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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
......................
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 0-19306
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 Research Way (631) 784-6100
E. Setauket, NY 11733 (Registrant's Telephone Number)
(Address of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this From 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $276,917,294 based on the average bid and ask price as
reported by NASDAQ on March 3, 2000.
The number of shares of the Registrant's common stock outstanding as of March
3, 2000 was: 11,350,071.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement to be filed in connection with the Registrant's
2000 Annual Meeting of Stockholders (incorporated by reference under Part
III.)
PART I
This Annual Report on Form 10-K (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, including statements regarding capital
expenditures, competition, products under development, and the company's
ability to obtain spare parts and fill its current backlog; are made in
reliance upon safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Such forward-
looking statements are subject to a number of known and unknown risks and
uncertainties that, in addition to general economic and business conditions,
could cause the Company's actual results, performance, and achievements to
differ materially from those described or implied in the forward looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to those discussed below and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 1. BUSINESS
General
Excel Technology, Inc. (the "Company") designs, develops, manufactures
and markets laser systems and electro-optical components for industry,
science, and medicine. The word laser is an acronym for "Light Amplification
by Stimulated Emission of Radiation." The essence of the laser is the
ability of a photon (light energy) to stimulate the emission of other
photons, each having the same wavelength (color) and direction of travel.
The laser beam is so concentrated and powerful that it can produce power
densities millions of times more intense than that found on the surface of
the sun, capable of cutting, welding and marking industrial products, yet can
be precisely controlled and directed, capable of performing delicate surgery
on humans.
In October 1992, the Company acquired Quantronix Corporation, a Delaware
corporation ("Quantronix"), for Common Stock and warrants of the Company
valued at approximately $9 million, in a transaction pursuant to which
Quantronix became a wholly owned subsidiary of the Company. The acquisition
of Quantronix and its wholly-owned subsidiaries, Control Laser Corporation,
located in Orlando, Florida ("Control Laser"), Excel Technology Europe
(previously named Quantronix GmbH), located in Germany ("Excel Technology
Europe"), and The Optical Corporation, located in Oxnard, California
("Optical"), provided the Company with its industrial, scientific and
semiconductor product lines, supplemented the Company's dental products and
provided the Company with a significant revenue base as well as established
manufacturing, engineering, marketing and customer service capabilities.
On February 14, 1995, the Company acquired Cambridge Technology, Inc.
("Cambridge"), located in Cambridge, Massachusetts. Cambridge is engaged
primarily in the manufacture of laser scanners, essential components to
moving a laser beam with precision at a specified speed. These products have
both industrial and consumer applications, such as laser marking and etching,
high-density laser printing and writing, digitized x-ray imaging and
entertainment laser light shows and displays. The acquisition allowed the
Company to expand into new markets and enhanced its market position in the
industrial business. The Company acquired all of the outstanding shares of
capital stock of Cambridge in exchange for $4.75 million, consisting of $4.5
million in cash (of which $3.5 million was paid on February 14, 1995) and
$250 thousand in shares of Common Stock (which was paid on February 14,
1995). Of the balance due, $600 thousand was paid in March 1996 and $400
thousand was paid in February 1997. Pursuant to the acquisition agreement,
additional payments were made due to Cambridge meeting certain performance
goals during the first two fiscal years after the acquisition. In connection
therewith, the Company paid $731 thousand in 1995 and $323 thousand in 1996.
On October 2, 1995, the Company acquired the Photo Research Division
("The Photo Research Division") of Kollmorgen Instruments Corporation
("Kollmorgen"). The Photo Research Division is engaged primarily in the
business of developing, manufacturing and marketing photometric and
spectroradiometer instruments and systems (the "Business"). In accordance
with an Asset Purchase Agreement, the Company purchased substantially all of
the net assets and properties utilized in connection with the Business, in
consideration of $3.5 million in cash. The Company utilized its own cash to
finance the acquisition. Subsequently, the Company obtained a $3.5 million
five-year term loan, from U.S. Trust, the proceeds of which were utilized by
the Company to replenish its own cash used in financing the acquisition.
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. In accordance with the Asset Purchase Agreement, Excel
Purchasing Company (a wholly owned subsidiary of the Company) purchased
substantially all of Synrad's assets and properties for consideration of
approximately $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 $15 million
credit facility with The Bank of New York (the "Bank") all of which was
repaid as of March 31, 1999. Excel Purchasing Company changed its name to
Synrad, Inc. after the acquisition.
Excel was organized under the laws of Delaware in 1985.
CURRENT PRODUCTS AND APPLICATIONS
Marking Systems
...............
Control Laser, the Company's subsidiary located in Orlando, Florida,
designs, manufactures and markets computer controlled industrial laser
systems for material marking, engraving and coding. These systems include
standard and custom workstations. Control Laser's Icon and Insignia laser
systems allow for permanent, high speed, computer-controlled product marking
for the aerospace, automotive, medical device, electronic, tooling and
consumer industries. Customers include Honeywell, ITT, Bosch, Nissan, Ford,
General Electric, General Motors and Chrysler. Control Laser's marking
systems can be used independently or can be utilized as part of an automated
assembly line system. During 1998, the Company started delivery of its "on
the fly" marking system called the "Instamark Express". In 1999, Control
Laser introduced new marking systems utilizing frequency doubled, tripled and
quadrupled wavelengths of Nd:YAG and Nd:YLF lasers. During 1999, Control
Laser also began development of their new diode pumped series of Nd:YAG and
Nd:YLF laser marking systems, which are due for introduction to the market in
2000.
Carbon Dioxide Lasers
.....................
Synrad, the Company's subsidiary based in Mukilteo, Washington,
manufactures a range of sealed CO2 lasers for cutting, marking, drilling or
other machining applications for a variety of materials. The CO2 lasers range
in power from 10W to 240W. Currently, Synrad is developing a new generation
of sealed CO2 lasers. Synrad sells primarily to OEMs and system integrators
who incorporate the lasers with suitable motion systems and optical
assemblies and then sell the complete system. Applications include desktop
engraving systems found in many trophy/award shops throughout the world,
large area flatbed systems for cutting dieboard or airbag material, and 3D
prototyping using paper, sintered metals and other materials to create 3D
models and molds directly from CAD packages. Higher power lasers also are
finding uses in manufacturing plants for trimming of flashing from injection-
molded parts in the automobile industry, cutting textiles and woven fabrics
on continuous production lines, and slitting/sealing of plastic packaging.
Synrad also manufactures a galvo marking head which, when configured with a
Synrad laser, provides a fast and effective method of marking parts with lot
codes, serial number/date information and bar-codes.
Scanners
........
Cambridge, the Company's subsidiary based in Cambridge, Massachusetts,
manufactures high-speed mirror positioning components and sub-systems used to
direct laser energy. These optical scanning products are key to a variety of
applications where visible or invisible laser energy is positioned quickly
and precisely. An increasingly broad base of laser system applications are
served by these products including laser marking, machining, heat treating,
welding and cutting, semiconductor wafer inspection and processing, laser
entertainment, corporate advertising and a growing number of laser based
medical applications, which include digital radiography, skin resurfacing,
eye treatment and others. With patented designs, Cambridge is a technology
leader in galvanometer-based optical scanning and supports research and
development of new applications through a wide range of academic
institutions, private firms and government agencies.
Photomask Repair Systems
........................
Quantronix, the Company's subsidiary located in East Setauket, New York,
manufactures and markets Defect Repair Systems (DRS) which are laser-based
systems for use in semiconductor production. The DRS provides a means to
repair defects on the complex photomasks used to produce integrated circuits.
A pioneer in this field, Quantronix has provided laser mask repair
systems to the industry since 1975. Currently, the DRSII Model 840e system
has been the industry standard, with over 100 installed Quantronix repair
systems in operation.
In recognition of the demand for smaller, denser features on next
generation integrated circuits, Quantronix has embarked on a development
program to produce the next generation machines (DRS II Model 850 and DRSII
Model 855) that will support circuit production through the 0.35 microns,
0.25 microns and 0.18 microns design generations, promoting product viability
in the future. During 1999, Quantronix completed production and
installation of the new DRS II Model 855.
Scientific and Industrial Solid-State Lasers
............................................
Quantronix also manufactures and markets solid-state lasers for science,
industry and OEM uses. On a worldwide basis, scientific lasers represent one
of the most stable and long-established laser markets. Scientific lasers are
used by chemists, biologists, physicists and by other scientists and
engineers. In this market, end-users are generally familiar with the various
product specifications, features and reliability, which are the major factors
in choosing between competing products.
Quantronix's current scientific line includes the Titan and Odin Series
Ultrafast Amplifiers and the Series 527 High Power Green lasers.
Quantronix's Ultrafast Amplifiers incorporate a material called Titanium
Sapphire ("Ti:Sapphire") which has created opportunities for a greater volume
of research than previous materials. Ultrafast Amplifiers deliver high
energy short pulses on the femtosecond or picosecond time scale. (A
femtosecond is one quadrillionth of a second, a picosecond is one trillionth
of a second.) These short pulses enable the investigation of a wide range of
physical, chemical and biological phenomena.
The scientific systems utilize Nd:YLF lasers to produce high-energy
pulses at a rate of 1kHz (1000 pulses per second). These pulses drive the
Ti:Sapphire Amplifier that can then pump other optical systems (also marketed
by Quantronix) which deliver tunable light from ultraviolet to infrared
regions of the spectrum. The material properties to be studied vary over
this range.
