UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission file number: 000-21377
ROFIN-SINAR TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3306461
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40984 Concept Drive, Plymouth, MI 48170
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(Address of principal executive offices) (Zip Code)
(734) 455-5400
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] / No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act of 1934). Yes [X] / No [ ]
14,928,150 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of August 12, 2004.
ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
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Item 1
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Condensed Consolidated Balance Sheets
June 30, 2004 and September 30, 2003 3
Condensed Consolidated Statements of Operations
Three months and nine months ended
June 30, 2004 and 2003 5
Condensed Consolidated Statement of Stockholders
Equity and Comprehensive Income
Nine months ended June 30, 2004 and 2003 6
Condensed Consolidated Statements of Cash Flows
Nine months ended June 30, 2004 and 2003 7
Notes to Condensed Consolidated Financial Statements 8
Item 2
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Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3
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Quantitative and Qualitative Disclosures about
Market Risk 22
Item 4
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Controls and Procedures 23
PART II OTHER INFORMATION 24
SIGNATURES 25
PART I. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
June 30, September 30,
2004 2003
(Unaudited)
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 123,072 $ 44,487
Accounts receivable, trade, net 65,580 64,548
Inventories (Note 3) 95,670 86,738
Other current assets and prepaid expenses 11,909 8,736
----------- ----------
Total current assets 296,231 204,509
Property and equipment, net 28,709 27,692
Goodwill, net (Note 5) 50,207 48,058
Other intangibles, net (Note 5) 9,463 8,866
Other assets 1,699 2,361
----------- ----------
Total assets $ 386,309 $ 291,486
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit and short term borrowings $ 35,138 $ 35,781
Accounts payable, trade 16,783 12,476
Accounts payable to related party 1,728 2,158
Accrued liabilities (Note 4) 58,434 55,335
----------- ----------
Total current liabilities 112,083 105,750
Long-term debt 21,155 33,052
Pension obligations 8,692 7,830
Minority interests 2,215 1,756
Other long-term liabilities 2,976 2,512
----------- ----------
Total liabilities 147,121 150,900
- 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, 14,921,950 (11,908,600 at
September 30, 2003) issued and outstanding 149 119
Additional paid-in-capital 156,884 79,918
Retained earnings 72,902 54,666
Accumulated other comprehensive income 9,253 5,883
----------- ----------
Total stockholders' equity 239,188 140,586
Total liabilities and stockholders' equity $ 386,309 $ 291,486
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 4 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended June 30, 2004 and 2003
(dollars in thousands, except per share amounts)
Three Months Nine Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales $ 82,067 $ 64,467 $ 229,073 $ 183,684
Cost of goods sold 48,900 40,859 138,886 114,434
---------- ---------- ---------- ----------
Gross profit 33,167 23,608 90,187 69,250
Selling, general, and
administrative expenses 14,440 12,618 42,599 36,601
Research and development expenses 5,726 4,725 15,908 13,164
Intangibles amortization 496 468 1,460 1,185
---------- ---------- ---------- ----------
Income from operations 12,505 5,797 30,220 18,300
Other expense (income):
Interest, net 419 781 1,568 2,526
Foreign currency (gains)/losses 263 96 ( 455) ( 1,840)
Other income ( 188) ( 985) ( 451) ( 613)
---------- ---------- ---------- ----------
Income before income taxes
and minority interest 12,011 5,905 29,558 18,227
