OVERVIEW

Rofin-Sinar Technologies Inc. is a leader in the design, development, engineering, manufacture, and marketing of laser-based products, primarily used for cutting, welding, and marking a wide range of materials.

Lasers are a non-contact technology for material processing, which have several advantages compared to conventional manufacturing tools that are desirable in industrial applications. The Company's lasers all deliver a high-quality beam at guaranteed power outputs and feature compact design, high processing speed, flexibility, low operating and maintenance costs and easy integration into the customer's production process. As a technological leader in CO2, solid-state lasers and diode lasers, the Company is able to meet a broad range of its customers' material processing requirements.

Based on the revised 2007 industry data of the Optoelectronics Report for laser products used for macro (cutting and welding) applications and marking and micro (fine cutting, fine welding, and perforating) applications combined, the Company had a worldwide market share (based on sales volume) in 2007 of over 18%. Using the Optoelectronics Report industry data projected for 2008, the Company believes it has a worldwide market share of approximately 20% and that it is among the largest suppliers of laser products used for marking applications worldwide. The Company has sold more than 47,000 laser sources since 1975 and currently has over 3,000 active customers (including multinational companies with multiple facilities purchasing from the Company). During fiscal 2008, 2007, and 2006, approximately 41%, 43%, and 41%, respectively, of the Company's revenues related to sales of laser products for macro applications, approximately 10%, 9%, and 8% respectively, related to sales of components, and approximately 49%, 48%, and 51%, respectively, related to sales of laser products for marking and micro applications.

Through its global manufacturing, distribution and service network, the Company provides a comprehensive range of laser sources and laser-based system solutions to three principal target markets: the machine tool, automotive, and the semiconductor and electronics industries. The Company sells directly to end-users and to original equipment manufacturers ("OEMs") (principally in the machine tool industry) that integrate Rofin's laser sources with other system components. Many of Rofin's customers are among the largest global participants in their respective industries. During fiscal 2008, 2007, and 2006, 25%, 23%, and 30%, respectively, of the Company's sales were in North America, 51%, 55%, and 48%, respectively, were in Europe and 24%, 22%, and 22%, respectively, were in Asia. See note 13, "Geographic Information", to the consolidated financial statements for further information.

Outlook

Management believes that the general slowdown of the industrial markets and recent fluctuations in exchange rates will have an impact on the Company's future business. Mid-term predictions are currently quite difficult, but we are confident that our focus on emerging industries and regions is the right strategy for sustained long-term success. Our success in this challenging macroeconomic environment will also depend on our ability to further diversify our markets, enhance our global presence and serve a broader customer base. We should be able to capitalize on our recent investment in Switzerland, India, and China. In addition, addressing less cyclical industries such as military and defense industry should help us to compensate a slowdown in other branches.

Acquisitions and Formation of New Entities

Effective October 1, 2005, the Company formed DILAS Diodelaser Inc. in Tucson, Arizona, as a wholly-owned subsidiary of the Company's wholly-owned subsidiary, Rofin-Sinar, Inc.

Effective December 2, 2005, the Company purchased an additional 4% of the share capital of Rofin-Sinar U.K. Ltd. through Rofin-Sinar Technologies Europe S.L. under an option agreement between the Company and the former minority shareholders. The Company currently holds 80% of the share capital of Rofin-Sinar U.K. Ltd. This purchase resulted in goodwill of $0.5 million.

On March 23, 2006, the Company acquired 40% of the share capital of H2B Photonics GmbH, Garbsen (Germany) through its wholly-owned subsidiary Carl Baasel Lasertechnik GmbH & Co. KG. H2B Photonics

Effective May 1, 2006, the Company formed Rofin-Baasel Canada Ltd. in, Mississauga, Canada, as a wholly-owned subsidiary of the Company's wholly-owned subsidiary, Rofin-Sinar, Inc.

Effective December 2, 2006, the Company purchased an additional 1% of the share capital of Rofin-Sinar U.K. Ltd. through Rofin-Sinar Technologies Europe S.L. under an option agreement between the Company and the former minority shareholders. The Company currently holds 81% of the share capital of Rofin-Sinar U.K. Ltd. This purchase resulted in goodwill of approximately $0.2 million.

