|• ROFIN-SINAR TECHNOLOGIES INC. 10-Q • EXHIBIT 31.1 • EXHIBIT 31.2 • EXHIBIT 32.1 • EXHIBIT 32.2 • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the quarterly period ended June 30, 2012
Commission file number: 000-21377
ROFIN-SINAR TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
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]
28,546,959 shares of the registrant's common stock, par value $0.01 per share, were outstanding as of August 8, 2012.
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands, except per share amounts)
Rofin-Sinar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Periods Ended June 30, 2012 and 2011
(dollars in thousands, except per share amounts)
See accompanying notes to condensed consolidated financial statements
Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income (Unaudited)
Nine Months Ended June 30, 2012 and 2011
(dollars in thousands)
See accompanying notes to consolidated financial statements
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2012 and 2011
(dollars in thousands)
See accompanying notes to condensed consolidated financial statements
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
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, 2011, 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, 2011, as filed with the Securities and Exchange Commission on November 29, 2011.
In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”, which amends the guidance on testing indefinite-lived intangible assets, other than goodwill, for impairment. Under this guidance, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity determines that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. Otherwise, the entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. The entity also has the option to bypass the qualitative assessment and proceed directly to performing the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 (fiscal 2013 for the Company), and early adoption is permitted. Adoption of ASU 2012-02 is not expected to have a material impact on the Company’s financial statements.
In June 2011, the 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. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, which is the method of presentation used by the Company, will no longer be permitted. These changes will have no impact on the calculation and presentation of earnings per share. These changes, with retrospective application, become effective for the Company for interim and annual periods beginning in fiscal year 2013, with early adoption allowed. Other than the change in presentation, these changes will not have an impact on the consolidated financial statements.
In May 2011, the FASB issued additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosure about fair value measurements. This guidance became effective for the Company’s second quarter of fiscal year 2012. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations and cash flows.
In December 2010, the FASB issued ASU 2010-28, “Intangibles – Goodwill and Other (ASC Topic 350)”, which amended its existing guidance for goodwill and other intangible assets. This authoritative guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if there are qualitative factors indicating that it is more likely than not that a goodwill impairment exists. The qualitative factors are consistent with the existing guidance which requires goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This authoritative guidance became effective for the Company in fiscal year 2012. The implementation of this authoritative guidance did not have a material impact on our consolidated financial position, results of operations and cash flows.
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 2013 for the Company), and early adoption is permitted. Adoption of ASU 2011-08 is not expected to have a material impact on the Company’s 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.
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 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. During the six months ended March 31, 2012, the Company finalized and paid the deferred purchase price. This payment resulted in additional goodwill of approximately $13.4 million.
The Company’s cash, short-term investments, accounts receivable, and accrued liabilities are carried at amounts, which reasonably approximate their fair value due to their short-term nature. The Company’s notes payable bear interest at variable 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:
Financial assets and liabilities measured at fair value on a recurring basis are classified on the valuation technique level in the table below:
The changes in the fair value of our non-current auction rate securities measured using significant unobservable inputs (level 3), are as follows:
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:
Net inventory is net of provisions for excess and obsolete inventory of $26,074 and $25,292 at June 30, 2012, and September 30, 2011, respectively.
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 $3.2 million at June 30, 2012. All sales were settled, for cash, at par value. At June 30, 2012, 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.
The changes in the carrying amount of goodwill for the nine-month period ended June 30, 2012, are as follows:
The carrying values of other intangible assets are as follows:
Amortization expense for the nine-month periods ended June 30, 2012 and 2011, was $1.7 million and $2.0 million, respectively. At June 30, 2012, estimated amortization expense for the remainder of fiscal year 2012 and the next five fiscal years based on the average exchange rates as of June 30, 2012, is as follows:
Accrued liabilities are comprised of the following:
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, 2012, the Company's gross unrecognized tax benefits totaled $0.4 million which includes approximately $0.1 million of interest and penalties. The Company estimates that the unrecognized tax benefits will not change significantly within the next year.
The Company files federal and state income tax returns in several domestic and foreign jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. With limited exceptions, the Company is no longer subject to examination by the United States Internal Revenue Service for years through 2005. With respect to state and local tax jurisdictions and countries outside the United States, with limited exceptions, the Company is no longer subject to income tax audits for years before 2005.
