UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission file number: 000-21377
ROFIN-SINAR TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3306461
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45701 Mast Street, Plymouth, MI 48170
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(Address of principal executive offices) (Zip Code)
(734) 455-5400
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] / No [ ]
11,527,400 shares of the registrant's common stock, par value $0.01 per
share, were outstanding as of February 10, 1999.
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ROFIN-SINAR TECHNOLOGIES INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
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Item 1
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Condensed Consolidated Balance Sheets
December 31, 1998 and September 30, 1998 3
Condensed Consolidated Statements of Operations
Three months ended December 31, 1998 and
December 31, 1997 4
Condensed Consolidated Statements of Cash Flows
Three months ended December 31, 1998 and
December 31, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2
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Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3
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Quantitative and Qualitative Disclosures about
Market Risk 19
PART II OTHER INFORMATION 20
SIGNATURES 22
Exhibit 11.1 - Computation of Earnings Per Share
Exhibit 27.1 - Financial data schedule for the
three-month period ended December 31, 1998
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PART I. FINANCIAL INFORMATION
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
December 31, September 30,
1998 1998
ASSETS (Unaudited) (Note 1)
Current Assets: ----------- -------------
Cash and cash equivalents $ 34,404 $ 34,874
Accounts receivable, trade, net 35,301 33,629
Inventories, net (Note 2) 40,807 38,372
Deferred income tax assets - current 3,079 2,680
Other current assets and prepaid expenses 2,045 2,259
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Total current assets 115,636 111,814
Property and equipment, net 24,074 23,998
Intangibles, net 4,628 4,713
Deferred income tax assets - noncurrent 2,764 2,833
Other noncurrent assets 419 384
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Total assets $ 147,521 $ 143,742
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit (Note 3) $ 19,989 $ 19,123
Accounts payable, trade 7,588 6,257
Accrued liabilities (Note 2) 16,838 19,315
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Total current liabilities 44,415 44,695
Long-term debt (Note 4) 7,173 3,580
Deferred income tax liabilities, long-term 474 415
Pension obligations 3,898 3,673
Minority interests 370 430
Other long-term liabilities 235 184
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Total liabilities 56,565 52,977
Stockholders' equity
Preferred stock, 5,000,000 shares authorized,
none issued or outstanding 0 0
Common stock, $0.01 par value, 50,000,000 shares
authorized, 11,527,400 (11,522,900 at
September 30, 1998) issued and outstanding 115 115
Additional paid-in-capital 75,871 75,861
Accumulated other comprehensive income ( 1,039) ( 846)
Retained earnings 16,009 15,635
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Total stockholders' equity $ 90,956 $ 90,765
Total liabilities and stockholders' equity $ 147,521 $ 143,742
=========== ===========
See accompanying notes to condensed consolidated financial statements
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Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended December 31, 1998 and 1997
(dollars in thousands, except per share amounts)
Three Months
Ended December 31,
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1998 1997
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Net sales $ 28,638 $ 28,212
Cost of goods sold 19,474 17,190
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Gross profit 9,164 11,022
Selling, general, and administrative expenses 5,908 5,420
Research and development expenses 3,102 2,529
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Income from operations 154 3,073
Other expense (income):
Interest expense (income), net ( 218) ( 299)
Other expense (income) ( 419) ( 84)
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Income before income taxes 791 3,456
Income tax expense 417 1,419
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Net income $ 374 $ 2,037
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Net income per common share (Note 5):
Basic $ 0.03 $ 0.18
Diluted $ 0.03 $ 0.18
============ ============
Weighted average shares used in computing
net income per share (Note 5):
Basic 11,527,400 11,510,200
Diluted 11,527,400 11,597,916
============ ============
See accompanying notes to condensed consolidated financial statements
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Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31, 1998 and 1997
(dollars in thousands)
Three Months
Ended December 31,
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 374 $ 2,037
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Changes in operating assets and liabilities ( 4,709) ( 3,854)
Other adjustments 951 705
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Net cash used by operating activities ( 3,384) ( 1,112)
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment 37 12
Additions to property and equipment ( 869) ( 520)
Other ( 21) 0
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Net cash used by investing activities ( 853) ( 508)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from bank 8,881 1,342
Repayment to bank ( 5,171) 0
Repayment to related party 0 ( 881)
Other 0 27
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Net cash provided by financing activities 3,710 488
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Effect of foreign currency translation on cash 57 ( 172)
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Net increase (decrease) in cash and cash equivalents ( 470) ( 1,304)
Cash and cash equivalents at beginning of period 34,874 40,743
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Cash and cash equivalents at end of period $ 34,404 $ 39,439
========== ==========
See accompanying notes to condensed consolidated financial statements
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Rofin-Sinar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
1. Summary of Accounting Policies
The accompanying consolidated condensed financial statements have been
prepared in conformity with generally accepted accounting principles,
consistent with those reflected in the Company's annual report to
stockholders for the year ended September 30, 1998. All adjustments
necessary for a fair presentation have been made which comprise only normal
recurring adjustments; however, interim results of operations are not
necessarily indicative of results to be expected for the year. September 30,
1998 balances are derived from audited financial statements, however, all
interim period amounts have not been audited.
