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, 2005
.................
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 if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
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. [X] Yes [ ] 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 a large accelerated
file, an accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act (Check one):
Large Accelerated filer [ ]
Accelerated filer [X]
Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (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 $287,276,155 based on the last sale price of the
common stock as reported by NASDAQ on June 30, 2005. 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
February 13, 2006 was: 12,058,329.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement to be filed
in connection with the Registrant's 2006
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, fiber, lamp pumped and
diode pumped infrared, frequency doubled, tripled and quadrupled Nd:YAG
and Nd:YLF laser systems which are branded as "Concorde", "Comet",
"ProWriter F20", "ProWriter L80", "ProWriter L100", "ProWriter D50",
"ProWriter D10", "Deep Power Engraver", "BL65" and "BL150" Deep
engraving systems, and the Mint Laser Finishing system. The mechanical
engraving systems include a "Universal Marking & Engraving Machine", an
"Inclined Bed CNC Marking & Engraving Machine", a "Mold Engraving
Machine", a "Laser Digitizer" and a "Table Top Engraving Machine". In
2005, the Company introduced ProWriter, a new series of laser marking
systems, a new version of Laser Marking Studio that incorporates IC
Marking Software, a new series of compact, low profile workstations, a
two spindle Inclined Bed Engraving Machine, a higher accuracy Laser
Digitizer System, a higher resolution camera system for the Mint Laser,
a new integrated version of the WinLaser and Laser Finish software, a
new multi-focus vision system for alignment and sample location
recognition and several new automated robot loaded workstations for
marking crankshafts, gears and knives.
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. In 2005, the
Company introduced a new Vision Assisted graphical programming
environment for CNC based laser micro-machining centers. No programming
involved, simply place a part into the machine and the real time vision
system allows the user to draw right onto the part. CADD files can be
imported and "dragged and dropped" onto the part, scaled, rotated, or
moved and lased.
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.
In 2005, the Company also introduced a new version of its
FA/Lit(trademark) called the Ultra/Lit, targeting smaller scale
independent failure analysis labs and production lines that require
quick failure analysis results. The new Ultra/Lit is a streamlined
limited capability failure analysis tool featuring a new air cooled
diode laser from Quantronix. The system is a table-top unit running on
110 volts of power. Lower price, smaller size and lower utility
requirements should lead to a good future for this system.
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. The Company
continues to make updates on this system. 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 5W 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, the Company launched our high
performance, air-cooled 100W laser ("firestar" t100), and in 2005
introduced a new, 5W laser. In addition, other accomplishments in 2005
included a new 60W laser with an integrated RF power supply, innovative
new RF technology for the "firestar" f-series lasers for improved
reliability and performance, alternative wavelength versions of our
"firestar" v, t, and f-series lasers, and the development of a
superpulse technology for both industrial and medical applications.
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 its 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
WindowsT 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 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: 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 its technology and its
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 2005,
the Company advanced its highest performance product line of Optical
Scanners to the newly patented model 6200H product line which provides
higher levels of laser scanning speed that has enabled volume
application growth in the above markets. These have set new standards
for scanning and application performance and extended the product line
with its new models 6215H and 6260H for high speed imaging and laser
welding. In addition the Company extended its line of servo electronics
with its compact high performance 673XX analog servo and a new higher
speed and higher accuracy version of its industry leading DC900 State
Space DSP Servo. The Company also extended its line of laser subsystem
components with its new value-added model EC1000 Ethernet-based Digital
Embedded Controller for both its current customer base and to open new
subsystem markets. 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. 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 II" 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.
In 2005, the Company launched a custom laser program for scientific
applications, which resulted in the delivery of a kHz, 7-mJ ultrafast
laser system with an add on amplifier that incorporates a cryogenically
cooled crystal. In addition, the Company released several new
Ti:Sapphire ultrafast lasers generating higher energies and shorter
pulse widths. In addition, the Company also released higher-energy
Nd:YLF pumped lasers.
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. In 2005, the Company introduced new
deep material penetration lasers; its new air-cooled, high-power diode
pumped lasers ("Osprey" series) with new "Design Commander" marking and
engraving software, higher power diode pumped harmonic lasers and a new
marking scanhead. 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
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
for a variety of scientific and industrial applications.
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. 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. These 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.
Homeland security is driving a host of new industrial applications
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. The reliability and cost-
effectiveness of Continuum's industrial lasers are also driving new
applications in metals sorting, inspection and measurement, particle
detection, laser shot peening and defect detection.
Continuum's scientific 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. 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. 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 2005, the Company expanded on
these platforms with a higher energy version of the Powerlite Plus, two
new Surelite OPOs and a new green-pumped Panther.
In 2004, the Company introduced "Inlite", the industrial YAG laser
system, to meet 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. In 2005, the Company added the higher power
Inlite III and a new integrated PIV platform. The Company also
developed an interleaved, 500 Hz system with integrated control for
generating X-rays for EUV lithography.
In addition to standard pulsed laser products, the Company offers
custom laser solutions to fit precise customer needs. These include
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 2005, the
Company developed a novel custom system that generates a beam that is
spatially and temporally flat - the first of its kind. This laser is
generating interest from the high energy community, interested in
amplifying laser pulses to the petawatt class. The Company has also
received multiple orders for high energy systems for laser shot peening
of aircraft turbine blades and repair of nuclear power plants.
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 73 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 64 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 20 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(registered trademark) Pritchard Optics, utilized in astronomical
and star-simulation measurements. The Company is also instrumental in
supporting standards for organizations including VESA, ISO and SAE.
In 2005, the Company introduced two new product lines, the LR-127
LED Analyzer and the PR-500 series of handheld illuminance /
photometers. The LR-127 LED Analyzer is a unique tool patented by Photo
Research for making luminous intensity measurements of discrete LED's
for compliance to CIE 127 Condition A (2 degree) and Condition B (6.5
degree). The uniqueness of this product is that it is self-contained in
one tube. All other commercially available devices designed for CIE 127
compliance testing require that the LED be tested twice, in two
different setups, to perform a complete test. Typically, this means
utilizing two tubes of different lengths. This device is used by LED
manufacturers for R&D and for quality control. It is also used for
incoming inspection by automotive, aerospace, mobile phone & display
manufactures.
