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 December 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 [ ]
15,078,550 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of February 7, 2005.
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
December 31, 2004 and September 30, 2004 3
Condensed Consolidated Statements of Operations
Three months ended December 31, 2004 and 2003 4
Condensed Consolidated Statement of Stockholders'
Equity and Comprehensive Income
Three months ended December 31, 2004 and 2003 5
Condensed Consolidated Statements of Cash Flows
Three months ended December 31, 2004 and 2003 6
Notes to Condensed Consolidated Financial Statements 7
Item 2
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Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3
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Quantitative and Qualitative Disclosures about
Market Risk 20
Item 4
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Controls and Procedures 21
PART II OTHER INFORMATION 22
SIGNATURES 23
PART I. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
December 31, September 30,
2004 2004
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 97,487 $ 100,266
Accounts receivable, trade, net 76,967 80,314
Inventories (Note 3) 118,475 106,420
Other current assets and prepaid expenses 13,571 10,633
----------- ----------
Total current assets 306,500 297,633
Property and equipment, net 37,653 34,128
Goodwill, net (Note 5) 68,171 61,779
Other intangibles, net (Note 5) 17,583 18,069
Other assets 2,007 2,197
----------- ----------
Total assets $ 431,914 $ 413,806
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit and short term borrowings $ 35,648 $ 49,819
Accounts payable, trade 16,295 17,306
Accounts payable to related party 273 1,790
Accrued liabilities (Note 4) 64,205 65,178
----------- ----------
Total current liabilities 116,421 134,093
Long-term debt 15,850 4,983
Pension obligations 9,677 8,567
Minority interests 1,542 1,700
Other long-term liabilities 7,360 7,079
----------- ----------
Total liabilities 150,850 156,422
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, 15,072,450 (14,930,550 at
September 30, 2004) issued and outstanding 151 149
Additional paid-in-capital 160,903 158,777
Retained earnings 95,614 87,096
Accumulated other comprehensive income 24,396 11,362
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Total stockholders' equity 281,064 257,384
----------- ----------
Total liabilities and stockholders' equity $ 431,914 $ 413,806
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 3 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended December 31, 2004 and 2003
(dollars in thousands, except per share amounts)
Three Months
Ended December 31,
--------------------------
2004 2003
------------ ------------
Net sales $ 91,357 $ 71,058
Cost of goods sold 55,185 43,224
------------ ------------
Gross profit 36,172 27,834
Selling, general, and administrative expenses 16,859 13,978
Research and development expenses 5,784 5,027
Amortization expense 1,566 449
------------ ------------
Income from operations 11,963 8,380
Other expense (income):
Interest, net 198 584
Foreign currency gains ( 1,195) ( 875)
Other income ( 211) ( 182)
------------ ------------
Income before income taxes and minority
Interest 13,171 8,853
Income tax expense 4,589 3,385
------------ ------------
Income before minority interest 8,582 5,468
Minority interest 64 263
------------ ------------
Net income $ 8,518 $ 5,205
============ ============
Net income per common share (Note 8):
Basic $ 0.57 $ 0.43
Diluted $ 0.55 $ 0.41
============ ============
Weighted average shares used in computing
net income per common share (Note 8):
Basic 14,988,435 11,977,751
Diluted 15,525,647 12,544,575
============ ============
See accompanying notes to condensed consolidated financial statements
- 4 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and
Comprehensive Income (Unaudited)
Three months ended December 31, 2004 and 2003
(dollars in thousands)
Accumulated
Common Additional Other Total
Stock Paid-in Retained Comprehensive Stockholders'
Par Value Capital Earnings Income Equity
------------ ------------ ------------ ------------ ------------
BALANCES at September 30, 2004 $ 149 $ 158,777 $ 87,096 $ 11,362 $ 257,384
Comprehensive income:
Foreign currency translation adjustment -- -- -- 12,960 12,960
