ROFIN SINAR TECHNOLOGIES INC - FORM 10-Q - August 10, 2015

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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 

FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-21377

 
ROFIN-SINAR TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
 
Delaware
 
38-3306461
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
40984 Concept Drive, Plymouth, MI
 
48170
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (734) 455-5400
 
(Former name, former address and former fiscal year,
if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes [X] / No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted in its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes [X ] / No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer", "accelerated filer" and "Smaller Reporting Company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]    Accelerated filer  [  ]
Non-accelerated filer   [   ]   Smaller reporting company [   ]

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] / No [X]

28,181,803 shares of the registrant's common stock, par value $0.01 per share, were outstanding as of August 7, 2015.



ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I
FINANCIAL INFORMATION
Page No.
 
 
 
 
Item 1 - Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2 -
 
 
 
 
 
 
 
 
Item 3 -
 
 
 
 
 
Item 4 -
 
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
 
 
Item 1 -
 
 
 
 
 
Item 1A -
 
 
 
 
 
Item 2 -
 
 
 
 
 
Item 3 -
 
 
 
 
 
Item 4 -
 
 
 
 
 
Item 5 -
 
 
 
 
 
Item 6 -
 
 
 
 
 


2


PART I.  ITEM 1.  FINANCIAL INFORMATION

Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands, except per share amounts)
 
 
June 30, 2015
 
September 30, 2014
ASSETS
 
 

 
 

Current assets:
 
 
 
 
Cash and cash equivalents (Note 4)
 
$
163,856

 
$
128,537

Short-term investments (Note 4)
 
8,423

 
13,121

Accounts receivable, net of allowance for doubtful accounts
               $2,673 and $3,338, respectively
 
86,410

 
108,026

Inventories, net (Note 5)
 
184,328

 
190,321

Other current assets and prepaid expenses
 
35,961

 
33,870

Total current assets
 
478,978

 
473,875

Property and equipment, net
 
90,783

 
79,703

Goodwill (Note 6)
 
93,784

 
100,355

Other intangibles, net (Note 6)
 
13,112

 
15,712

Other assets
 
18,782

 
18,940

Total assets
 
$
695,439

 
$
688,585

LIABILITIES AND EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Lines of credit and short-term borrowings
 
$
5,230

 
$
3,255

Accounts payable, trade
 
23,869

 
22,702

Accounts payable to related party
 
438

 
443

Income tax payable
 
7,226

 
5,872

Accrued liabilities (Note 7)
 
73,340

 
67,581

Total current liabilities
 
110,103

 
99,853

Long-term debt
 
18,416

 
11,511

Pension obligations
 
24,002

 
25,692

Other long-term liabilities
 
10,903

 
12,820

Total liabilities
 
163,424

 
149,876

Commitments and contingencies
 


 


Stockholders’ equity:
 
 

 
 

Preferred stock, 5,000,000 shares authorized, none issued or outstanding
 
—

 
—

Common stock, $0.01 par value, 50,000,000 shares authorized, 33,051,687 shares issued at June 30, 2015, and 32,884,000 shares issued at September 30, 2014
 
331

 
329

Additional paid-in capital
 
238,289

 
232,832

Retained earnings
 
514,438

 
487,976

Accumulated other comprehensive income (Note 10)
 
(52,313
)
 
(14,072
)
Treasury stock, at cost, 4,871,884 shares at June 30, 2015,
              and 4,871,884 shares at September 30, 2014
 
(169,262
)
 
(169,262
)
Total Rofin-Sinar Technologies Inc. stockholders’ equity
 
531,483

 
537,803

Non-controlling interest in subsidiaries
 
532

 
906

Total equity
 
532,015

 
538,709

Total liabilities and equity
 
$
695,439

 
$
688,585


See accompanying notes to condensed consolidated financial statements


3


Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended June 30, 2015 and 2014
(dollars in thousands, except per share amounts)
 
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

Net sales
 
$
132,547

 
$
134,289

 
$
377,653

 
$
384,067

Cost of goods sold
 
80,282

 
87,613

 
237,364

 
249,747

Gross profit
 
52,265

 
46,676

 
140,289

 
134,320

 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
24,657

 
25,848

 
73,246

 
78,969

Research and development expenses
 
9,896

 
11,344

 
30,222

 
34,443

Amortization expense
 
739

 
760

 
2,274

 
2,115

Income from operations
 
16,973

 
8,724

 
34,547

 
18,793

 
 
 
 
 
 
 
 
 
Other (income) expense
 
 

 
 

 
 

 
 
Interest income
 
(82
)
 
(102
)
 
(282
)
 
(360
)
Interest expense
 
100

 
102

 
276

 
614

Foreign currency (income) expense
 
1,235

 
(462
)
 
(2,044
)
 
496

Other (income) expense
 
(266
)
 
(182
)
 
(148
)
 
(1,418
)
Income before income tax
 
15,986

 
9,368

 
36,745

 
19,461

Income tax expense
 
4,437

 
2,929

 
10,278

 
6,276

Net income
 
11,549

 
6,439

 
26,467

 
13,185

Less:  Net income (loss) attributable to the non-controlling interest
 
(9
)
 
(57
)
 
5

 
(10
)
Net income attributable to RSTI
 
$
11,558

 
$
6,496

 
$
26,462

 
$
13,195

 
 
 
 
 
 
 
 
 
Net income attributable to RSTI per share:
 
 

 
 

 
 

 
 
Per share of common stock basic
 
$
0.41

 
$
0.23

 
$
0.94

 
$
0.47

Per share of common stock diluted
 
$
0.41

 
$
0.23

 
$
0.94

 
$
0.47

 
 
 
 
 
 
 
 
 
Weighted-average shares used in computing earnings per share (Note 12)
 
 

 
 

 
 

 
 
Basic
 
28,167,456

 
28,019,504

 
28,109,651

 
28,094,443

Diluted
 
28,323,341

 
28,156,237

 
28,263,315

 
28,251,273

 
See accompanying notes to condensed consolidated financial statements


4


Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Periods Ended June 30, 2015 and 2014
(dollars in thousands)

 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

Net income
 
$
11,549

 
$
6,439

 
$
26,467

 
$
13,185

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Fair value of interest rate swap agreements, net of tax expense of $1, $0, $3 and $8
 
2

 
2

 
8

 
23

Foreign currency translation adjustments
 
14,668

 
(2,083
)
 
(38,353
)
 
3,706

Defined benefit pension plans, net of tax of $21, $18, $61 and $52
 
34

 
29

 
104

 
88

          Other comprehensive income (loss), net of tax
 
$
14,704

 
$
(2,052
)
 
$
(38,241
)
 
$
3,817

               Total comprehensive income (loss)
 
$
26,253

 
$
4,387

 
$
(11,774
)
 
$
17,002

Less:  Total comprehensive income (loss) attributable to the
              non-controlling interest
 
(9
)
 
(57
)
 
5

 
(10
)
Total comprehensive income (loss) attributable to RSTI
 
$
26,262

 
$
4,444

 
$
(11,779
)
 
$
17,012

 
 
 
 
 
 
 
 
 


