FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11691
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ELEXSYS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3534864
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1188 Bordeaux Drive, Sunnyvale, California 94089
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(Address of principal executive offices) (Zip Code)
(408) 743-5400
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on December 11, 1995 based on the average bid
and asked prices of such stock on such date was $64,507,000. As of December 11,
1995, there were 9,023,930 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement for its 1996 Annual Meeting
of Stockholders (the "1996 Proxy Statement") are incorporated by reference into
Part III as set forth herein. Portions of registrant's annual report to
stockholders for the year ended September 30, 1995 are incorporated by reference
into Part II as set forth herein. With the exception of those portions which are
expressly incorporated herein by reference, said 1996 Proxy Statement and annual
report are not deemed filed as part hereof.
PART I
ITEM 1. BUSINESS
GENERAL
Elexsys International, Inc., formerly Diceon Electronics, Inc.
("Elexsys" or the "Company"), is a leading manufacturer of interconnect products
used in advanced electronic equipment. The Company manufactures complex products
in the mid-volume sector of the electronic interconnect industry. The Company
offers to its customers complete original design capability up to top level
assembly, as Elexsys' products generally require greater engineering and
manufacturing expertise than mass-produced, less complex products. The Company
manufactures custom-designed, press-fit backpanels, surface mount backpanel
assemblies and subsystems (known as a card cage complete with an assembled
backpanel, power supply, fan and cable attachments), as well as multilayer, high
density printed circuit boards. Elexsys works closely with its customers,
beginning with the early stages of the customer's product design and
development.
Elexsys believes its capabilities both in manufacturing multilayer,
high density printed circuit boards (including complex blind and buried via
product, described below) and in providing value-added manufacturing services
advantageously position the Company to serve high growth original equipment
manufacturers ("OEM") in the rapidly changing electronics markets. Elexsys' OEM
customers include a diversified base of manufacturers in the telecommunications,
datacommunications, computer, industrial systems and medical systems segments of
the electronics industry, such as Northern Telecom, DSC Communications, Digital
Equipment, Honeywell, Tandem, Motorola Inc., Siemans Inc., Silicon Graphics,
Inc. and AT&T Corporation.
Elexsys' strategy is to continue to utilize its well established high
technology printed circuit board manufacturing and engineering capabilities to
further expand into the rapidly growing outsourcing market, providing products
including complex press-fit backpanels, surface mount backpanel assemblies and
subsystems. Key elements of this strategy include providing its customers with
the highest levels of quality, superior service and leading edge technology.
The Company was originally incorporated in California in 1980 and
reincorporated in Delaware in 1987.
On April 28, 1995, the Company acquired substantially all the assets of
Technet Electronics, Limited, a manufacturer of printed circuit boards located
in Peterborough, England, for approximately $3,300,000, which consisted of
$560,000 of cash and assumption of liabilities of approximately $2,740,000,
including Technet's current lines of credit.
ELECTRONIC INTERCONNECT INDUSTRY OVERVIEW
Multilayer, high density printed circuit boards including complex blind
and buried via products: According to the Institute for Interconnecting and
Packaging Electronic Circuits ("IPC"), an industry data research firm, the
United States printed circuit board market was approximately $6 billion in 1994
(the most recent year for which such information is available). Approximately $5
billion of this market was available to independent manufacturers such as
Elexsys. IPC's data indicates that this market grew approximately 12% in 1994.
Multilayer, high density printed circuit boards, the fastest growing segment,
accounted for approximately 66% of the 1994 market. IPC also estimates that the
percentage of the printed circuit board market available to independent printed
circuit board manufacturers such as Elexsys, has increased from 66% to 83% since
1991. The European printed circuit board market is approximately $3.5 billion
and the multilayer segment of the European market is approximately $1.4 billion.
Backpanels: According to Fleck Research, an industry data research
firm, the North American backpanel market was approximately $657.5 million in
1994 (the most recent year for which such information is available), an increase
of 14.2% over 1993. This market may change if OEMs who currently have in house
("captive") operations decide to outsource their backpanel production, as has
been the trend with printed circuit boards. According to this research firm, the
European backpanel market is approximately $307.8 million.
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Value Added Contract Manufacturing: According to IPC, the United States
value added contract manufacturing market, defined as printed circuit boards,
backpanel assemblies, printed circuit board assembly and subsystems, was
approximately $9.4 billion in 1994 and is growing at a rate of approximately 20%
per year. Based on industry data, the Company believes that OEMs are
increasingly relying upon independent manufacturers of complex, electronic
interconnect products, such as Elexsys, rather than on captive production. Some
original equipment manufacturers (OEMs) have discontinued, sold or curtailed
domestic, captive, printed circuit board or backpanel production since 1990
including AT & T Corp., Data General Corporation, General Electric Company,
Hewlett-Packard Company, Northern Telecom Limited, Raytheon Company, Unisys
Corporation and Xerox Corporation. Elexsys' strategy will be to concentrate on
the market niche of backpanel assemblies, subsystems, and printed circuit
boards.
Other factors which Elexsys believes will lead OEMs to utilize contract
manufacturers include:
Design Expertise: The customer benefits from custom design capabilities of
contract manufacturers. For example, Elexsys works with the customer from the
conceptual, design stage, to the prototype stage and through to the
preproduction and production phases, to achieve a product design that is
manufacturable economically at or near the commencement of the production runs.
