,187,000
at April 30, 1997. From the formation of SMTU in September 1994 until
January 1995, SMTU had no sales. Since fiscal 1995, sales have
increased so that SMTU was achieving near break-even profitability
during 1997. Management of SMTU expects sales to increase further in
1998 and also expects these sales will lead to overall profitability .
At April 30, 1997, SMTU was in violation of various covenants under
their revolving line of credit. SMTU's management expects to be able to
renegotiate these covenants to prevent future noncompliance and to
obtain waivers for all covenants violated in 1997.<PAGE>
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
6. Notes Payable
Notes payable consist of the following:
<TABLE>
April 30,
1997 1996
---------- ----------
<S> <C> <C>
Banks:
Revolving line of credit, interest
payable monthly $14,603,835 $12,255,395
Term loan, interest payable monthly at
prime and at 1.0% above prime at April 30,
1997 and 1996 (8.50% and 9.25% at April 30,
1997 and 1996, respectively) due
December 1, 1997 277,776 444,444
---------- ----------
14,881,611 12,699,839
Less: Current portion 166,668 166,668
---------- ----------
$14,714,943 $12,533,171
========== ==========
Related Party:
Subordinated, secured term loans, interest
payable monthly at varying interest rates
(9.25% to 9.77% at April 30, 1997 and 1996),
due at varying intervals through
August 1, 1997 $ 42,596 $ 194,456
---------- ----------
42,596 194,456
Less: Current portion 42,596 151,860
---------- ----------
$ --- $ 42,596
========== ==========
</TABLE>
The Company's credit facility included a revolving line-of-credit
facility and a term loan. The Company's amended and restated loan and
security agreement allow the maximum borrowing limit under the revolving
line-of-credit agreement to be limited to the lesser of:
(i) $25,000,000; or (ii) an amount equal to the sum of up to 85% of the
receivables borrowing base and the lesser of $8,000,000 or the amount of
the inventory borrowing base, as defined. Under the current terms,
borrowings under the revolving line-of-credit bear interest at rates
equal to the London Interbank Offered Rate (5.69% at April 30, 1997) plus
2% or at the prime rate (8.50% of April 30, 1997) at the option of the
Company. At April 30, 1997, there was approximately $ 1,297,000 of unused
credit available under the terms of the agreement. The revolving
line-of-credit currently matures on September 30, 1998.
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
The revolving line-of-credit facility is collateralized by
substantially all of the assets of the Company, except for the
machinery and equipment acquired from a related party, machinery
and equipment acquired through capital leases and inventory and ,
machinery and equipment located outside the United States. The
agreement contains certain financial covenants, including
specific covenants pertaining to the maintenance of minimum
tangible net worth and net income. The agreement restricts
annual lease rentals and capital expenditures and the payment of
dividends or distributions of any cash or other property on any
of its capital stock, except that common stock dividends may be
distributed by a stock split or dividends pro rata to its
stockholders.
The term loan portion of the credit facility is payable in sixty
(60) monthly installments of approximately $13,890 and is
collateralized by the Company's domestically located machinery
and equipment.
Aggregate annual maturities of notes payable as of April 30,
1997, are as follows:
<TABLE>
<S> <C>
1998 $ 209,264
1999 14,714,943
----------
$14,924,207
==========
</TABLE>
7. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
April 30
1997 1996
-------- --------
<S> <C> <C>
Payroll $ 403,902 $ 528,879
Bonuses 792,031 580,000
Interest payable 114,002 102,019
Commissions 116,044 135,490
Professional fees 120,492 88,607
Other 134,250 8,039
--------- ---------
$1,680,721 $1,443,034
========= =========
</TABLE>
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
7. Accrued Expenses (continued)
Bonuses represent discretionary management and other employee
bonuses, of which $280,000 and $580,000 was accrued during the
fourth quarter of 1997 and 1996, respectively.
8. Related Party Transactions and Commitments
During the years ended April 30, 1997, 1996, and 1995, the
Company was involved in transactions with Circuit Systems, Inc.
(CSI), a shareholder of the Company. These transactions
primarily involved the purchase of raw materials and the leasing
of operating space. Purchases of raw materials were
approximately $6,895,000 and $4,754,800, and $3,252,000, for the
years ended April 30, 1997, 1996, and 1995, respectively. The
Company also leases space in a building in Elk Grove Village,
Illinois, owned by CSI at a base rental of $ 30,000 per month,
with an additional $7,000 per month for property taxes. The
lease requires the Company to pay maintenance and utility
expenses. The lease expires in February 2001 and contains an
option to renew for an additional five-year period. Rent and
property tax expense totaled approximately $ 423,000, $ 406,000,
and $408,000 for the years ended April 30, 1997, 1996, and 1995,
respectively.
At April 30, 1997 and 1996, the Company had non-interest bearing
receivables of approximately $205,000 and $223,000, respectively,
for advances to a company in which an officer of the Company is
an investor. The balance has been recorded as an other long-term
asset at April 30, 1997.
9. Income Taxes
The income tax provision for the years ended April 30, 1997 and
1996, consists of the following:
<TABLE>
1997 1996
--------- ----------
<S> <C> <C>
Current:
Federal $1,231,639 $1,249,173
State 291,101 193,336
Deferred:
Federal 333,761 (50,195)
State 49,083 (7,314)
--------- ---------
$1,905,584 $1,385,000
========= =========
</TABLE>
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
9. Income Taxes (continued)
The reasons for the differences between the income tax provision
and the amounts computed by applying the statutory federal income
tax rates to income before income taxes for the years ended
April 30, 1997 and 1996, are as follows:
<TABLE>
1997 1996
---------- ----------
<S> <C> <C>
Income tax at statutory federal rate $1,754,618 $1,275,619
Effect of:
State income taxes, net of
federal tax benefit 238,421 187,591
Other, net (87,455) (78,210)
--------- ---------
$1,905,584 $1,385,000
========= =========
</TABLE>
Significant temporary differences which result in deferred tax assets and
deferred tax liabilities at April 30, 1997 and 1996, are as follows:
<TABLE>
1997 1996
------- -------
<S> <C> <C>
Allowance for doubtful accounts $ 31,200 $191,929
Inventory obsolescence reserve 129,285 160,485
Accruals not currently deductible 68,128 92,030
Inventory 55,213 48,075
Other (52,581) (45,648)
------- -------
Net deferred tax asset $231,245 $446,871
======= =======
Machinery and equipment $694,261 $619,490
Other 124,592 32,145
------- -------
Net deferred tax liability $818,853 $651,635
======= =======
</TABLE>
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
10. 401(k) Retirement Savings Plan
The Company sponsors a 401(k) retirement savings plan which is
available to all nonunion employees who complete 1,000 hours of
service annually. Participants are allowed to contribute up to
15% of their annual compensation, and the Company may elect to
match participant contributions up to the greater of 6% of the
participant's compensation or $300. The Company contributed
$34,554 to the plan during the fiscal year ended April 30, 1997.
