Back to GetFilings.com
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, 1997
Commission file number: 000-21377
Rofin-Sinar Technologies Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3306461
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45701 Mast Street, Plymouth, MI 48170
- -------------------------------------- ----------
(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
-------------------
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 26, 1997) was approximately $142,494,413.
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 ____
11,514,700 shares of the Registrant's common stock, par value $.01 per
share, were outstanding as of December 26, 1997.
Documents Incorporated by Reference
-----------------------------------
Certain sections of the Company's Proxy Statement to be filed in connection
with the Company's 1998 Annual Meeting of Stockholders to be held in March
1998 are incorporated by reference herein at Part III, Items 10 - 13.
TABLE OF CONTENTS
Item Page
---- ----
PART I. 1. Business 3
2. Properties 13
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 13
PART II. 5. Market for Registrant's Common
Equity and Related Stockholder Matters 14
6. Selected Financial Data 15
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
7A. Qualitative and Quantitative Disclosures about
Market Risk 20
8. Consolidated Financial Statements and
Supplementary Data 20
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 20
PART III. 10. Directors and Executive Officers of the Registrant 20
11. Executive Compensation 20
12. Security Ownership of Certain
Beneficial Owners and Management 20
13. Certain Relationships and Related Transactions 20
PART IV. 14. Exhibits, Consolidated Financial Statement
Schedules, and Reports on Form 8-K 21
SIGNATURES 23
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
Rofin-Sinar Technologies Inc. ("Rofin-Sinar" or the "Company") was
incorporated in Delaware on July 19, 1996. On September 30, 1996, Rofin-Sinar
Technologies Inc. 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% 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.
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 1997 were made to
existing customers. The Company has sold more than 5,000 laser sources since
1975 and currently has over 1,500 active customers (including multinational
companies with multiple facilities purchasing from the Company). During both
fiscal 1996 and fiscal 1997, 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 1996 and 1997 fiscal
years respectively, 34% and 35% of the Company's sales were in North America,
and 66% and 65% in Europe/Asia.
In August 1997, Rofin-Sinar acquired 80% of the common stock of Dilas
Diodenlaser GmbH ("Dilas"), a German limited liability company based in
Mainz, Germany. Dilas designs and manufactures diode lasers and components
for a wide range of material processing applications and sells them to the
machine tool, automotive and semiconductor and electronic industries, as well
as to the research, measurement and medical instruments industries.
The Company's Laser Products
The Company currently offers a comprehensive range of 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 its customers to develop and
customize optimal solutions for their manufacturing requirements. In
developing its laser solutions, the Company offers customers its expertise
in: (i) 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 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 "turn-key" 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).
3
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 and 1997:
September 30,
----------------------
Product Category * 1996 1997
------------------------------ --------- ---------
(in thousands)
Lasers for cutting and welding $ 83,473 $ 93,452
Laser marking products 32,430 35,941
--------- ---------
Total sales, net $115,903 $129,393
========= =========
* 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), 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 utilize 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.
Laser Series Power Range Mode of Excitation
----------------- -------------- ---------------------
RS DC Slab Series 1.5kW - 2.5kW High Frequency
RS HF Series 4.0kW - 8.0kW High Frequency
RS SM Series 700W - 2.0kW Direct Current
Rofin-Sinar introduced its diffusion-cooled RS DC Slab Series laser in
mid-1995 and to date has shipped over 150 units. 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.
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 it has been used in a significant
number of welding applications, including transmissions, tailored blanks and
many other car parts and components. In fiscal 1997 the Company has increased
the output power of this product to 8kW. 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 two 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.
Laser Series Power Range Mode of Excitation
----------------- -------------- ---------------------
RS P-Series 50W - 1kW Flash Lamp
RSY CW-Series 1kW - 2.5kW 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 fiber-optic beam delivery system, and small
focused beam spot size 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. Principal markets for
these lasers are the automotive and precision welding markets.
4
Rofin-Sinar's RSY CW Series of continuous wave Nd:YAG lasers are designed
exclusively for use with flexible fiber-optic 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 industrial material processing
applications (e.g. car body welding), 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."
As a result of the Company's acquisition in August 1997 of Dilas, the
Company's laser product offerings were extended to include a family of Diode
laser products for welding and soldering, the principal markets for which are
discussed below.
Laser Series Power Range Mode of Excitation
----------------- -------------- ---------------------
Diode lasers 10-2000W Direct Current
The Company's DY-Series of Diode lasers are designed to meet the requirements
of a wide range of welding and soldering applications. The Company's high
power laser diodes can be stacked into arrays achieving output powers in the
multiple kilowatt range, suitable for welding and soldering of plastics and
thick metals. These lasers can be integrated into a wide range of both fixed
optic and fiber-optic beam delivery systems. Principal markets for these
lasers, besides the automotive, machine tool and semiconductor and electronic
markets, are the medical device and research markets.
Laser Marking Products
The Company's family of laser marking products is as follows:
Laser Series Power Range Mode of Excitation
----------------- -------------- ---------------------
PowerLine;
CombiLine;
S-Line 25W - 130W Flash Lamp
Diode Markers 3W - 50W Laser diodes
PowerLine - The Company's standard PowerLine laser marking product
consists of a Nd:YAG laser in the range of 25 to 130W, galvo-head, personal
computer with Pentium processor, 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, power 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 a double-marking head allowing marking speeds of up to 600 characters
per second in certain applications (most notably marking of integrated
circuits), as well as beam-switching and -splitting options for marking of
products in multiple production lines.
CombiLine - 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 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.
S-Line - The S-Line is targeted for the low-end laser marking segment in
North America and Europe currently served by a number of smaller regional
competitors. This product is a lower-cost, more standardized version of the
Company's PowerLine product with the same basic software but fewer features
and options. The Company introduced this product in June 1997.
Diode Markers - The Diode Marker products are based on the PowerLine model
but utilize laser diodes, in place of flash-lamps, to pump the Nd:YAG rod.
The laser diodes, with their guarantee to provide 5,000 hours usage, offer
significantly higher up-time for customers. The main application is marking
of plastics in the semiconductor and electronics industries. This product
was introduced in June 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 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.
5
Markets and Customers
Rofin-Sinar's laser products and systems are currently sold to three
principal industrial markets: the Machine Tool, Automotive and Semiconductor
& Electronics industries. The following table sets forth the distribution of
the Company's total sales among the Company's principal markets:
Principal Market Fiscal 1996 Fiscal 1997 Primary Applications
- ---------------- ----------- ----------- ------------------------------
Machine Tool 31% 28% Cutting
Automotive 27% 29% Welding and component marking
Semiconductor &
Electronics 15% 14% Marking of integrated circuits
----------- -----------
72% 71%
The remaining 28% and 29%, respectively, of sales in fiscal 1996 and
fiscal 1997 were attributable to customers in a wide variety of other
industries (including aerospace, consumer goods, 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, 16
persons are dedicated to marketing CO2 and Nd:YAG lasers for cutting and
welding and 11 dedicated to marketing of the laser marking products. In
addition, Rofin-Sinar has 12 independent distributors and agents marketing
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. The sales
office in Phoenix, Arizona supports the expansion of the Company's laser
marking business in the North American 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 1998. Subsequent to the end of the 1997
fiscal year, the Company closed the California sales office. In Japan, the
Company's principal distributor is its joint venture with Marubeni
Corporation and Nippei Toyama Corporation.
