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 period ended July 31, 1997.
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 0-15407
Circuit Systems, Inc.
-------------------------------------------------------
(Exact name of registrant as specified in charter)
Illinois 36-2663010
--------------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2350 East Lunt Avenue, Elk Grove Village, Illinois 60007
- -------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(847) 439 - 1999
------------------------------ -----------------------------
(Registrant's telephone number, (Former name, former address and
including area code) and former fiscal year, if
changed since last report)
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 .
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes No .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: August 31, 1997 5,029,273.
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
1. Financial Statements
Consolidated Condensed Balance Sheets .................. 3
Consolidated Condensed Statements of Operations ........ 4
Consolidated Condensed Statement of Cash Flows ......... 5
Notes to Consolidated Condensed Financial Statements ... 6
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............. 9
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
4/30/97 7/31/97
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS ........ $ 294,204 $ 323,641
ACCOUNTS RECEIVABLE, LESS
ALLOWANCE OF $500,000 .......... 6,561,782 6,026,264
INVENTORIES
RAW MATERIALS .................... 2,797,845 2,745,598
WORK IN PROCESS ................ 2,129,627 2,371,176
FINISHED GOODS .................. 1,709,349 2,056,064
----------- ----------
6,636,821 7,172,838
DEFERRED INCOME TAXES ............ 363,000 363,000
PREPAID EXPENSES .................. 215,674 212,312
----------- ----------
TOTAL CURRENT ASSETS ......... 14,071,481 14,098,055
INVESTMENT IN AFFILIATE ........... 2,841,193 2,873,721
PROPERTY, PLANT, AND EQUIPMENT - AT COST
BUILDING AND IMPROVEMENTS ........ 9,446,475 13,322,236
MACHINERY AND EQUIPMENT .......... 33,871,214 39,799,065
AUTOMOTIVE EQUIPMENT .............. 83,796 72,469
---------- ----------
43,401,485 53,193,770
LESS ACCUMULATED DEPRECIATION 18,442,154 19,414,274
---------- ----------
24,959,331 33,779,496
LAND ............................... 2,814,613 2,971,297
---------- ----------
27,773,944 36,750,793
OTHER ASSETS
DEPOSITS AND SUNDRY .............. 1,071,481 1,454,168
---------- ----------
$45,758,099 $55,176,737
========== ==========
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
CURRENT MATURITIES OF L/T OBLIGATIONS $ 4,662,289 $ 5,862,490
ACCOUNTS PAYABLE .................. 4,095,791 4,330,188
ACCRUED LIABILITIES ............... 1,193,969 1,497,935
INCOME TAXES PAYABLE ............. 384,745 --
---------- ----------
TOTAL CURRENT LIABILITIES 10,336,794 11,690,613
LONG - TERM OBLIGATIONS ............. 10,640,363 19,884,877
DEFERRED INCOME TAXES .............. 1,848,000 1,810,000
MINORITY INTEREST .................... 471,246 459,782
SHAREHOLDERS' EQUITY
COMMON STOCK ...................... 2,882,322 2,820,937
RETAINED EARNINGS ................. 19,596,240 18,522,327
CUMULATIVE FOREIGN CURRENCY
TRANSLATION ADJUSTMENT ........... (16,866) (11,799)
---------- ----------
22,461,696 21,331,465
---------- ----------
$45,758,099 $55,176,737
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
7/31/96 7/31/97
----------- -----------
<S> <C> <C>
NET SALES ..................... $ 14,335,410 $ 12,922,618
COST OF GOODS SOLD .......... 12,378,521 12,283,558
---------- ----------
GROSS PROFIT ................ 1,956,889 639,060
SALES AND MARKETING EXPENSES .. 689,674 640,089
ADMINISTRATIVE EXPENSES ........ 750,841 588,355
---------- ----------
1,440,515 1,228,444
---------- ----------
