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 March 31, 2011
[ ] 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 [X] Accelerated filer [ ]
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]
28,443,759 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of May 9, 2011.
ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
----------------------------------------------- ----------
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2011 and September 30, 2010 4
Condensed Consolidated Statements of Operations
Three months and six months ended
March 31, 2011 and 2010 6
Condensed Consolidated Statement of Stockholders'
Equity and Comprehensive Income
Six months ended March 31, 2011 and 2010 7
Condensed Consolidated Statements of Cash Flows
Six months ended March 31, 2011 and 2010 9
Notes to Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 22
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 30
Item 4 - Controls and Procedures 31
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 32
Item 1A - Risk Factors 32
Item 2 - Unregistered Sales of Equity Securities
and Use of Proceeds 33
Item 3 - Defaults Upon Senior Securities 33
Item 4 - Removed and Reserved 33
Item 5 - Other Information 33
Item 6 - Exhibits 33
SIGNATURES 33
PART I. ITEM 1. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands, except per share amounts)
March 31, September 30,
2011 2010
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents (Note 4) $ 112,716 $ 110,628
Short-term investments (Note 4) 6,295 5,691
Accounts receivable, net of allowance for
doubtful accounts of $3,268 and $3,020,
respectively 105,664 97,639
Inventories, net (Note 5) 187,408 151,759
Other current assets and prepaid expenses 27,697 21,638
----------- ----------
Total current assets 439,780 387,355
Long-term investments (Notes 4 & 6) 4,250 4,950
Property and equipment, net 56,735 52,651
Goodwill (Note 7) 93,721 89,796
Other intangibles, net (Note 7) 12,969 10,178
Other assets 14,531 13,262
----------- ----------
Total assets $ 621,986 $ 558,192
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit and short-term borrowings $ 5,185 $ 5,173
Accounts payable, trade 25,731 23,173
Accounts payable to related party 378 566
Income tax payable 10,502 7,114
Accrued liabilities (Note 8) 78,679 63,886
----------- ----------
Total current liabilities 120,475 99,912
Long-term debt 16,160 15,488
Pension obligations 19,551 18,163
Other long-term liabilities 8,449 7,153
----------- ----------
Total liabilities 164,635 140,716
- 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, 32,326,900 (31,951,500 at September
30, 2010) issued 323 320
Additional paid-in-capital 213,826 205,100
Retained earnings 361,060 333,491
Accumulated other comprehensive income 26,436 14,399
Treasury shares, at cost, 3,917,341 shares
(3,683,504 at September 30, 2010)(Note 11) (148,232) ( 139,453)
----------- ----------
Total Rofin-Sinar Technologies Inc.
stockholders' equity 453,413 413,857
Noncontrolling interest in subsidiaries 3,938 3,619
----------- ----------
Total stockholders' equity 457,351 417,476
----------- ----------
Total liabilities and stockholders' equity $ 621,986 $ 558,192
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 5 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended March 31, 2011 and 2010
(dollars in thousands, except per share amounts)
Three Months Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Net sales $ 136,206 $ 95,937 $ 273,338 $ 188,907
Cost of goods sold 81,436 58,728 162,201 115,827
---------- ---------- ---------- ----------
Gross profit 54,770 37,209 111,137 73,080
Selling, general, and
administrative expenses 26,053 23,166 51,669 44,977
Research and development expenses 9,502 7,826 18,129 15,544
Amortization expense 644 546 1,286 1,178
---------- ---------- ---------- ----------
Income from operations 18,571 5,671 40,053 11,381
Other (income) expense:
Interest income ( 162) ( 110) ( 329) ( 292)
Interest expense 239 288 421 586
Foreign currency (income)
expense 971 ( 1,012) 774 ( 1,215)
Other income ( 349) ( 352) ( 1,083) ( 505)
---------- ---------- ---------- ----------
Income before income tax 17,872 6,857 40,270 12,807
Income tax expense 5,074 2,109 12,382 4,356
---------- ---------- ---------- ----------
Net Income 12,798 4,748 27,888 8,451
Less: Net income attributable
to the noncontrolling
interest 107 91 319 209
---------- ---------- ---------- ----------
Net income attributable to
RSTI $ 12,691 $ 4,657 $ 27,569 $ 8,242
========== ========== ========== ==========
Net income attributable to RSTI per share
Per share of Common Stock Basic $ 0.45 $ 0.16 $ 0.97 $ 0.28
Per share of Common Stock
Diluted $ 0.43 $ 0.16 $ 0.95 $ 0.28
========== ========== ========== ==========
Weighted-average shares used in computing earnings per share (Note 13):
Basic 28,463,466 29,113,206 28,419,071 29,061,074
Diluted 29,280,373 29,476,355 29,149,400 29,461,817
========== ========== ========== ==========
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)
