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, 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
October 22, 2004 was: 12,052,763.
CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements:
..................................
Consolidated Balance Sheets as of September 30, 2004
(unaudited) and December 31, 2003 3
Consolidated Statements of Income (unaudited) for the
Three Months Ended September 30, 2004 and 2003 4
Consolidated Statements of Income (unaudited) for the
Nine Months Ended September 30, 2004 and 2003 5
Consolidated Statements of Cash Flows (unaudited) for
the Nine Months Ended September 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 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, Use of Proceeds and Issuer
.................................................
Purchases Of Equity Securities 15
..............................
Item 3. Defaults upon Senior Securities 15
...............................
Item 4. Submission of Matters to a Vote of Security-Holders 15
...................................................
Item 5. Other Information 15
.................
Item 6. Exhibits and Reports on Form 8-K 15
................................
a) Exhibits - 11. Computation of net earnings per share 18
31. Certification Pursuant to Section 302 20
of the Sarbanes-Oxley Act of 2002
32. Certification Pursuant to Section 906 21
of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
(b) Reports on Form 8-K
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
.................................
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
Sept. 30, 2004 Dec. 31, 2003
.............. .............
(Unaudited)
Assets
.......
Current assets:
Cash and equivalents $ 36,657 $ 25,740
Accounts receivable, less allowance for
doubtful accounts of $1,134 and $1,001
in 2004 and 2003, respectively 24,089 21,917
Inventories 27,891 25,038
Deferred income taxes 1,289 1,289
Other current assets 1,424 1,025
.......... ..........
Total current assets 91,350 75,009
.......... ..........
Property, plant and equipment 26,763 27,665
Other assets 361 415
Goodwill 31,636 30,649
.......... ..........
Total assets $ 150,110 $ 133,738
.......... ..........
.......... ..........
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 6,526 $ 4,801
Accrued expenses and other
current liabilities 10,771 10,668
.......... ..........
Total current liabilities 17,297 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, 12,053 and 11,943
shares issued and outstanding in 2004 and 2003,
respectively 12 12
Additional paid-in capital 49,574 47,514
Retained earnings 79,859 67,613
Accumulated other comprehensive income 2,377 2,133
.......... ..........
Total stockholders' equity 131,822 117,272
.......... ..........
Total liabilities and stockholders' equity $ 150,110 $ 133,738
.......... ..........
.......... ..........
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Three Months Ended
...................
September 30,
2004 2003
......... .........
Net sales and services $ 34,902 $ 28,690
Cost of sales and services 18,754 15,010
......... .........
Gross profit 16,148 13,680
Operating expenses:
Selling and marketing 4,521 3,949
General and administrative 2,631 2,984
Research and development 3,291 2,999
......... .........
Total operating expenses 10,443 9,932
......... .........
Operating income 5,705 3,748
Non-operating income:
Interest income 97 38
Foreign currency gains and other income, net 124 243
......... .........
Income before provision for income taxes 5,926 4,029
Provision for income taxes 1,778 1,370
......... .........
Net income $ 4,148 $ 2,659
......... .........
......... .........
Basic earnings per common share $0.34 $0.22
..... .....
..... .....
Weighted average common shares outstanding 12,052 11,864
...... ......
...... ......
Diluted earnings per common share $0.34 $0.22
..... .....
..... .....
Weighted average common and
common equivalent shares outstanding 12,255 12,273
...... ......
...... ......
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except earnings per share)
Nine Months Ended
September 30,
2004 2003
......... .........
Net sales and services $ 105,355 $ 91,641
Cost of sales and services 56,058 49,302
......... .........
Gross profit 49,297 42,339
Operating expenses:
Selling and marketing 14,119 12,408
General and administrative 8,361 8,341
Research and development 10,057 9,435
......... .........
Total operating expenses 32,537 30,184
......... .........
Operating income 16,760 12,155
Non-operating income:
Interest income 228 94
Minority interest in net loss of subsidiary 6 0
Foreign currency gains and other income, net 492 539
......... .........
