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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, 2000
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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2201 Landmeier Rd., Elk Grove Vlge., IL 60007
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(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 June 30, 2000 (based on the closing sale price as reported by
Nasdaq National Market as of such date) was approximately $10,800,000.
The number of outstanding shares of the registrant's Common Stock, as of July
21, 2000, 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, 2000, are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 13
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 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
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
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PART 1
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; 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 OEM products and subassemblies, (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, Acuna
Mexico, and Taipei, Taiwan. The Company provides warehousing
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services in Del Rio, Texas and Huntsville, Alabama. In addition, the Company's
42.5% owned 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 at all of its locations,
with an emphasis on this service through dedicated resources at the Company's
Elk Grove Village facility and through SMTU.
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 materials 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
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components to be attached to only one side of a printed circuit board by
inserting the component into 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 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 in Del Rio, Texas 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, 2000, the Company had approximately 130 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>
------------------------------ ----------------------------------------- ----------------------------------------------
PERCENT OF NET SALES
------------------------------ ----------------------------------------- ----------------------------------------------
TYPICAL FISCAL FISCAL FISCAL
MARKETS OEM APPLICATION 1998 1999 2000
------- --------------- ---- ---- ----
------------------------------ ----------------------------------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Consumer Electronics Carbon monoxide detectors, 37.9% 39.0% 29.8%
dart board games
------------------------------ ----------------------------------------- --------------- -------------- ---------------
Industrial Electronics Blower motors, elevators 14.2 16.8 20.3
------------------------------ ----------------------------------------- --------------- -------------- ---------------
Fitness Treadmills, exercise bikes 13.3 13.7 18.4
------------------------------ ----------------------------------------- --------------- -------------- ---------------
Gaming Slot machines, lighting displays 22.0 18.9 17.6
------------------------------ ----------------------------------------- --------------- -------------- ---------------
Appliances Irons, toasters, ranges and dryers 5.1 5.0 7.2
------------------------------ ----------------------------------------- --------------- -------------- ---------------
Telecommunications Pagers, microphones and modems 5.1 3.9 3.9
------------------------------ ----------------------------------------- --------------- -------------- ---------------
Automotive Automobile interior lighting 2.4 2.7 2.8
------------------------------ ----------------------------------------- --------------- -------------- ---------------
Total 100% 100% 100%
---- ---- ----
------------------------------ ----------------------------------------- --------------- -------------- ---------------
</TABLE>
For the fiscal year ended April 30, 2000, Nighthawk Systems Inc. (" NSI")
and Life Fitness accounted for 28.8% and 18.4% respectively, of the Company's
net sales. In fiscal 1999 NSI and Life Fitness accounted for 36.2% and 13.7%,
respectively, of net sales. In addition, NSI and Life Fitness accounted for
29.4% and 13.5%, respectively, of the Company's net sales for the fiscal 1998.
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 has entered into an agreement with NSI calling for the
Company to function as a contract manufacturer for all models of NSI's
proprietary carbon monoxide detectors on a turnkey basis through January 1,
2002, or after the sales of 3 million carbon monoxide detectors, whichever
occurs first. The Company agreed that during the term of the agreement and for
three months thereafter it will not produce carbon monoxide detectors for any
other customer. The amount of sales to NSI beyond fiscal 2002 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 2001 and 2002. 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 carbon monoxide detector 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 33 independent manufacturers'
representative organizations that together currently employ approximately 80
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.
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 across the Rio Grande River from Del Rio, Texas, and 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 impact on the Company or its
financial position to date.
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 a material
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 fluctuation 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 2000 the Company provided funding of
approximately $9,850,000 to Standard Components.
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
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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 impact 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.
CONSOLIDATION
As a result of consolidation and other transactions involving competitors and
other companies in the Company's markets, the Company occasionally reviews
potential transactions relating to its business, products and technologies. Such
transactions could include mergers, acquisitions, strategic alliances, joint
ventures, licensing agreements, co-promotion agreements or other types of
transactions. The Company may choose to enter into such transactions at any
time, and such transactions could have a material impact on the Company, its
business or operations.
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 had a material impact on 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 have a material impact
on the Company's business, financial condition and results of operations.
BACKLOG
The Company's backlog as of April 30, 2000 was approximately $35,180,000.
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, 2000 backlog by the end of the 2001 fiscal
year. Backlog as of April 30, 1999 totaled $38,999,000. 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
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may cancel or reschedule deliveries, backlog may not be a meaningful indicator
of future financial results.
EMPLOYEES
The Company employed approximately 1,615 people as of April 30, 2000,
including 30 engaged in engineering, 1,395 in manufacturing and 190 in
administrative and marketing functions.
The Company has a labor contract with Production Workers Union Local No.
10, AFL-CIO, covering the Company's workers in Elk Grove Village, Illinois which
expires on November 30, 2000. The Company's Mexican subsidiary has a labor
contract with Sindicato De Trabajadores de la Industra Electronica, Similares y
Conexos del Estado de Coahuila, C.T.M. covering the Company's workers in Acuna,
Mexico which expires on January 15, 2001.
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, 2000, two customers accounted for 28.8% and 18.4% of the Company's net
sales, respectively. The loss of any such customer or a reduction in business
levels could have a material impact on 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.
