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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
.......................................
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
.......................................
For the quarter ended June 30, 2004 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
July 16, 2004 was: 12,052,063.
CONTENTS
PART I. FINANCIAL INFORMATION
Page
....
Item 1. Consolidated Financial Statements:
..................................
Consolidated Balance Sheets as of June 30, 2004
(unaudited) and December 31, 2003 3
Consolidated Statements of Income (unaudited) for
the Three Months Ended June 30, 2004 and 2003 4
Consolidated Statements of Income (unaudited) for the Six
Months Ended June 30, 2004 and 2003 5
Consolidated Statements of Cash Flows (unaudited) for the
Six Months Ended June 30, 2004 and 2003 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
.................................................
Condition and Results of Operations 9
...................................
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
..........................................................
Item 4. Controls and Procedures 13
.......................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
..................
Item 2. Changes in Securities, Use of Proceeds and Issuer
.................................................
Purchases Of Equity Securities 16
..............................
Item 3. Defaults upon Senior Securities 16
...............................
Item 4. Submission of Matters to a Vote of Security-Holders 16
...................................................
Item 5. Other Information 17
.................
Item 6. Exhibits and Reports on Form 8-K 17
................................
(a) Exhibits - (11) Computation of net earnings per share 20
(99) Certification of periodic report 21
(b) Reports on Form 8-K
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
.................................
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
June 30, 2004 Dec. 31, 2003
............. .............
(Unaudited)
Assets
.......
Current assets:
Cash and equivalents $ 32,047 $ 25,740
Accounts receivable, less allowance for
doubtful accounts of $1,087 and $1,001
in 2004 and 2003, respectively 25,155 21,917
Inventories 26,525 25,038
Deferred income taxes 1,289 1,289
Other current assets 1,226 1,025
............. .............
Total current assets 86,242 75,009
............. .............
Property, plant and equipment 26,988 27,665
Other assets 349 415
Goodwill 30,649 30,649
............. .............
Total assets $ 144,228 $ 133,738
............. .............
............. .............
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 6,043 $ 4,801
Accrued expenses and other current
liabilities 10,643 10,668
............. .............
Total current liabilities 16,686 15,469
............. .............
Deferred income taxes 991 991
Minority interest in subsidiary 0 6
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, 12,052 and 11,943
shares issued and outstanding in 2004 and
2003, respectively 12 12
Additional paid-in capital 49,520 47,514
Retained earnings 75,711 67,613
Accumulated other comprehensive income 1,308 2,133
............. .............
Total stockholders' equity 126,551 117,272
............. .............
Total liabilities and
stockholders' equity $ 144,228 $ 133,738
............. .............
............. .............
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Three Months Ended
June 30,
....................
2004 2003
......... .........
Net sales and services $ 34,163 $ 31,514
Cost of sales and services 17,502 17,163
......... .........
Gross profit 16,661 14,351
Operating expenses:
Selling and marketing 4,817 4,272
General and administrative 2,927 2,724
Research and development 3,401 3,131
......... .........
Total operating expenses 11,145 10,127
......... .........
Operating income 5,516 4,224
Non-operating income:
Interest income (74) (32)
Other income, net (197) (119)
......... .........
Income before provision for income taxes 5,787 4,375
Provision for income taxes 1,736 1,509
......... .........
Net income $ 4,051 $ 2,866
......... .........
......... .........
Basic earnings per common share $0.34 $0.24
......... .........
......... .........
Weighted average common shares outstanding 12,028 11,815
......... .........
......... .........
Diluted earnings per common share $0.33 $0.24
......... .........
......... .........
Weighted average common and
common equivalent shares outstanding 12,449 12,178
......... .........
......... .........
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Six Months Ended
June 30,
....................
2004 2003
......... .........
Net sales and services $ 70,453 $ 62,951
Cost of sales and services 37,304 34,292
......... .........
Gross profit 33,149 28,659
Operating expenses:
Selling and marketing 9,598 8,460
General and administrative 5,731 5,356
Research and development 6,765 6,436
......... .........
Total operating expenses 22,094 20,252
......... .........