Quantronix's industrial and OEM solid state lasers offer a variety of
Nd:YAG, Ho:YAG and ER:YAG lasers in various configurations for material
processing applications. The wavelengths of these lasers vary from 1064 nm
to 263 nm.
Optical Products
................
Optical, a subsidiary of the Company based in Oxnard, California,
specializes in the manufacture of custom precision optical components used
for measurement in systems such as optical scanners, laser systems,
professional motion picture cameras and other industrial and scientific
applications.
Light and Color Measurement
...........................
Photo Research, the Company's Chatsworth, California subsidiary, is a
leader in high precision, state of the art electro-optical instrumentation
and systems for light and color measurement. The Spectra product line offers
systems to a wide variety of industries for research, quality control and on-
line testing. Video instrumentation provides high resolution CRT and flat
panel inspection. The Photo Research Optical Metrology Laboratory is a
supplier of and service provider to optical radiation standards, calibration
and measurement for major manufacturers of instruments, displays, devices and
materials.
Spare Parts
...........
Quantronix also sells spare parts and related consumable materials used
primarily in its semiconductor, industrial and scientific systems. This
operation is based in East Setauket, New York. Spare parts and consumables
include replacement optical elements, lamps and electronic components.
Marketing and Sales
The Company's marketing activities include the presentation of its
product lines at domestic and international trade shows and advertising. The
marketing and sales staff conduct professional meetings, conferences and in-
person and telephone sales calls. The Company also engages independent
manufacturers' representatives for the sale of its products. Foreign sales of
its products are made primarily through foreign equipment distribution
organizations and representatives by Excel Technology Europe, its German
subsidiary, and by Excel Technology Asia, its Malaysian subsidiary. Excel
Technology Europe and Excel Technology Asia are engaged in the business of
marketing, distributing, integrating and servicing laser systems (for
industrial, semiconductor, scientific and dental products) manufactured at
the Company's facilities in East Setauket, New York; Orlando, Florida; and
Mukilteo, Washington. The sales territory covered by Excel Technology Europe
is primarily Europe and the sales territory for Excel Technology Asia is
primarily Southeast Asia. In Excel Technology Europe, the staff of thirty-
six includes seventeen engineers who install and service all products
including complex semiconductor, scientific, and other industrial systems. In
addition, Excel Technology Europe provides spare parts for its installed
base. In Excel Technology Asia the staff of five includes two engineers.
The following table represents a breakdown between the Company's
domestic and foreign revenues for the years ended December 31, 1999, 1998 and
1997 (in thousands of dollars):
1999 1998 1997
................. ................. .................
Dollars Percent Dollars Percent Dollars Percent
....... ....... ....... ....... ....... .......
DOMESTIC $47,987 54% $42,157 63% $42,186 64%
FOREIGN 40,956 46% 24,935 37% 23,762 36%
....... ....... ....... ....... ....... .......
TOTAL $88,943 100% $67,092 100% $65,948 100%
....... ....... ....... ....... ....... .......
....... ....... ....... ....... ....... .......
Manufacturing
The Company assembles its products at its facilities in East Setauket,
New York; Orlando, Florida; Oxnard, California; Cambridge, Massachusetts;
Chatsworth, California; and Mukilteo, Washington. The Company relies upon
unaffiliated suppliers for the material components and parts used to assemble
its products. Most parts and components purchased from suppliers are
available from multiple sources. To date, the Company has not experienced any
significant delays in obtaining parts and components for its products. The
Company believes that it will be able to continue to obtain most required
components and parts from a number of different suppliers, although there can
be no assurance thereof. Lack of availability of certain components could
require major redesign of the products and could result in production delays.
Warranty and Customer Services
The Company's warranty for all of its new products varies between three
months and twelve months. The Company also provides field support services
on an individual call basis and through service maintenance contracts, and
provides customer support services by telephone to customers with operational
and service problems.
Research and Development
Due to the intense competition and rapid technological change in the
laser and optical industries, the Company believes that it must continue to
improve and refine its existing products and systems and develop new
applications for its technology. Research and development expenses for the
years ended December 31, 1999, 1998 and 1997 were $7.29 million, $5.59
million and $4.86 million, respectively.
Competition
The laser industry is subject to intense competition and rapid
technological change. Several of the Company's competitors are substantially
larger and have greater financial and other resources than the Company.
Competition among laser manufacturers extends to attracting and retaining
qualified technical personnel. The overall competitive position of the
Company will depend primarily upon a number of factors, including the price
and performance of its products, the compatibility of its products with
existing laser systems and the Company's overall reputation in the laser
industry.
The Company's scientific and industrial solid state lasers face a number
of competitors including Spectra Physics and Coherent Inc., which are two of
the largest solid state laser companies.
The Company's marking systems for material marking applications compete
primarily with those manufactured by A.B. Laser, GSI-Lumonics, and Rofin-
Sinar. These products have generally been subject to intense price
competition in recent years.
In the semiconductor photomask repair market, the Company primarily
competes with NEC and Seiko. The market for semiconductor products recently
has been oversaturated and has experienced rapid advances in miniaturization
of integrated circuits and computers. These factors are behind the Company's
commitment to continue developing its next generation mask repair products.
Competition for sealed carbon dioxide lasers comes from Coherent, Inc.
and more recently DEOS, Inc. and Universal Laser Systems. Rofin-Sinar, a
large European manufacturer of industrial lasers, also is developing
competitive products.
In light and color measurement, the major competitor to the Company's
Spectra product is Minolta. Minolta has approximately a 30% to 35% worldwide
market share compared with Photo Research's 20% to 25% share. In the high-
end Spectra market, Photo Research has a 60% to 65% market share. In the
video-based products, the company's video photometer remains the preferred
product to characterize new display technologies, with Microvision as its key
competitor.
In the laser scanner market, General Scanning, which has an estimated
current market share of 45%, is a significant competitor of the Company.
General Scanning also was one of the Company's largest customers for scanners
in 1998 and 1997. The Company has a significant market presence worldwide
with greater than 50% of the closed-loop optical scanners.
Backlog
As of December 31, 1999, the Company had a backlog of firm orders of
approximately $22.3 million as compared to a backlog of $19 million as of
December 31, 1998. The Company believes that the current backlog will be
filled during the present fiscal year. Historically, backlog is shipped
within 90 days from the order date.
Patents and Licenses
The Company has several United States patents covering a wide variety of
its products and has applications pending in the United States patent office.
There can be no assurance that any other patents will be issued to the
Company or that such patents, if and when issued, will provide any protection
or benefit to the Company. Although the Company believes that its patents
and its pending patent applications are valuable, the Company does not
consider the ownership of patents essential to its business. The Company
believes that, in general, the best protection of proprietary technology in
the laser industry will come from market position, technical innovation and
product performance. There is no assurance that any of these advantages will
be realized by the Company.
Government Regulation
The Company is subject to the laser radiation safety regulations of the
Radiation Control for Health and Safety Act administered by the National
Center for Devices and Radiological Health of the FDA. Among other things,
these regulations require a laser manufacturer to file new product and annual
reports, to maintain quality control and sales records, to perform product
testing, to distribute appropriate operating manuals, to incorporate certain
design and operating features in lasers sold to end-users and to certify and
label each laser sold to end-users as one of four classes (based on the level
of radiation from the laser that is accessible to users). Various warning
labels must be affixed and certain protective devices installed depending on
the class of product. The National Center for Devices and Radiological
Health is empowered to seek fines and other remedies for violations of the
regulatory requirements. The Company believes that it is currently in
compliance with these regulations.
There are two principal methods by which FDA regulated products may be
marketed in the United States. One method is a FDA pre-market notification
filing under Section 510(k) of the Food, Drug and Cosmetics Act (a "510(k)
Application"). Applicants under the 510(k) procedure must demonstrate that
the device for which approval is sought is substantially equivalent to
devices on the market prior to the Medical Device Amendments of 1976 or
devices approved thereafter pursuant to the 510(k) procedure. The review
period for a 510(k) Application is 90 days from the date of filing the
application. While applications not rejected within the 90-day period are
deemed approved, applicants typically defer marketing until a favorable
response to the 510(k) Application is received from the FDA. In 1992, the
Company's three dental products received 510(k) approval for use in soft
tissue applications.
The alternate method, where section 510(k) is not available, is to
obtain pre-market approval ("PMA") from the FDA. Under the PMA procedure,
the applicant must obtain an investigational device exemption before
beginning the substantial clinical testing required to determine the safety,
efficacy and potential hazards of the product. The preparation of a PMA
application is significantly more complex and time consuming than the 510(k)
Application. The review period under a PMA application is 180 days from the
date of filing but the application is not automatically deemed approved if
not rejected during the period and the FDA often responds with requests for
additional information or clinical reports. The PMA approval process can
take up to several years.
The FDA also imposes various requirements on manufacturers and sellers
of products under its jurisdiction, such as labeling, manufacturing
practices, record keeping and reporting requirements. The FDA also may
require post-market testing and surveillance programs to monitor a product's
effects. There can be no assurance that the appropriate approvals from the
FDA will be granted, that the process to obtain such approvals will not be
excessively expensive or lengthy or that the Company will have sufficient
funds to pursue such approvals at the time they are sought. The failure to
receive requisite approvals for the Company's products or processes, when and
if developed, or significant delays in obtaining such approvals, would
prevent the Company from commercializing its products as anticipated and
would have a materially adverse effect on the business of the Company.
Foreign Regulatory Requirements
Foreign sales of the Company's dental and medical laser systems are or
will be subject in each case to approval by the recipient country.
