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UNITED STATES
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, 2002 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 (631) 784-6175
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 6, 2002 was: 11,799,204.
CONTENTS
PART I. FINANCIAL INFORMATION
Page
....
Item 1. Consolidated Financial Statements:
..................................
Consolidated Balance Sheets as of June 30, 2002 (unaudited)
and December 31, 2001 3
Consolidated Statements of Income (unaudited) for the Three
Months Ended June 30, 2002 and 2001 4
Consolidated Statements of Income (unaudited) for the Six
Months Ended June 30, 2002 and 2001 5
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended June 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
.................................................
Condition and Results of Operations 8
...................................
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
..........................................................
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
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
.................................
CONSOLIDATED BALANCE SHEETS
June 30, 2002 Dec. 31, 2001
............. .............
(Unaudited)
Assets
.......
Current assets:
Cash and cash equivalents $ 18,327,606 $ 16,211,865
Accounts receivable, less allowance for
doubtful accounts of $755,000 and
$717,000 in 2002 and 2001, respectively 16,742,439 15,688,733
Inventories 21,229,397 19,219,695
Deferred income taxes 1,112,000 1,112,000
Other current assets 1,608,008 1,369,903
............. .............
Total current assets 59,019,450 53,602,196
............. .............
Property, plant and equipment - at cost 27,245,890 26,125,347
Other assets 50,901 64,362
Deferred income taxes 593,000 593,000
Goodwill, net of accumulated amortization
of $6,586,773 in 2002 and 2001,
respectively 22,120,116 22,120,116
............. .............
Total assets $ 109,029,357 $ 102,505,021
............. .............
............. .............
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 4,459,776 $ 3,786,154
Accrued expenses and other current
liabilities 7,524,697 7,121,293
............. .............
Total current liabilities 11,984,473 10,907,447
............. .............
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,
11,798,984 and 11,763,569 shares issued
in 2002 and 2001, respectively 11,799 11,764
Additional paid-in capital 45,313,234 44,856,504
Retained earnings 52,024,897 47,783,066
Accumulated other comprehensive loss (305,046) (1,053,760)
............. .............
Total stockholders' equity 97,044,884 91,597,574
............. .............
Total liabilities and
stockholders' equity $ 109,029,357 $ 102,505,021
............. .............
............. .............
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
June 30,
.............................
2002 2001
............. .............
Net sales and services $ 22,061,668 $ 23,949,529
Cost of sales and services 11,728,916 12,656,314
............. .............
Gross profit 10,332,752 11,293,215
Operating expenses:
Selling and marketing 2,797,403 3,353,487
General and administrative 1,872,628 1,833,294
Research and development 2,176,088 2,227,789
Amortization of goodwill 0 362,464
............. .............
Income from operations 3,486,633 3,516,181
Non-operating expenses (income):
Interest expense 1,480 328
Interest income (67,512) (184,115)
Other, net 8,273 30,472
............. .............
Income before provision for income taxes 3,544,392 3,669,496
Provision for income taxes 1,169,649 1,295,332
............. .............
Net income $ 2,374,743 $ 2,374,164
............. .............
............. .............
Basic earnings per common share $0.20 $0.20
..... .....
..... .....
Weighted average common
shares outstanding 11,792,358 11,761,173
............. .............
............. .............
Diluted earnings per common share $0.20 $0.20
..... .....
..... .....
Weighted average common shares and
common share equivalents outstanding 12,162,030 11,992,596
............. .............
............. .............
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Six Months Ended
June 30,
.............................
2002 2001
............. .............
Net sales and services $ 41,815,336 $ 48,744,343
Cost of sales and services 22,104,141 25,536,413
............. .............
Gross profit 19,711,195 23,207,930
Operating expenses:
Selling and marketing 5,558,961 6,338,391
General and administrative 3,454,079 3,708,256
Research and development 4,449,209 4,587,963
Amortization of goodwill 0 727,124
............. .............
Income from operations 6,248,946 7,846,196
Non-operating expenses (income):
Interest expense 3,410 12,521
Interest income (126,192) (449,812)
Other, net 40,637 17,394
............. .............
Income before provision for income taxes 6,331,091 8,266,093
Provision for income taxes 2,089,260 2,927,124
............. .............
Net income $ 4,241,831 $ 5,338,969
............. .............
............. .............
Basic earnings per common share $0.36 $0.45
..... .....
..... .....
Weighted average common shares outstanding 11,782,595 11,760,450
............. .............
............. .............
