10-Q 1 a2013063010q.htm 10-Q 2013.06.30 10Q


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, 2013
 
¨
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]

28,206,193 shares of the registrant's common stock, par value $0.01 per share, were outstanding as of August 7, 2013.



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, 2013
 
September 30, 2012
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents (Note 4)
 
$
113,287

 
$
98,735

Short-term investments (Note 4)
 
6,547

 
2,428

Accounts receivable, net of allowance for doubtful accounts
               $3,601 and $3,915, respectively
 
110,291

 
107,935

Inventories, net (Note 5)
 
203,528

 
202,188

Other current assets and prepaid expenses
 
26,588

 
28,236

Total current assets
 
460,241

 
439,522

Long-term investments (Notes 4 & 6)
 
1,900

 
3,200

Property and equipment, net
 
84,005

 
80,001

Goodwill (Note 7)
 
101,956

 
101,615

Other intangibles, net (Note 7)
 
10,241

 
11,938

Other assets
 
15,364

 
16,256

Total assets
 
$
673,707

 
$
652,532

LIABILITIES AND EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Lines of credit and short-term borrowings
 
$
2,709

 
$
16,883

Accounts payable, trade
 
26,083

 
26,644

Accounts payable to related party
 
394

 
98

Income tax payable
 
1,190

 
7,049

Accrued liabilities (Note 8)
 
72,714

 
70,021

Total current liabilities
 
103,090

 
120,695

Long-term debt
 
15,162

 
5,662

Pension obligations
 
24,586

 
23,253

Other long-term liabilities
 
9,012

 
9,003

Total liabilities
 
151,850

 
158,613

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,
 
 

 
 

32,725,950 shares issued at June 30, 2013 and
                    32,495,500 shares issued at September 30, 2012
 
327

 
325

Additional paid-in capital
 
227,166

 
223,339

Retained earnings
 
453,013

 
428,053

Accumulated other comprehensive income (loss)
 
(3,257
)
 
(4,236
)
Treasury stock, at cost, 4,422,536 shares at June 30, 2013
              and September 30, 2012
 
(158,904
)
 
(158,904
)
Total Rofin-Sinar Technologies Inc. stockholders’ equity
 
518,345

 
488,577

Non-controlling interest in subsidiaries
 
3,512

 
5,342

Total equity
 
521,857

 
493,919

Total liabilities and equity
 
$
673,707

 
$
652,532

See accompanying notes to condensed consolidated financial statements

3


PART I.  ITEM 1.  FINANCIAL INFORMATION
 
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended June 30, 2013 and 2012
(dollars in thousands, except per share amounts)
 
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2013

 
2012

 
2013

 
2012

Net sales
 
$
139,097

 
$
131,657

 
$
412,476

 
$
392,661

Cost of goods sold
 
89,765

 
82,312

 
266,186

 
247,533

Gross profit
 
49,332

 
49,345

 
146,290

 
145,128

 
 
 
 
 
 
 
 
 
Selling, general, and administrative expenses
 
26,544

 
25,303

 
77,595

 
76,405

Research and development expenses
 
10,456

 
11,477

 
33,041

 
32,102

Amortization expense
 
631

 
525

 
1,886

 
1,662

Income from operations
 
11,701

 
12,040

 
33,768

 
34,959

 
 
 
 
 
 
 
 
 
Other (income) expense
 
 

 
 

 
 

 
 
Interest income
 
(88
)
 
(132
)
 
(388
)
 
(599
)
Interest expense
 
129

 
150

 
473

 
507

Foreign currency (income) expense
 
(82
)
 
(893
)
 
(1,081
)
 
(2,130
)
Other income
 
(277
)
 
(259
)
 
(417
)
 
(481
)
Income before income tax
 
12,019

 
13,174

 
35,181

 
37,662

Income tax expense
 
3,256

 
4,574

 
10,099

 
12,610

Net income
 
8,763

 
8,600

 
25,082

 
25,052

Less:  Net income (loss) attributable to the noncontrolling interest
 
61

 
244

 
122

 
586

Net income attributable to RSTI
 
$
8,702

 
$
8,356

 
$
24,960

 
$
24,466

 
 
 
 
 
 
 
 
 
Net income attributable to RSTI per share:
 
 

 
 

 
 

 
 
Per share of common stock basic
 
$
0.31

 
$
0.29

 
$
0.89

 
$
0.86

Per share of common stock diluted
 
$
0.31

 
$
0.29

 
$
0.88

 
$
0.85

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

 
 

 
 

 
 
Basic
 
28,283,840

 
28,545,891

 
28,185,536

 
28,528,247

Diluted
 
28,485,029

 
28,766,654

 
28,396,559

 
28,797,880

 
See accompanying notes to condensed consolidated financial statements


4


PART I.  ITEM 1.  FINANCIAL INFORMATION
 
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Periods Ended June 30, 2013 and 2012
(dollars in thousands)

