UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
......................
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
.................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
.................... ...................
Commission File Number 0-19306
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 Research Way (631) 784-6175
E. Setauket, NY 11733 (Registrant's Telephone Number)
(Address of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
.......................................
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act)
Yes [X] No [ ]
The aggregate market value of the common stock held by non-affiliates of
the Registrant was $392,432,034 based on the last sale price of the
common stock as reported by NASDAQ on June 30, 2004. Shares held by
each officer and director and by each person who owns 10% or more of the
outstanding common stock have been excluded in that such persons may be
deemed to be affiliates. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares of the Registrant's common stock outstanding as of
March 11, 2005 was: 12,053,429.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement to be filed in connection with the
Registrant's 2005 Annual Meeting of Stockholders (incorporated
by reference under Part III)
PART I
.......
ITEM 1. BUSINESS
General
........
Excel Technology, Inc. (the "Company") was organized under the laws
of Delaware in 1985. The Company manufactures and markets photonics-
based solutions, consisting of laser systems and electro-optical
components primarily for industrial and scientific applications. The
word laser is an acronym for "Light Amplification by Stimulated Emission
of Radiation." The essence of the laser is the ability of a photon
(light energy) to stimulate the emission of other photons, each having
the same wavelength (color) and direction of travel. The laser beam is
so concentrated and powerful that it can produce power densities
millions of times more intense than that found on the surface of the sun
and is capable of cutting, welding and marking industrial products, yet
it can be precisely controlled and directed and is capable of performing
delicate surgery on humans.
The Company's strategy is to grow internally and through
acquisitions of complementary businesses. Historically, the Company has
been successful in integrating acquired companies. The following is a
history of its acquisitions and new company formations since October
1992:
In October 1992, the Company acquired Quantronix Corporation
("Quantronix"). The acquisition of Quantronix and its then wholly-owned
subsidiaries, Control Laser Corporation ("Control Laser"), located in
Orlando, Florida, Excel Technology Europe GmbH ("Excel Europe"), located
in Germany, and The Optical Corporation ("TOC"), located in Oxnard,
California, provided the Company with its industrial, scientific and
semiconductor product lines and provided the Company with a significant
revenue base as well as established manufacturing, engineering,
marketing and customer service capabilities.
In February 1995, the Company acquired Cambridge Technology, Inc.
("Cambridge"), located in Cambridge, Massachusetts. Cambridge is
engaged primarily in the manufacture of laser scanners, essential
components to moving a laser beam with precision at a specified speed.
Laser scanners have both industrial and consumer applications, such as
laser marking and etching, high-density laser printing and writing,
digitized x-ray imaging and entertainment laser light shows and
displays. The acquisition allowed the Company to expand into new
markets and enhanced its market position in the industrial business.
In October 1995, the Company acquired the Photo Research Division
("Photo Research") of Kollmorgen Instruments Corporation. Photo
Research is engaged primarily in the business of developing,
manufacturing and marketing photometric and spectroradiometer
instruments and systems.
In August 1998, the Company acquired substantially all of the
assets and properties of Synrad, Inc. ("Synrad"), a company engaged in
the business of developing, manufacturing and marketing sealed CO2
lasers and related accessories.
In April 1999, the Company formed Excel Technology Asia Sdn. Bhd.
("Excel Asia"). Excel Asia primarily engages in the business of
marketing, selling, distributing, integrating and servicing certain of
the Company's products throughout Southeast Asia.
In July 2000, the Company acquired substantially all of the assets
and assumed certain liabilities of Baublys GmbH ("Baublys"), a company
located in Ludwigsburg, Germany and engaged in the manufacture and sale
of customized laser systems and engraving machines.
In January 2001, the Company formed Control Systemation, Inc.
("CSI") which focuses on turnkey laser based micro-machining systems and
parts handling workstations for factory automation. CSI is
headquartered in a Company-owned facility in Orlando, Florida.
In January 2002, the Company consolidated the product lines and
development efforts of Baublys and Control Laser to eliminate
duplicative products and efforts, to increase efficiencies, and to
create a unified market presence for the Company's laser marking and
engraving operations. While the subsidiaries remain legally separate
entities, with separate assembly, operations and selling and marketing
efforts, they are operating under one name, "Baublys-Control Laser," as
though they were one entity with operations in Florida and Germany.
On August 31, 2002, the Company, through a newly-formed, wholly-
owned subsidiary, Excel Technology Japan Holding Co., Ltd. ("Excel
Japan"), acquired all of the issued and outstanding shares of OptoFocus
Corporation ("OptoFocus"), a distribution organization representing the
Quantronix product line in Japan.
On October 1, 2002, the Company, through a newly-formed, wholly-
owned subsidiary, Continuum Electro-Optics, Inc., acquired substantially
all of the assets and properties 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.
On April 23, 2003, the Company created Excel Laser Technology
Private Limited ("Excel SouthAsia JV") based in Mumbai, India as a joint
venture for the distribution, in Southern Asia, of certain products
manufactured by the Company's subsidiaries. Excel SouthAsia JV is
focusing on the marketing, sales, installation, applications development
and customer service of those products. The Company has a 50% equity
ownership interest in the joint venture.
In December 2003, the Company acquired D Green (Electronics)
Limited ("DGE"). DGE is engaged primarily in the business of
developing, manufacturing and marketing power supplies for laser
systems.
Current Products and Applications
..................................
Marking and Engraving Systems
..............................
The Company designs, manufactures and markets industrial, computer-
controlled turnkey laser marking/engraving and mechanical
marking/engraving and 3D engraving systems.
The Company is a leading source of industrial beam-steered laser
marking systems and mechanical marking & engraving systems used for
coding, marking, engraving, deep engraving and 3D engraving, producing
high quality, permanent, high speed marks on any material. These
systems are used for marking part numbers, serial numbers, lot numbers,
date codes, graphics, logos, OCR codes, barcodes, 2D Matrix codes,
schematics, 2, 2-1/2 and 3D images and other identification marks for
the aerospace, automotive, coining and jewelry, consumer/commercial,
electronic/semiconductor, medical, mold and die, packaging, tools and
tooling and the trophy and award industries. The Company's integrated
automation solutions include a wide variety of fully automatic, semi-
automatic and manual parts handling systems for any part configuration
or material. The fully integrated and stand-alone marking systems offer
a comprehensive variety of user-friendly software allowing for seamless
integration into any production process.
The laser marking/engraving, deep engraving and 2-1/2 & 3D marking
systems include a full product range of CO2, lamp pumped and diode
pumped infrared, frequency doubled, tripled and quadrupled Nd:YAG and
Nd:YLF laser systems which are branded as Concorde, Comet, Icon,
Insignia, Image, Aurora, Accent, Ultra Power Mark, Deep Power Engraver,
BL65 and BL150 Deep engraving systems. The mechanical engraving systems
include the Universal Marking & Engraving Machine, the Inclined Bed CNC
Marking & Engraving Machine, the Mold Engraving Machine and the Table
Top Engraving Machine. In 2004, the Company introduced new Laser
Marking Studio 2.0 Software, which is used in its laser marking systems
and new versions of WIN-Laser, LaserFinish and Win-Graed for its
mechanical engraving systems. The Company also introduced several new
industry specific integrated marking solutions including: compact
Bearing Marking Systems, compact Cutting Tool Marking Systems, LCD Panel
Marking Systems, and IC Marking Systems.
Laser Micro-machining, Photomask Repair and Automation Systems
...............................................................
The Company designs and manufactures laser micro-machining systems,
parts handling/automation, systems integration, and software engineering
solutions at CSI, the Company's subsidiary based in Orlando, Florida.
The Company produces a variety of micro-machining systems (TaskMaster
Series) for cutting, drilling, ablating and other micro machining
applications. The TaskMaster series of micro-machining systems provides
a versatile but affordable solution to almost any process requirement.
They are modular in design allowing lasers of any wavelength such as
green, UV, DUV, infrared, and CO2 in a variety of power levels to be
integrated into the same workstation. The workstation can be taken from
a basic XY system with a manually adjustable focusing beam delivery
system and enhanced with a variety of options such as XY with a
programmable focusing beam delivery system, vision system for part
alignment and semi-automatic focusing adjustment, gas assist with
programmable pressure regulator and part fixturing.
The Company introduced the FA/Lit(Trademark) in 2003, a new product
targeted at the integrated circuit ("IC") failure analysis market. This
system utilizes a process (patent pending) for de-capping, cross-
sectioning and performing material characterization (Alpha Spectrometry)
on ICs, providing a non-destructive method of removing the mold compound
and allowing parts to be tested and visibly inspected. This makes it
possible to inspect wire bonds, dies and other internal components, even
to the point of doing a wire pull test on die leads. Scanning Acoustic
Microscope (SAM), x-ray and other failure analysis analytical instrument
images of the internal IC can be imported and used by the Company's FA-
Pro software to locate and target defects for analysis. These images
are then used to navigate the system directly to the defect. Options
available include 3D summation utilizing layer by layer spectral
analysis data of the mold compound, color vision system with auto zoom
(also used for defect and feature navigation), and even a second
femtosecond laser system for detailed die analysis on the ICs.
The Company also designs and builds custom micro-machining systems
such as active and passive resistor trimmers, glove box welders, diamond
cutting systems and specialized sub-micron processing systems utilizing
ultrafast lasers. Several updates reflecting current technology have
been added to the Company's DRS 855 Photomask Defect Repair System
product. In 2004, the Company launched a new Photomask Repair System
(Model 860X) to address the current industry requirements. Other
products include the L2S2 System for Lead-frame Singulation and the
BOARDmaster automated PCB Depaneling System.
The Company continues to actively pursue opportunities in
automation, parts handling, systems integration, and software
engineering. In addition, the Company offers engineered software
solutions including database, host communications, factory automation,
vision adaptation, and system integration development.
CO2 Lasers
...........
The Company manufactures a range of sealed CO2 lasers for cutting,
marking, drilling, and other machining applications for a variety of
materials. The CO2 lasers range in power from 10W to 400W. Shipments
of Synrad's Firestar series of sealed CO2 lasers started in September
2001. This series offers users the choice of higher performance and
smaller size, with output powers from 20W to 100W. In 2002, further
developments of the firestar technology produced the f200, the world's
only fully integrated 200W CO2 laser. In 2003, at the Munich Laser
Show, we exhibited a wide range of new products including a unique,
fully integrated 400W laser (firestar f400), a single tube (linear
polarization) fully-integrated 200W laser (firestar f201), and a
compact, low cost 30W laser (firestar v30). In addition, we extended
our firestar t-technology to include an 80W laser, available in either
air or water-cooled versions. In 2004, we launched our high
performance, air-cooled 100W laser (firestar t100).
The Company sells primarily to original equipment manufacturers
("OEMs") and system integrators who integrate the lasers with suitable
motion systems and optical assemblies and then sell the complete system.
Applications include desktop engraving systems found in many trophy and
award shops throughout the world, large area flatbed systems for cutting
dieboard or airbag material, and 3D prototyping using paper, sintered
metals and other materials to create 3D models and molds directly from
CAD packages. The Company's lower power lasers are the lasers of choice
for the majority of the CO2 marking and coding systems in use throughout
the world. Higher power lasers also are finding uses in manufacturing
plants for trimming flashing from injection-molded parts in the
automobile industry, cutting textiles and woven fabrics on continuous
production lines and slitting and sealing of plastic packaging.
The Company also manufactures the FH-Series of OEM marking-heads
which, when configured with it's laser, provide a fast and effective
method of permanently marking parts with lot codes, serial number/date
information and bar codes. The FH-Series Index is ideal for stationary
marking applications while the Tracker version features the capability
to mark both moving and stationary parts. The Company's WinMark
software has been developed specifically for the FH-series marking
heads, and is available in multiple language versions, to run on Windows
(Trademark) 95, 98, 2000 and Windows(Trademark) NT. Launched in
December 2001, Synrad's FH-Series Smart marking head allows users to
build marking systems that can be operated without a PC. Further
developments of this product line in 2004 included USB and network
capable heads.
Scanners
.........
The Company is a market leader in galvanometer based optical
scanners, which are manufactured at Cambridge, the Company's subsidiary
based in Cambridge, Massachusetts. This technology is critical to a
broad, diversified and growing market of laser based system
applications. The breadth of laser applications served by the Company's
scanners include: industrial through consumer product laser marking and
coding, laser machining and welding, high density via hole PCB drilling
for the cell phone industry, scanning microscopy for Genomic DNA
research and drug discovery, retinal scanning and OCT (Optical Coherence
Tomography) imaging for laser-based biomedical diagnostics, Laser-based
Vision Correction, high resolution printing, semiconductor wafer
inspection and processing, 2D or 3D imaging, and laser projection and
entertainment.
The Company is recognized worldwide for it's technology and it's
leadership in the market for laser scanning systems that require the
highest accuracy and highest speed beam steering and positioning for
industrial, medical, scientific, military and academic applications and
environments. The strong growth of scanner sales is fueled by the
Company's R&D commitment to advancing optical scanner technology and the
enabling of new OEM applications in the laser systems market. In 2004,
the Company dramatically advanced and extended its highest performance
product line of Optical Scanners to the new patented model 6200H product
line which provides new levels of laser scanning speed that has enabled
volume application growth in the above markets and set new standards for
scanning and application performance. The Company's other major
galvanometer product line is its' exclusive Moving Coil Optical Scanner
line with its patented capacitive position detection, whose design was
pioneered by Cambridge for applications requiring the highest levels of
scanning accuracy and large apertures. In addition, the Company today
offers a more extensive line of high performance analog and digital
servo electronics products along with other value-added products such as
a wide range of optics from uV to iR and mounts for complete scanning
subassemblies and solutions.
High Power Solid-State Lasers and Ultrafast Lasers
...................................................
The Company designs, manufactures and markets solid-state lasers
for science, industry and OEM uses at Quantronix, which is located in E.
Setauket, NY. On a worldwide basis, scientific lasers represent one of
the most stable and long-established laser markets. Chemists,
biologists, physicists and engineers use scientific lasers. In this
market, end-users are generally familiar with the various product
specifications, features and reliability, which are the major factors in
choosing between competing products.
The Company's current line of scientific products includes the
Integra C, Integra E, Integra I and Odin Series of Ultrafast Amplifiers
and the High Power Green lasers that include the Falcon and Darwin
series. The Company's Ultrafast Amplifiers incorporate a material
called Titanium-doped Sapphire ("Ti:Sapphire"), which has created
opportunities for a greater volume of research than previous materials.
Ultrafast Amplifiers deliver high-energy short pulses on the femtosecond
or picosecond time scale. (A femtosecond is one quadrillionth of a
second; a picosecond is one trillionth of a second). These short pulses
enable the investigation of a wide range of physical, chemical and
biological phenomena.
The scientific systems utilize Nd:YLF lasers to produce high-energy
pulses at a rate of 1kHz (1,000 pulses per second). These pulses drive
the Ti:Sapphire Amplifier that can then pump other optical systems such
as optical parametric amplifiers, (also marketed by Quantronix), which
deliver tunable light from ultraviolet to infrared regions of the
spectrum. The material properties to be studied vary over this range.
The Company's industrial and OEM offerings consist of a variety of
high power lamp pumped and diode pumped Nd:YAG and Nd:YLF lasers,
available in infrared, Green, UV and Deep UV wavelengths. These lasers
are ideal for marking and micro-machining applications. The Company also
has developed ultrafast lasers for ultra-fine micro-machining
applications. In addition, the Company has launched a series of high-
powered multi-wavelength diode pumped and lamp pumped marking and deep
engraving systems for OEM's and system integrators. The newly released
Condor series high power lamp pumped Nd:YAG lasers offer higher
efficiency and extended lamp life of over 2000 hours. In addition to its
lasers, the Company offers a variety of laser options and accessories
such as power monitoring systems, beam delivery systems, laser energy
controllers, pulse shapers and motorized apertures. These options are
available with software drivers and can be integrated with any laser
system.
High-energy Solid-state Pulsed Lasers
......................................
The Company is a leading manufacturer of high-energy, solid-state
pulsed laser systems, which are manufactured at Continuum, the Company's
subsidiary located in Santa Clara, California. These systems produce
pulsed laser energy outputs with very short duration (less than 10
billionths of a second) and very high (gigawatt) levels of peak power.
The unique performance characteristics of these lasers allow
researchers in the fields of chemistry, biology, and physics to explore
a wide range of chemical and physical phenomena. Applications range
from remote sensing and measurement to a number of important
spectroscopic techniques. Specific examples in the remote sensing area
include atmospheric analysis of airborne contaminants and pollutants,
Particle Image Velocimetry (PIV) for measuring fluid dynamic properties
in gases and liquids, and laser range finding techniques for precise
distance measurements and terrain mapping.
Spectroscopic applications include Laser Induced Breakdown
Spectroscopy (LIBS) for metallurgical analysis of alloys, laser
absorption and laser induced fluorescence (LIF) spectroscopy for
chemical analysis, nonlinear spectroscopic techniques for combustion
diagnostics, time of flight mass spectroscopy for isotopic analysis, and
time-resolved spectroscopy for analysis of chemical reaction rates.
The Company sells its high-energy solid-state pulsed laser products
worldwide, primarily to scientific researchers in university, industrial
and government laboratories. Products range in complexity from small
turnkey low energy lasers to advanced high-energy lasers that use
multiple stages of power amplification for higher energy and superior
beam quality. High-energy lasers can be coupled to tunable dye lasers
or devices known as Optical Parametric Oscillators (OPO's) to provide
laser outputs that can be continuously tuned in wavelength from the deep
ultraviolet to the far infrared region of the electromagnetic spectrum.
These tunable laser systems are required for many spectroscopy
applications.
Product offerings include the Minilite and Surelite product lines,
a series of "single oscillator" self-contained laser systems that do not
require external water cooling and offer turnkey performance in a
compact package. Energy outputs range from 0.05 to 0.8 Joules per pulse
with wavelength coverage of 1064 nm, 532 nm, 355 nm, and 266 nm. These
lasers are ideal sources for applications such as laser radar (LIDAR),
laser photolysis, ablation, mass spectroscopy, and PIV.
For advanced higher energy lasers, the Company manufactures and
sells the Powerlite series of lasers. The Precision II 8000 and
Precision II 9000 and Powerlite Plus operate in oscillator/amplifier
configurations that provide enhanced output energies with excellent beam
quality. Energy outputs range from 0.55 to 3.0 Joules per pulse with
wavelength coverage of 1064 nm, 532 nm, 355 nm, and 266 nm. These lasers
are ideal as pump sources for tunable dye and OPO product lines and as
research tools for laser ablation, non-linear spectroscopy, and remote
imaging.
The Company's wavelength tunable product lines, the Surelite OPO,
the Panther (Registered Trademark) EX OPO and the ND 6000 dye laser,
produce laser light with wavelengths from 200 nm to 4500 nm, providing
researchers with full wavelength coverage over the range of greatest
interest for optical spectroscopy.
