UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission file number: 000-21377
ROFIN-SINAR TECHNOLOGIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3306461
-------------------------------- --------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40984 Concept Drive, Plymouth, MI 48170
---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(734) 455-5400
-----------------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] / No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act of 1934). Yes [ ] / No [X]
12,045,350 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of February 13, 2004.
ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
----------------------------------------------- ----------
Item 1
------
Condensed Consolidated Balance Sheets
December 31, 2003 and September 30, 2003 3
Condensed Consolidated Statements of Operations
Three months ended December 31, 2003 and 2002 5
Condensed Consolidated Statement of Stockholders
Equity and Comprehensive Income
Three months ended December 31, 2003 and 2002 6
Condensed Consolidated Statements of Cash Flows
Three months ended December 31, 2003 and 2002 7
Notes to Condensed Consolidated Financial Statements 8
Item 2
------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3
------
Quantitative and Qualitative Disclosures about
Market Risk 22
Item 4
------
Controls and Procedures 22
PART II OTHER INFORMATION 22
SIGNATURES 23
PART I. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
December 31, September 30,
2003 2003
(Unaudited) (Audited)
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 43,393 $ 44,487
Accounts receivable, trade, net 60,267 64,548
Inventories (Note 4) 94,828 86,738
Other current assets and prepaid expenses 10,130 8,736
----------- ----------
Total current assets 208,618 204,509
Property and equipment, net 29,276 27,692
Goodwill, net (Note 6) 51,146 48,058
Other intangibles, net (Note 6) 9,027 8,866
Other assets 1,815 2,361
----------- ----------
Total assets $ 299,882 $ 291,486
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit and short term borrowings $ 33,252 $ 35,781
Accounts payable, trade 10,341 12,476
Accounts payable to related party 1,685 2,158
Accrued liabilities (Note 5) 62,478 55,335
----------- ----------
Total current liabilities 107,756 105,750
Long-term debt 24,699 33,052
Pension obligations 8,642 7,830
Minority interests 2,017 1,756
Other long-term liabilities 2,788 2,512
----------- ----------
Total liabilities 145,902 150,900
- 3 -
Stockholders' equity
Preferred stock, 5,000,000 shares authorized,
none issued or outstanding 0 0
Common stock, $0.01 par value, 50,000,000 shares
authorized, 12,038,650 (11,908,600 at
September 30, 2003) issued and outstanding 120 119
Additional paid-in-capital 81,343 79,918
Retained earnings 59,871 54,666
Accumulated other comprehensive income 12,646 5,883
----------- ----------
Total stockholders' equity 153,980 140,586
Total liabilities and stockholders' equity $ 299,882 $ 291,486
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 4 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended December 31, 2003 and 2002
(dollars in thousands, except per share amounts)
Three Months
Ended December 31,
--------------------------
2003 2002
------------ ------------
Net sales $ 71,058 $ 58,144
Cost of goods sold 43,224 35,701
------------ ------------
Gross profit 27,834 22,443
Selling, general, and administrative expenses 13,978 11,855
Research and development expenses 5,027 3,906
Intangibles amortization 449 367
------------ ------------
Income from operations 8,380 6,315
Other expense (income):
Interest, net 584 909
Foreign currency (gains)/losses ( 875) 40
Other (income) expense ( 182) ( 380)
------------ ------------
Income before income taxes and minority
Interest 8,853 5,746
Income tax expense 3,385 2,224
------------ ------------
Income before minority interest 5,468 3,522
Minority interest 263 64
------------ ------------
Net income $ 5,205 $ 3,458
============ ============
Net income per common share (Note 10):
Basic $ 0.43 $ 0.30
Diluted $ 0.41 $ 0.30
============ ============
Weighted average shares used in computing
net income per share (Note 10):
Basic 11,977,751 11,556,600
Diluted 12,544,575 11,556,600
============ ============
See accompanying notes to condensed consolidated financial statements
- 5 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and
Comprehensive Income (Unaudited)
Three months ended December 31, 2003 and 2002
(dollars in thousands)
Accumulated
Common Additional Other Total
Stock Paid-in Retained Comprehensive Stockholders'
Par Value Capital Earnings Income(loss) Equity
------------ ------------ ------------ ------------ ------------
BALANCES at September 30, 2003 $ 119 $ 79,918 $ 54,666 $ 5,883 $ 140,586
Comprehensive income:
Foreign currency translation adjustment -- -- -- 6,359 6,359
Fair value of interest swap agreement -- -- -- 404 404
Net income -- -- 5,205 -- 5,205
------------