Regulatory requirements vary widely among the countries, from electrical
approvals to clinical applications similar to the PMA applications filed with
the FDA for sales in the United States. The Company has obtained appropriate
approvals for its dental products in Japan, Korea and certain European
countries including Germany.
Employees
As of December 31, 1999, the Company had four hundred thirty nine (439)
full-time employees, consisting of two (2) executive officers, thirteen (13)
subsidiary executive officers, one hundred fifty one (151)scientists,
engineering and technical personnel and two hundred seventy three (273)
manufacturing, administrative and sales support personnel. The Company
believes that its relations with its employees are satisfactory. None of the
Company's employees is represented by a union.
Financial Information About Foreign and Domestic Operations
and Export Sales
For the years ended December 31, 1999, 1998 and 1997, the Company had
net sales to customers in foreign countries amounting to approximately $41.0
million, $24.9 million and $23.8 million, respectively (approximately 46%,
37% and 36% of total net sales and services, respectively). These sales
included sales by Excel Technology Europe, the Company's German subsidiary.
Excel Technology Europe buys laser systems, spare parts and related
consumable materials from Quantronix, Control Laser and Synrad, the Company's
New York, Florida and Washington subsidiaries, for resale to European and
other foreign customers, and also furnishes field repair services. See Note
14 of the "Notes to Consolidated Financial Statements."
Foreign currency translation for Excel Technology Europe, the Company's
subsidiary in Germany, is performed utilizing the current rate method under
which assets and liabilities are translated at the exchange rate on the
balance sheet date, except for property, plant and equipment which is
translated at historical rates, while revenues, costs and other expenses are
translated at the average exchange rate for the reporting period. The
resulting translation adjustment of $(642) thousand and $(53) thousand at
December 31, 1999 and 1998, respectively, is included as accumulated other
comprehensive loss, a component of stockholders' equity. Currency and
exchange rate fluctuations from transaction gains and losses resulted in a
net loss of $227 thousand, a net gain of $55 thousand and a net loss of $167
thousand for the years ended December 31, 1999, 1998 and 1997, respectively.
Such amounts are based upon the accounting treatment of foreign intercompany
balances and transaction gains and losses.
ITEM 2. PROPERTIES
Excel leases approximately 2,900 square feet in New York City from an
unaffiliated landlord for its corporate offices. The lease is for a
five-year period at an average annual rent of $108,000, and expires in
November 2001.
Quantronix completed construction of its own building during 1998. The
building is approximately 33,500 square feet located in East Setauket, New
York. The building is used for its manufacturing operations and
administrative offices.
Control Laser leases a 50,000 square foot building in Orlando, Florida
from an unaffiliated landlord, which it utilizes for administrative offices
and laser manufacturing operations. Annual rent is approximately $240,000.
The lease expires in December 2001.
Optical leases a 14,000 square foot building in Oxnard, California from
an unaffiliated landlord for manufacturing purposes, at an annual rent of
approximately $84,000. The lease term expires in August 2009.
Cambridge leases a 17,000 square foot building in Cambridge,
Massachusetts from an unaffiliated landlord for manufacturing operations and
administrative offices. The lease is for a ten-year period ending in October
2006, at an annual rent of approximately $150,000 through October 2003 and
$175,000 from November 2003 through October 2006.
Excel Technology Europe leases approximately 7,500 square feet of office
space, used for sales and service, in Darmstadt, Germany from an unaffiliated
landlord at an average annual rent of approximately $106,000. The lease
expires in June 2005.
Photo Research purchased its own building in July 1998. The building is
approximately 22,000 square feet and is located in Chatsworth, California.
The building is used for manufacturing operations and administrative offices.
Synrad leases a 50,000 square foot building in Mukilteo, Washington from
an unaffiliated landlord, which it utilizes for manufacturing, sales and
administrative operations. Annual rent is approximately $728,000, which
includes all utilities. The lease is for a five-year period and expires in
April 2001.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has disputes that arise in the ordinary
course of its business, none of which the Company believes should have a
material impact on its business. Currently, there are no material pending
legal proceedings to which the Company or its subsidiaries is a party or to
which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
.......
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock has been traded on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the symbol
"XLTC" since May 1991, the date of the Company's initial public offering, and
on the NASDAQ National Market System since October 2, 1992. The following
table sets forth the high and low bid quotations reported on NASDAQ NMS for
the Common Stock for the periods indicated.
Year ended: High Low
........ ........
December 31, 1999
First Quarter 12-15/16 10
Second Quarter 14-3/8 9-15/16
Third Quarter 15 11
Fourth Quarter 18-1/8 14-1/8
December 31, 1998
First Quarter 11-1/4 9-5/8
Second Quarter 10-13/16 8-3/16
Third Quarter 9-1/4 6-3/8
Fourth Quarter 10-5/16 5-3/4
The above quotations represent prices between dealers, do not include
retail mark-ups, markdowns or commissions and do not necessarily reflect
actual transactions.
As of March 2, 2000, there were approximately 848 holders of record of
Common Stock. Since many shares are registered in street name, the number of
beneficial owners is considerably higher.
The Company has never paid cash dividends on its Common Stock. Payment
of dividends to holders of the Common Stock is within the discretion of the
Company's Board of Directors and will depend, among other factors, on
earnings, capital requirements and the operating and financial condition of
the Company. At the present time, the Company's anticipated capital
requirements are such that it intends to follow a policy of retaining
earnings, if any, in order to finance the development of its business.
ITEM 6. SELECTED FINANCIAL DATA
The following tables summarize certain consolidated financial data,
which should be read in conjunction with the report of the Company's
independent auditor and the more detailed consolidated financial statements
and notes thereto which appear elsewhere herein.
Statement of Operations Data
............................
Year Ended December 31,
..........................................................
1999 1998 1997 1996 1995
........... ........... ........... ........... ...........
Net sales and
services $88,943,148 $67,091,933 $65,947,896 $57,462,263 $43,914,222
Net earnings
(loss) $11,551,766 $ 8,881,464 $ 8,234,697 $ 4,892,826 $(1,595,835)
Net earnings
(loss) per share
Basic $1.04 $0.79 $0.77 $0.55 $(0.21)
Diluted $1.00 $0.78 $0.73 $0.50 (0.21)
Weighted average common and common
equivalent shares outstanding
Basic 11,118,782 11,190,197 10,686,763 8,862,217 8,281,194
Diluted 11,608,266 11,395,186 11,327,086 9,757,411 8,281,194
Common stock
cash dividends 0 0 0 0 0
Preferred stock
cash dividends 0 0 0 0 $162,137
Balance Sheet Data
..................
As of December 31,
..........................................................
1999 1998 1997 1996 1995
........... ........... ........... ........... ...........
Total assets $79,650,551 $71,293,164 $59,219,681 $39,816,442 $43,007,614
Total
liabilities $10,649,338 $14,141,209 $ 8,316,574 $10,800,102 $20,948,036
Working
capital $35,198,724 $25,577,458 $37,166,960 $17,492,287 $17,609,490
Stockholders'
equity $69,001,213 $57,151,955 $50,903,107 $29,016,340 $22,059,578
Long-term
liabilities $ 0 $ 3,500,000 $ 0 $ 0 $ 7,573,320
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
.......
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and notes thereto set forth
elsewhere herein.
Summary
.......
The Company achieved revenues of approximately $88.9 million for the
year ended December 31, 1999 as compared to approximately $67.1 million and
$66.0 million for the years ended December 31, 1998 and 1997, respectively.
Earnings before provision for income taxes were approximately $17.2 million,
$13.7 million and $12.6 million for the years ended December 31, 1999, 1998
and 1997, respectively. The net earnings and earnings per share on a diluted
basis were approximately $11.6 million and $1.00 per share in 1999. The net
earnings and earnings per share on a diluted basis were approximately $8.9
million and $0.78 per share in 1998. Excluding the non-recurring investment
gain (after tax effect) in 1998, net earnings and earnings per share on a
diluted basis were approximately $7.8 million and $0.68 per share. The net
earnings and earnings per share on a diluted basis were approximately $8.2
million and $0.73 per share in 1997.
The following table presents consolidated financial data for the years
ended December 31, 1999, 1998 and 1997 (in thousands of dollars and as a
percentage of total net sales and services.)
Results of Operations
.....................
1999 1998 1997
.... .... ....
Dollars Percent Dollars Percent Dollars Percent
....... ....... ....... ....... ....... ........
Net Sales and
Services $88,943 100.0% $67,092 100.0% $65,948 100.0%
Cost of Sales 44,682 50.2% 34,184 51.0% 33,245 50.4%
....... ....... ....... ....... ....... ........
Gross Profit/Margin 44,261 49.8% 32,908 49.0% 32,703 49.6%
Operating Expenses:
Selling and
Marketing 11,936 13.4% 9,833 14.7% 10,639 16.1%
General and
Administrative 6,645 7.5% 5,565 8.3% 4,805 7.3%
Research and
Development 7,294 8.2% 5,586 8.3% 4,861 7.4%
Amortization of
Goodwill 1,219 1.4% 723 1.1% 370 0.6%
....... ....... ....... ....... ....... ........
Earnings from
Operations 17,167 19.3% 11,201 16.6% 12,028 18.2%
Non-Operating
Expense (Income) (73) (0.1%) (2,482) (3.7%) (615) (1.0%)
....... ....... ....... ....... ....... ........
Earnings before
Provision for
Income Taxes 17,240 19.4% 13,683 20.3% 12,643 19.2%
Provision for
Income Taxes 5,688 6.4% 4,802 7.1% 4,408 6.7%
....... ....... ....... ....... ....... ........
