<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
- ----- Act of 1934. For the fiscal year ended April 30, 1998
or
X Transition Report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934. For the transition period from __________to_______.
Commission file number 0-23248
SIGMATRON INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3918470
-------- ----------
(State or other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2201 Landmeier Rd., Elk Grove Vlge., IL 60007
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847-956-8000
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.01 par value per share
--------------------------------------
Title of each class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K ( X ).
---
The aggregate market value of the voting and non-voting stock held by
nonaffiliates of the registrant as of June 30, 1998 (based on the closing sale
price as reported by Nasdaq National Market as of such date) was $14,467,478.
The number of outstanding shares of the registrant's Common Stock, as of June
30, 1998, was 2,881,227.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the definitive proxy statement of SigmaTron
International, Inc., for use in connection with its annual meeting of
stockholders to be held September 18, 1998, which will be filed within 120 days
of the fiscal year ended April 30, 1998, are incorporated by reference into
Part III of this Form 10-K.
<PAGE> 2
- --------------------------------------------------------------------------------
PART I
- -----------------------------------------------------------------------------
ITEM 1. BUSINESS
CAUTIONARY NOTE:
In addition to historical financial information, this discussion of
SigmaTron International, Inc.'s ("Company") business and other Items in this
Annual Report on Form 10-K contain forward-looking statements concerning the
Company's business or results of operations. These statements should be
evaluated in the context of the risks and uncertainties inherent in the
Company's business, including the Company's continued dependence on certain
significant customers, including Nighthawk Systems, Incorporated ("NSI"); the
continued market acceptance of products and services offered by the Company and
its customers; the activities of competitors, some of which may have greater
financial or other resources than the Company; the variability of the Company's
operating results; the availability and cost of necessary components; the
continued availability and sufficiency of the Company's credit arrangements;
changes in U.S. or Mexican regulations affecting the Company's business; the
continued stability of the Mexican economic, labor and political conditions;
and the ability of the Company to manage its growth. These and other factors
which may affect the Company's future business and results of operations are
identified throughout this Annual Report on Form 10-K and in the prospectus
issued in connection with the Company's February 1994 initial public offering
of securities (Registration No. 33-72100), and may be detailed from time to
time in the Company's filings with the Securities and Exchange Commission.
OVERVIEW
The Company is an independent contract manufacturer of electronic
components, printed circuit board assemblies and completely assembled
(box-build) electronic products. Included among the wide range of services the
Company offers its customers are (1) automatic and manual assembly and testing
of products, (2) material sourcing and procurement, (3) design, manufacturing
and test engineering support, (4) warehousing and shipment services, and (5)
assistance in obtaining product approvals from governmental and other
regulatory bodies. The Company provides these services through facilities
located in North America and the Far East.
The Company provides manufacturing and assembly services ranging from the
assembly of individual components to the assembly and testing of box-build
electronic products. The Company has the ability to produce assemblies
requiring mechanical as well as electronic capabilities. The products
assembled by the Company are then incorporated into finished products sold in
various marketplaces, particularly consumer electronics, gaming, fitness,
industrial electronics, telecommunications, home appliances and automotive.
The Company operates manufacturing facilities in Elk Grove Village,
Illinois; Las Vegas, Nevada; and Acuna, Mexico. The Company maintains
materials sourcing offices in Elk Grove Village, Illinois and Taipei, Taiwan.
The Company provides warehousing services in Del Rio, Texas and Huntsville,
Alabama. In addition, the Company's 42.5% owned affiliate, SMT Unlimited L.P.
(SMTU), provides contract manufacturing services in Fremont, California.
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The Company is a Delaware corporation which was organized on November 16,
1993 and commenced business when it became the successor to all of the assets
and liabilities of SigmaTron L.P., an Illinois limited partnership, through a
reorganization on February 8, 1994. On February 9, 1994, the Company and
certain stockholders commenced an initial public offering for the sale of
1,265,000 shares of common stock.
PRODUCTS AND SERVICES
The Company provides a broad range of manufacturing-related outsourcing
solutions for its customers on both a turnkey (material purchased by the
Company) and consignment basis (material provided by the customer). These
solutions incorporate the Company's knowledge and expertise in the electronic
manufacturing services industry to provide its customers with advanced
manufacturing technologies and high quality, responsive and flexible
manufacturing services. SigmaTron's outsourcing solutions provide services
from product inception through the ultimate delivery of a finished good. Such
technologies and services include the following:
Manufacturing and Related Services. As its customers experience greater
competition and shorter product life cycles in their respective industries, the
Company has responded by expanding its prototype services. The Company also
provides quick-turnaround, turnkey prototype services from dedicated resources
located within the Company's Elk Grove Village facility and through SMTU, its
affiliate that it makes available to customers which it believes will lead to
significant orders.
Materials Procurement. The Company is primarily a turnkey manufacturer
and directly sources all, or a substantial portion, of the components necessary
for its product assemblies, rather than receiving the raw materials from its
customers on consignment. Material procurement includes the purchasing,
management, storage and delivery of raw components required for the manufacture
or assembly of a customer's product based upon the customer's orders. The
Company procures components from a select group of vendors which meet its
standards for timely delivery, high quality and cost effectiveness, or as
directed by its customers. Raw material used in the assembly and manufacture
of printed circuit boards and electronic assemblies are generally available
from several suppliers, unless restricted by the customer.
The Company believes that its ability to source and procure competitively
priced, quality components is critical to its ability to effectively compete.
In addition to obtaining materials in North America, the Company utilizes its
Taiwanese procurement office and agents to source materials from the Far East.
SigmaTron believes this office allows the Company to more effectively manage
its relationships with key suppliers in the Far East by allowing the Company to
respond more quickly to changes in market dynamics, including fluctuations in
price, availability and quality.
Assembly and Manufacturing. The Company's core business is the assembly
of printed circuit boards through the automated and manual insertion of
components onto raw printed circuit boards. The Company offers its assembly
services using both pin-through-hole ("PTH") and surface mount ("SMT")
interconnect technologies. SMT is an assembly process which allows the
placement of a higher density of components directly on both sides of a printed
circuit board. The SMT process is a more recent advancement over the mature
PTH technology, which normally permits electronic components to be attached to
only one side of a printed circuit board by inserting the component into
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holes drilled through the board. The SMT process allows original equipment
manufacturers ("OEMs") to use advanced circuitry, while at the same time
permitting the placement of a greater number of components on a printed circuit
board without having to increase the size of the board. By allowing
increasingly complex circuits to be packaged with the components in closer
proximity to each other, SMT greatly enhances circuit processing speed, and
thus, board and system performance.
The Company performs PTH assembly both manually and with automated
component insertion and soldering equipment. Although SMT is a newer and more
sophisticated interconnect technology, the Company intends to continue
providing PTH assembly services for its customers because it believes that SMT
will not entirely eliminate the need for PTH technology. The Company believes
that OEMs with products not limited by internal space constraints will continue
to favor PTH over SMT. Through SMTU SigmaTron possesses ball grid array
("BGA") technology and fine pitch SMT, which is used for more complex circuit
boards required to perform at higher speeds.
In addition to printed circuit board assemblies, the Company also
manufactures DC-to-AC inverters, coils, transformers and cable and harness
assemblies. These products are manufactured using both automated and
semi-automated preparation and insertion equipment and manual assembly
techniques.
In response to the needs of its OEM customers, the Company also offers
"box-build" services which integrate its printed circuit board and other
manufacturing and assembly technologies into higher level sub-assemblies and
end products.
Product Testing. The Company has the ability to perform both in-circuit
and functional testing of its assemblies and finished products. In-circuit
testing verifies that the correct components have been properly inserted and
that the electrical circuits are complete. Functional testing determines if a
board or system assembly is performing to customer specifications. The
Company provides X-ray laminography services through its affiliate SMTU.
Generally, the Company either designs or procures test fixtures. The Company
seeks to provide customers with highly sophisticated testing services that are
at the forefront of current test technology.
Warehousing and Distribution. In response to the needs of select
customers, the Company has the ability to provide in-house warehousing,
shipping and receiving and customer brokerage services for goods manufactured
or assembled in Mexico and for goods manufactured for a customer in Huntsville,
Alabama. The Company also has the ability to provide custom-tailored delivery
schedules to fulfill the just-in-time inventory needs of its customers.
MARKETS AND CUSTOMERS
SigmaTron's customers are in the consumer electronics, gaming, industrial
electronics, fitness, telecommunications, automotive and home appliance
industries. As of April 30, 1998, the Company had approximately 125 active
customers ranging from Fortune 500 companies to small, privately held
enterprises.
The following table shows, for the periods indicated, the percentage of
net sales to the principal end-user markets it serves.
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<TABLE>
<CAPTION>
=================================================================================
PERCENT OF NET SALES
- ---------------------------------------------------------------------------------
TYPICAL FISCAL FISCAL FISCAL
MARKETS OEM APPLICATION 1996 1997 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Electronics Carbon monoxide detectors 37.7% 38.0% 37.9%
dart board games
- ---------------------------------------------------------------------------------
Gaming Slot machines, 21.6 21.8 22.0
lighting displays
- ---------------------------------------------------------------------------------
Industrial Electronics Blower motors, elevators 20.1 18.3 14.2
- ---------------------------------------------------------------------------------
Fitness Treadmills, exercise bikes 11.0 12.1 13.3
- ---------------------------------------------------------------------------------
Telecommunications Pagers, microphones and 5.0 5.1 5.1
modems
- ---------------------------------------------------------------------------------
Appliances Irons, toasters, ranges and
dryers 3.2 2.1 5.1
- ---------------------------------------------------------------------------------
Automotive Automobile interior lighting 1.4 2.6 2.4
- ---------------------------------------------------------------------------------
Total 100% 100% 100%
=================================================================================
</TABLE>
For the fiscal year ended April 30, 1998, NSI and Life Fitness accounted
for 29.4% and 13.3% respectively, of the Company's net sales. In fiscal 1997
NSI, Bally Gaming and Life Fitness accounted for 29.8%, 13.5% and 10.8%,
respectively, of net sales. In addition, NSI, Bally Gaming and Life Fitness
accounted for 28.2%, 15.0% and 10.4%, respectively, of the Company's net sales
for the fiscal year ended April 30, 1996. The Company expects that these
customers as a group will continue to account for a significant percentage of
the Company's net sales, although the individual percentages may vary from
period to period.
NSI is a leading U.S. manufacturer of residential carbon monoxide
detection systems. The Company's agreement with NSI calls for the Company to
function as the exclusive contract manufacturer for all models of NSI's
proprietary carbon monoxide detectors on a turnkey basis through June 1998.
The Company has agreed that during the term of the agreement and for three
months thereafter it will not produce carbon monoxide detectors for any other
customer. Although there has been no written extension of the agreement, the
parties continue to operate under its terms. The amount of sales to NSI beyond
fiscal 1999 remains unclear and if the relationship is not continued it could
significantly impact the Company's revenues and earnings. However, the Company
expects that sales to NSI will continue to account for a significant percentage
of the
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Company's net sales in fiscal 1999. Sales to NSI are seasonal due to the
nature of the product and the Company experiences stronger sales to NSI in the
second and third fiscal quarters. The NSI market is an emerging market which
could lead to volatility in NSI's forecast having the effect of causing the
Company's revenues to fluctuate significantly on a seasonal basis.
SALES AND MARKETING
The Company markets its services through 24 independent manufacturers'
representative organizations, that currently employ approximately 75 sales
personnel in the United States and Canada. Independent manufacturers'
representative organizations receive variable commissions based on orders
received by the Company. The members of the Company's senior management are
actively involved in sales and marketing efforts. In addition, the Company
attends trade shows related to its industry and its major customer industries.
Sales volume and gross profit margins can vary considerably among
customers and products depending on the type of services rendered by the
Company. Specifically, variations in orders for turnkey services versus
consignment services and variations in the number of orders for products with
high raw material costs can lead to significant fluctuations in the Company's
operating results. Further, customers' orders can be delayed, rescheduled or
canceled at any time, which can significantly impact the operating results of
the Company. The ability to replace such delayed or lost sales in a short
period of time is not assured.
MEXICAN OPERATIONS
The Company's wholly-owned subsidiary, Standard Components de Mexico, S.A.
("Standard Components"), a Mexican corporation, is located in Acuna, Mexico, a
border town along the Rio Grande River next to Del Rio, Texas, which is 155
miles west of San Antonio. Standard Components was incorporated and commenced
operation in 1969. The Company believes that one of the key benefits to having
operations in Mexico is its access to cost effective labor resources.
Standard Components is a maquiladora, which is the status afforded a
corporation under a trade agreement between the United States of America and
Mexico. The Company believes economic events affecting the Mexican economy and
the implementation of NAFTA have not had a material effect on the Company or
its financial position.
In 1995 the Mexican Ministry of Finance and Public Credit (Hacienda)
adopted rules which require arms length pricing for transactions between
maquiladoras and their U.S. affiliated companies. The impact of these
regulations requires Standard Components to allocate costs and profits on an
arms length basis. Its operating results continue to be consolidated with the
Company's financial results. The effect of the rules had an immaterial impact
on the Company's consolidated results.
The Company provides funds for salaries, wages, overhead and capital
expenditure items as necessary to operate Standard Components. Since the
Company provides funding to Standard Components in U.S. dollars, which are
exchanged for pesos as needed, the devaluation of the peso from time to time,
without an equal or greater increase in Mexican inflation, has not had a
material
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impact on the financial results of the Company. In fiscal 1998 the Company
funded approximately $8,160,000.
COMPETITION
The electronic manufacturing services industry is highly competitive and
subject to rapid change. Furthermore, both large and small companies compete
in the industry, and many have significantly greater financial resources, more
extensive business experience and greater marketing and production capabilities
than the Company. Also, foreign companies, especially companies with
production operations in the Far East, have substantially lower costs and thus
are able to offer their services at lower prices. The significant competitive
factors in this industry include price, quality, service, timeliness,
reliability, the ability to source raw components, and manufacturing and
technological capabilities. The Company believes it can competitively provide
all of these services.
In addition, the Company may be operating at a cost disadvantage compared
to manufacturers who have greater direct buying power with component suppliers
or who have lower cost structures. Current and prospective customers
continually evaluate the merits of manufacturing products internally and will
from time to time offer manufacturing services to third parties in order to
utilize excess capacity. During downturns in the electronics industry, OEMs
may become more price sensitive.