Income before provision for income taxes 17,486 12,788
Provision for income taxes 5,240 4,414
......... .........
Net income $ 12,246 $ 8,374
......... .........
......... .........
Basic earnings per common share $1.02 $0.71
..... .....
..... .....
Weighted average common shares outstanding 12,017 11,829
...... ......
...... ......
Diluted earnings per common share $0.99 $0.69
..... .....
..... .....
Weighted average common and
common equivalent shares outstanding 12,392 12,186
...... ......
...... ......
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
Nine Months Ended
September 30,
....................
2004 2003
......... .........
Operating activities:
Net income $ 12,246 $ 8,374
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in net loss of subsidiary (6) 0
Depreciation and amortization 1,913 2,061
Tax benefit from employee stock
option exercises 951 0
Provision for bad debts 240 98
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (2,556) (825)
Inventories (2,956) (670)
Other current assets (409) 61
Other assets (368) (223)
Accounts payable 1,742 (1,096)
Accrued expenses and other current
liabilities 139 996
......... .........
Net cash provided by operating activities 10,936 8,776
......... .........
Investing activities:
Purchases of property, plant and equipment (1,039) (1,282)
Investment in joint venture 0 (411)
Cash paid for acquisitions 0 (4)
......... .........
Net cash used in investing activities (1,039) (1,697)
......... .........
Financing activities:
Proceeds from exercise of common stock options 1,109 1,203
......... .........
Net cash provided by financing activities 1,109 1,203
......... .........
Effect of exchange rate changes on cash
and equivalents (89) 173
......... .........
Net increase in cash and equivalents 10,917 8,455
Cash and equivalents, beginning of period 25,740 11,822
......... .........
Cash and equivalents, end of period $ 36,657 $ 20,277
......... .........
......... .........
Supplemental cash flow information:
....................................
Cash paid for:
Interest $ 0 $ 0
Income taxes $ 4,654 $ 2,456
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS
.................................
The consolidated balance sheet as of September 30, 2004, and the
consolidated statements of income for the three months and nine months
ended September 30, 2004 and September 30, 2003, and the consolidated
statements of cash flows for the nine months ended September 30, 2004 and
September 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 September 30, 2004 and for all periods presented.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses reported
in those financial statements. These judgments can be subjective and
complex, and consequently actual results could differ from those
estimates and assumptions.
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 September
30, 2004 are not necessarily indicative of the operating results to be
expected for the full year.
B. ACCOUNTING FOR STOCK-BASED COMPENSATION
.......................................
At September 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).
Nine months ended Three months ended
September 30 September 30,
2004 2003 2004 2003
....... ....... ....... .......
Net income, as reported $12,246 $ 8,374 $ 4,148 $ 2,659
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects (2,226) (2,140) (317) (497)
....... ....... ....... .......
Proforma net income $10,020 $ 6,234 $ 3,831 $ 2,162
....... ....... ....... .......
....... ....... ....... .......
Earnings per share:
Basic - as reported $1.02 $0.71 $0.34 $0.22
..... ..... ..... .....
Basic - proforma $0.83 $0.53 $0.32 $0.18
..... ..... ..... .....
Diluted - as reported $0.99 $0.69 $0.34 $0.22
..... ..... ..... .....
Diluted - proforma $0.81 $0.52 $0.31 $0.18
..... ..... ..... .....
In March 2004 the Financial Accounting Standard Board ("FASB")
issued an exposure draft entitled "Share-Based Payment, an amendment of
FASB Statements No. 123 and 95." This exposure draft would require
stock-based compensation to employees to be recognized as a cost in the
financial statements and that such cost be measured according to the fair
value of the stock options. In the absence of an observable market price
for the stock awards, the fair value of the stock options would be based
upon a valuation methodology that takes into consideration various
factors, including the exercise price of the option, the expected term of
the option, the current price of the underlying shares, the expected
volatility of the underlying share price, the expected dividends on the
underlying shares and the risk-free interest rate. The proposed
requirements in the exposure draft would be effective for interim or
annual periods beginning after June 15, 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):
September 30, 2004 December 31, 2003
.................. .................