The Company made no contributions to the plan for the fiscal
years ended April 30, 1996, and 1995; however, the Company paid
total expenses of $8,000 for the fiscal years ended April 30,
1997 and 1996, and none in fiscal year ended April 30, 1995 ,
relating to costs associated with the Plan's administration.<PAGE>
11. Major Customers and Concentration of Credit Risks
Financial entitlements, which potentially subject the Company to
concentration of credit risk, consist principally of
uncollateralized accounts receivable.
For the year ended April 30, 1997, three customers accounted for
30%, 14%, and 11%, of net sales of the Company, and 20%, 10%, and
4% of accounts receivable at April 30, 1997. For the year ended
April 30, 1996, three customers accounted for 28%, 15%, and 10%
of net sales of the Company, and 18%, 21%, and 3% of accounts
receivable at April 30, 1996. For the year ended April 30, 1995,
three customers accounted for 34%, 16%, and 13% of net sales of
the Company, and 39%, 12%, and 1% of accounts receivable at
April 30, 1995.
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
12. Leases
The Company leases its facilities under various operating leases.
The Company also leases various machinery and equipment under
capital leases.
Future minimum lease payments under leases with terms of one year
or more are as follows at April 30, 1997:
<TABLE>
Capital Operating Capital
Leases Leases
<S> <C> <C>
1998 $1,519,080 $ 844,884
1999 1,519,080 793,737
2000 1,099,070 760,632
2001 299,415 686,660
2002 94,841 214,800
Thereafter --- 93,600
--------- ---------
$4,531,486 $3,394,313
Less: Amounts representing interest 862,902 =========
---------
3,668,584
Less: Current portion 1,199,212
---------
$2,469,372
=========
</TABLE>
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
12. Leases (continued)
The Company subleased the machinery and equipment relating to six
of the above capital lease agreements to its affiliate, SMTU.
These sublease agreements contain the same maturity dates as the
original underlying lease agreements. The effective interest
rates on these leases are approximately 2% higher than the
effective interest rates (ranging from 8. 25% to 10.12%) implicit
in the original lease to cover various administrative expenses of
the Company. The equipment lease receivables are collateralized
by the underlying machinery and equipment. Management believes
the machinery and equipment would be able to be readily used in
the Company's manufacturing operations if necessary.
Future minimum rentals to be received under subleases with SMTU
with terms of one year or more are as follows:
<TABLE>
<S> <C>
1998 $ 900,660
1999 900,660
2000 666,200
2001 67,080
2002 14,942
----------
2,549,542
Less:Amounts representing interest 189,771
----------
2,359,771
Less: Current portion 892,435
----------
$1,467,336
==========
</TABLE>
Rent expense incurred under operating leases was $557,456, $560,756 and
$513,688 for the years ended April 30, 1997, 1996, and 1995 respectively.
13. Capital Stock
At April 30, 1997, authorized but unissued shares have been reserved for
future issuance as follows:
<TABLE>
<S> <C>
Stock Option Plans 599,500
Warrants 35,000
-------
634,500
=======
</TABLE>
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Warrants and Stock Options
On February 9, 1994, the Company sold warrants, for nominal
consideration, to purchase up to an aggregate of 55,000, 25,000,
and 70,000 shares of Common Stock to certain underwriters,
consultants, and directors, respectively. All warrants are
exercisable during the five-year period commencing: (i) in the
case of the underwriters' warrants on February 9, 1994; (ii) in
the case of the consultant's warrant on February 16, 1994, and
(iii) in the case of the directors' warrants on August 9, 1994.
All warrants will terminate on February 9, 1999, and have an
exercise price of $8.40 per share. As of April 30, 1997, 115,000
warrants have been exercised.
On February 8, 1994, the stockholders of the Company approved the
formation of two stock option plans (Option Plans) under which
certain members of management and outside nonmanagement directors
may acquire up to 698,500 shares of Common Stock of the Company.
The Option Plans are interpreted and administered by the
Compensation Committee (the Committee). The maximum term of
options granted under the Option Plans generally are 10 years.
Options granted under the Option Plans are either incentive stock
options or nonqualified options. Options forfeited under the
Option Plans are available for reissuance.
The Committee approved grants to certain members of the Company's
management effective February 9, 1994, of options to purchase all
of the 625,000 shares of Common Stock available under the Plan at
an exercise price equal to $7.00. Of the options granted to
management, options to purchase up to 200,000 shares of Common
Stock will vest at a rate of 20% each year following the date of
grant, provided the optionee remains an employee of the Company.
As of April 30, 1997 and 1996, management vested in options to
purchase 120,000 and 80,000 shares, respectively. The remaining
options to purchase up to 425,000 shares of Common Stock will
vest only on the Company's attainment of certain earnings per
share levels over the five fiscal years beginning with fiscal
year 1995. None of these options became exercisable during
fiscal year 1997, 1996, or 1995 as the earnings per share level
goal was not met, and options to purchase 100,000, 75,000, and
50,000 shares were forfeited in 1997, 1996, and 1995,
respectively. On June 11, 1997, options to purchase up to
425,000 shares of common stock were canceled and return to the
pool of ungranted options to be granted as service based options
at a date to be determined by the committee.
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Warrants and Stock Options
The Company also has a stock option plan for the benefit of
directors who are not salaried employees of the Company or full-
time consultants to the Company. Seventy-three thousand -five-
hundred shares of Common Stock were reserved for issuance upon
exercise of such options. Each eligible director in office at
the adjournment of the first three annual meetings of
stockholders held after February 9, 1994, was granted an option
to purchase 3,500 shares of the Company's Common Stock at an
exercise price per share equal to the fair market value of a
share of the Company's Common Stock on the date of grant. As of
April 30, 1997, all options reserved for issuance under this plan
have been granted. An option may be exercised at any time within
10 years from the date of grant. On June 11, 1997, a new outside
nonmanagement director option plan was adopted subject to
shareholder approval, to grant options to purchase up to 105,000
shares of common stock in a manner similar to the old plan.
