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 28, 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.)
4405 Fortran Court, San Jose, California 95134
(Address of principal executive offices) (Zip Code)
(408) 935-6300
(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 31, 1997 there were 9,397,545 outstanding shares of common stock.
This report consists of 11 pages
<PAGE>
ELEXSYS INTERNATIONAL, INC.
FORM 10-Q
INDEX
Part I. Financial Information:
Item 1. Consolidated Balance Sheets as of December 28, 1996 and
September 30, 1996............................................ 2
Consolidated Statements of Operations for the Three Months
Ended December 28, 1996 and December 30, 1995................. 3
Consolidated Statements of Cash Flows for the Three Months
Ended December 28, 1996 and December 30, 1995..................4
Notes to the Consolidated Financial Statements................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................7
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders............9
Item 6. Exhibits.......................................................9
1
<PAGE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 28, September 30,
1996 1996
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 320 $ 1,075
Accounts receivable, net 20,421 20,463
Inventories 13,359 10,690
Prepaid expenses and other current assets 1,450 1,447
---------------- ----------------
Total current assets 35,550 33,675
---------------- ----------------
Property, plant and equipment, net 29,384 24,818
Other assets 3,258 3,612
---------------- ---------------
Total assets $ 68,192 $ 62,105
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,497 $ 12,629
Accrued payroll and related costs 3,310 2,611
Other current liabilities 1,545 1,321
Short-term borrowings 4,884 5,310
Current portion of long-term debt 1,222 1,234
---------------- ----------------
Total current liabilities 25,458 23,105
---------------- ----------------
Long-term debt 3,095 2,448
Convertible subordinated debentures 12,000 12,000
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000,000 shares
authorized, none issued and outstanding at December 28,
1996 and September 30, 1996.
Common stock, $1.00 par value, 20,000,000 shares authorized,
9,364,105 shares issued and outstanding at December 28, 1996 and
9,300,810 shares issued and outstanding at September 30, 1996 9,364 9,301
Additional paid-in capital 7,476 7,294
Cumulative foreign currency translation adjustment 181 (22)
Retained earnings 10,618 7,979
---------------- ----------------
Total stockholders' equity 27,639 24,552
---------------- ----------------
Total liabilities and stockholders' equity $ 68,192 $ 62,105
================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Ended
December, 28, December 30,
1996 1995
------------------ ------------------
<S> <C> <C>
Net sales $ 36,501 $ 28,911
Cost of sales 29,713 23,533
------------------ ------------------
Gross profit 6,788 5,378
Operating expenses:
Selling, general and administrative 3,471 2,941
Research and development 49 43
------------------ ------------------
Total operating expenses 3,520 2,984
------------------ ------------------
Income from operations 3,268 2,394
Interest expense, net 465 365
------------------ ------------------
Income before income taxes 2,803 2,029
Provision for income taxes 164 19
------------------ ------------------
Net Income $ 2,639 $ 2,010
================== ==================
Earnings per share $ 0.27 $ 0.21
================== ==================
Weighted average common shares and common
equivalent shares outstanding 9,777 9,474
================== ==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
ELEXSYS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
Three Months Ended
December 28, December 30,
1996 1995
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,639 $ 2,010
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,585 1,070
Decrease in accounts receivable 132 3,086
(Increase) decrease in inventories (2,616) 248
(Increase) decrease in prepaid expenses and other current assets 16 (20)
Increase in accounts payable 1,787 131
Increase (decrease) in accrued payroll and related taxes 688 (211)
Increase (decrease) in other current liabilities 213 (171)
Other - 64
---------------- ----------------
Net cash provided by operating activities 4,444 6,207
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (5,158) (1,952)
(Increase) decrease other long-term assets 290 -
---------------- ----------------
Net cash used by investing activities (4,868) (1,952)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principle Payments on debt (144) (30)
Proceeds from exercise of stock options 245 300
Net change in short-term borrowings (426) (2,981)
---------------- ----------------
Net cash used by financing activities (325) (2,711)
---------------- ----------------
Effects of exchange rate changes on cash (6) (25)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (755) 1,519
Cash and cash equivalents, beginning of period 1,075 903
---------------- ---------------
Cash and cash equivalents, end of period $ 320 $ 2,422
================ ================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases $ 692 -
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest payments $ 253 $ 62
================ ================
Income tax payments $ 170 $ 40
================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<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 December 28, 1996 and September
30, 1996, the results of its operations and cash flows for the three
months ended December 28, 1996 and December 30, 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, 1996, 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>
December 28, September 30,
1996 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
Raw materials $ 6,907 $ 5,434
Work in progress 6,452 5,256
---------------- ----------------
Totals $13,359 $10,690
================ ================
</TABLE>
Note 3 - Earnings Per Share
Primary and fully diluted earnings per common share for the three
months ended December 28, 1996 and December 30, 1995 have been computed
based on weighted average common shares outstanding and common stock
equivalents (stock options) as of the above dates and do not include
the assumed conversion of the 5 1/2 percent Convertible Subordinated
Debentures due 2012 into common stock as such effect would have been
antidilutive.
