Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2010
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission file number: 000-21377
ROFIN-SINAR TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3306461
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40984 Concept Drive, Plymouth, MI 48170
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(Address of principal executive offices) (Zip Code)
(734) 455-5400
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] / No [ ]
Indicate by check mark whether the registrant has submitted electronically
and posted in its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [ ] / No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer", "accelerated filer"
and "Smaller Reporting Company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell Company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] / No [X]
28,531,989 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of February 8, 2011.
ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
----------------------------------------------- ----------
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
December 31, 2010 and September 30, 2010 4
Condensed Consolidated Statements of Operations
Three months ended December 31, 2010 and 2009 6
Condensed Consolidated Statement of Stockholders'
Equity and Comprehensive Income
Three months ended December 31, 2010 and 2009 7
Condensed Consolidated Statements of Cash Flows
Three months ended December 31, 2010 and 2009 9
Notes to Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 22
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 29
Item 4 - Controls and Procedures 30
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 31
Item 1A - Risk Factors 31
Item 2 - Unregistered Sales of Equity Securities
and Use of Proceeds 31
Item 3 - Defaults Upon Senior Securities 32
Item 4 - Removed and Reserved 32
Item 5 - Other Information 32
Item 6 - Exhibits 32
SIGNATURES 32
PART I. ITEM 1. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands, except per share amounts)
December 31, September 30,
2010 2010
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 109,716 $ 110,628
Short-term investments 4,819 5,691
Accounts receivable, net of allowance for
doubtful accounts of $3,199 and $3,020,
respectively 103,422 97,639
Inventories, net (Note 5) 168,578 151,759
Other current assets and prepaid expenses 24,070 21,638
----------- ----------
Total current assets 410,605 387,355
Long-term investments (Note 6) 4,250 4,950
Property and equipment, net 53,832 52,651
Goodwill (Note 7) 89,708 89,796
Other intangibles, net (Note 7) 12,943 10,178
Other assets 13,321 13,262
----------- ----------
Total assets $ 584,659 $ 558,192
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit and short-term borrowings $ 10,444 $ 5,173
Accounts payable, trade 20,367 23,173
Accounts payable to related party 544 566
Income tax payable 10,454 7,114
Accrued liabilities (Note 8) 71,366 63,886
----------- ----------
Total current liabilities 113,175 99,912
Long-term debt 14,815 15,488
Pension obligations 18,122 18,163
Other long-term liabilities 7,742 7,153
----------- ----------
Total liabilities 153,854 140,716
- 4 -
PART I. ITEM 1. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited), Continued
(dollars in thousands, except per share amounts)
Stockholders' equity
Preferred stock, 5,000,000 shares authorized,
none issued or outstanding -- --
Common stock, $0.01 par value, 50,000,000 shares
authorized, 32,181,000 (31,951,500 at September
30, 2010) issued 322 320
Additional paid-in-capital 209,687 205,100
Retained earnings 348,369 333,491
Accumulated other comprehensive income 8,049 14,399
Treasury shares, at cost, 3,683,504 shares
(3,683,504 at September 30, 2010)(Note 11) (139,453) ( 139,453)
----------- ----------
Total Rofin-Sinar Technologies Inc.
stockholders' equity 426,974 413,857
Noncontrolling interest in subsidiaries 3,831 3,619
----------- ----------
Total stockholders' equity 430,805 417,476
----------- ----------
Total liabilities and stockholders' equity $ 584,659 $ 558,192
=========== ==========
See accompanying notes to condensed consolidated financial statements
- 5 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended December 31, 2010 and 2009
(dollars in thousands, except per share amounts)
Three Months
Ended December 31,
----------------------
2010 2009
---------- ----------
Net sales $ 137,132 $ 92,970
Cost of goods sold 80,765 57,099
---------- ----------
Gross profit 56,367 35,871
Selling, general, and administrative expenses 25,616 21,810
Research and development expenses 8,627 7,719
Amortization expense 643 632
---------- ----------
Income from operations 21,481 5,710
Other (income) expense:
Interest income ( 168) ( 182)
Interest expense 182 298
Foreign currency income ( 197) ( 202)
Other income ( 734) ( 153)
---------- ----------
Income before income tax 22,398 5,949
Income tax expense 7,308 2,247
---------- ----------
Net income 15,090 3,702
Less: Net income attributable to the
noncontrolling interest 212 118
---------- ----------
Net income attributable to RSTI $ 14,878 $ 3,584
========== ==========
Net income attributable to RSTI per share
Basic $ 0.52 $ 0.12
Diluted $ 0.51 $ 0.12
========== ==========
Weighted-average shares used in computing earnings per share (Note 12):
Basic 28,374,791 29,009,516
Diluted 28,966,128 29,423,110
========== ==========
See accompanying notes to condensed consolidated financial statements
- 6 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and Comprehensive Income (Unaudited)
Three months ended December 31, 2010 and 2009
(dollars in thousands)
Common Accumulated Rofin-Sinar
Stock Additional Other Technologies Non- Total
Par Paid-in Retained Comprehensive Treasury Stockholders' controlling Stockholders'
Value Capital Earnings Income Stock Equity Interests Equity
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
September 30, 2010 $ 320 $ 205,100 $ 333,491 $ 14,399 $(139,453) $ 413,857 $ 3,619 $ 417,476
Comprehensive income:
Fair value of interest
swap agreement -- -- -- 22 -- 22 -- 22
Defined benefit pension plan:
Amortization of actuarial
loss (net of taxes $10) -- -- -- 16 -- 16 -- 16
Pension adjustment -- -- -- 24 -- 24 -- 24
Foreign currency
translation
adjustment -- -- -- (6,412) -- (6,412) -- (6,412)
Net income -- -- 14,878 -- 14,878 212 15,090
------------- ----------- -------------
Total comprehensive income 8,528 212 8,740
Common stock issued for
stock incentive plans 2 4,587 -- -- -- 4,589 -- 4,589
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
December 31, 2010 $ 322 $ 209,687 $ 348,369 $ 8,049 $(139,453) $ 426,974 $ 3,831 $ 430,805
======= ========== ========== ============ ========== ============= =========== =============
- 7 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements Of Stockholders' Equity and Comprehensive Income (Unaudited)
Three months ended December 31, 2010 and 2009
(dollars in thousands)
Common Accumulated Rofin-Sinar
Stock Additional Other Technologies Non- Total
Par Paid-in Retained Comprehensive Treasury Stockholders' controlling Stockholders'
Value Capital Earnings Income Stock Equity Interests Equity
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
September 30, 2009 $ 318 $ 196,185 $ 303,651 $ 38,176 $(119,996) $ 418,334 $ 3,360 $ 421,694
Comprehensive income:
Fair value of interest
