UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
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 [ ]
15,092,150 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of May 9, 2005.
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
March 31, 2005 and September 30, 2004 3
Condensed Consolidated Statements of Operations
Three months and six months ended
March 31, 2005 and 2004 4
Condensed Consolidated Statement of Stockholders'
Equity and Comprehensive Income
Six months ended March 31, 2005 and 2004 5
Condensed Consolidated Statements of Cash Flows
Six months ended March 31, 2005 and 2004 7
Notes to Condensed Consolidated Financial Statements 7
Item 2
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Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3
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Quantitative and Qualitative Disclosures about
Market Risk 21
Item 4
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Controls and Procedures 22
PART II OTHER INFORMATION 23
Item 1
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Legal Proceedings 23
Item 6
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Exhibits 23
SIGNATURES 23
PART I. ITEM 1. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
March 31, September 30,
2005 2004
(Unaudited) (Audited)
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 108,703 $ 100,266
Accounts receivable, net of allowance for
doubtful accounts of $2,343 and $2,519,
respectively 74,480 80,314
Inventories (Note 3) 113,141 106,420
Other current assets and prepaid expenses 12,658 10,633
----------- ----------
Total current assets 308,982 297,633
Property and equipment, net 36,477 34,128
Goodwill, net (Note 5) 65,480 61,779
Other intangibles, net (Note 5) 15,836 18,069
Other assets 2,225 2,197
----------- ----------
Total assets $ 429,000 $ 413,806
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit and short term borrowings $ 33,911 $ 49,819
Accounts payable, trade 15,628 17,306
Accounts payable to related party 257 1,790
Accrued liabilities (Note 4) 64,076 65,178
----------- ----------
Total current liabilities 113,872 134,093
Long-term debt 14,663 4,983
Pension obligations 9,461 8,567
Minority interests 1,686 1,700
Other long-term liabilities 5,456 7,079
----------- ----------
Total liabilities 145,138 156,422
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, 15,079,636 (14,930,550 at
September 30, 2004) issued and outstanding 151 149
Additional paid-in-capital 161,472 158,777
Retained earnings 104,352 87,096
Accumulated other comprehensive income 17,887 11,362
----------- ----------
Total stockholders' equity 283,862 257,384
----------- ----------
Total liabilities and stockholders' equity $ 429,000 $ 413,806
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 3 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended March 31, 2005 and 2004
(dollars in thousands, except per share amounts)
Three Months Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net sales $ 95,368 $ 75,948 $ 186,725 $ 147,006
Cost of goods sold 57,777 46,761 112,961 89,986
---------- ---------- ---------- ----------
Gross profit 37,591 29,187 73,764 57,020
Selling, general, and
administrative expenses 16,783 14,181 33,643 28,159
Research and development expenses 5,702 5,155 11,486 10,182
Intangibles amortization 1,274 515 2,840 964
---------- ---------- ---------- ----------
Income from operations 13,832 9,336 25,795 17,715
Other expense (income):
Interest, net 167 567 365 1,150
Foreign currency (gains)/losses 385 156 ( 809) ( 719)
Other expenses (income) ( 244) ( 81) ( 456) ( 264)
---------- ---------- ---------- ----------
Income before income taxes
and minority interest 13,524 8,694 26,695 17,548
Income tax expense 4,641 2,769 9,230 6,155
---------- ---------- ---------- ----------
Income before minority
interest 8,883 5,925 17,465 11,393
Minority interest 145 279 209 542
---------- ---------- ---------- ----------
Net income $ 8,738 $ 5,646 $ 17,256 $ 10,851
========== ========== ========== ==========
Net income per common
share (Note 8)
Basic $ 0.58 $ 0.47 $ 1.15 $ 0.90
Diluted $ 0.56 $ 0.45 $ 1.11 $ 0.86
========== ========== ========== ==========
Weighted average shares
used in computing net
