Attached files
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 June 30, 2010
[ ] 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 has submitted electronically
and posted in its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [ ] / No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer", "accelerated filer"
and "Smaller Reporting Company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell Company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] / No [X]
28,267,496 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of August 6, 2010.
ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
----------------------------------------------- ----------
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2010 and September 30, 2009 4
Condensed Consolidated Statements of Operations
Three months and nine months ended
June 30, 2010 and 2009 6
Condensed Consolidated Statement of Stockholders'
Equity and Comprehensive Income
Nine months ended June 30, 2010 and 2009 7
Condensed Consolidated Statements of Cash Flows
Nine months ended June 30, 2010 and 2009 9
Notes to Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 23
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 31
Item 4 - Controls and Procedures 32
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 33
Item 1A - Risk Factors 33
Item 2 - Unregistered Sales of Equity Securities
and Use of Proceeds 34
Item 3 - Defaults Upon Senior Securities 34
Item 4 - Removed and Reserved 34
Item 5 - Other Information 34
Item 6 - Exhibits 34
SIGNATURES 35
PART I. ITEM 1. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands, except per share amounts)
June 30, September 30,
2010 2009
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 120,683 $ 116,128
Short-term investments 0 2,856
Accounts receivable, net of allowance for
doubtful accounts of $2,985 and $3,533,
respectively 78,498 79,357
Inventories, net (Note 4) 132,575 136,448
Other current assets and prepaid expenses 22,090 20,126
----------- ----------
Total current assets 353,846 354,915
Long-term investments (Note 5) 4,950 9,350
Property and equipment, net 48,259 55,735
Goodwill (Note 6) 83,436 93,790
Other intangibles, net (Note 6) 9,670 11,177
Other assets 13,072 14,540
----------- ----------
Total assets $ 513,233 $ 539,507
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit and short-term borrowings $ 16,426 $ 18,983
Accounts payable, trade 21,457 13,146
Accounts payable to related party 596 551
Accrued liabilities (Note 7) 60,916 47,956
----------- ----------
Total current liabilities 99,395 80,636
Long-term debt 15,047 12,426
Pension obligations 15,768 17,097
Other long-term liabilities 6,824 7,654
----------- ----------
Total liabilities 137,034 117,813
- 4 -
PART I. ITEM 1. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited), Continued
(dollars in thousands, except per share amounts)
Stockholders' equity
Preferred stock, 5,000,000 shares authorized,
none issued or outstanding -- --
Common stock, $0.01 par value, 50,000,000 shares
authorized, 31,950,800 (31,749,400 at September
30, 2009) issued 320 318
Additional paid-in-capital 203,706 196,185
Retained earnings 321,560 303,651
Accumulated other comprehensive income (13,622) 38,176
Treasury shares, at cost, 3,683,504 shares
(2,829,581 at September 30, 2009)(Note 10) (139,453) ( 119,996)
----------- ----------
Total Rofin-Sinar Technologies Inc.
stockholders' equity 372,511 418,334
Noncontrolling interest in subsidiaries 3,688 3,360
----------- ----------
Total stockholders' equity 376,199 421,694
----------- ----------
Total liabilities and stockholders' equity $ 513,233 $ 539,507
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 5 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended June 30, 2010 and 2009
(dollars in thousands, except per share amounts)
Three Months Nine Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Net sales $ 110,308 $ 76,565 $ 299,216 $ 259,120
Cost of goods sold 67,446 50,004 183,274 161,879
---------- ---------- ---------- ----------
Gross profit 42,862 26,561 115,942 97,241
Selling, general, and
administrative expenses 22,703 21,913 67,679 67,503
Research and development expenses 7,616 8,763 23,160 24,751
Amortization expense 530 973 1,708 2,672
---------- ---------- ---------- ----------
Income (Loss) from
operations 12,013 ( 5,088) 23,395 2,315
Other (income) expense:
Interest income ( 190) ( 257) ( 482) ( 1,218)
Interest expense 164 315 750 1,357
Foreign currency (income) loss ( 2,467) 581 ( 3,681) ( 4,585)
Other income ( 188) ( 81) ( 692) ( 216)
---------- ---------- ---------- ----------
Income (Loss) before
income tax 14,694 ( 5,646) 27,500 6,977
Income tax expense (benefit) 4,907 ( 798) 9,263 2,840
---------- ---------- ---------- ----------
Net income (loss) 9,787 ( 4,848) 18,237 4,137
Less: Net income attributable
to the noncontrolling
interest 119 52 328 225
---------- ---------- ---------- ----------
Net income (loss)
attributable to RSTI $ 9,668 $( 4,900) $ 17,909 $ 3,912
========== ========== ========== ==========
Net income (loss) attributable to RSTI (Note 12)
Per share of Common Stock Basic $ 0.34 $ ( 0.17) $ 0.62 $ 0.14
Per share of Common Stock
Diluted $ 0.33 $ ( 0.17) $ 0.61 $ 0.14
========== ========== ========== ==========
Weighted-average shares used in computing
earnings per share (Note 12):
Basic 28,845,983 28,911,278 28,989,113 28,910,318
Diluted 29,267,367 28,911,278 29,403,315 28,910,318
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements
- 6 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and Comprehensive Income (Unaudited)
Nine months ended June 30, 2010 and 2009
(dollars in thousands)
Common Accumulated Rofin-Sinar
Stock Additional Other Technologies Non- Total
Par Paid-in Retained Comprehensive Treasury Stockholders' controlling Stockholders'
Value Capital Earnings Income Stock Equity Interests Equity
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
September 30, 2009 $ 318 $ 196,185 $ 303,651 $ 38,176 $(119,996) $ 418,334 $ 3,360 $ 421,694
Comprehensive income:
Fair value of interest
swap agreement -- -- -- 25 -- 25 -- 25
Foreign currency
translation
adjustment -- -- -- (51,823) -- (51,823) -- (51,823)
Net income -- -- 17,909 -- 17,909 328 18,237
------------- ----------- -------------
Total comprehensive income
(loss) (33,889) 328 (33,561)
Common stock issued for
stock incentive plans 2 7,521 -- -- -- 7,523 -- 7,523
Treasury stock purchases,
at cost -- -- -- -- (19,457) (19,457) -- (19,457)
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
June 30, 2010 $ 320 $ 203,706 $ 321,560 $ (13,622) $(139,453) $ 372,511 $ 3,688 $ 376,199
======= ========== ========== ============ ========== ============= =========== =============
- 7 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and Comprehensive Income (Unaudited)
Nine months ended June 30, 2010 and 2009
(dollars in thousands)
Common Accumulated Rofin-Sinar
Stock Additional Other Technologies Non- Total
Par Paid-in Retained Comprehensive Treasury Stockholders' controlling Stockholders'
Value Capital Earnings Income Stock Equity Interests Equity
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