OPERATING INCOME (LOSS) 516,374 (589,384)
OTHER (INCOME) DEDUCTIONS
INTEREST EXPENSE ............ 368,645 354,993
EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATE ... (131,848) (32,528)
MINORITY INTEREST IN LOSS
OF SUBSIDIARY .............. -- (28,375)
RENTAL INCOME ............... (78,000) (90,860)
SUNDRY ....................... (6,185) (18,328)
---------- ----------
152,612 184,902
---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES 363,762 (774,286)
INCOME TAXES .................. 139,600 (272,000)
---------- ----------
NET EARNINGS (LOSS) .......... $ 224,162 $ (502,286)
========== ==========
PER SHARE DATA :
NET EARNINGS (LOSS) PER SHARE $0.04 $(0.10)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ......... 5,385,257 5,097,843
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
</TABLE>
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
7/31/96 7/31/97
----------- -----------
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS (LOSS) .................... $ 224,162 $ (502,286)
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION ............................ 930,000 979,320
GAIN ON SALE OF EQUIPMENT ............ -- (325)
MINORITY INTEREST IN LOSS OF SUBSIDIARY -- (28,375)
DEFERRED INCOME TAXES ................. 19,600 (38,000)
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATE (131,848) (32,528)
CHANGES IN ASSETS AND LIABILITIES,
NET OF EFFECTS FROM ACQUISITION
ACCOUNTS RECEIVABLE .................... 467,053 535,518
INVENTORIES ............................. 873,313 113,983
PREPAID EXPENSES ....................... 10,898 3,362
OTHER ASSETS ........................... (77,913) (382,687)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (224,670) 153,618
---------- ----------
TOTAL ADJUSTMENTS ................... 1,866,433 1,303,886
---------- ----------
NET CASH PROVIDED BY OPERATIONS 2,090,595 801,600
CASH FLOWS FROM INVESTING ACTIVITIES
CAPITAL EXPENDITURES ................... (468,131) (456,169)
MINORITY INTEREST CAPITAL CONTRIBUTION .
TO SUBSIDIARY ..................... -- 16,911
PAYMENT FOR PURCHASE OF PRINTED CIRCUIT BOARD
OPERATION OF PHILLIPS ............... -- (10,150,000)
PROCEEDS FROM SALE OF EQUIPMENT ...... -- 325
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES . (468,131) (10,588,933)
<PAGE>
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
NET BORROWINGS UNDER LINE OF CREDIT .. (2,140,735) 1,315,463
REPURCHASE OF COMMON STOCK ........... -- (633,012)
PROCEEDS FROM LONG - TERM OBLIGATIONS .. 1,500,000 10,426,363
PAYMENTS ON LONG - TERM OBLIGATIONS .... (999,676) (1,297,111)
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES .............. (1,640,411) 9,811,703
EFFECT OF FOREIGN EXCHANGE RATE CHANGES -- 5,067
---------- ----------
(DECREASE) INCREASE IN CASH .............. (17,947) 29,437
CASH AT THE BEGINNING OF THE PERIOD 243,269 294,204
---------- ----------
CASH AT THE END OF THE PERIOD $ 225,322 $ 323,641
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST .............................. $ 365,291 $ 401,139
INCOME TAXES ......................... 110,000 189,227
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. These interim Consolidated Condensed Financial Statements should be read
in conjunction with the Consolidated Financial Statements and notes
included in the Company's April 30, 1997 Annual Report and Form 10-K.
2. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial information reflects all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of
the statements contained herein.
3. These consolidated statements are presented in accordance with the
requirements of Form 10-Q and consequently may not include all
disclosures normally required by generally accepted accounting
principles normally made in the Company's Annual Report and Form 10-K.