The PR-500 series of handheld illuminance / photometers contain
cutting edge technology that include a Li-Ion rechargeable battery,
touch screen LCD, USB & Secure Digital (SD) storage. No competitor has
any of these options. This product group includes the PR-524 illuminance
meter & PR-525 color illuminance meter. These can both be connected to a
total of 15 external heads. Another unique function of both of these
instruments is that they can be converted to photometers using an
attachable Pritchard Optics lens system. The applications for these
products are varied and numerous including; measurement of architectural
and aircraft cabin lighting, cinema screen and projector calibration,
LCD & DLP overhead projector calibration, display measurements for
automobiles, aircraft cockpits, LCD's, LED's and Plasma TV's. They are
also utilized to measure the light levels in wine cellars.
The Company introduced a USB port option to their industry
workhorses, the PR-1980A and PR-1500 photometers and the PR-1530AR night
vision (nvis) photometer. This option can also be retrofitted on to
existing instruments.
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 in India.
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 93 includes 33
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 32. Excel Asia currently has a staff of 15, 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 50.
Net sales for foreign and domestic operations by origin is as
follows (in thousands):
The year ended December 31,
2005 2004 2003
........ ........ ........
Net sales and services to
unaffiliated customers from:
United Stated operations $ 98,997 $ 96,927 $ 84,393
European operations 28,867 27,928 23,955
Asian operations 9,853 11,776 14,333
........ ........ ........
$137,717 $136,631 $122,681
........ ........ ........
........ ........ ........
The following table presents the Company's net sales and services
by destination for the years ended December 31, 2005, 2004 and 2003 (in
thousands):
2005 2004 2003
.... .... ....
Dollars Percent Dollars Percent Dollars Percent
........ ....... ........ ....... ........ .......
To U.S. Customers $ 53,793 39% $ 50,907 37% $ 47,994 39%
To Non-U.S. Customers 83,924 61% 85,724 63% 74,687 61%
........ .... ........ .... ........ ....
TOTAL $137,717 100% $136,631 100% $122,681 100%
........ .... ........ .... ........ ....
........ .... ........ .... ........ ....
Of the net sales and services to non-U.S. customers above, net
sales and services to customers in Germany accounted for approximately
$19.8 million, $17.8 million and $19.0 million of total consolidated net
sales and services for 2005, 2004, and 2003, respectively, and net sales
and services to customers in Japan accounted for approximately $15.3
million and $19.1 million of total consolidated net sales and services
for 2005 and 2004, respectively. No other individual foreign country
accounted for more than 10% of total consolidated net sales and services
in 2005, 2004 or 2003.
Manufacturing
..............
The Company manufactures 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 generally 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, 2005, 2004, and 2003 were $14.5 million, $13.7 million, and
$12.6 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, GSI Lumonics and Lightwave
Electronics.
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, GSI Lumonics, and
Ekspla.
The Company's marking/engraving systems compete primarily with
those manufactured by Rofin-Baasel, Electrox, 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.
The Company has faced little competition in the failure analysis
arena and has developed a well known reputation among the main
electronics manufacturers.
Competition for sealed carbon dioxide lasers comes from Coherent-
DEOS (Bloomfield, CT), Rofin (Hull, UK), ULS (Scottsdale, AZ), and GSI
Lumonics (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, 2005, the Company had a backlog of firm orders
of approximately $33.0 million as compared to a backlog of $26.5 million
as of December 31, 2004. 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, 2005, the Company had 721 full-time employees
consisting of 3 executive officers; 17 subsidiary executive officers;
228 scientists, engineering and technical personnel; and 473
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 $53.8 million, $50.9 million and $48.0 million for the
years ended December 31, 2005, 2004, and 2003, respectively
(approximately 39%, 37% and 39% of total net sales and services,
respectively).
For the years ended December 31, 2005, 2004, and 2003, the Company
had net sales and services to customers in foreign countries amounting
to approximately $83.9 million, $85.7 million and $74.7 million,
respectively (approximately 61%, 63% and 61%, 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, 2005, 2004 and 2003 primarily include
property, plant and equipment and goodwill whose combined carrying
amounts were approximately $7.1 million, $7.0 million and $5.9 million,
respectively. The carrying amounts of the aforementioned long-lived
assets held by the Company's domestic subsidiaries at December 31, 2005,
2004 and 2003 were approximately $50.5 million, $51.8 million and $52.8
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
....................
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.
ITEM 1A. RISK FACTORS
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 1B. UNRESOLVED STAFF COMMENTS
None.
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 $102 thousand. The lease term expires in August 2009.
Cambridge, Massachusetts
.........................
Cambridge leases a 17,000 square foot building in Cambridge,
Massachusetts and an office in Auburn, California from unaffiliated
landlords for manufacturing operations, administrative and sales
offices. The leases expire in December 2006 and May 2006, at an average
annual rent of approximately $314 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 provides approximately 4,000 square feet of space
from 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 and a sales office in Kuala Lumpur,
Malaysia from unaffiliated landlords. The buildings are 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 $40 thousand. The leases expire in December 2005 and
March 2007.
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 $182 thousand.
The leases expire in September 2008, December 2007 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 $42 thousand. The lease expires in July 2007. The
Company purchased a building in the fourth quarter of 2005 which it is
in the process of renovating. The building is approximately 17,000
square feet and is located in Mumbai, India.
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
operations to support our internal use software development activities.
The annual rent is approximately $14 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. In September 2005, the Court ruled
that the Company was liable for damages, interest and an unspecified
amount of plaintiff legal fees. The liability for the damages and
estimated legal fees was recorded in general and administrative expenses
in the consolidated statement of income for the quarter ended September
30, 2005. In December 2005, the Company settled the lawsuit with
Phillips and paid $575 thousand for damages, interest and plaintiff
legal 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, 2005
First Quarter $26.66 $21.04
Second Quarter $27.21 $20.13
Third Quarter $26.77 $22.44
Fourth Quarter $26.49 $23.03
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
As of February 15, 2006, there were approximately 656 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, 2005:
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 1,441 $ 20.38 455
Equity compensation
plans not approved
by security holders 0 0 0
..... ....... ....