In addition to standard pulsed laser products, the Company offers
custom laser solutions to fit precise customer needs. The Company offers
a wide range of solutions including mode-locked picosecond and long-
pulse Nd:YAG lasers, chirped pulse amplification systems, Nd:glass
macropulse systems, and Ti:Sapphire pump laser systems. Modular design
and time proven reliability make these lasers flexible, versatile and
easy to operate or upgrade.
In 2004, the Company introduced Inlite, the industrial YAG laser
system, designed from the ground up to satisfy the needs of users in
industrial applications. The basic design features include an on-board
microprocessor to manage laser head housekeeping functions, harmonic
generators for 532 nm, 355 nm and 266 nm that fit inside the laser head,
and Pyro detectors that can be added to control the laser in power mode
or diagnose harmonics conversion efficiency. Applications for Inlite
include materials processing, Laser Induced Breakdown Spectroscopy
(LIBS), Laser Induced Fluorescence (LIF), range finding, particle
detection, inspection, marking and remote sensing.
Since its inception, Continuum has sold over 20,000 lasers
worldwide to universities, government laboratories, research
institutions, and corporations.
Optical Products
.................
TOC, a subsidiary of the Company based in Oxnard, California,
specializes in the manufacturing of custom precision optical components.
TOC is an industry leader in the manufacturing of flying height test
disks used in the disk drive industry. For more than 24 years, TOC has
provided precision fabrication and coating services to meet demanding
applications.
The Company offers custom optics services which incorporate
polishing optics to extreme flatness (better than 1/20 wave) with low
surface roughness and difficult aspect ratios. The Company provides a
complete range of thin film coatings in the UV-Visible-Near IR. This
includes Edge Filters, Bandpass Filters, Hot Mirrors, Cold Mirrors,
Beamsplitters, Neutral Density Filters, Enhanced Metallics, Polarizers,
Broadband AntiReflection Coatings, V Coats, High Reflectors, Dielectric
and Metallic Mirrors and Scanning Mirrors. The substrates and coated
components are used in various systems such as optical scanners, laser
systems, professional motion picture cameras and a myriad of other
industrial and scientific applications, as well as interferometry and
research and development.
Light and Color Measurement
............................
The Company is a world leader and innovator in high precision,
state-of-the-art electro-optical instrumentation and systems, which are
manufactured at Photo Research, the Company's Chatsworth, California
subsidiary. Photo Research has delivered world-class light and color
measurement solutions, serving the cathode ray tube ("CRT")/flat panel
display ("FPD"), automotive, aerospace, lighting, motion picture,
research and development and related industries for over 60 years.
The Company has three main product lines. The Spectra(Registered
Trademark) product line offers systems to a wide variety of industries
for research, quality control and on-line testing. This line includes
the only truly portable battery operated Spectroradiometer; the PR-650
fast scanning SpectraColorimeter. The PR-705/715 SpectraScan complements
this line with an automated aperture wheel that accommodates six
apertures.
The Pritchard (Registered Trademark) line originated with the
industry workhorse the PR-1980 series. The Pritchard is the most widely
used photometer in the world. The newer addition to this series is the
PR-880. This is the only fully automated filter photometer available
today. The PR-880 is ideal for today's automated factory and ATE/OEM
environments.
Photo Research developed the first commercially available video
photometer over 15 years ago. The newest and most advanced video
photometer, the PR-920 digital video photometer, is the latest addition
to this product line. Video instrumentation provides high-resolution
inspection of CRT and flat panel displays and instrument panels.
Photo Research Optical Metrology Laboratory (PROML) is a supplier
of optical radiation standards and calibration and measurement services
to major manufacturers of instruments, displays, devices and materials.
All Photo Research instruments are calibrated to NIST-traceable
standards.
The Company developed many industry standards, such as Spectra?
Pritchard Optics, utilized in astronomical and star-simulation
measurements. The Company is also instrumental in supporting standards
for organizations including VESA, ISO and SAE.
Marketing and Sales
....................
The Company markets its products and services through several media
sources in addition to the presentation of its product lines at domestic
and international trade shows. The marketing and sales staff's efforts
are enhanced by means of presentations and training at conferences,
professional meetings, and through in-person and telephone sales and
support calls. The Company also engages independent manufacturers'
representatives for the sale of its products. Foreign sales of the
Company's products are made primarily through foreign equipment
distribution organizations, by representatives at Excel Europe, its
German subsidiary, Excel Japan, its Japanese subsidiary, Excel Asia, its
Malaysian subsidiary and Excel SouthAsia JV, a joint venture. Excel
Europe has operations near Munich, Germany; Frankfurt, Germany;
Ludwigsburg, Germany and Milan, Italy. Excel Japan has operations in
Tokyo, Japan. Excel Asia has operations in Penang, Malaysia. Excel
SouthAsia JV has operations in Mumbai, India. These subsidiaries engage
in the business of marketing, distributing, integrating and servicing
laser systems (for industrial, semiconductor, scientific, and electronic
products) manufactured at the Company's facilities in East Setauket, New
York; Santa Clara, California; Orlando, Florida; and Mukilteo,
Washington. The sales territory covered by Excel Europe is primarily
Europe, Excel Japan covers Japan, the sales territory for Excel Asia is
primarily Southeast Asia and the sales territory for Excel SouthAsia JV
is primarily South Asia. At Excel Europe, the staff of 95 includes 37
engineers who install and service all products, including complex
semiconductor, scientific, and other industrial systems. In addition,
Excel Europe provides spare parts for its installed base. Excel Japan
has a staff of 29. Excel Asia currently has a staff of 12, which
includes 4 engineers. Excel Asia offers sales and support services to
semiconductor and electronics manufacturers, automation houses,
universities, research and development facilities and local consumer
manufacturers. Excel SouthAsia JV has a staff of 32.
Net sales for foreign and domestic operations by origin is as
follows (in thousands):
The year ended December 31,
2004 2003 2002
........ ........ ........
Net sales and services to unaffiliated
customers from:
United Stated operations $ 96,927 $ 84,393 $ 67,731
European operations 27,928 23,955 23,308
Asian operations 11,776 14,333 3,474
........ ........ ........
$136,631 $122,681 $ 94,513
........ ........ ........
........ ........ ........
The following table presents the Company's net sales and services
by destination for the years ended December 31, 2004, 2003 and 2002 (in
thousands):
2004 2003 2002
................ ............... ...............
Dollars Percent Dollars Percent Dollars Percent
........ ....... ........ ....... ....... .......
To U.S. Customers $ 50,907 37% $ 47,994 39% $35,343 37%
To Non-U.S. Customers 85,724 63% 74,687 61% 59,170 63%
........ ....... ........ ....... ....... .......
TOTAL $136,631 100% $122,681 100% $94,513 100%
........ ....... ........ ....... ....... .......
........ ....... ........ ....... ....... .......
Of the net sales and services to non-U.S. customers above, net
sales and services to customers in Germany accounted for approximately
$17.8 million, $19.0 million and $15.5 million of total consolidated net
sales and services for 2004, 2003, and 2002, respectively, and net sales
and services to customers in Japan accounted for approximately $19.1
million of total consolidated net sales and services for 2004. No other
individual foreign country accounted for more than 10% of total
consolidated net sales and services in 2004, 2003 or 2002.
Manufacturing
..............
The Company assembles its products at its facilities in East
Setauket, New York; Orlando, Florida; Oxnard, California; Cambridge,
Massachusetts; Chatsworth, California; Santa Clara, California;
Mukilteo, Washington and Ludwigsburg, Germany. The Company relies upon
unaffiliated suppliers for the material components and parts used to
assemble its products. Most parts and components purchased from
suppliers are available from multiple sources. To date, the Company has
not experienced any significant delays in obtaining parts and components
for its products. The Company believes that it will be able to continue
to obtain most required components and parts from a number of different
suppliers, although there can be no assurance thereof. Lack of
availability of certain components could require major redesign of the
products and could result in production delays.
Warranty and Customer Services
...............................
The Company's warranty for its new products varies between three
months and twelve months. The Company also provides field support
services on an individual call basis and through service maintenance
contracts, and provides customer support services by telephone to
customers with operational and service problems.
Research and Development
.........................
Due to the intense competition and rapid technological change in
the photonics industry, and specifically for laser and optical products,
the Company believes that it must continue to improve and refine its
existing products and systems and develop new applications for its
technology. Research and development expenses for the years ended
December 31, 2004, 2003, and 2002 were $13.7 million, $12.6 million, and
$9.8 million, respectively.
Competition
............
The laser industry is subject to intense competition and rapid
technological change. Several of the Company's competitors are
substantially larger and have greater financial and other resources than
the Company. Competition among laser manufacturers extends to
attracting and retaining qualified technical personnel. The overall
competitive position of the Company will depend primarily upon a number
of factors, including the price and performance of its products, the
compatibility of its products with existing laser systems and the
Company's overall reputation in the laser industry.
The Company's scientific and industrial solid-state laser products
face a number of competing product lines from Spectra-Physics, Clark-
MXR, Femtolaser, Thales Laser, Lee Laser, Spectron Lasers, Lightwave
Electronics, and Coherent, Inc.
Competition for the high-energy solid-state laser products comes
from New Wave Research, Quantel Lasers and Big Sky Lasers, Spectra-
Physics, Coherent, Inc., Thales Laser, Amplitide, Spectron Lasers, and
Eksma.
The Company's marking/engraving systems compete primarily with
those manufactured by Rofin-Baasel, Electrox, Alltec, Foba, Laservall,
SEI s.p.A., Cheval Frere, Fotona, E.O. Technics, Trumpf-Haas and Hans
Laser. These products have generally been subject to intense price
competition in recent years.
In the semiconductor photomask repair market, the Company primarily
competes with NEC, FEI, Seiko and Micrion. Recently, the market for
photomask laser repair systems has been saturated and has experienced
rapid advances in the miniaturization of integrated circuits and
computers.
Competition for sealed carbon dioxide lasers comes from Coherent-
DEOS (Bloomfield, CT), Rofin (Hull, UK), ULS (Scottsdale, AZ), and
Spectron (Rugby, UK).
In light and color measurement, the major competitor to the
Company's Spectra product is Minolta. Topcon is the prime competitor to
the Pritchard line. In video-based products, the company's video
photometer is utilized to characterize new display technologies, with
Microvision as its key competitor.
In the optical scanner market, GSI-Lumonics, is a significant
competitor of the Company and there are a number of other small
competitors in the international markets.
Backlog
........
As of December 31, 2004, the Company had a backlog of firm orders
of approximately $26.5 million as compared to a backlog of $36.2 million
as of December 31, 2003. The Company believes that the current backlog
will be filled during the present fiscal year. Historically, backlog is
shipped within 90 days from the order date.
Patents and Licenses
.....................
The Company has several United States patents covering a wide
variety of its products and has applications pending in the United
States patent office. There can be no assurance that any other patents
will be issued to the Company or that such patents, if and when issued,
will provide any protection or benefit to the Company. Although the
Company believes that its patents and its pending patent applications
are valuable, the Company does not consider the ownership of patents
essential to its business. The Company believes that, in general, the
best protection of proprietary technology in the laser industry will
come from market position, technical innovation and product performance.
There is no assurance that the Company will realize any of these
advantages.
Government Regulation
......................
The Company is subject to the laser radiation safety regulations of
the Radiation Control for Health and Safety Act administered by the
Center for Devices and Radiological Health (CDRH) of the United States
Food and Drug Administration ("FDA"). Among other things, these
regulations require a laser manufacturer to file new product and annual
reports, to maintain quality control and sales records, to perform
product testing, to distribute appropriate operating manuals, to
incorporate certain design and operating features in lasers sold to end-
users and to certify and label each laser sold to end-users as one of
four classes (based on the level of radiation from the laser that is
accessible to users). Various warning labels must be affixed and
certain protective devices installed depending on the class of product.
The National Center for Devices and Radiological Health is empowered to
seek fines and other remedies for violations of the regulatory
requirements. The Company believes that it is currently in compliance
with these regulations.
The FDA also imposes various requirements on manufacturers and
sellers of products under its jurisdiction, such as labeling,
manufacturing practices, record keeping and reporting requirements. The
FDA also may require post-market testing and surveillance programs to
monitor a product's effects. There can be no assurance that the
appropriate approvals from the FDA will be granted, that the process to
obtain such approvals will not be excessively expensive or lengthy or
that the Company will have sufficient funds to pursue such approvals at
the time they are sought. The failure to receive requisite approvals
for the Company's products or processes, when and if developed, or
significant delays in obtaining such approvals would prevent the Company
from commercializing its products as anticipated and would have a
materially adverse effect on the business of the Company.
Employees
..........
As of December 31, 2004, the Company had 684 full-time employees
consisting of 3 executive officers; 25 subsidiary executive officers;
226 scientists, engineering and technical personnel; and 430
manufacturing, administrative and sales support personnel. The Company
believes that its relations with its employees are satisfactory. None
of the Company's employees is represented by a union.
Financial Information About Foreign and Domestic Operations
.............................................................
and Export Sales
................
Net sales and services to customers in the domestic U.S. amounted
to approximately $50.9 million, $48.0 million and $35.3 million for the
years ended December 31, 2004, 2003, and 2002, respectively
(approximately 37%, 39% and 37% of total net sales and services,
respectively).
For the years ended December 31, 2004, 2003, and 2002, the Company
had net sales and services to customers in foreign countries amounting
to approximately $85.7 million, $74.7 million and $59.2 million,
respectively (approximately 63%, 61% and 63%, of total net sales and
services, respectively). These sales included sales by Excel Europe,
Excel Asia, Excel Japan, and Excel SouthAsia JV, the Company's foreign
subsidiaries. Excel Europe buys laser systems, spare parts and related
consumable materials from Quantronix, Baublys-Control Laser and Synrad
for resale to European and other foreign customers, and also furnishes
field repair services. Excel Asia primarily engages in the business of
marketing, selling, distributing, integrating and servicing Quantronix
and Baublys-Control Laser products in Southeast Asia. Excel Japan
engages in the business of marketing, selling, distributing, integrating
and servicing Quantronix and Continuum products in Japan. Excel
SouthAsia JV focuses on the business of marketing, sales, installation,
applications and service of Quantronix, Baublys-Control Laser and CSI
products in South Asia. See Note 13 of the "Notes to Consolidated
Financial Statements."
The carrying amounts of long-lived assets held by the Company's
foreign subsidiaries (Excel Europe, Excel Asia , Excel Japan and Excel
SouthAsia JV) at December 31, 2004, 2003 and 2002 primarily include
property, plant and equipment and goodwill whose combined carrying
amounts were approximately $7.0 million, $5.9 million and $4.9 million,
respectively. The carrying amounts of the aforementioned long-lived
assets held by the Company's domestic subsidiaries at December 31, 2004,
2003 and 2002 were approximately $51.8 million, $52.8 million and $52.7
million, respectively.
Access to Information
......................
The Company is required to file its annual reports on Forms 10-K
and quarterly reports on Forms 10-Q, and other reports and documents as
required from time to time with the United States Securities and
Exchange Commission (the "SEC"). The public may read and copy any
materials that we file with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, NW, Washington, DC 20549. Such information may be
obtained from the Public Reference Room by calling the SEC at 1-800-SEC-
0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding the
Company's electronic filings with the SEC at http://www.sec.gov.
The Company's website is located at http://www.exceltechinc.com.
At this website, users can access, free of charge, the Company's filings
with the SEC and annual, quarterly, and current reports as soon as
reasonably practicable after such material is electronically filed with
or furnished to the SEC. In addition, the Company will provide
electronic or paper copies of such reports free of charge upon request.
Requests may be made by calling Investor Relations at (631) 784-6175 or
by writing to Investor Relations at 41 Research Way, East Setauket, New
York 11733.
Safe Harbor For Forward-Looking Statements Under the Securities
................................................................
Litigation Reform Act of 1995; Risk Factors
...........................................
This Annual Report on Form 10-K and the other reports, releases,
and statements (both written and oral) issued by the Company and its
officers from time to time may contain statements concerning the
Company's future results, future performance, intentions, objectives,
plans, and expectations that are deemed to be "forward-looking
statements." Such statements are made in reliance upon safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results, performance, and achievements may differ
significantly from those discussed or implied in the forward-looking
statements as a result of a number of known and unknown risks and
uncertainties including, without limitation, those discussed below and
in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." In light of the significant uncertainties
inherent in such forward-looking statements, the inclusion of such
statements should not be regarded as a representation by the Company or
any other person that the Company's objectives and plans will be
achieved. Words such as "believes," "anticipates," "expects,"
"intends," "may," and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of
identifying such statements. The Company undertakes no obligation to
revise any of these forward-looking statements.
Sometimes the Company communicates with securities analysts. It is
against the law and the Company's policy to disclose to analysts any
material non-public information or other confidential commercial
information. You should not assume that the Company agrees with any
statement or report issued by any analyst regardless of the content of
the statement or report. The Company has a policy against issuing
financial forecasts or projections or confirming the accuracy of
forecasts or projections issued by others. If reports issued by
securities analysts contain projections, forecasts or opinions, those
reports are not the responsibility of the Company.
The risks presented below may not be all of the risks the Company
may face. These are the factors that the Company believes could cause
actual results to be different from expected and historical results.
Other sections of this report include additional factors that could have
an effect on the Company's business and financial performance. The
industry that the Company competes in is very competitive and changes
rapidly. Sometimes new risks emerge and management may not be able to
predict all of them, or be able to predict how they may cause actual
results to be different from those contained in any forward-looking
statements. You should not rely upon forward-looking statements as a
prediction of future results.
Uncertain Market Acceptance. The Company's overall marketing
objective is to strengthen its presence in existing markets, and
establish its market presence in other industrial markets. With any
technology, there is the substantial risk that the market may not
appreciate the benefits or recognize the potential applications of the
technology. Market acceptance of the Company's products will depend, in
large part, upon the ability of the Company to demonstrate the potential
advantages of its products over products manufactured by other
companies. There can be no assurance that the Company will be able to
achieve all or any of its marketing objectives, or that the Company's
products will be accepted in their intended marketplaces on any
significant basis.
Intense Competition. The photonics industry, particularly for
laser and electro-optical component products, generally is subject to
intense competition. The Company's current and proposed products
compete with existing and proposed products marketed by other
manufacturers. Some of the Company's competitors are substantially
larger in size and have substantially greater financial, managerial,
technical and other resources than the Company. There can be no
assurance that the Company will successfully differentiate its current
and proposed products from the products of its competitors or that the
marketplace will consider the Company's products to be superior to
competing products.
Technological Obsolescence. The laser and electro-optical
component industry is characterized by extensive research and rapid
technological change. The development by others of new or improved
products, processes or technologies may make the Company's current or
proposed products obsolete or less competitive.
