UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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 or 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)
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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 of 1934). Yes [X] / No [ ]
14,921,950 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of May 13, 2004.
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
March 31, 2004 and September 30, 2003 3
Condensed Consolidated Statements of Operations
Three months and six months ended
March 31, 2004 and 2003 5
Condensed Consolidated Statement of Stockholders
Equity and Comprehensive Income
Six months ended March 31, 2004 and 2003 6
Condensed Consolidated Statements of Cash Flows
Six months ended March 31, 2004 and 2003 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 15
Item 3
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Quantitative and Qualitative Disclosures about
Market Risk 22
Item 4
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Controls and Procedures 23
PART II OTHER INFORMATION 24
SIGNATURES 25
PART I. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
March 31, September 30,
2004 2003
(Unaudited) (Audited)
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 110,690 $ 44,487
Accounts receivable, trade, net 62,564 64,548
Inventories (Note 3) 93,926 86,738
Other current assets and prepaid expenses 10,961 8,736
----------- ----------
Total current assets 278,141 204,509
Property and equipment, net 29,221 27,692
Goodwill, net (Note 5) 50,469 48,058
Other intangibles, net (Note 5) 9,955 8,866
Other assets 1,634 2,361
----------- ----------
Total assets $ 369,420 $ 291,486
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit and short term borrowings $ 36,266 $ 35,781
Accounts payable, trade 14,176 12,476
Accounts payable to related party 1,817 2,158
Accrued liabilities (Note 4) 56,331 55,335
----------- ----------
Total current liabilities 108,590 105,750
Long-term debt 23,798 33,052
Pension obligations 8,576 7,830
Minority interests 1,927 1,756
Other long-term liabilities 3,157 2,512
----------- ----------
Total liabilities 146,048 150,900
- 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, 14,556,550 (11,908,600 at
September 30, 2003) issued and outstanding 146 119
Additional paid-in-capital 147,472 79,918
Retained earnings 65,517 54,666
Accumulated other comprehensive income 10,237 5,883
----------- ----------
Total stockholders' equity 223,372 140,586
Total liabilities and stockholders' equity $ 369,420 $ 291,486
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 4 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended March 31, 2004 and 2003
(dollars in thousands, except per share amounts)
Three Months Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales $ 75,948 $ 61,073 $ 147,006 $ 119,218
Cost of goods sold 46,761 37,875 89,986 73,576
---------- ---------- ---------- ----------
Gross profit 29,187 23,198 57,020 45,642
Selling, general, and
administrative expenses 14,181 12,127 28,159 23,983
Research and development expenses 5,155 4,533 10,182 8,439
Intangibles amortization 515 350 964 717
---------- ---------- ---------- ----------
Income from operations 9,336 6,188 17,715 12,503
Other expense (income):
Interest, net 567 835 1,150 1,745
Foreign currency (gains)/losses 156 ( 1,977) ( 719) ( 1,937)
Other expenses (income) ( 81) 754 ( 264) 373
---------- ---------- ---------- ----------
Income before income taxes
and minority interest 8,694 6,576 17,548 12,322
Income tax expense 2,769 2,978 6,155 5,202
---------- ---------- ---------- ----------
Income before minority
interest 5,925 3,598 11,393 7,120
Minority interest 279 240 542 304
---------- ---------- ---------- ----------
Net income $ 5,646 $ 3,358 $ 10,851 $ 6,816
========== ========== ========== ==========
Net income per common
share (Note 8)
Basic $ 0.47 $ 0.29 $ 0.90 $ 0.59
Diluted $ 0.45 $ 0.29 $ 0.86 $ 0.59
========== ========== ========== ==========
Weighted average shares
used in computing net
income per share (Note 8)
Basic 12,047,206 11,556,600 12,039,951 11,556,600
Diluted 12,647,494 11,590,038 12,616,787 11,567,219
========== ========== ========== ==========
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)
Six months ended March 31, 2004 and 2003
(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, 2003 $ 119 $ 79,918 $ 54,666 $ 5,883 $ 140,586
Comprehensive income:
Foreign currency translation adjustment -- -- -- 3,868 3,868
Fair value of interest swap agreement -- -- -- 486 486
Net income -- -- 10,851 -- 10,851
------------
Total comprehensive income 15,205
Common stock issued 27 67,554 -- -- 67,581
------------ ------------ ------------ ----------- ------------
BALANCES at March 31, 2004 $ 146 $ 147,472 $ 65,517 $ 10,237 $ 223,372
============ ============ ============ ============ ============
BALANCES at September 30, 2002 $ 115 $ 76,156 $ 39,361 $( 7,214) $ 108,418
Comprehensive income:
