pdf ( 2 MB ) - LPKF Laser & Electronics AG

Facts and figures at-a-glanceLPKF Laser & Electronics AG, Garbsen near Hannover,is one of the international market leaders in the field oflaser-supported application technologies for modernmicroelectronics. In the course of its 25 year history,the company has applied expertise, know-how andquality-awareness to develop highly successful solutionsand sophisticated products, with the result that it hasbuilt up a first class reputation around the world amongstmajor clients and research institutes.New LPKF headquartersReception1976 Foundation of LPKF and introduction of the first prototyping systems1980 Establishment of branch in USA1984 Launch of a complete prototyping system (including CAD program)1989 Entry into laser technology with the aim of developing economically-efficientlaser technology products for the microelectronics sector1991 Construction and move to new company headquarters in GarbsenEntry into drive technology by founding LPKF Motion & Control1993 Development of the StencilLaser1994 Foundation of LPKF Slovenia1996 Development projects: 3D-MID and Chip Size Packaging1997 First MicroLine Laser prototype1998 Conversion to stock corporation and IPO1999 Co-operation agreements with Atotech Deutschland GmbH and MANIA Technologie AG in December2000 Development of MicroLine Drill laser system for drilling and structuring printed circuit boardsKey Group figures at-a-glance 2000 1999 1998Turnover (in DM million) 54.8 38.6 31.9EBIT 12.3 9.5 8.1Cash-flow 10.8 7.6 5.4Investments 10.3 5.6 2.5Earnings per share (in DM) – undiluted 0.59 0.42 0.38Turnover according to countries (in DM million)Domestic 14.0 8.5 8.4Rest of Europe 9.7 8.1 8.3North America 15.5 11.4 7.6Asia 14.1 10.1 7.3Others 1.5 0.5 0.3Turnover according to product (in DM million)Laser 27.8 17.2 15.6Rapid Prototyping 20.9 17.1 13.4Stencils 3.9 3.4 2.1Others 2.2 0.9 0.8Staff 186 122 92

Karl JaspersThe future is open: open for opportunitiesMessage by the Chairmanof the Board of Directors4Report of the Supervisory BoardLPKF Groupmanagement report810Electronics growth marketDiary of an innovation1822Statement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AG2728303144

LPKF Board of Directors (from left) Dr. Jörg Kickelhain (R &D), Bernd Hildebrandt (Chairman of the Board of Directors), Bernd Hackmann (Production, Sales, Marketing)

Dear shareholders ...4Annual Report 2000

Prospects for the future ...6Annual Report 2000

Report of the Supervisory BoardThe objective and detailed discussionsof published data with this group ofpeople is important because theirinvestment recommendations arefollowed by a large number ofinvestors. This is another field wherethe Supervisory Board, after priorControlled growth ...Research and DevelopmentThe Supervisory Board herewithpresents its third reporton the progress of our companyas a stock corporationFive formal meetings took placeduring the reporting period. Themain subjects of these meetings werethe Board of Directors’ reports onthe situation of the company thatwere each presented by the Boardof Directors with the associatedfigures. Problems and queries werediscussed openly with respect to theirrelevance to the impact on thecompany. The necessary resolutionswere elaborated unanimously. Inaddition, the Supervisory Boardprovided support on numerousoccasions to the Board of Directorson matters concerning the futurestrategic development of LPKF AG.The Board of Directors’ goal is forthe company’s core business activitiesto grow in a controlled way throughco-operations, entry into strategicalliances and acquisitions. TheSupervisory Board in negotiationswith potential partners enthusiasticallysupported this strategy.Meetings between the SupervisoryBoard and the Board of Directorswith fund managers and analystsduring “road shows” were also justas successful and valuable for thecompany.agreement with the Board ofDirectors, feels that it should notonly actively support the Board ofDirectors in meetings, but alsoparticipate in the above-mentioneddiscussions.As already reported previously,cooperative work with universitieshas brought significant success. Inthis regard, the University of Erlangenand the Lemgo Technical Universityhave developed and plannednumerous research projects togetherwith LPKF.We consider the close researchcooperation with top universities tohighlight the merits of our company,as well as being a challenge to realisethe strive for know-how transferfrom theory into practice.The Supervisory Board places a veryhigh priority on research and development.We consider co-operationsalong these lines to provide majoropportunities to secure the marketleadership and strong position of thecompany in its markets, as well as tounderpin the future generation ofvalue-added within the company.In the last annual report, theSupervisory Board announced its firmintention to not only continue itsprevious practice of working closely,openly and effectively with the Boardof Directors, but also where possibleto intensify and further enhancethese activities.8Annual Report 2000

Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AGLPKF MicroLine Drill Trade-fair booth at electronica2000 in Munich LPKF MicroLine LaserThe Supervisory Board is well awarethat the “LPKF model” is beingscrutinised by an interested publicas well as the shareholders.The co-operation between the twoofficial company bodies is obviouslygaining in significance.This also means that the job ofSupervisory Board member is farmore than an honorary position.An increasingly common opinion is,recognised experts and highlyqualified managers should carry outthis task, respectively, with theprofessionalism to properly carry outthis task in close co-operation withthe Board of Directors. When aninternationally active and highlyregardedmanagement consultancylike Heidrick & Struggles highlightsthat the work of a Supervisory Boardis a professional responsibility whichinvolves activating unusedmanagement resources within theSupervisory Board for the good ofthe company, it only remains for usto agree whole-heartedly and pointto the way we have already put thisinto practice.The evolution of the Board ofDirectors and the Supervisory Boardas defined by German law into amanagement committee along thelines of an American “Board” isunmistakable – in particular in thecase of companies with majorinstitutional investors.Although the change is only takingplace slowly, we are convinced thatwe have already moved a good stepforward in this regard. The regulationsthat control the co-operation putinto practice by Boards of Directorsand Supervisory Boards are not yetfully covered by the KonTraG law.The system practised by us as wellas other companies may have someinfluence in this regard.In accordance with its officialobligations, the Supervisory Boardappointed the accounting firmSocietäts Treuhand Gruppe GmbH,Wirtschaftsprüfungsgesellschaft,Hannover, on December 21, 2000to audit the 2000 annual financialstatements. The audit report has nowbeen reviewed and given unconditionalapproval by the auditor.The auditor participated at therelevant meeting of the SupervisoryBoard on March 14, 2001 andprovided additional informationwhen requested on the auditing ofthe annual financial statements.In accordance with the legislation,the Supervisory Board in turnreviewed the annual financialstatements, the management reportand the profit appropriation proposaland thus approved the annualfinancial statements. They are nowauthorised.Moreover, approval was also givento the proposal for the appropriationof the net income for the year totallingDM 7,061,191.47, by utilising a parttotalling DM 1,260,000 to pay adividend of DM 0.12 per share withdividend entitlements and to carryforward the remaining net incomefor the year of DM 5,801,191.47.The consolidated financial statements,the management board report onthe state of the company and theauditor’s report were available forreference during discussions with theBoard of Directors and the auditor.They were incorporated in the reviewand acknowledged with approval.The Supervisory Board thanks theBoard of Directors, the works counciland all of the employees for theircommitment to the company andfor the work they have carried out.Without this dedication, LPKF wouldnot be what it is today, namely a“pearl of the new market”, to quotethe shareholders’ representativeassociations at last year’s annualgeneral meeting.Garbsen, March 14, 2001On behalf of the Supervisory BoardKlaus Sülter9

LPKF Group management report10Systematic innovations ....Annual Report 2000Development of the sectorand the overall economyThe electronics market was asignificant engine of growth for theglobal economy in the reportingperiod. The mobile phone market inparticular continued its amazingsuccess story. The VDMA (VerbandDeutscher Maschinen- und Anlagenbaue.V. – German Mechanical andPlant Engineering Association)forecasts that the total electronicsindustry will have a market volumeof US $ 1.34 trillion in 2004.The global printed circuit board marketcan be used as a guide for LPKF.According to preliminary information,this grew around eight per cent duringthe year. Although no precise dataare currently available for 2000, VDMAis certain that 2000 was a year ofrecord growth for the printed circuitboard industry. Growth in 2001 isexpected to be less dynamic. However,VDMA still forecasts that this will bea very good year around the world.Important driving forces now as wellas in the future, are telecommunications,data processing and automobileelectronics.The trend is increasingly shiftingtowards production technologies fornew semi-conductor generations.The increased use of CSPs (Chip SizePackaging) will accelerate even furtherthe demand for HDI circuits (HighDensity Interconnect). This opens upsignificant market opportunities forLPKF’s MicroLine series in particular.The dynamic development in theelectronics industry demandscontinuous new research anddevelopment. For instance, theinnovation cycle in the mobiletelephone sector has reduced to sixmonths. The “time-to-market” factorhas gained increasingly in significance.This opens up excellent marketopportunities for LPKF’s Rapid Prototypingdivision. Special importanceis assigned in this regard to LPKF’sproduct strategy of serving themarket as a system supplier.Turnover and sales developmentThe development in Rapid Prototypingturnover during the reportingperiod was very positive with a growthof 22.1 per cent. LPKF is a systemsupplier in this segment and hassucceeded in considerably improvingits range of products. The new productshave enjoyed very high levels ofacceptance by the market and havemade a considerable contribution tothe growth in the Rapid Prototypingdivision. The ProtoLaser, a combinationof laser technology and circuit boardplotter, has proved its marketacceptance by the first successfulsales. This system enables ultra-finestructuring of 40-50 µm to beachieved already during theproduction of a prototype.Turnover of laser systems grew by61.7 per cent. The excellent successof this segment was due to the firstsales of the new product lines suchas the MicroLine Laser family, PolymerStencilLaser, FlexRouter, ScanCheckand MicroLine Drill. Two machineswere sold immediately after thepresentation of the new MicroLineDrill system at electronica2000 inMunich.This new development is a combinedmicrovia drilling and structuringsystem especially designed for averageprinted circuit board lot sizes. Eightnew developments in all segmentswere launched on the market in 2000.They were rewarded with immediate

Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationsales. These new products played asignificant part in the company’sThis is partially compensated byproducing at subsidiaries in Slovenia.Statement of incomeBalance sheetCash flow statementsgrowth.The high growth in turnover, echoingConsolidated statementsThe sales distribution according tocountries is well balanced andrepresents a good spread of risk –there is no major dependency oneither country, major company orinnovation dynamism and theassociated extremely high materialthroughput within the company, wasfully realised by the introducedcapacity expansion measures.DevelopmentAnnual Report AGmajor client.The introduction of the DIN EN ISOTurnover distribution according to countriesKDM60,00054,76150,0009001:2000 quality managementsystem is going ahead on all fronts.Parts of the system are already beingFinancing measuresAll of the R & D costs and investments40,00030,00031,93238,619successfully used. The certificationaudit for the overall system is plannedwere funded from liquid assets, aswas the interior of the new building20,000for the third quarter 2001.in Garbsen. The same also applies to10,000019981999 2000Investmentsthe acquisition of shareholdings andinvestments in start-ups:Others Asia North AmericaGermanyRest of EuropeThe staff moved into the new buildingLPKF Tianjin Co. Ltd., LaserquipmentAG and PhotonicNet GmbH.Production and procurementLPKF Slovenia d.o.o./Kranj is the mainsupplier of circuit board plotters,laser sources and the ScanChecksystem. The production range wasat the Garbsen headquarters inautumn 2000. Investments totalled3,945 KDM. In addition, the capacityat LPKF Motion & Control in Suhlwas also increased. This involvedinvestments totalling 2,700 KDM.The new buildings in Garbsen andSuhl were externally financed withlong-term loans.Personnelstrategically expanded to harnessadditional synergies for manufacturingcost optimisation. The globalprocurement prices have risen in theface of high demand. In addition,order fulfilment times for componentshave also increased. The rise in thematerial application ratio reflects achange in the product mix but canalso be attributed to the increase inprices of globally procuredcomponents.Investments concentrating on R & Dlaser systems are planned in the 2001financial year. This involves thesystematic continuation of thedynamic innovation strategy toensure that customer-orientatedproducts can be rapidly launched inthe market. There is also a continuousflow of investment in the RapidPrototyping division to ensure themaintenance of the technicalleadership in this segment as well.On the balance sheet date at the endof the 2000 reporting year, theworkforce had risen from 122 to 186.The new staff are involved inproduction, sales/marketing, R & Dand engineering/administration.Turnover distribution according to segmentsLPKF Tianjin Co. Ltd. was establishedKDM60,00050,00040,00030,00020,00010,000031,932199854,76138,6191999 2000in China as a one hundred per centsubsidiary.LPKF Laser & Electronics AG took a19.9 per cent shareholding in theauthorised capital of LaserquipmentAG. LPKF also acquired a stake of9.09 per cent in PhotonicNet GmbH.25020015010050030221822Personnel37222934653434531998 1999 2000Others Stencils Rapid PrototypingEngineering and AdministrationLaser-SystemsResearch and developmentDistributionProduction11