Diluted earnings per common share 0.35 $0.45
.... .....
.... .....
Weighted average common shares and
common share equivalents outstanding 12,063,090 11,990,897
............. .............
............. .............
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
.............................
2002 2001
............. .............
Operating activities:
Net earnings $ 4,241,831 $ 5,338,969
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 1,469,540 1,983,174
Provision for bad debts 217,804 34,756
Deferred income taxes 2,088 0
Changes in operating assets
and liabilities:
Accounts receivable (579,286) 2,147,416
Inventories (1,761,466) (1,948,992)
Other current assets (131,796) 111,650
Other assets 13,461 53,291
Accounts payable 550,108 (707,402)
Accrued expenses and other
current liabilities 229,086 (1,182,138)
............. .............
Net cash provided by
operating activities 4,251,370 5,830,724
............. .............
Investing activities:
Purchases of property,
plant and equipment (2,606,781) (5,476,546)
............. .............
Net cash used in
investing activities (2,606,781) (5,476,546)
............. .............
Financing activities:
Proceeds from exercise of common stock
options and warrants 456,765 14,559
Payments of notes payable 0 (9,096)
............. .............
Net cash provided by
financing activities 456,765 5,463
............. .............
Effect of exchange rate changes on
cash and cash equivalents 14,387 (954,084)
............. .............
Net increase (decrease) in cash
and cash equivalents 2,115,741 (594,443)
Cash and cash equivalents,
beginning of period 16,211,865 19,006,192
............. .............
Cash and cash equivalents, end of period $ 18,327,606 $ 18,411,749
............. .............
............. .............
Supplemental cash flow information:
....................................
Cash paid for:
Interest $ 3,410 $ 17,394
Income taxes $ 785,607 $ 3,382,396
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS:
..................................
The consolidated balance sheet as of June 30, 2002, the consolidated
statements of income for the three months and six months ended June 30,
2002 and June 30, 2001, and the consolidated statement of cash flows for
the six months ended June 30, 2002 and June 30, 2001 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 at June 30, 2002 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, 2001. 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,
2002 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, 2002 December 31, 2001
............. .................
Raw Materials $ 10,999,045 $ 10,028,445
Work in Process 5,572,155 5,590,729
Finished Goods 3,286,067 3,001,963
Consigned Inventory 1,372,130 598,558
............. .............
$ 21,229,397 $ 19,219,695
............. .............
............. .............
C. LINE-OF-CREDIT
..............
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, at the
Company's election, 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 the prime rate or the Federal Funds Rate plus 0.50%. This credit
facility contains certain financial covenants, including a minimum
tangible net worth requirement of at least $15 million, prohibits the
payment of dividends, and requires payment of interest on a quarterly
basis. As of June 30, 2002, the Company had no borrowings on its line of
credit.
D. NEW ACCOUNTING PRONOUNCEMENTS
.............................
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business Combinations"
and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are
reviewed at least annually for impairment. Had this standard been
applied for the three and six months ended June 30, 2001, respectively,
net income would have been increased to $2.7 and $6.1 million, basic
earnings per share would have been $0.23 and $0.52 and diluted earnings
per share would have been $0.23 and $0.51.
Effective January 1, 2002, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
No. 144"), which supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be disposed of." The
primary objectives of SFAS No. 144 is to develop one accounting model
based on the framework established in SFAS No. 121 for long-lived assets
to be disposed of by sale, and to address significant implementation
issues. The adoption of this statement did not have an impact on the
Company's results of operations or financial position.
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, 2002 decreased
$1.9 million or 7.9% to $22.1 million from $23.9 million for the
comparable period in the prior year. For the six months ended June 30,
2002, net sales and services were $41.8 million, a decrease of $6.9
million or 14.2% from $48.7 million in the six months ended June 30,
2001. The decreases are mainly attributable to a reduction in sales of
scanners and marking systems.
Gross margins decreased to 46.8% for the quarter ended June 30, 2002
as compared to 47.2% in the same period in the prior year. For the six
months ended June 30, 2002, gross margins decreased to 47.1% from 47.6%
in the same six months ended June 30, 2001. The increases in cost as a
percentage of sales are primarily due to the product mix and to fixed
costs being absorbed by the lower sales volume. Product margins vary
from direct sales to distributor sales and also vary from product to
product. The Company offers more than 250 product configurations.