Reduced Capital Investment Requirements: As electronic products have become more
technologically advanced, the manufacturing process has become increasingly
sophisticated and automated, requiring a greater level of investment in capital
equipment. By outsourcing certain assemblies, OEMs can reduce their overall
capital equipment requirements while maintaining access to advanced
manufacturing facilities.
Focused Resources: In recent years, the electronics industry has experienced
greater levels of competition and rapid technological change, and many OEMs
increasingly are seeking to focus their limited resources on activities and
technologies to provide products that add the greatest value to their markets.
By offering printed circuit board fabrication and assembly services,
manufacturers concentrating on these special services allow OEMs to focus on
core technologies and activities such as product development, marketing and
distribution.
Access to Leading Manufacturing Technology: Electronic interconnect products and
related manufacturing technology have become increasingly sophisticated and
complex, making it difficult for OEMs to maintain the necessary technological
expertise in process development and control. OEMs are motivated to outsource
product in order to gain access to the manufacturer's process expertise and
manufacturing capabilities.
Improved Inventory Management and Purchasing Power: Electronics industry OEMs
are faced with increasing difficulties in planning, procuring and managing their
inventories efficiently due to frequent design changes, short product
life-cycles, large investments in electronic components, component price
fluctuations and the need to achieve economies of scale in materials
procurement. OEMs can reduce production costs by using the contract
manufacturer's volume procurement capabilities and inventory management skills.
BUSINESS STRATEGY
In response to the foregoing industry trends, Elexsys has structured
its business to supply high technology printed circuit boards, sophisticated
complex backpanel assemblies and value added electronic interconnect assemblies
("subsystems") including card cage, power supplies, fans, cables and harnesses.
Elexsys' business strategy encompasses several elements:
Focus on quality: The Elexsys team strives to insure the highest levels of
quality control in all phases of its operations, as quality is a critical,
competitive factor in the electronic interconnect market. The Company strives
for continuous improvement of its processes and has adopted a number of quality
improvement and measurement techniques to improve its performance. All Elexsys'
plants are ISO 9002 certified (excluding the recent acquisition in Peterborough,
England and the newly opened facility in Plano, Texas). The operation in
Peterborough, England has been certified under the United Kingdom's quality
standard. It is anticipated that the operation will receive ISO 9002
certification upon completion of an audit.
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Providing service oriented manufacturing: The Company manufactures all of the
printed circuit boards used in its subsystems, motherboard assemblies and custom
designed backpanels in order to maintain control over costs, quality and timely
delivery of its products. This vertical integration also allows the Company to
provide a broader range of assembly services, including prototype and high
technology products.
Maintain technology leadership: Elexsys seeks to deliver advanced manufacturing
and test engineering, responsive materials management, and technologically
advanced, flexible and service-oriented manufacturing for the complex,
leading-edge products of its OEM customers.
Target high value-added electronic interconnect products: Elexsys focuses on
leading manufacturers of advanced electronic equipment, such manufacturers
generally require custom designed, more complex interconnect products and short
lead-time manufacturing services, such as quick-turn, multilayer printed circuit
boards, complex backpanels, motherboard assemblies and subsystems. By focusing
on such customer needs. Elexsys has been able to increase revenues and margins
and the Company believes it has differentiated itself from many participants in
the electronic interconnect industry.
Pursue a "teamwork" approach with customers: Elexsys seeks to establish "teams"
with its customers by involving Elexsys engineers and staff in the early design
stages of its customers' product development, and by providing quick-turnaround
manufacturing services and just-in-time, kanban and dock-to-stock inventory
management programs. Through this approach, Elexsys seeks to forge lasting
customer relationships across a number of products and through multiple product
generations.
Maintain a diversified customer base: Elexsys services a diversified customer
base spread over a variety of growing industry segments. Elexsys' customers are
in the telecommunications, datacommunications, computer, industrial and medical
systems segments of the electronics industry. During fiscal 1995, the Company
manufactured and sold circuit boards and backpanel assemblies to approximately
317 customers which are located primarily in North America and Europe. During
fiscal 1995, 1994 and 1993, export sales were approximately $13,100,000,
$8,500,000, $13,700,000 or 13 percent, 9 percent, and 14 percent of net sales,
respectively. In aggregate, Elexsys' ten largest customers accounted for 66% of
the Company's net sales. During fiscal 1995, three customers, Northern Telecom
Corporation, DSC, and Tellabs, Inc. accounted for 24 percent, 12 percent, and 10
percent of net sales, respectively. Northern Telecom and the Company have had an
established relationship since 1985. The two companies have entered into a
one-year agreement commencing January 1, 1996, pursuant to which Northern
Telecom has agreed to purchase a specified amount of the Company's circuit
boards and backpanel assemblies as long as the Company satisfies certain
conditions, including conditions on the quality and timely delivery of its
products. The agreement is renewable on an annual basis. Elexsys' business may
be subject to seasonal fluctuations of our customers.
PRODUCTS AND SERVICES
Elexsys produces multilayer, high technology printed circuit boards,
custom designed press-fit backpanels, surface mount backpanels and subsystems
that are used in the manufacture of sophisticated electronic equipment. In
fiscal 1995, most of Elexsys net sales were attributable to printed circuit
boards (including multilayers) and backpanels.
Custom designed backpanels are assemblies of stamped and plated
pins, plastic housings and other components on multilayer or two-sided printed
circuit boards. Backpanels are used in electronic systems to distribute power
and ground, and to connect printed circuit boards which plug into the backpanel
with other printed circuit boards, power supplies, and other circuit elements.