 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2013

 
2012

 
2013

 
2012

Net income
 
$
8,763

 
$
8,600

 
$
25,082

 
$
25,052

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Fair value of interest rate swap agreements, net of tax expense of $6, tax benefit of $4, tax expense of $19 and tax benefit of $10
 
18

 
(14
)
 
59

 
(30
)
Foreign currency translation adjustments
 
5,251

 
(15,827
)
 
748

 
(18,771
)
Defined benefit pension plans, net of tax of $33, $22, $100 and $65
 
58

 
36

 
172

 
110

          Other comprehensive income (loss), net of tax
 
$
5,327

 
$
(15,805
)
 
$
979

 
$
(18,691
)
               Total comprehensive income (loss)
 
$
14,090

 
$
(7,205
)
 
$
26,061

 
$
6,361

Less:  Total comprehensive income (loss) attributable to the
              noncontrolling interest
 
61

 
244

 
122

 
586

Total comprehensive income (loss) attributable to RSTI
 
$
14,029

 
$
(7,449
)
 
$
25,939

 
$
5,775

 
 
 
 
 
 
 
 
 


See accompanying notes to condensed consolidated financial statements






























5


PART I.  ITEM 1.  FINANCIAL INFORMATION

Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Nine Months Ended June 30, 2013 and 2012
(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, 2011
$
324

 
$
217,896

 
$
393,523

 
$
10,446

 
$
(148,232
)
 
$
473,957

 
$
4,660

 
$
478,617

Total comprehensive income (loss)
 

 
 

 
24,466

 
(18,691
)
 
—

 
5,775

 
586

 
6,361

Common stock issued in connection with Stock Incentive Plans
1

 
3,966

 
—

 
—

 
—

 
3,967

 
—

 
3,967

BALANCES at June 30, 2012
$
325

 
$
221,862

 
$
417,989

 
$
(8,245
)
 
$
(148,232
)
 
$
483,699

 
$
5,246

 
$
488,945

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCES at September 30, 2012
$
325

 
$
223,339

 
$
428,053

 
$
(4,236
)
 
$
(158,904
)
 
$
488,577

 
$
5,342

 
$
493,919

Total comprehensive income (loss)
 
 
 
 
24,960

 
979

 
—

 
25,939

 
122

 
26,061

Purchase of non-controlling interest
—

 
(2,332
)
 
—

 
—

 
—

 
(2,332
)
 
(1,952
)
 
(4,284
)
Common stock issued in connection with Stock Incentive Plans
2

 
6,159

 
—

 
—

 
—

 
6,161

 
—

 
6,161

BALANCES at June 30, 2013
$
327

 
$
227,166

 
$
453,013

 
$
(3,257
)
 
$
(158,904
)
 
$
518,345

 
$
3,512

 
$
521,857

 
See accompanying notes to consolidated financial statements


6


PART I.  ITEM 1.  FINANCIAL INFORMATION

Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2013 and 2012
(dollars in thousands)
 
 
 
Nine Months Ended June 30,
 
 
2013

 
2012

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
25,082

 
$
25,052

Adjustments to reconcile net income to net
 
 

 
 

cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
11,304

 
10,238

Stock-based compensation expenses
 
2,970

 
3,449

Other adjustments
 
1,091

 
(2,347
)
Change in operating assets and liabilities:
 
 

 
 

Accounts receivable, trade
 
(3,449
)
 
20,106

Inventories
 
(587
)
 
(24,277
)
Accounts payable
 
(532
)
 
505

Changes in other operating assets and liabilities
 
(375
)
 
(25,013
)
Net cash provided by (used in) operating activities
 
35,504

 
7,713

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from the sale of property and equipment
 
88

 
112

Additions to property and equipment
 
(12,318
)
 
(20,094
)
Purchases of short-term investments
 
(6,334
)
 
(6,412
)
Sales of short-term and long-term investments
 
3,255

 
5,877

Acquisition of businesses, net of cash acquired
 
—

 
(13,413
)
Net cash provided by (used in) investing activities
 
(15,309
)
 
(33,930
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Proceeds from the issuance of long term debt
 
19,423

 
4,519

Repayments to banks
 
(23,763
)
 
(9,833
)
Purchase of non-controlling interests
 
(4,262
)
 
—

  Excess tax benefit from stock options
 
2

 
—

Issuance of common stock
 
2,945

 
295

Net cash provided by (used in) financing activities
 
(5,655
)
 
(5,019
)
Effect of foreign currency translation on cash
 
12

 
(3,202
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
14,552

 
(34,438
)
Cash and cash equivalents at beginning of period
 
98,735

 
127,412

Cash and cash equivalents at end of period
 
$
113,287

 
$
92,974

 
 
 
 
 
Cash paid for interest
 
$
463

 
$
344

Cash paid for taxes
 
$
14,942

 
$
21,043

 
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, 2012, 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, 2012, as filed with the Securities and Exchange Commission on November 29, 2012.
 

2.
New Accounting Standards

In June 2011, the Financial Accounting Standards Board ("FASB") issued guidance requiring changes to the presentation of comprehensive income which requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  These changes, with retrospective application, became effective for the Company in fiscal year 2013. Other than the change in presentation to report comprehensive income as a separate but consecutive statement, these changes did not have an impact on the consolidated financial statements.
 