Selling and marketing expenses decreased to $2.8 million in the
quarter ended June 30, 2002 from $3.4 million in the quarter ended June
30, 2001. Selling and marketing expenses as a percentage of sales
decreased to 12.7% for the quarter ended June 30, 2002 from 14.0% for the
comparable period in the prior year. The decrease of $556 thousand or
16.6% in selling and marketing expenses for the current quarter is
primarily attributable to a decrease in variable costs associated with
the lower sales volume. For the six months ended June 30, 2002, selling
and marketing expenses were $5.6 million as compared to $6.3 million for
the same period in 2001. Selling and marketing expenses as a percentage
of sales increased to 13.3% for the six months ended June 30, 2002 from
13.0% for the comparable period in the prior year. The increase in
selling expenses, as a percentage of sales is essentially attributable to
the absorption of higher fixed costs over a lower sales volume.
General and administrative expenses increased $39 thousand or 2.1%
from $1.83 million in the quarter ended June 30, 2001 to $1.87 million in
the current period. The increase is primarily attributable to slightly
higher legal, accounting and bonus expenses for the quarters in
comparison. For the six months ended June 30, 2002, general and
administrative expenses decreased $254 thousand to $3.5 million from $3.7
million in 2001. The decrease is primarily attributable to reduced bonus
expense during the 2002 period.
Research and development costs for the quarter ended June 30, 2002
decreased $52 thousand or 2.3% to $2.18 million from $2.23 million in the
quarter ended June 30, 2001. For the six months ended June 30, 2002,
research and development costs decreased $139 thousand or 3.0% to $4.4
million from $4.6 million in 2001. The decreases are primarily
attributable to reduced research and development material costs during
the periods in comparison.
Interest expense was $3.0 thousand versus $13.0 thousand for the six
months ended June 30, 2002 and 2001, respectively. The decrease is due
to reduced short-term borrowing by the Company's European subsidiaries.
Interest income decreased to $68 thousand for the quarter ended June
30, 2002 from $184 thousand in the same period of 2001, a decrease of
$117 thousand. For the six months ended June 30, 2002 and June 30, 2001,
interest income was $126 thousand and $450 thousand, respectively. The
decreases are primarily due to the reduced effective interest rates
during the periods in comparison.
Other income/expense resulted in expense of $8 thousand for the
quarter ended June 30, 2002 as compared to $30 thousand for the quarter
ended June 30, 2001. Other income/expense resulted in expense of $41
thousand for the six months ended June 30, 2002 as compared to $17
thousand for the six months ended June 30, 2001. The changes are
primarily due to foreign exchange gains and losses realized by the
Company's European subsidiary.
The provision for income taxes decreased $126 thousand or 9.7% from
$1.3 million in the quarter ended June 30, 2001 to $1.2 million for the
current quarter ended June 30, 2002. For the six months ended June 30,
2002, the provision for income taxes decreased $838 thousand or 28.6%
from $2.9 million in the six months ended June 30, 2001 to $2.1 million
in the comparable period in 2002. The decreases are primarily
attributable to lower taxable earnings in both 2002 periods as compared
to the same periods in the prior year.
Liquidity and Capital Resources
................................
Working capital at June 30, 2002 was $47.0 million compared to $42.7
million at December 31, 2001. Cash and equivalents were $18.3 million at
June 30, 2002 and $16.2 million at December 31, 2001.
The Company anticipates spending $4.5 million for capital
expenditures in 2002, which includes approximately $1.7 million for
payments of remaining balances on the construction of buildings for
Synrad, Baublys-Control Laser and expansion of the Quantronix facilities.
Approximately $2.6 million was spent for purchases of property, plant and
equipment during the six months ended June 30, 2002. The Company had
capital expenditures of approximately $15.5 million for the year ended
December 31, 2001. Depreciation and amortization expense for the six
months ended June 30, 2002 was approximately $1.5 million, including $300
thousand for buildings and $1.2 million for all other property, plant and
equipment.
The Company had no outstanding long-term debt and $15 million
available on its line of credit as of June 30, 2002, as described in Note
C to the accompanying consolidated financial statements.
The Company believes 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.
Inflation
..........
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Forward-Looking Statements
............................
The information set forth in this Report (and other reports issued by
the Company and its officers from time to time) contain certain statements
concerning the Company's future results, future performance, intentions,
objectives, plans and expectations that are or may be deemed to be
"forward-looking statements". Such statements are made in reliance upon
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based on current expectations
that involve numerous risks and uncertainties, including those risks and
uncertainties discussed in the Company's Annual Report on Form 10K for the
year ended December 31, 2001. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive, and market conditions and future business decisions, all of
which are difficult or impossible to predict accurately and many of which
are beyond the Company's control. Although the Company believes that its
assumptions underlying the forward-looking statements are reasonable, any
of the assumptions could prove inaccurate and, therefore, the Company
cannot assure you that the results discussed or implied in such forward-
looking statements will prove to be accurate. In light of the significant
uncertainties inherent in such forward-looking statements, the inclusion
of such statements should not be regarded as a representation by the
Company or any other person that the Company's objectives and plans will
be achieved. Words such as "believes," "anticipates," "expects,"
"intends," "may," and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
such statements. The Company undertakes no obligation to revise any of
these forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
..........................................................
Market Risk
............
The principal market risks (i.e., the risk of loss arising from
adverse changes in market rates and prices) to which the Company is
exposed are interest rates on demand deposits with banks and money market
funds and exchange rates, generating translation and transaction gains
and losses.
Interest Rates
...............
The Company manages its cash and investment portfolios considering
investment opportunities and risks, tax consequences and overall
financing strategies. The Company's investment portfolios consist
primarily of cash and equivalents, with carrying amounts approximating
market value. Assuming investment levels remain the same, a one-point
change in interest rates would not have a material impact on the
Company's interest income.
Foreign Exchange Rates
.......................
Operating in international markets involves exposure to movements in
currency exchange rates, which are volatile at times. The economic
impact of currency exchange rate movements on the Company is complex
because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors. These
changes, if material, could cause the Company to adjust its financing and
operating strategies. Consequently, isolating the effect of changes in
currency does not incorporate these other important economic factors.
The Company's net sales to foreign customers represent a large
percentage of total net sales. The Company generally has not engaged in
foreign currency hedging transactions.
Changes in the foreign currency rate for the German mark would have
the largest impact on translating the Company's international operating
profit.
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, 2001.
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
...................................................
(i) The Company's Annual Meeting of Stockholders was held on
May 28, 2002. At the Meeting: The following persons were
elected as directors of the Company, to serve until the
next Annual Meeting of Stockholders and until their
successors are duly elected and qualified, each receiving
the number of votes set forth opposite their names:
FOR WITHHELD AGAINST
.......... ........ .......
J. Donald Hill 10,738,450 0 272,166
Antoine Dominic 10,738,420 0 272,196
Steven Georgiev 10,922,970 0 87,646
Howard S. Breslow 10,922,970 0 87,646
Joseph J. Ortego 10,922,970 0 87,646
(ii) The appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 2002
was ratified, with 10,908,548 shares voting in favor of
the appointment, 69,556 shares voting against, and 32,511
shares abstaining 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 8, 2002
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
...........................
J. Donald Hill,
Chairman of the Board
By: /s/ Antoine Dominic
...........................
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating Officer
(Principal Accounting Officer)
EXHIBIT 11
COMPUTATION OF NET EARNINGS PER SHARE (Unaudited)
BASIC DILUTED
Three Months Ended Three Months Ended
June 30, June 30,
....................... .....................
2002 2001 2002 2001
.......... .......... .......... ..........
Net earnings $2,374,743 $2,374,164 $2,374,743 $2,374,164
.......... .......... .......... ..........
.......... .......... .......... ..........
Weighted average common
shares outstanding 11,792,358 11,761,173 11,792,358 11,761,173
Weighted average common
share equivalents:
Options and warrants 0 0 369,672 231,423
.......... .......... .......... ..........
Weighted average common
shares and common shares
equivalent outstanding 11,792,358 11,761,173 12,162,030 11,992,596
.......... .......... .......... ..........
.......... .......... .......... ..........
Net earnings per share $0.20 $0.20 $0.20 $0.20
..... ..... ..... .....
..... ..... ..... .....
Six Months Ended Six Months Ended
June 30, June 30,
...................... ......................
2002 2001 2002 2001
.......... .......... .......... ..........
Net earnings $4,241,831 $5,338,969 $4,241,831 $5,338,969
.......... .......... .......... ..........
.......... .......... .......... ..........
Weighted average common
shares outstanding 11,782,595 11,760,450 11,782,595 11,760,450
Weighted average common
share equivalents:
Options and warrants 0 0 280,495 230,447
.......... .......... .......... ..........
Weighted average common
shares and common shares
equivalent outstanding 11,782,595 11,760,450 12,063,090 11,990,897
.......... .......... .......... ..........
.......... .......... .......... ..........
Net earnings per share $0.36 $0.45 $0.35 $0.45
..... ..... ..... .....
..... ..... ..... .....