See accompanying notes to condensed consolidated financial statements






























5


Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Nine Months Ended June 30, 2015 and 2014
(dollars in thousands)
 
 
Common
Stock

 
Additional
Paid-in
Capital

 
Retained
Earnings

 
Accumulated
Other
Comprehensive
Income (Loss)

 
Treasury
Stock

 
Rofin-Sinar
Technologies
Stockholders’
Equity

 
Non-Controlling
Interest in
Subsidiaries

 
Total
Equity

BALANCES at September 30, 2013
$
327

 
$
228,124

 
$
462,808

 
$
11,533

 
$
(163,026
)
 
$
539,766

 
$
3,652

 
$
543,418

Total comprehensive income (loss)
 

 
 

 
13,195

 
3,817

 
—

 
17,012

 
(10
)
 
17,002

Purchase of non-controlling interest
—

 
(2,302
)
 
—

 
—

 
—

 
(2,302
)
 
(2,728
)
 
(5,030
)
Common stock issued in connection with Stock Incentive Plans
2

 
5,815

 
—

 
—

 
—

 
5,817

 
—

 
5,817

Purchases of treasury stock
—

 
—

 
—

 
—

 
(6,236
)
 
(6,236
)
 
—

 
(6,236
)
BALANCES at June 30, 2014
$
329

 
$
231,637

 
$
476,003

 
$
15,350

 
$
(169,262
)
 
$
554,057

 
$
914

 
$
554,971

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCES at September 30, 2014
$
329

 
$
232,832

 
$
487,976

 
$
(14,072
)
 
$
(169,262
)
 
$
537,803

 
$
906

 
$
538,709

Total comprehensive income (loss)
 
 
 
 
26,462

 
(38,241
)
 
—

 
(11,779
)
 
5

 
(11,774
)
Purchase of non-controlling interest
—

 
(69
)
 
—

 
—

 
—

 
(69
)
 
(379
)
 
(448
)
Common stock issued in connection with Stock Incentive Plans
2

 
5,526

 
—

 
—

 
—

 
5,528

 
—

 
5,528

BALANCES at June 30, 2015
$
331

 
$
238,289

 
$
514,438

 
$
(52,313
)
 
$
(169,262
)
 
$
531,483

 
$
532

 
$
532,015

 

See accompanying notes to consolidated financial statements


6


Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2015 and 2014
(dollars in thousands)
 
 
 
Nine Months Ended June 30,
 
 
2015

 
2014

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
26,467

 
$
13,185

Adjustments to reconcile net income to net
 
 

 
 

cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
12,273

 
12,763

Stock-based compensation expenses
 
3,182

 
3,232

Other adjustments
 
(5,220
)
 
(2,074
)
Change in operating assets and liabilities:
 
 

 
 

Accounts receivable, trade
 
14,462

 
8,306

Inventories
 
(8,888
)
 
(6,404
)
Accounts payable
 
2,798

 
(1,076
)
Changes in other operating assets and liabilities
 
12,714

 
(7,080
)
Net cash provided by operating activities
 
57,788

 
20,852

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from the sale of property and equipment
 
629

 
201

Additions to property and equipment
 
(28,929
)
 
(6,325
)
Purchases of short-term investments
 
(8,473
)
 
(25,771
)
Sales of short-term and long-term investments
 
12,643

 
19,692

Acquisition of intellectual property and other assets
 
—

 
(5,891
)
Net cash used in investing activities
 
(24,130
)
 
(18,094
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Borrowing from banks
 
29,760

 
33,733

Repayments to banks
 
(18,729
)
 
(29,091
)
Payment of contingent acquisition-related obligations
 
(800
)
 
—

Purchase of non-controlling interests
 
(413
)
 
(4,911
)
Purchases of treasury stock
 
—

 
(6,236
)
Issuance of common stock
 
2,071

 
2,293

Net cash provided by (used in) financing activities
 
11,889

 
(4,212
)
Effect of foreign currency translation on cash
 
(10,228
)
 
738

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
35,319

 
(716
)
Cash and cash equivalents at beginning of period
 
128,537

 
133,733

Cash and cash equivalents at end of period
 
$
163,856

 
$
133,017

 
 
 
 
 
Cash paid for interest
 
$
165

 
$
239

Cash paid for taxes
 
$
9,387

 
$
8,295

 
See accompanying notes to condensed consolidated financial statements


7


Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)

1.
Basis of Presentation

The accompanying unaudited, condensed and consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting, and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements for interim reporting do not include all of the information and notes or disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. Results for interim periods should not be considered indicative of results for a full year. The September 30, 2014, 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, 2014, as filed with the Securities and Exchange Commission on December 1, 2014.


2.
New Accounting Standards

In March 2013, the FASB issued ASU No. 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”. This ASU amended guidance related to a parent company’s accounting for the release of the cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This guidance became effective for the Company in fiscal year 2015, and is to be applied prospectively to derecognition events occurring after the effective date. The adoption of this amendment did not have an impact on the Company's financial statements.

In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists". ASU 2013-11 provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under this guidance an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. These amendments were effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (fiscal year 2015 for the Company). The adoption did not have an impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 provides guidance on revenue from contracts with customers, which implements a five step process of how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard was initially released as effective for fiscal years beginning after December 15, 2016; however, in July 2015, the FASB approved a one year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. The new guidelines can be implemented using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and has not yet determined the method by which it will adopt the standard.

In August 2014, the FASB issued No. ASU 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern". ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 (1) provides a definition of the term substantial doubt, (2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the mitigating

8


effect of management’s plans, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or are available to be issued). The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early application is permitted. This guidance will not have a material impact on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement". ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If the arrangement includes a software license, the customer should account for the software license element in a manner consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015 (fiscal year 2017 for the Company). The Company does not believe the pronouncement will have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. This standard amends existing guidance to require the presentation of debt issuance cost in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company does not believe the pronouncement will have a material impact on the Company’s financial statements and will implement the pronouncement beginning in the period after December 15, 2015.

In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory". The new guidance does not apply to inventory that is measured using last-in, first-out or the retail inventory method. The guidance applies to all other inventory, which includes inventory that is measured using first-in, first-out or average cost and requires that inventory should be measured at the lower of cost and net realizable value. These amendments are effective for fiscal years beginning after December 15, 2016 (fiscal year 2018 for the Company). The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.

 
3.
Acquisitions

On November 18, 2013, the Company purchased the remaining 10% of the share capital of m2k-laser GmbH through its wholly-owned subsidiary RSL under an option agreement between the Company and the minority shareholders of m2k-laser GmbH. As a result, the Company currently holds 100% of the share capital of m2k-laser GmbH.

Effective December 20, 2013, the Company acquired the remaining 12% of the common stock of ROFIN-BAASEL Japan Corp. through its wholly-owned subsidiary RSL. The Company currently holds 100% of the share capital of ROFIN-BAASEL Japan Corp.

On April 10, 2014, the Company completed the acquisition of certain assets of FiLaser USA LLC ("FiLaser") and subsidiaries. The transaction contained all intellectual property including know-how, patents and patent applications of FiLaser. FiLaser developed advanced laser process technology used for precision cutting and drilling of brittle material including glass, sapphire and semiconductor substrates. The Company has held back approximately 28% of the purchase price as security for various claims. During the three months ended June 30, 2015 the Company paid $0.8 million related to the unknown claims portion of this hold back. In addition, the purchase agreement also provides for potential future earn-out payments from revenues generated from certain of these intangible assets.