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,
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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,
Taiwan 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 some 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 have a
material impact on the Company's results of operations.
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 a material impact 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.
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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 have
a material impact on 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 impact 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 Elk Grove Village, Illinois; Las
Vegas, Nevada; Acuna, Mexico and Taipei, Taiwan office.
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Certain information about the Company's manufacturing, warehouse and
purchasing facilities is set forth below:
<TABLE>
<CAPTION>
------------------------------------- ----------------------------------- -----------------------------------
LOCATION SQUARE FEET SERVICES OFFERED
------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Elk Grove Village, IL 95,000 Corporate Headquarters, assembly
and testing of PTH and SMT,
box-build, prototyping,
warehousing
------------------------------------- ----------------------------------- -----------------------------------
Acuna, Mexico 156,000 High volume assembly, and
testing of PTH and SMT,
box-build, transformers
------------------------------------- ----------------------------------- -----------------------------------
Las Vegas, NV 33,360 Automatic insertion and cable
assembly, PTH, SMT and testing
------------------------------------- ----------------------------------- -----------------------------------
Del Rio, TX 25,000 Warehouse, portion of which is
bonded
------------------------------------- ----------------------------------- -----------------------------------
Fremont, CA 24,030 High volume assembly and testing
of both PTH and SMT BGA and
leading edge technology
------------------------------------- ----------------------------------- -----------------------------------
Taipei, Taiwan 2,900 Materials procurement,
alternative sourcing assistance
and quality control
------------------------------------- ----------------------------------- -----------------------------------
Huntsville, AL * Just-in-time inventory
management and delivery
------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
*There is no lease for this facility. The Company has entered into a service
agreement whereby contracted warehouse personnel provide services for the
Company and its customer.
All of the above properties are occupied pursuant to leases of the premises
except for the Huntsville, Alabama 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, SMTU,
leases the facility in Fremont, California. The Company has guaranteed lease
payments of approximately $1.17 million for SMTU, and has been indemnified by
one of the SMTU limited partners to the extent of 50% of the lease payment
guaranty.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which it believes to be
material, and there are no such proceedings which are known to be contemplated
for which the Company anticipates material risk of loss.
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 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
Gary R. Fairhead 48 President and Chief Executive Officer.
Gary R. Fairhead has been
the President of the
Company since January 1990.
Linda K. Blake 39 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.
Daniel P. Camp 51 Vice President - Mexican Operations.
Daniel P. Camp has been Vice President -
Mexican Operations since February 2000.
Mr. Camp was General Manager of Mexican
Operations from February 1994 to
February 2000.
Gregory A. Fairhead 44 Executive Vice President - Mexican
Operations and Assistant Secretary.
Gregory A. Fairhead has been Executive
Vice President since February 2000 and
is Assistant Secretary. Mr. Fairhead was
Vice President - Mexican Operations for
the Company from February 1990 to
February 2000.
Stephen H. McNulty 46 Vice President - Sales.
Stephen H. McNulty has been Vice
President of Sales since February 2000.
Mr. McNulty was National Sales Manager
from April 1997 to February 2000.
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Andrew J. Saarnio 52 Vice President - Elk Grove Operations.
Andrew J. Saarnio has been Vice President -
Elk Grove Operations since November 1998.
John P. Sheehan 39 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.
Nunzio A. Truppa 62 Vice President - Las Vegas Operations.
Nunzio A. Truppa has been Vice President -
Las Vegas Operations for the Company,
or held equivalent management positions
since January 1990.
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, 1999 and 2000.
Common Stock as Reported
by Nasdaq
Period High Low
Fiscal 2000:
Fourth Quarter 7.219 4.250
Third Quarter 8.750 5.313
Second Quarter 7.875 4.875
First Quarter 7.875 3.750
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
As of June 30, 2000, there were approximately 110 holders of record of
the Company's Common Stock, which does not include shareholders whose stock is
held through securities position
14
<PAGE> 15
listings. The Company estimates there to be approximately 2,150 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.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended April 30
--------------------
(In thousands except per share data)
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $69,558 $87,216 $85,651 $88,160 $88,885
Income before income tax 3,752 5,161 837 2,750 1,360
expense and extraordinary item
Net Income 2,367 3,255 526 1,697 767
Total Assets 38,378 42,088 48,641 55,276 49,341
Long-term debt and capital 16,528 18,593 20,975 23,194 18,364
lease obligations (including
current maturities)
Net income per common share- $ 0.86 $ 1.16 $ 0.18 $ 0.59 $ 0.27
basic
Net income per common share- $ 0.86 $ 1.11 $ 0.18 $ 0.59 $ 0.27
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.
15
<PAGE> 16
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.
Sales volume can be misleading as an indication of the Company's financial
performance. Gross profit margins can vary considerably among customers and
products depending on the type of services rendered by the Company.
Specifically, the variation of orders for turnkey services versus consignment
services. Variations in the number of turnkey orders compared to consignment
orders can lead to significant fluctuations in the Company's revenue levels and
margins. Further, generally 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.
The Company recently renewed through January 1, 2002 its 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 2000. The Company expects sales to NSI will
be significant in fiscal 2001 and 2002. The amount of sales to NSI beyond fiscal
2002 is not certain 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.