Compliance with Government Regulations. The Company currently is
subject to the laser radiation safety regulations of the Radiation
Control for Health and Safety Act administered by the National Center
for Devices and Radiological Health of the FDA. The National Center for
Devices and Radiological Health is empowered to seek fines and other
remedies for violations of these regulatory requirements.
Patent Protection. The Company's ability to effectively compete
may depend upon the proprietary nature of its technologies. The Company
owns several patents and has other applications pending. The Company
expects to file additional patent applications in the future. There can
be no assurance, however, that other companies are not investigating or
developing other technologies that are similar to the Company's
technologies, or that any additional patents will be issued to the
Company or that such patents will afford the Company sufficiently broad
patent coverage to provide any significant deterrent to competitive
products. Even if a competitor's products were to infringe products
owned by the Company, it could be very costly for the Company to enforce
its rights in an infringement action. The validity and enforceability
of such patents may be significant to the Company and may be important
to the success of the Company. The Company, however, believes that the
best protection of proprietary technology in the laser industry comes
from market position, technical innovation and product performance.
There can be no assurance that any of these will be realized or
maintained by the Company.
The Company has obtained licenses under certain patents covering
lasers and related technology incorporated into the Company's products.
However, there may be other patents covering the Company's current or
proposed products. If valid patents are infringed, the patent owner
will be able to prevent the future use, sale and manufacture of the
subject products by the Company and also will be entitled to damages for
past infringement. Alternatively, the Company may be required to pay
damages for past infringement and license fees or royalties on future
sales of the infringing components of its systems. Infringement of any
patents also may render the Company liable to purchasers and end-users
of the infringing products. If a patent infringement claim is asserted
against the Company, the defense of such claim may be very costly
(whether or not the Company is successful in defending such claim).
While the Company is unable to predict what such costs, if any, will be
incurred if the Company is obligated to devote substantial financial or
management resources to patent litigation, its ability to fund its
operations and to pursue its business goals may be substantially
impaired.
Dependence on Suppliers. The Company relies on outside suppliers
for most of its manufacturing supplies, parts and components. Most
parts and components used by the Company currently are available from
multiple sources. There can be no assurance that, in the future, its
current or alternative sources will be able to meet all of the Company's
demands on a timely basis. Unavailability of necessary parts or
components could require the Company to re-engineer its products to
accommodate available substitutions which would increase costs to the
Company and/or have a material adverse effect on manufacturing
schedules, product performance and market acceptance.
Dependence on Resellers, Distributors and OEMs. The Company sells
some of its products through resellers, distributors and OEMs. Reliance
upon third party distribution sources subjects the Company to risks of
business failure by these individual resellers, distributors and OEMs,
and potential credit, inventory and business concentration risks.
Dependence on Foreign Sales. A significant amount of the Company's
product sales are made to customers outside the United States. These
sales are subject to the normal risks of foreign operations, such as:
Currency fluctuations
Protective tariffs
Trade barriers and export/import controls
Transportation delays and interruptions
Reduced protection for intellectual property rights
in some countries
The impact of recessionary foreign economies
Longer receivable collection periods
The Company cannot predict whether the United States or any other
country will impose new quotas, tariffs, taxes or other trade barriers
upon the importation of the Company's products or supplies, or gauge the
effect that new barriers would have on its financial position or results
of operations.
Manufacturing. The Company assembles its products at its various
facilities in the United States and Germany. If use of any of the
Company's manufacturing facilities were interrupted by natural disaster
or otherwise, the Company's operations could be negatively affected
until the Company could establish alternative production and service
operations. In addition, the Company may experience production
difficulties and product delivery delays in the future as a result of:
Changing process technologies
Ramping production
Installing new equipment at its manufacturing facilities
Shortage of key components
Financial Performance. The Company's operating results may vary in
the future as a result of a number of factors, including:
Changes in technology
New competition
Economic conditions
Customer demand
A shift in the mix of the Company's products
A shift in sales channels
The market acceptance of new or enhanced versions
of the Company's products
The timing of introduction of other products and technologies
Any cancellation or postponement of orders
Any charges to earnings associated with the foregoing
Research and Development. The Company is active in research and
development of new products and technologies. The Company's research
and development efforts may not lead to the successful introduction of
new or improved products. The Company may encounter delays or problems
in connection with its research and development efforts. New products
often take longer to develop, have fewer features than originally
considered desirable and cost more to develop than initially estimated.
There may be delays in starting volume production of new products and
new products may not be commercially successful. Products under
development are often announced before introduction and these
announcements may cause customers to delay purchases of existing
products until the new or improved versions of those products are
available. Delays or deficiencies in development, manufacturing,
delivery of, or demand for, new products or higher development cost,
could have a negative affect on the Company's business, operating
results or financial condition.
Acquisitions. The Company has in the past and may in the future
acquire businesses or product lines as a way of expanding its product
offerings and acquiring new technology. If the Company does not
identify future acquisition opportunities and/or integrate businesses
that it may acquire effectively, the Company's growth may be negatively
affected.
Product Liability Claims. The testing, manufacturing, marketing
and sale of laser products subjects the Company to the risk of liability
claims or product recalls. Although the Company maintains product
liability insurance in the countries in which it conducts business, the
Company cannot assure that such coverage is adequate or will continue to
be available at affordable rates. Product liability insurance is
expensive and may not be available in the future on acceptable terms, if
at all. A product recall or successful product liability claim could
inhibit or prevent commercialization of the Company's products, impose a
significant financial burden on the Company, or both, and could have a
material adverse effect on the Company's business and financial
condition.
ITEM 2. PROPERTIES
North America
..............
East Setauket, New York
........................
Quantronix owns a building that is approximately 65,000 square
feet. The facility is utilized for manufacturing operations,
administrative offices, research and development, engineering and laser
applications.
Orlando, Florida
.................
Baublys-Control Laser owns and occupies 50% of a building that is
approximately 80,000 square feet, which it utilizes for administrative
offices, manufacturing, and research and development. In addition, CSI
occupies approximately 50% of this building, which it utilizes for all
of its operating activities.
Oxnard, California
...................
TOC leases a 14,000 square foot building in Oxnard, California from
an unaffiliated landlord for manufacturing purposes, at an annual rent
of approximately $96 thousand. The lease term expires in August 2009.
Cambridge, Massachusetts
.........................
Cambridge leases a 17,000 square foot building in Cambridge,
Massachusetts from an unaffiliated landlord for manufacturing operations
and administrative offices. The lease is for a ten-year period ending
in December 2006, at an annual rent of approximately $307 thousand.
Chatsworth, California
.......................
Photo Research purchased its building in July 1998. The building
is approximately 22,000 square feet and is located in Chatsworth,
California. The building is used for manufacturing operations and
administrative offices.
Mukilteo, Washington
.....................
Synrad owns and occupies a 63,000 square foot building for its
administrative offices and manufacturing operations.
Santa Clara, California
........................
Continuum leases a 47,000 square foot building from an unaffiliated
landlord for manufacturing purposes, at an annual rent of approximately
$240 thousand. The lease is for a five-year period ending in December
2008.
Europe
.......
Darmstadt, Germany
...................
Excel Europe and its division Quantronix Europe lease approximately
7,800 square feet of office space in Darmstadt, Germany, which it uses
for sales, marketing and services. The space is leased from an
unaffiliated landlord at an average annual rent of approximately 84
thousand euros. The lease expires in December 2009.
Munich, Germany
................
Excel Europe maintains a satellite office in Munich, Germany, for
Synrad's European sales, marketing and service operation. The office
occupies approximately 7,800 square feet of space. The space is leased
from an unaffiliated landlord, at an average annual rent of
approximately 74 thousand euros. The lease expires in December 2008.
Ludwigsburg, Germany
.....................
Baublys-Control Laser operates out of a 22,500 square foot facility
located in Ludwigsburg, Germany, which houses its sales and marketing,
research and development, manufacturing and services operations and
executive offices. The facility is leased from an unaffiliated landlord
at an average annual rent of approximately 146 thousand euros. The
lease expires in June 2008.
Milan, Italy
.............
Excel Europe also maintains a sales and service office near Milan,
Italy. The lease provides approximately 750 square feet of office space
from an unaffiliated landlord at an approximate annual rent of 8.5
thousand euros. The lease expires in November 2009.
Savigny Sur Orge, France
.........................
Excel Europe also maintains a sales and service office in Savigny
Sur Orge, France, located outside of Paris. The lease provides
approximately 2,800 square feet of office space from an unaffiliated
landlord at an approximate annual rent of 30.5 thousand euros. The
lease expires in December 2007.
Northumberland, United Kingdom
...............................
DGE operates out of a facility located in Northumberland, England,
which it uses for sales and marketing, manufacturing and administrative
offices. The lease is with an unaffiliated landlord at an approximate
annual rent of $32 thousand. The lease expires in February 2010.
Asia
......
Penang, Malaysia
.................
Excel Asia leases a 7,500 square foot facility in Penang Free
Industrial Zone, Penang, Malaysia, from an unaffiliated landlord. The
building is utilized as a regional operations hub which houses the
administrative offices, the light repair and integration services,
technical and support offices, as well as applications laboratories for
regional support. The annual rent is approximately $34 thousand. The
lease expires in December 2005.
Tokyo, Japan
.............
Excel Technology Japan leases approximately 6,000 square feet of
facilities in Tokyo, Japan and a sales office from unaffiliated
landlords. The spaces house all its operations, administration and
sales and marketing. The annual rent is approximately $184 thousand.
The leases expire in September 2005, December 2005 and October 2006.
Mumbai, India
..............
Excel SouthAsia JV leases a 3,600 square foot facility in Mumbai,
India from an unaffiliated landlord. The space houses its operations,
administration and sales and marketing. The annual rent is
approximately $40 thousand. The lease expires in July 2007.
Colombo, Sri Lanka
...................
Excel Technology-Lanka leases a 2,000 square foot office in
Colombo, Sri Lanka from an unaffiliated landlord. This space houses our
software operations to support our internal use software development
activities. The annual rent is approximately $13 thousand. The lease
expires in July 2007.
ITEM 3. LEGAL PROCEEDINGS
Dr. Phillips, Inc. ("Phillips"), the landlord of a facility leased
by Baublys-Control Laser ("Baublys") a wholly owned subsidiary of the
Company through 2001, filed a lawsuit in the Circuit Court of the Ninth
Judicial Circuit in and for Orange County, Florida against Baublys and
the Company, for not repairing or replacing certain personal property
related to the use of the property while Baublys leased the facility.
The Company guaranteed the lease. Baublys filed a counterclaim
contending that it was entitled to receive damages from Phillips for
damage to specific property due to Phillips failure to maintain the
leased premises. The Company believes there is no merit to the claims
made by Phillips and that the ultimate outcome of this matter will not
have a significant impact on the financial position and liquidity of the
Company. However, if Phillips is successful in its claims, Baublys
could be subject to approximately $300 thousand in damages plus interest
and/or attorney fees.
The Company and its subsidiaries are also subject to various
claims, which have arisen in the normal course of business. The impact
of the final resolution of these matters on the Company's results of
operations or liquidity in a particular reporting period is not known.
Management is of the opinion, however, that the ultimate outcome of such
matters will not have a material adverse effect upon the Company's
financial condition or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
........
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
The Company's Common Stock trades on the NASDAQ National Market
System under the symbol "XLTC." The following table sets forth the high
and low closing sales prices reported on the NASDAQ for the Common Stock
for the periods indicated.
Year ended: High Low
December 31, 2004
First Quarter $36.84 $29.58
Second Quarter $35.80 $29.90
Third Quarter $33.65 $23.52
Fourth Quarter $28.95 $23.40
December 31, 2003
First Quarter $22.44 $17.84
Second Quarter $24.90 $20.31
Third Quarter $28.90 $21.75
Fourth Quarter $33.02 $25.67
As of March 11, 2005, there were approximately 692 holders of
record of the Common Stock.
The Company has never paid cash dividends on its common stock.
Payment of dividends to holders of the common stock is within the
discretion of the Company's Board of Directors and will depend, among
other factors, on earnings, capital requirements and the operating and
financial condition of the Company. At the present time, the Company's
anticipated capital requirements are such that it intends to follow a
policy of retaining its earnings, if any, in order to finance the
development of its business.
The following table summarizes the Company's equity compensation
plans as of December 31, 2004:
Equity Compensation Plan Information
Number of Number of
securities securities
to be issued upon Weighted average remaining
exercise of exercise price available for
outstanding options of outstanding future issuance
Plan category (In thousands) options (In thousands)
.............. ................... ................ ..............
Equity compensation
plans approved by
security holders 1,002 $ 19.37 898
Equity compensation
plans not approved
by security holders 0 0 0
..... ....... ...
Total 1,002 $ 19.37 898
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statement of operations data for the
years ended December 31, 2004, 2003 and 2002, and the consolidated
balance sheet data as of December 31, 2004 and 2003, have been derived
from the Company's audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. The selected consolidated
statement of operations data for the years ended December 31, 2001 and
2000, and the selected consolidated balance sheet data as of December
31, 2002, 2001 and 2000, are derived from the Company's audited
consolidated financial statements which are not included in this Annual
Report on Form 10-K.
The following tables summarize (in thousands, except share data)
the Company's consolidated statement of operations and balance sheet
data. You should read this information together with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's consolidated financial statements and
notes to those statements included elsewhere in this Annual Report on
Form 10-K.
Statement of Operations Data (in thousands, except per share data)
Year Ended December 31,
................................................
2004 2003 2002 2001 2000
........ ........ ........ ........ ........
Net sales and services $136,631 $122,681 $ 94,513 $ 88,492 $107,720
Net income $ 14,762 $ 11,318 $ 8,512 $ 5,938 $ 15,651
Net earnings per share
Basic $1.23 $0.95 $0.72 $0.50 $1.35
Diluted $1.20 $0.93 $0.71 $0.50 $1.30
Weighted average common
and common equivalent
shares outstanding
Basic 12,026 11,853 11,792 11,762 11,597
Diluted 12,351 12,231 12,071 11,978 12,054
Balance Sheet Data (in thousands)
As of December 31,
................................................
2004 2003 2002 2001 2000
........ ........ ........ ........ ........
Total assets $152,478 $133,738 $118,724 $102,505 $ 98,986
Total liabilities $ 16,477 $ 16,466 $ 16,467 $ 10,907 $ 12,544
Working capital $ 80,006 $ 59,540 $ 44,765 $ 42,695 $ 48,584
Stockholders' equity $136,001 $117,272 $ 102,257 $ 91,598 $ 86,442
Long-term liabilities $ 2,807 $ 997 $ 180 $ 0 $ 0
Refer to Item 1 "Business" and Item 8 "Financial Statements and
Supplementary Data" for additional information affecting the
comparability of amounts above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
........
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and notes thereto set
forth in Item 8.
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 into its existing operations.
Details on our operations are discussed in our MD&A.
Critical Accounting Policies and Estimates
....................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses the Company's consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of
these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management
evaluates its estimates and judgments, including those related to
revenue recognition, bad debts, inventories, and income taxes.
Management bases its estimates and judgments on historical experience
and on various other factors that are believed to be relevant under the
circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes the following critical accounting policies
affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Revenue Recognition
....................
The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements" ("SAB 104"), as amended. SAB 104 requires that the
following four basic criteria must be met before revenue can be
recognized: 1) persuasive evidence that an arrangement exists; 2)
delivery has occurred or services have been rendered; 3) the fee is
fixed and determinable; and 4) collectibility is reasonably assured.
Generally, the Company receives a customer purchase order as evidence of
an arrangement and product shipment terms are F.O.B. shipping point.
The Company's revenues are generated from: 1) product sales,
including product upgrades and replacement part sales; 2) maintenance
agreements; and 3) services. The Company's product lines principally
consist of laser-based systems and electro-optical components used in a
wide range of applications by different types of end-users and are often
used as sub-assemblies required for end products manufactured by the
customer. Revenue relating to these products is recognized upon
transfer of title to the customer, which is generally the shipment date,
assuming the other criteria of SAB 104 are met. With respect to
maintenance agreements, revenue is recognized and customers are
generally billed on a monthly or quarterly basis over the term of the
agreement. When a customer pays an annual maintenance fee, it is
recorded as deferred revenue and recognized as revenue ratably over the
term of the agreement. For services rendered, customers are billed and
revenues are recognized as the related services are performed. When a
sales arrangement involves multiple elements, such as the sale of
products that require installation, training or other services, the
Company records deferred revenue for the fair value of the undelivered
element and recognizes the revenue when the revenue recognition criteria
for that element is met. Fair value is established for an element based
on the price when the element is sold separately.
The Company manufactures one product called a Photomask Defect
Repair System ("DRS") that is a laser-based system for use in
semiconductor photomask repair. The DRS provides a means to repair
defects on the complex photomasks used to produce integrated circuits.
These are very large, highly complex machines, customized for each
customer and ranging in price from $1.5 million to $2.0 million per unit
(based upon the most recent range of historical sales prices). The
terms of sale with respect to DRS's require that the Company perform
installation due to the technical expertise required for this product.
Due to the nature of the post-shipment installation obligations with
respect to the DRS's, the Company defers revenue recognition on the sale
of DRS's until installation has been completed.
Allowances for Doubtful Accounts
.................................
The Company is required to estimate the collectibility of its trade
receivables. A considerable amount of judgment is required in assessing
the ultimate realization of receivables, including the current credit-
worthiness of each customer. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of
its customers to make required payments. If the financial condition of
the Company's customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be
required. The collectibility of accounts receivable is evaluated based
on a combination of factors. In circumstances where the Company is
aware of a specific customer's inability to meet its financial
obligations (e.g., bankruptcy filings), a specific reserve for bad debts
is recorded against amounts due, to reduce the net recognized receivable
to the amount the Company reasonably believes will be collected. For
all other customers, management estimates a reserve for bad debts based
upon the total accounts receivable balance and the percentage expected
to be realized through subsequent cash collections. If circumstances
change (i.e., higher than expected defaults or an unexpected material
adverse change in a major customer's ability to meet its financial
obligations to us), the Company's estimates of the recoverability of
amounts due to the Company could be reduced by a material amount.
Inventories
............
On a quarterly basis, the Company compares the amount of inventory
on hand and under commitment with its latest forecasted requirements and
historical usage or sales to determine whether write-downs for excess or
obsolete inventory are required. Although the write-downs for excess or
obsolete inventory reflected in the Company's consolidated balance sheet
at December 31, 2004 and 2003 are considered adequate by the Company's
management, there can be no assurance that these write-downs will prove
to be adequate over time to cover ultimate losses in connection with the
Company's inventory. In addition, the Company will reduce the carrying
value of its finished goods inventory to net realizable value, if the
selling price of the product is less than its cost.
Income Taxes
.............
