<PAGE>
This document consists of 19 pages, of which this is page number 1.
The index to exhibits is located at page 18.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended March 31, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from _______ to ______
Commission file number: 0-24170
SIGMA CIRCUITS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0107167
(State or other jurisdiction (I.R.S.
of Employer
incorporation or Identification
organization) Number)
393 Mathew Street
Santa Clara, California 95050
(408) 727-9169
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes x No
The number of shares outstanding of the Registrant's common stock,
$.001 par value, was 3,910,055 at May 3, 1996.
</PAGE>
<PAGE>
Sigma Circuits, Inc.
INDEX
Description Page Number
Cover Page 1
Index 2
Part I: Financial Information
Item 1: Condensed Financial Statements
Condensed Balance Sheets as of
March 31, 1996 and June 30, 1995 3
Condensed Statements of
Operations for the Three - and
Nine-Month Periods Ended
March 31, 1996 and 1995 4
Condensed Statements of Cash
Flows for the Nine-Month
Period Ended March 31, 1996
and 1995 5
Notes to Condensed Financial
Statements 6
Item 2: Management's Discussion and
Analysis of Financial
Condition and Results of Operations 9
Part II: Other Information
Item 1: Legal Proceedings 16
Item 6: Exhibits and Reports on Form 8-K 16
Signatures 17
</PAGE>
<PAGE>
Part I: Financial Information
Item 1: Condensed Financial Statements
<TABLE>
SIGMA CIRCUITS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands)
March 31, June 30,
1996 1995
ASSETS
Current Assets:
<S> <C> <C>
Cash and Cash Equivalents $ 1,567 $ 106
Accounts Receivable (Net of Allowances of
$526 and $310, Respectively) 12,686 7,737
Other Receivables 54 403
Inventories 5,551 2,177
Prepaid Expenses 518 298
Deferred Income Taxes 1,068 460
Total Current Assets 21,444 11,181
Property and Equipment, Net 19,587 10,789
Goodwill (Net of Accumulated Amortization of
$2,204 and $1,840, Respectively) 7,923 2,154
Deposits and Other Assets 445 276
Total $49,399 $24,400
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Current Portion of Long-Term Debt $ 3,945 $ 396
Accounts Payable 6,582 3,118
Accrued Liabilities 2,911 2,023
Income Taxes Payable 102 523
Total Current Liabilities 13,540 6,060
Long-Term Debt 18,210 5,774
Deferred Income Taxes 1,115 1,579
Stockholders' Equity:
Preferred Stock, $0.001 Par Value:
Shares Authorized: 5,000
Shares Outstanding: None -- --
Common Stock, $0.001 Par Value:
Shares Authorized: 20,000
Shares Outstanding: 3,910 and 10,374 7,743
3,438, Respectively
Deferred Stock Compensation (245) (326)
Retained Earnings 6,405 3,570
Total Stockholders' Equity 16,534 10,987
Total $49,399 $24,400
</TABLE>
See notes to condensed financial statements.
</PAGE>
<PAGE>
Item 1: Condensed Financial Statements (continued)
<TABLE>
SIGMA CIRCUITS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $24,330 $13,145 $67,117 $34,666
Cost Of Sales 19,394 10,603 52,736 28,669
Gross Profit 4,936 2,542 14,381 5,997
Selling, General and 2,616 2,030 8,275 5,702
Administrative Expenses
Amortization of Goodwill 157 50 364 150
Operating Income 2,163 462 5,742 145
Interest Expense, Net 497 106 1,171 244
Income (Loss) Before Income 1,666 356 4,571 (99)
Taxes
Provision (Benefit) For 546 167 1,736 (35)
Income Taxes
Net Income (Loss) $ 1,120 $ 189 $ 2,835 $ (64)
Net Income (Loss) Per Share $ .23 $ .05 $ .62 $ (.02)
Number of Shares Used in
Computing Per Share 4,845 3,678 4,587 3,420
Information
</TABLE>
See notes to condensed financial statements.