income per share (Note 8)
Basic 15,079,636 12,047,206 15,033,783 12,039,951
Diluted 15,636,265 12,647,494 15,573,854 12,616,787
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements
- 4 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and
Comprehensive Income (Unaudited)
Six Months Ended March 31, 2005 and 2004
(dollars in thousands)
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders'
Stock Capital Earnings Income Equity
------------ ------------ ------------ ------------ ------------
BALANCES at September 30, 2004 $ 149 $ 158,777 $ 87,096 $ 11,362 $ 257,384
Comprehensive income:
Foreign currency translation adjustment -- -- -- 6,370 6,370
Fair value of interest swap agreement,
net of tax -- -- -- 155 155
Net income -- -- 17,256 -- 17,256
------------
Total comprehensive income 23,781
Common stock issued 2 2,695 -- -- 2,697
------------ ------------ ------------ ----------- ------------
BALANCES at March 31, 2005 $ 151 $ 161,472 $ 104,352 $ 17,887 $ 283,862
============ ============ ============ ============ ============
BALANCES at September 30, 2003 $ 119 $ 79,918 $ 54,666 $ 5,883 $ 140,586
Comprehensive income:
Foreign currency translation adjustment -- -- -- 3,868 3,868
Fair value of interest swap agreement,
net of tax -- -- -- 486 486
Net income -- -- 10,851 -- 10,851
------------
Total comprehensive income 15,205
Common stock issued 27 67,554 -- -- 67,581
------------ ------------ ------------ ----------- ------------
BALANCES at March 31, 2004 $ 146 $ 147,472 $ 65,517 $ 10,237 $ 223,372
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
- 5 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, 2005 and 2004
(dollars in thousands)
Six months
Ended March 31,
------------------------
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 17,256 $ 10,851
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in operating assets and liabilities ( 1,315) ( 263)
Other adjustments 2,215 4,294
----------- -----------
Net cash provided by operating activities 18,156 14,882
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 151 85
Additions to property and equipment ( 3,617) ( 2,137)
Aquisition of business, net of cash acquired ( 1,182) ( 741)
---------- ----------
Net cash used in investing activities ( 4,648) ( 2,793)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 18,555 8,620
Repayment to banks ( 27,058) ( 22,929)
Issuance of additional common shares -- 66,277
Proceeds from issuance of common stock 1,898 1,563
Other adjustments -- ( 473)
---------- ----------
Net cash provided by (used in) financing
Activities ( 6,605) 53,058
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Effect of foreign currency translation on cash
and cash equivalents 1,534 1,056
---------- ----------
Net increase in cash and cash equivalents 8,437 66,203
Cash and cash equivalents at beginning of period 100,266 44,487
---------- ----------
Cash and cash equivalents at end of period $108,703 $110,690
========== ==========
Cash paid for interest $ 1,229 $ 1,878
Cash paid for taxes $ 6,299 $ 6,246
See accompanying notes to condensed consolidated financial statements
- 6 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
1. Summary of Accounting Policies
The accompanying condensed consolidated 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, 2004,
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.
2. Acquisitions
On February 28, 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.
On August 20, 2004 the Company acquired an additional 15% of the share capital
of Dilas Diodenlaser GmbH, Mainz, Germany, through its wholly-owned subsidiary
RSTE. The Company currently holds 95% of the share capital.
On August 31, 2004, the Company acquired 100% of the share capital of PRC
Laser Corporation based in Landing, New Jersey (including its wholly-owned
European subsidiary PRC Europe N.V., Oudenaarde, Belgium) and Lee Laser, Inc.
based in Orlando, Florida.
Effective December 5, 2004, the Company purchased an additional 5% of the
share capital of Rofin-Sinar U.K. Ltd. through RSTE under an option agreement
between the Company and the former minority shareholders. The Company
currently holds 76% of the share capital. This purchase resulted in goodwill
of $0.6 million.
- 7 -
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:
March 31, September 30,
2005 2004
------------ ------------
Finished goods $ 13,513 $ 14,147
Work in progress 27,332 26,659
Raw materials and supplies 44,157 38,804
Demonstration inventory 8,977 9,525
Service parts 19,162 17,285
----------- -----------
Total inventories $ 113,141 $ 106,420
=========== ===========
4. Accrued Liabilities
Accrued liabilities are comprised of the following:
March 31, September 30,
2005 2004
----------- -----------
Employee compensation $ 13,250 $ 14,308
Warranty reserve 11,937 13,375
Customer deposits 9,526 11,313
Income taxes payable 13,864 9,307
Other 15,499 16,875
----------- -----------
Total accrued liabilities $ 64,076 $ 65,178
=========== ===========
5. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the six-month period ended
March 31, 2005 are as follows:
United Rest of
Germany States World Total
---------- ---------- ---------- ----------
Balance as of
September 30, 2004 $ 39,390 $ 9,506 $ 12,883 $ 61,779
Additional goodwill from
Acquisitions -- 458 637 1,095
Currency exchange difference 1,825 140 641 2,606
---------- ---------- ---------- ----------
Balance as of
March 31, 2005 $ 41,215 $ 10,104 $ 14,161 $ 65,480
========== ========== ========== ==========
- 8 -
The carrying value of other intangible assets are as follows:
March 31, 2005 September 30, 2004
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 7,771 $ 2,060 $ 7,421 $ 1,698
Customer base 14,027 5,472 13,655 3,943
Other 3,788 2,218 3,668 1,034
---------- ---------- ---------- ----------
Total $ 25,586 $ 9,750 $ 24,744 $ 6,675
========== ========== ========== ==========
Amortization expense for the six-month periods ended March 31, 2005 and 2004
was $2.8 million and $1.0 million, respectively. At March 31, 2005,
estimated amortization expense for the remainder of fiscal 2005 and the next
five fiscal years is as follows:
2005 (remainder) $ 2.5 million
2006 3.5 million
2007 2.8 million
2008 2.1 million
2009 2.0 million
2010 0.7 million
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 six-month periods ended
March 31, 2005 and 2004 is as follows:
2005 2004
------------ ------------
Balance at September 30, $ 13,375 $ 10,528
Additional accruals for warranties
during the period 538 3,883
Usage during the period ( 2,562) ( 3,084)
Currency translation 586 429
----------- -----------
Balance at March 31, $ 11,937 $ 11,756
=========== ===========
- 9 -
7. Stock Based Compensation
The following table illustrates the pro forma effect on net income and net
income per common share that would have resulted if the fair value based
method of SFAS No. 123 had been applied to all outstanding and unvested
awards in each period:
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income - as reported $ 8,738 $ 5,646 $ 17,256 $ 10,851
Deduct: Total stock-based
employee compensation
expense determined under
the fair value based
method for all awards, net
of related tax effects 317 225 614 450
---------- ---------- ---------- ----------
Pro forma net income $ 8,427 $ 5,421 $ 16,642 $ 10,401
========== ========== ========== ==========
Earnings per share:
Basic - as reported $ 0.58 $ 0.47 $ 1.15 $ 0.90
Basic - pro forma $ 0.56 $ 0.45 $ 1.11 $ 0.86
Diluted - as reported $ 0.56 $ 0.45 $ 1.11 $ 0.86
Diluted - pro forma $ 0.55 $ 0.43 $ 1.08 $ 0.82
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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Weighted average number of
shares for BASIC net income
per common share 15,079,636 12,047,206 15,033,783 12,039,951
Potential additional shares
due to outstanding dilutive
stock options 556,629 600,288 540,071 576,836
---------- ---------- ---------- ----------
Weighted average number of
shares for DILUTED net
income per common share 15,636,265 12,647,494 15,573,854 12,616,787
========== ========== ========== ==========
- 10 -
There were no shares excluded from the calculation of diluted EPS for the three
and six months ended March 31, 2005 and 2004.
9. Defined Benefit Plans
Components of net periodic cost were as follows for the six months ended
March 31, 2005 and 2004:
Other
Postretirement
Pension Plans Benefits
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Service cost $ 287 $ 283 $ -- $ 82
Interest cost 347 317 -- 2
Expected return on plan assets (136) ( 98) -- --
Amortization of net loss 32 31 -- --
---------- ---------- ---------- ----------
Net periodic benefit cost $ 530 $ 533 $ -- $ 84
========== ========== ========== ==========
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 are produced utilizing
similar manufacturing processes and 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, net sales and income before taxes and minority interest by geographic
region, are summarized below:
March 31, September 30,
2005 2004
(Unaudited) (Audited)
---------- ----------
ASSETS
United States $ 174,785 $ 179,741
Germany 239,813 237,044
Other 136,917 132,809
Intercompany eliminations ( 122,515) ( 135,788)
---------- ----------
Total assets $ 429,000 $ 413,806
========== ==========
- 11 -
NET SALES
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
United States $ 26,368 $ 16,543 $ 55,363 $ 31,723
Germany 72,357 66,660 143,366 131,937
Other 31,233 28,440 59,473 51,485
Intercompany eliminations ( 34,590) ( 35,695) ( 71,477) ( 68,139)
---------- ---------- ---------- ----------
$ 95,368 $ 75,948 $ 186,725 $ 147,006
========== ========== ========== ==========
INTERCOMPANY SALES
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
United States $ 451 $ 863 $ 1,073 $ 1,857
Germany 28,340 28,640 59,353 54,598
Other 5,799 6,192 11,051 11,684
Intercompany eliminations ( 34,590) ( 35,695) ( 71,477) ( 68,139)
---------- ---------- ---------- ----------
$ -- $ -- $ -- $ --
========== ========== ========== ==========
EXTERNAL SALES
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
United States $ 25,917 $ 15,680 $ 54,290 $ 29,866
Germany 44,017 38,020 84,013 77,339
Other 25,434 22,248 48,422 39,801
---------- ---------- ---------- ----------
$ 95,368 $ 75,948 $ 186,725 $ 147,006
========== ========== ========== ==========
- 12 -
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
United States $ 3,311 $ 2,054 $ 7,286 $ 4,049
Germany 8,838 4,196 18,225 11,356
Other 2,341 2,362 4,213 3,868
Intercompany eliminations ( 966) 82 ( 3,029) ( 1,725)
---------- ---------- ---------- ----------
$ 13,524 $ 8,694 $ 26,695 $ 17,548
========== ========== ========== ==========
- 13 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Forward-looking statements include
all statements that do not relate solely to historical or current facts, and
can be identified by the use of words such as "may", "believe", "will",
"expect", "project", "anticipate", "estimate", "plan" or "continue". These
forward looking statements are based on the current plans and expectations of
our management and are subject to a number of uncertainties and risks that
could significantly affect our current plans and expectations, as well as
future results of operations and financial condition. In making these
forward-looking statements, we claim the protection of the safe-harbor for
forward-looking statements contained in the Reform Act. We do not assume any
obligation to update these forward-looking statements to reflect actual
results, changes in assumptions, or changes in other factors affecting such
forward-looking statements.
Overview
Rofin-Sinar Technologies Inc. (herein also referred to as "Rofin-Sinar", or
the "Company" or "we", "us" or "our") is a leader in the design, development,
engineering, manufacture and marketing of laser-based products used for
cutting, welding and marking a wide range of materials.
Through our global manufacturing, distribution and service network, we
provide a comprehensive range of laser sources and laser based system
solutions to three principal target markets: the machine tool, automotive,
and semiconductor/electronics industries. We sell principally to end-users
and original equipment manufacturers ("OEMs") (principally in the machine
tool industry) that integrate our laser sources with other system components.
Many of our customers are among the largest global participants in their
respective industries.
During the second quarter of fiscal years 2005 and 2004, we realized
approximately 52% and 50%, respectively, of revenues from the sale and
servicing of laser products for macro applications and approximately 48% and
50%, respectively, from the sale and servicing of laser products for marking
and micro applications.
Management believes that in the near term some softening will occur in our
macro business, especially in Europe from the machine tool industry and in
North America from the automotive industry. In the marking and micro
business, as anticipated, the Company is experiencing some softening of the
demand in the semiconductor sector, but does not consider it an indication of
a deepening downward trend. The Company believes that its large product
portfolio and broad technology base should help mitigate a worsening of
business conditions in a single industrial or geographical market in the
future. Management will continue to invest in increasing its sales and
service activities in Asia and extending its technology portfolio into new
applications.
- 14 -
At March 31, 2005, Rofin-Sinar had 1,394 employees compared to 1,228
employees at March 31, 2004.
Results of Operations
For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's
consolidated statements of operations.
