<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 SEPTEMBER 30, 2000 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 0-16182
-------------------
AXSYS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-1962029
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
175 CAPITAL BOULEVARD, SUITE 103 06067
ROCKY HILL, CONNECTICUT (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 257-0200
-------------------
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
---- ----
4,660,206 SHARES OF COMMON STOCK, $.01 PAR VALUE, WERE OUTSTANDING AS OF
NOVEMBER 6, 2000.
<PAGE>
AXSYS TECHNOLOGIES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AXSYS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,105 $ 385
Accounts receivable - net 14,195 11,537
Inventories - net 24,399 25,866
Net assets held for sale -- 7,227
Other current assets 3,099 2,994
-------- --------
TOTAL CURRENT ASSETS 55,798 48,009
PROPERTY, PLANT AND EQUIPMENT - net 12,325 11,949
EXCESS OF COST OVER NET ASSETS ACQUIRED - net 3,778 3,883
OTHER ASSETS 294 309
-------- --------
TOTAL ASSETS $ 72,195 $ 64,150
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,094 $ 6,207
Accrued expenses and other liabilities 7,820 5,282
Current portion of long-term debt and capital lease obligations 749 5,125
-------- --------
TOTAL CURRENT LIABILITIES 14,663 16,614
LONG-TERM DEBT & CAPITAL LEASES, less current portion 1,266 1,793
OTHER LONG-TERM LIABILITIES 2,458 2,042
SHAREHOLDERS' EQUITY:
Common Stock, authorized 30,000,000 shares, issued 4,126,007 shares
at September 30, 2000 and 4,122,767 at December 31, 1999 41 41
Capital in Excess of Par 39,502 39,454
Retained Earnings 15,708 5,844
Treasury Stock, at cost, 134,268 shares at September 30, 2000 and
152,338 at December 31, 1999 (1,443) (1,638)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 53,808 43,701
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 72,195 $ 64,150
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AXSYS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
2000 1999
------------------ -----------------
<S> <C> <C>
NET SALES $ 23,606 $ 21,877
Cost of sales 17,654 16,456
Selling, general and administrative expenses 5,357 4,289
Research and development expenses 747 744
Amortization of intangible assets 35 100
----------- -----------
OPERATING (LOSS) INCOME (187) 288
Interest (income) expense, net (175) 51
Adjustment to special charge -- (216)
Other (income) expense (60) 1
----------- -----------
INCOME FROM CONTINUING OPERATIONS 48 452
BEFORE TAXES
Provision for income taxes 19 186
----------- -----------
INCOME FROM CONTINUING OPERATIONS 29 266
DISCONTINUED OPERATIONS:
Income from operations, net of taxes -- 1,015
----------- -----------
NET INCOME $ 29 $ 1,281
=========== ===========
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 0.01 $ 0.07
Discontinued operations -- 0.25
----------- -----------
TOTAL $ 0.01 $ 0.32
=========== ===========
Weighted average basic common shares outstanding (1) 3,996,246 4,010,820
=========== ===========
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 0.01 $ 0.07
Discontinued operations -- 0.25
----------- -----------
TOTAL $ 0.01 $ 0.32
=========== ===========
Weighted average diluted common shares outstanding (1) 4,101,554 4,022,713
=========== ===========
</TABLE>
(1) The difference between weighted average basic and diluted shares outstanding
is attributed to the conversion of common stock equivalents (stock options).