Fair value of interest swap agreement,
net of tax -- -- -- 74 74
Net income -- -- 8,518 -- 8,518
------------
Total comprehensive income 21,552
Common stock issued 2 2,126 -- -- 2,128
------------ ------------ ------------ ----------- ------------
BALANCES at December 31, 2004 $ 151 $ 160,903 $ 95,614 $ 24,396 $ 281,064
============ ============ ============ ============ ============
BALANCES at September 30, 2003 $ 119 $ 79,918 $ 54,666 $ 5,883 $ 140,586
Comprehensive income:
Foreign currency translation adjustment -- -- -- 6,359 6,359
Fair value of interest swap agreement,
net of tax -- -- -- 404 404
Net income -- -- 5,205 -- 5 205
------------
Total comprehensive income 11,968
Common stock issued 1 1,425 -- -- 1,426
------------ ------------ ------------ ----------- ------------
BALANCES at December 31, 2003 $ 120 $ 81,343 $ 59,871 $ 12,646 $ 153,980
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
- 5 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31, 2004 and 2003
(dollars in thousands)
Three Months
Ended December 31,
------------------------
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,518 $ 5,205
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in operating assets and liabilities ( 4,612) 4,556
Other adjustments 597 1,966
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Net cash provided by operating activities 4,503 11,727
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 101 37
Additions to property and equipment ( 1,858) ( 953)
Aquisition of business, net of cash acquired ( 1,178) --
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Net cash used in investing activities ( 2,935) ( 916)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 17,949 17,060
Repayment to banks ( 26,018) ( 32,286)
Proceeds from issuance of common stock 1,728 1,390
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Net cash used in financing activities ( 6,341) ( 13,836)
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Effect of foreign currency translation on cash
and cash equivalents 1,994 1,931
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Net decrease in cash and cash equivalents ( 2,779) ( 1,094)
Cash and cash equivalents at beginning of period 100,266 44,487
---------- ----------
Cash and cash equivalents at end of period $ 97,487 $ 43,393
========== ==========
See accompanying notes to condensed consolidated financial statements
- 6 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
1. Summary of Accounting Policies
The accompanying condensed consolidated 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, 2004,
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.
2. Acquisitions
On February 28, 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") for cash.
On August 20, 2004 the Company acquired an additional 15% of the share capital
of Dilas Diodenlaser GmbH, Mainz, Germany, through its wholly-owned subsidiary
RSTE. The Company currently holds 95% of the share capital.
On August 31, 2004, the Company acquired 100% of the share capital of PRC
Laser Corporation based in Landing, New Jersey (including its wholly-owned
European subsidiary PRC Europe N.V., Oudenaarde, Belgium) and Lee Laser, Inc.
based in Orlando, Florida.
Effective December 5, 2004, the Company purchased an additional 5% of the
share capital of Rofin-Sinar U.K. Ltd. through RSTE under an option agreement
between the Company and the former minority shareholders. The Company
currently holds 76% of the share capital. This purchase resulted in goodwill
of $0.6 million.
- 7 -
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:
December 31, September 30,
2004 2004
------------ ------------
Finished goods $ 15,669 $ 14,147
Work in progress 29,802 26,659
Raw materials and supplies 42,891 38,804
Demonstration inventory 10,239 9,525
Service parts 19,874 17,285
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Total inventories $ 118,475 $ 106,420
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4. Accrued Liabilities
Accrued liabilities are comprised of the following:
December 31, September 30,
2004 2004
----------- -----------
Employee compensation $ 12,995 $ 14,308
Warranty reserve 13,329 13,375
Customer deposits 11,050 11,313
Income taxes payable 10,631 9,307
Other 16,200 16,875
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Total accrued liabilities $ 64,205 $ 65,178
