-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R+tAGu8iRrfx+/QrrlsqX2dXz5nhadIAlprjhSUYKuaYH1AlbqBW9JMgx09qXu8g oLNQOXQFsYDg3hlE86TkYQ== 0001019361-08-000023.txt : 20080509 0001019361-08-000023.hdr.sgml : 20080509 20080509083830 ACCESSION NUMBER: 0001019361-08-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080509 DATE AS OF CHANGE: 20080509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROFIN SINAR TECHNOLOGIES INC CENTRAL INDEX KEY: 0001019361 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 383306461 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21377 FILM NUMBER: 08816105 BUSINESS ADDRESS: STREET 1: 40984 CONCEPT DRIVE CITY: PLYMOUTH STATE: MI ZIP: 48170 BUSINESS PHONE: 7344555400 MAIL ADDRESS: STREET 1: 40984 CONCEPT DRIVE CITY: PLYMOUTH STATE: MI ZIP: 48170 10-Q 1 tenqq208.txt SECOND QUARTER 10-Q FILING UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2008 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Commission file number: 000-21377 ROFIN-SINAR TECHNOLOGIES INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 38-3306461 -------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 40984 Concept Drive, Plymouth, MI 48170 ---------------------------------------- ------------ (Address of principal executive offices) (Zip Code) (734) 455-5400 ----------------------------------------------------------- (Registrant's telephone number, including area code) ----------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] / No [ ] Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition 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] 29,685,334 shares of the registrant's common stock, par value $0.01 per share, were outstanding as of May 7, 2008. ROFIN-SINAR TECHNOLOGIES INC. INDEX PART I FINANCIAL INFORMATION Page No. ----------------------------------------------- ---------- Item 1 - Financial Statements Condensed Consolidated Balance Sheets March 31, 2008 and September 30, 2007 3 Condensed Consolidated Statements of Operations Three months and six months ended March 31, 2008 and 2007 4 Condensed Consolidated Statement of Stockholders' Equity and Comprehensive Income Six months ended March 31, 2008 and 2007 5 Condensed Consolidated Statements of Cash Flows Six months ended March 31, 2008 and 2007 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 27 Item 4 - Controls and Procedures 28 PART II OTHER INFORMATION Item 1 - Legal Proceedings 28 Item 1A - Risk Factors 29 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 29 Item 3 - Defaults Upon Senior Securities 29 Item 4 - Submission of Matters to a Vote of Security Holders 29 Item 5 - Other Information 30 Item 6 - Exhibits 30 SIGNATURES 30 PART I. ITEM 1. FINANCIAL INFORMATION Rofin-Sinar Technologies Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (dollars in thousands, except per share amounts) March 31, September 30, 2008 2007 ASSETS ----------- ----------- Current Assets Cash and cash equivalents $ 113,223 $ 118,458 Short-term investments 13,835 109,751 Accounts receivable, net of allowance for doubtful accounts of $3,355 and $3,206, respectively 108,485 103,660 Inventories, net (Note 5) 172,090 135,806 Other current assets and prepaid expenses 22,267 19,561 ----------- ---------- Total current assets 429,900 487,236 Property and equipment, net 59,474 43,843 Goodwill (Note 6) 98,678 79,614 Other intangibles, net (Note 6) 14,161 11,382 Other assets 6,437 4,149 ----------- ---------- Total assets $ 608,650 $ 626,224 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Line of credit and short term borrowings $ 29,632 $ 27,952 Accounts payable, trade 28,131 18,197 Accounts payable to related party 1,220 1,222 Accrued liabilities (Note 7) 84,015 94,957 ----------- ---------- Total current liabilities 142,998 142,328 Long-term debt 6,851 12,639 Pension obligations 15,310 13,324 Minority interests 1,865 3,794 Other long-term liabilities 5,066 5,216 ----------- ---------- Total liabilities 172,090 177,301 Stockholders' equity Preferred stock, 5,000,000 shares authorized, none issued or outstanding -- -- Common stock, $0.01 par value, 50,000,000 shares authorized, 29,886,500 (31,141,600 at September 30, 2007) issued and outstanding (Note 1) 160 156 Additional paid-in-capital 184,250 177,048 Retained earnings 258,560 229,971 Accumulated other comprehensive income 71,562 41,748 Treasury shares, at cost, 1,693,400 shares ( 77,972) -- ----------- ---------- Total stockholders' equity 436,560 448,923 ----------- ---------- Total liabilities and stockholders' equity $ 608,650 $ 626,224 =========== ========== See accompanying notes to condensed consolidated financial statements - 3 - Rofin-Sinar Technologies Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Periods Ended March 31, 2008 and 2007 (dollars in thousands, except per share amounts) Three Months Six Months Ended March 31, Ended March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Net sales $ 136,600 $ 116,061 $ 271,289 $ 227,806 Cost of goods sold 75,943 66,833 151,978 132,706 ---------- ---------- ---------- ---------- Gross profit 60,657 49,228 119,311 95,100 Selling, general, and administrative expenses 27,600 21,631 51,591 42,295 Research and development expenses 10,158 7,060 18,940 13,258 Amortization expense 3,689 969 4,646 1,895 ---------- ---------- ---------- ---------- Income from operations 19,210 19,568 44,134 37,652 Other (income) expense: Interest, net (1,180) ( 1,300) ( 2,873) ( 2,320) Foreign currency (gains)/losses 3,770 ( 15) 5,416 570 Other income ( 190) ( 53) ( 407) ( 323) ---------- ---------- ---------- ---------- Income before income taxes and minority interest 16,810 20,936 41,998 39,725 Income tax expense 5,928 7,672 14,029 14,757 ---------- ---------- ---------- ---------- Income before minority interest 10,882 13,264 27,969 24,968 Minority interest, net of tax 103 188 294 399 ---------- ---------- ---------- ---------- Net income $ 10,779 $ 13,076 $ 27,675 $ 24,569 ========== ========== ========== ========== Earnings per share (Note 12): Basic $ 0.36 $ 0.42 $ 0.92 $ 0.80 Diluted $ 0.35 $ 0.41 $ 0.90 $ 0.78 ========== ========== ========== ========== Weighted average shares used in computing earnings per share (Note 12): Basic 29,661,864 30,899,126 30,183,285 30,861,436 Diluted 30,524,619 31,658,386 30,874,868 31,620,794 ========== ========== ========== ========== See accompanying notes to condensed consolidated financial statements - 4 - Rofin-Sinar Technologies Inc. and Subsidiaries Condensed Consolidated Statements Of Stockholders' Equity and Comprehensive Income (Unaudited) Six months ended March 31, 2008 and 