UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
Commission file number: 000-21377
ROFIN-SINAR TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3306461
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40984 Concept Drive, Plymouth, MI 48170
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(Address of principal executive offices) (Zip Code)
(734) 455-5400
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] / No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes[ ] / No [X]
11,756,300 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of August 14, 2003.
ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
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Item 1
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Condensed Consolidated Balance Sheets
June 30, 2003 and September 30, 2002 3
Condensed Consolidated Statements of Operations
Three months and nine months ended
June 30, 2003 and 2002 5
Condensed Consolidated Statement of Stockholders'
Equity and Comprehensive Income
Nine months ended June 30, 2003 and 2002 6
Condensed Consolidated Statements of Cash Flows
Nine months ended June 30, 2003 and 2002 7
Notes to Condensed Consolidated Financial Statements 8
Item 2
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Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3
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Quantitative and Qualitative Disclosures about
Market Risk 25
Item 4
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Controls and Procedures 26
PART II OTHER INFORMATION 26
SIGNATURES 27
PART I. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
June 30, September 30,
2003 2002
(Unaudited) (Audited)
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 36,179 $ 20,312
Accounts receivable, trade, net 59,522 58,274
Inventories 88,369 74,290
Other current assets and prepaid expenses 10,931 11,016
----------- ----------
Total current assets 195,001 163,892
Property and equipment, net 27,471 24,689
Goodwill 47,030 41,053
Other intangibles, net 9,084 8,872
Other assets 2,271 2,309
----------- ----------
Total assets $ 280,857 $ 240,815
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit and short term borrowings $ 25,906 $ 22,544
Accounts payable, trade 13,491 12,798
Accounts payable to related party 2,084 7,830
Accrued liabilities 52,703 39,059
----------- ----------
Total current liabilities 94,184 82,231
Long-term debt 44,002 40,591
Pension obligations 7,377 6,026
Minority interests 1,714 1,218
Other long-term liabilities 2,200 2,331
----------- ----------
Total liabilities 149,477 132,397
- 3 -
Stockholders' equity
Preferred stock, 5,000,000 shares authorized,
none issued or outstanding 0 0
Common stock, $0.01 par value, 50,000,000 shares
authorized, 11,741,900 (11,551,800 at
September 30, 2002) issued and outstanding 117 115
Additional paid-in-capital 77,912 76,156
Retained earnings 49,810 39,361
Accumulated other comprehensive income (loss) 3,541 ( 7,214)
----------- ----------
Total stockholders' equity 131,380 108,418
Total liabilities and stockholders' equity $ 280,857 $ 240,815
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 4 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended June 30, 2003 and 2002
(dollars in thousands, except per share amounts)
Three Months Nine Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales $ 64,467 $ 55,569 $ 183,684 $ 157,738
Cost of goods sold 40,859 37,630 114,434 101,860
---------- ---------- ---------- ----------
Gross profit 23,608 17,939 69,250 55,878
Selling, general, and
administrative expenses 12,618 11,117 36,601 33,179
Research and development expenses 4,725 3,699 13,164 9,935
Goodwill and intangibles
amortization 468 956 1,185 2,773
---------- ---------- ---------- ----------
Income from operations 5,797 2,167 18,300 9,991
Other expense (income):
Interest income ( 105) ( 90) ( 281) ( 248)
Interest expense 886 727 2,807 2,831
Other expenses (income) ( 889) (1,370) ( 2,453) ( 1,203)
---------- ---------- ---------- ----------
Income before income taxes
and minority interest 5,905 2,900 18,227 8,611
Income tax expense 1,909 1,586 7,111 5,376
---------- ---------- ---------- ----------
Income before minority
interest 3,996 1,314 11,116 3,235
Minority interest 362 58 667 601
---------- ---------- ---------- ----------
Net income $ 3,634 $ 1,256 $ 10,449 $ 2,634
========== ========== ========== ==========
Net income per common
share:
Basic $ 0.31 $ 0.11 $ 0.89 $ 0.23
Diluted $ 0.30 $ 0.11 $ 0.88 $ 0.23
========== ========== ========== ==========
Weighted average shares
used in computing net
income per share:
Basic 11,741,900 11,551,800 11,741,900 11,551,800
Diluted 12,083,113 11,619,614 11,852,390 11,599,403
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements
- 5 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and
Comprehensive Income (Unaudited)
Nine months ended June 30, 2003 and 2002
(dollars in thousands)
Accumulated
Common Additional Other Total
Stock Paid-in Retained Comprehensive Stockholders'
Par Value Capital Earnings Income(Loss) Equity
------------ ------------ ------------ ------------ ------------
BALANCES at September 30, 2002 $ 115 $ 76,156 $ 39,361 $( 7,214) $ 108,418
Comprehensive income:
Foreign currency translation adjustment -- -- -- 10,474 10,474
Fair value of interest swap agreement -- -- -- 281 281
Net income -- -- 10,449 -- 10,449
------------
Total comprehensive income 21,204
Common stock issued 2 1,756 -- -- 1,758
------------ ------------ ------------ ----------- ------------
BALANCES at June 30, 2003 $ 117 $ 77,912 $ 49,810 $ 3,541 $ 131,380
============ ============ ============ ============ ============
BALANCES at September 30, 2001 $ 115 $ 76,123 $ 34,360 $( 11,547) $ 99,051
Comprehensive income:
Foreign currency translation adjustment -- -- -- 5,032 5,032