=========== ===========
5. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the three-month period
ended December 31, 2004 are as follows:
United Rest of
Germany States World Total
---------- ---------- ---------- ----------
Balance as of
September 30, 2004 $ 39,390 $ 9,506 $ 12,883 $ 61,779
Additional goodwill from
Acquisition -- 289 655 944
Currency exchange difference 3,818 291 1,339 5,448
---------- ---------- ---------- ----------
Balance as of
December 31, 2004 $ 43,208 $ 10,086 $ 14,877 $ 68,171
========== ========== ========== ==========
- 8 -
The carrying value of other intangible assets are as follows:
December 31, 2004 September 30, 2004
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 8,189 $ 2,017 $ 7,421 $ 1,698
Customer base 14,433 5,035 13,655 3,943
Other 3,805 1,792 3,668 1,034
---------- ---------- ---------- ----------
Total $ 26,427 $ 8,844 $ 24,744 $ 6,675
========== ========== ========== ==========
Amortization expense for the three-month periods ended December 31, 2004 and
2003 was $1.6 million and $0.4 million, respectively. At December 31, 2004,
estimated amortization expense for the remainder of fiscal 2005 and the next
five fiscal years based on the average exchange rates as of December 31,
2004, are as follows:
2005 (remainder) $ 3.7 million
2006 3.5 million
2007 2.8 million
2008 2.1 million
2009 2.0 million
2010 0.7 million
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 three-month periods
ended December 31, 2004 and 2003 are as follows:
2004 2003
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Balance at September 30, $ 13,375 $ 10,528
Additional accruals for warranties
during the period 488 2,281
Usage during the period ( 1,689) ( 1,359)
Currency translation 1,155 651
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Balance at December 31, $ 13,329 $ 12,101
=========== ===========
- 9 -
7. Stock Based Compensation
The following table illustrates the pro forma effect on net income and net
income per common share as if the fair value based method of SFAS No. 123 had
been applied to all outstanding and unvested awards in each period:
Three Months Ended
December 31,
----------------------
2004 2003
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Net income - as reported $ 8,518 $ 5,205
Deduct: Total stock-based
employee compensation
expense determined under
the fair value based
method for all awards, net
of related tax effects 281 225
---------- ----------
Pro forma net income $ 8,237 $ 4,980
========== ==========
Earnings per share:
Basic - as reported $ 0.57 $ 0.43
Basic - pro forma $ 0.55 $ 0.42
Diluted - as reported $ 0.55 $ 0.41
Diluted - pro forma $ 0.53 $ 0.40
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
December 31,
----------------------
2004 2003
---------- ----------
Weighted average number of
shares for BASIC net income
per common share 14,988,435 11,977,751
Potential additional shares
due to outstanding dilutive
stock options 537,212 566,824
---------- ----------
Weighted average number of
shares for DILUTED net
income per common share 15,525,647 12,544,575
========== ==========
- 10 -
Excluded from the calculation of diluted EPS for the three-month period ended
December 31, 2004, were 350,500 outstanding stock options. These options could
potentially dilute future EPS calculations but were not included in the current
period because their effect would have been antidilutive. There were no shares
excluded from the calculation of diluted EPS for the three-month period ended
December 31, 2003.
9. Defined Benefit Plans
Components of net periodic cost were as follows for the three-month periods
ended December 31, 2004 and 2003:
PENSION PLANS
----------------------
Three Months Ended
December 31,
----------------------
2004 2003
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Service cost $ 143 $ 140
Interest cost 173 158
Expected return on plan assets ( 68) ( 49)
Amortization of net loss 16 16
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Net periodic benefit cost $ 264 $ 265
========== ==========
OTHER
POSTRETIREMENT BENEFITS
----------------------
Three Months Ended
December 31,
----------------------
2004 2003
---------- ----------
Service cost $ -- $ 40
Interest cost -- 1
---------- ----------
Net periodic benefit cost $ -- $ 41
========== ==========
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.