2. Balance Sheet Detail:
Inventories are stated at the lower of cost (first-in, first-out or weighted
average) or market, and are summarized as follows:
December 31, September 30,
1998 1998
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Raw materials and supplies $ 11,489 $ 10,605
Work in progress 10,770 10,039
Service parts 8,629 8,524
Finished goods 2,585 3,809
Demonstration inventory 7,334 5,395
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Total inventories, net $ 40,807 $ 38,372
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Accrued liabilities are comprised of the following:
December 31, September 30,
1998 1998
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Employee compensation $ 4,408 $ 5,211
Warranty reserves 5,370 5,245
Deferred revenue 322 324
Income taxes payable 2,019 3,154
Customer deposits 1,902 1,690
Other 2,817 3,691
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Total accrued liabilities $ 16,838 $ 19,315
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3. Line of Credit
The Company maintains a $25,000 annually renewable line of credit with
Deutsche Bank AG to support its working capital needs. As of December 31,
1998, $16,191 was borrowed on a short term basis against this loan facility
by Rofin-Sinar Laser GmbH, Dilas GmbH, Rofin Marubeni Laser Corp., Rofin-
Sinar S.r.L., and Rofin-Sinar UK Ltd. at an average fixed interest rate of
3.4%.
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In addition, the Company's foreign subsidiaries have several lines of credit
which allow them to borrow in the applicable local currencies. At December
31, 1998, direct borrowings under these agreements totaled $3,798; and $1,796
remained unused. Fixed interest rates vary from 1.4% to 9.0%, depending upon
the country and usage of the available credit.
4. Long-Term Debt
At December 31, 1998, Dilas had long-term borrowings totaling $598 under the
credit line with Deutsche Bank AG at a fixed interest rate of 5.1% (see Note
3, above). This loan agreement expires in 2000.
Further, Rofin-Sinar Laser GmbH and Dilas separately entered into loan
agreements with German banks for long-term credit facilities totaling $7,173.
As of December 31, 1998, $6,575 was borrowed against such loans at an average
fixed interest rate of 3.9%. Both loan agreements expire in 2001.
5. Net Income Per Common Share
FAS 128 establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution from common stock equivalents (stock
options). The calculation of the weighted average number of common shares
outstanding for each period is as follows:
Three Months Ended December 31,
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1998 1997
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Weighted average number of shares
for BASIC net income per common share 11,527,400 11,510,200
Potential additional shares due to
outstanding dilutive stock options 0 87,716
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Weighted average number of shares
for DILUTED net income per common share 11,527,400 11,597,916
============ ============
Excluded from the calculation of diluted EPS for the three months ended
December 31, 1998, and December 31, 1997, were 485,500 and 193,000
outstanding stock options, respectively. These could potentially dilute
future EPS calculations but were not included in the current period because
their effect was antidilutive.
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6. Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for the
reporting and display of comprehensive income as part of a full set of
financial statements. Comprehensive income for a period encompasses net
income and all other changes in a company's equity other than from
transactions with the company's owners. For the three months ended December
31, 1998 and 1997 comprehensive income was comprised of the following:
Three Months Ended December 31,
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1998 1997
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Net Income $ 374 $ 2,037
Foreign currency translation adjustment ( 193) 964
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Total comprehensive income $( 181) $ 3,001
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7. Recently Issued Accounting Standards
In 1997 Financial Accounting Standards No. 131 (FAS 131), "Disclosures about
Segments of an Enterprise and Related Information", was issued and is
effective for fiscal years commencing after December 15, 1997. The Company
will comply with the requirements of FAS 131 in its annual report on form
10-K for fiscal year 1999.
