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 January 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: February 28, 1997 5,316,973.
<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 Earnings ........ 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>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
4/30/96 1/31/97
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS ................ $243,269 $305,911
ACCOUNTS RECEIVABLE, LESS
ALLOWANCE OF ($475,000 AND $675,000) 8,119,134 7,623,937
INVENTORIES
RAW MATERIALS ......................... 3,909,818 3,055,527
WORK IN PROCESS ..................... 2,094,047 3,171,672
FINISHED GOODS ....................... 1,596,777 2,119,312
---------- ----------
7,600,642 8,346,511
DEFERRED INCOME TAXES ................. 408,000 408,000
PREPAID EXPENSES ....................... 193,137 224,791
---------- ----------
TOTAL CURRENT ASSETS ............. 16,564,182 16,909,150
INVESTMENT IN AFFILIATE ................. 2,587,609 3,131,640
PROPERTY, PLANT, AND EQUIPMENT - AT COST
BUILDING AND IMPROVEMENTS ............. 8,397,345 8,981,780
MACHINERY AND EQUIPMENT ............... 29,971,227 32,947,647
AUTOMOTIVE EQUIPMENT ................... 64,789 64,789
---------- ----------
38,433,361 41,994,216
LESS ACCUMULATED DEPRECIATION ....... 15,894,629 18,684,629
---------- ----------
22,538,732 23,309,587
LAND .................................... 2,351,703 2,351,703
---------- ----------
24,890,435 25,661,290
OTHER ASSETS
DEPOSITS AND SUNDRY ................... 1,774,028 2,268,954
---------- ----------
$45,816,254 $47,971,034
========== ==========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF L/T OBLIGATIONS $ 3,523,979 $ 3,857,435
ACCOUNTS PAYABLE ...................... 3,659,482 4,518,726
ACCRUED LIABILITIES ................... 1,012,121 1,175,525
INCOME TAXES PAYABLE ................. 322,432 591,471
---------- ----------
TOTAL CURRENT LIABILITIES 8,518,014 10,143,157
LONG - TERM OBLIGATIONS ................. 14,535,823 13,693,613
DEFERRED INCOME TAXES .................. 1,560,000 1,673,000
SHAREHOLDERS' EQUITY
COMMON STOCK .......................... 3,002,599 2,971,974
RETAINED EARNINGS ..................... 18,199,818 19,489,290
---------- ----------
21,202,417 22,461,264
---------- ----------
$45,816,254 $47,971,034
========== ==========
</TABLE>
<PAGE>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -------------------------
1/31/96 1/31/97 1/31/96 1/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES .............. $17,189,073 $16,623,829 $52,172,234 $49,359,056
COST OF GOODS SOLD........ 14,386,647 13,795,611 43,360,662 42,500,460
---------- ---------- ---------- ----------
GROSS PROFIT ....... 2,802,426 2,828,218 8,811,572 6,858,596
SELLING EXPENSES ........ 935,259 896,327 2,423,492 2,450,120
ADMINISTRATIVE EXPENSES.. 543,532 586,266 1,553,478 1,993,799
---------- ---------- ---------- ----------
1,478,791 1,482,593 3,976,970 4,443,919
OPERATING INCOME .... 1,323,635 1,345,625 4,834,602 2,414,677
OTHER (INCOME)/DEDUCTIONS
INTEREST EXPENSE ...... 414,201 405,000 1,122,564 1,165,508
GAIN ON SALE OF EQUIPMENT (24,104) --- (42,704) ---
EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATE (167,289) (150,373) (354,148) (544,031)
RENTAL INCOME ....... (105,384) (91,160) (439,983) (247,760)
SUNDRY ............... (32,081) (27,408) (49,205) (51,512)
---------- --------- ---------- ----------
85,343 136,059 236,524 322,205
EARNINGS BEFORE
INCOME TAXES 1,238,292 1,209,566 4,598,078 2,092,472
INCOME TAXES ......... 483,000 464,000 1,793,000 803,000
---------- ---------- ----------- ----------
NET EARNINGS ....... $755,292 $745,566 $2,805,078 $1,289,472
========== ========== =========== ==========
PER SHARE DATA
NET EARNINGS PER SHARE $0.14 $0.14 $0.52 $0.24
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,378,112 5,339,304 5,344,188 5,360,149
</TABLE>
<PAGE>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
-------------------------
1/31/96 1/31/97
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS ........................... $2,805,078 $1,289,472
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION ............................. 2,556,000 2,790,000
GAIN ON SALE OF PROPERTY & EQUIPMENT ....... (42,704) ---
DEFERRED INCOME TAXES ................... 322,000 113,000
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATE .............................. (354,148) (544,031)
CHANGES IN ASSETS AND LIABILITIES
ACCOUNTS RECEIVABLE ..................... (256,081) 495,197
INVENTORIES .............................. (4,339,380) (745,869)
PREPAID EXPENSES ........................ 56,507 (31,654)
