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EXCEL - IDEA: XBRL DOCUMENT - ROFIN SINAR TECHNOLOGIES INC | Financial_Report.xls |
EX-31.2 - CFO CERTIFICATION - ROFIN SINAR TECHNOLOGIES INC | a20140630ex312.htm |
EX-32.2 - CFO CERTIFICATION - ROFIN SINAR TECHNOLOGIES INC | a20140630ex322.htm |
EX-31.1 - CEO CERTIFICATION - ROFIN SINAR TECHNOLOGIES INC | a20140630ex311.htm |
EX-32.1 - CEO CERTIFICATION - ROFIN SINAR TECHNOLOGIES INC | a20140630ex321.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2014
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-21377
ROFIN-SINAR TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
Delaware | 38-3306461 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
40984 Concept Drive, Plymouth, MI | 48170 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (734) 455-5400
(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 [X ] / 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]
28,008,966 shares of the registrant's common stock, par value $0.01 per share, were outstanding as of August 8, 2014.
ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I | FINANCIAL INFORMATION | Page No. | |
Item 1 - Financial Statements | |||
Item 2 - | |||
Item 3 - | |||
Item 4 - | |||
PART II | OTHER INFORMATION | ||
Item 1 - | |||
Item 1A - | |||
Item 2 - | |||
Item 3 - | |||
Item 4 - | |||
Item 5 - | |||
Item 6 - | |||
2
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, 2014 | September 30, 2013 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents (Note 4) | $ | 133,017 | $ | 133,733 | ||||
Short-term investments (Note 4) | 11,636 | 3,244 | ||||||
Accounts receivable, net of allowance for doubtful accounts $3,177 and $3,423, respectively | 102,725 | 110,665 | ||||||
Inventories, net (Note 5) | 205,962 | 198,460 | ||||||
Other current assets and prepaid expenses | 36,756 | 35,190 | ||||||
Total current assets | 490,096 | 481,292 | ||||||
Long-term investments (Notes 4 & 6) | 1,900 | |||||||
Property and equipment, net | 83,256 | 86,912 | ||||||
Goodwill (Note 7) | 105,170 | 104,404 | ||||||
Other intangibles, net (Note 7) | 16,761 | 10,674 | ||||||
Other assets | 18,296 | 14,728 | ||||||
Total assets | $ | 713,579 | $ | 699,910 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Lines of credit and short-term borrowings | $ | 9,390 | $ | 3,709 | ||||
Accounts payable, trade | 23,695 | 24,596 | ||||||
Accounts payable to related party | 443 | 331 | ||||||
Income tax payable | 3,271 | 5,290 | ||||||
Accrued liabilities (Note 8) | 69,737 | 74,588 | ||||||
Total current liabilities | 106,536 | 108,514 | ||||||
Long-term debt | 12,916 | 14,913 | ||||||
Pension obligations | 25,527 | 24,070 | ||||||
Other long-term liabilities | 13,629 | 8,995 | ||||||
Total liabilities | 158,608 | 156,492 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, 5,000,000 shares authorized, none issued or outstanding | — | — | ||||||
Common stock, $0.01 par value, 50,000,000 shares authorized, 32,877,850 shares issued at June 30, 2014, and 32,725,950 shares issued at September 30, 2013 | 329 | 327 | ||||||
Additional paid-in capital | 231,637 | 228,124 | ||||||
Retained earnings | 476,003 | 462,808 | ||||||
Accumulated other comprehensive income (Note 11) | 15,350 | 11,533 | ||||||
Treasury stock, at cost, 4,871,884 shares at June 30, 2014, and 4,601,681 shares at September 30, 2013 | (169,262 | ) | (163,026 | ) | ||||
Total Rofin-Sinar Technologies Inc. stockholders’ equity | 554,057 | 539,766 | ||||||
Non-controlling interest in subsidiaries | 914 | 3,652 | ||||||
Total equity | 554,971 | 543,418 | ||||||
Total liabilities and equity | $ | 713,579 | $ | 699,910 | ||||
See accompanying notes to condensed consolidated financial statements |
3
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended June 30, 2014 and 2013
(dollars in thousands, except per share amounts)
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net sales | $ | 134,289 | $ | 139,097 | $ | 384,067 | $ | 412,476 | ||||||||
Cost of goods sold | 87,613 | 89,765 | 249,747 | 266,186 | ||||||||||||
Gross profit | 46,676 | 49,332 | 134,320 | 146,290 | ||||||||||||
Selling, general, and administrative expenses | 25,848 | 26,544 | 78,969 | 77,595 | ||||||||||||
Research and development expenses | 11,344 | 10,456 | 34,443 | 33,041 | ||||||||||||
Amortization expense | 760 | 631 | 2,115 | 1,886 | ||||||||||||
Income from operations | 8,724 | 11,701 | 18,793 | 33,768 | ||||||||||||
Other (income) expense | ||||||||||||||||
Interest income | (102 | ) | (88 | ) | (360 | ) | (388 | ) | ||||||||
Interest expense | 102 | 129 | 614 | 473 | ||||||||||||
Foreign currency (income) expense | (462 | ) | (82 | ) | 496 | (1,081 | ) | |||||||||
Other income | (182 | ) | (277 | ) | (1,418 | ) | (417 | ) | ||||||||
Income before income tax | 9,368 | 12,019 | 19,461 | 35,181 | ||||||||||||
Income tax expense | 2,929 | 3,256 | 6,276 | 10,099 | ||||||||||||
Net income | 6,439 | 8,763 | 13,185 | 25,082 | ||||||||||||
Less: Net income (loss) attributable to the noncontrolling interest | (57 | ) | 61 | (10 | ) | 122 | ||||||||||
Net income attributable to RSTI | $ | 6,496 | $ | 8,702 | $ | 13,195 | $ | 24,960 | ||||||||
Net income attributable to RSTI per share: | ||||||||||||||||
Per share of common stock basic | $ | 0.23 | $ | 0.31 | $ | 0.47 | $ | 0.89 | ||||||||
Per share of common stock diluted | $ | 0.23 | $ | 0.31 | $ | 0.47 | $ | 0.88 | ||||||||
Weighted-average shares used in computing earnings per share (Note 13) | ||||||||||||||||