</PAGE>
<PAGE>
Item 1: Condensed Financial Statements (continued)
<TABLE>
SIGMA CIRCUITS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $ 2,835 $ (64)
Reconciliation to Cash Provided by (Used for)
Operating Activities:
Depreciation and Amortization 3,146 1,985
Amortization of Goodwill 364 150
Loss on Disposal of Assets 217 103
Amortization of Deferred Stock Compensation 81 81
Deferred Income Taxes (1,072) (226)
Changes in Assets and Liabilities:
Accounts Receivable 128 (2,009)
Other Receivables 349 --
Inventories (1,536) (535)
Prepaid Expenses (154) (101)
Accounts Payable 1,443 (243)
Accrued Liabilities (467) (173)
Income Taxes Payable (552) (91)
Cash Provided by (Used for) Operating 4,782 (1,123)
Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment (4,426) (2,830)
Purchase of Citation Companies, Net of Cash (9,092) --
Acquired
Proceeds from Sales of Property and Equipment 42 4
Deposits and Other Assets (144) (10)
Cash (Used for) Investing Activities (13,620) (2,836)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of Credit, Net 1,098 3,000
Proceeds from Long-Term Borrowings 11,066 981
Repayment of Long-Term Borrowings (1,996) (180)
Proceeds from Issuance of Common Stock 131 38
Cash Provided by Financing Activities 10,299 3,839
INCREASE (DECREASE) IN CASH AND CASH 1,461 (120)
EQUIVALENTS:
CASH AND CASH EQUIVALENTS:
Beginning of Period 106 365
End of Period $ 1,567 $ 245
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment Acquired Under Capital Lease $ 459 $ --
Obligations
PURCHASE OF THE CITATION COMPANIES:
Cash Paid, Net of Cash Acquired $ 9,092
Stock Issued to Seller 2,500
Debt Issued to Seller 4,092
Liabilities Assumed 5,278
Assets Acquired (including Goodwill of $6,133) $ 20,962
</TABLE>
See notes to condensed financial statements.
</PAGE>
<PAGE>
Item 1: Condensed Financial Statements (continued)
SIGMA CIRCUITS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Basis of Presentation
While the quarterly financial information contained in this
filing is unaudited, the financial statements presented reflect
all adjustments (consisting only of normal recurring adjustments)
which the Company considers necessary for a fair presentation of
the results of operations for the interim periods covered and of
the financial condition of the Company at the dates of the
interim balance sheets. The results for interim periods are not
necessarily indicative of the results of the entire year. The
information included in this report should be read in conjunction
with the Company's audited financial statements and notes thereto
included in the Company's fiscal year 1995 Annual Report to
Stockholders.
Per Share Information
Net income (loss) per share is based on the weighted average
number of common and common equivalent shares outstanding during
the period. Common equivalent shares include common stock
options and warrants (using the treasury stock method) and are
excluded in loss periods as they are anti-dilutive.
Common Stock Split
On January 30, 1996, the Board of Directors authorized a two-for-
one common stock split, in the form of a common stock dividend,
distributed on February 26, 1996 to stockholders of record at the
close of business on February 12, 1996. The per share amounts
and numbers of shares have been restated to reflect the common
stock split as at the date of this filing.
Acquisition of the Citation Companies
On September 30, 1995, the Company acquired substantially all of
the assets and assumed certain liabilities of Citation Circuits,
Inc., Citation Enterprises, Inc. and Citron Inc. (collectively,
the "Citation Companies"), all of which were owned by a common
shareholder and engaged in the manufacture and sale of printed
circuit boards and backplane assemblies. The purchase price of
$16,544,000 was paid in cash of $9,952,000 (financed through
$10,000,000 of bank term loans), 378,786 shares of common stock
with a fair market value of $2,500,000 and two 12.0% subordinated
notes payable to the seller due in June 1997 totaling $4,092,000,
of which $1,500,000 is convertible into 200,000 shares of common
stock at the option of the seller. In the event the Company
completes a public offering of common stock meeting certain
defined criteria, the $1,500,000 note will become due upon the
closing of the offering, and the $2,592,000 note will become due
in December 1996. The total estimated purchase price of the
Citation Companies was approximately $17,255,000 (including
approximately $711,000 of acquisition expenses). Of the excess of
the purchase price over the estimated fair value of the tangible
net assets acquired, approximately $300,000 has been allocated to
a two year non-compete agreement with the seller and $6,133,000
has been allocated to goodwill and will be amortized over fifteen
years. The total estimated purchase price may be adjusted in
future periods.
</PAGE>
<PAGE>
Item 1: Condensed Financial Statements (continued)
The reported results of operations of the Company for the nine
months ended March 31, 1996 includes six months of the operating
results of what was formerly known as the Citation Companies as
the acquisition occurred on September 30, 1995. Unaudited pro
forma results of operations as if the acquisition had occurred at
the beginning of fiscal year 1995 are as follows (in thousands,
except per share data):
<TABLE>
Nine Months Ended
March 31,
1996 1995
<S> <C> <C>
Net Sales $74,778 $52,864
Gross Profit 15,700 8,354
Net Income (Loss) 2,989 (984)
Net Income (Loss) Per Share $ .63 $ (.26)
Number of Shares Used in Computing 4,713 3,800
Per Share Information
</TABLE>
The unaudited pro forma financial information does not give
effect to any potential benefits that might have been realized
through the combination of operations and are not necessarily
indicative of the consolidated results which would have been
reported if the acquisition of the Citation Companies had
actually occurred at the beginning of the fiscal year 1995.