4. Effective July 28, 1997, the Company, through a recently formed
affiliate, Circuit Systems of Tennessee, a Tennessee limited partnership
("CST, LP"), acquired the printed circuit board operation of Philips
Consumer Electronics Company ("Philips"), a division of Philips
Electronics North America Corporation. The acquisition consisted of
inventory, machinery and equipment, land and building for an aggregate
cost of $10,150,000, including direct costs of acquisition.
The purchase price was allocated as follow:
Inventory $ 670,000
Machinery and equipment 5,480,000
Building 3,845,000
Land 155,000
----------
$ 10,150,000
==========
The purchase was funded through term and mortgage notes with the
Company's commercial lender. The acquisition has been accounted for as
a purchase and the operations have been included from the effective
date of the acquisition. In addition, CST, LP and Philips entered into
a printed circuit board ("PCB") purchase agreement in which CST, LP will
manufacture and sell to Philips all of its television PCB requirements
for North America for a minimum of two years.
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note: To the extent any statements in this Form 10-Q may be deemed to be
forwardlooking, such statements should be evaluated in the context of the
risks and uncertainties inherent in the Company's business, including those
risks and uncertainties set forth in the Company's Annual Report and Form
10-K for the fiscal year ended April 30,1997.
Effective July 28, 1997, the Company, through a recently formed affiliate,
Circuit Systems of Tennessee, a Tennessee limited partnership ("CST, LP"),
acquired the printed circuit board operation of Philips Consumer Electronics
Company ("Philips"), a division of Philips Electronics North America
Corporation. The acquisition consisted of inventory, machinery and
equipment, land and building for an aggregate cost of $10,150,000, including
the direct costs of acquisition. The purchase was funded through term and
mortgage notes with the Company's commercial lender. The acquisition has
been accounted for as a purchase and the operations have been included from
the effective date of the acquisition.
Net sales for the quarter ended July 31, 1997, were $12,923,000, decreasing
by 9.9% when compared to $14,335,000 for the same quarter last year. The
decrease in sales is primarily due to a general decrease in business activity
within the existing customer base. Net sales to three customers accounted
for approximately $7,580,000 or 59% for the quarter ended July 31, 1997,
compared to three customers representing approximately $6,983,000 or 49% of
net sales for the same quarter last year.
Gross profit for the quarter was $639,000 or 4.9% of net sales, compared to
$1,957,000 or 13.7% of net sales for the same quarter last year. The lower
gross profit is attributed to a reduction in sales for the first quarter
which had an adverse effect on covering fixed expenses and continued pressure
on pricing. These factors in effect caused expenses to increase as a
percentage of sales.
Sales and marketing, and administrative expenses for the quarter were
$1,228,000 or 9.5% of net sales, compared to $1,441,000 or 10.1% of net sales
for the same quarter last year. The decrease in the expenses as a percentage
of net sales is due to a decrease in professional fees and bad debt expense
which was offset by administrative expenses related to CST, LP and CSI
(India) and an increase in salaries.
Other deductions-net was $185,000 for the current quarter compared to
$153,000 for the same quarter last year. The equity in the earnings of
SigmaTron decreased to $33,000 for the current quarter compared to $132,000
for the same period last year. This was offset by a decrease in interest
expense to $355,000 in the current year from $369,000 (due to decreased
borrowings), an increase in rental income to $91,000 from $78,000 and a
credit of $28,000 for minority interest in the loss of the Indian subsidiary
during the current quarter.
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The effective income tax rate for the quarter ended July 31, 1997 is 35.1%,
compared to the 1996 rate of 38.4%. The lower income tax rate is due to the
operating loss in the current quarter and the inability to recognize the tax
effects of certain foreign net operating losses.
The net loss and loss per share for the quarter ended July 31, 1997 were
$502,000 and $.10, respectively, compared to net earnings and earnings per
share of $224,000 and $.04, respectively, for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial requirements were met through cash generated from
operations and an increase in long-term obligations.