Customer Service and Replacement Parts
During both fiscal 1996 and fiscal 1997 approximately 23% 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 115 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.
6
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 eight 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 85 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 product performance and reliability, customer support,
manufacturing quality, the compatibility of its products with existing laser
systems, and the ability to successfully develop products utilizing the
emerging technologies of diode lasers and diode-pumped solid-state lasers.
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, Haas and Lumonics (for Nd:YAG lasers)
and Optopower and SDL (for diode lasers)compete in certain of the markets in
which Rofin-Sinar operates. However, in the Company's 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 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, soldering, 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, diode 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. The diode laser products are
manufactured and tested at the Mainz, Germany facilities. The Company's
joint venture in Japan performs assembly and testing of SM-Series CO2 lasers.
7
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 blowers (used to accelerate
gas flow in its SM Series fast axial flow CO2 lasers) and micro-optics (used
in diode laser stacking technology) are the only component the Company
purchases from a single supplier. The Company has no reason to believe it
could not purchase such components from alternative sources of supply on
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. During fiscal 1997 both the Plymouth and Gunding-Munich
facilities obtained their ISO 9001 certification.
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 improve its production
efficiency.
Research and Development
During fiscal 1995, 1996 and 1997, Rofin-Sinar spent $6.7 million, $9.3
million and $9.7 million, respectively, on research and development. In
addition, the Company received funding under government grants totaling $1.4
million, $0.8 million and $0.9 million in fiscal 1995, 1996 and 1997,
respectively.
Rofin-Sinar's research and development activities are directed at
meeting customers' manufacturing needs and application processes. Core
competencies include CO2 gas lasers, Nd:YAG solid state lasers and diode
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
four centers in Hamburg, Gunding-Munich and Mainz, 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 DM6.5 million. In fiscal 1997
outlays by the Company for this project totaled DM2.8 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 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 41 separate patents for
inventions relating to lasers, processes and power supplies which expire from
1998 to 2016. 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.
8
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.
Order Backlog
The Company's order backlog was $35.9 million at the end of fiscal 1996
and $29.1 million at the end of fiscal 1997. The Company's order backlog,
which contains relatively little service, training and spare parts represents
approximately three months of laser shipments. The decline in the Company's
order backlog from September 30, 1996 to September 30, 1997 was primarily
attributable to lower order entry in the fourth quarter of fiscal 1997 due to
a relatively flat automotive welding market in the United States and by the
introduction in such period of the second generation of the Company's Slab
series lasers, which resulted in delays in orders by European OEM customers.
The strengthening of the U.S. dollar had an additional negative impact of
approximately $2 million on year to year order backlog.
An order is booked by Rofin-Sinar when an unconditional purchase order with
an assigned delivery date has been received. 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 1997, 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 then returned to normal delivery
times. Orders in backlog are firm, but are subject to cancellation or
rescheduling by the customer. The Company's backlog on any particular date
is not necessarily indicative of actual sales for any future period.
The Company anticipates shipping the present backlog during fiscal 1998.
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 require added manufacturing capacity in the United
States. If the Company is able to implement anticipated improvements in the
product design and manufacturing of its diffusion-cooled CO2 Slab lasers
which would enable it to offer such lasers at more attractive prices. The
Company anticipates that it will require expanded manufacturing capacity in
fiscal 1999 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.
9
Employees
At September 30, 1997, Rofin-Sinar had 500 full time employees, of which 345
were in Germany, 105 were in the United States, 13 in France, 16 in Italy and
21 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 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 or product enhancements 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."
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.
10
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 $5.4 million credit at September 30, 1995 to a $2.2
million credit at September 30, 1996 and from the $2.2 million credit at
September 30, 1996 to a $2.8 million debit at September 30, 1997. These
changes arose primarily from the strengthening of the U.S. dollar against
such foreign currencies during the fiscal 1995-1997 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 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 on sales transactions utilizing forward exchange
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 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
intensify in the CO2, diode laser and Nd:YAG solid state laser markets, as
many companies have committed significant research and development resources
to pursue opportunities in these markets. There can be no assurance that the
Company will successfully differentiate its current and proposed products
from the products of its competitors or that the marketplace will consider
the Company's products to be superior to competing products. With respect to
the Company's laser marking products, because many of the components required
to develop and produce a laser-based marking system are commercially
available, barriers to entry into this market are relatively low, and the
Company expects new competitive product entry in this market. To maintain its
competitive position in this market, the Company believes that it will be
required to continue a high level of investment in engineering, research and
development, marketing and customer service and support. There can be no
assurance that the Company will have sufficient resources to continue to make
such investments, that the Company will be able to make the technological
advances necessary to maintain its competitive position, or that its products
will receive market acceptance. See "Business-Competition."
Risks Relating to Sales Growth in CO2, Nd:YAG Lasers and Diode 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 lasers and 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 currently being introduced to the market and are
not expected to generate substantial revenue in fiscal 1998. The Dilas diode
lasers are currently in the process of being modified for use in industrial
production environments and the redesigned products are expected to be
available for shipment in the second half of fiscal 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 and Japan. 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, diode 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, successfully redesign
diode lasers for industrial production environments 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."
11
While there are currently no commitments with respect to any future
acquisitions, the Company's business strategy includes the expansion of its
products and services, which may be effected through acquisitions. The
Company from time to time reviews various opportunities to acquire
businesses, technologies or products complementary to the Company's present
business. There can be no assurance that the Company will be able to
integrate any acquired business effectively or that any acquisition will
result in long-term benefits to the Company.
Conflicting Patents and Other Intellectual Property Rights of Third Parties;
Limited Protection of Intellectual Property
The Company from time to time receives notices from third parties
alleging infringement of such parties' patent or other intellectual property
rights by the Company's products. While such notices are common in the
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.
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 41 United States and foreign patents on
its laser sources which expire from 1998 to 2016. 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.
Asia-Pacific Risk
Countries in the Asia Pacific region, including Japan, have recently
experienced weaknesses in their currency, banking and equity markets. As the
Asia Pacific market currently represents approximately 15% of the Company's
revenue, these weaknesses could adversely affect consumer demand for the
Company's product, the U.S. dollar value of the Company's foreign currency
denominated sales, and ultimately the Company's consolidated results of
operations.