Total comprehensive income 11,968
Common stock issued 1 1,425 -- -- 1,426
------------ ------------ ------------ ----------- ------------
BALANCES at December 31, 2003 $ 120 $ 81,343 $ 59,871 $ 12,646 $ 153,980
============ ============ ============ ============ ============
BALANCES at September 30, 2002 $ 115 $ 76,156 $ 39,361 $( 7,214) $ 108,418
Comprehensive income:
Foreign currency translation adjustment -- -- -- 3,629 3,629
Fair value of interest swap agreement -- -- -- ( 241) ( 241)
Net income -- -- 3,458 -- 3,458
------------
Total comprehensive income 6,846
Common stock issued 1 12 -- -- 13
------------ ------------ ------------ ----------- ------------
BALANCES at December 31, 2002 $ 116 $ 76,168 $ 42,819 $( 3,826) $ 115,277
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
- 6 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31, 2003 and 2002
(dollars in thousands)
Three Months
Ended December 31,
------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,205 $ 3,458
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in operating assets and liabilities 4,556 ( 1,011)
Other adjustments 1,966 974
----------- -----------
Net cash provided by operating activities 11,727 3,421
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 37 29
Additions to property and equipment ( 953) ( 836)
Other adjustments ( --) ( 1)
---------- ----------
Net cash used in investing activities ( 916) ( 808)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 175 --
Repayment to banks ( 10,650) ( 2,365)
Net (repayments) borrowings on line of credit ( 4,751) 1,056
Proceeds from issuance of common stock 1,390 3
---------- ----------
Net cash used in financing activities ( 13,836) ( 1,306)
---------- ----------
Effect of foreign currency translation on cash
and cash equivalents 1,931 758
---------- ----------
Net increase (decrease) in cash and cash
equivalents ( 1,094) 2,065
Cash and cash equivalents at beginning of period 44,487 20,312
---------- ----------
Cash and cash equivalents at end of period $ 43,393 $ 22,377
========== ==========
See accompanying notes to condensed consolidated financial statements
- 7 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
1. Summary of Accounting Policies
The accompanying consolidated condensed financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, consistent with those reflected in the Company's
annual report to stockholders for the year ended September 30, 2003. All
adjustments necessary for a fair presentation have been made which comprise
only normal recurring adjustments; however, interim results of operations are
not necessarily indicative of results to be expected for the year. September
30, 2003 balances are derived from audited financial statements; however,
interim period amounts have not been audited.
2. Acquisitions
On March 31, 2003, the Company acquired an additional 37% of the share
capital of Rofin-Marubeni Laser Corporation, Atsugi-shi, Japan, through its
wholly owned subsidiary Rofin-Sinar Laser GmbH, Hamburg, Germany ("RSL") for
$0.1 million in cash. RSL subsequently holds 88% of the share capital. As
of May 1, 2003, Rofin-Marubeni Laser Corporation, Japan was renamed Rofin-
Baasel Japan Corporation.
3. Investments in Marketable Securities
On October 5, 2001, the Company sold the assets of its medical laser business
resulting in a gain of $0.7 million. As part of the proceeds from the sale,
the Company received marketable equity securities which had been classified
as trading securities, under "other current assets and prepaid expenses" in
the accompanying balance sheet. During the twelve month period ended
September 30, 2003 the Company sold the above mentioned securities for a
total amount of $1.2 million. For the fiscal years ended September 30, 2003
and 2002, the Company recorded a realized gain of $0.3 million and an
unrealized loss of $0.2 million, respectively.
4. 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:
- 8 -
December 31, September 30,
2003 2003
------------ ------------
Finished goods $ 16,119 $ 12,809
Work in progress 30,698 25,793
Raw materials and supplies 25,127 24,717
Demonstration inventory 5,179 6,585
Service parts 17,705 16,834
----------- -----------
Total inventories $ 94,828 $ 86,738
=========== ===========
5. Accrued Liabilities
Accrued liabilities are comprised of the following:
December 31, September 30,
2003 2003
----------- -----------
Employee compensation $ 10,825 $ 11,896
Warranty reserve 12,101 10,528
Customer deposits 16,444 12,875
Income taxes payable 6,176 6,980
Other 16,932 13,056
----------- -----------
Total accrued liabilities $ 62,478 $ 55,335
=========== ===========
6. Goodwill and Other Intangible Assets
On October 1, 2002, we adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangibles". Under SFAS No. 142, goodwill is no longer subject to
amortization, but will be subject to an annual impairment test. Intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives.
