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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
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)
Registrant's telephone number, including area code: (313) 455-5400
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, $.01 par value
Rights Associated with Common Stock, par value $.01 per Share
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of the
Registrant (based upon the closing price of the stock on the Nasdaq National
Market on December 20, 1996) was approximately $143,187,500.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
11,510,500 shares of the Registrant's common stock, par value $.01 per share,
were outstanding as of December 20, 1996.
Documents Incorporated by Reference
-----------------------------------
Certain sections of the Company's Proxy Statement to be filed in connection with
the Company's 1997 Annual Meeting of Stockholders to be held in March 1997 are
incorporated by reference herein at Part III, Items 10 - 13.
TABLE OF CONTENTS
Item Page
---- ----
PART I. 1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II. 5. Market for Registrant's Common
Equity and Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
8. Consolidated Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III. 10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain
Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV. 14. Exhibits, Consolidated Financial Statement
Schedules, and Reports on Form 8-K
SIGNATURES
PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). 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.
Item 1. Business
Company Overview
On September 30, 1996, Rofin-Sinar Technologies Inc. ("Rofin-Sinar" or
the "Company") consummated an initial public offering of its common stock
("IPO"). Prior to the IPO, the common stock of Rofin-Sinar, a newly formed
holding company, Rofin Sinar Inc. ("RSI") and Rofin Sinar Laser GmbH ("RSL")
were each owned directly or indirectly by Siemens AG ("Siemens"). RSL includes
the consolidated accounts of its 99.97% owned subsidiary, Rofin-Sinar France
S.A.; its 90.65% (83.5% in 1994) owned subsidiary Rofin-Sinar Italiana S.r.l.;
and its 51% owned subsidiary Rofin-Marubeni Laser Corporation (a Japanese
corporation). Concurrent with the IPO, the stock of RSI and RSL (together, the
"Rofin-Sinar Group"), including all business operations, assets and liabilities,
were sold to the Company in a reorganization. Approximately $82 million of the
gross proceeds ($77.1 million of the net proceeds) from the IPO were used to
purchase such stock of Rofin-Sinar Group from Siemens AG and its subsidiaries
and to repay certain indebtedness to Siemens AG.
Rofin-Sinar designs, develops, engineers, manufactures and markets
laser products for cutting, welding and marking a wide range of industrial
materials. Lasers are a non-contact technology for material processing which
have several advantages that are desirable in industrial applications. The
Company believes it has a worldwide market share (based on sales volume) of
approximately 20% for laser products used for cutting and welding applications
and that it is among the largest suppliers of laser products used for marking
applications in Europe and the Asia/Pacific region (other than Japan). Over 80%
of the Company's sales in fiscal 1996 were made to existing customers. The
Company has sold more than 4,000 laser sources since 1975 and currently has over
1,500 active customers (including multinational companies with multiple
facilities purchasing from the Company). During the 1996 fiscal year,
approximately 72% of the Company's revenues were from sales and servicing of
laser products for cutting and welding applications and approximately 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 (principally in the Machine Tool industry) 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. During fiscal 1996, 34% of the Company's sales were
in North America, 52% were in Germany and the remainder were in certain other
European Countries and in the Asia/Pacific region. See Note 11 to the
consolidated financial statements.
The Company's Laser Products
The Company currently offers a comprehensive range of state-of-the-art
laser products and related services for three principal material processing
applications: (1) cutting; (2) welding; and (3) marking. Rather than offering
standardized laser systems, the Company works directly with the customer to
develop and customize the optimal solution for the customer's manufacturing
requirements. In developing its laser solutions, the Company offers
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customers its expertise in: (i) product development and manufacturing (i.e.,
state-of-the-art product development and manufacturing services based on over 20
years of laser technology experience and applications know-how); (ii)
application and process development (i.e., developing new laser-based
applications for manufacturing customers and assisting them in successfully
integrating lasers into their production processes); (iii) system engineering
(i.e., advising customers on machine design, including tooling, automation and
controls, for customers in need of "turnkey" solutions); and (iv) extensive
after-sales support of its laser products (including technical support, field
service, maintenance and training programs and rapid spare parts delivery).
The following table sets forth the Company's net sales of laser
products used for cutting and welding applications and of laser products used
for marking applications in fiscal 1996:
Product Category* Fiscal 1996
----------------- -----------
(in thousands)
Lasers for cutting and welding.... $ 83,884
Laser marking products............ 32,019
--------
$115,903
-------------
* For each product category, net sales includes sales of
services (including training, maintenance and repair) and
spare parts.
The Company from time to time reviews various opportunities to acquire
businesses, technologies or products complementary to the Company's present
business.
Laser Products for Cutting and Welding
The laser sources sold by the Company consist of a laser head
(containing the lasing medium, resonator, source of excitation, resonator
mirrors and cooling mechanism), a power supply and microcontroller (for control
and monitoring). For a more detailed discussion of the components of a laser
source, see "-- Laser Technology." Products are offered in different
configurations and utilizing different design principles according to the
desired application. The Company's engineers and other technical experts work
directly with the customer in the Company's applications centers to develop and
customize the optimal solution for the customer's manufacturing requirements.
The Company's family of CO2 laser products for cutting and welding and
their principal markets and applications are as discussed below.
Mode of
Laser Series Power Range Excitation
- ------------ ----------- ----------
RS DC Slab Series 1.5 kW-2.5 kW High Frequency
RS HF Series 4 kW-6 kW High Frequency
RS SM Series 700W-2 kW Direct current
Rofin-Sinar introduced its diffusion-cooled RS DC Slab Series laser in
mid-1995 and has manufactured over 80 units since that date. The Company
believes that it is the only laser manufacturer of diffusion-cooled slab-based
lasers in the high-power range. In this laser design, a high frequency (HF)
excited gas discharge occurs between two water-cooled electrodes which have a
large surface area that permits maximum heat dissipation. The core
diffusion-cooled technology is protected by two patents and the Company has
exclusive license rights to this technology on a worldwide basis for the range
above 500 W for material processing applications. The Company's current focus
with respect to its Slab Series lasers is on increasing their power output and
reducing their manufacturing costs in order to achieve more attractive pricing.
Principal markets for the Slab Series lasers are the machine tool and automotive
industries.
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The Company's RS HF Series lasers combine proven cross-flow design
principles with modern high-frequency (HF) discharge excitation technology.
Since its introduction in fiscal 1995, the Company has shipped this product
predominantly to customers in the Automotive industry and their sub-suppliers in
the United States and Europe, where the HF Series laser has been used in a
significant number of welding applications, including the welding of
transmissions, tailored blanks and many other car parts and components. The
automotive industry is the principal market for the HF Series laser.
The Company's SM-Series fast axial flow CO2 laser is used for both
cutting and welding applications. In the fast-axial flow principle, the gas
discharge occurs in a tube in the same direction as the resonator, through which
the laser gas mixture flows at a high speed. Due to the potential to reduce the
manufacturing cost of the Slab lasers, the Company intends over the next three
years to replace the SM-Series product family with the Slab-Series laser.
SM-Series products are used primarily by the machine tool industry.
The Company's family of Nd:YAG laser products for cutting and welding
and their principal markets are discussed below.
Mode of
Laser Series Power Range Excitation
- ------------ ----------- ----------
RS P-Series 50W--1 kW Flash Lamp
RSY CW-Series 1 kW--2.5 kW Flash Lamp
The Company's RSY P-Series of pulsed Nd:YAG lasers are designed to meet
the requirements of a wide range of welding and cutting applications. Their high
peak power, flexible fiberoptic beam delivery and the small focused spot size of
the laser beam allow these lasers to be successfully applied in many cutting and
welding applications. The RSY lasers' pulse shaping capability (achieved through
programming of the power supply) makes these lasers particularly well suited to
the processing of metallurgically difficult materials such as aluminum and its
different alloys. These lasers can be integrated into a wide range of both fixed
optic and fiberoptic beam delivery systems. Principal markets for these lasers
are the automotive and medical device markets.
Rofin-Sinar's RSY CW-Series of continuous wave ND:YAG lasers represent
the Company's latest development in high-power industrial ND:YAG lasers as they
are designed exclusively for use with flexible fiberoptic beam delivery systems,
making them particularly well suited for integration into complex production
systems. The key competitive advantages of the CW-Series lasers are their pulse
shaping capability and multiple power output configurations. These
configurations include continuous wave and pulsed power ramping modes separately
or in combination with each other, which allows the Company to address a wide
range of customer applications. Power ramping is particularly suited for
achieving smooth welds and avoiding cracks during the welding process. In
addition, several features of the CW-Series laser such as the simple resonator
design, easy to access power supply and highly durable ceramic pumping chambers
are designed with a view to long service intervals and therefore low maintenance
costs. These lasers are used principally in the automotive industry.
The Company is actively engaged in the development of diode-pumped
solid-state Nd:YAG lasers through a joint research program with the Fraunhofer
Institute for Laser Technology as well as through a second program sponsored by
the Bavarian Government. The Company's objective is to develop diode-pumped
lasers capable of performing heavy industrial material processing applications
(e.g. car body welding), as well as marking applications, more rapidly than
previously possible and at reduced operating and maintenance costs. Such lasers
also have potential for use in marking applications, where they could be
developed in much more compact systems. See "--Research and Development."
4
Laser Marking Products
The Company's family of laser marking products are as follows:
Mode of
Laser Series Power Range Excitation
- ------------ ----------- ----------
PowerLine; CombiLine 25-150W Flash Lamp
PowerLine. The Company's standard PowerLine laser marking product
consists of a Nd:YAG laser in the range of 25 to 150W, a galvo-head, a personal
computer with Pentium processor on board and Rofin-Sinar's proprietary Laser
Work Bench software. The modular design of the PowerLine marker enables
customers to order the most suitable configuration for their production process
or system (e.g. OEM customers may order the laser head and laser supply and
laser cooling assembly plates as subassemblies without the cabinet for easier
integration into the handling system specified by the end user). The PowerLine
marker's Nd:YAG laser incorporates a dual lamp ceramic cavity design using
"long-life" lamps (guaranteed to provide 1,200 hours usage) which results in
higher output power (and therefore higher marking speeds), higher energy
efficiency and therefore reduced operating costs, high beam quality and
therefore constant and reliable marking quality, and longer service intervals.
The Company's proprietary Laser Work Bench software provides operators with a
user-friendly desktop publishing environment that allows them to manipulate
fonts, import graphics, preview marking and control all laser parameters and job
programs. Special options and accessories include, among other things, a
double-marking head allowing marking speeds of up to 600 characters per second
in certain applications (marking of integrated circuits), as well as
beam-switching and -splitting options for marking of products in different
locations.
CombiLine. The CombiLine is a complete laser marking system that the
Company introduced in 1994. Built on a modular design, the CombiLine consists of
a PowerLine laser marker that can be combined with a variety of parts handling
systems developed by the Company. The parts handling options offered by the
Company include motor driven positioning tables, foil handling systems for
marking labels, conveyor belts and pick-and-place systems, allowing the
CombiLine to be customized as a turn-key system according to the customer's
specifications.
Development of Stand-Alone Marker. To date, the Company has shipped the
majority of its laser markers to large customers in the Automotive and
Semiconductor & Electronics industries. The Company has also targeted the
low-end laser marking market in Europe, which is currently served by a number of
smaller regional competitors. The Company is currently developing a lower-cost,
more standardized version of its PowerLine product with the same basic software
but fewer features and options, which it expects to begin shipping in the second
half of fiscal 1997.