Effective February 28, 2007, the Company acquired 80% of the common stock of m2k-laser GmbH, Freiburg (Germany), through its wholly-owned subsidiary Rofin-Sinar Laser GmbH. m2k-laser GmbH develops and manufactures semiconductor lasers based on the III-V compounds GaAs and GaSb for use predominantly in the scientific industry. Additionally, the parties have agreed on a put/call option exercisable beginning in 2012 for the remaining 20% of the common stock. Accordingly, the Company's financial statements present m2k-laser GmbH as if it was 100%-owned. This purchase resulted in goodwill of approximately $0.6 million.

Effective March 28, 2007, the Company acquired 100% of the common stock of Corelase Oy, Tampere (Finland). Corelase Oy has considerable experience in semiconductors, optics, and fiber technology. Its product lines include fiber-coupled diode laser systems, continuous-wave and ultra short pulse mode-locked fiber laser systems, and components such as diode lasers for a wide range of material processing applications. The terms of the purchase include payment of deferred purchase price based on Corelase Oy achieving certain financial targets. This purchase resulted in goodwill of approximately $6.9 million.

Effective April 05, 2007, the Company acquired 100% of the common stock of ES Technology Ltd., Oxford, (UK), through its wholly-owned subsidiary Rofin-Baasel UK Ltd. ES Technology Ltd. develops customized laser marking system solutions based on various laser technologies and distributes a number of optical devices and components into Northern European territories from several American suppliers via its subsidiary, Laser Service (Oxford) Ltd. This purchase resulted in goodwill of approximately $0.7 million.

Effective May 14, 2007, the Company purchased an additional 45% of the share capital of H2B Photonics GmbH, Garbsen (Germany) through its wholly-owned subsidiary Carl Baasel Lasertechnik GmbH. The Company currently holds 85% of the share capital of H2B Photonics GmbH. This purchase resulted in goodwill of approximately $0.1 million.

Effective December 3, 2007, the Company purchased the remaining 19% of the share capital of Rofin-Sinar U.K. Ltd. through Rofin-Sinar Technologies Europe S.L. under an option agreement between the Company and the former minority shareholders. The Company now holds 100% of the share capital of Rofin-Sinar U.K. Ltd. This purchase resulted in goodwill of $5.6 million.

Effective January 24, 2008, the Company purchased Nufern, one of the world's largest independent manufacturers of specialty fibers and fiber laser modules serving a wide range of industries, as a wholly-owned subsidiary of Rofin-Sinar Technologies Inc. This purchase resulted in goodwill of $6.6 million. The acquisition of Nufern is accounted for as a purchase business combination. Assets acquired and liabilities assumed are recorded in the accompanying condensed consolidated balance sheet at their estimated fair values at January 24, 2008. The Company is in the process of finalizing its valuation of the identified intangible assets related to this acquisition. To the extent the final valuation is different from the Company's preliminary assessment of fair value, a purchase price adjustment will be made, which could impact the amount of goodwill recorded. Nufern was purchased with cash and the Company is contingently obligated to make an additional amount in potential earn out payments based on Nufern achieving specific financial performance metrics through calendar year 2008.

During the quarter ended June 30, 2008, the Company formed Dilas Diodelaser China Company Ltd. in Nanjing (China) through its 95%-owned subsidiary Dilas Diodenlaser GmbH.

During the quarter ended June 30, 2008, the Company formed Nanjing Eastern Technologies Company Ltd. in Nanjing (China) as an 80%-owned subsidiary.

The company is in the process of finalizing the acquisition of 80% of China-based Nanjing Eastern Laser Company Ltd. (NELC) through two separate cash transactions. NELC's product lines are largely comprised of high power, fast-axial flow CO2lasers, with a power range up to 3 kW as well as NC-based laser processing equipment.