Total 1,441 $ 20.38 455
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statement of operations data for the
years ended December 31, 2005, 2004 and 2003, and the consolidated
balance sheet data as of December 31, 2005 and 2004, 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 income data for the years ended December 31, 2002 and 2001,
and the selected consolidated balance sheet data as of December 31,
2003, 2002 and 2001, 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,
..............................................
2005 2004 2003 2002 2001
........ ........ ........ ....... .......
Net sales and services $137,717 $136,631 $122,681 $94,513 $88,492
Net income $ 15,208 $ 14,762 $ 11,318 $ 8,512 $ 5,938
Net earnings per share
Basic $1.26 $1.23 $0.95 $0.72 $0.50
Diluted $1.24 $1.20 $0.93 $0.71 $0.50
Weighted average common
and common equivalent
shares outstanding
Basic 12,054 12,026 11,853 11,792 11,762
Diluted 12,246 12,351 12,231 12,071 11,978
Balance Sheet Data (in thousands)
As of December 31,
............................................
2005 2004 2003 2002 2001
........ ........ ........ ........ ........
Total assets $164,038 $152,478 $133,738 $118,724 $102,505
Total liabilities $ 15,348 $ 16,477 $ 16,466 $ 16,467 $ 10,907
Working capital $ 94,656 $ 80,006 $ 59,540 $ 44,765 $ 42,695
Stockholders' equity $148,690 $136,001 $117,272 $102,257 $ 91,598
Long-term liabilities $ 3,540 $ 2,807 $ 997 $ 180 $ 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 OPERATION
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 U.S. generally
accepted accounting principles. 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,
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
and risk of loss 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 an allowance 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, 2005 and 2004 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,
2005 and 2004, the Company has approximately $1.8 million and $1.2
million of net deferred tax liabilities, 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
.................................
In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and FASB
Statement No. 3" ("SFAS 154"). SFAS 154 replaces APB Opinion No. 20,
"Accounting Changes" ("APB 20"), and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements." SFAS 154 requires
retrospective application to prior periods' financial statements of a
voluntary change in accounting principle unless it is impracticable to
determine either the period-specific effects or the cumulative effects
of the change. APB 20 previously required that most voluntary changes
in accounting principle be recognized by including in net income in the
period of the change the cumulative effect of changing to the new
accounting principle. This standard generally will not apply with
respect to the adoption of new accounting standards, as new accounting
standards usually include specific transition provisions, and will not
override transition provisions contained in new or existing accounting
literature. SFAS 154 is effective for fiscal years beginning after
December 15, 2005, and early adoption is permitted for accounting
changes and error corrections made in years beginning after the date
that SFAS 154 was issued. The Company does not expect that the adoption
of SFAS 154 on January 1, 2006 will have a significant effect on its
financial condition or results of operations.
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 deduction for domestic manufacturing
activities 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, not as an adjustment of recorded deferred
tax assets and liabilities. 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 has determined that it
will not repatriate any undistributed foreign earnings under the new tax
legislation and, therefore, the legislation as it relates to
undistributed foreign earnings will not have an affect on the Company's
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
Payment." 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
the first annual period beginning after June 15, 2005. Additionally, in
March 2005, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 107, "Share-Based Payment" (SAB No. 107), which
provides additional guidance on certain implementation issues with
respect to SFAS 123(R). 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. Unrecognized stock-based compensation expense
related to unvested options as of December 31, 2005 was $185 thousand.
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, 2005, 2004 and 2003 (in thousands of dollars
and as a percentage of total net sales and services).
2005 2004 2003
................ ................ ................
Dollars Percent Dollars Percent Dollars Percent
........ ....... ........ ....... ........ .......
Net Sales and
Services $137,717 100.0% $136,631 100.0% $122,681 100.0%
Cost of Sales and
Services 72,295 52.5% 72,723 53.2% 66,346 54.1%
........ ....... ........ ....... ........ .......
Gross Profit/Margin 65,422 47.5% 63,908 46.8% 56,335 45.9%
Operating Expenses:
Selling and
Marketing 18,959 13.8% 18,850 13.8% 16,530 13.5%
General and
Administrative 12,448 9.0% 11,341 8.3% 11,324 9.2%
Research and
Development 14,477 10.5% 13,710 10.0% 12,598 10.3%
........ ....... ........ ....... ........ .......
Income from
Operations 19,538 14.2% 20,007 14.6% 15,883 12.9%
Non-Operating Income 1,133 0.8% 973 0.7% 1,049 0.9%
........ ....... ........ ....... ........ .......
Income before
Provision for
Income Taxes 20,671 15.0% 20,980 15.4% 16,932 13.8%
Provision for Income
Taxes 5,463 4.0% 6,218 4.6% 5,614 4.6%
........ ....... ........ ....... ........ .......
Net Income $ 15,208 11.0% $ 14,762 10.8% $ 11,318 9.2%
........ ....... ........ ....... ........ .......
........ ....... ........ ....... ........ .......
Net Sales and Services
.......................
Net sales and services for 2005 increased to $137.7 million from
$136.6 million in 2004. The increase from 2004 to 2005 of $1.1 million
or 0.8% was attributable to increased sales of most product lines with
the exception of scanners. 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 from 2003 to
2004.
Gross Margins and Cost of Sales
................................
Gross margins as a percentage of sales in 2005 were 47.5% compared
to 46.8% in 2004. Cost of sales and services decreased by $428 thousand
or 0.6% to $72.3 million in 2005 from $72.7 million in 2004. The
increase in gross margins as a percentage of sales and the decrease in
cost of sales and services from 2004 to 2005 are primarily attributable
to the product mix. 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.
Operating Expenses
...................
