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, 1999.
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.)
2400 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 addressand
including area code) 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, 1999, 3,944,358
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets ................ 3
Consolidated Condensed Statements of Operations ...... 4
Consolidated Condensed Statements of Cash Flows ...... 5
Notes to Consolidated Condensed Financial Statements.. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risks .......................................... 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 12
SIGNATURES...................................................... 13
<PAGE>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
1/31/99 4/30/98
---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS . . . $ 876,009 $ 1,531,526
ACCOUNTS RECEIVABLE, LESS ALLOWANCE
OF $175,000 AND $150,000, RESPECTIVELY 13,973,482 14,286,084
INVENTORIES
RAW MATERIALS. . . . . . . . . . . 3,709,649 3,118,101
WORK IN PROCESS.. . . . . . . . . 2,985,954 2,533,346
FINISHED GOODS. . . . . . . . . . 2,129,813 2,863,661
---------- -----------
8,825,416 8,515,108
REFUNDABLE INCOME TAXES. . . . . . . 1,020,000 1,150,000
DEFERRED INCOME TAXES. . . . . . . . 330,000 330,000
PREPAID EXPENSES. . . . . . . . . . . 130,864 572,082
---------- -----------
TOTAL CURRENT ASSETS. . . . . . . 25,155,771 26,384,800
INVESTMENT IN AFFILIATE. . . . . . . . . 3,047,017 2,930,595
PROPERTY, PLANT AND EQUIPMENT - AT COST
BUILDING AND IMPROVEMENTS. . . . . . 14,959,733 13,686,852
MACHINERY AND EQUIPMENT. . . . . . . 51,138,025 43,073,334
AUTOMOTIVE EQUIPMENT. . . . . . . . . 111,081 98,938
---------- -----------
66,208,839 56,859,124
LESS ACCUMULATED DEPRECIATION. 26,765,617 22,740,838
---------- -----------
39,443,222 34,118,286
LAND. . . . . . . . . . . . . . . 3,040,453 2,693,089
---------- -----------
42,483,675 36,811,375
OTHER ASSETS
GOODWILL, NET . . . . . . . . . . . 6,552,812 -
DEPOSITS AND SUNDRY. . . . . . . . . 992,733 1,479,927
---------- -----------
TOTAL OTHER ASSETS . . . . . . . 7,545,545 1,479,927
---------- -----------
TOTAL ASSETS. .. . . . . . . . $78,232,008 $67,606,697
========== ==========
<PAGE>
LIABILITIES AND SHAREHOLDERS. EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF L/T OBLIGATIONS. $ 7,081,000 $ 7,088,855
ACCOUNTS PAYABLE. . .. . . . . . . . . 8,245,170 10,203,540
ACCRUED LIABILITIES. . . . . . . . . . 2,261,138 1,880,966
INCOME TAXES PAYABLE. . . . . . . . . 71,894 -
---------- -----------
TOTAL CURRENT LIABILITIES.. . 17,659,202 19,173,361
LONG-TERM OBLIGATIONS. . . . . . . . . . 41,339,211 27,380,107
DEFERRED INCOME TAXES. . . . . . . . . . 2,283,000 2,108,000
MINORITY INTEREST. . . . . . . . . . . . - 417,878
SHAREHOLDERS. EQUITY
COMMON STOCK. . . . . . . . . . . . . 2,228,526 2,554,579
RETAINED EARNINGS. . . . . . . . . . . 14,722,069 16,107,750
CUMULATIVE FOREIGN CURRENCY
TRANSLATION ADJUSTMENT. . . . . . . - (134,978)
---------- -----------
TOTAL SHAREHOLDERS. EQUITY. . . . 16,950,595 18,527,351
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY. $78,232,008 $67,606,697
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
</TABLE>
<PAGE>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
1/31/99 1/31/98 1/31/99 1/31/98
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES. . . . . $20,708,764 $18,833,070 $68,364,060 $52,228,824
COST OF GOODS SOLD. .. . 18,744,032 17,311,165 59,266,286 47,836,848
---------- ---------- ---------- ----------
GROSS PROFIT. . . . 1,964,732 1,521,905 9,097,774 4,391,976
SALES AND MARKETING EXPENSES 898,339 675,658 2,536,271 2,044,826
ADMINISTRATIVE EXPENSES. . . 930,672 638,196 2,584,761 1,872,064
RESTRUCTURING CHARGE . . . . --- --- 1,520,000 ---
---------- ---------- ---------- ----------
1,829,011 1,313,854 6,641,032 3,916,880
OPERATING INCOME. . . . 135,721 208,051 2,456,742 475,096