Net Earnings $ 11,552 13.0% $8,881 13.2% $8,235 12.5%
....... ....... ....... ....... ....... ........
....... ....... ....... ....... ....... ........
Net Sales and Services
......................
Net sales and services for the year ended December 31, 1999 increased to
$88.9 million from $67.1 million in 1998 and from $65.9 million in 1997. The
increase from 1998 to 1999 of $21.8 million or 32.5 percent was primarily
attributable to Synrad, which was purchased in August of 1998. Net sales and
services in 1999 reflect Synrad's activity for that entire year, whereas in
1998, sales and services only encompass a portion of Synrad's 1998 activity,
beginning from the time of purchase. The increase from 1997 to 1998 of $1.2
million or 1.8 percent was attributable to the acquisition of Synrad, which
was partially offset by a decrease in sales for all products.
Gross Margins and Cost of Sales
...............................
Gross margins as a percentage of sales were 49.8 percent compared to
49.0 percent in 1998 and 49.6 percent in 1997. Cost of sales and services
increased to $44.7 million from $34.2 million in 1998 and $33.2 million in
1997. The increase in gross margins as a percentage of sales from 1998 to
1999 was primarily due to the product mix sold during the year and the
acquisition of Synrad. The decrease from 1997 to 1998 was primarily due to
the product mix sold during the year and the decrease in sales volume.
Operating Expenses
..................
Selling and Marketing
Selling and marketing expenses were $11.9 million compared to $9.8
million in 1998 and $10.6 million in 1997. The increase of $2.1 million or
21.4 percent was primarily attributable to the increased sales due to the
acquisition of Synrad. Selling and marketing expenses as a percentage of
sales decreased to 13.4 percent in 1999 from 14.7 percent in 1998 and 16.1
percent in 1997. The decrease in selling and marketing expenses as a
percentage of sales is primarily attributable to the acquisition of Synrad,
which has lower variable selling expenses.
General and Administrative
General and administrative expenses increased to $6.6 million in 1999
from $5.6 million in 1998 and $4.8 million in 1997. The increase of $1.0
million or 17.9 percent in 1999 was primarily due to additional
administrative costs associated with Synrad. General and administrative
expenses as a percentage of sales decreased to 7.5 percent as compared to 8.3
percent in 1998 and 7.3 percent in 1997.
Research and Development
Research and development costs for the year ended December 31, 1999 were
$7.3 million as compared to $5.6 million and $4.9 million for the years ended
December 31, 1998 and 1997, respectively. The increase of $1.7 million from
1998 to 1999 was primarily attributable to increased research and development
projects and the acquisition of Synrad. The increase of $700 thousand from
1997 to 1998 was attributable to increased research and development projects
and the acquisition of Synrad.
Amortization of Goodwill
The amortization of the excess of cost over fair value of the net assets
of businesses acquired of $1.2 million, $723 thousand and $370 thousand for
the years ended December 31, 1999, 1998 and 1997, respectively, was a result
of the acquisition of Quantronix in October 1992, Cambridge in February 1995,
Photo Research in October 1995 and Synrad in August 1998. The increases in
1999 and 1998 were primarily due to the acquisition of Synrad.
Other Income/Expense
Interest expense was $47 thousand, $174 thousand and $160 thousand for
the years ended December 31, 1999, 1998 and 1997, respectively. Interest
expense decreased $127 thousand in 1999 as a result of the prepayment, in
March 1999, of the loan associated with the acquisition of Synrad. Interest
expense increased $14 thousand or 8.8 percent from 1997 to 1998 due to the
borrowings for the acquisition of Synrad.
The decrease in interest income from $768 thousand in 1998 to $335
thousand in 1999 was due to a decrease in average investments. The average
investment in 1999 was lower due to cash being utilized for the payoff of the
loan associated with the acquisition of Synrad. The decrease in interest
income of $104 thousand from $872 thousand in 1997 to $768 thousand in 1998
was 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 for the year ended December 31, 1999 was $214
thousand of expense compared to $1.89 million of income in 1998. The expense
in 1999 was due primarily to foreign exchange losses. The income in 1998 was
due primarily to a $1.9 million gain on the sale of an investment.
Liquidity and Capital Resources
...............................
Working capital at December 31, 1999 and 1998 was $35.2 million and
$25.6 million, respectively. Cash and cash equivalents increased by
approximately $7.6 million from December 31, 1998 to December 31, 1999. Such
increase was primarily attributable to net cash provided by operating
activities of approximately $13.0 million and the proceeds from the exercise
of stock options of $1.2 million, offset by capital expenditures of $2.1
million, the purchase of treasury stock of $350 thousand and the repayment of
debt associated with the acquisition of Synrad of $3.5 million.
The Company had capital expenditures of approximately $2.1 million for
the year ended December 31, 1999. The Company had capital expenditures of
$5.4 million in 1998, which included the costs for two buildings. The
Company anticipates spending approximately $8.0 million for capital
expenditures in 2000, which includes a building for Synrad.
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 with The Bank of New York, all of which has been repaid as of
March 31, 1999. 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. During
1999, the Company recorded an adjustment to the initial allocation of the
purchase price due to inventory write-downs, which resulted in a $200
thousand increase to the cost in excess of fair value of assets acquired.
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%. The 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 December 31, 1999 the Company had no borrowings
and had all of its $15 million available on its line of credit.
On January 23, 1998 the Board of Directors authorized the Company to
repurchase up to 2,000,000 of its common shares in the open market at
prevailing market prices. In 1999, the Company purchased 31,700 shares of
its common shares as treasury stock as compared to 382,763 shares purchased
in 1998. All outstanding treasury stock was retired in December 1999.
The Company estimates that its current resources and anticipated cash to
be generated from operations will be sufficient to meet its cash requirements
for at least the next 12 months.
Year 2000 Compliance
As of December 31, 1999 the Company believed it was year 2000 compliant.
As of March 3, 2000, no significant Year 2000 issues relating to the
Company's internal systems, interfaces with third parties or products have
been experienced. In addition, as of March 3, 2000, information and products
from third parties associated with the Company have not had any adverse
effects on the Company's operations. To date, the costs incurred in
association with any Year 2000 compliance projects have not been material to
the Company's results of operations or liquidity. In addition, the Company
does not anticipate any additional significant costs to be incurred in order
to remain compliant.
Euro Conversion
The January 1, 1999 adoption of the Euro created a single-currency
market in much of Europe. For a transition period from January 1, 1999
through January 1, 2002, the existing local currencies are anticipated to
remain legal tender as denominations of the Euro. The Company does not
anticipate that its operations will be materially adversely affected by the
conversion to the Euro. The Company has analyzed the impact of conversion to
the Euro on its existing systems and operations and implemented modifications
to its systems to enable the Company to handle Euro invoicing for
transactions commencing in 1999. The Company anticipates that the cost of
such modifications should not have a material adverse effect on its results
of operations or liquidity.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities". This statement requires
companies to record derivatives on the balance sheet as assets and
liabilities at their fair value. This statement (as amended by SFAS 137) is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The adoption of this statement is expected to have no impact on the
Company's results of operations or financial position.
Inflation
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Follow on next page.
EXCEL TECHNOLOGY, INC.
Index to Consolidated Financial Statements and
Financial Statement Schedule filed with the Annual
Report of the Company on Form 10-K
For the Year ended December 31, 1999.
Page
....
Independent Auditors' Report 18
Consolidated Financial Statements:
Balance Sheets as of December 31, 1999 and 1998 19
Statements of Earnings for each of the three years in the
period ended December 31, 1999. 20
Statements of Stockholders' Equity for each of the three years
in the period ended December 31, 1999. 21
Statements of Cash Flows for each of the three years in the
Period ended December 31, 1999 22
Notes to Consolidated Financial Statements. 23
Additional Financial Information Pursuant to the
Requirements of Form 10-K:
Schedule II - Valuation and Qualifying Accounts and Reserves 39
................
Schedules not listed above have been omitted because they are either not
applicable or the required information has been given elsewhere in the
consolidated financial statements or notes thereto.
Independent Auditors' Report
Board of Directors and Stockholders
Excel Technology, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Excel
Technology, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
In connection with our audit of the consolidated financial statements, we
have also audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Excel
Technology, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Melville, New York
January 21, 2000
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
.... ....
Current assets:
Cash and cash equivalents $ 13,481,251 5,839,339
Accounts receivable, less allowance for
doubtful accounts of $464,000 in 1999
and $426,000 in 1998 16,107,179 13,383,865
Inventories 14,383,943 15,672,576
Deferred income taxes, net 1,363,300 873,100
Other current assets 512,389 449,787
............ ..........
Total current assets 45,848,062 36,218,667
............ ..........
Property, plant and equipment, net 10,986,243 10,874,881
Other assets 341,416 497,664
Deferred income taxes, net 1,162,800 1,371,000
Excess of cost over fair value of net assets
of businesses acquired, net of accumulated
amortization of $3,791,559 and $2,572,637 21,312,030 22,330,952
............ ..........
$ 79,650,551 71,293,164
............ ..........
............ ..........
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 35,937 105,304
Accounts payable 2,974,832 3,612,934
Accrued expenses and other current
liabilities 7,638,569 6,922,971
............ ..........
Total current liabilities 10,649,338 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, 11,300,941 and
11,810,349 shares issued in 1999 and 1998,
respecitvely 11,301 11,810
Additional paid-in capital 43,438,702 49,116,700
Retained earnings 26,193,600 14,641,834
Treasury stock, 757,763 shares in 1998 0 (6,565,794)
Accumulated other comprehensive loss (642,390) (52,595)
............ ..........
