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 June 29, 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 July 5, 1996, there were 9,292,310 outstanding
shares of common stock.
This report consists of 11 pages
<PAGE>
ELEXSYS INTERNATIONAL, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information: Page
Item 1.
Consolidated Balance Sheets as of June 29, 1996 and September 30, 1995.................................................... 2
Consolidated Statements of Operations for the Three and Nine Months Ended June 29, 1996 and July 1, 1995..................3
Consolidated Statements of Cash Flows for the Three and Nine Months Ended June 29, 1996 and July 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 6.
Exhibits....................................................................................................................9
</TABLE>
<PAGE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 29, September 30,
1996 1995
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 230 $ 903
Accounts receivable, net 18,135 15,653
Inventories 10,964 7,860
Prepaid expenses and other current assets 1,102 709
---------------- ----------------
Total current assets 30,431 25,125
---------------- ----------------
Property, plant and equipment, net 24,854 18,980
Other assets 3,159 1,034
---------------- ----------------
Total assets $ 58,444 $ 45,139
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,383 $ 9,854
Accrued payroll and related costs 3,032 2,521
Other current liabilities 1,271 1,965
Short-term borrowings 4,052 3,248
Current portion of long-term debt 1,093 363
---------------- ----------------
Total current liabilities 21,831 17,951
---------------- ----------------
Long-term debt 2,404 1,280
Convertible subordinated debentures 12,000 12,000
Stockholders' equity:
Common stock, $1.00 par value, 20,000,000 shares authorized,
9,281,310 shares issued and outstanding at June 29, 1996 and
8,960,560 shares issued and outstanding at September 30, 1995 9,281 8,961
Additional paid-in capital 7,253 5,460
Retained earnings (deficit) 5,712 (491)
Cumulative foreign currency translation adjustment (37) (22)
---------------- ----------------
Net stockholders' equity 22,209 13,908
---------------- ----------------
Total liabilities and stockholders' equity $ 58,444 $ 45,139
================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $30,841 $27,298 $90,140 $73,458
Cost of sales 25,312 23,010 73,527 64,434
------------- ------------- ------------- -------------
Gross profit 5,529 4,288 16,613 9,024
Operating expenses:
Selling, general and administrative 3,091 2,780 9,165 7,046
Research and development 71 115 211 364
------------- ------------- ------------- -------------
Total operating expenses 3,162 2,895 9,376 7,410
------------- ------------- ------------- -------------
Income from operations 2,367 1,393 7,237 1,614
Interest expense, net 354 470 982 1,311
------------- ------------- ------------- -------------
Income before income taxes 2,013 923 6,255 303
Provision for income taxes 49 22 52 22
------------- ------------- ------------- -------------
Income before extraordinary item 1,964 901 6,203 281
Extraordinary item:
Gain from exchange of 5 1/2 percent Convertible
Subordinated Debentures due 2012 for common
stock, net of expenses - - - 1,833
------------- ------------- ------------- -------------
Net income $ 1,964 $ 901 $ 6,203 $ 2,114
============= ============= ============= =============
Earnings per share $0.20 $0.10 $0.65 $0.23
============= ============= ============= =============
Weighted average common shares and common
equivalent shares outstanding 9,619 9,319 9,548 9,319
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 29, July 1,
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,203 $ 2,114
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary gain - (1,833)
Depreciation and amortization 3,924 4,063
Increase in accounts receivable (2,501) (3,749)
(Increase) decrease in inventories (3,237) 350
Increase in prepaid expenses and other current assets (488) (195)
Increase in accounts payable 2,629 407
Increase in accrued payroll and related taxes 514 415
Decrease in other current liabilities (611) (791)
Other (318) (197)
---------------- ----------------
Net cash provided by operating activities 6,115 584
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Anetec Technologies (1,400) -
Purchase of Technet, Ltd., net of cash acquired - (560)
Purchase of property, plant and equipment (6,685) (3,087)
---------------- ----------------
Net cash used by investing activities (8,085) (3,647)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings 809 2,350
Payments on long-term debt (175) (280)
Increase of long-term debt 118 -
Proceeds from exercise of stock options 545 529
---------------- ----------------
Net cash provided by financing activities 1,297 2,599
---------------- ----------------
Net decrease in cash and cash equivalents (673) (464)
Cash and cash equivalents, beginning of period 903 1,562
---------------- ----------------
Cash and cash equivalents, end of period $ 230 $ 1,098
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest payments $ 513 $ 481
================ ================
Income tax payments $ 330 $ 24
================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
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 June 29, 1996 and September 30,
1995, the results of its operations for the three and nine months ended
June 29, 1996 and July 1, 1995 and its cash flows for the nine months
ended June 29, 1996 and July 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):
<TABLE>
<CAPTION>
June 29, September 30,
1996 1995
---------------- ----------------
(Unaudited)
<S> <C> <C>
Raw materials $5,195 $2,843
Work in progress 5,769 5,017
---------------- ----------------
Totals $10,964 $7,860
================ ================
</TABLE>
Note 3 - Earnings Per Share
Earnings per share for the three and nine months ended June 29, 1996
and July 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
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 nine months of 1996, the
Company recorded a provision of $52,000 for income taxes. This related
to a provision for federal alternative minimum taxes of $157,000
partially offset by a foreign income tax benefit of $105,000 based on
the Company's United Kingdom subsidiary net operating loss for the
first nine months of 1996. The remaining carryforwards, for which
future benefit is not assured, expire in various amounts through 2008.
<PAGE>
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
nine months ended June 29, 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 of Anetec Technologies, Inc., a company
serving the small prototype and engineering marketplace located in
Fremont, California for approximately $4.0 million, including $1.4
million in cash, a promissory note in the principal amount of $1.0
million, and 110,000 shares of the Company's common stock valued at
approximately $1.6 million. The total purchase price of approximately
$4.0 million was allocated to assets acquired representing machinery
and equipment of approximately $2.4 million and goodwill of
approximately $1.6 million.