Applications Development
In addition to manufacturing and selling laser sources for cutting and
welding and laser marking products, the Company also develops in its
applications centers in Hamburg and Gunding-Munich, Germany and Plymouth,
Michigan laser-based solutions for customers seeking alternatives to
conventional manufacturing techniques. More than 20 years' laser technology
experience and know-how are embodied in the Company's applications groups,
developed as a result of its participation in a broad range of industrial
markets.
Markets and Customers
Rofin-Sinar's laser products and systems are sold to three principal
industrial markets: the Machine Tool, Automotive and Semiconductor & Electronics
industries. The following table sets forth the distribution of the
5
Company's total sales in fiscal 1996 among the Company's principal markets and
each market's primary applications:
Primary
Principal Market Fiscal 1996 Applications
---------------- ----------- ------------
Machine Tool................. 31% Cutting
Automotive................... 27 Welding and component marking
Semiconductor & Electronics.. 15 Marking of integrated circuits
---
73%
The remaining 27% of sales in fiscal 1996 were attributable to
customers in a wide variety of other industries (including the aerospace and
consumer goods industries, medical device manufacturers, job shops, universities
and institutes). No one customer accounted for over 10% of total sales in any of
such periods.
Sales, Marketing and Distribution
Rofin-Sinar sells its products in approximately 25 countries through
OEMs and to major end-users who have in-house engineering resources capable of
integrating the Company's products into their own production systems. Laser
sources for cutting applications are marketed and sold principally to OEMs in
the Machine Tool industry who sell cutting machines incorporating the Company's
laser products without any substantial involvement by the Company. Laser sources
for welding applications are marketed and sold both to systems integrators and
to end-users. Laser marking products are marketed and sold principally to OEMs
for integration into their handling systems (mainly for integrated circuit
marking applications). In the case of both welding lasers and laser marking
products, since product samples are required to be run through the OEM's system,
the end-user is significantly involved in the selection of the laser component
and will typically specify that it desires a Rofin-Sinar device. In such cases,
the Company's application engineers work directly with the end-user to optimize
the application's performance and demonstrate the superiority of the Company's
products.
The Company has 27 direct sales engineers operating in 12 countries, of
whom 16 persons are dedicated to marketing of the Company's CO2 and Nd:YAG
lasers for cutting and welding and 11 persons are dedicated to marketing of the
Company's laser marking products. In addition, Rofin-Sinar has 12 independent
distributors and agents who market the Company's welding and cutting laser
products and laser marking products in Australia, Brazil, Denmark, Israel, the
Philippines, the People's Republic of China, Portugal, Singapore, South Korea,
Spain, Sweden and Taiwan.
The Company directs its worldwide sales and marketing of cutting and
welding lasers from its offices in Hamburg, Germany. Worldwide sales and
marketing of laser marking products is directed from the Company's offices in
Gunding-Munich, Germany. U.S. sales of the Company's cutting and welding laser
products are managed out of its Plymouth, Michigan facility. In 1995, the
Company opened a sales office in Phoenix, Arizona in proximity to major
semiconductor manufacturers to support expansion of the Company's laser marking
business in the U.S. market. In Europe, Rofin-Sinar also maintains sales and
service offices in Italy, France, the United Kingdom and Belgium. A sales office
is maintained in California to cover the Asia/Pacific region (other than Japan);
the Company intends to open a sales office in that region in fiscal 1997. In
Japan, the Company's principal distributor is its joint venture with Marubeni
Corporation and Nippei Toyama Corporation.
6
Customer Service and Replacement Parts
During fiscal 1996, approximately 25% of the Company's revenues were
generated from sales of after-sale services and replacement parts for its laser
products. The Company believes that a high level of customer support is
necessary to develop successfully and maintain long-term relationships with its
OEM and end-user customers in its laser products and laser marking systems
business. This close relationship is maintained as customer needs change and
evolve. Recognizing the importance of its existing and growing installed base,
the Company follows its customers into new geographic regions by providing local
service and support. Rofin-Sinar has over 90 customer service personnel. The
Company's field service and in-house technical support personnel receive ongoing
training with respect to the Company's laser products, maintenance procedures,
laser-operating techniques and processing technology. Most of the Company's
distributors also provide customer service and support.
Many of Rofin-Sinar's laser products are operated 24 hours a day in
high speed, quality oriented manufacturing operations. Accordingly, in fiscal
1994 the Company successfully launched 24 hour, year-round service support to
its U.S. and German customers and 8 hour response time for its major customers.
This support includes field service personnel who reside in close proximity to
the Company's installed base. Rofin-Sinar plans to adopt similar service support
elsewhere. The Company provides customers with process diagnostic and
verification techniques, as well as specialized training in the operation and
maintenance of its systems. The Company also offers regularly scheduled and
intensive training programs and customized maintenance contracts for its
customers.
Of Rofin-Sinar's customer service personnel, approximately 70 employees
operate in the field in 40 countries. Field service personnel are also involved
in the installation of the Company's systems.
Rofin-Sinar's approach to the sale of replacement parts is closely
linked to the Company's strategic focus on rapid customer response. The Company
has round-the-clock order entry and provides same or next day delivery of parts
worldwide in order to minimize disruption to a customer's manufacturing
operations. Rofin-Sinar generally agrees to provide after sale parts and service
for 10 years if requested by the customer. The Company's growing base of
installed laser sources and laser marking products is expected to continue to
generate a stable source of parts and service sales.
Competition
Laser Products for Cutting and Welding
The market for laser products and systems is fragmented, and includes a
large number of competitors, many of which are small or privately owned or which
compete with Rofin-Sinar on a limited geographic, industry-specific or
application-specific basis. The Company also competes in certain target markets
with competitors which are part of large industrial groups and have access to
substantially greater financial and other resources than the Company.
Competition among laser manufacturers includes attracting and retaining
qualified engineering and technical personnel. The overall competitive position
of the Company will depend upon a number of factors, including the performance
and reliability of its products, the level of customer support and manufacturing
quality, the compatibility of its products with existing laser systems and the
Company's ability to develop successfully for commercial distribution
diode-pumped solid state lasers and participate in the growth of these emerging
technologies, as well as price.
Rofin-Sinar believes it is among the top three suppliers of laser
sources in the worldwide market for cutting and welding applications. Companies
such as Trumpf, Fanuc and PRC (for CO2 lasers) and Haas and Lumonics (for Nd:YAG
lasers) compete in certain of the markets in which Rofin-Sinar operates.
However, in the Company's
7
opinion, none of these companies competes in all of the industries, applications
and geographic markets currently served by Rofin-Sinar. Only Trumpf/Haas has a
product range and worldwide presence similar to those of the Company. The
Company believes that it has a competitive advantage over such companies due to
its exclusive access (for material applications) to the patented
diffusion-cooling technology incorporated in its CO2 slab lasers.
Laser Marking Products
Significant competitive factors in the laser marking market include
system performance and flexibility, cost, the size of each manufacturer's
installed base, capability for customer support, and breadth of product line.
Because many of the components required to develop and produce a laser marker
are commercially available, barriers to entry into this market are low, and the
Company expects new competitive product entries into this market. The Company
believes that its PowerLine and CombiLine laser markers will compete favorably
in this market primarily due to the performance and price characteristics of
such products.
The Company's PowerLine and CombiLine marking products compete in the
laser marking market with conventional ink-based and acid-etching technologies,
as well as with laser mask-marking. The Company believes that its principal
competitors in the laser marking market include Baasel, General Scanning, Excel
Technology and Lumonics.
Rofin-Sinar also competes with manufacturers of conventional non-laser
products in applications such as welding, drilling, cutting and marking. The
Company believes that as industries continue to modernize, seek to reduce
production costs and require more precise and flexible manufacturing, the
features of laser-based systems will become more desirable than systems
incorporating conventional manufacturing techniques and processes. Advances in
fiber-optic beam delivery systems, improvements in reliability and introduction
of higher-power CO2 lasers and diode-pumped lasers capable of performing heavy
industrial material processing applications, as well as marking applications,
more rapidly than previously possible are expected to result in increased
acceptance of laser applications by industrial users.
Manufacturing and Assembly
Rofin-Sinar manufactures and tests its CO2 and Nd:YAG laser products
for cutting and welding at its Hamburg, Germany and Plymouth, Michigan
facilities. The Company's laser marking products are manufactured and tested at
its facilities in Gunding-Munich, Germany. See "Properties." The Company's joint
venture in Japan performs assembly and testing of SM-Series CO2 lasers.
Given the competitive nature of the laser business, the Company focuses
substantial efforts on maintaining and enhancing the efficiency and quality of
its manufacturing operations. The Company utilizes just in time and cell-based
manufacturing techniques to reduce manufacturing cycle times and inventory
levels thus enabling it to offer on-time delivery and high quality products to
its customers.
Rofin-Sinar's in-house manufacturing includes only those manufacturing
operations which are critical to achieve quality standards or protect
intellectual property. These manufacturing activities consist primarily of
product development, testing of components and subassemblies some of which are
supplied from within the Company and others of which are supplied by third party
vendors and then integrated into the Company's finished products, assembly and
final testing of the completed product, as well as proprietary software design
and hardware/software integration. The Company minimizes the number of suppliers
and component types but, wherever practicable, it has at least two sources of
supply for key items. The Company has a qualifying program for its vendors and
generally seeks to build long-term relationships with such vendors. Roots(R)
blowers (used to accelerate gas flow in its SM-Series fast axial flow CO2
lasers) are the only component the Company purchases from a single supplier. The
Company has no reason to believe it could not purchase such component from
alternative sources of supply on
8
comparable terms. Rofin-Sinar is not dependent on any supplier and has not
experienced any difficulty in obtaining necessary materials and components.
Rofin-Sinar is committed to meeting internationally recognized
manufacturing standards. In 1995, the Company's Hamburg facility received ISO
9001 certification. The Company intends to apply for IS0 9001 certification of
all of its manufacturing sites and anticipates obtaining ISO 9001 certification
of its Gunding-Munich facility during fiscal 1997. The Company expects that its
U.S. operation will be qualified by Ford as a "Q-1" supplier under Ford's "Q-1"
quality management standards in fiscal 1997.
The Company's production is controlled by production planning software.
By reducing the variety of products and options, designing new products on a
modular concept, reducing the number of vendors and the depth of production
through outsourcing, the Company has been able to reduce its manufacturing costs
significantly over the last three years and improved its production efficiency.
Research and Development
During fiscal 1994, 1995 and 1996, Rofin-Sinar spent $6.8 million, $6.7
million and $9.3 million, respectively, on research and development. In
addition, the Company received funding under government grants totaling $0.6
million $1.4 million and $0.8 million in fiscal 1994, 1995 and 1996,
respectively.
Rofin-Sinar's research and development activities are directed at
meeting customers' manufacturing needs and application processes. Core
competences include CO2 gas lasers and Nd:YAG solid state lasers, precision
optics, electronic power supplies, fiber optics, beam delivery, control
interfaces, software programming and systems integration. The Company strives
for customer-driven development activities and promotes the use of alliances
with key customers and joint development programs in a wide range of its target
markets.
The Company's research and development activities are carried out in
three centers in Hamburg and Gunding-Munich, Germany and Plymouth, Michigan and
are centrally coordinated and managed. Rofin-Sinar maintains close working
relationships with the leading industrial, government and university research
laboratories in Germany, including the Fraunhofer Institute for Laser Technology
in Aachen, the Institute for "Technische Physik" of the German Space and
Aerospace Research Center in Stuttgart, the Fraunhofer Institute for Material
Science in Dresden and the Laser Center in Hanover, and elsewhere around the
world, including the University of Alberta in Canada. Such relationships include
funding of research, joint development programs, personnel exchange programs and
licensing of patents developed at such institutes.