September 30, 2008 $ 317 $ 189,091 $ 294,488 $ 38,358 $(119,996) $ 402,258 $ 2,287 $ 404,545
Comprehensive income:
Fair value of interest
swap agreement -- -- -- ( 208) -- ( 208) -- ( 208)
Foreign currency
translation
adjustment -- -- -- ( 8,022) -- ( 8,022) -- ( 8,022)
Net income -- -- 3,912 -- -- 3,912 225 4,137
------------- ----------- -------------
Total comprehensive income
(loss) ( 4,318) 225 ( 4,093)
Acquisition of NELC 803 803
Common stock issued for
stock incentive plans 1 5,488 -- -- -- 5,489 -- 5,489
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
June 30, 2009 $ 318 $ 194,579 $ 298,400 $ 30,128 $(119,996) $ 403,429 $ 3,315 $ 406,744
======= ========== ========== ============ ========== ============= =========== =============
See accompanying notes to condensed consolidated financial statements
- 8 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2010 and 2009
(dollars in thousands)
Nine Months
Ended June 30,
------------------------
2010 2009
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Note 2) $ 18,237 $ 4,137
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,710 9,616
Stock-based compensation expenses 4,259 4,598
Other adjustments ( 1,721) ( 1,354)
Change in operating assets and liabilities:
Accounts receivable, trade ( 9,205) 44,685
Inventories ( 13,894) 14,150
Accounts payable 10,313 ( 8,643)
Changes in other operating assets and liabilities 18,244 ( 22,146)
----------- -----------
Net cash provided by operating activities 34,943 45,043
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 197 171
Additions to property and equipment ( 5,467) ( 5,953)
Purchases of short-term investments ( 2,960) ( 2,161)
Sales of short-term and long-term investments 10,108 5,612
Acquisition of businesses, net of cash acquired ( 1,400) ( 12,292)
---------- ----------
Net cash provided by (used in)
investing activities 478 ( 14,623)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 28,731 11,188
Repayments to banks ( 25,681) ( 37,782)
Issuance of common stock 3,001 61
Excess tax benefit from stock options 4 464
Purchases of treasury stock ( 19,457) --
---------- ----------
Net cash used in financing activities ( 13,402) ( 26,069)
---------- ----------
Effect of foreign currency translation on cash ( 17,464) ( 2,215)
---------- ----------
Net increase (decrease) in cash and cash equivalents 4,555 2,136
Cash and cash equivalents at beginning of period 116,128 114,486
---------- ----------
Cash and cash equivalents at end of period $120,683 $116,622
========== ==========
Cash paid for interest $ 712 $ 1,254
Cash paid for taxes $ 3,655 $ 12,599
See accompanying notes to condensed consolidated financial statements
- 9 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
1. Basis of Presentation
The accompanying unaudited, condensed and consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial reporting, and
with instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, the financial statements for interim reporting do not include
all of the information and notes or disclosures required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and such
adjustments are of a normal recurring nature. Results for interim periods
should not be considered indicative of results for a full year. The
September 30, 2009, condensed consolidated balance sheet was derived from
audited financial statements but does not include all disclosures required by
accounting principles generally accepted in the United States of America.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2009, as filed with the Securities and
Exchange Commission on November 25, 2009.
Effective October 1, 2009, we began presenting gains and losses resulting
from the remeasurement of foreign currency transactions as a component of
"Other (Income) Expense". Prior to October 1, 2009, we included gains and
losses resulting from the remeasurement of foreign currency transactions as a
component of cost of sales and sales and marketing expense. We changed our
presentation because this better reflects how we manage these foreign
currency exposures, as such gains and losses arising from the remeasurement
of foreign currency transactions are incidental to our operations. Prior
period amounts have been recast to conform to the current period presentation
as follows: $0.1 million net exchanges gains and 1.2 million net exchange
losses for the three-month period and $3.7 million net exchange losses and
$4.8 million of net exchange gains for the nine-month period ended June 30,
2009, were reclassified to "Other Income" from "Cost of Goods Sold" and
"SG&A" expenses, respectively.
2. New Accounting Pronouncements
The Financial Accounting Standards Board modified the hierarchy of Generally
Accepted Accounting Principles, which identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with Generally Accepted Accounting Principles in the
United States (the GAAP hierarchy). The new Accounting Standards Codification
(ASC) became the single source of authoritative nongovernmental U.S.
Generally Accepted Accounting Principles. The ASC became effective for
interim and annual periods ending after September 15, 2009, and did not have
an impact on the Company's consolidated financial statements other than
changing the references to authoritative accounting literature.
- 10 -
In June 2008, ASC Topic 260, "Earnings Per Share", was amended to require
that unvested share-based payment awards that contain nonforfeitable rights
to dividends or dividend equivalents (whether paid or unpaid) be treated as
participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. This amendment became effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those years, and requires that all prior
period earnings per share data presented (including interim financial
statements, summaries of earnings and selected financial data) be adjusted
retrospectively to conform to its provisions. This topic became effective
October 1, 2009, and had no impact on our consolidated financial statements.
In April 2008, ASC Topic 350, "Intangibles - Goodwill and Other", was amended
to include a list of factors an entity should consider in developing renewal
or extension assumptions used in determining the useful life of recognized
intangible assets. The new guidance applies to (1) intangible assets that
are acquired individually or with a group of other assets and (2) intangible
assets acquired in both business combinations and asset acquisitions. Under
this amendment, entities estimating the useful life of a recognized
intangible asset must consider their historical experience in renewing or
extending similar arrangements or, in the absence of historical experience,
must consider assumptions that market participants would use about renewal or
extension. This amendment will require certain additional disclosures
beginning October 1, 2009, and prospective application to useful life
estimates prospectively for intangible assets acquired after September 30,
2009. This topic became effective October 1, 2009, and did not have a
material impact on the Company's consolidated financial statements.