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AXSYS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
2000 1999
------------------ ----------------
<S> <C> <C>
NET SALES $ 66,695 $ 64,482
Cost of sales 54,558 47,739
Selling, general and administrative expenses 15,671 12,938
Research and development expenses 2,441 2,649
Restructuring charge 1,655 --
Amortization of intangible assets 105 300
----------- -----------
OPERATING (LOSS) INCOME (7,735) 856
Interest (income) expense, net (304) 344
Special charge -- 784
Other (income) expense (165) 3
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (7,266) (275)
Benefit for income taxes (2,841) (119)
----------- -----------
LOSS FROM CONTINUING OPERATIONS (4,425) (156)
DISCONTINUED OPERATIONS:
Income from operations, net of taxes 513 2,174
Gain on disposal, net of taxes 13,776 --
----------- -----------
NET INCOME $ 9,864 $ 2,018
=========== ===========
BAS0IC EARNINGS (LOSS) PER SHARE:
(Loss) from continuing operations $ (1.11) $ (0.04)
Discontinued operations 3.59 0.53
----------- -----------
TOTAL $ 2.48 0.49
=========== ===========
Weighted average basic common shares outstanding (1) 3,985,475 4,073,640
=========== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Loss from continuing operations $ (1.11) (0.04)
Discontinued operations 3.59 0.53
----------- -----------
TOTAL $ 2.48 $ 0.49
=========== ===========
Weighted average diluted common shares outstanding (1) 3,985,475 4,073,640
=========== ===========
</TABLE>
(1) As per generally accepted accounting principles, the computation of the
net loss per share is based on the weighted average basic shares outstanding
when there is an operating loss from continuing operations.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
AXSYS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,864 $ 2,018
Adjustments to reconcile net income to cash used in operating activities:
Gain on disposal of discontinued operations (13,776) --
Deferred income taxes -- (876)
Depreciation and amortization 2,320 2,226
Change in net assets of discontinued operations (1,476) (668)
(Increase)/decrease in current assets, other than cash (1,296) 823
Decrease in current liabilities (5,860) (1,569)
Other-net 145 (188)
--------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (10,079) 1,766
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,610) (765)
Net proceeds from sale of discontinued operations 31,223 975
Advance to third party -- (608)
--------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 28,613 (398)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings -- 775
Net repayment of borrowings (4,903) (728)
Purchases of Treasury Stock -- (1,434)
Other 89 15
--------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,814) (1,372)
--------- --------
NET INCREASE (DECREASE) IN CASH 13,720 (4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 385 69
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,105 $ 65
========= ========
Supplemental Cash Flow Information:
Cash paid for:
Interest Income (Expense) $ (322) $ 478
Income Tax 4,884 510
Non-Cash Investing and Financing Activities:
Equipment acquired under capital leases $ -- $ 1,422
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Axsys
Technologies, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and disclosures required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation (consisting of normal recurring accruals) have been included.
Operating results for the nine-month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
Certain reclassifications have been made to previously reported financial
statements to conform to current classifications.
NOTE 2 - DISCONTINUED OPERATIONS
On March 17, 2000, the Company sold the net assets of its Beau Interconnect
division ("Beau") for $31.2 million in cash, net of expenses, and recorded a
gain of $22.5 million, before a tax provision of $8.4 million in the first
quarter of 2000. Beau has been accounted for as a discontinued operation and the
related net assets and operating results have been reported separately from
continuing operations in all periods presented. Beau designs and manufactures
interconnect devices, barrier terminal blocks and connectors. Income from
discontinued operations was $846 thousand, before a tax provision of $333
thousand through the date of disposal on March 17, 2000 and $2.5 million, before
a tax provision of $312 thousand through September 1999. Revenues applicable to
Beau during each period of the three months ended September 30, 2000 and 1999
were none and $5.0 million, respectively. Through the date of disposal on March
17, 2000 and year to date 1999, revenues were $4.2 million and $14.5 million,
respectively. The net assets of Beau at December 31, 1999 have been included in
current assets. Proceeds from the sale were utilized to pay off the Company's
credit facility of $4.2 million at December 31, 1999 which liabilities were
included in current liabilities.
In the first quarter of 2000, environmental consultants advised the Company that
the costs associated with the remediation of two previously discontinued
operation sites were estimated to be higher than originally anticipated. The
revised estimates to remediate these sites range from approximately $1.1 million
to $1.3 million. Actual costs may be different than these estimates. Based on
this information, the Company increased its reserve relating to these sites in
the first quarter of 2000 to approximately $1.2 million by recording a
discontinued operation charge of $500 thousand, before a tax benefit of $195
thousand.
NOTE 3 - INVENTORIES
Inventories have been determined generally by lower of cost (first-in, first-out
or average) or market. Inventories consist of (in thousands):
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------------- ----------------
Raw materials $ 7,981 $ 9,411
Work-in-process 8,863 8,245
Finished goods 10,952 11,669
----------------- ----------------
27,796 29,325
Less reserves (3,397) (3,459)
----------------- ----------------
$ 24,399 $ 25,866
================= ================
7
<PAGE>
NOTE 4 - TREASURY STOCK
During July 1999, the Company's Board of Directors authorized an increase in the
share repurchase program from an aggregate of 200,000 shares of common stock to
an aggregate of 700,000 shares. The Company is using the repurchased shares for
general corporate purposes, including the satisfaction of commitments under its
employee benefit plans. As of September 30, 2000, the Company has repurchased
262,200 shares for an aggregate purchase price of $3.1 million.