Year 2000 Compliance
The Company has evaluated the costs necessary to make its computer systems
Year 2000 compliant. The bulk of these costs are expected to be incurred
during fiscal years 1998 and 1999 and are not expected to have a material
impact on the Company's cash flows, results of operations or financial
condition.
12
Item 2. Properties
The Company's manufacturing facilities include the following:
Owned or Size
Location of Facility Leased (sq. ft.) Primary Activity
- ------------------------ ---------- ----------- --------------------------
Hamburg, Germany Owned * 110,840 CO2 laser, Nd:YAG lasers
Plymouth, Michigan Leased 58,075 CO2 lasers
Gunding-Munich, Germany Leased 40,537 Nd:YAG lasers, laser
Marking products
Sakai Atsugi-shi, Japan Leased 11,100 CO2 lasers
Mainz, Germany Leased 6,479 Diode 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 Company intends to exercise renewal options on both
facilities for the first option year. The Mainz, Germany facility lease
expires in 2002. The leases on its Japanese facilities in Atsugi-shi expire
in 1999 (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, Mainz and Plymouth
locations. The Company also maintains sales and service offices worldwide,
all of which are leased.
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
laser and 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 1997.
13
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 for each
quarter ended during the last year and for 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
December 31, 1996 $14 3/8 $10 3/4
March 31, 1997 $16 3/4 $10 1/2
June 30, 1997 $19 5/8 $13 7/8
September 30, 1997 $19 3/8 $15 3/8
At December 18, 1997, the Company had approximately eight holders of record
of its Common Stock and 11,514,700 shares outstanding. The Company has not
paid dividends on its Common Stock and does not anticipate paying dividends
in the foreseeable future.
Use of IPO Proceeds
The Company completed its initial public offering of 11,500,000 shares of its
Common Stock on September 30, 1996 for gross proceeds of $109.2 million
pursuant to its registration statement on Form S-1 (No. 333-09539) declared
effective on September 25, 1996. The lead managers for the offering were
Deutsche Morgan Grenfell/C.J. Lawrence, Inc., Alex Brown & Sons Incorporated
and Lehman Brothers Inc. Net proceeds of the offering (after deduction of
$6.6 million in underwriting discounts and commissions and $327,000 in other
offering expenses) were $102.3 million. Of such amount approximately $77.1
million were used to purchase all outstanding shares of RSL and RSI from the
former parent and to repay certain indebtedness owed to the former parent.
Of the remainder, $25 million was invested in certificates of deposit, with
the balance applied to working capital. Since the date of the Company's last
report on its use of the proceeds of its initial public offering, the Company
has used approximately $5.2 million of the $25 million of net proceeds
invested in certificates of deposit to consummate the acquisition of Dilas,
an unaffiliated entity. Accordingly, approximately $19.8 million of the net
offering proceeds remain to be applied.
14
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data for the
five fiscal years ended September 30, 1997. 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 1997
-------- -------- -------- -------- --------
(in thousands, except share amounts)
Statement of Income Data:
Net sales $ 60,034 $ 69,217 $ 92,466 $115,903 $129,393
Cost of goods sold 47,745 46,993 57,162 72,096 82,982
Gross profit 12,289 22,224 35,304 43,807 46,411
SG&A expenses 21,951 17,059 20,673 21,246 22,101
R&D expenses 10,276 6,834 6,719 9,335 9,727
Special charge - - - - 1,350
Income (loss)
from operations (19,938) ( 1,669) 7,912 13,226 13,233
Net interest expense
(income) 1,654 1,308 1,272 1,010 ( 854)
Income (loss)
before income taxes (21,386) ( 3,116) 6,265 12,244 14,712
Net tax
expense (benefit) ( 1,565) ( 1,422) 3,052 4,956 5,758
Net income (loss) (19,821) ( 1,694) 3,213 7,288 8,954
Net income
per common share 0.37 0.84 0.77
Shares used in computing
net income per share 8,631,578 8,639,498 11,605,706
Operating Data:
As percentage of sales:
Gross profit 20.5% 32.1% 38.2% 37.8% 35.9%
SG&A expenses 36.6% 24.6% 22.4% 18.3% 17.1%
R&D expenses 17.1% 9.9% 7.3% 8.1% 7.5%
Income (loss)
from operations (33.2%) ( 2.4%) 8.6% 11.4% 10.2%
Income (loss)
before income taxes (35.6%) ( 4.5%) 6.8% 10.6% 11.4%
Balance Sheet Data:
Working capital $ 7,672 $ 4,927 $ 14,530 $ 56,138 $ 55,007
Total assets 84,580 76,667 90,995 133,147 132,189
Line of credit and loans 22,196 22,380 21,805 24,780 18,569
Stockholders' equity 35,837 30,583 39,673 78,000 81,925
Other Data:
Depreciation
and amortization 2,803 2,527 2,364 2,449 2,142
Backlog 12,500 17,000 26,500 35,900 29,100
Sales per employee 135 184 227 256 264
15
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 1997, 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.
Dilas Acquisition
In August 1997, Rofin-Sinar acquired 80% of the common stock of Dilas
Diodenlaser GmbH ("Dilas"), a German limited liability company based in
Mainz, Germany, for $5.2 million. Dilas designs and manufactures diode lasers
and components for a wide range of material processing applications and sells
them to the machine tool, automotive, and semiconductor and electronics
markets, as well as to the research, measurement and medical instruments
industries. The Dilas acquisition was accounted for on a purchase accounting
basis.
Through its acquisition of the Dilas shares, the Company adds new technology
and a new product line to its already wide range of industrial lasers. The
linking of Dilas' production expertise and Rofin-Sinar's ongoing research
program in cooperation with the Fraunhofer Institute for Laser Technology, in
Aachen Germany, is expected to speed up the introduction of new diode based
laser systems for material processing applications.
The Company's business strategy continues to include 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.
Currency Exchange Rates
Although the Company reports its Consolidated Financial Statements in U.S.
dollars, approximately two-thirds of its sales are denominated in other
currencies, 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. Due to the strengthening of the U.S. dollar against such foreign
currencies during fiscal 1996 and 1997, the currency translation adjustment
component of shareholders' equity changed from a $5.4 million credit at
September 30, 1995 to a $2.8 million debit at September 30, 1997.
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 1995, 1996, and 1997 net sales, gross profit and
income from operations.
