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, 2007
......................
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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
41 Research Way E. Setauket, NY 11733
(Address of Principal Executive Offices) (Zip Code)
(631) 784-6175
(Registrant's Telephone Number, including area code)
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
.......................................
(Title of Class)
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
filer, 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 approximately $327,070,222 based on the last sale
price of the common stock as reported by NASDAQ on June 29, 2007 (the
last business day of the most recently completed second fiscal quarter).
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 12, 2008 was: 11,049,004.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement to be filed in connection with the
Registrant's 2007 Annual Meeting of Stockholders
(incorporated by reference under Part III)
TABLE OF CONTENTS
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Page
PART I
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 15
ITEM 1B. UNRESOLVED STAFF COMMENTS 17
ITEM 2. PROPERTIES 17
ITEM 3. LEGAL PROCEEDINGS 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES 19
ITEM 6. SELECTED FINANCIAL DATA 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 31
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 55
ITEM 9A. CONTROLS AND PROCEDURES 55
ITEM 9B. OTHER INFORMATION 56
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 56
ITEM 11. EXECUTIVE COMPENSATION 56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS 56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE 56
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 56
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE 57
SIGNATURES 58
EXHIBIT INDEX
EX-21 (EX-21 SUBSIDIAIRIES OF THE COMPANY) 61
EX-23 (EX-23 CONSENT OF KPMG LLP) 62
EX-31.1 (EX 31.1 SECTION 302 CERTIFICATION OF CEO) 63
EX-31.2 (EX 31.2 SECTION 302 CERTIFICATION OF CFO) 64
EX-32.1 (EX 32.1 SECTION 906 CERTIFICATION OF CEO) 65
EX-32.2 (EX 32.2 SECTION 906 CERTIFICATION OF CFO) 66
PART I
.......
ITEM 1. BUSINESS
General
........
Excel Technology, Inc. (the "Company") was organized under the laws
of Delaware in 1985. The Company designs, 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. In January 2007,
the Company merged CSI with Control Laser.
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 integrated laser marking/engraving and mechanical
marking/engraving and 3D engraving systems with automation at Control
Laser in Orlando, Florida and Baublys in Ludwigsberg, Germany.
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". The
Company's ProWriter, a series of laser marking systems, incorporates the
newest version of Laser Marking Studio. In addition, the Company offers
specialized marking software embedded in its laser marking/engraving
systems such as its new IC Marking Software.
Laser Micro-machining and Automation Systems
.............................................
The Company designs and manufactures laser micro-machining systems,
parts handling/automation, systems integration, and software engineering
solutions at the Company's subsidiary Baublys-Control Laser/CSI based in
Orlando, Florida. The Company produces a variety of micro-machining
systems ("TaskMaster" Series) for cutting, drilling, ablating and other
micro machining applications. The "TaskMaster" series of micro-
machining systems provides a versatile but affordable solution to almost
any process requirement. They are modular in design allowing lasers of
any wavelength such as green, UV, DUV, infrared, and CO2 in a variety of
power levels to be integrated into the same workstation. The workstation
can be taken from a basic XY system with a manually adjustable focusing
beam delivery system and enhanced with a variety of options such as XY
with a programmable focusing beam delivery system, vision system for
part alignment and semi-automatic focusing adjustment, gas assist with
programmable pressure regulator and part fixturing. The Company offers
a Vision Assisted graphical programming environment for CNC based laser
micro-machining centers. This software platform requires no
programming, 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's FA/Lit (trademark) product targets the integrated
circuit ("IC") failure analysis market. This system utilizes a process
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. Subsequently, the Company has
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 table-top limited capability failure analysis tool
featuring air cooled diode lasers from Quantronix.
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. 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.
CO2 Lasers
...........
The Company manufactures a range of sealed CO2 lasers for cutting,
marking, drilling, and other machining applications for a variety of
materials at Synrad, the Company's subsidiary located in Mukilteo,
Washington. The CO2 lasers range in power from 5W to 400W. Synrad's
"Firestar" series of sealed CO2 lasers, initially introduced in 2001,
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, the Company launched 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, the Company extended its "firestar" t-
technology to include an 80W laser, available in either air or water-
cooled versions. In 2004, the Company introduced its high performance,
air-cooled 100W laser ("firestar" t100), and in 2005 introduced a new,
5W laser. Developments for 2006 included a new t-technology laser with
an integrated RF power supply, the production roll-out of new RF
technology for the "firestar" f-series lasers for improved reliability
and performance, 9.3 and 9.6um versions of the "firestar" v, t, and f-
series lasers, and the development of an innovative superpulse
technology for both industrial and medical applications.
In August 2007 Synrad shipped its 100,000th laser, and development
continues on both high and low power CO2 technologies, as well as
innovative RF technology and packaging design, to improve both the
performance and efficiency of the Company's lasers.
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. In 2006, Synrad released the FH Flyer, a
high speed marking head with an onboard processor, and both a USB and
Ethernet controller. The Flyer is a fully digital marking head capable
of stand-alone operation, and marking/coding in either stationary or
"on-the-fly" mode. The Company's WinMark software has been developed
specifically for its marking heads, is fully Windows-compatible, and
available in multiple language versions.
Scanners
.........
The Company is a market leader in galvanometer based optical
scanners, which are manufactured at Cambridge, the Company's subsidiary
based in Lexington, 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, holographic storage, 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 2007,
the Company continued to advance and extend the application range and
performance of its highest performance 62XXXH product line of Optical
Scanners with new product offerings, including its new model 6260H for
high speed laser welding. These have set new standards for scanning and
application performance and extended the product line. In addition the
Company has extended its new line of value-added digital product
offerings with the lower cost DC2000 dual axis version of its industry
leading DC900 State Space DSP Servo and broadened its offerings and
penetration of the laser marking subsystem market with its first digital
controller product, the model EC1000 Ethernet-based Digital Embedded
Controller with an open software interface and third party software
support for both its current customer base and to open new subsystem
markets for Cambridge. For higher precision uV applications, Cambridge
has also extended its analog servo product lines to support the higher
accuracy requirements of developing laser material processing
applications.
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 (used by
chemists, biologists, physicists and engineers) represent one of the
most stable and long-established laser markets. 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 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
laser materials. Ultrafast Amplifiers deliver high-energy short pulses
on a femtosecond (one quadrillionth of a second) or picosecond (one
trillionth of a second) time scale. These short pulses enable the
investigation of a wide range of physical, chemical and biological
phenomena.
The Company's scientific systems utilize Nd:YLF lasers to produce
high-energy pulses at a rate of 1 kHz (1,000 pulses per second). These
pulses drive the Ti:Sapphire Amplifier that 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. In 2006 and 2007, the Company further expanded its Integra-C
line of amplifiers to include systems with higher energies and shorter
pulse durations. The Company has also used its experience designing
software controlled scanning beam delivery systems for industrial
applications to deliver ultrafast material processing systems with
integrated scanning beam delivery optics. In addition, the Company
released a higher energy, 25-mJ frequency-doubled Nd:YLF laser optimized
for Ti:Sapphire pumping. Using this new technology, the Company further
expanded its custom laser program for scientific applications by
releasing an integrated12-mJ, 35-fs pulsed laser using a cryogenically
cooled Ti:Sapphire crystal.
In 2007, the Company added to its Darwin-Duo line of kilohertz
Particle Image Velocimetry (PIV) lasers. These lasers are widely used in
both scientific and industrial applications for studying high speed
fluid flows. The Company's PIV lasers now cover economical 40-mJ
versions for small area studies and up to 200-W high power systems for
measuring large areas of turbulent flows such as in jet engines.
The Company's industrial and OEM offerings consist of a variety of
high power lamp pumped and diode pumped Nd:YVO4, Nd:YAG and Nd:YLF
lasers, available in infrared, green, and ultraviolet wavelengths.
These lasers are ideal for a wide range of marking and micromachining
applications. The Company has expanded its Osprey series of air-cooled
vanadate lasers to powers of more than 20 Watts in the infrared. The
Company has also increased the Osprey's output power in the green and
ultraviolet regions of the spectrum while maintaining the air-cooling
and ease-of-use required by system integrators and industrial laser
users. In 2007, the Company added the Harrier Nd:YAG laser to its line
of industrial- grade, air-cooled lasers. Because of its high energy per
pulse, this laser is well-suited to high speed marking of tooling and
other hardened materials.
The Company has launched a series of 90-Watt, diode-pumped Nd:YAG
lasers specifically designed for deep material penetration. Also, the
Company released a new version of its "Design Commander" marking and
engraving software to include features for deep engraving, more advanced
marking features, and expanded laser controls as well as capabilities
for ultrafast marking and micromachining. 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 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.
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. Key labs all over the world have been investing
in upgrading their multiple TeraWatt laser systems with additional
amplifiers to reach even higher energies. The Company designed a series
of pump lasers with improved beam quality for this application and they
have been well received.
The Company introduced "Inlite", a YAG laser system designed
specifically to address and penetrate the industrial markets. 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. Subsequently, the Company added the higher power Inlite III
and an integrated PIV laser. The Company also developed an interleaved,
500 Hz system with integrated control for generating X-rays for EUV
lithography. The Company continues to focus on emerging OEM
applications using this technology. The Company has delivered a high
energy YAG laser system for laser shock peening, as well as a version of
the Inlite for ultrasonic defect inspection.
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 shock peening and defect detection.
The Company is also investing in developing intelligent systems for
control and operation of all of its Inlite technology-based products. A
series of graphical user interfaces was developed for the standard
Inlite family, Inlite PIV and custom laser systems in glass and YAG.
These have ranged from standard interfaces operating on a laptop or
desktop computer to a Bluetooth (trademark) enabled wireless remote
control. The Company will continue to move its products in this
direction to improve functionality and ease of use.
In addition to standard high energy 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 2006, the Company delivered a novel custom system that
generates a beam that is spatially and temporally flat - the first of
its kind. This laser has generated multiple orders from the high energy
community, interested in amplifying laser pulses to the petawatt class.
A derivative of this laser system that is flexible in pulse width has
also generated repeat sales. The Company also completed the migration
of its custom systems power supplies to the power supply technology of
its Inlite products, including the development of a set of graphical
user interfaces. Customers now have complete control of these
sophisticated laser systems within a convenient, full-featured, easy to
use graphical user interface.
In 2007, the Company developed a new standard product named Agilite
based on the flexible pulse width technology developed for its custom
systems. This product is the first of its kind in the world that allows
users to truly map out pulse width parameter space. It will be used as
a tool to develop applications in therapeutic medical and materials
processing markets.
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 75 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, Polarizer's,
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 66 years.
The Company has three main product lines. The Spectra 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 fast scanning PR-655. The multi-
aperture PR-670, the patent pending PR-680 SpectraDuo and PR-705/715
SpectraScan complement this line.
The Pritchard line originated with the industry workhorse the PR-
1980 series. The Pritchard is the most widely used photometer in the
world. The newest addition to this series is the PR-880 Automated
Photometer. 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 has developed many industry standards, such as Spectra
Pritchard Optics, utilized in astronomical and star-simulation
measurements. The Company is also instrumental in supporting standards
for organizations including VESA, ISO and SAE.