swap agreement -- -- -- 21 -- 21 -- 21
Foreign currency
translation
adjustment -- -- -- ( 7,304) -- ( 7,304) -- ( 7,304)
Net income -- -- 3,584 -- -- 3,584 118 3,702
------------- ----------- -------------
Total comprehensive income
(loss) ( 3,699) 118 ( 3,581)
Common stock issued for
stock incentive plans 1 4,593 -- -- -- 4,594 -- 4,594
------- ---------- ---------- ------------ ---------- ------------- ----------- -------------
BALANCES at
December 31, 2009 $ 319 $ 200,778 $ 307,235 $ 30,893 $(119,996) $ 419,229 $ 3,478 $ 422,707
======= ========== ========== ============ ========== ============= =========== =============
See accompanying notes to condensed consolidated financial statements
- 8 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31, 2010 and 2009
(dollars in thousands)
Three Months
Ended December 31,
------------------------
2010 2009
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Note 2) $ 15,090 $ 3,702
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,959 3,100
Stock-based compensation expenses 1,388 1,463
Other adjustments ( 356) 223
Change in operating assets and liabilities:
Accounts receivable, trade ( 5,226) 567
Inventories ( 8,786) ( 279)
Accounts payable ( 3,445) 62
Changes in other operating assets and liabilities 7,874 ( 2,545)
----------- -----------
Net cash provided by operating activities 9,498 6,293
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 166 69
Additions to property and equipment ( 2,898) ( 1,350)
Purchases of short-term investments ( 883) --
Sales of short-term and long-term investments 2,356 3,440
Acquisition of businesses, net of cash acquired ( 11,286) --
---------- ----------
Net cash provided by (used in)
investing activities ( 12,545) 2,159
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from banks 764 5,279
Repayments to banks ( 740) ( 5,856)
Issuance of common stock 2,755 2,868
Excess tax benefit from stock options 135 4
---------- ----------
Net cash used in financing activities 2,914 2,295
---------- ----------
Effect of foreign currency translation on cash ( 779) ( 2,409)
---------- ----------
Net increase (decrease) in cash and cash equivalents ( 912) 8,338
Cash and cash equivalents at beginning of period 110,628 116,128
---------- ----------
Cash and cash equivalents at end of period $109,716 $124,466
========== ==========
Cash paid for interest $ 137 $ 308
Cash paid for taxes $ 4,257 $ 1,778
See accompanying notes to condensed consolidated financial statements
- 9 -
Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
1. Basis of Presentation
The accompanying unaudited, condensed and consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial reporting, and
with instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, the financial statements for interim reporting do not include
all of the information and notes or disclosures required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and such
adjustments are of a normal recurring nature. Results for interim periods
should not be considered indicative of results for a full year. The
September 30, 2010, condensed consolidated balance sheet was derived from
audited financial statements but does not include all disclosures required by
accounting principles generally accepted in the United States of America.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2010, as filed with the Securities and
Exchange Commission on November 30, 2010.
2. New Accounting Pronouncements
In July 2010, the Financial Accounting Standards Board ("FASB") issued ASU
No. 2010-20, "Receivables (Topic 310) - Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses" ("ASU 2010-20")
which requires additional disclosures about an entity's allowance for credit
losses and the credit quality of its financing receivables. These amendments
affect all entities with financing receivables, excluding short-term accounts
receivable or receivables measured at fair value or lower of cost or fair
value. The guidance on disclosures as of the end of a reporting period became
effective for the Company on December 31, 2010, and did not have an impact on
the Company's consolidated financial statements. The disclosures about
activity that occurs during a reporting period are effective for the
Company's second quarter of fiscal year 2011. The Company does not expect the
adoption of this guidance to have a material impact on its financial
statements.
In April 2010, the FASB issued ASU No. 2010-17, "Revenue Recognition -
Milestone Method (Topic 605)" ("ASU 2010-17"), which provides guidance on
defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for certain revenue transactions.
This guidance is effective on a prospective basis for milestones achieved in
fiscal years, and interim periods within those years, beginning on or after
June 15, 2010 (fiscal year 2011 for the Company). The adoption of this
accounting guidance did not have a material impact on the Company's
consolidated financial statements.
- 10 -
In January 2010, the FASB issued an amendment to ASC Subtopic 820-10 which
requires new disclosures for fair value measurements and provides
clarification for existing fair value disclosure requirements. The amendment
requires an entity to disclose separately the amounts of significant
transfers in and out of Levels 1 and 2 fair value measurements and to
describe the reasons for the transfers; and to disclose information about
purchases, sales, issuances and settlements separately in the reconciliation
for fair value measurements using significant unobservable inputs, or Level 3
inputs. This amendment clarifies existing disclosure requirements for the
level of disaggregation used for classes of assets and liabilities measured
at fair value and requires disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair
value measurements using Level 2 and Level 3 inputs. The guidance became
effective for the Company's second quarter of fiscal year 2010 except for
disclosures about purchases, sales, issuances, and settlements in the roll
forward activity in Level 3 fair value measurements which are effective for
fiscal years beginning after December 15, 2010 (fiscal year 2012 for the
Company) and for interim periods within those fiscal years. The Company
decided to early adopt the guidance for disclosures in the roll forward
activity in Level 3 fair value measurements. The adoption of this guidance
did not impact the Company's consolidated financial statements.
In October 2009, the FASB issued new accounting guidance for revenue
recognition related to multiple element arrangements. This guidance
established a selling price hierarchy, which allows the use of estimated
selling prices to allocate arrangement consideration to deliverables in cases
where neither vendor-specific objective evidence nor third-party evidence is
available. The new guidance is effective for the Company prospectively for
revenue arrangements entered into or materially modified beginning in the
first quarter of fiscal 2011. We applied the new guidance to our revenue
arrangements containing multiple deliverables that were entered into, or
materially modified, on or after October 1, 2010. The adoption of this
accounting guidance did not have a material impact on the Company's
consolidated financial statements and is not expected to have a material
effect on the Company's consolidated financial statements in subsequent
periods.