2007 (dollars in thousands) Common Accumulated Stock Additional Other Total Par Treasury Paid-in Retained Comprehensive Stockholders' Value Stock Capital Earnings Income Equity -------- --------- ----------- ----------- ------------ ------------- BALANCES at September 30, 2007 $ 156 $ -- $ 177,048 $ 229,971 $ 41,748 $ 448,923 Adoption of FIN 48 -- -- -- 914 -- 914 ------------ Adjusted Balance 449,837 Comprehensive income: Fair value of interest swap agreement -- -- -- -- ( 32) ( 32) Foreign currency translation adjustment -- -- -- -- 29,846 29,846 Net income -- -- -- 27,675 -- 27,675 ------------ Total comprehensive income 57,489 Common stock issued in connection with: Stock incentive plans 4 -- 7,202 -- -- 7,206 Less common shares held in treasury, at cost -- ( 77,972) -- -- -- ( 77,972) -------- ------------ ----------- ----------- ----------- ------------ BALANCES at March 31, 2008 $ 160 $( 77,972) $ 184,250 $ 258,560 $ 71,562 $ 436,560 ======== ============ =========== =========== =========== ============ BALANCES at September 30, 2006 $ 154 -- $ 167,446 $ 174,694 $ 16,146 $ 358,440 Comprehensive income: Fair value of interest swap agreement -- -- -- -- 60 60 Foreign currency translation adjustment -- -- -- -- 10,069 10,069 Net income -- -- -- 24,569 -- 24,569 ------------ Total comprehensive income 34,698 Common stock issued in connection with: Stock incentive plans 1 -- 4,346 -- -- 4,347 -------- ------------ ----------- ----------- ----------- ------------ BALANCES at March 31, 2007 $ 155 -- $ 171,792 $ 199,263 $ 26,275 $ 397,485 ======== ============ =========== =========== =========== ============
See accompanying notes to condensed consolidated financial statements - 5 - Rofin-Sinar Technologies Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended March 31, 2008 and 2007 (dollars in thousands) Six Months Ended March 31, ------------------------ 2008 2007 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 27,675 $ 24,569 Adjustments to reconcile net income to net Cash provided by operating activities: Depreciation and amortization 8,958 4,911 Stock-based compensation expenses 2,710 2,699 Other adjustments ( 1,799) ( 661) Change in operating assets and liabilities: Accounts receivable, trade 6,229 ( 241) Inventories ( 20,755) ( 3,842) Accounts payable 6,993 3,108 Changes in other operating assets and liabilities ( 22,332) 636 ----------- ----------- Net cash provided by operating activities 7,679 31,179 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the sale of property and equipment 106 164 Additions to property and equipment ( 6,956) ( 2,923) Purchases of short-term investments ( 128,574) ( 75,084) Sales of short-term investments 224,650 59,575 Acquisition of business, net of cash acquired ( 30,139) ( 3,600) ---------- ---------- Net cash provided by (used in) investing activities 59,087 ( 21,868) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from banks 1,681 -- Repayment to banks ( 10,072) ( 3,149) Purchase of treasury stock ( 77,972) -- Issuance of common stock 3,491 1,389 Excess tax benefit from stock options 567 87 ---------- ---------- Net cash used in financing activities ( 82,305) ( 1,673) ---------- ---------- Effect of foreign currency translation on cash 10,304 3,141 ---------- ---------- Net increase (decrease) in cash and cash equivalents ( 5,235) 10,779 Cash and cash equivalents at beginning of period 118,458 75,395 ---------- ---------- Cash and cash equivalents at end of period $113,223 $ 86,174 ========== ========== Cash paid for interest $ 837 $ 533 Cash paid for taxes $ 46,917 $ 9,377 See accompanying notes to condensed consolidated financial statements - 6 - Rofin-Sinar Technologies Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (dollars in thousands) 1. 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 condensed consolidated 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, 2007 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, 2007 as filed with the Securities and Exchange Commission on November 29, 2007. On November 7, 2007, the Board of Directors approved a 2-for-1 stock split. The stock split was in the form of a dividend of one share of Common Stock on each outstanding share and the distribution date was December 5, 2007, for shareholders of record as of November 22, 2007. All share and per share amounts disclosed in the Condensed Consolidated Balance Sheet and Statement of Operations and Notes 10, 11 and 12 to the Condensed Consolidated Financial Statements have been adjusted to reflect the 2-for-1 stock split. The Board also approved a stock buyback plan. 2. New Accounting Pronouncements In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 (Revised 2007), Business Combinations. SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. In addition, SFAS 141(R) requires expensing of acquisition-related and restructure-related costs, remeasurement of earn out provisions at fair value, measurement of equity securities issued for purchase at the date of close of the transaction and non-expensing of in- process research and development related intangibles. SFAS 141(R) is effective for the Company's business combinations for which the acquisition date is on or after October 1, 2009. The Company is currently evaluating the impact of the implementation of SFAS No. 141(R) on its consolidated financial position, results of operations and cash flows. - 7 - In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, ("SFAS No. 157"). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Statement is effective for the Company beginning in the first quarter of fiscal 2009 (October 1, 2008). We do not believe that the adoption of the provisions of SFAS No. 157 will materially impact our consolidated financial position and results of operations. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently. The Statement is effective for fiscal years beginning after November 15, 2007.The Company is currently evaluating the requirements of SFAS 159 on its consolidated financial position and results of operations. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. It requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. This Statement establishes a single method of accounting for changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation. SFAS No. 160 is effective for the Company's fiscal year beginning October 1, 2009. The Company is currently evaluating the impact of the implementation of SFAS No. 160 on its consolidated financial position, results of operations and cash flows. In March 2008, the FASB released SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS No. 161 requires additional disclosures related to the use of derivative instruments, the accounting for derivatives and the financial statement impact of derivatives. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The company is currently assessing the impact the adoption of SFAS No. 161 will have on the company's consolidated financial statements. 3. Cash Equivalents and Short-term Investments Cash equivalents consist of financial instruments that are readily convertible into cash and have original maturities of three months or less at the time of acquisition. - 8 - Short-term investments totaling $13,835 and $109,751 at March 31, 2008 and September 30, 2007, respectively, mainly include auction rate securities and deposits with banks. Auction rate securities 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. Although these securities are issued and rated as long-term securities, they are priced and traded as short-term instruments because of the liquidity provided through the interest rate reset. At March 31, 2008, the Company classified its auction rate securities as current assets. Although there was a disruption in credit markets that caused the auction mechanism to fail to set market-clearing rates and provide liquidity for sellers, the Company believes that they will be sold within the next 12 months at par value. A failed auction does not represent a default by the issuer of the underlying security. All of the Company's auction rate securities are rated AAA/Aaa, are collateralized by student loans substantially guaranteed by the U.S. government and continue to pay interest in accordance with their contractual terms. At March 31, 2008, the recorded values of the auction rate securities approximate their par values. "Purchases of short-term investments" and "Sales of short-term investments" included in the accompanying consolidated statements of cash flows, have been included to reflect the gross purchases and gross sales of auction rate securities during the periods presented. The Company has supplied this information based on actual purchases and sales of short-term investments and not on rate resets of held investments. 4. Acquisitions and Formation of New Entities Effective December 3, 2007, the Company purchased the remaining 19% of the share capital of Rofin-Sinar U.K. Ltd. through Rofin-Sinar Technologies Europe S.L. under an option agreement between the Company and the former minority shareholders. The Company now holds 100% of the share capital of Rofin-Sinar U.K. Ltd. This purchase resulted in goodwill of $5.6 million. Effective January 24, 2008, the Company purchased Nufern, one of the world's largest independent manufacturer of specialty fibers and fiber laser modules serving a wide range of industries, as a wholly owned subsidiary of Rofin- Sinar Technologies Inc. This purchase resulted in goodwill of $6.6 million. - 9 - The acquisition of Nufern is accounted for as a purchase business combination. Assets acquired and liabilities assumed are recorded in the accompanying condensed consolidated balance sheet at their estimated fair values at January 24, 2008. The Company is in the process of finalizing its valuation of the identified intangible assets related to this acquisition. To the extent the final valuation is different from the Company's preliminary assessment of fair value, a purchase price adjustment will be made, which could impact the amount of goodwill recorded. Nufern was purchased with cash and the Company is contingently obligated to make an additional amount in potential earn out payments based on Nufern achieving specific financial performance metrics through calendar year 2008. 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: March 31, September 30, 2008 2007 ------------ ------------ Finished goods $ 25,672 $ 19,630 Work in progress 40,443 33,043 Raw materials and supplies 60,253 43,103 Demonstration inventory 16,805 15,170 Service parts 28,916 24,860 ----------- ----------- Total inventories, net $ 172,090 $ 135,806 =========== =========== Net inventory is net of provisions for excess and obsolete inventory of $17,576 and $15,441 at March 31, 2008 and September 30, 2007, respectively. 6. Goodwill and Other Intangible Assets The changes in the carrying amount of goodwill for the six-month period ended March 31, 2008 are as follows: North Germany America Other Total ---------- --------- ---------- --------- Balance as of September 30, 2007 $ 45,570 $ 10,218 $ 23,826 $ 79,614 Additional goodwill from acquisition -- 6,604 5,643 12,247 Currency translation difference 4,839 363 1,615 6,817 ---------- ---------- --------- --------- Balance as of March 31, 2008 $ 50,409 $ 17,185 $ 31,084 $ 98,678 ========== ========== ========= ========= - 10 - The carrying values of other intangible assets are as follows: March 31, 2008 September 30, 2007 ---------------------- ---------------------- Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization --------- ------------ -------- ------------ Amortized Intangible Assets: Patents $ 10,754 $ 4,453 $ 8,468 $ 3,723 Customer base 15,723 13,933 14,756 12,334 Other 17,965 11,895 11,780 7,565 ---------- ---------- ---------- ---------- Total $ 44,442 $ 30,281 $ 35,004 $ 23,622 ========== ========== ========== ========== Amortization expense for the three-month periods ended March 31, 2008 and 2007 was $3.7 million and $1.0 million, respectively. At March 31, 2008, estimated amortization expense for the remainder of fiscal 2008 and the next five fiscal years based on the average exchange rates as of March 31, 2008, is as follows: 2008 (remainder) $ 2.2 million 2009 3.8 million 2010 1.5 million 2011 1.3 million 2012 1.2 million 2013 1.2 million 7. Accrued Liabilities Accrued liabilities are comprised of the following: March 31, September 30, 2008 2007 ----------- ----------- Employee compensation $ 24,843 $ 20,611 Warranty reserve 13,476 12,269 Customer deposits 16,050 12,933 Income taxes payable 13,510 33,046 Other 16,136 16,098 ----------- ----------- Total accrued liabilities $ 84,015 $ 94,957 =========== =========== - 11 - 8. Income Taxes On October 1, 2007, the Company adopted the provisions of the Financial Accounting Standard Board ("FASB") Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes. FIN No. 48 heightens the threshold for recognizing and measuring tax benefits and requires enterprises to make explicit disclosures about uncertainties in their income tax positions, including a detailed roll-forward of tax benefits taken that do not qualify for financial statement recognition. As a result of the implementation of Interpretation No. 48, the Company recorded a decrease of $0.9 million to reserves for income taxes, with a corresponding increase to retained earnings as of October 1, 2007. As of the date of adoption and after recognizing the impact of FIN 48, the Company's gross unrecognized tax benefits totaled $0.2 million. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as interest expense and SG&A, respectively. As of the date of adoption of FIN 48, an amount of interest and penalties included in the $0.2 million of unrecognized tax benefits noted above is approximately $0.1 million. Consistent with the provisions of FIN 48, the Company classified the unrecognized tax benefit as non-current because payment is not anticipated within one year of the balance sheet date. 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 exception, the Company is no longer subject to examination by the United States Internal Revenue Service for years through 2004. 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 2002. As of March 31, 2008 the Company's gross unrecognized tax benefits totaled $0.2 million which includes approximately $0.1 million of interest and penalties. The $0.1 million of unrecognized tax benefits would not have a material impact on the effective tax rate, if recorded, due to its relative insignificance. The Company estimates that the unrecognized tax benefits will not change significantly within the next year. 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. - 12 - The change in warranty reserves for the six-month periods ended March 31, 2008 and 2007 are as follows: 2008 2007 ------------ ------------ Balance at September 30, $ 12,269 $ 11,754 Additional accruals for warranties during the period 1,063 1,601 Usage during the period ( 1,031) ( 1,663) Currency translation 1,175 508 ----------- ----------- Balance at March 31, $ 13,476 $ 12,200 =========== =========== 10. Treasury Stock On November 7, 2007, the Board of Directors approved a 2-for-1 stock split and a stock buyback plan. The stock split was in the form of a dividend of one share of Common Stock on each outstanding share and the distribution date was December 5, 2007, for shareholders of record as of November 22, 2007. The buyback program authorizes the repurchase of up to $120 million of the Company's Common Stock, or approximately 10% of the shares of Common Stock then outstanding based on then current market prices. The share buyback program was authorized to begin November 15, 2007. 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 March 31, 2008, the Company has bought approximately 1.7 million shares of common stock, at an average price of $46.04, under our buyback program for a total amount of $78.0 million, with a remaining maximum amount of approximately $42.0 million to be repurchased. 11. 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 Equity Incentive Plan continues through 2017. There were no incentive stock options, restricted stock or performance shares granted in fiscal years 2007 or 2006. Non-qualified stock options were granted to officers and other key employees in fiscal year 2007 and 2006. Options generally vest over five years and will expire not later than ten years after the date on which they are granted. SFAS No. 123 "Accounting for Stock-Based Compensation" requires all share- based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the fair-value method as defined in SFAS No. 123. SFAS No. 123R requires excess tax benefits to be reported as a financing cash inflow rather that as a reduction of taxes paid. - 13 - For the current quarter, in compliance with SFAS No. 123(R), the Company recorded expense of $1.4 million for the portion of stock-based compensation arrangements which vested during the period. 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 the determination of compensation cost under the provisions of SFAS No. 123: 2008 2007 Grants Grants ---------- ---------- Weighted average grant date fair value $18.51 $28.50 Expected life 5 Years 5 Years Volatility 48.1% 50.0% Risk-free interest rate 2.36% 4.47% Dividend yield 0% 0% Annual forfeiture rate 2% 4% 321,250 stock options were granted in the three-month period ended March 31, 2008. 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 six-months ended March 31, 2008 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, 2007 2,824,000 $ 18 3/7 7.22 $ 47.1 Granted 321,250 -- Exercised ( 426,300) 40 1/5 Cancelled -- -- Forfeited ( 4,600) 24 1/8 ----------- ----------- ----------- ---------- Balance at March 31, 2008 2,714,350 $ 22 3/5 7.52 $ 60.5 Exercisable at March 31, 2008 1,169,200 $ 16 1/3 6.43 $ 33.4 As of March 31, 2008 there was $19.8 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 3.69 years. - 14 - During the three-month and six-month periods ended March 31, 2008 and 2007, the following activity occurred under the plan: (in millions) ---------------------------------------------- Three Months Ended Six Months Ended March 31, March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Total intrinsic value of stock options exercised $ 13.2 $ 1.0 $ 13.7 $ 3.1 Cash received from stock option exercises for the three month and six month periods ended March 31, 2008 was $3.2 million and $3.5 million, respectively. 12. Earnings Per Common Share Basic earnings per common share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share reflects the potential dilution from common stock equivalents (stock options). The calculation of the weighted number of common shares outstanding for each period is as follows: Three Months Ended Six Months Ended March 31, March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Weighted average number of shares for BASIC net income per common share 29,661,864 30,899,126 30,183,285 30,861,436 Potential additional shares due to outstanding dilutive stock options 862,756 759,260 691,583 759,358 ---------- ---------- ---------- ---------- Weighted average number of shares for DILUTED net income per common share 30,524,619 31,658,386 30,874,868 31,620,794 ========== ========== ========== ========== - 15 - 13. Defined Benefit Plans Components of net periodic cost were as follows for the three-month and six- month periods ended March 31, 2008 and 2007: Three Months Ended Six Months Ended March 31, March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Service cost $ 230 $ 184 $ 414 $ 367 Interest cost 291 198 530 394 Expected return on plan assets ( 131 ) ( 81) ( 212) ( 162) Amortization of prior service costs -- -- -- -- Amortization of net loss -- 6 -- 12 ---------- ---------- --------- -------- Net periodic pension cost $ 390 307 $ 732 $ 611 ========== ========== ========= ======== 14. Segment and Geographic Information The Company manages its business under geographic regions that are aggregated together as one segment in the global industrial laser industry. Sales from these regions have similar long-term financial performance and economic characteristics. The products from these regions utilize similar manufacturing processes and use similar production equipment, which may be interchanged from group to group. The Company distributes, sells and services final product to the same type of customers from all regions. Assets, net sales, and income before taxes and minority interest, by geographic region are summarized below: March 31, September 30, 2008 2007 ---------- ---------- ASSETS North America $ 191,410 $ 248,912 Germany 433,824 391,081 Other 215,957 187,991 Intercompany eliminations ( 232,541) ( 201,760) ---------- ---------- $ 608,650 $ 626,224 ========== ========== LONG-LIVED ASSETS North America $ 15,463 $ 7,339 Germany 35,703 29,479 Other 8,315 7,121 Intercompany eliminations ( 7) ( 96) ---------- ---------- $ 59,474 $ 43,843 ========== ========== - 16 - NET SALES Three Months Ended Six Months Ended March 31, March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- North America $ 34,314 $ 27,832 $ 62,669 $ 59,628 Germany 111,392 92,279 225,552 179,312 Other 46,662 39,538 89,015 76,787 Intercompany eliminations ( 55,768) ( 43,588) (105,947) ( 87,921) ---------- ---------- ---------- ---------- $ 136,600 $ 116,061 $ 271,289 $ 227,806 ========== ========== ========== ========== INTERCOMPANY SALES Three Months Ended Six Months Ended March 31, March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- North America $ 951 $ 1,346 $ 1,932 $ 2,543 Germany 44,581 34,498 83,236 70,447 Other 10,236 7,744 20,779 14,931 Intercompany eliminations ( 55,768) ( 43,588) (105,947) ( 87,921) ---------- ---------- ---------- ---------- $ -- $ -- $ -- $ -- ========== ========== ========== ========== EXTERNAL SALES Three Months Ended Six Months Ended March 31, March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- North America $ 33,363 $ 26,486 $ 60,737 $ 57,085 Germany 66,811 57,781 142,316 108,865 Other 36,426 31,794 68,236 61,856 ---------- ---------- ---------- ---------- $ 136,600 $ 116,061 $ 271,289 $ 227,806 ========== ========== ========== ========== - 17 - INCOME BEFORE INCOME TAXES AND MINORITY INTEREST Three Months Ended Six Months Ended March 31, March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- North America $ ( 614) $ 430 $ 484 $ 1,902 Germany 19,670 17,240 40,356 32,595 Other 2,611 3,728 6,906 7,137 Intercompany eliminations ( 4,857) ( 462) ( 5,748) ( 1,909) ---------- ---------- ---------- ---------- $ 16,810 $ 20,936 $ 41,998 $ 39,725 ========== ========== ========== ========== 15. Enterprise Wide Information The Company derives 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 Six Months Ended March 31, March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Macro applications $ 59,617 $ 50,336 $ 121,426 $ 94,530 Marking and micro applications 62,335 55,731 125,098 113,285 Components 14,648 9,994 24,765 19,991 ---------- ---------- ---------- ---------- $ 136,600 $ 116,061 $ 271,289 $ 227,806 ========== ========== ========== ========== - 18 - 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 three principal target markets: the machine tool, automotive, and semiconductor/electronics industries. We sell principally to end-users and original equipment manufacturers ("OEMs") (principally in the machine tool industry) that integrate our laser sources with other system components. Many of our customers are among the largest global participants in their respective industries. During the second quarter of fiscal years 2008 and 2007, respectively, we derived approximately 43% of revenues from the sale and servicing of laser products used for macro applications, approximately 46% and 48% from the sale and servicing of laser products for marking and micro applications, and approximately 11% and 9% from the sale of components. The acquisition of Nufern, which was completed in January 2008, has added core fiber and fiber laser technology to our product and technology portfolio, which we believe should enhance future growth. Due to the adverse macroeconomic conditions, the demand for our lasers for Macro applications has softened. Our laser solutions for Marking and Micro applications should gain further momentum and continue to benefit from emerging industries such as photovoltaic or consumer electronics. In addition, our ongoing commitment to the Asian region should further enhance the Company's growth. At March 31, 2008, Rofin-Sinar had 1,728 employees compared to 1,542 employees at March 31, 2007. - 19 - Results of Operations For the periods indicated, the following table sets forth the percentage of net sales represented by the respective line items in the Company's consolidated statements of operations. Three Months Six Months Ended March 31, Ended March 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Net sales 100% 100% 100% 100% Cost of goods sold 56% 58% 56% 58% Gross profit 44% 42% 44% 42% Selling, general and administrative expenses 20% 18% 19% 18% Research and development expenses 7% 6% 7% 6% Intangibles amortization 3% 1% 2% 1% Income from operations 14% 17% 16% 17% Income before income taxes and minority interest 12% 18% 16% 17% Net income 8% 11% 10% 11% Net Sales - Net sales of $136.6 million and $271.3 million represent increases of $20.5 million, or 18%, and $43.5 million, or 19%, for the three month and six month periods ended March 31, 2008, as compared to the corresponding periods in fiscal 2007. The increase for the three months ended March 31, 2008 resulted from a net sales increase of $13.6 million, or 15%, in Europe and Asia, and an increase of $6.9 million, or 26%, in North America, compared to the corresponding period in fiscal 2007. The increase for the six months ended March 31, 2008, compared to the corresponding period in fiscal 2007, resulted from a net sales increase of $39.8 million, or 23%, in Europe and Asia, and an increase of $3.6 million, or 6%, in North America. The U.S. dollar weakened against foreign currencies, primarily against the Euro, which had a favorable effect on net sales of $15.5 million and $26.6 million for the three-month and six-month periods ended March 31, 2008. Net sales of laser products for macro applications increased by $9.3 million, or 19%, to $59.6 million and by $26.9 million, or 28%, to $121.4 million for the three-month and six-month periods ended March 31, 2008 as compared to the corresponding periods of fiscal 2007. The increase can be mainly attributed to the higher demand for lasers for macro applications in the machine tool and automotive industries. Net sales of lasers for marking and micro applications increased by $6.7 million, or 12%, to $62.4 million for the three months ended March 31, 2008 and by $11.8 million, or 10%, to $125.1 million for the six months ended March 31, 2008 as compared to the corresponding periods in fiscal 2007. The increase can be mainly attributed to the higher demand for our lasers for micro and marking applications principally in the electronics, photovoltaic and medical instruments industries. - 20 - Revenues for the components business increased by $4.6 million, or 46%, to $14.6 million for the three months ended March 31, 2008 and by $4.8 million, or 24%, to $24.8 million for the six months ended March 31, 2008, mainly due to the acquisitions completed after the end of the fiscal year 2007 second quarter, including acquisitions referenced in the Annual Report on Form 10-K for fiscal 2007 (the "recent acquisitions"). Gross Profit - Our gross profit of $60.7 million and $119.3 million for the three-month and the six-month periods ended March 31, 2008 represents increases of $11.5 million, or 23%, and $24.2 million, or 26%, from the corresponding periods of fiscal year 2007. As a percentage of sales, gross profit increased from 42% to 44% for the three-month and the six-month periods ended March 31, 2008, as compared to the corresponding periods in fiscal year 2007. The increase in our gross margins from 42% to 44% was primarily a result of the product mix, higher percentage of sales related to our components business and production efficiencies achieved mainly in our macro business. Gross profit was favorably affected by $5.7 million and $9.5 million for the three-month and six-month periods ended March 31, 2008, respectively, due to the weakening 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 $27.6 million and $51.6 million for the three-month and six-month periods ended March 31, 2008 represent increases of $6.0 million, or 28%, and $9.3 million, or 22%, from the corresponding periods of fiscal 2007. The increase in SG&A expenses is mainly a result of our increased selling and marketing activities in Asia, higher commissions related to the record level of revenues and additional SG&A expenses from the recent acquisitions. SG&A, a significant portion of which is incurred in foreign currencies, was unfavorably affected by $3.7 million and $5.4 million for the three-month and six-month periods ended March 31, 2008, respectively, due to the weakening of the U.S. dollar against foreign currencies, primarily the Euro. Research and Development - The Company spent net $10.2 million and $18.9 million on research and development ("R&D") during the three-month and six- month periods ended March 31, 2008, which represents an increase of 44% and 43% as compared to the corresponding periods of the prior year. The increase in R&D is mainly attributable to the recent acquisitions and relates to investments in new technology. Gross R&D expenses for the three-month periods ended March 31, 2008 and 2007 were $10.6 million and $7.6 million, respectively, and were reduced by $0.4 million and $0.5 million of government grants during each respective period. Gross R&D expenses for the six-month periods ended March 31, 2008 and 2007 were $19.7 million and $14.2 million, respectively, and were reduced by $0.8 million and $0.9 million of government grants during each respective period. R&D, a significant portion of which is conducted in Europe, and therefore incurred in foreign currencies, was unfavorably affected by $1.9 million and $2.8 million for the three-month and six-month periods ended March 31, 2008, due to the weakening of the U.S. dollar against foreign currencies, primarily the Euro. - 21 - Amortization expense - Amortization expense for the three-month and six-month periods ended March 31, 2008 amounted to $3.7 million and $4.6 million, respectively. This represents an increase of $2.7 million for the three- month period and of $2.8 million for the six-month period when compared to the same periods of fiscal year 2007, mainly due to higher amortization of intangible assets related to the recent acquisition. Other Income/Expenses - Net other expenses of $2.4 million for the three- month period ended March 31, 2008 represents an increase of $3.8 million in other expenses compared to net other income of $1.4 million in the corresponding period of the prior year. Net other expenses of $2.1 million for the six-month period ended March 31, 2008 represents an increase of $4.2 million in net other expenses compared to net other income of $2.1 million the corresponding period of the prior year. Net interest income, within this category, includes $1.4 million of interest income offset by $0.2 million of interest expense for the three months ended March 31, 2008 and $3.6 million of interest income offset by $0.7 million of interest expense for the six- months ended March 31, 2008. The increase in net other expenses in the three- month and six-month periods ended March 31, 2008 is primarily attributable to unrealized exchange losses resulting from the valuation of some balance sheet items denominated in foreign currencies, at March 31, 2008, of approximately $3.7 million. Income Tax Expense - Income tax expense of $5.9 million and $14.0 million for the three-month and six-month periods ended March 31, 2008 represents an effective tax rate of 35% and 33% for the three-month and the six-month periods, compared to 37% for both of the corresponding periods of the prior year. The lower overall effective income tax rate is primarily the result of German tax law changes, resulting in lower income tax rates in Germany, partly offset by non deductible amortization expenses related to our most recent acquisition. Income tax expense, a significant portion of which is incurred in foreign currencies, was unfavorably affected by $0.4 million and $1.2 million for the three-month and six-month periods ended March 31, 2008 due to the weakening of the U.S. dollar against foreign currencies, primarily the Euro. Net Income - As a result of the foregoing factors, the Company realized consolidated net income of $10.8 million and $27.7 million for the three- month and six-month periods ended March 31, 2008, which represents a decrease of $2.3 million for the three-month and an increase of $3.1 million for the six-month from the corresponding periods in fiscal 2007. For the three-month period ended March 31, 2008, basic and diluted net income per common share equaled $0.36 and $0.35, respectively, based upon a weighted average of 29.7 million and 30.5 million common shares outstanding, as compared to basic and diluted net income per common share of $0.42 and $0.41, respectively, for the three-month period ended March 31, 2007, based upon a weighted average of 30.9 million and 31.7 million common shares outstanding. - 22 - Liquidity and Capital Resources On November 7, 2007, the Board of Directors approved a stock buyback plan which authorizes the repurchase of up to $120 million of the Company's Common Stock, or approximately 10% of the shares of Common Stock then outstanding based on then current market prices. The share buyback program was authorized to begin November 15, 2007. 