They also are used to transfer information into and out of the system. As
semiconductor speeds have increased and design requirements have become more
stringent, backpanel complexity has increased significantly, often requiring the
use of large multilayer printed circuit boards of six through 32 layers. The
Company manufactures backpanels with up to 32 layers, .300 inches thick, and 2
feet by 3 feet in size. Elexsys has recently added a complete, fine-pitch
surface mount technology
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("SMT") assembly operation to its backpanel assembly capabilities, satisfying
the emerging technology of a combination of press-fit connectors and active
components on the same platform. SMT allows components to be placed on both
sides of the printed circuit board, thereby permitting even greater density.
Multilayer printed circuit boards consist of three or more layers of a
printed circuit board laminated together and interconnected by plated-through
holes. Printed circuit boards consist of metallic interconnecting paths on a
non-conductive material, typically laminated epoxy glass. Holes drilled in the
laminated and plated-through with conductive material from one surface to
another, called plated-through holes, are used to receive component leads and to
interconnect the circuit layers. On SMT boards electrical components are
soldered instead of being inserted into through-holes. "Buried vias" or "blind
vias" are very small drilled and plated holes which join the circuitry on
adjacent layers within the board, but which do not connect the surfaces of the
board. Multilayer boards increase packaging density, improve power and ground
distribution, and permit the use of higher speed circuitry. The development of
electronic components with increased speed, higher performance and smaller size
has stimulated a demand for multilayer printed circuit boards, as they provide
increased reliability, density and complexity. Since even the most sophisticated
two-sided printed circuit boards cannot meet the requirements of today's circuit
designers for packaging density, an increasing number of designs use multilayer
technology.
Subsystems consist of assembled backpanels, power supplies, fans and
cable attachments that are enclosed in card cages, which are usually fabricated
from steel or aluminum.
Elexsys has developed a highly sophisticated mechanical design
capability to provide its customers with design services. This capability allows
Elexsys to establish a close partnership with its customers and gives Elexsys
visibility for potential future customer requirements.
Elexsys' products generally tend to have a broad range of prices and
tend to be manufactured in relatively small quantities. For printed circuit
boards, prices are dependent on the size of the board, the complexity, the
timing of the customer's delivery request and the quantity ordered. For
backpanel assemblies, prices are dependent on the size of the backpanel, the
amount of components to be inserted and the quantity ordered. For subsystems,
prices are dependent on the material content, complexity of assembly and the
quantity ordered. In general, better profit margins have been obtained from
complex backpanel assemblies, subsystems and high density multilayer circuit
boards than from less advanced printed circuit boards and backpanel assemblies.
MANUFACTURING CAPABILITIES AND SERVICES
Elexsys seeks to establish a relationship with customers by formulating
a "team" approach and by providing high quality, responsive, flexible design and
manufacturing capabilities and services. Elexsys offers:
Advanced Manufacturing Equipment: Elexsys' concentration on complex, electronic
interconnect products has necessitated a substantial capital investment in
advanced equipment and the continued introduction of new manufacturing
processes. Elexsys has established an engineering capability to select and
implement the latest manufacturing technology. For example, the fine lead
spacing or "pitch" in SMT requires an exacting printed circuit board
manufacturing and assembly process. The Company uses numerically controlled pin
installation and high voltage electrical test equipment in its backpanel
assembly manufacturing, and has developed a design and manufacturing capability
for controlled impedance, multilayer printed circuit boards and backpanel
assemblies. Elexsys' printed circuit board manufacturing operations require
state-of-the-art equipment and processes. Elexsys' equipment portfolio includes
a computerized, artwork generation system, numerically controlled drillers and
routers, automatic electroless deposition lines, dry film photo-imaging
equipment, automatic gold plating lines, computerized, electrical testers and
automatic optical inspection readers.
Value Added Manufacturing: Computer integrated manufacturing ("CIM") services
provided by Elexsys consist of developing manufacturing processes, along with
tooling and test sequences for new products from product designs received from
its customers. In addition, Elexsys' interconnect products division provides
design and engineering services in the early stages of product development, thus
assuring that both mechanical and electrical considerations are integrated into
a subsystem approach to achieve a manufacturable, high quality and cost
effective product. Elexsys also evaluates customer designs for manufacturability
and, when appropriate,
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recommends design changes to reduce manufacturing costs or lead times or to
increase manufacturing yields as well as the quality of finished backpanel
assemblies and mother boards.
Quick turnaround: Elexsys' quick-turnaround manufacturing capabilities enables
the Company to better serve the needs of its customers for quick response to
their product designs. Shorter customer product life cycles and the need to
bring new products to market quickly have created a demand for small quantities
of complex multilayer printed circuit boards delivered in relatively short
periods of time, typically from three to ten days. Sales of printed circuit
boards produced in this manner accounted for approximately 14% of the Company's
printed circuit boards sales in fiscal 1995. After engineering of an
interconnect product is completed, Elexsys has the capability to manufacture
prototype or preproduction versions of such product on a quick-turnaround basis.
Elexsys believes that the demand for engineering and quick-turnaround prototype
and preproduction manufacturing services will increase as OEMs' products become
more complex and as the customers' product life cycles shorten. The Company's
continued success depends upon its ability to respond to the evolving needs of
customers in a timely manner.