Income tax expense 4,338 1,909 10,493 7,111
---------- ---------- ---------- ----------
Income before minority
interest 7,673 3,996 19,065 11,116
Minority interest 288 362 829 667
---------- ---------- ---------- ----------
Net income $ 7,385 $ 3,634 $ 18,236 $ 10,449
========== ========== ========== ==========
Net income per common
share (Note 8)
Basic $ 0.50 $ 0.31 $ 1.40 $ 0.89
Diluted $ 0.48 $ 0.30 $ 1.35 $ 0.88
========== ========== ========== ==========
Weighted average shares
used in computing net
income per share (Note 8)
Basic 14,889,277 11,741,900 12,989,727 11,741,900
Diluted 15,417,529 12,083,113 13,547,933 11,852,390
========== ========== ========== ==========
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)
Nine months ended June 30, 2004 and 2003
(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 -- -- -- 3,100 3,100
Fair value of interest swap agreement,
net of tax -- -- -- 270 270
Net income -- -- 18,236 -- 18,236
------------
Total comprehensive income 21,606
Common stock issued 30 76,966 -- -- 76,996
------------ ------------ ------------ ----------- ------------
BALANCES at June 30, 2004 $ 149 $ 156,884 $ 72,902 $ 9,253 $ 239,188
============ ============ ============ ============ ============
BALANCES at September 30, 2002 $ 115 $ 76,156 $ 39,361 $( 7,214) $ 108,418
Comprehensive income:
Foreign currency translation adjustment -- -- -- 10,474 10,474
Fair value of interest swap agreement,
net of tax -- -- -- 281 281
Net income -- -- 10,449 -- 10,449
------------
Total comprehensive income 21,204
Common stock issued 2 1,756 -- -- 1,758
------------ ------------ ------------ ----------- ------------
BALANCES at June 30, 2003 $ 117 $ 77,912 $ 49,810 $ 3,541 $ 131,380
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
- 6 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2004 and 2003
(dollars in thousands)
Nine months
Ended June 30,
------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,236 $ 10,449
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in operating assets and liabilities ( 1,901) 1,667
Other adjustments 6,283 4,881
----------- -----------
Net cash provided by operating activities 22,618 16,997
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 135 43
Additions to property and equipment ( 2,968) ( 2,454)
Acquisition of business, net of cash required ( 741) --
---------- ----------
Net cash used in investing activities ( 3,574) ( 2,411)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 156 2,434
Repayment to banks ( 15,630) ( 5,432)
Net (repayments) borrowings on line of credit ( 2,040) 673
Proceeds from issuance of common stock 77,128 1,729
Other adjustments ( 470) ( 140)
---------- ----------
Net cash provided by (used in) financing
activities 59,144 ( 736)
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Effect of foreign currency translation on cash
and cash equivalents 397 2,017
---------- ----------
Net increase in cash and cash equivalents 78,585 15,867
Cash and cash equivalents at beginning of period 44,487 20,312
---------- ----------
Cash and cash equivalents at end of period $ 123,072 $ 36,179
========== ==========
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, except per share amounts)
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 fiscal year ended September 30, 2003,
and should be read in conjunction with the Company's annual report on Form
10-K. All adjustments necessary for a fair presentation have been made which
comprise only normal recurring adjustments; however, interim results of
operations are not necessarily indicative of results to be expected for the
year. September 30, 2003 balances are derived from audited financial
statements; however, interim period amounts have not been audited.
2. Acquisitions
On February 27, 2004, the Company acquired 90% of the common stock of
Optoskand AB, Gothenburg, Sweden, through its wholly owned subsidiary Rofin-
Sinar Laser GmbH, Hamburg, Germany ("RSL") for cash.