In September 1996, the Company agreed on a research program with the
Fraunhofer Institute for Laser Technology to develop a modular 5 kW diode-pumped
Nd:YAG laser. Under this arrangement, the total project budget to be spent by
both parties is approximately DM 6.5 million. Under the terms of the
collaboration, the Company will be granted access to technology already
developed by the Fraunhofer Institute. The Company anticipates that the
project's development and manufacturing scale-up efforts will occur over a
five-year period. No assurance can be given that the collaboration with the
Fraunhofer Institute will be successful.
Intellectual Property
Rofin-Sinar has intellectual property which includes patents,
proprietary software, technical know-how and expertise, designs, process
techniques and inventions. While policies and procedures are in place to protect
critical intellectual properties, Rofin-Sinar believes that its success depends
to a larger extent on the innovative skills, know-how, technical competence and
abilities of the Company's personnel. The Company is also an exclusive licensee
on a worldwide basis of two patents, one of which expires in July 2007 (as to
which the license is exclusive for five years from commercialization of
products) and one of which expires in January 2005 (as to which the license is
9
exclusive for the duration of the patent), covering the diffusion-cooled
technology used in its Slab-Series CO2 lasers for industrial material processing
applications. In the Company's view, the technology protected by these two
patents represents a significant step forward in industrial laser technology for
material processing and an important source of the Company's future growth and
profitability.
Rofin-Sinar protects its intellectual property in a number of ways
including, in certain circumstances, through patents. The Company has sought
patent protection primarily in Germany and the United States. Some patents have
also been registered in other jurisdictions including Great Britain, France,
Italy and Japan. The Company currently holds 32 separate patents for inventions
relating to lasers, processes and power supplies which expire from 1997 to 2014.
In addition, Rofin-Sinar requires its employees and certain of its customers,
suppliers, distributors, agents and consultants to enter into confidentiality
agreements to further safeguard the Company's 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 Company's
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.
In July 1996, the Company received notice of an opposition filed by a
competitor in the European Patent Office ("EPO") which challenges on a number of
grounds one of the two third-party patents licensed by the Company covering
certain aspects of its diffusion-cooled CO2 Slab laser. The U.S.-issued
counterpart of this patent was previously the subject of a reexamination
proceeding in the U.S. Patent and Trademark Office ("PTO") at the conclusion of
which the patent was upheld. While the decision of the PTO is not binding on the
EPO, based on the outcome of the U.S. reexamination proceeding and management's
review of the arguments made in the notice of opposition, the Company believes
that such notice of opposition is without substantial merit. The Company intends
to defend the EPO opposition proceeding vigorously.
In July 1996, the Company received a letter from a manufacturer of
sealed-off, RF-excited CO2 lasers for military and commercial avionics
applications offering a license of its U.S. patents covering such technology in
exchange for a cross-license of the Company's CO2 Slab laser technology. Based
on its review of the patents held by such manufacturer, the Company does not
believe that its products infringe such patents, and it intends to defend
vigorously any infringement action which such party may commence against the
Company.
From time to time, the Company files notices of opposition to certain
patents on laser technologies held by others, including academic institutions
and competitors of the Company, which the Company believes could inhibit its
ability to develop products in this area. In particular, the Company has a
pending notice of opposition against a patent held by a competitor which it
believes conflicts with a third-party patent licensed by the Company covering
certain aspects of its diffusion-cooled CO2 Slab laser. No assurance can be
given that the Company will be able to avoid an action by such competitor or
others or not be forced to initiate its own actions to protect its proprietary
position.
10
Order Backlog
The Company's order backlog was $26.5 million at the end of fiscal 1995
and $35.9 million at the end of fiscal 1996. The Company's order backlog
represents a 35.5% increase over the order backlog at September 30, 1995.
An order is booked by Rofin-Sinar when an unconditional purchase order
has been received where a delivery date has been assigned. Delivery schedules
range from one week to six months, depending on the size, complexity and
availability of the product or system ordered, although typical delivery dates
for laser source products range 8-12 weeks from the date an order is placed.
During fiscal 1996, as the rate of order intake for laser marking products
increased substantially, average delivery dates for such products were for a
time extended by approximately four weeks, but returned to normal delivery
times. Orders in backlog are firm, but are subject to cancellation or
rescheduling by the customer. The Company's backlog of any particular date is
not necessarily indicative of actual sales for any future period.
The Company anticipates filling the present backlog during fiscal 1997.
In the event that the Company's marketing activities in the United States
related to its laser marking systems result in additional demand for such
systems, the Company will need to add manufacturing in the United States in
fiscal 1997. In addition, in the event that the Company is able to implement
anticipated improvements in the product design and manufacturing of its
diffusion-cooled CO2 Slab lasers would enable it to offer such lasers at more
attractive prices, the Company anticipates that it will need to expand its
manufacturing capacity in Europe and in the United States in fiscal 1997 or 1998
in order to satisfy the resulting increase in demand for such products. The
Company estimates that the total capital expenditures required to add such
manufacturing capacity in the United States and Europe would be in the range of
$500,000 to $750,000.
Laser Technology
The term "laser" is an acronym for "Light Amplification by Stimulated
Emission of Radiation." Lasers were first developed in the early 1960s in the
United States. A laser consists of an active lasing medium that gives off its
own light (radiation) when excited, an optical resonator with a partially
reflective output mirror at one end a fully reflective rear mirror at the other
that permits the light to bounce back and forth between the mirrors through the
lasing medium, and an external energy source used to excite the lasing medium. A
laser works by causing the energy source to excite (pump) the lasing medium
which converts the energy from the source into an emission consisting of
particles of light (photons). These photons stimulate the release of more
photons, as they are reflected between the two mirrors which form the resonator.
The resulting build-up in the number of photons is emitted in the form of a
laser beam through an output port or "window." By changing the energy and the
lasing medium, different wavelengths and types of laser light can be produced.
The laser produces light from the lasing medium to achieve the desired
intensity, uniformity and wavelength through a series of reflective mirrors. The
heat generated by the excitation of the lasing medium is dissipated through a
cooling mechanism, which varies according to the type of laser technology.
Employees
At September 30, 1996, Rofin-Sinar had 453 full time employees, of
which 308 were in Germany, 97 were in the United States, 12 in France, 16 in
Italy and 20 in Japan.
While the Company's employees are not covered by collective bargaining
agreements and the Company has never experienced a work stoppage, slowdown or
strike, the Company's employees at its Hamburg and Gunding-Munich facilities are
represented by a seven-person and five-person works council, respectively, as
well as by a four-person central works council. Matters relating to
compensation, benefits and work rules are negotiated
11
and resolved between management and the works council for the relevant location.
The Company considers its relations with its employees to be excellent.
Government Regulation
The majority of the Company's laser products sold in the United States
are classified as Class IV Laser Products under applicable rules and regulations
of the Center for Devices and Radiological Health ("CDRH") of the U.S. Food and
Drug Administration. The same classification system is applied in the European
markets. Safety rules are formulated with Deutsche Industrie Norm (i.e., German
Industrial Standards) or ISO standards which are internationally harmonized.
Such regulations generally require a self-certification procedure pursuant to
which a manufacturer must file with the CDRH with respect to each product
incorporating a laser device, periodic reporting of sales and purchases and
compliance with product labeling standards. The Company's laser products for
cutting and welding and laser marking products can result in injury to human
tissue if directed at an individual or otherwise misused. The Company believes
that its laser products for cutting and welding and laser marking products are
in substantial compliance with all applicable laws for the manufacture of laser
devices.
Risk Factors
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 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. See
"Business--Order Backlog."
12
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 industry,
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 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 $1.5 million credit
at September 30, 1994 to a $5.4 million credit at September 30, 1995 and from
the $5.4 million credit at September 30, 1995 to a $2.2 million credit at
September 30, 1996. These changes arose primarily from the strengthening of the
German mark against the U.S. dollar during the fiscal 1994-1995 period and the
strengthening of the U.S. dollar against such foreign currencies during the
fiscal 1995-1996 period, 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. Although historically the Company's subsidiaries have not paid
dividends, a further area of currency exposure may in the future be represented
by the payment of dividends, if any, by the Company's operating subsidiaries in
their respective functional currencies.
The Company has implemented a policy to hedge up to 50% of its net
foreign currency exposure utilizing forward exchange contracts, forward exchange
options and currency swap contracts. The Company has also implemented a 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 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 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,
13
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. See "Business--Competition."
Risks Relating to Sales Growth in CO2 and Nd:YAG Lasers
In recent years, the Company has experienced a period of rapid growth,
attributable in large part to the demand for its laser marking products. If the
Company is to maintain or 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 increasing
the output power of its diffusion-cooled CO2 Slab laser sources and to
developing diode-pumped Nd:YAG solid state laser products in accordance with
market demand. The Company is currently focused on reducing the manufacturing
costs of its diffusion-cooled CO2 Slab lasers to achieve more attractive
pricing. The Company's diode-pumped lasers, however, are in an early stage of
development and are not expected to result in marketable products prior to 1998.
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. If the Company is unable to implement its strategy of
increasing its market share for laser marking products and of expanding its
product range to include higher output power diffusion-cooled CO2 Slab lasers
and diode-pumped Nd:YAG solid state lasers at attractive prices, it may not be
able to achieve its anticipated rate of growth, 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, increase the output power of its diffusion-cooled CO2
Slab laser sources 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. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "--The Company's Laser Products."
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.
Although management expects to analyze any such opportunity carefully before
committing the Company's resources, 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 Company's
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.
14
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 32 United States and foreign patents on its laser
sources which expire from 1997 to 2014. 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 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. See
"Business--Intellectual Property."
Risks Associated with International Operations
The Company's products are currently marketed in approximately 25
countries, with Germany, the rest 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 from time to time 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.
Item 2. Properties
The Company's manufacturing facilities include the following:
Location of Facility Owned or Leased Size (sq. ft.) Primary Activity
- ------------------------- --------------- -------------- ---------------------
Hamburg, Germany......... Owned* 110,840 CO2 lasers, Nd: YAG
lasers
Gunding-Munich, Germany.. Leased 36,849 Nd: YAG lasers, laser
marking products
Plymouth, Michigan....... Leased 58,075 CO2 lasers
Sakai Atsugi-shi, Japan.. Leased 11,100 CO2 lasers
- ----------
* The facility is owned by RSL; the real property on which the facility is
located is leased by RSL under a 99-year lease.
The Company's leases of its facilities in Plymouth, Michigan and
Gunding-Munich, Germany expire in 1998 (with renewal options until 2001) and
2005, respectively. The leases on its Japanese facilities in Atsugi-shi expire
in 1997 (renewable for two years) and in 1998 (renewable for three years).
The Company maintains sales, administration and research and
development facilities at each of the Hamburg, Gunding-Munich and Plymouth
locations. The Company also maintains sales and service offices worldwide, all
of which are leased.
15
Except as noted under Item 1 above under "--Order Backlog," the Company
believes that its existing facilities are adequate to meet its needs for the
next 12 months and that suitable additional or alternative space would be
available, if necessary, in the future on commercially reasonable terms. The
Company expects to make additional capital expenditures to support its
diode-pumped solid state laser development activities and add manufacturing and
testing capacity in North America for selected components and products, which
may also require certain leasehold improvements in the Company's Plymouth,
Michigan facility.