SFAS No. 142 requires that goodwill be tested on an annual basis, at minimum,
for potential impairment at the reporting unit level. A reporting unit is
defined as the lowest level of an entity that is a business and that can be
distinguished, physically and operationally and for internal reporting
purposes, from other activities, operations, and assets of the entity. A
reporting unit can be no higher than a reportable operating segment and would
generally be lower than that level of reporting. The Company identified
three reporting units: the German reporting unit; the United States reporting
unit; and the reporting unit for the rest of the world.
- 9 -
Under SFAS No. 142, the fair value of each reporting unit is compared to its
carrying amount. If the carrying value is below the fair value assessment,
there will be no impairment loss. If the fair value is below the carrying
value, then the company is required to perform an additional test to
determine the impaired fair value of the goodwill and its carrying amount.
The Company completed the goodwill impairment testing required by SFAS No.
142 in the first quarter and determined that the fair value of each reporting
unit exceeds its carrying value and accordingly, the second step of the
impairment test was not required to be performed.
The changes in the carrying amount of goodwill for the three month period
ended December 31, 2003 are as follows:
United Rest of
Germany States World Total
---------- ---------- ---------- ----------
Balance as of
September 30, 2003 $ 33,566 $ 2,610 $ 11,882 $ 48,058
Currency exchange difference 2,100 181 807 3,088
---------- ---------- ---------- ----------
Balance as of
December 31, 2003 $ 35,666 $ 2,791 $ 12,689 $ 51,146
========== ========== ========== ==========
The carrying value of other intangible assets are as follows:
December 31, 2003 September 30, 2003
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 5,645 $ 1,369 $ 5,279 $ 1,192
Customer base 7,435 2,873 6,952 2,370
Other 681 492 622 425
---------- ---------- ---------- ----------
Total $ 13,761 $ 4,734 $ 12,853 $ 3,987
========== ========== ========== ==========
Amortization expense for the three months ended December 31, 2003 were $0.4
million. At December 31, 2003, estimated amortization expense for the
remainder of fiscal 2004 and the next five fiscal years based on the average
exchange rates as of December 31, 2003, is as follows:
2004 (remainder) $ 1.3 million
2005 1.8 million
2006 1.7 million
2007 1.2 million
2008 0.4 million
2009 0.4 million
- 10 -
7. Guarantees
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" requires increased disclosures regarding certain guarantees and
requires the recognition at fair value in the balance sheet of certain
guarantees. The interpretation also requires disclosure of the accounting
policy and methodology used in determining product warranty liabilities, in
addition to a reconciliation of the changes in the liability during the
period. The disclosure requirements of Interpretation No. 45 were adopted
by the Company as of October 1, 2002 (see Note 8). The recognition
provisions were adopted by the Company as of December 31, 2002 for guarantees
issued or modified after that date. The adoption of the recognition
provisions of this interpretation did not have a material effect on the
Company's financial position or results of operations as of the date of
adoption.
8. Product Warranties
The Company provides for the estimated costs of product warranties when
revenue is recognized. The estimate of costs to fulfill our warranty
obligations is based on historical experience and expectation of future
conditions. The change in warranty reserves for the three-month periods
ended December 31, 2003 and 2002 are as follows:
2003 2002
------------ ------------
Balance at September 30, $ 10,528 $ 10,036
Additional accruals for warranties
During the period 2,281 1,675
Usage during the period ( 1,359) ( 1,804)
Currency translation 651 437
----------- -----------
Balance at December 31, $ 12,101 $ 10,344
=========== ===========
- 11 -
9. Stock Based Compensation
Effective January 1, 2003, the Company adopted the disclosure requirements of
SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and
Disclosure-an amendment of SFAS No. 123".
The following table illustrates the pro forma effect on net income and
earnings per share as if the fair value based method had been applied to all
outstanding and unvested awards in each period:
Three Months Ended
December 31,
----------------------
2003 2002
---------- ----------
Net income - as reported $ 5,205 $ 3,458
Deduct: Total stock-based
employee compensation
expense determined under
the fair value based
method for all awards, net
of related tax effects $ 225 $ 169
---------- ----------
Pro forma net income $ 4,980 $ 3,289
========== ==========
Earnings per share:
Basic - as reported $ 0.43 $ 0.30
Basic - pro forma $ 0.42 $ 0.28
Fully diluted - as reported $ 0.41 $ 0.30
Fully diluted - pro forma $ 0.40 $ 0.28
10. Net Income Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per common share reflects the potential dilution from common
stock equivalents (stock options).