Fair value of interest swap agreement -- -- -- 266 266
Net income -- -- 2,634 -- 2,634
------------
Total comprehensive income 7,932
Common stock issued -- 24 -- -- 24
------------ ------------ ------------ ----------- ------------
BALANCES at June 30, 2002 $ 115 $ 76,147 $ 36,994 $( 6,249) $ 107,007
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
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Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2003 and 2002
(dollars in thousands)
Nine months
Ended June 30,
------------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,449 $ 2,634
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in operating assets and liabilities 1,667 5,827
Other adjustments 4,881 4,940
----------- -----------
Net cash provided by operating activities 16,997 13,401
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 43 133
Additions to property and equipment ( 2,454) ( 3,370)
Cash proceeds from sale of medical laser business -- 938
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Net cash used in investing activities ( 2,411) ( 2,299)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 2,434 5,503
Repayment to banks ( 5,432) ( 4,416)
Net borrowings (repayments) on line of credit 673 ( 5,114)
Proceeds from issuance of common stock 1,729 6
Other ( 140) ( 435)
---------- ----------
Net cash used in financing activities ( 736) ( 4,456)
---------- ----------
Effect of foreign currency translation on cash
and cash equivalents 2,017 332
---------- ----------
Net increase in cash and cash equivalents 15,867 6,978
Cash and cash equivalents at beginning of period 20,312 13,487
---------- ----------
Cash and cash equivalents at end of period $ 36,179 $ 20,465
========== ==========
See accompanying notes to condensed consolidated financial statements
- 7 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share data)
1. Summary of Accounting Policies
The accompanying consolidated condensed financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, consistent with those reflected in the Company's
annual report to stockholders for the fiscal year ended September 30, 2002,
and should be read in conjunction with the Company's annual report on Form
10-K. All adjustments necessary for a fair presentation have been made which
comprise only normal recurring adjustments; however, interim results of
operations are not necessarily indicative of results to be expected for the
year. September 30, 2002 balances are derived from audited financial
statements; however, interim period amounts have not been audited.
2. Acquisitions
On March 31, 2003, the Company acquired an additional 37% of the share
capital of Rofin-Marubeni Laser Corporation, Atsugi-shi, Japan, through its
wholly owned subsidiary Rofin-Sinar Laser GmbH, Hamburg, Germany ("RSL") for
$0.1 million in cash. RSL subsequently holds 88% of the share capital. As
of May 1, 2003, Rofin-Marubeni Laser Corporation, Japan was renamed Rofin-
Baasel Japan Corporation.
On May 10, 2000, the Company acquired 90.01% of the share capital of Carl
Baasel Lasertechnik GmbH ("Baasel Lasertech") through its wholly owned
subsidiary RSL. In September 2001, Baasel Lasertech was transformed into
Carl Baasel Lasertechnik GmbH & Co.KG ("CBL"), a limited partnership. The
Company and the minority shareholder of CBL were party to an option agreement
for the remaining share of capital held by the minority shareholder for a
fixed price of Euro 6.3 million ($6.2 million), which along with accumulated
interest of $0.4 million, was accrued for in accounts payable to related
party as of September 30, 2002. Accordingly, since the acquisition the
financial statements presented CBL as if it was 100% owned. Effective
December 31, 2002 the minority shareholder resigned from the limited
partnership, and the remaining shares of CBL were purchased by RSL during
2003 for the fixed price of Euro 6.3 million.
3. Investments in Marketable Securities
On October 5, 2001, the Company sold the assets of its medical laser business
resulting in a gain of $0.7 million. As part of the proceeds from the sale,
the Company received marketable equity securities which had been classified
as trading securities, under "other current assets and prepaid expenses" in
the accompanying balance sheet. During the nine month period ended June 30,
2003 the Company sold the above mentioned securities for a total amount of
$1.2 million. For the nine-month periods ended June 30, 2003 and 2002, the
Company recorded realized gains of $0.3 million and unrealized gains of
$0.1 million, respectively.
- 8 -
4. Inventories
Inventories are stated at the lower of cost or market, after provisions for
excess and obsolete inventory salable at prices below cost. Costs are
determined using the first in, first out and weighted average cost methods
and are summarized as follows:
June 30, September 30,
2003 2002
----------- -----------
Finished goods $ 13,066 $ 11,188
Work in progress 25,198 20,255
Raw materials and supplies 25,521 20,169
Demonstration inventory 6,040 6,548
Service parts 18,544 16,130
----------- -----------
Total inventories, net $ 88,369 $ 74,290
=========== ===========
5. Accrued Liabilities
Accrued liabilities are comprised of the following:
June 30, September 30,
2003 2002
----------- -----------
Employee compensation $ 9,913 $ 9,039
Warranty reserve 11,003 10,036
Customer deposits 12,076 3,202
Income tax payables 7,231 5,699
Other 12,480 11,083
----------- -----------
Total accrued liabilities $ 52,703 $ 39,059
=========== ===========
6 Goodwill and Other Intangible Assets
On October 1, 2003, we adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangibles". Under SFAS No. 142, goodwill is no longer subject to
amortization, but will be subject to an annual impairment test. Intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives.