In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”. The amendments under ASU 2011-08 will allow entities to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount. The amendments include a number of events and circumstances for entities to consider in conducting the qualitative assessment. Entities will have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step quantitative goodwill impairment test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (fiscal year 2013 for the Company), and early adoption is permitted. Adoption of ASU 2011-08 did not have a material impact on the Company’s financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 amended ASC 210, Balance Sheet, to converge the presentation of offsetting assets and liabilities between U.S. GAAP and IFRS. ASU 2011-11 requires that entities disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB issued ASU 2013-01 which limited the scope of this guidance to derivatives, repurchase type agreements and securities borrowing and lending transactions. The guidance from these updates is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013, which is the Company’s fiscal year 2014. The Company is currently evaluating the impact of these standards on its consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. ASU 2013-02 requires reclassification adjustments for items that are reclassified from accumulated other comprehensive income to net income be presented on the financial statements or in a note to the financial statements. The new disclosure requirements are effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. As such, ASU 2013-02 will be effective October 1, 2013, for the Company and will be applied prospectively. The Company does not believe the adoption will have a significant impact on the Company's consolidated financial statements.




8


In March 2013, the FASB 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 is effective for fiscal periods beginning after December 15, 2013, and is to be applied prospectively to derecognition events occurring after the effective date. The Company does not anticipate that the adoption of this amendment will have a material impact on its financial statements.

In July 2013, the FASB issued ASU 2013-10, "Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes". The update permits the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes under FASB ASC Topic 815, in addition to the interest rates on direct Treasury obligations of the U.S. government (UST) and the London Interbank Offered Rate (LIBOR). The update also removed the restriction on using different benchmark rates for similar hedges. ASU 2013-10 has no effect on the financial statements as of June 30, 2013, but will be applicable to any hedging activity the company enters into after July 17, 2013.

In July 2013, the FASB issued 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 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not believe the adoption will have a significant impact on the Company's 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 each of October 26, 2011, and March 12, 2012, the Company purchased an additional 5% of the share capital of m2k-laser GmbH through Rofin-Sinar Laser GmbH ("RSL") under an option agreement between the Company and the minority shareholders of m2k-laser GmbH. As a result of those share purchases, the Company currently holds 90% of the share capital of m2k-laser GmbH.

Effective March 28, 2007, the Company acquired 100% of the common stock of Corelase Oy, Tampere (Finland).  Corelase Oy has considerable experience in semiconductors, optics, and fiber technology.  Its product lines include ultra short pulse mode-locked fiber laser systems, fiber laser modules, and other components.  The terms of the purchase included payment of a deferred purchase price based on Corelase Oy achieving certain financial targets.  On December 14, 2011, the Company finalized and paid the deferred purchase price.  This payment resulted in additional goodwill of approximately $13.4 million.

Effective December 20, 2012, the Company acquired the remaining 20% of the common stock of Rofin-Baasel China Co., Ltd. through its wholly-owned subsidiary RSL. The Company currently holds 100% of the share capital of Rofin-Baasel China Co., Ltd.

Effective January 8, 2013, the Company acquired the remaining 20% of the common stock of Nanjing Eastern Technologies Company, Ltd. The Company currently holds 100% of the share capital of Nanjing Eastern Technologies Company, 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, 2013
 
Total

 
Level 1

 
Level 2

 
Level 3

     Cash and cash equivalents
 
$
113,287

 
$
113,287

 
$
—

 
$
—

     Short-term investments
 
6,547

 
6,547

 
—

 
—

     Derivatives
 
(167
)
 
—

 
(167
)
 
—

     Non-current auction rate securities
 
1,900

 
—

 
—

 
1,900

          Total assets and liabilities at fair value
 
$
121,567

 
$
119,834

 
$
(167
)
 
$
1,900


September 30, 2012
 
Total

 
Level 1

 
Level 2

 
Level 3

     Cash and cash equivalents
 
$
98,735

 
$
98,735

 
$
—

 
$
—

     Short-term investments
 
2,428

 
2,428

 
—

 
—

     Derivatives
 
(239
)
 
—

 
(239
)
 
—

     Non-current auction rate securities
 
3,200

 
—

 
—

 
3,200

          Total assets and liabilities at fair value
 
$
104,124

 
$
101,163

 
$
(239
)
 
$
3,200

 
The changes in the fair value of our non-current auction rate securities measured using significant unobservable inputs (level 3), are as follows:
 
 
Fair Value
Measurements Using
Significant Unobservable
Inputs (Level 3)
September 30, 2012
$
3,200

Settlements
(250
)
December 31, 2012
2,950

     Settlements
—

March 31, 2013
$
2,950

     Settlements
(1,050
)
June 30, 2013
$
1,900

 




10



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, 2013

 
September 30, 2012

Finished goods
 
$
31,998

 
$
31,205

Work in progress
 
46,533

 
49,678

Raw materials and supplies
 
72,282

 
69,648

Demo inventory
 
19,418

 
19,247

Service parts
 
33,297

 
32,410

     Total inventories
 
$
203,528

 
$
202,188


Net inventory is net of provisions for excess and obsolete inventory of $27,392 and $27,157 at June 30, 2013, and September 30, 2012, respectively.