In February 2008, ASC Topic 820, "Fair Value Measurements and Disclosures",
was amended to defer the effective date of fair value measurements for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in an entity's financial statements on
a recurring basis (at least annually). The Company adopted the guidance for
the first quarter of fiscal year 2010. The adoption did not have a material
impact on our consolidated financial statements.
In December 2007, ASC Topic 805, "Business Combinations", was amended to
retain the fundamental requirements of the original topic requiring that the
purchase method be used for all business combinations. Topic 805 defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination, establishes the acquisition date as the date that the
acquirer achieves control and requires the acquirer to recognize the assets
acquired, liabilities assumed and any noncontrolling interest at their fair
values as of the acquisition date. In addition, this amendment requires
expensing of acquisition-related and restructure-related costs, measurement
of earn out provisions at fair value, measurement of equity securities issued
for purchase at the date of close of the transaction and capitalization of
in-process research and development related intangibles. This amendment is
effective for the Company's business combinations for which the acquisition
date is on or after October 1, 2009.
- 11 -
In December 2007, ASC Topic 810, "Consolidation", was amended to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. We adopted this
amendment on October 1, 2009, and have retrospectively revised the condensed
consolidated financial statement presentation (including the statements of
cash flows) of our noncontrolling interest accordingly.
In December 2008, the FASB amended ASC Topic 715 "Compensation - retirement
benefits", which provides guidance for employers' disclosures about
postretirement benefit plan assets. This new guidance requires annual
disclosure about the assets held in postretirement benefit plans, including a
breakdown by the level of the assets and a reconciliation of any change in
Level 3 assets during the year. It requires disclosures about investment
policies and strategies, asset categories, inputs and valuation techniques
used to measure the fair value of plan assets, and significant concentrations
of risk within plan assets. This new guidance is effective for annual
periods ending after December 15, 2009, and we will revise our disclosures
accordingly.
In June 2009, ASC Topic 810 was amended to improve financial reporting by
enterprises involved with variable interest entities. This topic addresses
(1) the effects on certain provisions regarding the consolidation of variable
interest entities, as a result of the elimination of the qualifying special-
purpose entity concept in ASC Topic 860 regarding the accounting for
transfers of financial assets, and (2) concern about the application of
certain key provisions of FASB Interpretation No. 46(R), including those in
which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprise's involvement in a
variable interest entity. This statement is effective as of the beginning of
each reporting entity's first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. The adoption of this statement is not expected to
have a material effect on the Company's consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update ("ASU") No.
2009-13, "Multiple-Deliverable Revenue Arrangements" ("ASU 2009-13") and ASU
No. 2009-14, "Certain Revenue Arrangements That Include Software Elements"
("ASU 2009-14"). ASU 2009-13 addresses the accounting for multiple-
deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined unit. ASU 2009-
14 changes the accounting model for revenue arrangements that include both
tangible products and software elements. Tangible products containing
software components and nonsoftware components that function together to
deliver the tangible product's essential functionality is no longer within
the scope of the software revenue guidance of ASC 985-605. These amendments
will be effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. The Company is currently assessing the impact
the adoption of ASU 2009-13 and ASU 2009-14 may have on its consolidated
financial statements.
- 12 -
In January 2010, the FASB issued ASU No. 2010-06, "Fair Value Measurements
and Disclosures" ("ASU 2010-06")which provides amendments to Subtopic 820-10
that require new disclosures regarding (1) transfers in and out of Levels 1
and 2 fair value measurements and (2) activity in Level 3 fair value
measurements. Additionally, ASU 2010-06 clarifies existing fair value
disclosures about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. The guidance in ASU 2010-06 became
effective for the Company's second quarter of fiscal year 2010 and the
disclosures required by this adoption are included in Note 3 "Fair Value
Measurements", except for disclosures about purchases, sales, issuances, and
settlements in the roll forward activity in Level 3 fair value measurements
which are effective for fiscal years beginning after December 15, 2010, and
for interim periods within those fiscal years. The Company is currently
assessing the impact the adoption of level 3 disclosures of ASU 2010-06 may
have on its consolidated financial statements.
In February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events (Topic
855)" ("ASU 2010-09") which provides an update to Topic 855, "Subsequent
Events". This update clarifies that an SEC filer is required to evaluate
subsequent events through the date that the financial statements are issued
and removes the requirement for SEC filers to disclose the date through which
subsequent events have been evaluated. This guidance became effective upon
issuance and has been adopted by the Company.
In April 2010, the FASB issued ASU No. 2010-17, "Revenue Recognition -
Milestone Method (Topic 605)" ("ASU 2010-17") which provides guidance on
defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research and development
transactions. This guidance is effective on a prospective basis for
milestones achieved in fiscal years, and interim periods within those years,
beginning on or after June 15, 2010. The Company is currently assessing the
impact the adoption of this ASU may have on its consolidated financial
statements.
3. Fair Value Measurements
ASC Topic 820 "Fair value measurement and Disclosures" establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. ASC 820 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability (an exit price) in an
orderly transaction between market participants at the reporting date. The
standard establishes a three-tier hierarchy, which prioritizes the inputs
used in the valuation methodologies in measuring fair value:
* Level 1 - Unadjusted observable quoted prices for identical instruments
in active markets.
* Level 2 - Observable inputs other than those included in Level 1. For
example, quoted prices for similar assets or liabilities in active
markets or quoted prices for identical assets or liabilities in inactive
markets.
* Level 3 - Unobservable inputs reflecting management's own assumptions
about the inputs used in pricing the asset or liability.
- 13 -
Our derivative financial assets and liabilities consist of interest rate
swaps and currency forward contracts. The fair value measurement of
derivatives is based upon Level 2 inputs consisting of observable current
market data as applicable to determine market rates of similar assets and
liabilities. Many of our derivative contracts are valued utilizing publicly
available pricing data of contracts with similar terms. In other cases, the
contracts are valued using current spot market data adjusted for the
appropriate current forward curves provided by external financial
institutions. We enter into hedging transactions with banking institutions
that have strong credit ratings, and thus the credit risk associated with
these contracts is not considered significant.