The Company records a valuation allowance to reduce its deferred
tax assets to the amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, in the event the Company were to
determine that it would not be able to realize all or part of its net
deferred tax assets in the future, an adjustment to the deferred tax
assets would be charged to income in the period such determination was
made. Likewise, should the Company determine that it would be able to
realize its deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made. As of December 31,
2004 and 2003, the Company has approximately $1.2 million of net
deferred tax liabilities and $298 thousand of net deferred tax assets,
respectively, related principally to inventory basis differences and tax
deductible goodwill amortization. Should future pretax book income and
taxable income be considerably lower than projected, an increase to the
valuation allowance may be required.
Recent Accounting Pronouncements
.................................
On December 21, 2004, the Financial Accounting Standards Board
("FASB") issued FASB Staff Position No. FAS 109-1, "Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation
Act of 2004" (FSP No. 109-1"), and FASB Staff Position No. FAS 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004"
("FSP No. 109-2"). These staff positions provide accounting guidance on
how companies should account for the effects of the American Jobs
Creation Act of 2004 that was signed into law on October 22, 2004. FSP
No. 109-1 states that the tax relief (special tax deduction for domestic
manufacturing) from this legislation should be accounted for as a
"special deduction" instead of a tax rate reduction. FSP No. 109-2
gives a company additional time to evaluate the effects of the
legislation on any plan for reinvestment or repatriation of foreign
earnings for purposes of applying FASB Statement No. 109. The Company
is evaluating whether it might repatriate any of its $2 million of
undistributed foreign earnings, which is expected to be completed within
a reasonable amount of time after additional guidance is published. The
evaluation is affected by many factors, including the Company's
projected cash requirements and the impact of the new tax law's one-time
deduction for qualifying repatriations. If the Company decides to
repatriate foreign earnings, it estimates the potential income tax
effect would be to record a tax liability at a rate of 5% or less.
In December 2004, the FASB issued SFAS No. 123 (R), "Share-Based
Payment" ("SFAS No. 123 (R)"). This statement replaces SFAS No. 123,
"Accounting for Stock-Based Compensation" and supercedes APB No. 25,
"Accounting for Stock Issued to Employees." SFAS 123 (R) requires all
stock-based compensation to be recognized as an expense in the financial
statements and that such cost be measured according to the grant-date
fair value of the stock options or other equity instruments. SFAS 123
(R) will be effective for quarterly periods beginning after June 15,
2005. While the Company currently provides the pro forma disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," on a quarterly basis (see "Note 1 -
Accounting for Stock-Based Compensation"), it is currently evaluating
the impact this statement will have on its consolidated financial
statements.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs -
an amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151
requires all companies to recognize a current-period charge for abnormal
amounts of idle facility expense, freight, handling costs and wasted
materials. This statement also requires that the allocation of fixed
production overhead to the costs of conversion be based on the normal
capacity of the production facilities. SFAS No. 151 will be effective
for fiscal years beginning after June 15, 2005. The Company is
currently evaluating the effect that this statement will have on its
consolidated financial statements.
Results of Operations
......................
The following table presents consolidated financial data for the
years ended December 31, 2004, 2003 and 2002 (in thousands of dollars
and as a percentage of total net sales and services).
2004 2003 2002
.... .... ....
Dollars Percent Dollars Percent Dollars Percent
....... ....... ....... ....... ....... .......
Net Sales and
Services $136,631 100.0% $122,681 100.0% $ 94,513 100.0%
Cost of Sales and
Services 72,723 53.2% 66,346 54.1% 51,851 54.9%
........ ...... ........ ...... ........ ......
Gross Profit/
Margin 63,908 46.8% 56,335 45.9% 42,662 45.1%
Operating Expenses:
Selling and
Marketing 18,850 13.8% 16,530 13.5% 12,570 13.3%
General and
Administrative 11,341 8.3% 11,324 9.2% 8,062 8.5%
Research and
Development 13,710 10.0% 12,598 10.3% 9,838 10.4%
........ ...... ........ ...... ........ ......
Income from
Operations 20,007 14.6% 15,883 12.9% 12,192 12.9%
Non-Operating
Income (973) (0.7%) (1,049) (0.9%) (513) (0.5%)
........ ...... ........ ...... ........ ......
Income before
Provision for
Income Taxes 20,980 15.4% 16,932 13.8% 12,705 13.4%
Provision for
Income Taxes 6,218 4.6% 5,614 4.6% 4,193 4.4%
........ ...... ........ ...... ........ ......
Net Income $ 14,762 10.8% $ 11,318 9.2% $ 8,512 9.0%
........ ...... ........ ...... ........ ......
........ ...... ........ ...... ........ ......
Net Sales and Services
.......................
Net sales and services for 2004 increased to $136.6 million from
$122.7 million in 2003, an increase of $14.0 million or 11.4%. All
product lines contributed towards the increase in net sales and services
with the exception of high-energy solid-state pulsed lasers, which
experienced a decrease in sales. Sales of CO2 lasers, scanners, light
and color measurement equipment, and marking systems were the primary
contributors towards our increase in sales. Net sales and services for
2003 increased to $122.7 million from $94.5 million in 2002. The
increase from 2002 to 2003 of $28.2 million or 29.8% was primarily
attributable to the acquisition of Continuum in October 2002, but the
increase also resulted from an entire year's direct sales in 2003 from
our subsidiary in Japan, and an increase in scanner and high power
solid-state laser sales.
Gross Margins and Cost of Sales
................................
Gross margins as a percentage of sales in 2004 were 46.8% compared
to 45.9% in 2003. Cost of sales and services increased by $6.4 million
or 9.6% to $72.7 million in 2004 from $66.3 million in 2003. The
increase in gross margins as a percentage of sales is due to the fixed
manufacturing costs being absorbed by increased sales volume, the mix of
products being sold, which have varying levels of variable costs and a
shift to higher margin direct sales from distributor sales. The
increase in cost of sales and services from 2003 to 2004 is primarily
attributable to the increased sales volume. Gross margins as a
percentage of sales in 2003 were 45.9% compared to 45.1% in 2002. Cost
of sales and services increased by $14.5 million or 28.0% to $66.3
million in 2003 from $51.9 million in 2002. The increase in gross
margins as a percentage of sales and the increase in cost of sales and
services from 2002 to 2003 are primarily attributable to the increased
sales volume and product mix.
Operating Expenses
...................
Selling and Marketing
Selling and marketing expenses were $18.9 million in 2004 compared
to $16.5 million in 2003 and $12.6 million in 2002. The increase of
$2.3 million or 14% from 2003 to 2004 was primarily attributable to the
variable costs associated with increased sales volume and our additional
fixed costs associated with expanding our US and global sales and
marketing efforts. The increase of $4.0 million or 31.5% from 2002 to
2003 was primarily attributable to increased direct sales from our
subsidiary in Japan and the acquisition of Continuum. Selling and
marketing expenses as a percentage of sales were 13.8% in 2004, 13.5% in
2003, and 13.3% in 2002. The increases in selling and marketing expenses
as a percentage of sales are primarily attributable to higher marketing
and personnel costs associated with the expansion of our sales and
marketing efforts.
General and Administrative
General and administrative expenses were $11.3 million in 2004, as
compared with $11.3 million in 2003 and $8.1 million in 2002. General
and administrative expenses from 2003 to 2004 did not change as we
incurred lower legal fees in 2004 subsequent to the settlement of patent
litigation in December 2003 and July 2004, which savings were offset by
an increase in accounting and other fees, associated with compliance
with Section 404 of the Sarbanes Oxley Act. The increase of $3.3
million or 40.5% from 2002 to 2003 was primarily attributable to
increased legal fees, primarily from patent litigation and the
acquisition of Continuum. General and administrative expenses as a
percentage of sales decreased to 8.3% in 2004 as compared to 9.2% in
2003 and 8.5% in 2002. General and administrative expense as a
percentage of sales decreased due to an increased sales volume and many
general and administrative costs are fixed in nature and do not
significantly fluctuate as sales volume changes.
Research and Development
Research and development expenses for 2004 were $13.7 million as
compared to $12.6 million in 2003 and $9.8 million in 2002. The
increase of $1.1 million or 8.8% from 2003 to 2004 was primarily
attributable to increased investments throughout our product lines, most
notably the expansion of our development efforts in software embedded in
our products, CO2 lasers, scanners, and high power solid-state lasers.
The increase of $2.8 million or 28.0% from 2002 to 2003 was primarily
attributable to the acquisition of Continuum and increases in research
activities from all our major product lines.
Other Income/Expense
No interest expense was incurred in 2004 or 2003 as there were no
borrowings throughout those years, as compared to $8 thousand in 2002.
Interest expense decreased by $8 thousand or 100% from 2002 to 2003 due
to less short-term borrowings by our European subsidiaries.
Interest income for 2004 was $387 thousand, as compared to $148
thousand in 2003 and $220 thousand in 2002. The increase in interest
income of $239 thousand or 161% from 2003 to 2004 is primarily due to
the increase in the average investable cash balances. In addition,
during 2004 the average interest rates increased, but the impact was
reduced as the Company elected to invest in tax free instruments, which
resulted in lower pre-tax interest earnings compared to tax bearing
instruments. The decrease in interest income of $72 thousand or 32.7%
from 2002 to 2003 is primarily due to lower interest rates.
Other income, net for 2004 was $580 thousand, compared to $896
thousand in 2003 and $301 thousand in 2002. The income in 2004, 2003
and 2002 was primarily attributable to the recording of foreign currency
exchange 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. domestic subsidiaries as a result of the decline in the
value of the U.S. dollar against the Euro which amounted to $621
thousand, $845 thousand and $332 thousand for the years ended December
31, 2004, 2003 and 2002, respectively.
Provision for Income Taxes
The provision for income taxes for 2004 was $6.2 million, compared
to $5.6 million in 2003 and $4.2 million in 2002. The increases of $604
thousand or 10.8% from 2003 to 2004 and $1.4 million or 33.9% from 2002
to 2003 are primarily attributable to higher taxable income. The
Company's effective tax rate was 29.6% for 2004, as compared to 33.2% in
2003 and 33.0% in 2002. The decrease in the Company's effective tax
rate from 2003 to 2004 is primarily due to an increased research and
development credit, higher extraterritorial income ("ETI") benefits as a
result of increased US export sales and tax-exempt investment income.
The Company's effective tax rates were relatively consistent from 2002
to 2003.
Liquidity and Capital Resources
................................
Cash Flow Overview
...................
Cash, cash equivalents and investments increased $16.0 million
during the year 2004 to $41.8 million. The increase during the year was
primarily due to the net cash provided by operating activities of $16.1
million and financing activities from the exercise of stock options of
$1.1 million partially offset by net cash used for capital expenditures
of $1.4 million. The Company also experienced a favorable foreign
exchange effect on cash and equivalents of $191 thousand in 2004. As of
December 31, 2004 the Company had no bank debt.
Net cash provided by operating activities was $16.1 million for the
year ended December 31, 2004 and $15.4 million for the year ended
December 31, 2003, which was primarily attributable to net income plus
the depreciation and amortization expenses, offset partially by net
changes in working capital items. Depreciation and amortization for the
year ended December 31, 2004 was $2.7 million. Accounts receivable at
December 31, 2004 of $19.8 million decreased $2.3 million from December
31, 2003 due to effective cash collections during the year 2004.
Inventory at December 31, 2004 of $28.8 million increased $3.3 million
from December 31, 2003 due to an increase in the Company's average sales
volume and the shorter lead times demanded by our customers requiring us
to maintain a higher average inventory level compared to the prior year.
Net cash used in investing activities of $15.8 million for the year
ended December 31, 2004 was primarily attributable to the purchase of
auction rate notes for $14.4 million and equipment for $1.4 million.
Net cash used in investing activities of $19.4 million for the year
ended December 31, 2003 was due primarily to the purchase of auction
rate notes for $16.0 million and the acquisition of DGE for $910
thousand and capital expenditures of $2.5 million.
Net cash provided by financing activities was $1.1 million and $1.4
million for the year ended December 31, 2004 and 2003, respectively
resulting from the proceeds received upon the exercise of employee stock
options.
As of December 31, 2004, the Company has working capital of $80.0
million including cash, cash equivalents and auction rate notes of $41.8
million, compared to working capital of $59.5 million including cash,
cash equivalents and investments of $25.7 million at December 31, 2003.
The working capital increased by $20.5 million and cash, cash
equivalents and investments increased by $16.0 million during the year
ended December 31, 2004.
As of December 31, 2004, the Company's contractual obligations were
as follows (in thousands):
Contractual Obligations
Payments Due by Period
......................................................
Total Less than 1 - 3 3 - 5 More than
1 Year Years Years 5 Years
...... ......... ...... ...... .........
Operating Leases $5,236 $1,724 $2,446 $1,033 $33
Line of Credit
As of December 31, 2004, the Company has no lines of credit.
The Company intends to continue to invest in support of its growth
strategy. These investments aid in retaining and acquiring new
customers, expanding the Company's current product offerings and further
developing its operating infrastructure. The Company believes that
current cash, cash equivalents and investments 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, cash equivalents and
investments 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.
Selected Quarterly Financial Data
Unaudited quarterly financial data (in thousands, except per share amounts)
for 2004 and 2003 is summarized as follows:
2004 2003
......................................................................................................
Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
........ ........ ........ ........ ....... ........ ........ ........ ........ .......
Net sales and services $ 36,291 $ 34,163 $ 34,902 $ 31,276 $136,631 $ 31,437 $ 31,514 $ 28,690 $ 31,040 $122,681
Cost of sales
and services 19,802 17,502 18,754 16,665 72,723 17,129 17,163 15,010 17,044 66,346
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Gross profit 16,489 16,661 16,148 14,611 63,908 14,308 14,351 13,680 13,996 56,335
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Operating expenses:
Selling and marketing 4,781 4,817 4,521 4,732 18,850 4,187 4,272 3,949 4,122 16,530
General and
administrative 2,804 2,927 2,631 2,980 11,341 2,633 2,724 2,984 2,983 11,324
Research and development 3,364 3,401 3,291 3,653 13,710 3,305 3,131 2,999 3,163 12,598
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
10,949 11,145 10,443 11,365 43,901 10,125 10,127 9,932 10,268 40,452
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Income from operations 5,540 5,516 5,705 3,246 20,007 4,183 4,224 3,748 3,728 15,883
Non-operating expenses
(income):
Interest income (56) (74) (97) (159) (387) (24) (32) (38) (54) (148)
Minority interest in net
loss of subsidiary (6) 0 0 0 (6) 0 0 0 (5) (5)
Foreign currency gains
and other income, net (170) (197) (124) (88) (580) (177) (119) (243) (357) (896)
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Income before provision
for income taxes 5,772 5,787 5,926 3,493 20,980 4,384 4,375 4,029 4,144 16,932
Provision for income taxes 1,725 1,736 1,778 978 6,218 1,535 1,509 1,370 1,200 5,614
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Net income $ 4,047 $ 4,051 $ 4,148 $ 2,515 $ 14,762 $ 2,849 $ 2,866 $ 2,659 $ 2,944 $ 11,318
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Basic earnings per
common share $ 0.34 $ 0.34 $ 0.34 $ 0.21 $ 1.23 $ 0.24 $ 0.24 $ 0.22 $ 0.25 $ 0.95
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Weighted average common
shares outstanding 11,972 12,028 12,052 12,053 12,026 11,806 11,815 11,864 11,925 11,853
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Diluted earnings per
common share $ 0.33 $ 0.33 $ 0.34 $ 0.21 $ 1.20 $ 0.24 $ 0.24 $ 0.22 $ 0.24 $ 0.93
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Weighted average common
and common equivalent
shares outstanding 12,444 12,449 12,255 12,256 12,351 12,103 12,178 12,273 12,362 12,231
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Inflation
..........
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (i.e. the risk of loss arising from
adverse changes in market rates and prices) to which the Company is
exposed are interest rates on demand deposits with banks and money
market funds and exchange rates, generating translation and transaction
gains and losses.
Interest Rates
...............
The Company manages its cash and investment portfolios considering
investment opportunities and risks, tax consequences and overall
financing strategies. The Company's investment portfolios consist
primarily of cash, cash equivalents and investments, with carrying
amounts approximating market value. Assuming year-end 2004 cash and
investment levels, a one-point change in interest rates would have an
approximate $400 thousand impact on the annual interest income of the
Company.
Foreign Currency Exchange Rates
................................
Operating in international markets involves exposure to movements
in currency exchange rates that are volatile at times. The economic
impact of currency exchange rate movements on the Company is complex
because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors.
These changes, if material, could cause the Company to adjust its
financing and operating strategies. Consequently, isolating the effect
of changes in currency does not incorporate these other important
economic factors.
The Company's net sales and services to foreign customers
represented approximately 63% of total net sales and services in 2004,
61% in 2003 and 63% in 2002. The Company expects net sales and services
to foreign customers will continue to represent a large percentage of
its total net sales and services. The Company's net sales and services
denominated in foreign currencies represented approximately 29% of its
total net sales and services in 2004, 31% of its total net sales and
services in 2003 and 28% in 2002. The Company generally has not engaged
in foreign currency hedging transactions. The aggregate foreign
exchange gains and (losses) included in determining consolidated results
of operations were $621 thousand, $845 thousand and $332 thousand in
2004, 2003 and 2002, respectively.
Changes in the Euro and Yen have the largest impact on the
Company's operating profits. The Company estimates that a 10% change in
foreign exchange rates would not materially impact reported operating
profits.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements and supplementary data follow on
pages 31 to 49.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and
Financial Statement Schedule filed with the Annual
Report of the Company on Form 10-K
For the Year ended December 31, 2004.
Page
....
Reports of Independent Registered Public Accounting Firms 29
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2004 and 2003 31
Consolidated Statements of Income for the years ended
December 31, 2004, 2003 and 2002 32
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended
December 31, 2004, 2003 and 2002 33
Consolidated Statements of Cash Flows for the years
ended December 31, 2004, 2003 and 2002 34
Notes to Consolidated Financial Statements 35
Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts 49
.........................
Schedules not listed above have been omitted because they are either not
applicable or the required information has been given elsewhere in the
consolidated financial statements or notes thereto.
Report of Independent Registered Public Accounting Firm
.......................................................
The Board of Directors and Stockholders
Excel Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Excel
Technology, Inc. and subsidiaries as of December 31, 2004 and 2003, and
the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the two-
year period ended December 31, 2004. In connection with our audits of
the consolidated financial statements, we also have audited the
financial statement schedule. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Excel Technology, Inc. and subsidiaries as of December 31, 2004 and
2003, and the results of their operations and their cash flows for each
of the years in the two-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of
Excel Technology, Inc.'s internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated March 9, 2005
expressed an unqualified opinion on management's assessment of, and the
effective operation of, internal control over financial reporting.
/s/ KPMG LLP
Melville, New York
March 9, 2005
Report of Independent Registered Public Accounting Firm
.......................................................