3. Inventories
Inventories are stated at the lower of cost or market, after provisions for
excess and obsolete inventory salable at prices below cost. Costs are
determined using the first in, first out and weighted average cost methods
and are summarized as follows:
June 30, September 30,
2004 2003
------------ ------------
Finished goods $ 13,028 $ 12,809
Work in progress 26,567 25,793
Raw materials and supplies 33,032 24,717
Demonstration inventory 8,532 6,585
Service parts 14,511 16,834
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Total inventories $ 95,670 $ 86,738
=========== ===========
- 8 -
4. Accrued Liabilities
Accrued liabilities are comprised of the following:
June 30, September 30,
2004 2003
----------- -----------
Employee compensation $ 12,664 $ 11,896
Warranty reserve 12,355 10,528
Customer deposits 10,816 12,875
Income taxes payable 5,169 6,980
Other 17,430 13,056
----------- -----------
Total accrued liabilities $ 58,434 $ 55,335
=========== ===========
5. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the nine month period
ended June 30, 2004 are as follows:
United Rest of
Germany States World Total
---------- ---------- ---------- ----------
Balance as of
September 30, 2003 $ 33,566 $ 2,610 $ 11,882 $ 48,058
Additions -- -- 362 362
Currency exchange difference 1,220 105 462 1,787
---------- ---------- ---------- ----------
Balance as of
June 30, 2004 $ 34,786 $ 2,715 $ 12,706 $ 50,207
========== ========== ========== ==========
The carrying value of other intangible assets are as follows:
June 30, 2004 September 30, 2003
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 7,056 $ 1,551 $ 5,279 $ 1,192
Customer base 7,232 3,454 6,952 2,370
Other 832 652 622 425
---------- ---------- ---------- ----------
Total $ 15,120 $ 5,657 $ 12,853 $ 3,987
========== ========== ========== ==========
- 9 -
6. Product Warranties
The Company provides for the estimated costs of product warranties when
revenue is recognized. The estimate of costs to fulfill our warranty
obligations is based on historical experience and expectation of future
conditions. The change in warranty reserves for the nine-month periods ended
June 30, 2004 and 2003 are as follows:
Balance at September 30, 2002 $ 10,036
Additional accruals for warranties
during the period 6,922
Usage during the period ( 7,175)
Currency translation 1,220
-----------
Balance at June 30, 2003 $ 11,003
===========
Balance at September 30, 2003 $ 10,528
Additional accruals for warranties
during the period 5,526
Usage during the period ( 4,068)
Currency translation 369
-----------
Balance at June 30, 2004 $ 12,355
===========
7. 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".
- 10 -
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 Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income - as reported $ 7,385 $ 3,634 $ 18,236 $ 10,449
Deduct: Total stock-based
employee compensation
expense determined under
the fair value based
method for all awards, net
of related tax effects 225 169 675 $ 506
---------- ---------- ---------- ----------
Pro forma net income $ 7,160 $ 3,465 $ 17,561 $ 9,943
========== ========== ========== ==========
Earnings per share:
Basic - as reported $ 0.50 $ 0.31 $ 1.40 $ 0.89
Basic - pro forma $ 0.48 $ 0.30 $ 1.35 $ 0.85
Fully diluted - as reported $ 0.48 $ 0.30 $ 1.35 $ 0.88
Fully diluted - pro forma $ 0.46 $ 0.29 $ 1.30 $ 0.84
8. Net Income Per Common Share
Basic earnings per common share (EPS) is computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted earnings per common share reflects the potential dilution from common
stock equivalents (stock options).
The calculation of the weighted average number of common shares outstanding
for each period is as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Weighted average number of
shares for BASIC net income
per common share 14,889,277 11,741,900 12,989,727 11,741,900
Potential additional shares
due to outstanding dilutive
stock options 528,252 341,213 558,206 110,490
---------- ---------- ---------- ----------
Weighted average number of
shares for DILUTED net
income per common share 15,417,529 12,083,113 13,547,933 11,852,390
========== ========== ========== ==========
- 11-
Excluded from the calculation of diluted EPS for the three months ended June
30, 2004 and 2003, were 285,500 and 187,000 outstanding stock options,
respectively. Excluded from the calculation of diluted EPS for the nine months
ended June 30, 2004 and 2003, were 285,500 and 207,000 outstanding stock
options, respectively. These could potentially dilute future EPS calculations
but were not included in the current period because their effect would have
been antidilutive.
The increase in the number of shares outstanding for the three months and nine
months ended June 30, 2004 reflect the Company's issuance and sale of 2.86
million common shares in its underwritten public offering completed April 2004.
