SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 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 30, 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 0-11691
ELEXSYS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3534864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1188 Bordeaux Drive, Sunnyvale, California 94089
(Address of principal executive offices) (Zip Code)
(408) 743-5400
(Registrant's telephone number, including area code)
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__
At April 10, 1996, there were 9,152,800 outstanding shares of
common stock.
This report consists of 11 pages
ELEXSYS INTERNATIONAL, INC.
FORM 10-Q
INDEX
Page
Part I. Financial Information:
Item 1.
Consolidated Balance Sheets as of March 30, 1996 and September 30, 1995.......... 2
Consolidated Statements of Operations for the Three and Six Months
Ended March 30, 1996 and April 1, 1995........................................... 3
Consolidated Statements of Cash Flows for the Three and Six Months
Ended March 30, 1996 and April 1, 1995........................................... 4
Notes to the Consolidated Financial Statements................................... 5
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 7
Part II. Other Information:
Item 4.
Submission of Matters to Vote of Security Holders............................... 9
Item 6.
Exhibits........................................................................ 10
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 30, September 30,
1996 1995
---------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $285 $903
Accounts receivable, net 16,800 15,653
Inventories 8,648 7,860
Prepaid expenses and other current assets 1,025 709
------- -------
Total current assets 26,758 25,125
------- -------
Property, plant and equipment, net 21,096 18,980
Other assets 988 1,034
------- -------
Total assets $48,842 $45,139
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,785 $9,854
Accrued payroll and related costs 2,409 2,521
Other current liabilities 1,205 1,965
Short-term borrowings 1,178 3,248
Current portion of long-term debt 220 363
------- -------
Total current liabilities 16,797 17,951
------- -------
Long-term debt 1,468 1,280
Convertible subordinated debentures 12,000 12,000
Stockholders' equity:
Common stock, $1.00 par value, 20,000,000 shares authorized, 9,148,460 shares
issued and outstanding at March 30, 1996 and 8,960,560 shares issued and
outstanding at September 30, 1995 9,149 8,961
Additional paid-in capital 5,743 5,460
Retained earnings (deficit) 3,748 (491)
Cumulative foreign currency translation adjustment (63) (22)
------- -------
Net stockholders' equity 18,577 13,908
------- -------
Total liabilities and stockholders' equity $48,842 $45,139
======= =======
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
------------- ------------- ------------- -------------
Net sales $30,388 $23,407 $59,299 $46,160
Cost of sales 24,682 21,541 48,215 41,424
------------- ------------- ------------- -------------
Gross profit 5,706 1,866 11,084 4,736
Operating expenses:
Selling, general and administrative 3,133 2,200 6,074 4,266
Research and development 97 126 140 249
------------- ------------- ------------- -------------
Total operating expenses 3,230 2,326 6,214 4,515
------------- ------------- ------------- -------------
Income (loss) from operations 2,476 (460) 4,870 221
Interest expense, net 263 410 628 841
------------- ------------- ------------- -------------
Income (loss) before income taxes 2,213 (870) 4,242 (620)
Provision for (benefit from) income taxes (16) - 3 -
------------- ------------- ------------- -------------
Income (loss) before extraordinary item 2,229 (870) 4,239 (620)
Extraordinary item:
Gain from exchange of 5 1/2 percent Convertible
Subordinated Debentures due 2012 for common
stock, net of expenses - 1,833 - 1,833
------------- ------------- ------------- -------------
Net income $ 2,229 $ 963 $ 4,239 $ 1,213
============= ============= ============= =============
Earnings per share:
Primary $0.23 $0.11 $0.44 $0.14
Fully diluted $0.23 $0.10 $0.44 $0.13
------------- ------------- ------------- -------------
Weighted average common shares and common equivalent shares outstanding:
Primary 9,552 8,751 9,513 8,751
Fully diluted 9,552 9,278 9,513 9,278
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
March 30, April 1,
1996 1995
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,239 $1,213
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary gain - (1,833)
Depreciation and amortization 2,374 2,780
Increase in accounts receivable (1,144) (2,494)