In 2007, the Company introduced the low cost PR-610
Spectroradiometer, User Self Calibration software for the PR-655, 670 &
680 and the much sought after VideoWin-3 software using the .Net
platform for display characterizations.
The PR-610 addresses a need in the digital cinema industry for low
cost spectroradiometer. The calibration software enables the user to
calibrate their own instruments without having to send them into the
factory. This is very valuable for users of multiple instruments as
they can save a lot of expense and down time by performing the
calibrations themselves. VideoWin-3 is very sophisticated application
and control software which replaces the VideoWin-2 and PhotoWin-2
software used in PR-920 & 905 digital video photometers. This
technology is used for characterizing automobile panels, aircraft
cockpits, led clusters and heads up displays (HUD's).
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:
Sales
Relationship Territory Staff Operations
to Company Covered Size Located In/Near
........................................................
Excel Europe German Europe 91 Munich, Germany
Subsidiary Frankfurt, Germany
Ludwigsburg, Germany
Savigny sur Orge,
France
Milan, Italy
Excel Japan Japanese Japan 25 Tokyo, Japan
Subsidiary
Excel Asia Malaysian Southeast Asia 11 Penang, Malaysia
Subsidiary
Excel SouthAsia Joint Venture
in India South Asia 45 Mumbai, India
These subsidiaries engage in the business of marketing,
distributing, installing, 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. In
addition, they also provide spare parts for their installed base.
Net sales for foreign and domestic operations by origin is as
follows (in thousands):
The year ended December 31,
2007 2006 2005
........ ........ ........
Net sales and services to
unaffiliated customers from:
United Stated operations $120,193 $116,984 $ 98,997
European operations 32,296 28,908 28,867
Asian operations 7,534 8,604 9,853
........ ........ ........
$160,023 $154,496 $137,717
........ ........ ........
........ ........ ........
The following table presents the Company's net sales and services
by destination for the years ended December 31, 2007, 2006 and 2005 (in
thousands):
2007 2006 2005
................ ................ ................
Dollars Percent Dollars Percent Dollars Percent
........ ....... ........ ....... ........ .......
To U.S. Customers $ 59,131 37% $ 57,713 37% $ 53,793 39%
To Non-U.S.
Customers 100,892 63% 96,783 63% 83,924 61%
........ .... ........ .... ........ ....
TOTAL $160,023 100% $154,496 100% $137,717 100%
........ .... ........ .... ........ ....
........ .... ........ .... ........ ....
Of the net sales and services to non-U.S. customers above, net
sales and services to customers in Germany accounted for approximately
$24.6 million, $20.1 million and $19.8 million of total consolidated net
sales and services for 2007, 2006, and 2005, respectively, and net sales
and services to customers in Japan accounted for approximately $16.6
million, $17.0 million and $15.3 million of total consolidated net sales
and services for 2007, 2006 and 2005, respectively. No other individual
foreign country accounted for more than 10% of total consolidated net
sales and services in 2007, 2006 or 2005.
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, 2007, 2006, and 2005 were $14.8 million, $14.5 million, and
$14.5 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 marking/engraving systems compete primarily with
those manufactured by Rofin-Sinar, Electrox, Foba, Laservall, SEI
s.p.A., Cheval Frere, Fotona, E.O. Technics, Trumpf-Haas, IPG Photonics
and Hans Laser. These products are subject to intense price competition
in recent years.
The Company's laser micro-machining and automation systems compete
primarily with GSI Group, Rofin-Sinar, Electro Scientific Industries and
other specialized systems manufacturers.
Competition for sealed carbon dioxide lasers comes from Coherent
(Bloomfield, CT), Rofin (Hull, UK), ULS (Scottsdale, AZ), and GSI Group
(Rugby, UK).
In the optical scanner market, GSI Group is a significant
competitor of the Company and there are a number of other small
competitors in the international markets.
The Company's scientific and industrial solid-state laser products
face a number of competing product lines from Spectra-Physics, Coherent,
Clark-MXR, Femtolaser, Thales Laser, Rofin-Sinar, GSI Group and Cyber
Laser.
Competition for the high energy solid state laser products comes
from New Wave Research (a division of ESI), Quantel Lasers and their
subsidiary Big Sky Lasers, Spectra-Physics, Thales Laser, Amplitide, GSI
Group, Litron and Ekspla.
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
Radiant Imaging as its key competitor.
Backlog
........
As of December 31, 2007, the Company had a backlog of firm orders
of approximately $34.8 million as compared to a backlog of $36.0 million
as of December 31, 2006. 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, technological 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, 2007, the Company had 719 full-time employees
consisting of 2 executive officers; 24 subsidiary executive officers;
221 scientists, engineering and technical personnel; and 472
manufacturing, administrative, sales support and finance 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 $59.1 million, $57.7 million and $53.8 million for the
years ended December 31, 2007, 2006, and 2005, respectively
(approximately 37%, 37% and 39% of total net sales and services,
respectively).
For the years ended December 31, 2007, 2006, and 2005, the Company
had net sales and services to customers in foreign countries amounting
to approximately $100.9 million, $96.8 million and $83.9 million,
respectively (approximately 63%, 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 and Baublys-Control Laser
products in South Asia. See Note 14 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, 2007, 2006 and 2005 primarily include
property, plant and equipment and goodwill whose combined carrying
amounts were approximately $8.4 million, $8.1 million and $7.1 million,
respectively. The carrying amounts of the aforementioned long-lived
assets held by the Company's domestic subsidiaries at December 31, 2007,
2006 and 2005 were approximately $50.5 million, $49.7 million and $50.5
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 100 F Street NE, Washington, DC 20549-0213. 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
The Company's corporate headquarters is located in East Setauket,
New York. Manufacturing and other operations are conducted in several
locations worldwide. The following tables provide certain information
about the Company's principal general offices and manufacturing
facilities. The Company believes that its existing facilities are
adequate to meet its currently projected needs for the next 12 months
and that suitable additional or alternative space would be available, if
necessary in the future on commercially reasonable terms.
Size
Principal Properties Owned: (sq. ft.) Primary Activity
............................ ......... ...........................
North America
..............
Orlando, Florida 80,000 Baublys-Control Laser's
manufacturing operations,
sales and administrative
offices, and research and
development facility
East Setauket, New York 65,000 Quantronix' manufacturing
operations, sales and
administrative offices, and
research and development and
engineering and laser
application facility
Mukilteo, Washington 63,000 Synrad's manufacturing
operations, sales and
administrative offices, and
research and development
facility
Chatsworth, California 22,000 Photo Research's
manufacturing operations,
sales and administrative
offices, and research and
development facility
Asia
.....
Mumbai, India 16,769 Excel SouthAsia JV's sales
and administrative offices,
service and repair centers,
and a laser applications
laboratory
Principal Properties Size Lease
Leased: (sq. ft.) Expiration Primary Activity
..................... ......... ............. .....................
North America
..............
Santa Clara, California 47,000 December 2008 Manufacturing, admin-
istrative and sales
offices for Continuum
Lexington, Massachusetts 33,339 December 2016 Manufacturing, admin-
istrative and sales
offices for Cambridge
Oxnard, California 14,000 August 2009 Manufacturing and
administrative offices
for TOC
Auburn, California 597 May 2008 Sales office for
Cambridge
Europe
.......
Ludwigsburg, Germany 22,500 June 2011 Manufacturing and
services operations,
sales and marketing,
research and
development and
executive offices for
Baublys-Control Laser
Darmstadt, Germany 7,800 December 2009 Administrative,
marketing and services
offices for Excel
Europe and its
division Quantronix
Europe
Munich, Germany 7,800 December 2008 Sales, marketing and
services offices for
Excel Europe and its
division Synrad Europe
Northumberland,
United Kingdom 4,119 February 2010 Sales and marketing,
manufacturing and
administrative offices
for DGE
Villebon Sur Yvette,
France 3,300 December 2010 Sales and services
office for Excel
Europe
Milan, Italy 750 November 2009 Sales and services
office for Excel Europe
Asia
.....
Penang, Malaysia 7,597 December 2008 Administrative, sales
and marketing offices,
light repair and
integration services,
technical and support
offices, as well as
applications
laboratories for Excel
Asia
Kuala Lumpur, Malaysia 1,000 July 2008 Sales office for
Excel Asia
Kuala Lumpur, Malaysia 750 January 2008 Sales office for
Excel Asia
Tokyo, Japan 4,917 September 2008 Administrative, sales
and marketing offices
for Excel Technology
Japan
Tokyo, Japan 568 October 2008 Warehouse for Excel
Technology Japan
Colombo, Sri Lanka 4,500 April 2008 Office for product
development activities
of Excel Technology-
Lanka
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on November
20, 2007. At the Meeting:
(i) The following persons were elected as directors of the
Company, to serve until the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified, each receiving
the number of votes set forth opposite their names:
FOR WITHHELD
.......... .........
J. Donald Hill 10,626,676 597,348
Antoine Dominic 10,771,178 452,846
Steven Georgiev 8,217,100 3,006,924
Ira J. Lamel 8,348,939 2,875,085
Donald E. Weeden 8,214,500 3,009,524
(ii) The appointment of KPMG LLP as the Company's independent
registered public accounting firm for the year ending December 31, 2007
was ratified, with 11,175,846 shares voting in favor of the appointment,
39,455 shares voting against, and 8,724 shares abstaining from voting.
PART II
........
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
Price Range of Common Stock
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, 2007
First Quarter $27.78 $25.05
Second Quarter $28.18 $25.84
Third Quarter $28.40 $24.41
Fourth Quarter $28.26 $25.39
December 31, 2006
First Quarter $29.95 $23.86
Second Quarter $29.92 $29.43
Third Quarter $29.84 $28.90
Fourth Quarter $29.64 $24.87
As of February 12, 2008, there were approximately 598 holders of
record of the Common Stock.
Dividend Policy
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.
Issuer Purchases of Equity Securities
Effective November 1, 2006, the Company's Board of Directors
authorized a stock buy-back program for the repurchase of up to
2,000,000 shares of its common stock. Purchases have occurred and will
continue to occur from time to time in open market transactions or
privately negotiated transactions at the Company's discretion, including
the quantity, timing and price thereof. This program replaced the
program that the Board of Directors had authorized in January 1998.
A summary of the activity by month is as follows:
Total
number of Maximum
Total shares number of
number of purchased shares that
shares Average as part may yet be
purchased price of publicly purchased
(In thou- paid per announced plan under the plan
Period sands) (a) share (b) (In thousands) (In thousands)
................... ........... .......... .............. ...............
1/01/07 - 1/26/07 0 N/A 0 1,920
1/27/07 - 2/23/07 0 N/A 0 1,920
2/24/07 - 3/30/07 7 27.18 0 1,920
3/31/07 - 4/27/07 0 N/A 0 1,920
4/28/07 - 5/25/07 150 26.47 147 1,773
5/26/07 - 6/29/07 150 26.46 145 1,628
6/30/07 - 7/27/07 19 26.34 12 1,616
7/28/07 - 8/31/07 235 25.31 230 1,386
9/01/07 - 9/28/07 85 25.15 83 1,303
9/29/07 - 10/26/07 22 26.50 15 1,288
10/27/07 - 11/30/07 165 26.92 165 1,123
12/01/07 - 12/31/07 172 26.80 172 951
........... .......... .............. ...........