NOTE 5 - INCOME TAXES
The Company has determined, based upon the level of its current taxable income,
it is more likely than not that it will realize the benefit of its deferred tax
assets, which previously had been fully reserved with a valuation allowance.
Consequently, during the first quarter of 2000, the Company reversed $728
thousand of its valuation allowance related to net deferred tax assets of its
discontinued operations with the corresponding tax benefit included in the
results of discontinued operations.
As of September 30, 2000, the Company had no tax valuation allowance.
NOTE 6 - SEGMENT DATA
The Company announced a strategic realignment in February 2000 whereby the
Company's structure is organized by market segment in two new major groups. The
strategic realignment has resulted in a change in the composition of its
reportable segments and, accordingly, the Company has restated all periods
reported. The Company classifies its businesses under two major groups, the
Aerospace and Defense Group ("ADG") and Commercial Products Group ("CPG"). The
ADG offers its capabilities in magnetics, precision optics, precision machining
and subsystems integration to aerospace and defense original equipment
manufacturers ("OEMs") enabling them to design systems that meet leading-edge
performance requirements. The ADG designs, manufactures and sells high-end
components such as precision sensors, high-performance motors, precision metal
optics and airbearings. These products enable OEMs to improve measurement
precision, positioning performance (accuracy, speed and power) and weight
requirements in their systems. The CPG designs, manufactures and sells
components, subsystems and systems to high-performance OEMs and end users
serving the electronic capital equipment, data storage and digital imaging
markets. These products enable OEMs to improve the accuracy, throughput and
yield of their equipment and processes. The CPG also distributes precision ball
bearings, acquired from various domestic and international sources, to OEMs and
Maintenance and Repair Organization distributors supporting industrial and
commercial markets.
As discussed in Note 2, the Company sold its Beau Interconnect division. The
disposal of this business has been accounted for as a discontinued operation
and, accordingly, its related operating results have been reported separately
from continuing operations. The segment data below excludes its results.
8
<PAGE>
NOTE 6 - SEGMENT DATA - CONT'D.
The following tables present financial data for each of the Company's segments
(in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales from continuing operations:
ADG $ 9,095 $ 10,568 $ 24,458 $ 29,565
CPG 14,511 11,309 42,237 34,917
------------- ------------- ------------- -------------
Total sales 23,606 21,877 66,695 64,482
============= ============= ============= =============
Earnings (loss) from continuing operations
before amortization, interest and taxes:
ADG 400 976 (4,540) 2,363
CPG 1,301 211 2,241 1,179
Restructuring charge -- -- (1,655) --
Non-allocated expenses (1,653) (735) (3,312) (3,817)
-------------- -------------- ------------- --------------
Income (loss) from
continuing operations
before taxes $ 48 $ 452 $ (7,266) $ (275)
============= ============= ============= ==============
</TABLE>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- --------------
Identifiable assets:
ADG $ 23,865 $ 24,103
CPG 27,936 26,595
Net assets held for sale - 7,227
Non-allocated assets 20,394 6,225
------------- --------------
Total assets $ 72,195 $ 64,150
============= ==============
Included in non-allocated expenses are the following: general corporate expense,
interest expense, amortization of goodwill, special charges and other income and
expense. Identifiable assets by segment consist of those assets that are used in
the segments' operations. Non-allocated assets are comprised primarily of cash
and cash equivalents, goodwill and net deferred tax assets.
NOTE 7 - OTHER INFORMATION (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- ------------
Allowance for doubtful accounts $ 391 $ 503
============== ===========
Accumulated depreciation and amortization
Of property, plant and equipment $ 11,028 $ 9,793
============== ============
Accumulated amortization of excess of cost
Over net assets acquired $ 1,139 $ 1,034
============== ============
9
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8 - RESTRUCTURING CHARGE AND SPECIAL CHARGE
RESTRUCTURING CHARGE-
On February 11, 2000, Axsys announced a strategic realignment of its businesses.
Specifically, Axsys adopted a plan to improve efficiency and enhance
competitiveness under two new major groups to better serve its markets and
customers. This plan anticipated a non-recurring charge of $5.5 million,
pre-tax, a workforce reduction of 50 employees from various locations,
relocation or consolidation of two of its facilities and the write down of
potentially obsolete inventory.
