SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
For the quarter ended June 30, 1999 Commission File Number 0-19306
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 Research Way (516) 784-6100
E. Setauket NY 11733 (Registrant's Telephone Number)
(Address of Principal Executive Offices)
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 [ ]
The number of shares of the Registrant's common stock outstanding as of
August 3, 1999 was: 11,120,411.
CONTENTS
........
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements: Page
Balance Sheets as of June 30, 1999 and December 31, 1998 3
Statements of Earnings for the Three Months Ended
June 30, 1999 and 1998 4
Statements of Earnings for the Six Months Ended
June 30, 1999 and 1998 5
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
.................................................
Condition and Results of Operations 9
...................................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
.................
Item 2. Changes in Securities and Use of Proceeds 12
.........................................
Item 3. Defaults upon Senior Securities 12
...............................
Item 4. Submission of Matters to a Vote of Security-Holders 12
...................................................
Item 5. Other Information 12
.................
Item 6. Exhibits and Reports on Form 8-K 12
................................
(a) Exhibits - (11) Computation of net earnings per share 14
(b) Reports on Form 8-K - None
PART I. FINANCIAL INFORMATION
.....................
Item 1. Consolidated Financial Statements:
.................................
CONSOLIDATED BALANCE SHEETS
June 30, 1999 Dec. 31,1998
(Unaudited)
............... ............
Assets
......
Current assets:
Cash and cash equivalents $ 4,669,689 $ 5,839,339
Accounts receivable, less allowance for
doubtful accounts of $423,000 and $426,000
in 1999 and 1998, respectively 15,716,796 3,383,865
Inventories 15,592,526 15,672,576
Deferred income taxes 873,100 873,100
Other current assets 673,989 449,787
Total current assets 37,526,100 36,218,667
.......... ............
Property, plant and equipment, net 11,114,974 10,874,881
Other assets 367,619 497,664
Deferred income taxes 1,371,000 1,371,000
Excess of cost over fair value of net assets
of businesses acquired, net of accumulated
amortization of $3,180,777 and $2,572,637
in 1999 and 1998, respectively 21,722,812 22,330,952
.......... ............
Total assets $72,102,505 $ 71,293,164
.......... ............
.......... ............
Liabilities and Stockholders' Equity
....................................
Current liabilities:
Notes payable $ 53,227 $ 105,304
Accounts payable 3,650,945 3,612,934
Accrued expenses and other current liabilities 6,435,849 6,922,971
.......... ............
Total current liabilities 10,140,021 10,641,209
.......... ............
Long-term debt 0 3,500,000
Stockholders' equity:
Preferred stock, par value $.001 per share;
2,000,000 shares authorized, none issued 0 0
Common stock, par value $.001 per share;
20,000,000 shares authorized, 11,858,560
and 11,810,349 issued in 1999 and 1998,
respectively 11,859 11,810
Additional paid-in capital 49,377,917 49,116,700
Retained earnings 19,614,985 14,641,834
Treasury stock, 757,763 shares in
1999 and 1998 (6,565,794) 6,565,794)
Accumulated other comprehensive loss (476,483) (52,595)
.......... ............
Total stockholders' equity 61,962,484 57,151,955
.......... ............
Total liabilities and
stockholders' equity $ 72,102,505 $ 71,293,164
............ ............
............ ............
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
June 30
...........................
1999 1998
............ ............
Net sales and services $ 21,478,131 $ 14,375,482
Cost of sales and services 11,044,136 7,414,009
............ ............
Gross profit 10,433,995 6,961,473
Operating expenses:
Selling and marketing 2,998,632 2,269,372
General and administrative 1,412,064 1,142,718
Research and development 1,983,846 1,143,194
Amortization of excess cost over fair value
of net assets of businesses acquired 304,070 92,426
............ ............
Earnings from operations 3,735,383 2,313,763
Non-operating expenses (income):
Interest expense 3,687 3,755
Interest income (50,156) (238,713)
Other expense (income), net 55,643 (29,226)
............ ............
Earnings before provision for income taxes 3,726,209 2,577,947
Provision for income taxes 1,229,649 900,992
............ ............
Net earnings $ 2,496,560 $ 1,676,955
............ ............
............ ............
Earnings per share:
Basic earnings per common share $0.23 $0.15
..... .....
..... .....
Weighted average common shares outstanding 11,089,359 11,221,172
............ ............
............ ............
Diluted earnings per common share $0.22 $0.15
..... .....
..... .....
