UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
.......................
FORM 10-K
(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, 2002
.................
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) 784-6175
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 Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes [X] No [ ]
The aggregate market value of the common stock held by non-affiliates of the
Registrant was $240,732,828 based on the last sale price of the common stock
as reported by NASDAQ on June 28, 2002. Shares held by each officer and
director and by each person who owns 10% or more of the outstanding common
stock have been excluded in that such persons may be deemed to be
affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares of the Registrant's common stock outstanding as of
March 18, 2003 was: 11,806,889.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement to be filed in connection with the
Registrant's 2003 Annual Meeting of Stockholders
(incorporated by reference under Part III.)
PART I
.......
ITEM 1. BUSINESS
General
........
Excel Technology, Inc. (the "Company") was organized under the laws of
Delaware in 1985. The Company designs, develops, manufactures and markets
laser systems and electro-optical components for industry and science. 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 and is capable
of cutting, welding and marking industrial products, yet it can be precisely
controlled and directed and is capable of performing delicate surgery on
humans.
In October 1992, the Company acquired Quantronix Corporation
("Quantronix"). The acquisition of Quantronix and its then wholly-owned
subsidiaries, Control Laser Corporation ("Control Laser"), located in
Orlando, Florida, Excel Technology Europe GmbH (previously named Quantronix
GmbH) ("Excel Europe"), located in Germany, and The Optical Corporation
("TOC"), located in Oxnard, California, provided the Company with its
industrial, scientific and semiconductor product lines and provided the
Company with a significant revenue base as well as established
manufacturing, engineering, marketing and customer service capabilities.
In February 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.
In October 1995, the Company acquired the Photo Research Division
("Photo Research") of Kollmorgen Instruments Corporation. Photo Research is
engaged primarily in the business of developing, manufacturing and marketing
photometric and spectroradiometer instruments and systems.
In August 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 April 1999, the Company formed Excel Technology Asia Sdn. Bhd.
("Excel Asia"). Excel Asia primarily engages in the business of marketing,
selling, distributing, integrating and servicing Control Laser and
Quantronix products throughout Southeast Asia.
In July 2000, Excel Europe, a subsidiary of the Company, acquired
substantially all of the assets and assumed certain liabilities of Baublys
GmbH ("Baublys"), a company located in Ludwigsburg, Germany and engaged in
the manufacturing and sale of customized laser systems and engraving
machines.
In January 2001, the Company formed Control Systemation, Inc. ("CSI")
which focuses on turn-key laser based micro-machining systems and part
handling workstations for factory automation. CSI operates as an
independent, wholly owned subsidiary of the Company and is headquartered in
new facilities in Orlando, Florida.
In January 2002, the Company consolidated the product lines and
development efforts of Baublys and Control Laser to eliminate duplicative
products and efforts, to increase efficiencies, and to create a unified
market presence for the Company's marking operations. While the
subsidiaries remain legally separate entities, with separate profit and loss
responsibility, assembly, operations and selling and marketing efforts, they
will operate under one name, "Baublys-Control Laser," as though they were
one entity with fully staffed operations in Florida and Germany.
On August 31, 2002, the Company, through a newly formed wholly-owned
subsidiary, Excel Technology Japan Holding Co., Ltd. ("Excel Japan"),
acquired all of the issued and outstanding shares of OptoFocus Corporation
("OptoFocus"), a distribution organization representing the Company's
Quantronix product line in Japan.
On October 1, 2002, the Company, through a newly formed wholly-owned
subsidiary, Continuum Electro-Optics, Inc., acquired substantially all of
the assets and properties ("Assets") of Hoya Photonics, Inc. d/b/a
Continuum, and Hoya Photonics' wholly-owned subsidiaries, Continuum Electro-
Optics GmbH, Continuum France EURL and Hoya Continuum Corporation
(collectively, "Continuum"), relating to the business of developing,
manufacturing and marketing pulsed lasers and related accessories for the
scientific and commercial marketplaces (the "Business of the Scientific
Division").
Prior to the acquisition, the Company had not participated in the high-
energy pulsed-laser market. The Company believes that the purchase of
Continuum provides the Company with a foundation upon which to build. It is
anticipated that the addition of this technology, coupled with its
tenability will significantly increase the Company's ability to provide
broad based, cost effective solutions for customers in the industrial and
scientific markets. In addition, Quantronix and CSI are expected to
contribute to and benefit from Continuum's technology. The acquisition also
expands the Company's global presence as it has locations in the United
States, Japan, Germany and France.
Current Products and Applications
..................................
Marking and Engraving Systems - Baublys-Control Laser
..............................
Baublys-Control Laser designs, manufactures and markets industrial,
computer-controlled turn-key laser marking, mechanical marking/engraving and
3D engraving systems.
Baublys-Control Laser is a leading source of mechanical marking and
engraving systems and industrial beam-steered laser marking systems used for
coding, marking, engraving, deep engraving and 3D engraving, producing high
quality, permanent, high speed marks on any material. These systems are
used for marking part numbers, serial numbers, lot numbers, date codes,
graphics, logos, OCR codes, barcodes, 2D Matrix codes, schematics, 2, 2-1/2
and 3D images and other identification marks for the aerospace, automotive,
coining and jewelry, consumer/commercial, electronic/semiconductor, medical,
mold and die, packaging, tools and tooling and the trophy and award
industries. Baublys-Control Laser's integrated automation solutions include
a wide variety of fully automatic, semi-automatic and manual parts handling
systems for any part configuration or material. The fully integrated and
stand-alone marking systems offer a comprehensive variety of user-friendly
software allowing for seamless integration into any production process.
The coding, marking, engraving and deep engraving product lines include
multiple versions of the mechanical engraving systems with the Universal
Marking & Engraving Machine, the Inclined Bed CNC Marking & Engraving
Machine, the Mold Engraving Machine and the Table Top Engraving Machine.
The laser marking systems include a full product range of CO2, lamp pumped
and diode pumped infrared, frequency doubled, tripled and quadrupled Nd:YAG
and Nd:YLF laser systems including the "Concorde", "Icon", "Insignia",
"Image", "Aurora", "Accent", "Ultra Power Mark", "Deep Power Engraver",
"BL65" and "BL150" Deep engraving systems. In 2002, Baublys Control Laser
introduced the new "Deep Power Engraver" series of laser engravers, new high
speed upgrades of all laser marking systems, Microsoft (Trademark) NT
version of the "InstaMark" Graphics Plus Software, new Table Top Series of
mechanical engraving systems as well as a wide variety of industry specific
integrated marking systems coupled with automation and parts handling.
Laser Micro-machining, Photomask Repair and Automation Systems - CSI
...............................................................
CSI, the Company's subsidiary based in Orlando, Florida, designs and
manufactures laser micro-machining systems, parts handling/automation,
systems integration and software engineering solutions. CSI produces a
variety of micro-machining systems ("TaskMaster" Series) for cutting,
drilling, ablating and other micro machining applications. The "TaskMaster"
series of micro-machining systems provides a versatile but affordable
solution to almost any process requirement. They are modular in design
allowing lasers of any wavelength such as Green, UV, DUV, Infrared, and CO2
in a variety of power levels to be integrated to the same workstation. The
workstation can be taken from a basic XY system with a manually adjustable
focusing beam delivery and enhanced with a variety of options such as XY
with a programmable focusing beam delivery, vision system for part alignment
and semi-automatic focusing adjustment, gas assist with programmable
pressure regulator and part fixturing.
CSI also designs and builds custom micro-machining systems such as
active and passive resistor trimmers, glove box welders, diamond cutting
systems and specialized sub-micron processing systems utilizing ultrafast
lasers. The Company's DRS 855 Photomask Defect Repair System product line
has recently been transferred to CSI from its sister subsidiary Quantronix.
CSI continues to provide automation, software, vision systems and other
system integration solutions to Baublys-Control Laser and also actively
pursues automation, parts handling, systems integration and software
engineering from non-laser marking-related customers.
CSI also offers engineered software solutions including database, host
communications, factory automation, vision adaptation and system integration
development.
Carbon Dioxide Lasers - Synrad
......................
Synrad, the Company's subsidiary based in Mukilteo, Washington,
manufactures a range of sealed CO2 lasers for cutting, marking, drilling,
and other machining applications for a variety of materials. The CO2 lasers
range in power from 10W to 240W. Shipments of Synrad's "Firestar" series of
sealed CO2 lasers started in September 2001. This series offers users the
choice of higher performance and smaller size, with output powers from 20W
to 100W. In 2002, further developments of the "Firestar" technology
produced the f200, the world's only fully integrated 200W CO2 laser. In
2003 we plan to launch air-cooled 80W and 100W lasers, and a new 400W laser.
Synrad sells primarily to Original Equipment Manufacturers ("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 and 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. Synrad's
lower power lasers are the lasers of choice for the majority of the CO2
marking and coding systems in use throughout the world. Higher power lasers
also are finding uses in manufacturing plants for trimming flashing from
injection-molded parts in the automobile industry, cutting textiles and
woven fabrics on continuous production lines and slitting and sealing of
plastic packaging.
Synrad also manufactures the FH-Series of OEM marking-heads which, when
configured with a Synrad laser, provide a fast and effective method of
permanently marking parts with lot codes, serial number/date information and
bar codes. The FH-Series "Index" is ideal for stationary marking
applications while the "Tracker" version features the capability to mark
both moving and stationary parts. Synrad's WinMark software has been
developed specifically for the FH-Series marking heads, and is available in
multiple language versions, to run on Windows (trademark) 95, 98, 2000 and
Windows (trademark) NT. Launched in December 2001, Synrad's FH-Series
"Smart" marking head allows users to build marking systems that can be
operated without a PC.
Scanners - Cambridge
.........
Cambridge, the Company's subsidiary based in Cambridge, Massachusetts,
is a market leader in galvanometer based optical scanners. This technology
is critical to a broad and growing community of laser based system
applications. The breadth of laser applications served by Cambridge's
systems includes: industrial through consumer product laser marking, laser
machining, laser welding and cutting, high density via hole PCB drilling for
the cell phone industry, scanning microscopy for Genomic DNA research and
drug discovery, high resolution printing and diagnostics for the growing
base of laser based biomedical systems, (which include digital radiography
and ophthalmology), semiconductor wafer inspection and processing, laser
entertainment and display.
Cambridge is the recognized technology leader in laser scanning systems
that require the highest accuracy and highest speed beam steering and
positioning for industrial, medical, scientific, military and academic
applications and environments. Its new 6200 product line of Moving Magnetic
Optical Scanners with patented optical position detectors brings new levels
of scanning speed and peak accelerations that have enabled application
growth in the above markets. Another principal product line is the patented
Moving Coil Optical Scanner with capacitive position detectors, whose design
was pioneered by Cambridge for applications requiring the highest levels of
scanning accuracy and repeatability. In addition, Cambridge provides a broad
range of servo electronics, optics and mounts for complete customer scanning
subassemblies and solutions.
High Power Solid-State Lasers and Ultrafast Lasers - Quantronix
...................................................
Quantronix, a subsidiary of the Company located in East Setauket, New
York, designs, 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. Chemists,
biologists, physicists and engineers use scientific lasers. 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 line of scientific products includes the "Integra
RGA", "Integra MPPA", "Titan", "Mercury" and "Odin" Series of 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 (1,000 pulses per second). These pulses drive the
Ti:Sapphire Amplifier that can then pump other optical systems such as
optical parametric amplifiers, (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
high power lamp and diode pumped Nd:YAG and Nd:YLF lasers, available in
infrared, Green, UV and Deep UV wavelengths, ideal for marking and micro-
machining applications. Quantronix's series of scientific ultrafast
amplifiers are being utilized for ultra-fine micro-machining applications.
In addition, Quantronix launched a series of high-powered multi-wavelength
diode and lamp-pumped marking systems. In 2002, Quantronix started offering
a variety of laser options and accessories such as power monitoring systems,
beam delivery systems, laser energy controllers, pulse shapers and motorized
apertures. These options are available with software drivers and can be
integrated to any laser system.
High Energy Solid State Pulsed Lasers - Continuum
......................................
Continuum, the Company's subsidiary located in Santa Clara, California,
is a leading manufacturer of high energy, solid-state laser systems. These
systems produce pulsed laser energy outputs with very short duration (less
than 10 billionths of a second) and very high (gigawatt) levels of peak
power.
The unique performance characteristics of these lasers allow
researchers in the fields of chemistry, biology and physics to explore a
wide range of chemical and physical phenomena. Applications range from
remote sensing and measurement to a number of important spectroscopic
techniques. Specific examples in the remote sensing area include atmospheric
analysis of airborne contaminants and pollutants, Particle Image Velocimetry
(PIV) for measuring fluid dynamic properties in gases and liquids, and laser
range finding techniques for precise distance measurements and terrain
mapping.
