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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
...................................
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
...................................
For the quarterly period Commission File Number 0-19306
ended June 30, 2003
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 Research Way (631) 784-6175
E. Setauket, NY 11733 (Registrant's Telephone Number)
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes [X] No [ ]
The number of shares of the Registrant's common stock outstanding as of
August 7, 2003 was: 11,847,227.
CONTENTS
PART I. FINANCIAL INFORMATION
Page
....
Item 1. Consolidated Financial Statements:
..................................
Consolidated Balance Sheets as of June 30, 2003 (unaudited)
and December 31, 2002 3
Consolidated Statements of Income (unaudited) for the Three
Months Ended June 30, 2003 and 2002 4
Consolidated Statements of Income (unaudited) for the Six
Months Ended June 30, 2003 and 2002 5
Consolidated Statements of Cash Flows (unaudited) for the Six
Months Ended June 30, 2003 and 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
.................................................
Condition and Results of Operations 10
...................................
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
..........................................................
Item 4. Controls and Procedures 14
.......................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
.................
Item 2. Changes in Securities and Use of Proceeds 16
.........................................
Item 3. Defaults upon Senior Securities 16
...............................
Item 4. Submission of Matters to a Vote of Security-Holders 16
...................................................
Item 5. Other Information 16
.................
Item 6. Exhibits and Reports on Form 8-K 17
................................
(a) Exhibits - (11) Computation of net earnings per share 19
(99.1) Certification Pursuant to Section 906 20
(99.2) Certification Pursuant to Section 302 21
(b) Reports on Form 8-K - Filed in the second quarter
of 2003:
Form 8-K dated April 14, 2003
Form 8-K dated April 15, 2003
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
..................................
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
June 30, 2003 Dec. 31, 2002
............. .............
(Unaudited)
Assets
.......
Current assets:
Cash and equivalents $ 17,135 $ 11,822
Accounts receivable, less allowance
for doubtful accounts of $1,102 and
$993 in 2003 and 2002, respectively 22,573 22,375
Inventories 26,397 24,482
Deferred income taxes 1,068 1,068
Other current assets 1,636 1,305
............. .............
Total current assets 68,809 61,052
............. .............
Property, plant and equipment - at cost, net 27,495 27,782
Other assets 461 507
Goodwill 29,461 29,383
............. .............
Total assets $ 126,226 $ 118,724
............. .............
............. .............
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 4,326 $ 5,245
Accrued expenses and other
current liabilities 12,487 11,042
............. .............
Total current liabilities 16,813 16,287
............. .............
Deferred income taxes 180 180
Stockholders' equity:
Preferred stock, par value $.001 per share:
2,000 shares authorized, none issued 0 0
Common stock, par value $.001 per share:
20,000 shares authorized, 11,846 and
11,805 shares issued and outstanding
in 2003 and 2002, respectively 12 12
Additional paid-in capital 46,000 45,401
Retained earnings 62,010 56,295
Accumulated other comprehensive income 1,211 549
............. .............
Total stockholders' equity 109,233 102,257
............. .............
Total liabilities and
stockholders' equity $ 126,226 $ 118,724
............. .............
............. .............
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Three Months Ended
June 30,
...........................
2003 2002
............. .............
Net sales and services $ 31,514 $ 22,062
Cost of sales and services 17,163 11,729
............. .............
Gross profit 14,351 10,333
Operating expenses:
Selling and marketing 4,272 2,797
General and administrative 2,724 1,873
Research and development 3,131 2,176
............. .............
Total operating expenses 10,127 6,846
............. .............
Operating income 4,224 3,487
Non-operating expenses (income):
Interest expense 0 1
Interest income (32) (67)
Other (income) expense, net (119) 8
............. .............
Income before provision for income taxes 4,375 3,545
Provision for income taxes 1,509 1,170
............. .............
Net income $ 2,866 $ 2,375
............. .............
............. .............
Basic net earnings per common share $ 0.24 $ 0.20
....... .......
....... .......
Weighted average common shares outstanding 11,815 11,792
....... .......
....... .......
Diluted net earnings per common share $ 0.24 $ 0.20
....... .......
....... .......
Weighted average common and
common equivalent shares outstanding 12,178 12,162
....... .......
....... .......
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Six Months Ended
June 30,
...........................
2003 2002
............. .............
Net sales and services $ 62,951 $ 41,815
Cost of sales and services 34,292 22,104
............. .............