Basic | 28,019,504 | 28,283,840 | 28,094,443 | 28,185,536 | ||||||||||||
Diluted | 28,156,237 | 28,485,029 | 28,251,273 | 28,396,559 |
See accompanying notes to condensed consolidated financial statements
4
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Periods Ended June 30, 2014 and 2013
(dollars in thousands)
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income | $ | 6,439 | $ | 8,763 | $ | 13,185 | $ | 25,082 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Fair value of interest rate swap agreements, net of tax expense of $0, $6, $8 and $19 | 2 | 18 | 23 | 59 | ||||||||||||
Foreign currency translation adjustments | (2,083 | ) | 5,251 | 3,706 | 748 | |||||||||||
Defined benefit pension plans, net of tax of $18, $33, $52, and $100 | 29 | 58 | 88 | 172 | ||||||||||||
Other comprehensive income (loss), net of tax | $ | (2,052 | ) | $ | 5,327 | $ | 3,817 | $ | 979 | |||||||
Total comprehensive income | $ | 4,387 | $ | 14,090 | $ | 17,002 | $ | 26,061 | ||||||||
Less: Total comprehensive income (loss) attributable to the noncontrolling interest | (57 | ) | 61 | (10 | ) | 122 | ||||||||||
Total comprehensive income attributable to RSTI | $ | 4,444 | $ | 14,029 | $ | 17,012 | $ | 25,939 | ||||||||
See accompanying notes to condensed consolidated financial statements
5
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Nine Months Ended June 30, 2014 and 2013
(dollars in thousands)
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Rofin-Sinar Technologies Stockholders’ Equity | Non-Controlling Interest in Subsidiaries | Total Equity | ||||||||||||||||||||||||
BALANCES at September 30, 2012 | $ | 325 | $ | 223,339 | $ | 428,053 | $ | (4,236 | ) | $ | (158,904 | ) | $ | 488,577 | $ | 5,342 | $ | 493,919 | |||||||||||||
Total comprehensive income | 24,960 | 979 | — | 25,939 | 122 | 26,061 | |||||||||||||||||||||||||
Purchase of non-controlling interest | — | (2,332 | ) | — | — | — | (2,332 | ) | (1,952 | ) | (4,284 | ) | |||||||||||||||||||
Common stock issued in connection with Stock Incentive Plans | 2 | 6,159 | — | — | — | 6,161 | — | 6,161 | |||||||||||||||||||||||
BALANCES at June 30, 2013 | $ | 327 | $ | 227,166 | $ | 453,013 | $ | (3,257 | ) | $ | (158,904 | ) | $ | 518,345 | $ | 3,512 | $ | 521,857 | |||||||||||||
BALANCES at September 30, 2013 | $ | 327 | $ | 228,124 | $ | 462,808 | $ | 11,533 | $ | (163,026 | ) | $ | 539,766 | $ | 3,652 | $ | 543,418 | ||||||||||||||
Total comprehensive income (loss) | 13,195 | 3,817 | — | 17,012 | (10 | ) | 17,002 | ||||||||||||||||||||||||
Purchase of non-controlling interest | — | (2,302 | ) | — | — | — | (2,302 | ) | (2,728 | ) | (5,030 | ) | |||||||||||||||||||
Common stock issued in connection with Stock Incentive Plans | 2 | 5,815 | — | — | — | 5,817 | — | 5,817 | |||||||||||||||||||||||
Purchases of treasury stock | — | — | — | — | (6,236 | ) | (6,236 | ) | — | (6,236 | ) | ||||||||||||||||||||
BALANCES at June 30, 2014 | $ | 329 | $ | 231,637 | $ | 476,003 | $ | 15,350 | $ | (169,262 | ) | $ | 554,057 | $ | 914 | $ | 554,971 |
See accompanying notes to consolidated financial statements
6
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2014 and 2013
(dollars in thousands)
Nine Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 13,185 | $ | 25,082 | ||||
Adjustments to reconcile net income to net | ||||||||
cash provided by operating activities: | ||||||||
Depreciation and amortization | 12,763 | 11,304 | ||||||
Stock-based compensation expenses | 3,232 | 2,970 | ||||||
Other adjustments | (2,074 | ) | 1,091 | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable, trade | 8,306 | (3,449 | ) | |||||
Inventories | (6,404 | ) | (587 | ) | ||||
Accounts payable | (1,076 | ) | (532 | ) | ||||
Changes in other operating assets and liabilities | (7,080 | ) | (375 | ) | ||||
Net cash provided by operating activities | 20,852 | 35,504 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from the sale of property and equipment | 201 | 88 | ||||||
Additions to property and equipment | (6,325 | ) | (12,318 | ) | ||||
Purchases of short-term investments | (25,771 | ) | (6,334 | ) | ||||
Sales of short-term and long-term investments | 19,692 | 3,255 | ||||||
Acquisition of intellectual property and other assets | (5,891 | ) | — | |||||
Net cash used in investing activities | (18,094 | ) | (15,309 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Borrowing from banks | 33,733 | 19,423 | ||||||
Repayments to banks | (29,091 | ) | (23,763 | ) | ||||
Purchase of non-controlling interests | (4,911 | ) | (4,262 | ) | ||||
Purchases of treasury stock | (6,236 | ) | — | |||||
Excess tax benefit from stock options | — | 2 | ||||||
Issuance of common stock | 2,293 | 2,945 | ||||||
Net cash used in financing activities | (4,212 | ) | (5,655 | ) | ||||
Effect of foreign currency translation on cash | 738 | 12 | ||||||
Net increase (decrease) in cash and cash equivalents | (716 | ) | 14,552 | |||||
Cash and cash equivalents at beginning of period | 133,733 | 98,735 | ||||||
Cash and cash equivalents at end of period | $ | 133,017 | $ | 113,287 | ||||
Cash paid for interest | $ | 239 | $ | 463 | ||||
Cash paid for taxes | $ | 8,295 | $ | 14,942 |
See accompanying notes to condensed consolidated financial statements
7
Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
1. | 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, 2013, 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, 2013, as filed with the Securities and Exchange Commission on November 29, 2013.