Expenses included costs directly related to the Company's plan of
reorganization, following specific Generally Accepted Accounting Principles
(GAAP) as to the appropriate recognition of costs associated with employee
termination benefits and other exit costs.
Through September 30, 2000, Axsys recorded the following amounts in the income
statement in connection with the restructuring plan:
<TABLE>
<CAPTION>
Selling, General
Cost of Goods & Administrative Restructuring
Sold Expense Expense Total
----------------- ------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Work force reductions $ - $ - $ 915 $ 915
Facilities 260 392 740 1,392
Inventory write-downs 2,301 - - 2,301
Other costs 786 - 786
================= =================== =================== ==================
Total $2,561 $ 1,178 $ 1,655 $ 5,394
================= =================== =================== ==================
</TABLE>
During the third quarter 2000, the Company charged $281 thousand to selling,
general and administrative expenses.
As of September 30, 2000, Axsys has an accrued balance of $882 thousand for
costs related to the strategic realignment included in current liabilities.
Other costs directly related to the reorganization of the Company which are not
eligible for recognition at the commitment date, such as relocation and other
integration costs, are expensed as incurred. For the three months ended and the
year to date ended September 30, 2000, Axsys incurred $281 thousand and $937
thousand of these other costs. The Company does not anticipate any further
charges.
Total cash expended year to date through September 30, 2000 was $2.4 million.
SPECIAL CHARGE-
On November 20, 1998, the Company's Chairman and CEO (the "Chairman") and the
owner at that date of approximately 31% of the Company's common stock, submitted
an offer to purchase all of the common stock not owned by him for $15.00 per
share in cash (the "Chairman's Proposal"). Shortly thereafter, the Company's
Board of Directors formed a Special Committee to evaluate the Chairman's
Proposal. On January 11, 1999, the Company received an unsolicited offer to
purchase the Company for $20.00 per share in cash. In response to this
unsolicited offer, the Chairman withdrew his proposal, and on January 13, 1999,
the Company publicly announced that the Board of Directors had dissolved the
Special Committee and authorized the retention of investment bankers to explore
various strategic alternatives, including the potential sale of the Company. On
January 29, 1999, the Company publicly announced that the Board of Directors had
instructed its investment bankers to explore the potential sale of the Company.
During the first quarter of 1999, the Company recorded a pre-tax special charge
of $1.0 million for expenses related to a process of exploring the potential
sale of the Company. On June 15, 1999, the Company publicly announced that its
Board of Directors had determined not to pursue a sale of the Company at that
time. During the third quarter of 1999, the Company reduced its first quarter
pre-tax special charge by $216 thousand to reflect actual costs.
10
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 9 - ENVIRONMENTAL CONCERNS
On June 9, 2000, the Company received notice from the United States District
Court for the Northern District of Alabama that it is considered a potentially
responsible third party at a site located in Alabama. While the Company does not
own the site, Axsys, dba Speedring, Inc., may be obligated under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) for contributions towards response costs incurred as a result of
alleged releases of hazardous substances at a waste treatment facility in
Alabama.
The Company's policy is to accrue environmental cleanup related costs when those
costs are believed to be probable and can be reasonably estimated. The
quantification of environmental exposure requires an assessment of many factors,
including the quality of information available for the specific site, the
assessment stage of each investigation, preliminary findings and the length of
time involved in remediation. Currently, it is not possible for the Company to
estimate a meaningful range of exposure based on the limited amount of
information received.
NOTE 10 - SUBSEQUENT EVENT
On October 3, 2000, the Company signed a definitive agreement with Automation
Engineering, Inc. ("AEI") of Woburn, Massachusetts, a supplier of automation
tools and controls to the fiber optic components market. The acquisition of
AEI for 666,667 shares of Axsys Technologies common stock was completed on
October 18, 2000 and will be accounted for as a pooling of interests. AEI's
revenues year to date through September 30, 2000 were approximately $1.4
million and pretax income for the same period was approximately $200
thousand, excluding acquisition costs and related expenses.