Financial assets and liabilities measured at fair value on a recurring basis
as of June 30, 2010, are classified on the valuation technique level in the
table below:
Fair Value Measurements
-----------------------------------------------
Total Level 1 Level 2 Level 3
-------- --------- --------- ---------
Cash and cash equivalents $120,683 $120,683 $ -- $ --
Derivatives ( 138) -- ( 138) --
Non-current auction rate
securities (Note 5) 4,950 -- -- 4,950
-------- --------- --------- ---------
Total assets at fair value $125,495 $120,683 $( 138) $ 4,950
======== ========= ========= =========
The changes in the fair value of our non-current auction rate securities
measured using significant unobservable inputs (level 3) for the nine-month
period ended June 30, 2010, are as follows:
Fair Value Measurements
Using Significant Unobservable
Inputs (Level 3)
------------------------------
September 30, 2009 $ 9,350
Settlements ( 4,400)
----------
June 30, 2010 $ 4,950
==========
4. Inventories
Inventories are stated at the lower of cost or market, after provisions for
excess and obsolete inventory salable at prices below cost.
- 14 -
Costs are determined using the first in, first out and weighted-average cost
methods and are summarized as follows:
June 30, September 30,
2010 2009
------------ ------------
Finished goods $ 20,436 $ 18,078
Work in progress 28,353 29,266
Raw materials and supplies 44,672 46,699
Demonstration inventory 14,187 16,030
Service parts 24,927 26,375
----------- -----------
Total inventories, net $ 132,575 $ 136,448
=========== ===========
Net inventory is net of provisions for excess and obsolete inventory of
$18,518 and $18,876 at June 30, 2010, and September 30, 2009, respectively.
5. Long-Term Investments
Long-term investments represent auction rate securities which are variable
rate securities tied to short-term interest rates with maturities on the face
of the securities in excess of 90 days. Auction rate securities have rate
resets through a modified Dutch auction, at predetermined short-term
intervals, usually every 7, 28, 35, or 49 days. The securities trade at par,
and are callable at par on any payment date at the option of the issuer.
Investment earnings paid during a given period are based upon the reset rate
determined during the prior auction.
Through auctions completed in the first nine months of fiscal year 2010, the
Company reduced its holdings of auction rate securities to approximately $5.0
million at June 30, 2010. All such auctions resulted in sales, for cash, at
par value. At June 30, 2010, the Company held four individual auction rate
securities. The Company does not believe that the remaining balance of
auction rate securities represent a significant portion of the Company's
total liquidity. Although the Company believes these investments will become
liquid within the next twelve months, it is uncertain what impact the current
economic environment will have on this position and therefore, they have been
classified as long-term assets on the consolidated balance sheet.
6. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the nine-month period
ended June 30, 2010, are as follows:
North
Germany America Other Total
---------- --------- ---------- ---------
Balance as of September 30, 2009 $ 46,995 $ 13,240 $ 33,555 $ 93,790
Additions -- 430 -- 430
Currency translation effect ( 7,198) ( 540) ( 3,046) ( 10,784)
---------- ---------- --------- ---------
Balance as of June 30, 2010 $ 39,797 $ 13,130 $ 30,509 $ 83,436
========== ========== ========= =========
- 15 -
Effective April 12, 2010 the Company, through its wholly-owned subsidiary
Nufern, purchased the Electro Optics fiber optic gyroscope coil winding
business of Optelecom-NKF. This purchase resulted in additional goodwill of
approximately $0.4 million.
The carrying values of other intangible assets are as follows:
June 30, 2010 September 30, 2009
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 9,398 $ 5,394 $ 10,577 $ 5,477
Customer base 15,471 13,936 17,289 15,174
Other 17,843 13,712 18,132 14,170
---------- ---------- ---------- ----------
Total $ 42,712 $ 33,042 $ 45,998 $ 34,821
========== ========== ========== ==========
Amortization expense for the nine-month periods ended June 30, 2010 and 2009,
was $1.7 million and $2.7 million, respectively. At June 30, 2010, estimated
amortization expense for the remainder of fiscal 2010 and the next five
fiscal years based on the average exchange rates as of June 30, 2010, is as
follows:
2010 (remainder) 0.5 million
2011 1.9 million
2012 1.9 million
2013 1.9 million
2014 1.7 million
2015 1.4 million
7. Accrued Liabilities
Accrued liabilities are comprised of the following:
June 30, September 30,
2010 2009
----------- -----------
Employee compensation $ 16,481 14,375
Warranty reserve 9,056 8,962
Customer deposits 17,755 8,973
Other taxes payable 115 108
Other 17,509 15,538
----------- -----------
Total accrued liabilities $ 60,916 $ 47,956
=========== ===========
- 16 -
8. Income Taxes
The Company's policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as interest expense and SG&A, respectively. The
Company has classified unrecognized tax benefits as non-current because
payment is not anticipated within one year of the balance sheet date.
As of June 30, 2010, the Company's gross unrecognized tax benefits totaled
$0.6 million which includes less than $0.1 million of interest and penalties.
The Company estimates that the unrecognized tax benefits will not change
significantly within the next year.
The Company files federal and state income tax returns in several domestic
and foreign jurisdictions. In most tax jurisdictions, returns are subject to
examination by the relevant tax authorities for a number of years after the
returns have been filed. With limited exceptions, the Company is no longer
subject to examination by the United States Internal Revenue Service for
years through 2005. With respect to state and local tax jurisdictions and
countries outside the United States, with limited exceptions, the Company is
no longer subject to income tax audits for years before 2002.
9. Product Warranties
The Company provides for the estimated costs of product warranties when
revenue is recognized. The estimate of costs to fulfill warranty obligations
is based on historical experience and an expectation of future conditions.
The change in warranty reserves for the nine-month periods ended June 30,
2010 and 2009, are as follows:
2010 2009
------------ ------------
Balance at September 30, $ 8,962 $ 12,337
Additional accruals for warranties
during the period 3,104 736
Usage during the period ( 1,621) ( 3,127)
Currency translation ( 1,389) ( 276)
----------- -----------
Balance at June 30, $ 9,056 $ 9,670
=========== ===========
10. Treasury Stock
On May 5, 2010, the Board of Directors authorized the Company to initiate a
share buyback of up to $30.0 million of Company's Common Stock over twelve
months, subject to market conditions. The shares may be repurchased from
time to time in open market transactions or privately negotiated transactions
at the Company's discretion. As of June 30, 2010, the Company has bought
approximately 0.85 million shares of common stock, at an average price of
$22.79, under the stock buyback program for a total amount of $19.5 million,
with $10.5 million remaining to be spent on the repurchase of shares.