Raw Materials $ 15,452 $ 11,686
Work-in-Process 7,308 7,360
Finished Goods 4,091 5,116
Consigned Inventory 1,040 876
............. .............
$ 27,891 $ 25,038
............. .............
............. .............
D. LINE-OF-CREDIT
..............
As of September 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 $5.2 million and
$2.7 million for the three months ended September 30, 2004 and 2003,
respectively and $12.5 million and $9.1 million for the nine months ended
September 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 nine-month period ended September 30, 2004 were
as follows (In thousands):
Balance at December 31, 2003 $ 756
Provisions for warranties increasing the
warranty accrual during the nine-month
period ended September 30, 2004 319
Warranty costs during the nine-month
Period ended September 30, 2004 (360)
Reduction of warranty accrual (60)
......
Balance at September 30, 2004 $ 655
......
......
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.
H. GOODWILL
........
The change in the goodwill balance during the nine months ended
September 30, 2004 is attributable to changes in foreign currency
exchange rates used to translate the goodwill contained in the financial
statements of foreign subsidiaries.
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 September 30, 2004
increased $6.2 million or 21.7% to $34.9 million from $28.7 million for
the comparable period in the prior year. For the nine months ended
September 30, 2004, net sales and services were $105.4 million, an
increase of $13.7 million or 15.0% from $91.6 million in the nine months
ended September 30, 2003. The increases are primarily attributable to
the sale and installation of a DRS 860 in the quarter ended September 30,
2004, increases in CO2 laser sales, and modest increases in sales of
laser marking systems, solid state lasers and high power solid state
lasers.
Gross margins decreased to 46.3% for the quarter ended September 30,
2004 from 47.7% in the same quarter in the prior year. For the nine
months ended September 30, 2004, gross margins increased to 46.8% from
46.2% in the nine months ended September 30, 2003. The primary reason
the gross margin decreased during the quarters in comparison was due to
the lower margin experienced on the DRS 860 sale as compared to the
average margin on the Company's other product sales. In addition, the
product mix had an impact on the gross margin decrease for the quarters
in comparison. Gross margins vary from direct sales to distributor sales
and also vary among the more than 250 product configurations. For the
nine months in comparison, the product mix contributed to the increase in
gross margins.
Selling and marketing expenses increased to $4.5 million in the
quarter ended September 30, 2004 from $3.9 million in the quarter ended
September 30, 2003. The increase of $572 thousand or 14.5% is primarily
attributable to increased variable costs such as commissions associated
with the increased sales volumes. For the nine months ended September
30, 2004, selling and marketing expenses were $14.1 million as compared
to $12.4 million for the same period in 2003, the increase of which also
resulted from higher variable costs associated with the increased sales
volumes. Selling and marketing expenses as a percentage of sales
decreased to 13.0% for the quarter ended September 30, 2004 from 13.8%
for the comparable period in the prior year. Selling and marketing
expenses as a percentage of sales decreased to 13.4% for the nine months
ended September 30, 2004 from 13.5% for the comparable period in the
prior year. The decreases as a percentage of sales are essentially
attributable to fixed costs, primarily personnel and certain marketing
costs being absorbed by increased sales volumes during the 2004 periods.