Selling and Marketing
Selling and marketing expenses were $19.0 million in 2005 compared
to $18.9 million in 2004 and $16.5 million in 2003. The increases of
$109 thousand or 0.6% from 2004 to 2005 and $2.3 million or 14% from
2003 to 2004 were primarily attributable to the variable costs, such as
commissions, associated with increased sales volume and our additional
fixed costs associated with expanding our US and global sales and
marketing efforts. Selling and marketing expenses as a percentage of
sales were 13.8% in 2005 and 2004, and 13.5% in 2003. Selling and
marketing expenses as a percentage of sales remained the same in 2005
and 2004 and the increase from 2003 to 2004 is 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 $12.4 million in 2005 as
compared with $11.3 million in both 2004 and 2003. The increase of $1.1
million or 9.8% from 2004 to 2005 was primarily attributable to a
litigation settlement charge of $575 thousand and increased legal fees,
primarily for the Dr. Phillips lease dispute litigation. 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. General and administrative
expenses as a percentage of sales increased to 9.0% in 2005 as compared
to 8.3% in 2004 and 9.2% in 2003. From 2004 to 2005, general and
administrative expense as a percentage of sales increased as a result of
an increase in expenses in 2005 from the lease dispute litigation, while
the sales remained comparable for those periods. From 2003 to 2004,
general and administrative expense as a percentage of sales decreased
due to an increased sales volume, as 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 2005 were $14.5 million as
compared to $13.7 million in 2004 and $12.6 million in 2003. The
increase of $767 thousand or 5.6% from 2004 to 2005 and the increase of
$1.1 million or 8.8% from 2003 to 2004 were 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.
Other Income/Expense
No interest expense was incurred for 2005, 2004 or 2003 as there
were no borrowings throughout those years.
Interest income for 2005 was $1.2 million, as compared to $387
thousand in 2004 and $148 thousand in 2003. The increases in interest
income of $793 thousand or 205% from 2004 to 2005 and $239 thousand or
161% from 2003 to 2004 are primarily due to the increase in the average
investable cash balances. In addition, during 2005 and 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.
Other income, net for 2005 was $1 thousand, compared to $580
thousand in 2004 and $896 thousand in 2003. Other income in 2005
includes $77 thousand of foreign currency transaction losses. The
income in 2004 and 2003 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 and $845 thousand for the years ended December
31, 2004 and 2003, respectively.
Provision for Income Taxes
The provision for income taxes for 2005 was $5.5 million, compared
to $6.2 million in 2004 and $5.6 million in 2003. The decrease of $755
thousand or 12.1% from 2004 to 2005 was primarily attributable to lower
pre-tax income in 2005 combined with a lower effective tax rate. The
increase of $604 thousand or 10.8% from 2003 to 2004 is primarily
attributable to higher taxable income. The Company's effective tax rate
was 26.4% for 2005, as compared to 29.6% in 2004 and 33.2% in 2003. The
decrease in the Company's effective tax rate from 2004 to 2005 is
primarily due to an increase in tax-exempt investment income and $655
thousand for the settlement of income tax contingencies for less than
the amount previously accrued and the decrease 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.
Liquidity and Capital Resources
................................
Cash Flow Overview
...................
Cash, cash equivalents and investments increased $8.5 million
during the year 2005 to $50.3 million. The increase during the year was
primarily due to the net cash provided by operating activities of $12.7
million partially offset by net cash used for capital expenditures of
$3.3 million. The Company also experienced an unfavorable foreign
exchange effect on cash and equivalents of $967 thousand in 2005. As of
December 31, 2005 the Company had no bank debt.
Net cash provided by operating activities was $12.7 million for the
year ended December 31, 2005 and $16.1 million for the year ended
December 31, 2004, which was primarily attributable to net income plus
the depreciation and amortization expenses, offset partially by net
changes in working capital items, primarily accounts receivable and
inventory. Depreciation and amortization for the year ended December
31, 2005 was $2.9 million. Accounts receivable at December 31, 2005 of
$22.9 million increased $3.1 million from December 31, 2004 due to
increased sales during the fourth quarter of 2005 compared to the fourth
quarter of 2004. Inventory at December 31, 2005 of $30.3 million
increased $1.4 million from December 31, 2004 due to a higher backlog at
December 31, 2005.
Net cash used in investing activities of $6.8 million for the year
ended December 31, 2005 was primarily attributable to the purchase of
auction rate notes for $3.6 million and equipment for $3.3 million. 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 provided by financing activities was $41 thousand and $1.1
million for the year ended December 31, 2005 and 2004, respectively
resulting from the proceeds received upon the exercise of employee stock
options.
As of December 31, 2005, the Company has working capital of $94.7
million including cash, cash equivalents and auction rate notes of $50.3
million, compared to working capital of $80.0 million including cash,
cash equivalents and investments of $41.8 million at December 31, 2004.
The working capital increased by $14.7 million and cash, cash
equivalents and investments increased by $8.5 million during the year
ended December 31, 2005.
As of December 31, 2005, the Company's contractual obligations were
as follows (in thousands):
Contractual Obligations Payments Due by Period
Less than 1 - 3 3 - 5 More than
Total 1 Year Years Years 5 Years
....... ......... ....... ....... .........
Operating Leases $ 4,063 $ 1,662 $ 2,171 $ 230 $ 0
Line of Credit
As of December 31, 2005, 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 2005 and 2004 is summarized as follows:
2005 2004
................................................. ................................................
Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
........ ........ ........ ......... ......... ........ ........ ........ ........ ........
<C
Net sales and services $ 30,215 $ 33,296 $ 37,842 $ 36,364 $137,717 $ 36,291 $ 34,163 $ 34,902 $ 31,276 $136,631
Cost of sales and services 16,192 17,073 19,803 19,227 72,295 19,802 17,502 18,754 16,665 72,723
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Gross profit 14,023 16,223 18,039 17,137 65,422 16,489 16,661 16,148 14,611 63,908
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Operating expenses:
Selling and marketing 4,349 4,718 5,027 4,865 18,959 4,781 4,817 4,521 4,732 18,850
General and administrative 3,233 2,727 3,536 2,952 12,448 2,804 2,927 2,631 2,980 11,341
Research and development 3,336 3,755 3,757 3,629 14,477 3,364 3,401 3,291 3,653 13,710
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
10,918 11,200 12,320 11,446 45,884 10,949 11,145 10,443 11,365 43,901
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Income from operations 3,105 5,023 5,719 5,691 19,538 5,540 5,516 5,705 3,246 20,007
Non-operating expenses
(income):
Interest income (183) (274) (337) (386) (1,180) (56) (74) (97) (159) (387)
Minority interest in net
income (loss) of
subsidiary 0 0 34 12 48 (6) 0 0 0 (6)
Foreign currency gains
(losses) and other
income, net 155 5 (58) (103) (1) (170) (197) (124) (88) (580)
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Income before provision for
income taxes 3,443 5,302 5,964 5,962 20,671 5,772 5,787 5,926 3,493 20,980
Provision for income taxes 930 1,313 1,610 1,610 5,463 1,725 1,736 1,778 978 6,218
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Net income $ 2,513 $ 3,989 $ 4,354 $ 4,352 $ 15,208 $ 4,047 $ 4,051 $ 4,148 $ 2,515 $ 14,762
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Basic earnings per
common share $ 0.21 $ 0.33 $ 0.36 $ 0.36 $ 1.26 $ 0.34 $ 0.34 $ 0.34 $ 0.21 $ 1.23
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Weighted average common
shares outstanding 12,053 12,054 12,054 12,054 12,054 11,972 12,028 12,052 12,053 12,026
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Diluted earnings per
common share $ 0.21 $ 0.33 $ 0.36 $ 0.36 $ 1.24 $ 0.33 $ 0.33 $ 0.34 $ 0.21 $ 1.20
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Weighted average common
and common equivalent shares
outstanding 12,235 12,237 12,259 12,254 12,246 12,444 12,449 12,255 12,256 12,351
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........
