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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
........................................
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
......................................................
For the quarter ended September 30, 2003 Commission File Number 0-19306
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 Research Way (631) 784-6175
E. Setauket, NY 11733 (Registrant's Telephone Number)
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
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
October 22, 2003 was: 11,906,347.
CONTENTS
PART I. FINANCIAL INFORMATION
Page
....
Item 1. Consolidated Financial Statements:
..................................
Consolidated Balance Sheets as of September 30, 2003
(unaudited)and December 31, 2002 3
Consolidated Statements of Income (unaudited) for the
Three Months Ended September 30, 2003 and 2002 4
Consolidated Statements of Income (unaudited) for the
Nine Months Ended September 30, 2003 and 2002 5
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended September 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 13
..........................................................
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 16
................................
(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 third quarter of 2003:
Form 8-K dated October 14, 2003
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
.................................
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
Sept. 30, Dec. 31,
2003 2002
......... ........
(Unaudited)
Assets
.......
Current assets:
Cash and equivalents $ 20,277 $ 11,822
Accounts receivable, less allowance for doubtful
accounts of $1,107 and $993 in 2003 and 2002,
respectively 23,242 22,375
Inventories 25,655 24,482
Deferred income taxes 1,068 1,068
Other current assets 1,307 1,305
........ ........
Total current assets 71,549 61,052
........ ........
Property, plant and equipment - at cost, net 27,143 27,782
Other assets 834 507
Goodwill 29,730 29,383
........ ........
Total assets $129,256 $118,724
........ ........
........ ........
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 4,233 $ 5,245
Accrued expenses and other current liabilities 12,259 11,042
........ ........
Total current liabilities 16,492 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, 11,906 and 11,805
shares issued and outstanding in 2003 and 2002,
respectively 12 12
Additional paid-in capital 46,604 45,401
Retained earnings 64,669 56,295
Accumulated other comprehensive income 1,299 549
........ ........
Total stockholders' equity 112,584 102,257
........ ........
Total liabilities and
stockholders' equity $129,256 $118,724
........ ........
........ ........
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Three Months Ended
September 30,
...................
2003 2002
........ ........
Net sales and services $ 28,690 $ 22,899
Cost of sales and services 15,010 11,897
........ ........
Gross profit 13,680 11,002
Operating expenses:
Selling and marketing 3,949 3,000
General and administrative 2,984 2,145
Research and development 2,999 2,334
........ ........
Total operating expenses 9,932 7,479
........ ........
Operating income 3,748 3,523
Non-operating expenses (income):
Interest expense 0 2
Interest income (38) (73)
Other income, net 243) (134)
........ ........
Income before provision for income taxes 4,029 3,728
Provision for income taxes 1,370 1,230
........ ........
Net income $ 2,659 $ 2,498
........ ........
........ ........
Basic net earnings per common share $0.22 $0.21
..... .....
..... .....
Weighted average common shares outstanding 11,864 11,800
...... ......
...... ......
Diluted net earnings per common share $0.22 $0.21
..... .....
..... .....
Weighted average common and
common equivalent shares outstanding 12,273 12,114
...... ......
...... ......
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Nine Months Ended
September 30,
...................
2003 2002
........ ........
Net sales and services $ 91,641 $ 64,713
Cost of sales and services 49,302 34,001
........ ........
Gross profit 42,339 30,712
Operating expenses:
Selling and marketing 12,408 8,559
General and administrative 8,341 5,599
Research and development 9,435 6,783
........ ........
Total operating expenses 30,184 20,941
........ ........
Operating income 12,155 9,771
Non-operating expenses (income):
Interest expense 0 6
Interest income (94) (199)
Other income, net (539) (94)
........ ........
Income before provision for income taxes 12,788 10,058
Provision for income taxes 4,414 3,319
........ ........
Net income $ 8,374 $ 6,739
........ ........
........ ........
Basic net earnings per common share $0.71 $0.57
........ ........
........ ........
Weighted average common shares outstanding 11,829 11,788
........ ........
........ ........
Diluted net earnings per common share $0.69 $0.56
........ ........
........ ........
Weighted average common and
common equivalent shares outstanding 12,186 12,074
........ ........
........ ........
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
Nine months ended
September 30,
..................
2003 2002
........ ........
Operating activities:
Net income $ 8,374 $ 6,738
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,061 2,186
Provision for bad debts 98 242
Deferred income taxes 0 3
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (825) (2,396)
Inventories (670) (3,177)
Other current assets 61 157
Other assets (223) (14)
Accounts payable (1,096) 392
Accrued expenses and other
current liabilities 996 404
........ ........