Three Months Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net sales 100% 100% 100% 100%
Cost of goods sold 61% 62% 60% 61%
Gross profit 39% 38% 40% 39%
Selling, general and
administrative expenses 18% 19% 18% 19%
Research and development expenses 6% 7% 6% 7%
Intangibles amortization 1% 1% 2% 1%
Income from operations 14% 11% 14% 12%
Income before income taxes
and minority interest 14% 11% 14% 12%
Net income 9% 7% 9% 7%
Net Sales - Net sales of $95.4 million and $186.7 million represent increases
of $19.4 million or 26% and $39.7 million or 27% for the three months and the
six months ended March 31, 2005, as compared to the corresponding periods in
fiscal 2004. The increase for the three months ended March 31, 2005 resulted
from a net sales increase of $8.0 million (13%) in Europe/Asia and an
increase of $11.4 million (73%) in the United States. The increase for the
six months ended March 31, 2005, compared to the corresponding period in
fiscal 2004, resulted from a net sales increase of $14.1 million, or 12%, in
Europe/Asia and an increase of $25.6 million, or 86%, 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 $4.1 million and $8.9
million for the three-month and the six-month periods ended March 31, 2005.
Net sales of laser products for macro applications increased by $11.6 million
(30%) to $49.8 million and by $24.6 million (33%) to $98.9 million for the
three-month and six-month periods ended March 31, 2005 as compared to the
corresponding periods of fiscal 2004. 52% and 45% of the increases in the
three-month period and the six-month period were due to the contribution of
PRC Laser, which was acquired at the end of August 2004, and the remaining
increase was primarily due to a shift in product mix for lasers with higher
output power. Net sales of lasers for marking and micro applications
increased by 21% to $45.6 million for the three months ended March 31,2005
and increased by 21% to $87.8 million for the six months ended March 31, 2005
as compared to the corresponding periods in fiscal 2004. 32% and 42% of the
increase in sales of lasers for marking and micro applications in the three-
month and six-month periods can be attributed to the contribution from Lee
Laser, which was acquired at the end of August 2004, and increased demand for
our StarCut product series and general purpose marking lasers.
- 15 -
Gross Profit - Our gross profit of $37.6 million and $73.8 million for the
three-month and the six-month periods ended March 31, 2005 represent
increases of $8.4 million (29%) and $16.7 million (29%) from the
corresponding periods of fiscal year 2004. As a percentage of sales compared
to the corresponding three-month period of fiscal year 2004, gross profit
increased from 38% to 39% and increased from 39% to 40% for the six-month
period ended March 31, 2005 as compared to the corresponding period in 2004.
The high percentage margin was primarily a result of the favorable product
mix within our businesses. Gross profit was favorably affected by $1.1
million and $2.4 million for the three-month and six-month periods ended
March 31, 2005 due to the fluctuations of the U.S. dollar against foreign
currencies, primarily against the Euro.
Selling, General and Administrative Expenses - Selling, general and
administrative (SG&A) expenses of $16.8 million and $33.6 million for the
three-month and six-month periods ended March 31, 2005 represent increases of
$2.6 million (18%) and $5.5 million (20%) from the corresponding periods of
fiscal 2004, primarily due to the consolidation of our newly acquired
businesses, PRC Laser and Lee Laser, costs incurred in connection with
managements assessment of internal control over financial reporting to
prepare the Company for compliance with the requirements under Section 404
under the Sarbanes-Oxley Act of 2002, and increased worldwide sales
activities. SG&A, a significant portion of which is incurred in foreign
currencies, was unfavorably affected by $0.8 million and $1.8 million for the
three-month and six-month periods ended March 31, 2005 due to the
fluctuations of the U.S. dollar against foreign currencies, primarily the
Euro.
Research and Development - The Company spent net $5.7 million and $11.5
million on research and development (R&D) during the three-month and six-
month periods ended March 31, 2005. This represents an increase of 11% and
13% for the three-month and six-month periods ended March 31, 2005, compared
to the corresponding period of the prior year, and is mainly attributed to
the consolidation of our newly acquired businesses, PRC Laser and Lee Laser.