- 9 -
SFAS No. 142 requires that goodwill be tested on an annual basis, at minimum,
for potential impairment at the reporting unit level. A reporting unit is
defined as the lowest level of an entity that is a business and that can be
distinguished, physically and operationally and for internal reporting
purposes, from other activities, operations, and assets of the entity. A
reporting unit can be no higher than a reportable operating segment and would
generally be lower that that level of reporting. The Company identified
three reporting units: the German reporting unit; the United States reporting
unit; and the reporting unit for the rest of the world.
Under SFAS No. 142, the fair value of each reporting unit is compared to its
carrying amount. If the carrying value is below the fair value assessment,
there will be no impairment loss. If the fair value is below the carrying
value, then the company is required to perform an additional test to
determine the impaired fair value of the goodwill and its carrying amount.
The Company completed the initial goodwill impairment testing required by
SFAS No. 142 and determined that the fair value of each reporting unit
exceeds its carrying value and accordingly, the second step of the impairment
test was not required to be performed.
The following sets forth a reconciliation of net income and earnings per
share information for the three and nine months ended June 30, 2003 and 2002,
adjusted for the non-amortization provisions of SFAS No. 142:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income - as reported $ 3,634 $ 1,256 $ 10,449 $ 2,634
Add back:
Goodwill amortization
(net of tax) -- 632 -- 1,836
---------- ---------- ---------- ----------
Adjusted net income $ 3,634 $ 1,888 $ 10,449 $ 4,470
========== ========== ========== ==========
Basic earnings per share:
Reported net income $ 0.31 $ 0.11 $ 0.89 $ 0.23
Goodwill amortization -- 0.05 -- 0.16
---------- ---------- ---------- ----------
Adjusted net income $ 0.31 $ 0.16 $ 0.89 $ 0.39
========== ========== ========== ==========
Diluted earnings per share:
Reported net income $ 0.30 $ 0.11 $ 0.88 $ 0.23
Goodwill amortization -- 0.05 -- 0.16
---------- ---------- ---------- ----------
Adjusted net income $ 0.30 $ 0.16 $ 0.88 $ 0.39
========== ========== ========== ==========
- 10 -
The changes in the carrying amount of goodwill for the nine month period
ended June 30, 2003 are as follows:
United Rest of
Germany States World Total
---------- ---------- ---------- ----------
Balance as of
September 30, 2002 $ 28,802 $ 2,197 $ 10,054 $ 41,053
Currency exchange difference 4,060 352 1,565 5,977
---------- ---------- ---------- ----------
Balance as of June 30, 2003 $ 32,862 $ 2,549 $ 11,619 $ 47,030
========== ========== ========== ==========
The carrying value of other intangible assets are as follows:
June 30, 2003 September 30, 2002
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 5,160 $ 1,078 $ 4,448 $ 706
Client base 6,795 2,008 5,858 931
Other 547 332 419 216
--------- ------------ -------- ------------
Total $ 12,502 $ 3,418 $ 10,725 $ 1,853
========= ============ ======== ============
Amortization expense for the three and nine months ended June 30, 2003 were
$0.5 million and $1.2 million, respectively. At June 30, 2003, estimated
amortization expense for the remainder of fiscal 2003 and the next five
fiscal years based on the average exchange rates as of June 30, 2003, are as
follows:
2003 (remainder) $ 0.5 million
2004 1.6 million
2005 1.6 million
2006 1.6 million
2007 1.1 million
2008 1.1 million
- 11 -
7. Guarantees
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" requires increased disclosures regarding certain guarantees and
requires the recognition at fair value in the balance sheet of certain
guarantees. The interpretation also requires disclosure of the accounting
policy and methodology used in determining product warranty liabilities, in
addition to a reconciliation of the changes in the liability during the
period. The disclosure requirements of Interpretation No. 45 were adopted
by the Company as of October 1, 2002 (see note 8). The recognition
provisions were adopted by the Company as of December 31, 2002 to guarantees
issued or modified after that date. The adoption of the recognition
provisions of this interpretation did not have a material effect on the
Company's financial position or results of operations as of the date of
adoption.
