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 March 31, 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) 273-6900
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
May 3, 1999 was: 11,085,057.
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements: Page
................................. ....
Balance Sheets as of March 31, 1999 and
December 31, 1998 3
Statements of Earnings for the Three Months Ended
March 31, 1999 and 1998 4
Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
.................
Item 2. Changes in Securities and Use of Proceeds 10
.........................................
Item 3. Defaults upon Senior Securities 10
...............................
Item 4. Submission of Matters to a Vote of Security-Holders 10
...................................................
Item 5. Other Information 10
.................
Item 6. Exhibits and Reports on Form 8-K 10
................................
(a) Exhibits - (11) Computation of net earnings per share 12
(b) Reports on Form 8-K - None
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
.................................
CONSOLIDATED BALANCE SHEETS
March 31, 1999 Dec. 31, 1998
.............. .............
(Unaudited)
Assets
......
Current assets:
Cash and cash equivalents $ 3,480,767 $ 5,839,339
Accounts receivable, less allowance for
doubtful accounts of $428,000 and
$426,000 in 1999 and 1998, respectively 15,559,211 13,383,865
Inventories 15,364,235 15,672,576
Deferred income taxes 873,100 873,100
Other current assets 618,982 449,787
.............. .............
Total current assets 35,896,295 36,218,667
.............. .............
Property, plant and equipment, net 10,971,952 10,874,881
Other assets 502,031 497,664
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 $2,876,707 and $2,572,637
in 1999 and 1998, respectively 22,026,882 22,330,952
.............. .............
Total assets $ 70,768,160 $ 71,293,164
.............. .............
.............. .............
Liabilities and Stockholders' Equity
....................................
Current liabilities:
Notes payable $ 69,514 $ 105,304
Accounts payable 3,411,730 3,612,934
Accrued expenses and other current
liabilities 7,794,501 6,922,971
.............. .............
Total current liabilities 11,275,745 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, 11,838,350
and 11,810,349 issued in 1999 and 1998,
respectively 11,838 11,810
Additional paid-in capital 49,275,552 49,116,700
Retained earnings 17,118,425 14,641,834
Treasury stock, 757,763 shares
in 1999 and 1998 (6,565,794) (6,565,794)
Accumulated other comprehensive loss (347,606) (52,595)
.............. .............
Total stockholders' equity 59,492,415 57,151,955
.............. .............
Total liabilities and
stockholders' equity $ 70,768,160 $ 71,293,164
.............. .............
.............. .............
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
March 31
.............................
1999 1998
.............. .............
Net sales and services $ 20,018,174 $ 14,299,163
Cost of sales and services 9,892,194 7,225,370
.............. .............
Gross profit 10,125,980 7,073,793
Operating expenses:
Selling and marketing 2,794,219 2,302,445
General and administrative 1,652,761 1,284,761
Research and development 1,678,349 1,123,223
Amortization of excess cost over fair
value of net assets of businesses
acquired 304,070 92,426
.............. .............
Earnings from operations 3,696,581 2,270,938
Non-operating expenses (income):
Interest expense 30,041 4,148
Interest income (57,050) (246,881)
Other expense, net 27,186 13,993
.............. .............
Earnings before provision for income taxes 3,696,404 2,499,678
Provision for income taxes 1,219,813 888,819
.............. .............
Net earnings $ 2,476,591 $ 1,610,859
.............. .............
.............. .............
Earnings per share:
Basic earnings per common share $0.22 $0.14
.............. .............
.............. .............
Weighted average common shares outstanding 11,067,212 11,343,143
.............. ............
.............. ............
Diluted earnings per common share $0.22 $0.14
.............. .............
.............. .............
Weighted average common shares and
common share equivalents 11,475,015 11,615,752
.............. .............
.............. .............
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
...........................
1999 1998
............ ............
Cash flows from operating activities:
Net earnings $ 2,476,591 $ 1,610,859
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 788,235 388,648
Provision for bad debts 8,275 7,786
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (2,183,621) 358,808
Decrease in inventories 308,341 153,006
(Increase) decrease in other current
assets (169,195) 42,220
(Increase) in other assets (4,367) (174,455)
(Decrease) in accounts payable (201,204) (257,111)
Increase (decrease) in accrued
expenses and other current
liabilities 871,530 (47,935)
............ ............
Net cash provided by
operating activities 1,894,585 2,081,826
............ ............
Cash flows from investing activities:
Purchases of property, plant and equipment (581,236) (2,008,595)
Purchase of investments, net 0 (193,947)
............ ............
Net cash used in investing
activities (581,236) (2,202,542)
............ ............
Cash flows from financing activities:
Purchase of treasury stock 0 (99,155)
Proceeds from exercise of common stock
options and warrants 158,880 39,500
Payments of notes payable (35,790) (18,794)
Payments of long-term debt
(revolving credit line) (3,500,000) 0
............ ............