Multilayer Printed Circuit Board Manufacturing: Elexsys' ability to manufacture
printed circuit boards, including large, complex multilayer printed circuit
boards with close tolerances, plated-through hole diameters and other
characteristics important to backpanel applications, is one of the major factors
that has enabled the Company to become an important supplier of complex,
technologically advanced backpanel assemblies and multilayer printed circuit
boards to the electronics industry. The Company began manufacturing multilayer
printed circuit boards in 1979 and in fiscal 1995 multilayer sales constituted
the majority of the Company's printed circuit board revenues. Today, Elexsys is
capable of efficiently producing commercial quantities of printed circuit boards
with up to thirty-two layers and circuit track widths as narrow as four mils.
The manufacture of complex multilayer interconnect products often
requires the use of blind or buried vias and adherence to strict electrical
characteristics to maintain consistent, circuit transmission speeds (referred to
as "controlled impedance boards"). These technologies require adherence to rigid
lamination and etching tolerances and are especially critical for printed
circuit boards with ten or more layers. The Company specializes in multilayer
boards requiring controlled impedance and has developed the ability to
manufacture large, thick multilayer backpanel boards using Cyanate Ester BT and
GETEK(R) base materials for ultra, high-speed applications. By concentrating on
the multilayer segment of the printed circuit boards market, where quality,
technology and customer service are more important than the market for less
complex boards, the Company believes it faces less direct competition.
The manufacture of printed circuit boards involves several steps
including dry film imaging, photoimageable soldermask processing, computer
controlled drilling and routing, automated plating and process controls and
achievement of controlled impedance. Manufacture of printed circuit boards used
in backpanel assemblies requires specialized expertise and equipment because of
the size of the backpanel relative to other printed circuit boards and the
closer-to-hole diameter tolerances required for press-fit pin assembly.
Multilayer manufacturing involves the placement of multiple layers of electrical
circuitry within a single, printed circuit board or backpanel expanding the
number of circuits and components that can be contained on the interconnect
product. The operating speed of a system is increased by reducing the distance
that electrical signals must travel. To increase the density of the circuitry in
each layer, OEMs reduced the width of the circuit tracks, placing them closer
together on the printed circuit board or backpanel. Interconnect products having
narrow, closely spaced circuit tracks are known as "fine line" products.
Materials Procurement and Handling: Materials procurement and handling services
provided by Elexsys include planning, purchasing and warehousing of electronic
components and metal housings used in interconnect products. Elexsys uses a
variety of materials in the manufacture of its products, including copper clad
laminates, dry film photo resists, connectors, terminals and pins. Elexsys
participates with our customers on various types of inventory management
programs including, but not exclusive of, "dock to stock" and "just in time".
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ISO 9002 Registration: As of November 8, 1994, the Company received ISO 9002 (an
international quality standard) certification at all of its operations except
for the newly opened Plano, Texas facility and the Peterborough, England
facility. The company is currently pursuing such registration for the operations
not certified. ISO 9002 registration, a worldwide standard for quality, is based
on successful implementation of quality assurance requirements and requires
annual compliance audits conducted by an independent quality assessor.
RAW MATERIALS
Elexsys' policy is to maintain more than one supply source when
practical, however, components for major OEM contracts are sometimes obtained
from a single source. Also, the Company generally uses a single source to supply
virtually all of the Company's requirements for laminate and glass materials. An
interruption or loss of single-sourced raw materials could have a materially
adverse effect on the Company's business.
COMPETITION
The market for printed circuit boards, backpanels and subsystems is
very competitive. Competition is principally based on price, product quality,
technical capabilities and the ability to deliver product on schedule. Both the
price of and the demand for most products are sensitive to economic conditions
and certain segments of the electronics industry have experienced and may in the
future experience reduced demand for their products.
The technology used in the manufacture of double-side boards, most
multilayer boards, backpanel press-fit assembly, surface mount backpanel
assemblies, and subsystems is widely available and there are approximately 700
manufacturers of these products. The Company believes only a few dozen
manufacturers of boards and subsystems in the United States are presently
producing high technology, multilayer printed circuit boards, backpanel
assemblies and subsystems in commercial quantities. Elexsys competitors include
both producers which primarily sell to others and OEMs that produce boards for
their own use. Many of these firms are larger than the Company and have
significantly greater financial, marketing and other resources. However the
Company believes the trend of outsourcing manufacturing by OEMs will continue.
RISK FACTORS
An investment in securities of Elexsys involves certain risks. In
evaluating Elexsys and the Company's business, prospective investors should give
careful consideration to the factors discussed below, in addition to the
information provided elsewhere in the Annual Report on Form 10-K and in other
documents filed with the Securities and Exchange Commission.
Some of Elexsys' customers have their own captive manufacturing
operations which produce some of their requirements for printed circuit boards,
backpanels and subsystems manufactured by the Company. There is a risk,
particularly during times of lower demand when manufacturing facilities are
operating at less than full capacity, that some of Elexsys customers will make
greater use of their own facilities rather than purchase from the Company.
During times of lower demand, the Company may not be price competitive with
captive operations, among other reasons, because of the substantial fixed costs
already borne by Elexsys' customers with respect to such operations.
There are risks that other customers will develop their own "in-house"
capabilities, that additional competitors will acquire the ability to compete
against the products and services offered by the Company, and that foreign firms
will increase their share of the United States market. Additionally, future
technological advances in electronics could render the printed circuit boards,
backpanels or subsystems manufactured by Elexsys less significant to the
electronics industry.