In 1998 Financial Accounting Standards No. 132 (FAS 132), "Employer's
Disclosures about Pensions and Other Postretirement Benefits", was issued and
is effective for fiscal years commencing after December 15, 1997. The
Company will comply with the requirements of FAS 132 in its annual report on
form 10-K for fiscal year 1999.
In 1998 Financial Accounting Standards No. 133 (FAS 133), "Accounting for
Derivative Instruments and Hedging Activities", was issued and is effective
for fiscal years commencing after June 15, 1999. The Company will comply
with FAS 133 in fiscal year 2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special 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. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements, including those factors set forth below. In
making these forward-looking statements, the Company claims the protection of
the safe-harbor for forward-looking statements contained in the Reform Act.
The Company does 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.
Industry Concentration and Cyclicality; Dependence on Sales by Third Parties
The Company's business is significantly dependent on capital expenditures by
manufacturers in the machine tool, automotive and semiconductor & electronics
industries. These industries are cyclical and have historically experienced
periods of oversupply, resulting in significantly reduced demand for capital
equipment, including the products manufactured and marketed by the Company.
For the foreseeable future, the Company's operations will continue to be
dependent on capital expenditures in these industries which, in turn, are
largely dependent on the market demand for their products. The Company's net
sales and results of operations may be materially adversely affected if
downturns or slowdowns in the machine tool, automotive, and semiconductor &
electronics industries occur in the future.
The Company's net sales are dependent in part upon the ability of its OEM
customers to develop and sell systems that incorporate the Company's laser
products. Adverse economic conditions, large inventory positions, limited
marketing resources and other factors affecting these OEM customers could
have a substantial impact upon the Company's financial results. No
assurances can be given that the Company's OEM customers will not experience
financial or other difficulties that could adversely affect their operations
and, in turn, the financial condition or results of operations of the
Company.
Variability and Uncertainty of Quarterly Operating Results; Potential
Volatility of Stock Price
The Company has experienced and expects to continue to experience some
fluctuations in its quarterly results. The Company believes that
fluctuations in quarterly results may cause the market price of its common
stock to fluctuate, perhaps substantially. Factors which may have an
influence on the Company's operating results in a particular quarter include
the timing of the receipt of orders from major customers, product mix,
competitive pricing pressures, the relative proportions of domestic and
international sales, the Company's ability to design, manufacture and
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introduce new products on a cost-effective and timely basis, the delay
between incurrence of expenses to further develop marketing and service
capabilities and realization of benefits from such improved capabilities,
and the introduction of new products by the Company and its competitors. In
addition, the Company's backlog at any given time is not necessarily
indicative of actual sales for any succeeding period. The Company's sales
will often reflect orders shipped in the same quarter that they are
received. Moreover, customers may cancel or reschedule shipments, and
production difficulties could delay shipments. Accordingly, the Company's
results of operations are subject to significant variability from quarter to
quarter.
Other factors which the Company believes may cause the market price of its
common stock to fluctuate, perhaps substantially, include announcements of
new products, technologies or customers by the Company or its competitors and
developments with respect to intellectual property and shortfalls in the
Company's operations relative to analysts' expectations. In addition, in
recent years, the stock market in general, and the shares of technology
companies in particular, have experienced wide price fluctuations. These
broad market and industry fluctuations, particularly in the semiconductor &
electronics and automotive industries, may adversely affect the market price
of the Company's common stock.
Currency Risk
Although the Company reports its results in U.S. dollars, approximately two-
thirds of its sales are denominated in other currencies, including primarily
German marks, as well as French francs, Italian lire, British pounds and
Japanese yen. Although a predominant portion of the Company's cost of goods
sold, selling, general and administrative expenses and research & development
expenses are incurred in German marks, net sales and costs and related assets
and liabilities are generally denominated in the functional currencies of the
operations, thereby serving to reduce the Company's exposure to exchange
gains and losses. Exchange differences upon translation from each
operation's functional currency to U.S. dollars are accumulated as a separate
component of equity. The currency translation adjustment component of
shareholders' equity changed from a $3.3 million debit at December 31, 1997
to a $1.0 million debit at December 31, 1998. These changes arose primarily
from the weakening of the U.S. dollar against such foreign currencies and
reflect the fact that a high proportion of the Company's capital is invested
in its German operations, whose functional currency is the German mark. The
fluctuation of the German mark and the other functional currencies against
the U.S. dollar has had the effect of increasing and decreasing (as
applicable) reported net sales as well as cost of goods sold and gross margin
and selling, general and administrative expenses denominated in such foreign
currencies when translated into U.S. dollars as compared to prior periods.
The Company's subsidiaries will from time to time pay dividends in their
respective functional currencies, thus presenting another area of potential
currency exposure in the future.
The Company has implemented a policy to hedge a certain portion of its net
foreign currency exposure on sales transactions utilizing forward exchange
contracts and forward exchange options. The Company has also implemented a
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policy to continue to borrow in each operating subsidiary's functional
currency to reduce exposure to exchange gains and losses. There can be no
assurance that changes in currency exchange rates will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
Competition
The laser industry is characterized by significant price and technical
competition. The Company's current and proposed laser products and laser
marking products compete with those of several well-established companies,
some of which are larger and have substantially greater financial, managerial
and technical resources, more extensive distribution and service networks and
larger installed customer bases than the Company. The Company believes that
this competition will be particularly intense in the CO2, diode laser and
Nd:YAG solid-state laser markets, as many companies have committed
significant research and development resources to pursue opportunities in
these markets. There can be no assurance that the Company will successfully
differentiate its current and proposed products from the products of its
competitors or that the marketplace will consider the Company's products to
be superior to competing products. With respect to the Company's laser
marking products, because many of the components required to develop and
produce a laser-based marking system are commercially available, barriers to
entry into this market are relatively low, and the Company expects new
competitive product entry in this market. To maintain its competitive
position in this market, the Company believes that it will be required to
continue a high level of investment in engineering, research and development,
marketing and customer service and support. There can be no assurance that
the Company will have sufficient resources to continue to make such
investments, that the Company will be able to make the technological advances
necessary to maintain its competitive position, or that its products will
receive market acceptance.
Risks Relating to Sales Growth in CO2, Diode and Nd:YAG Lasers
In recent years, the Company has experienced a decline in sales revenues. If
the Company is to increase the rate of growth of its laser sales in the near
term, such sales will have to come through increases in market share for the
Company's existing products, through the development of new products or
through the Company's acquisition of its competitors or their products. To
date, a substantial portion of the Company's revenue has been derived from
sales of high-powered CO2 laser sources and, more recently, solid-state flash
lamp-pumped laser sources. The Company intends to devote substantial
resources to widening the low power CO2 Slab laser product range, to
increasing the output power of its diffusion-cooled CO2 Slab laser sources
and to developing diode lasers and diode-pumped Nd:YAG solid-state laser
products in accordance with market demand. The Company is currently focused
on developing low power CO2 Slab lasers with broadened output powers to offer
the full range of low power CO2 lasers and on continuing to reduce the
manufacturing costs of its diffusion-cooled CO2 Slab lasers to achieve more
attractive pricing. The Company's diode-pumped lasers are currently being
introduced to the market and are not expected to generate substantial revenue
in fiscal 1999. The Dilas diode lasers are modified for use in industrial
production environments and are currently marketed for welding, soldering,
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and surface treatment applications. A large part of the Company's growth
strategy depends upon being able to increase substantially its market share
for laser marking products, particularly in the United States and Japan.
If the Company is unable to implement its strategy of increasing demand for
its laser marking products, expanding the product range in the CO2 Slab laser
series to include both higher and lower output power levels, and developing
diode lasers and diode-pumped Nd:YAG solid-state lasers at attractive prices,
it may not be able to increase its revenue, as a result of which its
business, operating results and financial condition could be adversely
affected. No assurance can be given that the Company will successfully
expand its marking products market share, widen the low power CO2 Slab laser
Series, increase the output power of its diffusion-cooled CO2 Slab laser
sources, successfully market diode lasers for welding and hardening
applications or develop diode-pumped Nd:YAG solid-state laser products or
that any such products will achieve market acceptance or not be rendered
obsolete or uncompetitive by products of other companies.
While there are currently no commitments with respect to any future
acquisitions, the Company's business strategy includes the expansion of its
products and services, which may be effected through acquisitions. The
Company from time to time reviews various opportunities to acquire
businesses, technologies or products complementary to the Company's present
business. There can be no assurance that the Company will be able to
integrate any acquired business effectively or that any acquisition will
result in long-term benefits to the Company.