16
<PAGE> 17
RESULTS OF OPERATIONS:
Fiscal Year Ended April 30, 2000 Compared
to Fiscal Year Ended April 30, 1999
Net sales for fiscal 2000 were $88,884,591 compared to $88,159,189 for
fiscal 1999. NSI accounted for approximately $25,703,137 or 28.8% of the
Company's fiscal 2000 net sales compared to $31,894,500 or 36.2% in fiscal 1999.
Gross profit decreased to $8,196,589 in fiscal 2000 from $8,921,091 in
fiscal 1999. Gross profit as a percent of net sales was 9.2% and 10.1% for
fiscal 2000 and 1999, respectively. The decrease in gross profit for the fiscal
year ended April 30, 2000 compared to the same period in the prior year is due
to product mix and value added services required by customers in the EMS
industry.
Selling and administrative expenses decreased from $5,890,752 in fiscal
1999 to $5,721,593 in fiscal 2000. The decrease is primarily due to a decrease
in bonus accrual in fiscal 2000 compared to fiscal 1999. Selling and
administrative expenses as a percent of net sales decreased to 6.4% in fiscal
2000 compared to 6.7% in fiscal 1999.
Interest expense increased in fiscal 2000 to $2,125,292 from $2,049,396 in
fiscal 1999. The overall increase was primarily due to the higher interest rates
on the Company's line of credit. Interest expense as a percent of net sales
remained unchanged at 2.3% for fiscal 2000 and fiscal 1999.
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 statement of income.
In fiscal 2000 an extraordinary item for the early extinguishment of debt
related to the change of banks was recorded in the amount of $87,500, net of
taxes of $58,333.
Income tax expense decreased to $506,122 in fiscal 2000 from $1,052,784 in
fiscal 1999. The effective tax rate for fiscal 2000 and 1999 was 37.2% and
38.3%, respectively.
As a result of the foregoing, net income decreased to $766,647 in fiscal
2000 from $1,697,101 in fiscal 1999. Basic earnings per share for the year ended
April 30, 2000 was $0.27 compared to $0.59 in fiscal 1999. Diluted earnings per
share for fiscal 2000 was $0.27.
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
17
<PAGE> 18
prior year is primarily due to product mix.
Selling and administrative expenses increased from $5,704,346 in fiscal
1998 to $5,890,752 in fiscal 1999. The increase is generally consistent 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 statement 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.
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
18
<PAGE> 19
by the Company. A significant portion of the Company's expenses are relatively
fixed in nature and planned expenditures are based in part on anticipated
orders. The inability to adjust expenditures to compensate for a decline in net
sales may magnify the adverse impact of such decline in the Company's results of
operations. The Company's customers generally require short delivery cycles. In
the absence of substantial backlog, quarterly sales and operating results depend
on the volume and timing of orders received during the quarter, which can be
difficult to forecast. In addition, variations in the size and delivery
schedules of purchase orders received by the Company, as well as changes in
customers' delivery requirements or the rescheduling or cancellations of orders
and commitments, may result in substantial fluctuations in backlog from period
to period. Accordingly, the Company believes that backlog cannot be considered a
meaningful indicator of future operating results.
LIQUIDITY AND CAPITAL RESOURCES:
In fiscal 2000 the Company financed its growth and operations through cash
provided by operating activities and net income. The Company had working capital
of $18,489,828 as of April 30, 2000 and $20,666,932 at April 30, 1999. This
represents a current ratio of 2.6 and 2.5 for the years ended April 30, 2000 and
1999, respectively.
The Company entered into a new loan and security agreement during fiscal
2000 which provides for a revolving credit facility, an $800,000 equipment loan
facility and a $2,000,000 letter of credit facility. In conjunction with the new
agreement, the Company paid $87,500, net of taxes of $58,333, as part of the
extinguishment of the prior debt agreement. This amount is reflected on the
statement of income as a loss from an extraordinary item. The maximum borrowing
limit under the revolving line-of-credit facility is 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 $10,000,000 or up to 60% of the
inventory borrowing base, as defined. At April 30, 2000, the Company had
outstanding borrowings of $14,654,320. At April 30, 2000, there was
approximately $620,000 of unused credit available under the terms of the
agreement. The revolving credit facility matures August 25, 2001.
The agreement is collateralized by substantially all of the assets of the
Company and contains certain financial covenants, including specific covenants
pertaining to the maintenance of minimum tangible net worth and net income. The
agreement also 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.
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, were
approximately $9,852,500 for fiscal 2000. The Company provides funding in U.S.
dollars, which are exchanged for pesos as needed.
The Company has a 42.5% ownership interest in SMTU, which was formed on
September 15, 1994, in Fremont, California. SMTU has positive working capital of
approximately $2,284,000 and an accumulated deficit of approximately $404,000 at
April 30, 2000.