Item 3. Legal Proceedings
There are no pending material legal proceedings to which the Company is
a party.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the security holders
during the fourth quarter of fiscal 1996.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's Common Stock commenced trading under the symbol RSTI on
the Nasdaq National Market on September 26, 1996. The table below sets forth the
high and low closing bid prices of the Company's Common Stock during the last
three days of the fourth quarter of fiscal 1996 as reported by the National
Association of Securities Dealers, Inc.:
Common Trade Prices
-------------------
Quarter ended High Low
- ------------- ------- ---
September 30, 1996 $11 3/4 $10
At December 20, 1996, the Company had approximately eight holders of
record of its Common Stock and 11,510,500 shares outstanding. The Company has
not paid dividends on its Common Stock and does not anticipate paying dividends
in the foreseeable future.
16
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data for
the four fiscal years ended September 30, 1996. The information set forth below
should be read in conjunction with the consolidated financial statements and
notes thereto filed as part of this annual report.
Year ended September 30,
---------------------------------------------------
1993 1994 1995 1996
-------- -------- -------- --------
(in thousands, except share amounts)
Statement of Income Data:
Net sales 60,034 69,217 92,466 115,903
Cost of goods sold 47,745 46,993 57,162 72,096
Gross profit 12,289 22,224 35,304 43,807
Selling, general, and administrative expenses 21,951 17,059 20,673 21,246
Research and development expenses 10,276 6,834 6,719 9,335
Income (loss) from operations (19,938) (1,669) 7,912 13,226
Net interest expense 1,654 1,308 1,272 1,010
Income (loss) before income taxes (21,386) (3,116) 6,265 12,244
Net tax expense (benefit) (1,565) (1,422) 3,052 4,956
Net income (loss) (19,821) (1,694) 3,213 7,288
Pro forma net income per common share 0.37 0.84
Shares used in computing pro forma net income 8,631,578 8,639,498
per share
Operating Data:
As percentage of sales:
Gross profit 20.5% 32.1% 38.2% 37.8%
Selling, general and administrative expenses 36.6% 24.6% 22.4% 18.3%
Research and development expenses 17.1% 9.9% 7.3% 8.1%
Income (loss) from operations (33.2%) (2.4%) 8.6% 11.4%
Income (loss) before income taxes (35.6%) (4.5%) 6.8% 10.6%
Balance Sheet Data:
Working capital 7,672 4,927 14,530 56,138
Total assets 84,580 7,667 90,995 133,147
Line of credit and loans 22,196 22,380 21,805 24,780
Stockholders' equity 35,837 30,583 39,673 78,000
Other Data:
Depreciation and amortization 2,803 2,527 2,364 2,449
Backlog 12,500 17,000 26,500 35,900
Sales per employee 135 184 227 256
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Rofin-Sinar 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 fiscal 1996, approximately
72% of the Company's revenues were from sales and servicing of laser products
for cutting and welding applications and approximately 28% were from sales and
servicing of laser products for marking applications.
Restructuring
The Machine Tool industry experienced a significant downturn during the
global recession in the early 1990's as end-users, particularly in the heavy
manufacturing industries, reduced their investment in new technologies and
postponed modernizing their production facilities in the face of adverse
business conditions. In light of this change in market conditions, in 1993 the
Company undertook a major restructuring program to reduce its manufacturing
costs, fixed costs and overhead and better position the Company to benefit from
improving business conditions. This restructuring was completed in fiscal 1995.
With the improvement of economic conditions in the United States in
1994 and in Europe in 1995, manufacturers of lasers for material processing have
experienced rapid growth, driven primarily by pent-up demand as industrial
end-users worldwide modernize their manufacturing facilities to reduce
production costs and increase efficiency. The Company experienced significant
financial improvement during 1994, 1995 and 1996, primarily reflecting improving
economic conditions, the benefits of the restructuring undertaken in 1993 and
1994 and the implementation of the Company's current business strategy.
Rofin-Sinar's worldwide sales increased from $60.0 million for the fiscal year
ended September 30, 1993 to $115.9 million for the fiscal year ended September
30, 1996, representing a compounded annual growth rate of approximately 25% per
annum. This increase was due principally to growth in sales across the Company's
entire product range and in all three principal geographic markets, with the
strongest growth in sales of the Company's laser marking products, which
increased from $10.1 million to $32.0 million over such three-year period. The
growth in the Company's net sales since fiscal 1993 has allowed the Company to
realize improved operating leverage by producing larger unit volumes over
relatively lower costs and by negotiating more favorable terms for purchases of
components and subassemblies. While the Company expects to continue to see
growth in fiscal 1997 and 1998, with the strongest long-term gains in the
Asia/Pacific region principally in laser cutting and marking applications, there
can be no assurance that the Company's recent rate of growth will be maintained.
The laser industry continues to be characterized by significant price
competition. As part of its ongoing strategy, the Company is continuing its
efforts to contain costs in order to improve its cost structure.
Currency Exchange Rates
The Company's Consolidated Financial Statements are prepared in U.S.
dollars. 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 and Japanese yen. 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 United States dollars are
accumulated as a separate component of equity. The currency translation
adjustment component of shareholders' equity changed from a $1.5 million credit
at September 30, 1994 to a $5.4 million credit at September 30, 1995 and from
the $5.4 million credit at September 30, 1995 to a $2.2 million credit at
September 30, 1996. These changes arose primarily from the strengthening of the
18
German mark and such other functional currencies against the U.S. dollar during
the fiscal 1994-1995 period and the strengthening of the U.S. dollar against
such foreign currencies during the fiscal 1995-1996, 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 relevant functional
currencies against the U.S. dollar has had the effect of increasing or
decreasing (as applicable) reported net sales, as well as cost of goods sold 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 following table illustrates the effect of the changes in exchange
rates on the Company's fiscal 1994, 1995 and 1996 net sales, gross profit and
income from operations, which have been recalculated to show what such amounts
would have been applying 1993 average exchange rates to 1994 amounts, 1994
average exchange rates to 1995 amounts, and 1995 average exchange rates to 1996
amounts.
Fiscal 1994 Fiscal 1995 Fiscal 1996
----------------------- ----------------------- -----------------------
In 1993 In 1994 In 1995
Exchange Exchange Exchange
Actual Rates Actual Rates Actual Rates
------ -------- ------ -------- ------ --------
(in millions)
Net sales $69.2 $69.8 $92.5 $85.4 $115.9 $117.2
Gross profit 22.2 22.5 35.3 32.2 43.8 44.3
Income (loss) from operations (1.7) (1.7) 7.9 7.2 13.2 13.4
Between fiscal 1993 and 1994, the German mark weakened against the U.S.
dollar by approximately 1.9%. The impact of this weakening of the German mark
was to decrease net sales and gross profit by $0.6 million and $0.3 million,
respectively, with no impact on loss from operations. Between fiscal 1994 and
1995, the German mark strengthened against the U.S. dollar by approximately 14%.
The impact of this strengthening of the German mark was to increase net sales,
gross profit and income from operations by $7.1 million, $3.1 million and $0.7
million, respectively. Between fiscal 1995 and 1996, the German mark weakened
against the U.S. dollar by approximately 1.7%. The impact of this weakening of
the German mark was to decrease net sales, gross profit and income from
operations by $1.3 million, $0.5 million and $0.2 million, respectively.
The Company has implemented a policy to hedge up to 50% of its net
foreign currency exposure utilizing forward exchange contracts, forward exchange
options and currency swap contracts. The Company has also implemented a policy
to continue to borrow in each operating subsidiary's functional currency to
reduce its exposure to foreign currency gains and losses. There can be no
assurance, however, that changes in currency exchange rates will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Taxes
The Company's subsidiaries pay taxes in many jurisdictions and the
provisions for income taxes in the Company's Consolidated Financial Statements
are based on separate local tax computations. On a consolidated basis, this
practice may result in the Company incurring income tax expense even though it
may not have consolidated pre-tax income or in paying taxes in excess of pre-tax
income if some of its subsidiaries are not profitable while others are. See Note
9 of the Notes to the Consolidated Financial Statements. In particular, because
of the Company's substantial operations in Germany, the Company historically has
had a higher effective tax rate than many of its competitors who do not have
operations in Germany.
19
The Company currently generates taxable income, principally in Germany
and the United States. German corporate tax law applies the imputation system
with regard to the taxation of the income of a corporation (such as RSL). In
general, retained corporate income is subject to a municipal trade tax (which
for Hamburg and Gunding on a combined basis is 16.7%), which is deductible for
federal corporate income tax purposes, a federal corporate income tax rate of
45% (50% prior to January 1, 1994) and, effective January 1, 1995, a surcharge
of 7.5% on the federal corporate income tax amount.
Profits which are distributed by a German corporate taxpayer (such as
RSL) in the form of a dividend are subject to a reduced federal corporate income
tax rate of 30% (36% prior to January 1, 1994) plus the 7.5% surcharge on the
federal corporate income tax amount calculated at the reduced rate. Dividends
paid by RSL to Rofin-Sinar Technologies Inc. will be subject to withholding tax
at a rate of 5% pursuant to the income tax treaty currently in effect between
the United States and Germany.
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.
Fiscal Year Ended September 30,
-------------------------------
1994 1995 1996
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 67.9% 61.8% 62.2%
Gross profit 32.1% 38.2% 37.8%
Selling, general and administrative expenses 24.6% 22.4% 18.3%
Research and development expenses 9.9% 7.3% 8.1%
Income (loss) from operations (2.4%) 8.6% 11.4%
Income (loss) before income taxes (4.5%) 6.8% 10.6%
Net income (loss) (2.4%) 3.5% 6.3%
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales of $115.9 million for fiscal 1996 increased by
$23.4 million, or 25.3%, over the prior year. The improvement resulted from net
sales increases of $15.2 million, or 24.9%, in Europe and the Asia/Pacific
region and $8.3 million, or 26.2%, in the United States. The growth in Europe
and the Asia/Pacific region resulted from continuing increases in sales volume
of the Company's integrated circuit laser marking application in the
Asia/Pacific region, the introduction of the Company's Slab-Series laser product
and the recovery of the Machine Tool market in Japan. The increase in net sales
in the United States was due principally to increased shipments to the Machine
Tool and Automotive markets, with the largest portion of growth attributable to
increased sales volume of CO2 lasers for cutting applications and spare parts
and the introduction of the Company's laser marking products in the United
States. The effect of currency translation on net sales was immaterial.
Cost of Goods Sold. Cost of goods sold of $72.1 million in fiscal 1996
increased by $14.9 million, or 26.1%, over the prior year, and reflected the
increase in net sales.
20
Gross Profit. The Company's gross profit of $43.8 million for fiscal
1996 increased by $8.5 million, or 24.1%, over the prior year as a result of the
increase in net sales in fiscal 1996 as compared to the prior year. As a
percentage of net sales, gross profit decreased from 38.2% in fiscal 1995 to
37.8% in fiscal 1996, primarily due to the change in the product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (which include the cost of application development) of
$21.2 million for fiscal 1996 increased by 2.8% over the prior year due to the
increase in net sales. However, as a percentage of net sales, selling, general
and administrative expenses declined from 22.4% in fiscal 1995 to 18.3% in
fiscal 1996, reflecting the Company's continuing control of these expenses. Cost
efficiencies were gained via a higher mix of both multiple unit orders and a
higher percentage of sales through the direct sales force versus independent
sales representatives.
Research and Development Expenses. Research and development expenses of
$9.3 million for fiscal 1996 (which are incurred primarily in German marks and
are net of government grants) increased $2.6 million, or 38.9% over fiscal 1995.