8. Product Warranties
The Company provides for the estimated costs of product warranties when
revenue is recognized. The estimate of costs to fulfill our warranty
obligations is based on historical experience and expectation of future
conditions. The change in warranty reserves for the nine-months ended June
30, 2003 is as follows:
Balance at September 30, 2002 $ 10,036
Additional accruals for warranties during the period 6,922
Usage during the period ( 7,175)
Currency translation 1,220
-----------
Balance at June 30, 2003 $ 11,003
===========
- 12-
9. Stock Based Compensation
Effective January 1, 2003, the Company adopted the disclosure requirements of
SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and
Disclosure-an amendment of SFAS No. 123". The following table illustrates
the pro forma effect on net income and earnings per share as if the fair
value based method had been applied to all outstanding and unvested awards in
each period:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income - as reported $ 3,634 $ 1,256 $ 10,449 $ 2,634
Deduct: Total stock-based
employee compensation
expense determined under
the fair value based
method for all awards, net
of related tax effects $ 169 $ 193 $ 506 $ 580
---------- ---------- ---------- ----------
Pro forma net income $ 3,465 $ 1,063 $ 9,943 $ 2,054
========== ========== ========== ==========
Earnings per share:
Basic - as reported $ 0.31 $ 0.11 $ 0.89 $ 0.23
Basic - pro forma $ 0.30 $ 0.09 $ 0.85 $ 0.18
Fully diluted - as reported $ 0.30 $ 0.11 $ 0.88 $ 0.23
Fully diluted - pro forma $ 0.29 $ 0.09 $ 0.84 $ 0.18
- 13-
10. Net Income Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per common share ("EPS") reflects the potential dilution
from common stock equivalents (stock options). The calculation of the
weighted average number of common shares outstanding for each period is as
follows:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Weighted average number of
shares for BASIC net income
per common share 11,741,900 11,551,800 11,741,900 11,551,800
Potential additional shares
due to outstanding dilutive
stock options 341,213 67,814 110,490 47,603
---------- ---------- ---------- ----------
Weighted average number of
shares for DILUTED net
income per common share 12,083,113 11,619,614 11,852,390 11,599,403
========== ========== ========== ==========
Excluded from the calculation of diluted EPS for the nine months ended June 30,
2003 and 2002, were 207,000 and 675,600 outstanding stock options,
respectively. These could potentially dilute future EPS calculations but were
not included in the current period because their effect would have been
antidilutive.
11. Segment and Geographic Information
The Company manages its business under geographic regions that are aggregated
together as one segment in the global industrial laser industry. Sales from
these regions have similar long-term financial performance and economic
characteristics. The products from these regions utilize similar manufacturing
processes and use similar production equipment, which may be interchanged from
group to group. The Company distributes, sells and services final product to
the same type of customers from all regions.
- 14-
Assets, revenues and income before taxes, by geographic region are summarized
below:
June 30, September 30,
2003 2002
(Unaudited) (Audited)
---------- ----------
ASSETS 2003 2002
---------- ----------
United States $ 56,013 $ 48,686
Germany 203,631 188,862
Other 110,512 97,548
Intercompany eliminations ( 89,299) ( 94,281)
---------- ----------
Total assets $ 280,857 $ 240,815
========== ==========
REVENUES
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
United States $ 14,869 $ 16,084 $ 41,009 $ 46,986
Germany 54,476 45,391 158,344 132,154
Other 20,959 15,946 55,070 44,287
Intercompany eliminations ( 25,837) ( 21,852) ( 70,739) ( 65,689)
---------- ---------- ---------- ----------
$ 64,467 $ 55,569 $ 183,684 $ 157,738
========== ========== ========== ==========
INTERCOMPANY REVENUES
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
United States $ 1,217 $ 1,424 $ 2,978 $ 3,076
Germany 19,975 17,962 56,937 55,891
Other 4,645 2,467 10,824 6,722
Intercompany eliminations ( 25,837) ( 21,853) ( 70,739) ( 65,689)
---------- ---------- ---------- ----------
$ -- $ -- $ -- $ --
========== ========== ========== ==========
- 15-
EXTERNAL REVENUES
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
United States $ 13,652 $ 14,661 $ 38,031 $ 43,910
Germany 34,501 27,429 101,407 76,263
Other 16,314 13,479 44,246 37,565
---------- ---------- ---------- ----------
$ 64,467 $ 55,569 $ 183,684 $ 157,738
========== ========== ========== ==========
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
United States $ 1,337 $ 440 $ 2,499 $ 1,811
Germany 3,987 2,384 12,771 9,607
Other 2,733 1,081 4,803 1,328
Intercompany eliminations ( 2,152) ( 1,005) ( 1,846) ( 4,135)
---------- ---------- ---------- ----------
$ 5,905 $ 2,900 $ 18,227 $ 8,611
========== ========== ========== ==========
- 16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Forward-looking statements include
all statements that do not relate solely to historical or current facts, and
can be identified by the use of words such as "may", "believe", "will",
"expect", "project", "anticipate", "estimate", "plan" or "continue". These
forward looking statements are based on the current plans and expectations of
our management and are subject to a number of uncertainties and risks that
could significantly affect our current plans and expectations, as well as
future results of operations and financial condition. In making these
forward-looking statements, we claim the protection of the safe-harbor for
forward-looking statements contained in the Reform Act. We do not assume any
obligation to update these forward-looking statements to reflect actual
results, changes in assumptions, or changes in other factors affecting such
forward-looking statements.