----------------------
Fiscal 1995
----------------------
In 1994
Exchange
Actual Rates
---------- ----------
(in millions)
Net Sales $ 92.5 $ 85.4
Gross Profit 35.3 32.2
Income from operations 7.9 7.2
----------------------
Fiscal 1996
----------------------
In 1995
Exchange
Actual Rates
---------- ----------
(in millions)
Net Sales $ 115.9 $ 117.2
Gross Profit 43.8 44.3
Income from operations 13.2 13.4
----------------------
Fiscal 1997
----------------------
In 1996
Exchange
Actual Rates
---------- ----------
(in millions)
Net Sales $ 129.4 $ 140.0
Gross Profit 46.4 50.6
Income from operations 13.2 14.4
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, $3.1 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, $0.5 and $0.2 million,
respectively. Between fiscal 1996 and 1997, the German mark weakened against
the U.S. dollar by approximately 13.2%. The impact of this weakening was to
decrease net sales, gross profit and income from operations by $10.6, $4.2,
and $1.2 million, respectively.
16
The Company has implemented a policy to hedge up to 50% of its net foreign
currency exposure on sales transactions utilizing forward exchange 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.
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 16.4%, and for Mainz is
18.0%), which is deductible for federal corporate income tax purposes, a
federal corporate income tax of 45% 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% 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.
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. The Company experienced
significant financial improvement during fiscal 1994 through 1997, 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.
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 1998 and 1999, there can be no assurance
that the Company's rate of growth experienced during the period 1994 - 1997
will be maintained.
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,
------------------------------
1995 1996 1997
-------- -------- --------
Net sales 100% 100% 100%
Cost of goods sold 62% 62% 64%
Gross profit 38% 38% 36%
Selling, general and administrative expenses 22% 19% 17%
Research and development expenses 7% 8% 8%
Special charge 0% 0% 1%
Income from operations 9% 11% 10%
Income before income taxes 7% 11% 11%
Net income 4% 6% 7%
17
Fiscal 1997 Compared to Fiscal 1996
Net Sales - Net sales of $129.4 million for fiscal 1997 increased by $13.5
million, or 12%, over the prior year. The improvement resulted from net sales
increases of $10.0 million, or 11%, in cutting and welding laser products,
and $3.5 million, or 11%, in marking and microwelding products. The increase
in cutting and welding was due to strength in the OEM cutting market, sales
of the Slab series laser for welding applications, and a major welding
program for a supplier to the automotive market. The increase in marking and
microwelding was due primarily to the introduction of a laser system designed
specifically for the dental instruments market and the demand for the
Company's integrated-circuit markers in the semiconductor industry.
Geographically, net sales increased $8.5 million, or 11%, in Europe/Asia and
$5.0 million, or 13%, in the United States. The effect of currency
translation was to reduce net sales by $10.6 million, or 8%, of fiscal 1997
net sales. At 1996 exchange rates, the Company would have achieved growth in
net sales of 21%.
Cost of Goods Sold - Cost of goods sold of $83.0 million in fiscal 1997
increased by $10.9 million, or 15%, over the prior year, and primarily
reflect the increase in net sales.
Gross Profit - Gross profit of $46.4 million in fiscal 1997 increased by $2.6
million, or 6%, over the prior year. As a percentage of net sales, gross
profit decreased from 38% in fiscal 1996 to 36% in fiscal 1997. The decrease
in margin percentage was primarily caused by the mix of products sold in
fiscal 1997 being weighted more heavily towards models with lower margins.
Gross profit was also negatively affected by losses related to lasers
repossessed as part of legal action taken against delinquent customers. The
effect of currency translation was to reduce gross profit by $4.2 million, or
9%, of fiscal 1997 gross profit.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses of $22.1 million for fiscal 1997 increased only $0.9
million over the prior year. As a percentage of net sales, selling, general,
and administrative expenses decreased from 19% in 1996 to 17% in 1997 as the
Company continues its strategy of achieving economies of scale by focusing its
sales growth in the core business segments.
Research and Development Expenses - Research and development expenses of $9.7
million increased $0.4 million, or 4%, over fiscal 1996. Research and
development expenses are incurred primarily in German marks and are net of
government grants. As a percentage of sales research and development expenses
remained unchanged at 8%. Current year research and development spending
includes a $1.7 million outlay towards the Company's diode-pumped solid-state
laser program.
Special Charge - The special charge of $1.4 million relates to the settlement
of a customer dispute arising out of the use of one of the Company's existing
products in a newly developed customer application.
Income from Operations - The Company's income from operations of $13.2
million for fiscal 1997 remained unchanged from fiscal 1996. The effect of
currency translation was to reduce income from operations by $1.2 million, or
9% of fiscal 1997 income from operations. The reduction in income from
operations from 11%, in fiscal 1996, to 10%, in fiscal 1997, was due
primarily to the $1.4 million special charge. Net sales per employee
increased from $256,000 in fiscal 1996 to $285,000 in fiscal 1997 based on
1996 exchange rates, representing a productivity increase of 11%.
Income Before Income Taxes - The Company's income before income taxes of
$14.7 million for fiscal 1997, increased $2.5 million, or 20%, over the prior
year. The increase was due primarily to interest income resulting from the
$32.6 million net IPO proceeds (after the purchase of RSL and RSI from the
former parent) and from cash generated by operating activities in fiscal
1997.
Income Tax Expense - Income tax expense was $5.8 million in fiscal 1997
compared to $5.0 million in fiscal 1996. The effective tax rates for fiscal
1997 and 1996 were 39% and 40%, 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. The slight decrease in the
effective tax rate was due to certain foreign income which was not taxed due
to the use of tax loss carryforwards.
Net Income - As a result of the foregoing factors, the Company's net income
of $9.0 million ($0.77 per share) in fiscal 1997 increased by $1.7 million
over the prior year's net income of $7.3 million ($0.84 per share). The
effect of currency translation was to reduce net income by $0.6 million, or
7%, of fiscal 1997 net income.
Fiscal 1996 Compared to Fiscal 1995
Net Sales - Net sales of $115.9 million for fiscal 1996 increased by
$23.4 million, or 25%, over the prior year. The improvement resulted from net
sales increases of $15.2 million, or 25%, in Europe and the Asia/Pacific
region and $8.3 million, or 26%, in the United States. The growth in
Europe/Asia 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.
18
Cost of Goods Sold - Cost of goods sold of $72.1 million in fiscal 1996
increased by $14.9 million, or 26%, over the prior year, and reflected the
increase in net sales.
Gross Profit - The Company's gross profit of $43.8 million for fiscal 1996
increased by $8.5 million, or 24%, 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% 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 3% 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% in fiscal 1995 to 18%
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 39% over fiscal
1995. This represents an increase in research and development expenses as a
percentage of sales from 7% in fiscal 1995 to 8% 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%, over the prior
year. As a percentage of sales, income from operations was 11% in fiscal 1996
as compared to 9% 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 13%.
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 11% in fiscal
1996, as compared to 7% 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 41% and 49%, 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 ($0.84 per share) in fiscal 1996 increased by $4.1 million
over the prior year's net income of $3.2 million ($0.37 per share).
Liquidity and Capital Resources
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 the Company's former parent 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
the former parent and its affiliates and to repay certain indebtedness owed
to Siemens and its affiliates.