2. | New Accounting Standards |
In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities“. ASU 2011-11 amended ASC 210, “Balance Sheet“, to converge the presentation of offsetting assets and liabilities between U.S. GAAP and IFRS. ASU 2011-11 requires that entities disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB issued ASU 2013-01 which limited the scope of this guidance to derivatives, repurchase type agreements and securities borrowing and lending transactions. The guidance from these updates became effective for the Company in fiscal year 2014. Adoption of this guidance did not have an impact on the Company's financial statements.
In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. ASU 2013-02 requires reclassification adjustments for items that are reclassified from accumulated other comprehensive income to net income be presented on the financial statements or in a note to the financial statements. The new disclosure requirements are effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. As such, ASU 2013-02 became effective October 1, 2013, for the Company and is applied prospectively. The adoption of this updated authoritative guidance resulted in an additional footnote disclosure but had no effect on our financial condition, results of operations, or cash flows.
In March 2013, the FASB amended guidance related to a parent company’s accounting for the release of the cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This guidance is effective for fiscal periods beginning after December 15, 2013, and is to be applied prospectively to derecognition events occurring after the effective date. The Company does not anticipate that the adoption of this amendment will have a material impact on its financial statements.
In July 2013, the FASB issued guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under this guidance an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not believe the adoption will have a significant impact on the Company's consolidated financial statements.
8
In May 2014, the FASB issued guidance on revenue from contracts with customers, which implements a five step process of how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for the Company as of October 1, 2017, and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact that the adoption will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.
3. | Acquisitions |
Effective December 20, 2012, the Company acquired the remaining 20% of the common stock of ROFIN-BAASEL China Co., Ltd. through its wholly-owned subsidiary ROFIN-SINAR Laser GmbH ("RSL"). The Company currently holds 100% of the share capital of ROFIN-BAASEL China Co., Ltd.
Effective January 8, 2013, the Company acquired the remaining 20% of the common stock of Nanjing Eastern Technologies Company, Ltd. The Company currently holds 100% of the share capital of Nanjing Eastern Technologies Company, Ltd.
On November 18, 2013, the Company purchased the remaining 10% of the share capital of m2k-laser GmbH through its wholly-owned subsidiary RSL under an option agreement between the Company and the minority shareholders of m2k-laser GmbH. As a result, the Company currently holds 100% of the share capital of m2k-laser GmbH.
Effective December 20, 2013, the Company acquired the remaining 12% of the common stock of ROFIN-BAASEL Japan Corp. through its wholly-owned subsidiary RSL. The Company currently holds 100% of the share capital of ROFIN-BAASEL Japan Corp.
On April 10, 2014, the Company completed the acquisition of certain assets of FiLaser USA LLC. ("FiLaser") and subsidiaries. The transaction contains all intellectual property including know-how, patents, and patent applications of FiLaser. FiLaser has developed advanced laser process technology used for precision cutting and drilling of brittle material including glass, sapphire, and semiconductor substrates. The Company has held back approximately 28% of the purchase price as security for various claims. In addition, the purchase agreement also provides for potential future earn-out payments from revenues generated from certain of these intangible assets.
Effective June 12, 2014, the Company acquired the remaining 5% of the common stock of DILAS Diodenlaser GmbH through its wholly-owned subsidiary ROFIN-SINAR Technologies Europe S.L. The Company currently holds 100% of the share capital of DILAS Diodenlaser GmbH.
4. | Fair Value Measurements |
The Company’s cash and cash equivalents, short-term investments, accounts receivable, and accrued liabilities are carried at amounts, which reasonably approximate their fair values due to their short-term nature. The Company’s lines of credit, short-term borrowings and long-term debt bear interest at variable and fixed interest rates that approximate market. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied.
Assets and liabilities recorded at fair value in our balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities are as follows:
• | 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. |
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Financial assets and liabilities measured at fair value on a recurring basis are classified on the valuation technique level in the table below:
June 30, 2014 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Cash and cash equivalents | $ | 133,017 | $ | 133,017 | $ | — | $ | — | ||||||||
Short-term investments | 11,636 | 11,636 | — | — | ||||||||||||
Derivatives | (151 | ) | — | (151 | ) | — | ||||||||||
Other long-term assets | 250 | — | 250 | — | ||||||||||||
Total assets and liabilities at fair value | $ | 144,752 | $ | 144,653 | $ | 99 | $ | — |
September 30, 2013 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Cash and cash equivalents | $ | 133,733 | $ | 133,733 | $ | — | $ | — | ||||||||
Short-term investments | 3,244 | 3,244 | — | — | ||||||||||||
Derivatives | (126 | ) | — | (126 | ) | — | ||||||||||
Non-current auction rate securities | 1,900 | — | — | 1,900 | ||||||||||||
Other long-term assets | 250 | — | 250 | — | ||||||||||||
Total assets and liabilities at fair value | $ | 139,001 | $ | 136,977 | $ | 124 | $ | 1,900 |
The changes in the fair value of our non-current auction rate securities measured using significant unobservable inputs (level 3), are as follows:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||
September 30, 2013 | $ | 1,900 | |
Settlements during the three-months ended December 31, 2013 | (1,900 | ) | |
June 30, 2014 | $ | — |
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:
June 30, 2014 | September 30, 2013 | |||||||
Finished goods | $ | 33,707 | $ | 30,177 | ||||
Work in progress | 46,006 | 43,870 | ||||||
Raw materials and supplies | 71,644 | 71,367 | ||||||
Demo inventory | 20,170 | 20,691 | ||||||
Service parts | 34,435 | 32,355 | ||||||
Total inventories | $ | 205,962 | $ | 198,460 |
Net inventory is net of provisions for excess and obsolete inventory of $30,656 and $28,592 at June 30, 2014, and September 30, 2013, respectively.
10
6. | Long-Term Investments |
Long-term investments represented auction rate securities which were 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 sales for cash, at par value, the Company eliminated its holdings of auction rate securities as of June 30, 2014. Although the Company believed these investments would become liquid within twelve months, it was uncertain what impact the economic environment would have had on this position and therefore, they had been classified as long-term assets on the consolidated balance sheet as of September 30, 2013.