6.
Long-Term Investments

Long-term investments represent auction rate securities which are variable rate securities tied to short-term interest rates with maturities on the face of the securities in excess of 90 days.  Auction rate securities have rate resets through a modified Dutch auction, at predetermined short-term intervals, usually every 7, 28, 35 or 49 days.  The securities trade at par, and are callable at par on any payment date at the option of the issuer. Investment earnings paid during a given period are based upon the reset rate determined during the prior auction.

Through sales, the Company reduced its holdings of auction rate securities to approximately $1.9 million at June 30, 2013.  All sales were settled, for cash, at par value.  At June 30, 2013, the Company held two individual auction rate securities.  The Company does not believe that the remaining balance of auction rate securities represent a significant portion of the Company's total liquidity.  The Company has historically used a discounted cash flow model to determine the fair market value of these investments.  This model included estimates for interest rates, discount rates, the amount of cash flows, and expected holding periods.  As a result, the Company concluded that the par value of these investments approximates fair market value. Additionally, the Company has the ability and intent to hold these investments until a resumption of the auction process or until maturity.  Although the Company believes these investments will become liquid within the next twelve months, it is uncertain what impact the current economic environment will have on this position and therefore, they have been classified as long-term assets on the consolidated balance sheet.


7.
Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended June 30, 2013, are as follows:
 
 
Germany

 
United States

 
Rest of World

 
Total

Balance as of September 30, 2012
 
$
41,802

 
$
13,156

 
$
46,657

 
$
101,615

Currency translation differences
 
483

 
36

 
(178
)
 
341

Balance as of June 30, 2013
 
$
42,285

 
$
13,192

 
$
46,479

 
$
101,956










11





The carrying values of other intangible assets are as follows:
 
 
June 30, 2013
 
September 30, 2012
 
 
Gross Carrying
Amount

 
Accumulated
Amortization

 
Gross Carrying
Amount

 
Accumulated
Amortization

Amortized intangible assets:
 
 
 
 
 
 
 
 
Patents
 
$
10,473

 
$
7,946

 
$
10,385

 
$
7,649

Customer base
 
18,913

 
16,332

 
18,812

 
15,357

Other
 
21,114

 
15,981

 
21,186

 
15,439

Total
 
$
50,500

 
$
40,259

 
$
50,383

 
$
38,445


Amortization expense for each of the nine months ended June 30, 2013 and 2012, was $1.9 million and $1.7 million. At June 30, 2013, estimated amortization expense of existing intangible assets for the remainder of fiscal year 2013 and the next five fiscal years based on the average exchange rates as of June 30, 2013, is as follows:
2013 (remainder)
0.6

2014
2.4

2015
1.7

2016
1.2

2017
1.0

2018
0.9

 

8.
Accrued Liabilities

Accrued liabilities are comprised of the following:
 
 
June 30, 2013

 
September 30, 2012

Employee compensation
 
$
20,984

 
$
21,968

Warranty reserves
 
12,274

 
11,894

Other taxes payable
 
469

 
440

Customer deposits
 
20,632

 
17,605

Other
 
18,355

 
18,114

     Total accrued liabilities
 
$
72,714

 
$
70,021

 

9.
Income Taxes

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

As of June 30, 2013, 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 2006. 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 2005.

12





10.
Product Warranties

The Company provides for the estimated costs of product warranties when revenue is recognized.  The estimate of costs to fulfill warranty obligations is based on historical experience and an expectation of future conditions.
  
The changes in warranty reserve for the nine months ended June 30, 2013 and 2012, are as follows:
 
 
2013

 
2012

Balance at September 30,
 
$
11,894

 
$
13,197

Additional accruals for warranties during the period
 
3,008

 
1,474

Usage during the period
 
(2,679
)
 
(1,827
)
Currency translation
 
51

 
(634
)
Balance at June 30,
 
$
12,274

 
$
12,210



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 Incentive Stock Plan continues through 2017.  There were no incentive stock options, restricted stock or performance shares granted in fiscal year 2012 or through the first nine months of fiscal year 2013.  Non-qualified stock options were granted to officers and other key employees in the second quarter of fiscal years 2013 and 2012.  During the nine-month periods ended June 30, 2013 and 2012, 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.

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:
 
 
Fiscal Year
2013 Grants

 
Fiscal Year
2012 Grants

Weighted average grant date fair value
 
$
27.59

 
$
11.09

Expected life
 
5 years

 
5 years

Volatility
 
49.64
%
 
46.11
%
Risk-free interest rate
 
0.98
%
 
1.22
%
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.