In August 1999, 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 $2,000,000 plus
19
<PAGE> 20
interest and related costs associated with the enforcement of the guaranty. In
connection with the guaranty agreement, one of the limited partners of SMTU and
the Chairman of SMTU have each executed a guaranty to the lender to reimburse
the Company for up to $500,000 of payments made by the Company under its
guaranty to the lender in excess of $1,000,000. In addition, the limited partner
has agreed to indemnify the Company for 50% of all of SMTU's payments to the
lender. The limited partner's obligation to the Company under the indemnity is
reduced dollar for dollar to the extent the limited partner would otherwise be
obligated to pay more than $1,000,000 as a result of his guaranty to the lender.
The Company's investment and advances to and receivables from SMTU totaled
approximately $5,065,000 at April 30, 2000, and no amount was recorded by the
Company related to its guaranty of SMTU's credit agreement.
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 had been
written down at April 30, 1998. The accrued interest on these subordinated
debentures and promissory notes totaling approximately $122,521 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, 2000, totaling approximately
$1,437,000.
The Company's miscellaneous and trade receivables are secured by a security
interest in substantially all of LC assets. In fiscal 2000 and fiscal 1999 the
Company reduced the carrying value of assets recorded in the Company's balance
sheet by approximately $239,000 and $550,000, respectively.
The impact of inflation for the past three fiscal years has been minimal.
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.
20
<PAGE> 21
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, 2000 and 1999.
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, 2000.
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, 2000.
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, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement, filed with the Commission
not later than 120 days after the close of the Company's fiscal year ended April
30, 2000.
21
<PAGE> 22
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 Restated By-laws of the Company, adopted on September 24, 1999.
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
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.
23
<PAGE> 24
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 Lease Agreement # 99-048 between SigmaTron International, Inc. and
International Financial Services dated April 30, 1999.
10.23 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.
10.24 Loan and Security Agreement between SigmaTron International, Inc. and
LaSalle National
24
<PAGE> 25
Bank dated August 25, 1999 filed as Exhibit 10.26 to the
Company's Form 10-Q for the quarter ended October 31, 1999.
10.25 Amended and Restated Agreement between Nighthawk Systems, Inc. and
SigmaTron International Inc., dated January 1, 2000.
10.26 Lease Agreement # E004 between SigmaTron International, Inc. and G.E.
Capital dated May 9, 2000.
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 2000 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 schedules 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 26, 2000
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 26, 2000
--------------------
Franklin D. Sove
/s/ Gary R. Fairhead President and Chief Executive Officer July 26, 2000
--------------------
Gary R. Fairhead (Principal Executive Officer)
/s/ Linda K. Blake Chief Financial Officer, Secretary and July 26, 2000
------------------
Linda K. Blake Treasurer (Principal Financial Officer and
Principal Accounting Officer)
/s/ D.S. Patel Director July 26, 2000
---------------
D.S. Patel
/s/ John P. Chen Director July 26, 2000
----------------
John P. Chen
/s/ Dilip S. Vyas Director July 26, 2000
-----------------
Dilip S. Vyas
/s/ William C. Mitchell Director July 26, 2000
-----------------------
William C. Mitchell
/s/ Thomas W. Rieck Director July 26, 2000
-------------------
Thomas W. Rieck
/s/ Steven Rothstein Director July 26, 2000
--------------------
Steven Rothstein
</TABLE>
26
<PAGE> 27
Consolidated Financial Statements
SigmaTron International, Inc.
Years ended April 30, 2000, 1999, and 1998
with Report of Independent Auditors
<PAGE> 28
SigmaTron International, Inc.
Consolidated Financial Statements
Contents
Report of Independent Auditors F-2
Consolidated Financial Statements
Consolidated Balance Sheets at April 30, 2000 and 1999 F-3
Consolidated Statements of Income for the Years Ended
April 30, 2000, 1999, and 1998 F-5
Consolidated Statements of Equity for the Years Ended
April 30, 2000, 1999, and 1998 F-6
Consolidated Statements of Cash Flows for the Years Ended
April 30, 2000, 1999, and 1998 F-7
Notes to Consolidated Financial Statements F-9
Schedule II
Valuation and Qualifying Accounts F-24
Financial statement schedules not listed above are omitted because they are not
applicable or required.
<PAGE> 29
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, 2000 and 1999, and the related consolidated
statements of income, equity, and cash flows for each of the three years in the
period ended April 30, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 2000, in conformity with accounting principles generally
accepted in the United States. 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 29, 2000
F-2
<PAGE> 30
SigmaTron International, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30
2000 1999
-------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 2,500 $ 280,071
Accounts receivable, less allowance for doubtful accounts
of $932,459 and $575,000 at April 30, 2000 and April 30,
1999, respectively 10,609,481 13,563,836
Inventories 17,775,199 16,240,502
Prepaid and other assets 494,848 864,895
Deferred income taxes 371,868 147,514
Receivable from insurance reimbursement -- 2,453,235
Other receivables 762,277 1,013,982
-------------------------
Total current assets 30,016,173 34,564,035
Machinery and equipment, net 13,327,430 13,434,789
Due from SMTU:
Investment and advances 859,612 448,545
Equipment lease receivables 3,312,371 4,201,823
Other receivables 892,709 1,511,372
-------------------------
5,064,692 6,161,740
Other assets 932,597 1,115,893
-------------------------
Total assets $49,340,892 $55,276,457
=========================
</TABLE>
F-3
<PAGE> 31
SigmaTron International, Inc.