Weighted average common shares and
common share equivalents 11,554,353 11,437,133
............ ............
............ ............
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Six Months Ended
June 30
...........................
1999 1998
............ ............
Net sales and services $ 41,496,305 $ 28,674,645
Cost of sales and services 20,936,330 14,639,379
............ ............
Gross profit 20,559,975 14,035,266
Operating expenses:
Selling and marketing 5,792,851 4,571,817
General and administrative 3,064,825 2,427,479
Research and development 3,662,195 2,266,417
Amortization of excess cost over fair value
of net assets of businesses acquired 608,140 184,852
............ ............
Earnings from operations 7,431,964 4,584,701
Non-operating expenses (income):
Interest expense 33,728 7,903
Interest income (107,206) (485,594)
Other expense (income), net 82,829 (15,233)
............ ............
Earnings before provision for income taxes 7,422,613 5,077,625
Provision for income taxes 2,449,462 1,789,811
............ ............
Net earnings $ 4,973,151 $ 3,287,814
............ ............
............ ............
Earnings per share:
Basic earnings per common share $0.45 $0.29
..... .....
..... .....
Weighted average common shares outstanding 11,078,347 11,281,820
............ ............
............ ............
Diluted earnings per common share $0.43 $0.29
..... .....
..... .....
Weighted average common shares and
common share equivalents 11,515,568 11,528,570
............ ............
............ ............
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
...........................
1999 1998
............ ............
Cash flows from operating activities:
Net earnings $ 4,973,151 $ 3,287,814
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,573,445 773,249
Provision for bad debts 18,922 8,286
Changes in operating assets and
liabilities:
Increase in accounts receivable (2,351,853) (454,897)
Decrease in inventories 80,050 431,817
(Increase) decrease in other current
assets (224,202) 193,108
Decrease in other assets 130,045 106,639
Increase in accounts payable 38,011 235,725
(Decrease) increase in accrued
expenses and other current
liabilities (487,122) 787,339
............ ............
Net cash provided by operating activities 3,750,447 5,369,080
............ ............
Cash flows from investing activities:
Purchases of property, plant and equipment (1,205,398) (4,821,373)
Redemption of investments, net 0 2,537,053
............ ............
Net cash used in investing activities (1,205,398) (2,284,320)
............ ............
Cash flows from financing activities:
Purchase of treasury stock 0 (2,192,120)
Proceeds from exercise of common stock
options and warrants 261,266 240,156
Payments of notes payable (52,077) (37,945)
Payments of long-term debt
(revolving credit line) (3,500,000) 0
............ ............
Net cash used in financing activities (3,290,811) (1,989,909)
............ ............
Effect of exchange rate changes on assets and
liabilities including cash and cash
equivalents (423,888) 3,280
............ ............
Net (decrease) increase in cash
and cash equivalents (1,169,650) 1,098,131
Cash and cash equivalents, beginning of period 5,839,339 6,331,159
............ ............
Cash and cash equivalents, end of period $ 4,669,689 $ 7,429,290
............ ............
............ ............
Supplemental disclosure of cash flow information:
.................................................
Cash paid for:
Interest $ 33,728 $ 7,903
Income taxes $ 2,579,472 $ 1,173,606
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS:
..................................
The consolidated balance sheet as of June 30, 1999, the consolidated
statements of earnings for the three months and six months ended June 30,
1999 and June 30, 1998 and the consolidated statements of cash flows for
the six months ended June 30, 1999 and June 30, 1998 have been prepared
by the Company and are unaudited. In the opinion of management, all
adjustments (which included only normal recurring adjustments) have been
made which are necessary to present fairly the financial position,
results of operations and cash flows (unaudited) at June 30, 1999 and for
all periods presented.
For information concerning the Company's significant accounting
policies, reference is made to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. While the Company believes that
the disclosures presented are adequate to make the information contained
herein not misleading, it is suggested that these statements be read in
conjunction with the consolidated financial statements and notes included
in the Form 10-K. Results of operations for the period ended June 30,
1999 are not necessarily indicative of the operating results to be
expected for the full year.
B. INVENTORIES
...........
Inventories are recorded at the lower of average cost or market.
Average cost approximates actual cost on a first-in first-out basis.
Inventories consist of the following:
June 30, 1999 December 31, 1998
............. .................
Raw Materials $ 7,714,314 $ 7,555,877
Work in Process 6,186,125 6,294,045
Finished Goods 1,279,328 1,260,475
Consigned Inventory 412,759 562,179
............. .............