69,001,213 57,151,955
............ ..........
$ 79,650,551 71,293,164
............ ..........
............ ..........
See accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
............ .......... ..........
Net sales and services $ 88,943,148 67,091,933 65,947,896
Cost of sales and services 44,682,521 34,184,072 33,245,432
............ .......... ..........
Gross profit 44,260,627 32,907,861 32,702,464
Operating expenses:
Selling and marketing 11,936,078 9,832,757 10,639,570
General and administrative 6,644,820 5,565,365 4,805,284
Research and development 7,294,314 5,586,127 4,860,903
Amortization of excess cost over
fair value of net assets of
businesses acquired 1,218,922 723,305 369,704
............ .......... ..........
27,094,134 21,707,554 20,675,461
............ .......... ..........
Earnings from operations 17,166,493 11,200,307 12,027,003
Non operating expenses (income):
Interest expense 47,330 174,358 159,888
Interest income (335,104) (767,576) (872,481)
Other expense (income), net 213,907 (1,889,716) 96,814
............ .......... ..........
Earnings before provision for
income taxes 17,240,360 13,683,241 12,642,782
Provision for income taxes 5,688,594 4,801,777 4,408,085
............ .......... ..........
Net earnings $ 11,551,766 8,881,464 8,234,697
............ .......... ..........
............ .......... ..........
Basic earnings per common share $1.04 0.79 0.77
..... .... ....
..... .... ....
Weighted average common shares
outstanding 11,118,782 11,190,197 10,686,763
............ .......... ..........
............ .......... ..........
Diluted earnings per common share $1.00 0.78 0.73
..... .... ....
..... .... ....
Weighted average common shares and
common equivalents outstanding 11,608,266 11,395,186 11,327,086
............ .......... ..........
............ .......... ..........
See accompanying Notes to Consolidated Financial Statements.
Excel Technology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
Retained Accumulated
Additional Earnings Other Com- Compre-
Preferred Stock Common Stock Treasury Paid-In (Accumulated prehensive hensive
Shares Amounts Shares Amounts Stock Capital Deficit) Loss Total Income
...... ....... ......... .......... ............ .......... ........... ......... ............ .........
Balance at
December 31, 1996 0 $ 0 9,189,265 $ 9,189 0 $31,559,063 $(2,474,327) $ (77,585) $29,016,340 $ 0
Exercise of common
stock options and
warrants 0 0 2,525,206 2,525 0 17,167,015 0 0 17,169,540 0
Acquisition of
treasury stock 0 0 0 0 $(3,339,375) 0 0 0 (3,339,375) 0
Net earnings for
the year 0 0 0 0 0 0 8,234,697 0 8,234,697 8,234,697
Foreign currency trans-
lation adjustment 0 0 0 0 0 0 0 (178,095) (178,095) (178,095)
Comprehensive income,
net of tax 0 0 0 0 0 0 0 0 0 8,056,602
... ... .......... ......... ............ ............ ............ .......... ............ ..........
Balance at
December 31, 1997 0 0 11,714,471 11,714 (3,339,375) 48,726,078 5,760,370 (255,680) 50,903,107 0
Exercise of common
stock options and
warrants 0 0 95,878 96 0 390,622 0 0 390,718 0
Acquisition of
treasury stock 0 0 0 0 (3,226,419) 0 0 0 (3,226,419) 0
Net earnings
for the year 0 0 0 0 0 0 8,881,464 0 8,881,464 8,881,464
Foreign currency trans-
lation adjustment 0 0 0 0 0 0 0 203,085 203,085 203,085
Comprehensive income,
net of tax 0 0 0 0 0 0 0 0 0 9,084,549
... ... .......... ........ ............ ............ ............ .......... ........... ..........
Balance at
December 31, 1998 0 0 11,810,349 11,810 (6,565,794) 49,116,700 14,641,834 (52,595) 57,151,955 0
Exercise of common
stock options and
warrants 0 0 280,055 280 0 1,235,016 0 0 1,235,296 0
Acquisition of
treasury stock 0 0 0 0 (348,009) 0 0 0 (348,009) 0
Retirement of
treasury stock 0 0 (789,463) (789) 6,913,803 (6,913,014) 0 0 0 0
Net earnings
for the year 0 0 0 0 0 0 11,551,766 0 11,551,766 11,551,766
Foreign currency trans-
lation adjustment 0 0 0 0 0 0 0 (589,795) (589,795) (589,795)
Comprehensive income,
net of tax 0 0 0 0 0 0 0 0 0 10,961,971
... ... ........... ........ ............ ............ ............ .......... ........... ...........
Balance at
December 31, 1999 0 $ 0 11,300,941 $11,301 $ 0 $43,438,702 $26,193,600 $(642,390) $69,001,213 $ 0
... ... .......... ........ ............ ............ ............ .......... ........... ...........
See accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
.... .... ....
Cash flows from operating activities:
Net earnings $11,551,766 8,881,464 8,234,697
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 3,010,231 2,238,350 1,479,499
Provision for bad debts 70,697 110,337 71,722
Deferred income taxes (282,000) 123,000 139,000
Gain on sale of investment 0 (1,875,537) 0
Changes in operating assets and
liabilities, net of effects
from acquisitions:
(Increase) decrease in
accounts receivable (2,794,011) 1,121,402 (2,448,303)
Decrease (increase) in
inventories 1,288,633 (154,313) (1,165,733)
(Increase) decrease in other
current assets (62,602) 226,350 (52,545)
Decrease (increase) in
Other assets 156,248 (14,927) 29,239
(Decrease) increase in
accounts payable (638,102) 21,758 73,369
Increase (decrease) in
accrued expenses and other
current liabilities 715,598 (701,456) 471,521
........... ............ ...........
Net cash provided by
operating activities 13,016,458 9,976,428 6,832,466
........... ............ ...........
Cash flows from investing activities:
Cash paid for acquisitions,
net of cash acquired 0 (15,242,943) (723,150)
Purchases of property, plant and
equipment (2,102,671) (5,379,850) (3,902,132)
Redemption (purchase) of
investments, net 0 14,209,854(10,133,809)
Proceeds from sale of investment 0 1,875,537 0
........... ............ ...........
Net cash used in
Investing activities (2,102,671) (4,537,402)(14,759,091)
........... ............ ...........
Cash flows from financing
activities:
Proceeds from exercise of common
stock options and warrants 1,235,296 390,718 17,169,540
Purchase of treasury stock (348,009) (3,226,419) (3,339,375)
Payments of notes payable (69,367) (298,230) (382,244)
Payments of borrowings on long
term debt and revolving credit
line, net (3,500,000) (3,000,000) (1,923,024)
........... ............ ...........
Net cash (used in) provided by
financing activities (2,682,080) (6,133,931) 11,524,897
........... ............ ...........
Effect of exchange rate changes on
cash and cash equivalents (66,971) 11,605 (2,797)
Effect of exchange rate changes
on assets and liabilities (522,824) 191,480 (175,298)
........... ............ ...........
Net increase (decrease) in cash
and cash equivalents 7,641,912 (491,820) 3,420,177
Cash and cash equivalents -
beginning of year 5,839,339 6,331,159 2,910,982
........... ............ ...........
Cash and cash equivalents -
end of year $13,481,251 5,839,339 6,331,159
........... ............ ...........
........... ............ ...........
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 48,220 166,176 159,888
........... ............ ...........
........... ............ ...........
Income taxes $ 5,477,543 4,021,809 3,989,709
........... ............ ...........
........... ............ ...........
See accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
..........................................
a) Principles of Consolidation
...........................
The consolidated financial statements include the accounts of Excel
Technology, Inc. (Excel) and its wholly-owned subsidiaries: Synrad, Inc.
(Synrad); Photo Research, Inc. (Photo Research); Excel Technology Asia
(previously named Quantronix GmbH), Cambridge Technology, Inc.
(Cambridge); Quantronix Corporation (Quantronix) and Quantronix' wholly-
owned subsidiaries: Control Laser Corporation, The Optical Corporation,
Quantronix International Corporation (a FSC);and Excel Technology Europe.
Collectively, this group is referred to as the Company. All material
intercompany transactions and balances have been eliminated in
consolidation.
b) Nature of Business
..................
Excel designs, develops, manufactures and markets laser systems
and electro-optical components, primarily for the electronic,
semiconductor, dental, scientific and other industrial markets.
c) Revenue Recognition
...................
Net sales and services are recognized when the earnings process is
complete, generally upon shipment of products or performance of services.
d) Investments and Cash Equivalents
................................
The Company records debt and equity securities that have readily
determinable fair values at fair value unless they are classified as held
to maturity. Investments are classified as held to maturity and carried
at amortized cost only if the Company has a positive intent and ability
to hold those securities to maturity. If not classified as held to
maturity, investments are classified as trading securities or securities
available for sale. Unrealized gains or losses for securities available
for sale are excluded from earnings and reported as a net amount as a
separate component of stockholders' equity. Unrealized holding gains and
losses for trading securities are included in earnings. Investments,
which consist primarily of commercial paper, are recorded at fair value.
Investments with original maturities of three months or less at the time
of purchase are considered cash equivalents. Cash and cash equivalents
of $13.5 million and $5.8 million at December 31, 1999 and 1998,
respectively, consist primarily of money market funds.
e) Inventories
...........
Inventories consist of material, labor and overhead and are stated
at the lower of average cost or market. Average cost approximates actual
cost on a first-in, first-out basis.
f) Depreciation and Amortization
.............................