7. | Goodwill and Other Intangible Assets |
The changes in the carrying amount of goodwill for the nine months ended June 30, 2014, are as follows:
Germany | United States | Rest of World | Total | |||||||||||||
Balance as of September 30, 2013 | $ | 43,683 | $ | 13,297 | $ | 47,424 | $ | 104,404 | ||||||||
Currency translation differences | 297 | 22 | 447 | 766 | ||||||||||||
Balance as of June 30, 2014 | $ | 43,980 | $ | 13,319 | $ | 47,871 | $ | 105,170 |
The carrying values of other intangible assets are as follows:
June 30, 2014 | September 30, 2013 | |||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
Amortized intangible assets: | ||||||||||||||||
Patents | $ | 18,563 | $ | 8,994 | $ | 10,764 | $ | 8,270 | ||||||||
Customer base | 19,262 | 17,353 | 19,084 | 16,778 | ||||||||||||
Other | 22,806 | 17,523 | 22,389 | 16,515 | ||||||||||||
Total | $ | 60,631 | $ | 43,870 | $ | 52,237 | $ | 41,563 |
Amortization expense for each of the nine-month periods ended June 30, 2014 and 2013 was $2,115 and $1,886, respectively. At June 30, 2014, estimated amortization expense of existing intangible assets for the remainder of fiscal year 2014 and the next five fiscal years based on the average exchange rates as of June 30, 2014, is as follows:
2014 (remainder) | 808 | |
2015 | 3,082 | |
2016 | 2,053 | |
2017 | 1,841 | |
2018 | 1,189 | |
2019 | 1,058 |
11
8. | Accrued Liabilities |
Accrued liabilities are comprised of the following:
June 30, 2014 | September 30, 2013 | |||||||
Employee compensation | $ | 20,593 | $ | 23,402 | ||||
Warranty reserves | 11,327 | 12,301 | ||||||
Other taxes payable | 164 | 320 | ||||||
Customer deposits | 15,794 | 16,242 | ||||||
Other | 21,859 | 22,323 | ||||||
Total accrued liabilities | $ | 69,737 | $ | 74,588 |
9. | Income Taxes |
The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as interest expense and selling, general and administrative expense, 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, 2014, the Company's gross unrecognized tax benefits totaled $0.5 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 tax years through 2006. 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 tax years before 2008.
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.
The changes in warranty reserve for the nine-month periods ended June 30, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
Balance at September 30, | $ | 12,301 | $ | 11,894 | ||||
Additional accruals for warranties during the period | 3,463 | 3,008 | ||||||
Usage during the period | (4,537 | ) | (2,679 | ) | ||||
Currency translation | 100 | 51 | ||||||
Balance at June 30, | $ | 11,327 | $ | 12,274 |
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11. | Accumulated Other Comprehensive Income (Loss) |
The changes in Accumulated Other Comprehensive Income by component, net of tax, during the three months ended June 30, 2014, are as follows:
Defined Benefit Plans | Foreign Currency Translation Adjustments | Fair Value of Interest Swap Agreements | Total | |||||||||||||
Balance at March 31, 2014 | $ | (5,390 | ) | $ | 22,880 | $ | (88 | ) | $ | 17,402 | ||||||
Other comprehensive income (loss) before reclassifications | — | (2,083 | ) | 2 | (2,081 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income | 29 | — | — | 29 | ||||||||||||
Balance at June 30, 2014 | (5,361 | ) | 20,797 | (86 | ) | 15,350 |
The changes in Accumulated Other Comprehensive Income by component, net of tax, during the nine months ended June 30, 2014, are as follows:
Defined Benefit Plans | Foreign Currency Translation Adjustments | Fair Value of Interest Swap Agreements | Total | |||||||||||||
Balance at September 30, 2013 | $ | (5,449 | ) | $ | 17,091 | $ | (109 | ) | $ | 11,533 | ||||||
Other comprehensive income before reclassifications | — | 3,706 | 23 | 3,729 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income | 88 | 88 | ||||||||||||||
Balance at June 30, 2014 | $ | (5,361 | ) | $ | 20,797 | $ | (86 | ) | $ | 15,350 |
The reclassifications out of Accumulated Other Comprehensive Income for the three and nine month periods ended June 30, 2014, are as follows:
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||
Unamortized loss on defined benefit pension plans | |||||||
Amortization | $ | 47 | $ | 140 | |||
Tax effects | (18 | ) | (52 | ) | |||
Total reclassification for the period | $ | 29 | $ | 88 |
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 2013 or through the first nine months of fiscal year 2014. Non-qualified stock options were granted to officers and other key employees in the first quarter of fiscal year 2014 and during the second quarter of fiscal year 2013. During the nine-month periods ended June 30, 2014 and 2013, outside directors each received 3,000 shares of common stock, from the 2007 Incentive Stock Plan, that were fully vested upon grant. Options granted to officers and other key employees generally vest over five years and will expire not later than ten years after the date on which they are granted.
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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:
November 2013 Grants | March 2013 Grants | |||||||
Weighted average grant date fair value | $ | 11.72 | $ | 12.42 | ||||
Expected life | 5.40 years | 5 years | ||||||
Volatility | 50.55 | % | 49.64 | % | ||||
Risk-free interest rate | 1.48 | % | 0.98 | % | ||||
Dividend yield | — | % | — | % |
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 nine months ended June 30, 2014, are as follows:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (Millions) | ||||||||||||
Outstanding at September 30, 2013 | 3,238,700 | $ | 26 | 9/10 | 5.24 years | ||||||||||
Granted | 342,500 | $ | 25 | 1/5 | |||||||||||
Exercised | (139,900 | ) | $ | 16 | 3/8 | ||||||||||
Forfeited | (67,100 | ) | $ | 28 | 3/5 | ||||||||||
Outstanding at June 30, 2014 | 3,374,200 | $ | 27 | 1/10 | 5.11 years | $ | 3.73 | ||||||||
Exercisable at June 30, 2014 | 2,359,650 | $ | 27 | 1/10 | 3.75 years | $ | 3.66 |
As of June 30, 2014, there were $11.2 million of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of 3.28 years.