As of September 29, 2000, the Company acquired the assets of Westlake
Technologies Corporation ("WTC") of Newbury Park, California, a leading
supplier of high-speed electronics used to test magnetic disk drive head
gimbal assemblies and head stack assemblies, pursuant to the terms and
conditions of an Agreement of Merger and Debt Settlement.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
sales for the nine month period ended September 30, 2000 and 1999. On March 17,
2000 the Company sold its Beau Interconnect division. This divestiture has been
accounted for as a discontinued operation. The results of the operations of Beau
Interconnect and the gain from the disposal are reflected in discontinued
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
ADG 38.5% 48.3% 36.7% 45.9%
CPG 61.5 51.7 63.3 54.1
----------- ------------ ------------ ------------
Total Company 100.0 100.0 100.0 100.0
----------- ------------ ------------ ------------
Cost of sales 74.8 75.2 81.8 74.0
----------- ------------
------------ ------------
Gross profit 25.2 24.8 18.2 26.0
----------- ------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses 22.7 19.6 23.5 20.1
Research and development expenses 3.2 3.4 3.7 4.1
Restructuring charge -- -- 2.5 --
Amortization of intangible assets 0.1 0.5 0.2 0.5
----------- ------------ ------------ ------------
26.0 23.5 29.9 24.7
----------- ------------ ------------ ------------
Operating (loss) income (0.8) 1.3 (11.7) 1.3
Interest (income), net (0.7) 0.2 (0.5) 0.5
Adjustment to special charge -- (1.0) -- 1.2
Other income (0.3) -- (0.2) --
------------ ------------ ------------- ------------
Profit/(loss) from continuing operations before taxes 0.2 2.1 (11.0) (0.4)
(Provision)/benefit for income taxes (0.1) (0.9) 4.3 0.2
------------ ------------ ------------- -------------
Profit/(loss) from continuing operations 0.1 1.2 (6.7) (0.2)
Discontinued operations:
Income from operations, net of taxes -- 4.6 0.8 3.4
Gain on disposal, net of taxes -- -- 20.7 --
----------- ------------ ------------ ------------
Net income 0.1% 5.8% 14.8% 3.2%
=========== ============ ============ ============
Gross profit (as a percentage of related net sales):
ADG 15.1% 20.7% (2.9)% 22.8%
CPG 30.0 30.1 29.3 28.9
</TABLE>
12
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
NET SALES. Net sales for the third quarter of 2000 were $23.6 million, an
increase of 7.7 percent, or $1.7 million over sales of $21.9 million in the
comparable quarter of 1999. Sales of the company's Commercial Products Group
(CPG) were $14.5 million compared to sales of $11.3 million in 1999. The $3.2
million, or 28.3 percent increase was due to improved business conditions in the
market for precision ball bearings sold to industrial automation markets as well
as stronger orders for scanners sold to the digital imaging market.
Sales of the Aerospace & Defense Group (ADG) were $9.1 million compared to $10.6
million in 1999. The $1.5 million, or 14 percent decrease in sales versus last
year was principally due to relatively weaker bookings in the middle of 1999.
GROSS PROFIT. Axsys' gross profit in the third quarter of 2000 was $5.9 million
compared to $5.4 million in the comparable quarter last year. As a percent of
sales, gross margin was 25.2 percent in the third quarter of 2000, compared to
24.8 percent last year. Increased volume was the key driver of gross profit. In
addition, our continuous improvement programs also helped to improve margins in
the third quarter of 2000 compared to the same quarter last year. ADG's margin
percentages were lower due to reduced sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses in the third quarter
of 2000 rose to $5.4 million from $4.3 million in 1999. Sales and marketing
expenses for commercial products increased in 2000 over 1999 levels as the
Company invested in resources to capture future growth opportunities.
Approximately $281 thousand of the SG&A increase was related to the strategic
realignment of the business that was completed at the end of the third quarter.
These costs include certain relocation and integration costs that are expensed
as incurred. Continuous improvement costs charged to SG&A increased in the
quarter, as the program focused efforts on systems and communications
infrastructures.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses in 2000 were $747 thousand,
compared to $744 thousand in the third quarter of 1999. As the majority of the
Company's products are sold to original equipment manufacturers (OEM), most of
the development costs for new products and components are included in Cost of
sales as the design and development of these products begins once an order is
received from the OEM customer.
INTEREST EXPENSE, NET. Net interest income amounted to $175 thousand in 2000
compared to net interest expense of $51 thousand in 1999. During 2000, as a
result of the divestment of Beau, Axsys has recorded income on it cash and
investments. In 1999, the Company paid interest on outstanding borrowings to
fund operations.