Total 1,005 26.22 969 951
(a) Includes 36 thousand shares repurchased to satisfy employee minimum
tax withholding obligations upon vesting of restricted stock
granted to employees under the Company's equity compensation plans.
(b) The average price paid per share of stock repurchased under the
stock buy-back program includes the commissions paid to the
brokers.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statement of income data for the years
ended December 31, 2007, 2006 and 2005, and the consolidated balance
sheet data as of December 31, 2007 and 2006, 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, 2004 and 2003, and the
selected consolidated balance sheet data as of December 31, 2005, 2004
and 2003, 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 per share
data) the Company's consolidated statement of income 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 Income Data (in thousands, except per share data)
Year Ended December 31,
................................................
2007 2006 2005 2004 2003
........ ........ ........ ......... ........
Net sales and services $160,023 $154,496 $137,717 $136,631 $122,681
Net income $ 17,732 $ 14,019 $ 15,208 $ 14,762 $ 11,318
Net income per share
Basic $1.49 $1.16 $1.26 $1.23 $0.95
Diluted $1.46 $1.12 $1.24 $1.20 $0.93
Weighted average common
and common equivalent
shares outstanding
Basic 11,864 12,071 12,054 12,026 11,853
Diluted 12,131 12,488 12,246 12,351 12,231
Balance Sheet Data (in thousands)
As of December 31,
................................................
2007 2006 2005 2004 2003
........ ........ ........ ......... ........
Total assets $180,532 $181,979 $164,038 $152,478 $133,738
Total liabilities $ 18,945 $ 18,254 $ 15,348 $ 16,477 $ 16,466
Working capital $107,799 $110,548 $ 94,656 $ 80,006 $ 59,540
Stockholders' equity $161,587 $163,725 $148,690 $136,001 $117,272
Long-term liabilities $ 5,196 $ 4,612 $ 3,540 $ 2,807 $ 997
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 photonics-based
solutions, consisting of laser systems and electro-optical components,
primarily 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.
The Company's strength and success is dependent upon developing and
delivering successful, timely and cost effective solutions to its
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.
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 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. 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 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. If title and risk of
loss do not pass to the customer until the product reaches the
customer's delivery site, then recognition of revenue is deferred until
that time. 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 has occasionally entered into contracts to design,
develop and produce laser systems to customer specifications. These
contracts specify milestones and related progress billings and typically
include terms that specify progress payments are non-refundable or the
customer may terminate the contract for convenience, at which time the
Company will be paid a percentage of the contract price that reflects
the percentage of work performed to that date. Such contracts are
accounted for in accordance with AICPA Statement of Position 81-1,
"Accounting for Performance of Construction - Type and Certain
Production - Type Contracts," whereby revenue is recognized under the
percentage-of-completion method with the extent of progress towards
completion measured by the achievement of contractual milestones.
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, 2007 and 2006 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,
2007 and 2006, the Company has approximately $1.0 million and $1.0
million of net deferred tax liabilities, respectively, related
principally to inventory basis differences, benefits of foreign net
operating loss carryforwards 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. Likewise, if future foreign taxable income is achieved, a
decrease to the valuation allowance may be required.
Recent Accounting Pronouncements
.................................
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"), which defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. Adoption is required as of the beginning of the first
fiscal year that begins after November 15, 2007. The FASB subsequently
deferred the adoption of SFAS 157 for nonfinancial assets and
liabilities to the fiscal year beginning after November 15, 2008. SFAS
157 applies under other accounting pronouncements that require or permit
fair value measurements and does not require any new fair value
measurements. Management is evaluating the impact the adoption of this
statement will have on the Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities Including an
Amendment of FASB Statement No. 115" ("SFAS 159") which permits entities
to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair
value. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, although early
application is allowed. Management is currently evaluating the impact
the adoption of this statement will have on the Company's consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "Business
Combinations" ("SFAS 141(R)") which requires the acquiring entity in a
business combination to recognize most identifiable assets acquired,
liabilities assumed, noncontrolling interests and goodwill acquired in a
business combination at full fair value; establishes the acquisition-
date fair value as the measurement objective for all assets acquired and
liabilities assumed; and requires the acquirer to disclose to investors
and other users all of the information they need to evaluate and
understand the nature and financial effect of the business combination.
SFAS 141(R) is effective for fiscal years beginning after December 15,
2008. As SFAS 141(R) will be applied to business combinations occurring
after the effective date, management does not believe that adoption of
this standard will have any impact on the Company's consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements - an amendment of ARB
No.51" ("SFAS 160") which requires all entities to report noncontrolling
interests (previously referred to as minority interests) in subsidiaries
as a separate component of equity in the consolidated financial
statements. Moreover, SFAS 160 eliminates the diversity that currently
exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity
transactions. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. Management is evaluating the impact the adoption of
this standard will have on the Company's consolidated financial
statements.
Results of Operations
......................
The following table presents consolidated financial data for the
years ended December 31, 2007, 2006 and 2005 (in thousands of dollars
and as a percentage of total net sales and services).
2007 2006 2005
................ ................ ................
Dollars Percent Dollars Percent Dollars Percent
........ ....... ........ ....... ........ .......
Net Sales and
Services $160,023 100.0% $154,496 100.0% $137,717 100.0%
Cost of Sales and
Services 90,271 56.4% 85,602 55.4% 72,295 52.5%
........ ....... ........ ....... ........ .......
Gross Profit / Margin 69,752 43.6% 68,894 44.6% 65,422 47.5%
Operating Expenses:
Selling and Marketing 17,671 11.0% 18,745 12.1% 18,959 13.8%
General and
Administrative 15,930 10.0% 13,051 8.4% 12,448 9.0%
Research and
Development 14,834 9.3% 14,523 9.4% 14,477 10.5%
Merger Related and
Deferred Compensation 0 0% 2,875 1.9% 0 0%
Merger Expenses 0 0% 2,194 1.4% 0 0%
........ ....... ........ ....... ........ .......
Income from Operations 21,317 13.3% 17,506 11.4% 19,538 14.2%
Non-Operating Income 3,328 2.1% 2,936 1.9% 1,133 0.8%
........ ....... ........ ....... ........ .......
Income before Provision
for Income Taxes 24,645 15.4% 20,442 13.3% 20,671 15.0%
Provision for
Income Taxes 6,913 4.3% 6,423 4.2% 5,463 4.0%
........ ....... ........ ....... ........ .......
Net Income $ 17,732 11.1% $ 14,019 9.1% $ 15,208 11.0%
........ ....... ........ ....... ........ .......
........ ....... ........ ....... ........ .......
Net Sales and Services
.......................
Net sales and services for 2007 increased to $160.0 million from
$154.5 million in 2006, an increase of $5.5 million or 3.6%. Net sales
and services for 2006 increased to $154.5 million from $137.7 million in
2005. The increase from 2006 to 2007 was attributable to increased
sales of CO2 lasers, scanners, high power and high energy laser sales
offset partially by reduced sales for light and color measure
instruments. Increased sales of CO2 lasers, scanners, marking systems
and high energy solid-state laser systems were the primary contributors
towards the increase in sales from 2005 to 2006.
Gross Margins and Cost of Sales
................................
Gross margins in 2007 were 43.6% compared to 44.6% in 2006. Cost
of sales and services increased by $4.7 million or 5.5% to $90.3 million
in 2007 from $85.6 million in 2006. The decrease in gross margins as a
percentage of sales is primarily due to the product mix as gross margins
vary among the numerous Company product configurations. In addition,
gross margins decreased in 2007 due to a reduction in light and color
measurement instrument sales, which typically experience higher gross
margins than the Company's other products. Gross margins for
distributor sales are generally lower than those for direct sales.
Gross margins in 2007 were also impacted by higher distributor sales.
Gross margins in 2006 were 44.6% compared to 47.5% in 2005. Cost of
sales and services increased by $13.3 million or 18.4% to $85.6 million
in 2006 from $72.3 million in 2005. The decrease in gross margins as a
percentage of sales is due to the mix of products being sold, which have
different levels of variable costs. In addition, the gross profit and
margins were negatively affected in 2006 due to a higher provision for
excess inventory for some discontinued product lines and lower margins
associated with a newly introduced product during the initial phase of
production. The increases in cost of sales and services from 2006 to
2007 and also from 2005 to 2006 are primarily attributable to the
increased sales volume.
Operating Expenses
...................
Selling and Marketing
Selling and marketing expenses were $17.7 million in 2007 compared
to $18.7 million in 2006 and $19.0 million in 2005. The decrease of
$1.1 million or 5.7% from 2006 to 2007 was primarily attributable to
lower variable costs, such as commissions, associated with outside sales
representatives. The decrease of $213 thousand or 1.1% from 2005 to
2006 was primarily attributable to lower costs associated with a reduced
sales force due to loss of personnel while the terminated merger with
Coherent was pending. Selling and marketing expenses as a percentage of
sales were 11.0% in 2007, 12.1% in 2006 and 13.8% in 2005. The
decreases in selling and marketing expenses as a percentage of sales
from 2006 to 2007 and from 2005 to 2006 are primarily attributable to
fixed personnel costs being absorbed by higher sales volume.
General and Administrative
General and administrative expenses were $15.9 million in 2007 as
compared with $13.1 million in 2006. The increase of $2.9 million or
22.1% from 2006 to 2007 was primarily attributable to increases in
stock-based compensation expenses in 2007 of $2.7 million. General and
administrative expenses from 2005 to 2006 increased $602 thousand or
4.8% to $13.1 million. The increase is primarily attributable to higher
bonus expense as a result of higher operating income (excluding merger,
merger related and deferred compensation expenses). General and
administrative expenses as a percentage of sales increased to 10.0% in
2007 as compared to 8.4% in 2006 and 9.0% in 2005. From 2006 to 2007,
general and administrative expense as a percentage of sales increased
due to the increase in stock-based compensation expense in 2007. From
2005 to 2006, 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 were $14.8 in 2007 and $14.5
million in 2006 and 2005. The increase of $311 thousand or 2.1% from
2006 to 2007 was primarily attributable to modest increases in research
and development expenses at most of the Company's subsidiaries. There
was a small increase in research and development expenses of $46
thousand or 0.3% from 2005 to 2006.
Merger Related and Deferred Compensation Expenses
Merger related and deferred compensation expenses for 2006 of $2.9
million consisted primarily of $1.4 million of deferred executive
compensation, $1.0 million of compensation in lieu of option grants, and
$500 thousand of bonus expense.
Merger Expenses
Merger expenses of $2.2 million for 2006 were primarily for
professional fees related to the terminated merger with Coherent, Inc.
more fully described in Note 2 to the consolidated financial statements.
Non-Operating Income (Expenses)
Interest income for 2007 was $3.0 million, as compared to $2.5
million in 2006 and $1.2 million in 2005. The increases in interest
income of $496 thousand or 19.5% from 2006 to 2007 and $1.4 million or
115.7% from 2005 to 2006 are primarily due to the increase in the
average investable cash balances. In addition, during 2007 and 2006 the
average interest rates increased.
Foreign currency gains and other income, net for 2007 was $362
thousand compared to $410 thousand in 2006 and $1 thousand in 2005.