Overview
Rofin-Sinar Technologies Inc. (herein also referred to as "Rofin-Sinar", or
the "Company" or "we", "us" or "our") is a leader in the design, development,
engineering, manufacture and marketing of laser-based products used for
cutting, welding and marking a wide range of materials.
During the third quarter of fiscal years 2003 and 2002, respectively, we
realized approximately 51% and 53% of revenues from the sale and servicing of
laser products for macro applications and approximately 49% and 47% from the
sale and servicing of laser products for marking and micro applications.
Management believes that the near term growth in the Company's macro
business, especially in North America, will be under continued pressure given
the current market environment for investment in capital goods. In the
Company's marking and micro business management sees some positive
developments from the semiconductor and electronics market which should lead
to slightly increased sales in the coming quarters. Our high power diode
pumped solid state laser products, which are sold primarily in our macro
business, have experienced quality issues in the past that have affected the
performance of certain units in the field. Management has established
reserves for the associated costs estimated to be incurred during the coming
quarters related to products that have been sold prior to June 30, 2003.
Management believes that future profitability will not be materially affected
due to the low business volume (4% of total sales) in the 9 month period
ended June 30, 2003.
Through our global manufacturing, distribution and service network, we are
providing a comprehensive range of laser sources and laser based system
solutions to three principal target markets: the machine tool, automotive and
- 17-
semiconductor/electronics industries. We sell our products directly to end-
users, to original equipment manufacturers ("OEMs") (principally in the
machine tool industry) that integrate Rofin-Sinar's laser sources with other
system components, and to distributors. Many of our customers are among the
largest global participants in their respective industries.
At June 30, 2003, Rofin-Sinar had 1,217 employees compared to 1,164 employees
at June 30, 2002.
Results of Operations
For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's
consolidated statements of operations.
Three Months Nine Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales 100% 100% 100% 100%
Cost of goods sold 63% 68% 62% 65%
Gross profit 37% 32% 38% 35%
Selling, general and
administrative expenses 20% 20% 20% 21%
Research and development expenses 7% 7% 7% 6%
Goodwill and intangibles
amortization 1% 2% 1% 2%
Income from operations 9% 4% 10% 6%
Income before income taxes
and minority interest 9% 5% 10% 5%
Net income 6% 2% 6% 2%
Net Sales - Net sales of $64.5 million and $183.7 million represent increases
of $8.9 million (16%) and $26.0 million (16%) for the three months and nine
months ended June 30, 2003, as compared to the corresponding periods of
fiscal 2002. The increase for the three-months ended June 30, 2003, compared
to fiscal 2002, resulted from a net sales increase of $9.9 million (24%) in
Europe/Asia, offset by a decrease of $1.0 million (7%), in the United States.
The increase for the nine month period ended June 30, 2003, compared to the
same period in fiscal 2002, resulted from a net sales increase of $31.9
million, or 28%, in Europe/Asia offset by a decrease of $5.9 million, or 13%,
in the United States. Fluctuations in the U.S. dollar against foreign
currencies, primarily against the Euro, had a favorable effect on net sales
of $8.0 million and $20.9 million for the three-month and nine-month periods
ended June 30, 2003. Net sales of laser products for macro applications
increased by $3.3 million (11%) to $32.9 million and by $8.1 million (9%) to
$95.0 million for the three-month and nine-month periods ended June 30, 2003
as compared to the corresponding periods of fiscal 2002. This increase is
primarily due to increased market acceptance of our diffusion-cooled slab
laser models at the low and high power side. Net sales of lasers for marking
and micro applications increased by 21% to $31.6 million for the three months
- 18-
ended June 30, 2003 and increased by 25% to $88.7 million for the nine months
ended June 30, 2003 as compared to the corresponding periods in fiscal 2002.
This increase can be attributed primarily to a slight recovery in demand for
the Company's lasers for marking applications from the semiconductor and
electronics industries and higher volumes of lasers for micro applications
such as dental and jewelry.
Gross Profit - Our gross profit of $23.6 million and $69.3 million for the
three-months and nine-months ended June 30, 2003 represent increases of $5.7
million (32%) and $13.4 million (24%) from the corresponding periods of
fiscal 2002. As a percentage of sales compared to the three-month and nine-
month periods of fiscal 2002, gross profit increased from 32% and 35% to 37%
and 38%, respectively. The higher percentage margin was primarily a result
of a favorable product mix, caused by higher marking and micro laser sales
and a higher service and spare parts business volume. In addition, gross
profit was favorably affected by $2.1 million and $5.9 million for the three-
month and nine-month periods ended June 30, 2003 due to the fluctuations of
the U.S. dollar against foreign currencies, primarily against the Euro.