The Board of Directors and Stockholders
Excel Technology, Inc.:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that
Excel Technology, Inc. and subsidiaries maintained effective internal
control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Excel Technology, Inc.'s management is responsible for
maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that Excel Technology, Inc.
maintained effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on
criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Also, in our opinion, Excel Technology, Inc. maintained, in all
material respects, effective internal control over financial reporting
as of December 31, 2004, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
balance sheets of Excel Technology, Inc. and subsidiaries as of December
31, 2004 and 2003, and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows for each
of the years in the two-year period ended December 31, 2004, and our
report dated March 9, 2005 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Melville, New York
March 9, 2005
Report of Independent Registered Public Accounting Firm
.......................................................
To the Board of Directors and Stockholders
Excel Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows of Excel
Technology, Inc. and Subsidiaries for the year ended December 31, 2002.
Our audit also included the 2002 activity in the financial statement
schedule listed in the Index at Item 15(a). These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule
based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations
and cash flows of Excel Technology, Inc. and Subsidiaries for the year
ended December 31, 2002, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the 2002 activity in the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Melville, New York
January 22, 2003
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2004 and 2003
(In thousands, except per share amounts)
Assets
....... 2004 2003
.......... ..........
Current assets:
Cash and equivalents $ 11,329 $ 9,740
Investments 30,425 16,000
Accounts receivable, less allowance for
doubtful accounts of $796 and $1,001
in 2004 and 2003, respectively 19,782 21,917
Inventories 28,839 25,038
Deferred income taxes 1,598 1,289
Other current assets 1,703 1,025
.......... ..........
Total current assets 93,676 75,009
.......... ..........
Property, plant and equipment 26,492 27,665
Other assets 289 415
Goodwill 32,021 30,649
.......... ..........
Total Assets $ 152,478 $ 133,738
.......... ..........
.......... ..........
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 5,265 $ 4,801
Accrued expenses and other current liabilities 8,405 10,668
.......... ..........
Total current liabilities 13,670 15,469
.......... ..........
Deferred income taxes 2,807 991
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 49,573 47,514
Retained earnings 82,375 67,613
Accumulated other comprehensive income 4,041 2,133
.......... ..........
Total stockholders' equity 136,001 117,272
.......... ..........
Total Liabilities and Stockholders' Equity $ 152,478 $ 133,738
.......... ..........
.......... ..........
See Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2004, 2003 and 2002
(In thousands, except earnings per share)
2004 2003 2002
........ ........ .......
Net sales and services $136,631 $122,681 $94,513
Cost of sales and services 72,723 66,346 51,851
........ ........ .......
Gross profit 63,908 56,335 42,662
Operating expenses:
Selling and marketing 18,850 16,530 12,570
General and administrative 11,341 11,324 8,062
Research and development 13,710 12,598 9,838
........ ........ .......
43,901 40,452 30,470
........ ........ .......
Income from operations 20,007 15,883 12,192
Non-operating expenses (income):
Interest expense 0 0 8
Interest income (387) (148) (220)
Minority interest in net loss of subsidiary (6) (5) 0
Foreign currency gains and other income, net (580) (896) (301)
........ ........ .......
Income before provision for income taxes 20,980 16,932 12,705
Provision for income taxes 6,218 5,614 4,193
........ ........ .......
Net income $ 14,762 $ 11,318 $ 8,512
........ ........ .......
........ ........ .......
Basic earnings per common share $1.23 $0.95 $0.72
........ ........ .......
........ ........ .......
Weighted average common shares outstanding 12,026 11,853 11,792
........ ........ .......
........ ........ .......
Diluted earnings per common share $1.20 $0.93 $0.71
........ ........ .......
........ ........ .......
Weighted average common and
common equivalent shares outstanding 12,351 12,231 12,071
........ ........ .......
........ ........ .......
See Notes to Consolidated Financial Statements.
Excel Technology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years Ended December 31, 2004, 2003 and 2002
(In thousands)
Accumulated
Additional Other
Preferred Stock Common Stock Paid-In Retained Comprehensive Comprehensive
Shares Amounts Shares Amounts Capital Earnings Income (Loss) Total Income
....... ....... ........ ....... .......... ........ .............. ........ .............
Balances at December 31, 2001 0 $ 0 11,764 $ 12 $ 44,857 $ 47,783 $ (1,054) $ 91,598
Exercise of common stock options 0 0 41 0 544 0 0 544
Net income for the year 0 0 0 0 0 8,512 0 8,512 $ 8,512
Foreign currency
translation adjustment 0 0 0 0 0 0 1,603 1,603 1,603
.............
Comprehensive income 0 0 0 0 0 0 0 0 $ 10,115
....... ....... ....... ....... .......... ........ .............. ........ .............
.............
Balances at December 31, 2002 0 0 11,805 12 45,401 56,295 549 102,257
Exercise of common stock options 0 0 138 0 1,345 0 0 1,345
Tax benefit from employee stock
option exercises 0 0 0 0 768 0 0 768
Net income for the year 0 0 0 0 0 11,318 0 11,318 $ 11,318
Foreign currency
translation adjustment 0 0 0 0 0 0 1,584 1,584 1,584
.............
Comprehensive income 0 0 0 0 0 0 0 0 $ 12,902
....... ....... ....... ....... .......... ........ .............. ........ .............
.............
Balances at December 31, 2003 0 0 11,943 12 47,514 67,613 2,133 117,272
Exercise of common stock options 0 0 110 0 1,108 0 0 1,108
Tax benefit from employee stock
option exercises 0 0 0 0 951 0 0 951
Net income for the year 0 0 0 0 0 14,762 0 14,762 $ 14,762
Foreign currency translation
adjustment 0 0 0 0 0 0 1,908 1,908 1,908
.............
Comprehensive income 0 0 0 0 0 0 0 0 $ 16,670
....... ....... ....... ....... .......... ........ .............. ........ .............
.............
Balances at December 31, 2004 0 $ 0 12,053 $ 12 $ 49,573 $ 82,375 $ 4,041 $136,001
....... ....... ....... ....... .......... ........ .............. ........
....... ....... ....... ....... .......... ........ .............. ........
See Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2004, 2003 and 2002
(In thousands)
2004 2003 2002
......... ......... .........
Operating activities:
Net income $ 14,762 $ 11,318 $ 8,512
Adjustments to reconcile net income
to net cash provided by operating
activities:
Minority interest in net loss
of subsidiary (6) (5) 0
Depreciation and amortization 2,687 2,887 2,746
Tax benefit from employee stock
option exercises 951 768 0
Provision for bad debts 297 92 314
Deferred income taxes 1,507 590 817
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable 2,334 743 (2,155)
Inventories (3,269) 642 95
Other current assets (613) 371 318
Other assets (480) (228) 10
Accounts payable 362 (941) (1,590)
Accrued expenses and other
current liabilities (2,425) (829) 1,247
......... ......... .........
Net cash provided by
operating activities 16,107 15,408 10,314
......... ......... .........
Investing activities:
Purchases of investments,
net of redemptions (14,425) (16,000) 0
Cash paid for acquisitions,
net of cash acquired 0 (914) (11,255)
Purchases of property, plant
and equipment (1,392) (2,450) (4,034)
......... ......... .........
Net cash used in investing
activities (15,817) (19,364) (15,289)
......... ......... .........
Financing activities:
Proceeds from exercise of
common stock options 1,108 1,345 498
Minority shareholder investment in
joint venture 0 11 0
......... ......... .........
Net cash provided by financing
activities 1,108 1,356 498
......... ......... .........
Effect of exchange rate changes on
cash and cash equivalents 191 518 87
......... ......... .........
Net increase (decrease) in cash
and equivalents 1,589 (2,082) (4,390)
Cash and equivalents - beginning of year 9,740 11,822 16,212
......... ......... .........
Cash and equivalents - end of year $ 11,329 $ 9,740 $ 11,822
......... ......... .........
......... ......... .........
Supplemental Cash Flow Information
...................................
Cash paid for:
Interest $ 0 $ 0 $ 8
......... ......... .........
......... ......... .........
Income taxes $ 5,604 $ 2,312 $ 1,950
......... ......... .........
......... ......... .........
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(1) Summary of Significant Accounting Policies
..........................................
Excel Technology, Inc. and Subsidiaries (the "Company") manufactures and
markets laser systems and electro-optical components primarily for
industrial and scientific applications. The significant accounting
policies used in the preparation of the consolidated financial
statements of the Company are as follows:
Basis of Presentation
.....................
The consolidated financial statements include the accounts of Excel
Technology, Inc. (Excel), its 50% owned joint venture, Excel
Laser Technology Private Limited (Excel SouthAsia JV) and its
Wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation.
Revenue Recognition
...................
The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements" ("SAB 104"), as amended. SAB 104 requires that the
following four basic criteria must be met before revenue can be
recognized: 1) persuasive evidence of an arrangement exists;
2) delivery has occurred or services have been rendered;
3) the fee is fixed and determinable; and 4) collectibility is
reasonably assured.
The Company's revenues are generated from: 1) product sales,
including product upgrades and replacement part sales; 2)
maintenance agreements; and 3) services. The Company's product
lines principally consist of laser-based systems and electro-
optical components used in a wide range of applications by
different types of end-users and are often used as sub-
assemblies required for end products manufactured by the
customer. Revenue relating to these products is recognized upon
transfer of title to the customer, which is generally upon
shipment, assuming the other criteria of SAB 104 are met.
Related shipping and handling costs are included in cost of
sales and services. With respect to maintenance agreements,
revenue is recognized and customers are generally billed on a
monthly or quarterly basis over the term of the agreement. When
a customer pays an annual maintenance fee, it is recorded as
deferred revenue and recognized as revenue ratably over the term
of the agreement. For services rendered, customers are billed
and revenues are recognized as the related services are
performed. When a sales arrangement involves multiple elements,
such as the sale of products that require installation, training
or other services, the Company records deferred revenue for the
fair value of the undelivered element and recognizes the revenue
when the revenue recognition criteria for that element is met.
Fair value is established for an element based on the price when
the element is sold separately. Product returns have
historically been insignificant.
The Company manufactures one product, a Photomask Defect Repair
System ("DRS"), which is a large, highly complex customized
machine. The terms of sale with respect to DRS's require that
the Company perform installation due to the technical expertise
required for this product. Due to the nature of the post-
shipment installation obligations with respect to the DRS's, the
Company defers revenue recognition on the sale of DRS's until
installation has been completed.
Cash, Cash Equivalents and Investments
......................................
Cash and equivalents of $11.3 million and $9.7 million at
December 31, 2004 and 2003, respectively, consist of demand
deposits with banks and highly liquid money market funds. The
Company considers investments with maturities of three months or
less when purchased to be cash equivalents. Available-for-sale
investments of $30.4 million and $16.0 million at December 31,
2004 and 2003, respectively, consist of auction rate notes for
which the carrying value equaled their fair value.
Inventories
...........
Inventories consist of material, labor and overhead and are stated
at the lower of cost on a first-in, first-out basis or market.
On a quarterly basis, the Company compares the amount of the
inventory on hand and under commitment with its latest
forecasted requirements and historical usage or sales to
determine whether write-downs for excess or obsolete inventory
are required. In addition, the Company will reduce the carrying
value of its finished goods inventory to net realizable value,
if the selling price of the product is less than its cost.
Depreciation and Amortization
.............................
The Company's property, plant and equipment, recorded at cost, are
depreciated or amortized over their estimated useful lives under
the straight-line method. Leasehold improvements are amortized
over the life of the lease or over the estimated life of the
asset, whichever is less.
Goodwill represents the excess of cost over fair value of net
assets of businesses acquired. Goodwill and intangible assets
with indefinite lives are not amortized but are evaluated
annually for impairment. The Company's annual assessment is
performed on December 31st of each year.
Research and Development Costs
..............................
Research and development costs include material, labor and
overhead associated with Company-sponsored projects. Such costs
are expensed as incurred.
Long-Lived Assets
.................
The Company reviews long-lived assets for impairment when
circumstances indicate the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Warranty Reserve
................
The Company analyzes its warranty reserve for reasonableness on a
quarterly basis. Based upon a three-year history of warranty
expense incurred, the nature of the products shipped subject to
warranty and anticipated warranty trends, the Company believes
that the carrying amounts of its warranty reserve at
December 31, 2004 and 2003 are reasonable.
Changes in the warranty reserve in 2004 and 2003 were as follows
(In thousands):
2004 2003
........ ........
Balance at January 1 $ 756 $ 980
Provision for warranties during the year 536 322
Costs of warranty obligations
during the year (527) (546)
........ ........
Balance at December 31 $ 765 $ 756
........ ........
........ ........
Income Taxes
............
The Company recognizes deferred tax assets and liabilities for the
future tax consequences attributable to temporary differences
between the financial reporting bases and the tax bases of the
Company's assets and liabilities at enacted rates in effect when
such amounts are expected to be realized or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
Foreign Currency Translation
............................
The financial statements of foreign subsidiaries have been
translated into U.S. dollars in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 52, "Foreign
Currency Translation." All balance sheet accounts have been
translated using the exchange rates in effect at the balance
sheet date. Income statement amounts have been translated using
the average exchange rate for the year. The resulting
cumulative translation adjustment of approximately $4.0 million
and $2.1 million at December 31, 2004 and 2003, respectively, is
reflected as accumulated other comprehensive income, a component
of stockholders' equity. In addition, there were transaction
gains and losses and inter-company balances not deemed long-term
in nature at the balance sheet date that resulted in net
transaction gains of $621 thousand, $845 thousand and $332
thousand for the years ended December 31, 2004, 2003 and 2002,
respectively, which is reflected in foreign currency gains and
other income, net in the consolidated statements of income.
Earnings Per Share
..................
The Company presents two earnings per share ("EPS") amounts, basic
and diluted. Basic EPS is calculated based on net income and
the weighted-average number of common shares outstanding during
the reported period. Diluted EPS includes the effect of
potentially dilutive securities (stock options), using the
treasury stock method, on weighted-average shares outstanding.
Fair Value of Financial Instruments
...................................
The recorded amounts of the Company's cash, cash equivalents,
investments, accounts receivable, accounts payable and accrued
expenses approximate their fair values because of the short-term
nature of these items.
Use of Estimates
................
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Concentration of Credit Risk
............................
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of its holdings
of cash, cash equivalents, investments and accounts receivable.
Cash, cash equivalents and investments are deposited with high
credit quality financial institutions. Concentration of credit
risk with respect to accounts receivable is limited due to the
Company's large number of customers and their dispersion
throughout the United States, Europe and Asia. The Company
performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral.
Accounting for Stock-Based Compensation
.......................................
At December 31, 2004, the Company has stock-based employee
compensation plans, which are more fully described in Note 8.
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 has been reflected in the
statements of income for the three years ended December 31,
2004, as all options granted under those plans had an exercise
price equal to the market values of the underlying common stock
on the date of grant. The following table illustrates the
effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" to stock-based employee compensation.
(In thousands, except
per share data)
Year ended December 31,
2004 2003 2002
....... ....... .......
Net income, as reported $14,762 $11,318 $ 8,512
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects
(3,027) (1,519) (2,064)
....... ....... .......
Proforma net income $11,735 $ 9,799 $ 6,448
....... ....... .......
....... ....... .......
Earnings per share:
Basic - as reported $1.23 $0.95 $0.72
....... ....... .......
Basic - proforma $0.98 $0.83 $0.55
....... ....... .......
Diluted - as reported $1.20 $0.93 $0.71
....... ....... .......
Diluted - proforma $0.95 $0.81 $0.54
....... ....... .......
The per share weighted-average fair value of stock options granted
during 2004, 2003 and 2002 was $13.67, $9.47 and $15.32,
respectively, on the date of grant using the Black Scholes option-
pricing model with the following weighted-average assumptions:
2004- expected dividend yield of 0%, risk free interest rate of 3.6%,
expected stock volatility of 50% and expected life of approximately
4.0 years;
2003- expected dividend yield of 0%, risk free interest rate of 3.6%,
expected stock volatility of 50% and expected life of approximately
4.0 years;
2002- expected dividend yield of 0%, risk free interest rates ranging
from 2.6% to 4.0%, expected stock volatility of 56% and expected life
of approximately 4.0 years;
For purposes of the proforma disclosures, the estimated fair value of
the options is amortized to compensation expense over the options'
vesting periods.
New Accounting Pronouncements
.............................
On December 21, 2004, the Financial Accounting Standards Board
("FASB") issued FASB Staff Position No. FAS 109-1, "Application
of FASB Statement No. 109, Accounting for Income Taxes, to the
Tax Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004" (FSP No. 109-1"), and FASB
Staff Position No. FAS 109-2, "Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004" ("FSP No. 109-2").
These staff positions provide accounting guidance on how
companies should account for the effects of the American Jobs
Creation Act of 2004 that was signed into law on October 22,
2004. FSP No. 109-1 states that the tax relief (special tax
deduction for domestic manufacturing) from this legislation
should be accounted for as a "special deduction" and reduce tax
expense in the period(s) the amounts are deductible on the tax
returns, instead of a tax rate reduction. FSP No. 109-2 gives a
company additional time to evaluate the effects of the
legislation on any plan for reinvestment or repatriation of
foreign earnings for purposes of applying FASB Statement No.
109. The Company is evaluating whether it might repatriate any
of its $2 million of undistributed foreign earnings, which is
expected to be completed within a reasonable amount of time
after additional guidance is published. The evaluation is
affected by many factors, including the Company's projected cash
requirements and the impact of the new tax law's one-time
deduction for qualifying repatriations. If the Company decides
to repatriate foreign earnings, it estimates the potential
income tax effect would be to record a tax liability at rate
of 5% or less.
In December 2004, the FASB issued SFAS No. 123 (R), "Share-Based
Payment" ("SFAS No. 123 (R)"). This statement replaces SFAS No.
123, "Accounting for Stock-Based Compensation" and supersedes
APB No. 25, "Accounting for Stock Issued to Employees." SFAS
123 (R) requires all stock-based compensation to be recognized
as an expense in the financial statements and that such cost be
measured according to the grant-date fair value of the stock
options or other equity instruments. SFAS 123 (R) will be
effective for quarterly periods beginning after June 15, 2005.
While the Company currently provides the pro forma disclosures
required by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," on a quarterly basis
(see "Note 1 - Accounting for Stock-Based Compensation"), it is
currently evaluating the impact this statement will have on its
consolidated financial statements.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs -
an amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS
No. 151 requires all companies to recognize a current-period
charge for abnormal amounts of idle facility expense, freight,
handling costs and wasted materials. This statement also
requires that the allocation of fixed production overhead to the
costs of conversion be based on the normal capacity of the
production facilities. SFAS No. 151 will be effective for
fiscal years beginning after June 15, 2005. The Company is
currently evaluating the effect that this statement will have on
its consolidated financial statements.
Accumulated Other Comprehensive Income (Loss)
.............................................