- 12 -
The calculation of the weighted average number of common shares outstanding
for each period is as follows:
Three Months Ended
December 31,
----------------------
2003 2002
---------- ----------
Weighted average number of
shares for BASIC net income
per common share 11,977,751 11,556,600
Potential additional shares
due to outstanding dilutive
stock options 566,824 --
---------- ----------
Weighted average number of
shares for DILUTED net
income per common share 12,544,575 11,556,600
========== ==========
Excluded from the calculation of diluted EPS for the three months ended
December 31, 2002, were 1,094,600 outstanding stock options, respectively.
There were no shares excluded from the calculation of diluted EPS for the
three months ended December 31, 2003.
11. Segment and Geographic Information
The Company manages its business under geographic regions that are aggregated
together as one segment in the global industrial laser industry. Sales from
these regions have similar long-term financial performance and economic
characteristics. The products from these regions utilize similar manufacturing
processes and use similar production equipment, which may be interchanged from
group to group. The Company distributes, sells and services final product to
the same type of customers from all regions.
Assets, revenues and income before taxes, by geographic region are summarized
below:
December 31, September 30,
2003 2003
(Unaudited) (Audited)
---------- ----------
ASSETS 2003 2003
---------- ----------
United States $ 55,249 $ 53,061
Germany 228,710 223,413
Other 121,869 113,238
Intercompany eliminations ( 105,946) ( 98,226)
---------- ----------
Total assets $ 299,882 $ 291,486
========== ==========
- 13-
REVENUES
Three Months Ended
December 31,
----------------------
2003 2002
---------- ----------
United States $ 15,180 $ 12,855
Germany 65,277 52,728
Other 23,045 15,280
Intercompany eliminations ( 32,444) ( 22,719)
---------- ----------
$ 71,058 $ 58,144
========== ==========
INTERCOMPANY REVENUES
Three Months Ended
December 31,
----------------------
2003 2002
---------- ----------
United States $ 994 $ 863
Germany 25,957 19,266
Other 5,493 2,590
Intercompany eliminations ( 32,444) ( 22,719)
---------- ----------
$ -- $ --
========== ==========
EXTERNAL REVENUES
Three Months Ended
December 31,
----------------------
2003 2002
---------- ----------
United States $ 14,186 $ 11,992
Germany 39,320 33,462
Other 17,552 12,690
---------- ----------
$ 71,058 $ 58,144
========== ==========
- 14-
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
Three Months Ended
December 31,
----------------------
2003 2002
---------- ----------
United States $ 1,994 $ 371
Germany 7,160 5,505
Other 1,507 457
Intercompany eliminations ( 1,808) ( 587)
---------- ----------
$ 8,853 $ 5,746
========== ==========
- 15 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Forward-looking statements include
all statements that do not relate solely to historical or current facts, and
can be identified by the use of words such as "may", "believe", "will",
"expect", "project", "anticipate", "estimate", "plan" or "continue". These
forward looking statements are based on the current plans and expectations of
our management and are subject to a number of uncertainties and risks that
could significantly affect our current plans and expectations, as well as
future results of operations and financial condition. In making these
forward-looking statements, we claim the protection of the safe-harbor for
forward-looking statements contained in the Reform Act. We do not assume any
obligation to update these forward-looking statements to reflect actual
results, changes in assumptions, or changes in other factors affecting such
forward-looking statements.
Overview
Rofin-Sinar Technologies Inc. (herein also referred to as "Rofin-Sinar", or
the "Company" or "we", "us" or "our") is a leader in the design, development,
engineering, manufacture and marketing of laser-based products used for
cutting, welding and marking a wide range of materials.
During the first quarter of fiscal years 2004 and 2003, respectively, we
realized approximately 51% and 54% of revenues from the sale and servicing of
laser products for macro applications and approximately 49% and 46% from the
sale and servicing of laser products for marking and micro applications.
