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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934. For the fiscal year ended April 30, 1999
or
--- Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from
___________to___________.
Commission file number 0-23248
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 stock held by nonaffiliates of the
registrant as of July 19, 1999 (based on the closing sale price as reported by
Nasdaq National Market as of such date) was approximately $12,555,000.
The number of outstanding shares of the registrant's Common Stock, as of July
19, 1999, 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, which will be filed within 120 days of the fiscal year ended April
30, 1999, are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
<TABLE>
PART I
<S> <C>
ITEM 1. BUSINESS................................................ 3
ITEM 2. PROPERTIES.............................................. 11
ITEM 3. LEGAL PROCEEDINGS....................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 13
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.................... 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................... 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.................... 15
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS.................. 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS.................................... 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............. 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................... 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...... 21
ITEM 11. EXECUTIVE COMPENSATION.................................. 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT........................................ 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K........................................... 22
SIGNATURES ............................................................ 26
</TABLE>
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PART 1
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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/Kidde Safety
("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 and secure financing. 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. These statements speak as of the date of this report and the Company
undertakes no obligation to update such statements in light of future events or
otherwise.
OVERVIEW
The Company is an independent provider of electronic manufacturing services
("EMS"), which includes printed circuit board assemblies and completely
assembled (boxbuild) 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 boxbuild
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, Las Vegas, Nevada and Taipei,
Taiwan. The Company provides warehousing services in Del Rio, Texas and
Huntsville, Alabama. In addition, the Company's 42.5% owned
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affiliate, SMT Unlimited L.P. (SMTU), provides electronic manufacturing services
in Fremont, California.
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.
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
"boxbuild" 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, 1999, the Company had approximately 125 active
customers ranging from Fortune 500 companies to small, privately held
enterprises.
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The following table shows, for the periods indicated, the percentage of net
sales to the principal end-user markets it serves.
<TABLE>
<CAPTION>
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PERCENT OF NET SALES
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TYPICAL FISCAL FISCAL FISCAL
MARKETS OEM APPLICATION 1997 1998 1999
- ------- --------------- ---- ---- ----
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<S> <C> <C> <C> <C>
Consumer Electronics Carbon monoxide detectors, 38.0% 37.9% 39.0%
dart board games
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Gaming Slot machines, lighting displays 21.8 22.0 18.9
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Industrial Electronics Blower motors, elevators 18.3 14.2 16.8
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Fitness Treadmills, exercise bikes 12.1 13.3 13.7
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Telecommunications Pagers, microphones and modems 5.1 5.1 3.9
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Appliances Irons, toasters, ranges and dryers 2.1 5.1 5.0
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Automotive Automobile interior lighting 2.6 2.4 2.7
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Total 100% 100% 100%
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</TABLE>
For the fiscal year ended April 30, 1999, NSI and Life Fitness accounted
for 36.2% and 13.7% respectively, of the Company's net sales. In fiscal 1998 NSI
and Life Fitness accounted for 29.4% and 13.3% respectively, of net sales. In
addition, NSI, Bally Gaming and Life Fitness accounted for 29.8%, 13.5% and
10.8%, respectively, of the Company's net sales for the fiscal year ended April
30, 1997. 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 original agreement with NSI called for the Company to
function as a contract manufacturer for all models of NSI's proprietary carbon
monoxide detectors on a turnkey basis through June 1998. The Company agreed that
during the term of the agreement and for three months thereafter it would 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 2000 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 Company's net sales
in fiscal 2000. 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 continues to be 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.
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SALES AND MARKETING
The Company markets its services through 28 independent manufacturers'
representative organizations, that together currently employ approximately 88
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 the Company's 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 did not have an 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 impact on the
financial results of the Company. In fiscal 1999 the Company provided funding of
approximately $8,175,000 to Standard Components.
In late August 1998, the Company's warehousing operation in Del Rio, Texas,
and one of its manufacturing operations in Acuna, Mexico, were significantly
damaged by a flash flood. The Company expedited replacement machinery and
equipment and inventory to its damaged facilities. The majority of the damaged
equipment used in the manufacturing process was replaced with new
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equipment. The manufacturing operation in Acuna was running at preflood levels
and all raw material issues created by the flood were resolved by December 1998.
COMPETITION
The EMS 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.
BACKLOG
The Company's backlog as of April 30, 1999 was approximately $38,999,000.
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, 1999 backlog by the end of the
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2000 fiscal year. Backlog as of April 30, 1998 totaled $46,184,000. 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 1,970 people as of April 30, 1999,
including 27 engaged in engineering, 1,770 in manufacturing and 173 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 February 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.
RISK FACTORS
In addition to the other risks identified herein, the Company's
business is subject to the following risks:
COMPANY EXPERIENCES VARIABLE OPERATING RESULTS
The Company's results of operations have varied and may continue to
fluctuate significantly from period to period, including on a quarterly basis.
Consequently, results of operations in any period should not be considered
indicative of the results for any future period, and fluctuations in operating
results may also result in fluctuations in the price of the Company's Common
Stock.
COMPANY'S CUSTOMER BASE IS CONCENTRATED
The Company's customer base is concentrated, for the fiscal year ended
April 30, 1999, two customers accounted for 36.2% and 13.7% of the Company's net
sales, respectively. The loss of any such customer or a reduction in business
levels could adversely affect the Company's results of operations.
VARIABILITY OF CUSTOMER REQUIREMENTS
The timing of purchase orders placed by the Company's customers is
affected by a number of factors, including variation in demand for the
customers' products, regulatory changes affecting customer industries, customer
attempts to manage inventory, changes in the customers' manufacturing strategies
and customers' technical problems or issues. Many of these factors are outside
the control of the Company.
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COMPANY MUST KEEP CURRENT WITH THE INDUSTRY'S TECHNOLOGICAL CHANGES
The market for the Company's manufacturing services is characterized by
rapidly changing technology and continuing product development. The future
success of the Company's business will depend in large part upon its customers
ability to maintain and enhance their technological capabilities, develop and
market manufacturing services which meet changing customer needs and
successfully anticipate or respond to technological changes in manufacturing
processes on a cost-effective and timely basis.
COMPANY HAS STEEP INDUSTRY COMPETITION
The electronics manufacturing services industry is highly fragmented
and characterized by intense competition. Many of the Company's competitors have
substantially greater experience, as well as greater manufacturing, purchasing,
marketing and financial resources than the Company.
FOREIGN OPERATION RISKS
A substantial part of the Company's manufacturing operations is based
in Mexico. Therefore, the Company's business and results of operations are
dependent upon numerous factors, including the stability of the Mexican economy,
the political climate in Mexico, prevailing worker wages, the legal authority of
the Company to own and operate its business in Mexico and the ability to
identify, hire, train and retain qualified personnel and operating management in
Mexico. The Company obtains many of its materials and components in Taipei and
therefore, the Company's access to these materials and components is dependent
on the continued success of these Asian suppliers. It is uncertain whether these
suppliers will continue to be able to serve as a supplier to the Company.
RISK OF FLUCTUATION OF VARIOUS CURRENCIES INTEGRAL TO THE COMPANY'S OPERATIONS
The Company purchases many of its materials and components in foreign
currencies. From time to time the currencies fluctuate against the U.S. dollar.
Such fluctuations could have a measurable impact on the Company's operations and
performance. These fluctuations are expected to continue.
SEASONALITY OF RESULTS
The Company currently experiences seasonality in quarterly results,
with stronger net sales and demand for its products and services historically in
its second and third fiscal quarters.