Effective June 12, 2014, the Company acquired the remaining 5% of the common stock of DILAS Diodenlaser GmbH through its wholly-owned subsidiary ROFIN-SINAR Technologies Europe S.L. The Company currently holds 100% of the share capital of DILAS Diodenlaser GmbH.

Effective December 23, 2014, the Company acquired an additional 8.8% of the common stock of Nanjing Eastern Laser Co., Ltd. The Company currently holds 88.8% of the share capital of Nanjing Eastern Laser Co., Ltd.




9



4.
Fair Value Measurements

The Company’s cash and cash equivalents, short-term investments, accounts receivable, and accrued liabilities are carried at amounts, which reasonably approximate their fair values due to their short-term nature. The Company’s lines of credit, short-term borrowings and long-term debt bear interest at variable and fixed interest rates that approximate market. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied.
 
Assets and liabilities recorded at fair value in our balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities are as follows:
 
•
Level 1 - Unadjusted observable quoted prices for identical instruments in active markets.
•
Level 2 - Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
•
Level 3 - Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability.

Financial assets and liabilities measured at fair value on a recurring basis are classified on the valuation technique level in the table below:
June 30, 2015
 
Total

 
Level 1

 
Level 2

 
Level 3

     Cash and cash equivalents
 
$
163,856

 
$
163,856

 
$
—

 
$
—

     Short-term investments
 
8,423

 
8,423

 
—

 
—

     Derivatives
 
(46
)
 
—

 
(46
)
 
—

     Other long-term assets
 
550

 
—

 
550

 
—

          Total assets and liabilities at fair value
 
$
172,783

 
$
172,279

 
$
504

 
$
—


September 30, 2014
 
Total

 
Level 1

 
Level 2

 
Level 3

     Cash and cash equivalents
 
$
128,537

 
$
128,537

 
$
—

 
$
—

     Short-term investments
 
13,121

 
13,121

 
—

 
—

     Derivatives
 
(92
)
 
—

 
(92
)
 
—

     Other long-term assets
 
550

 
—

 
550

 
—

          Total assets and liabilities at fair value
 
$
142,116

 
$
141,658

 
$
458

 
$
—

 

5.
Inventories

Inventories are stated at the lower of cost or market, after provisions for excess and obsolete inventory salable at prices below cost.

Costs are determined using the first in, first out and weighted-average cost methods and are summarized as follows:
 
 
June 30, 2015

 
September 30, 2014

Finished goods
 
$
29,801

 
$
31,625

Work in progress
 
41,433

 
41,057

Raw materials and supplies
 
66,692

 
68,298

Demo inventory
 
14,887

 
18,268

Service parts
 
31,515

 
31,073

     Total inventories
 
$
184,328

 
$
190,321


Net inventory is net of provisions for excess and obsolete inventory of $29,220 and $29,974 at June 30, 2015, and September 30, 2014, respectively.

10




6.
Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended June 30, 2015, are as follows:
 
 
Germany

 
United States

 
Rest of World

 
Total

Balance as of September 30, 2014
 
$
40,938

 
$
13,091

 
$
46,326

 
$
100,355

Currency translation differences
 
(4,311
)
 
(323
)
 
(1,937
)
 
(6,571
)
Balance as of June 30, 2015
 
$
36,627

 
$
12,768

 
$
44,389

 
$
93,784


The carrying values of other intangible assets are as follows:
 
 
June 30, 2015
 
September 30, 2014
 
 
Gross Carrying
Amount

 
Accumulated
Amortization

 
Gross Carrying
Amount

 
Accumulated
Amortization

Amortized intangible assets:
 
 
 
 
 
 
 
 
Patents
 
$
17,041

 
$
8,970

 
$
17,947

 
$
8,721

Customer base
 
17,243

 
16,303

 
18,404

 
16,883

Other
 
21,149

 
17,048

 
22,101

 
17,136

Total
 
$
55,433

 
$
42,321

 
$
58,452

 
$
42,740


Amortization expense for each of the nine-month periods ended June 30, 2015 and 2014, was $2,274 and $2,115, respectively. At June 30, 2015, estimated amortization expense of existing intangible assets for the remainder of fiscal year 2015 and the next five fiscal years based on the average exchange rates as of June 30, 2015, is as follows:
2015 (remainder)
600

2016
1,900

2017
1,700

2018
1,300

2019
1,100

2020
1,100

 

7.
Accrued Liabilities

Accrued liabilities are comprised of the following:
 
 
June 30, 2015

 
September 30, 2014

Employee compensation
 
$
21,639

 
$
21,822

Warranty reserves
 
10,110

 
10,778

Other taxes payable
 
118

 
665

Customer deposits
 
20,783

 
12,379

Other
 
20,690

 
21,937

     Total accrued liabilities
 
$
73,340

 
$
67,581

 

8.
Income Taxes

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as interest expense and selling, general and administrative expense, respectively. The Company has classified unrecognized tax benefits as non-current because payment is not anticipated within one year of the balance sheet date.

11



As of June 30, 2015, the Company's gross unrecognized tax benefits totaled $0.4 million which includes less than $0.1 million of interest and penalties. The Company estimates that the unrecognized tax benefits will not change significantly within the next year.

The Company files federal and state income tax returns in several domestic and foreign jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. With limited exceptions, the Company is no longer subject to examination by the United States Internal Revenue Service for tax years through 2008. With respect to state and local tax jurisdictions and countries outside the United States, with limited exceptions, the Company is no longer subject to income tax audits for tax years before 2008.


9.
Product Warranties

The Company provides for the estimated costs of product warranties when revenue is recognized. The estimate of costs to fulfill warranty obligations is based on historical experience and an expectation of future conditions.
  
The changes in warranty reserve for the nine-month periods ended June 30, 2015 and 2014, are as follows:
 
 
2015

 
2014

Balance at September 30,
 
$
10,778

 
$
12,301

Additional accruals for warranties during the period
 
1,880

 
3,463

Usage during the period
 
(1,746
)
 
(4,537
)
Currency translation
 
(802
)
 
100

Balance at June 30,
 
$
10,110

 
$
11,327



10.
Accumulated Other Comprehensive Income (Loss)

The changes in Accumulated Other Comprehensive Income by component, net of tax, during the three-month periods ended June 30, 2015 and 2014, are as follows:

 
Defined Benefit Plans

 
Foreign Currency Translation Adjustments

 
Fair Value of Interest Swap Agreements

 
Total

Balance at March 31, 2015
 
$
(6,181
)
 
$
(60,780
)
 
$
(56
)
 
$
(67,017
)
Other comprehensive income (loss) before reclassifications
 
—

 
14,668

 
2

 
14,670

Amounts reclassified from accumulated other comprehensive income
 
34

 
—

 
—

 
34

Balance at June 30, 2015
 
$
(6,147
)
 
$
(46,112
)
 
$
(54
)
 