9. Defined Benefit Plans
Components of net periodic cost were as follows for the three months and nine
months ended June 30, 2004 and 2003:
PENSION PLANS
----------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Service cost $ 141 $ 129 $ 424 $ 376
Interest cost 159 142 476 408
Expected return on plan assets ( 49) ( 39) ( 147) ( 117)
Amortization of prior
service cost 16 16 47 47
Amortization of net (gain)
loss -- -- -- --
---------- ---------- ---------- ----------
Net periodic benefit cost $ 267 $ 248 $ 800 $ 714
========== ========== ========== ==========
OTHER POSTRETIREMENT BENEFITS
----------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Service cost $ 30 $ 21 $ 112 $ 62
Interest cost 1 1 3 3
Expected return on plan assets -- -- -- --
Amortization of prior
service cost -- -- -- --
Amortization of net (gain)
loss -- -- -- --
---------- ---------- ---------- ----------
Net periodic benefit cost $ 31 $ 22 $ 115 $ 65
========== ========== ========== ==========
- 12-
10. Segment and Geographic Information
The Company manages its business under geographic regions that are aggregated
together as one segment in the global industrial laser industry. Sales from
these regions have similar long-term financial performance and economic
characteristics. The products from these regions utilize similar manufacturing
processes and use similar production equipment, which may be interchanged from
group to group. The Company distributes, sells and services final product to
the same type of customers from all regions.
Assets, revenues and income before taxes, by geographic region are summarized
below:
June 30, September 30,
2004 2003
---------- ----------
ASSETS 2004 2003
---------- ----------
United States $ 138,203 $ 53,061
Germany 222,127 223,413
Other 128,426 113,238
Intercompany eliminations ( 102,447) ( 98,226)
---------- ----------
Total assets $ 386,309 $ 291,486
========== ==========
REVENUES
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
United States $ 18,131 $ 14,869 $ 49,853 $ 41,009
Germany 73,523 54,476 205,461 158,344
Other 29,854 20,959 81,339 55,070
Intercompany eliminations ( 39,441) ( 25,837) (107,580) ( 70,739)
---------- ---------- ---------- ----------
$ 82,067 $ 64,467 $ 229,073 $ 183,684
========== ========== ========== ==========
- 13-
INTERCOMPANY REVENUES
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
United States $ 877 $ 1,217 $ 2,734 $ 2,978
Germany 31,067 19,975 85,665 56,937
Other 7,497 4,645 19,181 10,824
Intercompany eliminations ( 39,441) ( 25,837) (107,580) ( 70,739)
---------- ---------- ---------- ----------
$ -- $ -- $ -- $ --
========== ========== ========== ==========
EXTERNAL REVENUES
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
United States $ 17,254 $ 13,652 $ 47,119 $ 38,031
Germany 42,456 34,501 119,796 101,407
Other 22,357 16,314 62,158 44,246
---------- ---------- ---------- ----------
$ 82,067 $ 64,467 $ 229,073 $ 183,684
========== ========== ========== ==========
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
United States $ 3,299 $ 1,337 $ 7,348 $ 2,499
Germany 7,850 3,987 19,206 12,771
Other 1,962 2,733 5,830 4,803
Intercompany eliminations ( 1,100) ( 2,152) ( 2,826) ( 1,846)
---------- ---------- ---------- ----------
$ 12,011 $ 5,905 $ 29,558 $ 18,227
========== ========== ========== ==========
- 14 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Forward-looking statements include
all statements that do not relate solely to historical or current facts, and
can be identified by the use of words such as "may", "believe", "will",
"expect", "project", "anticipate", "estimate", "plan" or "continue". These
forward looking statements are based on the current plans and expectations of
our management and are subject to a number of uncertainties and risks that
could significantly affect our current plans and expectations, as well as
future results of operations and financial condition. In making these
forward-looking statements, we claim the protection of the safe-harbor for
forward-looking statements contained in the Reform Act. We do not assume any
obligation to update these forward-looking statements to reflect actual
results, changes in assumptions, or changes in other factors affecting such
forward-looking statements.
Overview
Rofin-Sinar Technologies Inc. (herein also referred to as "Rofin-Sinar", or
the "Company" or "we", "us" or "our") is a leader in the design, development,
engineering, manufacture and marketing of laser-based products used for
cutting, welding and marking a wide range of materials.
Through our global manufacturing, distribution and service network, we are
providing a comprehensive range of laser sources and laser based system
solutions to three principal target markets: the machine tool, automotive,
and semiconductor/electronics industries. We sell principally to end-users,
to original equipment manufacturers ("OEMs") (principally in the machine tool
industry) that integrate our laser sources with other system components.
Many of our customers are among the largest global participants in their
respective industries.