The Company's primary sources of liquidity are cash and cash equivalents of
$40.7 million at September 30, 1997. Additional sources of liquidity include
the Company's $25 million line of credit with Deutsche Bank, of which $12.8
million is unused and available as of September 30, 1997. Subsequent to year-
end, management established an additional DM 12 million line of credit with
Commerzbank. Management believes that cash flow from operations, cash and
equivalents, short-term investments and the existing available lines of credit
to be sufficient to fund operations for fiscal 1998.
Cash and cash equivalents increased by $5.9 million during fiscal 1997. Net
cash provided by operating activities of $18.2 million was due primarily to
net income of $9.0 million non-cash depreciation expense, decreases in
inventory and increases in taxes payable due to timing. Cash used in
Investing activities of $6.8 million consisted of the $5.1 million used to
acquire 80% of the common stock of Dilas and $1.8 million used to acquire
property and equipment. Financing activities used a net of $4.4 million in
cash; $16.6 million for repayment of debt owed to the former Parent was
partially offset by net borrowings from banks of $12.2 million.
19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
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.
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 1998 Annual Meeting of Stockholders
to be held in March 1998, 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 1998 Annual Meeting of
Stockholders to be held in March 1998, 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 1998
Annual Meeting of Stockholders to be held in March 1998, 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 1998 Annual Meeting of Stockholders to be held
in March 1998, and is incorporated by reference herein.
20
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, 1996 and 1997 F-2
Consolidated Statements of Operations for the years ended
September 30, 1995, 1996, and 1997 F-3
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1995, 1996, and 1997 F-4
Consolidated Statements of Cash Flows for the years ended
September 30, 1995, 1996, and 1997 F-5
Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules
Independent Auditors' Report F-19
Schedule II - Valuation and Qualifying Accounts F-20
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 July 15, 1997,
announcing the Company's plans to acquire DILAS Diodenlaser, GmbH.
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
- ------- -------------------------------------------------------------------
3.1 Certificate of Incorporation of the Company and Form of Certificate
of Amendment thereto (*)
3.2 By-Laws of the Company (*)
21
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 (*)
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
27.1 Financial Data Schedule for fiscal year ended September 30, 1997
- -----------------------------
(*) 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.
22
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 29, 1997 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 29, 1997
- --------------------- Directors, Chief Executive
Peter Wirth Officer and President
/s/ Hinrich Martinen Executive Vice President, December 29, 1997
- --------------------- Research and Development/
Hinrich Martinen Operations, Chief Technical
Officer and Director
/s/ Gunther Braun Executive Vice President, December 29, 1997
- --------------------- Finance and Administration,
Gunther Braun Chief Financial Officer,
Principal Accounting Officer
And Director
/s/ William Hoover Director December 29, 1997
- ---------------------
William Hoover
/s/ Ralph Reins Director December 29, 1997
- ---------------------
Ralph Reins
/s/ Gary Willis Director December 29, 1997
- ---------------------
Gary Willis
23
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, 1996 and 1997, 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, 1997. 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, 1996 and 1997,
and the results of their operations and their cash flows for each of the
years in the three-year period ended September 30, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Detroit, Michigan
November 10, 1997
F-1
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30,
----------------------
1996 1997
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 34,869 $ 40,743
Trade accounts receivable 32,198 28,058
Less allowance for doubtful accounts ( 963) ( 910)
--------- ---------
Trade accounts receivable, net 31,235 27,148
Accounts receivable, related party - 721
Other accounts receivable 1,448 726
Inventories (note 2) 34,353 28,731
Prepaid expenses 247 390
Deferred income tax assets - current (note 9) 5,494 3,508
--------- ---------
Total current assets 107,646 101,967
Property and equipment, at cost (note 3) 40,333 37,166
Less accumulated depreciation (15,598) (15,048)
--------- ---------
Property and equipment, net 24,735 22,118
Deferred income tax assets - noncurrent (note 9) 624 2,769
Goodwill - 5,054
Other assets 142 281
--------- ---------
Total assets $ 133,147 $ 132,189
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (note 6) $ 18,426 $ 12,698
Bank loans (note 5) 6,354 5,871
Accounts payable, related party - 894
Accounts payable, trade 5,508 5,837
Income taxes payable (note 9) 3,636 5,826
Accrued liabilities (note 4) 17,086 15,834
Deferred income tax liability - current (note 9) 498 -
--------- ---------
Total current liabilities 51,508 46,960
Pension obligations (note 8) 3,518 3,044
Deferred income tax liability - noncurrent (note 9) 95 191
Minority interests 26 69
--------- ---------
Total liabilities 55,147 50,264
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 115 115
Additional paid-in capital 75,700 75,666
Retained earnings - 8,954
Cumulative foreign currency translation adjustment 2,185 ( 2,810)
--------- ---------
Total stockholders' equity 78,000 81,925
--------- ---------
Total liabilities and stockholders' equity $ 133,147 $ 132,189
========= =========
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,
-------------------------------
1995 1996 1997
--------- --------- ---------
Net sales $ 92,466 $ 115,903 $ 129,393
Cost of goods sold 57,162 72,096 82,982
--------- --------- ---------
Gross profit 35,304 43,807 46,411
--------- --------- ---------
Selling, general, and administrative expenses 19,124 20,762 20,856
Provision for doubtful accounts 1,549 484 1,245
Research and development expenses 6,719 9,335 9,727
Special charge (note 10) - - 1,350
--------- --------- ---------
Income from operations 7,912 13,226 13,233
Other expense (income):
Interest expense, net (notes 5 and 6) 1,272 1,010 ( 854)
Minority interest 9 10 13
Miscellaneous 366 ( 38) ( 638)
--------- --------- ---------
Total other expense, net 1,647 982 ( 1,479)
--------- --------- ---------
Income before income taxes 6,265 12,244 14,712
Income tax expense (note 9) 3,052 4,956 5,758
--------- --------- ---------
Net income $ 3,213 $ 7,288 $ 8,954
========= ========= =========
Net income per share $ 0.37 $ 0.84 $ 0.77
========= ========= =========
Weighted average shares used in computing
Net income per share 8,631,578 8,639,498 11,605,706
========= ========= ==========
See accompanying notes to consolidated financial statements
F-3
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1995, 1996, and 1997
(dollars in thousands)
Cumulative
Foreign
Common Additional Former Currency Total
Stock Paid-in Retained Parent's Translation Stockholders'
Par Value Capital Earnings Capital Adjustment Equity
------------ ------------ ------------ ------------ ------------ ------------
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
Foreign currency translation adjustment - - - - ( 4,995) ( 4,995)
Adjustment of public offering expenses - ( 77) - - - ( 77)
Common stock issued - 43 - - - 43
Net income - - 8,954 - - 8,954