The Company's customers generally order product by purchase order and
not by long term supply contracts that irrevocably commit the customers to
purchases over long periods. A customer could shift production to another vendor
or itself without extensive advance notice to Elexsys. Thus, the loss of a
significant customer could result in Elexsys not being able to identify and
qualify, and commence production for, new customers in
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sufficient time to avoid a reduction in revenue or profitability. Generally, to
establish a relationship with a new customer requires an extensive and lengthy
qualification process and there are no assurances the production volumes with
the new customer will match or exceed production volumes with the lost customer.
Indeed, no assurance can be had that Elexsys would even be able to identify new
customers at all.
If any of the adverse events described in this section or elsewhere in
this Form 10-K occurred, the results of operations of Elexsys could be
materially adversely affected.
COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS
The Company's manufacturing processes utilize substantial quantities of
chemicals as well as substantial quantities of water. The Company is subject to
and believes it is in compliance with federal, state and local environmental
laws and regulations regarding air, water and land use, the generation, use,
storage and disposal of hazardous materials and wastes and the operation and
closure of manufacturing facilities at which hazardous materials are used or
hazardous wastes are generated. The Company is aware of contamination of soil
and ground water (principally by metals and solvents) at two of its former
facilities in Northern California. At one of these facilities, soil has been
remediated, but the likely future cost of ground water cleanup at that facility
is not yet reasonably estimable. Investigative costs of $30,000 have been
incurred. At the other former facility in Northern California, the Company
incurred costs of approximately $137,000 for cleanup of soil contamination and
the property was returned to its owner during the second quarter of fiscal 1995.
In addition, the facility is adjacent to an existing State of California
administered Superfund site and may become part of a related State of California
administered regional ground water investigation; the likely future cost to the
Company in connection with possible ground water cleanup is not yet reasonably
estimable. At another former facility in Southern California, the Company
conducted limited groundwater sampling in connection with a potential sale of
the property, and low concentrations of solvents were detected. Notification was
made to the proper agencies. At this time, it is not possible to determine
whether any response actions will need to be taken; and accordingly, the likely
future cost to the Company is not yet reasonably estimable.
The Company is further aware of soil and ground water contamination
(principally by metals and solvents) at two currently used facilities, one in
Northern California and one in Southern California. At its Northern California
facility, the Company is indemnified by the former property owner who has
acknowledged his obligation. At its Southern California facility, the Company's
preliminary estimate of remedial costs, expected to be incurred over five to
seven years, ranges from approximately $880,000 to $1,480,000 (including between
approximately $300,000 and $400,000 estimated capital expenditures for waste
treatment equipment acquisition and installation costs). At its Northern
California facility, the Company has also received notice that regulatory
authorities plan to reduce the discharge limits for industrial waste water
discharge containing heavy metals. New limits are expected to become effective
in October 1996. Based on the proposed limits, the cost to the Company of
additional equipment and process modifications needed to comply with the reduced
limits is preliminarily estimated by the Company to be between $100,000 and
$250,000.
As of September 30, 1995, the Company believes it has appropriately
recorded all known costs related to environmental matters, including the minimum
amounts where the estimated costs are within a range. Such known costs are
primarily accrued in other current liabilities. However, actual future
environmental related expenditures are subject to numerous uncertainties,
including the discovery of additional environmental concerns, further
development of cost estimates, new and changing environmental laws and
requirements, or new interpretations of existing laws and requirements.
Accordingly, there can be no assurance that future environmental related
expenditures will not exceed the Company's current estimates or that they will
not have a materially adverse effect on the Company.
EMPLOYEES
At September 30, 1995, the Company had 940 full-time employees,
including 838 involved in manufacturing, quality control, product development
and testing. The remainder are in sales, marketing,
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administration and executive positions. None of Elexsys' employees is covered by
a collective bargaining agreement. The Company considers its relations with its
employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of November 30, 1995, are as
follows:
Name Age Position with Company
- - ---- --- ---------------------------
Milan Mandaric 57 Chairman of the Board,
Chief Executive Officer and
President
W. Barry Hegarty 44 Chief Operating Officer
Michael S. Shimada 45 Vice President, Finance,
Chief Financial Officer and
Secretary
Mr. Mandaric was appointed Chairman of the Board on June 30, 1994. Mr.
Mandaric became Chief Executive Officer and President on October 3, 1994. Prior
to joining Elexsys, Mr. Mandaric founded Lika Corporation, a manufacturer of
circuit boards, in the early 1970's and served as its CEO until its sale to
Tandy Corporation in 1980. He later founded Sanmina Corporation, a manufacturer
of high technology multilayer printed circuit boards and backpanels, and served
as its President and Chairman through July 1989 and as a director until February
1994. He also served as Chairman of Senses International, Inc., a designer and
manufacturer of wireless security systems, from July 1989 to May 1995.
Mr. Hegarty was appointed Chief Operating Officer in April 1995. Prior
to joining Elexsys, Mr. Hegarty was Vice President of Sales and Marketing at
Sanmina Corporation from 1987 to 1995. From 1979 to 1987, Mr. Hegarty was
employed at Kollmorgen Corporation. He was National Sales Manager and Product
General Manager for the Additive Products Division in New York from 1983 to
1987, and Senior Finance Manager for the Industrial Drives Division in Europe
from 1979 to 1983.
Mr. Shimada served as Controller of the Company from July 1983 to
January 1990; as Vice President, Finance from January 1990 to December 1993; and
as Chief Financial Officer from February 1993 to December 1993. In December
1993, Mr. Shimada resigned from the Company. In March 1994, Mr. Shimada returned
to the Company as Vice President, Finance and Chief Financial Officer. In
October 1994, Mr. Shimada was appointed Secretary of the Company.