Gross profit 28,659 19,711
Operating expenses:
Selling and marketing 8,460 5,559
General and administrative 5,356 3,454
Research and development 6,436 4,449
............. .............
Total operating expenses 20,252 13,462
............. .............
Operating income 8,407 6,249
Non-operating expenses (income):
Interest expense 0 3
Interest income (56) (126)
Other (income) expense, net (296) 41
............. .............
Income before provision for income taxes 8,759 6,331
Provision for income taxes 3,044 2,089
............. .............
Net income $ 5,715 $ 4,242
............. .............
............. .............
Basic net earnings per common share $ 0.48 $ 0.36
....... .......
....... .......
Weighted average common shares outstanding 11,842 11,783
....... .......
....... .......
Diluted net earnings per common share $ 0.47 $ 0.35
....... .......
....... .......
Weighted average common and
common equivalent shares outstanding 12,173 12,063
....... .......
....... .......
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
Six Months Ended
June 30,
...........................
2003 2002
............. .............
Operating activities:
Net income $ 5,715 $ 4,242
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,387 1,470
Provision for bad debts 82 218
Deferred income taxes 0 2
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable (357) (579)
Inventories (1,505) (1,761)
Other current assets (251) (132)
Other assets 192 13
Accounts payable (983) 550
Accrued expenses and other
current liabilities 1,306 229
............. .............
Net cash provided by
operating activities 5,586 4,252
............. .............
Investing activities:
Purchases of property, plant and equipment (973) (2,607)
Cash paid for acquisitions (4) 0
............. .............
Net cash used in
investing activities (977) (2,607)
............. .............
Financing activities:
Proceeds from exercise of
common stock options 599 457
............. .............
Net cash provided by
financing activities 599 457
............. .............
Effect of exchange rate changes on
cash and equivalents 105 14
............. .............
Net increase in cash and equivalents 5,313 2,116
Cash and equivalents, beginning of period 11,822 16,212
............. .............
Cash and equivalents, end of period $ 17,135 $ 18,328
............. .............
............. .............
Supplemental cash flow information:
....................................
Cash paid for:
Interest $ 0 $ 3
Income taxes $ 1,362 $ 786
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS
.................................
The consolidated balance sheet as of June 30, 2003, the consolidated
statements of income for the three months and six months ended June 30,
2003 and June 30, 2002, and the consolidated statements of cash flows for
the six months ended June 30, 2003 and June 30, 2002 have been prepared
by the Company and are unaudited. In the opinion of management, all
adjustments (which included only normal recurring adjustments) have been
made which are necessary to present fairly the financial position,
results of operations and cash flows of the Company at June 30, 2003 and
for all periods presented.
For information concerning the Company's significant accounting
policies, reference is made to the Company's Annual Report on Form 10-K
for the year ended December 31, 2002. While the Company believes that the
disclosures presented are adequate to make the information contained
herein not misleading, it is suggested that these statements be read in
conjunction with the consolidated financial statements and notes included
in the Form 10-K. Results of operations for the period ended June 30,
2003 are not necessarily indicative of the operating results to be
expected for the full year.
B. INVENTORIES
...........
Inventories are recorded at the lower of average cost or market.
Average cost approximates actual cost on a first-in first-out basis.
Inventories consist of the following (In thousands):
June 30, 2003 Dec. 31, 2002
............. .............
Raw Materials $ 13,196 $ 11,678
Work-in-Process 7,344 7,670
Finished Goods 4,610 4,278
Consigned Inventory 1,247 856
............. .............
$ 26,397 $ 24,482
............. .............
............. .............
C. LINE-OF-CREDIT
..............
On July 23, 1998, the Company entered into a credit facility with
The Bank of New York (the "Bank") that provides the Company with a $15
million revolving line of credit for acquisitions or working capital
requirements. The term of this agreement is for five years, maturing on
July 22, 2003. This credit facility allows for interest to be
calculated, at the Company's election, utilizing an Alternative Base Rate
("ABR") or a LIBOR rate plus a premium ranging from 0.50% to 2.25%. The
ABR is the higher rate of the prime rate or the Federal Funds Rate plus
0.50%. This credit facility contains certain financial covenants,
including a minimum tangible net worth requirement of at least $15
million, prohibits the payment of dividends, and requires payment of
interest on a quarterly basis. As of June 30, 2003, the Company had no
borrowings outstanding under the credit facility. The Company is
currently negotiating a new line of credit.