TAXES. Axsys' effective tax rate was 39.1 percent compared to 40.3 percent in
1999. The decrease in the effective rate is caused in part by the lower amount
of non-deductible amortization expense in 2000 versus 1999.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
NET SALES. Net sales were $66.7 million in the nine-month period ended September
30, 2000, compared to $64.5 million for the same period in 1999, an increase of
$2.2 million, or 3.4 percent. CPG sales were $42.2 million, an increase of $7.3
million, or 20.9 percent higher than sales of $34.9 million in 1999. Sales of
precision ball bearings and digital imaging scanners were higher in 2000 than
last year. General economic strength has contributed to increased volume for
precision bearings sold to industrial automation applications, including
electronics capital equipment. In the digital imaging market, Axsys has
increased its market share for scanning products during the first nine months of
this year. ADG sales were $24.5 million in the first nine months of 2000,
compared to sales of $29.6 million last year, a decrease of $5.1 million or 17.2
percent. The decrease in ADG sales was due to a lower backlog of orders entering
2000 coupled with product returns related to products shipped more than one year
ago. The Company has taken aggressive steps to improve processes and overall
quality by making these processes the main focal point of lean manufacturing
programs.
GROSS PROFIT. Axsys' gross profit was $12.1 million for the nine month period
ended September 30, 2000, compared to $16.7 million for the same period last
year, a decrease of $4.6 million. The decrease is primarily due to two factors:
non-recurring charges of $2.5 million related to slow moving and potentially
obsolete inventory recorded in the first quarter and lower sales of ADG products
including substantial product returns, most of which also occurred in the first
quarter of 2000. The decline in ADG sales volume was caused by lower orders in
1999 that translated into lower shipments in the following year. Year to date
gross profit was 18.2 percent of sales compared to 26.0 percent last year.
Removing the effects of $2.5 million of one-time charges, gross profit was 21.9
percent of sales in the first nine months of 2000.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $15.7 million
for the nine-month period ended September 30, 2000, increasing $2.7 million from
the comparable period last year. Of the increase, $1.2 million is directly
attributable to the strategic realignment and the one-time costs to implement
this program. Selling expenses have increased in 2000 over last years levels,
focused on CDG programs. Administrative salaries, legal expenses, communication
infrastructure costs and travel costs also rose versus last year.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses were $2.4 million in 2000,
compared to $2.6 million in 1999. The decrease is due to a higher allocation of
development engineering resources in 2000 to production programs (charged to
Cost of sales) versus R&D projects.
RESTRUCTURING EXPENSES. Cost categorized as Restructuring expenses were $1.7
million in the nine-month period ended September 30, 2000 including severance
costs, and cost to close or relocate certain facilities. These costs are
discussed in more detail in Note 8 to the Condensed Consolidated Financial
Statements.
INTEREST EXPENSE, NET. Net interest income amounted to $304 thousand compared to
net interest expense of $344 thousand in 1999. The primary cause was the
proceeds from the divestment of Beau in March 2000, which were sufficient to
repay outstanding bank debt and invest excess cash in short term liquid
investments.
TAXES. Axsys' effective tax rate was 39.1 percent compared to 42.0 percent in
1999. The decrease in the effective rate is caused in part by lower levels of
non-deductible amortization expense in 2000 versus 1999.
DISCONTINUED OPERATIONS. In March 2000, Axsys sold its Beau Interconnect
division. Results of operations from the discontinued business have been
reported separately from continuing operations in all periods presented. The
sale of Beau resulted in a gain of $22.5 million, before a tax provision of $8.4
million. Axsys also recorded a discontinued operation charge of $0.5 million,
before a tax benefit of $0.2 million, to increase its environmental reserves for
the remediation of two former operating sites.
BACKLOG
A substantial portion of Axsys' business is of a build-to-order nature requiring
various engineering, manufacturing, testing and other processes to be performed
prior to shipment. As a result, Axsys generally has a significant backlog of
orders to be shipped. The total backlog of orders increased by 42% or $18.3
million, to $60.9 million at September 30, 2000 from $42.6 million at December
31, 1999. The increase is primarily in the backlog from the defense and space
markets although all segments reported increases.
LIQUIDITY AND CAPITAL RESOURCES
Axsys funds its operations primarily from cash flow generated by operations and
cash on hand as a result of the divestment of Beau in the first quarter of 2000.
Prior to the Beau divestment, the Company also relied on bank credit facilities
and capital lease transactions as sources of funds.