AVAILABILITY OF RAW COMPONENTS MAY AFFECT OPERATIONS
The Company relies on numerous third-party suppliers for components
used in the Company's production process. Certain of these components are
available only from single sources or a limited number of suppliers. In
addition, a customer's specifications may require the Company to obtain
components from a single source or a small number of suppliers. The loss of any
such suppliers could adversely affect the Company's results of operations.
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COMPANY IS DEPENDENT ON KEY PERSONNEL
The Company depends significantly on its President and Chief Executive
Officer, Gary R. Fairhead, and on other executive officers. The loss of the
services of these key employees could have material adverse effect on the
Company's business and results of operations. In addition, despite significant
competition, continued growth and expansion of the Company's contract
manufacturing business will require that it attract, motivate, and retain
additional skilled and experienced personnel.
FAVORABLE LABOR RELATIONS IS IMPORTANT
The Company currently has labor contracts with certain of its
employees. Although the Company believes its labor relations are good, any labor
disruptions, whether union-related or otherwise, could significantly impair the
Company's business, substantially increase the Company's costs or otherwise
adversely affect the Company's results of operations.
FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD SUBJECT COMPANY TO
LIABILITY
The Company is subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous chemicals used
during its manufacturing process. Any failure by the Company to comply with
present or future regulations could subject it to future liabilities or the
suspension of production which could have a material adverse effect on the
Company's results of operations.
VOLATILITY OF STOCK PRICE
The price of the Company's Common Stock historically has experienced
significant volatility due to fluctuations in the Company's revenue and
earnings, other factors relating to the Company's operations, the market's
changing expectations for the Company's growth, overall equity market conditions
and other factors unrelated to the Company's operations. In addition , the
limited float of the Company's Common Stock and the limited number of market
markers also affect the volatility of the Company's Common Stock. Such
fluctuations are expected to continue.
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.
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Certain information about the Company's manufacturing, warehouse and
purchasing facilities is set forth below:
<TABLE>
<CAPTION>
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LOCATION SQUARE FEET SERVICES OFFERED
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<S> <C> <C>
Elk Grove Village, IL 79,300 Corporate Headquarters, assembly
and testing of PTH and SMT,
box-build, prototyping,
warehousing
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Acuna, Mexico 156,000 High volume assembly, and
testing of PTH and SMT,
box-build, transformers
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Las Vegas, NV 33,360 Automatic insertion and cable
assembly
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Del Rio, TX 25,000 Warehouse, portion of which is
bonded
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Fremont, CA 24,030 High volume assembly and testing
of both PTH and SMT and ball grid
array ("BGA")
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Taipei, Taiwan 2,900 Materials procurement,
alternative sourcing assistance
and quality control
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Huntsville, AL * Just-in-time inventory
management and delivery
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</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.
All of the above properties are occupied pursuant to leases of the premises
except for the Huntsville facility. 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, leases 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 $1.41 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 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gary R. Fairhead 47 President and Chief Executive Officer.
Gary R. Fairhead has been the President
of the Company since January 1990.
Linda K. Blake 38 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 61 Vice President -- Las Vegas Operations.
Nunzio A. Truppa has been Vice President
-- Las Vegas Operations for the Company,
or held equivalent management positions
with the Company's predecessor, since
January 1987.
Gregory A. Fairhead 43 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 38 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.
Andrew J. Saarnio 51 Vice President -- Elk Grove Operations.
Andrew J. Saarnio has been Vice President --
Elk Grove Operations since November 1998.
</TABLE>
13
<PAGE> 14
- --------------------------------------------------------------------------------
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, 1998 and 1999.
Common Stock as Reported
by Nasdaq
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
Fiscal 1999:
Fourth Quarter 5.875 2.125
Third Quarter 3.750 2.500
Second Quarter 8.625 0.938
First Quarter 9.000 5.500
Fiscal 1998:
Fourth Quarter 10.875 10.750
Third Quarter 13.875 9.250
Second Quarter 17.500 11.625
First Quarter 17.125 11.891
</TABLE>
As of July 19, 1999, there were approximately 128 holders of record of
the Company's Common Stock, which does not include shareholders whose stock is
held through securities position listings. The Company estimates there to be
approximately 3,000 beneficial owners of the Company's Common Stock.
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.
14
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended April 30
--------------------
(In thousands except per share data)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $45,345 $69,558 $87,216 $85,651 $88,160
Income before income tax 3,032 3,752 5,161 837 2,750
Expense
Net Income 1,891 2,367 3,255 526 1,697
Total Assets 28,235 38,378 42,088 48,641 55,276
Long-term debt and capital 12,763 16,528 18,593 20,975 23,194
lease obligations (including
current maturities)
Net income per common share- $0.69 $0.86 $1.16 $0.18 $0.59
Basic
Net income per common share- $0.69 $0.86 $1.11 $0.18 $0.59
assuming dilution
</TABLE>
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 provider of EMS, which includes, printed
circuit board assemblies, and boxbuild (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.
15
<PAGE> 16
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 manufacturing agreement
with NSI relating to the production of carbon monoxide detection systems. Sales
to NSI accounted for a significant percentage of the Company's net sales from
fiscal 1996 through 1999. Although there has been no written extension of the
agreement, the parties continue to operate under its terms, and the Company
expects sales to NSI will be significant in fiscal 2000. The amount of sales to
NSI beyond fiscal 2000 remains unclear and if the relationship is not continued
it could significantly impact the Company's revenues and earnings.
In the past, the 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.
RESULTS OF OPERATIONS:
Fiscal Year Ended April 30, 1999 Compared
to Fiscal Year Ended April 30, 1998
Net sales for fiscal 1999 were $88,159,189 compared to $85,650,598 for
fiscal 1998. The 3% increase in net sales was due to additional sales to some of
the Company's key customers. NSI accounted for approximately $31,894,500 or
36.2% of the Company's fiscal 1999 net sales compared to $25,191,000 or 29.4% in
fiscal 1998.
Gross profit increased to $8,921,091 in fiscal 1999 from $8,456,834 in
fiscal 1998. Gross profit as a percent of net sales was 10.1% and 9.9% for
fiscal 1999 and 1998, respectively. The increase in gross profit for the fiscal
year ended April 30, 1999 compared to the same period in the prior year is
primarily due to product mix.
16
<PAGE> 17
Selling and administrative expenses increased from $5,704,346 in fiscal
1998 to $5,890,752 in fiscal 1999. The increase is generally consistant with the
increase in net sales, but is also due to a write down of $462,000 for Lighting
Components, L.P. ("LC") receivables in fiscal 1999. 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. Selling and administrative
expenses as a percent of net sales remained at 6.7% for fiscal 1999 and fiscal
1998.
Interest expense increased in fiscal 1999 to $2,049,396 from $1,898,488
in fiscal 1998. The overall increase was primarily due to the higher outstanding
balance on the Company's line of credit due to the Company's increased working
capital requirements. Interest expense as a percent of net sales increased from
2.2% in fiscal 1998 to 2.3% in fiscal 1999.
A gain of approximately $1,391,000 was recognized on settlement of the
insurance reimbursement related to the flood at the Del Rio, Texas and Acuna,
Mexico locations. This gain is reported as a reduction of cost of products sold
of $259,000 and gain on insurance reimbursement of $1,132,000 in the
accompanying 1999 statements of income. The inventory, machinery, and equipment
and building contents segments of the loss have been settled in full. In June
1999, the Company collected the total flood insurance receivable of $2,453,000
which was included on the April 30, 1999 balance sheet. The business
interruption and extra expense segments of the claim have not been finalized.