The liabilities assumed in the acquisition of the Citation
Companies included certain environmental contingent liabilities
pertaining to the prior operations of the Citation Companies. The
Citation Companies had been notified of certain alleged discharge
and reporting violations by the City of Stockton and the U.S.
Environmental Protection Agency (EPA). At the time of the
acquisition, the Citation Companies had accrued approximately
$303,000, their best estimate of the penalties owned under such
claims. On April 15, 1996, the Company entered into a tentative
"Consent Agreement and Consent Order" with the EPA, agreeing to
pay a fine of $65,000 and installing equipment to aid in its
environmental requirements with a minimum cost of approximately
$220,000. As of March 31, 1996, the Company had purchased
equipment of approximately $141,000 which qualify towards such
minimum. The Company believes that its remaining accrual
continues to be adequate and that the settlement of the City of
Stockton claim will not have a material adverse effect on the
Company's operating results or financial condition.
Inventories
Inventories consist of (in thousands):
<TABLE>
March 31, June 30,
1996 1995
<S> <C> <C>
Raw Materials $3,178 $ 915
Work in Process 2,151 1,186
Finished Goods 222 76
Inventories $5,551 $ 2,177
</TABLE>
Long-Term Debt and Capital Lease Obligations
During the current fiscal year, the Company has entered into
several equipment debt and capital lease agreements in addition
to the debt incurred in the Citation Companies acquisition. The
aggregate amount of these debt and capital lease obligations,
excluding acquisition debt, was approximately $1.5 million. Each
obligation is payable in sixty monthly payments ranging from
approximately $1,000 to $11,500 and interest rates ranging from
approximately 9.0% to 11.0%.
</PAGE>
<PAGE>
Item 1: Condensed Financial Statements (continued)
Future debt and capital lease payments for all outstanding debt
is as follows (in thousands):
<TABLE>
March 31,
1996
<S> <C>
Remaining Quarter - 1996 $ 1,039
1997 7,680
1998 7,147
1999 2,277
2000 2,807
Thereafter 1,205
Total $22,155
</TABLE>
Cash paid for interest was approximately $835,000 and $265,000
for the nine months ended March 31, 1996 and 1995, respectively.
Provision (Benefit) for Income Taxes
The Company incurred a combined federal and state effective income
tax rate of 32.8% and 38.0% for the three and nine month periods
ended March 31, 1996, respectively, compared to an effective rate
of 46.9% and benefit rate of 35.4%, respectively, for the same
periods of fiscal year 1995. Cash paid for income taxes was
approximately $3,046,000 and $281,000 for the nine months ended
March 31, 1996 and 1995, respectively.
Recently Issued Accounting Standard
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123 "Accounting for Stock-Based Compensation".
The new standard defines a fair value method of accounting for
stock options and other equity instruments, such as stock purchase
plans. Under this method, compensation cost is measured based on
the fair value of the stock award when granted and is recognized as
an expense over the service period, which is usually the vesting
period. This standard will be effective for the Company beginning
in fiscal year 1997 and requires measurement of awards made
beginning in fiscal year 1996.
The new standard permits companies to continue to account for
equity transactions with employees under existing accounting rules,
but requires disclosure in a note to the financial statements of
the pro forma net income and earnings per share as if the Company
had applied the new method of accounting. The Company intends to
follow the disclosure requirements of FASB No. 123. As a result,
adoption of the new standard will not impact reported earnings or
earnings per share, and will have no effect on the Company's cash
flows.
</PAGE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
The matters discussed herein contain forward-looking statements
that involve risks and uncertainties as described herein and in
the Company's Registration Statement on Form S-1 (No. 333-1262).
The Company's actual results may differ significantly from the
matters discussed in the forward-looking statements due to such
risks and uncertainties. Further, the Company will not undertake
any obligation to publicly release the results of any revisions
to these forward-looking statements which may be made to reflect
results, events or circumstances which occur after the date
hereof or to reflect the occurrence of unanticipated events.