Management believes that the near term growth in the Company's macro business
is limited and depends, especially in North America and Europe, on the
general investment cycle for capital goods. Revenues from a recently
finalized technical license agreement will contribute to sales in the current
fiscal year by approximately $7 million. In the Company's marking and micro
business management sees positive developments from the semiconductor and
electronics market which should lead to increased sales in the coming
quarters.
Through our global manufacturing, distribution and service network, we are
providing a comprehensive range of laser sources and laser based system
solutions to three principal target markets: the machine tool, automotive,
and semiconductor/electronics industries. We sell principally to end-users,
to original equipment manufacturers ("OEMs") (principally in the machine tool
industry) that integrate Rofin's laser sources with other system components.
Many of our customers are among the largest global participants in their
respective industries.
At December 31, 2003, Rofin-Sinar had 1,204 employees compared to 1,193
employees at December 31, 2002.
- 16 -
Results of Operations
For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's
consolidated statements of operations.
Three Months
Ended December 31,
----------------------
2003 2002
---------- ----------
Net sales 100% 100%
Cost of goods sold 61% 61%
Gross profit 39% 39%
Selling, general and
administrative expenses 20% 20%
Research and development expenses 7% 7%
Goodwill and intangibles amortization 0% 1%
Income from operations 12% 11%
Income before income taxes
and minority interest 12% 10%
Net income 7% 6%
Net Sales - Net sales of $71.1 million represent an increase of $13.0 million
or 22% for the three months ended December 31, 2003, as compared to the
corresponding period in fiscal 2003. The increase resulted from a net sales
increase of $10.8 million, or 23%, in Europe/Asia and an increase of $2.2
million, or 18%, in the United States, compared to the corresponding period
in fiscal 2003. Fluctuations in the U.S. dollar against foreign currencies,
primarily against the Euro, had a favorable effect on net sales of $8.8
million for the three-month period ended December 31, 2003. Net sales of
laser products for macro applications for the three-month period increased by
16% to $36.1 as compared to the corresponding periods of fiscal 2003. 14% of
this increase represents the revenue recognized on the recently finalized
technical license agreement and the remaining increase was primarily due to
higher demand for our lasers for macro applications from the automotive
industry including sub-suppliers. Net sales of lasers for marking and micro
applications increased by 30% to $35.0 million for the three months ended
December 31, 2003 as compared to the corresponding periods in fiscal 2003.
The increase in sales of lasers for marking applications can be attributed
primarily to the continuing recovery in demand from the semiconductor and
electronics industries during the period. The increase in sales of lasers
for micro applications can be attributed primarily to demand for our Starweld
product series and our perforating laser series from various industries.
Gross Profit - Our gross profit of $27.8 million for the three months ended
December 31, 2003 represents an increase of $5.4 million (24%) from the
corresponding period of fiscal year 2003. As a percentage of sales compared
to the corresponding three-month period of fiscal year 2003, gross profit
remained unchanged at 39%. The high percentage margin was primarily a result
of the favorable product mix, which included higher laser sales for marking
and micro applications to the semiconductor and electronics industry. Gross
profit was favorably affected by $2.3 million for the three-month period
ended December 31, 2003 due to the fluctuations of the U.S. dollar against
foreign currencies, primarily against the Euro.
- 17 -
Selling, General and Administrative Expenses - Selling, general and
administrative (SG&A) expenses of $14.0 million increased $2.1 million (18%)
for the three-month period ended December 31, 2003, compared to the
corresponding period of fiscal 2003, primarily due to increased sales
activities world wide. SG&A, a significant portion of which is incurred in
foreign currencies, was unfavorably affected by $1.6 million for the three-
month period ended December 31, 2003 due to the fluctuations of the U.S.
dollar against foreign currencies, primarily the Euro.
Research and Development - The Company spent net $5.0 million on research and
development (R&D) during the three-month period ended December 31, 2003.
This represents an increase of 28% for the three-month period ended December
31, 2003, compared to the corresponding period of the prior year and is
mainly attributed to the ongoing R&D work in the field of diode pumped solid
state laser and CO2 lasers. Gross research and development expenses for the
three-month period ended December 31, 2003 and December 31, 2002 were $5.3
million and $4.2 million, respectively, and were reduced by $0.3 million of
government grants during each respective period. R&D, a significant portion
of which is conducted in Europe, and therefore incurred in foreign
currencies, was unfavorably affected by $0.8 million for the three-month
period in fiscal 2003, due to the fluctuations of the U.S. dollar against
foreign currencies, primarily the Euro.