Operating income 11,055 8,407
Non-operating income:
Interest income (130) (56)
Minority interest in net loss of subsidiary (6) 0
Other income, net (369) (296)
......... .........
Income before provision for income taxes 11,560 8,759
Provision for income taxes 3,462 3,044
......... .........
Net income $ 8,098 $ 5,715
......... .........
......... .........
Basic earnings per common share $0.67 $0.48
......... .........
......... .........
Weighted average common shares outstanding 12,000 11,842
......... .........
......... .........
Diluted earnings per common share $0.65 $0.47
......... .........
......... .........
Weighted average common and
common equivalent shares outstanding 12,447 12,173
......... .........
......... .........
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
Six Months Ended
June 30,
....................
2004 2003
......... .........
Operating activities:
Net income $ 8,098 $ 5,715
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in net loss of subsidiary (6) 0
Depreciation and amortization 1,250 1,387
Tax benefit from employee stock
option exercises 903 0
Provision for bad debts 96 82
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (3,632) (357)
Inventories (1,678) (1,505)
Other current assets (226) (251)
Other assets (209) 192
Accounts payable 1,282 (983)
Accrued expenses and other current
liabilities 63 1,306
......... .........
Net cash provided by operating activities 5,941 5,586
......... .........
Investing activities:
Purchases of property, plant and equipment (630) (973)
Cash paid for acquisitions 0 (4)
......... .........
Net cash used in investing activities (630) (977)
......... .........
Financing activities:
Proceeds from exercise of common stock options 1,103 599
......... .........
Net cash provided by financing activities 1,103 599
......... .........
Effect of exchange rate changes on
cash and equivalents (107) 105
......... .........
Net increase in cash and equivalents 6,307 5,313
Cash and equivalents, beginning of period 25,740 11,822
......... .........
Cash and equivalents, end of period $ 32,047 $ 17,135
......... .........
......... .........
Supplemental cash flow information:
Cash paid for:
Interest $ 0 $ 0
Income taxes $ 3,057 $ 1,362
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS
.................................
The consolidated balance sheet as of June 30, 2004, and the
consolidated statements of income for the three months and six months
ended June 30, 2004 and June 30, 2003, and the consolidated statements of
cash flows for the six months ended June 30, 2004 and June 30, 2003 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, 2004 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, 2003. 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,
2004 are not necessarily indicative of the operating results to be
expected for the full year.
B. ACCOUNTING FOR STOCK-BASED COMPENSATION
.......................................
At June 30, 2004, 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 the consolidated
statements of 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. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized over the options vesting
periods. The fair value of the options was estimated at the date of
grant using the Black Scholes option pricing model. 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 Three months ended
June 30, June 30,
2004 2003 2004 2003
........ ........ ........ ........
Net income, as reported $ 8,098 $ 5,715 $ 4,051 $ 2,866
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects (1,909) (1,066) (1,572) (763)
........ ........ ........ ........
Proforma net income $6,189 $4,649 $2,479 $2,103
........ ........ ........ ........
........ ........ ........ ........
Earnings per share:
Basic - as reported $0.67 $0.48 $0.34 $0.24
........ ........ ........ ........
Basic - proforma $0.52 $0.39 $0.21 $0.18
........ ........ ........ ........
Diluted - as reported $0.65 $0.47 $0.33 $0.24
........ ........ ........ ........
Diluted - proforma $0.50 $0.38 $0.20 $0.17
........ ........ ........ ........
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 plans to issue an
accounting standard that would become effective in 2005. The Company
will continue to monitor communications on this subject from the FASB in
order to determine the impact on the Company's consolidated financial
statements.
C. INVENTORIES
...........
Inventories are recorded at the lower of weighted average cost or
market. Weighted average cost approximates actual cost on a first-in
first-out basis. Inventories consist of the following (in thousands):
June 30, 2004 December 31, 2003
............. .................
Raw Materials $ 13,951 $ 11,686
Work-in-Process 7,624 7,360
Finished Goods 4,014 5,116
Consigned Inventory 936 876
............. .............
$ 26,525 $ 25,038
............. .............