13


The balance of outstanding stock options and all options activity at and for the nine months ended June 30, 2013, are as follows:
 
 
Number of
Shares

 
Weighted
Average
Exercise Price

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

Outstanding at September 30, 2012
 
3,109,850

 
$
25

 
3/4 
 
5.48 years
 
 
Granted
 
370,500

 
$
27

 
3/5 
 
 
 
 
Exercised
 
(218,450
)
 
$
13

 
2/8 
 
 
 
 
Forfeited
 
(6,000
)
 
$
31

 
1/8 
 
 
 
 
Outstanding at June 30, 2013
 
3,255,900

 
$
26

 
9/10 
 
5.48 years
 
$
5.60

Exercisable at June 30, 2013
 
2,216,400

 
$
26

 
7/10 
 
4.08 years
 
$
4.75

 
As of June 30, 2013, there were $11.4 million of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of 3.56 years.

During the three and nine months ended June 30, 2013 and 2012, the following activity occurred under the Incentive Stock Plan:
 
 
(in millions)
 
(in millions)
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2013

 
2012

 
2013

 
2012

Total intrinsic value of stock options exercised
 
$
0.3

 
$
—

 
$
2.9

 
$
0.9

Cash received from stock option exercises
 
$
0.5

 
$
—

 
$
2.9

 
$
0.3



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).

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,
 
 
2013

 
2012

 
2013

 
2012

Weighted number of shares for basic earnings per common share
 
28,283,840

 
28,545,891

 
28,185,536

 
28,528,247

Potential additional shares due to outstanding dilutive stock options
 
201,189

 
220,763

 
211,023

 
269,633

Weighted number of shares for diluted earnings per common share
 
28,485,029

 
28,766,654

 
28,396,559

 
28,797,880

 
The weighted average diluted shares outstanding for the nine months ended June 30, 2013 and 2012, excludes the dilutive effect of approximately 2.5 million and 2.2 million stock options, respectively, since the impact of including these options in diluted earnings per share for these periods was antidilutive.

 





14



13.
Defined Benefit Plans

Components of net periodic cost were as follows for the three and nine months ended June 30, 2013 and 2012:
 
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2013

 
2012

 
2013

 
2012

Service cost
 
255

 
$
190

 
$
765

 
$
578

Interest cost
 
314

 
315

 
943

 
962

Expected return on plan assets
 
(153
)
 
(130
)
 
(459
)
 
(392
)
Amortization of prior net loss
 
13

 
58

 
37

 
175

Amortization of prior service cost
 
78

 
—

 
235

 
—

     Net periodic pension cost
 
$
507

 
$
433

 
$
1,521

 
$
1,323

 
14.
Segment and Geographic Information

Assets, revenues, and income before taxes, by geographic region attributable based on the geographic location of the RSTI entities are summarized below:

 
 
June 30, 2013
 
September 30, 2012
ASSETS
 
 
North America
 
$
247,532

 
$
245,620

Germany
 
434,385

 
417,812

Other
 
331,411

 
303,833

Intercompany eliminations
 
(339,621
)
 
(314,733
)
 
 
$
673,707

 
$
652,532



 
 
June 30, 2013
 
September 30, 2012
PROPERTY AND EQUIPMENT, NET
 
 

 
 

North America
 
$
18,269

 
$
16,901

Germany
 
45,687

 
44,818

Other
 
20,301

 
18,487

Intercompany eliminations
 
(252
)
 
(205
)
 
 
$
84,005

 
$
80,001

 

15


 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2013

 
2012

 
2013

 
2012

NET SALES
 
 
 
 
 
 
 
 
North America
 
$
40,576

 
$
44,416

 
$
116,956

 
$
126,469

Germany
 
86,894

 
89,769

 
262,474

 
263,180

Other
 
62,466

 
54,816

 
195,297

 
161,032

Intercompany eliminations
 
(50,839
)
 
(57,344
)
 
(162,251
)
 
(158,020
)
 
 
$
139,097

 
$
131,657

 
$
412,476

 
$
392,661

INTERCOMPANY SALES
 
 

 
 

 
 
 
 
North America
 
$
3,742

 
$
3,200

 
$
11,150

 
$
9,195

Germany
 
34,610

 
37,873

 
108,835

 
109,230

Other
 
12,487

 
16,271

 
42,266

 
39,595

Intercompany eliminations
 
(50,839
)
 
(57,344
)
 
(162,251
)
 
(158,020
)
 
 
$
—

 
$
—

 
$
—

 
$
—

EXTERNAL SALES
 
 

 
 

 
 
 
 
North America
 
$
36,834

 
$
41,217

 
$
105,806

 
$
117,275

Germany
 
52,284

 
51,896

 
153,639

 
153,950

Other
 
49,979

 
38,544

 
153,031

 
121,436

 
 
$
139,097

 
$
131,657

 
$
412,476

 
$
392,661

 
INCOME BEFORE INCOME TAX
 
 

 
 

 
 
 
 
North America
 
$
3,833

 
$
1,900

 
$
7,333

 
$
6,685

Germany
 
4,812

 
7,091

 
12,131

 
20,393

Other
 
4,645

 
5,434

 
16,149

 
12,750

Intercompany eliminations
 
(1,271
)
 
(1,251
)
 
(432
)
 
(2,166
)
 
 
$
12,019

 
$
13,174

 
$
35,181

 
$
37,662



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.