- 11 -
Assets, revenues and income before taxes and minority interest, by geographic
region are summarized below:
December 31, September 30,
2004 2004
(Unaudited) (Audited)
---------- ----------
ASSETS
United States $ 184,504 $ 179,741
Germany 248,811 237,044
Other 146,889 132,809
Intercompany eliminations ( 148,290) ( 135,788)
---------- ----------
Total assets $ 431,914 $ 413,806
========== ==========
REVENUES
Three Months Ended
December 31,
--------------------------
2004 2003
---------- -----------
United States $ 28,995 $ 15,180
Germany 71,009 65,277
Other 28,240 23,045
Intercompany eliminations ( 36,887) ( 32,444)
---------- -----------
$ 91,357 $ 71,058
========== ===========
INTERCOMPANY REVENUES
Three Months Ended
December 31,
--------------------------
2004 2003
---------- ----------
United States $ 622 $ 994
Germany 31,013 25,957
Other 5,252 5,493
Intercompany eliminations ( 36,887) ( 32,444)
---------- -----------
$ -- $ --
========== ===========
- 12 -
EXTERNAL REVENUES
Three Months Ended
December 31,
--------------------------
2004 2003
---------- ----------
United States $ 28,373 $ 14,186
Germany 39,996 39,320
Other 22,988 17,552
---------- ----------
$ 91,357 $ 71,058
========== ==========
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
Three Months Ended
December 31,
--------------------------
2004 2003
---------- ----------
United States $ 3,976 $ 1,994
Germany 9,387 7,160
Other 1,872 1,507
Intercompany eliminations ( 2,064) ( 1,808)
---------- ----------
$ 13,171 $ 8,853
========== ==========
- 13 -
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
and 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 first quarter of fiscal years 2005 and 2004 respectively, we
realized approximately 54% and 51% of revenues from the sale and servicing of
laser products for macro applications and approximately 46% and 49% from the
sale and servicing of laser products for marking and micro applications.
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. This quarter $1.5 million was recognized for the last time,
related to a technical license agreement. In the marking and micro business,
as anticipated, management sees some softening of the demand in the
semiconductor sector, but the Company does not consider it an indication of a
deepening downward trend. The Company believes that its large product
portfolio and broad technology base should help mitigate a worsening of
business conditions in a single industrial or geographical market in the
future. Management will continue to invest in increasing its sales and
service activities in Asia.
- 14 -
At December 31, 2004, Rofin-Sinar had 1,397 employees compared to 1,204
employees at December 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
Ended December 31,
----------------------
2004 2003
---------- ----------
Net sales 100% 100%
Cost of goods sold 60% 61%
Gross profit 40% 39%
Selling, general and
administrative expenses 19% 20%
Research and development expenses 6% 7%
Intangibles amortization 2% 0%
Income from operations 13% 12%
Income before income taxes
and minority interest 14% 12%
Net income 9% 7%
Net Sales - Net sales of $91.4 million represent an increase of $20.3 million
or 29% for the three months ended December 31, 2004, as compared to the
corresponding period in fiscal 2004. The increase resulted from a net sales
increase of $6.1 million, or 11%, in Europe/Asia and an increase of $14.2
million, or 100%, in the United States, compared to the corresponding period
in fiscal 2004. Fluctuations in the U.S. dollar against foreign currencies,
primarily against the Euro, had a favorable effect on net sales of $4.9
million for the three-month period ended December 31, 2004. Net sales of
laser products for macro applications for the three-month period increased by
36% to $49.2 million as compared to the corresponding periods of fiscal 2004.
12% of this increase represents the revenue recognized on a technical license
agreement, 39% of the increase was due to the contribution of PRC Laser,
which was acquired at the end of August 2004, and the remaining increase was
primarily due to higher demand for our lasers for macro applications. Net
sales of lasers for marking and micro applications increased by 21% to $42.2
million for the three months ended December 31, 2004 as compared to the
corresponding periods in fiscal 2004. 52% of the increase in sales of lasers
for micro applications can be attributed to the contribution from Lee Laser,
which was acquired at the end of August 2004, and increased demand for our
StarScribe product series.
- 15 -
Gross Profit - Our gross profit of $36.2 million for the three months ended
December 31, 2004 represents an increase of $8.3 million (30%) from the
corresponding period of fiscal year 2004. As a percentage of sales compared
to the corresponding three-month period of fiscal year 2004, gross profit
increased from 39% to 40%. The high percentage margin was primarily a result
of the favorable product mix and revenues from a technical license agreement.