During the three and nine-month periods ended June 30, 2014 and 2013, the following activity occurred under the Incentive Stock Plan:
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Total intrinsic value of stock options exercised | $ | 88 | $ | 324 | $ | 1,105 | $ | 2,932 | ||||||||
Cash received from stock option exercises | $ | 155 | $ | 549 | $ | 2,293 | $ | 2,901 |
13. | Earnings Per Common Share |
The basic earnings per common share (EPS) calculation is computed by dividing net income attributable to holders of RSTI common stock 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).
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The calculation of the weighted average number of shares outstanding for each period is as follows:
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Weighted number of shares for basic earnings per common share | 28,019,504 | 28,283,840 | 28,094,443 | 28,185,536 | ||||||||
Potential additional shares due to outstanding dilutive stock options | 136,733 | 201,189 | 156,830 | 211,023 | ||||||||
Weighted number of shares for diluted earnings per common share | 28,156,237 | 28,485,029 | 28,251,273 | 28,396,559 |
The weighted average diluted shares outstanding for the nine months ended June 30, 2014 and 2013, excludes the dilutive effect of approximately 2.9 million and 2.5 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 nine-month periods ended June 30, 2014 and 2013:
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Service cost | $ | 245 | $ | 255 | $ | 736 | $ | 765 | ||||||||
Interest cost | 335 | 314 | 1,004 | 943 | ||||||||||||
Expected return on plan assets | (167 | ) | (153 | ) | (501 | ) | (459 | ) | ||||||||
Amortization of prior net loss | 28 | 13 | 84 | 37 | ||||||||||||
Amortization of prior service cost | 19 | 78 | 56 | 235 | ||||||||||||
Net periodic pension cost | $ | 460 | $ | 507 | $ | 1,379 | $ | 1,521 |
15. | Segment and Geographic Information |
Assets, revenues, and income before taxes, by geographic region attributable based on the geographic location of the RSTI entities are summarized below:
June 30, 2014 | September 30, 2013 | |||||||
ASSETS | ||||||||
North America | $ | 246,437 | $ | 243,215 | ||||
Germany | 458,719 | 445,568 | ||||||
Other | 358,592 | 340,677 | ||||||
Intercompany eliminations | (350,169 | ) | (329,550 | ) | ||||
$ | 713,579 | $ | 699,910 |
June 30, 2014 | September 30, 2013 | |||||||
PROPERTY AND EQUIPMENT, NET | ||||||||
North America | $ | 16,574 | $ | 17,856 | ||||
Germany | 46,010 | 48,256 | ||||||
Other | 20,961 | 21,132 | ||||||
Intercompany eliminations | (289 | ) | (332 | ) | ||||
$ | 83,256 | $ | 86,912 |
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Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
NET SALES | ||||||||||||||||
North America | $ | 36,942 | $ | 40,576 | $ | 105,419 | $ | 116,956 | ||||||||
Germany | 85,081 | 86,894 | 238,207 | 262,474 | ||||||||||||
Other | 66,203 | 62,466 | 198,630 | 195,297 | ||||||||||||
Intercompany eliminations | (53,937 | ) | (50,839 | ) | (158,189 | ) | (162,251 | ) | ||||||||
$ | 134,289 | $ | 139,097 | $ | 384,067 | $ | 412,476 | |||||||||
INTERCOMPANY SALES | ||||||||||||||||
North America | $ | 2,684 | $ | 3,742 | $ | 8,785 | $ | 11,150 | ||||||||
Germany | 35,398 | 34,610 | 105,115 | 108,835 | ||||||||||||
Other | 15,855 | 12,487 | 44,289 | 42,266 | ||||||||||||
Intercompany eliminations | (53,937 | ) | (50,839 | ) | (158,189 | ) | (162,251 | ) | ||||||||
$ | — | $ | — | $ | — | $ | — | |||||||||
EXTERNAL SALES | ||||||||||||||||
North America | $ | 34,259 | $ | 36,834 | $ | 96,635 | $ | 105,806 | ||||||||
Germany | 49,682 | 52,284 | 133,091 | 153,639 | ||||||||||||
Other | 50,348 | 49,979 | 154,341 | 153,031 | ||||||||||||
$ | 134,289 | $ | 139,097 | $ | 384,067 | $ | 412,476 |
INCOME BEFORE INCOME TAX | ||||||||||||||||
North America | $ | 2,803 | $ | 3,833 | $ | 5,077 | $ | 7,333 | ||||||||
Germany | 3,062 | 4,812 | 712 | 12,131 | ||||||||||||
Other | 3,710 | 4,645 | 15,326 | 16,149 | ||||||||||||
Intercompany eliminations | (207 | ) | (1,271 | ) | (1,654 | ) | (432 | ) | ||||||||
$ | 9,368 | $ | 12,019 | $ | 19,461 | $ | 35,181 |
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 as follows:
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Macro applications | $ | 56,416 | $ | 57,126 | $ | 152,274 | $ | 161,154 | ||||||||
Marking and micro applications | 58,991 | 62,622 | 180,874 | 198,697 | ||||||||||||
Components | 18,882 | 19,349 | 50,919 | 52,625 | ||||||||||||
$ | 134,289 | $ | 139,097 | $ | 384,067 | $ | 412,476 |
17. | Treasury Stock |
On February 5, 2014, the Board of Directors authorized the Company to initiate a share buyback of up to $25.0 million of the Company’s Common Stock over the next twelve months ending February 10, 2015, 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. During the nine months ended June 30, 2014, the Company purchased approximately 0.3 million shares of common stock, at an average price of $23.08, under the stock buyback program for a total price of $6.2 million.