Spectroscopic applications include, Laser Induced Breakdown
Spectroscopy (LIBS) for metallurgical analysis of alloys, laser absorption
and laser induced fluorescence spectroscopy for chemical analysis, nonlinear
spectroscopic techniques for combustion diagnostics, time of flight mass
spectroscopy for isotopic analysis, and time-resolved spectroscopy for
analysis of chemical reaction rates.
Continuum sells its products, worldwide, primarily to scientific
researchers in university, industrial and government laboratories. Products
range in complexity from small "turn-key" low energy lasers to advanced
high-energy lasers that use multiple stages of power amplification for
unsurpassed energy and superior beam quality. High-energy lasers can be
coupled to tunable dye lasers or devices known as Optical Parametric
Oscillators (OPO's) to provide laser outputs that can be continuously tuned
in wavelength from the deep ultraviolet to the far infrared region of the
electromagnetic spectrum.
Product offerings include the "Minilite" and "Surelite" product lines,
a series of "single oscillator" self-contained laser systems that do not
require external water cooling that offer turn-key performance in a compact
package. Energy outputs range from 0.05 to 0.8 Joules per pulse with
wavelength coverage of 1064nm, 532nm, 355nm and 266nm. These lasers are
ideal sources for applications such as laser radar (LIDAR), laser
photolysis, ablation, mass spectroscopy and PIV.
For advanced higher energy lasers, Continuum manufactures and sells the
"Powerlite" series of lasers. The Precision II 8000 and Precision II 9000
and "Powerlite" Plus operate in oscillator/amplifier configurations that
provide enhanced output energies with excellent beam quality. Energy outputs
range from 0.55 to 3.0 Joules per pulse with wavelength coverage of 1064nm,
523nm 355nm and 266nm. These lasers are ideal as pump sources for tunable
dye and OPO product lines and as research tools for laser ablation, non-
linear spectroscopy and remote imaging.
Continuum's wavelength tunable product lines, the "Surelite" OPO, the
"Panther"(Registered trademark) OPO and the ND 6000 dye laser produce laser
light with wavelengths from 200nm to 4500nm, providing researchers with full
wavelength coverage over the range of greatest interest for optical
spectroscopy.
In addition to standard products, Continuum offers custom laser
solutions to fit precise customer needs. Continuum offers a wide range of
solutions including mode-locked picosecond and long-pulse Nd:YAG lasers,
chirped pulse amplification systems, Nd:Glass macropulse systems, and
Ti:Sapphire pump laser systems. Modular design and time proven reliability
make these lasers flexible, versatile and easy to operate or upgrade.
In total, Continuum has sold over 20,000 lasers worldwide to
universities, government laboratories, research institutions and
corporations.
Optical Products - TOC
.................
TOC, a subsidiary of the Company based in Oxnard, California,
specializes in the manufacturing of custom precision optical components.
TOC is an industry leader in the manufacturing of flying height test disks
used in the disk drive industry. For more than 20 years, TOC has provided
precision fabrication and coating services to meet demanding applications.
TOC offers custom optics services which incorporate polishing optics to
extreme flatness (better than 1/20 wave) with low surface roughness and
difficult aspect ratios. TOC provides a complete range of thin film coatings
in the UV-Visible-Near IR. This includes Edge Filters, Bandpass Filters, Hot
Mirrors, Cold Mirrors, Beamsplitters, Neutral Density Filters, Enhanced
Metallics, Polarizers, Broadband AntiReflection Coatings, V Coats, High
Reflectors, Dielectric and Metallic Mirrors and Scanning Mirrors. The
substrates and coated components are used in various systems such as optical
scanners, laser systems, professional motion picture cameras and a myriad of
other industrial and scientific applications, as well as interferometry and
research and development.
Light and Color Measurement - Photo Research
............................
Photo Research, the Company's Chatsworth, California subsidiary, is a
world leader and innovator in high precision, state-of-the-art electro-
optical instrumentation and systems. Photo Research has delivered world-
class light and color measurement solutions, serving the cathode ray tube
("CRT")/flat panel display ("FPD"), automotive, aerospace, lighting, motion
picture, research and development and related industries for over 60 years.
Photo Research has three main product lines. The "Spectra" (Registered
trademark) product line offers systems to a wide variety of industries for
research, quality control and on-line testing. This line includes the only
truly portable battery operated Spectroradiometer; the PR-650 fast scanning
SpectraColorimeter. The PR-705/715 SpectraScan complements this line with an
industry first automated aperture wheel with up to six apertures.
The "Pritchard" (Registered trademark) line originated with the
industry workhorse the PR-1980 series. The "Pritchard" is the most widely
used photometer in the world. The newer addition to this series is the PR-
880. This is the only fully automated filter photometer available today. The
PR-880 is ideal for today's automated factory and ATE/OEM environments.
Photo Research developed the first commercially available video
photometer over 15 years ago. In 2001, the newest and most advanced video
photometer, the PR-920 digital video photometer, was introduced to this
product line. Video instrumentation provides high-resolution inspection of
CRT and flat panel displays and instrument panels.
The Photo Research Optical Metrology Laboratory (PROML) is a supplier
of and service provider to optical radiation standards, calibration and
measurement for major manufacturers of instruments, displays, devices and
materials. All Photo Research instruments are calibrated to NIST-traceable
standards.
Photo Research developed many industry standards, such as Spectra
(Registered Trademark) Pritchard Optics, utilized in astronomical and star-
simulation measurements. Photo Research is also instrumental in supporting
standards for organizations including VESA, ISO and SAE.
Marketing and Sales
....................
The Company markets its products and services through several media
sources in addition to the presentation of its product lines at domestic and
international trade shows. The marketing and sales staff's efforts are
enhanced by means of presentations and training at conferences, professional
meetings, and through in-person and telephone sales and support calls. The
Company also engages independent manufacturers' representatives for the sale
of its products. Foreign sales of products are made primarily through
foreign equipment distribution organizations, by representatives at Excel
Europe, its German subsidiary, Excel Japan, its Japanese subsidiary and
Excel Asia, its Malaysian subsidiary. Excel Europe has operations near
Munich, Germany; Frankfurt, Germany; Ludwigsburg, Germany and Milan, Italy.
Excel Japan has its operations in Tokyo, Japan. Excel Asia has operations
in Penang, Malaysia. These subsidiaries engage in the business of
marketing, distributing, integrating and servicing laser systems (for
industrial, semiconductor, scientific, electronic products) manufactured at
the Company's facilities in East Setauket, New York; Santa Clara,
California; Orlando, Florida; and Mukilteo, Washington. The sales territory
covered by Excel Europe is primarily Europe, Excel Japan covers Japan and
the sales territory for Excel Asia is primarily Southeast Asia. At Excel
Europe, the staff of 101 includes 39 engineers who install and service all
products including complex semiconductor, scientific, and other industrial
systems. In addition, Excel Europe provides spare parts for its installed
base. Excel Japan has a staff of 22. Excel Asia currently has a staff of
10, which includes 3 engineers. Excel Asia offers sales and support
services to semiconductor and electronics manufacturers, automation houses,
universities, research and development facilities and local consumer
manufacturers.
The following table represents a breakdown between the Company's
domestic and foreign net sales and services for the years ended December 31,
2002, 2001 and 2000 (in thousands of dollars):
2002 2001 2000
................ ................. ................
Dollars Percent Dollars Percent Dollars Percent
........ ....... ........ ....... ....... .......
DOMESTIC $ 35,343 37% $ 37,225 42% $ 51,611 48%
FOREIGN 59,170 63% 51,267 58% 56,109 52%
........ ....... ........ ....... ........ .......
TOTAL $ 94,513 100% $ 88,492 100% $107,720 100%
........ ....... ........ ....... ........ .......
........ ....... ........ ....... ........ .......
Of the foreign amounts above, net sales and services generated from
customers in Germany accounted for approximately $15.5 million of total
consolidated net sales and services for 2002. No other individual foreign
country accounted for more than 10% of total consolidated net sales and
services in 2002, 2001 or 2000.
Manufacturing
..............
The Company assembles its products at its facilities in East
Setauket, New York; Orlando, Florida; Oxnard, California; Cambridge,
Massachusetts; Chatsworth, California; Santa Clara, California; Mukilteo,
Washington and Ludwigsburg, Germany. 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, 2002, 2001, and 2000 were $9.8 million, $9.3
million, and $9.5 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 laser products face
a number of competing product lines from Spectra Physics, Spectron Lasers
and Coherent, Inc.
Competition for the high energy solid state laser products comes from
New Wave Research, Big Sky Lasers and Quantel Lasers, Spectra Physics,
Positive Light, Spectron Lasers and Eksma.
The Company's marking/engraving systems compete primarily with those
manufactured by Rofin-Baasel, Electrox, Alltec, Foba and Trumpf. 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, Seiko and Micrion. The market for semiconductor products
recently has been over-saturated and has experienced rapid advances in
miniaturization of integrated circuits and computers.
Competition for sealed carbon dioxide lasers comes from Coherent-DEOS
(Bloomfield, Connecticut), Rofin (Hull, United Kingdom), and ULS
(Scottsdale, Arizona).
In light and color measurement, the major competitor to the Company's
Spectra product is Minolta. Topcon is the prime competitor to the Pritchard
line. In video-based products, the company's video photometer is utilized
to characterize new display technologies, with Microvision as its key
competitor.
In the optical scanner market, GSI-Lumonics, is a significant
competitor of the Company.
Backlog
........
As of December 31, 2002, the Company had a backlog of firm orders of
approximately $34.6 million as compared to a backlog of $23.6 million as of
December 31, 2001. 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 the Company
will realize any of these advantages.
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 United States Food and
Drug Administration ("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.
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.
Employees
..........
As of December 31, 2002, the Company had 621 full-time employees
consisting of 2 executive officers; 18 subsidiary executive officers; 203
scientists, engineering and technical personnel; and 398 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
....................................
Net sales and services to customers in the domestic U.S. amounted to
approximately $35.3 million, $37.2 million and $51.6 million for the years
ended December 31, 2002, 2001, and 2000, respectively (approximately 37%,
42% and 48% of total net sales and services, respectively).
For the years ended December 31, 2002, 2001, and 2000, the Company had
net sales and services to customers in foreign countries amounting to
approximately $59.2 million, $51.3 million and $56.1 million, respectively
(approximately 63%, 58% and 52%, of total net sales and services,
respectively). These sales included sales by Excel Europe, Excel Asia and
Excel Japan, the Company's foreign subsidiaries. Excel Europe buys laser
systems, spare parts and related consumable materials from Quantronix,
Baublys-Control Laser and Synrad for resale to European and other foreign
customers, and also furnishes field repair services. Excel Asia primarily
engages in the business of marketing, selling, distributing, integrating and
servicing Quantronix and Baublys-Control Laser products in Southeast Asia.
Excel Japan engages in the business of marketing, selling, distributing,
integrating and servicing Quantronix and Continuum products in Japan. See
Note 14 of the "Notes to Consolidated Financial Statements."
The carrying amounts of long-lived assets held by the Company's foreign
subsidiaries (Excel Europe, Excel Asia and Excel Japan) at December 31,
2002, 2001 and 2000 include property, plant and equipment and goodwill whose
combined carrying amounts were approximately $4.9 million, $4.1 million and
$4.3 million, respectively. The carrying amounts of the aforementioned long-
lived assets held by the Company's domestic subsidiaries at December 31,
2002, 2001 and 2000 were approximately $52.7 million, $44.2 million and
$32.5 million, respectively.
Access to Information
......................
The Company is required to file its annual reports on Forms 10-K and
quarterly reports on Forms 10-Q, and other reports and documents as required
from time to time with the United States Securities and Exchange Commission
(the "SEC"). The public may read and copy any materials that we file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. Such information may be obtained on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding the Company's electronic filings
with the SEC at http://www.sec.gov.
The Company's website is located at http://www.exceltechinc.com. The
Company is in the process of updating its website to enable users to access
its filings with the SEC as soon as reasonably practicable. When updated,
the Company will make available, free of charge through its website, its
annual, quarterly, and current reports as soon as reasonably practicable
after such material is electronically filed with or furnished to the SEC.
Until such time as the website is updated, electronic copies of such reports
can be accessed free of charge at the aforementioned SEC website. In
addition, the Company will provide electronic or paper copies of such
reports free of charge upon request. Requests may be made by calling
Investor Relations at (631) 784-6175 or by writing to Investor Relations at
41 Research Way, East Setauket, New York 11733.
Safe Harbor For Forward-Looking Statements Under
.................................................
the Securities Litigation Reform Act of 1995; Risk Factors
..........................................................
This Annual Report on Form 10-K and the other reports, releases, and
statements (both written and oral) issued by the Company and its officers
from time to time may contain statements concerning the Company's future
results, future performance, intentions, objectives, plans, and expectations
that are deemed to be "forward-looking statements." Such statements are
made in reliance upon safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results, performance,
and achievements may differ significantly from those discussed or implied in
the forward-looking statements as a result of a number of known and unknown
risks and uncertainties including, without limitation, 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.