Net cash provided by
operating activities 8,776 4,535
........ ........
Investing activities:
Purchases of property, plant and equipment (1,282) (3,508)
Investment in joint venture (411) 0
Cash paid for acquisitions (4) 205
........ ........
Net cash used in investing activities (1,697) (3,303)
........ ........
Financing activities:
Proceeds from exercise of common stock options 1,203 466
........ ........
Net cash provided by
financing activities 1,203 466
........ ........
Effect of exchange rate changes on
cash and equivalents 173 63
........ ........
Net increase in cash and equivalents 8,455 1,761
Cash and equivalents, beginning of period 11,822 16,212
........ ........
Cash and equivalents, end of period $ 20,277 $ 17,973
........ ........
........ ........
Supplemental cash flow information:
Cash paid for:
Interest $ 0 $ 3
Income taxes $ 2,282 $ 786
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS
.................................
The consolidated balance sheet as of September 30, 2003, the
consolidated statements of income for the three months and nine months
ended September 30, 2003 and September 30, 2002, and the consolidated
statements of cash flows for the nine months ended September 30, 2003 and
September 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 September 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 September
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):
September 30, 2003 December 31, 2002
.................. .................
Raw Materials $ 12,545 $ 11,678
Work-in-Process 7,146 7,670
Finished Goods 4,809 4,278
Consigned Inventory 1,155 856
......... .........
$ 25,655 $ 24,482
......... .........
......... .........
C. LINE-OF-CREDIT
..............
As of September 30, 2003, the Company's credit facility with the Bank
of New York had expired, with no borrowings outstanding at expiration.
The Company is currently negotiating a new line of credit and plans to
have one in place in the fourth quarter of 2003.
D. COMPREHENSIVE INCOME
....................
Comprehensive income is comprised of net income and foreign currency
translation adjustments, amounting in the aggregate to $2.7 million and
$2.0 million for the three months ended September 30, 2003 and 2002 and
$9.1 million and $7.0 million for the nine months ended September 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. Goodwill was increased in 2003
by $347 thousand for additional expenses related to the acquisition and an
inventory purchase price adjustment. 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 4,372
Property, plant and equipment 236
Other assets 474
Goodwill 7,629
..........
Total assets acquired 16,117
Accounts payable 2,215
Other current liabilities 2,691
..........
Total liabilities assumed 4,906
..........
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.
Nine months ended September 30, 2002
(In thousands, except per share data)
Pro forma net sales and services $ 82,038
Pro forma net income $ 5,839
Pro forma basic net earnings per common share $0.50
Pro forma diluted net earnings per common share $0.48
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 September 30, 2003 is reasonable.
Changes in the liability for product warranties in the nine-month
period ended September 30, 2003 were as follows (In thousands):
Balance at December 31, 2002 $ 980
Warranties issued during 2003 443
Settlements made during 2003 (407)
........
Balance at September 30, 2003 $ 1,016
........
........
G. ACCOUNTING FOR STOCK-BASED COMPENSATION
.......................................
At September 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
fair value of the options was estimated at the date of grant using the
Black Scholes option pricing model. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized over
the options vesting periods. 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).
Nine months ended
September 30,
2003 2002
........ ........
Net income, as reported $ 8,374 $ 6,739
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (2,140) (1,606)
........ ........
Proforma net income $ 6,234 $ 5,132
........ ........
........ ........
Earnings per share:
Basic - as reported $0.71 $0.57
..... .....
Basic - proforma $0.53 $0.44
..... .....
Diluted - as reported $0.69 $0.56
..... .....
Diluted - proforma $0.52 $0.43
..... .....
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 created Excel Laser Technology
Private Limited based in Mumbai, India as a joint venture for the
distribution of certain subsidiary products in South Asia. This Joint
Venture will focus on marketing, sales, installation, applications and
customer service. The Company invested $10,750 for a 50% equity interest
in the joint venture. In addition, in August 2003, the Company loaned
the joint venture $400,000, which is non-interest bearing.