Gross research and development expenses for the three-month periods ended
March 31, 2005 and March 31, 2004 were $6.0 million and $5.3 million,
respectively, and were reduced by $0.3 million and $0.1 million of government
grants during each respective period. Gross research and development expenses
for the six-month periods ended March 31, 2005 and March 31, 2004 were $11.9
million and $10.6 million, respectively, and were reduced by $0.4 million of
government grants during both respective periods. R&D, a significant portion
of which is conducted in Europe, and therefore incurred in foreign
currencies, were unfavorably affected by $0.3 million and $0.8 million for
the three-month and six-month periods ended March 31, 2005 due to the
fluctuations of the U.S. dollar against foreign currencies, primarily the
Euro.
Amortization expense - Amortization expense for the three-month and six-month
periods ended March 31, 2005 amounted to $1.3 million and $2.8 million,
respectively. This was an increase of $0.8 million and $1.9 million when
compared to the same periods of fiscal year 2004 due to the amortization of
the intangibles acquired in the acquisition of PRC Laser and Lee Laser.
- 16 -
Other Expense (Income) - Net other expenses of $0.3 million for the three-
month period ended March 31, 2005 represents a decrease of $0.4 million
compared to the corresponding period in the prior year. Net other income of
$0.9 million for the six-month period ended March 31, 2005 represents an
increase of $1.1 million compared to the corresponding period of the prior
year. The fluctuation in the three-month and six-month periods is primarily
attributable to a reduction of $0.4 million and $0.8 million in net interest
expenses.
Income Tax Expense - Income tax expense of $4.6 million and $9.2 million for
the three-month and the six-month periods ended March 31, 2005 represents
effective tax rates of 34% and 35% for those periods, compared to 32% and 35%
for the corresponding periods of the prior year. Income tax expense, a
significant portion of which is incurred in foreign currencies, was
unfavorably affected by $0.2 million and $0.5 million for the three-month and
six-month periods ended March 31, 2005 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 $8.7 million and $17.3 million for the three-month
and six-month periods ended March 31, 2005, which represent increases of $3.1
million and $6.4 million compared to the corresponding periods in fiscal
2004. For the three-month period ended March 31, 2005, basic and diluted net
income per common share equaled $0.58 and $0.56, respectively, based upon a
weighted average of 15.1 million and 15.6 million common shares outstanding,
as compared to basic and diluted net income per common share of $0.47 and
$0.45, respectively, for the three-month period ended March 31, 2004, based
upon a weighted average of 12.0 million and 12.6 million common shares
outstanding.
Liquidity and Capital Resources
The Company's primary sources of liquidity at March 31, 2005 were cash and
cash equivalents of $108.7 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
$56.1 million (translated at the applicable exchange rate at March 31, 2005).
As of March 31, 2005, $6.6 million (which is classified as a current
liability) was outstanding under the Deutsche Bank facility and $19.6 million
(of which $5.0 million is classified as a current liability) was outstanding
under other lines of credit. Approximately $54.9 million is unused and
available under the Company's bank facility and lines of credit at March 31,
2005. The Company has financial covenants, which could restrict the Company
from drawing money under these lines of credit. At March 31, 2005, the
Company is in compliance with these covenants.
Additionally, the Company has outstanding 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 March
31, 2005, $22.4 million was outstanding under this credit agreement. Based on
its maturity, it has been included in the caption "line of credit and short
term borrowings" in the accompanying consolidated balance sheet.
- 17 -
Cash and cash equivalents increased by $8.4 million during the six-month
period ended March 31, 2005. Approximately $18.2 million in cash and cash
equivalents was provided by operating activities, primarily as the result of
improved net income and other non-cash items, principally depreciation and
amortization. Operating cash flow was negatively affected by a decrease in
accrued liabilities, offset by a decrease in accounts receivable and
inventory and an increase in income taxes payable.
Uses of cash from investing activities totaled $4.6 million for the six-
month period ended March 31, 2005 and related primarily to the purchase of
property and equipment and the Company's acquisition of minority
shareholdings in subsidiaries during the period.
Net cash used in financing activities totaled $6.6 million and was primarily
related to current period repayments of bank debt of $27.1 million, offset
with new borrowings from banks of $18.6 million. This use of cash was offset
by an increase in stockholders' equity of $1.9 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 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.