The Company has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided
for under FASB statement No. 123, Accounting for Stock-Based
Compensation, requires the use of option-valuation models that
were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's
employee stock options approximates the market price of the
underlying stock on the date of grant, no compensation expense is
recognized. Pro forma information regarding net income and
earnings per share is required by Statement 123 as if the
Company has accounted for its employee stock options granted
subsequent to December 31, 1994, under the fair value method of
that Statement. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the options vesting period.
The Company's pro forma information follows:
<TABLE>
1997 1996
---------- ---------
<S> <C> <C>
Net income $3,255,058 $2,366,822
Pro forma net income 3,167,740 2,308,772
Earnings per share $1.11 $.86
Pro forma earnings per share $1.08 $.84
</TABLE>
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Warrants and Stock Options
The fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option valuation model with the
following assumptions:
<TABLE>
1997 1996
------ ------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 0.529 0.529
Risk-free interest rate 6.54% 6.54%
Weighted-average expected life of options 5 years 5 years
</TABLE>
Option valuation models require the input of highly subjective
assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate in management's
opinion, the existing method does not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
A summary of the Company's stock option activity and related
information for the years ended April 30 follows:
<TABLE>
1997 1996 1995
Weighted- Weighted- Weighted-
Options Average Options Average Options Average
Exercise Exercise Exercise
Price Price Price
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
Beginning of year 549,000 $ 7.06 599,500 $7.06 625,000 $7.00
Granted 24,500 10.25 24,500 6.81 24,500 8.44
Exercised (99,000) 7.64 --- --- --- ---
Forfeited (100,000) 7.00 (75,000) 7.00 (50,000) 7.00
-------------------------------------------------------
Outstanding
End of year 374,500 $ 7.13 549,000 $7.06 599,500 $7.06
======== ======== ========
Exercisable at end
of year 94,500 $ 7.50 129,000 $7.24 64,500 $7.55
Weighted-average fair
value of options granted
during the year $ 5.40 $3.59
</TABLE>
Exercise prices for options outstanding as of April 30, 1997 ranged from $6.81
to $10.25 (343,000 of the options outstanding at April 30, 1997 have an
exercise price of $7.00). The weighted-average remaining contractual life
of those options is 6.9 years.
<PAGE>
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
15. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed
based upon the weighted-average number of shares outstanding.
When dilutive, stock options and warrants are included as share
equivalents using the treasury stock method. The 425,000 shares
reserved for issuance under the management stock option plan are
not considered common stock equivalents in 1997, 1996, and 1995
as the earnings per share goals were not reached . Fully diluted
net income per common and common equivalent share is not
materially different from primary net income per common and
common equivalent share in 1996 and 1995.
16. Subsequent Event
On July 1, 1997, the Committee approved grants of options to
certain employees and members of the Company's management to
purchase 352,000 shares of common stock at an exercise price
equal to $12.25. These options will vest at a rate of 20% each
year following the date of grant, provided the optionee remains
an employee of the Company.
<PAGE>
SigmaTron International, Inc.
Schedule II - Valuation and Qualifying Accounts
Balance at Charges to Charges to Balance
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
[S] [C] [C] [C] [C] [C]
- ------------------------------------------------------------------------------
Year ended April 30, 1997:
- --------------------------
Reserves and allowance
deducted from asset accounts:
Allowance for doubtful accounts $492,126 $ 80,000 $-- (1)$492,126 $ 80,000
Reserve for obsolete inventory 411,500 (80,000) -- 331,500
Year ended April 30, 1996:
- --------------------------
Reserves and allowance
deducted from asset accounts:
Allowance for doubtful accounts 185,238 328,000 -- 21,112 492,126
Reserve for obsolete inventory 411,500 -- -- 411,500
Year ended April 30, 1995:
- --------------------------
Reserves and allowance
deducted from asset accounts:
Allowance for doubtful accounts 172,606 12,632 -- -- 185,238
Reserve for obsolete inventory 176,500 235,000 -- -- 411,500
(1) Uncollectible accounts written off.
INDEX TO EXHIBITS
3.1 Articles of Incorporation of the Company. (Incorporated
herein by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-18, File No. 2 - 99155C
filed on July 22, 1985.)
3.2 Articles of Amendment to the Articles of Incorporation.
(Incorporated herein by reference to Exhibit 19.1 of Form
10-K for the year ended April 30, 1988.)
3.3 By-Laws of the Company, as amended (as of September 6,
1991). (Incorporated herein by reference to Exhibit 3.3 of
Form 10-K for the year ended April 30, 1994.)
10.1 Installment Note dated September 1, 1972, with
Percy Wilson Mortgage and Finance Corporation (subsequently
assigned to Mutual Benefit Life Insurance Company) assumed by
the Company on January 31, 1989, in the amount of $217,279.40.
(Incorporated herein by reference to Exhibit (a)(2) of
Form 10-Q for the quarter ended April 30, 1988.)
10.2 Employee Stock Ownership Plan dated as of
January 1, 1989. (Incorporated herein by reference to Exhibit
10.11 of Form 10-K for the year ended April 30, 1989.)
10.3 1993 Stock Option Plan. (Incorporated herein by
reference to Exhibit 10.11 of Form 10-K for the year ended
April 30, 1993.)
10.4 1994 Directors' Stock Option Plan. (Incorporated herein
by reference to Exhibit 10.8 of Form 10-K for the year ended
April 30, 1994.)
10.5 Secured Revolving Credit Agreement dated as of
April 30, 1994, with NBD Elk Grove Bank in the amount of
$8,000,000. (Incorporated herein by reference to Exhibit
19.1 of Form 10-K for the year ended April 30, 1993.)
10.6 First Amendment To Secured Revolving Credit Agreement
dated as of April 30, 1994, with NBD Elk Grove Bank in the
amount of $8,000,000. (Incorporated herein by reference to
Exhibit 19.2 of Form 10-K for the year ended April 30, 1994.)
10.7 Second Amendment To Secured Revolving Credit Agreement
dated as of August 23, 1994, with NBD Elk Grove Bank.
(Incorporated herein by reference to Exhibit 10.9 of Form 10-K
for the year ended April 30, 1995).