There can be no assurance that competition from existing or potential
competitors will not have a material adverse effect on the Company's business,
financial condition, or results of operations. The introduction of lower
priced competitive products or significant price reductions by the Company's
competitors could result in price reductions that would adversely affect the
Company's business, financial condition, and results of operations, as would
the introduction of new technologies which render the Company's manufacturing
process technology less competitive or obsolete.
GOVERNMENTAL REGULATIONS
The Company's operations are subject to certain foreign, federal, state
and local regulatory requirements relating to environmental, waste management
and health and safety matters. Management believes that the Company's business
is operated in material compliance with all such regulations. The cost to the
Company of such compliance to date has not materially affected the Company's
business, financial condition or results of operations. However, there can be
no assurance that violations will not occur in the future as a result of human
error, equipment failure or other causes. The Company cannot predict the
nature, scope or effect of environmental legislation or regulatory requirements
that could be imposed or how existing or future laws or regulations will be
administered or interpreted. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of regulatory
agencies, could require substantial expenditures by the Company and could
adversely affect the Company's business, financial condition and results of
operations.
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BACKLOG
The Company's backlog as of April 30, 1998 was approximately $46,184,000.
Backlog consists of contracts or purchase orders with delivery dates scheduled
within the next twelve months. The Company currently expects to ship
substantially all of the April 30, 1998 backlog by the end of the 1999 fiscal
year. Backlog as of April 30, 1997 totaled $38,108,380. Variations in the
magnitude and duration of contracts and purchase orders received by the Company
and delivery requirements generally may result in substantial fluctuations in
backlog from period to period. Because customers may cancel or reschedule
deliveries, backlog may not be a meaningful indicator of future financial
results.
EMPLOYEES
The Company employed approximately 1,700 people as of April 30, 1998,
including 31 engaged in engineering, 1,554 in manufacturing and 115 in
administrative and marketing functions.
The Company has a labor contract with Production Workers Union Local No.
10, AFL-CIO, covering the Company's workers in Elk Grove Village, Illinois
which expires on November 30, 2000. The Company's Mexican subsidiary has a
labor contract with Sindicato De Trabajadores de la Industra Electronica,
Similares y Conexos del Estado de Coahuila, C.T.M. covering the Company's
workers in Acuna, Mexico which expires on January 15, 2000.
Since the time the Company commenced operations, it has not experienced
any work stoppages. The Company believes its relations with both unions and
its other employees are good.
ITEM 2. PROPERTIES
The Company, in combination with its wholly-owned subsidiary and
affiliate, has manufacturing facilities located in Elk Grove Village, Illinois,
Las Vegas, Nevada, Fremont, California and Acuna, Mexico. In addition, the
Company provides inventory management services through its Del Rio, Texas,
warehouse facilities and materials procurement services through its Taipei,
Taiwan office.
Certain information about the Company's manufacturing, warehouse and
purchasing facilities is set forth below:
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<TABLE>
<CAPTION>
===========================================================
LOCATION SQUARE FEET SERVICES OFFERED
- -----------------------------------------------------------
<S> <C> <C>
Elk Grove Village, IL 61,000 Corporate
Headquarters, assembly
and testing of PTH and
SMT, box-build,
prototyping
- -----------------------------------------------------------
Acuna, Mexico 156,000 High volume assembly,
and testing of PTH and
SMT, box-build,
transformers
- -----------------------------------------------------------
Las Vegas, NV 33,360 Automatic insertion
and cable assembly
- -----------------------------------------------------------
Del Rio, TX 25,000 Warehouse, portion of
which is bonded
- -----------------------------------------------------------
Fremont, CA 24,030 High volume assembly
and testing of both
PTH and SMT and ball
grid array ("BGA")
- -----------------------------------------------------------
Taipei, Taiwan 2,900 Materials procurement,
alternative sourcing
assistance and quality
control
- -----------------------------------------------------------
Huntsville, AL * Just-in-time inventory
management and delivery
===========================================================
</TABLE>
* There is no lease for this facility. The Company has entered into a
service agreement whereby contracted warehouse personnel provide services for
the Company and its customer.
The Company leases its executive offices and manufacturing facility in Elk
Grove Village, Illinois from Circuit Systems, Inc. ("CSI"), a significant
shareholder of the Company. The Company, through an agent, maintains the
purchasing and engineering office in Taipei, Taiwan to coordinate Far East
purchasing and design activities. In addition, the Company's affiliate, SMTU,
leases the facility in Fremont, California. The Company has guaranteed lease
payments of approximately $1.63 million for SMTU, and has been indemnified by
one of the SMTU limited partners to the extent of 50% of the lease payment
guaranty.
ITEM 3. LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings to
which it is a party or to which any of its property is subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter
of fiscal 1998.
ITEM 4.(A) EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- ---------
<S> <C> <C>
Gary R. Fairhead 46 President and Chief Executive Officer
Gary R. Fairhead has been the President
of the Company since January 1990.
Linda K. Blake 37 Chief Financial Officer, Vice President-
Finance, Treasurer and Secretary
Linda K. Blake is the Company's Vice
President of Finance, Treasurer,
Secretary and Chief Financial Officer
and was Controller of the Company from
June 1991 to February 1994.
Nunzio A. Truppa 60 Vice President -- Domestic Operations
Nunzio A. Truppa has been Vice President
-- Domestic Operations for the Company,
or held equivalent management positions
with the Company's predecessor, since
January 1987.
Gregory A. Fairhead 42 Vice President Mexican Operations and
Assistant Secretary
Gregory A. Fairhead has been Vice
President -- Mexican Operations for the
Company since February 1990 and is
Assistant Secretary.
John P. Sheehan 37 Vice President -- Director of Materials
and Assistant Secretary
John P. Sheehan has been Vice President
--Director of Materials of the Company
since April, 1990 and is Assistant
Secretary.
</TABLE>
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PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol SGMA. The following table sets forth the range of quarterly
high and low bid information for the Common Stock for the periods ended April
30, 1997 and 1998.
Common Stock as Reported
by Nasdaq
<TABLE>
<CAPTION>
Period High Low
------ ------ --------
<C> <C> <C>
Fiscal 1998:
Fourth Quarter 10-7/8 7-3/4
Third Quarter 13-7/8 9-1/4
Second Quarter 17-1/2 11-5/8
First Quarter 17-1/8 11-57/64
Fiscal 1997:
Fourth Quarter 25-3/8 14
Third Quarter 23-1/8 10-3/4
Second Quarter 12-1/2 8-3/4
First Quarter 17-1/2 7-1/2
</TABLE>
As of June 30, 1998, there were approximately 145 holders of record of
the Company's common stock, which does not include shareholders whose stock is
held through securities position listings.
The Company has not paid cash dividends on its Common Stock since
completing its February 1994 initial public offering and does not intend to pay
any dividends in the foreseeable future. So long as any indebtedness remains
unpaid under the Company's revolving loan facility, the Company is prohibited
from paying or declaring any cash or other dividends on any of its capital
stock, except stock dividends, without the written consent of the lender under
the facility.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended April 30
---------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $36,690 $45,345 $69,558 $87,216 $85,651
Income before income tax
expense 2,389 3,032 3,752 5,161 837
Net Income (1) 1,862 1,891 2,367 3,255 526
Total Assets 17,838 28,235 38,378 42,088 48,641
Long-term debt and capital
lease obligations (including
current maturities) 4,716 12,763 16,528 18,593 20,975
Pro Forma Net income per
common equivalent share
(unaudited) - basic
and assuming dilution (2) 0.59 - - - -
Net income per common and
common equivalent share for
the period from February 9,
1994 to April 30, 1994 - basic
and assuming dilution $0.04 - - - -
Net income per common share-
basic - $0.69 $0.86 $1.16 $0.18
Net income per common share-
assuming dilution - $0.69 $0.86 $1.11 $0.18
</TABLE>
(1) Net income for the fiscal year 1994 reflects a charge of $527,000 for
income tax expense. Income tax expense includes a charge of approximately
$262,000 to recognize the initial effect of adopting Financial Accounting
Standards Board Statement No. 109 "Accounting for Income Taxes" (FAS No.
109) and has been calculated based on earnings of the Company since
February 8, 1994, the date of its reorganization from a limited
partnership to a C-Corporation. Prior to the reorganization, income was
passed through to the partners of SigmaTron L.P., who were responsible for
any federal and state income taxes due.
(2) Pro-forma net income per share was determined assuming the reorganization
from a limited partnership to a C-Corporation had occurred on May 1, 1993,
resulting in the Company being a C- Corporation for tax purposes as of
that date and to reflect the use of proceeds of the public offering to
retire debt.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY NOTE:
The following discussion provides an analysis of the Company's financial
condition and results of operations, and should be read in conjunction with the
Selected Consolidated Financial Data and the Consolidated Financial Statements
of the Company, and the Notes thereto, appearing in this Annual Report on Form
10-K, as well as in conjunction with the cautionary note concerning
forward-looking information which appears at the beginning of Item 1.
OVERVIEW
The Company is an independent contract manufacturer of electronic
components, printed circuit board assemblies, and box-build (completely
assembled) electronic products. Included among the wide range of services the
Company offers its customers are (1) automatic and manual assembly and testing
of customer products, (2) material sourcing, procurement and control, (3)
design, manufacturing and test engineering support, (4) warehousing and
shipment services, and (5) assistance in obtaining product approvals from
governmental and other regulatory bodies. The Company provides these services
through facilities located in North America and the Far East.
Sales volume and gross profit margins can vary considerably among
customers and products depending on the type of services rendered by the
Company. Specifically, variations in orders for turnkey services versus
consignment services and variations in the number of orders for products with
high raw material costs can lead to significant fluctuations in the Company's
operating results. Further, customers' orders can be delayed, rescheduled or
canceled at any time, which can significantly impact the operating results of
the Company. In addition, the ability to replace such delayed or lost sales in
a short period of time cannot be assured.
As a manufacturing company, the Company includes all fixed manufacturing
overhead in cost of goods sold. The inclusion of fixed manufacturing overhead
in cost of goods sold magnifies the fluctuations in gross profit margin
percentages caused by fluctuations in net sales and capital expenditures.
Specifically, fluctuations in the mix of consignment and turnkey contracts
could have an effect on the cost of goods sold and the resulting gross profit
as a percentage of net sales. Consignment orders require the Company to
perform manufacturing services on components and other materials supplied by a
customer, and the Company charges only for its labor, overhead and
manufacturing costs plus a profit. In the case of turnkey orders, the Company
provides, in addition to manufacturing services, the components and other
materials used in assembly. Turnkey contracts, in general, have a higher
dollar volume of sales for each given assembly, owing to inclusion of the cost
of components and other materials in net sales and cost of goods sold.
However, turnkey contracts typically have lower gross margins due to the large
material content. Historically, more than 90% of the Company's sales have been
from turnkey orders.
In June 1995, the Company signed a three-year exclusive manufacturing
agreement with NSI relating to the production of carbon monoxide detection
systems. Sales to NSI have accounted for a significant percentage of the
Company's net sales in fiscal 1996 through 1998. Although there has been no
written extension of the agreement, the parties continue to operate under its
terms, however,
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the Company expects sales to NSI will be significant in fiscal 1999. The
amount of sales to NSI beyond fiscal 1999 remains unclear and if the
relationship is not continued it could significantly impact the Company's
revenues and earnings.
RESULTS OF OPERATIONS:
FISCAL YEAR ENDED APRIL 30, 1998 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 1997
Net sales for fiscal 1998 were $85,650,598 compared to $87,216,343 for
fiscal 1997. The 2% decrease in net sales was due to softer sales to some of
the Company's key customers. NSI accounted for approximately $25,191,000 or
29.4% of the Company's fiscal 1998 net sales compared to $25,952,000 or 29.8%
in fiscal 1997. Timing and rescheduling of orders has caused the Company to
experience significant quarterly fluctuations in its revenues and earnings and
the Company expects such fluctuations to continue. In addition, the Company's
fourth and first quarters have historically been the weakest periods and the
Company expects the first quarter of fiscal 1999 to be soft.
Gross profit decreased to $8,456,834 in fiscal 1998 from $12,639,082 in
fiscal 1997. Gross profit as a percent of net sales was 9.9% and 14.5% for
fiscal 1998 and 1997, respectively. The decrease is partly due to the
increase in the Company's overhead structure over the past 18 months and partly
due to the lower sale volume. This expansion included increased manufacturing
space, manufacturing personnel and equipment which was necessary in order to
competitively position the Company for the future. The Company's short term
objective is to increase sales to take advantage of the structure put in place,
which may lead to a stronger fiscal 1999.
Selling and administrative expenses decreased from $5,624,346 in fiscal
1998 to $5,961,184 in fiscal 1998. The decrease is due to a reduction in bonus
accruals and a decrease in commission expense related to the lower sales
volume. Selling and administrative expenses as a percent of net sales
decreased for fiscal 1998 to 6.6% from 6.8% for fiscal 1997.
Interest expense increased in fiscal 1998 to $1,898,488 from $1,836,967 in
fiscal 1997. The overall increase was primarily due to the higher outstanding
balance on the Company's line of credit due to the Companys increased working
capital requirements. Interest expense as a percent of net sales increased
from 2.1% in fiscal 1997 to 2.2% in fiscal 1998.
The Company recorded a $360,000 loss in investment and receivables for LC
in fiscal 1998. LC distributes a variety of electronic and molded plastic
components for use in the sign and lighting industries. The Company owns
approximately 12% of LC.
Income tax expense decreased to $310,962 in fiscal 1998 from $1,905,584
in fiscal 1997. The effective tax rate for fiscal 1998 and 1997 was 37.2% and
36.9%, respectively.
As a result of the foregoing, net income decreased to $525,892 in fiscal
1998 from $3,255,058 in fiscal 1997. Basic earnings per share for the year
ended April 30, 1998 was $.18 compared to $1.16 in fiscal 1997. Diluted
earnings per share for fiscal 1998 was $.18.