Six months ended March 31, 2011 and 2010
(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, 2010 $ 320 $ 205,100 $ 333,491 $ 14,399 $(139,453) $ 413,857 $ 3,619 $ 417,476
Comprehensive income:
Fair value of interest
swap agreement -- -- -- 71 -- 71 -- 71
Defined benefit pension plan:
Amortization of actuarial
loss (net of taxes $19) -- -- -- 32 -- 32 -- 32
Pension adjustment -- -- -- 24 -- 24 -- 24
Foreign currency
translation
adjustment -- -- -- 11,910 -- 11,910 -- 11,910
Net income -- -- 27,569 -- 27,569 319 27,888
------------- ----------- -------------
Total comprehensive income 39,606 319 39,925
Common stock issued for
stock incentive plans 3 8,726 -- -- -- 8,729 -- 8,729
Treasury stock purchases,
at cost -- -- -- -- (8,779) (8,779) -- (8,779)
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
March 31, 2011 $ 323 $ 213,826 $ 361,060 $ 26,436 $(148,232) $ 453,413 $ 3,938 $ 457,351
======= ========== ========== ============ ========== ============= =========== =============
- 7 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and Comprehensive Income (Unaudited)
Six months ended March 31, 2011 and 2010
(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 -- -- -- 22 -- 22 -- 22
Foreign currency
translation
adjustment -- -- -- (25,432) -- ( 25,432) -- ( 25,432)
Net income -- -- 8,242 -- -- 8,242 209 8,451
------------- ----------- -------------
Total comprehensive income
(loss) ( 17,168) 209 ( 16,959)
Common stock issued for
stock incentive plans 2 6,071 -- -- -- 6,073 -- 6,073
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
March 31, 2010 $ 320 $ 202,256 $ 311,893 $ 12,766 $(119,996) $ 407,239 $ 3,569 $ 410,808
======= ========== ========== ============ ========== ============= =========== =============
See accompanying notes to condensed consolidated financial statements
- 8 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, 2011 and 2010
(dollars in thousands)
Six Months
Ended March 31,
------------------------
2011 2010
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Note 2) $ 27,888 $ 8,451
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,287 6,029
Stock-based compensation expenses 2,703 2,883
Other adjustments ( 775) ( 935)
Change in operating assets and liabilities:
Accounts receivable, trade ( 3,352) ( 7,780)
Inventories ( 19,256) ( 3,881)
Accounts payable 879 3,423
Changes in other operating assets and liabilities 9,064 12,203
----------- -----------
Net cash provided by operating activities 23,438 20,393
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 247 190
Additions to property and equipment ( 5,727) ( 2,712)
Purchases of short-term investments ( 3,035) ( 3,017)
Sales of short-term and long-term investments 3,267 5,809
Acquisition of businesses, net of cash acquired ( 11,286) --
---------- ----------
Net cash provided by (used in)
investing activities ( 16,534) 270
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 2,020 6,331
Repayments to banks ( 6,901) ( 11,448)
Purchase of Treasury Stock ( 8,779) --
Issuance of common stock 5,579 2,926
Excess tax benefit from stock options 136 4
---------- ----------
Net cash used in financing activities ( 7,945) ( 2,187)
---------- ----------
Effect of foreign currency translation on cash 3,129 ( 8,055)
---------- ----------
Net increase in cash and cash equivalents 2,088 10,421
Cash and cash equivalents at beginning of period 110,628 116,128
---------- ----------
Cash and cash equivalents at end of period $112,716 $126,549
========== ==========
Cash paid for interest $ 190 $ 412
Cash paid for taxes $ 11,019 $ 2,240
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, 2010, 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, 2010, as filed with the Securities and
Exchange Commission on November 30, 2010.
2. New Accounting Standards
In July 2010, the Financial Accounting Standards Board ("FASB") issued ASU
No. 2010-20, "Receivables (Topic 310) - Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses" ("ASU 2010-20")
which requires additional disclosures about an entity's allowance for credit
losses and the credit quality of its financing receivables. These amendments
affect all entities with financing receivables, excluding short-term accounts
receivable or receivables measured at fair value or lower of cost or fair
value. The guidance on disclosures as of the end of a reporting period became
effective for the Company on December 31, 2010, and did not have an impact on
the Company's consolidated financial statements. The disclosures about
activity that occurs during a reporting period became effective for the
Company's second quarter of fiscal year 2011 and did not have an impact on
its financial statements.
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 certain revenue 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 (fiscal year 2011 for the Company). The adoption of this
accounting guidance did not have a material impact on the Company's
consolidated financial statements.