10.8 Mortgage and Mortgage Note in the amount of $1,400,000
dated April 14, 1995, in favor of NBD Elk Grove Bank
(for 2400 East Lunt Avenue premises). (Incorporated herein by
reference to Exhibit 10.10 of Form 10-K for the year ended
April 30, 1995).
<PAGE>
10.9 Mortgage and Mortgage Note in the amount of $3,350,000
dated March 31, 1995, in favor of NBD Elk Grove Bank
(for 2201 Landmeier premises). (Incorporated herein by
reference to Exhibit 10.11 of Form 10-K for the year ended April
30, 1995).
10.10 Master Lease Agreement between Company and NBD Elk Grove
Bank (for equipment finance). (Incorporated herein by
reference to Exhibit 10.12 of Form 10-K for the year ended
April 30, 1995).
10.11 Third Amendment to Secured Revolving Credit Agreement
dated as of August 31, 1995. (Incorporated here and by
reference to Exhibit 10.13 of Form 10-K for the year ended
April 30, 1996).
10.12 Fourth Amendment to Secured Revolving Credit Agreement
dated as of November 27, 1995. (Incorporated here and by
reference to Exhibit 10.14 of Form 10-K for the year ended
April 30, 1996).
10.13 Credit Facility Note in the amount of $4,000,000 dated
April 30, 1996 in favor of NBD Elk Grove Bank. (Incorporated
here and by reference to Exhibit 10.15 of Form 10-K for the
year ended April 30, 1996).
10.14 Fifth Amendment to Secured Revolving Credit Agreement
dated as of April 30, 1996. (Incorporated here and by
reference to Exhibit 10.16 of Form 10-K for the year
ended April 30, 1996).
10.15 Mortgage and Mortgage Note in the amount of $1,500,000
dated April 30, 1996 in favor of NBD Elk Grove Bank
(for 2400 and 2450 East Lunt Avenue premises). (Incorporated
here and by reference to Exhibit 10.17 of Form 10-K for the
year ended April 30, 1996).
10.16 Joint Venture Agreement dated September 4, 1995 by and
between Circuit Systems, Inc. and Gujarat Apollo Industries
and Finance Limited. (Incorporated here and by reference to
Exhibit 10.18 of Form 10-K for the year ended April 30, 1996).
10.17 Industrial Lease Agreement dated as of February 29, 1996
by and between Circuit Systems, Inc. and SigmaTron
International, Inc. (Incorporated here and by reference to
Exhibit 10.19 of Form 10-K for the year ended April 30, 1996).
10.18 Sixth Amendment to Secured Revolving Credit Agreement
dated as of August 30, 1996.
11. Statement re Computation of Per Share Earnings.
19.1 Employment Agreement with D.S. Patel dated as of
April 30, 1994. (Incorporated herein by reference to Exhibit
19.3 of Form 10-K for the year ended April 30, 1994.)
22. Subsidiaries of Circuit Systems, Inc.
<PAGE>
<PAGE>
SIXTH AMENDMENT
TO SECURED REVOLVING CREDIT AGREEMENT
DATED AS OF APRIL 30, 1993
WHEREAS, Circuit Systems, Inc., an Illinois corporation (the
"Company) and American National Bank and Trust Company of Chicago,
as assignee of NBD Bank (the "Bank"), are party to that certain
Secured Revolving Credit Agreement dated as of April 30, 1993 as
amended April 29, 1994, August 23, 1994, August 31, 1995, November
27, 1995 and April 30, 1996 (the "Agreement"); and
WHEREAS, the Company has requested that the Bank extend the
maturity date of the Revolving Credit Commitment, the Revolving
Credit Loans, the Credit Facility and the Credit Facility Loans
under the Agreement and to make certain other amendments as
hereinafter set forth; and
WHEREAS, the Bank has agreed to the requested extension and
certain other amendments as hereinafter set forth, provided that
the parties execute this Sixth Amendment, and that, among other
things, the Company executes and delivers to the Bank a new
Revolving Credit Note and a new Credit Facility Note in the form(s)
attached hereto as Exhibits "A-1" and "B-2";
NOW THEREFORE, subject to such conditions as are set forth
herein, it is agreed between the Company and the Bank that:
I. The date "August 31, 1997" appearing in Subsection (a) of
Section 1., Subsection (a) of Section 2., and Subsection (d)
of Section 5. of the Agreement is amended
to read "August 31, 1998".
II. The date "August 31, 1996" appearing in Subsection (b) of
Section 1. and Subsection (b) of Section 2., and Subsection
(d) of Section 5. of the Agreement is amended to read "August
31, 1997".
III. Exhibit "B-2" attached hereto is substituted for Exhibit "B-1"
attached to the Agreement.
IV. Exhibit "A-1" attached hereto is substituted for Exhibit "A"
attached to the Agreement.
<PAGE>
V. The last paragraph of Section 4. of the Agreement is amended
in its entirety to read as follows:
"Each Revolving Credit Loan and each Credit Facility Loan
requested to bear interest at the Negotiated Rate (i) shall be
in an amount of not less than $1,000,000.00 or an integral
multiple of $1,000,000.00 in excess thereof, (ii) shall remain
outstanding, at the Borrower's election, for a 30, 60 or 90
day period of time from the date of such requested Loan (but
in any event not beyond August 31, 1998 with respect to
Revolving Credit Loans and not beyond August 31, 1997 with
respect to Credit Facility Loans) (the end of each such period
herein referred to as "Reversion Date"), and (iii) if not
renewed at any applicable Reversion Date for an additional 30,
60 or 90 day period of time at a new Negotiated Rate, shall
either be repaid by the Company on the applicable Reversion
Date or shall revert to the bearing of interest at the Prime
Rate of the Bank in effect from time to time."
As a condition precedent to the taking effect of this Sixth
Amendment, the Company shall provide to the Bank, in form and
substance satisfactory to the Bank (i) signed copies of
certificates of the Secretary or Assistant Secretary of the
Company, and dated as of the date of this Sixth Amendment, which
shall certify approval of, and all necessary corporate action with
respect to the authorization, execution and delivery of this Sixth
Amendment and all relevancies appertaining thereto.
By execution and delivery hereof, the Company further reaffirms all
applicable representations and warranties contained in Section 11.
of the Agreement as true and correct as of the date hereof.
Except as stated herein, all terms and provisions of the Secured
Revolving Credit Agreement remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, this Sixth Amendment has been duly executed as
of the 30th day of August, 1996.
American National Bank and
Trust Company of Chicago Circuit Systems, Inc.