<PAGE>
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 13 percent for the three months ended June 29,
1996 compared to the second quarter of fiscal 1995. For the nine months ended
June 29, 1996, net sales increased 23 percent over net sales for the comparable
period in fiscal 1995. The increase in net sales for the three and nine month
periods ended June 29, 1996 resulted from an increased demand for backpanel
assemblies from the Company's existing customer base and new customers,
prototype surface mount assembly sales generated by the May, 1996 acquisition of
the assets of Anetec Technologies, and printed circuit board sales generated by
the April, 1995 acquisition in the United Kingdom of Technet Electronics
Limited. The Company has unused capacity in its printed circuit board and
backpanel assembly operations of approximately 35 and 60 percent, respectively,
allowing the Company to substantially increase its sales in its existing
facilities.
Cost of sales
Cost of sales as a percentage of net sales improved from 84 percent in the third
quarter of fiscal 1995 to 82 percent for the third quarter of fiscal 1996. For
the nine months ended June 29, 1996, cost of sales as a percentage of net sales
improved from 88 percent for the first nine months of fiscal 1995 to 82 percent
for the nine month period ended June 29, 1996. The improvement in cost of sales
for the three and nine months ended June 29, 1996 was attributable to improved
operating efficiencies (including labor efficiencies, yields and economies of
scale) and material cost reductions. These improvements were partially offset by
costs associated with the April, 1995 start-up of the Company's operations in
the United Kingdom and the October, 1995 start-up of the Company's backpanel
assembly operations in Plano, Texas.
Selling, General and Administrative
Selling, general and administrative (SG&A) expense for the three months and nine
months ended June 29, 1996 increased 11 percent and 30 percent, respectively, as
compared to the similar fiscal 1995 periods. As a percentage of net sales, SG&A
remained at 10 percent for the three and nine months ended June 29, 1996 and the
comparable periods in fiscal 1995. The increase in SG&A for the three and nine
month periods, as compared to similar periods in fiscal 1995, was due to the
inclusion of the SG&A expense of the Company's United Kingdom subsidiary, and an
increase in employee costs, resulting primarily from additions to senior
management and the replacement of manufacturing representatives with direct
sales employees.
Research and development
Research and development expenditures for the three months ended June 29, 1996
decreased 38 percent compared to the third quarter of fiscal 1995. For the nine
months ended June 29, 1996, research and development expenditures decreased 42
percent from the comparable nine month period of fiscal 1995. The decrease was
due to reduced labor and benefit costs as a consequence of past restructurings
by the Company.
<PAGE>
ELEXSYS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense, net
Interest expense, net of interest income, decreased 25 percent for the three and
nine months ended June 29, 1996 from the comparable quarters in fiscal 1995. The
decrease is mainly attributable to a decrease in borrowings from an asset-based
lender in the first and second quarters 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 $6.1 million during
the first nine months of fiscal 1996 compared to $0.6 million during the same
period of the previous year. Higher positive cash flow provided by operating
activities during the first nine months of fiscal 1996 was primarily due to
improved profitability, partially offset by an increase in the use of working
capital. Accounts receivable, inventories, and accounts payable balances
increased by $2.5 million, $3.2 million, and $2.6 million respectively during
the first nine months of fiscal 1996 as a result of higher sales levels and from
sales generated from the acquisition of the assets of Anetec Technologies in
May, 1996.
Cash provided by operating activities of $6.1 million and cash provided by
financing activities of $1.3 million was offset by cash used by investing
activities of $8.1 million. Cash was provided by financing activities through
the increase in short-term borrowings and long-term debt, and amounts received
from the exercise of stock options by certain employees, less cash used for the
repayment of long-term debt. Cash from investing activities was used for the
purchase of capital equipment and for a $1.4 million cash payment for the assets
of Anetec Technologies. Capital equipment was purchased for manufacturing
processes that the Company had previously outsourced, for the enhancement of
manufacturing capabilities, and for normal replacement.
As of June 29, 1996, the Company had short-term borrowings with an asset-based
lender, net of cash collections held by the lender, of $4,052,000 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 June 29, 1996, the asset-based lender was in possession of
$443,000 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 will remain in effect until
December 17, 1997. The Company was in compliance with all of the covenants as
defined within the agreement.
During the nine month period, the Company's ratio of current assets to current
liabilities remained at 1.4 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.
<PAGE>
Part II. OTHER INFORMATION
Item 6 a. Exhibits
27 Financial Data Schedule
b. Current reports on Form 8-K
None
<PAGE>
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: August 13, 1996 By: /s/ Michael S. Shimada
--------------- -----------------------
Michael S. Shimada
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000727010
<NAME> Elexsys International, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Sep-28-1996
<PERIOD-END> Jun-29-1996
<CASH> 230
<SECURITIES> 0
<RECEIVABLES> 18,593
<ALLOWANCES> 458
<INVENTORY> 10,964
<CURRENT-ASSETS> 30,431
<PP&E> 80,612
<DEPRECIATION> 55,758
<TOTAL-ASSETS> 58,444
<CURRENT-LIABILITIES> 21,831
<BONDS> 14,404
0
0
<COMMON> 9,281
<OTHER-SE> 12,928
<TOTAL-LIABILITY-AND-EQUITY> 58,444
<SALES> 90,140
<TOTAL-REVENUES> 90,140
<CGS> 73,527
<TOTAL-COSTS> 73,527
<OTHER-EXPENSES> 211
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 988
<INCOME-PRETAX> 6255
<INCOME-TAX> 52
<INCOME-CONTINUING> 6203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6203
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