OTHER (INCOME) DEDUCTIONS
INTEREST EXPENSE. . . . 931,312 679,202 2,371,216 1,695,359
INTEREST RECEIVED . . . (37,895) (2,785) (39,733) (8,894)
GAIN ON SALE OF EQUIPMENT --- --- --- (325)
EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATE. (41,425) (1,803) (116,422) (80,291)
RENTAL INCOME . . . . . . (94,347) (100,460) (298,867) (309,780)
MINORITY INTEREST IN LOSS
OF SUBSIDIARY. . . . --- (10,404) (31,782) (61,596)
SUNDRY. . . . . . (160,303) 24,340 (153,725) 10,294
---------- ---------- ---------- ----------
597,342 588,090 1,730,687 1,244,767
EARNINGS (LOSS) BEFORE
INCOME TAXES. . . . . . . . (461,621) (380,039) 726,055 (769,671)
INCOME TAX EXPENSE (BENEFIT) (142,000) (131,000) 305,000 (235,000)
---------- ---------- ---------- ----------
NET EARNINGS (LOSS). $ (319,621) $ (249,039) $ 421,055 $ (534,671)
========== ========== ========== ==========
PER SHARE DATA
NET EARNINGS (LOSS) PER
COMMON SHARE - BASIC . . . $ (0.08) $ (0.05) $ .10 $ (0.11)
========== ========== ========== ==========
NET EARNINGS (LOSS) PER
COMMON SHARE - DILUTED . . $ (0.08) $ (0.05) $ .10 $ (0.11)
========== ========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
</TABLE>
<PAGE>
<TABLE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
1/31/99 1/31/98
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS (LOSS). . . . . . . . . . $ 421,055 $ (534,671)
ADJUSTMENTS TO RECONCILE NET EARNINGS
(LOSS) TO NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION ..... 4,225,715 3,365,862
GAIN ON SALE OF PROPERTY & EQUIPMENT --- (325)
DEFERRED INCOME TAXES ............. 175,000 (73,000)
MINORITY INTEREST IN LOSS OF SUBSIDIARY (31,782) (61,596)
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATE ................ (116,422) (80,291)
CHANGES IN ASSETS AND LIABILITIES, NET OF
EFFECTS FROM ACQUISITION AND DIVESTITURE:
ACCOUNTS RECEIVABLE ................. 1,220,094 (4,197,423)
INVENTORIES ......................... (101,811) (1,601,878)
PREPAID EXPENSES .................... 467,759 (108,618)
OTHER ASSETS ........................ 522,276 (239,150)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (2,989,836) 2,504,733
--------- ----------
TOTAL ADJUSTMENTS .... 3,370,993 (491,686)
--------- ----------
NET CASH PROVIDED BY (USED IN) OPERATIONS 3,792,048 (1,026,357)
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES. . . . . . . . . (7,626,307 (2,442,128)
PROCEEDS FROM SALE OF PROPERTY & EQUIPMENT --- 325
MINORITY INTEREST CAPITAL CONTRIBUTION TO
SUBSIDIARY ...................... ---
BUSINESS ACQUISITIONS, NET OF CASH ACQUIRED (2,751,955) (10,150,000)
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES (10,378,262) (12,591,796)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS UNDER LINE OF CREDIT 5,016,903 9,648,118
ACQUISITION OF STOCK ............... (1,357,789) (2,833,045)
PROCEEDS FROM LONG-TERM OBLIGATIONS 11,123,521 11,249,198
PAYMENTS ON LONG-TERM OBLIGATIONS .. (8,859,264) (3,769,619)
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,923,371 14,294,652
EFFECT OF FOREIGN EXCHANGE RATE CHANGES 7,326 (34,377)
--------- ----------
(DECREASE) INCREASE IN CASH (655,517) 642,122
CASH AT THE BEGINNING OF THE PERIOD. . . 1,531,526 294,204
--------- ----------
CASH AT THE END OF THE PERIOD. . . . . . $ 876,009 $ 936,326
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
INTEREST ........................ $ 2,277,594 $ 1,674,472
INCOME TAXES .................... 183,124 936,326
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
DIVESTITURE OF NET INVESTMENT IN CIRCUIT
SYSTEMS (INDIA) LIMITED AND CIRCUIT SIGMA
INDIA LIMITED IN SATISFACTION OF CERTAIN
ACCRUED LIABILITIES AND REPURCHASE OF
COMMON STOCK $ 1,270,049 $ ---
SUBORDINATED DEBT TO SELLER IN CONJUNCTION
WITH BUSINESS ACQUISITION $ 4,000,000 $ ---
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
</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, 1998
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.