Foreign currency translation adjustment -- -- -- 7,046 7,046
Fair value of interest swap agreement -- -- -- ( 143) ( 143)
Net income -- -- 6,816 -- 6,816
------------
Total comprehensive income 13,719
Common stock issued 1 21 -- -- 22
------------ ------------ ------------ ----------- ------------
BALANCES at March 31, 2003 $ 116 $ 76,177 $ 46,177 $( 311) $ 122,159
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
- 6 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, 2004 and 2003
(dollars in thousands)
Six months
Ended March 31,
------------------------
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,851 $ 6,816
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in operating assets and liabilities ( 263) ( 2,593)
Other adjustments 4,294 3,748
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Net cash provided by operating activities 14,882 7,971
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 85 36
Additions to property and equipment ( 2,137) ( 1,829)
Acquisition of business, net of cash required ( 741) --
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Net cash used in investing activities ( 2,793) ( 1,793)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 171 2,434
Repayment to banks ( 13,172) ( 2,507)
Net (repayments) borrowings on line of credit ( 1,308) 1,614
Issuance of additional common shares 66,277 --
Proceeds from issuance of common stock 1,563 --
Other adjustments ( 473) ( 139)
---------- ----------
Net cash provided by financing
activities 53,058 1,402
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Effect of foreign currency translation on cash
and cash equivalents 1,056 1,070
---------- ----------
Net increase in cash and cash
equivalents 66,203 8,650
Cash and cash equivalents at beginning of period 44,487 20,312
---------- ----------
Cash and cash equivalents at end of period $110,690 $ 28,962
========== ==========
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)
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, 2003,
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, 2003 balances are derived from audited financial
statements; however, interim period amounts have not been audited.
2. Acquisitions
On February 27, 2004, the Company acquired 90% of the common stock of
Optoskand AB, Gothenburg, Sweden, through its wholly owned subsidiary Rofin-
Sinar Laser GmbH, Hamburg, Germany ("RSL") in cash. We have a call option
effective fiscal year 2009 for the remaining 10% of the common stock.
On March 31, 2003, the Company acquired an additional 37% of the share
capital of Rofin-Marubeni Laser Corporation, Atsugi-shi, Japan, through 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.
3. 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:
March 31, September 30,
2004 2003
------------ ------------
Finished goods $ 11,286 $ 12,809
Work in progress 26,342 25,793
Raw materials and supplies 32,596 24,717
Demonstration inventory 8,147 6,585
Service parts 15,555 16,834
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Total inventories $ 93,926 $ 86,738
=========== ===========
- 8 -
4. Accrued Liabilities
Accrued liabilities are comprised of the following:
March 31, September 30,
2004 2003
----------- -----------
Employee compensation $ 10,739 $ 11,896
Warranty reserve 11,756 10,528
Customer deposits 12,867 12,875
Income taxes payable 4,245 6,980
Other 16,724 13,056
----------- -----------
Total accrued liabilities $ 56,331 $ 55,335
=========== ===========
5. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the six month period ended
March 31, 2004 are as follows:
United Rest of
Germany States World Total
---------- ---------- ---------- ----------
Balance as of
September 30, 2003 $ 33,566 $ 2,610 $ 11,882 $ 48,058
Additions -- -- 362 362
Currency exchange difference 1,396 121 532 2,049
---------- ---------- ---------- ----------
Balance as of
March 31, 2004 $ 34,962 $ 2,731 $ 12,776 $ 50,469
========== ========== ========== ==========
The carrying value of other intangible assets are as follows:
March 31, 2004 September 30, 2003
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 7,077 $ 1,441 $ 5,279 $ 1,192
Customer base 7,273 3,142 6,952 2,370
Other 788 600 622 425
---------- ---------- ---------- ----------
Total $ 15,138 $ 5,183 $ 12,853 $ 3,987
========== ========== ========== ==========
- 9 -
6. 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 six-month periods ended
March 31, 2004 and 2003 are as follows:
Balance at September 30, 2002 $ 10,036
Additional accruals for warranties
during the period 3,927
Usage during the period ( 4,608)
Currency translation 787
-----------
Balance at March 31, 2003 $ 10,142
===========
Balance at September 30, 2003 $ 10,528
Additional accruals for warranties
during the period 3,883
Usage during the period ( 3,084)
Currency translation 429
-----------
Balance at March 31, 2004 $ 11,756
===========
7. 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".