Note 4 - Income Taxes
In the first three months of fiscal 1997, the Company provided $164,000
for income taxes. This tax provision primarily relates to federal
alternative minimum tax and state taxes. As of September 30, 1996, the
Company had net operating loss carryforwards for federal, state, and
foreign income tax purposes of approximately $24,416,000, $19,402,000,
and $672,000, respectively. These carryforwards, for which future
benefits are not assured, expire in various amounts through 2008.
5
<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 are 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 28, 1996, there were no material transaction gains or
losses.
Note 6 - Subsequent Event
On January 17, 1997, the Company terminated its existing working capital
line of credit and entered into a new loan agreement with Sanwa Bank California.
The loan agreement consists of a $13 million working capital line of credit and
a $7 million term loan. The borrowings under the working capital line of credit
and the term loan bear interest at prime rate plus 1/2 percent and 1 percent,
respectively. At the Company's request, interest on the line of credit or the
term loan can be converted to a fixed rate at 250 basis points and 300 basis
points, respectively, over the cost of funds. The line of credit and the term
loan are collateralized by substantially all of the Company's assets. The line
of credit will remain in effect until January 31, 1998. The amount of term loan
can fluctuate and interest only will be payable until January 31, 1998, at which
point the amount outstanding will become due and payable in 36 equal monthly
installments of principal and interest ending on January 31, 2001. The credit
facility contains covenants including the maintenance of certain levels of
working capital, tangible net worth and certain financial ratios. In addition,
the company is restricted from incurring additional indebtedness, dividends, and
certain other payments.
In December 1996, the Business Finance Authority of the State of New
Hampshire (the "Issuer") issued a tax-exempt qualified small issue private
placement bond, the proceeds of which were loaned to the company on January 27,
1997 to reimburse the Company for the $2.3 million it paid to purchase its
Nashua, New Hampshire manufacturing facility in November 1996, with
approximately another $400,000 available to reimburse the Company for
improvements it intends to make to the premises. In connection with the loan,
the Company entered into a Loan Agreement among the Issuer, GE Capital Public
Finance, Inc., as lender to the Issuer, and the Company, as borrower, dated as
of December 1, 1996 (the "Loan Agreement"). Under the terms of the Loan
Agreement, the loan has a ten year term with interest payable monthly in arrears
at a rate of 6.33%. Principal payments are also due monthly based on a twenty
year amortization schedule. The loan is secured by a standby letter of credit
issued by Sanwa Bank California under the Company's line of credit facility
for 100% of the principal amount plus 120 days interest.
6
<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,
1996.
Results of Operations
Net Sales
Net sales increased 26 percent for the three months ended December 28, 1996
compared to the first quarter of fiscal 1996. The increase in net sales for the
three months ended December 28, 1996 resulted from an increased demand for
backpanel assemblies from the Company's existing customer base and new
customers, and sales generated due to the May 1996 acquisition of Anetec
Technologies. The Company has unused capacity in its Printed Circuit Board and
Backpanel Assembly operations of approximately 30 and 50 percent respectively,
allowing the Company to substantially increase its sales in its existing
facilities.