Note 1: The Company's quarterly closing dates are on the last Friday
prior and closest to the last day of each calendar quarter. The
Company's fiscal year always ends on December 31st.
Note 2: The sum of the quarterly earnings per common share amounts do
not always equal the annual amount reported, as per share amounts are
computed independently for each quarter and for the year based on the
weighted average common and common equivalent shares outstanding in each
such periods.
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
investing strategies. The Company's investment portfolios consist
primarily of cash, cash equivalents and investments, with carrying
amounts approximating market value. Assuming year-end 2005 cash and
investment levels, a one-point change in interest rates would have an
approximate $500 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 61% of total net sales and services in 2005,
63% in 2004 and 61% in 2003. 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 28% of its
total net sales and services in 2005, 29% of its total net sales and
services in 2004 and 31% in 2003. 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 $(77) thousand, $621 thousand and $845 thousand in
2005, 2004 and 2003, 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 32 to 47.
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, 2005.
Page
....
Reports of Independent Registered Public Accounting Firm 30
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2005 and 2004 32
Consolidated Statements of Income for the years ended
December 31, 2005, 2004 and 2003 33
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended
December 31, 2005, 2004 and 2003 34
Consolidated Statements of Cash Flows for the years
ended December 31, 2005, 2004 and 2003 35
Notes to Consolidated Financial Statements 36
Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts 47
...............................
Schedules not listed above have been omitted because they are either not
applicable or the required information has been provided 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, 2005 and 2004, and
the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-
year period ended December 31, 2005. 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, 2005 and
2004, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2005, 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, 2005, 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 February 15,
2006 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
February 15, 2006
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, 2005, 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, 2005, 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, 2005, 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, 2005 and 2004, and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 2005, and our
report dated February 15, 2006 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Melville, New York
February 15, 2006
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2005 and 2004
(In thousands, except per share amounts)
Assets 2005 2004
....... ......... .........
Current assets:
Cash and equivalents $ 16,303 $ 11,329
Investments 34,000 30,425
Accounts receivable, less allowance
for doubtful accounts of $810 and $796
in 2005 and 2004, respectively 22,879 19,782
Inventories 30,269 28,839
Deferred income taxes 1,660 1,598
Other current assets 1,353 1,703
......... .........
Total current assets 106,464 93,676
......... .........
Property, plant and equipment 25,983 26,492
Other assets 158 289
Goodwill 31,433 32,021
......... .........
Total Assets $ 164,038 $ 152,478
......... .........
......... .........
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 4,829 $ 5,265
Accrued expenses and other current liabilities 6,979 8,405
......... .........
Total current liabilities 11,808 13,670
......... .........
Deferred income taxes 3,492 2,807
Minority interest in subsidiary 48 0
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, 12,055 and 12,053
shares issued and outstanding in 2005 and 2004,
respectively 12 12
Additional paid-in capital 49,621 49,573
Retained earnings 97,583 82,375
Accumulated other comprehensive income 1,474 4,041
......... .........
Total stockholders' equity 148,690 136,001
......... .........
Total Liabilities and Stockholders' Equity $ 164,038 $ 152,478
......... .........
......... .........
See Accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2005, 2004 and 2003
(In thousands, except earnings per share)
2005 2004 2003
......... ......... .........
Net sales and services $ 137,717 $ 136,631 $ 122,681
Cost of sales and services 72,295 72,723 66,346
......... ......... .........
Gross profit 65,422 63,908 56,335
Operating expenses:
Selling and marketing 18,959 18,850 16,530
General and administrative 12,448 11,341 11,324
Research and development 14,477 13,710 12,598
......... ......... .........
45,884 43,901 40,452
......... ......... .........
Income from operations 19,538 20,007 15,883
Non-operating expenses (income):
Interest income (1,180) (387) (148)
Minority interest in net income (loss)
of subsidiary 48 (6) (5)
Foreign currency gains/losses and
other income, net (1) (580) (896)
......... ......... .........
Income before provision for income taxes 20,671 20,980 16,932
Provision for income taxes 5,463 6,218 5,614
......... ......... .........
Net income $ 15,208 $ 14,762 $ 11,318
......... ......... .........
......... ......... .........
Basic income per common share $1.26 $1.23 $0.95
...... ...... ......
...... ...... ......
Weighted average common shares outstanding 12,054 12,026 11,853
...... ...... ......
...... ...... ......
Diluted income per common share $1.24 $1.20 $0.93
...... ...... ......
...... ...... ......
Weighted average common and
common equivalent shares outstanding 12,246 12,351 12,231
...... ...... ......
...... ...... ......
See Accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
Years ended December 31, 2005, 2004 and 2003
(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, 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
Exercise of common stock options 0 0 2 0 41 0 0 41
Tax benefit from employee stock
option exercises 0 0 0 0 7 0 0 7
Net income for the year 0 0 0 0 0 15,208 0 15,208 $15,208
Foreign currency translation
adjustment 0 0 0 0 0 0 (2,567) (2,567) (2,567)
.......
Comprehensive income 0 0 0 0 0 0 0 0 $12,641
....... ....... ........ ....... .......... ........ ............. ........ .......
.......
Balances at December 31, 2005 0 $ 0 12,055 $12 $49,621 $97,583 $1,474 $148,690
....... ....... ........ ....... .......... ........ ............. ........