Overview
With the advent of new senior management in fiscal year 1993, the
Company made a number of operational changes that resulted in
increased manufacturing efficiencies, greater capacity
utilization and improved margins in its printed circuit board
("PCB") business. The Company also increased sales by expanding
its customer base in targeted growth markets.
Beginning in fiscal year 1994, the Company adopted a strategy to
service more of the electronic interconnect needs of its
strategic customers by broadening its product offerings and
increasing its capacity. The Company believed that its reputation
as a high quality, reliable quick-turn supplier of PCBs would
generate demand among its customers for additional product
offerings. The Company also believed that the customer
relationships established by providing quick-turn services during
the prototype stage of the product life cycle would give it an
advantage in securing the larger volume pre-production and
production orders of such products. Assisted by the proceeds of
a private equity financing and its initial public offering, the
Company started its Systems Integration and Flexible Circuits
divisions during the latter part of fiscal year 1994 in order to
broaden its product offerings. The Company completed the of the
Citation Companies during the first quarter of fiscal year 1996
in order to obtain the manufacturing capacity required to service
its customers' higher volume production jobs in a lower cost
operating environment.
During fiscal year 1995, the Company's gross margin and operating
expenses were negatively affected by the under-utilization and
start-up costs of the Systems Integration and Flexible Circuits
divisions. During the first nine months of fiscal year 1996, net
sales and gross profit increased significantly as a result of the
additional capacity obtained in the acquisition of the Citation
Companies and the products offered by its two new divisions.
The Company's operating results have been and are expected to
continue to be affected by a number of factors, including timing
and volume of orders from and shipments to customers relative to
the Company's manufacturing capacity, level of product and price
competition, product mix, the number of working days in a
particular quarter and general economic factors. The lead times,
volume levels and complexity of customer orders have affected
overall gross margins.
The following table sets forth, for the periods indicated,
certain statement of operations data expressed as a percentage of
net sales. The table and the discussion below should be read in
conjunction with the condensed financial statements and the notes
thereto appearing elsewhere in this report.
</PAGE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations
<TABLE>
Three Months Nine Months Ended
Ended March 31,
March 31,
1996 1995
1996 1995 1996 Pro 1995 Pro
Forma(1) Forma(1)
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 79.7 80.7 78.6 79.0 82.7 84.2
Gross Profit 20.3 19.3 21.4 21.0 17.3 15.8
Selling, General and 10.7 15.4 12.3 11.8 16.5 14.4
Administrative Expenses
Amortization of Goodwill .7 .4 .5 .7 .4 .9
Operating Income 8.9 3.5 8.6 8.5 .4 .5
Interest Expense, Net 2.0 .8 1.8 2.0 .7 2.4
Income (Loss) Before Income 6.9 2.7 6.8 6.5 (.3) (1.9)
Taxes
Provision (Benefit) for 2.3 1.3 2.6 2.5 (.1) (--)
Income Taxes
Net Income (Loss) 4.6% 1.4% 4.2% 4.0% (.2)% (1.9)%
<FN>
<F1>
(1) The pro forma financial date give effect to the acquisition
of the Citation Companies as if it had occurred at the beginning
of fiscal year 1995.
</FN>
</TABLE>
Net Sales
Net sales for the third quarter ended March 31, 1996 were $24.3
million, an increase of $11.2 million or 85.1%, over the same
quarter of the prior fiscal year. This increase was primarily
due to the new Stockton division (formerly known as the Citation
division) which accounted for approximately 34.1% of the
Company's third quarter net sales. The quarter ended March 31,
1996 was the second quarter of combined operations since the
acquisition of the Citation Companies on September 30, 1995.
Also contributing to net sales growth was the continued growing
acceptance of the Company's backplane and flexible circuit
products.
Net sales for the nine months ended March 31, 1996 were $67.1
million, an increase of $32.5 million or 93.6% over the same
period of the prior fiscal year. On a pro forma basis, net sales
for the nine months ended March 31, 1996 were $74.8 million, an
increase of $21.9 million or 41.5% from the nine months ended
March 31, 1995. These increases consisted of a 43.9% increase
for the Stockton division and a 40.1% increase for the Company's
other divisions and reflect higher unit volumes on the Company's
PCB products and the increased demand for the Company's backplane
and flexible circuits products.