- 17 -
11. Stock Incentive Plans
The Company maintains an Incentive Stock Plan, whereby incentive and non-
qualified stock options, restricted stock and performance shares may be
granted to officers and other key employees to purchase a specified number of
shares of common stock at a price not less than the fair market value on the
date of grant. The term of the Incentive Stock Plan continues through 2017.
There were no incentive stock options, restricted stock or performance shares
granted in fiscal years 2010 or 2009. Non-qualified stock options were
granted to officers and other key employees in fiscal years 2010 and 2009.
Options generally vest over five years and will expire not later than ten
years after the date on which they are granted.
The fair value of each option award is estimated on the date of grant using
the Black-Scholes model. The following assumptions were used in these
calculations:
2010 2009
Grants Grants
---------- ----------
Grant date fair value $10.42 $ 6.87
Expected life 5 Years 5 Years
Volatility 47.23% 50.3%
Risk-free interest rate 2.52% 1.65%
Dividend yield 0% 0%
Annual forfeiture rate 2% 2%
317,750 stock options were granted in the three-month period ended March 31,
2010, and no additional stock options have been granted since then. The
Company uses historical data to estimate the expected life, volatility, and
estimated forfeitures of an option. The risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant.
The balance of outstanding stock options and all options activity at and for
the nine months ended June 30, 2010, are as follows:
Weighted
Average
Weighted Remaining Aggregate
Average Contractual Intrinsic
Number of Exercise Term Value
Shares Price (Years) (in millions)
----------- ----------- ----------- ------------
Balance at
September 30, 2009 2,856,550 $ 22 2/5 6.50
Granted 317,750 22 5/6
Exercised ( 189,400) 15 7/8
Cancelled -- --
Forfeited ( 19,000) 27 1/2
----------- ----------- -----------
Balance at
June 30, 2010 2,965,900 $ 22 5/6 6.27 $ 8.1
Exercisable at
June 30, 2010 1,870,750 $ 21 1/6 5.20 $ 6.7
- 18 -
As of June 30, 2010, there was $11.9 million of total unrecognized
compensation costs related to stock options. These costs are expected to be
recognized over a weighted-average period of 2.94 years.
During the nine-month period ended June 30, 2010 and 2009, the following
activity occurred under the plan:
(in millions)
----------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Total intrinsic value of stock
options exercised -- -- $ 1.4 $ 0.1
Cash received from stock option exercises for the three and nine-month
periods ended June 30, 2010, was $0.08 and $3.0 million, respectively.
12. Earnings Per Common Share
The basic per common share (EPS) calculation is computed by dividing net
income (loss) available to RSTI common stockholders by the weighted-average
number of shares outstanding during the period. Diluted earnings per common
share reflect the potential dilution from common stock equivalents (stock
options).
The calculation of the weighted average number of shares outstanding for each
period is as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Weighted-average number of
shares for BASIC net income
per common share 28,845,983 28,911,278 28,989,113 28,910,318
Potential additional shares
due to outstanding dilutive
stock options 421,384 -- 414,202 --
---------- ---------- ---------- ----------
Weighted-average number of
shares for DILUTED net
income per common share 29,267,367 28,911,278 29,403,315 28,910,318
========== ========== ========== ==========
The weighted average diluted shares outstanding for the three month and nine-
month periods ended June 30, 2010, excludes the dilutive effect of
approximately 1.8 million and 1.6 million stock options, respectively, since
the impact of including these options in diluted earnings per share for this
period was antidilutive.
- 19 -
13. Defined Benefit Plans
Components of net periodic cost were as follows for the three and nine-month
periods ended June 30, 2010 and 2009:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Service cost $ 196 $ 184 $ 609 $ 544
Interest cost 287 262 904 775
Expected return on plan assets ( 115) ( 106) ( 344) ( 317)
Amortization of prior
service costs -- -- -- --
Amortization of net loss 35 -- 105 --
---------- ---------- --------- --------
Net periodic pension cost $ 403 $ 340 $ 1,274 $ 1,002
========== ========== ========= ========
14. Segment and Geographic Information
The Company organizes its business under geographic regions that are
aggregated together and managed as one segment in the global industrial laser
industry.
Assets, net sales, and income before taxes, by geographic region are
summarized below:
June 30, September 30,
2010 2009
---------- ----------
ASSETS
North America $ 206,177 $ 181,612
Germany 335,129 377,667
Other 214,536 210,186
Intercompany eliminations ( 242,609) ( 229,958)
---------- ----------
$ 513,233 $ 539,507
========== ==========
LONG-LIVED ASSETS
North America $ 11,947 $ 12,926
Germany 29,626 35,312
Other 6,733 7,548
Intercompany eliminations ( 47) ( 51)
---------- ----------
$ 48,259 $ 55,735
========== ==========
- 20 -
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
NET SALES
North America $ 29,559 $ 21,442 $ 79,135 $ 67,780
Germany 77,920 50,082 216,677 181,007
Other 42,373 28,216 112,139 94,400
Intercompany eliminations ( 39,544) ( 23,175) (108,735) ( 84,067)
---------- ---------- ---------- ----------
$ 110,308 $ 76,565 $ 299,216 $ 259,120
========== ========== ========== ==========
INTERCOMPANY SALES
North America $ 2,127 $ 705 $ 4,439 $ 3,015
Germany 29,144 17,238 80,407 63,710
Other 8,273 5,232 23,889 17,342
Intercompany eliminations ( 39,544) ( 23,175) (108,735) ( 84,067)
---------- ---------- ---------- ----------
$ -- $ -- $ -- $ --
========== ========== ========== ==========
EXTERNAL SALES
North America $ 27,432 $ 20,737 $ 74,696 $ 64,765
Germany 48,776 32,844 136,270 117,297
Other 34,100 22,984 88,250 77,058
---------- ---------- ---------- ----------
$ 110,308 $ 76,565 $ 299,216 $ 259,120
========== ========== ========== ==========
INCOME (LOSS) BEFORE INCOME TAX
North America $ 1,264 $( 2,123) $ ( 1,016) $( 9,723)
Germany 11,663 ( 3,567) 24,008 11,272
Other 2,620 ( 509) 5,402 3,862
Intercompany eliminations ( 853) 553 ( 894) 1,566
---------- ---------- ---------- ----------
$ 14,694 $( 5,646) $ 27,500 $ 6,977
========== ========== ========== ==========
- 21 -
15. Enterprise Wide Information
The Company generates revenues from the sale and servicing of laser products
used for macro applications, from the sale and servicing of laser products
for marking and micro applications, and from the sale of components products.