D. COMPREHENSIVE INCOME
....................
Comprehensive income is comprised of net income and foreign currency
translation adjustments, amounting in the aggregate to $3.2 million for
the three months ended June 30, 2003 and 2002 and $6.4 million and $5.0
million for the six months ended June 30, 2003 and 2002 respectively.
E. 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 (In thousands):
Continuum Final
Purchase Price Allocation
.........................
Receivables $ 3,406
Inventories 4,637
Property, plant and equipment 236
Other assets 474
Goodwill 7,282
..........
Total assets acquired 16,035
Accounts payable 2,215
Other current liabilities 2,609
..........
Total liabilities assumed 4,824
..........
Net assets acquired $ 11,211
..........
..........
Pro-forma results of operations assume the acquisition of Continuum
had been made at the beginning of 2002 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.
Six Months Ended
June 30, 2002
.......................
(In thousands, except
per share data)
Pro forma net sales and services $ 53,365
Pro forma net income $ 3,642
Pro forma basic net earnings
per common share $ 0.31
Pro forma diluted net earnings
per common share $ 0.30
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 2002, or the results that may
occur in the future.
On August 31, 2002, the Company, through a newly formed wholly-owned
subsidiary, Excel Technology Japan Holding Co., Ltd., 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 Company has retained substantially
all of the employees of OptoFocus. The acquisition has been accounted
for using the purchase method of accounting and, accordingly, the
operating results of OptoFocus, which are insignificant compared to those
of the Company, have been included in the Company's consolidated results
of operations since the date of the acquisition.
F. ACCRUED WARRANTY COSTS
......................
The Company analyzes its accrued warranty costs for reasonableness
quarterly. Based upon a three-year history of warranty expense incurred,
the Company believes that the carrying amount of its accrued warranty
costs at June 30, 2003 is reasonable.
Changes in the liability for product warranties in the six-month period
ended June 30, 2003 were as follows (In thousands):
Balance at December 31, 2002 $ 980
Warranties issued during 2003 304
Settlements made during 2003 (287)
...........
Balance at June 30, 2003 $ 997
...........
...........
G. ACCOUNTING FOR STOCK-BASED COMPENSATION
.......................................
At June 30, 2003, the Company has two stock-based employee
compensation plans. 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 (In
thousands, except per share data).
Six Months Ended
June 30,
...........................
2003 2002
............. ............
Net income, as reported $ 5,715 $ 4,242
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (1,066) (779)
............. ............
Proforma net income $ 4,649 $ 3,463
............. ............
............. ............
Earnings per share:
Basic - as reported $ 0.48 $ 0.36
...... ......
Basic - proforma $ 0.39 $ 0.29
...... ......
Diluted - as reported $ 0.47 $ 0.35
...... ......
Diluted - proforma $ 0.38 $ 0.29
...... ......
On April 22, 2003, the Financial Accounting Standards Board ("FASB")
determined that stock-based compensation should be recognized as a cost
in the financial statements and that such cost be measured according to
the fair value of the stock options. The FASB has not as yet determined
the methodology for calculating fair value and plans to issue an exposure
draft later this year that could become effective in 2004. We will
continue to monitor communications on this subject from the FASB in order
to determine the impact on the Company's consolidated financial
statements.
H. JOINT VENTURE
.............
On April 23, 2003, the Company entered into a joint venture
agreement to form Excel Laser Technology Private Limited, a company in
India, that will primarily import laser equipment for industrial and
scientific applications, promote the sales and marketing of the Company's
products in India and provide post-sales services for installed
equipment. The Company invested $10,750 for a 50% interest in the joint
venture. The Company's investment will be accounted for under the equity
method and the carrying value will be adjusted to recognize its share of
income and loss from the joint venture. As of June 30, 2003 the joint
venture had not commenced operations.
Item 2. Management's Discussion and Analysis of Financial Condition
...........................................................
and Results of Operations
.........................
Results of Operations
......................
Net sales and services for the quarter ended June 30, 2003 increased
$9.4 million or 42.5% to $31.5 million from $22.1 million for the
comparable period in the prior year. For the six months ended June 30,
2003, net sales and services were $63.0 million, an increase of $21.1
million or 50.5% from $41.8 million in the six months ended June 30,
2002. A little more than half of the increases are attributable to the
addition of Continuum's pulsed laser products in October 2002 and Excel
Technology Japan in August 2002. In addition, we experienced increased
sales volume from our scanners and scientific laser products.