The Company's property, plant and equipment, recorded at cost, are
depreciated or amortized over their estimated useful lives under the
straight-line method. Leasehold improvements are amortized over the life
of the lease or over the estimated life of the asset, whichever is less.
Patents are amortized over their estimated useful lives, not
exceeding 17 years, using the straight-line method.
The excess of cost over fair value of net assets of businesses
acquired ("goodwill") is amortized on a straight-line basis over twenty
years. The Company assesses the recoverability of unamortized goodwill
based on the undiscounted projected future cash flows of the related
businesses.
g)Impairment of Long-Lived Assets and Long-Lived Assets
.....................................................
to Be Disposed Of
.................
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards No.121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of". This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
h) Income Taxes
............
The Company recognizes deferred tax assets and liabilities for the
future tax consequences attributable to temporary differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities at enacted rates expected to be in effect when such amounts
are realized or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
i) Foreign Currency Translation
............................
Foreign currency translation for the Company's German subsidiary,
Excel Technology Europe, is performed utilizing the current rate method
under which assets and liabilities are translated at the exchange rate on
the balance sheet date, except for property, plant and equipment which is
translated at historical rates. Revenues, costs, and expenses are
translated at the average exchange rate for the reporting period. The
resulting cumulative translation adjustment of $(642,390) and $(52,595)
at December 31, 1999 and 1998 is reflected as accumulated other
comprehensive loss, a component of stockholders' equity. In addition,
there were transaction gains and losses and inter-company balances not
deemed long-term in nature at the balance sheet date that resulted in a
net loss of $227,249, a net gain of $55,478, and a net loss of $166,906
for the years ended December 31, 1999, 1998 and 1997, respectively, which
is reflected in other (income) expense in the consolidated statements of
earnings.
j) Net Earnings Per Share
......................
The Company presents two earnings per share (EPS) amounts. Basic
EPS is calculated based on income available to common shareholders and
the weighted-average number of common shares outstanding during the
reported period. Diluted EPS includes additional dilution from potential
common stock including stock issuable pursuant to the exercise of
dilutive stock options and warrants outstanding and the effect of
assuming the conversion of convertible preferred stock.
k) Fair Value of Financial Instruments
...................................
Cash and cash equivalents, accounts receivable, notes payable,
accounts payable and accrued expenses are reflected in the consolidated
financial statements at fair value because of the short-term maturity of
these financial instruments. The carrying value of the outstanding
balance on the Company's revolving line of credit approximates its fair
value since the interest rate fluctuates with changes in market
conditions (See Note 8).
l) Use of Estimates
................
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
m) Accounting for Stock-Based Compensation
.......................................
The Company records compensation expense for employee stock options
and warrants only if the market price of the underlying stock exceeds the
exercise price on the date of the grant. The Company has elected not to
implement the fair value based accounting method for employee and
directors' stock options and warrants of Statement of Financial
Accounting Standards No. 123, (SFAS123) "Accounting for Stock-Based
Compensation," but has elected to disclose the pro-forma net earnings and
pro-forma earnings per share to account for employee and directors' stock
option and warrant grants beginning in 1995 as if such method had been
used to account for such stock-based compensation cost.
n) Comprehensive Income
....................
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income", which the Company implemented during
the first quarter of 1998. This statement establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. The components of
comprehensive income are net earnings and foreign currency translation
adjustments.
o) New Accounting Standards
........................
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS 133)
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
(as amended by SFAS 137) is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The adoption of this statement is
expected to have no impact on the Company's results of operations or
financial position.
(2) Acquisitions
............
On February 14, 1995, the Company acquired Cambridge Technology,
Inc. which is engaged primarily in the manufacture of laser scanners,
essential components to moving a laser beam with precision at a specified
speed. These products have both industrial and consumer applications,
such as laser marking and etching, high-density laser printing and
writing, digitized x-ray imaging and entertainment laser light shows and
displays. The Company acquired all of the outstanding shares of capital
stock of Cambridge in exchange for $4.75 million, consisting of $4.5
million in cash and $250,000 in shares of Common Stock. Pursuant to the
acquisition agreement, additional payments were made due to Cambridge
meeting certain performance goals during the first two fiscal years after
the acquisition. In connection therewith, the Company paid $731,000 for
1995 and $323,150 for 1996. The amount owed at December 31, 1996 of
$723,150 was paid in 1997. The acquisition was accounted for as a
purchase and the operating results of Cambridge were included in the
consolidated financial statements commencing February 1, 1995. The
excess of the cost of the acquisition over the fair value of the net
assets acquired, amounting to $4,830,000, is being amortized over twenty
years. During 1996 goodwill was reduced by $522,000 as a result of the
sale of Cambridge's medical product line. The sales price, net of
expenses, approximated the net book value of the assets sold.
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 8). 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.
During 1999, the Company recorded an adjustment to the initial allocation
of the purchase price due to inventory write-downs, which resulted in a
$200 thousand increase to the cost in excess of fair value of assets
acquired.
Pro-forma results of operations assume the acquisition of Synrad had
been made at the beginning of each period and reflect the historical
results of operations of the purchased business adjusted for the
increased interest expense as a result of borrowings, reduced interest
income, amortization expense and income tax expense.
Year ended December 31,
..........................
1998 1997
........... ...........
Net sales and services $83,180,660 $93,458,696
Net earnings 8,399,083 8,397,243
Basic earnings per common share $0.75 $0.79
Diluted earnings per common share $0.74 $0.74
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 periods, or the results that
may occur in the future.
(3) Investments
...........
The Company had an investment in the common stock of a private
company, which was carried at a nominal value. In the fourth quarter of
1998, this private company was acquired. As a result, the Company
realized a gain of approximately $1.9 million, net of related expenses,
on the sale of the common stock which is included in other income in the
1998 consolidated statement of earnings.
(4) Inventories
...........
Inventories consist of the following:
December 31,
.......................
1999 1998
........... ..........
Raw materials $ 6,547,811 7,555,877
Work-in-process 5,509,431 6,294,045
Finished goods 1,862,941 1,260,475
Consigned inventory 463,760 562,179
........... ..........
$14,383,943 15,672,576
........... ..........
........... ..........
(5) Property, Plant and Equipment
.............................
Property, plant and equipment consists of the following:
December 31,
.......................
Useful life 1999 1998
........... ........... ..........
Land 0 $ 840,408 840,408
Buildings 30 years 4,998,818 4,989,542
Leasehold improvements Lease term 1,322,615 1,067,552
Fixtures and computer
equipment 3-8 years 4,040,978 3,165,926
Machinery and equipment 4-8 years 6,595,011 6,266,988
Laboratory equipment 4-8 years 1,891,734 1,553,503
........... ..........
19,689,564 17,883,919
........... ..........
Less accumulated
depreciation and amortization (8,703,321) (7,009,038)
........... ..........
$10,986,243 10,874,881
........... ..........
........... ..........
Quantronix acquired land and constructed a building for its
manufacturing operations and administrative offices during 1997, which
was completed during 1998. The building is approximately 33,500 square
feet located in East Setauket, New York. Photo Research also acquired
land and a building for manufacturing operations and administrative
offices during 1998. The building is approximately 22,000 square feet
located in Chatsworth, California.
Depreciation and amortization expense aggregated approximately
$1,991,000, $1,442,000 and $985,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
(6) Income Taxes
............
Pre-tax income for the years ended December 31, 1999, 1998 and 1997
was comprised of domestic income of $17,888,074, $13,660,166 and
$12,833,403, respectively, and foreign income (loss) of $(647,714),
$23,075 and $(190,621), respectively.
The provision for income taxes consists of:
Year ended December 31,
...................................
1999 1998 1997
.......... ......... .........
Current:
Federal $5,022,224 4,128,777 3,477,085
State and local 948,370 550,000 792,000
Foreign 0 0 0
.......... ......... .........
$5,970,594 4,678,777 4,269,085
.......... ......... .........
Deferred:
Federal $(282,000) 123,000 139,000
State and local 0 0 0
Foreign 0 0 0
.......... ......... .........
(282,000) 123,000 139,000
.......... ......... .........
$5,688,594 4,801,777 4,408,085
.......... ......... .........
.......... ......... .........
The current provision for income taxes includes a tax benefit of
$281,000 for 1999, 1998 and 1997 for utilizing Federal net operating loss
carry-forwards.
The effective income tax rate differed from the statutory Federal
income tax rate for the following reasons:
Year ended December 31,
...................................
1999 1998 1997
.......... ......... .........
Taxes at statutory Federal
income tax rate $5,861,700 4,652,300 4,298,600
Amortization of excess of
cost over fair value of net
assets of businesses acquired 96,400 96,400 96,400
Foreign Sales Corporation
(FSC) benefit (688,400) (349,000) (343,700)
Increase (decrease) of
valuation allowance 201,000 (142,000) (411,100)
State income taxes, net of
Federal benefit 632,300 362,800 523,000
Other (414,406) 180,677 244,885
.......... ......... .........
$5,688,594 4,801,777 4,408,085
.......... ......... .........
.......... ......... .........
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999
and 1998 are presented below:
December 31,
1999 1998
........... ..........
Deferred tax assets:
Excess of tax over financial
statement basis of inventory $ 791,000 448,000
Allowance for doubtful accounts 77,000 49,000
Accrued warranty reserve 92,000 118,000
Other accrued expenses 403,000 258,000
Benefits of U.S. net operating loss
carryforwards 1,867,000 2,148,000
Benefits of foreign net operating loss
carryforwards 401,000 110,000
Plant and equipment depreciation 66,000 11,000
........... ..........