....... ....... ........ ....... .......... ........ ............. ........
See Accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2005, 2004 and 2003
(In thousands)
2005 2004 2003
........ ........ ........
Operating activities:
Net income $ 15,208 $ 14,762 $ 11,318
Adjustments to reconcile net income
to net cash provided by operating
activities:
Minority interest in net income
(loss) of subsidiary 48 (6) (5)
Depreciation and amortization 2,891 2,687 2,887
Tax benefit from employee stock
option exercises 7 951 768
Loss on sale of equipment 7 0 0
Provision for bad debts 252 297 92
Deferred income taxes 622 1,507 590
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable (4,534) 2,334 743
Inventories (1,777) (3,269) 642
Other current assets 282 (613) 371
Other assets 1,101 (480) (228)
Accounts payable (290) 362 (941)
Accrued expenses and other
current liabilities (1,088) (2,425) (829)
........ ........ ........
Net cash provided by operating
activities 12,729 16,107 15,408
........ ........ ........
Investing activities:
Purchases of investments,
net of redemptions (3,575) (14,425) (16,000)
Cash paid for acquisitions,
net of cash acquired 0 0 (914)
Purchases of property, plant and equipment (3,272) (1,392) (2,450)
Proceeds from the sale of equipment 18 0 0
........ ........ ........
Net cash used in investing
activities (6,829) (15,817) (19,364)
........ ........ ........
Financing activities:
Proceeds from exercise of common
stock options 41 1,108 1,345
Minority shareholder investment in
joint venture 0 0 11
........ ........ ........
Net cash provided by financing
activities 41 1,108 1,356
........ ........ ........
Effect of exchange rate changes on cash
and cash equivalents (967) 191 518
........ ........ ........
Net increase (decrease) in cash
and equivalents 4,974 1,589 (2,082)
Cash and equivalents - beginning of year 11,329 9,740 11,822
........ ........ ........
Cash and equivalents - end of year $ 16,303 $ 11,329 $ 9,740
........ ........ ........
........ ........ ........
Supplemental Cash Flow Information
...................................
Cash paid for:
Interest $ 0 $ 0 $ 0
........ ........ ........
........ ........ ........
Income taxes $ 5,411 $ 5,604 $ 2,312
........ ........ ........
........ ........ ........
See Accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
(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,
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 and risk of loss 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 $16.3 million and $11.3 million at
December 31, 2005 and 2004, 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 $34.0 million and $30.4 million at
December 31, 2005 and 2004, 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 for
impairment 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 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.
Accrued Warranty Costs
......................
The Company analyzes its warranty liability for reasonableness on
a quarterly basis. Based upon a five-year history of warranty
costs incurred, the nature of the products shipped subject to
warranty and anticipated warranty trends, the Company believes
that its warranty liability at December 31, 2005 and 2004 are
reasonable.
Changes in the warranty liability in 2005 and 2004 were as follows
(In thousands):
2005 2004
...... ......
Balance at January 1 $ 765 $ 756
Provision for warranties during the year 630 536
Costs of warranty obligations during the year (675) (527)
...... ......
Balance at December 31 $720 $ 765
...... ......
...... ......
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 Statement of
Financial Accounting Standards ("SFAS") 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 $1.5 million
and $4.0 million at December 31, 2005 and 2004, 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 (losses) gains of $(77) thousand,
$621 thousand and $845 thousand for the years ended
December 31, 2005, 2004 and 2003, respectively, which is
reflected in foreign currency gains /losses 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 U.S.
generally accepted accounting principles 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, 2005, 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,
2005, 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 income per share if the Company had
applied the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" to stock-based
employee compensation.
(In thousands, except
per share data)
Year ended December 31,
...............................
2005 2004 2003
....... ....... .......
Net income, as reported $15,208 $14,762 $11,318
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (3,018) (3,027) (1,519)
....... ....... .......
Proforma net income $12,190 $11,735 $9,799
....... ....... .......
....... ....... .......
Earnings per share:
Basic - as reported $1.26 $1.23 $0.95
..... ..... .....
Basic - proforma $1.01 $0.98 $0.83
..... ..... .....
Diluted - as reported $1.24 $1.20 $0.93
..... ..... .....
Diluted - proforma $1.00 $0.95 $0.81
..... ..... .....
The per share weighted-average fair value of stock options granted
during 2005, 2004 and 2003 was $8.20, $13.67 and $9.47,
respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average
assumptions:
2005- expected dividend yield of 0%, risk free interest rate of
3.60%-4.31%, expected stock volatility of 39%-41% and expected
life of approximately 3.9 years;
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;
For purposes of the proforma disclosures, the estimated fair value
of the options is amortized to compensation expense over the
options' vesting periods.
Accumulated Other Comprehensive Income (Loss)
.............................................
Accumulated other comprehensive income ("comprehensive income")
refers to revenues, expenses, gains and losses that under U.S.
generally accepted accounting principles 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.
(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 income (loss) of the joint venture of $48 thousand,
($6) thousand and ($5) thousand in the statements of income for
2005, 2004 and 2003, respectively.
(3) Inventories
...........
Inventories consist of the following (In thousands):
December 31,
.....................
2005 2004
........ ........
Raw materials $ 16,474 $ 15,384
Work-in-process 8,158 7,074
Finished goods 4,246 4,858
Consigned inventory 1,391 1,523
........ ........
$ 30,269 $ 28,839
........ ........
........ ........
(4) Property, Plant and Equipment
.............................
Property, plant and equipment at cost consists of the following
(In thousands):
December 31,
................
Useful life 2005 2004
........... ....... .......
Land 0 $ 4,236 $ 4,236
Buildings 30 years 20,054 18,918
Leasehold improvements Lease term 682 644
Fixtures and computer equipment 3-10 years 2,576 2,869
Machinery and equipment 3-10 years 6,494 6,759
Laboratory equipment 3-10 years 3,031 3,293
....... .......
37,073 36,719
Less accumulated depreciation
and amortization 11,090 10,227
....... .......
$25,983 $26,492
....... .......
....... .......
Depreciation and amortization expense aggregated approximately
` $2.9 million, $2.7 million and $2.9 million for the years
ended
December 31, 2005, 2004 and 2003, respectively.