$ 15,592,526 $ 15,672,576
............. .............
............. .............
C. LONG-TERM DEBT
..............
On July 23, 1998, the Company entered into a credit facility with The
Bank of New York (the "Bank") that provides the Company with a $15 million
revolving line of credit for acquisitions or working capital requirements.
The term of this agreement is for five years, maturing on July 22, 2003.
This credit facility allows for interest to be calculated utilizing an
Alternative Base Rate ("ABR") or a LIBOR rate plus a premium ranging from
0.50% to 2.25%. The ABR is the higher rate of either the prime rate or the
Federal Funds Rate plus 0.50%. This credit facility contains certain
financial covenants, including the prohibition of the payment of dividends,
and requires payment of interest on a quarterly basis. During the quarter
ended March 31, 1999, the Company prepaid all of its outstanding long-term
debt of $3,500,000. As of June 30, 1999 the Company had no borrowings and
had all of its $15 million available on its line of credit.
D. ACQUISITIONS
............
On August 14, 1998, the Company acquired substantially all of the
assets and properties of Synrad Inc. ("Synrad"), a company engaged in the
business of developing, manufacturing and marketing sealed CO2 lasers and
related accessories, for $21.7 million in cash, which includes
transaction costs, and the repayment of certain of Synrad's outstanding
debt. In addition, the Company assumed certain liabilities including
trade payables, accrued expenses and other specified liabilities. The
Company funded the acquisition of Synrad by utilizing its own cash and by
borrowing $6.5 million on its credit facility all of which was repaid as
of March 31, 1999. (See Note C). The acquisition was accounted for as a
purchase. The acquired assets and liabilities have been recorded at
their estimated fair values at the date of acquisition. The total cost
of the acquisition was $21.7 million of which $4.8 million was allocated
to identifiable net tangible assets. The remaining balance of $16.9
million represents the excess of the purchase price over the fair value
of the net assets acquired, which is being amortized on a straight line
basis over 20 years.
The following unaudited pro forma consolidated results of operations
assume the acquisition of Synrad had been made at the beginning of the
period ended June 30, 1998 and reflects the historical results of
operations of the purchased business adjusted for the increased interest
expense as a result of the borrowings, reduced interest income,
amortization expense and income tax expense.
Pro Forma
Six Months Ended
June 30, 1998
................
Net sales and services $ 42,498,351
Net earnings $ 3,238,912
Basic earnings per common share $ 0.29
Diluted earnings per common share $ 0.28
The pro forma results of operations are not necessarily indicative
of the actual results of operations that would have occurred had the
purchase been made at the beginning of the period.
E. COMPREHENSIVE INCOME
....................
Comprehensive income is comprised of net income and foreign currency
translation adjustments, amounting in the aggregate to $4,549,263 and
$3,291,094 for the six months ended June 30, 1999 and 1998.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
.....................
Net sales and services for the quarter ended June 30, 1999 increased
$7.1 million or 49.3% to $21.5 million from $14.4 million for the
comparable period in the prior year. For the six months ended June 30,
1999, net sales and services were $41.5 million, an increase of $12.8
million or 44.6% from $28.7 million in the six months ended June 30,
1998. The increase is primarily attributable to the acquisition of
Synrad.
Gross margins as a percentage of sales increased to 48.6% for the
quarter ended June 30, 1999 as compared to 48.4% in the same period in
the prior year. For the six months ended June 30, 1999, gross margins as
a percentage of sales increased to 49.5% from 48.9% in the same six
months ended June 30, 1998. The decrease in cost as a percentage of
sales is primarily due to the acquisition of Synrad and the product mix.
Selling and marketing expenses increased to $3.0 million in the quarter
ended June 30, 1999 from $2.3 million in the quarter ended June 30, 1998.
Selling and marketing expense as a percentage of sales decreased to 14.0%
for the quarter ended June 30,1999 from 15.8% for the comparable period
in the prior year. For the six months ended June 30, 1999, selling and
marketing expenses increased to $5.8 million from $4.6 million in 1998.
Selling and marketing expenses as a percentage of sales for the six
months were 14.0% in 1999 and 15.9% in 1998. The decrease is primarily
attributable to the acquisition of Synrad which has lower variable
selling expenses.