Total deferred tax assets 3,697,000 3,142,000
Less valuation allowance (935,900) (734,900)
Net deferred tax assets 2,761,100 2,407,100)
........... ..........
Deferred tax liabilities:
Capitalized software development costs (79,000) (113,000)
Goodwill amortization (156,000) (50,000)
........... ..........
Total deferred tax liabilities (235,000) (163,000)
........... ..........
Net deferred tax asset $ 2,526,100 2,244,100
........... ..........
........... ..........
At December 31, 1999, Excel has available net operating loss
carryforwards (NOL's), expiring in 2005 through 2007, of approximately
$1.6 million for income tax purposes. The utilization of NOL's by Excel
for income tax purposes is subject to annual limitations imposed by
Internal Revenue Code Section 382 due to various equity transactions from
1991 to 1993 and alternative minimum tax limitations. If the full amount
of that limitation is not used in any year, the amount not used increases
the allowable limit in the following year.
At December 31, 1999, Quantronix and its subsidiaries have available
for tax purposes utilizable NOL's of approximately $3.9 million expiring
in 2005 through 2007. Such NOL's can only be utilized to offset
Quantronix's future taxable income and are limited, in a similar fashion
to Excel's NOL's, in each year to approximately $560,000 as a result of
the change in ownership from the merger with Excel. During 1996, the
Company reduced goodwill by $1,923,000 for the establishment of deferred
tax assets and the utilization of Quantronix's preacquisition deductible
temporary differences and net operating loss carryforwards.
While management believes that the Company's deferred tax asset will
be realized based on its generation of taxable income in recent years and
its future projected taxable income, the substantial restrictions on and
time periods required to realize certain of the Company's NOL's makes it
appropriate to record a valuation allowance against a portion of those
NOL's. In addition, a valuation allowance has been provided against all
of the Company's foreign net operating loss carryforwards. Accordingly,
Excel has provided a total valuation allowance of $935,900, as of
December 31, 1999. There can be no assurance that the Company will
generate sufficient taxable earnings in future years to fully realize
recorded tax benefits.
(7) Accrued Expenses and Other Current Liabilities
..............................................
Accrued expenses and other current liabilities consist of the
following:
December 31,
1999 1998
........... ..........
Salaries, wages, commissions and bonuses $1,809,337 1,859,080
Accrued vacation/holiday/sick pay 628,236 499,288
Accrued accounts payable 139,232 39,158
Customer deposits 351,536 329,157
Accrued royalties payable 149,654 144,745
Warranty reserve 277,660 407,086
Unearned service contract revenue 285,426 309,231
Professional fees payable 109,000 193,399
Income taxes payable 2,179,991 1,628,631
Other 1,708,497 1,513,196
........... ..........
7,638,569 6,922,971
........... ..........
........... ..........
(8) Long-Term Debt
..............
Long-term debt consists of the following:
December 31,
1999 1998
........... ..........
Revolving line of credit 0 3,500,000
Less current installments 0 0
........... ..........
0 3,500,000
........... ..........
........... ..........
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 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. During the quarter ended March
31, 1999, the Company prepaid all of its outstanding long-term debt of $3.5
million. As of December 31, 1999, the Company had no borrowings and had
all of its $15 million available on its revolving line of credit.
(9) Stockholders' Equity
....................
a) Stock Option Plan
.................
In 1990, Excel adopted a stock option plan (the "Plan") which
provides for the granting of incentive stock options and nonincentive
stock options to certain key employees, including officers and directors
of Excel, to purchase an aggregate of 2,000,000 shares of common stock,
as amended, at prices and terms determined by the Board of Directors.
The option price per share of incentive stock options must be at least
100% of the fair market value of the stock on the date of grant, except
in the case of shareholders owning more than 10% of the outstanding
shares of common stock, the option price must be at least 110% of the
fair market value on the date of grant, and for nonincentive stock
options such price may be less than 100% of the fair market value of the
stock on the date of grant. Options granted under the Plan, which
terminates on July 30, 2000, may be exercisable for a period of up to ten
years. Through December 31, 1999, all options granted under the Plan
have exercise prices equal to the market value of the stock on the date
of grant, vest ratably over three or five years and expire either five or
ten years from date of grant.
The Plan was amended in August 1993 to provide for the automatic
grant to each member of the Board of Directors, on the date of each
annual meeting of stockholders, non-incentive options to purchase 10,000
shares of common stock at the fair market value of the common stock on
such date.
In 1998, the Company adopted a stock option plan (the "1998 Plan")
which provides for the granting of incentive stock options and
nonincentive stock options to certain key employees, including officers
and directors of the Company and consultants to purchase an aggregate of
1,000,000 shares of common stock at prices and terms determined by the
Board of Directors. The option price per share of incentive stock
options must be at least 100% of the fair market value of the stock on
the date of the grant, except in the case of shareholders owning more
than 10% of the outstanding shares of common stock, it must be at least
110% of the fair market value on the date of the grant, and for
nonincentive stock options such price may be less than 100% of the fair
market value of the stock on the date of grant. Options granted under
the 1998 Plan, which terminates on April 8, 2008, may be exercisable for
a period up to ten years. Through December 31, 1999, all options granted
under the 1998 Plan have exercise prices equal to the market value of the
stock on the date of grant, vest ratably over three or five years and
expire either five or ten years from the date of grant.
On October 19, 1998, the Company elected to reduce the exercise
price of certain outstanding stock options to purchase 503,192 shares of
common stock at prices ranging from $7.875 to $12.375 per share (the
average price of which is $9.518 per share) to $7.00 per share, which was
greater than the fair market value of the common stock on the date of the
reduction.
A summary of activity related to the Company's stock option plans is
as follows:
Number Weighted average
of shares exercise price
.......... .................
Outstanding at December 31, 1996 1,427,827 $ 6.17
Granted 307,850 8.73
Exercised (643,804) 3.28
Canceled (77,115) 4.77
..........
Outstanding at December 31, 1997 1,014,758 7.87
..........
Granted 211,500 8.07
Exercised (66,145) 4.95
Canceled (40,593) 6.78
..........
Outstanding at December 31, 1998 1,119,520 6.88
.......... ......
.......... ......
Granted 115,000 13.06
Exercised (261,509) 6.70
Canceled (78,319) 7.00
.......... ......
Outstanding at December 31, 1999 894,692 $ 7.70
..........
..........
At December 31, 1999, a total of 571,582 options were exercisable at
a weighted average exercise price of $7.52, and options for the purchase
of 862,700 common shares were available for future grant under the plans.
The options outstanding as of December 31, 1999 are summarized in
ranges as follows:
Weighted Number of Weighted
Range of average options average
exercise price exercise price outstanding remaining life
.............. .............. ........... ..............
$3.26- $ 6.00 $ 4.73 27,617 0.5 years
$6.01- $ 7.00 $ 6.99 752,075 5.4 years
$7.01- $ 13.06 $ 13.06 115,000 9.5 years
..........
894,692
..........
..........
(b) Other
.....
In February 1997, Class B Warrants to purchase 1,191,856 shares of
common stock at $8.00 per share were exercised, and resulted in net
proceeds of approximately $9.5 million to the Company. The remaining
394,369 Class B Warrants were redeemed by the Company at $.05 per warrant
in accordance with their terms. An underwriter's warrant was also
exercised in 1997 that resulted in net proceeds to the Company of
approximately $2.2 million for the issuance of 280,500 shares of common
stock.
At December 31, 1999, 23,000 warrants were outstanding that expire
between 2000 and 2002 with exercise prices ranging from $4.00 to $5.50.
During 1999, 1998 and 1997, 14,000, 11,000 and 383,100, respectively, of
these warrants were exercised. During 1998, 3,000 warrants were
canceled.
In 1999, the Company issued 4,546 shares of common stock in exchange
for Quantronix shares that remained outstanding. In 1998, the Company
issued 18,733 shares of common stock in exchange for Quantronix shares
that remained outstanding.
(c) Shares Reserved for Issuance
............................
At December 31, 1999 the Company had reserved, authorized and
unissued common shares for the following purposes:
Shares
.........
1990 Stock option plan 762,545
1998 Stock option plan 994,847
Stock purchase warrants 23,000
.........
1,780,392
.........
.........
(d) Stock-Based Compensation
........................
The per share weighted-average fair value of stock options and
warrants granted during 1999, 1998 and 1997 was $5.03, $1.36, and $2.53,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1999- expected
dividend yield of 0%, risk free interest rate of 5.0%, expected stock
volatility of 40% and an expected option life of approximately 4.0 years,
1998- expected dividend yield of 0%, risk free interest rate of 5.0%,
expected stock volatility of 20% and an expected option life of 2.5
years; 1997 - expected dividend yield of 0%, risk free interest rate of
5.5%, expected stock volatility of 31%, and an expected option life of
2.5 years.
The Company applies APB Opinion No. 25 in accounting for its stock
option plans and, accordingly, no compensation cost has been recognized
in the consolidated financial statements for its stock options and
warrants which have an exercise price equal to or greater than the fair
value of the stock on the date of the grant. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS 123, the Company's net earnings would have been
reduced to the pro-forma amounts indicated below:
1999 1998 1997
.......... .......... ..........
Net earnings:
As reported $11,551,766 $8,881,464 $8,234,697
Pro-forma $10,991,766 $7,946,464 $7,423,697
Basic earnings
per common share:
As reported $1.04 $0.79 $0.77
Pro-forma $0.99 $0.71 $0.69
Diluted earnings per
common share:
As reported $1.00 $0.78 $0.73
Pro-forma $0.95 $0.70 $0.66
Pro-forma net earnings reflect only options and warrants granted
commencing in 1995. Therefore, the full impact of calculating
compensation cost for stock options and warrants under SFAS 123 is not
reflected in the pro-forma net earnings amounts presented above because
compensation cost is reflected over the options' vesting period and
compensation cost for options granted prior to January 1, 1995 was not
considered.