Product sales are summarized below:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Macro applications $ 42,838 $ 30,988 $ 124,365 $ 102,628
Marking and micro
applications 55,558 35,225 143,103 124,829
Components 11,912 10,352 31,748 31,663
---------- ---------- ---------- ----------
$ 110,308 $ 76,565 $ 299,216 $ 259,120
========== ========== ========== ==========
- 22 -
ITEM 2. 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" or other
words or terms of similar meaning. 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
provide a comprehensive range of laser sources and laser-based system
solutions to the following principal target markets: the machine tool,
automotive, semiconductor, electronics, and photovoltaic 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 third quarter of fiscal years 2010 and 2009, respectively, we
realized approximately 39% and 40% of revenues from the sale and servicing of
laser products used for macro applications, approximately 50% and 46% from
the sale and servicing of laser products for marking and micro applications,
and approximately 11% and 14% from the sale of components in both periods.
The third quarter results reflect an improved macro economic climate,
especially throughout the Asian markets and the excellent execution of our
strategy by the worldwide team. Sales increased by 44%, order entry by 68%,
and net income by 297% compared to the third quarter of last fiscal year. The
high third quarter revenue was primarily driven by the machine tool industry
and increased sales to the semiconductor, electronics and photovoltaic
industries. The increased backlog and the ongoing sales activities provide a
foundation for solid performance in future quarters.
At June 30, 2010, Rofin-Sinar had 1,761 employees compared to 1,765 employees
at June 30, 2009.
- 23 -
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,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Net sales 100% 100% 100% 100%
Cost of goods sold 61% 65% 61% 62%
Gross profit 39% 35% 39% 38%
Selling, general and
administrative expenses 21% 29% 23% 26%
Research and development expenses 7% 11% 8% 10%
Intangibles amortization 1% 1% 1% 1%
Income (Loss) from operations 11% (7)% 8% 1%
Income (Loss) before income taxes 13% (7)% 9% 3%
Net income (loss) attributable
to RSTI 9% (6)% 6% 2%
Net Sales - Net sales of $110.3 million and $299.2 million represent
increases of $33.7 million, or 44%, and $40.1 million, or 15%, for the three
and nine-month periods ended June 30, 2010, as compared to the corresponding
periods in fiscal 2009. The increase for the three months ended June 30,
2010, resulted from a net sales increase of $31.6 million, or 55%, in Europe
and Asia, and an increase of $2.1 million, or 11%, in North America, compared
to the corresponding period in fiscal 2009. The increase for the nine months
ended June 30, 2010, compared to the corresponding period in fiscal 2009,
resulted from a net sales increase of $40.4 million, or 20%, in Europe and
Asia, and a decrease of $0.3 million, or 1%, in North America. The U.S.
dollar strengthening against foreign currencies, primarily against the Euro,
for the three-month period ended June 30, 2010, had an unfavorable effect on
net sales of $4.0 million. For the nine-month period ended June 30, 2010, the
weakening of the U.S. dollar, mainly against the Euro, had a favorable effect
on net sales of $5.7 million.
Net sales of laser products for macro applications increased by $11.8
million, or 38%, to $42.8 million and by $21.8 million, or 21%, to $124.4
million for the three and nine-month periods ended June 30, 2010, as compared
to the corresponding periods of fiscal 2009. The increase can be mainly
attributed to the higher demand for our lasers for macro applications in the
machine tool industry.
Net sales of lasers for marking and micro applications increased by $20.4
million, or 58%, to $55.6 million for the three-month period ended June 30,
2010, mainly due to higher revenues to the semiconductor, electronics and
photovoltaic industries. Net sales for marking and micro applications
increased by $18.3 million, or 15%, to $143.1 million for the nine-month
period ended June 30, 2010, as compared to the corresponding periods in
fiscal 2009, mainly due to higher sales to the semiconductor and electronics
industries.
- 24 -
Revenues for the components business for the three-month period ended June
30, 2010 increased by $1.5 million, or 14%, to $11.9 million as compared to
the corresponding period in fiscal 2009, mainly due to an overall higher
demand in several industries. Revenues for the nine-month period ended June
30, 2010, were stable at approximately $31.7 million.
Gross Profit - Our gross profit of $42.9 million and $115.9 million for the
three and the nine-month periods ended June 30, 2010, represent increases of
$16.3 million, or 61%, and $18.7 million, or 19%, from the corresponding
periods of fiscal year 2009. As a percentage of sales, gross profit
increased from 35% to 39% for the three-month period ended June 30, 2010, and
increased from 38% to 39% for the nine-month period ended June 30, 2010, as
compared to the corresponding periods in fiscal year 2009. The increase in
our gross margins was mainly the result of the higher level of business with
the corresponding higher absorption of fixed costs, and an increase in our
service and spare parts revenue. Additionally, the three and nine-month
periods ended June 30, 2009, reflect costs associated with headcount
reductions of $0.9 million and $1.0 million, respectively. Gross profit was
unfavorably affected by $1.0 million for the three-month period ended June
30, 2010, due to the strengthening of the U.S. dollar against foreign
currencies, primarily against the Euro. For the nine-month period ended June
30, 2010, the gross profit was favorably affected by $2.2 million due to the
weakening 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 $22.7 million and $67.7 million for the
three and nine-month periods ended June 30, 2010, respectively, represent an
increase of $0.8 million or 4% for the three-month period, and an increase of
$0.2 million or less than 1%, from the corresponding periods of fiscal 2009.
The increase in SG&A expenses is mainly a result of increased selling and
marketing activities including exhibitions as well as higher commissions
related to the higher level of business. The three and nine-month periods
ended June 30, 2009, also reflect costs associated with headcount reductions
of $1.3 million and $1.8 million, respectively. Additionally, SG&A, a
significant portion of which is incurred in foreign currencies, was favorably
affected by $0.9 million for the three-month period ended June 30, 2010, due
to the strengthening of the U.S. dollar against foreign currencies, primarily
against the Euro. For the nine-month period ended June 30, 2010, SG&A was
unfavorably affected by $1.2 million, due to the weakening of the U.S. dollar
against foreign currencies, primarily against the Euro. As a percentage of
net sales, SG&A expenses decreased from 29% to 21% and from 26% to 23% for
the three and nine-month periods during the respective periods.
Research and Development - The Company spent net $7.6 million and $23.2
million on research and development ("R&D") during the three and nine-month
periods ended June 30, 2010, respectively, which represents a decrease of 13%
and a decrease of 6% as compared to the corresponding periods of the prior
year. Gross R&D expenses for the three-month periods ended June 30, 2010 and
2009, were $8.1 million and $9.2 million, respectively, and were reduced by
$0.5 million and $0.4 million of government grants during each respective
period. Gross R&D expenses for the nine-month periods ended June 30, 2010 and
2009, were $24.9 and $26.0 million, respectively, and were reduced by $1.7
- 25 -
million and $1.2 million of government grants during each respective period.
Additionally, the three and nine-month periods ended June 30, 2009, reflect
costs associated with headcount reductions of $0.4 million and $0.5 million,
respectively. R&D, a significant portion of which is conducted in Europe,
and therefore incurred in foreign currencies, was favorably affected by $0.5
million for the three-month period ended June 30, 2010, due to the
strengthening of the U.S. dollar against foreign currencies, primarily the
Euro. For the nine-month period ended June 30, 2010, R&D was unfavorably
affected by $0.5 million, due to the weakening of the U.S. dollar against
foreign currencies, primarily the Euro.
Amortization Expense - Amortization expense for the three and nine-month
periods ended June 30, 2010, amounted to $0.5 million and $1.7 million,
respectively. This represents a decrease of $0.4 million for the three-month
period and of $1.0 million for the nine-month period when compared to the
same periods of fiscal year 2009, mainly due to the full amortization of a
portion of intangibles from a former acquisition.
Other Income/Expenses - Net other income of $2.7 million for the three-month
period ended June 30, 2010, represents an increase of $3.3 million in other
income compared to net other expense of $0.6 million in the corresponding
period of the prior year. Net other income of $4.1 million for the nine-
month period ended June 30, 2010, represents a decrease of $0.6 million in
net other income compared to net other income of $4.7 million in the
corresponding period of the prior year. The increase in net other income in
the three-month period ended June 30, 2010, is primarily attributable to
higher exchange gains compared to the corresponding period of last fiscal
year. For the nine-month period ended June 30, 2010, the net other income
decreased mainly due to lower exchange gains compared to the corresponding
period of last fiscal year.
Income Tax Expense - Income tax expense of $4.9 million and $9.3 million for
the three and nine-month periods ended June 30, 2010, respectively,
represents an effective tax rate of 33% and 34% for the three and nine-month
periods, compared to 14% and 41% for the corresponding periods of the prior
year. The overall effective tax rate is a result of improved business, which
contributed to a normalized effective tax rate during fiscal year 2010.
Income tax expense, a significant portion of which is incurred in foreign
currencies, was favorably affected by $0.1 million for the three-month period
ended June 30, 2010, due to the strengthening of the U.S. dollar against
foreign currencies, primarily the Euro. For the nine-month period ended June
30, 2010, the income tax expense was unfavorably affected by $0.2 million,
due to the weakening of the U.S. dollar against foreign currencies, primarily
the Euro.
- 26 -
Net Income Attributable to RSTI - As a result of the foregoing factors, the
Company realized consolidated net income attributable to RSTI of $9.7 million
and $17.9 million for the three and nine-month periods ended June 30, 2010,
respectively, which represents an increase of $14.6 million and $14.0 million
for the three and nine months, respectively, from the corresponding periods
in fiscal 2009. For the three-month period ended June 30, 2010, the diluted
earnings per common share calculation equaled $0.33 and the basic earnings
per common share calculation equaled $0.34, based upon a weighted average of
29.3 million basic and 28.8 million diluted common shares outstanding, as
compared to basic and diluted loss per common share calculation of $0.17,
based upon a weighted average of 28.9 million basic and diluted common shares
outstanding for the corresponding periods last fiscal year.
Liquidity and Capital Resources
On May 5, 2010, the Board of Directors authorized the Company to initiate a
share buyback of up to $30.0 million of Company's Common Stock over twelve
months, subject to market conditions. The shares may be repurchased from
time to time in open market transactions or privately negotiated transactions
at the Company's discretion. As of June 30, 2010, the Company has bought
approximately 0.85 million shares of common stock, at an average price of
$22.79, under the stock buyback program for a total amount of $19.5 million,
with $10.5 million remaining to be spent on the repurchase of shares.
The Company's primary sources of liquidity at June 30, 2010, were cash and
cash equivalents of $120.7 million, short-term credit lines of $76.5 million
and long-term credit lines of $15.0 million. As of June 30, 2010, $60.1
million was available for borrowing under the short-term lines of credit.
Additionally, $4.7 million was used for bank guarantees under these lines of
credit. $15.0 million was used under the long-term credit lines. In addition,
the Company maintained credit lines specific to bank guarantees for $5.7
million, of which $0.3 million was used. Therefore, $5.4 million was unused
and available under these lines of credit at June 30, 2010. The Company is
subject to financial covenants, which could restrict the Company from drawing
money under these lines of credit. At June 30, 2010, the Company was in
compliance with these covenants.
Cash and cash equivalents increased by $4.6 million during the nine-month
period ended June 30, 2010. Approximately $34.9 million in cash and cash
equivalents were provided by operating activities, mainly as the result of
the net income for the nine months ended September 30, 2009, changes in
accrued liabilities and in accounts payable and non-cash transactions
(depreciation and stock-based compensation expense), partially offset by
changes in inventories and in accounts receivable.
- 27 -
Net cash provided by investing activities totaled $0.5 million for the nine-
month period ended June 30, 2010, and primarily related to the sale of short-
term and long-term investments ($10.1 million) partially offset by purchases
of short-term investments ($3.0 million), various additions to property and
equipment ($5.5 million) and the acquisition of a business ($1.4 million).
Net cash used in financing activities totaled $13.4 million for the nine-
month period ended June 30, 2010, and was primarily related to the purchase
of treasury stock ($19.5 million), partially offset by the net borrowings
from banks ($3.0 million) and proceeds from the issuance of common stock
($3.0 million).
Management believes that the Company's 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-term and long-
term basis.
The Company has listed all its material contractual obligations in the Annual
Report on Form 10-K, for the fiscal year ended September 30, 2009, and has
not entered into any further material contractual obligations since that
date.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements or financing arrangements
involving variable interest entities.
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, Swiss francs, Swedish krona, Singapore
dollar, Taiwanese dollar, Korean won, Canadian dollar, Chinese RMB, 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 accumulated currency translation adjustment component of stockholders'
equity represented a loss of $11.3 million at June 30, 2010, as compared to a
gain of $29.4 million at June 30, 2009.
- 28 -
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 of our
consolidated financial statements in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2009. 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.
No individual customer represents more than 10% of total accounts
receivable. Any increase in allowance will impact operating income
during a given period.
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. The Company
evaluates the adequacy of these provisions quarterly. Although the
Company strives 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 the
provisions will impact operating income during a given period.
Warranty Reserves
The Company provides reserves 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. Warranty
expense has historically been within our expectations. To the extent we
experience increased warranty claim activity or increased costs
associated with servicing those claims (such costs may include material,
labor and travel costs), revisions to the estimated warranty liability
would be required. Increases in reserves will impact operating income
during the period.
- 29 -
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 their calculations of these amounts. 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 asset allocations, as well
as historical and expected returns on various categories of plan assets.
Share-Based Payment
Stock-based compensation cost is measured at the grant date, based on
the fair value of the award, and is recognized as expense over the
employee requisite vesting period. We make judgments about the fair
value of the awards, including the expected term of the award,
volatility of the underlying stock and estimated forfeitures, which
impact the amount of compensation expense recognized in the financial
statements. Such amounts may change as a result of additional grants,
forfeitures, modifications in assumptions and other factors. ASC Topic
718, "Stock Compensation", provides that income tax effects of share-
based payments are recognized in the financial statements for those
awards which will normally result in tax deductions under existing tax
law. Under current U.S. federal tax laws, we receive a compensation
expense deduction related to stock options only when those options are
exercised and vested shares are received. Accordingly, the financial
statement recognition of compensation cost for stock options creates a
deductible temporary difference which results in a deferred tax asset
and a corresponding deferred tax benefit in the income statement for all
U.S.-based employees. Stock-based compensation expense related to al
other employees is treated as a permanent difference for income tax
purposes.
- 30 -
Ownership of Common Stock By Directors
The following table sets forth information as of June 30, 2010, 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, 2010 June 30, 2010
---------------- -------------- ----------------- -----------------
Peter Wirth 12,600 125,000 98,000
Gunther Braun 6,000 660,000 482,000
Carl F. Baasel 128,000 24,000 24,000
Ralph E. Reins (1) 21,000 -- --
Gary K. Willis (1) 36,000 -- --
Daniel Smoke (1) 26,000 -- --
Stephan Fantone (1) 13,700 -- --
(1) Outside, non-executive directors
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the nine-month period ended June 30, 2010, 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, 2009.
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
At June 30, 2010, the Company maintained cash equivalents of $120.7 million,
consisting mainly of interest bearing securities and demand deposits. If
interest rates were to increase or decrease by 10%, interest income would
increase or decrease by less than $0.1 million.
- 31 -
At June 30, 2010, the Company had $1.5 million of variable rate debt on which
the interest rate is reset every three months, $7.4 million of variable rate
debt on which the interest rate is reset every six months, and $22.6 million
of fixed rate debt. Maturities of this debt are as follows: $14.2 million is
due in fiscal year 2010, $3.5 million is due in fiscal year 2011, $0.6
million is due in fiscal year 2012, $6.1 million is due in fiscal year 2013,
$0.3 million is due in fiscal year 2014 and $6.8 million is due in fiscal
year 2015. 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 by less
than $0.1 million.
Additionally, the Company has entered into interest swap agreements of total
notional amount of Euro 4.0 million (equivalent to $4.9 million based on the
exchange rate at June 30, 2010), to minimize the interest expenses on short-
term debt by shifting from variable to fixed interest rates.
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, 2010, the
Company held Japanese yen forward exchange options with notional amount of
Euro 0.7 million and Japanese yen forward exchange options with notional
amount of $0.3 million. The profit or loss resulting from a 10% change in
currency exchange rates would vary approximately from less than $0.1 million
profit to $0.2 million loss.
Item 4. Controls and Procedures
As of the end of the quarterly 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.
The certifying officers concluded, based on their evaluation, that the
Company's disclosure controls and procedures were effective, as of the end of
the quarterly period covered by this report, 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 quarterly period covered by this report
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
- 32 -
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.
A 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 all of its
obligations under the license agreement. Following discussions
with the licensor in order to resolve these disagreements, the
parties have reached an agreement in principle that an independent
auditor should be appointed to review the calculations made by
the Company in connection with the royalties it has paid in the
past. To date the audit has not commenced. In February 2008,
the Company contacted the licensor in writing in order to proceed
with the appointment of an independent auditor and agree on
parameters to apply to the conduct of the audit and a response from
the licensor was received in January 2009. Through additional
correspondence dated March 2009, the Company and the licensor are in
the process of selecting a mutually agreeable independent auditor.
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 or cash flows.
Item 1A. Risk Factors
For information regarding risk factors that could effect the
Company's results of operations, financial condition and liquidity,
see the risk factors discussion provided under "Risk Factors" in
Item 1A of the Company's Annual Report on Form 10-K for the year
ended September 30, 2009. See also, "Overview" and
"Forward-Looking Statements" included in this Quarterly Report on
Form 10-Q.
- 33 -
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 5, 2010, the Board of Directors authorized the Company to initiate a
share buyback of up to $30.0 million of Company's Common Stock over twelve
months, subject to market conditions. The shares may be repurchased from
time to time in open market transactions or privately negotiated transactions
at the Company's discretion. As of June 30, 2010, the Company has bought
approximately 0.85 million shares of common stock, at an average price of
$22.79, under the stock buyback program for a total amount of $19.5 million,
with $10.5 million remaining to be spent on the repurchase of shares.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Removed and Reserved
Item 5. Other Information
None.
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
- 34 -
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 9, 2010 /s/ Gunther Braun
---------------------------------
Gunther Braun
President, Chief Executive Officer,
and Director
/s/ Ingrid Mittelstaedt
---------------------------------
Ingrid Mittelstaedt
Chief Financial Officer,
Executive Vice President, Finance
and Administration, and Treasurer