The results for the year ended April 30, 1999, include expenses and a reduction
in revenue that management believes is covered by its business interruption
insurance. Since there is no agreement with the insurance company on the
business interruption and extra expense segments of the loss, the Company has
not recognized any net proceeds related to these items. The settlement of the
business interruption and extra expense claim is expected to result in
additional income for fiscal 2000.
Income tax expense increased to $1,052,784 in fiscal 1999 from $310,962
in fiscal 1998. The effective tax rate for fiscal 1999 and 1998 was 38.3% and
37.2%, respectively.
As a result of the foregoing, net income increased to $1,697,101 in
fiscal 1999 from $525,892 in fiscal 1998. Basic earnings per share for the year
ended April 30, 1999 was $0.59 compared to $.18 in fiscal 1998.
Diluted earnings per share for fiscal 1999 was $0.59.
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.
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.
17
<PAGE> 18
Selling and administrative expenses decreased from $5,704,346 in fiscal
1998 to $5,961,184 in fiscal 1997. 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 $0.18 compared to $1.16 in fiscal 1997.
Diluted earnings per share for fiscal 1998 was $0.18
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 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.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES:
In fiscal 1999 the Company financed its growth and operations through
cash flow generated from borrowings from its secured lender and cash provided by
operating activities. The Company had working capital of $20,666,932 as of April
30, 1999 and $20,708,686 at April 30, 1998. This represents a current ratio of
2.5 and 2.8 for the years ended April 30, 1999 and 1998, 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, 1999, based upon those
percentages, there was approximately $1,406,000 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 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.
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 $8,175,000 for a typical 12 month period. The Company
provides funding in U.S. dollars, which are exchanged for pesos as needed.
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 $3,324,000 as of April 30, 1999, and an accumulated deficit of
approximately $1,472,000. 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 profitable for the year ended April 30, 1999 . 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 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 $6,162,000 at April 30, 1999, which
has been classified as long-term assets in the Company's April 30, 1999 balance
sheet. At April 30, 1999, SMTU was in violation of various covenants under its
revolving line of credit, which were waived by its lender. The SMTU credit
facility expires July 31, 1999.
During 1996, the Company invested $1,200 in exchange for a 12% limited
partnership interest in LC and invested $1,300 in LC, 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
19
<PAGE> 20
subordinated debentures and promissory notes totaling $280,000 had been written
down at April 30, 1998. The accrued interest on these subordinated debentures
and promissory notes totaling approximately $88,000 is 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, 1999, totaling approximately $889,000.
The Company's miscellaneous and trade receivables are secured by a
security interest in substantially all of LC assets. At April 30, 1999, the
Company adjusted the carrying value of assets recorded in the Company's balance
sheet by approximately $550,000 leaving approximately $339,000 of assets in the
accompanying balance sheet at April 30, 1999.
The impact of inflation for the past three fiscal years has been
minimal.
YEAR 2000 COMPLIANCE:
In early 1998 the Company formed a committee of executive officers and
others to examine Year 2000 compliance issues. The scope of the program is
focused on the Company's primary business applications, including both IT and
non-IT applications. This stage has been completed and management believes that
these systems are currently Year 2000 compliant. In addition, the Company has
reviewed other systems including production equipment, to determine possible
risk. Based on assurances received to date provided by vendors, the Company does
not believe significant modifications to production equipment or information
systems is required. However, the Company cannot verify assurances it has been
provided by third parties.
The Company has implemented a review process to ensure that the
delivery of raw material and services will not be disrupted due to
non-compliance by a key third party supplier. Communications with these
suppliers have been favorable. The Company is receiving assurances that no
interruptions of delivery for product or services will occur; however, the
Company cannot ensure third parties will be compliant. Non-compliance by any
supplier of products or services for a prolonged period could have an adverse
effect on the Company and its results of operations or financial condition.
The Company has developed a limited contingency plan as third party
suppliers for components are customer mandated. There can be no assurance that
such plans will fully mitigate any problems. Furthermore, there may be certain
suppliers, such as utilities, telecommunication companies, or material vendors
where alternative resources are limited or unavailable.
In addition, the Company cannot anticipate if a significant portion of
its key customers will be Year 2000 compliant. The Company's customers inability
to process timely payments could have an adverse effect on the Company's cash
flow and liquidity.
Based on its internal review the Company does not anticipate that
current or future costs related to the Year 2000 issue will have a material
impact on its financial condition. To date the Company has incurred
approximately $20,000 in Year 2000 compliance costs.
The foregoing is a Year 2000 readiness disclosure entitled to
protection as provided in the Year 2000 Information and Readiness Disclosure
Act.
20
<PAGE> 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The response to this item is included in Item 14(a) of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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, 1999 and 1998.
- --------------------------------------------------------------------------------
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, 1999.
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, 1999.
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, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference to the
21
<PAGE> 22
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, 1999.
- --------------------------------------------------------------------------------
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.
22
<PAGE> 23
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, File No. 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, File No. 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, File No. 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, File No. 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, File No. 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, File No. 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 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.
10.9 Agreement between SigmaTron International, Inc. and Nighthawk Systems,
Incorporated dated July 9, 1995 - Filed as Exhibit 10.33 to the Company's
Form 10-Q for the quarter ended July 31, 1995 and hereby incorporated by
reference.
10.10 Putnam Flexible 401(K) and Profit Sharing Plan Agreement #001 dated March
22, 1996 between SigmaTron International, Inc. and Putnam Defined
23
<PAGE> 24
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.
10.11 Amended 401(k) plan agreement between the Company and Putnam Investments
dated May 1, 1996 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 filed as Exhibit 10.34 to the Company's Form 10-Q for
the quarter ended July 31, 1997 and hereby incorporated by reference.
10.15 Lease Agreement # 97-054 between SigmaTron International, Inc. and
International Financial Services dated June 6, 1997 filed as Exhibit 10.37
to the Company's Form 10-Q for the quarter ended October 31, 1996 and
hereby incorporated by reference.
10.16 Lease Agreement # 97-087 between SigmaTron International, Inc. and
International Financial Services dated June 26, 1997 filed as Exhibit
10.36 to the Company's Form 10-Q for the quarter ended October 31, 1997
and hereby incorporated by reference.
10.17 Lease Agreement # 97-097 between SigmaTron International, Inc. and
International Financial Services dated August 11, 1997 filed as Exhibit
10.37 to the Company's Form 10-Q for the quarter ended October 31, 1997
and hereby incorporated by reference.
10.18 Lease Agreement # 97-185 between SigmaTron International, Inc. and
International Financial Services dated December 22, 1997 filed as Exhibit
10.38 to the Company's Form 10-Q for the quarter ended January 31, 1998
and hereby incorporated by reference.
10.19 Lease Agreement # E002 between SigmaTron International, Inc. and G. E.
Capital dated December 31, 1997 filed as Exhibit 10.39 to the Company's
Form 10-Q for the quarter ended January 31, 1998 and hereby incorporated
by reference.
10.20 Guaranty and Surety Agreement between SigmaTron International, Inc. and
HSBC Business Loans Inc. dated January 31, 1998 filed as Exhibit 10.40 to
the Company's Form 10-Q for the quarter ended 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 filed as Exhibit
10.21 to the Company's Form 10-K for fiscal year ended April 30, 1998 and
hereby incorporated by reference.
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<PAGE> 25
10.22 Lease Agreement # 98-106 between SigmaTron International, Inc. and
International Financial Services dated June 30, 1998 and hereby
incorporated by reference filed as Exhibit 10.42 to the Company's Form
10-Q for the quarter ended July 31, 1998.