General and administrative expenses increased $269 thousand or 23.5%
from $1.1 million in the quarter ended June 30, 1998 to $1.4 million in
the current period. For the six months June 30, 1999, general and
administrative expense increased $638 thousand to $3.1 million from $2.4
million in 1998. The increase is primarily attributable to the
acquisition of Synrad and the costs associated with the startup of Excel
Technology, Asia.
Research and development costs for the quarter ended June 30, 1999
increased $841 thousand or 73.6% to $2.0 million from $1.1 million in the
quarter ended June 30, 1998. For the six months ended June 30, 1999,
research and development expenses increased $1.4 million or 61.6% to $3.7
million from $2.3 million in 1998. The increase is primarily
attributable to the acquisition of Synrad and increased research and
development efforts.
Interest expense was comparable at $4 thousand for both quarters
ended June 30, 1999 and 1998. For the six months ended June 30, 1999,
interest expense was $34 thousand versus $8 thousand for the six months
ended June 30, 1998. The increase of $26 thousand is due to the
borrowings associated with the acquisition of Synrad.
Interest income decreased to $50 thousand in the quarter ended June
30, 1999, from $239 thousand in the same period of 1998, a decrease of
$189 thousand. For the six months ended June 30, 1999 and 1998, interest
income was $107 thousand and $486 thousand, respectively. The decrease
is primarily due to a decrease in the average investment balances
resulting from the utilization of cash and investments for the
acquisition of Synrad.
Other income/expense resulted in a net expense of $56 thousand for
the quarter ended June 30, 1999 as compared to income of $29 thousand for
the quarter ended June 30, 1998. Other income/expense for the six months
ended June 30, 1999 and 1998 was expense of $83 thousand and income of
$15 thousand. This increase in expense is primarily due to foreign
currency transaction losses incurred by the Company's German subsidiary.
Liquidity and Capital Resources
...............................
Working capital at June 30, 1999 was $27.4 million compared to $25.6
million at December 31, 1998. The increase is primarily attributable to
the current year net income and the proceeds from the exercise of common
stock options offset by the payment of the $3.5 million loan.
The Company anticipates spending approximately $3.0 million for
capital expenditures in 1999 of which approximately $1.2 million was
spent during the six months ended June 30, 1999. The Company had capital
expenditures of approximately $5.4 million for the year ended December
31, 1998, which included the purchase of two new buildings.
The Company had no outstanding long-term debt and $15 million
available on its line of credit as of June 30, 1999, as described in note
C to the consolidated financial statements.
The Company estimates that its current resources and anticipated
cash flow from operations will be sufficient to meet the Company's cash
requirements for at least the next 12 months.
Year 2000 Compliance
....................
In 1997, the Company commenced a Year 2000 date conversion project
to address necessary changes, testing and implementation with respect to
its internal computer systems. Project completion is scheduled for
September 1999. To date, the cost of this project has not been material
to the Company's results of operations and liquidity and the Company does
not anticipate that the cost of completing the project will be material
to its results of operations or liquidity in 1999. Management
anticipates that the Company's Year 2000 date conversion project as it
relates to the Company's internal systems will be completed on a timely
basis.
The Company believes its applicable current products are Year 2000
compliant.
The Company is currently seeking information regarding Year 2000
compliance from vendors, customers and manufacturers associated with the
Company. Upon completion of the Company's Year 2000 project which is
scheduled for September 1999, the Company will consider the need to
develop contingency plans to address the failure of timely conversion of
its and/or third-party systems with respect to the Year 2000 issue.
However, given the reliance on third-party information as it relates to
their compliance programs and the difficulty of determining potential
errors on the part of the external service suppliers, no assurance can be
given that the Company's information systems or operations will not be
affected by mistakes, if any, of third parties or third-party failures to
complete the Year 2000 project on a timely basis. There can be no
assurance that the systems of other companies on which the Company's
systems rely will be timely converted or that any such failure to convert
by another company would not have an adverse effect on the Company's
systems.
The cost of the Company's Year 2000 project and the date on which
the Company believes it will complete the necessary modifications are
based on the Company's estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of
resources, third party modification plans and other factors. The Company
presently believes that the Year 2000 issue will not pose significant
operational problems for its internal information systems and products.
However, if the anticipated modifications and conversions are not
completed on a timely basis, or if the systems of other companies on
which the Company's systems and operations rely are not converted on a
timely basis, the Year 2000 issue could have an adverse effect on the
Company's operations.
Inflation
.........
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
.................
For information concerning Legal Proceedings, reference is made
to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
Item 2. Changes in Securities and Use of Proceeds
.........................................
None.