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 change in warranty reserves for the nine-month periods ended June 30, 2012 and 2011 are as follows:
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 2011 or through the first nine months of fiscal year 2012. Non-qualified stock options were granted to officers and other key employees in the second quarter of fiscal year 2012. During the three-month period ended December 31, 2011, outside directors each received 3,000 shares of common stock, from the 2007 Incentive Stock Plan, that were fully vested upon grant. Options to other key employees generally vest over five years and will expire not later than ten years after the date on which they are granted.
The fair value of each option award is estimated on the date of grant using the Black-Scholes model. The following assumptions were used in these calculations:
The Company uses historical data to estimate the expected life, volatility, and annual forfeiture rates of outstanding options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
The balance of outstanding stock options and all options activity at and for the nine-month period ended June 30, 2012, are as follows:
As of June 30, 2012, there was $10.8 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted-average period of 3.53 years.
During the three and nine-month periods ended June 30, 2012 and 2011, the following activity occurred under the Incentive Stock Plan:
Cash received from stock option exercises for the nine-month periods ended June 30, 2012 and 2011, was $0.3 and $6.95 million, respectively.
The basic earnings per common share (EPS) calculation is computed by dividing net income available to RSTI common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings per common share reflect the potential dilution from common stock equivalents (stock options).
The calculation of the weighted average number of shares outstanding for each period is as follows:
The weighted average diluted shares outstanding for the nine-month periods ended June 30, 2012 and 2011, excludes the dilutive effect of approximately 2.2 million and 0.5 million stock options, respectively, since the impact of including these options in diluted earnings per share for these periods was antidilutive.
Components of net periodic cost were as follows for the three and nine-month periods ended June 30, 2012 and 2011:
Assets, revenues, and income before taxes, by geographic region attributable based on the geographic location of the RSTI entities are summarized below:
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:
16. Subsequent Event
On August 1, 2012, the Board of Directors authorized the Company to initiate a share buyback of up to $20.0 million of the Company's Common Stock over the next twelve months ending August 10, 2013, subject to market conditions. The shares may be repurchased from time to time in open market transactions or privately negotiated transactions at the Company's discretion.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "may", "believe", "will", "expect", "project", "anticipate", "estimate", "plan" or "continue" or other words or terms of similar meaning. These forward-looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition. In making these forward-looking statements, we claim the protection of the safe-harbor for forward-looking statements contained in the Reform Act. We do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.
Rofin-Sinar Technologies Inc. (herein also referred to as "RSTI", "Rofin-Sinar", or the "Company" or "we", "us" or "our") is a leader in the design, development, engineering, manufacture and marketing of laser-based products used for cutting, welding and marking a wide range of materials.
Through our global manufacturing, distribution and service network, we provide a comprehensive range of laser sources and laser-based system solutions to the following principal target markets: the machine tool, automotive, semiconductor, electronics, and photovoltaic industries. We sell principally to end-users and original equipment manufacturers ("OEMs") (principally in the machine tool industry) that integrate our laser sources with other system components. Many of our customers are among the largest global participants in their respective industries.
During the third quarter of fiscal years 2012 and 2011, we realized approximately 40% and 41% of revenues, respectively, from the sale and servicing of laser products used for macro applications, approximately 47% and 49%, respectively, from the sale and servicing of laser products for marking and micro applications, and approximately 13% and 10%, respectively, from the sale of components.
The quarterly results reflect the current global industrial economic environment for conventional laser technologies. The industrial material processing business continues to be influenced by the European debt crisis and the slower pace of GDP growth, mainly in China. The encouraging statements that we received from the Chinese machine tool industry in the spring time did not translate into substantially improved orders during the quarter. The automotive and semiconductor industries performed very well, while we experienced a lower level of activities in the solar industry. Despite the economic pressures, we are satisfied with our overall quarterly financial results, which were in line with our expectations. The global markets continue to be challenging and the currency translation into US dollars will put further pressure on order entry and sales figures in the coming quarters as the US dollar strengthens. However, we believe that our solid backlog, combined with ongoing sales activities and focused efforts in the Asian markets will help us to deliver reasonable fourth quarter results.
At June 30, 2012, Rofin-Sinar had 2,204 employees compared to 2,059 employees at June 30, 2011.
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.