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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", "continue", or other words or terms of similar meaning. These forward-looking statements are based on the current plans, expectations, and assumptions of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, including by way of example those risk factors discussed under the sections entitled "Risk Factors" in Item 1A of the Company's Annual Report for the year ended September 30, 2013, 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", "Rofin", or the "Company" or "we", "us" or "our") is a leader in the design, development, engineering, manufacturing and marketing of laser sources and laser-based system solutions for industrial material processing applications, which include primarily cutting, welding and marking a wide range of materials. The Company's product portfolio ranges from single laser-beam sources to highly complex systems, covering all of the key laser technologies such as CO2 lasers, fiber, solid-state and diode lasers, and the entire power spectrum, from single-digit watts up to multi-kilowatts, as well as a comprehensive spectrum of wavelengths or pulse durations. An extensive range of laser components completes the product portfolio. Lasers are a non-contact technology for material processing, which have several advantages compared to conventional manufacturing tools that are desirable in industrial applications. The Company's lasers all deliver a high-quality beam at guaranteed power outputs and feature compact design, high processing speed, flexibility, low operating and maintenance costs, and easy integration into the customer's production process, thus meeting a broad range of its customers' material processing requirements.
Through its global manufacturing, distribution and service network, the Company provides 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. The Company sells directly to end-users and to original equipment manufacturers (“OEMs”) (principally in the machine tool industry) that integrate Rofin's laser sources with other system components. Many of Rofin's customers are among the largest global participants in their respective industries.
Rofin's sales approach in the laser-related business reflects the many different requirements of its customers throughout a multitude of industries, and is divided into three areas of core competence: Macro, Micro and Marking. The core of the Macro business section is high-powered laser sources, primarily used for cutting and welding as well as surface treatment applications. The Micro section concentrates on laser sources and laser-based system solutions that require less power output for micro-processing of materials. The Marking section specializes in innovative marking solutions on both organic and inorganic materials for many different industries. The activities in the components sector, which comprise diodes and diode laser components, power supplies, fibers and fiber beam deliveries as well as fiber laser components, round out the Company's business activities in the industrial laser market.
During the third quarter of fiscal years 2014 and 2013, we realized approximately 42% and 41% of revenues, respectively, from the sale and servicing of laser products used for macro applications, approximately 44% and 45%, respectively, from the sale and servicing of laser products for marking and micro applications, and approximately 14% in both periods from the sale of components.
The Company delivered solid financial results within its guidance for the third quarter. On a sequential basis, the Company experienced a rebound in quarterly sales to the machine tool industry, with the main contribution coming from China, as well as significantly improved business levels in the semiconductor industry. Sales to the automotive and medical device industries were stable, whereas consumer electronics sales were significantly below last fiscal year’s third quarter level. Quarter over quarter orders improved substantially: order entry in Europe increased by 3%, indicating a stable business environment, North American orders improved by 19% and Asian orders by 27%, mainly supported by the machine tool and semiconductor
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industries. Based on the current global economy and the $10 million increased backlog at the end of June 2014, the Company is confident in delivering improved results in the fourth quarter.
At June 30, 2014, the Company had 2,269 employees compared to 2,242 employees at June 30, 2013.
Results of Operations
For the periods indicated, the following table sets forth the percentage of net sales represented by the respective line items in the Company's consolidated statements of operations.
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Net sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Cost of goods sold | 65 | % | 65 | % | 65 | % | 65 | % | ||||
Gross profit | 35 | % | 35 | % | 35 | % | 35 | % | ||||
Selling, general and administrative expenses | 19 | % | 19 | % | 21 | % | 19 | % | ||||
Research and development expenses | 8 | % | 8 | % | 9 | % | 8 | % | ||||
Amortization expenses | 1 | % | — | % | 1 | % | — | % | ||||
Income from operations | 6 | % | 8 | % | 5 | % | 8 | % | ||||
Income before income taxes | 7 | % | 9 | % | 5 | % | 9 | % | ||||
Net income attributable to RSTI | 5 | % | 6 | % | 3 | % | 6 | % |
Net Sales - Net sales of $134.3 million and $384.1 million represent decreases of $4.8 million, or 3%, and $28.4 million, or 7%, for the three and nine-month periods ended June 30, 2014, as compared to the corresponding periods in fiscal year 2013. The decrease for the three months ended June 30, 2014, resulted from net sales decreases of $4.0 million, or 14%, in North America, and by $4.4 million, or 9%, in Asia, offset by an increase of $3.6 million, or 6%, in Europe, compared to the corresponding period in fiscal year 2013. The decrease for the nine months ended June 30, 2014, resulted from net sales decreases of $10.8 million, or 13%, in North America, and by $30.2 million, or 20%, in Asia, offset by an increase of $12.6 million, or 7%, in Europe, compared to the corresponding period in fiscal year 2013. The U.S. dollar weakened against foreign currencies, primarily against the Euro, which had a favorable effect on net sales of $9.2 million for the nine-month period ended June 30, 2014.
Net sales of laser products for macro applications decreased by $0.7 million, or 1%, to $56.4 million, and by $8.9 million, or 6%, to $152.3 million for the three and nine-month periods ended June 30, 2014, as compared to the corresponding periods of fiscal year 2013. The decrease was mainly attributable to the lower demand for our lasers for macro applications in the machine tool and military and defense industries.
Net sales of lasers for marking and micro applications decreased by $3.6 million, or 6%, to $59.0 million, for the three-month period ended June 30, 2014, and reflects lower demand from the electronics and solar industries. Net sales of lasers for marking and micro applications decreased by $17.8 million, or 9%, to $180.9 million for the nine-month period ended June 30, 2014, and also reflects lower demand from the consumer electronics and solar industries.
Revenues for the components business decreased by $0.5 million, or 2%, to $18.9 million for the three-month period ended June 30, 2014. Revenues for the nine-month period ended June 30, 2014, decreased by $1.7 million, or 3%, to $50.9 million compared to the corresponding period in fiscal year 2013, mainly attributable to weaker demand for laser diodes.
Gross Profit - Our gross profit of $46.7 million for the three-month period ended June 30, 2014, represents a decrease of $2.7 million, or 5%, from the corresponding period of fiscal year 2013, and as a percentage of sales, remained consistent at 35%. Our gross profit of $134.3 million for the nine-month period ended June 30, 2014, represents a decrease of $12.0 million, or 8%, from the corresponding period of fiscal year 2013. As a percentage of sales, gross profit for the nine-month period ended June 30, 2014, remained stable at 35%. Gross profit was favorably affected by $1.1 million due to the weakening of the U.S. dollar against foreign currencies, primarily against the Euro, in the nine-month period ended June 30, 2014.