Revenue is recognized by the Company at the time the product is
shipped or in the case of consigned inventory, when placed into
the customer's manufacturing process.
4. The following table illustrates a reconciliation of the
basic and diluted earnings per share calculations.
<PAGE>
<TABLE>
Three Months Ended Nine Months Ended
1/31/98 1/31/98
------- -------
<S> <C> <C> <C> <C>
Net Earnings (Loss) $(249,039) $(534,671)
======== ========
Shares Per Share Shares Per Share
Amount Amount
--------- ------ --------- -------
Basic Earnings (Loss) per Share 5,015,741 $ (0.05) 5,056,792 $ (0.11)
Effect of Dilutive Securities:
Stock Options N/A N/A N/A N/A
--------- ------ --------- -------
Diluted Earnings (Loss) per Share 5,015,741 $ (0.05) 5,056,792 $ (0.11)
========= ====== ========= =======
Three Months Ended Nine Months Ended
1/31/99 1/31/99
------- -------
Net Earnings (Loss) $(319,621) $ 421,055
======== ========
Shares Per Share Shares Per Share
Amount Amount
--------- ------ --------- -------
Basic Earnings (Loss) per Share 4,060,874 $ (0.08) 4,303,799 $ 0.10
Effect of Dilutive Securities:
Stock Options N/A N/A --- ---
--------- ------ --------- -------
Diluted Earnings (Loss) per Share 4,060,874 $ (0.08) 4,303,799 $ 0.10
========= ====== ========= =======
</TABLE>
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Effective for the quarter ended July 31, 1998, the Company
adopted the provisions of Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income", which requires
that an entity report, by major components and as a single total,
the change in its net assets during the period from non-shareholder
resources. Total comprehensive income (loss) for the three months
and nine months ended January 31, 1999 was $ (319,621) and
$502,041, respectively, and for the three months and nine months
ended January 31, 1998 was $(265,895) and $(555,297), respectively.
6. Effective July 27, 1998, the Company's executive vice
president resigned as an officer and director of the Company. In
connection therewith, the Company agreed to repurchase the 181,181
shares held by him for $775,000 and entered into severance and non-
compete agreements and agreed to sell to him its 70% interest in
Circuit Systems (India) Limited and its 100% interest in Circuit
Sigma India Limited.
In addition, during the quarter ended July 31, 1998, the Company
recorded a restructuring charge of approximately $1,520,000,
relating to a reorganization of the Company's management and plant
operations. The majority of the restructuring charge relates to
severance and termination benefits for its executive vice president
and five other managers and supervisors.
7. On August 25, 1998, the Company announced that it entered
into a nonbinding letter of intent with the three shareholders of
Silicon Valley Printed Circuits ("SV") of Santa Clara, California,
to acquire the assets and assume certain liabilities of SV. SV
specializes in quick turnaround production for both prototype and
low to medium volume orders. Through the Company's newly formed
subsidiary, SVPC Circuit Systems, Inc. ("SVPC"), the acquisition was
completed on December 7, 1998 with an effective date of December 1,
1998. The purchase price was $7,000,000 plus the assumption of
certain liabilities of approximately $5,000,000. The purchase price
was funded utilizing $3,000,000 of collateralized bank borrowings
(paid to SV on January 5, 1999) plus $4,000,000 in subordinated
notes, payable over 60 months. The acquisition will be accounted
for as a purchase. The purchase price, including direct costs of
acquisition, was allocated to the assets acquired and liabilities
assumed based upon their estimated fair values. Results of
operations for SVPC is included with those of the Company since
December 1, 1998. The excess of the purchase price over the net
assets acquired, which is approximately $6,655,000, is being
amortized to operations over 10 years.
<PAGE>
The fair value of assets acquired, net of liabilities assumed or
created is as follows.
Current assets, other than cash acquired $(1,831,000)
Plant and equipment (3,872,000)
Purchase price in excess of net assets acquired (6,656,000)
Liabilities assumed and seller subordinated debt 9,607,000
----------
Cash paid, net of cash acquired $(2,752,000)
==========
The prior operating results of SV were maintained on a cash basis
and it is therefore impracticable to provide interim proforma
results of operations from the beginning of the Company's fiscal
year on a combined basis.