PROPRIETARY TECHNIQUES
The Company has developed expertise and techniques which it uses in
the manufacture of printed circuit boards, backpanels and subsystems. Generally,
the Company relies on common law trade secret protection and on confidentiality
agreements with its employees to protect its expertise and techniques. The
Company owns but one patent and believes that patents have not historically
constituted a significant form of intellectual property right in its industry.
BACKLOG
At September 30, 1995, the Company had a backlog of approximately
$26,414,000 as compared to approximately $17,358,000 at September 30, 1994.
Backlog is comprised of orders believed to be firm for products which have a
firm scheduled shipment date during the next twelve months. However, some orders
in the backlog may be canceled under certain conditions. The majority of the
backlog is scheduled to be shipped within 120 days.
Page 9
ITEM 2. PROPERTIES.
Elexsys currently leases or owns eight production facilities, a sales
office in Raleigh, North Carolina, and an information systems facility located
in Irvine, California. The Company believes that its present facilities are well
suited to its current operations and are in good repair.
The following table lists the production facilities of the Company:
Owned Lease
No. of Square Leased Lease Renewal
Location (1) Locations Feet or Both Expiration Option
- - ------------------------- --------- ------ ------- ---------- -------
Irvine, California 1 50,000 Leased 1999 No
Chatsworth, California 1 31,000 Owned
Mountain View, California 1 50,000 Leased 1999 Yes
Sunnyvale, California 1 31,000 Leased 1999 Yes
Plano, Texas 1 31,000 Leased 2002 Yes
Peterborough, England 1 31,000 Leased 1998 Yes
Santa Ana, California 1 30,000 Owned
Nashua, New Hampshire 1 39,000 Leased 1996 Yes
(1) This table includes facilities which were closed during previous years. The
facility in Chatsworth currently has a tenant who is currently paying rent to
the Company. The facility in Santa Ana is currently vacant. The facility in
Chatsworth and the facility in Santa Ana are currently held for sale.
ITEM 3. LEGAL PROCEEDINGS.
On November 8, 1995, a former executive of the Company filed a
complaint in the Superior Court of California, County of Santa Clara, alleging
negligent misrepresentation concerning certain aspects of the plaintiff's
severance agreement arrangement with the Company. The amount of damages claimed
is approximately $800,000, plus unspecified punitive damages. The Company
believes the complaint is not meritorious and Elexsys expects to vigorously
defend against the complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fiscal quarter ended September 30, 1995.
Page 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is hereby incorporated herein by reference the information
appearing under the caption "Price Range of Common Stock" which appears on page
24 of the registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1995 (the "1995 Annual Report").
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated herein by reference the information
appearing under the caption "Selected Financial Data" which appears on page 4 of
the 1995 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
There is hereby incorporated herein by reference the information
appearing under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which appears on pages 5 through 9 of the
1995 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated herein by reference the information
appearing on pages 10 through 23 of the 1995 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Page 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated herein by reference the information
appearing under the captions "Election of Directors", "Board Committees and
Meetings" and "Compliance with the Reporting Requirements of Section 16(a)" of
the 1996 Proxy Statement. Information regarding executive officers of the
Company is included in Item 1 of Part I hereof under the caption "Executive
Officers of the Registrant" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated herein by reference the information
appearing under the captions "Executive Compensation" and "Performance
Measurement Comparison" of the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated herein by reference the information
appearing under the caption "Security Ownership of Certain Beneficial Owners and
Management" of the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated herein by reference the information
appearing under the caption "Certain Transactions" of the 1996 Proxy Statement.
Page 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits
1. Independent auditors' report
The following financial statements are incorporated by reference
under Item 8. above:
-Consolidated balance sheets as of September 30, 1995 and 1994;
-Consolidated statements of operations for each of the three years in
the period ended September 30, 1995;
-Consolidated statements of stockholders' equity (deficit) for each of
the three years in the period ended September 30, 1995;
-Consolidated statements of cash flows for each of the three years in
the period ended September 30, 1995;
2. Financial statement schedules:
All other schedules have been omitted since the information therein is
not required to be included herein, is not present in amounts
sufficient to require submission, or the required information is
included in the consolidated financial statements including the notes
thereto.
3. Exhibits
Exhibit
Number Description of Exhibit
- - ------- ----------------------
3.1* Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Form 10-Q for the quarterly period ended
July 1, 1995).
3.2* Amended and Restated Bylaws by the Company (filed as Exhibit 3.2 to
the Form 10-Q for the quarterly period ended July 1, 1995).
4.1 Specimen Common Stock Certificate of the Registrant.
4.2* Form of Indenture, dated as of February 15, 1987, and Form of Specimen
of 5 1/2% Convertible Subordinated Debentures due March 1, 2012 (filed
as Exhibit 4.2 to the Form S-2).
4.3* Registration Rights Agreement, dated as of May 11, 1987 (filed as
Exhibit 4 to the Current Report on Form 8-K of the Registrant, dated
May 11, 1987).
10.1* Lease, dated August 13, 1968, between Birtcher Pacific and Pritec
Corporation (formerly known as "Diceon Electronics, Inc.") (Filed as
Exhibit 10.1 to the Registration Statement on Form S-1 of the
Registrant, Registration No. 2-86316 (the "Form S-1")).