- 10 -
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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income - as reported $ 5,646 $ 3,358 $ 10,851 $ 6,816
Deduct: Total stock-based
employee compensation
expense determined under
the fair value based
method for all awards, net
of related tax effects 225 169 450 $ 337
---------- ---------- ---------- ----------
Pro forma net income $ 5,421 $ 3,189 $ 10,401 $ 6,479
========== ========== ========== ==========
Earnings per share:
Basic - as reported $ 0.47 $ 0.29 $ 0.90 $ 0.59
Basic - pro forma $ 0.45 $ 0.28 $ 0.86 $ 0.56
Fully diluted - as reported $ 0.45 $ 0.29 $ 0.86 $ 0.59
Fully diluted - pro forma $ 0.43 $ 0.28 $ 0.82 $ 0.56
8. Net Income Per Common Share
Basic earnings per common share (EPS) is computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted earnings per common share 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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Weighted average number of
shares for BASIC net income
per common share 12,047,206 11,556,600 12,039,951 11,556,600
Potential additional shares
due to outstanding dilutive
stock options 600,288 33,438 576,836 10,619
---------- ---------- ---------- ----------
Weighted average number of
shares for DILUTED net
income per common share 12,647,494 11,590,038 12,616,787 11,567,219
========== ========== ========== ==========
- 11-
Excluded from the calculation of diluted EPS for the three months and six
months ended March 31, 2003, were 948,600 and 1,220,600 outstanding stock
options, respectively. There were no shares excluded from the calculation of
diluted EPS for the three and six months ended March 31, 2004.
9. Defined Benefit Plans
Components of net periodic cost were as follows for the six months ended
March 31, 2004 and 2003:
Other
Postretirement
Pension Plans Benefits
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Service cost $ 283 $ 247 $ 82 $ 41
Interest cost 317 266 2 2
Expected return on plan assets ( 98) ( 78) -- --
Amortization of prior
service cost 31 31 -- --
Amortization of net (gain)
Loss -- -- -- --
---------- ---------- ---------- ----------
Net periodic benefit cost $ 533 $ 466 $ 84 $ 43
========== ========== ========== ==========
10. 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.
- 12-
Assets, revenues and income before taxes, by geographic region are summarized
below:
March 31, September 30,
2004 2003
(Unaudited) (Audited)
---------- ----------
ASSETS 2004 2003
---------- ----------
United States $ 123,553 $ 53,061
Germany 223,069 223,413
Other 126,231 113,238
Intercompany eliminations ( 103,433) ( 98,226)
---------- ----------
Total assets $ 369,420 $ 291,486
========== ==========
REVENUES
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
United States $ 16,543 $ 13,285 $ 31,723 $ 26,140
Germany 66,660 51,139 131,937 103,868
Other 28,440 18,831 51,485 34,111
Intercompany eliminations ( 35,695) ( 22,182) ( 68,139) ( 44,901)
---------- ---------- ---------- ----------
$ 75,948 $ 61,073 $ 147,006 $ 119,218
========== ========== ========== ==========
INTERCOMPANY REVENUES
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
United States $ 863 $ 898 $ 1,857 $ 1,761
Germany 28,640 17,695 54,598 36,961
Other 6,192 3,589 11,684 6,179
Intercompany eliminations ( 35,695) ( 22,182) ( 68,139) ( 44,901)
---------- ---------- ---------- ----------
$ -- $ -- $ -- $ --
========== ========== ========== ==========
- 13-
EXTERNAL REVENUES
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
United States $ 15,680 $ 12,387 $ 29,866 $ 24,379
Germany 38,020 33,444 77,339 66,907
Other 22,248 15,242 39,801 27,932
---------- ---------- ---------- ----------
$ 75,948 $ 61,073 $ 147,006 $ 119,218
========== ========== ========== ==========
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
United States $ 2,054 $ 790 $ 4,049 $ 1,162
Germany 4,196 3,279 11,356 8,783
Other 2,362 1,613 3,868 2,070
Intercompany eliminations 82 894 ( 1,725) 307
---------- ---------- ---------- ----------
$ 8,694 $ 6,576 $ 17,548 $ 12,322
========== ========== ========== ==========
- 14 -
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.