General and administrative expenses decreased $353 thousand or 11.8%
from $3.0 million in the quarter ended September 30, 2003 to $2.6 million
in the current period. The decrease for the quarters in comparison is
primarily attributable to the legal fees associated with the Patlex
lawsuit incurred in 2003. For the nine months ended September 30, 2004,
general and administrative expenses increased $20 thousand to $8.4
million from $8.3 million in 2003. The increase is primarily
attributable to increased professional fees in connection with complying
with Sarbanes-Oxley legislation related to internal controls and higher
bonus expense as a result of higher operating income partially offset by
decreases in legal costs for the Patlex patent litigation. Due to higher
sales volume, general and administrative expenses as a percentage of
sales decreased to 7.5% for the quarter ended September 30, 2004 as
compared to 10.4% for the same period in the prior year. General and
administrative expenses as a percentage of sales decreased to 7.9% for
the nine months ended September 30, 2004 from 9.1% for the comparable
period in the prior year.
Research and development costs for the quarter ended September 30,
2004 increased $292 thousand or 9.7% to $3.3 million from $3.0 million in
the quarter ended September 30, 2003. For the nine months ended
September 30, 2004, research and development costs increased $622
thousand or 6.6% to $10.1 million from $9.4 million in 2003. Research
and development costs as a percentage of sales decreased to 9.4% for the
quarter ended September 30, 2004 as compared to 10.5% for the same period
in the prior year. Research and development costs as a percentage of
sales decreased to 9.5% for the nine months ended September 30, 2004 from
10.3% for the comparable period in the prior year. The cost of research
activities, primarily consisting of personnel and related overhead costs,
was up slightly for most of our products for each of the periods in
comparison.
Interest expense was zero for the quarters and nine months ended
September 30, 2004 and 2003. The Company had no borrowings during the
nine months ended September 30, 2004 and 2003.
Interest income increased $59 thousand to $97 thousand in the
quarter ended September 30, 2004 from $38 thousand in the same period of
2003 and $134 thousand to $228 thousand in the nine months ended
September 30, 2004 from $94 thousand in the same period of 2003. The
increases are primarily due to higher average investable cash balances
and slightly higher interest rates during each period in comparison. The
Company ended the quarter with $36.7 million in cash and equivalents, an
increase of $16.4 million over the $20.3 million at September 30, 2003.
Other income 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 inventory from the Company's U.S.
subsidiaries as a result of the decline in the value of the U.S. dollar
against the Euro. Other income was $124 thousand for the quarter ended
September 30, 2004, including $144 thousand of foreign currency
transaction gains, as compared to $243 thousand for the quarter ended
September 30, 2003, including $187 thousand of foreign currency
transaction gains. Other income was $492 thousand for the nine months
ended September 30, 2004, including $533 thousand of foreign currency
transaction gains, as compared to $539 thousand for the nine months ended
September 30, 2003, including $453 thousand of foreign currency
transaction gains.
The provision for income taxes increased $408 thousand or 29.8% from
$1.4 million in the quarter ended September 30, 2003 to $1.8 million for
the current quarter ended September 30, 2004. For the nine months ended
September 30, 2004, the provision for income taxes increased $826
thousand or 18.7% from $4.4 million in the nine months ended September
30, 2003 to $5.2 million in the comparable period in 2004. 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 nine months ended September 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.
Liquidity and Capital Resources
................................
Cash Flow Overview
Cash and equivalents increased $10.9 million during the nine months
ended September 30, 2004 to $36.7 million. The increase was primarily
due to the net cash provided by operating activities of $10.9 million and
financing activities from the exercise of stock options of $1.1 million
partially offset by net cash used for capital expenditures of $1.0
million. The Company also experienced an unfavorable foreign exchange
effect on cash and equivalents of $89 thousand during the nine months
ended September 30, 2004. As of September 30, 2004 the Company had no
debt.
Net cash provided by operating activities was $10.9 million for the
nine months ended September 30, 2004 and $8.8 million for the nine months
ended September 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 nine months ended September 30, 2004 was $1.9
million. Accounts receivable at September 30, 2004 of $24.1 million
increased $2.2 million from December 31, 2003 due to higher sales in the
nine months ended September 30, 2004. Inventory at September 30, 2004 of
$27.9 million increased $2.9 million from December 31, 2003 due to an
increase in the Company's average sales volume compared to the prior
year.