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
April 30
2000 1999
-------------------------
<S> <C> <C>
Liabilities and stockholders' equity Current liabilities:
Trade accounts payable $ 6,841,875 $ 8,003,377
Trade accounts payable - Related parties 874,169 1,256,000
Accrued expenses 1,916,815 1,721,932
Income tax payable -- 644,101
Capital lease obligations 1,893,486 2,271,693
-------------------------
Total current liabilities 11,526,345 13,897,103
Notes payable - Banks 14,654,320 17,382,681
Capital lease obligations, less current portion 1,816,073 3,538,721
Deferred income taxes 1,277,015 1,157,460
-------------------------
Total liabilities 29,273,753 35,975,965
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 10,601,773 9,835,126
-------------------------
Total stockholders' equity 20,067,139 19,300,492
-------------------------
Total liabilities and stockholders' equity $49,340,892 $55,276,457
=========================
</TABLE>
See accompanying notes.
F-4
<PAGE> 32
SigmaTron International, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended April 30
2000 1999 1998
--------------------------------------------
<S> <C> <C> <C>
Net sales $ 88,884,591 $ 88,159,189 $ 85,650,598
Cost of sales 80,688,002 79,238,098 77,193,764
--------------------------------------------
8,196,589 8,921,091 8,456,834
Selling and administrative expenses 5,721,593 5,890,752 5,704,346
--------------------------------------------
Operating income 2,474,996 3,030,339 2,752,488
Equity in net income (loss) of SMTU 411,067 137,439 (216,131)
Interest expense - Banks and capital lease
obligations (2,125,292) (2,049,396) (1,898,488)
Interest expense - Related parties -- -- (523)
Interest income - SMTU and LC 599,498 587,304 479,508
Loss on investment and receivables with LC
-- (88,000) (280,000)
Gain on insurance reimbursement -- 1,132,199 --
--------------------------------------------
Income before income tax expense and extraordinary
item 1,360,269 2,749,885 836,854
Income tax expense (506,122) (1,052,784) (310,962)
--------------------------------------------
Income before extraordinary item 854,147 1,697,101 525,892
Extraordinary item - Extinguishment of debt,
net of taxes of $58,333 (87,500) -- --
============================================
Net income $ 766,647 $ 1,697,101 $ 525,892
============================================
Net income per common share - Basic $ .27 $ .59 $ .18
============================================
Net income per common share - Assuming
dilution $ .27 $ .59 $ .18
============================================
</TABLE>
See accompanying notes
F-5
<PAGE> 33
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, 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
Net income - - - - - 766,647 766,647
----------------------------------------------------------------------------------------------
Balance at April 30, 2000 - $ - 2,881,227 $28,812 $9,436,554 $10,601,773 $20,067,139
==============================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 34
SigmaTron International, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended April 30
2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 766,647 $1,697,101 $ 525,892
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,799,065 1,481,336 1,262,297
Equity in net (income) loss of SMTU (411,067) (137,439) 216,131
Amortization - - 14,136
Gain on insurance reimbursement - (1,391,124) -
Provision for doubtful accounts 357,459 - 113,454
Provision for inventory obsolescence 50,000 - -
Loss on investment and receivables with LC
238,524 550,000 360,000
Deferred income taxes (104,799) 468,673 (46,335)
Changes in operating assets and liabilities:
Accounts receivable 2,358,372 (2,135,863) (3,400,970)
Inventories (1,584,697) 2,732,085 (1,306,987)
Prepaid expenses and other assets 2,313,163 (2,087,347) (943,788)
Trade accounts payable (1,161,502) 1,251,491 3,507,349
Trade accounts payable - Related parties
(381,831) 340,525 178,582
Accrued expenses 194,883 146,498 (105,287)
Income taxes (644,101) 584,113 179,546
------------------------------------------------------
Net cash provided by operating activities 3,790,116 3,500,049 554,020
INVESTING ACTIVITIES
Insurance reimbursement - Net 2,453,235 485,011 -
Purchases of machinery and equipment (1,691,706) (3,765,490) (934,692)
Proceeds from the sale and leaseback of
machinery - - 1,429,898
Proceeds from SMTU subleases - - 196,895
------------------------------------------------------
Net cash provided by (used in) investing
activities 761,529 (3,280,479) 692,101
</TABLE>
F-7
<PAGE> 35
SigmaTron International, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended April 30
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Repayment of term loan and other notes payable
$ -- $ -- $ (42,596)
Proceeds from exercise of stock options -- -- 42,000
Net (payments) proceeds under line of credit
(2,728,361) 2,093,878 407,192
Net payments under capital lease obligations
(2,100,855) (2,318,056) (1,691,261)
------------------------------------------
Net cash used in financing activities (4,829,216) (224,178) (1,284,665)
------------------------------------------
Change in cash (277,571) (4,608) (38,544)
Cash at beginning of period 280,071 284,679 323,223
------------------------------------------
Cash at end of period $ 2,500 $ 280,071 $ 284,679
=========================================
Supplementary disclosure of cash flow information:
Cash paid for interest $ 1,692,697 $ 2,038,638 $ 1,900,073
=========================================
Cash paid for income taxes $ 1,013,023 $ -- $ 177,750
=========================================
Acquisition of machinery and equipment
financed under capital leases
$ 168,429 $ 2,526,088 $ 1,234,095
=========================================
</TABLE>
See accompanying notes.