8. As of January 4, 1999, the Company changed its lead
commercial lender and entered into a line of credit agreement of
$18,000,000 and a term note in the amount of $7,000,000. The term
note of $7,000,000 was utilized to pay off term debt of
approximately $2,560,000 to the Company's previous lender,
$3,000,000 for the asset purchase from SV and the remaining amount
to reduce line of credit borrowings.
<PAGE>
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements that involve
risks and uncertainties, including Year 2000 matters. The
Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed
herein, as well as those discussed in the Company's Annual Report
on Form 10-K for the year ended April 30, 1998. Reliance on these
forward-looking statements reflect management's analysis only as of
the date hereof. The Company undertakes no obligation to publicly
release the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events. Although the Company believes the expectations expressed
in such forward-looking statements are based on reasonable
assumptions within the bounds of its knowledge of its business, a
number of factors could cause actual results to differ materially
from those expressed in any forward-looking statements, whether
oral or written, made by or on behalf of the Company. Many of
these factors have previously been identified in filings or
statements made by or on behalf of the Company. The Company does
not intend to update these forward-looking statements.
Reference to "IL" hereinafter refers to the Company's Illinois
operations only; reference to "CST" refers to Circuit Systems of
Tennessee; reference to "CSIL" refers to Circuit Systems (India)
Limited; reference to "SVPC" refers to SVPC Circuit Systems, Inc.
Net sales for the quarter ended January 31, 1999, were $20,709,000,
increasing by 10% when compared to $18,833,000 for the same quarter
last year. The net sales of IL, CST, SVPC and CSIL for the fiscal
1999 quarter were $15,108,000, $3,226,000 , $2,375,000 and $0,
respectively, as compared to $14,162,000, $4,685,000, $0 and
$256,000, respectively, for the fiscal 1998 quarter. SVPC sales
for the 1999 period were included from December 1, 1998, the date
of acquisition. The increase in sales is primarily due to the
inclusion of SVPC sales from December 1, 1998, increased activity
within the IL customer base, which was partially offset by a
$1,459,000 decrease in TN sales due to an unanticipated slowdown in
the consumer electronics customer base in early November. Net
sales to four customers accounted for approximately $11,753,000 or
57% for the quarter ended January 31, 1999, compared to four
customers representing approximately 62% of net sales for the same
quarter last year.
<PAGE>
Gross profit for the quarter was $1,965,000 or 9.5% of net sales,
compared to $1,522,000 or 8.1% of net sales for the same quarter
last year. The increase in the gross profit is primarily due to
the increase in the net sales as well as a decrease in the material
and labor costs as a percentage of net sales which is attributable
to improved operating efficiencies and yields. This was partially
offset by an increase in overhead expenses due to the overall
increased infrastructure and capacity of the Company's facilities.
Margins have and will continue to be impacted as a result of
continued pricing pressures, primarily from Asian competition.
The net sales for the nine months ended January 31, 1999 were
$68,364,000, increasing by 31% from $52,229,000 for the same period
last year. CST sales for the 1998 period were included from July
28, 1997, the date of acquisition and SVPC sales for the 1999
period were included from December 1, 1998, the effective date of
acquisition. The net sales of IL, CST, SVPC and CSIL for fiscal
1999 were $49,514,000, $15,863,000, $2,375,000, and $612,000,
respectively, as compared to $41,123,000, $10,677,000, $0 and
$429,000 , respectively, for fiscal 1998. Net sales to four
individual customers accounted for approximately 61% compared to
the same period last year in which four customers accounted for
approximately 63% of net sales. The gross profit for the nine
months ended January 31, 1999 was $9,098,000 or 13.3% of net sales,
compared to $4,392,000 or 8.4% of net sales for the same period in
the prior year. The gross profit for the Company was affected by
the same factors as noted above.
Sales and marketing, and administrative expenses for the three and
nine months ended January 31, 1999, were $1,829,000 or 8.8% of net
sales and $5,121,000 or 7.5% of net sales, respectively, compared
to $1,314,000 or 7.0% of net sales and $3,917,000 or 7.5% of net
sales, respectively, for the same periods last year. 1999
quarterly and year to date expenses have increased in total due to
the inclusion of SVPC from December 1998, which amounted to
approximately $470,000, including amortization of goodwill of
approximately $105,000.In addition, the year to date expenses have
increased due to increased commissions on a larger commissionable
sales base as well as the inclusion of CST for the full period in
1999.