Net cash used in investing activities of $1.0 million and $1.7
million for the nine months ended September 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
nine months ended September 30, 2004 and $1.2 million for the nine months
ended September 30, 2003, resulting from the proceeds received upon the
exercise of employee stock options.
At September 30, 2004, the Company had working capital of $74.1
million, including cash and equivalents of $36.7 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 $14.6
million and cash and equivalents increased by $10.9 million during the
nine months ended September 30, 2004.
As of September 30, 2004, the Company has no lines of credit.
The Company intends to continue to invest in research and
development activities, equipment and its sales and marketing
infrastructure 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
..............................
In March 2004 the Financial Accounting Standard Board ("FASB")
issued an exposure draft entitled "Share-Based Payment, an amendment of
FASB Statements No. 123 and 95." This exposure draft would require
stock-based compensation to employees to be recognized as a cost in the
financial statements and that such cost be measured according to the fair
value of the stock options. In the absence of an observable market price
for the stock awards, the fair value of the stock options would be based
upon a valuation methodology that takes into consideration various
factors, including the exercise price of the option, the expected term of
the option, the current price of the underlying shares, the expected
volatility of the underlying share price, the expected dividends on the
underlying shares and the risk-free interest rate. The proposed
requirements in the exposure draft would be effective for interim or
annual periods beginning after June 15, 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 10-K 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
investing strategies. The Company's investment portfolios consist
primarily of cash and equivalents, with carrying amounts approximating
market value. Assuming investment levels remain the same, utilizing our
cash and equivalents balance at September 30, 2004, a one-point change in
interest rates would change the interest income for the year by
approximately $367 thousand.
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
results. 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 significant changes in its
internal controls over financial reporting during the quarter ended
September 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
.................
None.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
..............................................................
Equity Securities
.................
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
.................................
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 third quarter of 2004:
Form 8-K dated July 14, 2004 relating to the press
release announcing the earnings for the quarter ended
June 30, 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: October 22, 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)
The Company presents two earnings per share ("EPS") amounts, basic
and diluted. Basic EPS is calculated based on net income and the
weighted-average number of common shares outstanding during the reported
period. Diluted EPS includes the effect of potentially dilutive
securities (stock options), using the treasury stock method, on weighted-
average shares outstanding.
BASIC DILUTED
Three Months Ended Three Months Ended
.................. ..................
September 30, September 30,
2004 2003 2004 2003
........ ........ ........ ........
Net earnings $ 4,148 $ 2,659 $ 4,148 $ 2,659
........ ........ ........ ........
........ ........ ........ ........
Weighted average common
shares outstanding 12,052 11,864 12,052 11,864
Weighted average common
share equivalents outstanding:
Stock options 0 0 203 409
........ ........ ........ ........
Weighted average common shares
and common share equivalents
outstanding 12,052 11,864 12,255 12,273
........ ........ ........ ........
........ ........ ........ ........
Net earnings per share $ 0.34 $ 0.22 $ 0.34 $ 0.22
........ ........ ........ ........
........ ........ ........ ........
Nine Months Ended Nine Months Ended
.................. ..................
September 30, September 30,
2004 2003 2004 2003
........ ........ ........ ........
Net earnings $ 12,246 $ 8,374 $ 12,246 $ 8,374
........ ........ ........ ........
........ ........ ........ ........
Weighted average common
shares outstanding 12,017 11,829 12,017 11,829
Weighted average common
share equivalents outstanding:
Stock options 0 0 375 357
........ ........ ........ ........
Weighted average common shares and
common share equivalents
outstanding 12,017 11,829 12,392 12,186
........ ........ ........ ........
........ ........ ........ ........
Net earnings per share $ 1.02 $ 0.71 $ 0.99 $ 0.69
........ ........ ........ ........
........ ........ ........ ........
As of September 30, 2004, there were 155 thousand stock options
outstanding that are antidilutive and not included in the above earnings
per share calculations.
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: October 22, 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 September 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: October 22, 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.