(5) Goodwill
........
The change in the net carrying amount of goodwill for the years
ended December 31, 2005 and 2004 is attributable to the change
in foreign currency exchange rates used to translate the
goodwill contained in the financial statements of foreign
subsidiaries.
(6) Income Taxes
............
Pre-tax income for the years ended December 31, 2005, 2004, and
2003 was comprised of domestic income of $20.6 million, $20.7
million and $16.1 million, respectively, and foreign income of
$77 thousand, $234 thousand, and $817 thousand, respectively.
The provision for income taxes consists of (In thousands):
Year ended December 31,
...........................
2005 2004 2003
....... ....... .......
Current:
Federal $ 4,088 $ 3,736 $ 4,027
State and local 713 697 321
Foreign 41 278 675
....... ....... .......
4,842 4,711 5,023
....... ....... .......
Deferred:
Federal 621 1,507 591
....... ....... .......
$ 5,463 $ 6,218 $ 5,614
....... ....... .......
....... ....... .......
The current provision for income taxes includes a tax benefit of
$192 thousand for 2004 and $391 thousand for 2003 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,
...........................
2005 2004 2003
....... ....... .......
Taxes at statutory Federal
income tax rate $ 7,235 $ 7,241 $ 5,926
State income taxes, net
of Federal benefit 464 453 209
Credits (426) (420) 0
ETI benefit (825) (943) (704)
Change in valuation allowance 75 173 65
Foreign Tax Rate Differential 15 49 (89)
Non-taxable income (248) (78) 0
Settlement of tax contingencies (655) 0 0
Other (172) (257) 207
....... ....... .......
$ 5,463 $ 6,218 $ 5,614
....... ....... .......
....... ....... .......
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 31, 2005 and 2004 are as follows (In thousands):
December 31,
.................
2005 2004
........ ........
Deferred tax assets:
Excess of tax over financial statement
basis of inventory $ 1,118 $ 997
Allowance for doubtful accounts 199 211
Accrued warranty costs 136 105
Other accrued expenses 207 285
Benefits of foreign net operating
loss carryforwards 3,082 2,173
........ ........
Total deferred tax assets 4,742 3,771
Less valuation allowance (3,082) (2,173)
........ ........
1,660 1,598
........ ........
Deferred tax liabilities:
Plant and equipment depreciation (651) (591)
Goodwill amortization (2,841) (2,216)
........ ........
Total deferred tax liabilities (3,492) (2,807)
........ ........
Net deferred tax liabilities $(1,832) $(1,209)
........ ........
........ ........
As of December 31, 2005, the Company has a foreign tax net
operating loss carryforward of $7.7 million (6.5 million Euro).
A valuation allowance of $3.1 million, as of December 31, 2005
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. The Company believes it is
more likely than not that the results of future operations will
generate sufficient taxable income to realize the other
deferred tax assets.
Undistributed earnings of the Company's foreign subsidiaries
amounted to approximately $2.1 million, at December 31, 2005.
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. Foreign currency translation
adjustments are not adjusted for income taxes, as they relate
to indefinite investments in non-U.S. subsidiaries.
(7) Accrued Expenses and Other Current Liabilities
..............................................
Accrued expenses and other current liabilities consist of the
following (In thousands):
December 31,
.................
2005 2004
........ ........
Salaries, wages, commissions and bonuses $ 2,558 $ 2,274
Accrued vacation/holiday/sick pay 833 768
Deferred revenue 201 318
Customer deposits 477 714
Accrued warranty costs 720 765
Professional fees payable 192 814
Income taxes payable 1,097 1,675
Other 901 1,077
........ ........
$ 6,979 $ 8,405
........ ........
........ ........
(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, 2005,
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, 2005, 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, 2005, 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, 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
Granted 449 $ 22.60
Exercised (2) $ 15.89
Cancelled (8) $ 19.79
..............
Outstanding at December 31, 2005 1,441 $ 20.38
..............
..............
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, 2005, 2004 and 2003, a total of 1,410 thousand,
812 thousand and 632 thousand options were exercisable at
weighted average exercise prices of $20.37, $19.85 and $16.50,
respectively, and at December 31, 2005 options for the purchase
of 445 thousand common shares were available for future grants
under the 2004 Plan and 10 thousand common shares were
available for future grants under the 1998 Plan.
The options outstanding as of December 31, 2005 are summarized as
follows:
Number of Weighted
options average Options
Exercise outstanding contractual Exercisable
price (In thousands) remaining life (In thousands)
........ .............. .............. ..............
$ 6.50 2 2.80 years 2
$ 7.00 179 1.94 years 179
$ 13.06 25 3.47 years 25
$ 15.15 281 6.13 years 281
$ 16.66 35 6.78 years 22
$ 19.71 23 5.30 years 22
$ 22.16 69 7.38 years 56
$ 22.59 440 9.11 years 440
$ 23.03 5 9.79 years 5
$ 23.04 4 9.98 years 4
$ 24.63 163 4.23 years 163
$ 26.51 40 9.00 years 40
$ 27.41 20 8.79 years 20
$ 29.00 30 4.42 years 30
$ 29.70 5 8.23 years 1
$ 34.68 120 8.32 years 120
..... ....
1,441 1,410
..... ....
..... ....
Shares Reserved for Issuance
............................
At December 31, 2005, the Company had reserved 1,898,368
authorized and unissued common shares for the following
purposes (In thousands):
Shares
......
1990 Stock option plan 176
1998 Stock option plan 722
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):
2005
...................................
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
.......... ............. .........
Basic EPS $ 15,208 12,054 $ 1.26
Effect of Dilutive Securities:
Stock Options 192
......
Diluted EPS $ 15,208 12,246 $ 1.24
........ ...... ......
........ ...... ......
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
........ ...... ......
........ ...... ......
There were 378 thousand, 175 thousand, and 341 thousand
unexercised stock options outstanding as of December 31, 2005,
2004 and 2003, respectively, not included as part of the
diluted EPS calculations for 2005, 2004 and 2003,
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, 2005, 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 $546 thousand,
$524 thousand and $489 thousand in 2005, 2004 and 2003,
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. In September 2005, the Court
ruled that the Company was liable for damages, interest and an
unspecified amount of plaintiff legal fees. The liability for
the damages and estimated legal fees was recorded in general
and administrative expenses in the consolidated statement of
income for the quarter ended September 30, 2005. In December
2005, the Company settled the lawsuit with Phillips and paid
$575 thousand for damages, interest and plaintiff legal 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, 2005, the future minimum lease payments under non-
cancelable operating leases are as follows (In thousands):
2006 $ 1,662
2007 1,226
2008 945
2009 197
2010 33
Thereafter 0
.........
$ 4,063
.........
.........
Rent expense, which is recorded on a straight line basis over the
lease term, approximated $1.4 million for each of the years
ended December 31, 2005, 2004 and 2003.
Employment Agreements
.....................
Excel has entered into employment agreements with certain key
executives that provide for severance upon termination without
cause, aggregating approximately $1.8 million. In addition,
certain employment agreements include a change of control
clause that call for payments aggregating approximately $3.0
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,
2005 2004 2003
......... ......... ........
Net sales and services to
unaffiliated customers:
United States operations $ 98,997 $ 96,927 $ 84,393
European operations 28,867 27,928 23,955
Asian operations 9,853 11,776 14,333
......... ......... ........
$ 137,717 $ 136,631 $ 122,681
......... ......... .........
......... ......... .........
Operating income (loss):
United States operations $ 19,014 $ 19,889 $ 15,877
European operations (112) (809) (2,057)
Asian operations 636 927 2,063
......... ......... .........
$ 19,538 $ 20,007 $ 15,883
......... ......... .........
......... ......... .........
Identifiable assets:
United States operations $ 137,694 $ 127,251 $ 109,228
European operations 20,413 18,635 17,515
Asian operations 5,931 6,592 6,995
......... ......... .........
$ 164,038 $ 152,478 $ 133,738
......... ......... .........
......... ......... .........
Identifiable assets are those tangible and intangible assets used
in operations in each geographic area.
During the years ended December 31, 2005, 2004 and 2003, the
Company had foreign and export sales of approximately $83.9
million, $85.7 million and $74.7 million, representing 61%, 63%
and 61%, 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 $19.8 million, $17.8 million and $19.0 million of
total consolidated net sales and services for 2005, 2004, and
2003, respectively, and net sales and services to customers in
Japan accounted for approximately $15.3 million and $19.1
million of total consolidated net sales and services for 2005
and 2004, respectively. No other individual foreign country
accounted for more than 10% of total consolidated net sales and
services in 2005, 2004 or 2003.
No single customer accounted for more than 10% of the Company's
net sales and services in 2005, 2004 and 2003. One customer
accounted for 5.3% of the Company's total accounts receivable
at December 31, 2005. No accounts receivable from a customer
exceeded 5% of the Company's total accounts receivable at
December 31, 2004.
(14) Related Party Transactions
..........................
During 2005, 2004 and 2003, one director of the Company provided
services to the Company as legal counsel, and the Company paid
approximately $51 thousand, $115 thousand and $53 thousand,
respectively for legal services rendered by the director's law
firm. As of December 31, 2005, no amounts were due to the
director's law firm.
Schedule II
............
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2005, 2004 and 2003
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,:
2005 $ 796 $ 252 $ (238)(1) $ 810
2004 $ 1,001 $ 297 $ (502)(1) $ 796
2003 $ 993 $ 92 $ (84)(1) $ 1,001
(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.
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, 2005.
Our management's assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2005 has been
audited by KPMG, an independent registered public accounting firm, as
stated in their report, which is included herein.
Changes in Internal Control Over Financial Reporting
There were no significant changes in the Company's internal control
over financial reporting during the quarterly period ended December 31,
2005 that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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, 2005.
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, 2005.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
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, 2005.
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, 2005.
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, 2005.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(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 Firm
Consolidated Balance Sheets as of December 31, 2005 and 2004
Consolidated Statements of Income for the years ended
December 31, 2005, 2004 and 2003.
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended December 31, 2005, 2004 and 2003.
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003.
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.
_____________________________
* 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: February 16, 2006
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 February 16, 2006
...................... and Director
J. Donald Hill
/s/ Antoine Dominic Chief Executive Officer, February 16, 2006
...................... President, and Chief Operating
Antoine Dominic Officer (Principal Executive
Officer)
/s/ Alice H. Varisano Chief Financial Officer February 16, 2006
......................
Alice H. Varisano
/s/ Steven Georgiev Director February 16, 2006
......................
Steven Georgiev
/s/ Howard S. Breslow Director February 16, 2006
......................
Howard S. Breslow
/s/ Donald Weeden Director February 16, 2006
......................
Donald Weeden
/s/ Ira J. Lamel Director February 16, 2006
......................
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
agreements, dated March 11, 2005, March 21, 2005 and May 5, 2005
(Incorporated by reference to the Company's Current Reports on
Form 8-K filed on March 14, 2005, March 21, 2005 and May 6,
2005, respectively).
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), as further amended by letter agreement dated May 5, 2005
(Incorporated by reference to the Company's Current Report on
Form 8-K filed on May 6, 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. Incorporated by reference to the
Company's Form 10-K, dated March 15, 2005, as amended by letter
agreement, dated May 5, 2005 (Incorporated by reference to the
Company's Current Report on Form 8-K filed on May 6, 2005).
14 Code of Ethics. Incorporated by reference to the Company's Form
10-K, dated March 15, 2004.
21 List of subsidiaries.*
23.1 Consent of KPMG 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 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
Excel Technology Italy Srl. (1) Italy
(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 dated February 15, 2006 with
respect to the consolidated balance sheets as of December 31, 2005 and
2004, and the related consolidated statements of income, stockholders'
equity and comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2005, and the related financial
statement schedule, management's assessment of the effectiveness of
internal control over financial reporting as of December 31, 2005 and
the effectiveness of internal control over financial reporting as of
December 31, 2005, which reports appear in the December 31, 2005 Annual
Report on Form 10-K of Excel Technology, Inc.
/s/ KPMG LLP
Melville, New York
February 16, 2006
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 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
Date: February 15, 2006
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 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
Date: February 15, 2006
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, 2005 (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: February 15, 2006
/s/ Antoine Dominic
...........................
Antoine Dominic, President,
Chief Executive Office, 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, 2005 (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: February 15, 2006
/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.