Gross Profit
Gross profit for the quarter ended March 31, 1996 was $4.9
million, an increase of $2.4 million or 94.2% from the same
quarter of the prior fiscal year on higher net sales. Gross
margin for the ended March 31, 1996 increased to 20.3% of net
sales as compared to 19.3% in the same quarter of the prior
fiscal year. The increase in the gross margin percentage was
primarily due to improved capacity utilization, operational
efficiencies and the shifting of some lower priced product to the
Stockton division, which has a lower cost structure. Gross
margin for the quarter ended March 31, 1995 was adversely
affected by low and negative margins from the Flexible Circuits
and Systems Integration divisions. During the quarter ended March
31, 1996, the Company consolidated the Stockton division's
backplane operations into the Systems Integration division in
Santa Clara, which impacted the resources available to manage the
materials and customer order demands of this growing division.
As a result, the Systems Integration division outsourced some of
its manufacturing operations while adding the personnel necessary
to meet the increased customer and materials management demands.
These activities resulted in a reduction of approximately
$500,000 in gross margin as compared to the quarter ended
December 31, 1995 and had a negative impact of approximately 2.1%
on overall gross margin.
</PAGE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Gross profit for the nine months ended March 31, 1996 was $14.4
million, an increase of $8.4 million or 139.8% over the same
period of the prior fiscal year. Gross margin for the nine
months ended March 31, 1996 increased to 21.4% of net sales as
compared to 17.3% in the same period of the prior fiscal year. On
a pro forma basis, gross profit was $15.7 million or 21.0% of pro
forma net sales for the nine months ended March 31, 1996,
compared to $8.4 million or 15.8% of pro forma net sales from the
nine months ended March 31, 1995. The increase in the gross
margin percentage on both an actual and pro forma basis was
primarily due to improved capacity utilization and operational
efficiencies in all divisions; although gross margin for the nine
months ended March 31, 1996 continued to be adversely affected by
low or negative margins from the Systems Integration and Flexible
Circuits divisions. Low or negative margins for the two new
divisions are expected to continue until unit volumes reach a
level sufficient to absorb manufacturing costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter
ended March 31, 1996 were $2.6 million, an increase of $586,000
or 28.9% over the same quarter of the prior fiscal year.
Approximately half of this increase is the result of the
acquisition of the Citation Companies while the balance of the
increase is primarily attributable to additional costs associated
with the Systems Integration and Flexible Circuits divisions,
together with commission and bonus expenses associated with
higher net sales and improved profitability. Selling, general
and administrative expenses decreased from 15.4% to 10.7% of net
sales, over the same periods as expenses did not increase as
quickly as net sales.
Selling, general and administrative expenses for the nine months
ended March 31, 1996 were $8.3 million, an increase of $2.6
million or 45.1% over the same period of the prior fiscal year.
On a pro forma basis, selling, general and administrative
expenses were $8.9 million or 11.8% of pro forma net sales for
the nine months ended March 31, 1996, an increase of $1.2 million
or 16.3% from the nine months ended March 31, 1995. This
increase was primarily attributable to additional costs
associated with the Systems Integration and Flexible Circuits
divisions, commissions associated with higher net sales and
bonuses for improved profitability. However, as a result of the
operating leverage of the business, selling, general and
administrative expenses decreased from 16.5% to 12.3% of net
sales (14.4% to 11.8% on a pro forma basis).
Interest Expense, Net
Net interest expense for the quarter ended March 31, 1996 was
$497,000, an increase of $391,000 over the same period of the
prior fiscal year. Net interest expense for the nine months
ended March 31, 1996 was $1.2 million, an increase of $927,000
over the same period of the prior fiscal year. This increase was
primarily the result of the additional debt incurred in September
1995 for the acquisition of the Citation Companies, as well as
capital equipment purchases and working capital requirements.
Net interest expense is expected to remain at such higher levels
in future periods to the extent the additional debt incurred as
part of the acquisition of the Citation Companies is not repaid.
Provision (Benefit) for Income Taxes
The Company incurred a combined federal and state effective
income tax rate of 32.8% and 46.9% for the quarter ended March
31, 1996 and 1995, respectively. The Company incurred a combined
effective rate of 38.0% and a benefit rate of 35.4% for the nine
months ended March 31, 1996 and 1995, respectively. The
Company's effective rates differ from the statutory rate
primarily due to amortization of goodwill and deferred stock
compensation which is not deductible in determining taxable
income. Additionally, the amount of pre-tax income can have a
material effect on the Company's effective tax rate.
</PAGE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Financial Condition
The Company has historically financed its operations and capital
investment through cash flows from operations, bank borrowings
and issuances of debt and equity securities. Further, the
Company has entered into various long-term borrowings and capital
lease transactions, primarily for capital investment, in addition
to its short-term funding sources.