Gross profit was favorably affected by $1.2 million for the three-month
period ended December 31, 2004 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 $16.9 million increased $2.9 million (21%)
for the three-month period ended December 31, 2004, compared to the
corresponding period of fiscal 2004, primarily due to costs incurred at our
newly acquired businesses, PRC and Lee Lasers, and increased sales activities
world wide. SG&A, a significant portion of which is incurred in foreign
currencies, was unfavorably affected by $0.9 million for the three-month
period ended December 31, 2004 due to the fluctuations of the U.S. dollar
against foreign currencies, primarily the Euro.
Research and Development - The Company spent net $5.8 million on research and
development (R&D) during the three-month period ended December 31, 2004.
This represents an increase of 15% for the three-month period ended December
31, 2004, compared to the corresponding period of the prior year and is
mainly attributed to costs incurred at our newly acquired businesses, PRC and
Lee Lasers. Gross research and development expenses for the three-month
period ended December 31, 2004 and December 31, 2003 were $5.9 million and
$5.3 million, respectively, and were reduced by $0.1 million and $0.3 million
of government grants during each respective period. R&D, a significant
portion of which is conducted in Europe, and therefore incurred in foreign
currencies, was unfavorably affected by $0.4 million for the three-month
period in fiscal 2005, due to the fluctuations of the U.S. dollar against
foreign currencies, primarily the Euro.
Amortization expense - Amortization expense for the three-month period ended
December 31, 2004 amounted to $1.6 million. This was an increase of $1.2
million when compared to the same period of fiscal year 2004 due to the
amortization of the intangibles acquired from the acquisition of PRC and Lee
Laser.
Other Expense (Income) - Net other income of $(1.2) million for the three-
month period ended December 31, 2004 represents an increase of $0.7 million
compared to net other income of $(0.5) million in the corresponding period of
the prior year. The fluctuation in the three-month period is primarily
attributable to higher unrealized and realized exchange gains ($1.2 million)
resulting from certain intercompany indebtedness and reduced ($0.4 million)
net interest expenses.
Income Tax Expense - Income tax expense of $4.6 million for the three-month
period ended December 31, 2004 represents an effective tax rate of 35%,
compared to 38% for the corresponding period of the prior year. Income tax
expense, a significant portion of which is incurred in foreign currencies,
was unfavorably affected by $0.3 million for the three-month period ended
December 31, 2004 due to the fluctuations of the U.S. dollar against foreign
currencies, primarily the Euro.
- 16 -
Net Income - As a result of the foregoing factors, the Company realized
consolidated net income of $8.5 million for the three-month period ended
December 31, 2004, which represents an increase of $3.3 million from the
corresponding period in fiscal 2004. For the three-month period ended
December 31, 2004, basic and diluted net income per common share equaled
$0.57 and $0.55, respectively, based upon a weighted average of 15.0 million
and 15.5 million common shares outstanding, as compared to basic and diluted
net income per common share of $0.43 and $0.41 for the three-month period
ended December 31, 2003, respectively, based upon a weighted average of 12.0
million and 12.5 million common shares outstanding.
Liquidity and Capital Resources
The Company's primary sources of liquidity at December 31, 2004 were cash and
cash equivalents of $97.5 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
$58.9 million (translated at the applicable exchange rate at December 31,
2004). As of December 31, 2004, $6.9 million (which is due in the short
term) was outstanding under the Deutsche Bank facility and $21.0 million (of
which $5.1 million is due in the short term) under other lines of credit.
Approximately $56.0 million is unused and available under the Company's bank
facility and lines of credit at December 31, 2004. The Company has financial
covenants, which could restrict the Company from drawing money under these
lines of credit. At December 31, 2004, the Company is in compliance with
these covenants.
Additionally, the Company has outstanding 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
December 31, 2004, $23.6 million was outstanding under this credit agreement.
Based on its maturity, it has been included in the caption "line of credit
and short term borrowings" in the accompanying consolidated balance sheet.
Cash and cash equivalents decreased by $2.8 million during the three months
ended December 31, 2004. Approximately $4.5 million in cash and cash
equivalents were provided by operating activities, primarily as the result of
improved net income and other non-cash items, principally depreciation and
amortization. Operating cash flow was negatively affected by a decrease in
accrued liabilities and an increase in inventory, offset by a decrease in
accounts receivable.