Net Sales - Net sales of $131.7 million and $392.7 million represent decreases of $23.3 million, or 15%, and $35.6 million, or 8%, for the three and nine-month periods ended June 30, 2012, as compared to the corresponding periods in fiscal year 2011. The decrease for the three months ended June 30, 2012, resulted from a net sales decrease of $28.1 million, or 22%, in Europe and Asia, partly offset by an increase of $4.8 million, or 18%, in North America, compared to the corresponding period in fiscal year 2011. The decrease for the nine months ended June 30, 2012, compared to the corresponding period in fiscal year 2011, resulted from a net sales decrease of $43.8 million, or 13%, in Europe and Asia, partially offset by an increase of $8.2 million, or 10%, in North America. The U.S. dollar strengthened against foreign currencies, primarily against the Euro, which had an unfavorable effect on net sales of $10.0 million for the nine-month period ended June 30, 2012.
Net sales of laser products for macro applications decreased by $10.1 million, or 16%, to $53.0 million, and by $19.9 million, or 12%, to $150.2 million for the three and nine-month periods ended June 30, 2012, as compared to the corresponding periods of fiscal year 2011. The decrease can be mainly attributed to the lower demand for our lasers for macro applications in the machine tool industry, especially in Asia, and the automotive industry.
Net sales of lasers for marking and micro applications decreased by $14.9 million, or 19%, to $61.9 million for the three-month period ended June 30, 2012, mainly due to a decrease in the electronics and solar industry partially offset by stronger revenues from the flexible packaging and semiconductor industries. Net sales for marking and micro applications decreased by $18.4 million, or 9%, to $196.9 million for the nine-month period ended June 30, 2012, as compared to the corresponding period in fiscal year 2011, mainly due to lower revenues from the electronics industry.
Revenues for the components business increased by $1.7 million, or 11%, to $16.8 million for the three-month period ended June 30, 2012. Revenues for the nine-month period ended June 30, 2012, increased by $2.7 million, or 6%, to $45.6 million as compared to the corresponding period in fiscal year 2011, mainly attributed to higher demand for laser diode and fiber products.
Gross Profit - Our gross profit of $49.3 million and $145.1 million for the three and nine-month periods ended June 30, 2012, represents decreases of $11.3 million, or 19%, and $26.7 million, or 16%, from the corresponding periods of fiscal year 2011. As a percentage of sales, gross profit decreased from 39% to 37% for the three-month period ended June 30, 2012, and from 40% to 37% for the nine-month period as compared to the corresponding periods in fiscal year 2011. The decrease in our gross margin for the three and nine-month periods was mainly the result of the lower absorption of fixed costs, due to the comparably lower level of business, an unfavorable product mix and lower services and spare parts revenue. In the nine-month period ended June 30, 2012, the strengthening of the U.S. dollar against foreign currencies, primarily against the Euro, had an unfavorable effect on gross profit of $1.5 million.
Selling, General and Administrative Expenses - Selling, general and administrative ("SG&A") expenses of $25.3 million and $76.4 million for the three and nine-month periods ended June 30, 2012, represent a decrease of $3.4 million, or 12%, for the three-month period, and a decrease of $4.0 million, or 5%, for the nine-month period, from the corresponding periods of fiscal 2011. The decreases in the three and nine-month periods are due to lower exhibition costs, and lower commissions related to the comparably lower level of business. In the nine-month period ended June 30, 2012, the U.S. dollar strengthened against foreign currencies, primarily against the Euro, which had a favorable effect on SG&A of $2.0 million. As a percentage of net sales, SG&A expenses remained stable at 19% for the three-month period ended June 30, 2012, and increased from 19% to 20% for the nine-month period ended June 30, 2012, as compared to the comparable prior year periods.
Research and Development - The Company spent net $11.5 million and $32.1 million on research and development ("R&D") during the three and nine-month periods ended June 30, 2012, which represents an increase of 21% and 16% as compared to the corresponding periods of the prior year. Gross R&D expenses for the three-month periods ended June 30, 2012 and 2011, were $11.8 million and $10.0 million, respectively, and were reduced by $0.3 million and $0.5 million of government grants during each respective period. Gross R&D expenses for the nine-month periods ended June 30, 2012 and 2011, were $33.2 million and $29.4 million, respectively, and were reduced by $1.1 million and $1.8 million of government grants during each respective period. In the nine-month period ended June 30, 2012, the U.S. dollar strengthening against foreign currencies, primarily against the Euro, which had a favorable effect on R&D of $1.3 million.