Management believes that its current financial position, together
with available borrowings under the Company's various credit
facilities will be sufficient to meet the Company's anticipated
operating needs for the next twelve months.
Liquidity
Cash provided by operating activities was approximately $4.8
million in the nine months ended March 31, 1996, as compared to
cash used of $1.1 million during the nine months ended March 31,
1995. This increase was primarily attributable to a $2.8 million
increase in net income, a $1.2 million increase in depreciation
and amortization as well as other working capital changes.
Cash used for investing activities was approximately $13.6
million in the nine months ended March 31, 1996, consisting
primarily of approximately $9.1 million in expenditures for the
purchase of the Citation Companies and $4.4 million for the
purchases of property and equipment. This compares to $2.8
million used primarily for the purchases of capital equipment
during the same nine months ended March 31, 1995. Excluding the
financial impact of any acquisitions or establishment of new
facilities, the Company expects to incur capital expenditures of
approximately $1.6 million in the remaining quarter of fiscal
year 1996.
Cash flows provided by financing activities was approximately
$10.3 million for the nine months ended March 31, 1996, an
increase from $3.8 million provided in the nine months ended
March 31, 1995. This increase consisted primarily of long-term
borrowings of $10.0 million to finance the acquisition of the
Citation Companies offset by approximately $2.0 million in loan
repayments and $1.9 million of reduced borrowings under the line
of credit.
As of March 31, 1996, the Company had long-term debt outstanding
of $22.2 million, consisting primarily of $4.8 million
outstanding under the Company's $8.0 million long-term revolving
line of credit with Comerica Bank ("Comerica"), $13.1 million of
debt issued in connection with the acquisition of the Citation
Companies and $4.3 million of real estate and other equipment
obligations. The Company's line of credit agreement limits
borrowings under the line of credit to 75% of the Company's
eligible trade accounts receivable as contractually defined, less
$2.5 million. The current line of credit expires on October 2,
1997 and bears interest at Comerica's base rate plus 0.25%. In
connection with the acquisition of the Citation Companies, the
Company borrowed $8.5 million and $1.5 million from Comerica
under two term notes, which have terms of five and two years,
respectively, and bear interest at the Banks' base rate plus
1.0%. Under both term notes, principal and interest payments are
due monthly. In addition, the Company issued two 12.0%
subordinated notes to Citation as part of the acquisition, in the
amounts of $2.6 million and $1.5 million. The $1.5 million note
is convertible into 200,000 shares of common stock at the option
of the holder. In the event the Company completes a public
offering of common stock, meeting certain defined criteria, the
$1.5 million note will become due upon the closing of the
offering and the $2.6 million note will become due in December
1996.
</PAGE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Capital Resources
During the nine months ended March 31, 1996, the Company spent
approximately $4.4 million on capital equipment. Additional
capital investment requirements of approximately $1.6 million are
projected for the remaining quarter of fiscal year 1996. The
Company is currently exploring additional financing alternatives
to assist in projected capital investment requirements.
Factors That May Affect Future Results
Dependence on Electronics Industry
The Company's principal customers are original equipment
manufacturers (OEM) and contract manufacturers in the data
communications, telecommunications, computer and computer
peripherals, industrial and medical industries. These industry
segments, and the electronics industry as a whole, are
characterized by intense competition, relatively short product-
life cycles and significant fluctuations in product demand. In
addition, the electronics industry is generally subject to rapid
technological change and product obsolescence. Discontinuance or
modifications of products containing components manufactured by
the Company could adversely affect the Company's business,
financial condition and results of operations. In addition, the
electronics industry has in the past experienced, and is likely
in the future to experience, recessionary periods. A recession
or any other event leading to excess capacity in the electronic
interconnect industry would likely result in intensified price
competition and a decrease in unit volume, both of which would
have a material adverse effect on the Company's business,
financial condition and results of operations.
Fluctuations in Quarterly Operating Results
The Company's quarterly operating results have varied and may
continue to fluctuate significantly. At times in the past, the
Company's net sales and net income have decreased from the prior
quarter. Operating results are affected by a number of factors,
including timing and volume of orders from and shipments to
customers relative to the Company's manufacturing capacity, level
of product and price competition, product mix, the number of
working days in a particular quarter and general economic
factors. In recent years, the Company's gross margins have
varied primarily as a result of capacity utilization, product
mix, start-up costs in its two new divisions, lead times, volume
levels and complexity of customer orders. Although the Company
has recently acquired facilities through the acquisition of the
Citation Companies that could allow the Company to produce
products at lower cost, there can be no assurance that the
Company will be able to manage the utilization of manufacturing
capacity or product mix in a manner that would improve gross
margins or the Company's business, financial condition and
results of operations. The timing and volume of order placed by
the Company's OEM customers vary due to customer attempts to
manage inventory, changes in the OEM's manufacturing strategy and
variation in demand for customer products. An interruption in
manufacturing resulting from shortages of parts or equipment,
fire, natural disaster, equipment failure or otherwise would have
a material adverse effect on the Company's business, financial
condition and results of operations. Due to all of the foregoing
factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market
analysis and investors. In such event, the price of the
Company's common stock would likely be materially adversely
affected.
</PAGE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Customer Concentration
The Company's growth has resulted, in part, from its ability to
identify and attract customers in rapidly growing segments of the
electronics industry. The Company has manufactured products for
some of these customers for a relatively short period of time.
There can be no assurance that the Company will continue to be
able to identify, attract and retain customers with high growth
rates or that the customers that they do attract and retain will
continue to grow at their historical rates or at all. Although
there can be no assurance that the Company's principal customers
will continue to purchase products and services from the Company
at current levels, if at all, the Company expects to continue to
depend upon its principal customers for a significant portion of
its net sales. The decrease in or loss of orders from one or
more major customers could have a material adverse effect on the
Company's business, financial condition and results of
operations.
Variability of Orders
The Company does not obtain long term purchase commitments from
its customers and a substantial portion of net sales in a given
quarter depends on obtaining orders for products to be
manufactured and shipped in the same quarter in which those
orders are received. Customers may cancel orders and change or
delay delivery schedules at any time. The timely replacement of
canceled, delayed or reduced orders with new orders cannot be
assured. Significant or numerous cancellations, reduction or
delays in order by a customer or group of customers could have a
material adverse effect on the Company's business, financial
condition and results of operations. Because the Company
operates with virtually no backlog, net sales for any quarter are
not substantially dependent on orders booked in that quarter and
net sales for any future quarter are not predictable with any
significant degree of certainty. The Company's expense levels
are relatively fixed and are based, in part, on expectations of
future net sales. Consequently, if net sales levels are below
expectations, the Company's business, financial condition and
results of operations are likely to be adversely affected.
Competition
The electronic interconnect industry is characterized by intense
competition. The Company faces significant competition in its
quick-turn, PCB and flexible circuits product lines primarily
from a number of regional privately-held manufacturers. As the
Company increasingly expands its volume production of PCBs,
backplane assemblies and flexible circuits, it will continue to
face much larger competitors. Many of these competitors have
significantly greater financial, technical and marketing
resources, greater name recognition and a larger installed
customer base than the Company. In addition, these competitors
may have the ability to respond more quickly to new or emerging
technologies and may adapt more quickly to changes in customer
requirements and may devote greater resources to the development,
promotion and sale of their products than the Company.
</PAGE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company believes that when it competes in the standard lead-
time volume production of its PCB, backplane and flexible
circuits products, it will encounter greater price sensitivity
from potential customers. From time to time the Company operates
in the lower technology, higher volume segments of the PCB
market, where the Company may be at a competitive disadvantage
when competing with manufacturers with lower cost structures,
particularly those with offshore facilities where labor and other
costs are generally lower. During periods of recession or
economic slowdown in the electronics industry, the Company's
competitive advantages in the areas of quick-turn manufacturing
and responsive customer service may be of reduced importance to
the Company's customers, who may become more price sensitive.
Although capital barriers to entry are relatively high for
manufacturing technologically complex electronic interconnect
products, the basic interconnect technology is generally not
protected by patents or copyrights, and companies with
significant resources or international operations may enter the
market. Consolidation of smaller competitors may also result in
increased competition. Increased competition could result in
price reductions, reduced margins or loss of market share, any of
which could materially and adversely affect the Company's
business, financial condition and results of operations.
Management of Growth
The Company has experienced a period of rapid growth that has
placed, and is expected to continue to place, a significant
strain on the Company's management, operational and financial
resources. This situation is compounded by the acquisition of
the Citation Companies. The Company's growth is expected to
require the addition of new management personnel and the
development of additional expertise by existing management
personnel. The Company's ability to manage growth effectively,
particularly given the increasing scope of its operations, will
require it to continue to implement and improve its management,
operational, and financial information systems, as well as to
develop the management skills of its managers and supervisors and
to train, motivate and manage its employees. The Company's
failure to effectively manage growth could have a material
adverse effect on the Company's business, financial condition and
results of operations. Competition for personnel is intense and
there can be no assurance that the Company will be able to
attract, assimilate or retain additional highly qualified
employees in the future. The failure to hire and retain such
personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
</PAGE>
<PAGE>
Part II: Other Information
Item 1. Legal Proceedings
In connection with the acquisition of the Citation Companies on
September 30, 1995, the Company assumed certain environmental
contingent liabilities pertaining to operations prior to that
date. As of the acquisition date, the Citation Companies had
accrued $303,000 for the two known claims.