------------ ------------ ------------ ------------ ------------ ------------
BALANCES at September 30, 1997 115 75,666 8,954 - ( 2,810) 81,925
============ ============ ============ ============ ============ ============
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,
--------------------------
1995 1996 1997
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,213 $ 7,288 $ 8,954
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 2,364 2,449 2,142
Provision for doubtful accounts 1,549 484 1,245
Loss on disposal of property and equipment 214 7 5
Deferred income taxes 2,476 1,118 ( 375)
Increase in minority interest 9 10 43
Change in operating assets and liabilities:
Trade accounts receivable ( 8,232) ( 7,355) ( 270)
Other accounts receivable ( 184) ( 373) 782
Inventories ( 6,204) ( 6,976) 2,776
Prepaid expenses and other 235 8 ( 166)
Accounts payable, trade 2,782 ( 249) 321
Income taxes payable - 3,636 2,752
Accrued liabilities and pension obligation 1,619 6,049 ( 44)
-------- -------- --------
Net cash provided (used) by
operating activities ( 159) 6,096 18,165
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ( 1,936) ( 1,955) ( 1,798)
Proceeds from the sale of property and equipment 553 91 44
Investment in subsidiaries ( 19) - ( 5,092)
-------- -------- --------
Net cash (used) by investing activities ( 1,402) ( 1,864) ( 6,846)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in former parent's capital 1,897 1,938 -
Repayment of former parent loans - ( 7,473) (16,586)
Public sale of common stock, net of expenses - 102,445 -
Purchase of RSI and RSL stock - (70,080) -
Borrowings from bank - 6,318 12,209
Repayments to bank ( 515) ( 3,129) -
Issuance of restricted stock - - 43
Other - - ( 77)
-------- -------- --------
Net cash provided (used)
by financing activities 1,382 30,019 ( 4,411)
-------- -------- --------
Effect of foreign currency translation on cash 31 ( 72) ( 1,033)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ( 148) 34,178 5,874
Cash and cash equivalents at beginning of year 839 691 34,869
-------- -------- --------
Cash and cash equivalents at end of year $ 691 $ 34,869 $ 40,743
======== ======== ========
Cash paid during the year for interest $ 139 $ 134 $ 624
======== ======== ========
Cash paid during the year for income taxes $ - $ - $ 3,316
======== ======== ========
See accompanying notes to consolidated financial statements
F-5
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995, 1996, and 1997
(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") 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"), and the accounts of its 80 percent-owned subsidiary, Dilas
Diodenlaser GmbH ("Dilas"). RSI and RSL 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-
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-interest accounting.
On August 1, 1997, the Company acquired 80% of the common stock of
Dilas Diodenlaser GmbH, a German corporation, based in Mainz,
Germany, for $5.2 million. Dilas designs, manufactures and markets
diode lasers and components. The transaction was accounted for on a
purchase accounting basis. The excess of purchase price over the fair
value of the net assets acquired was $5.1 million and has been
recorded as goodwill, which is being amortized on a straight-line
basis over 15 years. The operating results of Dilas have been
included in the consolidated statement of operations from the date of
acquisition. On the basis of a pro forma consolidation of the
results of operations as if the acquisition had taken place at the
beginning of fiscal 1996, consolidated pro forma net sales would have
been materially consistent with the amounts reported for fiscal 1996,
and $131,155, for fiscal 1997. Consolidated pro forma income and
earnings per share would not have been materially different from the
reported amounts for either fiscal year. Such pro forma amounts are
not necessarily indicative of what the actual consolidated results of
operations might have been if the acquisition had been effective at
the beginning of fiscal 1996.
The combined financial statements for the fiscal years ended September
30, 1995 and 1996 are derived from the historical financial statements
of Rofin-Sinar Group. Management believes the accompanying historical
statements of operations for these fiscal periods include a reasonable
allocation of all expenses the Company would have incurred 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, 1997, Rofin-Sinar generated approximately 77% of
its revenues from the sale and installation of new lasers and
approximately 23% 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 as well as taxable and tax-exempt
variable rate demand obligations ("floaters") which are redeemable
upon a five day minimum notice. Interest income on taxable and tax-
exempt demand obligations was $1.5 million in fiscal 1997 and $0 in
prior years.
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 of 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 bears sole responsibility for filing tax returns
in the respective jurisdictions.
(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 are
negotiated on a contract-by-contract basis. The Company provides for
estimated warranty costs as products are shipped.
(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 as a
separate component of shareholders' equity. Gains or losses
resulting from foreign currency transactions are included in net
income.
F-7
(i) Hedging
The Company enters into foreign currency forward contracts to hedge
its foreign currency risk on sales transactions. Gains and losses on
transaction hedges are recognized in income and affect the foreign
exchange gains and losses on the related transaction. At September
30, 1997 foreign currency forward contracts outstanding were not
material.
(j) Research and Development Expenses
Research and development costs are expensed when incurred and are net
of government grants of $1,400, $822, and $876 received for the
years ended September 30, 1995, 1996, and 1997, respectively. The
Company has no future obligations under such grants.
(k) 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.
(l) 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.
(m) Net Income Per Share
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 the remaining
indebtedness owed to Siemens.
(n) Reclassifications
Certain reclassifications of prior year amounts have been made for
consistent presentation.
2. INVENTORIES
Inventories are summarized as follows:
September 30,
----------------------
1996 1997
--------- ---------
Finished goods $ 6,586 $ 2,732
Work in progress 8,027 7,944
Raw materials and supplies 8,087 6,903
Demo inventory 5,015 4,335
Service parts 6,638 6,817
--------- ---------
Total inventories, net $ 34,353 $ 28,731
========= =========
F-8
3. PROPERTY AND EQUIPMENT
Property and equipment include the following:
September 30,
----------------------
1996 1997
--------- ---------
Buildings $ 24,140 $ 20,878
Technical machinery and equipment 5,542 5,801
Furniture and fixtures 5,998 5,867
Computers and software 3,314 3,123
Leasehold improvements 1,339 1,497
--------- ---------
Total property and equipment, at cost $ 40,333 $ 37,166
========= =========
4. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
September 30,
----------------------
1996 1997
--------- ---------
Employee compensation $ 5,274 $ 4,960
Warranty reserves 4,427 5,724
Deferred revenue 2,548 244
Other taxes payable 1,563 820
Customer deposits 402 2,016
Other 2,872 2,070
--------- ---------
Total accrued liabilities $ 17,086 $ 15,834
========= =========
5. BANK LOANS
The Company's Japanese subsidiary had loans totaling $6,354 and $5,871
for the years ended September 30, 1996 and 1997, respectively. Interest
on the loans is at floating market rates which approximated 0.7% at
September 30, 1996 and ranged from 1.2 to 1.4% at September 30, 1997.