- 10 -
In January 2010, the FASB issued an amendment to ASC Subtopic 820-10 which
requires new disclosures for fair value measurements and provides
clarification for existing fair value disclosure requirements. The amendment
requires an entity to disclose separately the amounts of significant
transfers in and out of Levels 1 and 2 fair value measurements and to
describe the reasons for the transfers; and to disclose information about
purchases, sales, issuances and settlements separately in the reconciliation
for fair value measurements using significant unobservable inputs, or Level 3
inputs. This amendment clarifies existing disclosure requirements for the
level of disaggregation used for classes of assets and liabilities measured
at fair value and requires disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair
value measurements using Level 2 and Level 3 inputs. The guidance became
effective for the Company's second quarter of fiscal year 2010 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 (fiscal year 2012 for the
Company) and for interim periods within those fiscal years. The Company
decided to early adopt the guidance for disclosures in the roll forward
activity in Level 3 fair value measurements. The adoption of this guidance
did not impact the Company's consolidated financial statements.
In October 2009, the FASB issued new accounting guidance for revenue
recognition related to multiple element arrangements. This guidance
established a selling price hierarchy, which allows the use of estimated
selling prices to allocate arrangement consideration to deliverables in cases
where neither vendor-specific objective evidence nor third-party evidence is
available. The new guidance is effective for the Company prospectively for
revenue arrangements entered into or materially modified beginning in the
first quarter of fiscal year 2011. We applied the new guidance to our revenue
arrangements containing multiple deliverables that were entered into, or
materially modified, on or after October 1, 2010. The adoption of this
accounting guidance did not have a material impact on the Company's
consolidated financial statements and is not expected to have a material
effect on the Company's consolidated financial statements in subsequent
periods.
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 Topic became effective October 1, 2010, and
did not have an impact on the Company's consolidated financial statements.
- 11 -
3. Acquisitions
Effective October 15, 2010, the Company acquired 100% of the common stock of
LASAG AG, Thun (Switzerland) ("LASAG"), through its wholly-owned subsidiary
Rofin-Sinar Technologies Europe S.L. Additionally, the Company acquired the
LASAG selling and service operations in Germany, Italy, Japan and the United
States. LASAG is one of the original laser companies with more than 30 years
of experience in the development and manufacturing of industrial solid-state
lasers. LASAG markets and sells its laser products for fine cutting, spot
welding, drilling and scribing applications to the medical device,
automotive, electronic and aerospace industries. In addition, LASAG has
special expertise in high-precision drilling and laser processing heads.
This purchase resulted in goodwill of approximately $1.7 million and other
intangibles, net of $2.4 million.
4. 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.
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.
- 12 -
Financial assets and liabilities measured at fair value on a recurring basis
are classified on the valuation technique level in the table below:
March 31, 2011
-----------------------------------------------
Total Level 1 Level 2 Level 3
-------- --------- --------- ---------
Cash and cash equivalents $112,716 $112,716 $ -- $ --
Short-term investments 6,295 6,295 -- --
Derivatives 76 -- 76 --
Non-current auction rate
securities (Note 6) 4,250 -- -- 4,250
-------- --------- --------- ---------
Total assets and liabilities
at fair value $123,337 $119,011 $ 76 $ 4,250
======== ========= ========= =========
September 30, 2010
-----------------------------------------------
Total Level 1 Level 2 Level 3
-------- --------- --------- ---------
Cash and cash equivalents $110,628 $110,628 $ -- $ --
Short-term investments 5,691 5,691 -- --
Derivatives ( 43) -- ( 43) --
Non-current auction rate
securities (Note 6) 4,950 -- -- 4,950
-------- --------- --------- ---------
Total assets and liabilities
at fair value $121,226 $116,319 $( 43) $ 4,950
======== ========= ========= =========
The changes in the fair value of our non-current auction rate securities
measured using significant unobservable inputs (level 3) for the six-month
period ended March 31, 2011, are as follows:
Fair Value Measurements
Using Significant Unobservable
Inputs (Level 3)
------------------------------
September 30, 2010 $ 4,950
Settlements ( 700)
----------
March 31, 2011 $ 4,250
==========
- 13 -
5. Inventories
Inventories are stated at the lower of cost or market, after provisions for
excess and obsolete inventory salable at prices below cost.
Costs are determined using the first in, first out and weighted-average cost
methods and are summarized as follows:
March 31, September 30,
2011 2010
------------ ------------
Finished goods $ 27,717 $ 22,518
Work in progress 48,434 36,163
Raw materials and supplies 62,090 50,704
Demonstration inventory 16,835 14,686
Service parts 32,332 27,688
----------- -----------
Total inventories, net $ 187,408 $ 151,759
=========== ===========
Net inventory is net of provisions for excess and obsolete inventory of
$24,473 and $19,945 at March 31, 2011, and September 30, 2010, respectively.