10.2* Lease, dated February 1, 1984, between Toussaint Limited and Diceon
Electronics, Inc., a California corporation ("Diceon California")
(filed as Exhibit 10-2 to the Annual Report on Form 10-K of the
Registrant for the year ended September 30, 1989 (the "1989 Form
10-K")).
Page 13
10.3* Option Agreement and Limited Right of First Offer, dated as of
February 1, 1984 by and between Toussaint Limited and Diceon
California (filed as Exhibit 10.3 to the 1989 Form 10-K).
10.4* Lease, dated November 28, 1986, between Kollmorgen Corporation and
Diceon California (filed as Exhibit 10.6 to the Form S-2).
10.5*+ Employee Stock Option Plan (1983) (filed as Exhibit 10.9 to the Form
S-1).
10.6*+ First Amendment to Employee Stock Option Plan (1983) (filed as Exhibit
10.9.1 to the Form S-1).
10.7*+ Second Amendment to Employee Stock Option Plan (1983) (filed as
Exhibit 10.8 to the 1990 Form 10-K).
10.8*+ Third Amendment to Employee Stock Option Plan (1983) (filed as Exhibit
10.10 to the Annual Report on Form 10-K of the Registrant for the year
ended September 30, 1988 (the "1988 Form 10-K")).
10.9*+ Fourth Amendment to Employee Stock Option Plan (1983) (filed as
Exhibit 10.10 to the 1990 Form 10-K).
10.10*+ Fifth Amendment to Employee Stock Option Plan (1983) (filed as Exhibit
10.12 to the 1992 Form 10-K).
10.11*+ Sixth Amendment to Employee Stock Option Plan (1983) (filed as Exhibit
10.12 to the 1992 Form 10-K).
10.12*+ Form of Incentive Stock Option Agreement (filed as Exhibit 10.12 to
the 1988 Form 10-K).
10.13*+ Non-Qualified Stock Option Plan (1984) (filed as Exhibit 10.12 to the
1990 Form 10-K).
10.14*+ First Amendment to Non-Qualified Stock Option Plan (1984) (filed as
Exhibit 10.13 to the 1990 Form 10-K).
10.15*+ Second Amendment to Non-Qualified Stock Option Plan (1984) (filed as
Exhibit 10.14 to the 1991 Form 10-K).
10.16*+ Third Amendment to Non-Qualified Stock Option Plan (1984) (filed as
Exhibit 10.17 to the 1992 Form 10-K).
10.17*+ Form of Non-Qualified Stock Option Agreement (filed as Exhibit 10.15
to the 1988 Form 10-K).
10.18*+ Profit Sharing Bonus Plan (incorporated by reference to the section
captioned "Executive Compensation and Other Information - Bonus Plan"
included in the Registrant's Definitive Proxy Statement, dated
November 27, 1991).
10.19*+ Form of Indemnification Agreement (filed as Exhibit 10.14 to the Form
S-2).
10.20*+ Non-Qualified Stock Option Agreement, dated November 17, 1989, between
Sherwin L. Samuels and the Registrant (filed as Exhibit 10.21 to the
1988 Form 10-K).
Page 14
10.21*+ Form of Executive Compensation Agreement between Registrant and
salaried officers or key employees (filed as Exhibit 10.22 to the 1988
Form 10-K).
10.22*+ Non-Qualified Stock Option Agreement, dated November 15, 1990, between
Sherwin L. Samuels and the Registrant (filed as Exhibit 10.22 to the
1990 Form 10-K).
10.23* Purchase and Sale Agreement, dated November 28, 1989, by and among
Symtron Corp., NTI, and John Davila (filed as Exhibit 2.1 to the
Current Report on Form 8-K of the Registrant, dated December 12, 1989
(the "1989 Current Report")).
10.24* Lease for 1625 Plymouth Avenue, Mountain View, California, dated
November 28, 1989, by and among Pritec Corporation, a California
corporation ("Lessee"), and John Davila and Liane Davila individually
and as Co-Trustees of the Davila Revocable Living Trust, dated March
13, 1989 (collectively, the "Lessor") (filed as Exhibit 2.2 to the
1989 Current Report).
10.25* Lease for 2400 Michelson Drive, Irvine, California, dated
October 10, 1991, by and among Elexsys International, Inc. (formerly
Diceon Electronics, Inc.), and Fujita Corporation, USA ( filed as
Exhibit 10.26 to the 1991 Form 10-K).
10.26* Lease for 2500 Michelson Drive, Irvine, California, dated November 1,
1987, by and among Elexsys International, Inc. and Consolidated
American Properties IV (filed as Exhibit 10.28 to the 1993 Form 10-K).
10.27* First Amendment to Lease for 2500 Michelson Drive, Irvine, California,
dated October 1992, by and among Elexsys International, Inc.
("Lessee"), and The Josephine Troy Trust and The Hausman Family Trust
(collectively, the "Lessor") (successor to Consolidated American
Properties IV) (filed as Exhibit 10.29 to the 1993 Form 10-K).
10.28* Lease for 2400 Michelson Drive, Irvine, California, dated April 12,
1993, by and among Elexsys International, Inc. and Fujita California
Partners II (filed as Exhibit 10.31 to the 1993 Form 10-K).
10.29*+ Severance Arrangements (incorporated by reference to the section
captioned "Compensation and Other Information" included in the
Registrant's Definitive Proxy Statement, dated December 15, 1993.