Gross margins decreased to 45.5% for the quarter ended June 30, 2003
from 46.8% in the same quarter in the prior year. For the six months
ended June 30, 2003, gross margins decreased to 45.5% from 47.1% in the
same six months ended June 30, 2002. The decreases are primarily due to
the addition of Continuum's pulsed laser products, which generally
experience lower gross margins and the product mix. Product margins
vary from direct sales to distributor sales and also vary among the more
than 250 product configurations.
Selling and marketing expenses increased to $4.3 million in the
quarter ended June 30, 2003 from $2.8 million in the quarter ended June
30, 2002. The increase of $1.5 million or 53.6% in selling and marketing
expenses for the current quarter is primarily attributable to the
addition of Continuum and Excel Technology Japan and increased variable
costs such as commissions associated with the increased sales levels.
For the six months ended June 30, 2003, selling and marketing expenses
were $8.5 million as compared to $5.6 million for the same period in
2002. Selling and marketing expenses as a percentage of sales increased
to 13.6% for the quarter ended June 30, 2003 from 12.7% for the
comparable period in the prior year. Selling and marketing expenses as a
percentage of sales increased to 13.4% for the six months ended June 30,
2003 from 13.3% for the comparable period in the prior year. The
increases as a percentage of sales are essentially attributable to higher
fixed costs such as personnel and increased marketing costs associated
with the expansion of our sales and marketing efforts.
General and administrative expenses increased $851 thousand or 45.5%
from $1.9 million in the quarter ended June 30, 2002 to $2.7 million in
the current period. For the six months ended June 30, 2003, general and
administrative expenses increased $1.9 million to $5.4 million from $3.5
million in 2002. General and administrative expenses as a percentage of
sales increased to 8.6% for the quarter ended June 30, 2003 from 8.5% for
the comparable period in the prior year. General and administrative
expenses as a percentage of sales increased to 8.5% for the six months
ended June 30, 2003 from 8.3% for the comparable period in the prior
year. The increases are primarily attributable to the addition of
Continuum, our subsidiary in Japan, legal and accounting fees.
Research and development costs for the quarter ended June 30, 2003
increased $1.0 million or 43.9% to $3.1 million from $2.2 million in the
quarter ended June 30, 2002. For the six months ended June 30, 2003,
research and development costs increased $2.0 million or 44.7% to $6.4
million from $4.4 million in 2002. Research and development costs as a
percentage of sales remained at 9.9% for the quarter ended June 30, 2003
as compared to the period in the prior year. Research and developments
costs as a percentage of sales decreased to 10.2% for the six months
ended June 30, 2003 from 10.6% for the comparable period in the prior
year. The increases are primarily attributable to increases in research
activities from all our manufacturing subsidiaries and the addition of
Continuum's pulsed laser research activities.
The Company had no interest expense in 2003 as it had no debt during
the period. Interest expense was $1 thousand for the three months ended
June 30, 2002 and $3 thousand for the six months ended June 30, 2002, all
resulting from short-term borrowing by the Company's European subsidiary.
Interest income decreased to $32 thousand for the quarter ended June
30, 2003 from $67 thousand in the same period of 2002, a decrease of $35
thousand. For the six months ended June 30, 2003 and June 30, 2002,
interest income was $56 thousand and $126 thousand, respectively. The
decreases are primarily due to reduced effective interest rates
experienced in 2003. In addition, average cash balances were lower
during the six months ended June 30, 2003.
Other income/expense resulted in income of $119 thousand for the
quarter ended June 30, 2003 as compared to expense of $8 thousand for the
quarter ended June 30, 2002. Other income/expense resulted in income of
$296 thousand for the six months ended June 30, 2003 as compared to
expense of $41 thousand for the six months ended June 30, 2002. The
income in 2003 is primarily attributable to foreign currency transaction
gains at Excel Europe for the settlement of payables due in US Dollars
for the purchase of inventories from the Company's U.S. subsidiaries as a
result of the decline in the value of the U.S. dollar against the Euro.
The provision for income taxes increased $339 thousand or 29% from
$1.2 million in the quarter ended June 30, 2002 to $1.5 million for the
current quarter ended June 30, 2003. For the six months ended June 30,
2003, the provision for income taxes increased $955 thousand or 45.7%
from $2.1 million in the six months ended June 30, 2002 to $3.0 million
in the comparable period in 2003. The increases are primarily
attributable to higher pre-tax earnings combined with the use of an
effective rate which increased from 33% to 34.8% in the six months ended
June 30, 2003 due to higher projected pre-tax earnings expected for 2003,
as compared to the same period in the prior year.
Liquidity and Capital Resources
................................
Working capital at June 30, 2003 was $52.0 million compared to $44.8
million at December 31, 2002. Cash and equivalents were $17.1 million at
June 30, 2003 and $11.8 million at December 31, 2002.
Net cash provided by operating activities was $5.6 million for the
six months ended June 30, 2003 and $4.3 million for the six months ended
June 30, 2002, which is approximately the net income realized during each
period, respectively.
Net cash used in investing activities of $977 thousand for the six
months ended June 30, 2003 was primarily attributable to the purchase of
equipment. Net cash used in investing activities of $2.6 million for the
six months ended June 30, 2002 was due primarily to the purchase of
equipment combined with payments for 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 $599 thousand for the
six months ended June 30, 2003. Net cash provided by financing
activities was $457 thousand for the six months ended June 30, 2002. The
cash provided in each of those periods resulted from the proceeds
received upon the exercise of employee stock options.
The Company intends to continue to invest in support of its growth
strategy. These investments aid in acquiring and retaining existing
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 and those 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. 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.
On July 23, 1998, the Company entered into a credit facility with
The Bank of New York (the "Bank") that provides the Company with a $15
million revolving line of credit for acquisitions or working capital
requirements. The term of this agreement is for five years, maturing on
July 22, 2003. This credit facility allows for interest to be
calculated, at the Company's election, utilizing an Alternative Base Rate
("ABR") or a LIBOR rate plus a premium ranging from 0.50% to 2.25%. The
ABR is the higher rate of the prime rate or the Federal Funds Rate plus
0.50%. This credit facility contains certain financial covenants,
including a minimum tangible net worth requirement of at least $15
million, prohibits the payment of dividends, and requires payment of
interest on a quarterly basis. As of June 30, 2003, the Company had no
borrowings outstanding under the credit facility. The Company is
currently negotiating a new line of credit.
Inflation
..........
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
New Accounting Pronouncements
..............................
In May 2003, the Financial Accounting Standards Board ("FASB")
issued Statement No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. The provisions of
this Statement are effective for financial instruments entered into or
modified after May 31, 2003, and otherwise are effective July 1, 2003.
The implementation of this statement will not have an affect on the
Company's financial statements.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No. 46
requires that if an entity has a controlling financial interest in a
variable interest entity, the assets, liabilities and results of
activities of the variable interest entity should be included in the
consolidated financial statements of the entity. FIN No. 46 requires
that its provisions are effective immediately for all arrangements
entered into after January 31, 2003 and is otherwise effective July 1,
2003. The Company is currently evaluating the impact, if any, of FIN No.
46.
On April 22, 2003, the FASB determined that stock-based compensation
should be recognized as a cost in the financial statements and that such
cost be measured according to the fair value of the stock options. The
FASB has not as yet determined the methodology for calculating fair value
and plans to issue an exposure draft later this year that could become
effective in 2004.
Forward-Looking Statements
...........................
The information set forth in this Report (and other reports issued
by the Company and its officers from time to time) contain certain
statements concerning the Company's future results, future performance,
intentions, objectives, plans and expectations that are or may be deemed
to be "forward-looking statements". Such statements are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on current
expectations that involve numerous risks and uncertainties, including
those risks and uncertainties discussed in the Company's Annual Report on
Form 10K for the year ended December 31, 2002. Assumptions relating to
the foregoing involve judgments with respect to, among other things,
future economic, competitive, and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately
and many of which are beyond the Company's control. Although the Company
believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and,
therefore, the Company cannot assure you that the results discussed or
implied in such forward-looking statements will prove to be accurate. In
light of the significant uncertainties inherent in such forward-looking
statements, the inclusion of such statements should not be regarded as a
representation by the Company or any other person that the Company's
objectives and plans will be achieved. Words such as "believes,"
"anticipates," "expects," "intends," "may," and similar expressions are
intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. The Company undertakes
no obligation to revise any of these forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
..........................................................
Market Risk
............
The principal market risks (i.e., the risk of loss arising from
adverse changes in market rates and prices) to which the Company is
exposed are interest rates on demand deposits with banks and money market
funds and foreign currency exchange rates, generating translation and
transaction gains and losses.
Interest Rates
...............
The Company manages its cash and investment portfolios considering
investment opportunities and risks, tax consequences and overall
financing strategies. The Company's investment portfolios consist
primarily of cash and equivalents, with carrying amounts approximating
market value. Assuming investment levels remain the same, a one-point
change in interest rates would not have a material impact on the
Company's interest income.
Foreign Currency Exchange Rates
................................
Operating in international markets involves exposure to movements in
currency exchange rates, which are volatile at times. The economic
impact of currency exchange rate movements on the Company is complex
because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors. These
changes, if material, could cause the Company to adjust its financing and
operating strategies. Consequently, isolating the effect of changes in
currency does not incorporate these other important economic factors.
The Company's net sales and services to foreign customers represent
a large percentage of total net sales. The Company generally has not
engaged in foreign currency hedging transactions.
Changes in the foreign currency rate for the Euro and Yen would have
the largest impact on translating the Company's international operating
profit. The Company estimates that a 10% change in foreign currency
exchange rates would not materially impact reported profits.
Item 4. Controls and Procedures
.......................
Within 90 days prior to the date of filing this Quarterly Report on
Form 10-Q, 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, controls 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 II. OTHER INFORMATION
Item 1. Legal Proceedings
.................
In connection with the lawsuit filed by the Company's Quantronix
Corporation subsidiary ("Quantronix") against Positive Light, Inc.
("Positive Light"), in October, 2002, 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, Positive Light
has given Quantronix a covenant not to sue for infringement of such
patents and the lawsuit has been dismissed by the Court.
The lawsuit filed by Positive Light against Quantronix in May, 2002, for
alleged infringement of U.S. Patent No. 5,790,303, which is being
vigorously defended by Quantronix, is in the fact discovery stage.
Settlement discussions are scheduled to take place toward the end of July
and the beginning of August 2003. In the event the settlement
discussions do not result in a settlement, the parties have agreed to a
mediation of the matter in September 2003.
In November, 2002, Dr. R. Gordon Gould and Patlex Corporation
("Gould/Patlex") filed a lawsuit in the United States District Court for
the District of Massachusetts against Great Computer Corp. ("GCC"), a
customer of the Company's Synrad, Inc. subsidiary, for infringement of
one of the patents licensed by Gould/Patlex to Synrad. The lawsuit is
based upon GCC's incorporation of Synrad's sealed C02 lasers into a
system sold by GCC to its customers. In April 2003, GCC attempted to
bring Synrad into the case as a cross-defendant, on a variety of
indemnification and fraud theories. Because the Court's jurisdiction over
the cross-claim was not properly pleaded, Synrad moved to have GCC's
cross-claim dismissed. The motion was granted. After the Court
dismissed Synrad from the case, it entered a previously signed
stipulation which was intended to cure the jurisdictional defects and
prevent the dismissal. At this time, Synrad is not a party to the case,
although GCC may contend otherwise.
In view of the District Court's dismissal of GCC's cross-claim
against Synrad, Gould/Patlex filed a separate, new action for patent
infringement and breach of license agreement and false advertising
against Synrad. The case is currently pending in the United States
District Court for the District of Massachusetts. Gould/Patlex contends
that Synrad has failed to properly pay royalties to Gould/Patlex, which
allegation has been denied. As a result, Gould/Patlex purported to
terminate the Gould/Patlex - Synrad patent license agreement, thus
allegedly converting Synrad's licensed activities into infringing
activities. Synrad has denied all of the substantive allegations of
Gould/Patlex, and on July 8, 2003 filed counterclaims against
Gould/Patlex for breach of contract, wrongful termination of license and
violation of Mass. Gen. Laws c. 93A (unfair business practices). The
initial scheduling conference is scheduled for September 3, 2003. Synrad
believes that it is and has always been in compliance with all terms and
conditions of the Gould/Patlex - Synrad patent license agreement, and any
errors in royalty calculations which were made in the past were timely
corrected after notice, pursuant to the "notice and cure" provisions of
the agreement. Efforts to obtain explanations of the reasoned position
of Gould/Patlex have been fruitless to date. Synrad continues to operate
in accordance with its duties and obligations under its agreement with
Gould/Patlex, including the obligation to pay royalties upon its sales of
Licensed Lasers. Synrad intends to vigorously defend the case.
Item 2. Changes in Securities and Use of Proceeds
.........................................
None.
Item 3. Defaults upon Senior Securities
...............................
None.
Item 4. Submission of Matters to a Vote of Security-Holders
...................................................
The Company's Annual Meeting of Stockholders was held on
May 14, 2003. At the Meeting:
(i) The following persons were elected as directors of the Company,
to serve until the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified, each
receiving the number of votes set forth opposite their names:
FOR WITHHELD AGAINST
.......... ........ ..........
J. Donald Hill 10,068,400 0 920,387
Antoine Dominic 10,068,340 0 920,447
Steven Georgiev 10,826,036 0 162,751
Howard S. Breslow 9,319,765 0 1,669,022
Donald E. Weeden 10,827,061 0 161,726
(ii) The appointment of KPMG LLP as the Company's independent
auditors for the year ending December 31, 2003 was ratified,
with 10,811,587 shares voting in favor of the appointment,
152,144 shares voting against, and 25,056 shares abstaining
from voting.
Item 5. Other Information
.................
None.
Item 6. Exhibits and Reports on Form 8-K
................................
(i) Exhibits - 11. Computation of net earnings per share
99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
99.2 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
(ii) Reports on Form 8-K - Filed in the second quarter of 2003:
Form 8-K dated April 14, 2003
Item 4. Changes in Registrant's Certifying Accountants
Item 7. Financial Statements, Proforma Financial
Information and Exhibits
Form 8-K dated April 15, 2003
Item 7. Financial Statements, Proforma Financial
Information and Exhibits
Item 12. Results of Operations and Financial Condition
SIGNATURES
..........
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
DATED: August 11, 2003
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
.....................................
J. Donald Hill, Chairman of the Board
By: /s/ Antoine Dominic
....................................
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating Officer
(Principal Accounting Officer)
INDEX TO EXHIBITS
.................
Exhibit No. Description
............ ......................................................
11 Computation of Net Earnings Per Share
99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
99.2 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
EXHIBIT 11
COMPUTATION OF NET EARNINGS PER SHARE
(In thousands, except per share data)
(Unaudited)
BASIC DILUTED
Three Months Ended Three Months Ended
June 30, June 30,
.................. ..................
2003 2002 2003 2002
........ ........ ........ ........
Net earnings $ 2,866 $ 2,375 $ 2,866 $ 2,375
........ ........ ........ ........
........ ........ ........ ........
Weighted average common
shares outstanding 11,815 11,792 11,815 11,792
Weighted average common
share equivalents outstanding:
Stock Options 0 0 363 370
........ ........ ........ ........
Weighted average common shares
and common share equivalents
outstanding 11,815 11,792 12,178 12,162
........ ........ ........ ........
........ ........ ........ ........
Net earnings per share $ 0.24 $ 0.20 $ 0.24 $ 0.20
........ ........ ........ ........
........ ........ ........ ........
Six Months Ended Six Months Ended
June 30, June 30,
.................. ..................
2003 2002 2003 2002
........ ........ ........ ........
Net earnings $ 5,715 $ 4,242 $ 5,715 $ 4,242
........ ........ ........ ........
........ ........ ........ ........
Weighted average common
shares outstanding 11,842 11,783 11,842 11,783
Weighted average common
share equivalents outstanding:
Stock Options 0 0 331 280
........ ........ ........ ........
Weighted average common shares and
common share equivalents
outstanding 11,842 11,783 12,173 12,063
........ ........ ........ ........
........ ........ ........ ........
Net earnings per share $ 0.48 $ 0.36 $ 0.47 $ 0.35
........ ........ ........ ........
........ ........ ........ ........
EXHIBIT 99.1
CERTIFICATION OF PERIODIC REPORT
.................................
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 Quarterly Report on Form 10-Q of the Company for the quarterly
period ended June 30, 2003 (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: August 11, 2003
/s/ Antoine Dominic
..............................
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating Officer
(Principal Accounting Officer)
A signed original of this written statement required by Section 906
of the Sarbanes-Oxley Act of 2002 has been provided to the Company and
will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
EXHIBIT 99.2
CERTIFICATION
..............
I, Antoine Dominic, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Excel
Technology, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other
financial information included in this 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
report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and I
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, 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 and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
By: /s/ Antoine Dominic
...............................
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating Officer
(Principal Accounting Officer)
Dated: August 11, 2003