Gross Margin
Gross Margin for the first quarter of fiscal 1997 as a percentage of net
sales was consistent with the first quarter of fiscal 1996.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses for the three months
ended December 28, 1996 increased 18 percent as compared to the first quarter of
fiscal 1996. The increase in SG&A for the first quarter of fiscal 1997, as
compared to the same quarter in fiscal 1996, was due to the inclusion of the
SG&A expenses of the Company's Anetec Technologies subsidiary, increases in
employee and other costs to support 26 percent higher revenues in the first
quarter of fiscal 1997, and additions to senior management. As a percentage of
net sales, SG&A decreased from 10.2 percent for the first quarter of fiscal 1996
to 9.5 percent for the first quarter of fiscal 1997 due to higher sales
revenues.
Research and Development
Research and development expenditures for the three months ended December 28,
1996 was consistent with the first quarter of fiscal 1996.
Interest Expense, Net
Interest expense, net of interest income, increased 27 percent for the first
quarter of fiscal 1997 as compared to the same quarter in fiscal 1996. The
increase is mainly attributable to an increase in borrowings from an asset-based
lender in the first quarter of 1997, partially offset by a lower overall cost of
borrowing.
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 had cash flows from operating activities of $4.4 million during the
first quarter of fiscal 1997 compared to $6.2 million during the same period of
the previous year. The decrease in cash flows from operating activities in the
first quarter of fiscal 1997, as compared to the same quarter in fiscal 1996,
was primarily attributable to additional working capital required to support the
growth in revenues. The increase in inventories of $2.6 million in the first
quarter of fiscal 1997 was primarily due to build up of inventory to support two
new assembly customers. The working capital during the first quarter of fiscal
1997 was positively impacted by an aggregate increase of $2.7 million for
accounts payable, accrued expenses, and other current liabilities.
7
<PAGE>
Cash provided by operating activities of $4.4 million was offset by cash used by
investing and financing activities of $5.2 million. Cash from investing
activities was used for the purchase of capital equipment and for a $2.3 million
cash payment for the purchase of the building for the Company's operations in
Nashua, New Hampshire. 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 December 28, 1996, the Company had borrowed $4.9 million under a
working capital line of credit with an asset-based lender. The Company was in
compliance with all of the covenants as defined within the agreement.
On January 17, 1997, the Company terminated its existing working capital line of
credit and entered into a new loan agreement with Sanwa Bank California. The
loan agreement consists of a $13 million working capital line of credit and a $7
million term loan. The borrowings under the working capital line of credit and
the term loan bear interest at prime rate plus 1/2 percent and 1 percent,
respectively. The line of credit and the term loan are collateralized by
substantially all of the Company's assets and will remain in effect until
January 31, 1998 and January 31, 2001, respectively. The credit facility
contains covenants including the maintenance of certain levels of working
capital, tangible net worth and certain financial ratios. In addition, the
company is restricted from incurring additional indebtedness, dividends, and
certain other payments.
As of December 28, 1996, the Company's ratio of current assets to current
liabilities was 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 1997.
8
<PAGE>
Part II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders ("Annual Meeting") on
January 29, 1997. At the Annual Meeting the shareholders voted upon and approved
the Board's nominees as directors by the votes indicated:
<TABLE>
Nominee Votes in Favor Votes Against Abstentions Non-votes
- --------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Milan Mandaric 5,673,223 0 50 0
Roger W. Johnson 5,672,373 0 900 0
C. Bradford Jeffries 5,672,473 0 800 0
</TABLE>
Item 6 a. Exhibits
10.46 Loan Agreement dated January 17, 1997 between Sanwa Bank California
and the registrant.*
10.47 Loan Agreement dated as of December 1, 1996 among GE Capital Public
Finance, Inc., Business Finance Authority of the State of New
Hampshire and the registrant.*
27 Financial Data Schedule
b. Current reports on Form 8-K
None
9
- ---------------------
* To be filed by amendment.
<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: February 11, 1997 By: /s/ W.F. Hegarty
----------------- ----------------
W.F. Hegarty
President and Chief Operating Officer
By: /s/ Michael S. Shimada
----------------------
Michael S. Shimada
Principal Financial Officer
and Duly Authorized Officer
10
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<ARTICLE> 5
<CIK> 0000727010
<NAME> Elexsys International, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Dec-28-1996
<CASH> 320
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0
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</TABLE>