Foreign currency gains and other income in 2007 and 2006 includes $249
thousand and $307 thousand, respectively of foreign currency transaction
gains. Foreign currency gains and other income in 2005 includes $77
thousand of foreign currency transaction losses. The foreign currency
gains in 2007 and 2006 were 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.
Provision for Income Taxes
The provision for income taxes for 2007 was $6.9 million, compared
to $6.4 million in 2006 and $5.5 million in 2005. The Company's
effective tax rate was 28.1% for 2007, as compared to 31.4% in 2006 and
26.4% in 2005. The decrease in the Company's effective tax rate in 2007
is primarily due to the jurisdictions where income was earned, higher
non-taxable investment income and an increase in tax credits earned. In
2006, due to the non-deductibility of certain expenses, the reduction of
a tax contingency liability due to a settlement in 2005 that did not
reoccur in 2006 and investing in a higher percentage of taxable versus
non-taxable instruments, the Company's effective tax rate increased
approximately 5 percentage points.
Liquidity and Capital Resources
................................
Cash Flow Overview
...................
Cash and investments decreased $5.6 million during the year 2007 to
$57.5 million. The decrease during the year was primarily due to cash
used for financing activities of $24.6 million and net cash used for
capital expenditures of $1.6 million offset partially by the net cash
provided by operating activities of $20.3 million. The Company also
experienced a favorable foreign exchange effect on cash of $262 thousand
in 2007. As of December 31, 2007 the Company had no bank debt.
Net cash provided by operating activities was $20.3 million for the
year ended December 31, 2007 and $15.3 million for the year ended
December 31, 2006, 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,
inventory, accounts payable and accrued expenses and other current
liabilities. Depreciation and amortization for the year ended December
31, 2007 was $2.6 million. Accounts receivable at December 31, 2007 of
$24.0 million increased $1.3 million from December 31, 2006 due to
increased sales volume in the fourth quarter of 2007 compared to the
fourth quarter of 2006. Inventory at December 31, 2007 of $33.8 million
decreased $1.1 million from December 31, 2006 due to increased focus on
purchasing efficiency. Accounts payable at December 31, 2007 of $5.1
million decreased $1.3 million from December 31, 2006 primarily due to
the timing of payments.
Net cash provided by investing activities of $4.2 million for the
year ended December 31, 2007 was attributable to the net redemption of
short-term auction rate notes for $5.7 million offset partially by the
purchase of property, plant and equipment for $1.6 million and the
proceeds from the sale of equipment of $61 thousand. Net cash used in
investing activities of $21.2 million for the year ended December 31,
2006 was attributable to the purchase of short-term auction rate notes
for $19.2 million, purchase of property, plant and equipment for $2.3
million offset partially by the proceeds from the sale of equipment of
$354 thousand.
Net cash used in financing activities of $24.6 million for the year
ended December 31, 2007 was primarily attributable to the repurchase of
common stock for $26.4 million, offset by $1.2 million of proceeds
received upon the exercise of employee stock options and a $528 thousand
income tax benefit from employee stock option exercises. Net cash used
in financing activities of $573 thousand for the year ended December 31,
2006 was primarily attributable to the repurchase of common stock for
$2.0 million, offset by $655 thousand of proceeds received upon the
exercise of employee stock options and an $816 thousand income tax
benefit from employee stock option exercises.
As of December 31, 2007, the Company has working capital of $107.8
million including cash and investments of $57.5 million, compared to
working capital of $110.5 million including cash and investments of
$63.1 million at December 31, 2006. The working capital decreased by
$2.7 million and cash and investments decreased by $5.6 million during
the year ended December 31, 2007.
As of December 31, 2007, the Company's contractual obligations were
as follows (in thousands):
Contractual Obligations Payments Due by Period
Less More
than 1-3 4-5 than
Total 1 Year Years Years 5 Years
Operating Leases (a) $8,055 $1,967 $2,212 $1,433 $2,443
Deferred Compensation Plan (b) $1,535 $ 0 $1,535 $ 0 $ 0
Total $9,590 $1,967 $3,747 $1,433 $2,443
(a) Certain of the Company's operating lease obligations include
escalation clauses. These escalating payment requirements are
reflected in the table.
(b) These payments relate to obligations under the Company's deferred
compensation plan whereby payment of certain compensation earned
by a participant can be deferred. Since the Company cannot
reasonably estimate the timing of withdrawals for the
participant, the future obligation to this participant has been
included in the "1-3 Years" column of the table, based on the
terms of existing employment agreements and the deferred
compensation plan.
Purchase orders for the purchase of raw materials and other goods
and services are not included in the table above. The Company is not
able to determine the total amount of these purchase orders that
represent contractual obligations, as purchase orders may represent
authorizations to purchase rather than binding agreements. In addition,
these purchase orders generally allow for cancellation without
significant penalties. The Company does not have significant agreements
for the purchase of raw materials or other goods specifying minimum
quantities or set prices that exceed expected short-term requirements.
The expected timing of payments and the amounts of the obligations
discussed above are estimated based on current information.
Off-Balance Sheet Arrangements
As of December 31, 2007, the Company had no off-balance sheet
financing arrangements.
Line of Credit
As of December 31, 2007, the Company has no lines of credit.
Stock Repurchases
Repurchases of the Company's common stock have occurred from time
to time in the open market. The following table presents stock
repurchase activity during the last three fiscal years under programs
authorized by the Board of Directors, disclosing total shares
repurchased under each program and the associated cost. Upon
authorization of each new stock repurchase program, the former program
is superseded and replaced. The current repurchase program has no set
expiration date. In addition to shares purchased in the open market
under the buy-back program, the Company may also purchase shares of
common stock in privately negotiated transactions at the Company's
discretion, including the quantity, timing and price thereof.
(in thousands)
Year Ended December 31, 2007 2006 2005
.............. .............. ..............
Shares Cost Shares Cost Shares Cost
...... ....... ...... ....... ...... .......
Stock repurchase programs:
2 million, authorized
January 1998 0 $ 0 0 $ 0 0 $ 0
2 million, authorized
November 2006 969 $25,394 0 $ 0 0 $ 0
...... ....... ...... ....... ...... .......
Total stock repurchases 969 $25,394 80 $ 2,044 0 $ 0
...... ....... ...... ....... ...... .......
...... ....... ...... ....... ...... .......
The Company also repurchased 36 thousand shares of common stock for
$970 thousand related to employee minimum tax withholding requirements
due upon the vesting of restricted stock.
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 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 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 2007 and 2006 is summarized as follows:
2007 2006
................................................. .................................................
Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
<C
Net sales and services $ 40,941 $ 40,532 $ 37,446 $ 41,104 $160,023 $ 36,325 $ 39,530 $ 40,299 $ 38,343 $ 154,496
Cost of sales and services 23,100 22,470 21,285 23,416 90,271 19,056 21,484 22,350 22,713 85,602
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
Gross profit 17,841 18,062 16,161 17,688 69,752 17,269 18,046 17,949 15,630 68,894
Operating expenses:
Selling and marketing 4,327 4,619 4,107 4,618 17,671 4,776 4,965 4,611 4,393 18,745
General and administrative 4,174 3,944 3,933 3,879 15,930 2,895 3,070 3,724 3,362 13,051
Research and development 3,826 3,783 3,662 3,563 14,834 3,625 3,655 3,527 3,716 14,523
Merger related and deferred
compensation expenses 0 0 0 0 0 0 0 2,875 0 2,875
Merger expenses 0 0 0 0 0 838 1,146 210 0 2,194
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
12,327 12,346 11,702 12,060 48,435 12,134 12,836 14,947 11,471 51,388
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
Income from operations 5,514 5,716 4,459 5,628 21,317 5,135 5,210 3,002 4,159 17,506
Non-operating (expenses)
income:
Interest income 781 843 703 714 3,041 435 581 755 774 2,545
Minority interest 1 (59) (9) 5 (62) (3) (10) (28) 22 (19)
Interest expense 0 0 0 (13) (13) 0 0 0 0 0
Foreign currency gains
(losses) and other
income, net 97 41 177 47 362 120 165 (15) 140 410
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
Income before provision for
income taxes 6,393 6,541 5,330 6,381 24,645 5,687 5,946 3,714 5,095 20,442
Provision for income taxes 1,738 2,028 1,417 1,730 6,913 1,820 1,956 1,226 1,421 6,423
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
Net income $ 4,655 $ 4,513 $ 3,913 $ 4,651 $ 17,732 $ 3,867 $ 3,990 $ 2,488 $ 3,674 $ 14,019
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
Basic income per common share $ 0.38 $ 0.37 $ 0.33 $ 0.40 $ 1.49 $ 0.32 $ 0.33 $ 0.21 $ 0.30 $ 1.16
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
Weighted average common
shares outstanding 12,107 12,063 11,795 11,509 11,864 12,060 12,066 12,066 12,089 12,071
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
Diluted income per
common share $ 0.38 $ 0.37 $ 0.33 $ 0.40 $ 1.46 $ 0.31 $ 0.32 $ 0.20 $ 0.30 $ 1.12
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
Weighted average common and
Common equivalent shares
outstanding 12,409 12,352 12,030 11,750 12,131 12,614 12,531 12,522 12,437 12,488
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
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 and investments, with carrying amounts approximating
market value. Assuming year-end 2007 cash and investment levels, a one-
point change in interest rates would have an approximate $575 thousand
impact on the annual interest income of the Company.
Foreign Currency Exchange Rates
................................
Operating in international markets involves exposure to movements
in currency exchange rates that are volatile at times. The economic
impact of currency exchange rate movements on the Company is complex
because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors.
These changes, if material, could cause the Company to adjust its
financing and operating strategies. Consequently, isolating the effect
of changes in currency does not incorporate these other important
economic factors.
The Company's net sales and services to foreign customers
represented approximately 63% of total net sales and services in 2007,
63% in 2006 and 61% in 2005. 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 25% of its
total net sales and services in 2007, 24% of its total net sales and
services in 2006 and 28% in 2005. The Company generally has not engaged
in foreign currency hedging transactions. The aggregate foreign
exchange gains (losses) included in determining consolidated results of
operations were $249 thousand, $307 thousand and $(77) thousand in 2007,
2006 and 2005, 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 33 to 55.
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, 2007.
Page
....
Report of Independent Registered Public Accounting Firm 33
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2007 and 2006 35
Consolidated Statements of Income for the years
ended December 31, 2007, 2006 and 2005 36
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31, 2007,
2006 and 2005 37
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005 38
Notes to Consolidated Financial Statements 39
Consolidated Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 55
............................
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 (Excel Technology) as of December 31,
2007 and 2006, 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, 2007. In
connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedule. We also have
audited Excel Technology's internal control over financial reporting as
of December 31, 2007, based on criteria established in "Internal Control
- - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Excel Technology's
management is responsible for these consolidated financial statements
and financial statement schedule, for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in
the accompanying "Management's Report on Internal Control Over Financial
Reporting" included in Item 9A. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule and an opinion on the Company's internal control over
financial reporting 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 audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the
consolidated financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis
for our opinions.
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, 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, 2007 and
2006, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2007, in
conformity with accounting principles generally accepted in the United
States of America. 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 and, in our
opinion, Excel Technology, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial reporting
as of December 31, 2007, based on criteria established in "Internal
Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
As discussed in Notes 6 and 1 to the consolidated financial statements,
the Company adopted FASB Interpretation No. 48, "Accounting For
Uncertainty in Income Taxes - an Interpretation of SFAS No. 109",
effective January 1, 2007 and Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment," effective January 1, 2006.