In June 2009, ASC Topic 810 was amended to improve financial reporting by
enterprises involved with variable interest entities. This Topic addresses
(1) the effects on certain provisions regarding the consolidation of variable
interest entities, as a result of the elimination of the qualifying special-
purpose entity concept in ASC Topic 860 regarding the accounting for
transfers of financial assets, and (2) concern about the application of
certain key provisions of FASB Interpretation No. 46(R), including those in
which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprise's involvement in a
variable interest entity. This Topic became effective October 1, 2010, and
did not have an impact on the Company's consolidated financial statements.
- 11 -
3. Acquisitions
Effective October 15, 2010, the Company acquired 100% of the common stock of
LASAG AG, Thun (Switzerland) ("LASAG"), through its wholly-owned subsidiary
Rofin-Sinar Technologies Europe S.L.. Additionally, the Company acquired the
worldwide LASAG selling and service operations. LASAG is one of the original
laser companies with more than 30 years of experience in the development and
manufacturing of industrial solid-state lasers. LASAG markets and sells its
laser products for fine cutting, spot welding, drilling and scribing
applications to the medical device, automotive, electronic and aerospace
industries. In addition, the company has special expertise in high-precision
drilling and laser processing heads. This purchase resulted in goodwill of
approximately $1.6 million and other intangibles, net of $2.4 million.
4. Fair Value Measurements
ASC Topic 820 "Fair value measurement and Disclosures" establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. ASC 820 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability (an exit price) in an
orderly transaction between market participants at the reporting date. The
standard establishes a three-tier hierarchy, which prioritizes the inputs
used in the valuation methodologies in measuring fair value:
* Level 1 - Unadjusted observable quoted prices for identical instruments
in active markets.
* Level 2 - Observable inputs other than those included in Level 1. For
example, quoted prices for similar assets or liabilities in active
markets or quoted prices for identical assets or liabilities in inactive
markets.
* Level 3 - Unobservable inputs reflecting management's own assumptions
about the inputs used in pricing the asset or liability.
Our derivative financial assets and liabilities consist of interest rate
swaps and currency forward contracts. The fair value measurement of
derivatives is based upon Level 2 inputs consisting of observable current
market data as applicable to determine market rates of similar assets and
liabilities. Many of our derivative contracts are valued utilizing publicly
available pricing data of contracts with similar terms. In other cases, the
contracts are valued using current spot market data adjusted for the
appropriate current forward curves provided by external financial
institutions. We enter into hedging transactions with banking institutions
that have strong credit ratings, and thus the credit risk associated with
these contracts is not considered significant.
- 12 -
Financial assets and liabilities measured at fair value on a recurring basis
are classified on the valuation technique level in the table below:
December 31, 2010
-----------------------------------------------
Total Level 1 Level 2 Level 3
-------- --------- --------- ---------
Cash and cash equivalents $109,716 $109,716 $ -- $ --
Short-term investments 4,819 4,819 -- --
Derivatives ( 14) -- ( 14) --
Non-current auction rate
securities (Note 5) 4,250 -- -- 4,250
-------- --------- --------- ---------
Total assets and liabilities
at fair value $118,771 $114,535 $( 14) $ 4,250
======== ========= ========= =========
September 30, 2010
-----------------------------------------------
Total Level 1 Level 2 Level 3
-------- --------- --------- ---------
Cash and cash equivalents $110,628 $110,628 $ -- $ --
Short-term investments 5,691 5,691 -- --
Derivatives ( 43) -- ( 43) --
Non-current auction rate
securities (Note 5) 4,950 -- -- 4,950
-------- --------- --------- ---------
Total assets and liabilities
at fair value $121,226 $116,319 $( 43) $ 4,950
======== ========= ========= =========
The changes in the fair value of our non-current auction rate securities
measured using significant unobservable inputs (level 3) for the three-month
period ended December 31, 2010, are as follows:
Fair Value Measurements
Using Significant Unobservable
Inputs (Level 3)
------------------------------
September 30, 2010 $ 4,950
Settlements ( 700)
----------
December 31, 2010 $ 4,250
==========
- 13 -
5. Inventories
Inventories are stated at the lower of cost or market, after provisions for
excess and obsolete inventory salable at prices below cost.
Costs are determined using the first in, first out and weighted-average cost
methods and are summarized as follows:
December 31, September 30,
2010 2010
------------ ------------
Finished goods $ 21,483 $ 22,518
Work in progress 42,527 36,163
Raw materials and supplies 58,648 50,704
Demonstration inventory 15,877 14,686
Service parts 30,043 27,688
----------- -----------
Total inventories, net $ 168,578 $ 151,759
=========== ===========
Net inventory is net of provisions for excess and obsolete inventory of
$23,540 and $19,945 at December 31, 2010, and September 30, 2010,
respectively.
6. Long-Term Investments
Long-term investments represent auction rate securities which are variable
rate securities tied to short-term interest rates with maturities on the face
of the securities in excess of 90 days. Auction rate securities have rate
resets through a modified Dutch auction, at predetermined short-term
intervals, usually every 7, 28, 35, or 49 days. The securities trade at par,
and are callable at par on any payment date at the option of the issuer.
Investment earnings paid during a given period are based upon the reset rate
determined during the prior auction.
Through auctions completed in the first three months of fiscal year 2011, the
Company reduced its holdings of auction rate securities to approximately $4.3
million at December 31, 2010. All such auctions resulted in sales, for cash,
at par value. At December 31 2010, the Company held four individual auction
rate securities. The Company does not believe that the remaining balance of
auction rate securities represent a significant portion of the Company's
total liquidity. Although the Company believes these investments will become
liquid within the next twelve months, it is uncertain what impact the current
economic environment will have on this position and therefore, they have been
classified as long-term assets on the consolidated balance sheet.
- 14 -
7. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the three-month period
ended December 31, 2010, are as follows:
United Rest of
Germany States World Total
---------- --------- ---------- ---------
Balance as of September 30, 2010 $ 43,997 $ 13,445 $ 32,354 $ 89,796
Additions -- -- 1,575 1,575
Currency translation effect ( 1,070) ( 80) ( 513) ( 1,663)
---------- ---------- --------- ---------
Balance as of December 31, 2010 $ 42,927 $ 13,365 $ 33,416 $ 89,708
========== ========== ========= =========
The carrying values of other intangible assets are as follows:
December 31, 2010 September 30, 2010
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------- ------------ -------- ------------
Amortized Intangible Assets:
Patents $ 10,500 $ 6,191 $ 10,293 $ 5,983
Customer base 18,964 14,701 16,310 14,842
Other 20,815 16,444 19,275 14,875
---------- ---------- ---------- ----------
Total $ 50,279 $ 37,336 $ 45,878 $ 35,700
========== ========== ========== ==========
Amortization expense for the three-month periods ended December 31, 2010 and
2009, was $0.6 million for both periods. At December 31, 2010, estimated
amortization expense for the remainder of fiscal 2011 and the next five
fiscal years based on the average exchange rates as of December 31, 2010, is
as follows:
2011 (remainder) 2.0 million
2012 2.6 million
2013 2.5 million
2014 2.3 million
2015 2.0 million
2016 1.9 million
- 15 -
8. Accrued Liabilities
Accrued liabilities are comprised of the following:
December 31, September 30,
2010 2010
----------- -----------
Employee compensation $ 15,659 20,814
Warranty reserve 11,520 10,417
Customer deposits 24,358 16,531
Other taxes payable 202 181
Other 19,627 15,943
----------- -----------
Total accrued liabilities $ 71,366 $ 63,886
=========== ===========
9. Income Taxes
The Company's policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as interest expense and SG&A, respectively. The
Company has classified unrecognized tax benefits as non-current because
payment is not anticipated within one year of the balance sheet date.
As of December 31, 2010, the Company's gross unrecognized tax benefits
totaled $0.6 million which includes approximately $0.1 million of interest
and penalties. The Company estimates that the unrecognized tax benefits will
not change significantly within the next year.
The Company files federal and state income tax returns in several domestic
and foreign jurisdictions. In most tax jurisdictions, returns are subject to
examination by the relevant tax authorities for a number of years after the
returns have been filed. With limited exceptions, the Company is no longer
subject to examination by the United States Internal Revenue Service for
years through 2005. With respect to state and local tax jurisdictions and
countries outside the United States, with limited exceptions, the Company is
no longer subject to income tax audits for years before 2004.
10. Product Warranties
The Company provides for the estimated costs of product warranties when
revenue is recognized. The estimate of costs to fulfill warranty obligations
is based on historical experience and an expectation of future conditions.
- 16 -
The change in warranty reserves for the three-month periods ended December
31, 2010 and 2009, are as follows:
2010 2009
------------ ------------
Balance at September 30, $ 10,417 $ 8,962
Additional accruals for warranties
during the period 2,775 209
Usage during the period ( 1,442) ( 625)
Currency translation ( 230) ( 169)
----------- -----------
Balance at December 31, $ 11,520 $ 8,377
=========== ===========
11. Treasury Stock
On May 5, 2010, the Board of Directors authorized the Company to initiate
buyback of up to $30.0 million of the Company's Common Stock over twelve
months, subject to market conditions. The shares may be repurchased from
time to time in open market transactions or privately negotiated transactions
at the Company's discretion, including the quantity, timing and price
thereof. Through December 31, 2010, the Company has bought approximately 0.85
million shares of common stock, at an average price of $22.79, under the
stock buyback program for a total amount of $19.5 million, with $10.5 million
remaining to be spent on the repurchase of shares.
12. Stock Incentive Plans
The Company maintains an Incentive Stock Plan, whereby incentive and non-
qualified stock options, restricted stock and performance shares may be
granted to officers and other key employees to purchase a specified number of
shares of common stock at a price not less than the fair market value on the
date of grant. The term of the Incentive Stock Plan continues through 2017.
There were no incentive stock options, restricted stock or performance shares
granted in fiscal year 2010 or in the first quarter of fiscal 2011. Non-
qualified stock options were granted to officers and other key employees in
fiscal years 2010. During the three-month period ended December 31, 2010,
outside directors each received 3,000 shares of Common Stock, from the 2007
Incentive Stock Plan, that were fully vested upon grant. Options to other key
employees generally vest over five years and will expire not later than ten
years after the date on which they are granted.
The fair value of each option award is estimated on the date of grant using
the Black-Scholes model. The following assumptions were used in these
calculations:
2010 2009
Grants Grants
---------- ----------
Grant date fair value $10.42 $ 6.87
Expected life 5 Years 5 Years
Volatility 47.23% 50.3%
Risk-free interest rate 2.52% 1.65%
Dividend yield 0% 0%
Annual forfeiture rate 2% 2%
- 17 -
No non-qualified options were granted in the three-month period ended
December 31, 2010, and no additional stock options have been granted since
then. The Company uses historical data to estimate the expected life,
volatility, and estimated forfeitures of an option. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at the time of
grant.
The balance of outstanding stock options and all options activity at and for
the three months ended December 31, 2010, are as follows:
Weighted
Average
Weighted Remaining Aggregate
Average Contractual Intrinsic
Number of Exercise Term Value
Shares Price (Years) (in millions)
----------- ----------- ----------- ------------
Balance at
September 30, 2010 2,963,200 $ 22 4/5 6.02
Granted -- --
Exercised ( 217,500) 12 5/8
Cancelled -- --
Forfeited ( 5,600) 27 1/2
----------- ----------- -----------
Balance at
December 31, 2010 2,740,100 $ 23 3/5 5.97 $ 33.9
Exercisable at
December 31, 2010 1,651,500 $ 22 1/4 4.91 $ 22.4
As of December 31, 2010, there was $9.8 million of total unrecognized
compensation costs related to stock options. These costs are expected to be
recognized over a weighted-average period of 2.68 years.
During the three-month periods ended December 31, 2010 and 2009, the
following activity occurred under the Incentive Stock Plan:
(in millions)
----------------------
Three Months Ended
December 31,
----------------------
2010 2009
---------- ----------
Total intrinsic value of stock
options exercised $ 3.8 $ 1.4
Cash received from stock option exercises for the three-month period ended
December 31, 2010, was $2.76 million.
- 18 -
13. Earnings Per Common Share
The basic per common share (EPS) calculation is computed by dividing net
income (loss) available to RSTI common stockholders by the weighted-average
number of shares outstanding during the period. Diluted earnings per common
share reflect the potential dilution from common stock equivalents (stock
options).
The calculation of the weighted average number of shares outstanding for each
period is as follows:
Three Months Ended
December 31,
----------------------
2010 2009
---------- ----------
Weighted-average number of
shares for BASIC net income
per common share 28,374,791 29,009,516
Potential additional shares
due to outstanding dilutive
stock options 591,337 413,594
---------- ----------
Weighted-average number of
shares for DILUTED net
income per common share 28,966,128 29,423,110
========== ==========
The weighted average diluted shares outstanding for the three-month periods
ended December 31, 2010 and 2009, excludes the dilutive effect of
approximately 1.2 million and 1.5 million stock options, respectively, since
the impact of including these options in diluted earnings per share for these
periods was antidilutive.
14. Defined Benefit Plans
Components of net periodic cost were as follows for the three-month periods
ended December 31, 2010 and 2009:
Three Months Ended
December 31,
----------------------
2010 2009
---------- ----------
Service cost $ 198 $ 210
Interest cost 301 315
Expected return on plan assets ( 127) ( 115)
Amortization of net loss 26 35
---------- ----------
Net periodic pension cost $ 398 $ 445
========== ==========
- 19 -
15. Segment and Geographic Information
Assets, revenues, and income before taxes, by geographic region attributable
based on the geographic location of the RSTI entity are summarized below:
December 31, September 30,
2010 2010
---------- ----------
ASSETS
North America $ 220,044 $ 209,677
Germany 377,187 367,855
Other 254,428 231,809
Intercompany eliminations ( 267,000) ( 251,149)
---------- ----------
$ 584,659 $ 558,192
========== ==========
LONG-LIVED ASSETS
North America $ 11,401 $ 11,714
Germany 34,012 33,752
Other 8,458 7,234
Intercompany eliminations ( 39) ( 49)
---------- ----------
$ 53,832 $ 52,651
========== ==========
Three Months Ended
December 31,
-------------------------
2010 2009
---------- ----------
NET SALES
North America $ 41,840 $ 23,652
Germany 97,540 66,734
Other 51,721 36,276
Intercompany eliminations ( 53,969) ( 33,692)
---------- ----------
$ 137,132 $ 92,970
========== ==========
INTERCOMPANY SALES
North America $ 3,776 $ 1,036
Germany 37,954 25,111
Other 12,239 7,545
Intercompany eliminations ( 53,969) ( 33,692)
---------- ----------
$ -- $ --
========== ==========
- 20 -
Three Months Ended
December 31,
-------------------------
2010 2009
---------- ----------
EXTERNAL SALES
North America $ 38,064 $ 22,616
Germany 59,585 41,623
Other 39,483 28,731
---------- ----------
$ 137,132 $ 92,970
========== ==========
INCOME BEFORE INCOME TAX
North America $ 3,633 $( 1,392)
Germany 15,570 4,687
Other 4,633 2,084
Intercompany eliminations (1,438) 570
---------- ----------
$ 22,398 $ 5,949
========== ==========
16. Enterprise Wide Information
The Company generates revenues from the sale and servicing of laser products
used for macro applications, from the sale and servicing of laser products
for marking and micro applications, and from the sale of components products.
Product sales are summarized below:
Three Months Ended
December 31,
-------------------------
2010 2009
---------- ----------
Macro applications $ 51,363 $ 41,586
Marking and micro applications 72,221 41,889
Components 13,548 9,495
---------- ----------
$ 137,132 $ 92,970
========== ==========
- 21 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Forward-looking statements include
all statements that do not relate solely to historical or current facts, and
can be identified by the use of words such as "may", "believe", "will",
"expect", "project", "anticipate", "estimate", "plan" or "continue" or other
words or terms of similar meaning. These forward-looking statements are
based on the current plans and expectations of our management and are subject
to a number of uncertainties and risks that could significantly affect our
current plans and expectations, as well as future results of operations and
financial condition. In making these forward-looking statements, we claim the
protection of the safe-harbor for forward-looking statements contained in the
Reform Act. We do not assume any obligation to update these forward-looking
statements to reflect actual results, changes in assumptions, or changes in
other factors affecting such forward-looking statements.
Overview
Rofin-Sinar Technologies Inc. (herein also referred to as "Rofin-Sinar", or
the "Company" or "we", "us" or "our") is a leader in the design, development,
engineering, manufacture and marketing of laser-based products used for
cutting, welding and marking a wide range of materials.
Through our global manufacturing, distribution and service network, we
provide a comprehensive range of laser sources and laser-based system
solutions to the following principal target markets: the machine tool,
automotive, semiconductor, electronics, and photovoltaic industries. We sell
principally to end-users and original equipment manufacturers ("OEMs")
(principally in the machine tool industry) that integrate our laser sources
with other system components. Many of our customers are among the largest
global participants in their respective industries.
During the first quarter of fiscal years 2011 and 2010, respectively, we
realized approximately 37% and 45% of revenues from the sale and servicing of
laser products used for macro applications, approximately 53% and 45% from
the sale and servicing of laser products for marking and micro applications,
and approximately 10% from the sale of components in both periods.
The first quarter results reflect an improved macro economic climate, in
which North American sales stabilized, European markets strengthened and
sales throughout the Asian markets marked a new quarterly high. Sales
increased by 48%, order entry by 45%, and net income by 315% compared to the
first quarter of last fiscal year. The high first quarter revenue was
primarily driven by higher demand in most of the industries we serve,
particularly in the consumer electronics industry. Conversely, demand in the
semiconductor industry softened, as anticipated. The recovering global
macroeconomic climate and the high backlog provide a solid basis for the
upcoming quarter.
- 22 -
At December 31, 2010, Rofin-Sinar had 1,902 employees compared to 1,718
employees at December 31, 2009.
Results of Operations
For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's
consolidated statements of operations.