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 March 31, 2008, the Company has bought approximately 1.7 million shares of common stock under our buyback program for a total amount of $78.0 million. The Company's primary sources of liquidity at March 31, 2008 were cash and cash equivalents of $113.2 million, short-term investments of $13.8 million, an annually renewable $25.0 million line of credit with Deutsche Bank AG and several other lines of credit to support foreign subsidiaries in their local currencies in an aggregate amount of $103.7 million (translated at the applicable exchange rate at March 31, 2008). As of March 31, 2008, $9.0 million, which is due in the short term, was outstanding under the Deutsche Bank facility and $27.5 million (of which $20.7 million is due in the short term) under other lines of credit. Approximately $92.3 million was unused and available under the Company's bank facility and lines of credit at March 31, 2008. The Company is subject to financial covenants, which could restrict the Company from drawing money under these lines of credit. At March 31, 2008, the Company was in compliance with these covenants. Cash and cash equivalents decreased by $5.2 million during the six months ended March 31, 2008. Approximately $7.7 million in cash and cash equivalents were provided by operating activities, primarily as the result of improved net income and other non-cash items, consisting principally of depreciation and amortization. Operating cash flow was negatively affected by an increase in inventory and a decrease in income tax payables, partially offset by a decrease in accounts receivable and an increase in accounts payables. Net cash provided by investing activities totaled $59.1 million for the six- month period ended March 31, 2008, and related primarily to the sales of short-term investments ($224.7 million) offset by the purchase of short-term investments ($128.6 million), acquisition of business ($30.1 million) and various additions to property and equipment in the amount of $7.0 million. Net cash used in financing activities totaled $82.3 million for the six-month period ended March 31, 2008 and was primarily related to the increase of treasury stock ($78.0 million) and current period repayments of bank debt of $10.1 million, offset by $3.5 million generated through issuance of new shares from the exercise of stock options and $1.7 million from new borrowings from bank. Management believes that the cash flow from operations, along with existing cash and cash equivalents and availability under the credit facilities and lines of credit, will provide adequate resources to meet both our capital requirements and operational needs on both a short-term and long-term basis. - 23 - The Company has listed all its material contractual obligations in the Annual Report on Form 10-K, for the fiscal year ended September 30, 2007, 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 involving variable interest entities. Currency Exchange Rate Fluctuations Although we report our Consolidated Financial Statements in U.S. dollars, approximately 72% of our sales have been denominated in other currencies, primarily the Euro, British pound, Swedish krona, Singapore dollar, Chinese yuan remninbi, Taiwanese dollar, Korean won and Japanese yen. Net sales, costs and related assets and liabilities of our operations are generally denominated in the functional currencies of the relevant operating units, thereby serving to reduce the Company's exposure to exchange gains and losses. Exchange differences upon translation from each operating unit's functional currency to U.S. dollars are accumulated as a separate component of equity. The currency translation adjustment component of stockholders' equity had the effect of increasing total equity by $72.1 million at March 31, 2008 as compared to $26.4 million at March 31, 2007. The fluctuation of the Euro and the other relevant functional currencies against the U.S. dollar has had the effect of increasing or decreasing (as applicable) reported net sales, cost of goods sold, gross margin and selling, general and administrative expenses, denominated in such foreign currencies when translated into U.S. dollars as compared to prior periods. Critical Accounting Policies Our significant accounting policies are more fully described in Note 1 of our consolidated financial statements in our Annual Report on 10-K for the fiscal year ended September 30, 2007. 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. - 24 - 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. 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. - 25 - The discount rate enables the Company to state expected future cash flows at a present value on the measurement date. The Company has little latitude in selecting this rate, and it must represent the market rate of high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increases pension expense. To determine the expected long-term rate of return on plan assets, the Company considers the current and expected assets allocations, as well as historical and expected returns on various categories of plan assets. Share-Based Payment Stock-based compensation cost is measured at 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. SFAS No. 123R 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. Compensation expense related to all other employees is treated as a permanent difference for income tax purposes. Ownership of Common Stock By Directors The following table sets forth information as of March 31, 2008, with respect to beneficial ownership of the Company's Common Stock and exercisable options by each director. Number of Total Number of