(10) Earnings Per Share
..................
The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations:
1999
....
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. ..........
Basic EPS $11,551,766 11,118,782 $1.04
Effect of Dilutive Securities:
Options and Warrants 489,484
.............
Diluted EPS $11,551,766 11,608,266 $1.00
........... ............. ..........
........... ............. ..........
1998
....
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. ..........
Basic EPS $8,881,464 11,190,197 $0.79
Effect of Dilutive Securities:
Options and Warrants 204,989
.............
Diluted EPS $8,881,464 11,395,186 $0.78
........... ............. ..........
........... ............. ..........
1997
....
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. ..........
Basic EPS $8,234,697 10,686,763 $0.77
Effect of dilutive securities:
Options and warrants 640,323
.............
Diluted EPS $8,234,697 11,327,086 $0.73
........... ............. ..........
........... ............. ..........
(11) Treasury Stock
..............
The Board of Directors of the Company has authorized the purchase of
up to 2,000,000 shares of common stock in the open market at prevailing
market prices. As part of this program, the Company acquired 31,700,
382,763 and 375,000 shares as treasury stock in 1999, 1998 and 1997 for
$348,009, $3,226,419 and $3,339,375, respectively. In December 1999, the
Company retired all of its treasury stock.
(12) Employee Benefit Plan
.....................
The Company has a voluntary contribution pension plan, which
complies with Section 401(k) of the Internal Revenue Code, as amended.
The plan permits employees to make a voluntary contribution of pretax
dollars to a pension trust, with a matching contribution by the Company
equal to 50% of an employee's basic contribution to the plan up to a
maximum of 3% of their salaries. Company contributions to the plan were
approximately $390,000, $319,000, and $303,000 in 1999, 1998 and 1997,
respectively.
(13) Commitments and Contingencies
.............................
(a) Operating Leases
................
The Company and its subsidiaries lease certain buildings, vehicles
and equipment under non-cancelable operating leases. At December 31,
1999, the future minimum lease payments under non-cancelable operating
leases are as follows:
2000 $1,505,267
2001 1,001,207
2002 408,362
2003 411,070
2004 438,878
Thereafter 895,772
.........
$4,660,556
.........
.........
Rent expense approximated $1.57 million, $1.63 million, and $1.34
million for the years ended December 31, 1999, 1998 and 1997,
respectively.
(b) Employment and Consulting Agreements
....................................
Excel has entered into employment agreements with certain key
executives that provide for severance upon termination without cause,
aggregating approximately $1 million.
(14) Foreign and Domestic Operations and Export Sales
................................................
Information concerning foreign and domestic operations and export
sales is as follows:
As of or the year ended
December 31,
1999 1998 1997
........... ........... ...........
Net sales and services to
unaffiliated customers:
United States $ 81,837,044 61,565,506 58,468,251
Germany 7,106,104 5,526,427 7,479,645
........... ........... ...........
$ 88,943,148 67,091,933 65,947,896
........... ........... ...........
........... ........... ...........
Operating earnings (loss):
United States $ 17,454,571 11,258,544 12,088,227
Germany (288,078) (58,237) ( 61,224)
........... ........... ...........
$ 17,166,493 11,200,307 12,027,003
........... ........... ...........
........... ........... ...........
Identifiable assets:
United States $ 77,775,495 68,883,025 54,508,949
Germany 1,875,056 2,410,139 4,710,732
........... ........... ...........
$ 79,650,551 71,293,164 59,219,681
........... ........... ...........
........... ........... ...........
In determining operating earnings (loss) for each geographic area,
sales and purchases between areas have been accounted for on the basis of
internal transfer prices set by the Company.
Identifiable assets are those tangible and intangible assets used in
operations in each geographic area.
During the years ended December 31, 1999, 1998 and 1997, the Company
had foreign and export sales of approximately $41.0 million, $24.9
million, and $23.8 million, representing 46%, 37%, and 36%, respectively,
of total net sales and services.
No single customer accounted for more than ten percent of the
Company's net sales and services in 1999, 1998 and 1997. One account
receivable from a single customer exceeded five percent of the Company's
total accounts receivable at December 31, 1999, and no account receivable
from any customer exceeded five percent of the Company's total accounts
receivable at December 31, 1998.
Schedule II
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1999, 1998 and 1997
Column A Column B Column C Column D Column E
........... .......... ................. ............. ..........
Balance at Additions charged Additions Balance at
beginning to cost and (deductions) - end of
Description of period expenses describe period
........... .......... ................. ............. ..........
Allowance for
doubtful accounts:
Year ended
December 31,:
1999 $426,000 70,697 (32,697)(1) 464,000
1998 $254,000 110,000 (128,000)(1) 426,000
190,000 (2)
1997 $276,000 72,000 (94,000)(1) 254,000
(1) Uncollectible accounts written off, net of recoveries.
(2) Allowance of acquired subsidiary at date of acquisition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
........
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 with respect to the directors
and executive officers of registrant is hereby incorporated by reference
to the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed
pursuant to Regulation 14A promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, which proxy
statement is anticipated to be filed within 120 days after the end of the
Company's year ended December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed
pursuant to Regulation 14A promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, which proxy
statement is anticipated to be filed within 120 days after the end of the
Company's year ended December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Howard S. Breslow, a director of the Company, is a partner in
Breslow & Walker, LLP, the Company's legal counsel. In 1999, the Company
paid Breslow & Walker, LLP $16,000 for legal services.
Joseph A. Ortego, a director of the Company, is a partner in Nixon
Peabody, LLP, the Company's legal counsel. In 1999, the Company paid
Nixon Peabody, LLP $65,000 for legal services.
PART IV
.......
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements (included in Part II,
Item 8):
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999
and December 31, 1998
Consolidated Statements of Earnings for each of the years in
the three-year period ended December 31, 1999
Consolidated Statements of Stockholders' Equity for each of the
years in the three-year period ended December 31, 1999
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1999
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule and Report of
Independent Auditor (included in Part II Item 8)*
Schedule
II Valuation and Qualifying Accounts and Reserves
...............................
* Financial statement schedules other than those listed are omitted
because they are either not applicable or not required, or because the
information sought is included in the Consolidated Financial Statements
or the Notes thereto.
3. Exhibits included herein:
See Exhibit Index below for exhibits filed as part of this Form
10-K annual report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed in the
last quarter of the period covered by this report.
INDEX TO EXHIBITS
.................
Exhibit
Number Document
............ ........
2 (a) Agreement and Plan of Merger, dated March 20, 1992, by and
among the Company, Excel Merging Corporation and
Quantronix Corporation, as amended July 16, 1992. (1)
(b) Agreement and Plan of Merger, dated as of February 14,
1995, by and among, the Company, Excel Merging Corporation
and Cambridge Technology, Inc. (4)
(c) Asset Purchase Agreement, dated as of October 29, 1995 by
and among Kollmorgen Instruments Corporation and Photo
Research, Inc. (5)
(d) Asset Purchase Agreement, dated as of August 14, 1998, by
and among, Excel Purchasing Company, Peter Laakman,
et al (6)
3 (a) Restated Certificate of Incorporation dated
November 13, 1990, as amended. (2)
(b) By-Laws, as amended. (1)
4 (a) Specimen Certificate for Company's Common Stock. (2)
10 (a) 1990 Stock Option Plan, as amended. (3)
(b) Employment Agreement, dated as of January 22, 1996,
between the Company and J. Donald Hill (4), amended
as of July 14, 1997.
(c) Employment Agreement, dated as of January 22, 1996,
between the Company and Antoine Dominic (4),
amended as of July 14, 1997.
(d) 1998 Stock Option Plan (filed as Exhibit A to the
Company's Definitive Proxy Statement, dated April 27, 1998
for the Annual Meeting of Stockholders held on
June 24, 1998).
(e) Loan Agreement, dated as of July 20, 1998, by and among
the Company and The Bank of New York.
21 List of subsidiaries
23 Consent of KPMG LLP
27 Financial Data Schedule
....................................................................
(1) Incorporated by reference to the Company's Registration
Statement on Form S-4, File No. 33-47440.
(2) Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-39375.
(3) Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-52612.
(4) Incorporated by reference to the Company's Report on Form 8-K
dated February 28, 1995
(5) Incorporated by reference to the Company's Report on Form 8-K
dated October 13, 1995.
(6) Incorporated by reference to the Company's Report on Form 8-K
dated August 27, 1998.
SIGNATURES
..........
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) 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.
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
.............................
J. Donald Hill, Chairman
of the Board and Chief
Executive Officer
By: /s/ Antoine Dominic
.............................
Antoine Dominic, Chief
Operating Officer and
Principal Accounting Officer
Date: March 6, 2000
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 AND ON THE DATES INDICATED.
Signature Title Date
...................... ........ ..............
/s/ J. Donald Hill Director March 6, 2000
......................
J. Donald Hill
/s/ Antoine Dominic Director March 6, 2000
......................
Antoine Dominic
/s/ Steven Georgiev Director March 6, 2000
......................
Steven Georgiev
/s/ Howard S. Breslow Director March 6, 2000
......................
Howard S. Breslow
/s/ Jan Melles Director March 6, 2000
......................
Jan Melles
/s/ Joseph A. Ortego Director March 6, 2000
......................
Joseph A. Ortego