By: By:
------------------------------- -----------------------
Paul A. Moss, Vice President D. S. Patel, President
<PAGE>
Exhibit "B-2"
CREDIT FACILITY NOTE
Due: August 31, 1997 $4,000,000.00
Note No. Date: August 30, 1996
--------------
PROMISE TO PAY: On or before August 31, 1997, for value
received, the undersigned (the "Company") promises to pay to
American National Bank and Trust Company of Chicago, as assignee of
NBD Bank (the "Bank") or order, at the Bank's main office in
Chicago, Illinois 60670 or at any office of the Bank in the State
of Illinois, the sum of Four Million and No/100 Dollars
($4,000,000.00), or such lesser sum as is indicated on the Bank's
records, plus interest computed on the basis of the actual number
of days elapsed in a year of 360 days at either (i) the rate
announced from time to time by the Bank as its "prime" rate, which
rate may not be the lowest rate charged by the Bank to any of its
customers, or (ii) the Negotiated Rate as stated in the Agreement
(as hereinafter defined) (each such rate when and as in effect the
"Note Rate"), until maturity, whether by acceleration or otherwise,
and at a rate of 3% per annum above the Note Rate on overdue
principal from the date when due until paid. The Negotiated Rate
may be greater or lesser than the prime rate, and each change in
the "prime" rate will immediately change the Note Rate if such rate
is chosen and in effect hereunder.
In no event shall the interest rate exceed the maximum rate
allowed by law; any interest payment which would for any reason be
deemed unlawful under applicable law shall be applied to principal.
Interest will be computed on the unpaid principal balance
hereof from the date of each borrowing.
Until maturity, the Company will pay consecutive monthly
installments of interest only commencing September 30, 1996, and on
the last day of each calendar month thereafter.
The Company acknowledges and agrees (i) that this Note
evidences a business loan for the purpose of financing a commercial
enterprize carried on for the purpose of investment or profit
within the purview of Section 205/4, Chapter 815, of the Illinois
Compiled Statutes and is not subject to any usury law or limitation
of the State of Illinois, and (ii) the obligation evidenced by this
Note is an exempt transaction under the Federal Truth-in-Lending
Act, 15 U.S.C., Section 1601 et seq.
The Bank has approved a credit facility to the Company in a
principal amount not to exceed the face amount of this Note. The
credit facility is in the form of advances made from time to time
by the Bank to the Company. This Note evidences the Company's
obligation to repay those advances. The aggregate principal amount
of debt evidenced by this Note shall be the amount reflected from
time to time in the records of the Bank but shall not exceed the
face amount of this Note. Until maturity, the Company may borrow,
pay down and reborrow under this Note so long as the aggregate
principal amount outstanding at any one time does not exceed the
face amount of this Note.
<PAGE>
This Note evidences a debt under the terms of a Secured
Revolving Credit Agreement, between the Bank and the Company dated
as of April 30, 1993 as amended April 29, 1994, August 23, 1994,
August 31, 1995, November 27, 1995, April 30, 1996 and August 30,
1996 (the "Agreement"), and is entitled to the benefits of and
subject to the provisions of the Agreement. The Agreement, among
other things, contains provisions for acceleration of the maturity
of this Note upon the happening of certain stated events and also
for prepayments on account of the principal hereof prior to the
maturity hereof upon the terms and conditions specified in the
Agreement as may be amended from time to time.
To secure the payment of this Note and any other present or
future liability of the Company to the Bank, whether several,
joint, or joint and several, the Company pledges and grants to the
Bank a continuing security interest in the following described
property and all of its additions, substitutions, increments,
proceeds and products, whether now owned or later acquired
("Collateral"): All securities and other property of the Company in
the custody, possession or control of the Bank (other than property
held by the Bank solely in a fiduciary capacity); All property or
securities declared or acknowledged to constitute security for any
past, present or future liability of the Company to the Bank; All
balances of deposit accounts of the Company with the Bank; and the
following additional property of the Company: All Inventory,
Accounts, Accounts Receivable, General Intangibles and Equipment as
described in those Security Agreements dated as of April 1, 1992
and April 30, 1993, as provided to the Bank in connection
therewith. The terms used to identify the Collateral shall have
the respective meanings assigned to such terms as of the date
hereof in the Illinois Uniform Commercial Code.
The Bank shall have the right at any time to apply its own
debt or liability to the Company or to any other party liable on
this Note in whole or partial payment of this Note or other present
or future liabilities of the Company to the Bank without any
requirement of mutual maturity.
The terms and provisions of the Agreement, any mortgage,
security agreement or any other document executed as part of or in
connection with the loans evidenced by this Note are hereby
incorporated by reference and made a part of this Note.
<PAGE>
The Company represents that it is a corporation duly
organized, existing and in good standing under the laws of its
state of incorporation, and that the execution and delivery of this
Note and the performance of the obligations it imposes are within
its corporate powers, have been duly authorized by all necessary
action of its board of directors, and do not contravene the terms
of its articles of incorporation or bylaws. The Company represents
that the execution and delivery of this Note and the performance of
the obligations it imposes do not violate any law and do not
conflict with any agreement by which it is bound, and that no
consent or approval of any governmental authority or any third
party is required for the execution or delivery of this Note or the
performance of the obligations it imposes and that this Note is a
valid and binding agreement, enforceable according to its terms.
The Company further represents that all balance sheets, profit and
loss statements, and other financial statements, if any, furnished
to the Bank are accurate and fairly reflect the financial condition
of the Company on their effective dates, including contingent
liabilities of every type, which financial condition has not
changed materially and adversely since those dates.