(Increase) decrease in inventories (843) 556
Increase in prepaid expenses and other current assets (405) (321)
Increase in accounts payable 2,020 722
Increase (decrease) in accrued payroll and related taxes (112) 180
Decrease in restructuring reserve (79) -
Increase (decrease) in other current liabilities (702) (543)
Other (54) (207)
---------------- ----------------
Net cash provided by operating activities 5,294 53
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (4,358) (1,666)
---------------- ----------------
Net cash used by investing activities (4,358) (1,666)
---------------- ----------------
CASH FLOWS USED BY FINANCING ACTIVITIES
Net change in short-term borrowings (2,129) 180
Payments on long-term debt (184) (25)
Increase of long-term debt 288 -
Proceeds from exercise of stock options 471 221
---------------- ----------------
Net cash provided (used) by financing activities (1,554) 376
---------------- ----------------
Net decrease in cash and cash equivalents (618) (1,237)
Cash and cash equivalents, beginning of period 903 1,562
================ ================
Cash and cash equivalents, end of period $285 $325
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest payments $421 $471
================ ================
Income tax payments $206 $24
================ ================
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
ELEXSYS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Elexsys
International, Inc. and its subsidiaries (the "Company") contain all
adjustments, consisting of only normal recurring adjustments, which, in
the opinion of management, are necessary to present fairly the
financial position of the Company as of March 30, 1996 and September
30, 1995, the results of its operations for the three and six months
ended March 30, 1996 and April 1, 1995 and its cash flows for the six
months ended March 30, 1996 and April 1, 1995. Certain information and
footnote disclosures normally included in the financial statements have
been condensed or omitted pursuant to rules and regulations of the
Securities and Exchange Commission, although the Company believes that
the disclosures in the consolidated financial statements are adequate
to make the information presented not misleading.
The consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements of the Company
for the year ended September 30, 1995, included in the Company's Annual
Report on Form 10-K for that fiscal year.
Note 2 - Inventories
Inventories consist of the following (in thousands):
March 30, September 30,
1996 1995
-------------- --------------
(Unaudited)
Raw materials $3,474 $2,843
Work in progress 5,174 5,017
-------------- --------------
Totals $8,648 $7,860
============== ==============
Note 3 - Earnings Per Share
Primary and fully diluted earnings per common share for the three and
six months ended March 30, 1996 and April 1, 1995 have been computed
based on weighted average common shares outstanding and common stock
equivalents (stock options) as of the above dates and do not include
the assumed conversion of the 5 1/2 percent Convertible Subordinated
Debentures due 2012 into common stock as such effect would have been
antidilutive.
Note 4 - Income Taxes
In the first six months of 1996, the Company recorded a provision of
$3,000 for income taxes. This related to a provision for federal
alternative minimum taxes of $139,000 partially offset by a foreign
income tax benefit of $136,000 based on the Company's United Kingdom
subsidiary net operating loss for the first six months of 1996. The
remaining carryforwards, for which future benefit is not assured,
expire in various amounts through 2008.
ELEXSYS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Translation of Foreign Currencies
Assets and liabilities of the Company's United Kingdom subsidiary are
translated into US dollars at the exchange rates in effect at the end
of the period. Revenue and expense accounts are translated at a
weighted average of exchange rates which were in effect during the
year. Translation adjustments that arise from translating the Company's
United Kingdom subsidiary's financial statements from pound sterling to
US dollars are accumulated in a separate component of stockholders'
equity. Transaction gains and losses that arise from exchange rate
changes on transactions denominated in a currency other than the local
currency are included in results of operations as incurred. For the six
months ended March 30, 1996, there were no material transaction gains
or losses.
Note 6 - Purchase of the assets of Anetec Technologies, Inc.