F-8
<PAGE> 36
SigmaTron International, Inc.
Notes to Consolidated Financial Statements
1. Description of the Business
SigmaTron International, Inc. (the Company), is an independent provider of
electronic manufacturing services, 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.
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.
F-9
<PAGE> 37
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
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
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. The computation of the diluted
earnings per share is similar to the basic earnings per share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potentially dilutive common shares had been
issued.
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.
Fair Value of Financial Instruments
The Company's financial instruments include receivables, notes payable, accounts
payable, and accrued liabilities. The fair values of all financial instruments
are not materially different from their carrying values.
3. Inventories
Inventories consist of the following:
April 30
2000 1999
------------------------------
Finished products $ 2,837,452 $ 1,359,207
Work in process 1,713,691 1,709,482
Raw materials 13,224,056 13,171,813
------------------------------
$17,775,199 $16,240,502
==============================
F-10
<PAGE> 38
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
4. Machinery and Equipment
Machinery and equipment consist of the following:
<TABLE>
<CAPTION>
April 30
2000 1999
-------------------------
<S> <C> <C>
Machinery and equipment $12,819,959 $11,475,094
Office equipment 1,532,722 1,266,844
Tools and dies 228,433 115,362
Leasehold improvements 1,907,031 1,643,626
Equipment under capital leases 4,755,675 5,051,188
-------------------------
21,243,820 19,552,114
Less: Accumulated depreciation and amortization, including
amortization of assets under capital leases of $1,799,065 and
$1,038,187 at April 30, 2000 and 1999, respectively
7,916,390 6,117,325
-------------------------
$13,327,430 $13,434,789
=========================
</TABLE>
5. Investment and Advances With SMTU
The Company has 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. The Company also owns 50% of the outstanding stock of
SMT Unlimited, Inc. (SMT, Inc.), which is the general partner of SMTU. One of
the limited partners of SMTU is also an equal shareholder of SMT, Inc., along
with the Company. The Company holds subordinated debentures totaling $1,050,000
from SMTU. Debentures totaling $650,000 outstanding at April 30, 2000, bear
interest at 8%, and debentures totaling $400,000 bear interest at 12%. All
debentures are to be repaid on May 1, 2002. Interest is to be paid quarterly
beginning January 1, 2001. The Company guarantees lease payments of
approximately $1,169,000 for SMTU. The Company has been indemnified by one of
the other limited partners in the amount of $584,530 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.
F-11
<PAGE> 39
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
5. Investment and Advances With SMTU (continued)
In August 1999, 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 $2,000,000 plus interest and related costs associated with the
enforcement of the guaranty. In connection with the guaranty agreement, one of
the limited partners of SMTU and the Chairman of SMTU have each executed a
guaranty to the lender to reimburse the Company for up to $500,000 of payments
made by the Company under its guaranty to the lender in excess of $1,000,000. In
addition, the limited partner has agreed to indemnify the Company for 50% of all
of SMTU's payments to the lender. The limited partner's obligation to the
Company under the indemnity is reduced dollar for dollar to the extent the
limited partner would otherwise be obligated to pay more than $1,000,000 as a
result of his guaranty to the lender.
The Company's investment and advances to and receivables from SMTU totaled
approximately $5,065,000 at April 30, 2000, and no amount was recorded by the
Company related to its guaranty of SMTU's credit agreement. SMTU has positive
working capital of approximately $2,284,000 and an accumulated deficit of
approximately $404,000 for the year ended April 30, 2000. Since its inception,
sales have continued to increase and SMTU was profitable for the years ended
April 30, 2000 and 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.
In fiscal 1999, 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.
The business interruption and extra expense segments of the claim have not been
finalized. Since there is no agreement with the insurance company on the
business interruption and extra expense segments of the
F-12
<PAGE> 40
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
6. Flood Damage in Del Rio, Texas, and Acuna, Mexico (continued)
loss, the Company has not recognized any future net proceeds related to these
items. The business interruption and extra expense claim, if any, will be
recorded when settlement has been reached.
7. Notes Payable
The Company entered into a new loan and security agreement during fiscal 2000
which provides for a revolving credit facility, an $800,000 equipment loan
facility, and a $2,000,000 letter of credit facility. In conjunction with the
new agreement, the Company paid $87,500, net of taxes of $58,333, as part of the
extinguishment of the prior debt agreement. This amount is reflected on the
statement of income as a loss from an extraordinary item. The maximum borrowing
limit under the revolving line-of-credit facility is 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 $10,000,000 or up to 60% of the
inventory borrowing base, as defined. At April 30, 2000, the Company had
outstanding borrowings of $14,654,320.
Borrowings under the revolving line of credit bear interest at rates equal to
the London Interbank Offered Rate plus 2.25% (8.56813% at April 30, 2000) or at
the prime rate (9.0% at April 30, 2000) at the option of the Company. The
Company must also pay an unused commitment fee equal to 0.25% on the revolving
credit facility. At April 30, 2000, there was approximately $620,000 of unused
credit available under the terms of the agreement. The revolving credit facility
matures August 25, 2001.