/s/ KPMG LLP
Melville, New York
February 13, 2008
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2007 and 2006
(In thousands, except per share amounts)
Assets 2007 2006
....... ........ .........
Current assets:
Cash $ 9,981 $ 9,903
Investments 47,550 53,220
Accounts receivable, less allowance
for doubtful accounts of $833 and $784
in 2007 and 2006, respectively 24,008 22,716
Inventories 33,792 34,906
Deferred income taxes 2,518 2,131
Other current assets 1,544 1,314
Income taxes receivable 2,155 0
........ ........
Total current assets 121,548 124,190
........ ........
Property, plant and equipment 24,679 25,503
Other assets 1,925 391
Goodwill 32,380 31,895
........ ........
Total Assets $180,532 $181,979
........ ........
........ ........
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 5,090 $ 6,386
Accrued expenses and other current liabilities 7,116 6,902
Income taxes payable 1,543 354
........ ........
Total current liabilities 13,749 13,642
........ ........
Deferred income taxes 3,533 3,171
Accrued deferred compensation 1,535 1,375
Minority interest in subsidiary 128 66
Stockholders' equity:
Preferred stock, par value $.001 per share:
2,000 shares authorized, none issued 0 0
Common stock, par value $.001 per share:
20,000 shares authorized, 11,280 and 12,088
shares issued and outstanding in 2007 and
2006, respectively 11 12
Additional paid-in capital 27,361 49,161
Retained earnings 129,334 111,602
Accumulated other comprehensive income 4,881 2,950
........ ........
Total stockholders' equity 161,587 163,725
........ ........
Total Liabilities and Stockholders' Equity $180,532 $181,979
........ ........
........ ........
See Accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2007, 2006 and 2005
(In thousands, except earnings per share)
2007 2006 2005
........ ........ ........
Net sales and services $160,023 $154,496 $137,717
Cost of sales and services 90,271 85,602 72,295
........ ........ ........
Gross profit 69,752 68,894 65,422
Operating expenses:
Selling and marketing 17,671 18,745 18,959
General and administrative 15,930 13,051 12,448
Research and development 14,834 14,523 14,477
Merger related and deferred
compensation expenses 0 2,875 0
Merger expenses 0 2,194 0
........ ........ ........
48,435 51,388 45,884
........ ........ ........
Income from operations 21,317 17,506 19,538
Non-operating income (expenses):
Interest income 3,041 2,545 1,180
Interest expense (13) 0 0
Minority interest (62) (19) (48)
Foreign currency gains
and other income, net 362 410 1
........ ........ ........
Income before provision for income taxes 24,645 20,442 20,671
Provision for income taxes 6,913 6,423 5,463
........ ........ ........
Net income $ 17,732 $ 14,019 $ 15,208
........ ........ ........
........ ........ ........
Basic income per common share $1.49 $1.16 $1.26
........ ........ ........
........ ........ ........
Weighted average common shares outstanding 11,864 12,071 12,054
........ ........ ........
........ ........ ........
Diluted income per common share $1.46 $1.12 $1.24
........ ........ ........
........ ........ ........
Weighted average common and
common equivalent shares outstanding 12,131 12,488 12,246
........ ........ ........
........ ........ ........
See Accompanying Notes to Consolidated Financial Statements.
Accumulated
Additional Other
Preferred Stock Common Stock Treasury Stock Paid-In Retained Comprehensive Comprehensive
Shares Amounts Shares Amounts Shares Amounts Capital Earnings Income Total Income
Balances at
December 31, 2004 0 $ 0 12,053 $ 12 0 $ 0 $ 49,573 $ 82,375 $ 4,041 $ 136,001
Exercise of common
stock options 0 0 2 0 0 0 41 0 0 41
Tax benefit from
employee stock
option exercises 0 0 0 0 0 0 7 0 0 7
Net income for
the year 0 0 0 0 0 0 0 15,208 0 15,208 $15,208
Foreign currency
Translation
adjustment 0 0 0 0 0 0 0 0 (2,567) (2,567) (2,567)
...........
Comprehensive income 0 0 0 0 0 0 0 0 0 0 $12,641
..... ...... ........ ....... ...... ........ ......... ........ ............. .......... ...........
...........
Balances at
December 31, 2005 0 0 12,055 12 0 0 49,621 97,583 1,474 148,690
Exercise of common
stock options 0 0 113 0 0 0 655 0 0 655
Tax benefit from
employee stock
option exercises 0 0 0 0 0 0 816 0 0 816
Stock-based
Compensation
expense 0 0 0 0 0 0 113 0 0 113
Repurchases of
common stock 0 0 0 0 (80) (2,044) 0 0 0 (2,044)
Retirement of
treasury stock 0 0 (80) 0 80 2,044 (2,044) 0 0 0
Net income for
the year 0 0 0 0 0 0 0 14,019 0 14,019 $14,019
Foreign currency
Translation
adjustment 0 0 0 0 0 0 0 0 1,476 1,476 1,476
...........
Comprehensive income 0 0 0 0 0 0 0 0 0 0 $15,495
..... ...... ........ ....... ...... ........ ......... ........ ............ .......... ...........
...........
Balances at
December 31, 2006 0 0 12,088 12 0 0 49,161 111,602 2,950 163,725
Exercise of common
stock options 0 0 114 0 0 0 1,218 0 0 1,218
Issuance of
restricted stock 0 0 83 0 0 0 0 0 0 0
Excess tax benefit
from employee stock
option exercises &
vested restricted
stock 0 0 0 0 0 0 528 0 0 528
Repurchase of common
stock relating to
employee minimum
tax withholdings 0 0 (36) 0 0 0 (970) 0 0 (970)
Stock-based
compensation expense 0 0 0 0 0 0 2,817 0 0 2,817
Repurchases of
common stock 0 0 0 0 (969) (25,394) 0 0 0 (25,394)
Retirement of
treasury stock 0 0 (969) (1) 969 25,394 (25,393) 0 0 0
Net income
for the year 0 0 0 0 0 0 0 17,732 0 17,732 $17,732
Foreign currency
translation
adjustment 0 0 0 0 0 0 0 0 1,931 1,931 1,931
...........
Comprehensive income 0 0 0 0 0 0 0 0 0 0 $19,663
..... ...... ........ ....... ...... ........ ......... ........ ............ .......... ...........
...........
Balances at
December 31, 2007 0 $ 0 11,280 $ 11 0 $ 0 $ 27,361 $129,334 $ 4,881 $ 161,587
..... ...... ........ ....... ...... ........ ......... ........ ............ ..........
..... ...... ........ ....... ...... ........ ......... ........ ............ ..........
See Accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2007, 2006 and 2005
(In thousands)
2007 2006 2005
........ ........ ........
Operating activities:
Net income $ 17,732 $ 14,019 $ 15,208
Adjustments to reconcile net
income to net cash provided by
operating activities:
Minority interest 62 19 48
Depreciation and amortization 2,611 2,695 2,891
Stock-based compensation expense 2,817 113 0
Tax benefit from employee stock
option exercises 0 0 7
Stock-based compensation excess
income tax benefit (528) (816) 0
(Gain) loss on sale of equipment 24 (120) 7
(Recovery) provision for
doubtful accounts 147 (16) 252
Deferred income taxes (25) (792) 622
Changes in operating assets
and liabilities:
Accounts receivable (747) 822 (4,534)
Inventories 1,931 (3,928) (1,777)
Other current assets (2,335) 85 282
Other assets (1,677) (507) 1,101
Accounts payable (1,424) 1,422 (290)
Accrued expenses and other
current liabilities 1,531 933 (1,088)
Accrued deferred compensation 160 1,375 0
........ ........ ........
Net cash provided by
operating activities 20,279 15,304 12,729
........ ........ ........
Investing activities:
Proceeds from investment redemptions,
net of purchases 5,670 0 0
Purchases of investments,
net of redemptions 0 (19,220) (3,575)
Purchases of property, plant and equipment (1,576) (2,339) (3,272)
Proceeds from the sale of equipment 61 354 18
........ ........ ........
Net cash provided by (used in)
investing activities 4,155 (21,205) (6,829)
........ ........ ........
Financing activities:
Proceeds from exercise of common
stock options 1,218 655 41
Repurchases of common stock (26,364) (2,044) 0
Stock-based compensation excess
income tax benefit 528 816 0
........ ........ ........
Net cash (used in) provided by
financing activities (24,618) (573) 41
........ ........ ........
Effect of exchange rate changes on cash 262 74 (967)
........ ........ ........
Net increase (decrease) in cash 78 (6,400) 4,974
Cash - beginning of year 9,903 16,303 11,329
........ ........ ........
Cash - end of year $ 9,981 $ 9,903 $ 16,303
........ ........ ........
........ ........ ........
Supplemental Cash Flow Information
...................................
Cash paid for:
Interest $ 13 $ 0 $ 0
........ ........ ........
........ ........ ........
Income taxes $ 7,427 $ 7,144 $ 5,411
........ ........ ........
........ ........ ........
See Accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(1) Summary of Significant Accounting Policies
..........................................
Excel Technology, Inc. and Subsidiaries (the "Company") designs,
manufactures and markets photonics-based solutions, consisting of 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 wholly-owned subsidiaries and its
50% owned joint venture, Excel Laser Technology Private Limited
(Excel SouthAsia JV) since it is a variable interest entity and
the Company is the primary beneficiary of the joint venture.
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 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. If title and
risk of loss do not pass to the customer until the product
reaches the customer's delivery site, then recognition of
revenue is deferred until that time. 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 occasionally has entered into contracts to design,
develop and produce laser systems to customer specifications.
These contracts specify milestones and related progress
billings and typically include terms that specify progress
payments are non-refundable or the customer may terminate the
contract for convenience, at which time the Company will be
paid a percentage of the contract price that reflects the
percentage of work performed to that date. Such contracts are
accounted for in accordance with AICPA Statement of Position
81-1, "Accounting for Performance of Construction - Type and
Certain Production - Type Contracts," whereby revenue is
recognized under the percentage-of-completion method with the
extent of progress towards completion measured by the
achievement of contractual milestones.
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 and Investments
....................
Cash of $10.0 million and $9.9 million at December 31, 2007 and
2006, respectively, consists 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 $47.6 million and $53.2 million at December 31,
2007 and 2006, respectively, consist of auction rate notes for
which the carrying value equaled their fair value. Auction rate
notes represent long-term (generally maturities of ten to
thirty-five years from the date of issuance) variable rate bonds
tied to short-term interest rates that are reset through an
auction process, which occurs every seven to thirty-five days.
Auction rate notes are considered highly liquid by market
participants due to the auction process. Included in other
long-term assets at December 31, 2007 are $141 thousand of held
to maturity securities for which their 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.
Property, Plant and Equipment
.............................
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
........