Amortization Expense - Amortization expense for the three and nine-month periods ended June 30, 2012, amounted to $0.5 million and $1.7 million, respectively. This represents a decrease of $0.2 million and $0.3 million for the three and nine-month periods when compared to the same periods of fiscal year 2011.
Other Income/Expenses - Net other income was $1.1 million for the three-month period ended June 30, 2012, compared to $0.4 million in the corresponding period of the prior year. Net other income of $2.7 million for the nine-month period ended June 30, 2012, represents an increase of $2.1 million compared to net other income of $0.6 million the corresponding period of the prior year. Net interest income, within this category, includes $0.1 million of interest income offset by $0.1 million of interest expense for the three months ended June 30, 2012, and $0.6 million of interest income offset by $0.5 million of interest expense for the nine months ended June 30, 2012. The increases in net other income in the three and nine-month periods ended June 30, 2012, are mainly due to less exchange losses in the current year periods compared to the corresponding periods of last fiscal year.
Income Tax Expense - Income tax expense of $4.6 million and $12.6 million for the three and nine-month periods ended June 30, 2012, represents an effective tax rate of 35% and 33% for the three and nine-month periods, respectively, compared to 30% and 31% for the corresponding periods of the prior year. The overall effective income tax rate is primarily the result of higher taxable income generated in countries with higher tax rates and additional taxes for the one time repatriation of earnings. Income tax expense, a significant portion of which is incurred in foreign currencies, was favorably affected by $0.4 million in the nine-month period ended June 30, 2012, due to the strengthening of the U.S. dollar against foreign currencies, primarily the Euro.
Net Income attributable to RSTI - As a result of the foregoing factors, the Company realized consolidated net income attributable to RSTI of $8.4 million and $24.5 million for the three and nine-month periods ended June 30, 2012, which represents a decrease of $6.9 million and $18.4 million for the three and nine months from the corresponding periods in fiscal year 2011. For the three-month period ended June 30, 2012, the basic and diluted earnings per common share calculation both approximated $0.29 based upon a weighted average of 28.5 million and 28.8 million common shares outstanding, respectively, as compared to basic and diluted earnings per common share calculation of $0.54 and $0.52 based upon a weighted average of 28.5 million and 29.2 million common shares outstanding for the corresponding periods last fiscal year.
Liquidity and Capital Resources
The Company's primary sources of liquidity at June 30, 2012, were cash and cash equivalents of $93.0 million, short-term investments of $4.0 million, short-term credit lines of $82.0 million and long-term credit lines of $7.7 million. As of June 30, 2012, $8.7 million was outstanding under the short-term lines of credit and $7.8 million was used for bank guarantees under these lines of credit, leaving $65.5 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 $5.9 million, of which $0.5 million was used. Therefore, $70.9 million was unused and available under our short-term and bank guarantee lines of credit, in aggregate, at June 30, 2012. 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, which could restrict the Company from drawing money under these lines of credit. At June 30, 2012, the Company was in compliance with these covenants.
Cash and cash equivalents decreased by $34.4 million during the nine-month period ended June 30, 2012. Approximately $7.7 million in cash and cash equivalents were provided by operating activities, mainly as the result of net income for the nine months ended June 30, 2012, and a decrease in accounts receivable, partially offset by changes in other operating assets and liabilities and changes in inventories.
Net cash used in investing activities totaled $34.0 million for the nine-month period ended June 30, 2012, and was primarily related to the payment of the deferred purchase price for Corelase Oy, additions to property and equipment and net purchases of short-term and long-term investments.
Net cash used in financing activities totaled $5.0 million for the nine-month period ended June 30, 2012, and was primarily related to repayments to banks, partially offset by borrowings from banks.
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, 2012, $73.1 million of the total $97.0 million of cash, cash equivalents and short-term investments, was held by our non-US subsidiaries, with the balance ($23.9 million) held by our US subsidiaries. As of that date, the entirety of our indebtedness to banks ($16.4 million) was owed by our non-US subsidiaries. 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, the US Company has $20 million in available and unused lines of credit at June 30, 2012. 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, 2011, 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 63% of our sales have been denominated in other currencies, primarily the Euro, British pound sterling, Swiss francs, 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 the Company's exposure to exchange gains and losses.