Item 3. Defaults upon Senior Securities
...............................
None.
Item 4. Submission of Matters to a Vote of Security-Holders
...................................................
The Annual Meeting of Stockholders of Excel Technology, Inc. was
held on June 22, 1999. For election of the Board of Directors to serve
until the next Annual Meeting and until their successors are duly elected
and qualified, the votes were as follows: J. Donald Hill - votes for
9,935,767, votes withheld 36,016; Antoine Dominic - votes for 9,935,767,
votes withheld 36,016; Steven Georgiev - votes for 9,935,767, votes
withheld 36,016; Howard S. Breslow - votes for 9,935,767, votes withheld
36,016; Jan Melles - votes for 9,935,767, votes withheld 36,016 and
Joseph J. Ortego - votes for 9,935,740, votes withheld 36,043. For the
ratification of the appointment of KPMG LLP as independent auditors for the
year ending December 31, 1999, 9,936,926 shares were
voted in favor of election, 19,429 were voted against and 15,428 shares
abstained from voting.
Item 5. Other Information
.................
None.
Item 6. Exhibits and Reports on Form 8-K
................................
(a) Exhibits - (11) Computation of net earnings per share
(b) Reports on Form 8-K - None
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.
DATED: August 5, 1999
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
....................................
J. Donald Hill, Chairman of the Board,
Chief Executive Officer
By: /s/ Antoine Dominic
................................
Antoine Dominic, President,
Chief Operating Officer
and Principal Accounting Officer
EXHIBIT 11 (Unaudited)
COMPUTATION OF NET EARNINGS PER SHARE
BASIC DILUTED
Three Months Ended Three Months Ended
June 30, June 30,
........................ ......................
1999 1998 1999 1998
............ .......... .......... ..........
Net earnings $ 2,496,560 1,676,955 2,496,560 1,676,955
............ .......... .......... ..........
............ .......... .......... ..........
Weighted average common
shares outstanding,
net of treasury stock 11,089,359 11,221,172 11,089,359 11,221,172
Weighted average common
share equivalents:
Options and warrants 0 0 464,994 215,961
Weighted average common
shares and common share
equivalents 11,089,359 11,221,172 11,554,353 11,437,133
............ .......... .......... ..........
............ .......... .......... ..........
Net earnings per share $0.23 $0.15 $0.22 $0.15
..... ..... ..... .....
..... ..... ..... .....
BASIC DILUTED
Six Months Ended Six Months Ended
June 30, June 30,
........................ ......................
1999 1998 1999 1998
............ .......... .......... ..........
Net earnings $ 4,973,151 3,287,814 4,973,151 3,287,814
............ .......... .......... ..........
............ .......... .......... ..........
Weighted average common
shares outstanding,
net of treasury stock 11,078,347 11,281,820 11,078,347 11,281,820
Weighted average common
share equivalents:
Options and warrants 0 0 437,221 246,750
Weighted average common
shares and common share
equivalents 11,078,347 11,281,820 11,515,568 11,528,570
............ .......... .......... ..........
............ .......... .......... ..........
Net earnings per share $0.45 $0.29 $0.43 $0.29
..... ..... ..... .....
..... ..... ..... .....
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 4,669,689 4,669,689
<SECURITIES> 0 0
<RECEIVABLES> 15,716,796 15,716,796
<ALLOWANCES> 0 0
<INVENTORY> 15,592,526 15,592,526
<CURRENT-ASSETS> 37,526,100 37,526,100
<PP&E> 11,114,974 11,114,974
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 72,102,505 72,102,505
<CURRENT-LIABILITIES> 10,140,021 10,140,021
<BONDS> 0 0
0 0
0 0
<COMMON> 11,859 11,859
<OTHER-SE> 61,950,625 61,950,625
<TOTAL-LIABILITY-AND-EQUITY> 72,102,505 72,102,505
<SALES> 21,478,131 41,496,305
<TOTAL-REVENUES> 21,478,131 41,496,305
<CGS> 11,044,136 20,936,330
<TOTAL-COSTS> 11,044,136 20,936,330
<OTHER-EXPENSES> 3,740,870 7,407,587
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,687 33,728
<INCOME-PRETAX> 3,726,209 7,422,613
<INCOME-TAX> 1,229,649 2,449,462
<INCOME-CONTINUING> 2,496,560 4,973,151
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,496,560 4,973,151
<EPS-BASIC> 0.23 0.45
<EPS-DILUTED> 0.22 0.43
</TABLE>