If any of the following events occurs: (i) the Company or any
guarantor of this Note ("Guarantor") fails to pay when due any
amount payable under this Note or under any agreement or instrument
evidencing debt to any creditor; (ii) the Company or any Guarantor
(a) fails to observe or perform any other term of this Note: or (b)
makes any materially incorrect or misleading representation,
warranty, or certificate to the Bank; or (c) makes any materially
incorrect or misleading representation in any financial statement
or other information delivered to the Bank; or (d) defaults under
the terms of any agreement or instrument relating to any debt for
borrowed money (other than the debt evidenced by this Note) such
that the creditor declares the debt due before its maturity; (iii)
the Company or any Guarantor defaults under the terms of any loan
agreement, mortgage, security agreement, or any other document
executed as part of the loan evidenced by this Note, or any
guaranty of the loan evidenced by this Note, becomes unenforceable
in whole or in part, or any Guarantor fails to promptly perform
under such a guaranty; (iv) a "reportable event" (as defined in the
Employee Retirement Income Security Act of 1974 as amended) occurs
that would permit the Pension Benefit Guaranty Corporation to
terminate any employee benefit plan of the Company or any affiliate
of the Company; (v) the Company or any Guarantor becomes insolvent
or unable to pay its debts as they become due; (vi) the Company or
any Guarantor (a) makes an assignment for the benefit of creditors;
(b) consents to the appointment of a custodian, receiver or trustee
for itself or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction; (vii)
a custodian, receiver, or trustee is appointed for the Company or
any Guarantor or for a substantial part of its assets without the
consent of the party against which the appointment is made and is
not removed within 60 days after such appointment; (viii)
proceedings are commenced against the Company or any Guarantor
under any bankruptcy, reorganization, liquidation, or similar laws
of any jurisdiction, and such proceedings remain undismissed for 60
days after commencement; or the Company or Guarantor consents to
the commencement of such proceedings; (ix) any judgment is entered
against the Company or any Guarantor, or any attachment, levy, or
<PAGE>
garnishment is issued against any property of the Company or any
Guarantor. (x) the Company or any Guarantor dies; (xi) the Company
or any Guarantor, without the Bank's written consent, (a) is
dissolved, (b) merges or consolidates with any third party, (c)
leases, sells or otherwise conveys a material part of its assets or
business outside the ordinary course of business, (d) leases,
purchases, or otherwise acquires a material part of the assets of
any other corporation or business entity, except in the ordinary
course of business and except as contemplated and permitted under
the Secured Revolving Credit Agreement, (e) agrees to do any of the
foregoing, (notwithstanding the foregoing, any subsidiary may merge
or consolidate with any other subsidiary, or with the Company, so
long as the Company is the survivor); (xii) the loan-to-value ratio
of any pledged securities at any time exceeds the Bank's limit for
securities of the type pledged and such excess continues for five
(5) days after notice from the Bank to the Company; (xiii) there is
a substantial change in the existing or prospective financial
condition of the Company or any Guarantor which the Bank in good
faith determines to be materially adverse; or (xiv) the Bank in good
faith deems itself insecure; then this Note shall become due
immediately, without notice, at the Bank's option.
If this Note is not paid at maturity, whether by demand,
acceleration or otherwise, the Bank shall have all of the rights
and remedies provided by any law or agreement. Any requirement of
reasonable notice shall be met if the Bank sends the notice to the
Company at least seven (7) days prior to the date of sale,
disposition or other event giving rise to the required notice. The
Bank is authorized to cause all or any part of the Collateral to be
transferred to or registered in its name or in the name of any
other person, firm or corporation, with or without designation of
the capacity of such nominee. The Company shall be liable for any
deficiency remaining after disposition of any Collateral. The
Company is liable to the Bank for all reasonable costs and expenses
of every kind incurred in the making or collection of this Note,
including, without limitation, reasonable attorneys' fees and court
costs. These costs and expenses shall include, without limitation,
any costs or expenses incurred by the Bank in any bankruptcy,
reorganization, insolvency or other similar proceeding.
Each endorser and any other party liable on this Note
severally waives demand, presentment, notice of dishonor and
protest, and consents to any extension or postponement of time of
its payment without limit as to the number or period, to any
substitution, exchange or release of all or any part of the
Collateral, to the addition of any party, and to the release or
discharge of, or suspension of any rights and remedies against, any
person who may be liable for the payment of this Note. No delay on
the part of the Bank in the exercise of any right or remedy shall
operate as a waiver. No single or partial exercise by the Bank of
any right or remedy shall preclude any other future exercise of it
or the exercise of any right or remedy. No waiver or indulgence by
the Bank of any default shall be effective unless in writing and
signed by the Bank, nor shall a waiver on one occasion be construed
as a bar to or waiver of that right on any future occasion.
<PAGE>
This Note shall be binding on the Company and its successors,
and shall inure to the benefit of the Bank, its successors and
assigns. Any reference to the Bank shall include any holder of
this Note. This Note is delivered in the State of Illinois and
governed by Illinois law. This Note and any related loan documents
embody the entire agreement between the Company and the Bank
regarding the terms of the loan evidenced by this Note and
supersede all oral statements and prior writings relating to that
loan.
WAIVER OF JURY TRIAL: The Bank and the Company, after consulting
or having had the opportunity to consult with counsel, knowingly,
voluntarily and intentionally waive any right either of them may
have to a trial by jury in any litigation based upon or arising out
of this Note or any related instrument or agreement or any of the
transactions contemplated by this Note or any course of conduct,
dealing, statements, whether oral or written, or actions of either
of them. Neither the Bank nor the Company shall seek to
consolidate, by counterclaim or otherwise, any such action in which
a jury trial has been waived with any other action in which a jury
trial cannot be or has not been waived. These provisions shall not
be deemed to have been modified in any respect or relinquished by
either the Bank or the Company except by a written instrument
executed by both of them.
CIRCUIT SYSTEMS, INC.
Address: 2350 E. Lunt Avenue By:
Elk Grove Village, IL 60007 ------------------
D. S. Patel, President
<PAGE>
Exhibit "A-1"
REVOLVING CREDIT NOTE
Due: August 31, 1998 $6,000,000.00
Note No. Date: August 30, 1996
---------------
PROMISE TO PAY: On or before August 31, 1998, for value
received, the undersigned (the "Company") promises to pay to
American National Bank and Trust Company of Chicago as assignee of
NBD Bank (the "Bank") or order, at the Bank's main office in
Chicago, Illinois 60670 or at any office of the Bank in the State
of Illinois, the sum of Six Million and No/100 Dollars
($6,000,000.00), or such lesser sum as is indicated on the Bank's
records, plus interest computed on the basis of the actual number
of days elapsed in a year of 360 days at the Company's option at
either (i) the rate announced from time to time by the Bank as its
"prime" rate, which rate may not be the lowest rate charged by the
Bank to any of its customers, or (ii) the Negotiated Rate as stated
in the Agreement (as hereinafter defined) (the "Note Rate"), until
maturity, whether by acceleration or otherwise, and at a rate of 3%
per annum above the Note Rate on overdue principal from the date
when due until paid. The Negotiated Rate may be greater or lesser
than the prime rate, and each change in the "prime" rate will
immediately change the Note Rate if such rate is chosen and in
effect hereunder.