Net cash used in financing
activities (3,376,910) (78,449)
............ ............
Effect of exchange rate changes on assets and
liabilities including cash and
cash equivalents (295,011) (99,785)
............ ............
Net decrease in cash and cash equivalents (2,358,572) (298,950)
Cash and cash equivalents, beginning of period 5,839,339 6,331,159
............ ............
Cash and cash equivalents, end of period $ 3,480,767 $ 6,032,209
............ ............
............ ............
Supplemental disclosure of cash flow information:
..............................................
Cash paid for:
Interest $ 30,041 $ 4,148
Income taxes $ 521,260 $ 888,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS:
..................................
The consolidated balance sheet as of March 31, 1999 and the
consolidated statements of earnings and cash flows for the three month
periods ended March 31, 1999 and March 31, 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 March 31, 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 March 31,
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:
March 31, 1999 December 31, 1998
.............. .................
Raw Materials $ 7,111,382 $ 7,555,877
Work in Process 6,857,122 6,294,045
Finished Goods 919,186 1,260,475
Consigned Inventory 476,545 562,179
.............. .................
$ 15,364,235 $ 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 March 31, 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 has been
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 March 31, 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
Three Months Ended
March 31, 1998
..................
Net sales and services $ 21,282,542
Net earnings $ 1,762,956
Basic earnings per common share $ 0.16
Diluted earnings per common share $ 0.15
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 $2,181,580 and
$1,511,074 for the three months ended March 31, 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 March 31, 1999
increased $5.7 million or 39.9% to $20.0 million from $14.3 million for
the comparable period in the prior year. The increase is primarily
attributable to the acquisition of Synrad.
Gross margins as a percentage of sales increased to 50.6% for the
period ended March 31, 1999 from 49.5% in the same period ended March
31,1998. The decrease in cost as a percentage of sales in the quarter
ended March 31, 1999 is primarily due to the acquisition of Synrad and
the product mix.
Selling and marketing expenses increased to $2.8 million in the
quarter ended March 31, 1999 from $2.3 million in the quarter ended March
31, 1998. The increase of $492 thousand or 21.4% is primarily
attributable to the acquisition of Synrad. Selling and marketing expense
as a percentage of sales decreased to 14.0% for the quarter ended March
31,1999 from 16.1% for the comparable period in the prior year.
General and administrative expenses increased $368 thousand or 28.6%
from $1.28 million in the quarter ended March 31, 1998 to $1.65 million
in the current period. The increase is primarily attributable to the
acquisition of Synrad.
Research and development costs for the quarter ended March 31, 1999
increased $555 thousand or 49.4% to $1.68 million from $1.12 million in
the quarter ended March 31, 1998. The increase is primarily attributable
to the acquisition of Synrad and increased research and development
efforts.
Interest expense was $30 thousand versus $4 thousand for the
quarters ended March 31, 1999 and 1998, respectively. The increase of
$26 thousand is due to the borrowings associated with the acquisition of
Synrad.
The decrease in interest income to $57 thousand in the quarter ended
March 31, 1999 from $247 thousand in the same period of 1998, a decrease
of $190 thousand, 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 expense resulted in a net expense of $27 thousand for the
quarter ended March 31, 1999 as compared to a net expense of $14 thousand
for the quarter ended March 31, 1998. This increase is primarily due to
foreign currency transaction losses incurred by the Company's German
subsidiary in the current quarter.
Liquidity and Capital Resources
...............................
Working capital at March 31, 1999 was $24.6 million compared to
$25.6 million at December 31, 1998. The decrease is primarily
attributable to the payment of the $3.5 million loan offset by the net
income this period.
The Company anticipates spending approximately $3.5 million for
capital expenditures in 1999 of which approximately $581 thousand was
spent during the quarter ended March 31, 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 March 31, 1999, as described in
note C to the 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 June
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's 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. Project completion for this phase is planned for the middle of
1999. 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.
The Company does not currently have any contingency plans in place
to address the failure of timely conversion of its and /or third-party
systems with respect to the Year 2000 issue.
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
...................................................
None.
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: May 4, 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
March 31, March 31,
....................... ......................
1999 1998 1999 1998
........... .......... .......... ..........
Net earnings $ 2,476,591 1,610,859 2,476,591 1,610,859
........... .......... .......... ..........
........... .......... .......... ..........
Weighted average common
shares outstanding, net
of treasury stock 11,067,212 11,343,143 11,067,212 11,343,143
Weighted average common
share equivalents:
Options and warrants 0 0 407,803 272,609
........... .......... .......... ..........
Weighted average common
shares common share
equivalents 11,067,212 11,343,143 11,475,015 11,615,752
........... .......... .......... ..........
........... .......... .......... ..........
Net earnings per share $0.22 $0.14 $0.22 $0.14
..... ..... ..... .....
..... ..... ..... .....
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0
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