............. .............
D. LINE-OF-CREDIT
..............
As of June 30, 2004, the Company has no lines of credit.
E. COMPREHENSIVE INCOME
....................
Comprehensive income is comprised of net income and foreign
currency translation adjustments, amounting in the aggregate to $3.6
million and $3.2 million for the three months ended June 30, 2004 and
2003, respectively and $7.3 million and $6.4 million for the six months
ended June 30, 2004 and 2003, respectively.
F. ACCRUED WARRANTY COSTS
......................
Monthly, the Company analyzes its warranty reserve for
reasonableness based upon a three-year history of warranty expense
incurred, specific product warranty issues, if any, and the levels of
shipments subject to warranty.
Changes in the product warranty accrual, which is included in
accrued expenses and other current liabilities in the consolidated
balance sheet, during the six-month period ended June 30, 2004 were as
follows (In thousands):
Balance at December 31, 2003 $ 756
Provisions for warranties increasing the
warranty accrual during the six-month
period ended June 30, 2004 222
Warranty costs during the six-month period
ended June 30, 2004 (227)
Reduction of warranty accrual (60)
......
Balance at June 30, 2004 $ 691
......
......
G. STOCK OPTIONS
.............
On April 27, 2004, the stockholders approved the 2004 Stock Option
Plan (the "2004 Plan"), which was adopted by the Board of Directors on
February 24, 2004 and provides for the grant of up to 1,000,000 options
to employees, officers and directors of, and consultants and advisors to,
the Company. Options granted under the 2004 Plan, which expires February
23, 2014, may be designated as non-incentive stock options or, for grants
to employees, as incentive stock options. Options may be exercisable for
a period of up to ten years and the exercise price for incentive stock
options must be at least equal to the market value of the Company's
common stock at the time of grant, except in the case of shareholders
owning more than 10% of the outstanding common shares, the exercise price
must be at least 110% of the market value on the date of grant.
Alternatives that may be used to pay for the exercise price of stock
options granted under the 2004 Plan include a cash payment, the delivery
to the Company of common stock held by the optionee for more than six
months and having a market value equal to the exercise price or the
irrevocable instructions to a broker to sell the common shares to be
issued upon exercise of the option and delivery to the Company of the
amount of the proceeds necessary to pay the exercise price.
Item 2. Management's Discussion and Analysis of Financial Condition and
...............................................................
Results of Operations
.....................
Overview
.........
The Company designs, manufactures and markets a variety of
photonics-based solutions primarily consisting of laser systems and
electro-optical components for industrial and scientific applications.
The Company's current range of products include laser marking and
engraving systems, laser micro-machining systems, CO2 lasers, optical
scanners, high power solid state CW and Q-switched lasers, ultrafast
lasers, high energy solid state pulsed lasers, precision optical
components and light and color measurement instruments. The laser and
electro-optical industry is subject to intense competition and rapid
technological developments. Our strength and success is dependent upon
us developing and delivering successful, timely and cost effective
solutions to our customers. The Company believes, for it to maintain its
performance, it must continue to increase its operational efficiencies,
improve and refine its existing products, expand its product offerings
and develop new applications for its technology. The Company's strategy
is to grow internally and through acquisitions of complementary
businesses. Historically, the Company has successfully integrated
acquired companies.
Results of Operations
......................
Net sales and services for the quarter ended June 30, 2004 increased
$2.6 million or 8.4% to $34.2 million from $31.5 million for the
comparable period in the prior year. For the six months ended June 30,
2004, net sales and services were $70.5 million, an increase of $7.5
million or 11.9% from $63.0 million in the six months ended June 30,
2003. The increases are primarily attributable to increased sales of
most of our products, specifically scanners, CO2 lasers, marking systems
and high power solid state lasers offset partially by a reduction in
sales of high energy solid state pulsed lasers.
Gross margins increased to 48.8% for the quarter ended June 30, 2004
from 45.5% in the same quarter in the prior year. For the six months
ended June 30, 2004, gross margins increased to 47.1% from 45.5% in the
same six months ended June 30, 2003. The increases are primarily due to
the product mix. Gross margins vary from direct sales to distributor
sales and also vary among the more than 250 product configurations.