In no event shall the interest rate exceed the maximum rate
allowed by law; any interest payment which would for any reason be
deemed unlawful under applicable law shall be applied to principal.
Interest will be computed on the unpaid principal balance
hereof from the date of each borrowing.
Until maturity, the Company will pay consecutive monthly
installments of interest only commencing September 30, 1996, and on
the last day of each calendar month thereafter.
The Company acknowledges and agrees (i) that this Note
evidences a business loan for the purpose of financing a commercial
enterprize carried on for the purpose of investment or profit
within the purview of Section 205/4, Chapter 815, of the Illinois
Compiled Statutes and is not subject to any usury law or limitation
of the State of Illinois, and (ii) the obligation evidenced by this
Note is an exempt transaction under the Federal Truth-in-Lending
Act, 15 U.S.C., Section 1601 et seq.
The Bank has approved a credit facility to the Company in a
principal amount not to exceed the face amount of this Note. The
credit facility is in the form of advances made from time to time
by the Bank to the Company. This Note evidences the Company's
obligation to repay those advances. The aggregate principal amount
of debt evidenced by this Note shall be the amount reflected from
time to time in the records of the Bank but shall not exceed the
face amount of this Note. Until maturity, the Company may borrow,
pay down and reborrow under this Note so long as the aggregate
principal amount outstanding at any one time does not exceed the
face amount of this Note.
<PAGE>
This Note evidences a debt under the terms of a Secured
Revolving Credit Agreement, between the Bank and the Company dated
as of April 30, 1993 as amended April 29, 1994, August 23, 1994,
August 31, 1995, November 27, 1995, April 30, 1996 and August 30,
1996 (the "Agreement"), and is entitled to the benefits of and
subject to the provisions of the Agreement. The Agreement, among
other things, contains provisions for acceleration of the maturity
of this Note upon the happening of certain stated events and also
for prepayments on account of the principal hereof prior to the
maturity hereof upon the terms and conditions specified in the
Agreement as may be amended from time to time.
To secure the payment of this Note and any other present or
future liability of the Company to the Bank, whether several,
joint, or joint and several, the Company pledges and grants to the
Bank a continuing security interest in the following described
property and all of its additions, substitutions, increments,
proceeds and products, whether now owned or later acquired
("Collateral"): All securities and other property of the Company in
the custody, possession or control of the Bank (other than property
held by the Bank solely in a fiduciary capacity); All property or
securities declared or acknowledged to constitute security for any
past, present or future liability of the Company to the Bank; All
balances of deposit accounts of the Company with the Bank; and the
following additional property of the Company: All Inventory,
Accounts, Accounts Receivable, General Intangibles and Equipment as
described in those Security Agreements dated as of April 1, 1992
and April 30, 1993, as provided to the Bank in connection
therewith. The terms used to identify the Collateral shall have
the respective meanings assigned to such terms as of the date
hereof in the Illinois Uniform Commercial Code.
The Bank shall have the right at any time to apply its own
debt or liability to the Company or to any other party liable on
this Note in whole or partial payment of this Note or other present
or future liabilities of the Company to the Bank without any
requirement of mutual maturity.
The terms and provisions of the Agreement, any mortgage,
security agreement or any other document executed as part of or in
connection with the loans evidenced by this Note are hereby
incorporated by reference and made a part of this Note.
<PAGE>
The Company represents that it is a corporation duly
organized, existing and in good standing under the laws of its
state of incorporation, and that the execution and delivery of this
Note and the performance of the obligations it imposes are within
its corporate powers, have been duly authorized by all necessary
action of its board of directors, and do not contravene the terms
of its articles of incorporation or bylaws. The Company represents
that the execution and delivery of this Note and the performance of
the obligations it imposes do not violate any law and do not
conflict with any agreement by which it is bound, and that no
consent or approval of any governmental authority or any third
party is required for the execution or delivery of this Note or the
performance of the obligations it imposes and that this Note is a
valid and binding agreement, enforceable according to its terms.
The Company further represents that all balance sheets, profit and
loss statements, and other financial statements, if any, furnished
to the Bank are accurate and fairly reflect the financial condition
of the Company on their effective dates, including contingent
liabilities of every type, which financial condition has not
changed materially and adversely since those dates.
If any of the following events occurs: (i) the Company or any
guarantor of this Note ("Guarantor") fails to pay when due any
amount payable under this Note or under any agreement or instrument
evidencing debt to any creditor; (ii) the Company or any Guarantor
(a) fails to observe or perform any other term of this Note: or (b)
makes any materially incorrect or misleading representation,
warranty, or certificate to the Bank; or (c) makes any materially
incorrect or misleading representation in any financial statement
or other information delivered to the Bank; or (d) defaults under
the terms of any agreement or instrument relating to any debt for
borrowed money (other than the debt evidenced by this Note) such
that the creditor declares the debt due before its maturity; (iii)
the Company or any Guarantor defaults under the terms of any loan
agreement, mortgage, security agreement, or any other document
executed as part of the loan evidenced by this Note, or any
guaranty of the loan evidenced by this Note, becomes unenforceable
in whole or in part, or any Guarantor fails to promptly perform
under such a guaranty; (iv) a "reportable event" (as defined in the
Employee Retirement Income Security Act of 1974 as amended) occurs
that would permit the Pension Benefit Guaranty Corporation to
terminate any employee benefit plan of the Company or any affiliate
of the Company; (v) the Company or any Guarantor becomes insolvent
or unable to pay its debts as they become due; (vi) the Company or
any Guarantor (a) makes an assignment for the benefit of creditors;
(b) consents to the appointment of a custodian, receiver or trustee
for itself or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction; (vii)
a custodian, receiver, or trustee is appointed for the Company or
any Guarantor or for a substantial part of its assets without the
consent of the party against which the appointment is made and is
not removed within 60 days after such appointment; (viii)
proceedings are commenced against the Company or any Guarantor
under any bankruptcy, reorganization, liquidation, or similar laws
of any jurisdiction, and such proceedings remain undismissed for 60
days after commencement; or the Company or Guarantor consents to
<PAGE>
the commencement of such proceedings; (ix) any judgment is entered
against the Company or any Guarantor, or any attachment, levy, or
garnishment is issued against any property of the Company or any
Guarantor. (x) the Company or any Guarantor dies; (xi) the Company
or any Guarantor, without the Bank's written consent, (a) is
dissolved, (b) merges or consolidates with any third party, (c)
leases, sells or otherwise conveys a material part of its assets or
business outside the ordinary course of business, (d) leases,
purchases, or otherwise acquires a material part of the assets of any
other corporation or business entity, except in the ordinary course
of business and except as contemplated and permitted under the
Secured Revolving Credit Agreement, (e) agrees to do any of the
foregoing, (notwithstanding the foregoing, any subsidiary may merge
or consolidate with any other subsidiary, or with the Company, so long
as the Company is the survivor); (xii) the loan-to-value ratio of any
pledged securities at any time exceeds the Bank's limit for securities
of the type pledged and such excess continues for five (5) days after
notice from the Bank to the Company; (xiii) there is a substantial
change in the existing or prospective financial condition of the
Company or any Guarantor which the Bank in good faith determines to
be materially adverse; or (xiv) the Bank in good faith deems itself
insecure; then this Note shall become due immediately, without
notice, at the Bank's option.