Conflicting Patents and Other Intellectual Property Rights of Third Parties;
Limited Protection of Intellectual Property
The Company from time to time receives notices from third parties alleging
infringement of such parties' patent or other intellectual property rights by
the Company's products. While such notices are common in the laser industry
and the Company has in the past been able to develop non-infringing
technology or license necessary patents or technology on commercially
reasonable terms, there can be no assurance that the Company would in the
future prevail in any litigation seeking damages or expenses from the Company
or to enjoin the Company from selling its products on the basis of such
alleged infringement, or that the Company would be able to develop any non-
infringing technology or license any valid and infringed patents on
commercially reasonable terms. In the event any third party made a valid
claim against the Company or its customers and a license were not made
available to the Company on commercially reasonable terms, the Company would
be adversely affected.
The Company's future success depends in part upon its intellectual property,
including trade secrets, know-how and continuing technological innovation.
There can be no assurance that the steps taken by the Company to protect its
intellectual property will be adequate to prevent misappropriation or that
others will not develop competitive technologies or products. The Company
currently holds 55 United States and foreign patents on its laser sources
which expire from 1999 to 2017. There can be no assurance that other
companies are not investigating or developing other technologies that are
similar to the Company's, that any patents will issue from any application
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filed by the Company or that, if patents do issue, the claims allowed will be
sufficiently broad to deter or prohibit others from marketing similar
products. In addition, there can be no assurance that any patents issued to
the Company will not be challenged, invalidated or circumvented, or that the
rights thereunder will provide a competitive advantage to the Company.
Risks Associated with International Operations
The Company's products are currently marketed in approximately 30 countries,
with Germany, the remainder of Europe, the United States and the Asia/Pacific
region being the Company's principal markets. Sales in the Company's
principal markets are subject to risks inherent in international business
activities, including, in particular, general economic conditions in each
such country, overlap of differing tax structures, management of an
organization spread over various jurisdictions, unexpected changes in
regulatory requirements and compliance with a variety of foreign laws and
regulations. Other general risks associated with international operations
include import and export licensing requirements, trade restrictions and
changes in tariff and freight rates. The business and operations of the
Company's principal subsidiary, RSL, are primarily subject to the changing
economic and political conditions prevailing in Germany. Although
productivity in Germany is generally high, labor costs, corporate taxes and
employee benefit expenses are high and weekly working hours are shorter in
Germany compared to the rest of the European Union, the United States and
Japan.
Asia/Pacific Risk
Countries in the Asia/Pacific region, including Japan, have recently
experienced weaknesses in their currency, banking and equity markets. As the
Asia/Pacific market currently represents approximately 11% of the Company's
revenue, these weaknesses could adversely affect consumer demand for the
Company's product, the U.S. dollar value of the Company's foreign currency
denominated sales, and ultimately the Company's consolidated results of
operations.
Risks Associated with the Conversion by EU Member States to the "Euro"
The "euro" is a new legal currency being introduced by certain European Union
member states. On January 1, 1999, eleven European countries established
fixed conversion rates between their existing currencies (legacy currencies)
and the euro. Beginning on that date, the legacy currencies of such
countries became no longer directly convertible into each other; instead a
legacy currency must be converted into the euro, which can then be converted
into a target legacy currency. The legacy currencies and the euro will both
be used through June 30, 2002, after which the legacy currencies will be
withdrawn.
With regard to information systems, the Company has not experienced a
material impact on its systems due to the introduction of the euro in January
of 1999. Furthermore, the Company has reviewed its information systems and
believes that they can operate in the "euro only" environment, beginning in
July 2002. The Company plans to conduct another survey concerning the euro's
impact on information systems during 2000.
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With regard to the Company markets, the Company has reviewed its customer
list and current selling practices and expects no material impact related to
the introduction of the euro.
The Company is currently unable to determine the ultimate long term financial
impact of the exclusive use of the euro on the Company's markets and on the
economies of the countries in which it operates. This impact will depend
upon the evolving competitive situations and macro-economic impact of the
introduction of the euro.
Year 2000 Compliance
The Year 2000 (Y2K) issue refers to the result of computer programs being
written using two digits rather than four to define an applicable year. Any
of the Company's products, manufacturing equipment, information technology
hardware or software that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in miscalculations causing disruptions of operations, including,
among other things, a temporary inability to operate equipment, process
transactions, send invoices, or engage in other normal business activities,
as well as product failures and system failures.