During the third quarter of fiscal years 2004 and 2003, respectively, we
realized approximately 51% of revenues from the sale and servicing of laser
products for macro applications and approximately 49% from the sale and
servicing of laser products for marking and micro applications, respectively.
On March 29, 2004 we issued and sold 2.5 million common shares at a price of
$28.00 per share. The underwriters exercised their over-allotment option
April 8, 2004 resulting in 360,000 additional common shares being issued and
sold. We realized net proceeds of $75.3 million as a result of these
transactions. We intend to use the aggregate net proceeds from the offering
for working capital, other general corporate purposes and for acquisitions of
complementary products, technologies or businesses as opportunities arise.
- 15 -
Management believes that the near term growth in our macro business depends,
especially in North America and Europe, on the general investment cycle for
capital goods. Revenues from a technical license agreement will contribute
to sales in the current fiscal year by approximately $7 million. We
recognized $2.1 million and $5.0 million of revenue during the three-months
and nine-months ended June 30, 2004, respectively. In our marking and micro
business management sees positive developments from the semiconductor and
electronics market which should lead to increased sales in the coming
quarters.
At June 30, 2004, we had 1,251 employees compared to 1,217 employees at June
30, 2003.
Results of Operations
For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's
consolidated statements of operations.
Three Months Nine Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales 100% 100% 100% 100%
Cost of goods sold 60% 63% 61% 62%
---------- ---------- ---------- ----------
Gross profit 40% 37% 39% 38%
Selling, general and
administrative expenses 17% 20% 18% 20%
Research and development expenses 7% 7% 7% 7%
Intangibles amortization 1% 1% 1% 1%
---------- ---------- ---------- ----------
Income from operations 15% 9% 13% 10%
Income before income taxes
and minority interest 15% 9% 13% 10%
Net income 9% 6% 8% 6%
Net Sales - Net sales of $82.1 million and $229.1 million represent increases
of $17.6 million (27%) and $45.4 million (25%) for the three months and nine
months ended June 30, 2004, as compared to the corresponding periods of
fiscal 2003. The increase for the three months ended June 30, 2004, compared
to fiscal 2003, resulted from a net sales increase of $14.0 million (28%), to
$64.8 million in Europe/Asia and an increase of $3.6 million (26%), to $17.3
million, in the United States. The increase for the nine months ended June
30, 2004, compared to the same period in fiscal 2003, resulted from a net
sales increase of $36.3 million (25%), to $182.0 million in Europe/Asia and
an increase of $9.1 million (24%), to $47.1 million in the United States.
Fluctuations in the U.S. dollar against foreign currencies, primarily against
the Euro, had a favorable effect on net sales of $4.7 million and $20.8
million for the three and nine month periods ended June 30, 2004. Net sales
of laser products for macro applications increased by $9.3 million (28%) to
- 16 -
$42.2 million and by $21.6 million (23%) to $116.6 million for the three and
nine month periods ended June 30, 2004 as compared to the corresponding
periods of fiscal 2003. These increases represent mainly the additional
revenue recognized from a technical license agreement, increased revenue of
our component businesses and the higher demand for our lasers from the
machine tool industry. Net sales of lasers for marking and micro
applications increased to $39.9 million (26%) for the three months ended June
30, 2004 and increased to $112.5 million (27%) for the nine months ended June
30, 2004 as compared to the corresponding periods in fiscal 2003. This
increase can be attributed primarily to a recovery in demand for our lasers
for marking applications from the semiconductor and electronics industries,
increased revenues to the automotive industries, and higher volumes of lasers
for micro applications such as dental and jewelry. The overall revenue
increase was also supported by a strong service and spare parts business.
Gross Profit - Our gross profit of $33.2 million and $90.2 million for the
three and nine months ended June 30, 2004, represents increases of $9.6
million (41%) and $20.9 million (30%) from the corresponding periods of
fiscal 2003. As a percentage of sales, gross profit margin increased from
37% to 40% for the three months ended June 30, 2004 and 2003 and increased
from 38% to 39% for the nine months ended June 30, 2004 as compared to the
corresponding periods in fiscal 2003. The higher percentage margins were
primarily a result of a more favorable product mix and revenue from the
technical license agreement, as described under net sales. Fluctuations of
the U.S. dollar against foreign currencies, primarily against the Euro
favorably affected gross profit by $1.6 million and $5.8 million for the
three and nine month periods ended June 30, 2004.