This represents an increase in research and development expenses as a percentage
of sales from 7.3% in fiscal 1995 to 8.1% in fiscal 1996 attributable in part to
the commencement of the Company's diode pumped solid state laser program. In
1995, research and development expenses were below average due to higher
government grants.
Income from Operations. The Company's income from operations of $13.2
million for fiscal 1996 increased by $5.3 million, or 67.2%, over the prior
year. As a percentage of sales, income from operations was 11.4% in fiscal 1996
as compared to 8.6% in the prior year, primarily as a result of the reduction in
selling, general and administrative expenses as a percentage of net sales. The
effect of currency translation on income from operations was immaterial. Net
sales per employee increased from $227,000 in fiscal 1995 to $256,000 in fiscal
1996, a productivity increase of 12.8%.
Income Before Income Taxes. The Company's income before income taxes of
$12.2 million in fiscal 1996 increased by $6 million over the prior period. As a
percentage of net sales, income before income taxes was 10.6% in fiscal 1996, as
compared to 6.8% in the prior period, as a result of the increase in income from
operations and the decrease in interest expense accrued under the Company's
intercompany lines of credit with the Company's former parent and borrowing
facilities utilized by its joint venture subsidiary in Japan due to lower
interest rates.
Income Tax Expense. Income tax expense was $5.0 million in fiscal 1996
compared to an income tax expense of $3.1 million in the prior year. The
effective tax rates for fiscal 1996 and 1995 were 40.5% and 48.7%, respectively.
The effective tax rates were higher than the U.S. statutory rate of 35%
principally as a result of earnings taxed at higher foreign statutory rates and
foreign operating losses for which no benefit was recognized in fiscal 1995.
Net Income. As a result of the foregoing factors, the Company's net
income of $7.3 million (pro forma $0.84 per share) in fiscal 1996 increased by
$4.1 million over the prior year's net income of $3.2 million (pro forma $0.37
per share).
Fiscal 1995 Compared to Fiscal 1994
Net Sales. Net sales of $92.5 million for fiscal 1995 increased by
$23.2 million, or 33.6%, over the prior year. The improvement resulted from net
sales increases of $20.6 million, or 51.2%, in Europe and the Asia/Pacific
region and $2.6 million, or 9%, in the United States. The growth in Europe and
the Asia/Pacific region resulted primarily from the substantial increase in the
sales volume of the Company's laser marking products in the Asia/Pacific region,
as well as the strong recovery in Europe of the Machine Tool and Automotive
markets due to pent-up demand, which resulted in higher volume as well as a
shift in product mix toward higher-margin high-power
21
products. In addition, approximately $7.5 million, or 36.4% of the increase in
Europe and the Asia/Pacific region, resulted from currency translation as the
German mark strengthened against the U.S. dollar. The increase in the United
States was due principally to the increased volume of shipments to the improving
Machine Tool and Automotive markets, with the largest portion of growth in sales
of CO2 lasers for cutting applications and related service and spare parts.
Because the recovery in both these markets began in 1994, the percentage
increase in the United States was lower in 1995 compared to 1994.
Cost of Goods Sold. Cost of goods sold of $57.2 million for fiscal 1995
increased by $10.2 million, or 21.6%, over the prior year, but as a percentage
of net sales declined from 67.9% in fiscal 1994 to 61.8% in fiscal 1995. The
decrease in the cost of goods sold as a percentage of net sales reflected higher
capacity utilization in Germany during the period, as the Company recognized the
benefits of the restructuring undertaken in Germany in fiscal 1993 and 1994, as
well as the outsourcing of the German subsidiary's machine shop operation.
Gross Profit. The Company's gross profit of $35.3 million for fiscal
1995 increased by $13.1 million, or 58.9%, over the prior year, as a result of
the increase in net sales in fiscal 1995 as compared to fiscal 1994 and the
decrease in cost of goods sold as a percentage of net sales. As a percentage of
net sales, gross profit increased from 32.1% in fiscal 1994 to 38.2% in fiscal
1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (which include the costs of application development) of
$20.7 million for fiscal 1995 increased by $3.6 million, or 21.2%, over fiscal
1994. However, as a percentage of net sales, selling, general and administrative
expenses declined from 24.6% in fiscal 1994 to 22.4% in fiscal 1995 as the
Company continued to control these expenses despite a significant increase in
marketing activity in the Asia/Pacific region related to the Company's laser
marking products and the launch of the Company's HF cross-flow laser in the
United States.
Research and Development Expenses. Research and development expenses of
$6.7 million (which are incurred principally in German marks and are net of
government grants) remained essentially unchanged from fiscal 1994 to fiscal
1995, decreasing by only $0.1 million, or 1.7%. Although research and
development expenses declined as a percentage of sales from 9.9% in fiscal 1994
to 7.3% in fiscal 1995 due to the increase in sales in fiscal 1995, total
research and development spending rose due to an increase in government grants
in fiscal 1995.
Income (Loss) from Operations. The Company's income from operations of
$7.9 million for fiscal 1995 increased by $9.6 million over fiscal 1994. As a
percentage of net sales, income from operations was 8.6% in fiscal 1995 as
compared to (2.4%) in fiscal 1994, as a result of higher gross margins and the
reductions in selling, general and administrative expenses and research and
development expenses as a percentage of net sales. Approximately $0.7 million,
or 7.3%, of the increase in income from operations resulted from currency
translation as the German mark and other relevant functional currencies
strengthened against the U.S. dollar. Net sales per employee increased from
$184,000 in fiscal 1994 to $227,000 in fiscal 1995, a productivity increase of
23.4%.
Income (Loss) Before Income Taxes. The Company's income before income
taxes of $6.3 million in fiscal 1995 increased by $9.4 million over fiscal 1994.
As a percentage of net sales, income before income taxes was 6.8% in fiscal
1995, as compared to (4.5%) in fiscal 1994, as a result of the increase in
income from operations, which was offset by a slight increase in other expense
of $0.2 million over fiscal 1994.
Income Tax Expense (Benefit). Income tax expense was $3.1 million in
fiscal 1995 compared to ($1.4 million) in fiscal 1994. As a percentage of income
(loss) before income taxes, income tax expense was 48% in fiscal 1995 and income
tax benefit was (45%) in fiscal 1994, respectively, and reflected the fact that
in fiscal 1995 all of the Company's operations except its Japanese joint venture
reported pre-tax income. The effective tax rate in fiscal 1995 of 48.7% was
higher than the U.S. statutory rate of 35% principally as a result of earnings
taxed at higher foreign statutory rates and foreign operating losses for which
no tax benefit was recognized.
22
Net Income (Loss). As a result of the foregoing factors, the Company
recorded net income of $3.2 million in fiscal 1995 as compared to ($1.7 million)
in fiscal 1994.
Liquidity and Capital Resources
The Company has historically funded its cash requirements through cash
flow from operations, capital contributions and advances from the Company's
former parent and its affiliates pursuant to intercompany lines of credit, as
well as through borrowings under credit facilities guaranteed by a former parent
affiliate. At September 30, 1996, the amount outstanding under such intercompany
lines of credit from the former parent and its affiliates was $18.4 million. At
such date, the Company also had outstanding bank debt of $6.4 million.
The Company completed its initial public offering of 11,500,000 shares
of its Common Stock on September 30, 1996 for net proceeds of $102.7 million
(before deduction of other offering expenses borne proportionately by Siemens
and the Company). Of such amount, approximately $82 million of the gross
proceeds ($77.1 million of the net proceeds) were used to purchase all
outstanding shares of RSL and RSI from Siemens and its affiliates and to repay
certain indebtedness owed to Siemens and its affiliates.
Net cash provided by (used in) operating activities was $6.1 million,
($0.2 million) and $5.9 million in fiscal 1996, 1995 and 1994, respectively.
Cash flow from operations in fiscal 1996 increased by $6.3 million compared to
the prior year primarily due to increased net income, as well as increases in
income taxes payable, accrued liabilities and pension obligation. Cash flow from
operations in fiscal 1995 decreased $6.0 million compared to the prior year
despite the improvement in the Company's results of operations, principally as a
result of increased receivables and inventories, offset by increases in trade
payables, deferred income taxes, accrued liabilities and pension obligation.
Trade accounts receivable, net of allowances, increased $6.1 million to
$31.2 million at September 30, 1996 from September 30, 1995 and $7.3 million to
$25.1 million at September 30, 1995 from September 30, 1994. Inventories
increased $6.2 million to $34.4 million at September 30, 1996 from September 30,
1995 and $7.5 million to $28.2 million at September 30, 1995 from September 30,
1994. The increase in receivables was due primarily to growth in net sales. A
portion of the increase in receivables was attributable to the increased
proportion of sales to customers in Japan, where payment terms are normally
longer. Inventories increased primarily to support the growth in net sales, and
also included increases in inventory levels related to the introduction of new
products such as the Slab-Series laser (including units held by the Company in
its applications centers and for demonstration to customers), as well as
rescheduling of delivery dates on sales of laser markers.
Cash used in investing activities was $1.9 million, $1.4 million, and
$0.3 million in fiscal 1996, 1995, and 1994, respectively. The increase in cash
used for investing activities in periods subsequent to fiscal 1994 was primarily
attributable to increased capital expenditures, offset by sales of equipment.
Capital expenditures were $2.0 million, $1.9 million, and $0.5 million in fiscal
1996, 1995, and 1994, respectively. The increase in fiscal 1996 was primarily
due to the expansion of production facilities for the Company's Laser Marking
Division in Gunding, Germany, by $0.6 million. In general, these increases
reflect the acquisition of additional manufacturing and research and development
equipment, as well as investment in computers and telecommunications equipment.
Cash provided by (used in) financing activities primarily reflects
payments on borrowings from the Company's former parent, as well as the net
proceeds from the Company's initial public offering.
The Company has obtained a credit line for a one-year $25 million
revolving loan facility with Deutsche Bank AG ("Deutsche Bank") to support its
working capital needs (the "Credit Facility"). Borrowings under such facility
will be made at market rates of interest at the time of each such borrowing. As
is customary for German banks in their commercial lending practices, the Credit
Facility will be governed by the General Business Conditions
23
of Deutsche Bank (the "General Business Conditions"). Although the terms of the
credit line relating to the Credit Facility do not require that any security be
granted by the Company to Deutsche Bank initially, the General Business
Conditions provide that Deutsche Bank may nonetheless make such a demand at a
later time in the event that the economic status of the Company has changed or
threatens to change in a negative manner.
Recently Issued Accounting Standards
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation." Effective for
fiscal years beginning after December 15, 1995, Statement No. 123 encourages
companies to include the fair value of any stock awards issued as compensation
expense within their income statements. Companies that choose to remain with
Accounting Principles Board Opinion No. 25 (which uses the intrinsic value
method to account for stock awards) must disclose pro forma net income and
earnings per share as if the fair value of the award had been included as
compensation expense. The Company anticipates remaining with the intrinsic value
method.
On March 31, 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This Statement provides guidance for
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill related both to assets to be held and used
and assets to be disposed of. The Company intends to adopt this Statement as of
the first quarter of its next fiscal year and anticipates that the effect of
such adoption will be immaterial.
Pension Plan Liabilities
The Company has defined benefit pension plans for substantially all of
its German and U.S. employees. As is the normal practice with German companies,
the German plan is unfunded. In accordance with the terms of an agreement
between Rofin-Sinar, Inc. and the Company's former parent, the Projected Benefit
Obligation of the U.S. Plan was funded by the Company's former parent in
December of 1996. At September 30, 1996, the amount of the accrued pension
liability for both the German and U.S. plans was approximately $3.5 million.
Item 8. Financial Statements and Supplementary Data
See Item 14(a) for an index to the consolidated financial statements.