6. 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 three months of fiscal year 2011, the
Company reduced its holdings of auction rate securities to approximately $4.3
million at March 31, 2011. All such auctions resulted in sales, for cash, at
par value. At March 31, 2011, 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.
- 14 -
7. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the six-month period ended
March 31, 2011, are as follows:
United Rest of
Germany States World Total
---------- --------- ---------- ---------
Balance as of September 30, 2010 $ 43,997 $ 13,445 $ 32,354 $ 89,796
Additions -- -- 1,677 1,677
Currency translation effect 1,502 113 633 2,248
---------- ---------- --------- ---------
Balance as of March 31, 2011 $ 45,499 $ 13,558 $ 34,664 $ 93,721
========== ========== ========= =========
The carrying values of other intangible assets are as follows:
March 31, 2011 September 30, 2010
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 11,052 $ 6,777 $ 10,293 $ 5,983
Customer base 19,676 15,289 16,310 14,842
Other 21,621 17,314 19,275 14,875
---------- ---------- ---------- ----------
Total $ 52,349 $ 39,380 $ 45,878 $ 35,700
========== ========== ========== ==========
Amortization expense for the six-month periods ended March 31, 2011 and 2010,
was $1.3 million and $ 1.2 million, respectively. At March 31, 2011,
estimated amortization expense for the remainder of fiscal year 2011 and the
next five fiscal years based on the average exchange rates as of March 31,
2011, is as follows:
2011 (remainder) 1.3 million
2012 2.6 million
2013 2.5 million
2014 2.4 million
2015 2.0 million
2016 1.9 million
- 15 -
8. Accrued Liabilities
Accrued liabilities are comprised of the following:
March 31, September 30,
2011 2010
----------- -----------
Employee compensation $ 19,778 20,814
Warranty reserve 12,026 10,417
Customer deposits 29,739 16,531
Other taxes payable 188 181
Other 16,948 15,943
----------- -----------
Total accrued liabilities $ 78,679 $ 63,886
=========== ===========
9. 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 March 31, 2011, the Company's gross unrecognized tax benefits totaled
$0.7 million which includes approximately $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 2004.
During the second quarter of 2011, the income tax provision was favorably
impacted by approximately $0.8 million related to an adjustment for tax
benefits expected to be realized by the newly acquired LASAG business, based
on new information regarding the availability of these tax benefits obtained
by the Company in the second quarter of fiscal 2011.
10. 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.
- 16 -
The change in warranty reserves for the six-month periods ended March 31,
2011 and 2010, are as follows:
2011 2010
------------ ------------
Balance at September 30, $ 10,417 $ 8,962
Additional accruals for warranties
during the period 3,141 1,120
Usage during the period ( 1,895) ( 623)
Currency translation 363 ( 639)
----------- -----------
Balance at March 31, $ 12,026 $ 8,820
=========== ===========
11. 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 the company's common stock over
twelve months, subject to market conditions, through purchases from time to
time in open market transactions or privately negotiated transactions at the
Company's discretion, including the quantity, timing and price thereof.
Through March 31, 2011, the Company has purchased approximately 1.1 million
shares of common stock, at an average price of $25.96, under the stock
buyback program for a total price of $28.2 million.
12. 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 year 2010 or through the first six months of fiscal year
2011. Non-qualified stock options were granted to officers and other key
employees in the second quarter of fiscal year 2011 and 2010. During the
six-month period ended March 31, 2011, outside directors each received 3,000
shares of common stock, from the 2007 Incentive Stock Plan, that were fully
vested upon grant. Options to other key employees 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:
2011 2010
Grants Grants
---------- ----------
Grant date fair value $15.48 $10.42
Expected life 5 Years 5 Years
Volatility 46.12% 47.23%
Risk-free interest rate 2.01% 2.52%
Dividend yield 0% 0%
Annual forfeiture rate 2% 2%
- 17 -
Options to purchase 341,250 shares of stock were granted in the three-month
period ended March 31, 2011. The Company uses historical data to estimate the
expected life, volatility, and annual forfeiture rates of outstanding
options. 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 six months ended March 31, 2011, 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, 2010 2,963,200 $ 22 4/5 6.29
Granted 341,250 35 1/5
Exercised ( 363,400) 15 3/8
Cancelled -- --
Forfeited ( 2,700) 31 6/7
----------- ----------- -----------
Balance at
March 31, 2011 2,938,350 $ 25 1/6 5.97 $ 42.3
Exercisable at
March 31, 2011 1,917,050 $ 23 1/2 5.10 $ 30.9
As of March 31, 2011, there was $12.9 million of total unrecognized
compensation costs related to stock options. These costs are expected to be
recognized over a weighted-average period of 3.79 years.