OTHER ASSETS ............................ 449,405 505,074
ACCOUNTS PAYABLE & ACCRUED LIABILITIES ..... 1,349,112 1,291,687
--------- ---------
TOTAL ADJUSTMENTS .................... (259,289) 3,873,404
--------- ---------
NET CASH PROVIDED BY OPERATIONS .... 2,545,789 5,162,876
CASH FLOWS FROM INVESTING ACTIVITIES
CAPITAL EXPENDITURES ..................... (2,614,677) (2,353,355)
INVESTMENT IN CIRCUIT SYSTEMS (INDIA) LTD... --- (1,000,000)
PROCEEDS FROM SALE OF PROPERTY & EQUIPMENT . 67,100 ---
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ... (2,547,577) (3,353,355)
CASH FLOWS FROM FINANCING ACTIVITIES
NET BORROWINGS UNDER LINE OF CREDIT ... (450,553) (63,879)
ACQUISITION OF STOCK................ ....... --- (30,625)
PROCEEDS FROM LONG - TERM OBLIGATIONS ... 3,000,000 1,500,000
PAYMENTS ON LONG - TERM OBLIGATIONS ..... (2,534,136) (3,152,375)
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .............. 15,311 (1,746,879)
--------- ---------
INCREASE IN CASH ......................... 13,523 62,642
CASH AT THE BEGINNING OF THE PERIOD .... 127,865 243,269
--------- ---------
CASH AT THE END OF THE PERIOD ......... $ 141,388 $ 305,911
========= =========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST ................................. $1,107,889 $1,160,237
INCOME TAXES ............................ 1,437,739 465,000
SUPPLEMENTAL SCHEDULE OF NON - CASH INVESTING
AND FINANCING ACTIVITIES:
CAPITAL LEASES FOR NEW EQUIPMENT ....... $3,650,967 $1,207,500
</TABLE>
<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, 1996 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
princples normally made in the Company's Annual Report and Form 10-K.
4. In January 1997, the Company invested an additional $1,000,000 in cash
in its 70% owned subsidiary, Circuit Systems (India) Limited (``CSIL''),
located in Gandhinagar, India. CSIL then acquired the pcb manufacturing
facility, leasehold land and machinery and equipment of the electronics
division of Stovec Industries Limited, also located in Gandhinagar,India,
for approximately $1,400,000. The acquisition will be accounted for as
a purchase and the purchase price will be allocated to property, plant,
and equipment based upon appraisals, relevant facts, etc. ascertained
during the fourth quarter.
The Company's investment in CSIL, consisting of approximately $450,000
of machinery and equipment and $1,000,000 in cash are currently recorded
under Property, Plant and Equipment and Other Assets, respectively.
The results of operations of CSIL for the quarter and nine months ended
January 31, 1997 are immaterial.
<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, 1996.
The net sales for the quarter ended January 31, 1997 were $16,624,000
decreasing by 3.3% from $17,189,000 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 59% of net sales for the quarter ended January 31, 1997,
compared to the same period last year in which three customers accounted for
approximately 47% of net sales. The gross profit for the quarter was
$2,828,000 or 17.0% of net sales, compared to $2,802,000 or 16.3% of net
sales for the same quarter last year. The higher gross profit is attributed
to a change in product mix, and slightly lower material and labor expenses as
a percentage of sales.
The net sales for nine months ended January 31, 1997 were $49,359,000,
decreasing by 5.4% from $52,172,000 for the same period last year. Net
sales to three customers accounted for approximately 56% of net sales for
the nine months ended January 31, 1997, compared to the same period last
year, in which three customers accounted for approximately 38% of net sales.
The sales decline is attributed to the general slowdown in the first quarter
within the industry. The gross profit for the nine months ended January 31,
1997, was $6,859,000 or 13.9% of net sales, compared to $8,812,000 or 16.9%
of net sales for the same period in the prior year. The lower gross profit
is attributed to a reduction in sales throughout the year, continued pressure
on pricing, a change in product mix and the overall increase in production
equipment/capacity with the completion of the manufacturing facility at 2400
E. Lunt Avenue.
Sales and marketing and administrative expenses for the three and nine months
ended January 31, 1997, were $1,483,000 or 8.9% of net sales and $4,444,000
or 9.0% of net sales, respectively, compared to $1,479,000 or 8.6% of net
sales and $3,977,000 or 7.6% of net sales, respectively, for the same periods
last year. The increase in the expenses as a percentage of net sales is due
to increases in salaries, professional services, commissions (higher
commissionable sales base) and bad debt expense.