10.23 Lease Agreement # E003 between SigmaTron International, Inc. and G.E.
Capital dated November 10, 1998 filed as Exhibit 10.42 to the Company's
Form 10-Q for the quarter ended January 31, 1999 and hereby incorporated
by reference.
10.24 Lease Agreement # 99-048 between SigmaTron International, Inc. and
International Financial Services dated April 30, 1999.
10.25 Lease Agreement between the Company and International Financial Services #
96-049 dated April 18, 1996 filed as Exhibit 10.36 to the Company's Form
10-Q for the quarter ended October 31, 1996 and hereby incorporated by
reference.
22.1 Subsidiaries of the Registrant - Filed as Exhibit 22.1 of the Company's
Registration Statement on Form S-1, File No. 33-72100 and hereby
incorporated by reference.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule (EDGAR only)
* Indicates management contract or compensatory plan.
(b) No reports on Form 8-K were filed during the 1999 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.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGMATRON INTERNATIONAL, INC.
By: /s/ Gary R. Fairhead
-----------------------------------------
Gary R. Fairhead, President
and Chief Executive Officer
Dated: July 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities, and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Franklin D. Sove Chairman of the Board of Directors July 28, 1999
- --------------------------
Franklin D. Sove
/s/ Gary R. Fairhead President and Chief Executive Officer July 28, 1999
- -------------------------- (Principal Executive Officer)
Gary R. Fairhead
/s/ Linda K. Blake Chief Financial Officer, Secretary and July 28, 1999
- -------------------------- Treasurer (Principal Financial Officer and
Linda K. Blake Principal Accounting Officer)
/s/ D.S. Patel Director July 28, 1999
- --------------------------
D.S. Patel
/s/ John P. Chen Director July 28, 1999
- --------------------------
John P. Chen
/s/ Dilip S. Vyas Director July 28, 1999
- --------------------------
Dilip S. Vyas
/s/ William C. Mitchell Director July 28, 1999
- --------------------------
William C. Mitchell
/s/ Thomas W. Rieck Director July 28, 1999
- --------------------------
Thomas W. Rieck
/s/ Steven Rothstein Director July 28, 1999
- --------------------------
Steven Rothstein
</TABLE>
26
<PAGE> 27
SigmaTron International, Inc.
Consolidated Financial Statements
Contents
Report of Independent Auditors..............................................F-2
Consolidated Financial Statements
Consolidated Balance Sheets at April 30, 1999 and 1998......................F-3
Consolidated Statements of Income for the Years Ended
April 30, 1999, 1998, and 1997...........................................F-5
Consolidated Statements of Equity for the Years Ended
April 30, 1999, 1998, and 1997...........................................F-6
Consolidated Statements of Cash Flows for the Years Ended
April 30, 1999, 1998, and 1997...........................................F-7
Notes to Consolidated Financial Statements..................................F-9
Schedule II
Valuation and Qualifying Accounts..........................................F-25
Financial statement schedules not listed above are omitted because they are not
applicable or required.
F-1
<PAGE> 28
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, 1999 and 1998, and the related consolidated
statements of income, equity, and cash flows for each of the three years in the
period ended April 30, 1999. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
June 25, 1999
F-2
<PAGE> 29
SigmaTron International, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30
1999 1998
-----------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 280,071 $ 284,679
Accounts receivable, less allowance for doubtful accounts
of $575,000 at April 30, 1999 13,563,836 11,977,973
Inventories 16,240,502 18,972,587
Prepaid and other assets 864,895 706,771
Deferred income taxes 147,514 218,788
Receivable from insurance reimbursement 2,453,235 -
Other receivables 1,013,982 43,154
-----------------------------
Total current assets 34,564,035 32,203,952
Machinery and equipment, net 13,434,789 11,249,550
Due from SMTU:
Investment and advances 448,545 311,107
Equipment lease receivables 4,201,823 3,207,691
Other receivables 1,511,372 650,695
-----------------------------
6,161,740 4,169,493
Other assets 1,115,893 1,018,211
-----------------------------
Total assets $55,276,457 $48,641,206
=============================
</TABLE>
F-3
<PAGE> 30
<TABLE>
<CAPTION>
April 30
1999 1998
-----------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable - Banks $ - $ 111,108
Trade accounts payable 8,003,377 6,751,886
Trade accounts payable - Related parties 1,256,000 915,475
Accrued expenses 1,721,932 1,575,434
Income tax payable 644,101 60,025
Capital lease obligations 2,271,693 2,081,338
-----------------------------
Total current liabilities 13,897,103 11,495,266
Notes payable - Banks, less current portion 17,382,681 15,177,695
Capital lease obligations, less current portion 3,538,721 3,604,793
Deferred income taxes 1,157,460 760,061
-----------------------------
Total liabilities 35,975,965 31,037,815
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 shares issued and outstanding 28,812 28,812
Capital in excess of par value 9,436,554 9,436,554
Retained earnings 9,835,126 8,138,025
-----------------------------
Total stockholders' equity 19,300,492 17,603,391
-----------------------------
Total liabilities and stockholders' equity $55,276,457 $48,641,206
=============================
</TABLE>
See accompanying notes.
F-4
<PAGE> 31
SigmaTron International, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended April 30
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Net sales $88,159,189 $85,650,598 $87,216,343
Cost of sales 79,238,098 77,193,764 74,577,261
-----------------------------------------------
8,921,091 8,456,834 12,639,082
Selling and administrative expenses 5,890,752 5,704,346 5,961,184
-----------------------------------------------
Operating income 3,030,339 2,752,488 6,677,898
Equity in net income (loss) of SMTU 137,439 (216,131) (75,036)
Interest expense - Banks and capital lease
obligations (2,049,396) (1,898,488) (1,836,967)
Interest expense - Related parties - (523) (9,961)
Interest income - SMTU and LC 587,304 479,508 404,708
Loss on investment and receivables with LC
(88,000) (280,000) -
Gain on insurance reimbursement 1,132,199 - -
-----------------------------------------------
Income before income tax expense 2,749,885 836,854 5,160,642
Income tax expense (1,052,784) (310,962) (1,905,584)
-----------------------------------------------
Net income $ 1,697,101 $ 525,892 $ 3,255,058
===============================================
Net income per common share - Basic $ .59 $ .18 $ 1.16
===============================================
Net income per common share - Assuming
dilution $ .59 $ .18 $ 1.11
===============================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 32
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, 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
Net income - - - - - 1,697,101 1,697,101
----------------------------------------------------------------------------------------------
Balance at April 30, 1999 - $ - 2,881,227 $28,812 $9,436,554 $9,835,126 $19,300,492
==============================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 33
SigmaTron International, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended April 30
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $1,697,101 $ 525,892 $3,255,058
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,481,336 1,262,297 1,047,262
Equity in net (income) loss of SMTU (137,439) 216,131 75,036
Amortization - 14,136 23,778
Gain on insurance reimbursement (1,391,124) - -
Provision for doubtful accounts - 113,454 -
Loss on investment and receivables with LC 550,000 360,000 -
Deferred income taxes 468,673 (46,335) 382,844
Changes in operating assets and liabilities:
Accounts receivable (2,135,863) (3,400,970) 2,310,028
Inventories 2,732,085 (1,306,987) (2,811,550)
Prepaid expenses and other assets (2,087,347) (943,788) (476,855)
Trade accounts payable 1,251,491 3,507,349 (2,881,853)
Trade accounts payable - Related parties 340,525 178,582 (57,417)
Accrued expenses 146,498 (105,287) 237,687
Income taxes 584,113 179,546 353,645
------------------------------------------------------
Net cash provided by operating activities 3,500,049 554,020 1,457,663
INVESTING ACTIVITIES
Insurance reimbursement - Net 485,011 - -
Purchases of machinery and equipment (3,765,490) (934,692) (2,950,725)
Proceeds from the sale and leaseback of machinery - 1,429,898 -
Proceeds from SMTU subleases - 196,895 424,412
Advances to SMTU - - (100,000)
Proceeds from the sale of investment in SMTU - - 250
------------------------------------------------------
Net cash provided by (used in) investing
activities (3,280,479) 692,101 (2,626,063)
</TABLE>
F-7
<PAGE> 34
SigmaTron International, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended April 30
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Repayment of term loan and other notes
payable $ - $ (42,596) $ (151,860)
Proceeds from exercise of stock options and
warrants - 42,000 472,500
Net proceeds under line of credit 2,093,878 407,192 2,181,772
Net payments under capital lease obligations (2,318,056) (1,691,261) (1,013,289)
------------------------------------------------------
Net cash (used in) provided by financing
activities (224,178) (1,284,665) 1,489,123
------------------------------------------------------
Change in cash (4,608) (38,544) 320,723
Cash at beginning of period 284,679 323,223 2,500
------------------------------------------------------
Cash at end of period $ 280,071 $ 284,679 $ 323,223
======================================================
Supplementary disclosure of cash flow information:
Cash paid for interest $ 2,038,638 $ 1,900,073 $ 1,834,946
======================================================
Cash paid for income taxes $ - $ 177,750 $ 1,169,854
======================================================
Acquisition of machinery and equipment financed
under capital leases $ 2,526,088 $ 1,234,095 $ 840,429
======================================================
</TABLE>
See accompanying notes.