Selling and marketing expenses increased to $4.8 million in the
quarter ended June 30, 2004 from $4.3 million in the quarter ended June
30, 2003. The increase of $545 thousand or 12.8% is primarily
attributable to increased variable costs such as commissions associated
with the increased sales volumes. For the six months ended June 30,
2004, selling and marketing expenses were $9.6 million as compared to
$8.5 million for the same period in 2003, which also resulted from
increased variable costs. Selling and marketing expenses as a percentage
of sales increased to 14.1% for the quarter ended June 30, 2004 from
13.6% for the comparable period in the prior year. Selling and marketing
expenses as a percentage of sales increased to 13.6% for the six months
ended June 30, 2004 from 13.4% for the comparable period in the prior
year. The increases as a percentage of sales are essentially
attributable to increased fixed and variable costs, primarily personnel
and marketing, as we continue to invest in our sales team and selling
efforts.
General and administrative expenses increased $203 thousand or 7.5%
from $2.7 million in the quarter ended June 30, 2003 to $2.9 million in
the current period. For the six months ended June 30, 2004, general and
administrative expenses increased $374 thousand to $5.7 million from $5.4
million in 2003. The increases are primarily attributable to increased
professional fees in connection with complying with Sarbanes-Oxley
legislation related to internal controls, legal costs for the Patlex
patent litigation and higher bonus expense as a result of higher
operating income. General and administrative expenses as a percentage of
sales remained at 8.6% for the quarter ended June 30, 2004 as compared to
the same period in the prior year. General and administrative expenses
as a percentage of sales decreased to 8.1% for the six months ended June
30, 2004 from 8.5% for the comparable period in the prior year.
Research and development costs for the quarter ended June 30, 2004
increased $270 thousand or 8.6% to $3.4 million from $3.1 million in the
quarter ended June 30, 2003. For the six months ended June 30, 2004,
research and development costs increased $329 thousand or 5.1% to $6.8
million from $6.4 million in 2003. Research and development costs as a
percentage of sales increased slightly to 10.0% for the quarter ended
June 30, 2004 as compared to 9.9% for the same period in the prior year.
Research and developments costs as a percentage of sales decreased to
9.6% for the six months ended June 30, 2004 from 10.2% for the comparable
period in the prior year. The cost of research activities for most of
our products was comparable for each of the periods in comparison.
Interest expense was zero for the quarters and six months ended June
30, 2004 and 2003, respectively. The Company had no borrowings during
the six months ended June 30, 2004 and 2003.
Interest income increased $42 thousand to $74 thousand in the
quarter ended June 30, 2004 from $32 thousand in the same period of 2003
and $74 thousand to $130 thousand in the six months ended June 30, 2004
from $56 thousand in the same period of 2003. The increases are
primarily due to higher average investable cash balances during each
period in comparison. The Company ended the quarter with $32.0 million in
cash and equivalents, an increase of $14.9 million over the $17.1 million
at June 30, 2003.
Other income was $197 thousand for the quarter ended June 30, 2004
as compared to $119 thousand for the quarter ended June 30, 2003. Other
income was $369 thousand for the six months ended June 30, 2004 as
compared to $296 thousand for the six months ended June 30, 2003. This
is primarily attributable to the recording of foreign currency
transaction gains at Excel Europe for the settlement of payables due in
U.S. 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 $227 thousand or 15.0% from
$1.5 million in the quarter ended June 30, 2003 to $1.7 million for the
current quarter ended June 30, 2004. For the six months ended June 30,
2004, the provision for income taxes increased $418 thousand or 13.7%
from $3.0 million in the six months ended June 30, 2003 to $3.5 million
in the comparable period in 2003. The increases are primarily
attributable to higher pre-tax earnings in 2004 partially offset by a
lower effective tax rate. The effective tax rate was 30% for the six
months ended June 30, 2004 compared to 33% for the year ended December
31, 2003. The lower rate in 2004 was primarily due to a reduction in the
liability for an income tax exposure item, which has been reflected as an
adjustment to the 2004 annual effective tax rate in accordance with the
Company's past accounting policy.