10.30*+ Severance Arrangement by and among Elexsys International, Inc. and
certain key executives as set forth in Exhibit 10.32 (filed as Exhibit
10.33 to the 1993 Form 10-K).
10.31*+ Non-Qualified Stock Option Agreement, dated as of March 9, 1993, by
and between C. Stephen Mansfield and the Registrant (filed as Exhibit
10.34 to the 1993 Form 10-K).
10.32* Securities Exchange Agreement dated as of June 7, 1994, as amended by
First Amendment to Securities Exchange Agreement dated as of June 30,
1994, between Mr. Milan Mandaric and the Registrant, Inc. (filed as
Exhibits 5-1 and 5-2 to the Current Report on Form 8-K dated June 30,
1994).
Page 15
10.33* Loan and Security Agreement dated December 17, 1993, between Foothill
Capital Corporation, a California corporation, and the Registrant
(filed as Exhibit 10-1 to the Form 10-Q for the quarterly period ended
January 1, 1994).
10.34*+ 1994 Incentive Stock Option Plan and Incentive Stock Option Agreement
dated April 14, 1994 (filed as Exhibits 4.1 and Exhibits 4.2 to Form
S-8 dated May 18, 1994).
10.35*+ Non-Qualified Stock Option Agreement, dated as of July 14, 1994, by
and between Charles Handley and the Registrant (filed as Exhibit 10.38
to the 1994 Form 10-K).
10.36* Lease for 1188 Bordeaux Drive, Sunnyvale, California, dated October
24, 1994, by and among Symtron Corporation and Redtree Properties, LP
(filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended
December 31, 1994).
10.37* Lease for 2609 Technology Drive, Plano, Texas 75074, dated March 1995
between Elexsys International, Inc. and Property Reserve, Inc. (filed
as Exhibit 10.2 to the Form 10-Q for the quarterly period ended April
1, 1995).
10.38* Asset Purchase Agreement dated April 28, 1995 between Elexsys
International, Inc. and Technet Ltd, UK (filed as Exhibit 10.3 to the
Form 10-Q for the quarterly period ended April 1, 1995).
10.39* Securities Exchange Agreement dated as of March 29, 1995, between Mr.
Milan Mandaric and the Registrant, Inc. (filed as Exhibits 10-1 to the
Current Report on Form 8-K dated April 4, 1995).
10.40+ 1995 Stock Option Plan.
10.41+ Form of Incentive Stock Option Agreement under the 1995 Stock Option
Plan.
11 Computation of Earnings Per Common and Common Equivalent Share for the
Fiscal Years Ended September 30, 1995, 1994, and 1993.
13 Annual Report to Stockholders for the Fiscal Year Ended September 30,
1995.
21 List of subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP dated December 18, 1995 to
incorporation by reference in Registration Statements No. 33-21826,
No. 33-02384 and No. 33-58033 on Form S-8 and Registration Statement
No. 33-22598 on Form S-3.
27 Financial Data Schedule
Page 16
(B) REPORTS ON FORM 8-K
Report on Form 8-K dated February 28, 1995, reporting under Item 5
of Form 8-K (i) approval by Registrant's stockholders of
Registrant's Amended and Restated Certificate of Incorporation
which, among other things, changed Registrant's name to "Elexsys
International, Inc." (ii) and election of William "Barry" Hegarty as
Chief Operating Officer.
Report on Form 8-K dated March 20, 1995, reporting under Item 5 of
Form 8-K, listing of Registrant's Common Stock on The Nasdaq Stock
Market's SmallCap Market under the symbol "ELEX".
Report on Form 8-K dated March 31, 1995, exchange by Mr. Milan
Mandaric and Registrant of 400,000 newly issued shares of
Registrant's common stock for $4 million in aggregate principal
amount of Registrant's outstanding 5 1/2% Convertible Subordinated
Debentures due 2012, pursuant to the terms of the Second Exchange
Agreement dated as of March 29, 1995.
-----------------------------------------------------------------------
* Incorporated by reference.
+ Management or compensatory plan, contract or arrangement
Page 17
SIGNATURES
In accordance with 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.
ELEXSYS INTERNATIONAL, INC.
(Registrant)
By: /s/ Milan Mandaric December 22, 1995
- - -------------------------------------------- --------------------
Milan Mandaric Date
Chairman of the Board, President and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
/s/ Milan Mandaric December 22, 1995
- - -------------------------------------------- --------------------
Milan Mandaric Date
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Peter S Jonas December 22, 1995
- - -------------------------------------------- --------------------
Peter S. Jonas Date
Director
/s/ Roland G. Matthews December 22, 1995
- - -------------------------------------------- --------------------
Roland G. Matthews Date
Director
December 22, 1995
- - -------------------------------------------- --------------------
Charles H. Handley Date
Director
/s/ Michael S. Shimada December 22, 1995
- - -------------------------------------------- --------------------
Michael S. Shimada Date
Vice President of Finance,
Chief Financial Officer and
Secretary (Principal Financial
and Accounting Officer)
Page 18
INDEPENDENT AUDITORS' REPORT
To Elexsys International, Inc.:
We have audited the consolidated financial statements of Elexsys International,
Inc., formerly Diceon Electronics, Inc. and its subsidiaries as of September 30,
1995 and 1994, and for each of the three years in the period ended September 30,
1995, and have issued our report thereon dated October 16, 1995; such
consolidated financial statements and report are included in your 1995 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedules of Elexsys International, Inc.,
listed in Item 14. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP (Sig)
Costa Mesa, California
October 17, 1995
Page 19