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,
                                                         --------------------------------------
                                                            2008          2007          2006
                                                         ----------    ----------    ----------
Net sales                                                     100.0 %       100.0 %       100.0 %
Cost of goods sold                                             56.9 %        57.6 %        57.6 %
Gross profit                                                   43.1 %        42.4 %        42.4 %
Selling, general and administrative expenses                   18.0 %        18.0 %        18.3 %
Research & development expenses                                 7.1 %         5.8 %         5.7 %
Intangibles amortization                                        1.2 %         0.9 %         0.8 %
Income from operations                                         16.7 %        17.7 %        17.6 %
Income before income taxes                                     16.9 %        18.2 %        18.2 %
Net income                                                     11.1 %        11.5 %        11.8 %

Fiscal Year 2008 Compared to Fiscal Year 2007

Net Sales - Net sales of $575.3 million represents an increase of $95.6 million, or 20%, over the prior year. Net sales increased $66.2 million, or 18%, in Europe/Asia and $29.4 million, or 26%, in North America, compared to the prior year. The U.S. dollar fluctuated against foreign currencies, which had a favorable effect on net sales of $45.0 million. Net sales of laser products for macro applications increased by 16% to $238.5 million, primarily due to the higher demand for our lower and higher power CO2 lasers from OEM customers in the automotive industry. Net sales of lasers for marking and micro applications increased by 20% to $279.1 million compared to fiscal year 2007, mainly due to the higher demand for our lasers for micro and marking applications principally from the photovoltaic and electronics industries. Revenues for the component business increased by 37% to $58 million, primarily due to the Company's last acquisition and higher sales related to laser diodes.

Gross Profit - The Company's gross profit of $248.0 million increased by $44.7 million, or 22%, over the prior year. As a percentage of sales, gross profit increased to 43%. The increased percentage margin in fiscal year 2008 was primarily a result of a favorable product mix, an increase in the components business and higher production efficiencies gained primarily in the manufacturing of high-power CO2lasers. Gross profit was favorably affected by $15.5 million in fiscal year 2008 due to the fluctuation of the U.S. dollar against foreign currencies, primarily the Euro.

Selling, General and Administrative Expenses - Selling, general and administrative expenses increased by $17.3 million, or 20%, to $103.8 million, compared to fiscal year 2007 primarily as a result of our increased selling and marketing activities, mainly in Asia, the acquisition of our new companies, and higher commissions related to our record-high revenues. Selling, general and administrative expenses were impacted by $0.5 million higher stock-based compensation expenses compared to fiscal year 2007. As a percentage of net sales, selling, general and administrative expenses remained at 18%. Selling, general and administrative expenses were unfavorably affected by $7.2 million in fiscal year 2008 due to the fluctuation of the U.S. dollar against foreign currencies, primarily the Euro.

Research and Development - The Company's net expenses for research and development amounted to $41.1 million, which represents an increase of $13.3 million, or 48%, over fiscal year 2007 primarily due to ongoing research and development work mainly in the area of fiber lasers, R&D expenses from the new acquired subsidiaries and lower R&D grants. Gross research and development expenses for fiscal years 2008 and 2007 were $42.3 million and $30.1million, respectively, and were reduced by $1.2 million and $2.3 million of government grants during the respective periods. The Company will continue to apply for,

Other Income - Net other income of $1.5 million fiscal year 2008 represents a decrease of $2.0 million compared to the prior year. As a result of our share buyback program, net interest income decreased to $3.0 million in fiscal year 2008, compared to net interest income of $5.0 million in fiscal 2007. The interest income is offset by $1.9 million of foreign currency losses in fiscal 2008 compared to $2.1 million in fiscal 2007.

Income Tax Expense - Income tax expense of $33.5 million in fiscal year 2008 and $31.8 million in fiscal year 2007, represent effective tax rates of 34.4% and 36.6% for the respective periods. The lower effective income tax rate in fiscal year 2008 is mainly due to a reduced effective tax rate in Germany as a result of a change in German income tax law. Income tax expense, a significant portion of which is incurred in foreign currencies, was unfavorably affected by $3.3 million in fiscal 2008 due to the weakening of the U.S. dollar against foreign currencies, primarily the Euro.