No supplementary financial information is required to be presented pursuant to
Item 302(a) of Regulation S-K.
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
24
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is included in the "Election of
Directors", "Directors and Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" sections of the Company's Proxy Statement to be
filed in connection with the Company's 1997 Annual Meeting of Stockholders to
held in March 1997 and is incorporated by reference herein.
Item 11. Executive Compensation
The information required by this Item is included in the "Executive
Compensation and Related Information" section of the Company's Proxy Statement
to be filed in connection with the Company's 1997 Annual Meeting of Stockholders
to held in March 1997 and is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is included in the "Security
Ownership of Certain Beneficial Owners" and "Management" sections of the
Company's Proxy Statement to be filed in connection with the Company's 1997
Annual Meeting of Stockholders to held in March 1997 and is incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is included in the "Compensation
Committee", "Interlocks and Insider Participation" and "Certain Transactions"
sections of the Company's Proxy Statement to be filed in connection with the
Company's 1997 Annual Meeting of Stockholders to held in March 1997 and is
incorporated by reference herein.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. 1. Consolidated Financial Statements
The following financial statements are filed as part of this
annual report.
Independent Auditors' Report F-1
Consolidated Balance Sheets as of September 30, 1995 and 1996 F-2
Consolidated Statements of Operations for the years ended
September 30, 1994, 1995, and 1996 F-3
25
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1994, 1995 and 1996 F-4
Consolidated Statements of Cash Flows for the years ended
September 30, 1994, 1995 and 1996 F-5
Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules
Independent Auditors' Report F-17
Schedule II--Valuation and Qualifying Accounts F-18
Schedules not listed above have been omitted because the matter or
conditions are not present or the information required to be set forth
therein is included in the Consolidated Financial Statements hereto.
3. Exhibits
The exhibits listed in the accompanying index to exhibits is filed or
incorporated by reference as part of this annual report.
b. Reports on Form 8-K
The Registrant filed a report on Form 8-K on November 22, 1996
reporting its financial results for the quarter and fiscal year ended
September 30, 1996.
c. Exhibits
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
Exhibit
Number Description Page
3.1 -- Certificate of Incorporation of the Company and Form of Certificate of
Amendment thereto*
3.2 -- By-laws of the Company*
4.1 -- Form of Rights Agreement*
10.1 -- Form of Sale and Transfer Agreement between Siemens Aktiengesellschaft
and Rofin-Sinar Technologies Inc.*
10.2 -- Form of Sale and Transfer Agreement by and among Siemens Power
Corporation and Rofin-Sinar Technologies Inc.*
10.3 -- Form of Tax Allocation and Indemnification Agreement among Rofin-Sinar
Technologies Inc., Rofin-Sinar Inc., Siemens Corporation and Siemens
Power Corporation*
10.4 -- Joint Venture Agreement, dated as of May 27, 1992, by and among Rofin
Sinar Laser GmbH, Marubeni Corporation and Nippei Toyama Corporation*
10.5 -- Cooperation Agreement, dated as of May 27, 1992, among Nippei Toyama
Corporation, Rofin-Sinar Laser GmbH and Marubeni Corporation*
10.6 -- Cooperation Agreement, dated as of May 27, 1992, among Rofin Sinar
Laser GmbH, Marubeni Corporation and Nippei Toyama Corporation*
26
10.7 -- Inheritable Building Right (Erbbaurecht), dated as of March 1, 1990,
between Rofin Sinar Laser GmbH and Lohss GmbH (in German, English
summary provided)*
10.8 -- Lease Agreement, dated August 10, 1990, between Josef and Maria Kranz
and Rofin Sinar Laser GmbH (in German, English summary provided)*
10.9 -- Lease Agreement, dated June 14, 1989, between DR Group and Rofin-Sinar
Incorporated (Mast Street property)*
10.10 -- Lease Agreement, dated March 25, 1993 between DR Group and Rofin-Sinar
Incorporated (Plymouth Oaks Drive property)*
10.11 -- Rofin-Sinar Laser GmbH Pension Plan (in German, English summary
provided)*
10.12 -- Form of 1996 Equity Incentive Plan*
10.13 -- Form of 1996 Non-Employee Directors' Stock Plan*
10.14 -- Deutsche Bank AG Commitment Letter dated August 22, 1996*
10.15 -- Form of Employment Agreement, dated as of September 2, 1996, among
Peter Wirth, Rofin-Sinar Laser GmbH and Rofin-Sinar Technologies Inc.
(in German, English summary provided)*
10.16 -- Form of Employment Agreement, dated as of September 2, 1996, among
Hinrich Martinen, Rofin-Sinar Laser GmbH and Rofin-Sinar Technologies
Inc. (in German, English summary provided)*
10.17 -- Form of Employment Agreement, dated as of September 2, 1996, among
Gunther Braun, Rofin-Sinar Laser GmbH and Rofin-Sinar Technologies
Inc. (in German, English summary provided)*
11.1 -- Statement of earnings per share
21.1 -- List of Subsidiaries of the Registrant*
23.1 -- Consent of KMPG Peat Marwick LLP
27.1 -- Financial Data Schedule for fiscal year ended September 30, 1996
- ------------------------------
* Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (File No. 333-09539) which was
declared effective on September 25, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 30, 1996 ROFIN-SINAR TECHNOLOGIES INC.
By: /s/ Peter Wirth
_____________________________________
Peter Wirth
Chairman of the Board, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Peter Wirth
- ------------------------ Chairman of the Board of December 30, 1996
Peter Wirth Directors, Chief Executive
Officer and President
/s/ Hinrich Martinen
- ------------------------ Executive Vice President, December 30, 1996
Hinrich Martinen Research and Development/
Operations, Chief Technical
Officer and Director
/s/ Gunther Braun
- ------------------------ Executive Vice President, December 30, 1996
Gunther Braun Finance and Administration,
Chief Financial Officer,
Principal Accounting Officer
and Director
/s/ William R. Hoover
- ------------------------ Director December 30, 1996
William R. Hoover
/s/ Ralph E. Reins
- ------------------------ Director December 30, 1996
Ralph E. Reins
/s/ Gary K. Willis
- ------------------------ Director December 30, 1996
Gary K. Willis
Independent Auditors' Report
The Board of Directors and Stockholders
Rofin-Sinar Technologies Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Rofin-Sinar
Technologies Inc. and Subsidiaries as of September 30, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rofin-Sinar
Technologies Inc. and Subsidiaries as of September 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Detroit, Michigan
November 6, 1996
F-1
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, September 30,
1995 1996
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 691 $ 34,869
Trade accounts receivable 26,404 32,198
Less allowance for doubtful accounts (1,252) (963)
--------- ---------
Trade accounts receivable, net 25,152 31,235
Other accounts receivable 1,264 1,448
Inventories (note 2) 28,169 34,353
Prepaid expenses 184 247
Deferred income tax assets - current (note 9) 6,614 5,494
--------- ---------
Total current assets 62,074 107,646
Property and equipment, at cost (note 3) 41,352 40,333
Less accumulated depreciation (14,237) (15,598)
--------- ---------
Property and equipment, net 27,115 24,735
Deferred income tax assets - noncurrent (note 9) 1,574 624
Other assets 232 142
--------- ---------
Total assets $ 90,995 $ 133,147
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (note 6) $ 18,900 $ 18,426
Bank loans (note 5) 2,905 6,354
Advances from former Parent (note 6) 7,000 --
Accounts payable, trade 5,640 5,508
Income taxes payable (note 9) -- 3,636
Accrued liabilities (note 4) 11,496 17,086
Deferred income tax liability - current (note 9) 1,603 498
--------- ---------
Total current liabilities 47,544 51,508
Pension obligations (note 8) 3,762 3,518
Deferred income tax liability - noncurrent (note 9) -- 95
Minority interests 16 26
--------- ---------
Total liabilities 51,322 55,147
Commitments and contingencies (note 7)
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none
issued or outstanding -- --
Common stock, $0.01 par value, 50,000,000 shares
authorized, 11,510,500 shares issued and outstanding -- 115
Additional paid-in capital -- 75,700
Parent's capital 34,224 --
Cumulative foreign currency translation adjustment 5,449 2,185
--------- ---------
Total stockholders' equity 39,673 78,000
--------- ---------
Total liabilities and stockholders' equity $ 90,995 $ 133,147
========= =========
See accompanying notes to consolidated financial statements.
F-2
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
Years ended September 30,
----------------------------------------
1994 1995 1996
----------- ----------- -----------
Net sales $ 69,217 $ 92,466 $ 115,903
Cost of goods sold 46,993 57,162 72,096
----------- ----------- -----------
Gross profit 22,224 35,304 43,807
-----------
Selling, general, and administrative expenses 16,228 19,124 20,762
Provision for doubtful accounts 831 1,549 484
Research and development expenses 6,834 6,719 9,335
----------- ----------- -----------
Income (loss) from operations (1,669) 7,912 13,226
Other expense (income):
Interest expense, net (notes 5 and 6) 1,308 1,272 1,010
Minority interest 5 9 10
Miscellaneous 134 366 (38)
----------- ----------- -----------
Total other expense, net 1,447 1,647 982
----------- ----------- -----------
Income (loss) before income taxes (3,116) 6,265 12,244
Income tax expense (benefit) (note 9) (1,422) 3,052 4,956
----------- ----------- -----------
Net income (loss) $ (1,694) $ 3,213 $ 7,288
=========== =========== ===========
Pro forma net income per share $ 0.37 $ 0.84
=========== ===========
Weighted average shares used in computing
pro forma net income per share 8,631,578 8,639,498
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1994, 1995 and 1996
(dollars in thousands)
Cumulative
Foreign
Common Additional Currency Total
Stock Paid-in Parent's Translation Stockholders'
Par Value Capital Capital Adjustment Equity
--------- ---------- --------- ----------- -------------
BALANCES at September 30, 1993 $ -- $ -- $36,006 $(169) $35,837
Foreign currency translation adjustment -- -- -- 1,638 1,638
Capital distributions to former Parent -- -- (5,198) -- (5,198)
Net loss -- -- (1,694) -- (1,694)
======= ========== ======== ======== ========
BALANCES at September 30, 1994 -- -- 29,114 1,469 30,583
Foreign currency translation adjustment -- -- -- 3,980 3,980
Capital contributions from former Parent -- -- 1,897 -- 1,897
Net income -- -- 3,213 -- 3,213
======= ========== ======== ======== ========
BALANCES at September 30, 1995 -- -- 34,224 5,449 39,673
Foreign currency translation adjustment -- -- -- (3,264) (3,264)
Capital contributions from former Parent -- -- 1,938 -- 1,938
Net income -- -- 7,288 -- 7,288
Public sale of common stock, net of expenses 115 75,700 (43,450) -- 32,365
------- ---------- -------- -------- --------
BALANCES at September 30, 1996 $115 $75,700 $ -- $2,185 $78,000
======= ========== ======== ======== ========
See accompanying notes to consolidated financial statements.