The Company entered into an Asset Purchase Agreement dated as of May 3,
1996 to acquire the assets on Anetec Technologies, Inc., a company
serving the small prototype and engineering marketplace located in
Fremont, California for $1 million in cash, a promissory note in the
principal amount of $1 million and 100,000 shares of the Company's
common stock. As of May 14, 1996, the transaction had not closed.
ELEXSYS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto contained elsewhere within this Report on
Form 10-Q. Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The actual future results of the Company could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section and
those discussed in the Company's Form 10-K for the year ended September 30,
1995.
Results of Operations
Net sales
Net sales increased 30 percent for the three months ended March 30, 1996
compared to the second quarter of fiscal 1995. For the six months ended March
30, 1996, net sales increased 29 percent over net sales for the comparable
period in fiscal 1995. The increase in net sales resulted from an increased
demand for printed circuit boards from the Company's existing customer base, new
customers, and the April 1995 acquisition in the United Kingdom.
Cost of sales
Cost of sales as a percentage of net sales improved from 92 percent in the
second quarter of fiscal 1995 to 81 percent for the second quarter of fiscal
1996. For the six months ended March 30, 1996, cost of sales as a percentage of
net sales improved from 90 percent for the first six months of fiscal 1995 to 81
percent for the six month period ended March 30, 1996. The improvement in cost
of sales for the three and six months ended March 30, 1996 was attributable to
improved operating efficiencies, cost reductions and a one-time worker's
compensation dividend payment of approximately $560,000 partially offset by
start-up costs associated with the Company's new plants in the United Kingdom
and Plano, Texas.
Selling, General and Administrative
Selling, general and administrative (SG&A) expense for the three and six months
ended March 30, 1996 increased 42 percent as compared to the similar fiscal 1995
periods. As a percentage of net sales, SG&A increased from 9.4 percent for the
second quarter of fiscal 1995 to 10.3 percent for the second quarter of fiscal
1996. SG&A as a percentage of net sales increased from 9.2 percent for the first
six months of fiscal 1995 to 10.2 percent for the six months ended March 30,
1996. The increase in SG&A was due to the inclusion of the SG&A expense of the
Company's new United Kingdom subsidiary, and an increase in employee costs,
resulting primarily from the replacement of manufacturing representatives with
direct sales employees.
Research and development
Research and development expenditures for the three months ended March 30, 1996
decreased 23 percent compared to the second quarter of fiscal 1995. For the six
months ended March 30, 1996, research and development expenditures decreased 44
percent from the comparable six month period of fiscal 1995. The decrease was
due to reduced engineering labor and benefit costs as a consequence of past
restructurings by the Company.
Interest expense, net
Interest expense, net of interest income, decreased 35 percent for the three
months ended March 30, 1996 from the comparable quarter in fiscal 1995. For the
six months ended March 30, 1996, interest expense, net of interest income,
decreased 25 percent from the comparable six month period of fiscal 1995. The
decrease is mainly attributable to a decrease in borrowings from an asset-based
lender in the second quarter of 1996 and a reduction in the number of
outstanding convertible subordinated debentures due to the March 1995 exchange
of debentures for the Company's common stock, partially offset by an increase in
interest expense incurred by the Company's subsidiary in the United Kingdom.
Factors that may affect future results
The Company's future operating results may be adversely affected by a number of
factors, including general economic conditions, foreign competition, industry
consolidation, the Company's ability to develop, manufacture, and sell its
products profitably, and the cyclical nature of the business of some of the
Company's customers.
The Company participates in a highly competitive industry. The printed circuit
board industry has been characterized by stringent customer demands for timely
deliveries, service and quality of products and by aggressive pricing practices.
The Company's operating results could be materially adversely affected should
the Company be unable to meet any one of these customer demands.
Liquidity and Capital Resources
The Company recorded cash flows from operating activities of $5.3 million during
the first six months of fiscal 1996 compared to $53,000 during the same period
of the previous year. Higher positive cash flow provided by operating activities
during the first six months of fiscal 1996 was primarily due to improved
profitability, partially offset by an increase in the use of working capital.