$
(52,313
)
 
 
Defined Benefit Plans

 
Foreign Currency Translation Adjustments

 
Fair Value of Interest Swap Agreements

 
Total

Balance at March 31, 2014
 
$
(5,390
)
 
$
22,880

 
$
(88
)
 
$
17,402

Other comprehensive income (loss) before reclassifications
 
—

 
(2,083
)
 
2

 
(2,081
)
Amounts reclassified from accumulated other comprehensive income
 
29

 
—

 
—

 
29

Balance at June 30, 2014
 
$
(5,361
)
 
$
20,797

 
$
(86
)
 
$
15,350





12



The changes in Accumulated Other Comprehensive Income by component, net of tax, during the nine-month periods ended June 30, 2015 and 2014, are as follows:

 
Defined Benefit Plans

 
Foreign Currency Translation Adjustments

 
Fair Value of Interest Swap Agreements

 
Total

Balance at September 30, 2014
 
$
(6,251
)
 
$
(7,759
)
 
$
(62
)
 
$
(14,072
)
Other comprehensive income (loss) before reclassifications
 
—

 
(38,353
)
 
8

 
(38,345
)
Amounts reclassified from accumulated other comprehensive income
 
104

 
—

 
—

 
104

Balance at June 30, 2015
 
$
(6,147
)
 
$
(46,112
)
 
$
(54
)
 
$
(52,313
)
 
 
Defined Benefit Plans

 
Foreign Currency Translation Adjustments

 
Fair Value of Interest Swap Agreements

 
Total

Balance at September 30, 2013
 
$
(5,449
)
 
$
17,091

 
$
(109
)
 
$
11,533

Other comprehensive income before reclassifications
 
—

 
3,706

 
23

 
3,729

Amounts reclassified from accumulated other comprehensive income
 
88

 
—

 
—

 
88

Balance at June 30, 2014
 
$
(5,361
)
 
$
20,797

 
$
(86
)
 
$
15,350


The reclassifications out of Accumulated Other Comprehensive Income for the three and nine-month periods ended June 30, 2015 and 2014, are as follows:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

Unamortized loss on defined benefit pension plans
 
 
 
 
 
 
 
 
    Amortization
 
$
55

 
$
47

 
$
165

 
$
140

     Tax effects
 
(21
)
 
(18
)
 
(61
)
 
(52
)
Total reclassification for the period
 
$
34

 
$
29

 
$
104

 
$
88



11.
Stock Incentive Plans

The Company maintains a 2007 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 2007 Incentive Stock Plan continues through 2017. Effective March 12, 2015, the stockholders approved the Rofin-Sinar Technologies Inc. 2015 Incentive Stock Plan to reserve an additional 1,800,000 shares of common stock. There were no incentive stock options, restricted stock or performance shares granted in fiscal year 2014 or through the first nine months of fiscal year 2015 under either plan. Non-qualified stock options were granted to officers and other key employees in the first quarter of fiscal year 2015 and 2014 under the 2007 Incentive Stock Plan. During the nine-month periods ended June 30, 2015 and 2014, outside directors each received 3,000 shares of common stock, from the 2007 Incentive Stock Plan, that were fully vested upon grant. Options granted to officers and other key employees generally vest over five years and will expire not later than ten years after the date on which they are granted.




13





The fair value of each option award is estimated on the date of grant using the Black-Scholes model. The following assumptions were used in these calculations:
 
 
November 2014 Grants

 
November 2013 Grants

Weighted average grant date fair value
 
$
8.37

 
$
11.72

Expected life
 
5.40 years

 
5.40 years

Volatility
 
37.47
%
 
50.55
%
Risk-free interest rate
 
1.73
%
 
1.48
%
Dividend yield
 
—
%
 
—
%
 
The Company uses historical data to estimate the expected life, volatility, and annual forfeiture rates of outstanding options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.

The balance of outstanding stock options and all options activity at and for the nine months ended June 30, 2015, are as follows:
 
 
Number of
Shares

 
Weighted
Average
Exercise Price
 
Weighted Average
Remaining
Contractual Term
(Years)
 
Aggregate
Intrinsic
Value
(Millions)

Outstanding at September 30, 2014
 
3,357,050

 
$
27

 
1/10 
 
4.86 years
 
 
Granted
 
341,750

 
$
22

 
3/4 
 
 
 
 
Exercised
 
(249,196
)
 
$
17

 
3/4 
 
 
 
 
Forfeited
 
(52,904
)
 
$
24

 
7/8 
 
 
 
 
Outstanding at June 30, 2015
 
3,396,700

 
$
27

 
2/5 
 
4.88 years
 
$
7.24

Exercisable at June 30, 2015
 
2,392,000

 
$
28

 
1/5 
 
3.49 years
 
$
4.75

 
As of June 30, 2015, there were $9.4 million of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of 3.03 years.

During the three and nine-month periods ended June 30, 2015 and 2014, the following activity occurred under the Incentive Stock Plan:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

Total intrinsic value of stock options exercised
 
$
81

 
$
88

 
$
1,221

 
$
1,105

Cash received from stock option exercises
 
$
498

 
$
155

 
$
2,071

 
$
2,293




12.
Earnings Per Common Share
 
The basic earnings per common share (EPS) calculation is computed by dividing net income attributable to holders of RSTI common stock by the weighted average number of shares outstanding during the period. Diluted earnings per common share reflect the potential dilution from common stock equivalents (stock options).






14





The calculation of the weighted average number of shares outstanding for each period is as follows:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

Weighted number of shares for basic earnings per common share
 
28,167,456

 
28,019,504

 
28,109,651

 
28,094,443

Potential additional shares due to outstanding dilutive stock options
 
155,885

 
136,733

 
153,664

 
156,830

Weighted number of shares for diluted earnings per common share
 
28,323,341

 
28,156,237

 
28,263,315

 
28,251,273

 
The weighted average diluted shares outstanding for the nine months ended June 30, 2015 and 2014, excludes the dilutive effect of approximately 2.4 million and 2.9 million stock options, respectively, since the impact of including these options in diluted earnings per share for these periods was antidilutive.

 

13.
Defined Benefit Plans

Components of net periodic cost were as follows for the three and nine-month periods ended June 30, 2015 and 2014:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

Service cost
 
$
232

 
$
245

 
$
709

 
$
736

Interest cost
 
265

 
335

 
809

 
1,004

Expected return on plan assets
 
(175
)
 
(167
)
 
(525
)
 
(501
)
Amortization of prior net (gain) loss
 
(6
)
 
28

 
(19
)
 
84

Amortization of prior service cost
 
61

 
19

 
184

 
56

     Net periodic pension cost
 
$
377

 
$
460

 
$
1,158

 
$
1,379

 

14.
Segment and Geographic Information

Assets, property and equipment, sales, and income before income taxes, by geographic region attributable based on the geographic location of the RSTI entities are summarized below:
 
 
June 30, 2015

 
September 30, 2014

ASSETS
 
 
 
 
North America
 
$
251,540

 
$
246,370

Germany
 
426,026

 
430,123

Other
 
346,041

 
347,992

Intercompany eliminations
 
(328,168
)
 
(335,900
)
 