During the three-month and six-month periods ended March 31, 2011 and 2010,
the following activity occurred under the Incentive Stock Plan:
(in millions)
----------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Total intrinsic value of stock
options exercised $ 2.9 -- $ 6.6 $ 1.4
Cash received from stock option exercises for the six-month periods ended
March 31, 2011 and 2010, was $5.58 and $2.93 million, respectively.
- 18 -
13. 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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Weighted-average number of
shares for BASIC net income
per common share 28,463,466 29,113,206 28,419,071 29,061,074
Potential additional shares
due to outstanding dilutive
stock options 816,907 363,149 730,329 400,743
---------- ---------- ---------- ----------
Weighted-average number of
shares for DILUTED net
income per common share 29,280,373 29,476,355 29,149,400 29,461,817
========== ========== ========== ==========
The weighted average diluted shares outstanding for the six-month periods
ended March 31, 2011 and 2010, excludes the dilutive effect of approximately
0.5 million and 1.6 million stock options, respectively, since the impact of
including these options in diluted earnings per share for these periods was
antidilutive.
14. Defined Benefit Plans
Components of net periodic cost were as follows for the three and six-month
periods ended March 31, 2011 and 2010:
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Service cost $ 201 $ 203 $ 399 $ 413
Interest cost 306 303 607 617
Expected return on plan assets ( 127) ( 115) ( 254) ( 229)
Amortization of prior
service costs -- -- -- --
Amortization of net loss 25 35 51 70
---------- ---------- --------- --------
Net periodic pension cost $ 405 426 $ 803 $ 871
========== ========== ========= ========
- 19 -
15. Segment and Geographic Information
Assets, revenues, and income before taxes, by geographic region attributable
based on the geographic location of the RSTI entity are summarized below:
March 31, September 30,
2011 2010
---------- ----------
ASSETS
North America $ 215,997 $ 209,677
Germany 409,571 367,855
Other 268,094 231,809
Intercompany eliminations ( 271,676) ( 251,149)
---------- ----------
$ 621,986 $ 558,192
========== ==========
LONG-LIVED ASSETS
North America $ 11,204 $ 11,714
Germany 36,765 33,752
Other 8,805 7,234
Intercompany eliminations ( 39) ( 49)
---------- ----------
$ 56,735 $ 52,651
========== ==========
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
NET SALES
North America $ 37,733 $ 25,924 $ 79,573 $ 49,576
Germany 99,753 72,022 197,293 138,756
Other 51,865 33,490 103,586 69,766
Intercompany eliminations ( 53,145) ( 35,499) (107,114) ( 69,191)
---------- ---------- ---------- ----------
$ 136,206 $ 95,937 $ 273,338 $ 188,907
========== ========== ========== ==========
INTERCOMPANY SALES
North America $ 3,120 $ 1,275 $ 6,896 $ 2,312
Germany 38,863 26,153 76,817 51,263
Other 11,162 8,071 23,401 15,616
Intercompany eliminations ( 53,145) ( 35,499) (107,114) ( 69,191)
---------- ---------- ---------- ----------
$ -- $ -- $ -- $ --
========== ========== ========== ==========
- 20 -
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
EXTERNAL SALES
North America $ 34,614 $ 24,648 $ 72,678 $ 47,264
Germany 60,891 45,870 120,476 87,493
Other 40,701 25,419 80,184 54,150
---------- ---------- ---------- ----------
$ 136,206 $ 95,937 $ 273,338 $ 188,907
========== ========== ========== ==========
INCOME (LOSS) BEFORE INCOME TAX
North America $ 2,693 $( 887) $ 6,326 $ ( 2,279)
Germany 15,147 7,658 30,717 12,345
Other 3,015 698 7,648 2,782
Intercompany eliminations ( 2,983) ( 612) ( 4,421) ( 41)
---------- ---------- ---------- ----------
$ 17,872 $ 6,857 $ 40,270 $ 12,807
========== ========== ========== ==========
16. 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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Macro applications $ 55,653 $ 39,941 $ 107,016 $ 81,526
Marking and micro
applications 66,279 45,656 138,500 87,546
Components 14,274 10,340 27,822 19,835
---------- ---------- ---------- ----------
$ 136,206 $ 95,937 273,338 $ 188,907
========== ========== ========== ==========
- 21 -
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 "RSTI", "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 second quarter of fiscal years 2011 and 2010, we realized
approximately 41% of revenues from the sale and servicing of laser products
used for macro applications, approximately 49% and 48%, respectively, from
the sale and servicing of laser products for marking and micro applications,
and approximately 10% and 11%, respectively, from the sale of components.