Selling, General and Administrative Expenses - Selling, general and
administrative ("SG&A") expenses of $12.6 million and $36.6 million for the
three-months and nine-months ended June 30, 2003 represent increases by $1.5
million (14%) and $3.4 million (10%) from the corresponding periods of fiscal
2002. SG&A, a significant portion of which is incurred in foreign currencies,
was unfavorably affected by $1.5 million and $3.9 million for the three-month
and nine-month periods ended June 30, 2003 due to the fluctuations of the
U.S. dollar against foreign currencies, primarily against the Euro. Taking
into account this fluctuation, SG&A was consistent with the previous periods.
Research and Development Expenses - The Company spent net $4.7 million and
$13.2 million on research and development (R&D) during the three-month and
nine-month periods ended June 30, 2003. This represents an increase of 28%
and 33%, for the three-month and nine-month periods as compared to the
corresponding periods of fiscal 2002. Gross R&D expenses for the three-month
periods ended June 30, 2003 and 2002 were $4.8 million and $3.8 million,
respectively, and were reduced in both periods by $0.1 million of government
grants. Gross R&D expenses for the nine-month periods ended June 30, 2003
and 2002 were $13.9 million and $10.5 million, respectively and were reduced
by $0.7 million and $0.6 million of government grants, respectively. The
Company expects to continue receiving governmental grants toward R&D. The
increase in gross R&D is primarily a result of ongoing R&D work mainly in the
area of diode pumped solid state lasers. R&D, a significant portion of which
is conducted in Europe, and therefore incurred in foreign currencies, was
unfavorably affected by $0.8 million and $2.0 million for the three-month and
nine-month periods ended June 30, 2003, due to the fluctuations of the U.S.
dollar against foreign currencies, primarily against the Euro.
Goodwill and intangibles amortization - As a result of our adoption of FASB
Statement No. 142, "Goodwill and Other Intangibles", amortization expense for
the three-month and nine-month periods ended June 30, 2003 amounted to $0.5
million and $1.2 million and was lower by $0.5 million and $1.6 million when
compared to the same periods of fiscal year 2002.
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Other Expense (Income) - Net other (income) expense of ($0.1) million and
$0.1 million for the three-month and nine-month periods ended June 30, 2003
represents a decrease in income of $0.6 million and an increase in income of
$1.3 million compared to the corresponding periods of fiscal 2002. The
fluctuation in the nine-month period is primarily attributed to higher
unrealized exchange gains resulting from certain intercompany indebtedness.
Additionally, during the first quarter of fiscal 2002, other income was
significantly affected by a one-time gain from the sale of our medical laser
business.
Income Tax Expense - Income tax expense of $1.9 million and $7.1 million for
the three-months and nine-months ended June 30, 2003 represent effective tax
rates of 32% and 39%, compared to the prior fiscal year corresponding
effective tax rates of 55% and 62%. This decrease is primarily due to higher
earnings, lower amounts of nondeductible expenses for tax purposes, and the
utilization of foreign tax credits for income tax purposes.
Net Income - As a result of the foregoing factors, the Company realized
consolidated net income of $3.6 million and $10.4 million for the three-
months and nine-months ended June 30, 2003, which represents increases of
$2.4 million and $7.8 million from the corresponding periods in fiscal 2002.
For the three-months ended June 30, 2003, basic and diluted earnings per
share equaled $0.31 and $0.30, respectively, based upon a weighted average of
11.7 million and 12.1 million common shares outstanding, as compared to basic
and diluted earnings per share of $0.11 for the same periods in fiscal 2002.
Liquidity and Capital Resources
The Company's primary sources of liquidity at June 30, 2003 were cash and
cash equivalents of $36.2 million, an annually renewable $25.0 million line
of credit with Deutsche Bank AG and several other lines of credit to support
foreign subsidiaries in their local currencies in an aggregate amount of
$35.5 million (translated at the applicable exchange rate at June 30, 2003).
As of June 30, 2003, $14.6 million was outstanding under the Deutsche Bank
facility and $15.4 million under other lines of credit. Therefore, $30.5
million is unused and available under Rofin's lines of credit. There are no
financial covenants which could restrict the Company from drawing money under
these lines of credit.
Additionally, the Company has outstanding short and long-term debt with a
German bank, which was used to finance part of the acquisition, and to
refinance the existing debt, of Baasel Lasertech. As of June 30, 2003, $39.9
million was outstanding under this credit agreement. To secure the financing
of the acquisition the Company pledged 90.01% of the common shares of Carl
Baasel Lasertechnik GmbH & Co. KG. As of June 30, 2003, $13.2 million was
covered by this pledge.
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Cash and cash equivalents increased by $15.9 million during the nine-months
ended June 30, 2003. Approximately $17.0 million in cash and cash
equivalents were provided by operating activities. This is primarily from
improved operating performance in the nine-months ended June 30, 2003.
Uses of cash from investing activities totaled $2.4 million for the nine-
months ended June 30, 2003 and related primarily to the acquisition of
property and equipment.
Net cash used in financing activities totaled $0.7 million and was primarily
related to an increase in additional paid in capital from the exercise of
stock options offset by current period payments of bank debt.