F-8
<PAGE> 35
SigmaTron International, Inc.
Notes to Consolidated Financial Statements
1. Description of the Business
SigmaTron International, Inc. (the Company), is an independent electronic
manufacturing services provider, which includes 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) 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 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
affect 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> 36
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
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.
Revenue Recognition
The Company's net sales are comprised of product sales and service revenue.
Revenue from product sales is recognized upon shipment of goods. Service revenue
is recognized as the services are performed.
Reclassifications
Certain reclassifications were made to the 1998 consolidated financial
statements to conform with the 1999 presentation.
F-10
<PAGE> 37
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
April 30
1999 1998
--------------------------------
<S> <C> <C>
Finished products $ 1,359,207 $ 3,292,442
Work in process 1,709,482 1,887,517
Raw materials 13,171,813 13,792,628
--------------------------------
$16,240,502 $18,972,587
================================
</TABLE>
4. Machinery and Equipment
Machinery and equipment consist of the following:
<TABLE>
<CAPTION>
April 30
1999 1998
--------------------------------
<S> <C> <C>
Machinery and equipment $11,475,094 $ 7,225,671
Office equipment 1,266,844 1,090,763
Tools and dies 115,362 123,251
Leasehold improvements 1,643,626 2,030,129
Equipment under capital leases 5,051,188 5,415,725
--------------------------------
19,552,114 15,885,539
Less: Accumulated depreciation and amortization, including
amortization of assets under capital leases of $1,038,187 and
$852,836 at April 30, 1999 and 1998, respectively
6,117,325 4,635,989
--------------------------------
$13,434,789 $11,249,550
================================
</TABLE>
F-11
<PAGE> 38
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 1999 or 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, 1999, 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 $1,410,000 for SMTU. The
Company has been indemnified by one of the other limited partners in the amount
of $705,000 for the guaranteed lease payments. SMTU incurs a $12,500 monthly
administrative fee for administrative services provided by the Company. See also
Note 13.
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 SMTU credit facility expires July
31, 1999.
The Company's investment and advances to and receivables from SMTU totaled
approximately $6,162,000 at April 30, 1999, and no amount was recorded by the
Company related to its guaranty of SMTU's revolving line of credit. SMTU has
negative
F-12
<PAGE> 39
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
5. Investment and Advances With SMTU (continued)
working capital of approximately $3,324,000 at April 30, 1999, and an
accumulated deficit of approximately $1,472,000 at April 30, 1999. 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 profitable for the year ended
April 30, 1999.
6. Flood Damage in Del Rio, Texas, and Acuna, Mexico
In late August 1998, the Company's warehousing operation in Del Rio, Texas, and
one of its manufacturing operations in Acuna, Mexico, were significantly damaged
by a flash flood. The Company expedited replacement machinery and equipment and
inventory to its damaged facilities. The majority of the damaged equipment used
in the manufacturing process was replaced with new equipment. The manufacturing
operation in Acuna was running at preflood levels, and all raw material issues
created by the flood were resolved by December 1998.
A gain of approximately $1,391,000 was recognized on settlement of a portion of
the insurance reimbursement and is reported as a reduction of cost of sales of
$259,000 and gain on insurance reimbursement of $1,132,000 in the accompanying
1999 statements of income. The inventory, machinery, and equipment and building
contents segments of the loss have been settled in full. In June 1999, the
Company collected the total flood insurance receivable of $2,453,000 recorded as
of April 30, 1999. The business interruption and extra expense segments of the
claim have not been finalized. The results for the year ended April 30, 1999,
include expenses and a reduction in revenue that management believes is covered
by its business interruption insurance. Since there is no agreement with the
insurance company on the business interruption and extra expense segments of the
loss, the Company has not recognized any future net proceeds related to these
items. The business interruption and extra expense claim, if any, may result in
additional income for fiscal 2000.
7. Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
April 30
1999 1998
-------------------------
<S> <C> <C>
Banks:
Revolving line of credit, interest payable monthly $17,382,681 $15,177,695
Term loan, paid December 1, 1998 - 111,108
-------------------------
17,382,681 15,288,803
Less: Current portion - 111,108
-------------------------
$17,382,681 $15,177,695
=========================
</TABLE>
F-13
<PAGE> 40
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
7. Notes Payable (continued)
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 $9,000,000 or the amount of
the inventory borrowing base, as defined.
Under the current terms, borrowings under the revolving line of credit bear
interest at rates equal to the London Interbank Offered Rate (4.97% to 5.81% at
April 30, 1999) plus 2% or at the prime rate (7.75% of April 30, 1999) at the
option of the Company. At April 30, 1999, there was approximately $1,406,000 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.
8. Accrued Expenses
Accrued expenses consist of the following:
April 30
1999 1998
----------------------------
Payroll $1,028,804 $1,174,290
Bonuses 352,000 50,000
Interest payable 126,993 112,939
Commissions 94,119 142,791
Professional fees 120,016 95,414
----------------------------
$1,721,932 $1,575,434
============================
F-14
<PAGE> 41
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
8. Accrued Expenses (continued)
Bonuses represent discretionary management and other employee bonuses, of which
$250,000 and $50,000 was accrued during the fourth quarter of 1999 and 1998,
respectively.
9. Related Party Transactions and Commitments
During the years ended April 30, 1999, 1998, and 1997, 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
$6,325,000, $6,380,000, and $6,895,000, for the years ended April 30, 1999,
1998, and 1997, respectively. The Company leases space in Elk Grove Village,
Illinois, owned by CSI at a base rental of $30,000 per month, with an additional
$7,000 per month for property taxes. The lease requires the Company to pay
maintenance and utility expenses. The lease expires in February 2001 and
contains an option to renew for an additional five-year period. Rent and
property tax expense totaled approximately $466,000, $486,000, and $423,000 for
the years ended April 30, 1999, 1998, and 1997, respectively.
At April 30, 1999 and 1998, the Company had non-interest-bearing receivables of
approximately $190,000 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, 1999 and 1998. This outstanding receivable has been
guaranteed by an officer of the Company.