For the quarter ended July 31, 1997, the Philips acquisition of $10,150,000,
payments on long-term obligations of $1,297,000, repurchase of the Company's
common stock of $633,000 and capital expenditures of $456,000 were funded
by cash provided by operations, proceeds from long-term obligations of
$10,426,000 and net borrowings on the line of credit of $1,315,000.
The Company renewed its line of credit for $10,000,000, consisting of
$6,000,000, which matures August 31, 1999 and $4,000,000, which matures on
August 31, 1998.
The Company has purchase commitments as of July 31, 1997 of approximately
$2,700,000 for future deliveries of machinery and equipment and $350,000 for
building improvements to the 2400 E. Lunt Avenue property. The Company
intends to finance such purchases through collateralized borrowing,
installment loans and existing cash flow.
The Company's backlog at July 31, 1997, is approximately $18,790,000 which
includes approximately $9,066,000 for CST, LP (which is primarily product
for Philips) compared to $15,004,000 at July 31, 1996. Backlog
represents orders scheduled to be shipped within approximately four months or
less. The reliability of backlog as an indicator of future sales varies
substantially with makeup of customer orders and the Company's scheduled
production and delivery dates.
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
PART 2 - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 11 - Calculation of Primary and Fully Diluted Per Share
Earnings
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
July 31, 1997.
<PAGE>
<TABLE>
Exhibit 11
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS (LOSS)
PRIMARY EPS THREE MONTHS ENDED
7/31/96 7/31/97
---------- ----------
<C> <C>
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD ... 5,321,973 5,097,843
NET ADDITIONAL SHARES ASSUMING DILUTIVE
STOCK OPTIONS EXERCISED AND PROCEEDS
USED TO PURCHASE TREASURY SHARES AT
AVERAGE FAIR MARKET VALUE .............. 63,285 32,594
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON EQUIVALENT SHARES OUTSTANDING 5,385,258 5,130,437
========= =========
NET EARNINGS (LOSS) ...................... $ 224,162 $ (502,286)
========= =========
PRIMARY EARNINGS (LOSS) PER SHARE ........ $0.04 $(0.10)
========= =========
FULLY DILUTED EPS
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD ... 5,321,973 5,097,843
NET ADDITIONAL SHARES ASSUMING DILUTIVE
STOCK OPTIONS EXERCISED AND PROCEEDS
USED TO PURCHASE TREASURY SHARES AT
FAIR MARKET VALUE (OR AVERAGE FAIR
MARKET VALUE IF HIGHER) ................. 63,285 35,441
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON EQUIVALENT SHARES OUTSTANDING 5,385,258 5,133,284
========= =========
NET EARNINGS (LOSS) ...................... $ 224,162 $ (502,286)
========= =========
FULLY DILUTED EARNINGS (LOSS) PER SHARE $0.04 $(0.10)
========= =========
</TABLE>
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, registrant's principal financial officer, thereunto duly
authorized.
Circuit Systems, Inc.
(registrant)
\s\ Dilip S. Vyas
--------------------------
Dilip S. Vyas
(Principal Financial Officer)
September 11, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUL-31-1997
<CASH> 323,641
<SECURITIES> 0
<RECEIVABLES> 6,576,264
<ALLOWANCES> 500,000
<INVENTORY> 7,172,838
<CURRENT-ASSETS> 14,098,055
<PP&E> 56,165,067
<DEPRECIATION> 19,414,274
<TOTAL-ASSETS> 55,176,737
<CURRENT-LIABILITIES> 11,690,613
<BONDS> 19,884,877
0
0
<COMMON> 2,820,937
<OTHER-SE> 18,522,327
<TOTAL-LIABILITY-AND-EQUITY> 55,176,737
<SALES> 12,922,618
<TOTAL-REVENUES> 12,922,618
<CGS> 12,283,558
<TOTAL-COSTS> 12,283,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354,993
<INCOME-PRETAX> (774,286)
<INCOME-TAX> (272,000)
<INCOME-CONTINUING> (502,286)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (502,286)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