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 September 30, 2003
increased $5.8 million or 25.3% to $28.7 million from $22.9 million for
the comparable period in the prior year. For the nine months ended
September 30, 2003, net sales and services were $91.6 million, an
increase of $26.9 million or 41.6% from $64.7 million in the nine months
ended September 30, 2002. Approximately two-thirds 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 47.7% for the quarter ended September 30,
2003 from 48.0% in the same quarter in the prior year. For the nine
months ended September 30, 2003, gross margins decreased to 46.2% from
47.5% in the same nine months ended September 30, 2002. The decreases
are primarily due to the addition of Continuum's pulsed laser products,
which generally experience lower gross margins than the Company's other
products 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 $3.9 million in the
quarter ended September 30, 2003 from $3.0 million in the quarter ended
September 30, 2002. The increase of $949 thousand or 31.6% 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 nine months ended September 30, 2003, selling and
marketing expenses were $12.4 million as compared to $8.6 million for the
same period in 2002. Selling and marketing expenses as a percentage of
sales increased to 13.8% for the quarter ended September 30, 2003 from
13.1% for the comparable period in the prior year. Selling and marketing
expenses as a percentage of sales increased to 13.5% for the nine months
ended September 30, 2003 from 13.2% 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 $839 thousand or 39.1%
from $2.1 million in the quarter ended September 30, 2002 to $3.0 million
in the current period. For the nine months ended September 30, 2003,
general and administrative expenses increased $2.7 million to $8.3
million from $5.6 million in 2002. General and administrative expenses as
a percentage of sales increased to 10.4% for the quarter ended September
30, 2003 from 9.4% for the comparable period in the prior year. General
and administrative expenses as a percentage of sales increased to 9.1%
for the nine months ended September 30, 2003 from 8.7% for the comparable
period in the prior year. The increases are primarily attributable to
the addition of Continuum and Excel Japan, plus higher professional fees.
Research and development costs for the quarter ended September 30,
2003 increased $665 thousand or 28.5% to $3.0 million from $2.3 million
in the quarter ended September 30, 2002. For the nine months ended
September 30, 2003, research and development costs increased $2.7 million
or 39.1% to $9.4 million from $6.8 million in 2002. Research and
development costs as a percentage of sales increased to 10.5% for the
quarter ended September 30, 2003 as compared to 10.2% for the same period
in the prior year. The increase is primarily attributable to the
addition of Continuum. Research and development costs as a percentage of
sales decreased to 10.3% for the nine months ended September 30, 2003
from 10.5% for the comparable period in the prior year. The decrease is
primarily attributable to the timing of variable costs.
The Company had no interest expense in 2003 as it had no debt during
the period. Interest expense was $2 thousand for the three months ended
September 30, 2002 and $6 thousand for the nine months ended September
30, 2002, all resulting from short-term borrowing by the Company's
European subsidiary.
Interest income decreased to $38 thousand for the quarter ended
September 30, 2003 from $73 thousand in the same period of 2002, a
decrease of $35 thousand. For the nine months ended September 30, 2003
and September 30, 2002, interest income was $94 thousand and $199
thousand, respectively. The decreases are primarily due to reduced
effective interest rates experienced in 2003. In addition, average cash
balances were lower during the nine months ended September 30, 2003.
Other income/expense resulted in income of $243 thousand for the
quarter ended September 30, 2003 as compared to income of $135 thousand
for the quarter ended September 30, 2002. Other income/expense resulted
in income of $539 thousand for the nine months ended September 30, 2003
as compared to income of $94 thousand for the nine months ended September
30, 2002. The income in 2003 is primarily attributable to foreign
currency transaction gains at Excel Europe and Excel Japan 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 and the Yen.
The provision for income taxes increased $140 thousand or 11.4% from
$1.2 million in the quarter ended September 30, 2002 to $1.4 million for
the current quarter ended September 30, 2003. For the nine months ended
September 30, 2003, the provision for income taxes increased $1.1 million
or 33.0% from $3.3 million in the nine months ended September 30, 2002 to
$4.4 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 34.5% in the nine months
ended September 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 September 30, 2003 was $55.1 million compared to
$44.8 million at December 31, 2002. Cash and equivalents were $20.3
million at September 30, 2003 and $11.8 million at December 31, 2002.
Net cash provided by operating activities was $8.8 million for the
nine months ended September 30, 2003 and $4.5 million for the nine months
ended September 30, 2002, which is approximately the net income realized
during 2003.
Net cash used in investing activities of $1.7 million for the nine
months ended September 30, 2003 was primarily attributable to the
purchase of equipment. Net cash used in investing activities of $3.3
million for the nine months ended September 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 $1.2 million for the
nine months ended September 30, 2003. Net cash provided by financing
activities was $466 thousand for the nine months ended September 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.
As of September 30, 2003, the Company's credit facility with the Bank
of New York had expired, with no borrowings outstanding at expiration.