Accumulated other comprehensive income (loss) ("comprehensive
income (loss)") refers to revenues, expenses, gains and losses
that under accounting principles generally accepted in the
United States are included in comprehensive income (loss) but
are excluded from net income as these amounts are recorded
directly as an adjustment to stockholders' equity, net of tax.
The Company's comprehensive income (loss) is composed of net
income (loss) and unrealized gains and losses on foreign
currency translation adjustments.
Reclassification
................
Amounts related to auction rate note investments of $16.0 million
in the 2003 consolidated financial statements have been
reclassified to conform with the 2004 presentation.
(2) Acquisitions
............
On December 17, 2003, the Company acquired all the outstanding
capital stock of D. Green (Electronics) Ltd. ("DGE"), a
manufacturer of power supplies for laser systems, which is
located in the United Kingdom (UK), for $925 thousand, including
$40 thousand of related expenses. The acquisition was accounted
for using the purchase method of accounting and, accordingly,
the operating results of DGE, 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. At the date of acquisition, the fair value of
DGE's assets and liabilities assumed were $336 thousand and $193
thousand, respectively. The excess of the purchase price over
the fair value of the net assets acquired of $782 thousand was
recorded as goodwill.
On April 23, 2003, the Company incorporated Excel Laser Technology
Private Limited based in Mumbai, India as a joint venture for
the distribution of certain subsidiary products in South Asia,
which will market, sell, install and provide customer service
for the Company's products. The Company invested $11 thousand
for a 50% equity ownership interest in the joint venture. In
accordance with FIN No. 46, "Accounting For Variable Interest
Entities," since the joint venture is a variable interest entity
and the Company is the primary beneficiary of the joint venture,
the Company has consolidated the results of the joint venture
with its results and reflected the minority interest in the net
loss of the joint venture of $6 thousand and $5 thousand in the
statements of income for 2004 and 2003, respectively.
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, 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 were
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:
Continuum Final Purchase
........................
Price Allocation
........................
(In thousands)
........................
Receivables $ 3,406
Inventories 4,260
Property, plant and equipment 236
Other assets 474
Goodwill 7,771
.......
Total assets acquired 16,147
Accounts payable 2,215
Other current liabilities 2,721
.......
Total liabilities assumed 4,936
.......
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.
Year ended December 31, 2002
............................
(In thousands, except per share data)
.....................................
Net sales and services $111,838
Net income 7,613
Basic earnings per common share $0.65
Diluted earnings per common share $0.63
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 Japan, acquired all of the issued and
outstanding shares of OptoFocus Corporation ("OptoFocus"), a
distribution organization representing the Company's Quantronix
product line in Japan, for approximately $272 thousand in cash
(including acquisition related expenses). The acquisition was
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. The final purchase price
allocation for the OptoFocus acquisition resulted in
approximately $719 thousand in total assets acquired and
approximately $447 thousand in total liabilities acquired.
(3) Inventories
...........
Inventories consist of the following (In thousands):
December 31,
.......................
2004 2003
.......... ..........
Raw materials $ 15,384 $ 11,686
Work-in-process 7,074 7,360
Finished goods 4,858 5,116
Consigned inventory 1,523 876
.......... ..........
$ 28,839 $ 25,038
.......... ..........
.......... ..........
(4) Property, Plant and Equipment
Property, plant and equipment at cost consists of the following
(In thousands):
December 31,
.................
Useful life 2004 2003
........... ........ ........
Land 0 $ 4,236 $ 4,236
Buildings 30 years 18,918 19,150
Leasehold improvements Lease term 644 612
Fixtures and computer equipment 3-5 years 2,869 2,678
Machinery and equipment 3-5 years 6,759 6,542
Laboratory equipment 3-5 years 3,293 3,002
........ ........
36,719 36,220
Less accumulated depreciation
and amortization 10,227 8,555
........ ........
$ 26,492 $ 27,665
........ ........
........ ........
Depreciation and amortization expense aggregated approximately $2.7
million, $2.9 million and $2.7 million for the years ended
December 31, 2004, 2003 and 2002, respectively.
(5) Goodwill
........
The change in the net carrying amount of goodwill for the year
ended December 31, 2004 is attributable to the change in foreign
currency exchange rates used to translate the goodwill contained
in the financial statements of foreign subsidiaries. For the
year ended December 31, 2003, the net carrying amount of
goodwill increased $782 thousand for the acquisition of DGE and
$484 thousand for purchase price adjustments and additional
acquisition costs related to the Continuum acquisition.
(6) Income Taxes
............
Pre-tax income for the years ended December 31, 2004, 2003, and
2002 was comprised of domestic income of $20.7 million, $16.1
million and $13.6 million, respectively, and foreign income
(losses) of $234 thousand, $817 thousand, and ($876) thousand,
respectively.
The provision for income taxes consists of (In thousands):
Year ended December 31,
............................
2004 2003 2002
........ ........ ........
Current:
Federal $ 3,736 $ 4,027 $ 2,952
State and local 697 321 373
Foreign 278 675 51
........ ........ ........
4,711 5,023 3,376
........ ........ ........
Deferred:
Federal 1,507 591 817
........ ........ ........
$ 6,218 $ 5,614 $ 4,193
........ ........ ........
........ ........ ........
The current provision for income taxes includes a tax benefit of
$192 thousand for 2004, $391 thousand for 2003 and $391 thousand
for 2002 for utilizing Federal net operating loss carryforwards.
The effective income tax rate differed from the statutory Federal
income tax rate due to the following items (In thousands):
Year ended December 31,
2004 2003 2002
........ ........ ........
Taxes at statutory
Federal income tax rate $ 7,241 $ 5,926 $ 4,447
State income taxes, net of
Federal benefit 453 209 243
Credits (420) 0 0
ETI benefit (943) (704) (833)
Change in valuation allowance 173 65 589
Foreign Tax Rate Differential 49 (89) 0
Non-taxable income (78) 0 0
Other (257) 207 (253)
........ ........ ........
$ 6,218 $ 5,614 $ 4,193
........ ........ ........
........ ........ ........
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 31, 2004 and 2003 are as follows (In thousands):
December 31,
.....................
2004 2003
.......... .........
Deferred tax assets:
Excess of tax over financial
statement basis of inventory $ 997 $ 788
Allowance for doubtful accounts 211 152
Accrued warranty costs 105 100
Other accrued expenses 285 249
Benefits of U.S. net operating
loss carryforwards 0 192
Benefits of foreign net operating
loss carryforwards 2,173 2,000
Plant and equipment depreciation 0 181
.......... .........
Total deferred tax assets 3,771 3,662
Less valuation allowance (2,173) (2,000)
.......... .........
1,598 1,662
.......... .........
Deferred tax liabilities:
Plant and equipment depreciation (591) 0
Goodwill amortization (2,216) (1,364)
.......... .........
Total deferred tax liabilities (2,807) (1,364)
.......... .........
Net deferred tax (liabilities) assets $ (1,209) $ 298
.......... .........
.......... .........
A valuation allowance of $2.2 million, as of December 31, 2004 has
been provided against all of the Company's foreign net operating
loss carryforwards. There can be no assurance that the Company
will generate sufficient taxable earnings in future years to
fully realize the tax benefits associated with foreign net
operating loss carryforwards.
Undistributed earnings of the Company's foreign subsidiaries
amounted to approximately $2.0 million, at December 31, 2004.
Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income
taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company
would be subject to both U.S. income taxes (subject to an
adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with its
hypothetical calculation; however, unrecognized foreign tax
credit carryforwards would be available to reduce some portion
of the U.S. tax liability.
(7) Accrued Expenses and Other Current Liabilities
..............................................
Accrued expenses and other current liabilities consist of the
following (In thousands):
December 31,
.....................
2004 2003
.......... .........
Salaries, wages, commissions
and bonuses $ 2,274 $ 1,999
Accrued vacation/holiday/sick pay 768 770
Deferred revenue 318 459
Customer deposits 714 847
Accrued royalties payable 53 119
Warranty reserve 765 756
Professional fees payable 814 511
Income taxes payable 1,675 3,360
Other 1,024 1,847
.......... .........
$ 8,405 $ 10,668
.......... .........
.......... .........
(8) Stockholders' Equity
....................
Stock Option Plans
..................
In 1990, Excel adopted a stock option plan (the "Plan") which
provided for the granting of incentive stock options and non-
incentive stock options to certain key employees, including
officers and directors, to purchase an aggregate of 2,000,000
shares of common stock, as amended, at prices and terms
determined by the Board of Directors. Options granted under the
Plan, which terminated on July 30, 2000, may be exercisable for
a period of up to ten years. Through December 31, 2004, all
options granted to employees under the Plan have exercise prices
equal to the market value of the stock on the date of grant,
vest ratably over three or five years and expire either five or
ten years from date of grant.
In 1998, the Company adopted a stock option plan (the "1998 Plan")
which provides for the granting of incentive stock options and
non-incentive stock options to certain key employees, including
officers and directors, and consultants to purchase an aggregate
of 1,000,000 shares of common stock at prices and terms
determined by the Board of Directors. The option price per share
of incentive stock options must be at least 100% of the market
value of the stock on the date of the grant, except in the case
of shareholders owning more than 10% of the outstanding shares
of common stock, the option price must be at least 110% of the
market value on the date of the grant, and for non-incentive
stock options such price may be less than 100% of the market
value of the stock on the date of grant. Options granted under
the 1998 Plan, which terminates on April 8, 2008, may be
exercisable for a period up to ten years. Through December 31,
2004, all options granted to employees under the 1998 Plan have
exercise prices equal to the market value of the stock on the
date of grant, vest ratably over three or five years, and expire
either five or ten years from the date of grant.
In 2004, the Company adopted a stock option plan (the "2004 Plan")
which provides for the granting of incentive stock options and
non-incentive stock options to certain key employees, including
officers and directors of the Company and consultants to
purchase an aggregate of 1,000,000 shares of common stock at
prices and terms determined by the Board of Directors. The
option price per share of incentive stock options must be at
least 100% of the market value of the stock on the date of the
grant, except in the case of shareholders owning more than 10%
of the outstanding shares of common stock, the option price must
be at least 110% of the market value on the date of the grant,
and for non-incentive stock options such price may be less than
100% of the market value of the stock on the date of grant.
Options granted under the 2004 Plan, which terminates on
February 23, 2014, may be exercisable for a period up to ten
years. Through December 31, 2004, all options granted to
employees under the 2004 Plan have exercise prices equal to the
market value of the stock on the date of grant, vest
immediately, and expire ten years from the date of grant.
A summary of activity related to the Company's stock option plans
is as follows:
Number
of shares Weighted average
(In thousands) exercise price
............. ................
Outstanding at December 31, 2001 820 $ 17.31
Granted 457 $ 15.32
Exercised (41) $ 12.05
Cancelled (165) $ 23.90
.............
Outstanding at December 31, 2002 1,071 $ 15.65
Granted 90 $ 22.16
Exercised (168) $ 13.09
Cancelled (20) $ 22.26
.............
Outstanding at December 31, 2003 973 $ 16.56
Granted 191 $ 31.98
Exercised (149) $ 16.85
Cancelled (13) $ 23.50
.............
Outstanding at December 31, 2004 1,002 $ 19.37
.............
.............
In 2004 and 2003, 39 thousand and 30 thousand shares of common
stock held greater than six months, respectively, were used by
employees to exercise options. Such shares, which had a market
value of $1.4 million and $854 thousand, respectively, were
retired.
At December 31, 2004, 2003 and 2002, a total of 812 thousand, 632
thousand and 561 thousand options were exercisable at weighted
average exercise prices of $19.85, $16.50 and $15.33,
respectively, and at December 31, 2004 options for the purchase
of 898 thousand common shares were available for future grants
under the 2004 Plan.
The options outstanding as of December 31, 2004 are summarized as
follows:
Number of Weighted
options average Options
Exercise outstanding contractual Exercisable
price (In thousands) remaining life (In thousands)
........ .............. .............. ..............
$ 6.50 2 3.80 years 2
$ 7.00 179 2.94 years 179
$ 13.06 25 4.47 years 25
$ 15.15 282 7.13 years 168
$ 16.66 40 7.78 years 8
$ 19.71 23 6.30 years 21
$ 22.16 70 8.38 years 43
$ 24.63 166 5.23 years 156
$ 26.51 40 10.00 years 40
$ 27.41 20 9.79 years 20
$ 29.00 30 5.42 years 30
$ 29.70 5 9.23 years 0
$ 34.68 120 9.32 years 120
..... ...
1,002 812
..... ...
..... ...
Shares Reserved for Issuance
............................
At December 31, 2004, the Company had reserved, 1,900,934
authorized and unissued common shares for the following purposes
(In thousands):
Shares
......
1990 Stock option plan 176
1998 Stock option plan 725
2004 Stock option plan 1,000
(9) Earnings Per Share
..................
The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations (In
thousands, except per share amounts):
................2004.................
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. .........
Basic EPS $14,762 12,026 $1.23
Effect of Dilutive Securities:
Stock Options 325
......
Diluted EPS $14,762 12,351 $1.20
....... ...... .....
....... ...... .....
.................2003...............
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. .........
Basic EPS $11,318 11,853 $0.95
Effect of Dilutive Securities:
Stock Options 378
......
Diluted EPS $11,318 12,231 $0.93
....... ...... .....
....... ...... .....
...................2002...............
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. ..........
Basic EPS $ 8,512 11,792 $0.72
Effect of Dilutive Securities:
Stock Options 279
......
Diluted EPS $ 8,512 12,071 $0.71
....... ...... .....
....... ...... .....
There were 175 thousand, 341 thousand, and 295 thousand unexercised
stock options outstanding as of December 31, 2004, 2003 and
2002, respectively, not included as part of the diluted EPS
calculations for 2004, 2003 and 2002, respectively, because they
would have been antidilutive for the periods presented.
(10) Treasury Stock
..............
The Board of Directors of the Company has authorized the purchase
of up to 2 million shares of common stock in the open market at
prevailing market prices. As of December 31, 2004, no shares
have been repurchased.
(11) Employee Benefit Plan
.....................
The Company has a voluntary defined contribution plan, which
complies with Section 401(k) of the Internal Revenue Code, as
amended. The plan permits employees to make a voluntary
contribution of pretax dollars, with a matching contribution by
the Company equal to 50% of an employee's basic contribution to
the plan up to a maximum of 3% of their salaries. Company
contributions to the plan were approximately $524 thousand, $489
thousand and $387 thousand in 2004, 2003 and 2002, respectively.
(12) Commitments and Contingencies
.............................
Litigation
..........
Dr. Phillips, Inc. ("Phillips"), the landlord of a facility leased
by Baublys-Control Laser ("Baublys), a wholly owned subsidiary
of the Company, through 2001, filed a lawsuit in the Circuit
Court of the Ninth Judicial Circuit in and for Orange County,
Florida against Baublys and the Company, for not repairing or
replacing certain personal property related to the use of the
property while Baublys leased the facility. The Company
guaranteed the lease. Baublys filed a counterclaim contending
that it was entitled to receive damages from Phillips for
damage to specific property due to Phillips failure to maintain
the leased premises. The Company believes there is no merit to
the claims made by Phillips and that the ultimate outcome of
this matter will not have a significant impact on the financial
position and liquidity of the Company. However, if Phillips is
successful in its claims, Baublys could be subject to
approximately $300 thousand in damages plus interest and/or
attorney fees.
The Company and its subsidiaries are subject to various claims,
which have arisen in the normal course of business. The impact
of the final resolution of these matters on the Company's
results of operations or liquidity in a particular reporting
period is not known. Management is of the opinion, however,
that the ultimate outcome of such matters will not have a
material adverse effect upon the Company's financial condition
or liquidity.
Operating Leases
................
The Company and its subsidiaries lease certain buildings, vehicles
and equipment under non-cancelable operating leases. At
December 31, 2004, the future minimum lease payments under non-
cancelable operating leases are as follows (In thousands):
2005 $ 1,724
2006 1,455
2007 991
2008 805
2009 228
Thereafter 33
........
$ 5,236
Rent expense approximated $1.4 million, $1.4 million, and $957
thousand for the years ended December 31, 2004, 2003 and 2002,
respectively.
Employment Agreements
.....................
Excel has entered into employment agreements with certain key
executives that provide for severance upon termination without
cause, aggregating approximately $1.7 million.
(13) Foreign and Domestic Operations and Export Sales
................................................
The Company conducts its business in the following geographic
regions that are aggregated into one reportable segment. The
Company provides photonics-based solutions, primarily consisting
of laser systems and electro-optical components, in a broad
range of commercial, scientific research and semiconductor
applications. The Company's product lines have similar long-
term economic characteristics and utilize similar manufacturing
processes. The Company distributes, sells and services its
products to similar customers in all regions. Information
concerning foreign and domestic operations, including net sales
by origin is as follows (In thousands):
As of or the year ended
December 31,
2004 2003 2002
.......... .......... ..........
Net sales and services to
unaffiliated customers:
United States operations $ 96,927 $ 84,393 $ 67,731
European operations 27,928 23,955 23,308
Asian operations 11,776 14,333 3,474
.......... .......... ..........
$ 136,631 $ 122,681 $ 94,513
.......... .......... ..........
Operating income (loss):
United States operations $ 19,889 $ 15,877 $ 13,479
European operations (809) (2,057) (1,600)
Asian operations 927 2,063 313
.......... .......... ..........
$ 20,007 $ 15,883 $ 12,192
.......... .......... ..........
Identifiable assets:
United States operations $ 127,251 $ 109,228 $ 96,578
European operations 18,635 17,515 16,667
Asian operations 6,592 6,995 5,479
.......... .......... ..........
$ 152,478 $ 133,738 $ 118,724
.......... .......... ..........
.......... .......... ..........
Identifiable assets are those tangible and intangible assets used
in operations in each geographic area.
During the years ended December 31, 2004, 2003 and 2002, the
Company had foreign and export sales of approximately $85.7
million, $74.7 million and $59.2 million, representing 63%, 61%
and 63%, respectively, of total net sales and services.
Of the net sales and services to non-U.S. customers above, net
sales and services to customers in Germany accounted for
approximately $17.8 million, $19.0 million and $15.5 million of
total consolidated net sales and services for 2004, 2003, and
2002, respectively, and net sales and services to customers in
Japan accounted for approximately $19.1 million of total
consolidated net sales and services for 2004. No other
individual foreign country accounted for more than 10% of total
consolidated net sales and services in 2004, 2003 or 2002.
No single customer accounted for more than ten percent of the
Company's net sales and services in 2004, 2003 and 2002. No
accounts receivable from a customer exceeded five percent of the
Company's total accounts receivable at December 31, 2004 and
2003.
(14) Related Party Transactions
..........................
During 2004 and 2003, one director of the Company provided services
to the Company as legal counsel, and the Company paid
approximately $115 thousand and $53 thousand, respectively for
legal services rendered by the director's law firm.
During 2002, two directors of the Company provided services to the
Company as legal counsel and the Company paid approximately $388
thousand for legal services rendered by the respective
directors' law firms.