Exchange differences upon translation from each operating unit's functional currency to U.S. dollars are accumulated as a separate component of equity. The accumulated currency translation adjustment component of stockholders' equity represented a loss of $5.4 million at June 30, 2012, as compared to a gain of $13.4 million at September 30, 2011.
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, 2011. Certain of the accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty.
Allowance for Doubtful Accounts
The Company records allowances for uncollectible customer accounts receivable based on historical experience. Additionally, an allowance is made based on an assessment of specific customers' financial condition and liquidity. If the financial condition of the Company's customers were to deteriorate, additional allowances may be required. No individual customer represents more than 10% of total accounts receivable. Any increase in allowance will impact operating income during a given period.
Inventories are stated at the lower of cost or market, after provisions for excess and obsolete inventory salable at prices below cost. Provisions for slow moving and obsolete inventories are provided based on current assessments about historical experience and future product demand and production requirements for the next twelve months. These factors are impacted by market conditions, technology changes, and changes in strategic direction, and require estimates and management judgment that may include elements that are uncertain. The Company evaluates the adequacy of these provisions quarterly. Although the Company strives to achieve a balance between market demands and risk of inventory excess or obsolescence, it is possible that, should conditions change, additional provisions may be needed. Any changes in the provisions will impact operating income during a given period.
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.
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.
Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee requisite vesting period. We make judgments about the fair value of the awards, including the expected term of the award, volatility of the underlying stock and estimated forfeitures, which impact the amount of compensation expense recognized in the financial statements. Such amounts may change as a result of additional grants, forfeitures, modifications in assumptions and other factors. ASC Topic 718, "Stock Compensation", provides that income tax effects of share-based payments are recognized in the financial statements for those awards which will normally result in tax deductions under existing tax law. Under current U.S. federal tax laws, we receive a compensation expense deduction related to stock options only when those options are exercised and vested shares are received. Accordingly, the financial statement recognition of compensation cost for stock options creates a deductible temporary difference which results in a deferred tax asset and a corresponding deferred tax benefit in the income statement for all U.S.-based employees. Stock-based compensation expense related to all other employees is treated as a permanent difference for income tax purposes.
Ownership of Common Stock By Directors
The following table sets forth information as of June 30, 2012, with respect to beneficial ownership of the Company's common stock and exercisable options by each director.
(1) Outside, non-executive directors
For the nine-month period ended June 30, 2012, 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, 2011.
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, 2012, the Company maintained cash equivalents and short-term investments of $97.0 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, 2012, the Company had $3.0 million of variable rate debt on which the interest rate is reset every three months, $5.5 million of variable rate debt on which the interest rate is reset every six months, $1.2 million of variable rate debt on which the interest rate is reset every year and $6.7 million of fixed rate debt.
Maturities of this debt are as follows (amounts in dollars):
A 10% change in the variable interest rates of the Company's debt would result in an increase or decrease in pre-tax interest expense by less than $0.1 million.
Additionally, the Company has entered into interest rate swap agreements of total notional amounts of Euro 2.4 million and Swiss francs 4.3 million (equivalent to $3.0 million and $4.5 million, respectively, based on the exchange rates at June 30, 2012), 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, 2012, the Company held Japanese yen forward exchange options with notional amount of Euro 0.4 million and Japanese yen forward exchange options with notional amounts of $0.3 million. The profit or loss resulting from a 10% change in currency exchange rates would vary approximately from less than $0.1 million profit to a loss of $0.1 million.
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.
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. Following discussions with the licensor in order to resolve these disagreements, the parties have reached an agreement in principle that an independent auditor should be appointed to review the calculations made by the Company in connection with the royalties it has paid in the past. To date the audit has not commenced. In February 2008, the Company contacted the licensor in writing in order to proceed with the appointment of an independent auditor and agree on parameters to apply to the conduct of the audit and a response from the licensor was received in January 2009. Through additional correspondence exchanged in March 2009, the Company and the licensor are in the process of selecting a mutually agreeable independent auditor. Management believes that it will achieve a resolution of this matter that will not have a material adverse impact on the Company's financial condition or results of operations or cash flows. The patents, and therefore the license rights, have expired and there are no further license fees to be calculated and paid.
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, 2011. See also, "Overview" and "Forward-Looking Statements" included in this Quarterly Report on Form 10-Q.
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.