The second quarter results reflect a continued improvement in the macro
economic climate in North America, Europe and Asia. Sales increased by 42%,
order entry by 47%, and net income by 173% compared to the second quarter of
last fiscal year. The quarterly revenue was primarily driven by higher demand
in most of the industries we serve, particularly in the machine tool,
medical, and electronics industries. The recovering global macroeconomic
climate and the record high backlog provide a solid basis for the upcoming
quarter.
- 22 -
At March 31, 2011, Rofin-Sinar had 1,970 employees compared to 1,731
employees at March 31, 2010.
Results of Operations
For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's
consolidated statements of operations.
Three Months Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Net sales 100% 100% 100% 100%
Cost of goods sold 60% 61% 59% 61%
Gross profit 40% 39% 41% 39%
Selling, general and
administrative expenses 19% 24% 19% 24%
Research and development expenses 7% 8% 7% 8%
Intangibles amortization 1% 1% 1% 1%
Income from operations 14% 6% 15% 6%
Income before income taxes 13% 7% 15% 7%
Net income attributable to RSTI 9% 5% 10% 4%
Net Sales - Net sales of $136.2 million and $273.3 million represent
increases of $40.3 million, or 42%, and $84.4 million, or 45%, for the three
and six-month periods ended March 31, 2011, as compared to the corresponding
period in fiscal 2010. The increase for the three months ended March 31,
2011, resulted from a net sales increase of $32.4 million, or 41%, in Europe
and Asia, and an increase of $7.9 million, or 47%, in North America, compared
to the corresponding period in fiscal 2010. The increase for the six months
ended March 31, 2011, compared to the corresponding period in fiscal year
2010, resulted from a net sales increase of $66.2 million, or 43%, in Europe
and Asia, and an increase of $18.2 million, or 55%, in North America. The
U.S. dollar weakened against foreign currencies, primarily against the Euro,
in the three-month period ended March 31, 2011, which had a favorable effect
on net sales of $1.7 million. In the six-month period ended March 31, 2011,
the U.S. dollar strengthening against foreign currencies, primarily against
the Euro, had an unfavorable effect on net sales of $4.8 million.
Net sales of laser products for macro applications increased by $15.8
million, or 40%, to $55.7 million and by $25.5 million, or 31%, to $107.0
million for the three and six-month periods ended March 31, 2011, as compared
to the corresponding periods of fiscal year 2010. The increase can be mainly
attributed to the higher demand for our lasers for macro applications in the
machine tool and automotive industry.
- 23 -
Net sales of lasers for marking and micro applications increased by $20.6
million, or 45%, to $66.3 million for the three-month period ended March 31,
2011, mainly due to higher revenues from the medical, flexible packaging, and
electronics industries. Net sales for marking and micro applications
increased by $50.9 million, or 58%, to $138.5 million for the six-month
period ended March 31, 2011, as compared to the corresponding periods in
fiscal year 2010, mainly due to higher revenues from the medical, consumer
electronics and solar industries, as well as sales attributable to the LASAG
acquisition.
Revenues for the components business increased by $4.0 million, or 39%, to
$14.3 million for the three-month period ended March 31, 2011. Revenues for
the six-month period ended March 31, 2011, increased by $8.0 million, or 40%,
to $27.8 million as compared to the corresponding period in fiscal year 2010
mainly due to the demand for our fiber and diode products.
Gross Profit - Our gross profit of $54.8 million and $111.1 million for the
three and the six-month periods ended March 31, 2011, represents increases of
$17.6 million, or 47%, and $38.1 million, or 52%, from the corresponding
periods of fiscal year 2010. As a percentage of sales, gross profit
increased from 39% to 40% for the three-month period ended March 31, 2011,
and from 39% to 41% for the six-month period ended March 31, 2011, as
compared to the corresponding periods in fiscal year 2010. 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
spare parts and component business. Gross profit was favorably affected by
$0.7 million in the three-month period ended March 31, 2011, due to the
weakening of the U.S. dollar against foreign currencies, primarily against
the Euro. In the six-month period ended March 31, 2011, the U.S. dollar
strengthening against foreign currencies, primarily against the Euro, had an
unfavorable effect on gross profit of $0.8 million.
Selling, General and Administrative Expenses - Selling, general and
administrative ("SG&A") expenses of $26.1 million and $51.7 million for the
three and six-month periods ended March 31, 2011, represent an increase of
$2.9 million, or 13%, for the three-month period, and $6.7 million, or 15%,
for the six-month period, from the corresponding periods of fiscal 2010. The
increase in SG&A expenses is mainly a result of the additional expenses from
the newly acquired LASAG business, as well as additional sales, employees and
higher commissions related to the higher level of business. Additionally,
SG&A, a significant portion of which is incurred in foreign currencies, was
unfavorably affected by $0.3 million for the three-month period ended March
31, 2011, due to the weakening of the U.S. dollar against foreign currencies,
primarily the Euro. In the six-month period ended March 31, 2011, the U.S.
dollar strengthening against foreign currencies, primarily against the Euro,
had a favorable effect on SG&A of $0.8 million. As a percentage of net sales,
SG&A expenses decreased from 24% to 19% for both the three and six-month
periods ended March 31, 2011, as compared to the comparable prior year
periods.