Sometimes the Company communicates with securities analysts. It is
against the Company's policy to disclose to analysts any material non-public
information or other confidential commercial information. You should not
assume that the Company agrees with any statement or report issued by any
analyst regardless of the content of the statement or report. The Company
has a policy against issuing financial forecasts or projections or
confirming the accuracy of forecasts or projections issued by others. If
reports issued by securities analysts contain projections, forecasts or
opinions, those reports are not the responsibility of the Company.
The risks presented below may not be all of the risks the Company may
face. These are the factors that the Company believes could cause actual
results to be different from expected and historical results. Other
sections of this report include additional factors that could have an effect
on the Company's business and financial performance. The industry that the
Company competes in is very competitive and changes rapidly. Sometimes new
risks emerge and management may not be able to predict all of them, or be
able to predict how they may cause actual results to be different from those
contained in any forward-looking statements. You should not rely upon
forward-looking statements as a prediction of future results.
Uncertain Market Acceptance. The Company's overall marketing objective
is to strengthen its presence in existing markets, and establish its market
presence in other industrial markets. With any technology, there is the
substantial risk that the market may not appreciate the benefits or
recognize the potential applications of the technology. Market acceptance
of the Company's products will depend, in large part, upon the ability of
the Company to demonstrate the potential advantages of its products over
products manufactured by other companies. There can be no assurance that
the Company will be able to achieve all or any of its marketing objectives,
or that the Company's products will be accepted in their intended
marketplaces on any significant basis.
Intense Competition. The laser and electro-optical component industry
generally is subject to intense competition. The Company's current and
proposed products compete with existing and proposed products marketed by
other manufacturers. Some of the Company's competitors are substantially
larger in size and have substantially greater financial, managerial,
technical and other resources than the Company. There can be no assurance
that the Company will successfully differentiate its current and proposed
products from the products of its competitors or that the marketplace will
consider the Company's products to be superior to competing products.
Technological Obsolescence. The laser and electro-optical component
industry is characterized by extensive research and rapid technological
change. The development by others of new or improved products, processes or
technologies may make the Company's current or proposed products obsolete or
less competitive.
Compliance with Government Regulations. The Company currently 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. The National Center for Devices and
Radiological Health is empowered to seek fines and other remedies for
violations of these regulatory requirements.
Patent Protection. The Company's ability to effectively compete may
depend upon the proprietary nature of its technologies. The Company owns
several patents and has other applications pending. The Company expects to
file additional patent applications in the future. There can be no
assurance, however, that other companies are not investigating or developing
other technologies that are similar to the Company's technologies, or that
any additional patents will be issued to the Company or that such patents
will afford the Company sufficiently broad patent coverage to provide any
significant deterrent to competitive products. Even if a competitor's
products were to infringe products owned by the Company, it could be very
costly for the Company to enforce its rights in an infringement action. The
validity and enforceability of such patents may be significant to the
Company and may be important to the success of the Company. The Company,
however, believes that the best protection of proprietary technology in the
laser industry comes from market position, technical innovation and product
performance. There can be no assurance that any of these will be realized
or maintained by the Company.
The Company has obtained licenses under certain patents covering lasers
and related technology incorporated into the Company's products. However,
there may be other patents covering the Company's current or proposed
products. If valid patents are infringed, the patent owner will be able to
prevent the future use, sale and manufacture of the subject products by the
Company and also will be entitled to damages for past infringement.
Alternatively, the Company may be required to pay damages for past
infringement and license fees or royalties on future sales of the infringing
components of its systems. Infringement of any patents also may render the
Company liable to purchasers and end-users of the infringing products. If a
patent infringement claim is asserted against the Company, then, whether or
not the Company is successful in defending such claim, the defense of such
claim may be very costly. While the Company is unable to predict what such
costs, if any, will be incurred if the Company is obligated to devote
substantial financial or management resources to patent litigation, its
ability to fund its operations and to pursue its business goals may be
substantially impaired.
Dependence on Suppliers. The Company relies on outside suppliers for
all of its manufacturing supplies, parts and components. Most parts and
components used by the Company currently are available from multiple
sources. There can be no assurance that, in the future, its current or
alternative sources will be able to meet all of the Company's demands on a
timely basis. Unavailability of necessary parts or components could require
the Company to re-engineer its products to accommodate available
substitutions which would increase costs to the Company and/or have a
material adverse effect on manufacturing schedules, product performance and
market acceptance.
Dependence on Resellers, Distributors and OEMs. The Company sells some
of its products through resellers, distributors and OEMs. Reliance upon
third party distribution sources subjects the Company to risks of business
failure by these individual resellers, distributors and OEMs, and credit,
inventory and business concentration risks.
Dependence on Foreign Sales. A significant amount of the Company's
product sales are made to customers outside the United States. These sales
are subject to the normal risks of foreign operations, such as:
Currency fluctuations
Protective tariffs
Trade barriers and export/import controls
Transportation delays and interruptions
Reduced protection for intellectual property rights in some
countries
The impact of recessionary foreign economies
Long receivable collection periods
The Company cannot predict whether the United States or any other
country will impose new quotas, tariffs, taxes or other trade barriers upon
the importation of the Company's products or supplies or to gauge the effect
that new barriers would have on its financial position or results of
operations.
Manufacturing. The Company assembles its products at its various
facilities in the United States and Germany. If use of any of the Company's
manufacturing facilities were interrupted by natural disaster or otherwise,
the Company's operations could be negatively affected until the Company
could establish alternative production and service operations. In addition,
the Company may experience production difficulties and product delivery
delays in the future as a result of:
Changing process technologies
Ramping production
Installing new equipment at its manufacturing facilities
Shortage of key components
Financial Performance. The Company's operating results may vary in the
future as a result of a number of factors, including:
Changes in technology
New competition
Economic conditions
Customer demand
A shift in the mix of the Company's products
A shift in sales channels
The market acceptance of new or enhanced versions of the
Company's products
The timing of introduction of other products and technologies
Any associated charges to earnings
Any cancellation or postponement of orders
Research and Development. The Company is active in research and
development of new products and technologies. The Company's research and
development efforts may not lead to the successful introduction of new or
improved products. The Company may encounter delays or problems in
connection with its research and development efforts. New products often
take longer to develop, have fewer features than originally considered
desirable and achieve higher cost targets than initially estimated. There
may be delays in starting volume production of new products and new products
may not be commercially successful. Products under development are often
announced before introduction and these announcements may cause customers to
delay purchases of existing products until the new or improved versions of
those products are available. Delays or deficiencies in development
manufacturing, delivery of or demand for new products or of higher cost
targets could have a negative affect on the Company's business, operating
results or financial condition.
Acquisitions. The Company has in the past and may in the future
acquire businesses or product lines as a way of expanding its product
offerings and acquiring new technology. If the Company does not identify
future acquisition opportunities and/or integrate businesses that it may
acquire effectively, the Company's growth may be negatively affected.
ITEM 2. PROPERTIES
North America
..............
East Setauket, New York
........................
The Company owns a building that is approximately 65,000 square feet.
The facility is utilized for manufacturing operations, administrative
offices, research and development, engineering and laser applications.
Orlando, Florida
.................
Baublys-Control Laser owns a building that is approximately 78,000
square feet. This facility is utilized for administrative offices,
manufacturing and research and development. In addition, CSI occupies
approximately 50% of this building, which is utilized for all their
operating activities.
Oxnard, California
...................
TOC leases a 14,000 square foot building in Oxnard, California from an
unaffiliated landlord for manufacturing purposes, at an annual rent of
approximately $88 thousand. The lease term expires in August 2009.
Cambridge, Massachusetts
.........................
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 $155 thousand through
October 2003 and $175 thousand from November 2003 through October 2006.
Chatsworth, California
........................
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.
Mukilteo, Washington
........................
Synrad owns and occupies a 63,000 square foot building for its
administrative offices and manufacturing operations.
Santa Clara, California
........................
Continuum leases a 47,000 square foot building from an unaffiliated
landlord for manufacturing purposes, at an annual rent of approximately $889
thousand. The lease expired in December 2002. The Company extended the
lease for an additional year for approximately $574 thousand.
Europe
.......
Darmstadt, Germany
...................
Excel Europe and its division Quantronix Europe lease approximately
6,300 square feet of office space in Darmstadt, Germany, which it uses for
sales, marketing and services. The space is leased from an unaffiliated
landlord at an average annual rent of approximately $103 thousand. The
lease expires in May 2005.
Munich, Germany
................
This Excel Europe satellite office located near Munich in
Fuerstenfeldbruck, Germany, serves as Synrad Europe's sales, marketing and
service operation. The office occupies approximately 3,150 square feet of
space. The space is leased from an unaffiliated landlord, at an average
annual rent of approximately $33 thousand. The lease expires in February
2005.
Ludwigsburg, Germany
.....................
Baublys-Control Laser operates out of a 22,500 square foot facility
located in Ludwigsburg, Germany, which houses its sales and marketing,
research and development, manufacturing and services operations and
executive offices. The facility is leased from an unaffiliated landlord at
an average annual rent of approximately $131 thousand. The lease expires in
June 2007.
Milan, Italy
.............
Excel Europe also maintains a sales and service office in Monza, Italy,
located outside of Milan. The lease provides approximately 1,000 square
feet of office space from an unaffiliated landlord at an approximate annual
rent of $10 thousand.
Asia
.....
Penang, Malaysia
.................
Excel Asia leases a 7,500 square foot facility in Penang Free
Industrial Zone, Penang, Malaysia, from an unaffiliated landlord. The
building is utilized as a regional operations hub which houses the
administrative offices, the light repair and integration services, technical
and support offices, as well as applications laboratories for regional
support. The annual rent is approximately $34 thousand. The lease expires
in December 2005.
Tokyo, Japan
.............
Excel Technology Japan leases a 6,000 square foot facility in Tokyo,
Japan, from an unaffiliated landlord. The building houses all its
operations, administration and sales and marketing. The annual rent is
approximately $144 thousand. The lease expires in September 2005.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has disputes that arise in the ordinary
course of its business.
On May 10, 2002, Positive Light, Inc. ("Positive Light") filed a suit
in the District Court for the Northern District of California against
Quantronix for alleged infringement of U.S. Patent No. 5,790,303, false
advertising and unfair competition. The allegations relate to the
advertising, offer for sale and sale of diode-pumped, Q-switched,
intracavity doubled lasers to pump optical amplifiers. Positive Light seeks
unspecified monetary damages as well as injunctive relief. Quantronix denied
the allegations, and asserted defenses and counterclaims of non-
infringement, invalidity and unenforceability.
On October 10, 2002, Quantronix filed a separate suit against Positive
Light also in the Northern District of California, seeking a declaratory
judgment of non-infringement, invalidity and unenforceability of Positive
Light's U.S. Patent No. 6,122,097 and U.S. Patent No. 5,963,363.
The suits have since been consolidated and are proceeding through
discovery. Quantronix is vigorously defending against Positive Light's
allegations of infringement, false advertising and unfair competition. The
Company believes that there is no merit to the claims made by Positive
Light. However, if Positive Light is successful in its claims, Quantronix
could be subject to a permanent injunction against making, using, offering
for sale, and selling its Darwin series of laser products for use in
amplifiers. Quantronix could also be subject to damages and/or attorneys'
fees. To date, Quantronix has sold only one unit from its Darwin series of
laser products for use in pumping optical amplifiers.
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 Company's Common Stock trades on the NASDAQ National Market System
under the symbol "XLTC." The following table sets forth the high and low
closing sales prices reported on the NASDAQ for the Common Stock for the
periods indicated.
Year ended: High Low
...... .......
December 31, 2002
First Quarter $23.45 $14.10
Second Quarter $25.92 $20.94
Third Quarter $22.94 $18.24
Fourth Quarter $20.34 $15.97
December 31, 2001
First Quarter $27.50 $16.25
Second Quarter $25.54 $17.31
Third Quarter $22.89 $14.05
Fourth Quarter $19.00 $15.18
As of March 17, 2003, there were approximately 816 holders of record of
the Common Stock.
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 its
earnings, if any, in order to finance the development of its business.
The following table summarizes the Company's equity compensation plans
as of December 31, 2002:
Equity Compensation Plan Information
Plan category Number of Weighted average Number of
securities to be exercise price of securities
issued upon outstanding options remaining
exercise of available
outstanding options future for
issuance
Equity compensation
plans approved by
security holders 1,070,884 $15.65 147,050
Equity compensation
plans not approved
by security holders 0 0 0
Total 1,070,884 $15.65 147,050
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statement of operations data for the years
ended December 31, 2002, 2001 and 2000, and the consolidated balance sheet
data as of December 31, 2002 and 2001, have been derived from the Company's
audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. The selected consolidated statement of operations data
for the years ended December 31, 1999 and 1998, and the selected
consolidated balance sheet data as of December 31, 2000, 1999 and 1998, are
derived from the Company's audited consolidated financial statements which
are not included in this Annual Report on Form 10-K.