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 semiconductor/electronics industries. We sell principally to end-users,
to original equipment manufacturers ("OEMs") (principally in the machine tool
industry) that integrate our laser sources with other system components.
Many of our customers are among the largest global participants in their
respective industries.
During the second quarter of fiscal years 2004 and 2003, respectively, we
realized approximately 51% of revenues from the sale and servicing of laser
products for macro applications and approximately 49% from the sale and
servicing of laser products for marking and micro applications, respectively.
On March 29, 2004 we sold 2.5 million common shares at a price of $28.00 per
share which resulted in net proceeds of $66.5 million to us. The underwriters
exercised their over-allotment option April 8, 2004 resulting in 360,000
additional common shares being issued with approximately $9.6 million in net
proceeds to the Company. We intend to use the net proceeds from the offering
for working capital, other general corporate purposes and for acquisitions of
complementary products, technologies or businesses as opportunities arise.
- 15 -
Management believes that the near term growth in our macro business depends,
especially in North America and Europe, on the general investment cycle for
capital goods. Revenues from a technical license agreement will contribute
to sales in the current fiscal year by approximately $7 million. We
recognized $0.7 million and $2.8 million of revenue during the three-months
and six-months ended March 31, 2004, respectively. In our marking and micro
business management sees positive developments from the semiconductor and
electronics market which should lead to increased sales in the coming
quarters.
At March 31, 2004, we had 1,228 employees compared to 1,215 employees at
March 31, 2003.
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 Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales 100% 100% 100% 100%
Cost of goods sold 62% 62% 61% 62%
Gross profit 38% 38% 39% 38%
Selling, general and
administrative expenses 19% 20% 19% 20%
Research and development expenses 7% 7% 7% 7%
Intangibles amortization 1% 1% 1% 1%
Income from operations 11% 10% 12% 10%
Income before income taxes
and minority interest 11% 11% 12% 10%
Net income 7% 5% 7% 6%
Net Sales - Net sales of $75.9 million and $147.0 million represent increases
of $14.9 million (24%) and $27.8 million (23%) for the three months and six
months ended March 31, 2004, as compared to the corresponding periods of
fiscal 2003. The increase for the three months ended March 31, 2004,
compared to fiscal 2003, resulted from a net sales increase of $11.6 million
(24%) in Europe/Asia and an increase of $3.3 million (27%), in the United
States. The increase for the six-months ended March 31, 2004, compared to
the same period in fiscal 2003, resulted from a net sales increase of $22.3
million, or 24% in Europe/Asia and an increase of $5.5 million (23%) 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 $7.2
million and $16.0 million for the three-month and six-month periods ended
March 31, 2004. Net sales of laser products for macro applications increased
by $7.3 million (24%) to $38.2 million and by $12.3 million (20%) to $74.4
- 16 -
million for the three-month and six-month periods ended March 31, 2004 as
compared to the corresponding periods of fiscal 2003. This increase
represents the revenue recognized from the technical license agreement and
the remaining increase was primarily due to the higher demand for our lasers
for macro applications from the automotive industry. Net sales of lasers for
marking and micro applications increased by 25% to $37.7 million for the
three months ended March 31, 2004 and increased by 27% to $72.6 million for
the six months ended March 31, 2004 as compared to the corresponding periods
in fiscal 2003. This increase can be attributed primarily to a 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 $29.2 million and $57.0 million for the
three-months and six-months ended March 31, 2004 represent increases of $6.0
million (26%) and $11.4 million (25%) from the corresponding periods of
fiscal 2003. As a percentage of sales, gross profit margin was consistent at
38% for the three-month periods ended March 31, 2004 and 2003 and increased
from 38% to 39% for the six-month period ended March 31, 2004 as compared to
the corresponding period in 2003. Fluctuations of the U.S. dollar against
foreign currencies, primarily against the Euro favorably affected gross
profit by $1.9 million and $4.2 million for the three-month and six-month
periods ended March 31, 2004.