Borrowings under the equipment loan bear interest at prime plus 0.5%. The
equipment loan matures August 2004. No amounts were outstanding under the
equipment loan facility at April 30, 2000.
The agreement is collateralized by substantially all of the assets of the
Company and contains certain financial covenants, including specific covenants
pertaining to the maintenance of minimum tangible net worth and net income. The
agreement also 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.
F-13
<PAGE> 41
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
8. Accrued Expenses
Accrued expenses consist of the following:
April 30
2000 1999
-------------------------------------
Payroll $1,440,366 $1,028,804
Bonuses 163,000 352,000
Interest payable 122,204 126,993
Commissions 35,833 94,119
Professional fees 155,412 120,016
-------------------------------------
$1,916,815 $1,721,932
=====================================
9. Related Party Transactions and Commitments
The Company has 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 $6,660,000, $6,325,000 and $6,380,000 for the years ended April
30, 2000, 1999, and 1998, respectively. The Company leases space in Elk Grove
Village, Illinois, owned by CSI at a base rental of $35,670 per month, with an
additional $7,000 per month for property taxes. The lease requires the Company
to pay maintenance and utility expenses. In fiscal 2000, the Company exercised
its renewal option for an additional five-year period through February 2006.
Rent and property tax expense totaled approximately $495,000, $466,000 and
$486,000 for the years ended April 30, 2000, 1999, and 1998, respectively.
At April 30, 2000 and 1999, 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, 2000 and 1999. 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
F-14
<PAGE> 42
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
9. Related Party Transactions and Commitments (continued)
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 $122,000 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, 2000, totaling approximately $1,437,000.
The Company's miscellaneous and trade receivables are secured by a security
interest in substantially all of LC's assets. In fiscal 2000 and 1999, the
Company reduced the carrying value of assets recorded in the Company's balance
sheet to net realizable value by approximately $789,000 and $550,000,
respectively. Accordingly, net assets in the accompanying balance sheet at April
30, 2000 and April 30, 1999, were:
Subordinated Miscellaneous
Debentures and and Trade Receivables
Promissory Notes
---------------------------------------------
April 30, 1999:
Gross $280,000 $889,000
Reserve (280,000) (550,000)
---------------------------------------------
Net $ - $339,000
=============================================
April 30, 2000:
Gross $280,000 $1,560,000
Reserve (280,000) (789,000)
---------------------------------------------
Net $ - $ 771,000
=============================================
F-15
<PAGE> 43
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
10. Income Taxes
The following is a summary of income before income taxes:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
Domestic operations $ 542,830 $2,207,347 $426,511
Foreign operations 671,606 542,538 410,343
------------------------------------------------------
$1,214,436 $2,749,885 $836,854
======================================================
<CAPTION>
The income tax provision for the years ended April 30, 2000, 1999, and 1998,
consists of the following:
2000 1999 1998
------------------------------------------------------
Current:
Federal $277,367 $ 273,878 $148,916
State 40,235 71,790 64,761
Foreign 235,062 189,888 143,620
Deferred:
Federal (91,430) 450,917 (40,395)
State (13,445) 66,311 (5,940)
------------------------------------------------------
$447,789 $1,052,784 $310,962
======================================================
<CAPTION>
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, 2000, 1999, and 1998 are as
follows:
2000 1999 1998
------------------------------------------------------
Income tax at statutory federal rate $412,938 $ 934,960 $284,530
Effect of:
State income taxes, net of federal tax benefit 26,556 127,046 38,663
Other, net 8,295 (9,222) (12,231)
------------------------------------------------------
$447,789 $1,052,784 $310,962
======================================================
</TABLE>
F-16
<PAGE> 44
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
10. Income Taxes (continued)
Significant temporary differences which result in deferred tax assets and
deferred tax liabilities at April 30, 2000 and 1999 are as follows:
2000 1999
------------------------------------
Allowance for doubtful accounts $ 56,135 $ (21,450)
Inventory obsolescence reserve 148,785 129,285
Accruals not currently deductible 110,358 58,824
Inventory 56,590 64,914
Other - (84,059)
------------------------------------
Net deferred tax asset $ 371,868 $ 147,514
====================================
Gain on involuntary conversion $ (441,558) $ (441,480)
Machinery and equipment (1,008,994) (1,002,926)
Other 173,537 286,946
------------------------------------
Net deferred tax liability $(1,277,015) $(1,157,460)
====================================
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 $50,232,
$46,954, and $32,904 to the plan during the fiscal years ended April 30, 2000,
1999, and 1998, respectively. The Company paid total expenses of $12,400,
$10,960, and $13,500 for the fiscal years ended April 30, 2000, 1999, and 1998,
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, 2000, two customers accounted for 29% and 18% of
net sales of the Company, and 29% and 6%, respectively, of accounts receivable
at April 30, 2000. 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
F-17
<PAGE> 45
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
12. Major Customers and Concentration of Credit Risks (continued)
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.