Selling, General and Administrative Expenses - Selling, general and
administrative (SG&A) expenses of $14.4 million and $42.6 million for the
three and nine months ended June 30, 2004, respectively, represent increases
of $1.8 million (14%) and $6.0 million (16%) from the corresponding periods
of fiscal 2003, and reflects the support of higher sales volumes. SG&A
expenses, a significant portion of which are incurred in foreign currencies,
was unfavorably affected by $0.8 million and $3.8 million for the three month
and nine month periods ended June 30, 2004 due to the fluctuations of the
U.S. dollar against foreign currencies, primarily against the Euro.
Research and Development Expenses - Net research and development (R&D)
expenses were $5.7 million and $15.9 million for the three month and nine
month periods ended June 30, 2004. This represents an increase of 21% for
both the three-month and nine-month periods as compared to the corresponding
periods of fiscal 2003. Gross R&D expenses for the three-month periods ended
June 30, 2004 and 2003 were $5.9 million and $4.8 million, respectively, and
were reduced by $0.2 million and $0.1 million of government grants in each
respective period. Gross R&D expenses for the nine-month periods ended June
30, 2004 and 2003 were $16.4 million and $13.9 million, respectively and were
reduced by $0.5 million and $0.7 million of government grants, respectively.
The Company expects to continue receiving governmental grants toward R&D.
The increase in gross R&D is primarily a result of ongoing R&D work mainly in
the area of diode pumped solid state lasers and CO2 diffusion-cooled
technology. We conduct a significant portion of R&D in Europe, and therefore
- 17 -
we incur expenses in foreign currencies, which were unfavorably affected by
$0.4 million and $1.8 million for the three-month and nine-month periods
ended June 30, 2004, due to the fluctuations of the U.S. dollar against these
foreign currencies, primarily against the Euro.
Other Expense (Income) - Net other expense of $0.5 million and $0.7 million
for the three-month and nine-month periods ended June 30, 2004 represent
increases of $0.6 million compared to the corresponding periods of fiscal
year 2003. The increase for the three months resulted from currency losses
of $0.2 million, reduced interest expenses of $0.4 million, and lower other
income of $0.8 million, mainly due to gains from the sale of marketable
securities and insurance compensation in fiscal 2003. The increase for the
nine months primarily resulted from a decrease of foreign currency gains of
$1.4 million, reduced interest expenses of $1.0 million, and lower other
income of $0.2 million.
Income Tax Expense - Income tax expense of $4.3 million and $10.5 million for
the three-months and nine-months ended June 30, 2004 represent effective tax
rates of 36% for both of the periods, compared to effective tax rates of 32%
and 39% in the corresponding periods of fiscal 2003. The decrease in the
nine-month period is primarily due to higher earnings in countries with lower
statutory tax rates, lower amounts of nondeductible expenses for tax
purposes, higher tax exempt interest income, and the utilization of foreign
tax credits for income tax purposes.
Net Income - As a result of the foregoing factors, we realized consolidated
net income of $7.4 million and $18.2 million for the three-months and nine-
months ended June 30, 2004, which represents increases of $3.8 million and
$7.8 million compared to the corresponding periods in fiscal 2003. For the
three-months ended June 30, 2004, basic and diluted earnings per share
equaled $0.50 and $0.48, respectively, based upon a weighted average of 14.9
million and 15.4 million common shares outstanding, as compared to basic and
diluted earnings per share of $0.31 and $0.30, respectively, based upon a
weighted average of 11.7 million and 12.1 million common shares outstanding
for the same period in fiscal 2003.
Liquidity and Capital Resources
The Company's primary sources of liquidity at June 30, 2004 were cash and
cash equivalents of $123.1 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
$44.6 million (translated at the applicable exchange rate at June 30, 2004).