Management believes that the cash flow from operations, along with existing
cash and cash equivalents and availability under the company's credit
facilities and lines of credit, will provide adequate resources to meet both
its capital requirements and operational needs on both a current and long
term basis.
Currency Exchange Rate Fluctuations
Although the Company reports its Consolidated Financial Statements in U.S.
dollars, approximately 75% of its sales are denominated in other currencies,
primarily Euro, British pound, Singapore dollar, Taiwanese dollar, Korean won
and Japanese yen. Net sales and costs and related assets and liabilities of
the Company's operations are generally denominated in the functional
currencies of the relevant operating unit, thereby serving to reduce the
Company's exposure to exchange gains and losses.
Exchange differences upon translation from each operating unit's functional
currency to United States dollars are accumulated as a separate component of
equity. The currency translation adjustment component of shareholders'
equity had the effect of increasing total equity by $3.5 million at June 30,
2003 as compared to decreasing total equity by $7.2 million at September 30,
2002.
The fluctuation of the Euro and the other relevant functional currencies
against the U.S. dollar has had the effect of increasing or decreasing (as
applicable) reported net sales, gross profit, selling, general and
administrative expenses, R&D expenses, goodwill and intangibles amortization,
other expenses (income), income tax expense and net income, denominated in
such foreign currencies when translated into U.S. dollars as compared to
prior periods.
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Critical Accounting Policies
The Company's significant accounting policies are more fully described in
Note 1 of the consolidated financial statements and footnotes in its Annual
Report on 10-K for the fiscal year ended September 30, 2002. Certain of the
accounting policies require the application of significant judgment by
management in selecting appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent
degree of uncertainty.
Allowance for Doubtful Accounts
The Company records allowances for uncollectible customer accounts
receivable based on historical experience. Additionally, an allowance
is made based on an assessment of specific customers' financial
condition and liquidity. If the financial condition of the Company's
customers were to deteriorate, additional allowances may be required.
Inventory Valuation
Inventories are stated at the lower of cost or market, after provisions
for excess and obsolete inventory salable at prices below cost.
Reserves for slow moving and obsolete inventories are provided based on
current assessments about historical experience and future product
demand and production requirements for the next twelve months. These
factors are impacted by market conditions, technology changes, and
changes in strategic direction, and require estimates and management
judgment that may include elements that are uncertain. We evaluate the
adequacy of these reserves quarterly. Although we strive to achieve a
balance between market demands and risk of inventory excess or
obsolescence, it is possible that, should conditions change, additional
reserves may be needed. Any changes in reserves will impact operating
income during a given period.
Warranty Reserves
The Company provides for the estimated costs of product warranties when
revenue is recognized. The Company relies upon historical experience,
expectation of future conditions, and its service data to estimate its
warranty reserve. The Company continuously monitors this data to ensure
that the reserve is sufficient. To the extent we experience increased
warranty claim activity or increased costs associated with servicing
those claims, revisions to the estimated warranty liability would be
required. While such expenses have historically been within its
expectations, the Company cannot guarantee this will continue in the
future.
- 22-
Pension
The determination of the Company's obligation and expense for pension is
dependent on the selection of certain assumptions used by actuaries in
calculating those amounts. Assumptions are made about interest rates,
expected investment return on plan assets, total turnover rates, and
rates of future compensation increases. In addition, the Company's
actuarial consultants use subjective factors such as withdrawal rates
and mortality rates to develop our valuations. The Company generally
reviews these assumptions at the beginning of each fiscal year. The
Company is required to consider current market conditions, including
changes in interest rates, in making these assumptions. The actuarial
assumptions that the Company may use may differ materially from actual
results due to changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact on the amount of pension
benefits expense the Company has recorded or may record.
The discount rate enables the Company to state expected future cash
flows at a present value on the measurement date. The Company has
little latitude in selecting this rate, and it must represent the market
rate of high-quality fixed income investments. A lower discount rate
increases the present value of benefit obligations and increases pension
expense.
To determine the expected long-term rate of return on plan assets, the
Company considers the current and expected assets allocations, as well
as historical and expected returns on various categories of plan assets.
Recently Issued Accounting Standards
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires the Company to record the fair value of
an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction,
development, and/or normal use of the assets. The Company also records a
corresponding asset that is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect the passage
of time and changes in the estimated future cash flows underlying the
obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003.
The adoption of SFAS No. 143 did not have a material effect on the Company's
financial statements.
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In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." The statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this
statement amends the disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. We
adopted the disclosure provisions of SFAS No. 148 in the second quarter of
fiscal 2003 (see Note 9).
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN 46), which addresses consolidation by
business enterprises of entities that are not controllable through voting
interests or in which the equity investors do not bear the residual economic
risks. These entities have been commonly referred to as "special purpose
entities." The underlying principle behind the new interpretation is that if
a business enterprise has a controlling financial interest in an entity,
defined in the guidance as a variable interest entity, the assets,
liabilities, and results of the activities of the variable interest entity
should be included in consolidated financial statements with those of the
business enterprise. We do not expect the adoption of FIN 46 to have a
material impact on our operating results or financial condition.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 149 is generally effective for derivative instruments, including
derivative instruments embedded in certain contracts, entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. We do not expect the adoption of SFAS No. 149 to have a
material impact on our operating results or financial condition.