F-4
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Years ended September 30,
-----------------------------------------
1994 1995 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,694) $ 3,213 $ 7,288
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 2,527 2,364 2,449
Provision for doubtful accounts 831 1,549 (484)
Loss on disposal of property and equipment 32 214 7
Deferred income taxes (1,328) 2,476 1,118
Minority interest in gains of subsidiary 5 9 10
Change in operating assets and liabilities:
Trade accounts receivable 3,138 (8,232) (6,387)
Other accounts receivable (5) (184) (373)
Inventories 3,846 (6,204) (6,976)
Prepaid expenses and other 60 235 8
Accounts payable, trade (1,961) 2,782 (249)
Income taxes payable -- -- 3,636
Accrued liabilities and pension obligation 414 1,619 6,049
--------- --------- ---------
Net cash provided (used) by operating
activities 5,865 (159) 6,096
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture and equipment (452) (1,936) (1,955)
Proceeds from sale of furniture and equipment 201 553 91
Investment in subsidiary -- (19) --
--------- --------- ---------
Net cash used by investing activities (251) (1,402) (1,864)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in parent capital (5,198) 1,897 1,938
Repayment of former parent loans -- -- (7,473)
Public sale of common stock, net of expenses -- -- 102,445
Purchase of RSI and RSL stock -- -- (70,080)
Borrowings from bank -- -- 6,318
Repayments to bank (79) (515) (3,129)
--------- --------- ---------
Net cash provided (used) by financing
activities (5,277) 1,382 30,019
--------- --------- ---------
Effect of foreign currency translation on cash (88) 31 (72)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 249 (148) 34,179
Cash and cash equivalents at beginning of year 590 839 691
--------- --------- ---------
Cash and cash equivalents at end of year $ 839 $ 691 $ 34,869
========= ========= =========
Cash paid during the period for interest $ 125 $ 139 $ 134
========= ========= =========
Cash paid during the period for income taxes $ -- $ -- $ --
========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994, 1995 and 1996
(dollars in thousands)
1. SUMMARY OF ACCOUNTING POLICIES
(a) Description of the Company and Business
The accompanying financial statements present the historical
financial information of Rofin-Sinar Technologies Inc.
(Rofin-Sinar or the Company) and its wholly owned consolidated
subsidiaries, Rofin-Sinar Inc. (a United States company)
(RSI), and Rofin-Sinar Laser GmbH (a Federal Republic of
Germany limited liability company) (RSL). These subsidiaries
were formerly the industrial laser businesses of Siemens AG
(Siemens or former Parent). RSL includes the consolidated
accounts of its 99.97 percent-owned subsidiary, Rofin-Sinar
France S.A.; its 90.65 percent (83.5 percent in 1994)-owned
subsidiary, Rofin-Sinar Italiana S.r.L.; and its 51
percent-owned subsidiary, Rofin Marubeni Laser Corporation (a
Japanese entity). All significant intercompany balances and
transactions have been eliminated in consolidation.
On September 30, 1996, Rofin-Sinar consummated an initial
public offering of its common stock (IPO). Prior to the IPO
the common stock of Rofin-Sinar, a newly formed holding
company, RSI and RSL were each owned directly or indirectly by
Siemens AG. Concurrent with the IPO the stock of RSI and RSL
(together, Rofin Sinar Group), including all business
operations, assets and liabilities, were sold to the Company
(reorganization). Approximately $82,000 of the gross proceeds
($77,080 of the net proceeds) from the public offering were
used to purchase such stock of Rofin-Sinar Group from Siemens
AG and its subsidiaries and to repay certain indebtedness to
Siemens. The reorganization constitutes a combination of
entities under common control and, for financial statements
purposes, has been accounted for by combining the historical
accounts of Rofin-Sinar Group and Rofin-Sinar, in a manner
similar to pooling-of-interests accounting.
The combined financial statements are derived from the
historical financial statements of Rofin-Sinar Group.
Management believes the accompanying historical statements of
operations include a reasonable allocation of all expenses the
Company will incur as an independent company.
The primary business of Rofin-Sinar is to develop,
manufacture, and market industrial lasers and supplies used
for material processing applications. The majority of the
Company's customers are in the machine tool, automotive,
semiconductor, and electronics industries and are located in
the United States, Europe, and Asia. For the year ended
September 30, 1996, Rofin-Sinar generated approximately 75
percent of its revenues from the sale and installation of new
lasers and approximately 25 percent from aftermarket support
for the Company's existing laser products.
(b) Cash Equivalents
Cash equivalents consist of liquid instruments with an
original maturity of three months or less.
F-6
(c) Inventories
Inventories are stated at the lower of cost or market after
provisions for excess and obsolete inventory salable at prices
below cost. Costs are determined using the first in, first out
and weighted average cost methods.
(d) Property and Equipment
Property and equipment are recorded at cost and depreciated
over their useful lives, except for leasehold improvements,
which are amortized over the lesser of their useful lives or
the term of the lease. The methods of depreciation are
straight line for financial reporting purposes and accelerated
for income tax purposes. Depreciable lives for financial
reporting purposes are as follows:
Useful
Lives
----------
Buildings 40 years
Machinery and equipment 3-10 years
Furniture and fixtures 3-10 years
Computers and software 3-4 years
Leasehold improvements 5-15 years
(e) Revenue Recognition
Revenues are recognized when a laser product is shipped or
services are performed.
(f) Income Taxes
Income taxes are accounted for following Statement of
Financial Accounting standards No. 109, Accounting for Income
Taxes (Statement 109). Under the asset and liability method of
Statement 109, deferred income taxes are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred taxes of
a change in tax rates is recognized in income in the period
that includes the enactment date.
The Company's results through September 30, 1996 have been
included in the consolidated federal income tax return of
Siemens Corporation in the U.S. and, for periods prior to
October 1, 1995, Siemens AG in Germany. For periods from and
after September 30, 1996 and October 1, 1995, the Company will
file separate tax returns in the U.S. and Germany,
respectively. For purposes of these financial statements,
income taxes are computed on a separate tax return basis.
(g) Accounting for Warranties
The Company issues a standard warranty of one year for parts
and labor on lasers that are sold. However, extended
warranties for up to two years on parts and one year on labor
are negotiated on a contract-by-contract basis. The Company
provides for estimated warranty costs as products are shipped.
F-7
(h) Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards
No. 52, Foreign Currency Translation, the assets and
liabilities of the Company's operations outside the United
States are translated into U.S. dollars at exchange rates in
effect on the balance sheet date, and revenues and expenses
are translated using a weighted average exchange rate during
the period. Gains or losses resulting from translating foreign
currency financial statements are recorded in a separate
component of shareholders' equity. Gains or losses resulting
from foreign currency transactions are included in net income.
(i) Research and Development Expenses
Research and development costs are expensed when incurred and
are net of government grants of $611, $1,400 and $822 received
for the years ended September 30, 1994, 1995 and 1996,
respectively. The Company has no future obligations under such
grants.
(j) Financial Instruments
Financial instruments of the Company, consisting principally
of cash, accounts receivable, accounts payable, and bank
loans, are recorded at amounts which approximate estimated
fair value. The estimated fair value amounts are determined by
the Company using available market information and available
valuation methodologies.
(k) Use of Estimates
Management of the Company makes a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent liabilities to
prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could
differ from these estimates.
(l) Earnings per Share
Pro forma net income per share is based on the weighted
average number of common and common equivalent shares (stock
options and preferred shares) outstanding in each period. Such
shares prior to the IPO represent a pro-rata portion of the
number of shares issued pursuant to the offering (8,631,578),
the proceeds from which were used to purchase the shares of
RSI and RSL and to repay $7,000 of indebtedness owed to
Siemens.
2. INVENTORIES
Inventories are summarized as follows:
September 30,
-----------------------
1995 1996
-------- ---------
Finished goods $ 8,243 $ 6,586
Work in progress 5,595 8,027
Raw materials and supplies 7,337 8,087
Demo inventory 2,754 5,015
Service parts 4,240 6,638
-------- ---------
Total inventories, net $ 28,169 $ 34,353
======== =========
F-8
3. PROPERTY AND EQUIPMENT
Property and equipment include the following:
September 30,
-----------------------
1995 1996
-------- ---------
Buildings $ 26,159 $ 24,140
Technical machinery and equipment 5,491 5,542
Furniture and fixtures 5,907 5,998
Computers and software 2,828 3,314
Leasehold improvements 967 1,339
-------- ---------
Total property and equipment, at cost $ 41,352 $ 40,333
======== =========
4. ACCRUED LIABILITIES
At September 30, 1995 and 1996, accrued liabilities are comprised of
the following:
September 30,
-----------------------
1995 1996
-------- ---------
Employee compensation $ 4,256 $ 5,274
Warranty reserves 4,020 4,427
Deferred revenue 488 2,548
Other taxes payable 99 1,563
Customer deposits 395 402
Other 2,238 2,872
-------- ---------
$ 11,496 $ 17,086
======== =========
5. BANK AND AFFILIATE LOANS
The Company's Japanese subsidiary had loans with Bank of Yokohama and
Sakura Bank totaling $2,905 at September 30, 1995. The floating
interest rates to the banks ranged from 1.6 percent to 2.6 percent in
1995. Such loans were guaranteed by Siemens affiliates.
In fiscal 1996 the Company's Japanese subsidiary repaid its bank loans
first refinancing with an affiliate of Siemens and subsequently
refinancing with Citibank. Japanese bank debt totaled $6,318 at
September 30, 1996. Interest on the loans is at a floating market rate
which was 0.7 percent at September 30, 1996.
6. LINE OF CREDIT
The line of credit represents intercompany borrowings outstanding from
Siemens of $18,900 and $18,426 at September 30, 1995 and 1996. Interest
expense has been calculated at floating market rates for each of the
periods presented, which were 6.2 percent and 4.9 percent for the years
ended September 30, 1995 and 1996, respectively. Subsequent to year
end, the Company paid off its outstanding line of credit balance. In
addition, the Company obtained a credit line for a one year $25,000
revolving loan facility with Deutsche Bank AG to support its working
capital needs (the "Credit Facility").
F-9
The 1995 financial statements include non-interest bearing advances
from Siemens AG of $7,000 which were repaid by the Company from the
proceeds of the offering.
7. LEASE COMMITMENTS
The Company leases operating facilities and equipment under operating
leases which expire at various dates through 2001. The lease agreements
require payment of real estate taxes, insurance, and maintenance
expenses by the Company.
Minimum lease payments for future fiscal years under noncancelable
operating leases as of September 30, 1996 are:
Fiscal Year Ending September 30, Total
-------------------------------- ------
1997 $1,345
1998 1,092
1999 688
2000 535
2001 and thereafter 358
Rent expense charged to operations for the years ended September 30,
1994, 1995 and 1996, approximates $1,306, $1,300, and $1,568,
respectively.
8. EMPLOYEE BENEFIT PLANS
Substantially all of the Company's U.S. and German employees
participate in defined benefit pension plans. The Company's U.S. plan
began in fiscal 1995. As is the normal practice with German companies,
the German plan is unfunded.
The following table sets forth the funded status of the plans at the
balance sheet dates:
September 30,
-----------------------
1995 1996
-------- ---------
Actuarial present value of benefit obligation:
Vested employees $ 1,946 $ 2,389
Nonvested employees 1,126 1,040
-------- ---------
Accumulated benefit obligation 3,072 3,429
Effects of assumed future compensation increase 880 987
-------- ---------
Projected benefit obligation 3,952 4,416
Plan assets -- 709
-------- ---------
Projected benefit obligation in excess
of plan assets 3,952 3,707
Unrecognized net gain 465 403
Unrecognized prior service cost (655) (592)
-------- ---------
Accrued Pension Cost $ 3,762 $ 3,518
======== =========
F-10
Pension costs consist of the following components:
Years ended September 30,
-------------------------
1994 1995 1996
----- ----- -----
Service cost $ 203 $ 391 $ 431
Interest on projected benefit obligations 144 229 275
Amortization of unrecognized prior service cost -- 63 64
Amortization of unrecognized gain (2) (32) (11)
----- ----- -----
Net pension cost $ 345 $ 651 $ 759
===== ===== =====
Pensions generally provide benefits based on years of service. A
discount rate for the U.S. of 8.0 percent (7.0 percent for foreign
plan) as of September 30, 1996, 7.5 percent (7.0 percent for foreign
plan) as of September 30, 1995, and 8.0 percent (7.5 percent for
foreign plan) as of September 30, 1994, is assumed. Increases in future
compensation levels for the U.S. plan are projected at 6 percent (3
percent for foreign plan). Prior service costs and actuarial gains and
losses are generally amortized over the average remaining service
period of active employees.