6. LINE OF CREDIT
The September 30, 1996 line of credit represents intercompany borrowings
outstanding from the former parent of $18,426. In October 1996 the
Company paid off this outstanding balance and obtained an annually
renewable credit line of $25,000 with Deutsche Bank AG to support its
working capital needs. As of September 30, 1997, $12,209 was borrowed
against this loan facility by RSL and Rofin-Sinar Italiana S.r.L. at a
fixed interest rate of 3.9%. The Company's other foreign subsidiaries
have various lines of credit with borrowings totaling $489 at September
30, 1997.
F-9
7. LEASE COMMITMENTS
The Company leases operating facilities and equipment under operating
leases which expire at various dates through 2002. 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, 1997 are:
Fiscal Year Ending September 30, Total
-------------------------------- --------
1998 $ 1,276
1999 812
2000 613
2001 366
2002 and thereafter 941
Rent expense charged to operations for the years ended September 30, 1995,
1996, and 1997, approximates $1,300, $1,568, and $1,609, 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 and is funded. 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,
----------------------
1996 1997
--------- ---------
Actuarial present value of benefit obligation:
Vested employees $ 2,389 $ 2,944
Nonvested employees 1,040 567
--------- ---------
Accumulated benefit obligation 3,429 3,511
Effects of assumed future compensation increase 987 1,181
--------- ---------
Projected benefit obligation 4,416 4,692
Plan assets ( 709) ( 1,607)
--------- ---------
Projected benefit obligation in excess
of plan assets 3,707 3,085
Unrecognized net gain 403 488
Unrecognized prior service cost ( 592) ( 529)
--------- ---------
Accrued pension cost $ 3,518 $ 3,044
========= =========
F-10
Pension costs consist of the following components:
Years ended September 30,
--------------------------
1995 1996 1997
-------- -------- --------
Service cost $ 391 $ 431 $ 418
Interest on projected benefit obligations 229 275 294
Amortization of unrecognized prior
service cost 63 64 52
Amortization of unrecognized gain ( 32) ( 11) ( 84)
-------- -------- --------
Net pension cost $ 651 $ 759 $ 680
======== ======== ========
Pensions generally provide benefits based on years of service. A
discount rate for the U.S. of 8% (7.0% for foreign plan) as of September
30, 1997 and 1996, and 7.5% (7.0% for foreign plan) as of September 30,
1995, is assumed. Increases in future compensation levels for the U.S.
plan are projected at 6% (2% for foreign plan). Prior service costs and
actuarial gains and losses are generally amortized over the average
remaining service period of active employees.
The RSI accumulated benefit obligation and unrecognized prior service
cost, as of September 30, 1996, were funded by Siemens Corporation into 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
participation in the Siemens Corporation Retirement Plan.
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, 1995, 1996, and 1997 are $115, $119, and $146,
respectively.
9. INCOME TAXES
Income before income taxes is attributable to the following geographic
regions:
Years ended September 30,
--------------------------
1995 1996 1997
-------- -------- --------
United States $ 649 $ 3,680 $ 3,178
Germany 5,631 8,186 10,525
France 289 169 183
Italy 193 109 180
Japan ( 497) 100 646
-------- -------- --------
Total income before income taxes $ 6,265 $12,244 $14,712
======== ======== ========
F-11
The provision for income tax expense is comprised of the following amounts:
Years ended September 30,
--------------------------
1995 1996 1997
-------- -------- --------
Current:
United States $ - $ - $ 1,981
Foreign 576 3,838 4,152
-------- -------- --------
Total current 576 3,838 6,133
-------- -------- --------
Deferred:
United States 249 1,316 ( 395)
Foreign 2,227 ( 198) 20
-------- -------- --------
Total deferred 2,476 1,118 ( 375)
-------- -------- --------
Total income tax expense $ 3,052 $ 4,956 $ 5,758
======== ======== ========
Statutory tax rates in the U.S., Italy, France, and Japan approximate
35%, 53% (52% for fiscal years 1995 and 1996, and 41% since October
1997), 37%, and 51% (52% for fiscal years 1995 and 1996), respectively.
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 16.4%, and for Mainz is
18.0%), which is deductible for federal corporate income tax purposes, a
federal corporate income tax of 45% 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 in the form
of a dividend are subject to a reduced federal corporate income tax rate
of 30% 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. 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.
F-12
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,
--------------------------
1995 1996 1997
-------- -------- --------
Computed "expected" tax expense $ 2,193 $ 4,285 $ 5,149
Difference between U.S. and foreign
statutory rates 446 741 1,019
Foreign operating loss for which no
benefit is recognized 257 - ( 286)
Use of unrecognized operating loss - - ( 374)
Change in foreign tax rate 147 - 30
German dividend withholding tax - - 262
Other 9 ( 70) ( 42)
-------- -------- --------
Actual tax expense $ 3,052 $ 4,956 $ 5,758
======== ======== ========
The tax effects of temporary differences that give rise to the net
deferred tax assets are as follows:
September 30,
----------------------
1996 1997
--------- ---------
Deferred tax assets:
Foreign:
German reorganization benefits $ 2,826 $ 1,969
Net operating loss carryforwards 1,687 1,227
Pension accrual 247 252
Inventory 701 480
Other, net 198 244
--------- ---------
Total Foreign 5,659 4,172
United States:
Net operating loss carryforwards 3,914 3,380
Depreciation 155 180
Warranty accrual 717 959
Accrued liabilities 94 139
Inventory 613 1,024
Bad debt allowance 105 104
Other - 144
--------- ---------
Total United States 5,598 5,930
Gross deferred tax assets 11,257 10,102
Less: Valuation allowance ( 1,741) ( 950)
--------- ---------
Net deferred tax assets 9,516 9,152
--------- ---------
Deferred tax liabilities:
Foreign:
Depreciation ( 2,448) ( 2,309)
Inventory ( 941) ( 310)
Bad debt allowance ( 129) ( 134)
Accrued liabilities ( 273) ( 179)
--------- ---------
Total Foreign ( 3,791) ( 2,932)
United States:
Pension accrual ( 200) ( 134)
--------- ---------
Deferred tax liabilities ( 3,991) ( 3,066)
--------- ---------
Net deferred income tax assets $ 5,525 $ 6,086
========= =========
F-13
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, 1997.
At September 30, 1997, the Company has U.S. federal net operating loss
carryforwards available of $9,941, which expire in 2008, Japanese net
operating loss carryforwards of $2,316, which expire in 2000, and German
net operating loss carryforwards of $75. 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 in connection with the Company's initial public
offering in September 1996.
10. SPECIAL CHARGE
The special charge of $1.4 million relates to the settlement of a
customer dispute arising out of the use of one of the Company's existing
products in a newly developed application.