The first contingent liability relates to allegations by the City
of Stockton of violations of its City Code regarding discharge of
waste water into the City sewer system in excess of allowed
limits during several months in 1992. As of March 31, 1996, no
further action has taken place between the City of Stockton and
the Company. The Company has established a reserve for this
contingency and in the opinion of its management, any settlement
would not likely result in a loss that would have a material
adverse effect on the Company's operating results or financial
condition.
The second contingent liability relates to the United States
Environmental Protection Agency ("EPA") issuance of an
administrative civil complaint regarding the timely submission of
required federal forms under the Emergency Planning and Community
Right-to-Know Act of 1986 ("EPCRA"). On April 15, 1996, the
Company entered into a tentative "Consent Agreement and Consent
Order" ("COCA") with the EPA pertaining to its complaint. In the
COCA, the Company has certified that it has completed and
submitted all required federal forms to the EPA under the EPCRA,
and that it has complied with all other EPCRA requirements at all
of its facilities. In addition, the Company will also purchase
and test certain equipment to aid in its environmental regulatory
requirements within twelve months of the effective date of the
COCA. The minimum aggregate cost associated with the purchase,
installation and testing of this equipment is $220,250 and if the
actual aggregate cost is lower, the difference between the actual
cost and such minimum threshold, will be remitted to the EPA. As
of March 31, 1996, the Company had capitalized approximately
$141,000 of costs associated with the minimum threshold. In
relation to the testing of the equipment, the Company is subject
to additional filing requirements with the EPA pertaining to the
functionality of the equipment. Further, the Company will pay a
civil penalty of $65,000 upon execution of the COCA, in addition
to all of the above, as the terms of the COCA constitute a full
and final settlement of the complaint.
Item 6: Exhibits and Reports on Form 8-K
A.Exhibits
Exhibit 11.1 Statements Regarding Calculation of Net Income
(Loss) Per Share
B.Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
</PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Santa Clara, County of Santa Clara, State of California,
on the 13th day of May, 1996.
Sigma Circuits, Inc.
(Registrant)
By /s/ B. Kevin Kelly
B. Kevin Kelly
President, Chief Executive
Officer and Director
By /s/ Philip S. Bushnell
Philip S. Bushnell
Senior Vice President, Finance
and Administration, Chief
Financial Officer, Secretary and
Director
</PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description Numbered Page
11.1 Statements Regarding Calculation of Net Income (Loss)
Per Share 19
</PAGE>
<PAGE>
EXHIBIT 11.1
SIGMA CIRCUITS, INC.
STATEMENTS REGARDING CALCULATION
OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
<TABLE>
Three Months Nine Months
Ended Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Income (Loss) $1,120 $189 $2,835 $ (64)
Weighted Average Common Stock 3,904 3,432 3,751 3,420
Outstanding
Common Stock Equivalents:
Dilutive Effect of Stock Options 799 246 713 --(1)
Dilutive Effect of Underwriters' 142 -- 123 --
Warrant
Number Of Shares Used in Computing
Per Share Information 4,845 3,678 4,587 3,420
Net Income (Loss) Per Share $ .23 $ .05 $ .62 $ (.02)
<FN>
<F1>
(1) Excludes common stock equivalents as they are anti-dilutive for
computing net loss per share.
</FN>
</TABLE>
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,567
<SECURITIES> 0
<RECEIVABLES> 13,266
<ALLOWANCES> 526
<INVENTORY> 5,551
<CURRENT-ASSETS> 21,444
<PP&E> 34,073
<DEPRECIATION> 14,486
<TOTAL-ASSETS> 49,399
<CURRENT-LIABILITIES> 13,540
<BONDS> 0
0
0
<COMMON> 10,374
<OTHER-SE> 6,160
<TOTAL-LIABILITY-AND-EQUITY> 49,399
<SALES> 67,117
<TOTAL-REVENUES> 67,117
<CGS> 52,736
<TOTAL-COSTS> 52,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,171
<INCOME-PRETAX> 4,571
<INCOME-TAX> 1,736
<INCOME-CONTINUING> 2,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,835
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