The Plan assets of $709 represent the amount Siemens Corporation will
transfer to a separate trust pursuant to Section 414(I) of the Internal
Revenue Code of 1986, as amended, to satisfy the pension obligation
relating to the RSI participants in the Siemens Corporation Retirement
Plan in favor of such participants.
RSI has a 401(k) plan for the benefit of all eligible U.S. employees,
as defined by the plan. Participating employees may contribute up to 16
percent of their qualified annual compensation. The Company matches 50
percent of the first 6 percent of the employees' compensation
contributed as a salary deferral. Company contributions for the years
ended September 30, 1994, 1995 and 1996 are $95, $115 and $119,
respectively.
9. INCOME TAXES
Income (loss) before income taxes is attributable to the following
geographic regions:
Years ended September 30,
----------------------------------
1994 1995 1996
-------- -------- --------
United States $ 1,315 $ 649 $ 3,680
Germany (3,845) 5,631 8,186
France 140 289 169
Italy 93 193 109
Japan (819) (497) 100
-------- -------- --------
$ (3,116) $ 6,265 $ 12,244
======== ======== ========
F-11
The provision for income tax expense (benefit) is comprised of the
following amounts:
Years ended September 30,
------------------------------
1994 1995 1996
------- ------- -------
Current:
United States $ -- $ -- $ --
Foreign (94) 576 3,838
------- ------- -------
Total current (94) 576 3,838
Deferred:
United States 465 249 1,316
Foreign (1,793) 2,227 (198)
------- ------- -------
Total deferred (1,328) 2,476 1,118
------- ------- -------
Total income tax expense
(benefit) $(1,422) $ 3,052 $ 4,956
======= ======= =======
Statutory tax rates in the U.S., Italy, France, and Japan approximate
35 percent, 52 percent, 37 percent (33 percent in 1994), and 52
percent, respectively, for all periods presented. German corporate tax
law applies the imputation system with regard to the taxation of the
income of a corporation (such as RSL). In general, retained corporate
income is subject to a municipal trade tax (which for Hamburg and
Gunding on a combined basis is 16.7%), which is deductible for federal
corporate income tax purposes, a federal corporate income tax rate of
45% (50% prior to January 1, 1994) and, effective January 1, 1995, a
surcharge of 7.5% on the federal corporate income tax amount.
Profits which are distributed by a German corporate taxpayer (such as
RSL) in the form of a dividend are subject to a reduced federal
corporate income tax rate of 30% (36% prior to January 1, 1994) plus
the 7.5% surcharge on the federal corporate income tax amount
calculated at the reduced rate. Dividends paid by RSL to Rofin-Sinar
Technologies Inc. ("RST") are subject to a withholding tax at a rate of
5% pursuant to the income tax treaty currently in effect between the
United States and Germany.
The difference between actual income tax expense and the amount
computed by applying the U.S. federal income tax rate of 35 percent is
as follows:
Years ended September 30,
-------------------------------
1994 1995 1996
------- ------- -------
Computed "expected" tax expense (benefit) $(1,060) $ 2,193 $ 4,285
Foreign operating loss for which no benefit is recognized 421 257 --
Difference between U.S. and foreign statutory rates (387) 446 741
Change in foreign tax rate (365) 147 --
Other (31) (9) (70)
------- ------- -------
Actual tax expense (benefit) $(1,422) $ 3,052 $ 4,956
======= ======= =======
F-12
The tax effects of temporary differences that give rise to the net
deferred tax assets are as follows:
September 30,
---------------------
1995 1996
-------- --------
Deferred tax assets:
Foreign:
German reorganization benefits $ 3,621 $ 2,826
Net operating loss carryforwards 2,157 1,687
Pension accrual -- 247
Inventory -- 701
Other, net 283 198
-------- --------
6,061 5,659
United States:
Bad debt allowance 105 105
Accrued liabilities 980 811
Inventory 1,300 613
Net operating loss carryforward 4,340 3,914
Other 60 155
-------- --------
Gross deferred tax assets 12,846 11,257
Less: Valuation allowance (2,028) (1,741)
-------- --------
Net deferred tax assets 10,818 9,516
Deferred tax liabilities:
Foreign:
Depreciation (2,501) (2,449)
Inventory (916) (941)
Bad debt allowance (297) (129)
Accrued liabilities (519) (273)
-------- --------
(4,233) (3,792)
United States:
Pension accrual -- (200)
Deferred tax liabilities (4,233) (3,992)
Net deferred income tax assets $ 6,585 $ 5,524
======== ========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at September 30, 1996.
At September 30, 1996, the Company has U.S. federal net operating loss
carryforwards available of $11,200, which expire in 2008, and Japanese
net operating loss carryforwards of $3,300, which expire in 2000. The
annual utilization by the Company of its U.S. net operating loss
carryforwards will be subject to limitation under Section 382 of the
Internal Revenue Code of 1986, as amended, as a result of the
occurrence of a change of ownership within the meaning of Section 382.
F-13
10. RELATED PARTY TRANSACTIONS
The Company purchases certain goods and services from Siemens AG and
its affiliates, which were considered related parties through September
26, 1996, the effective date of the IPO. The amounts of such purchases,
which are primarily raw material inventories, is $2,704, $2,445 and
$4,379 for the years ended September 30, 1994, 1995 and 1996,
respectively. The Company also recorded sales to Siemens AG and its
affiliates totaling $2,890, $1,241 and $5,420 for the years ended
September 30, 1994, 1995 and 1996, respectively.
The Company also had sales to one of its joint venture partners in
Japan amounting to $1,323, $2,172 and $1,969 in 1994, 1995 and 1996,
respectively.
The Company's purchases from and sales to related parties have
generally been on terms comparable to those available in connection
with purchases from or sales to unaffiliated parties.
11. GEOGRAPHIC INFORMATION
Assets, revenues and income (loss) before taxes, by geographic region,
at September 30, 1995 and 1996 and for the years ended September 30,
1994, 1995 and 1996, are summarized below:
September 30,
Assets 1995 1996
--------- ---------
United States $ 28,129 $ 60,168
Germany 59,678 65,493
Other 9,524 13,184
Intercompany eliminations (6,336) (5,698)
--------- ---------
Total $ 90,995 $ 133,147
========= =========
Total Business Intercompany Revenues External Revenues
Years Ended September 30, Years Ended September 30, Years Ended September 30,
Revenues 1994 1995 1996 1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
United States $ 30,627 $ 35,189 $ 45,227 $ 1,668 $ 3,595 $ 5,347 $ 28,959 $ 31,594 $ 39,880
Germany 44,479 70,020 88,433 12,884 21,419 28,083 31,595 48,601 60,350
Other 8,936 12,534 16,350 273 263 677 8,663 12,271 15,673
Intercompany
eliminations (14,825) (25,277) (34,107) (14,825) (25,277) (34,107) -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total $ 69,217 $ 92,466 $ 115,903 $ -- $ -- $ -- $ 69,217 $ 92,466 $ 115,903
========= ========= ========= ========= ========= ========= ========= ========= =========
Years Ended September 30,
-------------------------------
Income (loss) before income taxes 1994 1995 1996
------- ------- -------
United States $ 1,315 $ 649 $ 3,680
Germany (3,845) 5,631 8,186
Other (586) (15) 378
------- ------- -------
Total $(3,116) $ 6,265 $12,244
======= ======= =======
F-14
12. STOCK INCENTIVE PLANS
Directors' Plan
The Company has reserved 100,000 shares of common stock for the
Directors' Plan, which covers non-employee members of the Board of
Directors. Under this plan each member of the Board of Directors who is
not an employee of the Company and who is elected or continues as a
member of the Board of Directors is entitled to receive an initial
grant of 1,500 shares of common stock and thereafter an annual grant of
1,500 shares of common stock. The Directors' Plan provides that
non-employee directors aged 65 or older, upon their appointment or
election to the Board of Directors, will receive, in lieu of such
initial and annual grants of shares of common stock, 7,500 shares of
restricted stock which shall vest in five equal installments on the
date of grant and each of the following four anniversaries thereof.
Prior to vesting, no shares of restricted stock may be sold,
transferred, assigned, pledged, encumbered or otherwise disposed of,
subject to certain exceptions. The Directors' Plan will continue in
effect until the earlier of ten years from the date of the first grant
or the termination of the Directors' Plan by the Board of Directors. A
total of 10,500 shares are issued and outstanding under the plan at
September 30, 1996, of which 6,000 vest in future periods.
Equity Incentive Plan
The Company has an Equity Incentive Plan, whereby incentive and
nonqualified 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. There have been no incentive stock
options, restricted stock or performance shares granted in the current
year. On September 26, 1996, nonqualified stock options were granted to
officers and other key employees. Options will expire not later than
ten years after the date on which they are granted, and become
exercisable at such times and in such installments as determined by the
Compensation Committee of the Board of Directors. The balance of
outstanding stock options as of September 30, 1996, and all options
activity for the period then ended are as follows:
Number Average
of Shares Option Price
--------- ------------
Granted September 26, 1996 282,000 $ 9.50
Options Exercised 0
--------- ------
September 30, 1996
Outstanding 282,000 $ 9.50
--------- ------
Exercisable 0 N/A
--------- ------
Available for future grants 1,218,000
--------- ------
13. RECENTLY ISSUED ACCOUNTING STANDARDS
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation." Effective
for fiscal years beginning after December 15, 1995, Statement No. 123
encourages companies to include the fair value of any stock awards
issued as compensation expense within their income statements. Companies
that choose to remain with Accounting Principles Board Opinion No. 25
(which uses the intrinsic value method to account for stock awards) must
disclose pro forma net income and earnings per share as if the fair
value of the award had been included as compensation expense. The
Company anticipates remaining with the intrinsic value method.
F-15
On March 31, 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." This Statement provides
guidance for recognition and measurement of impairment of long-lived
assets, certain identifiable intangibles and goodwill related both to
assets to be held and used and assets to be disposed of. The Company
intends to adopt this Statement as of the first quarter of its next
fiscal year and anticipates that the effect of such adoption will be
immaterial.
F-16
Independent Auditors' Report
The Board of Directors and Stockholders
Rofin-Sinar Technologies Inc. and Subsidiaries:
Under date of November 6, 1996, we reported on the consolidated balance sheets
of Rofin-Sinar Technologies Inc. and Subsidiaries as of September 30, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three year period ended
September 30, 1996, which are included in the annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedule in the
annual report on Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Detroit, Michigan
November 6, 1996
F-17
SCHEDULE II
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended September 30, 1993, 1994, 1995 and 1996
(thousands of dollars)
Balance at Charged to Balance at
Beginning Costs and Deductions End of
of Period Expenses Period
---------- ---------- ---------- ----------
September 30, 1993 1,035 1,513 (553) 1,995
September 30, 1994 1,995 831 (1,821) 1,005
September 30, 1995 1,005 1,549 (1,302) 1,252
September 30, 1996 1,252 484 (773) 963
F-18
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
11.1 Earnings Per Share Table
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule