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 December 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 ________________
Commission file number 0-11691
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)
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 January 8, 1996, there were 9,093,070 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 December 30, 1995 and September 30, 1995....... 2
Consolidated Statements of Operations for the Three Months
Ended December 30, 1995 and December 31, 1994.................................... 3
Consolidated Statements of Cash Flows for the Three Months
Ended December 30, 1995 and December 31, 1994.................................... 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............................................................... 10
1
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 30, September 30,
1995 1995
---------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,422 $ 903
Accounts receivable, net 12,567 15,653
Inventories 7,611 7,860
Prepaid expenses and other current assets 729 709
---------------- ----------------
Total current assets 23,329 25,125
---------------- ----------------
Property, plant and equipment, net 19,853 18,980
Other assets 980 1,034
---------------- ----------------
Total assets $ 44,162 $ 45,139
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,986 $ 9,854
Accrued payroll and related costs 2,310 2,521
Other current liabilities 1,793 1,965
Short-term borrowings 144 3,248
Current portion of long-term debt 252 363
---------------- ----------------
Total current liabilities 14,485 17,951
---------------- ----------------
Long term debt 1,485 1,280
Convertible subordinated debentures 12,000 12,000
Stockholders' equity:
Common stock, $1.00 par value, 20,000,000 shares
authorized, 9,079,830 and 8,960,560 shares issued and
outstanding at December 30, 1995 and at September 30, 1995 9,080 8,961
Additional paid-in capital 5,640 5,460
Retained earnings (deficit) 1,519 (491)
Cumulative foreign currency translation adjustment (47) (22)
---------------- ----------------
Net stockholders' equity 16,192 13,908
---------------- ----------------
Total liabilities and stockholders' equity $ 44,162 $ 45,139
================ ================
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
2
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
December 30, December 31,
1995 1994
---------------- ---------------
Net sales $ 28,911 $ 22,753
Cost of sales 23,533 19,883
---------------- ---------------
Gross profit 5,378 2,870
Operating expenses:
Selling, general and administrative 2,941 2,066
Research and development 43 123
---------------- ---------------
Total operating expenses 2,984 2,189
---------------- ---------------
Income from operations 2,394 681
Other expenses:
Interest expense, net 365 431
---------------- ---------------
Income before income taxes 2,029 250
Provision for income taxes 19 -
---------------- ---------------
Net income $ 2,010 $ 250
================ ===============
Earnings per share (Note 3) $ 0.21 $ 0.03
================ ===============
Weighted average common shares and common equivalent shares
outstanding 9,474 8,335
================ ===============
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
3
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
December 30, December 31,
1995 1994
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,010 $ 250
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,070 1,525
(Increase) decrease in accounts receivable 3,086 (955)
Decrease in inventories 248 1,235
Increase in prepaid expenses and other current assets (20) (178)
Increase (decrease) in accounts payable 131 (753)
Decrease in accrued payroll and related taxes (211) (126)
Decrease in restructuring reserve - (151)
Increase (decrease) in other current liabilities (171) 149
Other 64 (24)
---------------- ----------------
Net cash provided by operating activities 6,207 972
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,952) (594)
---------------- ----------------
Net cash used by investing activities (1,952) (594)
---------------- ----------------
CASH FLOWS USED BY FINANCING ACTIVITIES
Principal payments on debt (30) (11)
Proceeds from exercise of stock options 300 -
Net change in short-term borrowings (2,981) (629)
---------------- ----------------
Net cash used by financing activities (2,711) (640)
---------------- ----------------
Effects of exchange rate changes on cash (25) -
Net increase (decrease) in cash and cash equivalents 1,519 (262)
Cash and cash equivalents, beginning of period 903 1,562
---------------- ----------------
Cash and cash equivalents, end of period $ 2,422 $ 1,300
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest payments $ 62 $ 16
================ ================
Income tax payments $ 40 $ 20
================ ================
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
4
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 December 30, 1995 and September
30, 1995, the results of its operations for the three months ended
December 30, 1995 and December 31, 1994 and its cash flows for the
three months ended December 30, 1995 and December 31, 1994. 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):
December 30, September 30,
1995 1995
---------------- ----------------
(Unaudited)
Raw materials $2,945 $2,843
Work in progress 4,666 5,017
---------------- ----------------
Totals $7,611 $7,860
================ ================
NOTE 3 - EARNINGS PER SHARE
Earnings per common share for the three months ended December 30, 1995
and December 31, 1994 has been computed based on weighted average
common shares outstanding and common stock equivalents as of the above
dates and does not include the assumed conversion of the 5 1/2 percent
Convertible Subordinated Debentures due 2012 as such effect would have
been anti-dilutive.
NOTE 4 - INCOME TAXES
As of September 30, 1995, the Company had net operating loss
carryforwards for federal and state income tax purposes of $32,385,000
and $23,706,000, respectively. In the first quarter of 1996, the
Company recorded a provision of $19,000 for income taxes. This related
to a provision for federal alternative minimum taxes of $67,000 offset
by a foreign income tax benefit of $48,000 based on the Company's
United Kingdom subsidiary net operating loss for the first quarter of
1996. The remaining carryforwards, for which future benefit is not
assured, expire in various amounts through 2008.
5
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
three months ended December 30, 1995, there were no material
transaction gains or losses.
NOTE 6 - STOCK PLANS
On January 30, 1996, the Company adopted its 1996 Employee Stock
Purchase Plan (the "Purchase Plan"), authorizing the issuance of
250,000 shares of the Company's Common Stock. Under the Purchase Plan,
the Company's employees may purchase shares of Common Stock at a price
per share that is 85% of the lesser of the fair market value as of the
beginning or the end of the semi-annual option period. No shares had
been issued under the Purchase Plan to date.
In July 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan (the "1995 Plan"), authorizing the issuance of 1,000,000
shares of the Company's Common Stock. At December 11, 1995, options
(net of canceled or expired options) covering an aggregate of 82,000
shares of the Company's Common Stock had been granted under the 1995
Plan, and 918,000 shares (plus any shares that might in the future be
returned to the plan as a result of cancellations or expiration of
options) remain available for future grant under the 1995 Plan. On
January 30, 1996, the Company's stockholders approved an amendment and
restatement of the 1995 Plan to reflect current applicable tax and
securities requirements and for administrative ease.
In January 1996, the Board of Directors adopted the Company's 1996
Non-Employee Director's Stock Option Plan (the "Director's Plan"). The
Director's Plan provides for automatic, non-discretionary grants of
options to purchase an aggregate on 200,000 shares of the Company's
Common Stock. At February 1, 1996, options covering an aggregate of
30,000 shares of the Company's Common Stock had been granted under the
Director's Plan.
NOTE 7 - NASDAQ STOCK LISTING
Effective January 25, 1996, the NASDAQ Stock Market, Inc. approved the
Company's common stock for listing on the NASDAQ National Market.
6
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.
RESULTS OF OPERATIONS
Net sales
Net sales for the three months ended December 30, 1995 increased 27
percent compared to the first quarter of fiscal year 1995. The increase
in net sales resulted from an increased demand from the Company's
recurring 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 87 percent in
the first quarter of fiscal year 1995 to 81 percent for the first
quarter of fiscal year 1996. The improvement in cost of sales for the
three months ended December 30, 1995 was attributable to a favorable
change in product mix, cost reductions, increased in-house capabilities
and operating efficiencies from the printed circuit board operations.
The improvement in cost of sales at the printed circuit board
operations was partially offset by increased material costs per unit
shipped at the Company's backpanel product line due to changes in
product mix.
Selling, General and Administrative
Selling, general and administrative (SG&A) expense for the three months
ended December 30, 1995 increased 42 percent compared to the first
quarter of fiscal 1995. As a percentage of net sales, SG&A increased
from 9.1 percent for the first quarter of fiscal year 1995 to 10.2
percent for the first quarter of fiscal 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 inside sales employees.
Research and development
Research and development expenditures decreased 65 percent during the
three months ended December 30, 1995 compared to the first quarter 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 15 percent for the
three months ended December 30, 1995, as compared to the first quarter
of 1995. The decrease is attributable to a reduction in the number of
outstanding convertible subordinated debentures and a decrease in
borrowings from an asset-based lender. On March 31, 1995, Mr. Milan
Mandaric, Chairman and Chief Executive Officer of the Company,
exchanged $4,000,000 of convertible subordinated debentures for 400,000
shares of common stock of the Company. This decrease in interest
expense was partially offset by an increase in interest expense
incurred by the Company's subsidiary in the United Kingdom.
7
ELEXSYS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash flows from operating activities of $6.2
million during the first quarter of fiscal 1996 compared to $972,000
during the same period of the previous year. Higher positive cash flow
provided by operating activities during the first quarter of fiscal
1996 was generated primarily due to improved profitability and strong
cash collections. Strong cash collections activities, together with a
higher than normal beginning balance in accounts receivable
(attributable to a the timing of shipments during the last quarter of
fiscal 1995) caused the accounts receivable balance to decrease by
$3,086,000 during the first quarter of fiscal 1996.
The cash provided by operating activities was offset by investing
activities of $1,952,000 (used for the purchase of capital equipment)
and by financing activities of $2,711,000 (primarily used for the
repayment of short term borrowings, reported net of amounts received
from the exercise of stock options by certain employees). Capital
equipment was purchased for normal replacement, for processes that the
Company had previously outsourced, and for the enhancement of
manufacturing capabilities.
As of December 30, 1995, the Company had brought its gross short-term
borrowing down to $144,000 under a $10 million line of credit agreement
that was established December 17, 1993 with an asset-based lender.
Under the terms of the agreement, the Company's cash collections are
applied to any outstanding borrowings upon the receipts clearing the
bank. At December 30, 1995, the asset-based lender was in possession of
$350,000 of the Company's cash collections; accordingly, such funds are
owed to the Company upon clearing the bank. On January 30, 1996, the
Company line of credit agreement was amended to increase the line of
credit to $15 million from $10 million, and to decrease the annual
interest rate to prime plus 1 percent from prime plus 3 percent. 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 December 30, 1995, the Company had cash and cash equivalents of
$2,422,000, an increase of $1,519,000 from September 30, 1995, and
working capital of $8,844,000, an increase of $1,670,000 from September
30, 1995.
During the first quarter, the Company's ratio of current assets to
current liabilities increased 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.
At December 30, 1995 the Company had outstanding commitments to
purchase or lease approximately $1.6 million of electrical test
equipment to support expanded capacity.
8
ELEXSYS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Environmental
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 ground water 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 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 $50,000 and $100,000. As of
December 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.
RECENT EVENT
On January 30, 1996, the Board of Directors of the Company named W.
Barry Hegarty, the Company's Chief Operating Officer, the President of
the Company. Milan Mandaric continues to be the Chairman of the Board
and Chief Executive Officer of the Company.
9
PART II. OTHER INFORMATION
Item 6 a. EXHIBITS
10.1 Amendment to Loan and Security Agreement dated January 30, 1996 between
Elexsys International and Foothill Capital Corporation.
b. CURRENT REPORTS ON FORM 8-K
None
10
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.
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(Registrant)
Date: February 13, 1996 By: /s/ Michael S. Shimada
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Michael S. Shimada
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
11