If this Note is not paid at maturity, whether by demand,
acceleration or otherwise, the Bank shall have all of the rights
and remedies provided by any law or agreement. Any requirement of
reasonable notice shall be met if the Bank sends the notice to the
Company at least seven (7) days prior to the date of sale,
disposition or other event giving rise to the required notice. The
Bank is authorized to cause all or any part of the Collateral to be
transferred to or registered in its name or in the name of any
other person, firm or corporation, with or without designation of
the capacity of such nominee. The Company shall be liable for any
deficiency remaining after disposition of any Collateral. The
Company is liable to the Bank for all reasonable costs and expenses
of every kind incurred in the making or collection of this Note,
including, without limitation, reasonable attorneys' fees and court
costs. These costs and expenses shall include, without limitation,
any costs or expenses incurred by the Bank in any bankruptcy,
reorganization, insolvency or other similar proceeding.
Each endorser and any other party liable on this Note
severally waives demand, presentment, notice of dishonor and
protest, and consents to any extension or postponement of time of
its payment without limit as to the number or period, to any
substitution, exchange or release of all or any part of the
Collateral, to the addition of any party, and to the release or
discharge of, or suspension of any rights and remedies against, any
person who may be liable for the payment of this Note. No delay on
the part of the Bank in the exercise of any right or remedy shall
operate as a waiver. No single or partial exercise by the Bank of
any right or remedy shall preclude any other future exercise of it
or the exercise of any right or remedy. No waiver or indulgence by
the Bank of any default shall be effective unless in writing and
signed by the Bank, nor shall a waiver on one occasion be construed
as a bar to or waiver of that right on any future occasion.
<PAGE>
This Note shall be binding on the Company and its successors,
and shall inure to the benefit of the Bank, its successors and
assigns. Any reference to the Bank shall include any holder of
this Note. This Note is delivered in the State of Illinois and
governed by Illinois law. This Note and any related loan documents
embody the entire agreement between the Company and the Bank
regarding the terms of the loan evidenced by this Note and
supersede all oral statements and prior writings relating to that
loan.
WAIVER OF JURY TRIAL: The Bank and the Company, after consulting
or having had the opportunity to consult with counsel, knowingly,
voluntarily and intentionally waive any right either of them may
have to a trial by jury in any litigation based upon or arising out
of this Note or any related instrument or agreement or any of the
transactions contemplated by this Note or any course of conduct,
dealing, statements, whether oral or written, or actions of either
of them. Neither the Bank nor the Company shall seek to
consolidate, by counterclaim or otherwise, any such action in which
a jury trial has been waived with any other action in which a jury
trial cannot be or has not been waived. These provisions shall not
be deemed to have been modified in any respect or relinquished by
either the Bank or the Company except by a written instrument
executed by both of them.
CIRCUIT SYSTEMS, INC.
Address: 2350 E. Lunt Avenue By:
Elk Grove Village, IL 60007 ----------------------
D. S. Patel, President
<PAGE>
Exhibit 11
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
PRIMARY EPS 1997 1996 1995
---------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD 5,298,967 5,321,973 5,317,189
NET ADDITIONAL SHARES ASSUMING DILUTIVE
STOCK OPTIONS EXERCISED AND PROCEEDS
USED TO PURCHASE TREASURY SHARES AT
AVERAGE FAIR MARKET VALUE ............. 39,273 31,455 11,530
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON EQUIVALENT SHARES OUTSTANDING.. 5,338,240 5,353,428 5,328,719
--------- --------- ---------
NET EARNINGS ........................... $2,118,950 $3,083,881 $2,241,985
--------- --------- ---------
PRIMARY EARNINGS PER SHARE ............ $0.40 $0.58 $0.42
========= ========= =========
FULLY DILUTED EPS
-------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD 5,298,967 5,321,973 5,317,189
NET ADDITIONAL SHARES ASSUMING DILUTIVE
STOCK OPTIONS EXERCISED AND PROCEEDS
USED TO PURCHASE TREASURY SHARES AT
FAIR MARKET VALUE (OR AVERAGE FAIR MARKET
VALUE IF HIGHER) ....................... 39,273 40,000 11,530
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON EQUIVALENT SHARES OUTSTANDING.. 5,338,240 5,361,973 5,328,719
--------- --------- ---------
NET EARNINGS ........................... $2,118,950 $3,083,881 $2,241,985
--------- --------- ---------
FULLY DILUTED EARNINGS PER SHARE ......... $0.40 $0.58 $0.42
========= ========= =========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 294,204
<SECURITIES> 0
<RECEIVABLES> 7,061,782
<ALLOWANCES> 500,000
<INVENTORY> 6,636,821
<CURRENT-ASSETS> 14,071,481
<PP&E> 46,216,098
<DEPRECIATION> 18,442,154
<TOTAL-ASSETS> 45,758,099
<CURRENT-LIABILITIES> 10,336,794
<BONDS> 10,640,363
0
0
<COMMON> 2,882,322
<OTHER-SE> 19,579,374
<TOTAL-LIABILITY-AND-EQUITY> 45,758,099
<SALES> 63,414,341
<TOTAL-REVENUES> 63,414,341
<CGS> 55,077,512
<TOTAL-COSTS> 55,077,512
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 36,761
<INTEREST-EXPENSE> 1,612,854
<INCOME-PRETAX> 3,335,950
<INCOME-TAX> 1,217,000
<INCOME-CONTINUING> 2,118,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,118,950
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