For the nine months ended September 30, 2000 and 1999 net cash (used
in)/provided by operating activities was ($10.1 million) and $2.6 million,
respectively. Current year totals exclude the non-operating gain on the
divestment of Beau of $13.8 million. Included in the current year totals are
income tax payments of $4.9 million which were caused by taxable income
generated from the gain on the Beau divestment. Without these tax payments, cash
flow from continuing operations was ($5.2 million) for the period ending
September 30, 2000. The decrease in cash in 2000 was caused by lower earnings
from continuing operations, including the effects of the one-time restructuring
charges recorded and paid to date. Working capital changes included an increase
in receivables reflecting increased billings on defense programs, lower
inventories, and increased current liabilities for remaining taxes payable on
the Beau gain. In 1999, substantially all of the cash flow from operating
activities was generated by operating earnings in the period.
Net cash provided by (used in) investing activities for the nine months ended
September 30, 2000 and 1999 was $28.6 million and ($0.4 million), respectively.
Net cash generated from the sale of Beau was $31.2 million. Capital expenditures
were $2.6 million for the first nine months of 2000. During 1999, cash flow used
in investing activities included capital
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expenditures of $0.8 million and advances of $0.6 million to Westlake Technology
Corporation in exchange for exclusive rights to market and sell Westlake's
electronic and electromechanical test equipment.
Cash flows from financing activities included net cash used by financing
activities in 2000 of $4.8 million, compared to net cash provided by financing
activities of $1.9 million in 1999. In 2000, Axsys repaid the outstanding
balance of its bank credit facilities out of proceeds from the Beau sale,
accounting for most of the $4.8 million net cash usage. Financing activities in
1999 included purchases of Treasury Stock of $1.4 million.
The Company believes that cash on hand and cash generated from operating
activities will be sufficient to support its ongoing programs, working capital
needs and capital expenditures for the foreseeable future. Significant potential
investment activities for matters such as acquisitions could be funded by cash
on hand, external credit facilities and issuance of Axsys common stock, or
combinations of these sources.
RESTRUCTURING
On February 11, 2000, Axsys announced a strategic realignment of its businesses.
Specifically, Axsys adopted a plan to improve efficiency and enhance
competitiveness under two new major groups to better serve its markets and
customers. In conjunction with the strategic realignment, Axsys recorded a
non-recurring charge to earnings as of September 30, 2000 of $5.4 million,
before taxes, including $1.7 million that was recorded as a restructuring
charge, $2.5 million that was charged to cost of sales primarily relating to
slow moving and potentially obsolete inventory, and $1.2 million that was
charged to selling, general and administrative expenses. Included in the $1.7
million restructuring charge was $915 thousand of severance costs related to
personnel reductions and $546 thousand of costs relating to the relocation of
the Company's San Diego, California facility. Of the $915 thousand in severance
costs, $342 thousand has been paid as of September 30, 2000, leaving accrued
severance costs of $573 thousand at September 30, 2000. Approximately 50
employees have been terminated mostly in indirect labor and management
positions.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS
No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. Staff Accounting Bulletin No. 101 Topic 13, "Revenue
Recognition" is effective for the fourth quarter 2000. Management does not
believe that the implementation of these statements will have a material impact
on the consolidated financial position or consolidated results of operations of
Axsys.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q provides certain forward-looking statements.
The Company's business is subject to a variety of risks and uncertainties,
including the effect of order backlog on operations, the impact of competition
in the aerospace and defense industry, the effects of legal proceedings and
regulatory matters on our business, and the impact of general economic
conditions, as well as other factors discussed in filings that Axsys makes with
the Securities and Exchange Commission. As a result, actual future results and
developments may be materially different from those expressed or implied in any
forward-looking statement. Disclosure regarding factors affecting the Company's
future results and developments is contained in the Company's public filings
with the Securities and Exchange Commission, including the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject the Company to
material risk exposures.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 (1): Financial Data Schedule (For SEC use only).
Exhibit 27 (2): Restated Financial Data Schedule (For SEC use only).
b) Reports on Form 8-K
Not applicable during the quarter ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of 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 indicated this 9 day of November 2000.
Date: November 9, 2000 AXSYS TECHNOLOGIES, INC.
By: /S/STEPHEN W. BERSHAD
Stephen W. Bershad
Chairman of the Board and Chief
Executive Officer
/S/MARK J. BONNEY
Mark J. Bonney
President and Chief Operating Officer
/S/JOHN E. HANLEY
John E. Hanley
Vice President-Finance and Chief
Financial Officer
(Principal Financial Officer)
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