In May 2003, the FASB issued SFAS No. 150, " Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The
statement modifies the accounting for certain financial instruments that,
under previous guidance, issuers could account for as equity and requires
that those instruments be classified as liabilities in statements of
financial position. The statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after June 15, 2003. We
do not anticipate that the adoption of SFAS No. 150 will require us to make
any reclassifications in our consolidated financial statements.
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Ownership of Common Stock By Directors
The following table sets forth information as of June 30, 2003, with respect
to beneficial ownership of the Company's Common Stock and exercisable options
by each director.
Number of Total Number of
Shares of Number of Exercisable
Common Stock Stock Options Stock Options
Beneficially Owned at Owned at
Name Owned June 30, 2003 June 30, 2003
- ---------------- -------------- ----------------- -----------------
Peter Wirth 3,300 232,000 140,000
Gunther Braun -- 130,000 50,000
Walter Volkmar 2,000 123,000 54,000
Carl F. Baasel 50,000 40,000 7,000
Louis Molnar -- 80,000 8,000
William R. Hoover (1) 40,500 -- --
Ralph E. Reins (1) 15,500 -- --
Gary K. Willis (1) 14,000 -- --
(1) Outside, non-executive director
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the period ended June 30, 2003, we did not experience any material change
in market risk exposures affecting the quantitative and qualitative
disclosures as presented in our Annual Report on Form 10-K for the fiscal
year ended September 30, 2002.
The following discussion about the Company's market risk disclosures involves
forward looking statements. Actual results could differ materially from
those projected in the forward looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign currency
exchange rates. The Company does not use derivative financial instruments
for trading purposes.
Interest Rate Sensitivity
As of June 30, 2003, the Company maintained a cash equivalents portfolio of
$16.7 million, consisting mainly of taxable interest bearing securities and
demand deposits, all with maturities of less than three months. If short-
term interest rates were to increase or decrease by 10%, interest income
would increase or decrease by less than $0.1 million, accordingly.
At June 30, 2003, the Company had short-term debt amounting to $25.9 million
and long-term debt amounting to $20.2 with variable interest rates.
Additionally the Company had long-term debt of $23.8 million with fixed
interest rates. A 10% change in the variable interest rates of the Company's
debt would result in an increase or decrease in pre-tax interest expense of
approximately $0.2 million.
- 25-
Foreign Currency Exchange Risk
The Company enters into foreign currency forward contracts and forward
exchange options generally of less than one year duration to hedge a portion
of its foreign currency risk on sales transactions. At June 30, 2003, the
Company held Japanese yen forward contracts with notional amounts of Euro 0.8
million and Euro forward exchange options with notional amounts of $3.3
million. The gains or losses resulting from a 10% change in currency
exchange rates would not be material. Additionally, the Company entered into
a currency and interest swap agreement of notional amount Swiss Francs 17.2
million to minimize the interest on long-term loan. The gains or losses
resulting from a 10% change in currency exchange rates would result in an
increase of $0.7 million or a decrease of $0.8 million of net income.
Item 4. Controls and Procedures
In the 90-day period before the filing of this report, the Chief Executive
Officer and Chief Financial Officer of the Company (collectively, the
"certifying officers") have evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-
14(c) and 15d-14(c) under the Securities and Exchange Act of 1934, as
amended). These disclosure controls and procedures are designed to ensure
that the information required to be disclosed by the Company in its periodic
reports filed with the Securities and Exchange Commission (the "Commission")
is recorded, processed, summarized and reported within the time periods
specified by the Commission's rules and forms, and that the information is
communicated to the certifying officers on a timely basis.
The certifying officers concluded, based on their evaluation, that the
Company's disclosure controls and procedures are effective in ensuring that
material information relating to the Company, including its consolidated
subsidiaries, is made known to them in a timely fashion, taking into
consideration the size and nature of the Company's business and operations.
There were no significant changes in the Company's internal controls or in
other factors, nor any significant deficiencies or material weaknesses
requiring corrective action, that could significantly affect the Company's
internal controls subsequent to the date when the internal controls were
evaluated.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
- 26-
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Section 302 Certifications
Exhibit 32.1 Section 906 Certifications
(b) Reports on Form 8-K
We furnished a Form 8-K on May 8, 2003, which contained a copy
of our press release announcing the second quarter financial
results as well as informing readers of our then upcoming
webcast to discuss our second quarter financial results on the
same date.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rofin-Sinar Technologies Inc.
---------------------------------
(Registrant)
Date: August 14, 2003 /s/ Gunther Braun
---------------------------------
Gunther Braun
Executive Vice President,
Finance and Administration, and
Chief Financial Officer
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