The cash provided by operating activities was offset by cash used by investing
activities of $4,358,000 (used for the purchase of capital equipment) and cash
used by financing activities of $1,554,000 (used primarily for the repayment of
short-term borrowings and long-term debt, less amounts received from the
exercise of stock options by certain employees and additions to long-term debt).
Capital equipment was purchased for normal replacement, for processes that the
Company had previously outsourced, and for the enhancement of manufacturing
capabilities.
As of March 30, 1996, the Company had short-term borrowings with an asset-based
lender, net of cash collections held by the lender, of $1,178,000 under a $15
million line of credit agreement that was established on December 17, 1993 and
amended on January 30, 1996. Under the terms of the agreement, the Company's
cash collections are applied to any outstanding borrowings upon the receipts
clearing the bank. At March 30, 1996, the asset-based lender was in possession
of $436,000 of the Company's cash collections. Accordingly, such funds are owed
to the Company upon clearing the bank. The line of credit is collateralized by
substantially all of the Company's assets and its will remain in effect until
December 17, 1997. The Company was in compliance with all of the covenants as
defined within the agreement.
At March 30, 1996 the Company had outstanding commitments to purchase the
remaining $1.3 million balance of a $1.6 million order for electrical test
equipment to support expanded capacity. On April 11, 1996, the Company entered
into an equipment lease agreement for approximately $1.5 million to finance such
equipment.
During the six month period, the Company's ratio of current assets to current
liabilities improved from 1.4 to 1 to 1.6 to 1. Management believes that the
Company's existing working capital, its remaining borrowing capacity and funds
generated from operations will be sufficient to meet projected working capital
requirements and other cash requirements through fiscal 1996.
Part II. OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders
The Company held an Annual Meeting of Stockholders on January 30, 1996.
The Stockholders elected the Board's nominees as directors by the votes
indicated:
Nominee Votes in Favor Votes Against Abstentions Non-votes
Roland G. Matthews 5,713,422 0 32,704 0
Peter S. Jonas 5,713,322 0 32,804 0
C. Bradford Jeffries 5,716,072 0 30,054 0
The terms of two directors, Milan Mandaric and Alan C. Mendelson, continued
after the Annual Meeting.
Adoption of the Company's 1996 Employee Stock Purchase Plan, under which 250,000
shares of common stock are reserved for issuance, was approved with 5,736,326
votes in favor, 3,700 against 3,600 abstentions, and 2,500 non-votes.
Adoption of the Company's 1995 Stock Option Plan, as amended and restated, under
which 1,000,000 shares of common stock are reserved for issuance, was approved
with 5,555,984 votes in favor, 183,038 against 4,604 abstentions, and 2,500
non-votes.
Adoption of the Company's 1996 Non-Employee Directors' Stock Option Plan, under
which 200,000 shares of common stock are reserved for issuance, was approved
with 5,488,249 votes in favor, 229,838 against 25,539 abstentions, and 2,500
non-votes.
Item 6 a. Exhibits
10.1 Equipment Lease Agreement dated April 11, 1996 between Elexsys
International, Inc. and Matrix Funding Corporation.
10.2 Lease for 4405 Fortran Drive, San Jose, California dated March 11,
1996 between Elexsys International, Inc. and South Bay/Fortran.
10.3 Asset Purchase Agreement dated as of May 3, 1996 among Anetec
Technologies, Inc., Helen Kwong, Elxi Acquisition, Inc., and Elexsys
International, Inc. to purchase the assets of Anetec Technologies, Inc.
(with certain schedules and attachments omitted pursuant to Item
601(b)(2) of Regulation S-K). The Company undertakes to furnish
supplemental copies of any of the omitted schedules and other
attachments upon request by the Securities and Exchange Commission.
b. Current reports on Form 8-K
None
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 thereunto duly authorized.
ELEXSYS INTERNATIONAL, INC.
---------------------------
(Registrant)
Date: May 14, 1996 By: /s/ Michael S. Shimada
- - ------------------- ---------------------------
Michael S. Shimada
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)