Other Expense (Income) - Net other income of $(0.5) million for the three-
month period ended December 31, 2003 represents a change of $1.1 million
compared to net other expense of $0.6 million in the corresponding period of
the prior year. The fluctuation in the three-month period is primarily
attributable to higher unrealized exchange gains ($0.9 million) resulting
from certain intercompany indebtedness and reduced ($0.3 million) net
interest expenses.
Income Tax Expense - Income tax expense of $3.4 million for the three-month
period ended December 31, 2003 represents an effective tax rate of 39%,
equivalent to the tax rate for the corresponding period of the prior year.
Income tax expense, a significant portion of which is incurred in foreign
currencies, was unfavorably affected by $0.5 million for the three-month
period ended December 31, 2003 due to the fluctuations of the U.S. dollar
against foreign currencies, primarily the Euro.
Net Income - As a result of the foregoing factors, the Company realized
consolidated net income of $5.2 million for the three-months ended December
31, 2003, which represents an increase of $1.7 million from the corresponding
period in fiscal 2003. For the three-months ended December 31, 2003, basic
and diluted earnings per share equaled $0.43 and $0.41, respectively, based
upon a weighted average of 12.0 million and 12.5 million common shares
outstanding, as compared to basic and diluted earnings per share of $0.30
based on 11.6 million common shares outstanding for the same period in fiscal
2003.
- 18 -
Liquidity and Capital Resources
The Company's primary sources of liquidity at December 31, 2003 were cash and
cash equivalents of $43.4 million, an annually renewable $25.0 million line
of credit with Deutsche Bank AG and several other lines of credit to support
foreign subsidiaries in their local currencies in an aggregate amount of
$46.7 million (translated at the applicable exchange rate at December 31,
2003). As of December 31, 2003, $13.4 million was outstanding under the
Deutsche Bank facility and $17.6 million under other lines of credit.
Approximately, $40.7 million is unused and available under Rofin's bank
facility and lines of credit at December 31, 2003.
Additionally, the Company has outstanding long- and short-term debt under a
credit agreement with a German bank, which was used to finance part of the
acquisition, and to refinance the existing debt, of Baasel Lasertech. At
December 31, 2003, $26.9 million was outstanding under this credit agreement.
Based on its maturities, $5.5 million has been included in the caption "line
of credit and short term borrowings" in the accompanying consolidated balance
sheet.
Cash and cash equivalents decreased by $1.1 million during the three months
ended December 31, 2003. Approximately $11.7 million in cash and cash
equivalents were provided by operating activities, primarily as the result of
improved net income. Additionally, operating cash flows were impacted due to
an increase in customer deposits, which increased accrued liabilities, and
customer requested temporary delays in shipments coupled with a strategic
increase in inventory (so that the Company is able to capitalize on quick
sales). The remaining increase was a result of the timing of collections of
receivables and payments for inventory purchased.
Uses of cash from investing activities totaled $0.9 million for the three
months ended December 31, 2003 and related primarily to the acquisition of
property and equipment during the period.
Net cash used in financing activities totaled $13.8 million and was primarily
related to current period repayments of bank debt of $15.2 million. This use
of cash was offset by an increase in stockholders' equity of $1.4 million
related to the issuance of additional common stock through the exercise of
stock options.
Management believes that the cash flow from operations, along with existing
cash and cash equivalents and availability under the Company's credit
facilities and lines of credit, will provide adequate resources to meet both
its capital requirements and operational needs through fiscal 2005.
Currency Exchange Rate Fluctuations
Although we report our Consolidated Financial Statements in U.S. dollars,
approximately 74% of its sales are denominated in other currencies, primarily
the Euro, British pound, Singapore dollar, Taiwanese dollar, Korean won and
Japanese yen. Net sales, costs and related assets and liabilities of our
operations are generally denominated in the functional currencies of the
relevant operating units, thereby serving to reduce the Company's exposure to
exchange gains and losses.
- 19 -
Exchange differences upon translation from each operating unit's functional
currency to U.S. dollars are accumulated as a separate component of equity.
The currency translation adjustment component of stockholders' equity had the
effect of increasing total equity by $13.1 million at December 31, 2003 as
compared to $6.7 million at September 30, 2003.
The fluctuation of the Euro and the other relevant functional currencies
against the U.S. dollar has had the effect of increasing or decreasing (as
applicable) reported net sales, cost of goods sold, gross margin and selling,
general and administrative expenses, denominated in such foreign currencies
when translated into U.S. dollars as compared to prior periods.