The Company's plan to address the Y2K issue involves four phases: assessment,
remediation, testing and implementation. In a coordinated effort among the
Company, outside consultants, and product suppliers, the Company has
completed the "assessment" phase of its critical information technology
hardware and software components as well as its embedded technology equipment
related to computer operations and manufacturing (such as manufacturing
equipment, security systems, telephone systems). The Company has determined
that it will be required to modify or replace certain portions of its
hardware, software or other embedded chip devices in order to ensure that
they will properly recognize dates beyond December 31, 1999. The Company
presently believes that by completing these minor upgrades to its current
technology the Y2K issue can be mitigated and that the Company's systems
would not be materially affected.
The Company's information technology (I.T.) hardware and operating systems
were upgraded to Y2K compliant versions at a total cost of $110,000. Related
I.T. exposures are covered under the Company's normal support contracts with
an outside company. The remediation and testing of certain software programs
are expected to be completed by February 1999, with implementation of the new
programming scheduled for March 1999. No unique costs are expected to be
incurred in upgrading the Company's I.T. systems.
While the assessment of all non-I.T. systems utilizing embedded technology
has already been completed, the remediation, testing and implementation
phases of such systems are scheduled to be completed by June 1999. These
systems include: manufacturing equipment, security systems, telecommunication
systems, and other non-critical systems. To date, the Company has incurred
approximately $15,000 to upgrade these systems. Additional costs of up to
$15,000 are expected to be incurred during fiscal 1999 in order to complete
the remediation, testing and implementation of these systems.
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In addition to the I.T. and embedded technology exposures, the Company has
assessed the Y2K compliance of each of its product lines. The conclusion of
this assessment was that none of the Company's current products contain date-
sensitive programming which make them vulnerable to the Y2K problem.
The Company has initiated formal communications with its significant
suppliers and customers in an effort to determine the extent to which the
Company may be vulnerable to their failure to correct their own Y2K issues.
Failure of the Company's significant trading partners to address Y2K issues
could have a material adverse effect on the Company's operations, although it
is not possible at this time to quantify the amount of business that might be
lost or the costs that could be incurred by the Company.
In addition, parts of the global infrastructure, including banking systems,
electrical power, other utilities, communications and governmental
activities, may not be fully functional after 1999. Infrastructure failures
could significantly reduce the Company's ability to manufacture its products
and its ability to serve its customers as effectively as they are now being
served. The Company is currently identifying elements of the infrastructure
that are critical to its operations and obtaining information as to their
anticipated Y2K readiness.
While the Company believes its efforts to address the Y2K issue will be
successful in avoiding any material adverse effect on the Company's
operations or financial condition, it recognizes that failing to resolve Y2K
issues on a timely basis would, in a "worst case scenario", significantly
limit its ability to manufacture and distribute its products and process its
daily business transactions for a period of time, especially if such failure
is coupled with third party or infrastructure failures. Similarly, the
Company could be significantly affected by the failure of one or more
significant trading partners to conduct their respective operations after
1999. Adverse affects on the Company could include, among other things,
business disruption, increased costs, loss of business and other similar
risks, the combined costs of which are impossible to estimate at this time.
The Company has primarily utilized (and will continue to primarily utilize)
internal resources to oversee and complete the various phases of its Y2K
program. Internal costs to date have been minimal (approximately $20,000),
whereas future internal costs are estimated to not exceed $15,000.
The foregoing discussion regarding Y2K project timing, implementation,
effectiveness, and costs are based upon management's current evaluation using
available information. However, there can be no guarantees that unexpected
events will not occur and actual results could be materially different than
anticipated.
Overview
Rofin-Sinar Technologies, Inc. ("Rofin-Sinar", or the "Company") 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
industrial materials. During the first quarter of fiscal year 1998 and
fiscal year 1999, respectively, approximately 67% and 72% of the Company's
- 15 -
<PAGE>
revenues were from sales and servicing of laser products for cutting and
welding applications and approximately 33% and 28% were from sales and
servicing of laser products for marking applications.
Through its global manufacturing, distribution and service network, the
Company provides a comprehensive range of laser solutions to three principal
target markets for material processing lasers: the machine tool, automotive
and semiconductor & electronics industries. The Company sells directly to
industrial end-users, to OEMs who integrate Rofin-Sinar's laser sources with
other system components and to distributors. Many of Rofin-Sinar's customers
are among the largest global participants in their respective industries.
Results of Operations
For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's
consolidated statements of operations.