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 and whenever events or circumstances
indicate impairment might have occurred. The Company's annual
assessment for impairment is performed on December 31st of each
year. The recoverability of goodwill is evaluated using a two-
step impairment test approach at the reporting unit level. In
the first step, which is used to identify potential impairments,
the overall fair value for the reporting unit is compared to its
carrying amount including goodwill. If the fair value of a
reporting unit is less than the carrying amount, a second step
is performed which compares the implied fair value of the
reporting unit's goodwill to the carrying amount of the
goodwill. The implied fair value for the goodwill is determined
based on the difference between the fair value of the reporting
unit and the fair value of its net identifiable assets. If the
implied fair value of the goodwill is less than its carrying
amount, the difference is recognized as an impairment.
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 events or
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.
Changes in the warranty liability in 2007 and 2006 were as follows
(In thousands):
2007 2006
...... .......
Balance at January 1 $ 754 $ 720
Provision for warranties
during the year 682 706
Costs of warranty obligations
during the year (590) (672)
...... .......
Balance at December 31 $ 846 $ 754
...... .......
...... .......
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 $4.9 million
and $3.0 million at December 31, 2007 and 2006, respectively, is
reflected as accumulated other comprehensive income, a component
of stockholders' equity. In addition, there were transaction
gains and losses and inter-company balances not deemed long-term
in nature at the balance sheet date that resulted in net
transaction gains (losses) of $249 thousand, $307 thousand and
$(77) thousand for the years ended December 31, 2007, 2006 and
2005, respectively, which is reflected in foreign currency gains
and other income, net in the consolidated statements of income.
Income Per Share
................
The Company presents two income per share amounts, basic and
diluted. Basic income per share is calculated based on net
income and the weighted-average number of common shares
outstanding during the reported period. Diluted income per
share includes the effect of potentially dilutive securities
(stock options and non-vested restricted stock), using the
treasury stock method, on weighted-average shares outstanding.
Fair Value of Financial Instruments
...................................
The recorded amounts of the Company's cash, investments, accounts
receivable, accounts payable and accrued expenses and other
current liabilities 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, investments and accounts receivable. Cash 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
.......................................
The Company's stock-based employee compensation plans are described
in Note 8. Prior to January 1, 2006, the Company accounted for
stock-based compensation related to those plans under the
recognition and measurement provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and related Interpretations, as permitted by
Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). As such, prior to
January 1, 2006, no stock-based employee compensation expense
was recognized in net income, as all options granted under those
plans had an exercise price equal to the fair market values of
the underlying common stock on the date of grant.
Effective January 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R), "Share-Based Payment"
("SFAS No. 123 (R)"), using the modified prospective transition
method. Under that transition method, compensation expense
recognized for 2007 and 2006 includes compensation expense for
all share-based payments granted prior to, but not yet vested as
of January 1, 2006, based on the grant date fair value
determined in accordance with the original provisions of SFAS
No. 123. The fair value of the options was determined at the
date of grant using the Black-Scholes option pricing model and
is being amortized to expense over the options' vesting periods.
Stock-based compensation expense for an award with only service
conditions that has a graded vesting schedule is recognized on a
straight-line basis over the requisite service period for the
entire award, with such amount recognized at any date at least
equaling the portion of the grant date fair value of the award
that is vested at that date. Stock-based compensation expense
for an award that includes a performance condition that has a
graded vesting schedule is recognized on a straight-line basis
over the requisite service period for each separately vesting
portion of the award. As SFAS No. 123(R) requires that stock-
based compensation expense be based on awards that are
ultimately expected to vest, stock-based compensation is reduced
for estimated forfeitures, which is based on historical
experience. Forfeitures are estimated at the time of grant and
revised in subsequent periods if actual forfeitures differ from
those estimates. Forfeitures were accounted for as they
occurred in the pro forma stock-based compensation expense
presented for periods prior to January 1, 2006. Results for
prior periods have not been restated.
There were 125 thousand shares of restricted stock granted in 2007,
of which 83 thousand had vested and were issued as of December
31, 2007. There were no restricted stock grants in 2006. At
December 31, 2007, 17 thousand shares of restricted stock vest
contingent on attainment of a performance condition. Of the 83
thousand restricted shares that vested and were issued to
employees during 2007, 36 thousand were surrendered to the
Company to fulfill the employee's minimum statutory tax
withholding obligations of $970 thousand for the applicable
income. The 36 thousand acquired shares were retired. This net
share settlement had no impact on the amount of compensation
cost recognized in respect of these awards. Restricted stock
with performance conditions is not included in issued and
outstanding common stock until the shares are vested and issued
to the employee. There were no stock option grants during the
years ended December 31, 2007 and 2006.
The following table illustrates the stock-based compensation
expense recorded in the consolidated statements of income in
2007 and 2006 and the impact of adopting SFAS No. 123(R)
effective January 1, 2006 on the Company's income before
provision for income taxes, net income and income per share (In
thousands, except per share data).
Year ended Year ended
December 31, 2007 December 31, 2006
Stock-based compensation expense:
Stock options $ 56 $ 113
Restricted stock $ 2,761 0
Impact on income before
provision for taxes $ 2,817 $ 113
Impact on net income $ 1,823 $ 113
Impact on basic income per common share $ 0.15 $ 0.01
Impact on diluted income per common share $ 0.15 $ 0.01
Prior to the adoption of SFAS No. 123(R), the Company reported all
tax benefits from employee stock option exercises as operating
cash flows in its consolidated statement of cash flows. In
accordance with SFAS No. 123(R), effective January 1, 2006, the
Company reports excess tax benefits as financing cash inflows.
Excess tax benefits are realized tax benefits from tax
deductions for options exercised and restricted stock issued in
excess of the deferred tax asset attributable to stock
compensation costs for such awards. The excess income tax
benefit realized for the tax deductions from stock option
exercises for the years ended December 31, 2007 and 2006 was
$502 thousand and $816 thousand, respectively. In addition, the
excess tax benefit associated with vested restricted stock was
$26 thousand for 2007.
There was a $994 thousand tax benefit recognized related to the
compensation expense for restricted stock awards for the year
ended December 31, 2007, of which $780 thousand related to
restricted stock that vested and was issued, resulting in a $214
thousand deferred tax asset at December 31, 2007. There was
no tax benefit recognized related to the $56 thousand and $113
thousand of compensation expense for stock options for the years
ended December 31, 2007 and 2006, respectively, as all the
related options were incentive stock options and the tax benefit
associated with disqualified incentive stock options is
recognized by the Company only after such incentive stock
options are exercised and disqualified.
The following table illustrates the effect on net income and income
per share for the year ended December 31, 2005 as if the Company
had applied the fair value recognition provisions of SFAS No.
123 to options granted under the Company's stock plans prior to
adoption of SFAS No. 123(R) on January 1, 2006. No pro forma
disclosures have been made for 2007 and 2006, as all stock-based
compensation has been recognized in net income. For purposes of
this pro forma disclosure and compensation expense recorded in
the Company's consolidated financial statements, the value of
the options is estimated using a Black-Scholes option pricing
model and amortized to expense over the options' vesting
periods.
(In thousands, except per share data)
Year ended
.................
December 31, 2005
.................
Net income, as reported $15,208
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (3,018)
.......
Proforma net income $12,190
.......
.......
Income per share:
Basic - as reported $1.26
.....
Basic - proforma $1.01
.....
Diluted - as reported $1.24
.....
Diluted - proforma $1.00
.....
The per share weighted-average fair value of stock options granted
during 2005 was $8.20 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average
assumptions: 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.
Stock-based employee compensation expense under the fair value
method for the year ended December 31, 2005 includes $3.7
million which represents the entire fair value of 449 thousand
options granted to employees and directors in 2005, all of which
had an exercise price equal to or greater than the market value
of the common stock on the date of the grants, as those options
were vested as of the date of the grants.
The Company has placed exclusive reliance on historical volatility
in its estimate of expected volatility. The Company used a
sequential period of historical data equal to the expected term
(or expected life) of the options using a simple average
calculation based upon the daily closing prices during the
aforementioned period.
The expected life (years) represents the period of time for which
the options granted are expected to be outstanding. This
estimate was derived from historical share option exercise
experience, which management believes provides the best estimate
of the expected term.
Accumulated Other Comprehensive Income
......................................
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 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 is
composed of net income and unrealized gains and losses on
foreign currency translation adjustments.
(2) Terminated Merger
.................
On February 20, 2006, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with Coherent, Inc.
("Coherent"). Pursuant to the Merger Agreement, at the
effective time of the Merger, each issued and outstanding share
of common stock of the Company would have been automatically
converted into the right to receive $30.00 per share in cash.
The Merger was conditioned upon, among other things, the
adoption of the Merger Agreement by the stockholders of the
Company pursuant to applicable law, the termination or
expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, and obtaining material
foreign antitrust approvals reasonably determined by Coherent to
be required.
On April 4, 2006, the stockholders of the Company voted to adopt
the Merger Agreement providing for the acquisition of the
Company by Coherent. On May 9, 2006, Coherent received U.S.
antitrust approval to acquire the Company. On October 25, 2006
the German Federal Cartel Office issued a prohibition order on
the merger. On November 1, 2006, the Merger Agreement between
the Company and Coherent was terminated.
In connection with the merger, the Company incurred $2.2 million of
expenses, which consist primarily of legal and other
professional fees, including $200 thousand for the law firm of a
then director of the Company for reimbursement of expenses by
the director's law firm in connection with the merger. Such
costs, which were previously separately disclosed as non-
operating expense in the 2006 consolidated statement of income
have been reclassified to operating expenses. In the third
quarter of 2006, as a result of effectively addressing all
merger-related matters while the announced merger was pending
for eight months and as payment in lieu of options that, but for
the proposed merger, would have been granted towards the end of
2005, an executive of the Company was awarded $1.5 million of
compensation, of which the payment of $1.0 million was subject
to the attainment of specified Company performance criteria that
were achieved as of December 31, 2006. Such compensation, along
with $1.4 million of deferred executive compensation awarded for
prior services during the third quarter of 2006 (under a
deferred compensation plan approved by the Board of Directors),
is included in operating expenses in the 2006 consolidated
statement of income.
(3) Inventories
...........
Inventories consist of the following (In thousands):
December 31,
.......................
2007 2006
.......... ..........
Raw materials $ 18,421 $ 18,584
Work-in-process 8,206 9,410
Finished goods 5,064 4,907
Consigned inventory 2,101 2,005
.......... ..........
$ 33,792 $ 34,906
.......... ..........
.......... ..........
.......... ..........
(4) Property, Plant and Equipment
.............................
Property, plant and equipment at cost consists of the following (In
thousands):
December 31,
................
Useful life 2007 2006
........... ....... .......
Land 0 $ 4,711 $ 4,659
Buildings 30 years 20,240 20,067
Leasehold improvements Lease term 814 715
Fixtures and computer equipment 3-10 years 3,118 2,898
Machinery and equipment 3-10 years 7,864 7,120
Laboratory equipment 3-10 years 4,086 3,707
....... .......
40,833 39,166
Less accumulated depreciation
and amortization 16,154 13,663
....... .......
$24,679 $25,503
....... .......
....... .......
Depreciation and amortization expense aggregated approximately $2.6
million, $2.7 million and $2.9 million for the years ended
December 31, 2007, 2006 and 2005, respectively.
(5) Goodwill
........
The change in the net carrying amount of goodwill for the years
ended December 31, 2007 and 2006 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, 2007, 2006, and
2005 was comprised of domestic income of $24.1 million, $20.6
million and $20.6 million, respectively, and foreign income
(loss) of $570 thousand, $(177) thousand, and $77 thousand,
respectively.