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Selling, General and Administrative Expenses - Selling, general and administrative ("SG&A") expenses of $25.8 million and $79.0 million for the three and nine-month periods ended June 30, 2014, represents a decrease of $0.7 million, or 3%, for the three-month period, and an increase of $1.4 million, or 2%, from the corresponding period of fiscal year 2013. The decrease in SG&A expenses for the three-month period is mainly a result of a decrease in commissions and exhibition costs. SG&A, a significant portion of which is incurred in foreign currencies, was unfavorably affected by $1.9 million due to the weakening of the U.S. dollar against foreign currencies, primarily the Euro, for the nine-month period ended June 30, 2014. As a percentage of net sales, SG&A expenses remained stable at 19% for the three-month periods ended June 30, 2014, and 2013, and increased from 19% to 21% for the nine-month period ended June 30, 2014, as compared to the corresponding prior year period, due to the unfavorable impact of exchange rate fluctuations partially offset by lower commission costs and a decrease in the allowance for bad debts.
Research and Development - The Company spent net $11.3 million and $34.4 million on research and development ("R&D") during the three and nine-month periods ended June 30, 2014, which represents an increase of $0.9 million, or 8%, for the three-month period ended June 30, 2014, and an increase of $1.4 million, or 4%, for the nine-month period ended June 30, 2014. Gross R&D expenses for the three-month periods ended June 30, 2014 and 2013, were $11.8 million and $11.0 million, respectively, and were reduced by $0.5 million of government grants during each period. Gross R&D expenses for the nine-month periods ended June 30, 2014 and 2013, were $35.7 million and $34.3 million, respectively, and were reduced by $1.3 million of government grants during each period. R&D, a significant portion of which is conducted in Europe, and therefore incurred in foreign currencies, was unfavorably effected by $1.2 million due to the weakening of the U.S. dollar against foreign currencies, primarily the Euro, for the nine-month period ended June 30, 2014.
Amortization Expense - Amortization expense for the three and nine-month periods ended June 30, 2014, amounted to $0.8 million and $2.1 million, respectively. This represents an increase of $0.1 million and $0.2 million for the three and nine-month periods when compared to the same periods of fiscal year 2013. These increases are attributable to the newly acquired intangible assets from FiLaser.
Other (Income) Expense - Net other income of $0.6 million for the three-month period ended June 30, 2014, represents an increase of $0.3 million compared to a net other income of $0.3 million in the corresponding period of fiscal year 2013. Net other income of $0.7 million for the nine-month period ended June 30, 2014, represents a decrease of $0.7 million compared to net other income of $1.4 million for the corresponding period of the prior year. During the nine-month period ending June 30, 2014, other income was increased by $1.0 million due to the partial forgiveness of a loan with the State of Connecticut related to investments and creation of new jobs. Net interest expense, within this category, includes $0.1 million of interest expense offset by $0.1 million of interest income for the three months ended June 30, 2014. Net interest expense for the nine months ended June 30, 2014, within this category, includes $0.6 million of interest expense offset by $0.4 million of interest income. The increase in net foreign currency expense in the nine-month period ended June 30, 2014, is due to higher net exchange losses in the current period compared to the corresponding period in fiscal year 2013.
Income Tax Expense - Income tax expense of $2.9 million and $6.3 million for the three and nine-month periods ended June 30, 2014, represents an effective tax rate of 31% and 32%, compared to 27% and 29% for the corresponding periods of fiscal year 2013. The increase in the effective tax rate is mainly due to the generation of taxable income in countries with higher tax rates and the expiration of enacted laws for research and development tax credits in the United States. Income tax expense, a significant portion of which is incurred in foreign currencies, was unfavorably affected by $0.1 million due to the weakening of the U.S. dollar against foreign currencies, primarily against the Euro, during the nine-month period ended June 30, 2014.
Net Income Attributable to RSTI - As a result of the foregoing factors, the Company realized consolidated net income attributable to RSTI of $6.5 million and $13.2 million for the three and nine-month periods ended June 30, 2014, which represents a decrease $2.2 million, or 25%, and a decrease of $11.8 million, or 47%, from the corresponding periods in fiscal year 2013. Net income attributable to RSTI was unfavorably affected by $2.2 million due to the weakening of the U.S. dollar against foreign currencies, primarily against the Euro, in the nine-month period ended June 30, 2014. For the three-month period ended June 30, 2014, both the basic and diluted earnings per common share calculation equaled $0.23 based upon a weighted average of 28.0 million and 28.2 million shares of common stock outstanding, as compared to basic and diluted earnings per common share calculation of $0.31, based upon a weighted average of 28.3 million and 28.5 million shares of common stock outstanding for the corresponding period of fiscal year 2013.
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Liquidity and Capital Resources
The Company's primary sources of liquidity at June 30, 2014, were cash and cash equivalents of $133.0 million, short-term investments of $11.6 million, short-term credit lines of $67.1 million, and long-term credit lines of $14.6 million. As of June 30, 2014, $7.7 million was outstanding under the short-term lines of credit and $2.4 million was used for bank guarantees under these lines of credit, leaving $57.0 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 $15.2 million, of which $1.5 million was used. Therefore, $70.7 million was unused and available under our short-term and bank guarantee lines of credit, in aggregate, at June 30, 2014. At such date, the entire amount of our long-term lines of credit was fully drawn and $1.7 million was classified under short-term lines of credit for the current portion of the long-term debt. The Company is subject to financial covenants, which could restrict the Company from drawing money under these lines of credit. At June 30, 2014, the Company was in compliance with these covenants.
Cash and cash equivalents decreased by $0.7 million during the nine-month period ended June 30, 2014. Approximately $20.9 million in cash and cash equivalents were provided by operating activities, mainly as the result of net income generated for the nine-month period ended June 30, 2014, a decrease in trade accounts receivables and changes in non-cash transactions (depreciation and stock-based compensation expense), partially offset by an increase of net inventories, a decrease of accounts payable, and changes in other operating assets and liabilities.