Recent Accounting Pronouncements
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosure about Pensions and Other Postretirement Benefits - an amendment of
FASB Statements No. 87, 88 and 106". The statement requires employers to
provide additional disclosures regarding the assets, obligations, cash flows
and net periodic benefit cost of defined benefit pension plans and other
defined benefit postretirement plans. The new disclosure requirements are
effective for the Company beginning with the quarter ending March 31, 2004,
with a delayed effective date for certain disclosures. The Company is
currently evaluating the effect of this pronouncement on its financial
statement disclosures.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 of the
consolidated financial statements and footnotes in our 2003 audited financial
statements. Certain of the accounting policies require the application of
significant judgment by management in selecting appropriate assumptions for
calculating financial estimates. By their nature, these judgments are
subject to an inherent degree of uncertainty.
Allowance for Doubtful Accounts
The Company records allowances for uncollectible customer accounts
receivable based on historical experience. Additionally, an allowance
is made based on an assessment of specific customers' financial
condition and liquidity. If the financial condition of the Company's
customers were to deteriorate, additional allowances may be required.
Inventory Valuation
The Company writes down inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about
future demand and market conditions. If actual market conditions are
less favorable than those projected by management, additional inventory
write-downs may be required.
- 20 -
Warranty Reserves
The Company provides for the estimated costs of product warranties when
revenue is recognized. Our estimate of costs to fulfill our warranty
obligations is based on historical experience and expectation of future
conditions. To the extent we experience increased warranty claim
activity or increased costs associated with servicing those claims,
revisions to the estimated warranty liability would be require.
Ownership of Common Stock By Directors
The following table sets forth information as of December 31, 2003, with
respect to beneficial ownership of the Company's Common Stock and exercisable
options by each director.
Number of Total Number of
Shares of Number of Exercisable
Common Stock Stock Options Stock Options
Beneficially Owned at Owned at
Name Owned December 31, 2003 December 31, 2003
- ---------------- -------------- ----------------- -----------------
Peter Wirth 3,300 190,000 114,000
Gunther Braun -- 130,000 60,000
Carl F. Baasel 50,000 40,000 9,000
William R. Hoover (1) 41,250 -- --
Ralph E. Reins (1) 17,000 -- --
Gary K. Willis (1) 17,000 -- --
Daniel Smoke (1) 3,000 -- --
(1) Outside, non-executive directors
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the period ended December 31, 2003, 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 year ended
September 30, 2003.
Interest Rate Sensitivity
As of December 31, 2003, the Company maintained a cash equivalents portfolio
of $16.0 million, consisting mainly of taxable interest bearing securities
and demand deposits, all with maturities of less than three months. If
short- term interest rates were to increase or decrease by 10%, interest
income would increase or decrease by less than $0.1 million, accordingly.
At December 31, 2003, the Company had $27.9 million of six month adjusted
interest rate debt, $27.8 million of annually adjusted interest rate debt and
$2.3 million of fixed rate debt. A 10% change in the variable interest rates
of the Company's debt would result in an increase or decrease in pre-tax
interest expense of approximately $0.2 million.
- 21 -
Item 4. Controls and Procedures
The Company's chief executive officer and chief financial officer have
concluded that, as of December 31, 2003, the Company's disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
and Exchange Act of 1934, as amended) were effective, based on the evaluation
of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of
the Securities Exchange Act of 1934, as amended.
There have been no changes during the quarter in the Company's internal
control over financial reporting that had a material affect, or is reasonably
likely to have a material affect on internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have been and are likely to be involved from time to time in
litigation involving our intellectual property and ordinary routine
litigation arising in the ordinary course of business.
We are currently engaged in discussions with the licensor of patents
covering the technology used in certain of our CO2 lasers concerning
the amount of royalty due in respect to certain past sales and
future sales of such laser products. We believe that we will
achieve a resolution of this matter that will not have a material
adverse impact on our financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
- 22 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
(b) Reports on Form 8-K:
We furnished a Form 8-K on November 14, 2003, which contained
a copy of our press release announcing our fourth quarter and
fiscal year ended September 30, 2003 financial results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rofin-Sinar Technologies Inc.
---------------------------------
(Registrant)
Date: February 13, 2004 /s/ Gunther Braun
---------------------------------
Gunther Braun
Executive Vice President,
Finance and Administration, and
Chief Financial Officer