Net Income - As a result of the foregoing factors, the Company's net income of $63.8 million ($2.09 per diluted share, based on 30.4 million weighted average common shares outstanding) in fiscal year 2008 increased by $8.5 million over the prior year's net income of $55.3 million ($1.74 per diluted share, based on 31.8 million weighted average common shares outstanding). Currency translation increased net income by $0.9 million in fiscal year 2008.

Fiscal Year 2007 Compared to Fiscal Year 2006

Net Sales - Net sales of $479.7 million represents an increase of $58.8 million, or 14%, over the prior year. Net sales increased $72.7 million, or 25%, in Europe/Asia and decreased $13.9 million, or 11%, in North America, compared to the prior year. The U.S. dollar fluctuated against foreign currencies, which had a favorable effect on net sales of $26.8 million. Net sales of laser products for macro applications increased by 19% to $205.8 million, primarily due to the higher demand for our lower and higher power CO2 lasers from OEM-customers in the machine tool industry. Net sales of lasers for marking and micro applications increased by 9% to $231.9 million compared to fiscal year 2006, mainly due to the higher demand for our lasers for micro and marking applications principally from the photovoltaic, electronics, and medical device industries. Revenues for the component business increased by 22% to $42.0 million, primarily due to higher sales related to laser diodes and fiber-optic products.

Gross Profit - The Company's gross profit of $203.3 million increased by $25.0 million, or 14%, over the prior year. As a percentage of sales, gross profit remained at 42%. The high percentage margin in fiscal year 2007 was primarily a result of a favorable product mix across all product lines and the higher production efficiencies gained primarily in the manufacturing of high-power CO2lasers. Gross profit was favorably affected by $9.2 million in fiscal year 2007 due to the fluctuation of the U.S. dollar.

Selling, General and Administrative Expenses - Selling, general and administrative expenses increased by $9.6 million, or 12%, to $86.5 million, compared to fiscal year 2006 primarily as a result of our increased selling and marketing activities, the acquisition of our new companies, and higher commissions related to our record-high revenues. Selling, general and administrative expenses were impacted by $2.1 million higher stock-based compensation expenses compared to fiscal year 2006. As a percentage of net sales, selling, general and administrative expenses remained at 18%. Selling, general and administrative expenses were unfavorably affected by $4.2 million in fiscal year 2007 due to the fluctuation of the U.S. dollar.

Research and Development - The Company's net expenses for research and development amounted to $27.8 million, which represents an increase of $3.8 million, or 16%, over fiscal year 2006 primarily due to ongoing research and development work mainly in the area of high-power fiber lasers, diode pumped, solid-state lasers, and CO2 lasers. Gross research and development expenses for fiscal years 2007 and 2006, were $30.1 million and $25.2million, respectively, and were reduced by $2.3 million and $1.2 million of government grants during the respective periods. The Company will continue to apply for, and expects to continue receiving, government grants towards research and development, especially in Europe. Research and development expenses were unfavorably affected by $2.0 million in fiscal year 2007 due to the fluctuation of the U.S. dollar.

Income Tax Expense - Income tax expense of $31.8 million in fiscal year 2007 and $27.0 million in fiscal year 2006, represent effective tax rates of 36.6 % and 35.3% for the respective periods. The higher effective income tax rate in fiscal year 2007 is mainly due to high permanent differences related to the stock-based compensation expenses and taxable profit generation at nearly all subsidiaries which includes the usage of the existing net operating losses. Income tax expense, a significant portion of which is incurred in foreign currencies, was unfavorably affected by $2.2 million in fiscal 2007 due to the weakening of the U.S. dollar against foreign currencies, primarily the Euro.