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 subordinated debentures and promissory notes totaling $280,000 were reserved
to a net realizable value of $0 at April 30, 1998. The accrued interest on these
subordinated debentures and promissory notes totaling approximately $88,000 is
included in other long-term assets in the accompanying balance sheet. In
addition, the Company also has miscellaneous and trade receivables recorded in
F-15
<PAGE> 42
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
the accompanying balance sheet from LC at April 30, 1999, totaling approximately
$889,000.
9. Related Party Transactions and Commitments (continued)
The Company's miscellaneous and trade receivables are secured by a security
interest in substantially all of LC's assets. At April 30, 1999, the Company
reduced the carrying value of assets recorded in the Company's balance sheet by
approximately $550,000 to net realizable value. Accordingly, net assets in the
accompanying balance sheet at April 30, 1999 and April 30, 1998, were:
<TABLE>
<CAPTION>
Subordinated Miscellaneous
Debentures and and Trade Receivables
Promissory Notes
--------------------------------------------
<S> <C> <C>
April 30, 1998:
Gross $ 280,000 $ 546,000
Reserve (280,000) (80,000)
--------------------------------------------
Net $ - $ 466,000
============================================
April 30, 1999:
Gross $ 280,000 $ 889,000
Reserve (280,000) (550,000)
--------------------------------------------
Net $ - $ 339,000
============================================
</TABLE>
10. Income Taxes
The income tax provision for the years ended April 30, 1999, 1998, and 1997
consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 463,766 $292,536 $1,231,639
State 71,790 64,761 291,101
Deferred:
Federal 450,917 (40,395) 333,761
State 66,311 (5,940) 49,083
---------------------------------------------------
$1,052,784 $310,962 $1,905,584
===================================================
</TABLE>
F-16
<PAGE> 43
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
10. 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 tax expense for the years ended April 30, 1999, 1998, and 1997 are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Income tax at statutory federal rate $ 934,960 $284,530 $1,754,618
Effect of:
State income taxes, net of federal tax benefit 127,046 38,663 238,421
Other, net (9,222) (12,231) (87,455)
--------------------------------------------------
$1,052,784 $310,962 $1,905,584
==================================================
</TABLE>
Significant temporary differences which result in deferred tax assets and
deferred tax liabilities at April 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
<S> <C> <C>
Allowance for doubtful accounts $ (21,450) $ -
Inventory obsolescence reserve 129,285 129,285
Accruals not currently deductible 58,824 75,856
Inventory 64,914 58,891
Other (84,059) (45,244)
-------------------------------
Net deferred tax asset $ 147,514 $218,788
===============================
Gain on involuntary conversion $ (441,480) $ -
Machinery and equipment (1,002,926) 835,556
Other 286,946 (75,495)
-------------------------------
Net deferred tax liability $(1,157,460) $760,061
===============================
</TABLE>
11. 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 $46,954,
$32,904, and $34,554 to the plan during the fiscal years ended April 30, 1999,
1998, and 1997, respectively. The Company paid total expenses of $10,960,
$13,500, and $8,000 for the fiscal years ended
F-17
<PAGE> 44
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
April 30, 1999, 1998, and 1997, respectively, relating to costs associated with
the Plan's administration.
12. 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, 1999, two customers accounted for 36% and 14% of
net sales of the Company, and 32% and 4% of accounts receivable at April 30,
1999. 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.
13. 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, 1999:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------------------------------
<S> <C> <C>
2000 $2,690,004 $1,036,884
2001 2,073,782 895,662
2002 1,202,863 423,792
2003 429,306 219,792
2004 144,607 219,792
Thereafter - 176,496
--------------------------------
6,540,562 $2,972,418
==================
Less: Amounts representing interest 730,148
---------------
5,810,414
Less: Current portion 2,271,693
---------------
$3,538,721
===============
</TABLE>
F-18
<PAGE> 45
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
13. Leases (continued)
The Company subleased the machinery and equipment relating to 13 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 9.85% to 12.35%) implicit in the original
lease to cover various administrative expenses of the Company. The equipment
lease receivables are collateralized by the underlying machinery and equipment.
Management believes the machinery and equipment would be 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:
2000 $ 1,230,768
2001 630,775
2002 526,908
2003 308,845
2004 213,308
------------
2,910,604
Less: Amounts representing interest 447,639
------------
$ 2,462,965
============
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, 1999.
Rent expense incurred under operating leases was $1,118,901, $714,027, and
$557,456 for the years ended April 30, 1999, 1998, and 1997, 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.
F-19
<PAGE> 46
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Capital Stock
At April 30, 1999, authorized but unissued shares have been reserved for future
issuance as follows:
Stock Option Plans 698,500
=============
15. 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 February 9, 1994. As of
April 30, 1999, 35,000 warrants have expired and 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, 1999 and 1998, management vested in options to purchase 200,000 and
160,000 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
F-20
<PAGE> 47
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
15. Warrants and Stock Options (continued)
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 December 18, 1998, July
1, 1998, and July 1, 1997, 7,500, 50,500, and 352,000 service-based options,
respectively, were granted at an exercise price of $7.38, $7.38, and $12.25,
respectively.
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.
73,500 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 1998 and 1997, 35,000 options were granted under this new
plan at an exercise price equal to $4.25 and $14.50, respectively.
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>
<CAPTION>
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Net income $1,697,101 $525,892 $3,255,058
Pro forma net income 1,558,152 302,389 3,167,740
Basic earnings per share $ .59 $ .18 $ 1.16
Pro forma basic earnings per share $ .51 $ .10 $ 1.13
</TABLE>
F-21
<PAGE> 48
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
15. 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>
<CAPTION>
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Expected dividend yield .0% .0% .0%
Expected stock price volatility 0.608 0.512 0.529
Risk-free interest rate 5.43% 6.31% 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> 49
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
15. 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>
1999 1998 1997
-----------------------------------------------------------------------------------------------
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 555,500 $10.88 374,500 $ 7.13 549,000 $ 7.06
Granted 93,000 6.20 387,000 12.45 24,500 10.25
Exercised - (6,000) 7.00 (99,000) 7.64
Forfeited - - - (100,000) 7.00
Canceled - (200,000) 7.00 - -
----------- ------------- ------------
Outstanding - End of year 648,500 10.20 555,500 10.88 374,500 7.13
=========== ============= ============
Exercisable at end of year 207,100 8.77 163,500 8.89 94,500 7.50
Weighted-average fair value of
options granted during the year 3.50 6.47 5.40
</TABLE>
Exercise prices for options outstanding as of April 30, 1999, ranged from $4.25
to $14.50 (50,500 and 7,500 of the options outstanding at April 30, 1999, have
an exercise price of $7.38 with a remaining contractual life of 9.2 and 9.6
years, respectively, and 35,000 of the options outstanding at April 30, 1999,
have an exercise price of $4.25 with a remaining contractual life of 9.4 years).
The weighted-average remaining contractual life of all options outstanding at
April 30, 1999, is 7.5 years.
F-23
<PAGE> 50
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
16. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Net income available to common stockholders $1,697,101 $ 525,892 $3,255,058
===================================================
Weighted-average shares:
Basic 2,881,128 2,881,128 2,808,848
Effect of dilutive warrants and stock options 3,600 91,264 131,441
---------------------------------------------------
Diluted 2,884,728 2,972,392 2,940,289
===================================================
Basic earnings per share $ .59 $ .18 $ 1.16
===================================================
Diluted earnings per share $ .59 $ .18 $ 1.11
===================================================
</TABLE>
Options to purchase 648,500 and 397,500 shares of common stock were outstanding
during 1999 and 1998, respectively, 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.