As of June 30, 2004, $12.8 million was outstanding under the Deutsche Bank
facility and $19.5 million under other lines of credit. Approximately, $37.4
million is unused and available under the Company's bank facility and lines
of credit at June 30, 2004. There are no financial covenants which could
restrict the Company from drawing money under these lines of credit.
- 18 -
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
June 30, 2004, $24.0 million was outstanding under this credit agreement.
Based on 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 increased by $78.6 million during the nine-months
ended June 30, 2004. Approximately $22.6 million in cash and cash
equivalents were provided by operating activities, primarily as the result of
improved net income. Additionally, cash was provided by a reduction in
accounts receivable due to several outstanding customer balances coming due
during the period, increased accounts payable trade and accrued liabilities.
However, these increases in cash were offset by cash used to reduce our
overall income tax liability and to increase our inventory position to be
prepared for faster cycle times.
Uses of cash from investing activities totaled $3.6 million for the nine
months ended June 30, 2004 and related primarily to the acquisition of
property and equipment during the period.
Net cash provided by financing activities totaled $59.1 million and was
primarily related to current period net repayments of bank debt of $17.5
million, offset by the issuance of 2.9 million common shares with net cash
proceeds of $75.5 million.
Management believes that the cash flow from operations, along with existing
cash and cash equivalents and availability under our credit facilities and
lines of credit, will provide adequate resources to meet both our capital
requirements and operational needs on both a current and long term basis.
Currency Exchange Rate Fluctuations
Although we report our Consolidated Financial Statements in U.S. dollars,
approximately 72% of our fiscal 2004 sales have been denominated in other
currencies, primarily the Euro, British pound, Swedish krona, Singapore
dollar, Taiwanese dollar, Korean won and Japanese yen. Net sales, costs and
related assets and liabilities of our operations are generally denominated in
the functional currencies of the relevant operating units, thereby serving to
reduce the Company's exposure to exchange gains and losses.
Exchange differences upon translation from each operating unit's functional
currency to U.S. dollars are accumulated as a separate component of equity.
The currency translation adjustment component of stockholders' equity had the
effect of increasing total equity by $9.8 million at June 30, 2004 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.
- 19 -
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 were
effective for the Company beginning with the quarter ending June 30, 2004,
and are reflected in note 9.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 of our
consolidated financial statements in our Annual Report on 10-K for the fiscal
year ended September 30, 2003. 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
Inventories are stated at the lower of cost or market, after provisions
for excess and obsolete inventory salable at prices below cost.
Reserves for slow moving and obsolete inventories are provided based on
current assessments about historical experience and future product
demand and production requirements for the next twelve months. These
factors are impacted by market conditions, technology changes, and
changes in strategic direction, and require estimates and management
judgment that may include elements that are uncertain. We evaluate the
adequacy of these reserves quarterly. Although we strive to achieve a
balance between market demands and risk of inventory excess or
obsolescence, it is possible that, should conditions change, additional
reserves may be needed. Any changes in reserves will impact operating
income during a given period.
- 20 -
Warranty Reserves
The Company provides for the estimated costs of product warranties when
revenue is recognized. The Company relies upon historical experience,
expectation of future conditions, and its service data to estimate its
warranty reserve. The Company continuously monitors this data to ensure
that the reserve is sufficient. To the extent we experience increased
warranty claim activity or increased costs associated with servicing
those claims, revisions to the estimated warranty liability would be
required. While such expenses have historically been within its
expectations, the Company cannot guarantee this will continue in the
future.
Pension
The determination of the Company's obligation and expense for pension is
dependent on the selection of certain assumptions used by actuaries in
calculating those amounts. Assumptions are made about interest rates,
expected investment return on plan assets, total turnover rates, and
rates of future compensation increases. In addition, the Company's
actuarial consultants use subjective factors such as withdrawal rates
and mortality rates to develop our valuations. The Company generally
reviews these assumptions at the beginning of each fiscal year. The
Company is required to consider current market conditions, including
changes in interest rates, in making these assumptions. The actuarial
assumptions that the Company may use may differ materially from actual
results due to changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact on the amount of pension
benefits expense the Company has recorded or may record.
The discount rate enables the Company to state expected future cash
flows at a present value on the measurement date. The Company has
little latitude in selecting this rate, and it must represent the market
rate of high-quality fixed income investments. A lower discount rate
increases the present value of benefit obligations and increases pension
expense.
To determine the expected long-term rate of return on plan assets, the
Company considers the current and expected assets allocations, as well
as historical and expected returns on various categories of plan assets.
- 21 -
Ownership of Common Stock By Directors
The following table sets forth information as of June 30, 2004, with respect
to beneficial ownership of the Company's Common Stock and exercisable options
by each director.
Number of Total Number of
Shares of Number of Exercisable
Common Stock Stock Options Stock Options
Beneficially Owned at Owned at
Name Owned June 30, 2004 June 30, 2004
- ---------------- -------------- ----------------- -----------------
Peter Wirth 3,300 240,000 126,000
Gunther Braun -- 170,000 72,000
Carl F. Baasel 50,000 60,000 15,000
Walter Volkmar -- 57,000 9,000
Louis Molnar -- 93,000 10,000
William R. Hoover (1) 41,250 -- --
Ralph E. Reins (1) 17,000 -- --
Gary K. Willis (1) 17,000 -- --
Daniel Smoke (1) 3,450 -- --
(1) Outside, non-executive directors
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the nine month period ended June 30, 2004, we did not experience any
material change in market risk exposures affecting the quantitative and
qualitative disclosures as presented in our Annual Report on Form 10-K for
the fiscal year ended September 30, 2003.
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
As of June 30, 2004, the Company maintained a cash equivalents portfolio of
$95.6 million, consisting mainly of tax exempt interest bearing securities
and demand deposits, all with maturities of less than three months. If
short-term interest rates were to increase or decrease by 10%, interest
income would increase or decrease by approximately $0.1 million.
At June, 2004, the Company had $25.1 million of six month adjusted interest
rate debt, $11.8 million of annually adjusted interest rate debt and $19.4
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 $0.1 million.
- 22 -
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, 2004, the
Company held Japanese yen forward contracts with notional amounts of Euro 0.5
million and Euro forward exchange options with notional amounts of $1.8
million. A 10% change in currency exchange rates would result in a pre-tax
gain or loss of $0.1 million and $0.1 million, respectively. Additionally,
the Company entered into currency and interest swap agreements of notional
amounts Swiss Francs 40.4 million to minimize the interest on long-term
loans. As of June 30, 2004, an amount of Swiss Franc 30.1 million (equivalent
to $24.0 million based on the exchange rate at June 30, 2004) was outstanding
under this swap agreements. The gains or losses resulting from a 10% change
in currency exchange rates would result in an increase of $1.3 million or a
decrease of $1.7 million of net income after taxes.
Item 4. Controls and Procedures
As of the end of the 90-day period covered by this report, the Chief
Executive Officer and Chief Financial Officer of the Company (collectively,
the "certifying officers") have evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-
15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended). These disclosure controls and procedures are designed to ensure
that the information required to be disclosed by the Company in its periodic
reports filed with the Securities and Exchange Commission (the "Commission")
is recorded, processed, summarized and reported within the time periods
specified by the Commission's rules and forms, and that the information is
communicated to the certifying officers on a timely basis.
The certifying officers concluded, based on their evaluation, that the
Company's disclosure controls and procedures are effective in ensuring that
material information relating to the Company, including its consolidated
subsidiaries, is made known to them in a timely fashion, taking into
consideration the size and nature of the Company's business and operations.
There have not been changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
- 23 -
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1 Rule 13a-15(e)/15d-15(e) Certification of Chief
Executive Officer
31.2 Rule 13a-15(e)/15d-15(e) Certification of Chief
Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
- 24 -
(b) Reports on Form 8-K:
We furnished a Form 8-K on May 13, 2004, which contained
a copy of our press release announcing our second quarter
ended March 31, 2004 financial results. We also furnished
a Form 8-K on August 11, 2004, which contained a copy of our
press release announcing our third quarter ended June 30, 2004
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: August 13, 2004 /s/ Gunther Braun
---------------------------------
Gunther Braun
Executive Vice President,
Finance and Administration, and
Chief Financial Officer