- 24 -
Research and Development - The Company spent net $9.5 million and $18.1
million on research and development ("R&D") during the three and six-month
periods ended March 31, 2011, which represents an increase of 21% and 17% as
compared to the corresponding periods of the prior year. Gross R&D expenses
for the three-month periods ended March 31, 2011 and 2010, were $10.2 million
and $8.4 million, respectively, and were reduced by $0.7 million and $0.6
million of government grants during each respective period. Gross R&D
expenses for the six-month periods ended March 31, 2011 and 2010, were $19.3
million and $16.8 million, respectively, and were reduced by $1.2 million and
$1.3 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 $0.1 million for the
three-month period ended March 31, 2011, due to the weakening of the U.S.
dollar against foreign currencies, primarily the Euro. In the six-month
period ended March 31, 2011, the U.S. dollar strengthening against foreign
currencies, primarily against the Euro, had a favorable effect on R&D of $0.5
million.
Amortization expense - Amortization expense for the three and six-month
periods ended March 31, 2011, amounted to $0.6 million and $1.3 million,
respectively. This represents an increase of $0.1 million for both the three
and the six-month periods when compared to the same periods of fiscal year
2010.
Other Income/Expenses - Net other expense was $0.7 million for the three-
month period ended March 31, 2011, compared to net other income of $1.2
million in the corresponding period of the prior year. Net other income of
$0.2 million for the six-month period ended March 31, 2011, represents a
decrease of $1.2 million compared to net other income of $1.4 million the
corresponding period of the prior year. Net interest expense, within this
category, includes $0.2 million of interest income offset by $0.2 million of
interest expense for the three months ended March 31, 2011, and $0.3 million
of interest income offset by $0.4 million of interest expense for the six
months ended March 31, 2011. The decrease in net other income in the three
and six-month periods ended March 31, 2011, is primarily due to exchange
losses in the current year periods compared to exchange gains in the
corresponding periods of last fiscal year.
Income Tax Expense - Income tax expense of $5.1 million and $12.4 million for
the three and six-month periods ended March 31, 2011, represents an effective
tax rate of 28% and 31% for the three and six-month periods, compared to 31%
and 34% for the corresponding periods of the prior year. The lower overall
effective income tax rate is primarily the result of higher taxable income
generated in countries with lower tax rates and additional tax benefits
realized from the newly acquired LASAG business. Income tax expense, a
significant portion of which is incurred in foreign currencies, was
unfavorably affected by $0.1 million in the three-month period ended March
31, 2011, due to the weakening of the U.S. dollar against foreign currencies,
primarily the Euro. In the six-month period ended March 31, 2011, the U.S.
dollar strengthening against foreign currencies, primarily against the Euro,
had a favorable effect on the income tax expense of $0.3 million.
- 25 -
Net Income attributable to RSTI - As a result of the foregoing factors, the
Company realized consolidated net income attributable to RSTI of $12.7
million and $27.6 million for the three and six-month periods ended March 31,
2011, which represents an increase of $8.0 million and $19.3 million for the
three and six months from the corresponding periods in fiscal year 2010. For
the three-month period ended March 31, 2011, the basic and diluted per common
share calculation equaled $0.45 and $0.43, respectively, based upon a
weighted average of 28.5 million and 29.3 million common shares outstanding,
as compared to basic and diluted per common share calculation of $0.16, based
upon a weighted average of 29.1 million and 29.5 million common shares
outstanding for the corresponding periods last fiscal year.
Liquidity and Capital Resources
The Company's primary sources of liquidity at March 31, 2011, were cash and
cash equivalents of $112.7 million, short-term investments of $6.3 million,
short-term credit lines of $78.8 million and long-term credit lines of $16.2
million. As of March 31, 2011, $5.1 million was outstanding under the short-
term lines of credit and $5.3 million was used for bank guarantees under
these lines of credit, leaving $68.4 million available for borrowing under
our short-term lines of credit. In addition, the Company maintained short-
term credit lines specific to bank guarantees for $6.6 million, of which $0.3
million was used. Therefore, $74.7 million was unused and available under our
short-term and bank guarantee lines of credit, in aggregate, at March 31,
2011. At such date the entire amount of our long-term lines of credit was
fully drawn. The Company is subject to financial covenants, which could
restrict the Company from drawing money under these lines of credit. At
March 31, 2011, the Company was in compliance with these covenants.