The following tables summarize (in thousands, except per share data)
the Company's consolidated statement of operations and balance sheet data.
You should read this information together with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes to
those statements included elsewhere in this Annual Report on Form 10-K.
Statement of Operations Data (in thousands, except share data)
Year Ended December 31,
......................................................
2002 2001 2000 1999 1998
.......... .......... .......... .......... ..........
Net sales and
services $ 94,513 $ 88,492 $107,720 $ 88,943 $ 67,092
Net income $ 8,512 $ 5,938 $ 15,651 $ 11,552 $ 8,881
Net earnings
per share
Basic $0.72 $0.50 $1.35 $1.04 $0.79
Diluted $0.71 $0.50 $1.30 $1.00 $0.78
Weighted average
Common and common
equivalent shares
outstanding
Basic 11,792,350 11,761,911 11,597,102 11,118,782 11,190,197
Diluted 12,071,022 11,977,848 12,054,176 11,608,266 11,395,186
Balance Sheet Data (in thousands)
As of December 31,
......................................................
2002 2001 2000 1999 1998
.......... .......... .......... .......... ..........
Total assets $118,724 $ 102,505 $ 98,986 $ 79,651 $ 71,293
Total liabilities $ 16,467 $ 10,907 $ 12,544 $ 10,649 $ 14,141
Working capital $ 44,765 $ 42,695 $ 48,584 $ 35,199 $ 25,577
Stockholders'
equity $102,257 $ 91,598 $ 86,442 $ 69,001 $ 57,152
Long-term
liabilities $ 180 $ 0 $ 0 $ 0 $ 3,500
Refer to Item 1 "Business" and Item 8 "Financial Statements and
Supplementary Data" for additional information affecting the comparability
of amounts above.
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
in Item 8.
Critical Accounting Policies and Estimates
...........................................
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. On an on-going basis, management evaluates its estimates and
judgments, including those related to revenue recognition, bad debts,
inventories, and income taxes. Management bases its estimates and judgments
on historical experience and on various other factors that are believed to
be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Revenue Recognition
....................
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"),
as amended. SAB 101 requires that four basic criteria must be met before
revenue can be recognized: 1) persuasive evidence that an arrangement
exists; 2) delivery has occurred or services have been rendered; 3) the fee
is fixed and determinable; and 4) collectibility is reasonably assured.
The Company's revenues are generated from the following: 1) product
sales, including product upgrades and replacement part sales; 2) maintenance
agreements; and 3) agreements for services to be rendered. For services
rendered, customers are billed and revenues are recognized as the related
services are performed. The Company's product lines principally consist of
laser-based systems and electro-optical components used in a wide range of
applications by different types of end-users and are often used as sub-
assemblies required for end products manufactured by the customer. Revenue
relating to these products is recognized upon transfer of title to the
customer, which is generally the shipment date. With respect to maintenance
agreements, revenue is recognized and customers are generally billed on a
monthly or quarterly basis over the term of the agreement.
The Company manufactures one product called a Photomask Defect Repair
System ("DRS") which was formerly manufactured and sold by Quantronix but is
now being manufactured and sold by CSI. DRS's are laser-based systems for
use in semiconductor photomask repair. The DRS provides a means to repair
defects on the complex photomasks used to produce integrated circuits.
These are very large, highly complex machines ranging in price from $1.5
million to $2.0 million per unit (based upon the most recent range of
historical sales prices). The terms of sale with respect to these items
require that the Company perform installation due to the technical expertise
required. Due to the post-shipment installation obligations with respect to
the DRS's, the Company defers revenue recognition on the sale of DRS's until
it has substantially satisfied its post-shipment obligations
Allowances for Doubtful Accounts
.................................
The Company is required to estimate the collectibility of its trade
receivables. A considerable amount of judgment is required in assessing the
ultimate realization of these receivables including the current credit-
worthiness of each customer. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers
to make required payments. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required. The collectibility
of accounts receivable is evaluated based on a combination of factors. In
circumstances where the Company is aware of a specific customer's inability
to meet its financial obligations (e.g., bankruptcy filings), a specific
reserve for bad debts is recorded against amounts due, to reduce the net
recognized receivable to the amount the Company reasonably believes will be
collected. For all other customers, management estimates a reserve for bad
debts based upon the total accounts receivable balance and the percentage
expected to be realized through subsequent cash collections. If
circumstances change (i.e., higher than expected defaults or an unexpected
material adverse change in a major customer's ability to meet its financial
obligations to us), our estimates of the recoverability of amounts due us
could be reduced by a material amount.
Inventories
............
On a quarterly basis, the Company compares the amount of inventory on
hand and under commitment with its latest forecasted requirements to
determine whether write-downs for excess or obsolete inventory are required.
Although the writedowns for excess or obsolete inventory reflected in the
Company's consolidated balance sheet at December 31, 2002 and 2001 are
considered adequate by the Company's management, there can be no assurance
that these writedowns will prove to be adequate over time to cover ultimate
losses in connection with the Company's inventory.
Income Taxes
.............
The Company records a valuation allowance to reduce its deferred tax
assets to the amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need
for the valuation allowance, in the event the Company were to determine that
it would not be able to realize all or part of its net deferred tax assets
in the future, an adjustment to the deferred tax assets would be charged to
income in the period such determination was made. Likewise, should the
Company determine that it would be able to realize its deferred tax assets
in the future in excess of its net recorded amount, an adjustment to the
deferred tax assets would increase income in the period such determination
was made. As of December 31, 2002 and 2001, the Company has approximately
$888 thousand and $1.7 million of net deferred tax assets, respectively,
related principally to domestic and foreign loss carryforwards and inventory
reserves. Should the pretax book income and taxable income be considerably
lower than projected, an increase to the valuation allowance may be
required.
Recent Accounting Pronouncements
.................................
On January 1, 2002, the Company adopted Financial Accounting Standards
Board Statements No. 141, "Business Combinations" ("SFAS 141"), and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires the
use of the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations
completed on or after July 1, 2001 and further clarifies the criteria for
recognition of intangible assets separately from goodwill. SFAS 142
eliminates the amortization of goodwill and indefinite-lived intangible
assets and initiates an annual review for impairment. Identifiable
intangible assets with determinable useful lives will continue to be
amortized. Beginning January 1, 2002, the Company ceased amortizing
goodwill. During 2002, the Company has completed its assessment of the
assets impacted by the adoption of SFAS 142, and based upon such review no
impairment to the carrying value of goodwill was identified.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which addresses the financial
accounting and reporting for obligations associated with the retirement of
long-lived assets and the associated retirement costs. In August 2001, the
FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets ("SFAS 144"), which addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company
has adopted both SFAS 143 and SFAS 144 as of January 1, 2002. These
statements did not materially impact the Company's consolidated financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). This
pronouncement is effective for exit or disposal activities that are
initiated after December 31, 2002, and requires these costs to be recognized
when the liability is incurred and not at project initiation. The Company
does not expect this statement to have a material impact on its consolidated
financial statements.
Results of Operations
......................
The following table presents consolidated financial data for the years
ended December 31, 2002, 2001 and 2000 (in thousands of dollars and as a
percentage of total net sales and services).
2002 2001 2000
............... ................ ...............
Dollars Percent Dollars Percent Dollars Percent
....... ....... ....... ....... ........ ........
Net Sales and
Services $94,513 100.0% $88,492 100.0% $107,720 100.0%
Cost of Sales 51,851 54.9% 50,518 57.1% 53,065 49.3%
....... ...... ....... ....... ........ ........
Gross Profit/
Margin 42,662 45.1% 37,974 42.9% 54,655 50.7%
Operating Expenses:
Selling and
Marketing 12,570 13.3% 11,553 13.1% 12,689 11.8%
General and
Administrative 8,062 8.5% 7,066 8.0% 7,930 7.3%
Research and
Development 9,838 10.4% 9,293 10.5% 9,547 8.9%
Amortization of
Goodwill 0 0.0% 1,459 1.6% 1,337 1.2%
....... ....... ....... ....... ........ ........
Income from
Operations 12,192 12.9% 8,603 9.7% 23,152 21.5%
Non-Operating
Income (513) (0.5%) (573) (0.7%) (803) (0.7%)
....... ....... ....... ....... ........ .......
Income before
Provision for
Income Taxes 12,705 13.4% 9,176 10.4% 23,955 22.2%
Provision for
Income Taxes 4,193 4.4% 3,238 3.7% 8,304 7.7%
....... ....... ....... ....... ........ ........
Net Income $ 8,512 9.0% $ 5,938 6.7% $ 15,651 14.5%
....... ....... ........ ....... ........ ........
....... ....... ........ ....... ........ ........
Net Sales and Services
........................
Net sales and services for 2002 increased to $94.5 million from $88.5
million in 2001. The increase from 2001 to 2002 of $6.0 million or 6.8% was
primarily attributable to the acquisition of Continuum, the direct sales
from our new subsidiary in Japan and scanner sales, offset by decreases in
sales of marking systems. Net sales and services for 2001 decreased to $88.5
million from $107.7 million in 2000. The decrease from 2000 to 2001 of $19.2
million or 17.9% was primarily attributable to decreases in sales of marking
systems, scanners, DRS systems and CO2 lasers.
Gross Margins and Cost of Sales
................................
Gross margins as a percentage of sales in 2002 were 45.1% compared to
42.9% in 2001. Cost of sales and services increased by $1.4 million or 2.6%
to $51.9 million in 2002 from $50.5 million in 2001. The increase in gross
margins as a percentage of sales and the increase in cost of sales and
services from 2001 to 2002 are primarily attributable to the increased sales
volume. Gross margins as a percentage of sales in 2001 were 42.9% compared
to 50.7% in 2000. Cost of sales and services decreased by $2.5 million or
4.8% to $50.5 million in 2001 from $53.1 million in 2000. The decrease in
gross margins as a percentage of sales from 2000 to 2001 was due primarily
to an inventory write-down of approximately $1 million, which was largely
related to a specific vendor part where reliability was an issue. In
addition, the marking operations of Baublys-Control Laser were merged, which
also resulted in inventory write-offs of approximately $350 thousand. The
decrease in cost of sales and services from 2000 to 2001 was primarily
attributable to the decreased sales volume offset by the aforementioned
write-downs and write-offs. Product margins vary from direct sales to
distributor sales and also vary from product to product. The Company offers
more than 250 product configurations.
Operating Expenses
...................
Selling and Marketing
Selling and marketing expenses were $12.6 million in 2002 compared to
11.6 million in 2001 and $12.7 million in 2000. The increase of $1.0
million or 8.8% from 2001 to 2002 was primarily attributable to increased
direct sales from our subsidiary in Japan and the acquisition of Continuum.
The decrease of $1.1 million or 9.0% from 2000 to 2001 was primarily
attributable to lower variable costs such as commissions associated with the
lower sales volume. Selling and marketing expenses as a percentage of sales
were 13.3% in 2002, 13.1% in 2001, and 11.8% in 2000. The changes in selling
and marketing expenses as a percentage of sales are primarily attributable
to fixed costs being absorbed by varying sales volumes.
General and Administrative
General and administrative expenses were $8.1 million in 2002, as
compared with $7.1 million in 2001 and $7.9 million in 2000. The increase
of $1.0 million or 14.1% from 2001 to 2002 was primarily attributable to the
acquisitions of Continuum and OptoFocus. The decrease of $863 thousand or
10.9% from 2000 to 2001 was primarily due to decreased bonus expense
associated with lower operating income in 2001. General and administrative
expenses as a percentage of sales increased to 8.5% in 2002 as compared to
8.0% in 2001 and 7.3% in 2000.
Research and Development
Research and development expenses for 2002 were $9.8 million as
compared to $9.3 million in 2001 and $9.5 million in 2000. The increase of
$545 thousand or 5.9% from 2001 to 2002 was primarily attributable to the
acquisition of Continuum and modest increases in research activities from
all our manufacturing subsidiaries. The decrease of $254 thousand or 2.7%
from 2000 to 2001 was primarily attributable to reduced research and
development material costs during 2001.
Amortization of Goodwill
No amortization of goodwill was recorded in 2002, as compared to $1.5
million in 2001 and $1.3 million in 2000. Effective January 1, 2002, the
Company ceased amortizing its goodwill pursuant to its adoption of SFAS 142.
The increase in amortization of goodwill of $122 thousand or 9.1% from 2000
to 2001 was primarily due to a full year of amortization of goodwill
recorded in connection with the acquisition of Baublys.
Other Income/Expense
Interest expense for 2002 was $8 thousand, as compared to $30 thousand
in 2001 and $18 thousand in 2000. Interest expense decreased by $22
thousand or 73.0% from 2001 to 2002 due to less short-term borrowings by our
European subsidiaries. Interest expense increased by $12 thousand or 64.9%
from 2000 to 2001 due to short-term borrowings by the European subsidiary
during the year, all of which were repaid by December 31, 2001.