Operating expenses for the nine months ended January 31, 1999 also
included a restructuring charge of $1,520,000 (which was recorded
in the first quarter) relating to the reorganization of the
Company's management and plant operations. The majority of the
charge relates to severance and other termination benefits for an
executive vice president and five other managers and supervisors.
Excluding the restructuring charge, income from operations was
$3,977,000 or 5.8% of net sales for the nine months ended January
31, 1999, compared to income from operations of $475,000 or .9% of
net sales in the prior year.
<PAGE>
Other deductions-net for the three and nine months ended January
31, 1999, were $598,000 and $1,731,000, respectively, compared to
$588,000 and $1,245,000, respectively, for the same periods in the
prior year. Interest expense increased to $931,000 and $2,371,000,
respectively, in 1999, compared to $679,000 and $1,695,000,
respectively, for the same periods last year. The increase is due
to the debt incurred to acquire the Philip's operation in July 1997
and the SVPC operation in December 1998 and increased borrowings
under the line of credit to fund the additional working capital
needs and the Company's stock repurchases during fiscal 1998 and
1999.
The effective income tax rate for the nine months ended January 31,
1999 is 42.0%, compared to the 1998 rate of (30.5)%. The 1999
rate is higher than the federal and state statutory rates due to
the inability to utilize the state tax benefit on the SVPC loss and
the inability to recognize the tax effect of a foreign net
operating loss. The lower effective tax benefit rate in 1998 was
due to the inability to recognize the tax effects of certain
foreign net operating losses.
The net earnings (loss) and diluted earnings (loss) per share for
the three months and nine months ended January 31, 1999, were
$(320,000) or $(0.08), and $421,000 or $0.10, compared to net loss
and diluted loss per share of $(249,000) or $(.05) and $(535,000)
or $(.11) for the three and nine month periods in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations, capital
expenditures, stock repurchases and debt payment requirements
through its line of credit, other collateralized borrowings and
cash generated from operations.
Effective December 1, 1998, the Company, through its newly formed
subsidiary, SVPC Circuit Systems, Inc., completed the acquisition
of assets and assumption of certain liabilities of Silicon Valley
Printed Circuits ("SV") of Santa Clara, California. SV specializes
in quick turnaround production for both prototype and low to medium
volume orders. The purchase price was $7,000,000 plus the
assumption of certain liabilities of approximately $5,000,000. The
purchase price was funded utilizing $3,000,000 of collateralized
bank borrowings (paid to SV on January 5, 1999) plus $4,000,000 in
subordinated notes, payable over 60 months. The acquisition is
accounted for as a purchase. The purchase price, including direct
costs of acquisition, has been allocated to the assets acquired and
liabilities assumed based upon their estimated fair values.
Results of operations for SVPC have been included with those of the
Company since December 1, 1998, the date of the acquisition. The
excess of the purchase price over the net assets acquired of
approximately $6,656,000, is being amortized to operations over 10
years.
<PAGE>
As of January 4, 1999, the Company changed its commercial lender
and entered into a line of credit agreement of $18,000,000 and a
term note of $7,000,000. The maximum borrowings of $18,000,000 is
limited to 85% of eligible accounts receivable, 75% of eligible
finished goods (not to exceed $2,500,000) and 50% of eligible raw
material inventory (not to exceed $2,000,000). At January 31,
1999, the line of credit was fully utilized. The agreement
contains certain covenants, which restrict the amount of dividends
the Company could pay, capital stock redemptions, and capital
expenditures. Other financial covenants pertain to the maintenance
of specified debt to tangible net worth and debt service ratios and
minimum EBITDA and tangible net worth as defined.
Effective July 27, 1998, the Company's executive vice president
resigned as an officer and director of the Company. In connection
therewith, the Company agreed to repurchase the 181,181 shares
owned by him for $775,000 and entered into severance and non-
compete agreements and agreed to sell to him its 70% interest in
Circuit Systems (India) Limited and its 100% interest in Circuit
Sigma India Limited. The net cash outlay to the former officer is
approximately $400,000, which is payable in August 1998 and April
1999.
In November 1998, the Company received minority status certification
from the Chicago Minority Business Development Council, Inc.