Cash and cash equivalents increased by $2.1 million during the six-month
period ended March 31, 2011. Approximately 23.4 million in cash and cash
equivalents were provided by operating activities, mainly as the result of
the increase in net income for the six months ended March 31, 2011, changes
in accrued liabilities, changes in income tax payable and non-cash
transactions (stock-based compensation expense and depreciation), partially
offset by changes in inventories and in accounts receivable.
Net cash used in investing activities totaled $16.5 million for the six-month
period ended March 31, 2011, and primarily related to the acquisition of
LASAG. The additions to property and equipment were partially offset by the
net sale of short-term and long-term investments.
Net cash used in financing activities totaled $7.9 million for the six-month
period ended March 31, 2011, and was primarily related to the stock buy back
program and repayments to banks, which was partially offset by the issuance
of common stock from option exercises and the borrowings from banks.
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.
- 26 -
The Company has listed all its material contractual obligations in the Annual
Report on Form 10-K, for the fiscal year ended September 30, 2010, and has
not entered into any further material contractual obligations since that
date.
On May 5, 2010, the Board of Directors authorized the Company to initiate a
share buyback of up to $30.0 million of the Company's common stock over
twelve months, subject to market conditions, through purchases from time to
time in open market transactions or privately negotiated transactions at the
Company's discretion, including the quantity, timing and price thereof.
Through March 31, 2011, the Company has purchased approximately 1.1 million
shares of common stock, at an average price of $25.96, under the stock
buyback program for a total price of $28.2 million.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements or financing arrangements
(other than operating leases) involving variable interest entities.
Currency Exchange Rate Fluctuations
Although we report our Consolidated Financial Statements in U.S. dollars,
approximately 63% 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 gain of $29.6 million at March 31, 2011, as compared to
a gain of $17.6 million at September 30, 2010.
Critical Accounting Policies
Our significant accounting policies are more fully described in Part 2, Item
8, Note 1 of our consolidated financial statements in our Annual Report on
Form 10-K, for the fiscal year ended September 30, 2010. 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.
- 27 -
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.
- 28 -
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 all
other employees is treated as a permanent difference for income tax
purposes.
- 29 -
Ownership of Common Stock By Directors
The following table sets forth information as of March 31, 2011, with respect
to beneficial ownership of the Company's common stock and exercisable options
by each director.
Number of Total Number of
Shares of Number of Exercisable
Common Stock Stock Options Stock Options
Beneficially Owned at Owned at
Name Owned March 31, 2011 March 31, 2011
---------------- -------------- ----------------- -----------------
Peter Wirth 12,600 125,000 119,000
Gunther Braun 6,000 680,000 522,000
Carl F. Baasel 128,000 24,000 24,000
Ralph E. Reins (1) 24,000 -- --
Gary K. Willis (1) 36,000 -- --
Daniel Smoke (1) 32,000 -- --
Stephan Fantone (1) 7,000 -- --
(1) Outside, non-executive directors
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the six-month period ended March 31, 2011, 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, 2010.
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 March 31, 2011, the Company maintained cash equivalents and short term
investments of $119.0 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.
- 30 -
At March 31, 2011, the Company had $9.7 million of variable rate debt on
which the interest rate is reset every three months, $2.4 million of variable
rate debt on which the interest rate is reset every year and $9.2 million of
fixed rate debt. Maturities of this debt are as follows: $3.1 million is due
in fiscal year 2011, $3.2 million is due in fiscal year 2012, $8.8 million is
due in fiscal year 2013, $2.1 million is due in fiscal year 2014, $1.4
million is due in fiscal year 2015 and $2.7 million is due in fiscal 2016. 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 rate swap agreements of
total notional amounts of Euro 3.4 million and Swiss Francs 4.25 million
(equivalent to $4.8 million and $4.9 million, respectively, based on the
exchange rates at March 31, 2011), to minimize the interest expenses on
short-term and long-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 March 31, 2011, the
Company held Japanese yen forward exchange options with notional amount of
Euro 0.4 million and Japanese yen forward exchange options with notional
amount of $0.1 million. The profit or loss resulting from a 10% change in
currency exchange rates would vary approximately from $0.1 million profit to
less than $0.1 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.
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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 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 exchanged in 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, 2010. See also, "Overview" and
"Forward-Looking Statements" included in this Quarterly Report on
Form 10-Q.
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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 the Company's
common stock over twelve months, subject to market conditions,
through purchases from time to time in open market transactions
or privately negotiated transactions at the Company's discretion,
including the quantity, timing and price thereof. Through
March 31, 2011, the Company has purchased approximately 1.1 million
shares of common stock, at an average price of $25.96, under the
stock buyback program for a total price of $28.2 million.
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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rofin-Sinar Technologies Inc.
---------------------------------
(Registrant)
Date: May 10, 2011 /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
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