Schedule II
............
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2004, 2003 and 2002
Column A Column B Column C Column D Column E
........ ........ ........ ........ ........
Balance at Additions charged (Deductions) Balance at
beginning to cost and additions - end of
Description of period expenses describe period
........... ......... ........ .......... .......
Allowance for doubtful accounts (In thousands):
Year ended December 31,:
2004 $ 1,001 $ 297 $ (502)(1) $ 796
2003 $ 993 $ 92 $ (84)(1) $ 1,001
2002 $ 717 $ 314 $ (38)(1) $ 993
(1) Uncollectible accounts written off, net of recoveries.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures
As of the end of the period covered by this Annual Report on Form 10-K,
the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the CEO and
CFO, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.
Based upon that evaluation, the Company's CEO and CFO concluded that the
Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Company's
periodic SEC filings.
There were no significant changes in the Company's internal control over
financial reporting during the quarterly period ended December 31, 2004
that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company, as such term
is defined in Exchange Act Rules 13a-15(f). Under the supervision and
with the participation of our management, including our CEO and CFO, we
conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on our evaluation under the framework
in Internal Control - Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of
December 31, 2004.
Our management's assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2004 has been audited by
KPMG, an independent registered public accounting firm, as stated in
their report, which is included herein.
PART III
.........
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2004.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2004.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information required by this Item 12 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2004.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item 14 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2004.
PART IV
........
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements (included in Part II, Item 8):
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Income for the years ended
December 31, 2004, 2003 and 2002.
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended December 31, 2004, 2003 and 2002.
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002.
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule (included in Part II
Item 8)*
Schedule
........
II Valuation and Qualifying Accounts
3. Exhibits included herein:
See Exhibit Index below for exhibits filed as part of this Annual
Report on Form 10-K.
(b) Reports on Form 8-K - Filed in the fourth quarter of 2004:
Form 8-K dated October 12, 2004
Item 7. Financial Statements, Proforma Financial Information
and Exhibits
Item 12. Results of Operations and Financial Condition
.............................
* Financial statement schedules other than those listed are omitted
because they are either not applicable or not required, or because
the information sought is included in the Consolidated Financial
Statements or the Notes thereto.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS
REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
.......................
J. Donald Hill,
Chairman of the Board
By: /s/ Antoine Dominic
.......................
Antoine Dominic,
Chief Executive Officer
By: /s/ Alice H. Varisano
.......................
Alice H. Varisano,
Chief Financial Officer
Date: March 15, 2005
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
...................... ..... ....
/s/ J. Donald Hill Chairman of the Board March 15, 2005
...................... and Director
J. Donald Hill
/s/ Antoine Dominic Chief Executive Officer, March 15, 2005
...................... President, and Chief
Antoine Dominic Operating Officer,(Principal
Executive Officer)
/s/ Alice H. Varisano Chief Financial Officer March 15, 2005
......................
Alice H. Varisano
/s/ Steven Georgiev Director March 15, 2005
......................
Steven Georgiev
/s/ Howard S. Breslow Director March 15, 2005
.......................
Howard S. Breslow
/s/ Donald Weeden Director March 15, 2005
.......................
Donald Weeden
/s/ Ira J. Lamel Director March 15, 2005
.......................
Ira J. Lamel
INDEX TO EXHIBITS
Exhibit
Number Document
3.1 Restated Certificate of Incorporation dated November 13,
1990, as amended. Incorporated by reference to the Company's
Registration Statement on Form S-1, File No. 33-39375.
3.2 By-Laws, as amended. Incorporated by reference to the
Company's Registration Statement on Form S-4,
File No. 33-47440.
4 Specimen Certificate for Company's Common Stock.
Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-39375.
10.1 1990 Stock Option Plan, as amended. Incorporated by
reference to the Company's Registration Statement on
Form S-1, File No. 33-52612.
10.2 Employment Agreement, dated as of October 10, 2000, between
the Company and J. Donald Hill (Incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000), as amended by letter
agreement, dated October 3, 2002 (Incorporated by reference
to Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 2002) as further amended by
letter agreement, dated March 11, 2005 (Incorporated by
reference to the Company's Current Report on Form 8-K filed
on March 14, 2005).
10.3 Employment Agreement, dated as of October 10, 2000, between
the Company and Antoine Dominic. Incorporated by reference
to Exhibit 10(c) to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000. as amended by letter
agreement, dated March 11, 2005 (Incorporated by reference to
the Company's Current Report on Form 8-K filed on March 14,
2005).
10.4 1998 Stock Option Plan. Incorporated by reference as Exhibit
A to the Company's Definitive Proxy Statement, dated
April 27, 1998 for the Annual Meeting of Stockholders held on
June 24, 1998.
10.5 2004 Stock Option Plan. Incorporated by reference to the
Company's Registration Statement on Form S-8,
File No. 333-117513.
10.6 Employment Agreement, dated as of December 27, 2004, between
the Company and Alice Varisano. *
14 Code of Ethics. *
21 List of subsidiaries.*
23.1 Consent of KPMG LLP.*
23.2 Consent of Ernst & Young LLP.*
31.1 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350.*
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350.*
*filed herewith
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of the 27th day
of December, 2004, by and between EXCEL TECHNOLOGY, INC., a Delaware
corporation with its principal corporate offices located at 41 Research
Way, East Setauket, New York 11733 (the "Company"), and ALICE VARISANO,
an individual currently residing at 85 Melanie Lane, Syosset, New York
11791 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of designing,
developing, manufacturing and marketing lasers and laser systems; and
WHEREAS, the Employee desires to be employed by the Company as the
Chief Financial Officer and Vice President of Human Resources upon the
terms and conditions hereinafter set forth, and the Company desires that
the Employee be so employed.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth herein,
the Company hereby employs and engages the Employee to serve as its
Chief Financial Officer and its Vice President of Human Resources, and
the Employee hereby agrees to serve the Company in such capacities, for
the period commencing on the date hereof and ending on fourth
anniversary of the date hereof (the "Employment Period"), unless sooner
terminated pursuant to the express provisions hereof.
2. DUTIES. The Employee shall serve as the Company's Chief Financial
Officer and the Company's Vice President of Human Resources, subject to
the direction and control of the Senior Executive Officers (as defined
below) and the Company's Board of Directors (the "Board"). The Employee
shall perform such duties and functions, consistent with the office of
Chief Financial Officer and the office of Vice President of Human
Resources, as the Senior Executive Officers or the Board, from time to
time, shall determine, including, without limitation, serving as a
consultant to Affiliates (as defined below) of the Company. In doing
so, the Employee shall promote the interests of the Company pursuant to
and in accordance with, and shall faithfully adhere to, the business
policies and procedures established from time to time by the Senior
Executive Officers or the Board. The Employee shall report to a Senior
Executive Officer. As used herein, "Senior Executive Officers" shall
mean the Company's Chairman of the Board, Chief Executive Officer,
President, and such other officers as the Chief Executive Officer or the
Board may determine; and "Affiliate" shall mean, with respect to the
Company, any entity that, directly or indirectly, controls, is
controlled by, or is under common control with, the Company.
3. TIME TO BE DEVOTED TO EMPLOYMENT. Except during vacation periods
or absences due to temporary illness, the Employee shall devote all of
her professional and business time, attention, and energies to her
duties and responsibilities hereunder. Except for business trips, which
shall be necessary or desirable in the Company's business, the Employee
shall perform her duties and responsibilities hereunder at the principal
offices of the Company.
4. COMPENSATION; FRINGES
4.01 As total compensation for all services to be rendered by the
Employee hereunder, including all services as an officer, director, or
consultant of any Affiliate of the Company, the Employee shall receive
the following:
(a) During the Employment Period, the Employee shall receive
a salary at the rate of TWO HUNDRED SEVENTY FIVE THOUSAND DOLLARS
($275,000) per annum (the "Base Salary"), which Base Salary shall be
subject to federal, state, and other tax withholdings, shall be payable
in accordance with the Company's normal payroll procedures for executive
employees, and shall be subject to annual review and adjustment by the
Company.
(b) During the Employment Period, the Employee shall receive
a yearly bonus as determined by the Board, which bonus shall not be less
than $50,000 (the "Minimum Bonus").
4.02 The Employee shall be entitled to reimbursement from the
Company for all reasonable travel and other out-of-pocket expenses
necessarily incurred by her on behalf of the Company in the course of
the performance of her duties hereunder, provided the Employee shall
submit proper supporting documentation for such expenses all in form
reasonably satisfactory to the Company.
4.03 The Employee shall be eligible, to the extent she qualifies,
to participate in such fringe benefits plans (including group life,
health and disability insurance, retirement, profit sharing and pension
plans), if any, which the Company may from time to time make available
to all of its executive employees, provided that the Company shall have
the right from time to time to modify, terminate or replace any and all
of such plans.
4.04 The Employee shall be entitled to four (4) weeks of paid
vacation each year during the Employment Period, which shall be taken at
such times as are consistent with the needs of the Company and the
convenience of the Employee.
4.05 During the Employment period, the Employee shall be entitled
to a yearly, non-accountable expense allowance of $25,000 (the "Expense
Allowance").
4.06 Upon execution and delivery of this Agreement, the Employee
shall be granted a fully-vested ten-year non-qualified stock option to
purchase 40,000 shares of the Company's common stock at an exercise
price equal to the fair market value of the common stock on such date
(the "Option"). The Option shall be granted pursuant to and in
accordance with the Company's 2004 Stock Option Plan (a copy of which
has been delivered to and reviewed by the Employee).
5. TERMINATION
5.01 This Agreement and the Employee's employment hereunder shall
terminate automatically and without notice upon the death of the
Employee or a Change of Control (as defined in the Company's 2004 Stock
Option Plan).
5.02 This Agreement and Employee's employment hereunder shall
terminate upon the Employee's resignation without Good Reason or for
Good Reason. As used herein, "Good Reason" shall mean (a) the material
breach of this Agreement by the Company, which breach has not been
corrected by the Company within fifteen days after written notice
thereof from the Employee, (b) the material diminution in the title or
job responsibilities of the Employee, which diminution has not been
corrected by the Company within fifteen days after written notice
thereof from the Employee; or (c) if the Employee's place of employment
is relocated more than twenty five (25) miles from the Company's current
location in East Setauket, New York.
5.03 The Company may terminate this Agreement and the Employee's
employment hereunder, upon written notice to the Employee, in the event
of the Employee's Incapacity. As used herein, "Incapacity" shall mean
(a) the Employee's inability to perform her duties pursuant to this
Agreement due to her mental or physical illness, disability or
incapacity, and such illness, disability or incapacity is deemed by a
licensed physician chosen by the Company to be of a permanent nature, or
(b) the Employee's failure to perform her duties pursuant to this
Agreement, due to her mental or physical illness, disability or
incapacity, on a full-time basis for a continuous period of 60 days or
for a period of 90 days (whether or not consecutive) in any six (6)
consecutive month period.
5.04 The Company may terminate this Agreement and the Employee's
employment hereunder, upon written notice to the Employee, for Cause.
For purposes of this Agreement, "Cause" shall mean:
(a) the Employee's conviction in a court of law of any crime
or offense involving money or other property or of a felony;
(b) the Employee's failure or refusal to substantially
perform her duties hereunder (other than any such failure or refusal
resulting from her Incapacity or the failure to meet specific growth and
profit targets), or the Employee's failure or refusal to carry out the
reasonable business directives of the Board or a Senior Executive
Officer, or the willful taking of any action by the Employee which
results in damage to the Company, or the material default or breach by
the Employee of any obligation, representation, warranty, covenant or
agreement made by the Employee herein; provided, however, the Company
shall have given the Employee written notice of any such Cause for
termination and the Employee shall have failed to cure such Cause within
fifteen (15) days after the date of such notice. If the Cause for
termination is cured within the fifteen (15) day period, it shall be
deemed for all purposes that Cause for termination has not occurred
(except that if the same or a similar event to the one resulting in
notice pursuant to this subsection (b) recurs after a cure, the right to
cure the second cause of termination, after notice with respect to the
second event shall have been given, shall expire 24 hours after the time
the notice is given);
(c) or the Employee's breach of any of the provisions of
Sections 6 or 8 hereof.
5.05 Upon termination of this Agreement and the Employee's
employment hereunder, the Employee shall not be entitled to any
payments, benefits, damages, awards, or compensation, except as follows:
(a) If the Employee's employment hereunder is terminated for
Cause or due to her death or Incapacity, or if the Employee resigns
without Good Reason, then the Company shall be obligated to pay to the
Employee (or, in the event of the Employee's death, the Employee's
estate) all earned but unpaid Base Salary due to the Employee hereunder
through the date of such termination or resignation, and to reimburse
the Employee (or, in the event of the Employee's death, the Employee's
estate) for all reimbursable business expenses (as set forth in Section
4.02 hereof) incurred by the Employee through the date of such
termination or resignation.
(b) If the Company terminates the Employee's employment
without Cause, or if the Employee resigns for Good Reason, then the
Company shall be obligated to pay to the Employee (i) all earned but
unpaid Base Salary, Minimum Bonus, Expense Allowance, and benefits due
to the Employee hereunder through the date of such termination, and to
reimburse the Employee for all reimbursable business expenses (as set
forth in Section 4.02 hereof) incurred by the Employee through the date
of such termination. In addition, the Company shall pay to the Employee
a [lump sum] severance payment equal to the Base Salary, Minimum Bonus,
and Expense Allowance in effect on the date of such termination.
(c) If the Employee's employment hereunder is terminated due
a Change of Control, then the Company shall be obligated to pay to the
Employee (i) all earned but unpaid Base Salary, Minimum Bonus, Expense
Allowance, and benefits due to the Employee hereunder through the date
of such termination, and to reimburse the Employee for all reimbursable
business expenses (as set forth in Section 4.02 hereof) incurred by the
Employee through the date of such termination. In addition, the Company
shall pay to the Employee a lump sum severance payment equal to two
times the Base Salary, Minimum Bonus, and Expense Allowance in effect
on the date of such termination.
5.06 If the Employee is serving on the Board or the Board of
Directors of any Affiliate of the Company at the time of termination of
the Employee's employment, then upon the Company's request, the Employee
immediately shall resign as a director effective upon such termination.
6. NON-COMPETITION; NON-SOLICITATION
6.01 In view of the unique and valuable services it is expected
the Employee will render to the Company and the knowledge regarding the
Company it is expected the Employee will obtain during the course of her
employment with the Company, and in consideration of this Agreement and
the compensation to be received by the Employee hereunder, the Employee
agrees that for so long as she is employed by the Company and for a
period of one year thereafter (the "Covenant Period"), she will not
compete with the Company (or any of its Affiliates) or, directly or
indirectly, own, manage, operate, control, loan money to, or participate
in the ownership, management, operation or control of, or be connected
with as a director, officer, employee, partner, consultant, agent,
independent contractor or otherwise, or acquiesce in the use of her name
in, any other business or organization which competes with the Company
(or any of its Affiliates) in any geographical area in which the Company
or its Affiliates is then conducting business or any geographical area
in which, to the knowledge of the Employee, the Company or its
Affiliates plans to conduct business within a six (6) month period;
provided, however, the Employee shall be permitted to own less than a 5%
interest as a shareholder in any company which is listed on any national
securities exchange even though it may be in competition with the
Company or its Affiliates.
6.02 The Employee will not, during the Covenant Period, directly
or indirectly, either individually or on behalf of any other person or
entity, solicit or interfere with, or endeavor to entice away any
employees (full-time or part-time) or customers of the Company (or any
of its Affiliates).
6.03 The Employee agrees that the provisions of this Section 6 are
reasonable and necessary to protect the Company and its business. It is
the desire and intent of the parties that the provisions of this Section
6 shall be enforced to the fullest extent permitted under the public
policies and laws applied in each jurisdiction in which enforcement is
sought. If any restriction contained in this Section 6 shall be deemed
to be invalid, illegal or unenforceable by reason of the extent,
duration or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent,
duration, geographical scope or other provision hereof and in its
reduced form such restriction shall then be enforceable in the manner
contemplated hereby.
7. RETURN OF COMPANY PROPERTY. The Employee acknowledges and agrees
that all computers, equipment, software, records, plans, manuals,
guides, memoranda, lists, correspondence with customers or
representatives, reports, records, charts, advertising materials, and
any data and other property delivered to or acquired by the Employee by
or on behalf of the Company or any of its Affiliates or by an agent,
representative or customer of any of them (including, but not limited
to, any such customers obtained by the Employee), and all records
compiled by the Employee which pertain to the business of the Company or
its Affiliates, shall be and remain the property of the Company or its
Affiliate, as the case may be, and be subject at all times to the
discretion and control of the Company or its Affiliates, as the case may
be, and shall be delivered promptly to the Company or such Affiliate,
without request, by the Employee upon the termination of the Employee's
employment.
8. CONFIDENTIAL INFORMATION. In the course of performing her duties
hereunder or otherwise, the Employee may become aware of confidential or
proprietary information of Company or any Affiliate of the Company (for
purposes of this Section 8, the "Company"), including, but not limited
to, trade secrets, product information, technical information, software
programs, software code, designs, prototypes, methods, techniques,
plans, processes, strategies, product pricing, research and development
activities, sales goals, marketing information, customer and potential
customer lists, vendor lists, and other information which the Company is
obligated to keep confidential pursuant to the Company's obligations to
third parties (collectively, "Confidential Information"). The Employee
shall maintain in strict confidence and shall not use for her own
benefit, directly or indirectly, any Confidential Information, and shall
not publish, disseminate, or disclose any Confidential Information
without the express written permission of the Company, except to the
extent necessary to carry out her duties hereunder. The term
"Confidential Information" shall not include information which becomes
public knowledge without the breach of any obligation of confidentiality
of the Employee. The covenants contained in this Section 8 shall
survive the termination or expiration of this Agreement.
9. SPECIFIC PERFORMANCE. In the event of a breach or a threatened
breach by the Employee of the provisions of Sections 6, 7, or 8
(collectively, the "Restrictive Covenants"), the Company shall be
entitled, without being required to post any bond or other security or
prove special damages, to an injunction, to have the Restrictive
Covenants specifically enforced by a court of competent jurisdiction, or
to such other equitable relief as may be necessary or desirable to
enforce the Restrictive Covenants (including, in the case of a breach of
Section 8 hereof, restraining the Employee from disclosing, in whole or
in part, the Confidential Information, or from rendering any services to
any person, firm, corporation, association, or other entity to whom such
Confidential Information, in whole or in part, has been disclosed or is
threatened to be disclosed). Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other rights or
remedies available to the Company, under law and in equity, for such
breach or threatened breach, including the recovery of damages from the
Employee.
10. SURVIVAL. The covenants and agreements contained in or made
pursuant to this Agreement shall survive the Employee's termination of
employment, irrespective of any investigation made by or on behalf of
any party.