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other deductions-net for the three and nine months ended January 31, 1997,
were $136,000 and $322,000, respectively, compared to $85,000 and $237,000,
respectively, for the same periods in the prior year. Comparison for the
three months ended January 31, 1997 to the same period last year: interest
expense declined to $405,000 from $414,000, equity in the net earnings of the
unconsolidated affiliate, SigmaTron, declined to $150,000 from $167,000,
rental income decline to $91,000 from $105,000 and sundry and other income
decreased to $27,000 from $56,000. Comparison for the nine months ended
January 31, 1997, to the same period last year: interest expense increased
to $1,166,000 from $1,123,000 (due to increased borrowings), equity in the
net earnings of the unconsolidated affiliate, SigmaTron, increased to
$544,000 from $354,000 (due to SigmaTron's sales growth and related net
earnings for the current year), and rental income decreased to $248,000
from $440,000 (due to the non-rental of the 2400 and 2450 E. Lunt Avenue
locations).
The effective income tax rate for the nine months ended January 31, 1997 is
38.4% compared to 39.0% for the same period in prior year.
The net earnings and earnings per share for the three and nine months ended
January 31, 1997 were $746,000 or $.14 and $1,289,000 or $.24, respectively,
compared to $755,000 or $.14 and $2,805,000 or $.52, respectively, for the
same periods in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial requirements were met through cash generated from
operations and increased borrowings.
For the nine months ended January 31, 1997, payments on long-term obligations
of $3,152,000, capital expenditures of $2,353,000, an additional investment
of $1,000,000 in CSIL and the increase in inventories of $746,000 were funded
by operating income, proceeds from long-term obligations of $1,500,000,
increase in accounts payable and accrued liabilities of $1,292,000, and a
decrease in accounts receivable of $495,000.
In January 1997, the Company invested an additional $1,000,000 in cash in its
70% owned subsidiary, CSIL located in Gandhinagar, India. CSIL then acquired
the pcb manufacturing facility, leasehold land and machinery and equipment of
the electronics division of Stovec Industries Limited, also located in
Gandhinagar, India, for approximately $1,400,000.
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During February 1997, the Company's Board of Directors authorized the Company
to repurchase up to 250,000 shares of the Company's common stock and to sell
up to 68,000 shares of the common stock of its investment in SigmaTron.
Through February 28, 1997, the Company repurchased 48,900 shares of its
stock for approximately $226,000 and sold 68,000 shares of SigmaTron's
stock for approximately $1,475,000.
The Company has purchase commitments as of January 31,1997 of approximately
$1,800,000 for future deliveries of machinery and equipment, and $100,000 for
building improvements at the 2400 E. Lunt Avenue location. The Company
intends to finance such purchases through collateralized borrowings,
installment loans and existing cash flow.
The Company's backlog at January 31, 1997 is approximately $11,678,000
compared to $11,084,000 at January 31, 1996. Backlog represents orders
scheduled to be shipped with in approximately six months, but most of which
is shipped in four months or less. The reliability of backlog as an
indicator of future sales varies substantially with the make-up 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
January 31, 1997.
<PAGE>
<TABLE>
Exhibit 11
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- ---------------------
PRIMARY EPS 1/31/96 1/31/97 1/31/96 1/31/97
-------------------- ---------------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD 5,321,973 5,318,495 5,321,973 5,320,814
NET ADDITIONAL SHARES
ASSUMING DILUTIVE STOCK OPTIONS
EXERCISED AND PROCEEDS USED TO
PURCHASE TREASURY SHARES AT
AVERAGE FAIR MARKET VALUE 56,139 20,809 22,215 39,335
--------- --------- --------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,378,112 5,339,304 5,344,188 5,360,149
--------- --------- --------- ---------
NET EARNINGS $755,292 $745,566 $2,805,078 $1,289,472
========= ========= ========= =========
PRIMARY EARNINGS PER SHARE $0.14 $0.14 $0.52 $0.24
========= ========= ========= =========
FULLY DILUTED EPS
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD 5,321,973 5,318,495 5,321,973 5,320,814
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) 60,543 27,162 60,543 39,335
--------- --------- --------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,382,516 5,345,657 5,382,516 5,360,149
--------- --------- --------- ---------
NET EARNINGS $755,292 $745,566 $2,805,078 $1,289,472
========= ========= ========= =========
FULLY DILUTED EARNINGS
PER SHARE $0.14 $0.14 $0.52 $0.24
========= ========= ========= =========
</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)
March 13, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 305,911
<SECURITIES> 0
<RECEIVABLES> 8,298,937
<ALLOWANCES> 675,000
<INVENTORY> 8,346,511
<CURRENT-ASSETS> 16,909,150
<PP&E> 44,345,919
<DEPRECIATION> 18,684,629
<TOTAL-ASSETS> 47,971,034
<CURRENT-LIABILITIES> 10,143,157
<BONDS> 13,693,613
0
0
<COMMON> 2,971,974
<OTHER-SE> 19,489,290
<TOTAL-LIABILITY-AND-EQUITY> 47,971,034
<SALES> 49,359,056
<TOTAL-REVENUES> 49,359,056
<CGS> 42,500,460
<TOTAL-COSTS> 42,500,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 200,000
<INTEREST-EXPENSE> 1,165,508
<INCOME-PRETAX> 2,092,472
<INCOME-TAX> 803,000
<INCOME-CONTINUING> 1,289,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,289,472
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