Three Months
Ended December 31,
----------------------
2010 2009
---------- ----------
Net sales 100.0% 100.0%
Cost of goods sold 58.9% 61.4%
Gross profit 41.1% 38.6%
Selling, general and
administrative expenses 18.7% 23.5%
Research and development expenses 6.3% 8.3%
Intangibles amortization 0.5% 0.7%
Income from operations 15.7% 6.1%
Income before income taxes 16.3% 6.4%
Net income attributable
to RSTI 10.8% 3.9%
Net Sales - Net sales of $137.1 million represent an increase of $44.1
million, or 48%, for the three-month period ended December 31, 2010, as
compared to the corresponding period in fiscal 2010. The increase for the
three months ended December 31, 2010, resulted from a net sales increase of
$33.9 million, or 44%, in Europe and Asia, and an increase of $10.2 million,
or 62%, in North America, compared to the corresponding period in fiscal
2010. The U.S. dollar strengthening against foreign currencies, primarily
against the Euro, for the three-month period ended December 31, 2010, had an
unfavorable effect on net sales of $6.5 million.
Net sales of laser products for macro applications increased by $9.8 million,
or 24%, to $51.4 million for the three-month period ended December 31, 2010,
as compared to the corresponding period of fiscal 2010. The increase can be
mainly attributed to the higher demand for our lasers for macro applications
in the machine tool and automotive industries.
Net sales of lasers for marking and micro applications increased by $30.3
million, or 72%, to $72.2 million for the three-month period ended December
31, 2010, mainly due to higher revenues from the consumer electronics and
solar industries, as well as sales attributable to the LASAG acquisition.
Revenues for the components business for the three-month period ended
December 31, 2010, increased by $4.1 million, or 43%, to $13.5 million as
compared to the corresponding period in fiscal 2010, mainly due to an overall
higher demand in several industries as our customer base is experiencing a
business recovery.
- 23 -
Gross Profit - Our gross profit of $56.4 million for the three-month period
ended December 31, 2010, represents an increase of $20.5 million, or 57%,
from the corresponding period of fiscal year 2010. As a percentage of sales,
gross profit increased from 39% to 41% for the three-month period ended
December 31, 2010, as compared to the corresponding period in fiscal year
2010. The increase in our gross margins was mainly the result of the higher
level of business with the corresponding higher absorption of fixed costs,
and a favorable product mix with system business for micro and marking
applications. Gross profit was unfavorably affected by $1.5 million for the
three-month period ended December 31, 2010, due to the strengthening 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 $25.6 million for the three-month period
ended December 31, 2010, represents an increase of $3.8 million or 17% for
the three-month period, from the corresponding period of fiscal 2010. The
increase in SG&A expenses is mainly a result of the additional expenses from
the newly acquired LASAG business ($1.2 million), as well as additional sales
employees and higher commissions related to the higher level of business.
Additionally, SG&A expenses, a significant portion of which is incurred in
foreign currencies, was favorably affected by $1.1 million for the three-
month period ended December 31, 2010, due to the strengthening of the U.S.
dollar against foreign currencies, primarily against the Euro. As a
percentage of net sales, SG&A expenses decreased from 24% to 19% for the
three-month period ended December 31, 2010, as compared to the comparable
period in fiscal 2010.
Research and Development - The Company incurred a net $8.6 million on
research and development ("R&D") during the three-month period ended December
31, 2010, which represents an increase of 12% as compared to the
corresponding period of the prior year. Gross R&D expenses for the three-
month periods ended December 31, 2010 and 2009, were $9.2 million and $8.4
million, respectively, and were reduced by $0.6 million and $0.7 million of
government grants during each respective period.
R&D, a significant portion of which is conducted in Europe, and therefore
incurred in foreign currencies, was favorably affected by $0.6 million for
the three-month period ended December 31, 2010, due to the strengthening of
the U.S. dollar against foreign currencies, primarily the Euro.
Amortization Expense - Amortization expense for the three-month period ended
December 31, 2010, amounted to $0.6 million, consistent with the same period
of fiscal year 2010.
Other Income/Expenses - Net other income of $0.9 million for the three-month
period ended December 31, 2010, represents an increase of $0.7 million in
other income compared to net other income of $0.2 million in the
corresponding period of the prior year. The increase in net other income in
the three-month period ended December 31, 2010, is primarily attributable to
an indemnification payment amounting to $0.6 million made to the Company in
connection with the cancellation of an order.
- 24 -
Income Tax Expense - Income tax expense of $7.3 million for the three-month
period ended December 31, 2010, represents an effective tax rate of 33% for
the three-month period, compared to 38% for the corresponding period of the
prior year. The overall effective tax rate is a result of improved business,
in locations with lower effective tax rates, which contributed to a
normalized effective tax rate during the first quarter of fiscal year 2011.
Income tax expense, a significant portion of which is incurred in foreign
currencies, was favorably affected by $0.4 million for the three-month period
ended December 31, 2010, due to the strengthening of the U.S. dollar against
foreign currencies, primarily the Euro.
Net Income Attributable to RSTI - As a result of the foregoing factors, the
Company realized consolidated net income attributable to RSTI of $14.9
million for the three-month period ended December 31, 2010, which represents
an increase of $11.3 million for the three months, from the corresponding
period in fiscal 2010. For the three-month period ended December 31, 2010,
the diluted earnings per common share calculation equaled $0.51 and the basic
earnings per common share calculation equaled $0.52, based upon a weighted
average of 29.0 million diluted and 28.4 million basic common shares
outstanding, as compared to diluted and basic earnings per common share
calculation of $0.12, based upon a weighted average of 29.4 million diluted
and 29.0 million basic common shares outstanding for the corresponding period
last fiscal year.
Liquidity and Capital Resources
On May 5, 2010, the Board of Directors authorized the Company to initiate a
buyback of up to $30.0 million of the Company's Common Stock over twelve
months, subject to market conditions. The shares may be repurchased from
time to time in open market transactions or privately negotiated transactions
at the Company's discretion, including the quantity, timing and price
thereof. As of December 31, 2010, the Company has bought approximately 0.85
million shares of common stock, at an average price of $22.79, under the
stock buyback program for a total amount of $19.5 million, with $10.5 million
remaining to be spent on the repurchase of shares.
The Company's primary sources of liquidity at December 31, 2010, were cash
and cash equivalents of $109.7 million, short-term investments of 4.8
million, short-term credit lines of $82.2 million and long-term credit lines
of $14.8 million. As of December 31, 2010, $71.8 million was available for
borrowing under the short-term lines of credit. Additionally, $3.6 million
was used for bank guarantees under these lines of credit. $14.8 million was
used under the long-term credit lines. In addition, the Company maintained
credit lines specific to bank guarantees for $12.9 million, of which $2.4
million was used. Therefore, $78.7 million was unused and available under
these lines of credit at December 31, 2010. The Company is subject to
financial covenants, which could restrict the Company from drawing money
under these lines of credit. At December 31, 2010, the Company was in
compliance with these covenants.
- 25 -
Cash and cash equivalents decreased by $0.9 million during the three-month
period ended December 31, 2010. Approximately $9.5 million in cash and cash
equivalents were provided by operating activities, mainly as the result of
the increase in net income for the three months ended December 31, 2010,
changes in accrued liabilities, changes in income tax payable and non-cash
transactions (stock-based compensation expense and depreciation), partially
offset by changes in inventories, in accounts receivable and in accounts
payable.
Net cash used in investing activities totaled $12.5 million for the three-
month period ended December 31, 2010, and primarily related to the
acquisition of LASAG. The additions to property and equipment were partially
offset by the sale of short-term and long-term investments.
Net cash provided by financing activities totaled $2.9 million for the three-
month period ended December 31, 2010, and was primarily related to the
issuance of common stock from option exercised.
Management believes that the Company's cash flow from operations, along with
existing cash and cash equivalents and availability under the credit
facilities and lines of credit, will provide adequate resources to meet both
our capital requirements and operational needs on both a short-term and long-
term basis.
The Company has listed all its material contractual obligations in the Annual
Report on Form 10-K, for the fiscal year ended September 30, 2010, and has
not entered into any further material contractual obligations since that
date.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements or financing arrangements
(other than operating leases) involving variable interest entities.
Currency Exchange Rate Fluctuations
Although we report our Consolidated Financial Statements in U.S. dollars,
approximately 60% of our sales have been denominated in other currencies,
primarily the Euro, British pound, Swiss francs, Swedish krona, Singapore
dollar, Taiwanese dollar, Korean won, Canadian dollar, Chinese RMB, and
Japanese yen. Net sales, costs and related assets and liabilities of our
operations are generally denominated in the functional currencies of the
relevant operating units, thereby serving to reduce the Company's exposure to
exchange gains and losses.
Exchange differences upon translation from each operating unit's functional
currency to U.S. dollars are accumulated as a separate component of equity.
The accumulated currency translation adjustment component of stockholders'
equity represented a gain of $11.1 million at December 31, 2010, as compared
to a gain of $17.6 million at September 30, 2010.
- 26 -
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, 2010. Certain of the accounting policies
require the application of significant judgment by management in selecting
appropriate assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of uncertainty.
Allowance for Doubtful Accounts
The Company records allowances for uncollectible customer accounts
receivable based on historical experience. Additionally, an allowance
is made based on an assessment of specific customers' financial
condition and liquidity. If the financial condition of the Company's
customers were to deteriorate, additional allowances may be required.
No individual customer represents more than 10% of total accounts
receivable. Any increase in allowance will impact operating income
during a given period.
Inventory Valuation
Inventories are stated at the lower of cost or market, after provisions
for excess and obsolete inventory salable at prices below cost.
Provisions for slow moving and obsolete inventories are provided based
on current assessments about historical experience and future product
demand and production requirements for the next twelve months. These
factors are impacted by market conditions, technology changes, and
changes in strategic direction, and require estimates and management
judgment that may include elements that are uncertain. The Company
evaluates the adequacy of these provisions quarterly. Although the
Company strives to achieve a balance between market demands and risk of
inventory excess or obsolescence, it is possible that, should conditions
change, additional provisions may be needed. Any changes in the
provisions will impact operating income during a given period.
Warranty Reserves
The Company provides reserves for the estimated costs of product
warranties when revenue is recognized. The Company relies upon
historical experience, expectation of future conditions, and its service
data to estimate its warranty reserve. The Company continuously
monitors this data to ensure that the reserve is sufficient. Warranty
expense has historically been within our expectations. To the extent we
experience increased warranty claim activity or increased costs
associated with servicing those claims (such costs may include material,
labor and travel costs), revisions to the estimated warranty liability
would be required. Increases in reserves will impact operating income
during the period.
- 27 -
Pension
The determination of the Company's obligation and expense for pension is
dependent on the selection of certain assumptions used by actuaries in
calculating those amounts. Assumptions are made about interest rates,
expected investment return on plan assets, total turnover rates, and
rates of future compensation increases. In addition, the Company's
actuarial consultants use subjective factors such as withdrawal rates
and mortality rates to develop their calculations of these amounts. The
Company generally reviews these assumptions at the beginning of each
fiscal year. The Company is required to consider current market
conditions, including changes in interest rates, in making these
assumptions. The actuarial assumptions that the Company may use may
differ materially from actual results due to changing market and
economic conditions, higher or lower withdrawal rates or longer or
shorter life spans of participants. These differences may result in a
significant impact on the amount of pension benefits expense the Company
has recorded or may record.
The discount rate enables the Company to state expected future cash
flows at a present value on the measurement date. The Company has
little latitude in selecting this rate, and it must represent the market
rate of high-quality fixed income investments. A lower discount rate
increases the present value of benefit obligations and increases pension
expense.
To determine the expected long-term rate of return on plan assets, the
Company considers the current and expected asset allocations, as well
as historical and expected returns on various categories of plan assets.
Share-Based Payment
Stock-based compensation cost is measured at the grant date, based on
the fair value of the award, and is recognized as expense over the
employee requisite vesting period. We make judgments about the fair
value of the awards, including the expected term of the award,
volatility of the underlying stock and estimated forfeitures, which
impact the amount of compensation expense recognized in the financial
statements. Such amounts may change as a result of additional grants,
forfeitures, modifications in assumptions and other factors. ASC Topic
718, "Stock Compensation", provides that income tax effects of share-
based payments are recognized in the financial statements for those
awards which will normally result in tax deductions under existing tax
law. Under current U.S. federal tax laws, we receive a compensation
expense deduction related to stock options only when those options are
exercised and vested shares are received. Accordingly, the financial
statement recognition of compensation cost for stock options creates a
deductible temporary difference which results in a deferred tax asset
and a corresponding deferred tax benefit in the income statement for all
U.S.-based employees. Stock-based compensation expense related to all
other employees is treated as a permanent difference for income tax
purposes.