Three Months Ended
December 31,
----------------------
1998 1997
---------- ----------
Net sales 100% 100%
Cost of goods sold 68% 61%
Gross profit 32% 39%
Selling, general and administrative expenses 20% 19%
Research and development expenses 11% 9%
Income from operations 1% 11%
Income before income taxes 3% 12%
Net income 1% 7%
Net Sales - Net sales of $28.6 million represents an increase of $0.4
million (2%) for the three months ended December 31, 1998, as compared to the
corresponding period of fiscal 1998. The increase resulted from a net sales
increase of $0.8 million, or 4%, in Europe/Asia offset by a decrease of $0.4
million, or 5%, in the United States, for the corresponding three month
period as compared to the prior year. The U.S. dollar weakened against
foreign currencies which had a favorable effect on net sales of $1.0 million
for the three month period. Net sales of laser products for cutting and
welding applications for the three month period increased by 9% to $20.7
million, as compared to the same period of fiscal 1998. Net sales of lasers
for marking applications for the three month period decreased by 14% to $7.9
million as compared to fiscal 1998. The increase in cutting and welding
products come primarily from the Dilas and UK subsidiaries, in addition to
the favorable foreign currency impact. The decrease in marking revenue was
due to customer driven delays in shipments of systems in the semi-conductor
and electronics industry and a slowdown in shipments to Asia.
- 16 -
<PAGE>
Gross Profit - The Company's gross profit of $9.2 million for the three
months ended December 31, 1998, represents a $1.9 million ($17%) decrease
from the same period of the prior year. As a percentage of sales over the
corresponding three month periods gross profit decreased from 39% to 32%.
The main cause of the lower percentage margin was the unfavorable product mix
away from higher margin marking lasers. In addition, the Company incurred
higher production and warranty costs on the Slab laser due to supplier-
related quality problems. Gross profit was favorably affected by $0.3
million, for the three month period in fiscal 1999, due to the weakening of
the U.S. dollar.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses increased $0.5 million (9%) for the three months
ended December 31, 1998, compared to the corresponding period of fiscal 1998.
The first quarter increase is primarily due to the normalized additional SG&A
costs at Rofin-Sinar UK Ltd. SG&A was unfavorably affected by $0.2 million
(3%), for the three month period in fiscal 1999, due to the weakening of the
U.S. dollar.
Research and Development - The Company spent net $3.1 million on research
and development during the three month period. This represents an increase
of 23% over the same period of the prior year. The increase in spending was
primarily due to low power CO2 Slab lasers developed by Rofin-Sinar UK.
Gross research and development expenses for the three months ended December
31, 1998 and 1997 were $3.4 million and $3.0 million, respectively, and were
reduced by $0.3 million and $0.5 million of government grants during each
respective period. R&D was unfavorably affected by $0.1 million, for the
three month period in fiscal 1999, due to the weakening of the U.S. dollar.
Other Expense (Income) - Other Expense (Income) of ($0.6) million for the
three months ended December 31, 1998, represents an increase in income of
$0.3 million over the corresponding prior year period. Other income
increased $0.3 million over the corresponding prior year period due to
foreign exchange gains ($0.2 million) as well as other items totaling $0.1
million.
Income Tax Expense - Income tax expense of $0.4 million for the three month
period ended December 31, 1998 represents an effective tax rate of 52.8%,
compared to a prior year corresponding effective tax rate of 41.1%. This
change in effective rate is due primarily to a higher portion of current year
profit generated in tax jurisdictions, such as Germany, with higher statutory
tax rates.
Net Income - In light of the foregoing factors, the Company realized a
consolidated net income of $0.4 million for the three month period ended
December 31, 1998, which represent decreases of $1.6 million over the
comparable prior period. For the three months ended December 31, 1998 both
basic and diluted earnings per share equaled $0.03 based upon 11.5 million
common shares outstanding, as compared to basic and diluted earnings per
share of $0.18 for the same period in fiscal 1998, based on 11.5 million and
11.6 million shares outstanding, respectively.
- 17 -
<PAGE>
Liquidity and Capital Resources
The Company's primary sources of liquidity at December 31, 1998 were cash and
cash equivalents of $34.4 million, a $25.0 million line of credit with
Deutsche Bank AG, and several other lines of credit to support foreign
subsidiaries in their local currencies. As of December 31, 1998, $16.8
million was borrowed against the Deutsche Bank facility, $3.8 million from
other lines of credit, and $6.6 million from loan agreements. Of this total
$0.6 million is classified as long-term and is due in the year 2000, and
another $6.6 million is classified as long-term and is due in the year 2001.