Currency Exchange Rate Fluctuations
Although we report our Consolidated Financial Statements in U.S. dollars,
approximately 67% of our 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 $18.0 million at March 31, 2005 as
compared to $11.6 million at September 30, 2004.
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.
- 18 -
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 of our
consolidated financial statements in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2004. 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.
Provisions for slow moving and obsolete inventories are provided based
on current assessments about historical experience and future product
demand and production requirements for the next twelve months. These
factors are impacted by market conditions, technology changes, and
changes in strategic direction, and require estimates and management
judgment that may include elements that are uncertain. We evaluate the
adequacy of these provisions 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
provisions may be needed. Any changes in reserves will impact operating
income during a given period.
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.
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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.
Recent Accounting Pronouncements
In April 2005, the Securities and Exchange Commission issued an amendment to
Statement of Financial Accounting Standard ("SFAS") No. 123 (Revised 2004)
("SFAS No. 123R"), "Share-Based Payment" regarding the compliance date for
implementation. The Company will prospectively adopt SFAS 123R on October 1,
2005, as required by this amendment.
The effect on results of operations of future option grants will depend on
the level of future option grants and the calculation of the fair value of
the options granted at such future date, as well as the vesting periods
provided, and so the future impact to the results of operations cannot
currently be predicted. Upon adoption, there will be no significant effect
on the Company's financial position.
- 20 -
Ownership of Common Stock By Directors
The following table sets forth information as of March 31, 2005 with respect
to beneficial ownership of the Company's Common Stock and exercisable options
by each director.
Number of Total Number of
Shares of Number of Exercisable
Common Stock Stock Options Stock Options
Beneficially Owned at Owned at
Name Owned March 31, 2005 March 31, 2005
- ---------------- -------------- ----------------- -----------------
Peter Wirth 3,300 260,000 134,000
Gunther Braun -- 190,000 82,000
Carl F. Baasel 19,000 80,000 27,000
William R. Hoover (1) 42,000 -- --
Ralph E. Reins (1) 18,500 -- --
Gary K. Willis (1) 18,500 -- --
Daniel Smoke (1) 4,950 -- --
(1) Outside, non-executive directors
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For the six-month period ended March 31, 2005, 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, 2004.
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 March 31, 2005, the Company maintained a cash equivalents portfolio of
$72.9 million, consisting mainly of non-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 approximately $0.2 million.
At March 31, 2005, the Company had $23.3 million of variable rate debt on
which the interest rate is reset every six months, $6.6 million of variable
rate debt on which the interest rate is set annually and $18.7 million of
fixed rate debt. Maturities of this debt are as follows: $30.0 million is
due in 2005, $7.9 million is due in 2006, $3.9 million is due in 2007, $3.5
million in due in 2008, and $3.2 million is due in 2009. 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.
- 21 -
Foreign Currency Exchange Risk
The Company enters into foreign currency forward contracts and forward
exchange options generally of less than one year duration to hedge a portion
of its foreign currency risk on sales transactions. At March 31, 2005, the
Company held no forward exchange options. Additionally, the Company entered
into currency and interest swap agreements of 40.4 million Swiss Franc total
notional amount to minimize the interest expense on short-term and long-term
debt. As of March 31, 2005, an amount of 26.7 million Swiss Franc
(equivalent to $22.3 million based on the exchange rate at March 31, 2005)
was outstanding under these swap agreements. The gains or losses resulting
from a 10% change in currency exchange rates would result in an increase of
$1.4 million or a decrease of $1.4 million of net income after tax.
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, under the supervision and with the
participation of management, 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have been and are likely to be involved from time to time in
litigation involving our intellectual property and routine
litigation arising in the ordinary course of business.
The 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 its
obligations under the license agreement. The Company is currently
in discussions with the licensor in order to resolve these
disagreements. Management believes that it will achieve a
resolution of this matter that it will not have a material adverse
impact on the Company's financial condition or results of
operations or cash flows.
Item 6. Exhibits
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer and Chief Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rofin-Sinar Technologies Inc.
---------------------------------
(Registrant)
Date: May 9, 2005 /s/ Gunther Braun
---------------------------------
Gunther Braun
Executive Vice President,
Finance and Administration, and
Chief Financial Officer