Shares of Number of Exercisable Common Stock Stock Options Stock Options Beneficially Owned at Owned at Name Owned March 31, 2008 March 31, 2008 - ---------------- -------------- ----------------- ----------------- Peter Wirth 12,600 302,000 173,000 Gunther Braun -- 570,000 310,000 Carl F. Baasel 128,000 24,000 -- Ralph E. Reins (1) 15,000 -- -- Gary K. Willis (1) 30,000 -- -- Daniel Smoke (1) 19,600 -- -- Stephan Fantone (1) 8,000 -- -- (1) Outside, non-executive directors - 26 - Item 3. Quantitative and Qualitative Disclosures about Market Risk For the six-month period ended March 31, 2008, 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, 2007. The following discussion about the Company's market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward looking statements. The Company is exposed to market risk related to changes in interest rates and foreign currency exchange rates. The Company does not use derivative financial instruments for trading purposes. Interest Rate Sensitivity As of March 31, 2008, the Company maintained cash equivalents and short-term investments of $42.4 million, consisting mainly of non-taxable interest bearing securities and demand deposits all with maturities of less than three months. If short-term interest rates were to increase or decrease by 10%, interest income would increase or decrease by approximately $0.2 million. At March 31, 2008, the Company had $1.2 million of variable rate debt on which the interest rate is reset every three months, $25.4 million of variable rate debt on which the interest rate is reset every six months, $1.5 million of variable rate debt on which the interest rate is set annually and $8.4 million of fixed rate debt. Maturities of this debt are as follows: $26.4 million is due in 2008, $5.3 million is due in 2009, $0.9 million is due in 2010, $0.7 million is due in 2011, $0.7 million is due in 2012 and $2.5 million is due in 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 approximately $0.2 million. Additionally, the Company has entered into interest swap agreements of total notional amount of Euro 13.0 million (equivalent to $20.6 million based on the exchange rate at March 31, 2008) to minimize the interest expenses on short and long-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 March 31, 2008, the Company held Japanese yen forward exchange options with notional amount of Euro 1.8 million and $0.4 million. The gain or loss resulting from a 10% change in currency exchange rates would be approximately $0.3 million. - 27 - 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 quarter 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 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. Management believes that it - 28 - 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 operation, 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, 2007. See also, "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On November 7, 2007, the Board of Directors approved a stock buyback plan which authorizes the repurchase of up to $120 million of the Company's Common Stock, or approximately 10% of the shares of Common Stock then outstanding based on then current market prices. The share buyback program was authorized to begin November 15, 2007. 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 March 31, 2008, the Company has bought approximately 1.7 million shares of common stock, at an average price of $46.04, under our buyback program for a total amount of $78.0 million, with a remaining maximum amount of approximately $42.0 million to be repurchased. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders was held on March 19, 2008. Proposals 1 and 2 were approved. The results are as follows: Proposal 1 ---------- The following directors were elected at the meeting to serve for a three-year term until the 2011 Annual Meeting of Stockholders: For Withheld ---------- ------------ Dr. Peter Wirth 18,574,460 6,209,794 Stephen D. Fantone 24,321,289 462,965 - 29 - Proposal 2 ---------- The proposal to ratify the appointment of Deloitte & Touche, LLP as the Company's independent registered public accounting firm for the fiscal year ended September 30, 2008: For Against Abstain ---------- ------------ --------- 24,730,868 39,807 13,579 The proposals above are described in detail in the Registrant's definitive proxy statement filed on January 31, 2008 for the Annual Meeting of Stockholders held on March 19, 2008. 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: May 9, 2008 /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 EX-31.1 2 exhibit311.txt SECTION 302 CEO CERTIFICATION Exhibit 31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER I, Gunther Braun, Chief Executive Officer and President, of Rofin-Sinar Technologies, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Rofin-Sinar Technologies Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report, based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 9, 2008 /s/ Gunther Braun ------------------------------- Gunther Braun President, Chief Executive Officer and Director EX-31.2 3 exhibit312.txt SECTION 302 CFO CERTIFICATION Exhibit 31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER I, Ingrid Mittelstaedt, Chief Financial Officer, of Rofin-Sinar Technologies, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Rofin-Sinar Technologies Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report, based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 9, 2008 /s/ Ingrid Mittelstaedt ------------------------------- Ingrid Mittelstaedt Chief Financial Officer, Executive Vice President, Finance and Administration, and Treasurer EX-32.1 4 exhibit321.txt SECTION 906 CEO CERTIFICATION Exhibit 32.1 ROFIN-SINAR TECHNOLOGIES INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Rofin-Sinar Technologies Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gunther Braun, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: May 9, 2008 /s/ Gunther Braun ------------------------------- Gunther Braun President, Chief Executive Officer and Director EX-32.2 5 exhibit322.txt SECTION 906 CFO CERTIFICATION Exhibit 32.2 ROFIN-SINAR TECHNOLOGIES INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Rofin-Sinar Technologies Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ingrid Mittelstaedt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: May 9, 2008 /s/ Ingrid Mittelstaedt ------------------------------- Ingrid Mittelstaedt Chief Financial Officer, Executive Vice President, Finance and Administration, and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----