Cash and cash equivalents decreased by $0.5 million during the three months
ended December 31, 1998. Approximately $3.4 million in cash and cash
equivalents were used in operating activities, primarily as the result of an
increase in inventories due to slower throughput in production of slab lasers
and customer-caused delays in shipments of marking lasers. These increases in
operating assets were coupled with a corresponding decrease in taxes payable
since year end.
Uses of cash from investing activities totaled $0.9 million for the three
months ended December 31, 1998 and was due primarily to leasehold
improvements and various additions to property and equipment related to
introduction of new products and computer upgrades.
Cash provided from financing activities totaled $3.7 million, which was
entirely related to current period bank borrowings.
Management believes that the Company's cash flow from operations, along with
existing cash and cash equivalents and credit facilities, will provide
adequate resources to meet its capital requirements and operational needs for
the foreseeable future.
- 18 -
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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 speculative or trading purposes.
Interest Rate Sensitivity
As of December 31, 1998, the Company maintained a cash equivalents portfolio
of $34.4 million, consisting mainly of 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 less than $0.1 million, accordingly.
At December 31, 1998, the Company had $16.8 million of annually adjusted
interest rate debt and $10.4 million of fixed rate debt expiring in the years
2000 and 2001. A 10% change in the average cost of the Company's debt would
result in an increase or decrease in pre-tax interest expense of less than
$0.1 million.
Foreign Currency Exchange Risk
The Company enters into foreign currency forward contracts and forward
exchange options generally of less than six months duration to hedge its
foreign currency risk on sales transactions. At December 31, 1998, the
Company had contracts in Japanese yen to buy German marks, which will result
in gains or losses which would not be material, were the Japanese yen /
German mark currency exchange to increase or decrease by 10 percent. Such
gains and losses would be offset by gains and losses on the related
receivables.
- 19 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Use of IPO Proceeds
The Company completed its initial public offering of 11,500,000 shares of its
common stock on September 30, 1996 for gross proceeds of $109.2 million
pursuant to its registration statement on Form S-1 (No. 333-09539) declared
effective on September 25, 1996. The lead managers for the offering were
Deutsche Morgan Grenfell/C.J. Lawrence, Inc., Alex Brown & Sons Incorporated
and Lehman Brothers Inc. Net proceeds of the offering (after deduction of
$6.6 million in underwriting discounts and commissions and $0.3 million in
other offering expenses) were $102.3 million. Of such amount approximately
$77.1 million was used to purchase all outstanding shares of RSL and RSI from
the former Parent and to repay certain indebtedness owed to the former
Parent. Of the remainder, $25.0 million was invested in certificates of
deposit, with the balance applied to working capital. In fiscal 1997 the
Company used approximately $5.2 million to consummate the acquisition of
Dilas, and $1.8 million to acquire other business assets. In fiscal 1998 the
Company used approximately $3.5 million to acquire business assets, which
included the acquisition of certain business assets of Palomar Technologies
Ltd. In addition, the Company used $1.8 million to fund working capital
needs. In the first quarter of fiscal 1999 the Company used approximately
$0.9 million to acquire business assets. Accordingly, approximately $11.8
million of the net offering proceeds remain to be applied.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
- 20 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of earnings per share.
27.1 Financial data schedule for three month period ended
December 31, 1998.
(b) Reports on Form 8-K
The Registrant did not file any Current Reports on Form 8-K
during the quarter ended December 31, 1998.
- 21 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rofin-Sinar Technologies Inc.
---------------------------------
(Registrant)
Date: February 10, 1999 /S/ Gunther Braun
---------------------------------
Gunther Braun
Executive Vice President,
Finance and Administration, and
Chief Financial Officer
- 22 -
<PAGE>
-----------------------------------
Exhibit 11.1 - Earnings Per Share
-----------------------------------
Three Months
Ended December 31,
--------------------------
1998 1997
------------ ------------
Net income $ 374 $ 2,037
Weighted average shares used in computing
net income per share:
Basic 11,527,400 11,510,200
Diluted 11,527,400 11,597,916
============ ============
Net income per common share:
Basic $ 0.03 $ 0.18
Diluted $ 0.03 $ 0.18
============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extractred from the
consolidated financial statements of Rofin-Sinar Technologies, Inc. and
Subsidiaries for the three months ended December 31, 1998, and is
qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
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