 
$
695,439

 
$
688,585



15


 
 
June 30, 2015

 
September 30, 2014

PROPERTY AND EQUIPMENT, NET
 
 

 
 

North America
 
$
16,113

 
$
16,319

Germany
 
48,166

 
41,828

Other
 
26,748

 
21,822

Intercompany eliminations
 
(244
)
 
(266
)
 
 
$
90,783

 
$
79,703

 
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

NET SALES
 
 
 
 
 
 
 
 
North America
 
$
38,294

 
$
36,942

 
$
113,425

 
$
105,419

Germany
 
80,162

 
85,081

 
231,372

 
238,207

Other
 
73,493

 
66,203

 
197,063

 
198,630

Intercompany eliminations
 
(59,402
)
 
(53,937
)
 
(164,207
)
 
(158,189
)
 
 
$
132,547

 
$
134,289

 
$
377,653

 
$
384,067

INTERCOMPANY SALES
 
 

 
 

 
 
 
 
North America
 
$
4,261

 
$
2,684

 
$
11,281

 
$
8,785

Germany
 
41,548

 
35,398

 
114,094

 
105,115

Other
 
13,593

 
15,855

 
38,832

 
44,289

Intercompany eliminations
 
(59,402
)
 
(53,937
)
 
(164,207
)
 
(158,189
)
 
 
$
—

 
$
—

 
$
—

 
$
—

EXTERNAL SALES
 
 

 
 

 
 
 
 
North America
 
$
34,033

 
$
34,259

 
$
102,144

 
$
96,635

Germany
 
38,614

 
49,682

 
117,278

 
133,091

Other
 
59,900

 
50,348

 
158,231

 
154,341

 
 
$
132,547

 
$
134,289

 
$
377,653

 
$
384,067

 
INCOME BEFORE INCOME TAX
 
 

 
 

 
 
 
 
North America
 
$
4,326

 
$
2,803

 
$
5,204

 
$
5,077

Germany
 
5,492

 
3,062

 
15,477

 
712

Other
 
7,201

 
3,710

 
17,957

 
15,326

Intercompany eliminations
 
(1,033
)
 
(207
)
 
(1,893
)
 
(1,654
)
 
 
$
15,986

 
$
9,368

 
$
36,745

 
$
19,461



15.
Enterprise-Wide Information

The Company generates revenues from the sale and servicing of laser products used for macro applications, from the sale and servicing of laser products for marking and micro applications, and from the sale of components products as follows:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

Macro applications
 
$
48,660

 
$
56,416

 
$
144,742

 
$
152,274

Marking and micro applications
 
64,129

 
58,991

 
177,637

 
180,874

Components
 
19,758

 
18,882

 
55,274

 
50,919

 
 
$
132,547

 
$
134,289

 
$
377,653

 
$
384,067

 

16



16.
Treasury Stock

As previously reported, on February 5, 2014, the Board of Directors authorized the Company to initiate a share buyback of up to $25.0 million of the Company’s Common Stock over the next twelve months ending February 10, 2015, subject to market conditions. The program permitted share repurchases from time to time in open market transactions or privately negotiated transactions at the Company’s discretion. During the nine-months ended June 30, 2015, the Company did not repurchase any shares of common stock.


17


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "may", "believe", "will", "expect", "project", "anticipate", "estimate", "plan", "continue", "position" or other words or terms of similar meaning. These forward-looking statements are based on the current plans, expectations, and assumptions of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, including by way of example those risk factors discussed under the sections entitled "Risk Factors" in Item 1A of the Company's Annual Report for the year ended September 30, 2014, as well as future results of operations and financial condition. In making these forward-looking statements, we claim the protection of the safe-harbor for forward-looking statements contained in the Reform Act. We do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.


Overview

Rofin-Sinar Technologies Inc. (herein also referred to as "RSTI", "Rofin-Sinar", "Rofin", or the "Company" or "we", "us" or "our") is a leader in the design, development, engineering, manufacturing and marketing of laser sources and laser-based system solutions for industrial material processing applications, which include primarily cutting, welding and marking a wide range of materials. The Company's product portfolio ranges from single laser-beam sources to highly complex systems, covering all of the key laser technologies such as CO2 lasers, fiber, solid-state and diode lasers, and the entire power spectrum, from single-digit watts up to multi-kilowatts, as well as a comprehensive spectrum of wavelengths or pulse durations. An extensive range of laser components completes the product portfolio. Lasers are a non-contact technology for material processing, which have several advantages compared to conventional manufacturing tools that are desirable in industrial applications. The Company's lasers all deliver a high-quality beam at guaranteed power outputs and feature compact design, high processing speed, flexibility, low operating and maintenance costs, and easy integration into the customer's production process, thus meeting a broad range of its customers' material processing requirements.

Through its global manufacturing, distribution and service network, the Company provides a comprehensive range of laser sources and laser-based system solutions to the following principal target markets: the machine tool, automotive, semiconductor, electronics and photovoltaic industries. The Company sells directly to end-users and to original equipment manufacturers (“OEMs”) (principally in the machine tool industry) that integrate Rofin's laser sources with other system components. Many of Rofin's customers are among the largest global participants in their respective industries.  
 
Rofin's sales approach in the laser-related business reflects the many different requirements of its customers throughout a multitude of industries, and is divided into three areas of core competence: Macro, Micro and Marking. The core of the Macro business section is high-powered laser sources, primarily used for cutting and welding as well as surface treatment applications. The Micro section concentrates on laser sources and laser-based system solutions that require less power output for micro-processing of materials. The Marking section specializes in innovative marking solutions on both organic and inorganic materials for many different industries. The activities in the components sector, which comprise diodes and diode laser components, power supplies, fibers and fiber beam deliveries as well as fiber laser components, round out the Company's business activities in the industrial laser market.

During the third quarter of fiscal years 2015 and 2014, we realized approximately 37% and 42% of revenues, respectively, from the sale and servicing of laser products used for macro applications, approximately 48% and 44%, respectively, from the sale and servicing of laser products for marking and micro applications, and approximately 15% and 14%, respectively, from the sale of components.

In the third quarter of fiscal year 2015, we delivered very strong results that demonstrate that our measures to increase efficiency and profitability are gaining momentum. Both net income and earnings per share rose by 78% year-over-year, and we steadily improved our gross margin. A favorable product mix, combined with more efficient production of our high-power fiber lasers and lower manufacturing costs of our third generation fiber lasers, improved our gross profit margin for the quarter to 39% of net sales, putting us within reach of our 40% target for the fourth fiscal quarter. Important highlights of the third quarter of fiscal year 2015 were excellent sales in the solar industry and a strong medical device business performance. From a geographical perspective, our North American and Asian businesses performed well, but European revenues continued to suffer

18


from currency translation effects. Using last fiscal year’s average exchange rates, quarterly revenue would have been $146.8 million, representing a growth of more than 9%.

Further optimization of production costs and diversification of our product and applications portfolio should continue to strengthen our market position and cultivate future business growth. Our substantial backlog of $157.5 million and our favorable business prospects should also contribute to this growth in the near-term.

 At June 30, 2015, the Company had 2,235 employees compared to 2,269 employees at June 30, 2014.