Liquiity and Capital Resources
...............................
Cash Flow Overview
Cash and equivalents increased $6.3 million during the six months
ended June 30, 2004 to $32.0 million. The increase was primarily due to
the net cash provided by operating activities of $5.9 million and
financing activities from the exercise of stock options of $1.1 million
partially offset by net cash used for capital expenditures of $630
thousand. The Company also experienced an unfavorable foreign exchange
effect on cash and equivalents of $107 thousand during the six months
ended June 30, 2004. As of June 30, 2004 the Company had no bank debt.
At June 30, 2004, the Company had working capital of $69.6 million,
including cash and equivalents of $32.0 million, compared to working
capital of $59.5 million, including cash and equivalents of $25.7
million, at December 31, 2003. The working capital increased by $10.1
million and cash and equivalents increased by $6.3 million during the six
months ended June 30, 2004.
Net cash provided by operating activities was $5.9 million for the
six months ended June 30, 2004 and $5.6 million for the six months ended
June 30, 2003, which were primarily attributable to net income before the
deduction of depreciation and amortization expenses, offset partially by
net changes in working capital items. Depreciation and amortization for
the six months ended June 30, 2004 was $1.3 million. Accounts receivable
at June 30, 2004 of $25.2 million increased $3.2 million from December
31, 2003 due to higher sales in the six months ended June 30, 2004.
Net cash used in investing activities of $630 thousand and $977
thousand for the six months ended June 30, 2004 and 2003, respectively
was primarily attributable to the purchase of equipment.
Net cash provided by financing activities was $1.1 million for the
six months ended June 30, 2004 and $599 thousand for the six months ended
June 30, 2003, resulting from the proceeds received upon the exercise of
employee stock options.
As of June 30, 2004, the Company has no lines of credit.
The Company intends to continue to invest in support of its growth
strategy. These investments are a requirement in expanding the Company's
current product offerings, further developing its operating
infrastructure and retaining and acquiring new customers. 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 or secure lines of credit. The sale of
additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders. In addition, the
Company will, from time to time, consider the acquisition of, or
investment in, complementary businesses, products, services and
technologies, which might impact the Company's liquidity requirements or
cause the Company to issue additional equity or debt securities. There
can be no assurance that financing will be available, on terms that are
acceptable to the Company or at all.
Inflation
..........
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
New Accounting Pronouncements
..............................
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 plans to issue an
accounting standard that would become effective in 2005. The Company
will continue to monitor communications on this subject from the FASB in
order to determine the impact on the Company's consolidated financial
statements.
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, 2003. 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 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 exchange rates 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 operating 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 errors 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 June 30, 2004 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
.................
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. ("Synrad") subsidiary, for
infringement of one of the patents licensed by Gould/Patlex to Synrad.
The lawsuit was based upon GCC's incorporation of Synrad's sealed CO2
lasers into systems sold by GCC to its customers. Gould/Patlex
subsequently filed a separate lawsuit for patent infringement and breach
of license agreement and false advertising against Synrad. Synrad denied
all of the substantive allegations of Gould/Patlex, and in July 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). These cases were consolidated in October 2003.
Gould/Patlex also took steps to terminate its patent license
agreement with the Company, in order to defeat Synrad's defense that it
remained licensed as a subsidiary of the Company. In response, the
Company in September 2003 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 answered and counterclaimed with the same allegations of
patent infringement and breach of license agreement and false advertising
against the Company as were levied against Synrad.
In mid-October 2003, Gould/Patlex filed a frivolous motion for
extraordinary preliminary injunctive relief based upon Synrad's royalty
calculation practices admittedly known to Gould/Patlex since at least as
early as 1992. The Massachusetts District Court denied the motion filed
by Gould/Patlex on April 8, 2004.
Shortly after the District Court's denial of the preliminary
injunction motion filed by Gould/Patlex, principals of Synrad and
Gould/Patlex negotiated a complete resolution of all disputes between the
parties. The settlement was formally completed during June 2004. The
terms of settlement are confidential by agreement of the parties. The
settlement is not material to the financial statements or operations of
the Company.