Net Income - As a result of the foregoing factors, the Company's net income of $55.3 million ($3.48 per diluted share, based on 15.9 million weighted average common shares outstanding) in fiscal year 2007 increased by $5.7 million over the prior year's net income of $49.6 million ($3.16 per diluted share, based on 15.7 million weighted average common shares outstanding). SFAS 123R had an effect of reducing net income by $5.0 million. Currency translation increased net income by $0.5 million in fiscal year 2007.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity at September 30, 2008, were cash and cash equivalents of $114.5 million, short-term investments of $2.0 million, an annually renewable $25.0 million line of credit with Deutsche Bank AG, a long-term loan with Deutsche Bank AG of $7.2 million and several other lines of credit to support foreign subsidiaries in their local currencies in an aggregate amount of $94.3 million (translated at the applicable exchange rate at September 30, 2008). Additionally, the Company had outstanding short-term debt with Deutsche Bank AG and Bayerische Hypo und Vereinsbank AG of $40.0 million, which was used to finance the stock buyback plan. As of September 30, 2008, $3.2 million was outstanding under the $25.0 million Deutsche Bank facility, $7.2 million was outstanding from the long-term loan with Deutsche Bank and $16.3 million under other lines of credit. Therefore, $99.8 million is unused and available under Rofin's lines of credit. The Company is subject to financial covenants under these facilities and lines of credit, which could restrict the Company from drawing money under them. At September 30, 2008, the Company was in compliance with these covenants.

Cash and cash equivalents decreased by $4.0 million during fiscal year 2008. Approximately $32.6 million in cash and cash equivalents were provided by operating activities, primarily as the result of increased net income and other non-cash items, principally depreciation and amortization. Operating cash flow was negatively affected by a decrease in income tax payable and an increase in accounts receivables and in inventories.

Net cash provided by investing activities totaled $52.2 million for the year ended September 30, 2008, and related primarily to the sale of short-term investments ($224.6 million) offset by the purchase of short-term investments ($128.5), acquisitions ($30.2), and various additions to property and equipment in connection with the expansion of the Company's operations ($14.5 million).

Net cash used in financing activities totaled $90.5 million and was primarily related to the stock buyback program ($120.0 million), partly offset by $24.6 million net borrowings from banks and by $5.2 million generated through issuance of new shares from the exercise of stock options.

The Company expects that its capital expenditures will be approximately $14.0 million in 2009.

Management believes that cash flows from operations, along with existing cash and cash equivalents and availability under our credit facilities and lines of credit, will provide adequate resources to meet the Company's capital requirements and operational needs on both a current and a long-term basis.

                                           Payments due by period (in thousands)
                                 ----------------------------------------------------------
                                             Less than      1-3        3-5       More than
   Contractual Obligations         Total       1 Year      Years      Years       5 Years
   ---------------------------   ---------   ----------   --------   --------   -----------

   Long and short-term debt      $  66,674   $   54,706   $  2,161   $  7,549   $     2,258
   Pension obligations              12,275          387      2,129      2,798         6,961
   Operating lease obligations      33,281        7,872     13,736      3,454         8,219
   Purchase obligations *          116,892       92,458     24,432          2             -
   Interest obligation               3,890        1,102      2,005        783             -
   Other long-term liabilities       1,584          133        497        263           691
                                 - -------   -- -------   - ------   - ------   -- --------
   Total                         $ 234,596   $  156,658   $ 44,960   $ 14,849   $    18,129
                                 - -------   -- -------   - ------   - ------   -- --------

* Purchase obligations include payments due under various types of agreements to purchase raw materials or other goods

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements or financing arrangements involving variable interest entities.

CURRENCY EXCHANGE RATE FLUCTUATIONS

Although the Company prepares its consolidated financial statements in U.S. dollars, approximately 69% of its net sales are denominated in other currencies, primarily the Euro, Swedish krona, Swiss francs, British pound, Singapore dollar, Taiwanese dollar, Korean won, Japanese yen, Canadian dollar, and Chinese RMB. 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 had the effect of increasing total equity by $37.4 million at September 30, 2008, as compared to $42.2 million at September 30, 2007.

The fluctuation of the Euro 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, gross margin, selling, general and administrative expenses, and research and development expenses, denominated in such foreign currencies when translated into U.S. dollars as compared to prior periods.

The Company defines the term "constant currency" to mean that financial data for a period are translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the previously reported period. Changes in sales, gross profit and income from operations include the effect of fluctuations in foreign currency exchange rates. The Company's management reviews and analyzes business results on a currency basis and believes these results better represent the Company's underlying business trends without distortion due to currency fluctuations. The Company believes that this "constant currency" financial information is a useful measure for investors because it reflects actual changes in operations.

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