Results of Operations

For the periods indicated, the following table sets forth the percentage of net sales represented by the respective line items in the Company's consolidated statements of operations.
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2015

 
2014

 
2015

 
2014

Net sales
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of goods sold
 
60.6
%
 
65.2
%
 
62.9
%
 
65.0
%
Gross profit
 
39.4
%
 
34.8
%
 
37.1
%
 
35.0
%
Selling, general and administrative expenses
 
18.6
%
 
19.2
%
 
19.4
%
 
20.6
%
Research and development expenses
 
7.5
%
 
8.4
%
 
8.0
%
 
9.0
%
Amortization expenses
 
0.6
%
 
0.6
%
 
0.6
%
 
0.6
%
Income from operations
 
12.8
%
 
6.5
%
 
9.1
%
 
4.9
%
Income before income taxes
 
12.1
%
 
7.0
%
 
9.7
%
 
5.1
%
Net income attributable to RSTI
 
8.7
%
 
4.8
%
 
7.0
%
 
3.4
%
 
Net Sales - Net sales of $132.5 million and $377.7 million represent decreases of $1.7 million and $6.4 million, or 1% and 2% for the three and nine-month periods ended June 30, 2015, as compared to the corresponding periods in fiscal year 2014. The decrease for the three months ended June 30, 2015, resulted from a decrease of $9.3 million, or 15%, in Europe, partially offset by net sales increases of $5.1 million, or 11%, in Asia, and $2.4 million, or 10%, in North America, compared to the corresponding period in fiscal year 2014. The decrease for the nine months ended June 30, 2015, resulted from a net sales decrease of $23.4 million, or 12%, in Europe, partially offset by increases of $10.3 million, or 14%, in North America, and $6.6million, or 6%, in Asia, as compared to the corresponding period in fiscal year 2014. The U.S. dollar strengthened against foreign currencies, primarily against the Euro, which had an unfavorable effect on net sales of $35.6 million for the nine-month period ended June 30, 2015.

Net sales of laser products for macro applications decreased by $7.8 million, or 14%, to $48.7 million for the three months ended June 30, 2015, and was mainly attributable to the lower demand in the machine tool industry. Net sales of laser products for macro applications decreased by $7.5 million, or 5%, to $144.8 million for the nine-month period ended June 30, 2015, which was mainly due to a lower demand from the machine tool industry, partially offset by a higher demand from the automotive and semiconductor industries as compared to the corresponding period of fiscal year 2014.
  
Net sales of lasers for marking and micro applications increased by $5.1 million, or 9%, to $64.1 million for the three-month period ended June 30, 2015, and reflects higher demand from the solar and medical device industries. Net sales of lasers for marking and micro applications decreased by $3.3 million, or 2%, to $177.6 million for the nine-month period ended June 30, 2015, and was mainly due to a decrease in the semiconductor and jewelry industries. However, this decrease was partially offset by higher demand from the solar industry.

Revenues for the component business increased by $0.9 million, or 5%, to $19.7 million for the three-month period ended June 30, 2015, as compared to the corresponding period of fiscal year 2014. Revenues for the nine-month period ended June 30, 2015, increased by $4.4 million, or 9%, to $55.3 million, compared to the corresponding period in fiscal year 2014. The increases are mainly attributable to higher demand for laser diodes, fibers and optical components.

Gross Profit - Our gross profit of $52.3 million for the three-month period ended June 30, 2015, represents an increase of $5.6 million, or 12%, from the corresponding period of fiscal year 2014, and as a percentage of sales increased from 35% to 39%.

19


Our gross profit of $140.3 million for the nine-month period ended June 30, 2015, represents an increase of $6.0 million, or 4%, when compared to the corresponding period of fiscal year 2014. As a percentage of sales, gross profit for the nine-month period ended June 30, 2015, increased from 35% to 37%. As a percentage of sales for the three and nine-month periods ended June 30, 2015, gross profit increased mainly as a result of the higher efficiency in production combined with reduced manufacturing costs through the use of the third generation design of high-power fiber lasers, as well as a favorable product mix, especially for micro applications and a strong component business. Gross profit was unfavorably affected by $5.8 million due to the strengthening of the U.S. dollar against foreign currencies, primarily against the Euro, in the nine-month period ended June 30, 2015.

Selling, General and Administrative Expenses - Selling, general and administrative ("SG&A") expenses of $24.7 million and $73.2 million for the three and nine-month periods ended June 30, 2015, represents a decrease of $1.2 million, or 5%, for the three-month period, and a decrease of $5.7 million, or 7%, for the nine-month period, compared to the corresponding periods of fiscal year 2014. The decrease in SG&A expenses for the three-month period is mainly due to lower labor costs and the impact of exchange rate fluctuations partially offset by an increase in commissions, legal and consulting fees and expenses related to the recent management change of approximately $1.1 million. SG&A, a significant portion of which is incurred in foreign currencies, was favorably affected by $7.6 million due to the strengthening of the U.S. dollar against foreign currencies, primarily the Euro, for the nine-month period ended June 30, 2015. As a percentage of net sales, SG&A expenses remained unchanged at 19% for the three-month period ended June 30, 2015, and decreased from 21% to 19% for the nine-month period ended June 30, 2015, as compared to the corresponding prior year periods.

Research and Development - The Company spent net $9.9 million and $30.2 million on research and development ("R&D") during the three and nine-month periods ended June 30, 2015, which represents decreases of $1.4 million, or 13%, and $4.2 million, or 12%, for the three and nine-month periods ended June 30, 2015, as compared to the corresponding periods in fiscal year 2014. Gross R&D expenses for the three-month periods ended June 30, 2015 and 2014, were $10.0 million and $11.8 million, respectively, and were reduced by $0.1 million and $0.5 million of government grants during the respective periods. Gross R&D expenses for the nine-month periods ended June 30, 2015 and 2014, were $30.7 million and $35.7 million, respectively, and were reduced by $0.5 million and $1.3 million of government grants during each respective period. R&D, a significant portion of which is conducted in Europe, and therefore incurred in foreign currencies, was favorably affected by $3.9 million due to the strengthening of the U.S. dollar against foreign currencies, primarily the Euro, for the nine-month period ended June 30, 2015.

Amortization Expense - Amortization expense for the three and nine month periods ended June 30, 2015, amounted to $0.7 million and $2.3 million, respectively. This represents a decrease of less than $0.1 million for the three-month period and an increase of $0.2 million for the nine-month period when compared to the same periods of fiscal year 2014.

Other (Income) Expense -  Net other expense of $1.0 million for the three-month period ended June 30, 2015, represents a decrease of $1.6 million compared to net other income of $0.6 million for the corresponding period of fiscal year 2014. Net other income of $2.2 million for the nine-month period ended June 30, 2015, represents an increase of $1.5 million compared to net other income of $0.7 million for the corresponding period of the prior year. Net interest expense for the three-month period ended June 30, 2015, within this category, includes $0.1 million of interest expense offset by $0.1 million of interest income. The increase in net foreign currency expense in the three-month period ended June 30, 2015, is due to higher net exchange losses in the current period compared to the corresponding period in fiscal year 2014. For the nine months ended June 30, 2015, net interest expense, within this category, includes $0.3 million of interest expense offset by $0.3 million of interest income. The increase in net foreign currency income in the nine-month period ended June 30, 2015, is due to higher net exchange gains in the current period compared to the corresponding period in fiscal year 2014. Other income for the nine-month period ending June 30, 2014, included $1.0 million due to the partial forgiveness of a loan with the State of Connecticut related to investments and creation of new jobs.

Income Tax Expense - Income tax expense of $4.4 million and $10.3 million for the three and nine-month periods ended June 30, 2015, represents an effective tax rate of 28%, for each period, compared to 31% and 32% for the corresponding periods of fiscal year 2014. The decrease in the effective tax rate is mainly due to the generation of taxable income in countries with lower tax rates. Income tax expense, a significant portion of which is incurred in foreign currencies, was favorably affected by $1.1 million due to the strengthening of the U.S. dollar against foreign currencies, primarily against the Euro, during the nine-month period ended June 30, 2015.

Net Income Attributable to RSTI - As a result of the foregoing factors, the Company realized consolidated net income attributable to RSTI of $11.6 million and $26.5 million for the three and nine-month periods ended June 30, 2015, which represents an increase of $5.1 million, or 78%, and an increase of $13.3 million, or 101%, from the corresponding periods in fiscal year 2014. For the three-month period ended June 30, 2015, both the basic and diluted earnings per common share

20


calculations equaled $0.41, based upon a weighted average of 28.2 million and 28.3 million shares of common stock outstanding, as compared to basic and diluted earnings per common share calculation of $0.23, based upon a weighted average of 28.0 million and 28.2 million shares of common stock outstanding for the corresponding period of fiscal year 2014.


Liquidity and Capital Resources

The Company's primary sources of liquidity at June 30, 2015, were cash and cash equivalents of $163.9 million, short-term investments of $8.4 million, short-term credit lines of $64.0 million and long-term credit lines of $19.7 million. As of June 30, 2015, $3.9 million was outstanding under the short-term lines of credit and $1.6 million was used for bank guarantees under these lines of credit, leaving $58.5 million available for borrowing under the short-term lines of credit. In addition, the Company maintained short-term credit lines specific to bank guarantees for $12.2 million, of which $3.8 million was used. Therefore, $66.9 million was unused and available under the Company's short-term and bank guarantee lines of credit, in aggregate, at June 30, 2015.  At such date, the entire amount of our long-term lines of credit was fully drawn and $1.3 million was classified under short-term lines of credit for the current portion of the long-term debt. The Company is subject to financial covenants, which could restrict the Company from drawing money under these lines of credit. At June 30, 2015, the Company was in compliance with these covenants.

Cash and cash equivalents increased by $35.3 million during the nine-month period ended June 30, 2015. Approximately $57.8 million in cash and cash equivalents were provided by operating activities, mainly as the result of net income generated for the nine-month period ended June 30, 2015, a decrease in trade accounts receivable, changes in non-cash transactions (depreciation and stock-based compensation expense) and decreases in other operating assets and liabilities, partially offset by an increase of net inventories.

Net cash used in investing activities totaled $24.1 million for the nine-month period ended June 30, 2015, and was primarily related to additions to property and equipment partly offset by net sales of short-term investments.

Net cash provided by financing activities totaled $11.9 million for the nine-month period ended June 30, 2015, and was primarily related to borrowings from banks and by the issuance of common stock from option exercises, which were partially offset by repayments to banks, purchases of non-controlling interests and payments for acquisition-related obligations.
 
Management believes that the Company's cash flow from operations, along with existing cash and cash equivalents and availability under the credit facilities and lines of credit, will provide adequate resources to meet both our capital requirements and operational needs on both a short-term and long-term basis.

As of June 30, 2015, $132.6 million of the total $172.3 million of our cash, cash equivalents and short-term investments, was held by our non-US subsidiaries, with the balance of $39.7 million held by our US subsidiaries. As of that date, $20.7 million was owed by our non-US subsidiaries and $2.9 million was owed by our US subsidiaries from the total indebtedness amounting to $23.6 million. We expect our existing domestic cash, cash equivalents and short-term investments, together with cash flows from operations to be sufficient to fund our domestic operating activities. In addition, our US subsidiaries had $20.0 million in available and unused lines of credit at June 30, 2015. Therefore, we do not intend, nor do we foresee a need, to repatriate foreign earnings that are considered to be indefinitely reinvested, and we do not believe there are any material implications for or restrictions on the liquidity of our domestic subsidiaries as a result of having a majority of our cash, cash equivalents and short-term investments held by our foreign subsidiaries.

The Company has listed all its material contractual obligations in the Annual Report on Form 10-K, for the fiscal year ended September 30, 2014, and has not entered into any further material contractual obligations since that date.


Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements (other than operating leases) or financing arrangements involving variable interest entities.







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Currency Exchange Rate Fluctuations

Although we report our consolidated financial statements in U.S. dollars, during the nine-month period ended June 30, 2015, approximately 66% of our sales have been denominated in other currencies, primarily the Euro, British pound sterling, Swiss franc, Swedish krona, Singapore dollar, Taiwanese dollar, Korean won, Canadian dollar, Chinese RMB, Japanese yen and Indian rupee. Net sales, costs and related assets and liabilities of our operations are generally denominated in the functional currencies of the relevant operating units, thereby serving to reduce our exposure to exchange gains and losses.

Exchange differences upon translation from each operating unit's functional currency to U.S. dollars are accumulated as a separate component of equity. The currency translation adjustment component of shareholders’ equity had the effect of decreasing total equity by $46.1 million at June 30, 2015, as compared to $7.8 million at September 30, 2014.

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, as well as cost of goods sold, gross margin, selling, general and administrative expenses, and research and development expenses, denominated in such foreign currencies when translated into U.S. dollars as compared to prior periods.

The Company defines the term “constant currency”, a non-GAAP measure, to mean that financial data for a period are translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the previously reported period. Changes in net sales and order entry include the effect of fluctuations in foreign currency exchange rates. The Company's management reviews and analyzes business results on a constant currency basis and believes these results represent the Company's underlying business trends without distortion due to currency fluctuations. The Company believes that this “constant currency” financial information is a useful measure for investors because it reflects actual changes in the development of net sales and order entry.
 
The following table illustrates the development of the order entry and sales figures, taking into account exchange rate fluctuations. The non-GAAP presentation shows the third quarter 2015 figures when applying the average exchange rates of the third quarter of fiscal year 2014:
 
 
June 30, 2015
 
June 30, 2014
 
 
GAAP Actual

 
Non-GAAP Constant Currency

 
GAAP Actual

Net Sales
 
$
132,547

 
$
146,793

 
$
134,289

Order Entry
 
$
130,014

 
$
146,896

 
$
144,034


Between the third quarter of fiscal year 2014 and the third quarter of fiscal year 2015, the average exchange rate for the Euro weakened against the U.S. dollar by approximately 18.0%. The impact of exchange rate fluctuations, mainly the Euro, was to decrease quarterly net sales by $14.3 million and quarterly order entry by $16.9 million.