Interest income for 2002 was $220 thousand, as compared to $679
thousand in 2001 and $998 thousand in 2000. The decrease in interest income
of $459 thousand or $67.8% from 2001 to 2002 is primarily due to lower
interest rates and a decrease in our average cash balances due to the
acquisitions of Continuum, OptoFocus and the final payments on our new
buildings. The decrease in interest income of $320 thousand or 32.0% from
2000 to 2001 was due to reduced effective interest rates during the year and
a decrease in the average invested cash balances of the Company. Balances
were lower due to the funding for new buildings of approximately $12.4
million during 2001.
Other income/expense for 2002 was $301 thousand of income, compared to
$75 thousand of expense in 2001 and $178 thousand of expense in 2000. The
income in 2002 was primarily attributable to the recording of foreign
exchange transaction gains at Excel Europe for the purchase of inventories
from the Company's U.S. Domestic subsidiaries as a result of the decline in
the value of the U.S. dollar against the Euro. The expenses recorded in 2001
and 2000 were primarily the result of foreign exchange transaction losses
recorded at Excel Europe for the purchase of inventories from the Company's
U.S. Domestic subsidiaries as a result of the strengthening of the value of
the U.S. dollar against the German Deutchmark.
Provision for Income Taxes
The provision for income taxes for 2002 was $4.2 million, compared to
$3.2 million in 2001 and $8.3 million in 2000. The increase of $955 thousand
or 29.5% from 2001 to 2002 is primarily attributable to higher taxable
income. The decrease of $5.1 million or 61.0% from 2000 to 2001 was
primarily attributable to the decrease in taxable earnings from 2000 to
2001. The Company's effective tax rate was 33.0% for 2002, as compared to
35.3% in 2001 and 34.7% in 2000. The decrease in the Company's effective
tax rate from 2001 to 2002 is primarily attributable to increased foreign
sales tax benefits as a result of increased foreign sales. The Company's
effective tax rates were relatively consistent from 2000 to 2001.
Liquidity and Capital Resources
................................
At December 31, 2002, the Company had working capital of $44.8 million,
including cash and equivalents of $11.8 million, compared to working capital
of $42.7 million, including cash and equivalents of $16.2 million, at
December 31, 2001. The increase in working capital resulted primarily from
additional accounts receivable and inventory acquired in connection with the
acquisitions of Continuum and OptoFocus, offset by increases in current
liabilities in connection with the aforementioned acquisitions and decreases
in cash and equivalents primarily due to the funding of the purchase prices
for the aforementioned acquisitions.
Net cash provided by operating activities of $10.3 million for the year
ended December 31, 2002 was primarily attributable to net income before
depreciation and amortization and other non-cash charges, offset partially
by net changes in working capital items.
Net cash used in investing activities of $15.3 million for the year
ended December 31, 2002 was due primarily to the acquisitions of Continuum
and OptoFocus for $11.3 million, combined with capital expenditures of $4.0
million to fund the completion of buildings constructed for Synrad, Baublys-
Control Laser and the completion of the expansion of Quantronix's
facilities.
Net cash provided by financing activities was $498 thousand for the
year ended December 31, 2002, resulting primarily from the proceeds received
upon the exercise of employee stock options.
As of December 31, 2002, the Company's contractual obligations were as
follows (in thousands of dollars):
Contractual
Obligations Payments Due by Period
.............. ...............................................
Less than 1 - 3 3 - 5 More than
Total 1 Year Years Years 5 Years
..... ......... ...... ..... .........
Operating Leases $3,941 $1,488 $1,470 $ 738 $ 245
The Company has a credit facility with The Bank of New York 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 the prime rate or the Federal Funds Rate plus 0.50%. As of
December 31, 2002, the Company had no borrowings outstanding.
The Company intends to continue to invest in support of its growth
strategy. These investments aid in retaining and acquiring new customers,
expanding the Company's current product offerings and further developing its
operating infrastructure. The Company believes that current cash and
equivalents will be sufficient to meet these anticipated cash needs for at
least the next twelve months. However, any projections of future cash needs
and cash flows are subject to substantial uncertainty. If current cash and
equivalents that may be generated from operations are insufficient to
satisfy the Company's liquidity requirements, the Company may seek to sell
additional equity or debt securities or increase its lines of credit. The
sale of additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders. In addition, the Company
will, from time to time, consider the acquisition of, or investment in,
complementary businesses, products, services and technologies, which might
impact the Company's liquidity requirements or cause the Company to issue
additional equity or debt securities. There can be no assurance that
financing will be available in amounts or terms acceptable to the Company,
if at all.
Selected Quarterly Financial Data
..................................
Unaudited quarterly financial data (in thousands, except per share
amounts) for 2002 and 2001 is summarized as follows:
2002 2001
.................................................. ....................................................
Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Net sales and services $ 19,753 $ 22,061 $ 22,898 $ 29,801 $ 94,513 $ 24,795 $ 23,949 $ 21,564 $ 18,184 $88,492
Cost of sales and services 10,375 11,729 11,897 17,850 51,851 12,880 12,656 12,489 12,493 50,518
........ ........ ........ ........ ....... ........ ........ ........ ........ ........
Gross profit 9,378 10,332 11,001 11,951 42,662 11,915 11,293 9,075 5,691 37,974
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Operating expenses:
Selling and marketing 2,762 2,797 2,999 4,012 12,570 2,985 3,353 2,836 2,379 11,553
General and administrative 1,581 1,873 2,146 2,462 8,062 1,875 1,833 1,563 1,795 7,066
Research and development 2,273 2,176 2,334 3,055 9,838 2,360 2,228 2,329 2,376 9,293
Amortization of goodwill 0 0 0 0 0 365 363 362 369 1,459
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
6,616 6,846 7,479 9,529 30,470 7,585 7,777 7,090 6,919 29,371
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Income (loss) from
operations 2,762 3,486 3,522 2,422 12,192 4,330 3,516 1,985 (1,228) 8,603
Non-operating expenses
(income):
Interest expense 2 2 2 2 8 12 0 2 16 30
Interest income (59) (67) (73) (21) (220) (266) (184) (139) (90) (679)
Other expense
(income), net 32 8 (134) (207) (301) (13) 31 21 37 76
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Income (loss) before
provision for
income taxes 2,787 3,543 3,727 2,648 12,705 4,597 3,669 2,101 (1,191) 9,176
Provision (benefit)
for income taxes 920 1,169 1,230 874 4,193 1,632 1,295 718 (407) 3,238
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Net income (loss) $ 1,867 $ 2,374 $ 2,497 $ 1,774 $ 8,512 $ 2,965 $ 2,374 $ 1,383 $ (784) $ 5,938
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Basic earnings (loss)
per common share $ 0.16 $ 0.20 $ 0.21 $ 0.15 $ 0.72 $ 0.25 $ 0.20 $ 0.12 $ (0.07) $ 0.50
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Weighted average common
shares outstanding 11,773 11,792 11,800 11,804 11,792 11,760 11,761 11,763 11,764 11,762
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Diluted earnings (loss)
per common share $ 0.16 $ 0.20 $ 0.21 $ 0.15 $ 0.71 $ 0.25 $ 0.20 $ 0.12 $ (0.07) $ 0.50
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Weighted average common
and common equivalent
shares outstanding 11,995 12,162 12,114 12,073 12,071 11,991 11,993 11,978 11,764 11,978
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
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
The principal market risks (i.e. the risk of loss arising from
adverse changes in market rates and prices) to which the Company is
exposed are interest rates on demand deposits with banks and money
market funds and exchange rates, generating translation and transaction
gains and losses.
Interest Rates
...............
The Company manages its cash and investment portfolios considering
investment opportunities and risks, tax consequences and overall
financing strategies. The Company's investment portfolios consist
primarily of cash and equivalents, with carrying amounts approximating
market value. Assuming year-end 2002 variable cash and investment
levels, a one-point change in interest rates would not have a material
impact on interest income.
Foreign Exchange Rates
.......................
Operating in international markets involves exposure to movements
in currency exchange rates that are volatile at times. The economic
impact of currency exchange rate movements on the Company is complex
because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors.
These changes, if material, could cause the Company to adjust its
financing and operating strategies. Consequently, isolating the effect
of changes in currency does not incorporate these other important
economic factors.
The Company's net sales and services to foreign customers
represented approximately 63% of total net sales and services in 2002,
58% in 2001 and 52% in 2000. The Company expects net sales and services
to foreign customers will continue to represent a large percentage of
its total net sales and services. The Company's net sales and services
denominated in foreign currencies represented approximately 28% of its
total net sales and services in 2002, 24% of its total net sales and
services in 2001 and 15% in 2000. The Company generally has not engaged
in foreign currency hedging transactions. The aggregate foreign
exchange gains and (losses) included in determining consolidated results
of operations were $332 thousand, $(7) thousand and $(177) thousand in
2002, 2001 and 2000, respectively.
Changes in the Euro and Yen have the largest impact on the
Company's operating profits. The Company estimates that a 10% change in
foreign exchange rates would not materially impact reported operating
profits.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements and supplementary data follow on
pages 27 to 44.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
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, 2002.
Page
....
Report of Independent Auditors 26
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2002 and 2001 27
Consolidated Statements of Income for the years
ended December 31, 2002, 2001 and 2000. 28
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2002, 2001 and 2000. 29
Consolidated Statements of Cash Flows for the years
ended December 31, 2002, 2001 and 2000 30
Notes to Consolidated Financial Statements. 31
Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts 44
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.
Report of Independent Auditors
...............................
To the Board of Directors and Stockholders
Excel Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Excel Technology, Inc. and Subsidiaries (the "Company") as of December
31, 2002 and 2001, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2002. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Excel Technology, Inc. and Subsidiaries at December 31, 2002 and 2001,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects the information set
forth therein.
As discussed in Note 1 to the consolidated financial statements,
effective January 1, 2002 the Company changed its method of accounting
for goodwill.
/s/ Ernst & Young LLP
Melville, New York
January 22, 2003
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2001
Assets 2002 2001
....... ............ ............
Current assets:
Cash and equivalents $ 11,822,081 $ 16,211,865
Accounts receivable, less allowance
for doubtful accounts of $993,000 and
$717,000 in 2002 and 2001, respectively 22,375,082 15,688,733
Inventories 24,481,364 19,219,695
Deferred income taxes 1,068,000 1,112,000
Other current assets 1,305,233 1,369,903
............ ............
Total current assets 61,051,760 53,602,196
............ ............
Property, plant and equipment - at cost, net 27,782,020 26,125,347
Other assets 507,237 64,362
Deferred income taxes 0 593,000
Goodwill 29,382,632 22,120,116
............ ............
Total Assets $118,723,649 $102,505,021
............ ............
............ ............
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 5,245,202 $ 3,786,154
Accrued expenses and other
current liabilities 11,041,491 7,121,293
............ ............
Total current liabilities 16,286,693 10,907,447
............ ............
Deferred income taxes 180,000 0
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, 11,804,889
and 11,763,569 shares issued and
outstanding in 2002 and 2001, respectively 11,805 11,764
Additional paid-in capital 45,400,554 44,856,504
Retained earnings 56,295,425 47,783,066
Accumulated other
comprehensive income (loss) 549,172 (1,053,760)
............ ............
Total stockholders' equity 102,256,956 91,597,574
............ ............
Total Liabilities and Stockholders' Equity $118,723,649 $102,505,021
............ ............
............ ............
See Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
............ ............ ............
Net sales and services $ 94,513,481 $ 88,492,288 $107,720,400
Cost of sales and services 51,850,978 50,517,834 53,065,356
............ ............ ............
Gross profit 42,662,503 37,974,454 54,655,044
Operating expenses:
Selling and marketing 12,570,311 11,553,303 12,689,260
General and administrative 8,061,553 7,066,440 7,929,652
Research and development 9,838,153 9,292,777 9,547,342
Amortization of goodwill 0 1,458,639 1,336,575
............ ............ ............
30,470,017 29,371,159 31,502,829
............ ............ ............
Income from operations 12,192,486 8,603,295 23,152,215
Non-operating expenses (income):
Interest expense 8,072 29,905 18,130
Interest income (220,003) (678,515) (998,445)
Other (income) expense, net (300,597) 75,381 177,849
............ ............ ............
Income before provision for
income taxes 12,705,014 9,176,524 23,954,681
Provision for income taxes 4,192,655 3,238,036 8,303,703
............ ............ ............
Net income $ 8,512,359 $ 5,938,488 $ 15,650,978
............ ............ ............
............ ............ ............
Basic earnings per common share $0.72 $0.50 $1.35
............ ............ ............
............ ............ ............
Weighted average common
shares outstanding 11,792,350 11,761,911 11,597,102
............ ............ ............
............ ............ ............
Diluted earnings per common share $0.71 $0.50 $1.30
............ ............ ............
............ ............ ............
Weighted average common and
common equivalent
shares outstanding 12,071,022 11,977,848 12,054,176
............ ............ ............
............ ............ ............
See Notes to Consolidated Financial Statements.
Excel Technology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2002, 2001 and 2000
Accumulated
Additional Other Compre- Compre-
Preferred Stock Common Stock Paid-In Retained hensive (Loss) hensive
Shares Amounts Shares Amounts Capital Earnings Income Total Income
....... ....... .......... ....... ........... ........... .............. ............ ...........
Balances at
December 31, 1999 0 $ 0 11,300,941 $11,301 $43,438,702 $26,193,600 $(642,390) $ 69,001,213
Exercise of common stock
options and warrants 0 0 458,384 458 1,388,098 0 0 1,388,556
Net income for the year 0 0 0 0 0 15,650,978 0 15,650,978 $15,650,978
Foreign currency
translation adjustment 0 0 0 0 0 0 401,014 401,014 401,014
...........
Comprehensive income 0 0 0 0 0 0 0 0 $16,051,992
....... ....... .......... ....... ........... ........... ........... ............... ...........
...........
Balances at
December 31, 2000 0 0 11,759,325 11,759 44,826,800 41,844,578 (241,376) 86,441,761
Exercise of common
stock options 0 0 4,244 5 29,704 0 0 29,709
Net income for the year 0 0 0 0 0 5,938,488 0 5,938,488 $ 5,938,488
Foreign currency
translation adjustment 0 0 0 0 0 0 (812,384) (812,384) (812,384)
...........
Comprehensive income 0 0 0 0 0 0 0 0 $ 5,126,104
....... ....... .......... ....... ........... ........... ........... ............ ...........
...........
Balances at
December 31, 2001 0 0 11,763,569 11,764 44,856,504 47,783,066 (1,053,760) 91,597,574
Exercise of common
stock options 0 0 41,320 41 544,050 0 0 544,091
Net income for the year 0 0 0 0 0 8,512,359 0 8,512,359 $ 8,512,359
Foreign currency
translation adjustment 0 0 0 0 0 0 1,602,932 1,602,932 1,602,932
...........
Comprehensive income 0 0 0 0 0 0 0 0 $10,115,291
....... ....... .......... ....... ........... ........... ........... ............... ...........
...........
Balances at
December 31, 2002 0 $ 0 11,804,889 $11,805 $45,400,554 $56,295,425 $ 549,172 $102,256,956
....... ....... .......... ....... ........... ........... ........... ...............
....... ....... .......... ....... ........... ........... ........... ...............
See Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
............ ............ ............
Operating activities:
Net income $ 8,512,359 $ 5,938,488 $ 15,650,978
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 2,745,988 3,836,241 3,504,416
Provision for bad debts 313,800 336,365 191,410
Deferred income taxes 817,000 826,000 (4,900)
Changes in operating assets
and liabilities, net of
effects from acquisitions:
Accounts receivable (2,155,278) 3,337,401 (3,240,231)
Inventories 94,644 89,934 (4,463,317)
Other current assets 318,150 (297,835) (490,766)
Other assets 9,878 173,413 100,097
Accounts payable (1,589,573) (427,961) 1,074,109
Accrued expenses and
other current liabilities 1,247,458 (1,075,736) (281,791)
............ ............ ............
Net cash provided by
operating activities 10,314,426 12,736,310 12,040,005
............ ............ ............
Investing activities:
Cash paid for acquisitions, net
of cash acquired (11,254,981) 0 (4,409,916)
Purchases of property, plant
and equipment (4,033,841) (15,512,916) (3,874,144)
............ ............ ............
Net cash used in investing
activities (15,288,822) (15,512,916) (8,284,060)
............ ............ ............
Financing activities:
Proceeds from exercise of common
stock options and warrants 498,101 29,709 1,388,556
Payments of notes payable 0 (15,364) (20,573)
............ ............ ............
Net cash provided by
financing activities 498,101 14,345 1,367,983
............ ............ ............
Effect of exchange rate changes
on cash and cash equivalents 86,511 (32,066) 401,013
............ ............ ............
Net (decrease) increase in cash
and equivalents (4,389,784) (2,794,327) 5,524,941
Cash and equivalents -
beginning of year 16,211,865 19,006,192 13,481,251
............ ............ ............
Cash and equivalents -
end of year $ 11,822,081 $16,211,865 $19,006,192
............ ............ ............
............ ............ ............
Supplemental Cash Flow Information
...................................
Cash paid for:
Interest $ 8,072 $ 33,066 $ 18,130
............ ............ ............
............ ............ ............
Income taxes $ 1,949,780 $ 3,239,876 $ 8,901,062
............ ............ ............
............ ............ ............
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
(1) Summary of Significant Accounting Policies
..........................................
Excel Technology, Inc. and Subsidiaries (the "Company") designs,
develops, manufactures and markets laser systems and electro-optical
components, primarily for the electronic, semiconductor, scientific and
other industrial markets. The significant accounting policies used in
the preparation of the consolidated financial statements of the Company
are as follows:
Basis of Presentation
.....................
The consolidated financial statements include the accounts of Excel
Technology, Inc. (Excel) and its wholly-owned subsidiaries:
Continuum Electro-Optics, Inc. (Continuum); Excel Technology
Japan Holding Company Ltd. (Excel Japan); Synrad, Inc. (Synrad);
Photo Research, Inc. (Photo Research); Excel Technology Europe
GmbH (previously named Quantronix GmbH); Cambridge Technology,
Inc. (Cambridge); Quantronix Corporation (Quantronix); Baublys-
Control Laser Corporation (Baublys-Control Laser); Control
Systemation, Inc. (CSI); The Optical Corporation (TOC);
Quantronix International Corporation (a Foreign Sales
Corporation); and Excel Technology Asia Sdn. Bhd. (Excel Asia).
All material intercompany transactions and balances have been
eliminated in consolidation.
Revenue Recognition
...................
The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), as amended. SAB 101 requires that four
basic criteria must be met before revenue can be recognized: 1)
persuasive evidence of an arrangement exists; 2) delivery has
occurred or services have been rendered; 3) the fee is fixed and
determinable; and 4) collectibility is reasonably assured. The
provisions of SAB 101 were adopted by the Company effective
January 1, 2000.
The Company's revenues are generated from the following:
1)product sales, including product upgrades and replacement part
sales; 2) maintenance agreements; and 3) agreements for services
to be rendered. For services rendered, customers are billed and
revenues are recognized as the related services are performed.
The Company's product lines principally consist of laser-based
systems and electro-optical components used in a wide range of
applications by different types of end-users and are often used
as sub-assemblies required for end products manufactured by the
customer. Revenue relating to these products is recognized upon
transfer of title to the customer, which is generally upon
shipment. Related shipping and handling costs are included in
cost of sales and services. With respect to maintenance
agreements, revenue is recognized and customers are generally
billed on a monthly or quarterly basis over the term of the
agreement.
The Company manufactures one product called a Photomask Defect
Repair System ("DRS"). These are very large, highly complex
machines. The terms of sale with respect to these items require
that the Company perform installation due to the technical
expertise required. Due to the post-shipment installation
obligations with respect to the DRS's, the Company defers
revenue recognition on the sale of DRS's until it has
substantially satisfied its post-shipment obligations.
Cash and Equivalents
....................
Cash and equivalents of $11.8 million and $16.2 million at December
31, 2002 and 2001, respectively, consist of demand deposits
with banks and highly liquid money market funds. The Company
considers investments with maturities of three months or less
when purchased to be cash equivalents.
Inventories
...........
Inventories consist of material, labor and overhead and are stated
at the lower of weighted average cost or market. Weighted
average cost approximates actual cost on a first-in, first-out
basis. On a quarterly basis, the Company compares the amount of
the inventory on hand and under commitment with its latest
forecasted requirements to determine whether write-downs for
excess or obsolete inventory are required. Although the write-
downs for excess or obsolete inventory reflected in the
Company's consolidated balance sheet at December 31, 2002 and
2001 are considered adequate by the Company's management, there
can be no assurance that these write-downs will prove to be
adequate over time to cover ultimate losses in connection with
the Company's inventory.
Accounts Receivables
....................
The Company is required to estimate the collectibility of its trade
receivables. A considerable amount of judgment is required in
assessing the ultimate realization of these receivables
including the current credit-worthiness of each customer. The
Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make
required payments. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required.
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.
Goodwill represents the excess of cost over fair value of net
assets of businesses acquired and is evaluated annually for
impairment. Prior to 2002, goodwill was amortized on a
straight-line basis over periods ranging from 15 to 20 years.
Research and Development Costs
..............................
Research and development costs include material and labor
associated with company-sponsored projects. Such costs are
expensed as incurred.
Long-Lived Assets
.................
The Company reviews long-lived assets for impairment when
circumstances indicate 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
amounts 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.
Warranty Reserve
................
The Company analyzes its warranty reserve for reasonableness on an
annual basis. Based upon a three-year history of warranty
expense incurred, the Company believes that the carrying amounts
of its warranty reserve at December 31, 2002 and 2001 are
reasonable.
Changes in the liability for product warranty in 2002
were as follows:
Balance at January 1, 2002 $ 400,619
Warranties issued during 2002 389,353
Settlements made during 2002 (365,637)
Warranty liabilities assumed in
acquisition (1) 555,820
.........
Balance at December 31, 2002 $ 980,155
.........
.........
(1) Assumed in the acquisition of Continuum (see Note 2)
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.
Foreign Currency Translation
............................
The financial statements of foreign subsidiaries have been
translated into U.S. dollars in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 52, "Foreign
Currency Translation." All balance sheet accounts have been
translated using the exchange rates in effect at the balance
sheet date. Income statement amounts have been translated using
the average exchange rate for the year. The resulting
cumulative translation adjustment of approximately $549 thousand
and ($1.1 million) at December 31, 2002 and 2001, respectively,
is reflected as accumulated other comprehensive income (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 net transaction gains (losses) of $332 thousand,
($7 thousand) and ($177 thousand) for the years ended
December 31, 2002, 2001 and 2000, respectively, which is
reflected in other (income) expense in the consolidated
statements of income.
Earnings Per Share
..................
The Company presents two earnings per share ("EPS") amounts, basic
and diluted. Basic EPS is calculated based on net income and the
weighted-average number of common shares outstanding during the
reported period. Diluted EPS includes the effect of potentially
dilutive securities, using the treasury stock method, on
weighted-average shares outstanding.
Fair Value of Financial Instruments
...................................
The recorded amounts of the Company's cash and equivalents,
accounts receivable, accounts payable and accrued expenses
approximate their fair values because of the short-term nature
of these items.
Use of Estimates
................
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Concentration of Credit Risk
............................
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of its holdings
of cash and equivalents and accounts receivable. Cash and
equivalents are deposited with high credit quality financial
institutions. Concentration of credit risk with respect to
accounts receivable is limited due to the Company's large
number of customers and their dispersion throughout the United
States, Europe and Asia. The Company performs periodic credit
evaluations of its customers' financial condition and generally
does not require collateral.
Accounting for Stock-Based Compensation
.......................................
At December 31, 2002, the Company has two stock-based employee
compensation plans, which are more fully described in Note 9.
The Company accounts for those plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations. No
stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise
price equal to the market values of the underlying common stock
on the date of grant. The following table illustrates the
effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" to stock-based
employee compensation.
Year ended December 31,
2002 2001 2000
........... ........... ...........
Net income, as reported $ 8,512,359 $ 5,938,488 $15,650,978
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (2,064,550) (1,497,545) (1,448,514)
........... ........... ...........
Proforma net income $6,447,809 $ 4,440,943 $14,202,464
........... ........... ...........
........... ........... ...........
Earnings per share:
Basic - as reported $0.72 $0.50 $1.35
..... ..... .....
Basic - proforma $0.55 $0.38 $1.22
..... ..... .....
Diluted - as reported $0.71 $0.50 $1.30
..... ..... .....
Diluted - proforma $0.54 $0.37 $1.18
..... ..... .....
Accumulated Other Comprehensive Income (Loss)
.............................................
Accumulated other comprehensive income (loss) ("comprehensive
income (loss)") refers to revenues, expenses, gains and losses
that under accounting principles generally accepted in the
United States are included in comprehensive income (loss) but
are excluded from net income as these amounts are recorded
directly as an adjustment to stockholders' equity, net of tax.
The Company's comprehensive income (loss) is composed of
unrealized gains and losses on foreign currency translation
adjustments.
New Accounting Pronouncements
.............................
On January 1, 2002, the Company adopted SFAS No. 141 "Business
Combinations" and SFAS 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the
purchase method. Under SFAS 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed
at least annually for impairment. Identifiable intangible assets
with determinable useful lives will continue to be amortized.
In 2002, the Company completed its initial assessment, as of
January 1, 2002, of the assets impacted by the adoption of SFAS
142, and its annual assessment as of December 31, 2002. Based
upon such reviews, no impairment to the carrying value of
goodwill was identified, and the Company ceased amortizing
goodwill effective January 1, 2002 (see Note 5).
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which addresses the
financial accounting and reporting for obligations associated
with the retirement of long-lived assets and the associated
retirement costs. In August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets
("SFAS 144"), which addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets.
The Company has adopted both SFAS 143 and SFAS 144 on January 1,
2002. These statements did not materially impact the Company's
consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This pronouncement
is effective for exit or disposal activities that are initiated
after December 31, 2002, and requires these costs to be
recognized when the liability is incurred and not at project
initiation. The Company does not expect this statement to have a
material impact on its financial statements.
(2) Acquisitions
............
On October 1, 2002, the Company, through a newly formed wholly-
owned subsidiary, Continuum Electro-Optics, Inc., acquired
substantially all of the assets and properties ("Assets") of
Hoya Photonics, Inc., d/b/a Continuum, and Hoya Photonics'
wholly-owned subsidiaries, Continuum Electro-Optics GmbH,
Continuum France EURL and Hoya Continuum Corporation
(collectively, "Continuum"), relating to the business of
developing, manufacturing and marketing pulsed lasers and
related accessories for the scientific and commercial
marketplaces (the "Business of the Scientific Division"), for
$11.2 million in cash, including approximately $500 thousand in
transaction costs, and the assumption of trade payables, accrued
expenses and other specified liabilities. The acquisition was
accounted for as a purchase and, accordingly, acquired assets
and liabilities are recorded at their fair values, and the
operating results of Continuum have been included in the
Company's consolidated results of operations since the date of
acquisition. The final purchase price allocation of the
Continuum business resulted in the following condensed balance
of assets acquired and liabilities assumed:
Continuum Final
Purchase Price
Allocation
...............
Receivables $ 3,406,380
Inventories 4,637,301
Property, plant and equipment 235,587
Other assets 473,982
Goodwill *7,262,516
...........
Total assets acquired 16,015,766
Accounts payable 2,215,223
Other current liabilities 2,608,816
...........
Total liabilities assumed 4,824,039
...........
Net assets acquired $11,191,727
...........
...........
(*) Approximately $7.3 million is expected to be deductible for
tax purposes.
Prior to the acquisition, the Company had not participated in the
high-energy pulsed-laser market. The Company believes that the
purchase of Continuum provides the Company with a foundation
upon which to build. It is anticipated that the addition of
this technology, coupled with its tenability will significantly
increase the Company's ability to provide broad-based, cost
effective solutions for customers in the industrial and
scientific markets. In addition, Quantronix and CSI are
expected to contribute to and benefit from Continuum's
technology. The acquisition also expands the Company's global
presence as it has locations in the United States, Japan,
Germany and France.
Pro-forma results of operations assume the acquisition of Continuum
had been made at the beginning of 2001 and reflect the
historical results of operations of the purchased business
adjusted for the effects of reduced interest income,
amortization expense and income tax expense.
Year ended December 31,
.............................
2002 2001
............ ............
Net sales and services $111,838,481 $111,792,288
Net income 7,612,884 4,036,966
Basic earnings per common share $0.65 $0.34
Diluted earnings per common share $0.63 $0.34
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 2001, or the results that
may occur in the future.
On August 31, 2002, the Company, through a newly formed wholly-
owned subsidiary, Excel Japan, acquired all of the issued and
outstanding shares of OptoFocus Corporation ("OptoFocus"), a
distribution organization representing the Company's Quantronix
product line in Japan, for approximately $272 thousand in cash
(including acquisition related expenses). The purchase price
was determined by arms length negotiations between the Company
and OptoFocus. The acquisition was accounted for as a purchase
and, accordingly, acquired assets and liabilities are recorded at
their fair values, and the operating results of OptoFocus have
been included in the Company's consolidated results of operations
since the date of acquisition. The final purchase price
allocation of the OptoFocus business resulted in approximately
$719 thousand in total assets acquired and approximately $447
thousand in total liabilities acquired. If the acquisition of
OptoFocus had taken place at the beginning of 2001, it would not
have had a material impact on the Company's consolidated results
of operations as presented.
On July 1, 2000, Excel Europe, a subsidiary of the Company,
acquired substantially all of the assets and certain
liabilities of Baublys GmbH ("Baublys"), a company engaged in
the manufacturing and sale of customized laser systems and
engraving machines. The purchase price, including additional
costs directly related to the acquisition, amounted to $4.5
million and was internally funded using the Company's own cash.
The acquisition has been accounted for as a purchase and,
accordingly, the operating results of Baublys have been included
in the Company's consolidated results of operations since the
date of acquisition. The goodwill, approximating $3.5 million,
was being amortized on a straight-line basis over 15 years. In
accordance with the provisions of SFAS 142, effective January 1,
2002 the Company ceased amortizing the goodwill associated with
this acquisition, which at such time had a carrying value of
approximately $3.2 million.
(3) Inventories
...........
Inventories consist of the following:
December 31,
...............................
2002 2001
............. .............
Raw materials $ 11,677,730 $ 10,028,445
Work-in-process 7,670,186 5,590,729
Finished goods 4,277,708 3,001,963
Consigned inventory 855,740 598,558
............. .............
$ 24,481,364 $ 19,219,695
............. .............
............. .............
(4) Property, Plant and Equipment
.............................
Property, plant and equipment at cost consists of the following:
December 31,
............................
Useful life 2002 2001
........... ............. .............
Land 0 $ 4,236,056 $ 4,236,056
Buildings 30 years 19,006,533 17,363,772
Leasehold improvements Lease term 1,390,476 1,368,053
Fixtures and computer
equipment 3-8 years 4,763,843 4,381,915
Machinery and equipment 4-8 years 9,178,008 7,492,334
Laboratory equipment 4-8 years 3,892,493 3,222,932
............. .............
42,467,409 38,065,062
Less accumulated
depreciation and amortization 14,685,389 11,939,715
............. .............
$ 27,782,020 $ 26,125,347
............. .............
............. .............
Depreciation and amortization expense aggregated approximately $2.7
million, $2.4 million and $2.2 million for the years ended
December 31, 2002, 2001 and 2000, respectively.
(5) Goodwill
........
The change in the net carrying amount of goodwill for the year
ended December 31, 2002 is as follows:
December 31, 2002
.................
Goodwill, net, beginning of year $22,120,116
Acquisition of Continuum 7,262,516
Acquisition of OptoFocus 0
.................
Goodwill, net, end of year $29,382,632
.................
.................
The following table provides proforma disclosure of net income and
diluted earnings per common share for the years ended December
31, 2001 and 2000, as if goodwill had not been amortized:
Year ended December 31,
.............................
2001 2000
............ ............
Reported net income $ 5,938,488 $ 15,650,978
Amortization 1,458,639 1,336,575
............ ............
Adjusted net income $ 7,397,127 $ 16,875,553
............ ............
............ ............
Reported diluted earnings
per common share $0.50 $1.30
Amortization per common
share and common share equivalent $0.12 $0.10
..... .....
Adjusted diluted earnings
per common share $0.62 $1.40
..... .....
..... .....
(6) Income Taxes
............
Pre-tax income for the years ended December 31, 2002, 2001, and
2000 was comprised of domestic income of $13.6 million, $10.4
million and $24.0 million, respectively, and foreign losses of
$876 thousand, $1.2 million, and $52 thousand, respectively.
The provision for income taxes consists of:
Year ended December 31,
.....................................
2002 2001 2000
........... ........... ...........
Current:
Federal $ 2,951,768 $ 1,763,497 $ 7,467,742
State and local 373,219 648,539 840,861
Foreign 50,668 0 0
........... ........... ...........
3,375,655 2,412,036 8,308,603
........... ........... ...........
Deferred:
Federal 817,000 826,000 (4,900)
........... ........... ...........
$ 4,192,655 $ 3,238,036 $ 8,303,703
........... ........... ...........
........... ........... ...........
The current provision for income taxes includes a tax benefit of
$391 thousand for 2002, $394 thousand for 2001 and $196 thousand
for 2000 for utilizing Federal net operating loss carryforwards.
The effective income tax rate differed from the statutory Federal
income tax rate due to the following items:
Year ended December 31,
.....................................
2002 2001 2000
........... ........... ...........
Taxes at statutory Federal
income tax rate $ 4,446,755 $ 3,120,018 $ 8,402,255
State income taxes,
net of Federal benefit 242,593 428,036 546,560
Non-deductible amortization
of goodwill 0 96,400 96,400
ETI/Foreign Sales
Corporation benefit (833,216) (582,024) (893,485)
Change in valuation allowance 589,000 357,000 53,100
Other (252,477) (181,934) 98,873
........... ........... ...........
$ 4,192,655 $ 3,238,036 $ 8,303,703
........... ........... ...........
........... ........... ...........
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 31, 2002 and 2001 are as follows:
December 31,
...............................
2002 2001
............ .............
Deferred tax assets:
Excess of tax over financial
statement basis of inventory $ 614,000 $ 610,000
Allowance for doubtful accounts 105,000 155,000
Accrued warranty costs 103,000 103,000
Other accrued expenses 246,000 244,000
Benefits of U.S. net operating
loss carryforwards 583,000 974,000
Benefits of foreign net operating
loss carryforwards 1,635,000 1,046,000
Plant and equipment depreciation 304,000 186,000
............ .............
Total deferred tax assets 3,590,000 3,318,000
Less valuation allowance (1,935,000) (1,346,000)
............ .............
1,655,000 1,972,000
............ .............
Deferred tax liabilities:
Goodwill amortization (767,000) (267,000)
............. .............
Total deferred tax liabilities (767,000) (267,000)
............. .............
Net deferred tax assets $ 888,000 $ 1,705,000
............. .............
............. .............
At December 31, 2002, Excel has available net operating loss
carryforwards ("NOL's"), expiring in 2005 through 2007, of
approximately $1.3 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, 2002, Quantronix and its subsidiaries have
available for tax purposes utilizable NOL's of approximately
$450 thousand 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 $1.1 million as a result of the change in
ownership from the merger with Excel.
While management believes that the Company's deferred tax assets
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 make 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
$1.9 million, as of December 31, 2002. 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,
...............................
2002 2001
............. .............
Salaries, wages, commissions
and bonuses $ 2,345,027 $ 1,395,650
Accrued vacation/holiday/sick pay 926,303 672,354
Accrued accounts payable 159,681 756,363
Customer deposits 1,926,683 612,781
Accrued royalties payable 147,427 101,530
Warranty reserve 980,155 400,619
Unearned service contract revenue 214,535 146,845
Professional fees payable 340,553 276,412
Income taxes payable 1,734,353 760,615
Other 2,266,774 1,998,124
............. .............
$ 11,041,491 $ 7,121,293
............. .............
............. .............
(8) Line of Credit
..............
On July 23, 1998, the Company entered into a credit facility with
The Bank of New York that provides the Company with a $15
million revolving line of credit for acquisitions or working
capital requirements. The term of this agreement is for five
years, maturing on July 22, 2003. This credit facility allows
for interest to be calculated, at the Company's election,
utilizing an Alternative Base Rate ("ABR") or a LIBOR rate plus
a premium ranging from 0.50% to 2.25%. The ABR is the higher
rate of the prime rate or the Federal Funds Rate plus 0.50%.
This credit facility contains certain financial covenants,
including a minimum tangible net worth requirement of at least
$15 million, prohibits the payment of dividends, and requires
payment of interest on a quarterly basis. As of December 31,
2002 and 2001, the Company had no borrowings outstanding.
(9) Stockholders' Equity
....................
Stock Option Plans
..................
In 1990, Excel adopted a stock option plan (the "Plan") which
provided for the granting of incentive stock options and non-
incentive 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. Options granted
under the Plan, which terminated on July 30, 2000, may be
exercisable for a period of up to ten years. Through December
31, 2002, all options granted to employees 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 an exercise price
equal to 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
non-incentive 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, the option price
must be at least 110% of the fair market value on the date of
the grant, and for non-incentive 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, 2002, all options granted to
employees 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.
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, 1999 894,692 $ 7.70
Granted 407,000 $ 25.16
Exercised (433,764) $ 7.48
Cancelled (87,752) $ 7.12
.............
Outstanding at December 31, 2000 780,176 $ 17.00
Granted 55,000 $ 19.71
Exercised (4,244) $ 7.00
Cancelled (10,620) $ 10.63
.............
Outstanding at December 31, 2001 820,312 $ 17.31
Granted 457,000 $ 15.32
Exercised (41,320) $ 12.05
Cancelled (165,108) $ 23.90
.............
Outstanding at December 31, 2002 1,070,884 $ 15.65
.............
.............
At December 31, 2002, 2001 and 2000, a total of 561,294, 410,342
and 200,809 options were exercisable at weighted average
exercise prices of $15.33, $14.81 and $13.26, respectively, and
options for the purchase of 147,050, 452,050 and 543,452 common
shares were available for future grants under the 1998 plan,
respectively.
The options outstanding as of December 31, 2002 are summarized in
ranges as follows:
Weighted
Number of average
Exercise options contractual Options
price outstanding remaining life Excercisable
.......... ............ .............. ............
$ 6.50 9,334 5.81 years 9,334
$ 7.00 259,850 5.03 years 236,960
$ 13.06 62,200 6.48 years 44,200
$ 15.15 393,000 9.13 years 40,000
$ 16.66 52,000 9.78 years 0
$ 19.71 45,000 8.29 years 41,000
$ 24.63 199,500 7.23 years 139,800
$ 29.00 50,000 7.42 years 50,000
......... .......
1,070,884 561,294
......... .......
......... .......
Other
.....
No warrants were available for exercise during 2002 and 2001. In
2000, 23,000 warrants were exercised.
Shares Reserved for Issuance
............................
At December 31, 2002, the Company had reserved, authorized and
unissued 1,217,934 common shares for the following purposes:
Shares
.......
1990 Stock option plan 237,934
1998 Stock option plan 980,000
Stock-Based Compensation
........................
The per share weighted-average fair value of stock options and
warrants granted during 2002, 2001 and 2000 was $15.32, $9.33
and $11.99, respectively, on the date of grant using the Black
Scholes option-pricing model with the following weighted-average
assumptions: 2002- expected dividend yield of 0%, risk free
interest rates of 4.0% and 2.6%, expected stock volatility of
56% and expected life of approximately 4.0 years; 2001- expected
dividend yield of 0%, risk free interest rate of 4.9%, expected
stock volatility of 55% and an expected option life of
approximately 4.0 years; 2000- expected dividend yield of 0%,
risk free interest rate of 6.3%, expected stock volatility of
53% and an expected option life of approximately 4.0 years.
(10) Earnings Per Share
..................
The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations:
..................2002................
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. .........
Basic EPS $ 8,512,359 11,792,350 $0.72
Effect of Dilutive
Securities:
Stock Options 278,672
.............
Diluted EPS $ 8,512,359 12,071,022 $0.71
........... ............. .........
........... ............. .........
..................2001................
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. .........
Basic EPS $ 5,938,488 11,761,911 $0.50
Effect of Dilutive
Securities:
Stock Options 215,937
.............
Diluted EPS $ 5,938,488 11,977,848 $0.50
........... ............. .........
........... ............. .........
.................2000.................
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. .........
Basic EPS $15,650,978 11,597,102 $1.35
Effect of Dilutive
Securities:
Stock Options and
Warrants 457,074
............
Diluted EPS $15,650,978 12,054,176 $1.30
........... ............. .........
........... ............. .........
There were 294,500, 460,500, and 407,000 unexercised stock options
not included as part of the diluted EPS calculations for 2002,
2001 and 2000, respectively, because they would have been
antidilutive for the periods presented.
(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.
(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 $ 387 thousand, $404 thousand and $423 thousand in
2002, 2001 and 2000, respectively.
(13) Commitments and Contingencies
.............................
Operating Leases
................
The Company and its subsidiaries lease certain buildings, vehicles
and equipment under non-cancelable operating leases. At
December 31, 2002, the future minimum lease payments under non-
cancelable operating leases are as follows:
2003 $ 1,488,871
2004 802,635
2005 666,918
2006 458,712
2007 279,041
Thereafter 244,910
............
$ 3,941,087
............
............
Rent expense approximated $957 thousand, $2.1 million, and $1.6
million for the years ended December 31, 2002, 2001 and 2000,
respectively.
Employment and Consulting Agreements
....................................
Excel has entered into employment agreements with certain key
executives that provide for severance upon termination without
cause, aggregating approximately $1.5 million.
(14) Foreign and Domestic Operations and Export Sales
................................................
The Company operates in one business segment which designs,
develops, manufactures and markets laser systems and electro-
optical components. Information concerning foreign and domestic
operations and export sales is as follows:
As of or the year ended
December 31,
2002 2001 2000
............ ............ ............
Net sales and services to
unaffiliated customers:
United States operations $ 67,731,476 $ 67,260,948 $ 91,018,082
European operations 23,307,720 20,073,323 15,809,484
Asian operations 3,474,285 1,158,017 892,834
............ ............ ............
$ 94,513,481 $ 88,492,288 $107,720,400
............ ............ ............
............ ............ ............
Operating income (loss):
United States operations $ 13,479,327 $ 9,774,458 $ 23,120,998
European operations (1,600,173) (1,242,962) (98,690)
Asian operations 313,332 71,799 129,907
............ ............ ............
$ 12,192,486 $ 8,603,295 $ 23,152,215
............ ............ ............
............ ............ ............
Identifiable assets:
United States operations $ 96,577,557 $ 85,552,201 $ 83,448,272
European operations 16,667,458 16,175,597 14,853,942
Asian operations 5,478,634 777,223 683,455
............ ............ ............
$118,723,649 $102,505,021 $ 98,985,669
............ ............ ............
............ ............ ............
In determining operating income (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, 2002, 2001 and 2000, the
Company had foreign and export sales of approximately $59.2
million, $51.3 million and $56.1 million, representing 63%, 58%
and 52%, 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 2002, 2001 and 2000. No
accounts receivable from a customer exceeded five percent of the
Company's total accounts receivable at December 31, 2002. One
customer accounted for 5.8% of the Company's total accounts
receivable at December 31, 2001.
(15) Related Party Transactions
..........................
Two directors of the Company also provide services to the Company
as legal counsel. During 2002, 2001 and 2000, the Company paid
approximately $388 thousand, $55 thousand and $174 thousand,
respectively, for legal services rendered by the respective law
firms that the directors represent.
Schedule II
............
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2002, 2001 and 2000
Column A Column B Column C Column D Column E
................. .......... ................. ............ ..........
Balance at Additions charged (Deductions) Balance at
beginning to cost and additions - end of
Description of period expenses describe period
................. .......... ................. ............ ..........
Allowance for
doubtful accounts:
Year ended
December 31,:
2002 $ 717,000 $ 313,800 $ (37,800)(1) $ 993,000
2001 $ 559,000 $ 336,000 $(178,000)(1) $ 717,000
2000 $ 464,000 $ 191,000 $(173,000)(1) $ 559,000
$ 77,000(2)
(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 is 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, 2002.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is 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, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item 12 is 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, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is 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, 2002.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this Annual Report on
Form 10-K, the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including the
CEO/CFO, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based upon that evaluation, the Company's CEO/CFO
concluded that the Company's disclosure controls and procedures are
effective in timely alerting him to material information relating to the
Company (including its consolidated subsidiaries) required to be
included in the Company's periodic SEC filings.
The Company does not expect that its disclosure controls and
procedures will prevent all error and all fraud. A control procedure,
no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control procedure are
met. Because of the inherent limitations in all control procedures, no
evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of
any control procedure also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all
potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control procedure, misstatements due to
error or fraud may occur and not be detected.
Subsequent to the date of the Company's evaluation, there have been
no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls, nor were any
corrective actions required with regard to significant deficiencies and
material weaknesses.
PART IV
........
ITEM 15. EXHIBITS, FINANCIAL STATEMENT, 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):
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Earnings for the years ended
December 31, 2002, 2001 and 2000.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000.
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000.
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule (included in
Part II Item 8)*
Schedule
........
II Valuation and Qualifying Accounts
3. Exhibits included herein:
See Exhibit Index below for exhibits filed as part
of this Annual Report on Form 10-K.
(b) Reports on Form 8-K. Current Report on Form 8-K, filed
November 25, 2002, relating to the transaction between the
Company and Hoya Photonics, Inc. and its related subsidiaries.
......................................
* 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.
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
By: /s/ Antoine Dominic
................................
Antoine Dominic,
Chief Executive Officer
Date: March 18, 2003
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 Chairman of the Board
...................... and Director March 18, 2003
J. Donald Hill
/s/ Antoine Dominic Chief Executive Officer, March 18, 2003
...................... President, Chief Operating Officer,
Antoine Dominic and Director (Principal Executive
Officer and Principal Financial and
and Accounting Officer)
/s/ Steven Georgiev Director March 18, 2003
......................
Steven Georgiev
/s/ Howard S. Breslow Director March 18, 2003
......................
Howard S. Breslow
/s/ Joseph J. Ortego
...................... Director March 18, 2003
Joseph J. Ortego
CERTIFICATION
I, Antoine Dominic, certify that:
1. I have reviewed this annual report on Form 10-K of Excel
Technology, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
By: /s/ Antoine Dominic
...........................
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating Officer
(Principal Accounting Officer)
Dated: March 17, 2003
INDEX TO EXHIBITS
Exhibit
Number Document
......... .........
2 Asset Purchase Agreement, dated as of October 11, 2002, by and
among Continuum Electro-Optics, Inc. (formerly Excel Continuum
Corporation), Hoya Photonics, Inc., et. al. Incorporated by
reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K, filed November 25, 2002.
3.1 Restated Certificate of Incorporation dated November 13, 1990,
as amended. Incorporated by reference to the Company's
Registration Statement on Form S-1, File No. 33-39375.
3.2 By-Laws, as amended. Incorporated by reference to the
Company's Registration Statement on Form S-4,
File No. 33-47440.
4 Specimen Certificate for Company's Common Stock. Incorporated
by reference to the Company's Registration Statement on Form
S-1, File No. 33-39375.
10.1 1990 Stock Option Plan, as amended. Incorporated by reference
to the Company's Registration Statement on Form S-1,
File No. 33-52612.
10.2 Employment Agreement, dated as of October 10, 2000, between
the Company and J. Donald Hill (Incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000), as amended by letter
agreement, dated October 3, 2002*
10.3 Employment Agreement, dated as of October 10, 2000, between
the Company and Antoine Dominic. Incorporated by reference to
Exhibit 10(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
10.4 1998 Stock Option Plan. Incorporated by reference to 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.
10.5 Loan Agreement, dated as of July 20, 1998, by and among the
Company and The Bank of New York. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
21 List of subsidiaries.*
23 Consent of Ernst & Young LLP*
99 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
* filed herewith
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
EXCEL TECHNOLOGY, INC.
41 RESEARCH WAY
EAST SETAUKET, NY 11733
As of October 3, 2002
Mr. J. Donald Hill
Re: Employment Agreement
....................
Dear Don:
Reference is made to the employment agreement (the "Employment
Agreement"), dated as of October 10, 2000, by and between you and Excel
Technology, Inc. (the "Corporation"). Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Employment
Agreement.
For good and valuable consideration, the receipt of which is hereby
acknowledged, the Corporation hereby agrees to the following amendments
to the Employment Agreement: (a) the Base Salary is decreased to
$175,000 per annum for the remainder of the Employment Period and (b)
the non-accountable automobile allowance shall be increased to $2,000
per month.
Except as amended or modified herein, the Employment Agreement
shall remain in full force and effect.
If the foregoing is in accordance with your understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become part of the Employment Agreement
and binding between us.
Sincerely,
EXCEL TECHNOLOGY, INC.
By: /s/ Antoine Dominic
...................
Antoine Dominic
AGREED AND ACCEPTED:
/s/ J. Donald Hill
.....................
J. Donald Hill
EXHIBIT 21
LIST OF SUBSIDIARIES
Name of Subsidiary: Incorporated in:
.......................... ................
Cambridge Technology, Inc. Massachusetts
Continuum Electro-Optics, Inc. (d/b/a "Continuum") Delaware
Control Laser Corporation (d/b/a "Baublys-Control Laser") Florida
Control Systemation, Inc. Delaware
Excel Technology Services Company Delaware
Quantronix Corporation Delaware
Quantronix International Corp. (1) Barbados
Photo Research, Inc. Delaware
Synrad, Inc. Washington
The Optical Corporation California
Excel Technology Asia Sdn. Bhd. Malaysia
Excel Technology Europe GmbH Germany
Baublys GmbH (2) Germany
Excel Technology France S.A.S. (2) France
Excel Technology Japan Holding Co., Ltd. Japan
Excel Technology Japan K.K. (3) Japan
(1) A wholly-owned subsidiary of Quantronix Corporation
(2) A wholly-owned subsidiary of Excel Technology Europe GmbH
(3) A wholly-owned subsidiary of Excel Technology Japan Holding Co.,
Ltd.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-71122) pertaining to the Excel Technology,
Inc. 1990 Stock Option Plan, the Registration Statement (Form S-3 No.
33-34523) of Excel Technology, Inc. and in the related Prospectus, and
the Registration Statement (Form S-8 No. 33-35934) pertaining to the
Excel Technology 1998 Stock Option Plan of our report dated January 22,
2003, with respect to the consolidated financial statements and schedule
of Excel Technology, Inc. and Subsidiaries included in this Annual
Report (Form 10-K) for the year ended December 31, 2002.
/s/ Ernst & Young
.................
Melville, New York
March 18, 2003
EXHIBIT 99
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Antoine Dominic, Chief Executive Officer and Chief Financial
Officer of Excel Technology, Inc. (the "Company"), certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
that:
(1) the Annual Report on Form 10-K of the Company for the annual
period ended December 31, 2002 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15. U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: March 18, 2003
/s/ Antoine Dominic
.................................
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating Officer
(Principal Accounting Officer)