Selling, General and Administrative Expenses - Selling, general and
administrative (SG&A) expenses of $14.2 million and $28.2 million for the
three-months and six-months ended March 31, 2004 represent increases of $2.1
million (17%) and $4.2 million (17%) from the corresponding periods of fiscal
2003. SG&A expenses, a significant portion of which are incurred in foreign
currencies, was unfavorably affected by $1.4 million and $3.0 million for the
three-month and six-month periods ended March 31, 2004 due to the
fluctuations of the U.S. dollar against foreign currencies, primarily against
the Euro.
Research and Development Expenses - The Company spent net $5.2 million and
$10.2 million on research and development (R&D) during the three-month and
six-month periods ended March 31, 2004. This represents an increase of 14%
and 21%, for the three-month and six-month periods as compared to the
corresponding periods of fiscal 2003. Gross R&D expenses for the three-month
periods ended March 31, 2004 and 2003 were $5.3 million and $4.8 million,
respectively, and were reduced by $0.1 million and $0.3 million of government
grants in each respective period. Gross R&D expenses for the six-month
periods ended March 31, 2004 and 2003 were $10.6 million and $9.0 million,
respectively and were reduced by $0.4 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 expenses
are incurred in foreign currencies, was unfavorably affected by $0.6 million
and $1.4 million for the three-month and six-month periods ended March 31,
2004, due to the fluctuations of the U.S. dollar against foreign currencies,
primarily against the Euro.
- 17 -
Other Expense (Income) - Net other (income) expense of $0.6 million and $0.2
million for the three-month and six-month periods ended March 31, 2004
represents a decrease of $1.0 million for the three-month periods and no
change in income for the six-month periods compared to the same periods of
fiscal year 2003. The fluctuation in the three-month period is primarily
attributed to unrealized exchange losses resulting from certain intercompany
indebtedness and lower interest expense.
Income Tax Expense - Income tax expense of $2.8 million and $6.2 million for
the three-months and six-months ended March 31, 2004 represent effective tax
rates of 32% and 35%, compared to the prior fiscal year corresponding
effective tax rates of 45% and 42%. This decrease is primarily due to higher
earnings in countries with lower statutory tax rates, 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 $5.6 million and $10.9 million for the three-
months and six-months ended March 31, 2004, which represents increases of
$2.2 million and $4.1 million from the corresponding periods in fiscal 2003.
For the three-months ended March 31, 2004, basic and diluted earnings per
share equaled $0.47 and $0.45, respectively, based upon a weighted average of
12.0 million and 12.6 million common shares outstanding, as compared to basic
and diluted earnings per share of $0.29 for the same periods in fiscal 2003.
Liquidity and Capital Resources
The Company's primary sources of liquidity at March 31, 2004 were cash and
cash equivalents of $110.7 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
$45.3 million (translated at the applicable exchange rate at March 31, 2004).
As of March 31, 2004, $13.0 million was outstanding under the Deutsche Bank
facility and $20.7 million under other lines of credit. Approximately, $36.6
million is unused and available under the Company?s bank facility and lines
of credit at March 31, 2004. There are no financial covenants which could
restrict the Company from drawing money under these lines of credit.
Additionally, the Company has outstanding long- and short-term debt under a
credit agreement with a German bank, which was used to finance part of the
acquisition, and to refinance the existing debt, of Baasel Lasertech. At
March 31, 2004, $26.4 million was outstanding under this credit agreement.
Based on its maturities, $5.4 million has been included in the caption "line
of credit and short term borrowings" in the accompanying consolidated balance
sheet.
- 18 -
Cash and cash equivalents increased by $66.2 million during the six-months
ended March 31, 2004. Approximately $14.9 million in cash and cash
equivalents were provided by operating activities, primarily as the result of
improved net income. Additionally, cash was provided by a reduction in
accounts receivable due to several outstanding customer balances coming due
during the period. However, these increases in cash were offset by cash used
to reduce our overall income tax liability and to increase our inventory
position so that new sales orders could be taken and shipped quickly.