14
<PAGE> 15
FISCAL YEAR ENDED APRIL 30, 1997 COMPARED
TO FISCAL YEAR ENDED APRIL 30, 1996
Net sales for fiscal year 1997 were $87,216,343 compared to $69,558,384
for fiscal year 1996. The 25% increase in net sales was due to sales to new
and existing customers primarily in the consumer electronics, gaming and
fitness industries. NSI accounted for approximately $25,952,000 or 29.8% of
the Company's fiscal 1997 net sales compared to $19,605,000 or 28.2% in fiscal
1996. The volatility of NSI orders may cause the Company's revenues and
earnings to fluctuate significantly on a seasonal basis.
Gross profit increased from $10,142,298 in fiscal year 1996 to
$12,639,082 in fiscal year 1997. Gross profit as a percent of net sales was
14.5% and 14.6% for fiscal 1997 and 1996, respectively.
Selling and administrative expenses increased from $4,943,478 in fiscal
year 1996 to $5,961,184 in fiscal year 1997. The increase is due to the
increase in sales commissions attributable to the increase in net sales. In
addition, insurance expense increased for general insurance requirements and
increased levels of product liability insurance. Additional customer service
and material procurement personnel were added to support the growth of the
Company. Selling and administrative expenses as a percent of net sales
decreased for the fiscal year ended April 30, 1997 to 6.8% from 7.1% for the
year ended 1996.
Interest expense increased in fiscal 1997 to $1,846,928 from $1,630,238 in
fiscal 1996. The overall increase was primarily due to the higher outstanding
balance on the Company's line of credit. Interest expense as a percent of net
sales decreased from 2.3% in fiscal 1996 to 2.1% in fiscal 1997.
Income tax expense increased from $1,385,000 in fiscal year 1996 to
$1,905,584 in fiscal year 1997. The effective tax rate for fiscal years 1997
and 1996 was 36.9%.
As a result of the foregoing, net income increased 37.5% from $2,366,822
in fiscal 1996 to $3,255,058 in fiscal 1997. Basic earnings per share for the
year ended April 30, 1997 was $1.16 compared to $ .86 in fiscal 1996. Diluted
earnings per share for fiscal 1997 was $1.11 compared to $.86 in fiscal 1996.
QUARTERLY RESULTS AND SEASONALITY
Historically, the Company's highest levels of sales are achieved in its
second and third quarters. This is due to the seasonal nature of the business
for several of the Company's customers. In particular, NSI's sales of carbon
monoxide detectors generally coincide with the heating season, and several
other customers have sales tied to the holidays. This trend has caused the
Company to experience generally stronger second and third quarters in each
fiscal year. However, regardless of seasonal fluctuations, there can be no
assurance that the Company will be profitable in any particular quarter.
The Company's results of operations have varied significantly and may
continue to fluctuate from quarter to quarter. Operating results are affected
by a number of factors, including timing of
15
<PAGE> 16
orders from and shipments to major customers, availability of materials and
components, the volume of orders as related to the Company's capacity, timing
of expenditures in anticipation of future sales, the gain or loss of
significant customers and variations in the demand for products in the
industries served by the Company. A significant portion of the Company's
expenses are relatively fixed in nature and planned expenditures are based in
part on anticipated orders. The inability to adjust expenditures to compensate
for a decline in net sales may magnify the adverse impact of such decline in
the Company's results of operations. The Company's customers generally require
short delivery cycles. In the absence of substantial backlog, quarterly sales
and operating results depend on the volume and timing of orders received during
the quarter which can be difficult to forecast. In addition, variations in the
size and delivery schedules of purchase orders received by the Company, as well
as changes in customers' delivery requirements or the rescheduling or
cancellations of orders and commitments, may result in substantial fluctuations
in backlog from period to period. Accordingly, the Company believes that
backlog cannot be considered a meaningful indicator of future operating
results.
LIQUIDITY AND CAPITAL RESOURCES:
In fiscal 1998 the Company financed its growth and operations through cash
flow generated from borrowings from its secured lender and cash provided by
operations and a sale/leaseback transaction. The Company had working capital
of $20,708,686 April 30, 1998 and $21,648,985 at April 30, 1997. This
represents a current ratio of 2.8 and 4.1 for the years ended April 30, 1998
and 1997, respectively.
The Company has a credit arrangement in place which is comprised of a
revolving loan facility and a term loan. Under the revolving loan facility,
the Company may borrow certain percentages of the Company's accounts receivable
and inventory, up to a maximum of $25.0 million. At April 30, 1998, based upon
those percentages, there was approximately $2,334,000 of unused credit
available under the revolving loan facility. Outstanding borrowings under the
revolving loan facility bear interest at the Company's option of either the
London Interbank Offered Rate ("LIBOR") plus 2.0% or the bank's prime rate of
interest. The revolving loan facility is collateralized under a loan and
security agreement by substantially all of the domestically located assets of
the Company. The agreement contains certain financial covenants pertaining to
the maintenance of tangible net worth and net income. The revolving loan
facility matures on September 30, 2000. The maximum amount which could be
borrowed under the term loan was $111,108 which was the outstanding balance at
April 30, 1998. The amount outstanding under the term loan is collateralized
by some of the Company's machinery and equipment located in the United States
and is payable in 60 monthly installments of approximately $13,890 plus accrued
interest due December 1998. The outstanding principal under the term loan
bears interest at the bank's prime rate of interest.
To the extent that the Company provides funds for salaries, wages,
overhead and capital expenditure items necessary to operate its Mexican
operations, the amount of funds available for use in the Company's domestic
operations may be depleted. The funds, which ordinarily derive from the
Company's cash from operations and borrowings under its revolving credit
facility, is approximately $8,160,000 for a typical 12 month period. The
Company provides funding in U.S. dollars, which are exchanged for pesos as
needed.
16
<PAGE> 17
The Company is a 42.5% limited partner in SMTU, a California limited
partnership, based in Fremont, California. SMTU has negative working capital
of approximately $2,557,000 at April 30, 1998, and an accumulated deficit of
approximately $1,795,000. From the formation of SMTU in September 1994 until
January 1995, SMTU had no sales. Since fiscal 1995, sales have increased so
that SMTU was achieving operating income for the year ended April 30, 1998 .
While the management of SMTU expects sales to increase further in 1999 and also
expects these sales will lead to overall profitability, it is possible that
management's efforts in this regard will not be successful. In January 1998,
the Company entered into a guaranty agreement with SMTU's leader to guaranty
the obligation of SMTU under its revolving line of credit to a maximum of
$500,000 plus interest and related costs associated with the enforcement of the
guaranty. The Company has been indemnified by one of the limited partners for
50% of the obligation under this guaranty. The Company's investment and
advances to and receivables from SMTU totaled approximately $4,169,000 at
April 30, 1998, and has been classified as long -term assets in the Company's
April 30, 1998 balance sheet. SMTU was eleven months delinquent in their
equipment lease payments to the Company and therefore, due to the uncertainty
surrounding the timing of collection of these future minimum rental, the
Company has classified these equipment lease receivables as long-term at
April 30, 1998. At April 30, 1998, SMTU was in violation of various covenants
under its revolving line of credit. SMTU's management expects to be able to
renegotiate these covenants to prevent noncompliance and to obtain waivers for
all covenants violated in fiscal 1998.
On August 1, 1995 the Company entered into a limited partnership agreement
forming Lighting Components L.P. ("LC"). The Company owns approximately 12% of
LC , which distributes a variety of electronic and molded plastic components
for use in the sign and lighting industries. At April 30, 1998 the Company had
invested $280,000 in the venture. The initial investment, subordinated
debentures, promissory notes, and accrued interest totaling approximately
$335,000 are included in other long-term assets in the consolidated balance
sheet as of April 30, 1998. In addition, the Company also has miscellaneous
and trade receivables recorded in the consolidated balance sheet at April 30,
1998 from LC totaling approximately $491,000.
The Company's receivables from LC's are secured by a security interest in
substantially all of LC's assets. At April 30, 1998, the assets recorded in
the Company's balance sheet were written down by approximately $360,000 to net
realizable value leaving approximately $466,000 of assets in the consolidated
balance sheet at April 30, 1998.
The Company has formed a committee of Executive Officers and others to
examine Year 2000 compliance issues relating to the Company, and to plan for
implementation of changes appropriate to insure compliance in a timely manner.
The Company believes that its compliance with Year 2000 issues will not have
material impact on its business, operations or financial condition.
The impact of inflation for the past three fiscal years has been minimal.
17
<PAGE> 18
ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
SigmaTron International, Inc.
Consolidated Financial Statements
Contents
<TABLE>
<S> <C>
Report of Independent Auditors............................. F-2
Consolidated Financial Statements
Consolidated Balance Sheets at April 30, 1998 and 1997..... F-3
Consolidated Statements of Income for the Years Ended
April 30, 1998, 1997, and 1996............................ F-5
Consolidated Statements of Equity for the Years Ended
April 30, 1998, 1997, and 1996............................ F-6
Consolidated Statements of Cash Flows for the Years Ended
April 30, 1998, 1997, and 1996............................ F-7
Notes to Consolidated Financial Statements................. F-9
Schedule II
Valuation and Qualifying Accounts......................... F-25
</TABLE>
Financial statement schedules not listed above are omitted because they are not
applicable or required.
The response to this item is included in Item 14(a) of this Report.
<PAGE> 19
Report of Independent Auditors
The Board of Directors and Stockholders
SigmaTron International, Inc.
We have audited the accompanying consolidated balance sheets of SigmaTron
International, Inc. as of April 30, 1998 and 1997, and the related consolidated
statements of income, equity, and cash flows for each of the three years in the
period ended April 30, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SigmaTron International, Inc., at April 30, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
June 19, 1998,
except for Note 16, as to which the date is
July 1, 1998,
and Note 6, as to which the date is
July 14, 1998
F-2
<PAGE> 20
SigmaTron International, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30
1998 1997
---------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 284,679 $ 323,223
Accounts receivable, less allowance for doubtful
accounts of $80,000 at April 30, 1997 11,977,973 8,770,457
Inventories 18,972,587 17,665,600
Equipment lease receivables from SMTU - 892,435
Prepaid expenses 418,464 225,780
Refundable income taxes - 98,666
Deferred income taxes 218,788 231,245
Other assets 331,461 512,206
---------------------------
Total current assets 32,203,952 28,719,612
Machinery and equipment, net 11,249,550 10,343,060
Due from SMTU:
Investment and advances 311,107 527,238
Equipment lease receivables, less current portion 3,207,691 1,467,336
Other receivables 650,695 -
---------------------------
4,169,493 1,994,574
Other assets 1,018,211 1,031,193
---------------------------
Total assets $48,641,206 $42,088,439
===========================
</TABLE>
F-3
<PAGE> 21
<TABLE>
<CAPTION>
April 30
1998 1997
---------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable - Banks $111,108 $166,668
Notes payable - Related parties - 42,596
Trade accounts payable 6,751,886 3,244,537
Trade accounts payable - Related parties 915,475 736,893
Accrued expenses 1,575,434 1,680,721
Income tax payable 60,025 -
Capital lease obligations 2,081,338 1,199,212
--------------------------
Total current liabilities 11,495,266 7,070,627
Notes payable - Banks, less current portion 15,177,695 14,714,943
Capital lease obligations, less current portion 3,604,793 2,469,372
Deferred income taxes 760,061 818,853
--------------------------
Total liabilities 31,037,815 25,073,795
Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value; 6,000,000 shares
authorized, 2,881,227 and 2,875,227 shares
issued and outstanding at April 30, 1998 and
1997, respectively 28,812 28,752
Capital in excess of par value 9,436,554 9,373,759
Retained earnings 8,138,025 7,612,133
---------------------------
Total stockholders' equity 17,603,391 17,014,644
---------------------------
Total liabilities and stockholders' equity $48,641,206 $42,088,439
===========================
</TABLE>
See accompanying notes.
F-4
<PAGE> 22
SigmaTron International, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended April 30
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Net sales $85,650,598 $87,216,343 $69,558,384
Cost of products sold 77,193,764 74,577,261 59,416,086
------------------------------------------------
8,456,834 12,639,082 10,142,298
Selling and administrative expenses 5,624,346 5,961,184 4,943,478
------------------------------------------------
Operating income 2,832,488 6,677,898 5,198,820
Equity in net loss of SMTU (216,131) (75,036) (242,677)
Interest expense - Banks and
capital lease obligations (1,898,488) (1,836,967) (1,598,705)
Interest expense - Related parties (523) (9,961) (31,533)
Interest income - SMTU and LC 479,508 404,708 425,917
Loss on investment and receivables
with LC (360,000) - -
------------------------------------------------
Income before income tax expense 836,854 5,160,642 3,751,822
Income tax expense (310,962) (1,905,584) (1,385,000)
------------------------------------------------
Net income $ 525,892 $ 3,255,058 $ 2,366,822
================================================
Net income per common share - Basic $ .18 $ 1.11 $ .86
================================================
Net income per common share
-Assuming dilution $ .18 $ 1.11 $ .86
=================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 23
SigmaTron International, Inc.
Consolidated Statements of Equity
<TABLE>
<CAPTION>
Capital
in Excess Total
Preferred Stock Common Stock of Par Retained Stockholders'
Shares Amount Shares Amount Value Earnings Equity
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995 - $- 2,737,500 $27,375 $8,384,089 $1,990,253 $10,401,717
Net income - - - - - 2,366,822 2,366,822
-------------------------------------------------------------------------------
Balance at April 30, 1996 - - 2,737,500 27,375 8,384,089 4,357,075 12,768,539
Issuance of common stock
for exercise of options
and warrants - - 137,727 1,377 471,123 - 472,500
Net income - - - - - 3,255,058 3,255,058
Tax benefit from options
and warrants exercised - - - - 518,547 - 518,547
-------------------------------------------------------------------------------
Balance at April 30, 1997 - - 2,875,227 28,752 9,373,759 7,612,133 17,014,644
Issuance of common stock
for exercise of options - - 6,000 60 41,940 - 42,000
Net income - - - - - 525,892 525,892
Tax benefit from options
exercised - - - - 20,855 - 20,855
-------------------------------------------------------------------------------
Balance at April 30, 1998 - $- 2,881,227 $28,812 $9,436,554 $8,138,025 $17,603,391
===============================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 24
SigmaTron International, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended April 30
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 525,892 $ 3,255,058 $ 2,366,822
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 1,262,297 1,047,262 766,467
Equity in net loss of SMTU 216,131 75,036 242,677
Amortization 14,136 23,778 25,618
Provision for doubtful accounts 113,454 - 306,888
Loss on investment and receivables with LC 360,000 - -
Deferred income taxes (46,335) 382,844 (57,509)
Changes in operating assets and liabilities:
Accounts receivable (3,400,970) 2,310,028 (3,410,538)
Inventories (1,306,987) (2,811,550) (5,567,159)
Prepaid expenses (192,684) (58,094) 40,823
Other assets (751,104) (418,761) (252,497)
Trade accounts payable 3,507,349 (2,881,853) 3,439,734
Trade accounts payable
Related parties 178,582 (57,417) 47,058
Accrued expenses (105,287) 237,687 313,658
Income taxes 179,546 353,645 201,009
----------------------------------------
Net cash provided by (used in) operating
activities 554,020 1,457,663 (1,536,949)
Investing activities
Purchases of machinery and equipment (934,692) (2,950,725 (2,293,961)
Proceeds from the sale and leaseback of
machinery 1,429,898 - -
Proceeds from the sale of machinery and
equipment - - 37,513
Proceeds from SMTU subleases 196,895 424,412 378,367
Advances to SMTU - (100,000) (50,000)
Proceeds from the sale of investment in SMTU - 250 -
Notes receivable from SMTU - - (300,000)
----------------------------------------
Net cash provided by (used in) investing
activities 692,101 (2,626,063) (2,228,081)
</TABLE>
F-7
<PAGE> 25
SigmaTron International, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended April 30
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Financing activities
Repayment of term loan and other
notes payable $ (42,596) $ (151,860) $ (363,013)
Proceeds from exercise of stock
options and warrants 42,000 472,500 -
Net proceeds under line of credit 407,192 2,181,772 4,555,271
Net payments under capital lease
obligations (1,691,261) (1,013,289) (427,228)
-------------------------------------------
Net cash (used in) provided by
financing activities (1,284,665) 1,489,123 3,765,030
-------------------------------------------
Change in cash (38,544) 320,723 -
Cash at beginning of period 323,223 2,500 2,500
-------------------------------------------
Cash at end of period $ 284,679 $ 323,223 $ 2,500
===========================================
Supplementary disclosure of cash
flow information:
Cash paid for interest $ 1,900,073 $ 1,834,946 $ 1,602,494
===========================================
Cash paid for income taxes $ 177,750 $ 1,169,854 $ 1,241,500
===========================================
Acquisition of machinery and
equipment financed under capital
leases $ 1,234,095 $ $840,429 $ 432,437
===========================================
</TABLE>
See accompanying notes.
F-8
<PAGE> 26
SigmaTron International, Inc.
Notes to Consolidated Financial Statements
1. Description of the Business
SigmaTron International, Inc. (the Company) was incorporated on November 16,
1993. The Company is an independent contract manufacturer of electronic
components, printed circuit board assemblies, and completely assembled
(boxbuild) electronic products. Included among the wide range of services the
Company, its wholly owned subsidiary, Standard Components de Mexico, S.A., and
its affiliate, SMT Unlimited L.P. (SMTU), offer their customers are: (1)
manual and automatic assembly and testing of products; (2) material sourcing,
procurement, and control; (3) design, manufacturing, and test engineering
support; (4) warehousing and shipment services; and (5) assistance in obtaining
product approval from governmental and other regulatory bodies. The Company
provides these services through an international network of facilities located
in North America and the Far East.
2. Summary of Significant Accounting Policies
Consolidation Policy
The consolidated financial statements include the accounts and transactions of
the Company and its wholly owned subsidiary, Standard Components de Mexico,
S.A. Significant intercompany accounts and transactions have been eliminated
in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out (FIFO) method.
F-9
<PAGE> 27
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Machinery and Equipment
Machinery and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful life of the assets which range from 3 to 15 years.
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the Statement 128
requirements.
Fair Value of Financial Instruments
The Company's financial instruments include trade accounts receivable,
long-term receivables, accounts payable, notes payable, capital lease
obligations, and accrued expenses. The fair values of all financial
instruments were not materially different from their carrying values.
Revenue Recognition
The Company recognizes revenue at the time goods are shipped.
Reclassifications
Certain reclassifications were made to the 1997 and 1996 consolidated financial
statements to conform with the 1998 presentation.
F-10
<PAGE> 28
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
April 30
1998 1997
---------------------------
<S> <C> <C>
Finished products $3,292,442 $2,966,415
Work in process 1,887,517 1,079,985
Raw materials 13,792,628 13,619,200
--------------------------
$18,972,587 $17,665,600
==========================
</TABLE>
4. Machinery and Equipment
Machinery and equipment consist of the following:
<TABLE>
<CAPTION>
April 30
1998 1997
----------------------------
<S> <C> <C>
Machinery and equipment $7,225,671 $8,130,150
Office equipment 1,090,763 896,408
Tools and dies 123,251 123,251
Leasehold improvements 2,030,129 1,815,210
Equipment under capital lease 5,415,725 2,751,733
----------------------------
15,885,539 13,716,752
Less: Accumulated
depreciation and
amortization, including
amortization of assets under
capital leases of $852,836
and $441,418 at April 30,
1998 and 1997, respectively 4,635,989 3,373,692
----------------------------
$11,249,550 $10,343,060
============================
</TABLE>
F-11
<PAGE> 29
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
5. Investment and Advances With SMTU
The Company's investment in SMTU consists of a 42.5% ownership interest in
SMTU, which was formed on September 15, 1994, in Fremont, California, as a
joint venture to provide surface mount technology assembly services primarily
to electronic original equipment manufacturers. During fiscal year 1995, the
Company invested $49,500 in exchange for a 45% limited partnership interest in
SMTU and $2,500 in SMT Unlimited, Inc. (SMT, Inc.), which is the general
partner of SMTU, in exchange for 50% of its capital stock. During fiscal year
1997, the Company sold 2.5% of its interest to a key employee of SMTU. One of
the limited partners of SMTU is also an equal shareholder of SMT, Inc., along
with the Company. The Company made advances to SMTU in exchange for
subordinated debentures in the face amount of $100,000 and $50,000 in 1997 and
1996, respectively (none in 1998). In 1996, the Company also made advances to
SMTU in exchange for promissory notes in the face amount of $300,000. These
promissory notes were converted into subordinated debentures during 1997.
Debentures totaling $650,000 outstanding at April 30, 1998, bear interest at
8%, and are to be repaid on December 31, 1999. The remaining $400,000 of these
debentures bears interest at 12% and is to be repaid on December 31, 2001. The
Company guarantees lease payments of approximately $1,633,000 for SMTU. The
Company has been indemnified by one of the other limited partners in the amount
of $816,500 for the guaranteed lease payments. SMTU pays the Company a $12,500
monthly administrative fee for administrative services. See also Note 12.
The investment in SMTU is carried at cost plus equity in undistributed earnings
or losses since acquisition. The Company has recorded its share of the losses
in SMTU first as a reduction of the investment in SMTU and then as a reduction
in the carrying value of the subordinated debentures.
In January 1998, the Company entered into a guaranty agreement with SMTU's
lender to guaranty the obligation of SMTU under its revolving line of credit to
a maximum of $500,000 plus interest and related costs associated with the
enforcement of the guaranty. The Company may be released from its guaranty
within 120 days of any fiscal year-end if SMTU attains $500,000 of net profit
after partnership distributions and specific cash flow levels as defined in the
agreement. The Company has been indemnified by one of the limited partners for
50% of the obligation under this guaranty.
The Company's investment and advances to and receivables from SMTU totalled
approximately $4,169,000 at April 30, 1998, and no amount was recorded by the
Company related to its guaranty of SMTU's revolving line of credit. SMTU has
negative working capital of approximately $2,557,000 at April 30, 1998, and an
accumulated
F-12
<PAGE> 30
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
5. Investment and Advances With SMTU (continued)
deficit of approximately $1,795,000 at April 30, 1998. From the formation of
SMTU in September 1994 until January 1995, SMTU had no sales. Since fiscal
1995, sales have increased so that SMTU was achieving operating income for the
year ended April 30, 1998. While the management of SMTU expects sales to
increase further in 1999 and also expects these sales will lead to overall
profitability, it is possible that management's efforts in this regard will not
be successful. At April 30, 1998, SMTU was in violation of various covenants
under its revolving line of credit. SMTU's management expects to be able to
renegotiate these covenants to prevent future noncompliance and to obtain
waivers for all covenants violated in 1998.
6. Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
April 30
1998 1997
-----------------------------------
<S> <C> <C>
Banks:
Revolving line of credit, interest payable monthly $15,177,695 $14,603,835
Term loan, interest payable monthly at prime
(8.50% at April 30, 1998 and 1997), due December
1, 1998 11,108 277,776
-----------------------------------
15,288,803 14,881,611
Less: Current portion 111,108 166,668
-----------------------------------
$15,177,695 $14,714,943
===================================
Related Party:
Subordinated, secured term loans, interest
payable monthly at varying interest rates (9.25%
to 9.77% at April 30, 1997), due at varying
intervals through August 1, 1997 $- $42,596
-----------------------------------
- 42,596
Less: Current portion - 42,596
-----------------------------------
$- $ -
===================================
</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
F-13
<PAGE> 31
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
6. Notes Payable
(continued)
base, as defined. Under the current terms, borrowings under the revolving
line-of-credit bear interest at rates equal to the London Interbank Offered
Rate (5.78% to 5.97% at April 30, 1998) plus 2% or at the prime rate (8.50% of
April 30, 1998) at the option of the Company. At April 30, 1998, there was
approximately $2,334,000 of unused credit available under the terms of the
agreement. On July 14, 1998, the Company entered into an amendment to their
loan and security agreement whereby the maturity date of the revolving line of
credit was extended to September 30, 2000, and automatically renews from year
to year thereafter, unless otherwise terminated at the option of the Company or
the lender in writing with at least 90 days' notice.
The revolving line-of-credit facility is collateralized by substantially all of
the assets of the Company, except for the machinery and equipment acquired from
a related party, machinery and equipment acquired through capital leases, and
inventory and machinery and equipment located outside the United States. The
agreement contains certain financial covenants, including specific covenants
pertaining to the maintenance of minimum tangible net worth and net income.
The agreement restricts annual lease rentals and capital expenditures and the
payment of dividends or distributions of any cash or other property on any of
its capital stock, except that common stock dividends may be distributed by a
stock split or dividends pro rata to its stockholders.
The term loan portion of the credit facility is payable in sixty (60) monthly
installments of approximately $13,890 and is collateralized by the Company's
domestically located machinery and equipment.
Aggregate annual maturities of notes payable as of April 30, 1998, are as
follows:
<TABLE>
<S> <C>
1999 $111,108
2000 -
2001 15,117,695
-------------
$15,228,803
=============
</TABLE>
F-14
<PAGE> 32
SigmanTron International, Inc.
Notes to Consolidated Financial Statements (continued)
7. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
April 30
1998 1997
------------------------
<S> <C> <C>
Payroll $1,174,290 $ 403,902
Bonuses 50,000 792,031
Interest payable 112,939 114,002
Commissions 142,791 116,044
Professional fees 95,414 120,492
Other - 134,250
------------------------
$1,575,434 $1,680,721
========================
</TABLE>
Bonuses represent discretionary management and other employee bonuses, of which
$50,000 and $280,000 was accrued during the fourth quarter of 1998 and 1997,
respectively.
8. Related Party Transactions and Commitments
During the years ended April 30, 1998, 1997, and 1996, the Company was involved
in transactions with Circuit Systems, Inc. (CSI), a shareholder of the Company.
These transactions primarily involved the purchase of raw materials and the
leasing of operating space. Purchases of raw materials were approximately
$6,380,000, $6,895,000, and $4,755,000, for the years ended April 30, 1998,
1997, and 1996, respectively. The Company leases space in Elk Grove Village,
Illinois, owned by CSI at a base rental of $33,500 per month, with an
additional $7,000 per month for property taxes. The lease requires the Company
to pay maintenance and utility expenses. The lease expires in February 2001
and contains an option to renew for an additional five-year period. Rent and
property tax expense totaled approximately $486,000, $423,000, and $406,000 for
the years ended April 30, 1998, 1997, and 1996, respectively.
At April 30, 1998 and 1997, the Company had non-interest-bearing receivables of
approximately $190,000 and $205,000, respectively, for advances to a company in
which an officer of the Company is an investor. The balance has been recorded
as an other long-term asset at April 30, 1998.
F-15
<PAGE> 33
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
8. Related Party Transactions and Commitments (continued)
During 1996, the Company invested $1,200 in exchange for a 12% limited
partnership interest in Lighting Components, L.P. (LC) and invested $1,300 in
Lighting Components, Inc., which is the general partner of LC, in exchange for
13% of its capital stock. At April 30, 1998, the Company had also made
advances to LC in exchange for subordinated debentures and promissory notes
totaling $280,000. Approximately $60,000 in subordinated debentures are due at
various dates beginning on October 15, 2000, and approximately $220,000 of
promissory notes are due on August 1, 2000. Both the subordinated debentures
and promissory notes bear interest at 12% with interest payments beginning on
August 1, 2000. The initial investment, subordinated debentures, promissory
notes, and accrued interest totaling approximately $335,000 are included in
other long-term assets in the accompanying balance sheet. In addition, the
Company also has miscellaneous and trade receivables recorded in the
accompanying balance sheet from LC at April 30, 1998, totaling approximately
$491,000.
The Company's miscellaneous and trade receivables are secured by a security
interest in substantially all of LC's assets. At April 30, 1998, the assets
recorded in the Company's balance sheet were written down by approximately
$360,000 to net realizable value leaving approximately $466,000 of assets in
the accompanying balance sheet at April 30, 1998.
9. Income Taxes
The income tax provision for the years ended April 30, 1998, 1997, and 1996,
consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Current:
Federal $292,536 $1,231,639 $1,249,173
State 64,761 291,101 193,336
Deferred:
Federal (40,395) 333,761 (50,195)
State (5,940) 49,083 (7,314)
-------------------------------------
$310,962 $1,905,584 $1,385,000
======================================
</TABLE>
F-16
<PAGE> 34
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
9. Income Taxes (continued)
The reasons for the differences between the income tax provision and the
amounts computed by applying the statutory federal income tax rates to income
before income taxes for the years ended April 30, 1998, 1997, and 1996, are as
follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---------------------------------
Income tax at statutory federal rate $ 284,530 $1,754,618 $1,275,619
Effect of:
State income taxes, net of federal tax
benefit 38,663 238,421 187,591
Other, net (12,231) (87,455) (78,210)
---------------------------------
$310,962 $1,905,584 $1,385,000
=================================
</TABLE>
Significant temporary differences which result in deferred tax assets and
deferred tax liabilities at April 30, 1998 and 1997, are as follows:
<TABLE>
<S> <C> <C>
1998 1997
--------------------------
Allowance for doubtful accounts $ - $ 31,200
Inventory obsolescence reserve 129,285 129,285
Accruals not currently deductible 75,856 68,128
Inventory 58,891 55,213
Other (45,244) (52,581)
--------------------------
Net deferred tax asset $218,788 $231,245
==========================
Machinery and equipment $835,556 $694,261
Other (75,495) 124,592
--------------------------
Net deferred tax liability $760,061 $818,853
==========================
</TABLE>
10. 401(k) Retirement Savings Plan
The Company sponsors a 401(k) retirement savings plan which is available to all
nonunion employees who complete 1,000 hours of service annually. Participants
are allowed to contribute up to 15% of their annual compensation, and the
Company may elect to match participant contributions up to the greater of 6% of
the participant's compensation or $300. The Company contributed $32,904 and
$34,554 to the plan during the fiscal years ended April 30, 1998 and 1997,
respectively. The Company made no contributions to the plan for the fiscal
year ended April 30, 1996; however, the Company paid total expenses of $13,500,
$8,000 and $8,000 for the fiscal years ended April 30, 1998, 1997, and 1996,
respectively, relating to costs associated with the Plan's administration.
F-17
<PAGE> 35
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
11. Major Customers and Concentration of Credit Risks
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist principally of uncollateralized accounts receivable.
For the year ended April 30, 1998, four customers accounted for 9%, 13%, 29%,
and 9% of net sales of the Company, and 21%, 4%, 24%, and 11% of accounts
receivable at April 30, 1998. For the year ended April 30, 1997, three
customers accounted for 30%, 14%, and 11% of net sales of the Company, and 20%,
10%, and 4% of accounts receivable at April 30, 1997. For the year ended April
30, 1996, three customers accounted for 28%, 15%, and 10% of net sales of the
Company, and 18%, 21%, and 3% of accounts receivable at April 30, 1996.
12. Leases
The Company leases its facilities under various operating leases. The Company
also leases various machinery and equipment under capital leases.
Future minimum lease payments under leases with terms of one year or more are
as follows at April 30, 1998:
<TABLE>
<S> <C> <C>
Capital Operating
Leases Leases
---------------------------
1999 $2,543,640 $970,328
2000 1,939,122 966,828
2001 1,290,794 892,854
2002 718,853 420,984
2003 119,250 216,984
Thereafter - 392,076
---------------------------
6,611,659 $3,860,054
============
Less: Amounts representing interest 925,528
--------------
5,686,131
Less: Current portion 2,081,338
--------------
$3,604,793
==============
</TABLE>
The Company subleased the machinery and equipment relating to 11 of the above
capital lease agreements to its affiliate, SMTU. These sublease agreements
contain the same maturity dates as the original underlying lease agreements.
The effective interest rates on these leases are approximately 2% higher than
the effective interest rates (ranging from 7.850% to 10.57%) implicit in the
original lease to cover various administrative expenses
F-18
<PAGE> 36
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
12. Leases (continued)
of the Company. The equipment lease receivables are collateralized by the
underlying machinery and equipment. Management believes the machinery and
equipment would be readily usable in the Company's manufacturing operations if
necessary.
Future minimum rentals to be received under subleases with SMTU with terms of
one year or more are as follows:
<TABLE>
<S> <C>
1999 $1,899,124
2000 813,430
2001 350,901
2002 299,184
2003 47,628
--------------
3,410,267
Less: Amounts representing interest 202,576
--------------
$3,207,691
==============
</TABLE>
As a result of the uncertainty surrounding the timing of collection of these
future minimum rentals, the Company has classified these equipment lease
receivables as long-term at April 30, 1998.
Rent expense incurred under operating leases was $714,027, $557,456, and
$560,756 for the years ended April 30, 1998, 1997, and 1996, respectively.
In July 1997, the Company refinanced some machinery and equipment under a
sale/leaseback arrangement. The equipment was sold for approximately $1.4
million in cash. The Company has the option to purchase the equipment at the
end of the lease term for $1. The transaction has been accounted for as a
financing lease, wherein the property remains on the balance sheet and will
continue to be depreciated, and a financing obligation equal to the proceeds
has been recorded.
13. Capital Stock
At April 30, 1998, authorized but unissued shares have been reserved for future
issuance as follows:
<TABLE>
<S> <C>
Stock Option Plans 698,500
Warrants 35,000
------------
733,500
============
</TABLE>
F-19
<PAGE> 37
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Warrants and Stock Options
On February 9, 1994, the Company sold warrants, for nominal consideration, to
purchase up to an aggregate of 55,000, 25,000, and 70,000 shares of common
stock to certain underwriters, consultants, and directors, respectively. All
warrants are exercisable during the five-year period commencing: (i) in the
case of the underwriters' warrants on February 9, 1994; (ii) in the case of the
consultant's warrant on February 16, 1994, and (iii) in the case of the
directors' warrants on August 9, 1994. All warrants will terminate on February
9, 1999, and have an exercise price of $8.40 per share which was equal to the
fair market value of a share of the Company's common stock on the date of
grant. As of April 30, 1998, 115,000 warrants have been exercised.
On February 8, 1994, the stockholders of the Company approved the formation of
two stock option plans (Option Plans) under which certain members of management
and outside nonmanagement directors may acquire up to 698,500 shares of common
stock of the Company. The Option Plans are interpreted and administered by the
Compensation Committee (the Committee). The maximum term of options granted
under the Option Plans generally is ten years. Options granted under the
Option Plans are either incentive stock options or nonqualified options.
Options forfeited under the Option Plans are available for reissuance. Options
granted under these plans are granted at an exercise price equal to the fair
market value of a share of the Company's common stock on the date of grant.
The Committee approved grants to certain members of the Company's management
effective February 9, 1994, of options to purchase all of the 625,000 shares of
common stock available under the management option plan at an exercise price
equal to $7.00. Of the options granted to management, options to purchase up
to 200,000 shares of common stock will vest at a rate of 20% each year
following the date of grant, provided the optionee remains an employee of the
Company. As of April 30, 1998 and 1997, management vested in options to
purchase 160,000 and 120,000 shares, respectively. The remaining options to
purchase up to 425,000 shares of common stock will vest only on the Company's
attainment of certain earnings per share levels over the five fiscal years
beginning with fiscal year 1995. None of these options became exercisable
during fiscal year 1997 or 1996 as the earnings per share level goal was not
met, and options to purchase 100,000 and 75,000 shares were forfeited in 1997
and 1996, respectively. On June 11, 1997, options to purchase up to 425,000
shares of common stock were canceled (225,000 of these options had been
forfeited prior to April 30, 1998) and returned to the pool of ungranted
options to be granted as service-based options at a date to be determined by
the Committee. On July 1, 1997, 352,000 service-based options were granted at
an exercise price equal to $12.25.
F-20
<PAGE> 38
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Warrants and Stock Options (continued)
The Company also has a stock option plan for the benefit of directors who are
not salaried employees of the Company or full-time consultants to the Company.
Seventy-three thousand five hundred shares of common stock were reserved for
issuance upon exercise of such options. As of April 30, 1998, all options
reserved for issuance under this plan have been granted. An option may be
exercised at any time within ten years from the date of grant. On June 11,
1997, a new outside nonmanagement director option plan was adopted and later
obtained shareholder approval to grant options to purchase up to 105,000 shares
of common stock in a manner similar to the old plan. In September 1997, 35,000
options were granted under this new plan at an exercise price equal to $14.50.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting method provided for under FASB Statement No. 123, Accounting for
Stock-Based Compensation, requires the use of option-valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options approximates the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Pro forma information regarding net income and earnings
per share is required by Statement 123 as if the Company had accounted for its
employee stock options granted subsequent to December 31, 1994, under the fair
value method of that Statement. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options
vesting period.
The Company's pro forma information follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
----------------------------------
Net income $525,892 $3,255,058 $2,366,822
Pro forma net income 302,389 3,167,740 2,308,772
Basic earnings per share $.18 $1.16 $.86
Pro forma basic earnings per share $.10 $1.13 $.84
</TABLE>
F-21
<PAGE> 39
SigmaTron International, Inc.
Notes to Consolidated Financial (continued)
14. Warrants and Stock Options (continued)
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-valuation model with the following assumptions:
<TABLE>
1998 1997 1996
----------------------------
<S> <C> <C> <C>
Expected dividend yield .0% .0% .0%
Expected stock price volatility 0.512 0.529 0.529
Risk-free interest rate 6.31% 6.54% 6.54%
Weighted-average expected life of options 5 years 5 years 5 years
</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 the Company's employee stock options.
F-22
<PAGE> 40
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Warrants and Stock Options (continued)
A summary of the Company's stock option activity and related information for
the years ended April 30 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - Beginning of year 374,500 $ 7.13 549,000 $ 7.06 599,500 $7.06
Granted 387,000 12.45 24,500 10.25 24,500 6.81
Exercised (6,000) 7.00 (99,000) 7.64 - -
Forfeited - - (100,000) 7.00 (75,000) 7.00
Canceled (200,000) 7.00 - - - -
------------- ----------- -----------
Outstanding - End of year 555,500 10.88 374,500 7.13 549,000 7.06
============= =========== ===========
Exercisable at end of year 163,500 8.89 94,500 7.50 129,000 7.24
Weighted-average fair value of
options granted during the
year 6.47 5.40 3.59
</TABLE>
Exercise prices for options outstanding as of April 30, 1998, ranged from $6.81
to $14.50 (352,000 of the options outstanding at April 30, 1998, have an
exercise price of $12.25 with a remaining contractual life of 9.2 years, and
35,000 of the options outstanding at April 30, 1998, have an exercise price of
$14.50 with a remaining contractual life of 9.4 years). The weighted-average
remaining contractual life of all options outstanding at April 30, 1998, is 8.2
years.
F-23
<PAGE> 41
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
15. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Net income available to
common stockholders $ 525,892 $3,255,058 $2,366,822
==============================================
Weighted average shares:
Basic 2,881,128 2,808,848 2,737,500
Effect of dilutive
warrants and stock
options 91,264 131,441 -
----------------------------------------------
Diluted 2,972,392 2,940,289 2,737,500
==============================================
Basic earnings per share $ .18 $ 1.16 $ .86
==============================================
Diluted earnings per share $ .18 $ 1.11 $ .86
==============================================
</TABLE>
Options to purchase 397,500 shares of common stock were outstanding during 1998
but were not included in the computation of diluted earnings per share for all
or part of the year because the options exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
antidilutive.
Options and warrants to purchase 399,000 shares of common stock were
outstanding during 1996 but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
antidilutive.
The 425,000 shares reserved for issuance under the management stock option plan
in 1997 and 1996 were not considered common stock equivalents as the earnings
per share goals were not reached.
16. Subsequent Event
On July 1, 1998, the Committee approved grants of options to certain employees
and members of the Company's management to purchase 52,000 shares of common
stock at an exercise price equal to $7.375. These options will vest at a rate
of 20% each year following the date of grant, provided the optionee remains an
employee of the Company.
F-24
<PAGE> 42
SigmaTron International, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charges to Charges to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended April 30, 1998:
Reserves and allowance
deducted from asset accounts:
Allowance for doubtful accounts $ 80,000 $ - $ - $ 80,000 (1) $ -
Reserve for obsolete inventory 331,500 - - - 331,500
Year ended April 30, 1997:
Reserves and allowance
deducted from asset accounts:
Allowance for doubtful accounts 492,126 80,000 - 492,126 (1) 80,000
Reserve for obsolete inventory 411,500 (80,000) - - 331,500
Year ended April 30, 1996:
Reserves and allowance
deducted from asset accounts:
Allowance for doubtful accounts 185,238 328,000 - 21,112 492,126
Reserve for obsolete inventory 411,500 - - - 411,500
</TABLE>
(1) Uncollectible accounts written off.
F-25
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's fiscal years
ended April 30, 1998 and 1997.
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended April 30, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended April 30, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended April 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended April 30, 1998.
18
<PAGE> 44
- --------------------------------------------------------------------------------
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (a)(2)
The financial statements, including required supporting schedule, are
listed in the index to Consolidated Financial Statements and Financial Schedule
filed as part of the Form 10-K on Page F-1.
19
<PAGE> 45
INDEX TO EXHIBITS
(a)(3)
3.1 Certificate of Incorporation of the Company, incorporated herein by
reference to Exhibit 3.1 to Registration Statement on Form S-1, File No.
33-72100 dated February 9, 1994.
3.2 By-laws of the Company, incorporated herein by reference to Exhibit
3.2 to Registration Statement on Form S-1, File No. 33-72100 dated
February 9, 1994.
10.1 Lease Agreement dated as of February 13, 1990 between the Company
and CSI and amendments and addenda thereto - Filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby
incorporated by reference.
*
10.2 401(K) Retirement Savings Plan of the Company - Filed as Exhibit 10.3 to
the Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby
incorporated by reference.
*
10.3 Form of 1993 Stock Option Plan - Filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 Reg. 33-72100 and hereby incorporated
by reference.
*
10.4 Form of Incentive Stock Option Agreement for the Company's 1993
Stock Option Plan - Filed as Exhibit 10.5 to the Company's Registration
Statement on Form S- 1 Reg. 33-72100 and hereby incorporated by reference.
*
10.5 Form of Non-Statutory Stock Option Agreement for the Company's 1993 stock
Option Plan - Filed as Exhibit 10.6 to the Company's Registration
Statement on Form S-1 Reg. 33-72100 and hereby incorporated by reference.
*
10.6 1994 Outside Directors Stock Option Plan - Filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-1 Reg. 33-72100 and hereby
incorporated by reference.
10.7 The Company's 1997 Directors' Stock Option Plan - filed as Exhibit
A to the Company's 1997 Proxy Statement filed on August 18, 1997 and
hereby incorporated by reference.
10.8 Form of Director's Stock Option Agreement for the Company's 1997
Directors' Stock Option Plan and hereby incorporated by reference.
10.9 Organization Agreement between the Company and other Partners of SMT
Unlimited L.P. dated September 15, 1994 - Filed as Exhibit 10.23 to the
Company's Form 10-K for the fiscal year ended April 30, 1995 and hereby
incorporated by reference.
10.10 Agreement between SigmaTron International, Inc. and Nighthawk Systems,
Incorporated dated July 9, 1995 - Filed as Exhibit 10.33 to the Company's
Form
20
<PAGE> 46
10-Q for the quarter ended July 31, 1995 and hereby incorporated by
reference.
10.11 Putnam Flexible 401(K) and Profit Sharing Plan Agreement #001 dated
March 22, 1996 between SigmaTron International, Inc. and Putnam Defined
Contribution Plans - Filed as Exhibit 10.35 to the Company's Form 10-Q
for the quarter ended July 31, 1996 and hereby incorporated by reference.
10.12 Amended and Restated Agreement between SigmaTron International, Inc.
and Nighthawk Systems, Incorporated dated November 15, 1996 - filed
as Exhibit 10.41 to the Company's Form 10-Q for the quarter ended January
31, 1997 and hereby incorporated by reference.
10.13 Lease Agreement between SigmaTron International, Inc. and Industrias
Irvin DeMexico S.A. dated January 15, 1997 and filed as Exhibit 10.42
to the Company's Form 10-Q for the quarter ended January 31, 1997 and
hereby incorporated by reference.
10.14 Lease Agreement between SigmaTron International, Inc. and G E
Capital dated July 14, 1997 and hereby incorporated by reference.
10.15 Lease Agreement # 97-054 between SigmaTron International, Inc. and
International Financial Services dated June 6, 1997 and hereby
incorporated by reference.
10.16 Lease Agreement # 97-087 between SigmaTron International, Inc. and
International Financial Services dated June 26, 1997 and hereby
incorporated by reference.
10.17 Lease Agreement # 97-097 between SigmaTron International, Inc. and
International Financial Services dated August 11, 1997 and hereby
incorporated by reference.
10.18 Lease Agreement # 97-185 between SigmaTron International, Inc. and
International Financial Services dated December 22, 1997 and hereby
incorporated by reference.
10.19 Lease Agreement # E002 between SigmaTron International, Inc. and G
E Capital dated December 31, 1997 and hereby
incorporated by reference.
10.20 Guaranty and Surety Agreement between SigmaTron International,
Inc. and HSBC Business Loans Inc. dated January 31, 1998 and hereby
incorporated by reference.
10.21 Lease Agreement # 98-10 between SigmaTron International, Inc. and
International Financial Services dated February 2, 1998.
22.1 Subsidiaries of the Registrant - Filed as Exhibit 22.1 of the Company's
Registration Statement on Form S-1 Reg. 33-72100 and hereby incorporated
by reference.
23.1 Consent of Ernst & Young LLP.
21
<PAGE> 47
27.1 Financial Data Schedule (EDGAR only)
* Indicates management contract or compensatory plan.
(b) No reports on Form 8-K were filed during the 1998 fiscal year.
(c) Exhibits
The Company hereby files as exhibits to this Report the exhibits
listed in Item 14 (a) (3) above, which are attached hereto.
(d) Financial Statements Schedules
The Company hereby files a schedule to this Report the financial
schedule in Item 14, which are attached hereto.
22
<PAGE> 48
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SigmaTron International, Inc.
By: /s/ Gary R. Fairhead
--------------------
Gary R. Fairhead, President
and Chief Executive Officer
Dated: July 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed below by the following persons on behalf of the
Registrant and in the capacities, and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Franklin D. Sove Chairman of the Board of Directors July 27, 1998
- --------------------
Franklin D. Sove
/s/ Gary R. Fairhead President and Chief Executive Officer July 27, 1998
- --------------------
Gary R. Fairhead
/s/ Linda K. Blake Chief Financial Officer, Secretary and July 27, 1998
- ------------------ Treasurer (Principal Financial Officer and
Linda K. Blake Principal Accounting Officer)
/s/ D.S. Patel Director July 27, 1998
- --------------
D.S. Patel
/s/ John P. Chen Director July 27, 1998
- ----------------
John P. Chen
/s/ Dilip S. Vyas Director July 27, 1998
- -----------------
Dilip S. Vyas
/s/ William C. Mitchell Director July 27, 1998
- -----------------------
William C. Mitchell
/s/ Thomas W. Rieck Director July 27, 1998
- -------------------
Thomas W. Rieck
/s/ Steven Rothstein Director July 27, 1998
- --------------------
Steven Rothstein
</TABLE>
23
<PAGE> 1
EXHIBIT 10.21
INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
<TABLE>
<CAPTION>
<S> <C> <C>
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #98-010
ADDRESS: 2201 LANDMEIER ROAD CONTACT: MS. LINDA BLAKE
ELK GROVE VILLAGE, IL 60007 PHONE #: 847-956-8000
EQUIPMENT LOCATION IF OTHER THAN
ADDRESS OF LESSEE:
SMT UNLIMITED L.P. , 47650 WESTINGHOUSE DR.,
TYPE OF COMPANY: CORPORATION FREMONT, CA 94539
- ---------------------------------------------------------------------------------------------------------------------------
EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A"
TERM: 60 $4,862.00 per period for the first 60 periods
PERIODS ARE: MONTHLY ADVANCE RENTALS, $9,724.00 payable at the signing of this lease to be applied
TOTAL # OF LEASE PAYMENTS: 60 to the last two rental payments.
EFFECTIVE DATE: SEE PARAGRAPH 25
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
TERMS AND CONDITIONS OF LEASE
1. LEASE. LESSOR hereby leases to LESSEE and LESSEE hereby hires and takes
from LESSOR, the personal property set forth on the EQUIPMENT Schedule above
and any Schedule attached hereto with all accessories incorporated therein
and/or affixed thereto, hereinafter referred to as EQUIPMENT.
2. RENTALS. During and for the original term hereof LESSEE hereby agrees to
pay LESSOR as and for rental of the EQUIPMENT the amounts specified above as
monthly or other calendar period rental multiplied by the number of months or
periods specified above. The first rental payment shall be made on the
effective date as set forth above. In the event the effective date is omitted
when the LEASE is executed by the LESSEE, the LESSOR is authorized to and shall
insert the effective date of this LEASE which shall be the date of delivery of
EQUIPMENT. Subsequent monthly or other period rental payments shall be due on
the same day of subsequent months or other calendar periods as the effective
date of this LEASE. All payments shall be made at the office of the LESSOR at
1113 S. Milwaukee Avenue, Libertyville, IL 60048, or as otherwise directed by
the LESSOR or assignee in writing.
3. TERM. The original term of this LEASE shall commence on the date that the
EQUIPMENT is delivered to LESSEE and shall terminate upon the expiration of
the number of months, or other calendar periods, set forth above from said
date. Said rent shall be payable monthly in advance.
4. EQUIPMENT AND LIABILITY. LESSOR, at the request of LESSEE, has ordered or
shall order the EQUIPMENT described above from a supplier selected by LESSEE.
LESSOR shall not be liable for specific performance of this LEASE or for
damages, if , for any reason, supplier fails to accept such order or delays or
fails to fill the order. LESSEE agrees to accept such EQUIPMENT and to
complete the acceptance notice provided by LESSOR.
5. PLACE OF USE; INSPECTION. LESSEE shall keep the EQUIPMENT at its place of
business as specified above. LESSEE covenants and agrees not to allow the use
of EQUIPMENT by other than the employees of the LESSEE and covenants and agrees
not to rent or sublet the EQUIPMENT or any part thereof to others for their own
use. Whenever requested by LESSOR, LESSEE shall promptly advise LESSOR as to
the exact location of the EQUIPMENT. LESSOR, from time to time, may enter the
premises where the EQUIPMENT is located and inspect same upon 1 business day's
notice and subject to LESSEE's security rules.
6. ADVANCE RENTALS. At the LESSOR'S option any advance rentals made hereunder
may be applied by LESSOR to cure any default of LESSEE. LESSEE will from time
to time promptly provide any additional credit or financial information that
the LESSOR deems necessary to this transaction.
7. DISCLAIMER OF WARRANTY. LESSOR not being the manufacturer or the supplier
of the EQUIPMENT, nor a dealer in similar equipment, has not made and does not
make any representation warranty or covenant, express or implied, with respect
to the design, condition, durability, suitability, fitness for use or
merchantability of the EQUIPMENT in any respect. As between LESSOR and LESSEE,
the EQUIPMENT shall be accepted and leased by LESSEE "AS IS" and "WITH ALL
FAULTS". LESSEE agrees to settle all such claims directly with the supplier
and will not assert any such claims or defenses against LESSOR or LESSOR'S
assignee. LESSOR assigns to, authorizes and appoints LESSEE to enforce, in its
own name and at its own expense, any claim, warranty, agreement or
representation which may be made against the supplier, but LESSOR assumes no
obligation as to the extent or enforceability thereof. LESSOR agrees to
cooperate with LESSEE in the enforcement of any manufacturer warranty to the
extent LESSOR'S cooperation is necessary under the terms of any such warranty.
No defect or unfitness of the EQUIPMENT, loss or damage thereto or any other
circumstances shall relieve LESSEE of its obligations under this LEASE which
are absolute and unconditional. In no event shall LESSOR or LESSEE be liable
for any consequential damages. Supplier is not an agent of LESSOR and no
employee of supplier is authorized to waive, supplement or otherwise alter, any
provision of this LEASE.
8. ERRORS IN ESTIMATED COST. The amount of each rent payment and the advance
rental initially set forth above are based upon the estimated total cost of the
EQUIPMENT (excluding taxes, transportation and any other charges) which is an
estimate, and each shall be adjusted proportionally if the actual cost of the
EQUIPMENT differs from said estimate. LESSEE hereby authorizes LESSOR to
correct the figures set forth above when the actual cost is known. If the
actual cost of the EQUIPMENT differs from the estimated cost by more than ten
percent (10%)thereof, however, either party at its option may terminate this
LEASE by giving written notice to the other party within fifteen (15) days
after receiving notice of the actual cost or the corrected rent.
9. USE AND RETURN OF EQUIPMENT. The LESSEE shall exercise due and proper care
in the use, repair and servicing of the EQUIPMENT and at all times and at its
expense shall keep and maintain the leased property in good working condition,
order, and repair. LESSEE may alter and upgrade the EQUIPMENT provided that
such alteration or upgrade does not reduce the value or impair the capability
of the EQUIPMENT. LESSEE shall have the right to remove any such alteration or
upgrade before returning the EQUIPMENT to LESSOR so long as the removal does
not damage the EQUIPMENT. LESSEE shall bear all costs associated with the
acquisition, installation and removal of any such alteration or upgrade. Upon
the expiration or termination of this LEASE, LESSEE at its sole expense shall
forthwith properly pack and return the EQUIPMENT to LESSOR, or to such place
designated by LESSOR within 30 miles of EQUIPMENT location, in the same
condition as when received by LESSEE, reasonable wear and tear alone excepted.
All replacement parts, incorporated in or affixed to the EQUIPMENT after the
commencement of this LEASE shall become the property of LESSOR.
10. TITLE; LIENS; TAXES. The Equipment is, and shall at all times be and
remain (i) the sole and exclusive property of LESSOR; and the LESSEE shall have
no right, title or interest therein or thereto except as expressly set forth
in this LEASE; (ii) personal property notwithstanding that the EQUIPMENT or any
part thereof may now be or hereafter become, in any manner affixed or attached
to or imbedded in, or permanently resting upon, real property or any building
thereon. LESSEE agrees to affix nameplates or decals to the EQUIPMENT
indicating LESSOR'S ownership thereof if requested and supplied by LESSOR.
THIS LEASE IS SUBJECT TO THE TERMS AND CONDITIONS PRINTED ABOVE AND ON THE
FOLLOWING PAGES AND RIDERS WHICH ARE MADE PART THEREOF AND WHICH LESSEE
ACKNOWLEDGES THAT IT HAS READ. IN WITNESS WHEREOF THE LESSEE HAS HEREBY
EXECUTED THIS NON CANCELLABLE LEASE THIS _____DAY OF _________________ 19___
<TABLE>
<S> <C>
ACCEPTED _____________ 19_____ LESSEE NAME: SIGMATRON INTERNATIONAL, INC.
-------------------------------------------------
INTERNATIONAL FINANCIAL SERVICES CORP., Lessor SIGNED BY: /s/
----------------------------------------------------
BY TITLE: President and Chief Executive Officer
-------------------------------------------------- --------------------------------------------------------
TITLE (INDICATE CORPORATE OFFICE, GENERAL PARTNER, OWNER, ETC)
-----------------------------------------------
LESSEE'S ORIGINAL SIGNATURE IN INK IS REQUIRED ON DATE:
---------------------------------------------------------
LEASE PAGES 1,2,3 ,4,5 - MUST BE ORIGINAL SIGNATURES
</TABLE>
LEASE ORIGINAL - 1
<PAGE> 2
LESSEE shall keep the EQUIPMENT free and clear of levies, liens and
encumbrances and shall pay all license and registration fees, assessments,
filing or recording fees, documentary stamp tax, sale/use taxes, personal
property taxes, gross receipt taxes, excise taxes including value added taxes
and all other taxes (local, state and federal) which may now or hereafter be
imposed upon the ownership, leasing, rental, sale, purchase, possession or use
of the EQUIPMENT whether assessed to LESSOR or LESSEE excluding, however, all
taxes on or measured by LESSOR'S net income.
If such taxes are levied against the LESSOR, the LESSOR shall have the
right, subject to the following paragraph, but not the obligation, to pay any
such taxes, whether levied against the LESSOR or the LESSEE. In such event the
LESSEE shall reimburse the LESSOR therefor within five (5) days after receipt
of invoice and for the failure to make such reimbursement when due the LESSOR
shall have all remedies provided herein with respect to the nonpayment of the
rental hereunder. LESSEE shall give LESSOR immediate notice of any attachment
or other judicial process, liens or encumbrances affecting the EQUIPMENT and
shall indemnify and save LESSOR harmless from any loss or damage caused
thereby.
Notwithstanding the foregoing, LESSEE shall have the right, at its expense
and by appropriate legal proceedings, to contest the validity, applicability or
amount of any fees, assessments or taxes imposed upon the EQUIPMENT provided
that LESSEE shall not cause a tax lien to be levied against the EQUIPMENT or
LESSOR. LESSOR agrees to cooperate with LESSEE in any such contest and will
permit LESSEE to contest the same in the name of LESSOR (if required by law) or
in the name of LESSEE, all at LESSEE'S cost and expense. The non-payment of
any fee, tax or assessment by LESSEE in connection with such contest shall not
be deemed a default hereunder until final determination of such contest and
expiration of any due date established therein.
11. FILING. LESSEE hereby authorizes LESSOR to file financing statements with
respect to the EQUIPMENT or any collateral provided by LESSEE to LESSOR prior
to or following LESSOR's acceptance of this LEASE, in any State of the United
States in which the EQUIPMENT is located. LESSEE shall execute such
supplemental instruments and financing statements if LESSOR deems such to be
necessary or advisable and shall otherwise cooperate to defend the title of the
LESSOR by filing or otherwise. LESSEE, upon demand, shall promptly pay to
LESSOR all filing costs and fees incurred or paid by LESSOR.
12. INSURANCE. Commencing on the date risk passes to LESSOR from the supplier
and continuing until LESSEE has redelivered possession of the EQUIPMENT to
LESSOR, LESSEE, at its expense, shall keep the EQUIPMENT insured against all
risks of loss or damage from every cause whatsoever for the greater of the
total rent for the full term of this LEASE or the full undepreciated
replacement value (new) of the EQUIPMENT, and shall carry public liability
insurance, both personal injury and property damage, covering the EQUIPMENT and
its use. All insurance shall be of a type, form, in amounts, with companies
and contain terms and conditions reasonably satisfactory to LESSOR.
Certificates of insurance or other evidence satisfactory to LESSOR, including
the original or certified copies of the actual policies showing the existence
of insurance in accordance herewith, and the terms, conditions and payments
therefor shall be delivered to LESSOR upon LESSOR's request. Said insurance
shall provide for loss, if any, payable to LESSOR and LESSEE as their interests
may appear and shall name LESSOR as an additional insured for purposes of
liability insurance. The proceeds of insurance payable as a result of loss of
or damage to EQUIPMENT shall be applied, at the option of LESSEE: (a) toward
the replacement, restoration or repair of EQUIPMENT which may be lost, stolen,
destroyed or damaged; or (b) toward payment of the obligations of LESSEE
hereunder. In the event the LESSEE elects to apply insurance proceeds to the
repair or to the replacement of the damaged EQUIPMENT, this LEASE shall
continue in full force and effect. In the event LESSEE elects to apply
insurance proceeds to the payment of LESSEE'S obligations for rent hereunder,
the LESSEE's obligations for the rent hereunder shall be reduced by the amount
of such insurance proceeds, but the LESSEE shall be liable for any additional
rents due. Such reduction of rents shall be allocated solely to the item or
items lost, stolen, damaged or destroyed.
13. LOSS; DAMAGE. LESSEE assumes and shall bear the risk of loss and damage to
the EQUIPMENT from every cause whatsoever, whether or not insured. In the
event of any loss or damage to the EQUIPMENT, LESSEE, at the option of LESSEE,
shall (a) place the same in good repair, condition and working order; or (b)
replace the same with new EQUIPMENT; or (c) immediately pay to LESSOR the
following amount: the greater of (x) the total unpaid rentals for the entire
term hereof (discounted to present value at the rate of six (6) percent per
annum plus any amount due LESSOR pursuant to Section 18 hereof or (y) the fair
market value of the EQUIPMENT immediately prior to the loss or damage. Upon
such payment, together with payment of all other sums owing on said LEASE to
and including such payment date, LESSOR will transfer title to the affected
EQUIPMENT to LESSEE "as is", "where is", and without warranty, express or
implied but including the warranty of good and marketable title.
14. INDEMNITY. Lessee does hereby assume liability for and does agree to
indemnify, protect, save and keep harmless LESSOR, and any assignee of LESSOR
from and against any and all liabilities, losses, damages, penalties, claims,
actions, suits, costs, expenses and disbursements, including court costs and
reasonable legal expenses, of whatever kind and nature, imposed on, incurred by
or asserted against LESSOR, and any assignee of LESSOR (whether or not also
indemnified against by any other person) in any way relating to or arising out
of this LEASE or the manufacture, purchase, ownership, delivery, lease,
possession, use, operation, condition, return or other disposition of the
EQUIPMENT by LESSEE, including without limitation any claim alleging latent or
other defects, whether or not discoverable by LESSOR or LESSEE; any claim for
patent, trademark or copyright infringement; any claim arising out of strict
liability in tort; and any taxes for which LESSEE is responsible pursuant to
this LEASE, but excluding any such claims arising from acts or omissions of
LESSOR or its assignees.
15. DEFAULT. Any of the following events or conditions shall constitute an
event of default hereunder; (a) LESSEE'S failure to pay when due any rent or
other amount due hereunder within 30 days after receipt by LESSEE of notice of
default: (b) LESSEE'S default in performing any other term, covenant or
condition hereof if such default is not cured within 30 days after receipt by
LESSEE of notice of default; (c) seizure of any EQUIPMENT under legal process;
(d) the filing by or against LESSEE of a petition for reorganization or
liquidation under the Bankruptcy Code or any amendment thereto or under any
other insolvency law providing for the relief of debtors; (e) the voluntary or
involuntary making of an assignment of a substantial portion of its assets by
LESSEE for the benefit of creditors, appointment of a receiver or trustee for
LESSEE or for any of LESSEE'S asset institution by or against LESSEE of any
formal or informal proceeding for dissolution, liquidation, settlement of
claims against or winding up of the affairs of LESSEE, or the making by LESSEE
of a transfer of all or a material portion of LESSEE's assets or inventory not
in the ordinary course of business and not for equivalent consideration.
16. REMEDIES. Upon LESSEE'S default, LESSOR shall have the right to exercise
any one or more of the following remedies; (a) without affecting LESSOR'S title
or right to possession of the EQUIPMENT, declare due, sue for and recover all
rents and other amounts then accrued or thereafter accruing for the entire
lease term, discounted to present value at 8% per annum or the sum calculated
per paragraph 27 below, whichever is greater, (b) require LESSEE to promptly
redeliver the EQUIPMENT in the manner specified in Section 9 hereof; or (c)
repossess the EQUIPMENT without notice, legal process, prior judicial hearing
or liability for trespass (which rights LESSEE hereby voluntarily,
intelligently and knowingly waives). Such return or repossession of EQUIPMENT
shall not terminate this LEASE unless LESSOR so notifies LESSEE in writing.
LESSOR, at its option may sell or re-lease the EQUIPMENT upon such terms as it
reasonably determines and apply the proceeds to LESSEE's obligations hereunder,
after deducting from such proceeds all costs and expenses of repossession and
disposition, reasonable attorney's fees, plus any amounts due LESSOR pursuant
to Section 18 hereof. LESSEE shall promptly pay any resulting deficiency,
together with interest at the lesser of sixteen (16%) percent and LESSOR's
reasonable attorneys' fees if legal action is required to collect such
deficiency. If LESSOR is unable to repossess the EQUIPMENT for any reason, the
EQUIPMENT shall be deemed a total loss and LESSEE shall pay to LESSOR the
amount due pursuant to Section 13 (c). All such remedies are cumulative and
may be enforced separately or concurrently and are in addition to any other
rights or remedies available to LESSOR at law or in equity. The foregoing
provisions of this Section 16 are subject to any mandatory requirement of
applicable law then in effect.
17. ASSIGNMENT. Without the prior written consent of LESSOR, LESSEE shall not
assign, transfer, pledge or hypothecate this LEASE and EQUIPMENT or any
interest in this LEASE or in and to the EQUIPMENT or permit its rights under
this LEASE to be subject to any lien, charge or encumbrance of any nature.
Notwithstanding the foregoing, LESSEE may assign the LEASE, the EQUIPMENT and
its interest in this LEASE and the EQUIPMENT to an affiliate or in connection
with a sale of all or substantially all of its assets to, or consolidation with
or merger of LESSEE into, any entity so long as such entity assumes the
obligations of LESSEE hereunder and immediately following such event is, in the
reasonable opinion of LESSOR, no less creditworthy than was LESSEE immediately
prior to such event. LESSOR shall have the right to assign this LEASE or any
part thereof. If LESSOR assigns the rents reserved herein or all or any of
the LESSOR's other rights hereunder, or amounts equal thereto, the right of the
assignee to receive the rentals as well as any other right of the assignee
shall not be subject to any defense, setoff, counterclaim or recoupment which
may arise out of any breach or obligation of LESSOR or by reason of any other
indebtedness or liability at any time owing by LESSOR to LESSEE. All rentals
due hereunder shall be payable to assignee by LESSEE in accordance with the
terms hereof. On receipt of notification of such assignment, LESSEE, subject
to its rights hereunder, shall become the pledgeholder of the EQUIPMENT for and
on behalf of the assignee and will relinquish possession thereof only to the
assignee or pursuant to its written order subject to LESSEE's rights hereunder.
LESSEE, on receiving notice of any such assignment, shall make payments as may
therein be directed. Following such assignments, the term "LESSOR" shall be
deemed to include or refer to LESSOR'S assignee, provided that no such assignee
shall be deemed to assume any obligation or duty imposed upon LESSOR hereunder
and LESSEE shall look only to LESSOR for performance thereof. There shall be
only one executed counterpart of this LEASE marked "Original" and all other
counterparts shall be marked "Duplicate". To the extent that LEASE constitutes
chattel paper (as defined in the Uniform Commercial Code) no security interest
in this lease may be created through the transfer or possession of any
counterpart other than the original.
18. DEPRECIATION AND INVESTMENT TAX CREDIT INDEMNITY. (THIS SECTION DOES NOT
APPLY IF LESSOR HAS AGREED IN WRITING TO PASS THE INVESTMENT TAX CREDIT (ITC)
TO LESSEE.) If, as to any EQUIPMENT, under any circumstances and for any
reason whatsoever, except through the fault of the LESSOR, LESSOR shall lose or
shall not have the right to claim, or there shall be disallowed or recaptured
(collectively a "loss") (1) any portion of the maximum ITC, allowable under the
Internal Revenue Code of 1954, as amended, for new property with a useful life
equivalent to the lease term for such EQUIPMENT; or (2) any prortion of the
claimed depreciation deductions for such EQUIPMENT, based on the cost thereof,
LESSEE agrees to pay LESSOR upon demand an amount which, in the reasonable
opinion of LESSOR, will cause LESSOR's after tax net yield in respect of such
equipment to equal the net yield that LESSOR would have received if LESSOR had
not suffered such loss.
TERMS AND CONDITIONS OF LEASE #97-185 CONTINUED LESSEE'S INITIALS /s/
----------
LEASE ORIGINAL - 1
<PAGE> 3
19. ENTIRE AGREEMENT; NON-WAIVER; NOTICES; SEVERABILITY. This LEASE and each
rider hereto initialed by LESSEE contains the entire and only understanding
between LESSOR and LESSEE relating to the subject matter hereof. Any
representation, promises or conditions not contained herein shall not be
binding unless in writing and signed by duly authorized representatives of each
party. No covenant or condition of this LEASE can be waived except by the
written consent of LESSOR. Any notices required to be given hereunder shall be
given in writing at the address of each party herein set forth, or to such
other address as either party may substitute by written notice to the other
with a copy of any such notice sent to LESSEE sent to Henry J. Underwood, Jr.,
Esq., Defrees & Fiske, 200 South Michigan, Suite 1100, Chicago, Illinois 60604.
Whenever reference is made herein to the "LEASE," it shall be deemed to
include any Schedules attached hereto identifying all items of EQUIPMENT and
the applicable term and rent, and each rider hereto initialed by LESSEE, all of
which constitute one indivisible lease of equipment to which all the terms and
provisions hereof apply. If any provision of this LEASE is held invalid, such
invalidity shall not affect any other provisions hereof.
20. GENDER; NUMBER; JOINT AND SEVERAL LIABILITY; AUTHORIZATION. Whenever the
context of this LEASE requires, the masculine gender includes the feminine or
neuter and the singular number includes the plural; whenever the word "LESSOR"
is used herein, it shall include all assignees of LESSOR; whenever the word
"herein" is used referring to this LEASE, it shall include the applicable
Schedules hereto and each rider hereto initialed by LESSEE. If there is more
than one LESSEE named in this LEASE, the liability of each shall be joint and
several. LESSEE hereby authorizes LESSOR to insert equipment serial numbers
and other identification in the equipment description, when known.
21. SURVIVAL. LESSEE'S indemnities shall survive the expiration or other
termination of this LEASE.
22. CHOICE OF LAW, SERVICE OF PROCESS. This LEASE shall be binding and
effective on LESSOR only when signed by an officer of LESSOR at its home office
in Libertyville, Illinois, and except for local filing requirements, shall be
governed by Illinois law and shall be deemed to have been made in Libertyville,
Illinois. LESSEE does hereby submit to the jurisdiction of any courts
(federal, state or local) having situs within the State of Illinois with
respect to any dispute, claim or suit arising out of or relating to this LEASE
or LESSEE'S obligations hereunder.
23. QUIET ENJOYMENT. LESSOR represents and warrants to LESSEE that LESSOR has
good title to the EQUIPMENT with the full and unencumbered right to lease the
same to LESSEE. LESSOR covenants with LESSEE that so long as LESSEE is not in
default under this Lease, neither LESSOR nor any third party shall interfere
with LESSEE'S right to quiet possession and enjoyment of the EQUIPMENT. LESSOR
shall protect and defend LESSEE'S right to the quiet possession and enjoyment
of the EQUIPMENT against all claims and liens of LESSOR'S creditors. Upon
expiration of the term of this LEASE and exercise by LESSEE of its purchase
option, LESSOR shall transfer title to the EQUIPMENT to LESSEE pursuant to a
bill of sale providing for LESSOR'S warranty of good and marketable title to
the EQUIMENT but excluding any warranties relating to the physical condition of
the EQUIPMENT, including but not limited to the warranties of merchantability
or fitness for a particular purpose.
24. PURCHASE OPTION. LESSEE shall have the option, exercisable upon notice to
Lessor, to purchase all of the EQUIPMENT for one dollar ($1.00) effective upon
the expiration of the original term of this LEASE.
25. EFFECTIVE DATE OF LEASE. The effective date of this LEASE for purposes of
commencing LESSEE'S obligation to pay monthly rent shall occur upon LESSEE'S
acceptance of the EQUIPMENT.
26. EARLY TERMINATION OPTION. After acceptance of the EQUIPMENT in
accordance with this LEASE, LESSEE shall have the right to terminate its
obligations under this LEASE at any time upon 30 days prior notice to LESSOR
and payment of the balance as set forth on the amortization schedule attached
hereto as Exhibit A opposite the date two months after the pre-payment is
effective plus the Prepayment Penalty set forth on Exhibit A. The amortization
schedule shall be adjusted as necessary if the monthly rental is adjusted under
paragraph 27 hereof.
27. RENTAL ADJUSTMENT. When LESSEE accepts the EQUIPMENT, the monthly rental
amount of $4,862.00 will be adjusted in proportion to any increase or decrease
in five year treasury rates from January 5, 1998 until the effective date.
Said monthly payment, adjusted as necessary, shall be payable in advance for 60
months commencing on the first day of the month immediately following the
effective date.
Whenever any monthly rental payment is not paid when due and continues
unpaid 15 days after notice of non-payment is received by LESSEE, LESSEE agrees
to pay LESSOR on demand (as a fee to offset LESSOR'S collection and
administrative expenses) the greater of twenty-five dollars ($25.00) or three
and one-half percent (3 1/2%) of the overdue amount to the extent permitted by
applicable law.
TERMS AND CONDITIONS OF LEASE #97-185 LESSEE'S INITIALS /s/
-------------
LEASE ORIGINAL - 1
<PAGE> 4
INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
<TABLE>
<CAPTION>
<S> <C> <C>
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #98-010
ADDRESS: 2201 LANDMEIER ROAD CONTACT: MS. LINDA BLAKE,
ELK GROVE VILLAGE, IL 60007 PHONE #: 847-956-8000
EQUIPMENT LOCATION IF OTHER THAN
ADDRESS OF LESSEE:
SMT UNLIMITED L.P. , 47650 WESTINGHOUSE DR.,
TYPE OF COMPANY: CORPORATION FREMONT, CA 94539
- ---------------------------------------------------------------------------------------------------------------------------
EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A"
TERM: 60 $4,862.00 per period for the first 60 periods
PERIODS ARE: MONTHLY ADVANCE RENTALS, $9,724.00 payable at the signing of this lease to be applied
TOTAL # OF LEASE PAYMENTS: 60 to the last two rental payments.
EFFECTIVE DATE: SEE PARAGRAPH 25
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
ACCEPTANCE NOTICE
INTERNATIONAL FINANCIAL SERVICES CORPORATION
1113 Milwaukee Avenue
Libertyville, IL 60048
GENTLEMEN:
All items referred to above were received by us and were and are in good
order and condition and acceptable to us. The decals, labels, etc., if
required and supplied have been affixed to the above items. We approve payment
by you to the supplier. Lessee hereby certifies that the lessor has fully and
satisfactorily performed all covenants and conditions to be performed by it
under said lease agreement as of the date hereof.
Very Truly Yours,
<TABLE>
<CAPTION>
<S> <C>
LEASE DATED __ DAY OF _________________ , 199__
VENDOR: This acceptance must be signed
by lessee and returned to us before your LESSEE NAME: SIGMATRON INTERNATIONAL, INC.
invoice can be paid. --------------------------------------------------
SIGNED BY: /s/
-----------------------------------------------------
TITLE: President and Chief Executive Officer
---------------------------------------------------------
LESSEE'S ORIGINAL SIGNATURE IN INK IS REQUIRED ON (INDICATE CORPORATE OFFICE, GENERAL PARTNER, OWNER, ETC)
LEASE PAGES 1,2,3 ,4,5 - MUST BE ORIGINAL SIGNATURES
DATE:
----------------------------------------------------------
</TABLE>
ACCEPTANCE NOTICE - 3
<PAGE> 5
INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
<TABLE>
<CAPTION>
<S> <C> <C>
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #98-010
ADDRESS: 2201 LANDMEIER ROAD CONTACT: MS. LINDA BLAKE
ELK GROVE VILLAGE, IL 60007 PHONE #: 847-956-8000
EQUIPMENT LOCATION IF OTHER THAN
ADDRESS OF LESSEE:
SMT UNLIMITED L.P. , 47650 WESTINGHOUSE DR.,
TYPE OF COMPANY: CORPORATION FREMONT, CA 94539
- ---------------------------------------------------------------------------------------------------------------------------
EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A"
TERM: 60 $4,862.00 per period for the first 60 periods
PERIODS ARE: MONTHLY ADVANCE RENTALS, $9,724.00 payable at the signing of this lease to be applied
TOTAL # OF LEASE PAYMENTS: 60 to the last two rental payments.
EFFECTIVE DATE: SEE PARAGRAPH 25
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
EQUIPMENT DISCLAIMER AND AGREEMENT
INTERNATIONAL FINANCIAL SERVICES CORPORATION
1113 Milwaukee Avenue
Libertyville, IL 60048
GENTLEMEN:
This will advise that LESSEE is aware of its obligations with reference to the
above lease and that LESSEE agrees in its name to enforce all warranties,
agreements, or representations, if any, which may be made by the supplier to
LESSEE. LESSEE agrees that INTERNATIONAL FINANCIAL SERVICES CORPORATION makes
no expressed or implied warranties as to any matter whatsoever, including,
without limitation the condition of the equipment, its merchantability or its
fitness for any particular purpose except as set forth in the LEASE. No defect
or unfitness of equipment shall release LESSEE of the obligation to pay rental
payments or of any other obligations under this lease agreement.
Very Truly Yours,
LEASE DATED DAY OF , 199
---- -------- -
LESSEE NAME: SIGMATRON INTERNATIONAL, INC.
-----------------------------------------------
SIGNED BY: /s/
-------------------------------------------------
TITLE: President and Chief Executive Officer
-----------------------------------------------------
(INDICATE CORPORATE OFFICE, GENERAL PARTNER, OWNER, ETC)
DATE:
-------------------------------------------------------
LESSEE'S ORIGINAL SIGNATURE IN INK IS REQUIRED ON
LEASE PAGES 1,2,3 ,4,5 - MUST BE ORIGINAL SIGNATURES
EQUIPMENT DISCLAIMER AND AGREEMENT - 4
<PAGE> 6
INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
<TABLE>
<CAPTION>
<S> <C> <C>
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #98-010
ADDRESS: 2201 LANDMEIER ROAD CONTACT: MS. LINDA BLAKE
ELK GROVE VILLAGE, IL 60007 PHONE #: 847-956-8000
EQUIPMENT LOCATION IF OTHER THAN
ADDRESS OF LESSEE:
SMT UNLIMITED L.P. , 47650 WESTINGHOUSE DR.,
TYPE OF COMPANY: CORPORATION FREMONT, CA 94539
- ---------------------------------------------------------------------------------------------------------------------------
EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A"
TERM: 60 $4,862.00 per period for the first 60 periods
PERIODS ARE: MONTHLY ADVANCE RENTALS, $9,724.00 payable at the signing of this lease to be applied
TOTAL # OF LEASE PAYMENTS: 60 to the last two rental payments.
EFFECTIVE DATE: SEE PARAGRAPH 25
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
LESSEE'S ACKNOWLEDGEMENT
INTERNATIONAL FINANCIAL SERVICES CORPORATION
1113 Milwaukee Avenue
Libertyville, IL 60048
GENTLEMEN:
As Lessee under the lease referred to above with International Financial
Services Corporation, the undersigned hereby acknowledges the Lessor's right to
assign its interest under the Lease and that Assignee does not assume any of
the obligations of the Lessor thereunder, consents to any such assignment and,
in consideration of the assignee having advanced funds to the Lessor to finance
the equipment described in the Lease, and in consideration of Assignee's
covenant with Lessee that so long as Lessee is not in default under the Lease,
Lessee will quietly possess the Equipment, free of interference from third
parties, agrees as follows: (a) that its obligation to pay directly to the
Assignee the amounts (whether designated as rentals or otherwise) which become
due from the Lessee as set forth in the Lease so assigned shall be absolutely
unconditional and shall be payable in strict accordance with the Lease, and it
promises so to pay the same notwithstanding any defense, set-off or
counterclaim whatsoever, whether by reason of breach of the Lease, the exercise
of any right or option thereunder, or otherwise, which it may or might now or
hereafter have as against the Lessor (the Lessee reserving its right to have
recourse directly against the Lessor on account of any such defense, set-off or
counterclaim); and (b) that, subject to and without impairment of the Lessee's
leasehold rights in and to the Equipment described in said Lease, Lessee holds
said Equipment and the possession thereof for the Assignee to the extent of the
Assignee's rights therein. There shall be only one executed counterpart of
this lease marked "Original" and all other counterparts shall be marked
"Duplicate." To the extent that Lease constitutes chattel paper (as defined in
the Uniform Commercial Code) no security interest in this lease may be created
through the transfer or possession of any counterpart other than the original.
Very Truly Yours,
LEASE DATED DAY OF , 199
--- -------- --
LESSEE NAME: SIGMATRON INTERNATIONAL, INC.
--------------------------------
SIGNED BY: /s/
----------------------------------
TITLE: President and Chief Executive Officer
--------------------------------------
LESSEE'S ORIGINAL SIGNATURE IN (INDICATE CORPORATE OFFICE, GENERAL
INK IS REQUIRED ON PARTNER, OWNER, ETC)
LEASE PAGES 1,2,3 ,4,5 - MUST
BE ORIGINAL SIGNATURES
DATE:
---------------------------------------
LESSEE'S ACKNOWLEDGMENT - 5
<PAGE> 7
INTERNATIONAL FINANCIAL SERVICES CORPORATION
1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SCHEDULE "A" TO LEASE #98-010
AND/OR SECURITY AGREEMENT-MORTGAGE ON GOODS & CHATTELS
AND UNIFORM COMMERCIAL CODE #1 & #3 FILING FORM
DATED 2/2/98
LESSEE: Sigmatron International, Inc.
LESSOR: INTERNATIONAL FINANCIAL SERVICES CORPORATION
EQUIPMENT AS DESCRIBED BELOW:
FINAL ASSY ESI-1004 4-HEAD FP TERADYNE ESI 1004 FLYING PROBER
IN-CIRCUIT TESTER includes: 4-Head, 4 Probe Model, 3 Phase Surface
Linear Motors (4) Feedback Stepping Motors (4) for Z-axis control;
Operations, programming and maintenance software, AC, DC
measurement system, Tandem measurement mode option, Soft Landing
Control measurement stroke, 19.7" x 23.6" (500mm x 600mm) probable
area, Fiducial camera system, Position monitoring camera, Automatic
conveyor width adjustment, Programmable pass/fail marker, Status
light tower, Panelization software, utomatic probing alignment,
Calibration board for probe to probe distance, Pentium PC Main
controller with diagnostic printer, AC 200-V-240V switchable
single-phase power supply;
SPARES KIT 1 FLYING PROBER, Spares Kit 1 consists of both
consumable spares and recommended on-site parts. Consumables
include probes, timing belt (6 types) printer paper, Recommended
parts include PCB's for DC Measurement, AC Measurement, Scanner,
Linear Motor Driver and several other sub-assemblies.
FABMASTER 1 I/P Teradyne Flying Prober FABMASTER Software for
processing CAD data for the generation of input lies for Teradyne
Flying Prober Systems including One CAD Input Processor, Graphics
Engine, Job Screen, Penalization Mode, Probe Selector, Short
Circuit Emulation, Teradyne Flying Probar Output Processor, One
Software Security Key attaches to parallel port.
CURRENTLY SUPPORTED CAD INPUT PROCESSORS
OPT, DELTASCAN FOR ES1-1004 DeltaScan Option for ESI-1004
Teradyne's DeltaScan for ESI-1004 adds Delta Scan vectorless test
capablility to the Teradyne Flying Prober. DeltaScan provides fault
coverage for open pins, cold solder and device orientation errors
on a wide range of device, package, and component types, including
BGA's and devices with heatsinks.
5 DAY APPLICATIONS CONSULTING AGREEMENT
Including all accessories and attachments thereto and all proceeds thereof.
INTERNATIONAL FINANCIAL
SERVICES CORPORATION SIGMATRON INTERNATIONAL, INC.
By: By: /s/ ???????????????
--------------------------- -----------------------------------------
Title: Title: President and Chief Executive Officer
------------------------ --------------------------------------
SCHEDULE - 2
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-80147) pertaining to the 1993 Stock Option Plan, 1994
Directors' Stock Option Plan and Directors' Warrants of SigmaTron
International, Inc. of our report dated June 19, 1998, except for Note 16, as
to which the date is July 1, 1998 and Note 6, as to which the date is July 14,
1998, with respect to the consolidated financial statements and schedule of
SigmaTron International, Inc. included in the Annual Report (Form 10-K) for the
year ended April 30, 1998.
ERNST & YOUNG LLP
Chicago, Illinois
July 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Consolidated Balance Sheet as of April 30, 1998 and the Statement of
Consolidated Earnings for the year ended April 30, 1998 and is qualified in its
entirety by reference to such Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 284679
<SECURITIES> 0
<RECEIVABLES> 11977973
<ALLOWANCES> 0
<INVENTORY> 18972587
<CURRENT-ASSETS> 32203952
<PP&E> 16018839
<DEPRECIATION> 4769289
<TOTAL-ASSETS> 48641206
<CURRENT-LIABILITIES> 11495266
<BONDS> 0
0
0
<COMMON> 28812
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48641206
<SALES> 85650598
<TOTAL-REVENUES> 85650598
<CGS> 77193764
<TOTAL-COSTS> 5624346
<OTHER-EXPENSES> 1995634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 836854
<INCOME-TAX> 310962
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 525892
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