The provision for income taxes consists of (In thousands):
Year ended December 31,
.........................
2007 2006 2005
....... ....... .......
Current:
Federal $ 6,120 $ 6,624 $ 4,088
State and local 896 545 712
Foreign (78) 46 41
....... ....... .......
6,938 7,215 4,841
....... ....... .......
Deferred:
Federal and state (25) (697) 622
Foreign 0 (95) 0
....... ....... .......
(25) (792) 622
....... ....... .......
$ 6,913 $ 6,423 $ 5,463
....... ....... .......
....... ....... .......
The effective income tax rate differed from the statutory Federal
income tax rate due to the following items (In thousands):
Year ended December 31,
.........................
2007 2006 2005
....... ....... .......
Taxes at statutory Federal
income tax rate $ 8,625 $ 7,155 $ 7,235
State income taxes, net of
Federal benefit 582 546 464
Tax credits (686) (498) (426)
QPAI / ETI benefit (479) (868) (825)
Change in valuation allowance (389) (8) 75
Foreign tax rate differential (28) 13 15
Non-taxable income (387) (144) (248)
Settlement of and change in tax
contingencies (194) (228) (655)
Non-deductible expenses 44 550 42
Other (175) (95) (214)
....... ....... .......
$ 6,913 $ 6,423 $ 5,463
....... ....... .......
....... ....... .......
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 31, 2007 and 2006 are as follows (In thousands):
December 31,
.................
2007 2006
....... ........
Deferred tax assets:
Excess of tax over financial statement
basis of inventory $ 1,533 $ 1,516
Allowance for doubtful accounts 184 153
State credit carryforward 414 404
Accrued warranty costs 169 137
Other accrued expenses 274 230
Deferred compensation expenses 553 495
Stock-based compensation expenses 214 0
Benefits of foreign net operating
loss carryforwards 3,343 3,603
........ ........
Total deferred tax assets 6,684 6,538
Less valuation allowance (2,808) (3,912)
........ ........
3,876 2,626
........ ........
Deferred tax liabilities:
Plant and equipment depreciation (200) (270)
Goodwill amortization (4,691) (3,396)
........ ........
Total deferred tax liabilities (4,891) (3,666)
....... .......
Net deferred tax liabilities $(1,015) $(1,040)
........ ........
........ ........
As of December 31, 2007, the Company has foreign tax net operating
loss carryforwards of $9.4 million (6.4 million Euro) in
Germany, $1.0 million (692 thousand Euro) in France, $179
thousand in the U.K. and $350 thousand in Japan. A valuation
allowance of $2.8 million, as of December 31, 2007 has been
provided against a portion of the state credit carryforward and
the Company's net operating loss carryforwards in Germany, the
U.K. and France. 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 in Germany, France and the U.K.
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 $2.0 million, at December 31, 2007.
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.
On January 1, 2007, the Company adopted FASB Interpretation No.
("FIN") 48, Accounting for Uncertainty in Income Taxes-an
Interpretation of SFAS No. 109. This Interpretation clarifies
the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of an income tax position taken or expected to
be taken in an income tax return. FIN 48 provides that
unrecognized tax benefits should be based on the facts,
circumstances and information available at each balance sheet
date and that subsequent changes in judgment should be based on
new facts and circumstances and any resulting change in the
amount of unrecognized tax benefit should be accounted for in
the interim period in which the change occurs. The adoption of
FIN 48 had no impact on the Company's consolidated financial
statements.
The aggregate amount of unrecognized tax benefits included in
liabilities was as follows (in thousands):
Balance at January 1, 2007 $1,725
Impact of tax positions taken during 2007 35
Gross decrease related to tax positions
taken prior to 2007 (81)
Gross increase related to tax positions
taken prior to 2007 111
Decrease from settlements with taxing authorities 0
Reduction as a result of a lapse of the
applicable statute of limitations (259)
......
Balance at December 31, 2007 $1,531
......
......
The decrease in the liability for tax positions taken prior to 2007
was for the reversal of a liability for previously unrecognized
tax positions when a tax return was subsequently filed excluding
the uncertain tax position.
All unrecognized tax benefits, if recognized, would affect the
effective tax rate. The liability for unrecognized tax benefits
includes accrued interest for tax positions, which either do not
meet the more-likely-than-not recognition threshold or where the
tax benefit is measured at an amount less than the tax benefit
claimed or expected to be claimed on an income tax return. At
December 31, 2007 and 2006, accrued interest on uncertain tax
positions was approximately $205 thousand and $180 thousand,
respectively.
Interest expense recognized in the statement of income related to
liabilities for unrecognized tax benefits for the year ended
December 31, 2007 was $71 thousand.
Interest expense related to income tax liabilities recognized in
accordance with the provisions of FIN 48 is included in income
tax expense, consistent with the Company's historical policy.
With a few exceptions, the Company is no longer subject to federal,
state or local income tax audits by taxing authorities for years
before 2004. The most significant jurisdictions in which the
Company is required to file income tax returns include the
states of California, Massachusetts and New York. As of
December 31, 2007, the Company is being audited by the Internal
Revenue Service for the tax years ended December 31, 2005 and
2006. Although the Company believes the probable outcome of
these audits will not materially affect the Company's
consolidated financial statements, the ultimate resolution of
the audits is uncertain and, therefore, the Company cannot
estimate the impact, if any, on its unrecognized tax benefits.
(7) Accrued Expenses and Other Current Liabilities
..............................................
Accrued expenses and other current liabilities consist of the
following (In thousands):
December 31,
.................
2007 2006
........ ........
Salaries, wages, commissions
and bonuses $ 2,592 $ 3,396
Accrued vacation/holiday/sick pay 965 949
Deferred revenue 230 214
Customer deposits 750 541
Accrued warranty costs 846 754
Professional fees payable 365 183
Other 1,368 865
........ ........
$ 7,116 $ 6,902
........ ........
........ ........
(8) Stockholders' Equity
....................
Stock Option Plans
..................
In 1990, the Company 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. 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 the 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 exercise 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,
2007, 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. As of December
31, 2007, options for the purchase of 20,692 shares were
available for future grant under the 1998 Plan.
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, 2007, 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.
Although there were 445,000 shares of common stock available for
issuance under the 2004 Plan, when the 2006 option plan
discussed below was approved, the Company agreed to discontinue
granting options under the 2004 Plan.
In 2006, the Company's shareholders approved a stock option / stock
issuance plan (the "2006 Plan"), which provides for an aggregate
of up to 750,000 shares of common stock, which may be directly
issued to eligible participants, granted as incentive stock
options to employees of the Company or granted as non-statutory
stock options to employees, including officers and directors of
the Company, as well as to certain advisors and consultants.
Shares of common stock issued under the 2006 Plan may, in the
discretion of the Company's Compensation Committee ("the
Committee"), be fully and immediately vested upon issuance or
may vest in one or more installments over the participant's
period of service and / or upon attainment of specified
performance objectives. The exercise price for the common stock
underlying the options is determined by the Committee, but in no
event shall it be less than 100% of the fair market value of the
Company's common stock on the date the option is granted (110%
in the case of incentive stock options granted to optionees who
own more than 10% of the voting power of all classes of stock of
the Company). No option granted under the 2006 Plan may be
exercised after the expiration of the option, which may not, in
any case, exceed ten years from the date of grant (five years in
the case of incentive options granted to persons who own more
than 10% of the voting power of all classes of the stock of the
Company). Options granted under the 2006 Plan are exercisable on
such basis as determined by the Committee, and become fully
exercisable upon the sale or merger of the Company, as defined
in the 2006 Plan. As of December 31, 2007, no options were
granted and 124,847 restricted common shares were awarded under
the 2006 Plan.
A summary of activity related to the Company's stock option / stock
issuance plans is as follows:
Stock Weighted
Number of Options' Average Aggregate
restricted Number of Weighted Remaining Intrinsic
shares (in stock options Average Contractual Value
thousands) (in thousands) Exercise Price Term (in years) (in thousands)
.......... .............. .............. ............... ..............
Outstanding at December 31, 2004 0 1,002 $ 19.37
Granted 0 449 $ 22.60
Exercised 0 (2) $ 15.89
Cancelled 0 (8) $ 19.79
.......... ..............
Outstanding at December 31, 2005 0 1,441 $ 20.38
Granted 0 0 $ 0
Exercised 0 (142) $ 10.05
Cancelled 0 0 $ 0
.......... ..............
Outstanding at December 31, 2006 0 1,299 $ 21.51
Granted 125 0 $ 0
Restricted stock vested/
Options exercised (83) (129) $ 13.03
Cancelled 0 (31) $ 32.47
.......... ..............
Outstanding at December 31, 2007 42 1,139 $ 22.18 5.26 $ 6,421
.......... ..............
.......... ..............
Shares / Options expected to vest
at December 31, 2007 42 2 $ 29.70 6.23 $ 0
Exercisable at December 31, 2007 0 1,137 $ 22.16 5.26 $ 6,421
The aggregate intrinsic value in the table above represents the
total pre-tax intrinsic value (the difference between the
Company's closing common stock price on the last trading day of
2007 and the exercise price, multiplied by the number of in-the-
money options) that would have been received by the option
holders had all option holders exercised their options on
December 31, 2007. This amount changes based on the fair market
value of the Company's common stock. Total intrinsic value of
options exercised for the years ended December 31, 2007, 2006
and 2005 was $1.4 million, $2.3 million and $20 thousand,
respectively. The grant date fair value of all 125 thousand
restricted shares granted was $26.00 per share and the aggregate
intrinsic value of outstanding restricted shares at December 31,
2007 is $1.1 million.
As of December 31, 2007, there was $15 thousand of unrecognized
stock-based compensation expense related to non-vested stock
options, which is expected to be recognized over a weighted
average period of approximately 1.2 years and $477 thousand of
unrecognized stock-based compensation expense related to non-
vested restricted stock, which is expected to be recognized over
a weighted average period of approximately 1.5 years.
When an option is exercised, the Company issues new shares of
common stock.
In 2007 and 2006, 15 thousand and 29 thousand shares of common
stock, respectively, were used by employees to exercise options.
Such shares, which had a market value of $420 thousand and $770
thousand, respectively, were retired. No shares were used by
employees to exercise options in 2005.
At December 31, 2007, 2006 and 2005, a total of 1,137 thousand,
1,289 thousand and 1,410 thousand options were exercisable at
weighted average exercise prices of $22.16, $21.51 and $20.37,
respectively, and at December 31, 2007 options for the purchase
of an aggregate of 646 thousand common shares were available for
future grants under the 1998 Plan and 2006 Plan.
The options outstanding as of December 31, 2007 are summarized as
follows:
Number of Weighted
options average Options
Exercise outstanding contractual Exercisable
price (In thousands) remaining life (In thousands)
....... .............. .............. ..............
$ 6.50 2 0.80 years 2
$ 7.00 1 0.48 years 1
$ 13.06 21 1.47 years 21
$ 15.15 262 4.13 years 262
$ 16.66 29 4.78 years 29
$ 19.71 13 3.30 years 13
$ 22.16 58 5.38 years 58
$ 22.59 398 7.11 years 398
$ 23.03 5 7.79 years 5
$ 23.04 4 7.98 years 4
$ 24.63 161 2.22 years 161
$ 26.51 40 7.00 years 40
$ 27.41 20 6.79 years 20
$ 29.00 20 2.42 years 20
$ 29.70 5 6.23 years 3
$ 34.68 100 6.33 years 100
.............. ..............