Net cash used in investing activities totaled $18.1 million for the nine-month period ended June 30, 2014, and was primarily related to additions to property and equipment, net purchase of short-term investments and the acquisition of assets of FiLaser.
Net cash used in financing activities totaled $4.2 million for the nine-month period ended June 30, 2014, and was primarily related to repayments of bank debts, purchase of treasury stock and by purchases of non-controlling interests in our German and Japanese subsidiaries, partially offset by the borrowing from banks and by the issuance of common stock from option exercises.
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.
As of June 30, 2014, $122.2 million of the total $144.7 million of our cash, cash equivalents and short-term investments, was held by our non-US subsidiaries, with the balance of $22.5 million held by our US subsidiaries. As of that date, $14.3 million was owed by our non-US subsidiaries and $8.0 million was owed by our US subsidiaries from the total indebtedness amounting to $22.3 million. We expect our existing domestic cash, cash equivalents, and short-term investments, together with cash flows from operations to be sufficient to fund our domestic operating activities. In addition, our US subsidiaries had $15.0 million in available and unused lines of credit at June 30, 2014. Therefore, we do not intend, nor do we foresee a need, to repatriate foreign earnings that are considered to be indefinitely reinvested, and we do not believe there are any material implications for or restrictions on the liquidity of our domestic subsidiaries as a result of having a majority of our cash, cash equivalents and short-term investments held by our foreign subsidiaries.
The Company has listed all its material contractual obligations in the Annual Report on Form 10-K, for the fiscal year ended September 30, 2013, 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 (other than operating leases) or financing arrangements involving variable interest entities.
Currency Exchange Rate Fluctuations
Although we report our consolidated financial statements in U.S. dollars, approximately 69% of our sales have been denominated in other currencies, primarily the Euro, British pound sterling, Swiss franc, Swedish krona, Singapore dollar, Taiwanese dollar, Korean won, Canadian dollar, Chinese RMB, Japanese yen, and Indian rupee. 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 our exposure to exchange gains and losses.
Exchange differences upon translation from each operating unit's functional currency to U.S. dollars are accumulated as a separate component of equity. The currency translation adjustment component of shareholders’ equity had the effect of increasing total equity by $20.8 million at June 30, 2014, as compared to $17.1 million at September 30, 2013.
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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, 2013. 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. We also write-down up to 90% of our total demo inventory costs over thirty six 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.
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.
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Income Taxes
We estimate our income tax provision in each of the jurisdictions in which we operate, a process that includes estimating exposures related to examinations by taxing authorities. We must also make judgments regarding the ability to realize our deferred tax assets. The carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets. A valuation allowance has been established for deferred tax assets that we do not believe meet the “more likely than not” criteria. We assess whether an uncertain tax position taken or expected to be taken in a tax return meets the threshold for recognition and measurement in the consolidated financial statements. Our judgments regarding future taxable income as well as tax positions taken or expected to be taken in a tax return may change due to changes in market conditions, changes in tax laws or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowances and/or tax reserves established may be increased or decreased, resulting in a respective increase or decrease in income tax expense.
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's 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. The 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 non-US employees is treated as a permanent difference for income tax purposes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the nine-month period ended June 30, 2014, 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, 2013.
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, 2014, the Company maintained cash equivalents and short-term investments of $144.7 million, mainly consisting of interest bearing securities and demand deposits with maturities mainly of less than one year. If interest rates were to increase or decrease by 10%, interest income would increase or decrease by less than $0.1 million.
At June 30, 2014, the Company had $1.1 million of variable rate debt on which the interest rate is reset every three months, $3.6 million of variable rate debt on which the interest rate is reset every six months, $2.0 million of variable rate debt on which the interest rate is reset every twelve months, and $15.6 million of fixed rate debt.
Maturities of this debt are as follows (amounts in dollars):
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2014 | 8.6 | million |
2015 | 1.6 | million |
2016 | 4.3 | million |
2017 | 4.9 | million |
2018 | 1.2 | million |
2019 and thereafter | 1.7 | million |
A 10% change in the variable interest rates of the Company's debt would result in an increase or decrease in interest expense of less than $0.1 million.
The Company has entered into two interest rate swap agreements to minimize the interest expenses on a portion of its variable debt described in the previous paragraph by shifting from variable to fixed interest rates. One swap agreement is for a total notional amount of Euro 0.8 million (equivalent to $1.1 million based on the exchange rate at June 30, 2014) and the other is for a total notional amount of Swiss francs 3.3 million (equivalent to $3.6 million based on the exchange rates at June 30, 2014).
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, 2014, the Company held Japanese yen forward exchange options with notional amounts of Euro 1.6 million. Under these Japanese yen forward exchange options, the profit or loss resulting from a 10% change in currency exchange rates would vary approximately from a $0.2 million profit to a $0.3 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
The Company has been and is likely to be involved from time to time in litigation involving its 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. The patents, and therefore the license rights, have already expired and there are no further license fees to be calculated and paid. Accordingly, management believes that the resolution of this matter 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 affect 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, 2013. See also "Overview" and "Forward-Looking Statements" included in this Quarterly Report on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
As previously reported, on February 5, 2014, the Board of Directors authorized the Company to initiate a share buyback of up to $25.0 million of the Company’s Common Stock over the next twelve months ending February 10, 2015, 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. During the nine-months ended June 30, 2014, the Company repurchased shares of common stock as follows:
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly-Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||
February 1, 2014 through February 28, 2014 | 75,500 | $ | 21.84 | 75,500 | $ 23.4 million | |||||||
March 1, 2014 through March 31, 2014 | 166,213 | 23.73 | 241,713 | $ 19.4 million | ||||||||
May 1, 2014 through May 31, 2014 | 28,490 | 22.59 | 270,203 | $ 18.8 million | ||||||||
Total / Average | 270,203 | 23.08 | ||||||||||
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
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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 |
101.INS * | XBRL Instance Document |
101.SCH * | XBRL Taxonomy Extension Schema |
101.CAL * | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF * | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB * | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE * | XBRL Taxonomy Extension Presentation Linkbase Document |
* The Exhibits 101 are filed with the SEC only. |
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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 11, 2014 | /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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