Product sales are summarized below:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2013

 
2012

 
2013

 
2012

Macro applications
 
$
57,126

 
$
52,959

 
$
161,154

 
$
150,224

Marking and micro applications
 
62,622

 
61,914

 
198,697

 
196,836

Components
 
19,349

 
16,784

 
52,625

 
45,601

 
 
$
139,097

 
$
131,657

 
$
412,476

 
$
392,661

 

16



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, 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, 2012, 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. 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 comprises of diodes and diode laser components, power supplies, fibers and fiber beam deliveries as well as fiber laser components round up the Company's business activities in the industrial laser market.

During the third quarter of fiscal years 2013 and 2012, we realized approximately 41% and 40% of revenues, respectively, from the sale and servicing of laser products used for macro applications, approximately 45% and 47%, respectively, from the sale and servicing of laser products for marking and micro applications, and approximately 14% and 13%, respectively, from the sale of components.

We experienced strong sales in the third quarter to the machine tool and electronics industries mainly triggered by China, while sales to the semiconductor industry also improved significantly on a sequential basis. Order entry in Europe was slower than expected, whereas North American and Asian orders marked our best quarter during this fiscal year to date. The global markets continue to be challenging and the slower pace of GDP growth in China might influence our business in the coming months.

17


However, management believes that the Company's solid backlog, combined with ongoing sales activities and focused efforts in the Asian markets, will help to deliver reasonable fourth quarter results.
 
 At June 30, 2013, Rofin-Sinar had 2,242 employees compared to 2,204 employees at June 30, 2012.

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,
 
 
2013

 
2012

 
2013

 
2012

Net sales
 
100
%
 
100
%
 
100
%
 
100
%
Cost of goods sold
 
65
%
 
63
%
 
65
%
 
63
%
Gross profit
 
35
%
 
37
%
 
35
%
 
37
%
Selling, general and administrative expenses
 
19
%
 
19
%
 
19
%
 
20
%
Research and development expenses
 
8
%
 
9
%
 
8
%
 
8
%
Amortization expenses
 
—
%
 
—
%
 
—
%
 
—
%
Income from operations
 
8
%
 
9
%
 
8
%
 
9
%
Income before income taxes
 
9
%
 
10
%
 
9
%
 
10
%
Net income attributable to RSTI
 
6
%
 
6
%
 
6
%
 
6
%
 
Net Sales - Net sales of $139.1 million and $412.5 million represent increases of $7.4 million, or 6%, and $19.8 million, or 5%, for the three and nine-month periods ended June 30, 2013, as compared to the corresponding periods in fiscal year 2012. The increase for the three months ended June 30, 2013, resulted from a net sales increase of $10.5 million, or 11%, in Europe and Asia, and a decrease of $3.1 million, or 10%, in North America, compared to the corresponding period in fiscal year 2012. The increase for the nine months ended June 30, 2013, resulted from a net sales increase of $22.3 million, or 7%, in Europe and Asia, and a decrease of $2.5 million, or 3%, in North America, compared to the corresponding period in fiscal year 2012. The U.S. dollar strengthened against foreign currencies, primarily against the Euro, which had an unfavorable effect on net sales of $2.0 million for the nine-month period ended June 30, 2013.

Net sales of laser products for macro applications increased by $4.2 million, or 8%, to $57.1 million, and by $11.0 million, or 7%, to $161.2 million for the three and nine-month periods ended June 30, 2013, as compared to the corresponding periods of fiscal year 2012. The increase was mainly attributable to the higher demand for our lasers for macro applications in the machine tool industry.
  
Net sales of lasers for marking and micro applications increased by $0.7 million, or 1%, to $62.6 million for the three-month period ended June 30, 2013, and reflects higher demand mainly from the electronics industry.  Net sales of lasers for marking and micro applications increased by $1.9 million, or 1%, to $198.7 million for the nine-month period ended June 30, 2013, mainly due to higher business with the consumer electronics and smart card industries.

Revenues for the components business increased by $2.6 million, or 15%, to $19.3 million for the three-month period ended June 30, 2013. Revenues for the nine-month period ended June 30, 2013, increased by $7.0 million, or 15%, to $52.6 million as compared to the corresponding period in fiscal year 2012, mainly attributable to stronger demand for laser diodes and fiber-related components.

Gross Profit - Our gross profit totaled $49.3 million for the three-month periods ended June 30, 2013, and 2012. Our gross profit of $146.3 million for the nine-month period ended June 30, 2013 represents an increase of $1.2 million, or 1%, from the corresponding period of fiscal year 2012. As a percentage of sales, gross profit decreased from 37% to 35% for the three-and nine month periods ended June 30, 2013. The change is mainly due to an unfavorable product mix and lower service and spare parts business. Gross profit was also unfavorably affected by $0.3 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, 2013.