Item 2. Changes in Securities, Use of Proceeds and Issuer
.................................................
Purchases of Equity Securities
..............................
Approximate Dollar
Total Number of Value of Shares
Total Number Average Shares Purchased that May Yet
Of Shares Price Paid as Part of Publicly Be Purchased
Period Purchased Per Share Announced Plan Under the Plan
.......... ............ ........... ................... .................
04/01/04 - 39,032(1) $35.80 0 (1) 0 (1)
04/30/04
05/01/04 - 0 0 0 0
05/31/04
06/01/04 - 0 0 0 0
06/30/04
......... ...... ......... .........
Total 39,032 $35.80 0 0
(1) Not purchased through publicly announced plan. The shares were
"repurchased" in connection with the exercise of stock options where the
employee satisfied his obligation to pay the exercise price by attesting
to the ownership of shares without physically tendering the shares and
the Company issued to the employee the net difference between the shares
issuable upon exercise of the stock option and the attested to number of
shares.
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 April 27,
2004. 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 10,097,707 0 1,101,045
Steven Georgiev 10,726,714 0 472,038
Howard S. Breslow 10,066,226 0 1,132,526
Donald E. Weeden 9,467,762 0 1,730,990
Ira J. Lamel 10,846,018 0 352,734
(ii) The Company's 2004 Stock option plan was ratified and
approved, with 7,767,895 shares voting in favor of the plan, 1,133,729
shares voting against, 14,519 shares abstaining from voting and 2,282,609
shares unvoted.
(iii) The appointment of KPMG LLP as the Company's independent
auditors for the year ending December 31, 2004 was ratified, with
11,016,194 shares voting in favor of the appointment, 170,249 shares
voting against, and 12,309 shares abstaining from voting.
Item 5. Other Information
.................
None.
Item 6. Exhibits and Reports on Form 8-K
................................
a) Exhibits - 11. Computation of net earnings per share
31. Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32. Certification Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
b) Reports on Form 8-K - Filed in the second quarter of 2004:
Form 8-K dated April 14, 2004 relating to the press
release announcing the earnings for the quarter ended
March 31, 2004.
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: July 19, 2004
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,
Chief Operating Officer
and Principal Accounting Officer
INDEX TO EXHIBITS
.................
Exhibit No. Description
11 Computation of Net Earnings Per Share
31 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
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,
................... ...................
2004 2003 2004 2003
........ ........ ........ ........
Net earnings $ 4,051 $ 2,866 $ 4,051 $ 2,866
........ ........ ........ ........
Weighted average common
shares outstanding 12,028 11,815 12,028 11,815
Weighted average common
share equivalents outstanding:
Stock options 0 0 421 363
........ ........ ........ ........
Weighted average common shares
and common share equivalents
outstanding 12,028 11,815 12,449 12,178
........ ........ ........ ........
........ ........ ........ ........
Net earnings per share $ 0.34 $ 0.24 $ 0.33 $ 0.24
........ ........ ........ ........
........ ........ ........ ........
Six Months Ended Six Months Ended
June 30, June 30,
................... ...................
2004 2003 2004 2003
........ ........ ........ ........
Net earnings $ 8,098 $ 5,715 $ 8,098 $ 5,715
........ ........ ........ ........
........ ........ ........ ........
Weighted average common
shares outstanding 12,000 11,842 12,000 11,842
Weighted average common
share equivalents outstanding:
Stock options 0 0 447 331
........ ........ ........ ........
Weighted average common shares
and common share equivalents
outstanding 12,000 11,842 12,447 12,173
........ ........ ........ ........
........ ........ ........ ........
Net earnings per share $ 0.67 $ 0.48 $ 0.65 $ 0.47
........ ........ ........ ........
........ ........ ........ ........
EXHIBIT 31
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: July 19, 2004
EXHIBIT 32
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, to the best of his knowledge,:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly
period ended June 30, 2004 (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: July 19, 2004
/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.