11. ENTIRE AGREEMENT; MODIFICATION. This Agreement sets forth the
entire understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements between them concerning such
subject matter, and may be modified, supplemented or discharged only by
a written instrument duly executed by each party.
12. NOTICES. Any notices or other communication required or permitted
to be given hereunder shall be in writing and shall be deemed to have
been given (a) when faxed or personally delivered, (b) one (1) business
day after being sent by reputable "overnight" courier, or (c) five days
after being mailed by certified or registered mail, return receipt
requested, postage prepaid, to the parties at their addresses set forth
in the preamble to this Agreement (or to such other address as a party
shall have furnished in writing to the other party in accordance with
the provisions of this Section 12, provided that notice of change of
address shall be effective only upon receipt).
13. WAIVER. Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of a party to insist upon
strict adherence to any term of this Agreement on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other
term of this Agreement. Any waiver must be in writing.
14. BINDING EFFECT. The Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such
rights shall not be subject to commutation, encumbrance, or the claims
of the Employee's creditors, and any attempt to do any of the foregoing
shall be void. The provisions of this Agreement shall be binding upon
and inure to the benefit of the Employee, her heirs, executors, and
administrators, and shall be binding upon and inure to the benefit of
the Company and its successors and assigns.
15. HEADINGS. The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
16. COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This
Agreement shall be governed by and construed in accordance with the laws
of the State of New York, without giving effect to any doctrine
pertaining to the conflict of laws.
17. REPRESENTATIONS, WARRANTIES, AND AGREEMENTS. The Employee
represents and warrants to the Company that (a) the execution, delivery
and performance of this Agreement by the Employee does not and will not
conflict with, breach, violate or cause a default under any contract,
agreement, instrument, order, judgment or decree to which the Employee
is a party or by which she is bound, (b) the Employee is not a party to
or bound by any employment agreement, non-compete agreement,
confidentiality agreement, restrictive covenant or other restrictions,
whether written or oral, with any other person or entity, and (c) upon
the execution and delivery of this Agreement by the Employee, this
Agreement shall be the valid and binding obligation of the Employee,
enforceable against her in accordance with its terms. The Employee
agrees to submit to a medical examination (at the Company's expense) and
to cooperate and supply such other information and documents as may be
required by any insurance company in connection with the Company's
obtaining any type of insurance or fringe benefit as the Company shall
determine from time to time to obtain.
18. PUBLICITY. During the Employment Period (and, solely with respect
to publicity materials or presentation materials in existence at the end
of the Employment Period, for the six-month period after the Employment
Period), the Company shall have the right to use the Employee's name and
likeness in any publicity materials prepared by it and in presentations
to current or prospective clients, investors, and others. The Employee
shall not have the right to use the Company's name in any publications
or publicity or materials prepared by her without obtaining the prior
written consent of the Company, which consent shall not be unreasonably
withheld.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year above written.
/s/ Alice Varisano
............................
ALICE VARISANO
EXCEL TECHNOLOGY, INC.
By: /s/ Antoine Dominic
..........................
Antoine Dominic, CEO
EXHIBIT 14
CODE OF BUSINESS CONDUCT AND ETHICS
ADOPTED BY THE BOARD OF DIRECTORS
ON FEBRUARY 24, 2004
This Code of Business Conduct and Ethics covers a wide range of business
practices and procedures. It does not cover every issue that may arise,
but it sets out basic principles to guide all employees of the Company.
All of our employees must conduct themselves accordingly and seek to
avoid even the appearance of improper behavior. The Code should also be
followed by the Company's agents and representatives, including
consultants.
If a law conflicts with a policy in this Code, you must comply with the
law. If you have any questions about these conflicts, you should ask
your supervisor how to handle the situation.
Those who violate the standards in this Code will be subject to
disciplinary action, up to and including termination of employment.
If you are in a situation which you believe may violate or lead to a
violation of this code, follow the guidelines described in Section 14 of
this Code.
1. Compliance with Laws, Rules and Regulations
Obeying the law, both in letter and in spirit, is the foundation on
which this Company's ethical standards are built. All employees must
respect and obey the laws of the cities, states and countries in which
we operate. Although not all employees are expected to know the details
of these laws, it is important to know enough to determine when to seek
advice from supervisors, managers or other appropriate personnel.
2. Conflicts of Interest
A "conflict of interest" exists when a person's private interest
interferes in any way with the interests of the Company. A conflict
situation can arise when an employee, officer or director takes actions
or has interests that may make it difficult to perform his or her
Company work objectively and effectively. Conflicts of interest may also
arise when an employee, officer or director, or members of his or her
family, receives improper personal benefits as a result of his or her
position in the Company. Loans to, or guarantees of obligations of,
employees and their family members may create conflicts of interest.
It is almost always a conflict of interest for a Company employee to
work simultaneously for a competitor, customer or supplier. You are not
allowed to work for a competitor as a consultant or board member. The
best policy is to avoid any direct or indirect business connection with
our customers, suppliers or competitors, except on our behalf. Conflicts
of interest are prohibited as a matter of Company policy, except under
guidelines approved by the Board of Directors. Conflicts of interest may
not always be clear-cut, so if you have a question, you should consult
with higher levels of management. Any employee, officer or director who
becomes aware of a conflict or potential conflict should bring it to the
attention of a supervisor, manager or other appropriate personnel or
consult the procedures described in Section 14 of this Code.
3. Insider Trading
Employees who have access to confidential information are not permitted
to use or share that information for stock trading purposes or for any
other purpose except the conduct of our business. All non-public
information about the Company should be considered confidential
information. To use non-public information for personal financial
benefit or to "tip" others who might make an investment decision on the
basis of this information is not only unethical but also illegal.
4. Corporate Opportunities
Employees, officers and directors are prohibited from taking for
themselves personally opportunities that are discovered through the use
of corporate property, information or position without the consent of
the Board of Directors. No employee may use corporate property,
information, or position for improper personal gain, and no employee may
compete with the Company directly or indirectly. Employees, officers and
directors owe a duty to the Company to advance its legitimate interests
when the opportunity to do so arises.
5. Competition and Fair Dealing
We seek to outperform our competition fairly and honestly. Stealing
proprietary information, possessing trade secret information that was
obtained without the owner's consent, or inducing such disclosures by
past or present employees of other companies is prohibited. Each
employee should endeavor to respect the rights of and deal fairly with
the Company's customers, suppliers, competitors and employees. No
employee should take unfair advantage of anyone through manipulation,
concealment, abuse of privileged information, misrepresentation of
material facts, or any other intentional unfair-dealing practice.
The purpose of business entertainment and gifts in a commercial setting
is to create goodwill and sound working relationships, not to gain
unfair advantage with customers. No gift or entertainment should ever be
offered, given, provided or accepted by any Company employee, family
member of an employee or agent unless it: (1) is not a cash gift, (2) is
consistent with customary business practices, (3) is not excessive in
value, (4) cannot be construed as a bribe or payoff and (5) does not
violate any laws or regulations. Please discuss with your supervisor any
gifts or proposed gifts which you are not certain are appropriate.
6. Discrimination and Harassment
The diversity of the Company's employees is a tremendous asset. We are
firmly committed to providing equal opportunity in all aspects of
employment and will not tolerate any illegal discrimination or
harassment of any kind. Examples include derogatory comments based on
racial or ethnic characteristics and unwelcome sexual advances.
7. Health and Safety
The Company strives to provide each employee with a safe and healthy
work environment. Each employee has responsibility for maintaining a
safe and healthy workplace for all employees by following safety and
health rules and practices and reporting accidents, injuries and unsafe
equipment, practices or conditions.
Violence and threatening behavior are not permitted. Employees should
report to work in condition to perform their duties, free from the
influence of illegal drugs or alcohol. The use of illegal drugs in the
workplace will not be tolerated.
8. Record-Keeping
The Company requires honest and accurate recording and reporting of
information in order to make responsible business decisions. For
example, only the true and actual number of hours worked should be
reported.
Many employees regularly use business expense accounts, which must be
documented and recorded accurately. If you are not sure whether a
certain expense is legitimate, ask your supervisor or the Controller of
your subsidiary.
All of the Company's books, records, accounts and financial statements
must be maintained in reasonable detail, must appropriately reflect the
Company's transactions and must conform both to applicable legal
requirements and to the Company's system of internal controls.
Unrecorded or "off the books" funds or assets should not be maintained
unless permitted by applicable law or regulation.
Business records and communications often become public, and we should
avoid exaggeration, derogatory remarks, guesswork, or inappropriate
characterizations of people and companies that can be misunderstood.
This applies equally to e-mail, internal memos, and formal reports.
Records should always be retained or destroyed according to widely
accepted standards for record retention. In the event of litigation or
governmental investigation please consult with your supervisor.
9. Confidentiality
Employees must maintain the confidentiality of confidential information
entrusted to them by the Company or its customers, except when
disclosure is authorized by the Company's management or attorney or
required by laws or regulations. Confidential information includes all
non-public information that might be of use to competitors, or harmful
to the Company or its customers, if disclosed. It also includes
information that suppliers and customers have entrusted to us. The
obligation to preserve confidential information continues even after
employment ends.
10. Protection and Proper Use of Company Assets
All employees should endeavor to protect the Company's assets and ensure
their efficient use. Theft, carelessness, and waste have a direct impact
on the Company's profitability. Any suspected incident of fraud or theft
should be immediately reported for investigation. Company equipment
should not be used for non-Company business, though incidental personal
use may be permitted.
The obligation of employees to protect the Company's assets includes its
proprietary information. Proprietary information includes intellectual
property such as trade secrets, patents, trademarks, and copyrights, as
well as business, marketing and service plans, engineering and
manufacturing ideas, designs, databases, records, salary information and
any unpublished financial data and reports. Unauthorized use or
distribution of this information would violate Company policy, it could
also be illegal and result in civil or even criminal penalties.
11. Payments to Government Personnel
The U.S. Foreign Corrupt Practices Act prohibits giving anything of
value, directly or indirectly, to officials of foreign governments or
foreign political candidates in order to obtain or retain business. It
is strictly prohibited to make illegal payments to government officials
of any country.
In addition, the U.S. government has a number of laws and regulations
regarding business gratuities which may be accepted by U.S. government
personnel. The promise, offer or delivery to an official or employee of
the U.S. government of a gift, favor or other gratuity in violation of
these rules would not only violate Company policy but could also be a
criminal offense. State and local governments, as well as foreign
governments, may have similar rules.
12. Waivers of the Code of Business Conduct and Ethics
Any waiver of this Code for executive officers or directors may be made
only by the Board or a Board committee and will be promptly disclosed as
required by law or stock exchange regulation.
13. Reporting any Illegal or Unethical Behavior
Employees are encouraged to talk to supervisors, managers or other
appropriate personnel about observed illegal or unethical behavior and
when in doubt about the best course of action in a particular situation.
It is the policy of the Company not to allow retaliation for reports of
misconduct by others made in good faith by employees. Employees are
expected to cooperate in internal investigations of misconduct.
Any employee may submit a good faith concern regarding questionable
accounting or auditing matters without fear of dismissal or retaliation
of any kind.
14. Compliance Procedures
We must all work to ensure prompt and consistent action against
violations of this Code. However, in some situations it is difficult to
know if a violation has occurred. Since we cannot anticipate every
situation that will arise, it is important that we have a way to
approach a new question or problem. These are the steps to keep in mind:
Make sure you have all the facts. In order to reach the right
solutions, we must be as fully informed as possible.
Ask yourself: What specifically am I being asked to do? Does it seem
unethical or improper? This will enable you to focus on the specific
question you are faced with, and the alternatives you have. Use your
judgment and common sense; if something seems unethical or improper, it
probably is.
Clarify your responsibility and role. In most situations, there is
shared responsibility. Are your colleagues informed? It may help to get
others involved and discuss the problem.
Discuss the problem with your supervisor. This is the basic guidance
for all situations. In many cases, your supervisor will be more
knowledgeable about the question, and will appreciate being brought into
the decision-making process. Remember that it is your supervisor's
responsibility to help solve problems.
Seek help from Company resources. In the rare case where it may not be
appropriate to discuss an issue with your supervisor, or where you do
not feel comfortable approaching your supervisor with your question,
discuss it locally with your office manager or your Human Resources
manager.
You may report ethical violations in confidence and without fear of
retaliation. If your situation requires that your identity be kept
secret, your anonymity will be protected. The Company does not permit
retaliation of any kind against employees for good faith reports of
ethical violations.
Always ask first, act later: If you are unsure of what to do in any
situation, seek guidance before you act.
CODE OF ETHICS FOR CEO AND SENIOR FINANCIAL OFFICERS
The Company has a Code of Business Conduct and Ethics applicable to all
directors and employees of the Company. The CEO and all senior financial
officers, including the CFO and principal accounting officer, are bound
by the provisions set forth therein relating to ethical conduct,
conflicts of interest and compliance with law. In addition to the Code
of Business Conduct and Ethics, the CEO and senior financial officers
are subject to the following additional specific policies:
1. The CEO and all senior financial officers are responsible for full,
fair, accurate, timely and understandable disclosure in the periodic
reports required to be filed by the Company with the SEC. Accordingly,
it is the responsibility of the CEO and each senior financial officer
promptly to bring to the attention of the Board of Directors (the
"Board") any material information of which he or she may become aware
that affects the disclosures made by the Company in its public filings
or otherwise assist the Board in fulfilling its responsibilities.
2. The CEO and each senior financial officer shall promptly bring to
the attention of the Board and the Audit Committee any information he or
she may have concerning (a) significant deficiencies in the design or
operation of internal controls which could adversely affect the
Company's ability to record, process, summarize and report financial
data or (b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's
financial reporting, disclosures or internal controls.
3. The CEO and each senior financial officer shall promptly bring to
the attention of the Company's attorney or the CEO and to the Audit
Committee any information he or she may have concerning any violation of
the Company's Code of Business Conduct and Ethics, including any actual
or apparent conflicts of interest between personal and professional
relationships, involving any management or other employees who have a
significant role in the Company's financial reporting, disclosures or
internal controls.
4. The CEO and each senior financial officer shall promptly bring to
the attention of the Company's attorney or the CEO and to the Audit
Committee any information he or she may have concerning evidence of a
material violation of the securities or other laws, rules or
5. The Board shall determine, or designate appropriate persons to
determine, appropriate actions to be taken in the event of violations of
the Code of Business Conduct and Ethics or of these additional
procedures by the CEO and the Company's senior financial officers. Such
actions shall be reasonably designed to deter wrongdoing and to promote
accountability for adherence to the Code of Business Conduct and Ethics
and to these additional procedures, and shall include written notices to
the individual involved that the Board has determined that there has
been a violation, censure by the Board, demotion or re-assignment of the
individual involved, suspension with or without pay or benefits (as
determined by the Board) and termination of the individual's employment.
In determining what action is appropriate in a particular case, the
Board of Directors or such designee shall take into account all relevant
information, including the nature and severity of the violation, whether
the violation was a single occurrence or repeated occurrences, whether
the violation appears to have been intentional or inadvertent, whether
the individual in question had been advised prior to the violation as to
the proper course of action and whether or not the individual in
question had committed other violations in the past.
EXHIBIT 21
LIST OF SUBSIDIARIES
Name of Subsidiary: Incorporated in:
.................... ................
Cambridge Technology, Inc. Massachusetts
Continuum Electro-Optics, Inc. (d/b/a "Continuum") Delaware
Control Laser Corporation (d/b/a "Baublys-Control Laser") Florida
Control Systemation, Inc. Delaware
D Green (Electronics) Limited United Kingdom
Excel Technology Services Company Delaware
Quantronix Corporation Delaware
Photo Research, Inc. Delaware
Synrad, Inc. Washington
The Optical Corporation California
Excel Technology Asia Sdn. Bhd. Malaysia
Excel Technology Europe GmbH Germany
Baublys GmbH (1) Germany
Excel Technology France S.A.S. (1) France
Excel Technology Japan Holding Co., Ltd. Japan
Excel Technology Japan K.K. (2) Japan
Excel Laser Technology Private Limited (3) India
Excel Technology Lanka (Private) Limited Sri Lanka
(1) A wholly-owned subsidiary of Excel Technology Europe GmbH
(2) A wholly-owned subsidiary of Excel Technology Japan
Holding Co., Ltd.
(3) A joint venture in which Excel Technology, Inc. has a 50% equity
ownership interest
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Excel Technology, Inc.:
We consent to the incorporation by reference in the registration
statements (No 33-71122, 333-59340, and 333-117513) on Form S-8 of Excel
Technology, Inc. of our reports with respect to the consolidated
financial statements and the related financial statement schedule,
management's assessment of the effectiveness of internal control over
financial reporting and the effectiveness of internal control over
financial reporting, which reports appear in the December 31, 2004
Annual Report on Form 10-K of Excel Technology, Inc.
/s/ KPMG LLP
Melville, New York
March 11, 2005
EXHIBIT 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-71122) pertaining to the Excel Technology,
Inc. 1990 Stock Option Plan, the Registration Statement (Form S-8 No.
333-59340) pertaining to the Excel Technology 1998 Stock Option Plan and
the Registration Statement (Form S-8 No. 333-117513) pertaining to the
Excel Technology 2004 Stock Option Plan of our report dated January 22,
2003, with respect to the consolidated statements of income,
stockholders' equity and comprehensive income and cash flows and the
related schedule for the year ended December 31, 2002 of Excel
Technology, Inc. and Subsidiaries included in this Annual Report (Form
10-K) for the year ended December 31, 2004.
/s/ Ernst & Young LLP
Melville, New York
March 11, 2005
EXHIBIT 31.1
CERTIFICATION
I, Antoine Dominic, certify that:
1. I have reviewed this annual report on Form 10-K of Excel Technology,
Inc.;
2. Based on my knowledge, this 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. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and I have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
b) designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our 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. The registrant's other certifying officer and I have disclosed,
based on our 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
Dated: March 15, 2005
EXHIBIT 31.2
CERTIFICATION
I, Alice Varisano, certify that:
1. I have reviewed this annual report on Form 10-K 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. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and I have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
b) designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our 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. The registrant's other certifying officer and I have disclosed,
based on our 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/ Alice Varisano
.......................
Alice Varisano,
Chief Financial Officer
Dated: March 15, 2005
EXHIBIT 32.1
CERTIFICATION OF PERIODIC REPORT
I, Antoine Dominic, Chief Executive 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 my knowledge,:
(1) the Annual Report on Form 10-K of the Company for the year ended
December 31, 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: March 15, 2005
/s/ Antoine Dominic
...........................
Antoine Dominic, President,
Chief Executive Officer, and
Chief Operating 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 32.2
CERTIFICATION OF PERIODIC REPORT
I, Alice Varisano, 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 my knowledge,:
(1) the Annual Report on Form 10-K of the Company for the year ended
December 31, 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: March 15, 2005
/s/ Alice Varisano
.......................
Alice Varisano,
Chief Financial 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.