18


Selling, General and Administrative Expenses - Selling, general and administrative ("SG&A") expenses of $26.5 million and $77.6 million for the three and nine-month periods ended June 30, 2013, represent an increase of $1.2 million, or 5%, for the three-month period, and an increase of $1.2 million, or 2%, for the nine-month period, from the corresponding periods of fiscal year 2012. The increase in SG&A expenses for the three-month period is mainly a result of higher expenses related to the biannual laser exhibition in Munich, Germany, as well as an increase in commissions and in the allowance for bad debts resulting from the higher revenue level. SG&A, a significant portion of which is incurred in foreign currencies, was favorably affected by $0.5 million due to the strengthening of the U.S. dollar against foreign currencies, primarily the Euro, for the nine-month period ended June 30, 2013. As a percentage of net sales, SG&A expenses remained stable at 19% for the three-month period ended June 30, 2013, and decreased from 20% to 19% for the nine-month period ended June 30, 2013, as compared to the corresponding prior year periods.

Research and Development - The Company spent net $10.5 million and $33.0 million on research and development ("R&D") during the three and nine-month periods ended June 30, 2013, which represents a decrease of $1.0 million, or 9%, and an increase of $0.9 million, or 3%, from the corresponding periods of fiscal year 2012. Gross R&D expenses for the three-month periods ended June 30, 2013 and 2012, were $11.0 million and $11.8 million, respectively, and were reduced by $0.5 million and $0.3 million of government grants during each respective period. Gross R&D expenses for the nine-month periods ended June 30, 2013 and 2012, were $34.3 million and $33.2 million, respectively, and were reduced by $1.3 million and $1.1 million of government grants during each respective period. R&D, a significant portion of which is conducted in Europe, and therefore incurred in foreign currencies, was favorably affected by $0.2 million due to the strengthening of the U.S. dollar against foreign currencies, primarily the Euro, for the nine-month period ended June 30, 2013.

Amortization Expense - Amortization expense for the three and nine-month periods ended June 30, 2013, amounted to $0.6 million and $1.9 million, respectively. This represents an increase of $0.1 million and $0.2 million for the three and nine-months periods when compared to the same periods of fiscal year 2012.

Other (Income) Expense - Net other income of $0.3 million for the three-month period ended June 30, 2013, represents a decrease of $0.8 million compared to a net other income of $1.1 million in the corresponding period of fiscal year 2012.  Net other income of $1.4 million for the nine-month period ended June 30, 2013, represents a decrease of $1.3 million compared to net other income of $2.7 million for the corresponding period of the prior year. The three and nine-month periods ended June 30, 2013 were impacted by a decrease of $0.8 million and $1.0 million in foreign currency gains when compared to the comparable prior year periods.

Income Tax Expense - Income tax expense of $3.3 million and $10.1 million for the three and nine-month periods ended June 30, 2013, represents an effective tax rate of 27% and 29%, compared to 35% and 33% for the corresponding periods of fiscal year 2012. The decrease in the effective tax rate is mainly due to the generation of taxable income in countries with lower tax rates and the utilization of R&D credits in the U.S. Income tax expense, a significant portion of which is incurred in foreign currencies, was not significantly affected by the strengthening of the U.S. dollar against foreign currencies, primarily the Euro, in the nine-month period ended June 30, 2013.

Net Income Attributable to RSTI - As a result of the foregoing factors, the Company realized consolidated net income attributable to RSTI of $8.7 million and $25.0 million for the three and nine-month periods ended June 30, 2013, which represents an increase of $0.3 million, or 4%, and an increase $0.5 million, or 2%, from the corresponding periods in fiscal year 2012. For the three-month period ended June 30, 2013, both the basic and diluted earnings per common share calculation equaled $0.31, based upon a weighted average of 28.3 million and 28.5 million shares of common stock outstanding, as compared to basic and diluted earnings per common share calculation of $0.29, based upon a weighted average of 28.5 million and 28.8 million shares of common stock outstanding for the corresponding period of fiscal year 2012.


Liquidity and Capital Resources

The Company's primary sources of liquidity at June 30, 2013, were cash and cash equivalents of $113.3 million, short-term investments of $6.5 million, short-term credit lines of $65.8 million and long-term credit lines of $16.7 million.  As of June 30, 2013, $1.2 million was outstanding under the short-term lines of credit and $1.4 million was used for bank guarantees under these lines of credit, leaving $63.2 million available for borrowing under our short-term lines of credit. In addition, the Company maintained short-term credit lines specific to bank guarantees for $20.5 million, of which $11.0 million was used. Therefore, $72.7 million was unused and available under our short-term and bank guarantee lines of credit, in aggregate, at June 30, 2013.  At such date, the entire amount of our long-term lines of credit was fully drawn and $1.5 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,

19


which could restrict the Company from drawing money under these lines of credit.  At June 30, 2013, the Company was in compliance with these covenants.