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, 2000:
Capital Operating
Leases Leases
------------------------------------
2001 $2,137,598 $1,132,878
2002 1,268,911 897,084
2003 499,950 273,564
2004 178,541 227,970
------------------------------------
4,085,000 $2,531,496
================
Less: Amounts representing interest 375,441
-------------------
3,709,559
Less: Current portion 1,893,486
-------------------
$1,816,073
===================
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.
F-18
<PAGE> 46
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
13. Leases (continued)
Future minimum rentals to be received under subleases with SMTU with terms of
one year or more are as follows:
2001 $ 630,775
2002 526,856
2003 308,815
2004 213,308
-------------------
1,679,754
Less: Amounts representing interest 418,720
-------------------
$1,261,034
===================
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, 2000 and 1999.
Rent expense incurred under operating leases was approximately $834,000,
$1,119,000, and $714,000 for the years ended April 30, 2000, 1999, and 1998,
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.
14. Stock Options
The Company has stock option plans (Option Plans) under which certain members of
management and outside nonmanagement directors may acquire up to 803,500 shares
of common stock of the Company. At April 30, 2000, the Company has 698,500
shares reserved for future issuance under the Option Plans. 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 options vest at a rate of 20% each year following the date of
grant provided the optionee remains an employee of the company.
F-19
<PAGE> 47
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Stock Options (continued)
The Company also has stock option plans for the benefit of directors who are not
salaried employees of the Company or full-time consultants to the Company.
178,500 shares of common stock were reserved for issuance upon exercise of such
options. As of April 30, 2000, all options under these plans have been granted.
An option may be exercised at any time within ten years from the date of grant.
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>
2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
Net income $766,647 $1,697,101 $525,892
Pro forma net income 716,789 1,558,152 302,389
Earnings per share - Basic and diluted $.27 $.59 $.18
Pro forma earnings per share - Basic and diluted
$.25 $.51 $.10
<CAPTION>
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:
2000 1999 1998
------------------------------------------------------
Expected dividend yield .0% .0% .0%
Expected stock price volatility 0.601 0.608 0.512
Risk-free interest rate 6.04% 5.43% 6.31%
Weighted-average expected life of options
5 years 5 years 5 years
</TABLE>
F-20
<PAGE> 48
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Stock Options (continued)
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.
The table below summarized option activity through April 30, 2000:
Weighted- Number of
Average options
Exercise exercisable at
Number of Options Price end of year
------------------------------------------------
Outstanding at April 30, 1997 374,500 $ 7.13
Options granted during 1998 387,000 12.45
Options exercised during 1998 (6,000) 7.00
Options canceled during 1998 (200,000) 7.00
Outstanding at April 30, 1998 555,500 10.88 163,500
Options granted during 1999 93,000 6.20
------------------
Outstanding at April 30, 1999 648,500 10.20 207,100
Options granted during 2000 348,500 6.22
Options canceled during 2000 (336,300) 12.23
------------------
Outstanding at April 30, 2000 660,700 7.08 378,403
==================
The weighted-average grant date fair value of the options granted during fiscal
2000, 1999, and 1998 was $3.49, $3.50, and $6.47, respectively.
F-21
<PAGE> 49
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
14. Stock Options (continued)
Information with respect to stock options outstanding and stock options
exercisable at April 30, 2000, follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------------------------
Weighted-Average
Number Outstanding Remaining Weighted-Average
at April 30, 2000 Contractual Life Exercise Price
Range of Exercise Prices
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 4.25 - 6.25 348,500 9.62 years $ 5.98
6.63 - 8.44 250,000 5.67 years 7.09
10.25 - 14.50 62,200 7.16 years 13.18
-----------------
4.25 - 14.50 660,700
=================
<CAPTION>
Options Exercisable
------------------------------------------------------
Number
Exercisable at Weighted-Average Exercise
Range of Exercise Prices April 30, 2000 Price
-----------------------------------------------------------------------------------------------------------
$ 4.25 - 6.25 127,003 $ 5.70
6.63 - 8.44 202,400 7.02
10.25 - 14.50 49,000 13.43
----------------
4.25 - 14.50 378,403
================
</TABLE>
F-22
<PAGE> 50
SigmaTron International, Inc.
Notes to Consolidated Financial Statements (continued)
15. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
Net income available to common stockholders
$ 766,647 $ 1,697,101 $ 525,892
==========================================
Weighted-average shares:
Basic 2,881,227 2,881,227 2,881,128
Effect of dilutive warrants and stock options
-- 3,600 91,264
------------------------------------------
Diluted $ 2,881,227 $ 2,884,827 $ 2,972,392
==========================================
Basic and diluted earnings per share before
extraordinary item $ .30 $ .59 $ .18
Basic and diluted earnings per share -
Extraordinary item (.03) -- --
------------------------------------------
Basic and diluted earnings per share $ .27 $ .59 $ .18
==========================================
</TABLE>
Options to purchase 660,700 and 648,500 shares of common stock were outstanding
during 2000 and 1999, 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.
F-23
<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, 2000:
Reserves and allowance deducted from asset
accounts:
Allowance for doubtful accounts $575,000 $357,456 $ - $ - $932,459
Reserve for obsolete inventory 331,500 50,000 - - 381,500
Reserve against note receivable 280,000 - - - 280,000
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
</TABLE>
(1) Uncollectible accounts written off.
F-24