Uses of cash from investing activities totaled $2.8 million for the six
months ended March 31, 2004 and related primarily to the acquisition of
property and equipment during the period.
Net cash provided by financing activities totaled $53.1 million and was
primarily related to current period net repayments of bank debt of $14.3
million and offset by the issuance of 2.5 million common shares with net
proceeds of $66.3 million.
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 we report our Consolidated Financial Statements in U.S. dollars,
approximately 74% of our sales are denominated in other currencies, primarily
the Euro, British pound, Swedish krona, Singapore dollar, Taiwanese dollar,
Korean won and Japanese yen. Net sales, costs and related assets and
liabilities of our operations are generally denominated in the functional
currencies of the relevant operating units, 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 U.S. dollars are accumulated as a separate component of equity.
The currency translation adjustment component of stockholders' equity had the
effect of increasing total equity to $10.6 million at March 31, 2004 as
compared to $6.7 million at September 30, 2003.
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, cost of goods sold, gross margin and selling,
general and administrative expenses, denominated in such foreign currencies
when translated into U.S. dollars as compared to prior periods.
- 19 -
Recent Accounting Pronouncements
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosure about Pensions and Other Postretirement Benefits - an amendment of
FASB Statements No. 87, 88 and 106". The statement requires employers to
provide additional disclosures regarding the assets, obligations, cash flows
and net periodic benefit cost of defined benefit pension plans and other
defined benefit postretirement plans. The new disclosure requirements were
effective for the Company beginning with the quarter ending March 31, 2004,
and are reflected in note 9.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 of the
consolidated financial statements and footnotes in our Annual Report on 10-K
for the fiscal year ended September 30, 2003. 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.
- 20 -
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.
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.
- 21 -
Ownership of Common Stock By Directors
The following table sets forth information as of March 31, 2004, 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 March 31, 2004 March 31, 2004
- ---------------- -------------- ----------------- -----------------
Peter Wirth 3,300 190,000 126,000
Gunther Braun -- 130,000 72,000
Carl F. Baasel 50,000 40,000 15,000
Walter Volkmar -- 57,000 9,000
Louis Molnar -- 63,000 10,000
William R. Hoover (1) 41,250 -- --
Ralph E. Reins (1) 17,000 -- --
Gary K. Willis (1) 17,000 -- --
Daniel Smoke (1) 3,000 -- --
(1) Outside, non-executive directors
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the six-month period ended March 31, 2004, 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, 2003.
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 March 31, 2004, the Company maintained a cash equivalents portfolio of
$84.2 million, consisting mainly of tax exempt 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.
At March 31, 2004, the Company had $27.4 million of six month adjusted
interest rate debt, $13.6 million of annually adjusted interest rate debt and
$19.1 million of fixed rate debt. 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.
- 22 -
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 March 31, 2004, the
Company held Japanese yen forward contracts with notional amounts of Euro 0.8
million and Euro forward exchange options with notional amounts of $4.5
million. A 10% change in currency exchange rates would result in a pre-tax
gain or loss of $0.5 million and $0.1 million, respectively. Additionally,
the Company entered into currency and interest swap agreements of notional
amounts Swiss Francs 40.4 million to minimize the interest on long-term
loans. As of March 31, 2004, an amount of Swiss Franc 33.6 million
(equivalent to $26.9 million based on the exchange rate at March 31, 2004)
was outstanding under this swap agreements. The gains or losses resulting
from a 10% change in currency exchange rates would result in an increase of
$1.9 million or a decrease of $1.4 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.
- 23 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have been and are likely to be involved from time to time in
litigation involving our intellectual property and ordinary routine
litigation arising in the ordinary course of business.
We are currently engaged in discussions with the licensor of patents
covering the technology used in certain of our CO2 lasers concerning
the amount of royalty due in respect to certain past sales and
future sales of such laser products. We believe that we will
achieve a resolution of this matter that will not have a material
adverse impact on our financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
- 24 -
(b) Reports on Form 8-K:
We furnished a Form 8-K on February 13, 2004, which contained
a copy of our press release announcing our first quarter
ended December 31, 2004 financial results.
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: May 14, 2004 /s/ Gunther Braun
---------------------------------
Gunther Braun
Executive Vice President,
Finance and Administration, and
Chief Financial Officer