The 425,000 shares reserved for issuance under the management stock option plan
in 1997 were not considered common stock equivalents as the earnings per share
goals were not reached.
F-24
<PAGE> 51
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, 1999:
Reserves and allowance deducted from asset
accounts:
Allowance for doubtful accounts $ - $575,000 $ - $ - $575,000
Reserve for obsolete inventory 331,500 - - - 331,500
Reserve against note receivable 280,000 - - - 280,000
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
Reserve against note receivable - 280,000 - - 280,000
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
</TABLE>
(1) Uncollectible accounts written off.
F-25
<PAGE> 1
EXHIBIT 10.24
<TABLE>
<S> <C>
INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #99-048
CONTACT: MS. LINDA BLAKE
ADDRESS: 2201 LANDMEIER ROAD PHONE #: 847-956-8000
ELK GROVE VILLAGE, IL 60007 EQUIPMENT LOCATION IF OTHER THAN LESSEE:
SMT UNLIMITED L.P.
47650 WESTINGHOUSE DR., FREMONT, CA 94539
TYPE OF COMPANY: CORPORATION
- --------------------------------------------------------------------------------------------
EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A"
TERM: 60 $15,932.00 per period for the first 60 periods.
PERIODS ARE: MONTHLY ADVANCE RENTALS, $31,864.00
TOTAL # OF LEASE PAYMENTS: 60 payable at the signing of this lease to
EFFECTIVE DATE: SEE PARAGRAPH 25 be applied to the last two rental
payments.
- --------------------------------------------------------------------------------------------
</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>
<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:
---------------------------------------------------------
TITLE: President and Chief Executive Officer
---------------------------------------------------------
LESSEE'S ORIGINAL SIGNATURE IN INK IS REQUIRED ON (INDICATE CORPORATE OFFICE, GENERAL PARTNER, OWNER, ETC)
LEASE PAGES 1,2,3,4,5 - MUST BE ORIGINAL SIGNATURES
DATE:
---------------------------------------------------------
ACCEPTANCE NOTICE - 3
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #99-048
CONTACT: MS. LINDA BLAKE
ADDRESS: 2201 LANDMEIER ROAD PHONE #: 847-956-8000
ELK GROVE VILLAGE, IL 60007 EQUIPMENT LOCATION IF OTHER THAN LESSEE:
SMT UNLIMITED L.P.
47650 WESTINGHOUSE DR., FREMONT, CA 94539
TYPE OF COMPANY: CORPORATION
- --------------------------------------------------------------------------------------------
EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A"
TERM: 60 $15,932.00 per period for the first 60 periods.
PERIODS ARE: MONTHLY ADVANCE RENTALS, $31,864.00
TOTAL # OF LEASE PAYMENTS: 60 payable at the signing of this lease to
EFFECTIVE DATE: SEE PARAGRAPH 25 be applied to the last two rental
payments.
- --------------------------------------------------------------------------------------------
</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,
<TABLE>
<S> <C>
LEASE DATED ______ DAY OF _________________ , 199_
LESSEE NAME: SIGMATRON INTERNATIONAL, INC.
--------------------------------------------------
SIGNED BY:
---------------------------------------------------------
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:
---------------------------------------------------------
EQUIPMENT DISCLAIMER AND AGREEMENT - 4
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #99-048
CONTACT: MS. LINDA BLAKE
ADDRESS: 2201 LANDMEIER ROAD PHONE #: 847-956-8000
ELK GROVE VILLAGE, IL 60007 EQUIPMENT LOCATION IF OTHER THAN LESSEE:
SMT UNLIMITED L.P.
47650 WESTINGHOUSE DR., FREMONT, CA 94539
TYPE OF COMPANY: CORPORATION
- --------------------------------------------------------------------------------------------
EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A"
TERM: 60 $15,932.00 per period for the first 60 periods.
PERIODS ARE: MONTHLY ADVANCE RENTALS, $31,864.00
TOTAL # OF LEASE PAYMENTS: 60 payable at the signing of this lease to
EFFECTIVE DATE: SEE PARAGRAPH 25 be applied to the last two rental
payments.
- --------------------------------------------------------------------------------------------
</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,
<TABLE>
<S> <C>
LEASE DATED ______ DAY OF _________________ , 199_
LESSEE NAME: SIGMATRON INTERNATIONAL, INC.
--------------------------------------------------
SIGNED BY:
---------------------------------------------------------
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:
---------------------------------------------------------
LESSEE'S ACKNOWLEDGMENT - 5
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
INTERNATIONAL FINANCIAL 1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SERVICES CORPORATION (847) 549-0100 FAX (847) 549-0119
LESSEE: SIGMATRON INTERNATIONAL, INC. LEASE NO. ALWAYS REFER TO: #99-048
CONTACT: MS. LINDA BLAKE
ADDRESS: 2201 LANDMEIER ROAD PHONE #: 847-956-8000
ELK GROVE VILLAGE, IL 60007 EQUIPMENT LOCATION IF OTHER THAN LESSEE:
SMT UNLIMITED L.P.
47650 WESTINGHOUSE DR., FREMONT, CA 94539
TYPE OF COMPANY: CORPORATION
- --------------------------------------------------------------------------------------------
EQUIPMENT LEASED AS LISTED ON THE ATTACHED SCHEDULE "A"
TERM: 60 $15,932.00 per period for the first 60 periods.
PERIODS ARE: MONTHLY ADVANCE RENTALS, $31,864.00
TOTAL # OF LEASE PAYMENTS: 60 payable at the signing of this lease to
EFFECTIVE DATE: SEE PARAGRAPH 25 be applied to the last two rental
payments.
- --------------------------------------------------------------------------------------------
</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:
-----------------------------------------------------
BY TITLE: President and Chief Executive Officer
-------------------------------------------- --------------------------------------------------------
TITLE (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 LEASE ORIGINAL - 1
</TABLE>
<PAGE> 5
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 #98-106 CONTINUED LESSEE'S INITIALS __________
LEASE ORIGINAL - 1
<PAGE> 6
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 $15,932.00 will be adjusted in proportion to any increase or decrease
in five year treasury rates from December 15, 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 _____________
LEASE ORIGINAL - 1
<PAGE> 7
INTERNATIONAL FINANCIAL SERVICES CORPORATION
1113 S. MILWAUKEE AVENUE, LIBERTYVILLE, IL 60048
SCHEDULE "A" TO LEASE #99-048
AND/OR SECURITY AGREEMENT-MORTGAGE ON GOODS & CHATTELS
AND UNIFORM COMMERCIAL CODE #1 & #3 FILING FORM
DATED _________________
LESSEE: Sigmatron International, Inc.
LESSOR: INTERNATIONAL FINANCIAL SERVICES CORPORATION
EQUIPMENT AS DESCRIBED BELOW:
ELECTROVERT
- - Basic System-Omniflo Atmosphere Reflow System Combination Pin
Chain/Mesh Belt Conveyor
- - STD PIN SIZE
- - Inert Atmosphere Heating and Cooling Modules
- - Nitro Cool Amplifier
- - Quick Purge
- - Integrated Self Contained Air/Liquid Heat Exchanger
- - Light Tower for Machine Status
- - Backup
- - Voltage 440 VAC-Frequency 60HzHz
- - RFQ-Reflow Battery Back Up for Omni
FUJI
- - Dual Head Chip Placer
- - IP-3 Right MTU
- - AIPJ-4000.OBS
- - AQPJ-1000 Recalibration Tool
- - IP3 Nozzle Change Unit
- - QP-242 Parts Reject Conveyor
- - Single Tray Unit Parts Reject Conveyor
MPM
- - UP3000/A Assembly Ultraprint Base Machine, Serial #u0451
HOVER-DAVIS
- - 12MM Feeder
- - 16MM Feeder
- - 24MM Feeder
- - 32MM Feeder
* 44MM Feeder
* 12MM Feeder
* 16MM Feeder
* 24MM Feeder
* 32MM Feeder
* 44MM Feeder CONVEYOR
* XCW-1M-1-1/1-SC-0124
* 1 Meter Edge Belt Workstation
<PAGE> 8
* XSG-11-E-Z
* Slide Gate Extra Wide, W/Eyes Opt
* Standoff Brackets
* XBBL-1-0127 Bare Board Loader 18x20 PCB Capability
* XERCC-1M-CFT-EMS-SC
* Used 1 Meter Roller Chain Conveyor
* Cooling Fans
* Adjustable End Mechanical Stop
* Speed Control
* Full Length Table Top with special handle
* XBBL-1-0127 Bare Board Loader 18 x 20 PCB Capability with Casters on Bottom of
Plate; 12" Extension on Entrance End
* XERCC-1M-CFT-EMS-SC
* Used 1 Meter Edge Roller Chain Conveyor; No Controls; 18x20 PCB Capability;
Cooling Fans; Adjustable End Mechanical Stop; Speed Control; Full Length Table
Top w/Special Handle
* XCW-1M-1-1/1-SC-0124 1 Meter Edge Belt Workstation 18x20 PCB Capability; 1
Section; 1 Operator/1 Side; Speed Control on Exit End; Kill Switch; Tabletop
to extend to full length; Hand Crank Width Adjust Handle Located at end of
Tabletop Extension
Including all accessories and attachments thereto and all proceeds thereof.
INTERNATIONAL FINANCIAL
SERVICES CORPORATION INC. SIGMATRON INTERNATIONAL, INC.
By: By:
------------------------------ -----------------------------------------
Title: Title: President and Chief Executive Officer
------------------------------ -------------------------------------
SCHEDULE - 2
<PAGE> 9
CONSENT TO SUBLEASE
INTERNATIONAL FINANCIAL SERVICES CORPORATION, ("IFS"), as Lessor under
that certain Lease Agreement No. 99-048 (the "Lease"), between Lessor and
SIGMATRON INTERNATIONAL, INC.("SIGMA"), as Lessee, hereby consents to the
sublease by SIGMA of the property under the Lease to SMT UNLIMITED L.P. ("SMT"),
as Sublessee, pursuant to the terms of that certain Sublease Agreement dated
____________________, 1999 (the "Sublease"). Notwithstanding said Sublease,
monthly rental payments under the Lease in the amount of Fifteen Thousand Nine
Hundred Thirty-Two Dollars and no/100 ($15,932.00) shall continue to be paid
directly by SIGMA to IFS in accordance with the Lease.
Dated: ________________________ INTERNATIONAL FINANCIAL
SERVICES CORPORATION
BY: _______________________
ITS_____________________
ASSIGNMENT
For Value Received, SIGMA hereby collaterally assigns the Sublease to IFS and
its assignees as additional security for SIGMA'S obligations to IFS under the
Lease. Notwithstanding the foregoing, unless SIGMA is declared in default by IFS
under the Lease, SIGMA shall be entitled to receive all benefits and enforce all
rights under the Sublease, free of any claim by IFS or its assignees.
Acknowledged by:
SUBLESSOR: SUBLESSEE:
SIGMATRON INTERNATIONAL, INC. SMT UNLIMITED L.P.
BY: _____________________ BY: _________________________
ITS: _____________________ ITS: _________________________
INTERNATIONAL FINANCIAL SERVICES CORPORATION
BY: ______________________
ITS: ______________________
<PAGE> 10
SUBLEASE AGREEMENT
FOR VALUE RECEIVED, SIGMATRON INTERNATIONAL, INC. ("Lessee"), as
Sublessor, hereby subleases to SMT UNLIMITED L.P. ("Sublessee") all of the
property described in Lease No. 99-048 (the "Lease"), between INTERNATIONAL
FINANCIAL SERVICES CORPORATION, as lessor ("Lessor"), and Lessee, under the
following terms and conditions: (1) Sublessee hereby agrees to pay to Sublessor,
or its successors and assigns, as monthly rental for said property, the sum of :
($ _______________) per month during the term of this Sublease; and (2) all
other terms, conditions and obligations of said Lease are hereby incorporated
herein by this reference and shall constitute the terms, conditions and
obligations applicable to Sublessee with respect to said property. Sublessee
acknowledges and agrees that its rights in and to said property are expressly
subject and subordinate to Lessor's and Lessee's rights under the Lease. For the
purposes of this Sublease, the term, "Lessee" as used in the Lease shall mean
the Sublessee herein and the term "Lessor" as used in the Lease shall mean the
Sublessor herein.
Dated: ____________________________________
SUBLESSOR: SUBLESSEE:
SIGMATRON INTERNATIONAL, INC. SMT UNLIMITED L.P.
BY: __________________________ BY: ____________________________
ITS: ______________________ ITS: _________________________
<PAGE> 11
AMENDMENT "A " TO LEASE AGREEMENT # 99-048
LESSOR: INTERNATIONAL FINANCIAL SERVICES CORPORATION
1113 S. Milwaukee Ave., #301
Libertyville, IL 60048
LESSEE: SIGMATRON INTERNATIONAL, INC.
2201 Landmeier Road
Elk Grove, IL 60007
AMEND LEASE AS FOLLOWS:
TERM: 60 $ 16,967.00 per period for the first 60 periods:
Periods are: Monthly followed by $0.00 per period for
Total # of Lease: for the next 0 periods, followed by $0.00
Payments: 60 per period for the next 0 periods. ADVANCE
Effective Date: RENTALS, $33,934.00 payable at the signing
of this lease to be applied to the last two lease
payments.
All other terms, conditions, guaranties, additional collateral of the lease
between: LESSEE and INTERNATIONAL FINANCIAL SERVICES CORPORATION remain in full
force and effect.
INTERNATIONAL FINANCIAL SIGMATRON INTERNATIONAL, INC.
- ----------------------- -----------------------------
SERVICES CORPORATION
- --------------------
By: By:
-------------------------- ---------------------------
Title: Title:
------------------------ -------------------------
Date: Date:
------------------------ ------------------------
IFS STD 01/99
Amend Form 01
(Amend.01)
<PAGE> 1
EXHIBIT 23.1
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 25, 1999 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, 1999.
/s/ Ernst & Young LLP
Chicago, Illinois
July 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF 4/30/99 AND CONSOLIDATED EARNINGS FOR THE
QUARTER ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 280,071
<SECURITIES> 0
<RECEIVABLES> 14,138,836
<ALLOWANCES> 575,000
<INVENTORY> 16,240,502
<CURRENT-ASSETS> 34,564,035
<PP&E> 19,552,114
<DEPRECIATION> 6,117,325
<TOTAL-ASSETS> 55,276,457
<CURRENT-LIABILITIES> 13,897,103
<BONDS> 0
0
0
<COMMON> 28,812
<OTHER-SE> 19,271,680
<TOTAL-LIABILITY-AND-EQUITY> 55,276,457
<SALES> 88,159,189
<TOTAL-REVENUES> 88,159,189
<CGS> 79,238,098
<TOTAL-COSTS> 79,238,098
<OTHER-EXPENSES> 6,171,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,749,885
<INCOME-TAX> 1,052,784
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,697,101
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.59
</TABLE>