Critical Accounting Policies

Our significant accounting policies are more fully described in Part 2, Item 8, Note 1 of our consolidated financial statements in our Annual Report on Form 10-K, for the fiscal year ended September 30, 2014. 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.




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Inventory Valuation

Inventories are stated at the lower of cost or market, after provisions for excess and obsolete inventory salable at prices below cost. Provisions for slow moving and obsolete inventories are provided based on current assessments about historical experience and future product demand and production requirements for the next twelve months. We also write-down up to 90% of our total demo inventory costs over thirty six months. These factors are impacted by market conditions, technology changes and changes in strategic direction, and require estimates and management judgment that may include elements that are uncertain. The Company evaluates the adequacy of these provisions quarterly. Although the Company strives to achieve a balance between market demands and risk of inventory excess or obsolescence, it is possible that, should conditions change, additional provisions may be needed. Any changes in the provisions will impact operating income during a given period.

Warranty Reserves
 
The Company provides reserves for the estimated costs of product warranties when revenue is recognized. The Company relies upon historical experience, expectation of future conditions, and its service data to estimate its warranty reserve. The Company continuously monitors this data to evaluate the sufficiency of the reserve. Warranty expense has historically been within our expectations. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims (such costs may include material, labor and travel costs), revisions to the estimated warranty liability would be required. Increases in reserves will impact operating income during the period.

Pension

The determination of the Company's obligation and expense for pension is dependent on the selection of certain assumptions used by actuaries in calculating those amounts. Assumptions are made about interest rates, expected investment return on plan assets, total turnover rates and rates of future compensation increases. In addition, the Company's actuarial consultants use subjective factors such as withdrawal rates and mortality rates to develop their calculations of these amounts. The Company generally reviews these assumptions at the beginning of each fiscal year. The Company is required to consider current market conditions, including changes in interest rates, in making these assumptions. The actuarial assumptions that the Company may use may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact on the amount of pension benefits expense the Company has recorded or may record.

The discount rate enables the Company to state expected future cash flows at a present value on the measurement date. The Company has little latitude in selecting this rate, and it must represent the market rate of high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increases pension expense.

To determine the expected long-term rate of return on plan assets, the Company considers the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets.

Income Taxes

We estimate our income tax provision in each of the jurisdictions in which we operate, a process that includes estimating exposures related to examinations by taxing authorities. We must also make judgments regarding the ability to realize our deferred tax assets. The carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets. A valuation allowance has been established for deferred tax assets that we do not believe meet the “more likely than not” criteria. We assess whether an uncertain tax position taken or expected to be taken in a tax return meets the threshold for recognition and measurement in the consolidated financial statements. Our judgments regarding future taxable income as well as tax positions taken or expected to be taken in a tax return may change due to changes in market conditions, changes in tax laws or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowances and/or tax reserves established may be increased or decreased, resulting in a respective increase or decrease in income tax expense.



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Share-Based Payment

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee's requisite vesting period. We make judgments about the fair value of the awards, including the expected term of the award, volatility of the underlying stock and estimated forfeitures, which impact the amount of compensation expense recognized in the financial statements. Such amounts may change as a result of additional grants, forfeitures, modifications in assumptions and other factors. The income tax effects of share-based payments are recognized in the financial statements for those awards which will normally result in tax deductions under existing tax law. Under current U.S. federal tax laws, we receive a compensation expense deduction related to stock options only when those options are exercised and vested shares are received. Accordingly, the financial statement recognition of compensation cost for stock options creates a deductible temporary difference which results in a deferred tax asset and a corresponding deferred tax benefit in the income statement for all U.S.-based employees. Stock-based compensation expense related to non-US employees is treated as a permanent difference for income tax purposes.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

For the three-month period ended June 30, 2015, 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, 2014.

The following discussion about the Company's market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company is exposed to market risk related to changes in interest rates and foreign currency exchange rates. The Company does not use derivative financial instruments for trading purposes.


Interest Rate Sensitivity

At June 30, 2015, the Company maintained cash, cash equivalents and short-term investments of $172.3 million, mainly consisting of interest bearing securities and demand deposits with maturities mainly of less than one year. If interest rates were to increase or decrease by 10%, interest income would increase or decrease by less than $0.1 million.
 
At June 30, 2015, the Company had $2.9 million of variable rate debt on which the interest rate is reset every six months, and $20.7 million of fixed rate debt.

Maturities of this debt are as follows (amounts in dollars):
2015
1.5
 million
2016
4.0
 million
2017
5.5
 million
2018
2.5
 million
2019
1.8
 million
2020 and thereafter
8.3
 million

A 10% change in the variable interest rates of the Company's debt would result in an increase or decrease in interest expense of less than $0.1 million.

The Company has entered into an interest rate swap agreement to minimize the interest expenses on a portion of its variable debt described in the previous paragraph by shifting from variable to fixed interest rates. The swap agreement is for a total notional amount of Swiss francs 2.8 million (equivalent to $2.9 million based on the exchange rates at June 30, 2015).



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Foreign Currency Exchange Risk

The Company enters into foreign currency forward contracts and forward exchange options generally of less than one year duration to hedge a portion of its foreign currency risk on sales transactions. At June 30, 2015, the Company held Japanese yen forward exchange options with notional amounts of Euro 1.2 million and $0.3 million. Under these Japanese yen forward exchange options, the profit or loss resulting from a 10% change in currency exchange rates would vary approximately from $0.2 million profit to a $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 been no 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.


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

There have been no material changes from the legal matters reported in our Annual Report on Form 10-K for the year ended September 30, 2014, as filed with the SEC on December 1, 2014.

 
Item 1A. Risk Factors

For information regarding risk factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussion provided under "Risk Factors" in Item 1A of the Company's Annual Report on Form 10-K for the year ended September 30, 2014. See also "Overview" and "Forward-Looking Statements" included in this Quarterly Report on Form 10-Q.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

As previously reported, on February 5, 2014, the Board of Directors authorized the Company to initiate a share buyback of up to $25.0 million of the Company’s Common Stock over the twelve months ending February 10, 2015, subject to market conditions. The program permitted share repurchases from time to time in open market transactions or privately negotiated transactions at the Company’s discretion. During the nine-months ended June 30, 2015, the Company did not repurchase any shares of common stock.


Item 3.   Defaults Upon Senior Securities
 
None

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Item 4.   Mine Safety Disclosures

Not applicable
 

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
101.INS *
XBRL Instance Document
101.SCH *
XBRL Taxonomy Extension Schema
101.CAL *
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF *
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB *
XBRL Taxonomy Extension Label Linkbase Document
101.PRE *
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
* The Exhibits 101 are filed with the SEC only.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 

Date: August 10, 2015
Rofin-Sinar Technologies Inc.
 
(Registrant)
 
 
 
/s/ Thomas Merk
 
Thomas Merk
 
President, Chief Executive Officer,
 
and Director
 
 
 
/s/ Ingrid Mittelstaedt
 
Ingrid Mittelstaedt
 
Chief Financial Officer,
 
Executive Vice President, Finance
 
and Administration, and Treasurer



27

ROFIN SINAR TECHNOLOGIES INC Reports