- 28 -
Ownership of Common Stock By Directors
The following table sets forth information as of December 31, 2010, with
respect to beneficial ownership of the Company's common stock and exercisable
options by each director.
Number of Total Number of
Shares of Number of Exercisable
Common Stock Stock Options Stock Options
Beneficially Owned at Owned at
Name Owned December 31, 2010 December 31, 2010
---------------- -------------- ----------------- -----------------
Peter Wirth 12,600 125,000 98,000
Gunther Braun 6,000 630,000 452,000
Carl F. Baasel 128,000 24,000 24,000
Ralph E. Reins (1) 24,000 -- --
Gary K. Willis (1) 36,000 -- --
Daniel Smoke (1) 32,000 -- --
Stephan Fantone (1) 7,000 -- --
(1) Outside, non-executive directors
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For the three-month period ended December 31, 2010, we did not experience any
material change in market risk exposures affecting the quantitative and
qualitative disclosures as presented in our Annual Report on Form 10-K for
the fiscal year ended September 30, 2010.
The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign currency
exchange rates. The Company does not use derivative financial instruments
for trading purposes.
Interest Rate Sensitivity
At December 31, 2010, the Company maintained cash equivalents and short term
investments of $114.5 million, consisting mainly of interest bearing
securities and demand deposits. If interest rates were to increase or
decrease by 10%, interest income would increase or decrease by less than $0.1
million.
- 29 -
At December 31, 2010, the Company had $4.8 million of variable rate debt on
which the interest rate is reset every three months, $2.7 million of variable
rate debt on which the interest rate is reset every six months, $2.5 million
of variable rate debt on which the interest rate is reset every year and
$15.3 million of fixed rate debt. Maturities of this debt are as follows:
$10.2 million is due in fiscal year 2011, $3.1 million is due in fiscal year
2012, $7.7 million is due in fiscal year 2013, $1.4 million is due in fiscal
year 2014 and $2.9 million is due in fiscal year 2015. A 10% change in the
variable interest rates of the Company's debt would result in an increase or
decrease in pre-tax interest expense by less than $0.1 million.
Additionally, the Company has entered into interest rate swap agreements of
total notional amount of Euro 3.6 million (equivalent to $4.8 million based
on the exchange rate at December 31, 2010), to minimize the interest expenses
on short-term debt by shifting from variable to fixed interest rates.
Foreign Currency Exchange Risk
The Company enters into foreign currency forward contracts and forward
exchange options generally of less than one year duration to hedge a portion
of its foreign currency risk on sales transactions. At December 31, 2010,
the Company held Japanese yen forward exchange options with notional amount
of Euro 0.1 million and Japanese yen forward exchange options with notional
amount of $0.1 million. The profit or loss resulting from a 10% change in
currency exchange rates would vary approximately from less than $0.1 million
profit to less than $0.1 million loss.
Item 4. Controls and Procedures
As of the end of the quarterly period covered by this report, the Chief
Executive Officer and Chief Financial Officer of the Company (collectively,
the "certifying officers") have evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-
15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended). These disclosure controls and procedures are designed to ensure
that the information required to be disclosed by the Company in its periodic
reports filed with the Securities and Exchange Commission (the "Commission")
is recorded, processed, summarized and reported within the time periods
specified by the Commission's rules and forms, and that the information is
communicated to the certifying officers on a timely basis.
The certifying officers concluded, based on their evaluation, that the
Company's disclosure controls and procedures were effective, as of the end of
the quarterly period covered by this report, in ensuring that material
information relating to the Company, including its consolidated subsidiaries,
is made known to them in a timely fashion, taking into consideration the size
and nature of the Company's business and operations.
There have not been changes in the Company's internal control over financial
reporting that occurred during the quarterly period covered by this report
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
- 30 -
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.
A licensor of patents covering the technology used in certain of
the Company's CO2 lasers has asserted that the Company has
calculated royalties due in respect of certain sales of such CO2
lasers in a manner that is not consistent with the applicable
license agreement. In addition, the licensor claims that it has not
been provided with copies of invoices and other documentation
relating to such sales, to which it asserts it is entitled under the
license agreement. The Company disputes these and related
allegations and believes that it is in compliance with all of its
obligations under the license agreement. Following discussions
with the licensor in order to resolve these disagreements, the
parties have reached an agreement in principle that an independent
auditor should be appointed to review the calculations made by
the Company in connection with the royalties it has paid in the
past. To date the audit has not commenced. In February 2008,
the Company contacted the licensor in writing in order to proceed
with the appointment of an independent auditor and agree on
parameters to apply to the conduct of the audit and a response from
the licensor was received in January 2009. Through additional
correspondence dated March 2009, the Company and the licensor are in
the process of selecting a mutually agreeable independent auditor.
Management believes that it will achieve a resolution of this matter
that will not have a material adverse impact on the Company's
financial condition or results of operations or cash flows.
Item 1A. Risk Factors
For information regarding risk factors that could effect the
Company's results of operations, financial condition and liquidity,
see the risk factors discussion provided under "Risk Factors" in
Item 1A of the Company's Annual Report on Form 10-K for the year
ended September 30, 2010. See also, "Overview" and
"Forward-Looking Statements" included in this Quarterly Report on
Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 5, 2010, the Board of Directors authorized the Company to initiate a
buyback of up to $30.0 million of the Company's Common Stock over twelve
months, subject to market conditions. The shares may be repurchased from
time to time in open market transactions or privately negotiated transactions
at the Company's discretion, including the quantity, timing and price
thereof. Through December 31, 2010, the Company has bought approximately 0.85
million shares of common stock, at an average price of $22.79, under the
stock buyback program for a total amount of $19.5 million, with $10.5 million
remaining to be spent on the repurchase of shares.
- 31 -
Item 3. Defaults Upon Senior Securities
None.
Item 4. Removed and Reserved
Item 5. Other Information
None.
Item 6. Exhibits
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rofin-Sinar Technologies Inc.
---------------------------------
(Registrant)
Date: February 9, 2011 /s/ Gunther Braun
---------------------------------
Gunther Braun
President, Chief Executive Officer,
and Director
/s/ Ingrid Mittelstaedt
---------------------------------
Ingrid Mittelstaedt
Chief Financial Officer,
Executive Vice President, Finance
and Administration, and Treasurer
- 32 -