The Company is currently negotiating a new line of credit and plans to
have one in place in the fourth quarter of 2003.
Inflation
..........
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
New Accounting Pronouncements
..............................
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 December
31, 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
.......................
Evaluation of Disclosure Controls and Procedures
.................................................
As of the end of the period covered by 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-15e. 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.
Changes in Internal Controls
.............................
The Company has not identified any changes in its internal controls
over financial reporting during the quarter ended September 30, 2003 that
have materially affected, or are reasonably likely to materially affect,
its internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
.................
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, still is in the fact discovery state.
Mediation of the dispute was conducted in September 2003, but did not
result in its resolution. Further settlement discussions are scheduled
to take place toward the end of October 2003.
During the first week in October, 2003, the case filed by Dr. R.
Gordon Gould and Patlex Corporation ("Gould/Patlex") in the United States
District Court for the District of Massachusetts against Great Computer
Corp. ("GCC"), a customer of the Company's Synrad, Inc. ("Synrad")
subsidiary, and the case filed by Gould/Patlex against Synrad in the
United States District Court for the District of Massachusetts, in which
case Synrad has denied all of the substantive allegations of Gould/Patlex
and filed counterclaims against Gould/Patlex for breach of contract,
wrongful termination of license and violation of Mass. Gen Laws c. 93A
(unfair business practices), were consolidated and are now pending as a
single case in the United States District court for the District of
Massachusetts as Case Nos. 1:02-civ-12000 PBS and 03-10874 PBS. The
cases are now in the fact discovery stage.
In order to defeat Synrad's defense that it remained licensed as a
subsidiary of the Company, in August, 2003, Gould/Patlex took steps to
terminate its patent license agreement with the Company. In response, in
September, 2003, the Company filed its own declaratory judgment action,
alleging nearly the same claims as Synrad's counterclaims against
Gould/Patlex for breach of contract, wrongful termination of license and
violation of Mass. Gen Laws c. 93A (unfair business practices).
Gould/Patlex has answered and counterclaimed with the same allegations of
patent infringement and breach of license agreement and false advertising
as were levied against Synrad. The parties have agreed that this case
should also be consolidated, at least for discovery purposes, and such
consolidation is expected shortly. Synrad intends to request
consolidation for trial and all other purposes, as well.
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. As a
result, it is not possible at this early stage of the case to accurately
determine what liability exposure, if any, is faced by Synrad. 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. In any event, the last-surviving licensed
Gould/Patlex patent which is the subject of the dispute expires on
November 3, 2004, in the event that the case is not resolved before then.
Item 2. Changes in Securities and Use of Proceeds
.........................................
None.
Item 3. Defaults upon Senior Securities
...............................
None.
Item 4. Submission of Matters to a Vote of Security-Holders
...................................................
None.
Item 5. Other Information
.................
None.
Item 6. Exhibits and Reports on Form 8-K
.................................
(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 third quarter of 2003:
Form 8-K dated October 14, 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: October 23, 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
.................. ..................
September 30, September 30,
2003 2002 2003 2002
........ ........ ........ ........
Net earnings $ 2,659 $ 2,497 $ 2,659 $ 2,497
........ ........ ........ ........
Weighted average common
shares outstanding 11,864 11,800 11,864 11,800
Weighted average common
share equivalents outstanding:
Stock Options 0 0 409 314
........ ........ ........ ........
Weighted average common shares and
common share equivalents
outstanding 11,864 11,800 12,273 12,114
........ ........ ........ ........
........ ........ ........ ........
Net earnings per share $ 0.22 $ 0.21 $ 0.22 $ 0.21
........ ........ ........ ........
........ ........ ........ ........
Nine Months Ended Nine Months Ended
September 30, September 30,
.................. .................
2003 2002 2003 2002
........ ........ ........ ........
Net earnings $ 8,374 $ 6,739 $ 8,374 $ 6,739
........ ........ ........ ........
Weighted average common
shares outstanding 11,829 11,788 11,829 11,788
Weighted average common
share equivalents outstanding:
Stock Options 0 0 357 286
........ ........ ........ ........
Weighted average common shares and
common share equivalents
outstanding 11,829 11,788 12,186 12,074
........ ........ ........ ........
........ ........ ........ ........
Net earnings per share $ 0.71 $ 0.57 $ 0.69 $ 0.56
........ ........ ........ ........
........ ........ ........ ........
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 September 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: October 21, 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)) for the registrant and I have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my 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) intentionally omitted;
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report my conclusions about
the effectiveness of the 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: October 21, 2003