Uses of cash from investing activities totaled $2.9 million for the three-
month period ended December 31, 2004 and related primarily to the purchase of
property and equipment and the Company's acquisition of minority
shareholdings in subsidiaries during the period.
Net cash used in financing activities totaled $6.3 million and was primarily
related to current period repayments of bank debt of $26.0 million, offset
with new borrowings from banks of $17.9 million. This use of cash was offset
by an increase in stockholders' equity of $1.7 million related to the
issuance of additional common stock through the exercise of stock options.
- 17 -
Management believes that the cash flow from operations, along with existing
cash and cash equivalents and availability under the credit facilities and
lines of credit, will provide adequate resources to meet both our capital
requirements and operational needs on both a short and long term basis.
Currency Exchange Rate Fluctuations
Although we report our Consolidated Financial Statements in U.S. dollars,
approximately 66% of our sales have been 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 by $24.6 million at December 31, 2004 as
compared to $13.1 million at December 31, 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.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 of our
consolidated financial statements in our Annual Report on 10-K for the fiscal
year ended September 30, 2004. 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.
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Inventory Valuation
Inventories are stated at the lower of cost or market, after provisions
for excess and obsolete inventory salable at prices below cost.
Provisions 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 provisions 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
provisions 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.
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.
- 19 -
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.
Ownership of Common Stock By Directors
The following table sets forth information as of December 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 December 31, 2004 December 31, 2004
- ---------------- -------------- ----------------- -----------------
Peter Wirth 3,300 210,000 112,000
Gunther Braun -- 150,000 62,000
Carl F. Baasel 19,000 60,000 17,000
William R. Hoover (1) 42,000 -- --
Ralph E. Reins (1) 18,500 -- --
Gary K. Willis (1) 18,500 -- --
Daniel Smoke (1) 4,950 -- --
(1) Outside, non-executive directors
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the period ended December 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, 2004.
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.
- 20 -
Interest Rate Sensitivity
As of December 31, 2004, the Company maintained a cash equivalents portfolio
of $97.5 million, consisting mainly of non-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 approximately $0.2 million.
At December 31, 2004, the Company had $24.7 million of variable rate debt on
which the interest rate is reset every six months, $6.9 million of variable
rate debt on which the interest rate is set annually and $19.9 million of
fixed rate debt. Maturities of this debt are as follows: $32.4 million is
due in 2005, $7.9 million is due in 2006, $4.1 million is due in 2007, $3.7
million in due in 2008, and $3.4 million is due in 2009. 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 $0.1 million.
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 December 31, 2004,
the Company held no forward exchange options. Additionally, the Company
entered into currency and interest swap agreements of total notional amount
40.4 million Swiss Franc to minimize the interest expense on short and long-
term debt. As of December 31, 2004, an amount of 26.7 million Swiss Franc
(equivalent to $23.6 million based on the exchange rate at December 31, 2004)
was outstanding under these swap agreements. The gains or losses resulting
from a 10% change in currency exchange rates would result in an increase of
$1.4 million or a decrease of $1.5 million of net income after tax.
Item 4. Controls and Procedures
As of the end of the 90-day period covered by 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-
15(e) and 15d-15(e) 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.
- 21 -
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 have not been changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
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.
The licensor of patents covering the technology used in certain of
the Company's CO2 lasers has asserted that the Company has
calculated royalties due in respect of certain sales of such CO2
lasers in a manner that is not consistent with the applicable
license agreement. In addition, the licensor claims that it has not
been provided with copies of invoices and other documentation
relating to such sales, to which it asserts it is entitled under the
license agreement. The Company disputes these and related
allegations and believes that it is in compliance with its
obligations under the license agreement. The Company is currently
in discussions with the licensor in order to resolve these
disagreements. Management believes that it will achieve a
resolution of this matter that will not have a material adverse
impact on the Company's financial condition or results of
operations.
Item 2. Unregistered Sales of Equity 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.
- 22 -
Item 6. 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
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: February 9, 2005 /s/ Gunther Braun
---------------------------------
Gunther Braun
Executive Vice President,
Finance and Administration, and
Chief Financial Officer