1,139 5.26 years 1,137
.............. ..............
.............. ..............
Shares Reserved for Issuance
............................
At December 31, 2007, the Company had reserved 1,826,167 authorized
and unissued common shares for the following purposes (In
thousands):
Shares
......
1990 Stock option plan 40
1998 Stock option plan 627
2004 Stock option plan 492
2006 Stock option /issuance plan 667
(9) Deferred Compensation
.....................
The Company has a deferred compensation plan whereby certain
compensation earned by a participant can be deferred and, if
funded, the related assets are placed in an employee benefit
trust, also known as a "rabbi trust." Under the deferred
compensation plan, the participant may choose from several
investment designations. At December 31, 2007, the Company has
$1.5 million of accrued deferred compensation, which was funded
and the related assets are included in non-current assets in the
accompanying consolidated balance sheet. The assets in the
rabbi trust at December 31, 2007 are marketable securities that
are classified as trading securities and recorded at their fair
value with unrealized gains and losses reported in net income.
(10) Income Per Share
................
The following is a reconciliation of the numerators and
denominators of the basic and diluted income per share
computations (In thousands, except per share amounts):
2007
..................................
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
.......... ............. .........
Basic Income Per Share $17,732 11,864 $1.49
Effect of Dilutive Securities:
Stock Options and
Restricted Stock 267
.............
Diluted Income Per Share $17,732 12,131 $1.46
.......... ............. .........
.......... ............. .........
2006
..................................
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
.......... ............. .........
Basic Income Per Share $14,019 12,071 $1.16
Effect of Dilutive Securities:
Stock Options and
Restricted Stock 417
.............
Diluted Income Per Share $14,019 12,488 $1.12
.......... ............. .........
.......... ............. .........
2005
..................................
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
.......... ............. .........
Basic Income Per Share $15,208 12,054 $1.26
Effect of Dilutive Securities:
Stock Options and
Restricted Stock 192
.............
Diluted Income Per Share $15,208 12,246 $1.24
.......... ............. .........
.......... ............. .........
There were 145 thousand, 175 thousand, and 378 thousand unexercised
stock options outstanding as of December 31, 2007, 2006 and
2005, respectively, not included as part of the diluted income
per share calculations for 2007, 2006 and 2005, respectively,
because their effect would have been antidilutive for the
periods presented.
(11) Treasury Stock
..............
Effective November 1, 2006, the Company's Board of Directors
authorized a stock buy-back program for the repurchase of up to
2,000,000 shares of its common stock. Purchases have occurred
and will continue to occur from time to time in open market
transactions or privately negotiated transactions at the
Company's discretion, including the quantity, timing and price
thereof. This program replaced the program that the Board of
Directors had authorized in January 1998. During the years
ended December 31, 2007 and 2006, the Company repurchased
969,368 and 79,500 shares of common stock for $25.4 million and
$2.0 million, respectively. As of December 31, 2007, the
Company repurchased 1,048,868 shares of common stock under the
program as treasury stock and all of its treasury stock had been
retired.
(12) 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 salaries. Company
contributions to the plan were approximately $536 thousand, $558
thousand and $546 thousand in 2007, 2006 and 2005, respectively.
(13) Commitments and Contingencies
.............................
Operating Leases
The Company and its subsidiaries lease certain buildings, vehicles
and equipment under non-cancelable operating leases. At
December 31, 2007, the future minimum lease payments under non-
cancelable operating leases are as follows (In thousands):
2008 $ 1,967
2009 1,204
2010 1,008
2011 764
2012 669
Thereafter 2,443
.........
$ 8,055
.........
.........
Rent expense, which is recorded on a straight line basis over the
lease term, was $1.7 million for the year ended December 31,
2007 and $1.4 million for each of the years ended December 31,
2006 and 2005.
Employment Agreements
.....................
Excel has entered into employment agreements with certain key
executives that provide for severance upon termination without
cause, as of December 31, 2007, aggregating approximately $5.6
million. In addition, certain employment agreements include a
change of control clause that call for payments equal to the
product of (a) 2.99 and (b) the employee's annualized includable
compensation as defined under Internal Revenue Code Section
280 (G).
Contingencies
.............
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.
(14) 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,
2007 2006 2005
......... ......... .........
Net sales and services to
unaffiliated customers:
United States operations $ 120,193 $ 116,984 $ 98,997
European operations 32,296 28,908 28,867
Asian operations 7,534 8,604 9,853
......... ......... .........
$ 160,023 $154,496 $ 137,717
......... ......... .........
......... ......... .........
Operating income (loss):
United States operations $ 20,826 $ 17,704 $ 19,014
European operations 204 (356) (112)
Asian operations 287 158 636
......... ......... .........
$ 21,317 $ 17,506 $ 19,538
......... ......... .........
......... ......... .........
Identifiable assets:
United States operations $ 149,935 $ 154,439 $ 137,694
European operations 24,131 21,863 20,413
Asian operations 6,466 5,677 5,931
......... ......... .........
$ 180,532 $ 181,979 $ 164,038
......... ......... .........
......... ......... .........
Identifiable assets are those tangible and intangible assets used
in operations in each geographic area.
During the years ended December 31, 2007, 2006 and 2005, the
Company had foreign and export sales of approximately $100.9
million, $96.8 million and $83.9 million, representing 63%, 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 $24.6 million, $20.1 million and $19.8 million of
total consolidated net sales and services for 2007, 2006, and
2005, respectively, and net sales and services to customers in
Japan accounted for approximately $16.6 million, $17.0 million
and $15.3 million of total consolidated net sales and services
for 2007, 2006 and 2005, respectively. No other individual
foreign country accounted for more than 10% of total
consolidated net sales and services in 2007, 2006 or 2005.
No single customer accounted for more than 10% of the Company's net
sales and services in 2007, 2006 and 2005. One accounts
receivable from a customer was 6.6% of the Company's total
accounts receivable at December 31, 2007 and no account
receivable from a customer exceeded 5% of the Company's total
accounts receivable at December 31, 2006.
(15) Related Party Transactions
..........................
During 2006 and 2005, one former director of the Company provided
services to the Company as legal counsel, and the Company paid
$219 thousand and $51 thousand, respectively for legal services
rendered by the director's law firm. As of December 31, 2007,
$5 thousand was due to the former director's law firm.
Schedule II
............
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2007, 2006 and 2005
Column A Column B Column C Column D Column E
........ ........ ........ ........ ........
(Recoveries)
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,:
2007 $ 784 $ 147 $ (98) (1) $ 833
2006 $ 810 $ (16) $ (10) (1) $ 784
2005 $ 796 $ 252 $ (238) (1) $ 810
(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
The Company's 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 such management, including the
CEO and CFO, an evaluation of the effectiveness of the Company's
internal control over financial reporting was conducted based on the
framework in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation under the framework in Internal Control - Integrated
Framework, the Company's management concluded that its internal control
over financial reporting was effective as of December 31, 2007.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial
reporting during the quarterly period ended December 31, 2007 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, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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, 2007.
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, 2007.
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, 2007.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
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, 2007.
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, 2007.
PART IV
........
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements (included in Part II, Item 8):
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2007 and 2006
Consolidated Statements of Income for the years ended
December 31, 2007, 2006 and 2005.
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31, 2007,
2006 and 2005.
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005.
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/ Antoine Dominic
........................................
Antoine Dominic, Chief Executive Officer
By: /s/ Alice H. Varisano
...........................................
Alice H. Varisano, Chief Financial Officer
Date: February 13, 2008
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 13, 2008
...................... and Director
J. Donald Hill
/s/ Antoine Dominic Director, Chief Executive February 13, 2008
...................... Officer, President, and
Antoine Dominic Chief Operating Officer
(Principal Executive Officer)
/s/ Alice H. Varisano Chief Financial Officer February 13, 2008
...................... (Principal Financial Officer)
Alice H. Varisano
/s/ Steven Georgiev Director February 13, 2008
......................
Steven Georgiev
/s/ Donald Weeden Director February 13, 2008
......................
Donald Weeden
/s/ Ira J. Lamel Director February 13, 2008
......................
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. Further amendments are incorporated by
reference to the Company's report on Form 8-K, dated
October 29, 2007, File No. 000-19306.
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 9, 2006, between
the Company and Antoine Dominic. Incorporated by reference
to Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2006. ^
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 February 15, 2007 between
the Company and Alice Varisano. Incorporated by reference
to Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2006. ^
10.7 2006 Stock Option / Stock Issuance Plan. Incorporated by
reference to the Company's Registration Statement on Form
S-8, File No. 333-140063. ^
10.8 Form of Stock Issuance Agreement under the Company's 2006
Stock Option / Stock Issuance Plan. Incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2006. ^
10.9 Form of Stock Purchase Agreement For Shares Not Fully
Vested under the Company's 2006 Stock Option / Stock
Issuance Plan. Incorporated by reference to Exhibit 10(b)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2006. ^
10.10 Form of Stock Option Agreement under the Company's 2006
Stock Option / Stock Issuance Plan. Incorporated by
reference to Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 2006. ^
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
^ compensatory plan or arrangement
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
D Green (Electronics) Limited United Kingdom
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, 333-117513 and 333-140063) on Form
S-8 of Excel Technology, Inc. of our report dated February 13, 2008 with
respect to the consolidated balance sheets as of December 31, 2007 and
2006, 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, 2007, and the related financial
statement schedule and the effectiveness of internal control over
financial reporting as of December 31, 2007, which report appears in the
December 31, 2007 Annual Report on Form 10-K of Excel Technology, Inc.
Our report refers to the adoption of FASB Interpretation No. 48,
"Accounting For Uncertainty in Income Taxes - an Interpretation of SFAS
No. 109", effective January 1, 2007, and Statement of Financial
Accounting Standards No. 123(R), "Share-Based Payment," effective
January 1, 2006.
/s/ KPMG LLP
Melville, New York
February 13, 2008
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, Director, President,
Chief Executive Officer, and
Chief Operating Officer
Date: February 13, 2008
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 13, 2008
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, 2007 (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 13, 2008
/s/ Antoine Dominic
.....................................
Antoine Dominic, Director, President,
Chief Executive Officer, and
Chief Operating Officer
A signed original of this written statement required by Section 906
of the Sarbanes-Oxley Act of 2002 has been provided to the Company and
will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
This certification accompanies the Form 10-K to which it relates,
is not deemed filed with the Securities and Exchange Commission and is
not to be incorporated by reference into any filing of the Registrant
under the Securities Act of 1933 or the Securities Exchange Act of 1934
(whether made before or after the date of the Form 10-K), irrespective
of any general incorporation language contained in such filing.
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, 2007 (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 13, 2008
/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.
This certification accompanies the Form 10-K to which it relates,
is not deemed filed with the Securities and Exchange Commission and is
not to be incorporated by reference into any filing of the Registrant
under the Securities Act of 1933 or the Securities Exchange Act of 1934
(whether made before or after the date of the Form 10-K), irrespective
of any general incorporation language contained in such filing.