11. RELATED PARTY TRANSACTIONS
The Company purchases certain goods and services from Siemens AG and its
affiliates, which were considered related parties through September 30,
1996, the effective date of the IPO. The amounts of such purchases,
which are primarily raw material inventories, were $2,445 and $4,379 for
the years ended September 30, 1995 and 1996, respectively. The Company
also recorded sales to Siemens AG and its affiliates totaling $1,241 and
$5,420 for the years ended September 30, 1995 and 1996, respectively.
The Company also had sales to its joint venture partners in Japan
amounting to $2,172, $1,969, and $3,776, in fiscal years 1995, 1996, and
1997, 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.
F-14
12. GEOGRAPHIC INFORMATION
Assets, revenues, and income before taxes, by geographic region, at
September 30, 1995, 1996, and 1997, and for the years then ended, are
summarized below:
ASSETS September 30,
----------------------
1996 1997
--------- ---------
United States $ 60,168 $ 55,794
Germany 67,201 71,059
Other 13,184 11,666
Intercompany eliminations ( 7,406) ( 6,330)
--------- ---------
Total Assets $ 133,147 $ 132,189
========= =========
REVENUES TOTAL BUSINESS
Years ended September 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
United States $ 35,189 $ 45,227 $ 49,675
Germany 70,020 88,433 96,167
Other 12,534 16,350 21,494
Intercompany Eliminations ( 25,277) ( 34,107) ( 37,943)
--------- --------- ---------
$ 92,466 $ 115,903 $ 129,393
========= ========= =========
INTERCOMPANY REVENUES
Years ended September 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
United States $ 3,595 $ 5,347 $ 4,737
Germany 21,419 28,083 32,544
Other 263 677 662
Intercompany Eliminations ( 25,277) ( 34,107) ( 37,943)
--------- --------- ---------
$ - $ - $ -
========= ========= =========
F-15
EXTERNAL REVENUES
Years ended September 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
United States $ 31,594 $ 39,880 $ 44,938
Germany 48,601 60,350 63,623
Other 12,271 15,673 20,832
Intercompany Eliminations - - -
--------- --------- ---------
$ 92,466 $ 115,903 $ 129,393
========= ========= =========
INCOME BEFORE INCOME TAXES Years ended September 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
United States $ 649 $ 3,680 $ 3,178
Germany 5,631 8,186 10,525
Other ( 15) 378 1,009
--------- --------- ---------
$ 6,265 $ 12,244 $ 14,712
========= ========= =========
13. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following represents the Company's quarterly results (millions of
dollars, except per share amounts):
Quarters Ended
----------------------------------------------
Dec.31, March 31, June 30, Sept. 30
1996 1997 1997 1997
---------- ---------- ---------- ----------
Net sales $ 34.0 $ 33.5 $ 31.2 $ 30.7
Gross profit 12.1 12.2 12.0 10.1
Net income 2.7 2.5 1.5 2.3
Net income per share 0.23 0.21 0.13 0.20
14. 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, 1997, of which 4,500 vest in future periods.
F-16
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 were no incentive stock options,
restricted stock or performance shares granted in fiscal 1996 or 1997. On
September 26, 1996 and 1997, 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 1997, and all options activity for
the periods then ended are as follows:
Price per Share
--------------------------
Number Price Weighted
Of Shares Range Average
--------- -------------- ----------
Granted September 26, 1996 282,000 $ 9 1/2 $ 9 1/2
Exercised 0
Forfeited 0
--------- -------------- ----------
Outstanding at September 30, 1996 282,000 9 1/2 9 1/2
--------- -------------- ----------
Granted September 26, 1997 193,000 16 7/8 16 7/8
Exercised 0
Forfeited 0
--------- -------------- ----------
Outstanding at September 30, 1997 475,000 $9 1/2 - 16 7/8 $ 12 1/2
--------- -------------- ----------
Outstanding Options Exercisable Options
------------------------------- -------------------
Remaining Weighted Weighted
Life Average Average
Exercise Prices Shares (years) Price Shares Price
------------------ ------ ---------- ----------- ------ -----------
$ 9 1/2 282,000 4 $ 9 1/2 56,400 $ 9 1/2
$16 7/8 193,000 5 $ 16 7/8 - $ -
F-17
The Company follows APB Opinion 25, Accounting for Stock Issued to
Employees, to account for stock options. No compensation cost is
recognized because the option exercise price is equal to the market price
of the underlying stock on the date of grant. Had compensation cost for
these plans been determined based on the Black-Scholes value at the grant
dates for awards as prescribed by SFAS Statement 123, Accounting for
Stock-Based Compensation, pro forma net income and earnings per share
would have been:
Year ended September 30,
------------------------
1996 1997
---------- ----------
Pro forma net income $ 7,288 $ 8,781
Pro forma earnings per share $ 0.84 $ 0.76
---------- ----------
The pro forma disclosures above include the amortization of the fair
value of all options vested during 1997 and are not necessarily
representative of actual results which will be reported in future years.
The weighted average Black-Scholes value of options granted under the
stock option plan during 1996 and 1997 was $5.10 and $9.25. Value was
estimated using an expected life of five years, no dividends, volatility
of 56% and 53%, and risk-free interest rates of 6.6 % and 6.0% in fiscal
1996 and 1997.
15. RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997 Financial Accounting Standards No. 128 (FAS 128), "Earnings per
Share" was issued and is effective for both interim and annual periods
ending after December 15, 1997. The future adoption of FAS 128 is not
expected to have a material effect on the Company's reported earnings per
share.
In 1997 Financial Accounting Standards No. 130 (FAS 130), "Reporting
Comprehensive Income", was issued and is effective for fiscal years
commencing after December 15, 1997. The Company will comply with the
requirements of FAS 130 in fiscal year 1999.
In 1997 Financial Accounting Standards No. 131 (FAS 131), "Disclosures
about Segments of an Enterprise and Related Information", was issued and
is effective for fiscal years commencing after December 15, 1997. The
Company will comply with the requirements of FAS 131 in fiscal year 1999.
F-18
Independent Auditors' Report
The Board of Directors and Stockholders
Rofin-Sinar Technologies Inc. and Subsidiaries:
Under date of November 10, 1997, we reported on the consolidated balance sheets
of Rofin-Sinar Technologies Inc. and Subsidiaries as of September 30, 1996 and
1997, 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, 1997, 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, Valuation and
Qualifying Accounts, 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 10, 1997
F- 19
ROFIN-SINAR TECHNOLOGIES INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended September 30, 1995, 1996, and 1997
(dollars in thousands)
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Of Period Expenses Period
----------- ----------- ----------- -----------
September 30, 1995 $ 1,005 $ 1,549 ($1,302) $ 1,252
September 30, 1996 1,252 484 ( 773) 963
September 30, 1997 963 1,245 ( 1,298) 910
F-20
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- ------------------------------
11.1 Earnings Per Share Table
21.1 List of Subsidiaries of Rofin-Sinar Technologies Inc.
27.1 Financial Data Schedule
F-21