The Company has purchase commitments as of January 31, 1999 of
approximately $2,900,000 for future deliveries of machinery and
equipment. The Company has completed the move of a majority of its
administrative staff to the 2400 E. Lunt Avenue property. In
addition, the Company has purchase commitments of approximately
$1,200,000 for future deliveries of machinery and equipment,
installation of equipment purchased through auction earlier in the
year, and other capital improvements to the 2450 E. Lunt Avenue
property. The Company intends to initially dedicate production
within this facility to automotive related customers and has
received purchase orders from United Technologies Automotive for
certain production within this facility. The Company intends to
finance such capital expenditures through collateralized borrowings
and existing cash flow. The amount of anticipated capital
expenditures will frequently change based on future changes in
business plans.
The Company's backlog at January 31, 1999 is approximately
$15,127,000, which included approximately $5,654,000 for CST and
$450,000 for SVPC, compared to $18,135,000 at January 31, 1998,
which included approximately $5,670,000 for CST. Backlog is
comprised of orders for which artwork has been received, a delivery
date has been scheduled and the Company reasonably anticipates it
will manufacture and deliver the order. The majority of the
January 31, 1999 backlog, excluding SVPC, is scheduled to be
shipped within approximately 4 months. SVPC's backlog is generally
scheduled to be shipped within three weeks. The reliability of
backlog as an indicator of future sales varies substantially with
the make-up of customers' orders and the Company's scheduled
production and delivery dates. A significant portion of the
Company's backlog at any time may be subject to cancellation or
postponement without penalty.
<PAGE>
YEAR 2000 COMPLIANCE
During the first nine months of fiscal 1999, the Company continued
its Year 2000 compliance project as previously discussed in its
1998 Form 10-K. In addition, the Company has formed a committee of
officers and others to review Year 2000 compliance issues and their
resolution. An independent consulting firm was hired to review the
computer design, embedded systems and business systems. In all
three areas, based on current design and proposed new hardware and
software, the firm believed that the Company would not be
materially impacted by the Year 2000 issues.
The Company continues its internal assessment of operations,
equipment, etc. on a plant by plant basis. The Company believes
that its internal assessment of all facilities will be completed by
April 1999. The majority of the Company's facilities are in the
process of implementing a new Enterprise Resource Planning ("ERP")
II system which will provide shop floor inventory tracking and
integrated accounting modules. The implementation process is
approximately 40-50% complete and is expected to be completed by
June 1999. The Company believes that this software is Year 2000
compliant.
As a part of the Company's plan, the Company surveyed its
supplier's Year 2000 compliance status. To date, the Company has
received responses from its key suppliers. The Company will
continue to update these responses and will follow up with those
suppliers who indicated they were not Year 2000 compliant.
However, if certain critical suppliers, such as those supplying
electricity, water, transportation or critical materials experience
a disruption of service or delivery of supplies to the Company, a
shutdown of the Company's operation could occur. The Company has
not yet developed a contingency plan to handle such events, but
intends to develop such a plan by September 1999. In addition, a
Year 2000 compliance failure with respect to a major customer could
materially impact the Company's ability to process customer orders
on or after January 1, 2000.
The Company currently estimates that it has expended approximately
$175,000 in external costs associated with consultants, hardware
and software in addressing the Year 2000 issue and anticipates it
will spend an additional $125,000 for hardware, consulting and
training. These estimates are subject to change as additional
information is obtained. The Company may also retain outside
consultants to assist in certain areas, which would increase the
expenses for the Year 2000 issue.
<PAGE>
The Company's assessments and plans to complete its Year 2000
project are based upon management's best estimates, which were
derived utilizing presently available information and numerous
assumptions about future events such as availability of certain
resources, ability to identify and correct relevant codes and other
uncertainties. The Company believes that its compliance with Year
2000 issues will not have a material adverse impact on its
business, operations or financial condition.
Item 3. Quantitative and Qualitative Disclosures about Market
Risks
Not Applicable.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
None.
<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/ James E. Robbs
James E. Robbs
Chief Financial Officer
(Principal Financial Officer)
March 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY OF FINANCIAL
INFORMATION EXTRACTED FROM FORM 10 - Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JAN-31-1999
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<PP&E> 69,249,292
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<BONDS> 41,339,211
0
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<COMMON> 2,228,526
<OTHER-SE> 14,722,069
<TOTAL-LIABILITY-AND-EQUITY> 78,232,008
<SALES> 68,364,060
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<CGS> 59,266,286
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