Cash and cash equivalents increased by $14.6 million during the nine-month period ended June 30, 2013.  Approximately $35.5 million in cash and cash equivalents were provided by operating activities, mainly as the result of net income for the nine-month period ended June 30, 2013, and changes in non-cash transactions (depreciation and stock-based compensation expense), partially offset by an increase in trade accounts receivables.

Net cash used in investing activities totaled $15.3 million for the nine-month period ended June 30, 2013, and was primarily related to the additions to property and equipment and net purchases of short-term and long-term investments.

Net cash used in financing activities totaled $5.7 million for the nine-month period ended June 30, 2013, and was primarily related to the repayments to banks and the purchase of non-controlling interests in two of our Chinese subsidiaries, partially offset by the proceeds from the issuance of long term debt and by the issuance of common stock from option exercises.

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, 2013, $98.1 million of the total $119.8 million of our cash, cash equivalents and short-term investments, was held by our non-US subsidiaries, with the balance of $21.7 million held by our US subsidiaries. As of that date, $13.9 million was owed by our non-US subsidiaries and $4.0 million was owed by our US subsidiaries from the total indebtness amounting to $17.9 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, 2013. 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, 2012, 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.


Currency Exchange Rate Fluctuations

Although we report our consolidated financial statements in U.S. dollars, approximately 67% of our sales have been denominated in other currencies, primarily the Euro, British pound 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 accumulated currency translation adjustment component of stockholders' equity represented a gain of $3.0 million at June 30, 2013, as compared to a gain of $2.3 million at September 30, 2012.


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, 2012.  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.

20



Allowance for Doubtful Accounts

The Company records allowances for uncollectible customer accounts receivable based on historical experience. Additionally, an allowance is made based on an assessment of specific customers' financial condition and liquidity.  If the financial condition of the Company's customers were to deteriorate, additional allowances may be required. No individual customer represents more than 10% of total accounts receivable.  Any increase in allowance will impact operating income during a given period.

Inventory Valuation

Inventories are stated at the lower of cost or market, after provisions for excess and obsolete inventory salable at prices below cost. Provisions for slow moving and obsolete inventories are provided based on current assessments about historical experience and future product demand and production requirements for the next twelve months.  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 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.

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

21


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.

Share-Based Payment

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee requisite vesting period.  We make judgments about the fair value of the awards, including the expected term of the award, volatility of the underlying stock and estimated forfeitures, which impact the amount of compensation expense recognized in the financial statements. Such amounts may change as a result of additional grants, forfeitures, modifications in assumptions and other factors. 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 nine-month period ended June 30, 2013, 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, 2012.

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, 2013, the Company maintained cash equivalents and short-term investments of $119.8 million, consisting mainly of interest bearing securities and demand deposits.  If interest rates were to increase or decrease by 10%, interest income would increase or decrease by less than $0.1 million.
 
At June 30, 2013, the Company had $2.1 million of variable rate debt on which the interest rate is reset every three months, $4.0 million of variable rate debt on which the interest rate is reset every six months, $1.0 million of variable rate debt on which the interest rate is reset every year and $10.8 million of fixed rate debt.

Maturities of this debt are as follows (amounts in dollars):
 
 
2013
1.7
 million
2014
1.7
 million
2015
1.8
 million
2016
4.2
 million
2017
4.9
 million
2018
1.3
 million
2019 and thereafter
2.3
 million
 
 

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


22


Additionally, the Company has entered into interest rate swap agreements of total notional amounts of Euro 1.6 million and Swiss francs 3.8 million (equivalent to $2.1 million and $4.0 million, respectively, based on the exchange rates at June 30, 2013), to minimize the interest expenses on short-term and long-term debt by swapping 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 June 30, 2013, the Company held Japanese yen forward exchange options with notional amount of Euro 1.5 million. The profit or loss resulting from a 10% change in currency exchange rates would vary approximately from $0.2 million profit to a loss of $0.2 million.


Item 4.  Controls and Procedures

As of the end of the quarterly period covered by this report, the Chief Executive Officer and Chief Financial Officer of the Company (collectively, the "certifying officers") have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended).  These disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in its periodic reports filed with the Securities and Exchange Commission (the "Commission") is recorded, processed, summarized, and reported within the time periods specified by the Commission's rules and forms, and that the information is communicated to the certifying officers on a timely basis.

The certifying officers concluded, based on their evaluation, that the Company's disclosure controls and procedures were effective, as of the end of the quarterly period covered by this report, in ensuring that material information relating to the Company, including its consolidated subsidiaries, is made known to them in a timely fashion, taking into consideration the size and nature of the Company's business and operations.

There have not been changes in the Company's internal control over financial reporting that occurred during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


23


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

The Company has been and is likely to be involved from time to time in litigation involving its intellectual property and 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.  The patents, and therefore the license rights, have already expired and there are no further license fees to be calculated and paid. Accordingly, management believes that the resolution of this matter 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 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, 2012.  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

None
 
Item 3.   Defaults Upon Senior Securities
 
None

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.


24


SIGNATURES
 

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

 
Rofin-Sinar Technologies Inc.
 
(Registrant)
 
 
Date: August 9, 2013
/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


25