12Annual Report 2000Report on affiliated companiesElaser GmbHTurnover in 2000 dropped by 13.8per cent compared to 1999 to witha good sales return at the same time.This is attributable to the strategicrole of the company that provides astencil manufacturing service for theperiod until a customer buys its ownStencilLaser. The turnover in 2001should be at a slightly higher level.A-Laser Inc. in the USAThe company achieved its plannedtargets and is now an importantservice company in the NorthAmerican market covering all aspectsof stencil technology.LPKF Motion & Control GmbHThe new building (total investment2,700 KDM) was occupied in thereporting year 2000. The capacityextension enabled the company tocompletely fulfil its production plans.Employing new staff intensifieddevelopment. A new system wasdeveloped and produced for thequality control of very complexstencils for printed circuit boardproduction. The first sales of thesystem were achieved in 2001. Newcontrol systems and drives for rapidprototyping and laser systems arecurrently being developed. Throughthe very high levels of technicalexcellence in drive and controltechnology, the company made amajor contribution to LPKF’s globalsuccess.LPKF d.o.o. in SloveniaNew equipment in Sloveniaconsiderably improved the qualityof the circuit board plottersthat the company supplies.In addition, it was also possible tooptimise manufacturing costs on thebasis of synergies. The developmentand production of laser sourcesfor StencilLasers and MicroLine Drillwas successfully implemented. Acompletely new technical approachhas been taken for the MicroLineDrill in particular, which createssignificant market advantages forLPKF. The company chose a locationwith tax advantages when selectingthe site for the company in 1994.The subsequent cancellation of thisfavourable tax status led to thedemand for paying high levels ofback-taxes. The Group considers thisdemand to be unjustified andinitiated legal proceedings in 1999.The legal proceedings continuedthrough 2000.LPKF Laser Components GmbHThis company was founded in 1999in co-operation with a partner inRussia to support the transfer of lasertechnology expertise. The activitiesstarted in 2000 as planned.LPKF Laser & Electronics Inc.in the USAThis company acts as a distributionand service partner for the Group inNorth America. It strongly boostedthe sales of Rapid Prototyping inparticular. It now has a well-establishedreputation in the North Americanmarket.LPKF Properties LLCThe business purpose of this companyfounded the previous year is toprovide LPKF Laser & Electronics Inc.with real estate. The company ownsthe company offices currently usedby LPKF Laser & Electronics Inc.LPKF France S.A.R.L.This company is initially involved inthe sales of rapid prototyping systemsin France. It completely fulfilled itstargets in the reported period.LPKF Franklin Industries N.V.This company generated a loss of154 KDM. The remaining shares inthe company were bought theprevious year to ensure the fasterrepositioning of the company and tobring it back into profit. The measuresto improve the cost structure havegenerated their first positive resultsand considerably reduced the losscompared to the previous year. Thefull effects of the measures will notbe shown until 2001.LPKF Tianjin Co. Ltd.LPKF Tianjin Co. Ltd. was foundedin China as a one hundred per centsubsidiary. In addition to sales anddistribution, the company will alsomanufacture samples of prototypecircuit boards and stencils. Servicessuch as maintenance and repair workwill also be run from this location.This measure has been implementedto penetrate the Chinese growthmarket faster and more comprehensivelythan was previously possible onthe basis of company representatives.Laserquipment AGLPKF Laser & Electronics AG acquireda 19.9 per cent holding in the sharecapital of Laserquipment AG. Thepurpose of the company is to develop,produce and distribute two and threedimensionalsystem solutions for laserplastic welding. The target markets arethe automobile, telecommunicationsand consumer electronics industries.Laserquipment supplements therange of LPKF products and servicesin a highly innovative way, particularlyin the field of 3D-processing.

Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationPhotonicNet GmbHLPKF has a holding of 9.09 per centin PhotonicNet GmbH. Thisestablishes a competence centre foroptical technologies. The companyis a public-private partnershipinvolving several highly respectedThe current production capacity isapprox. 40 t/year. This is adequateto provide samples to interestedcompanies as well as for theproduction of medium-sized seriesof 3-D MIDs.Part of the BMBF-fundedmay be time lags involved in thelaunching of these technologies.There is no doubt about the fact thatthe developed technologies will beused, only about the precise timewhen they will be picked up by themarket.Statement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AGcompanies. The aim of the project isto accelerate the development of“MECHATRONIK” follow-up projectinvolves the transfer of the researchRisk management systemoptical technologies in Germany.A particular focus is on thedevelopment and expansion of lasertechnologies within a large range ofindustrial and medical applications.The new company will makeexpertise available, arrange alliancesand recruit and develop highlyqualified young staff.Research & DevelopmentThe Research & Developmentdepartment continuously works oncustomer-specific structuring projectsfor the ultra-fine conductor industry.The market launch of the MicroLine& development results alreadyachieved onto high temperaturethermoplastics. This will be realisedfrom January 1, 2001. The projectalso involves the further developmentof 3-D MID laser systems for ultrafineconductor path structuring. Thefunding constellation was modifiedin advance for the materialdevelopment aspect in particular, sothat the associated developments areat LPKF’s expense with the aim ofenabling the know-how that isgained to be exclusively available tothe company for commercial use. Toguarantee that all partners can carryout their allotted tasks within theThe company’s business environmentis characterised by increasing marketglobalisation, further strengtheningof the competitor situation as wellas increasing technological complexity.With the “Law on Control andTransparency in Business” (KonTraG),a move has been made to improvethe legal basis for stock corporationrisk management systems and internalcontrol systems. The introduction ofthe DIN EN ISO 9001:2000 qualitymanagement system will also play apart in minimising risks by enhancingthe company’s process-chaintransparency.systems was realised in the reportingproject, LPKF has pledged to makeThe establishment of a more efficientperiod. In addition, 3-D MIDavailable the compound material inand forward-looking risk managementtechnology is currently at a verythe form of granulate for the wholestructure is an important task forsignificant stage. The developmentof the project term. Laser systemsLPKF Laser & Electronics AG, and oneof laser-activatable thermoplasticfor the production of polymer stencilswhich will add value. The primarymaterials for the additive andand for handling flex-circuits willobjective is not to avoid all risks, butselective – and therefore pro-round off the development work.to identify and evaluate them, andenvironment – metal plating ofIn the reporting period, the trendthus to actively control the risks asplastics such as polypropylene madetowards the miniaturisation ofpart of our global risk strategy.major progress with respect toelectronic circuits, and thus the useThe existing instruments will betechnology, materials andof high-precision laser systems,continuously improved andmanufacturing costs. A 3-D laserdeveloped even faster than forecastreconfigured to identify and controlsystem (including controls) with eightin preceding years. The investmentrisks.axes for structuring three-dimensionalin development in the past four tohousing components was developedfive years will therefore generate evenand produced in 1999. A pilotbetter returns in the following yearsproduction plant for the manufacturethan predicted. Because of theof injection moulded granulates wasdemands of the printed circuit boardalso installed in the Laboratory formarket, a very high level of marketMicrosystem Technology at theacceptance is forecast for the flexTechnical University Lippe in Lemgo.laser technology as well as the3-D laser technology. However, there13

14Annual Report 2000Business risksThe global markets of the electronicsand printed circuit board industriesare subject to cycles marked by theintroduction of new technologies aswell as associated with changes ingrowth. As a supplier to the electronicsindustry, the LPKF Group’s market isin the capital goods sector andtherefore not directly affected by thecycles in semi-conductor technology.Investments in the technologiesoffered by the LPKF Group areassociated with rationalisationopportunities and competitiveadvantages and are thus also indemand even in periods of recession.Risks associated with economic cyclesare therefore minimised althoughnot completely excluded.Dependence on suppliersThe procurement of components andservices from external suppliers areassociated with basic risks involvingdelivery times and changes in price.There are no direct dependenciesin this regard on one or moresuppliers. However, price changesare a parameter, which have a specialinfluence on business activities.Dependence on customersThe regional spread of our salesmarkets is balanced and thereforenot associated with any special risks.There are also no major clientsaccounting for a significant share ofturnover. The structure is thereforevery homogenous and well balanced.New customers are first investigatedwith respect to their creditworthinessprior to concluding a deal, andsuitable measures are introduced tominimise risk when appropriate.Exchange rate fluctuationsThe exchange rates of foreigncurrencies into DM and EUR are in partsubject to major fluctuations. Theonly exchange rate of importance toLPKF in this context is the one tothe US Dollar. Exchange rate hedginginstruments are used to reduce risksas far as possible. Fluctuations inexchange rates can have a positiveas well as a negative effect on thecompany’s financial results.Research & DevelopmentThe success of the LPKF Groupsignificantly depends on the speedwith which new developments canbe pushed from initial production toseries production. The first salesafter presenting a new developmentare a positive indicator. However,holistic concepts have to be elaboratedwith the potential customers toharness all of the benefits of thetechnology on offer.Safeguarding the “expertiseadvantage” also involves applyingfor patents where relevant. The timecomponent is a basic risk-relatedparameter in all R & D projects aimingat the series-production of newproducts. Risks are associated notonly with the timing but also withthe sale of the first products from theseries production run. Considerableinvestment in R & D projects is alsoplanned in the future, although therelative share of turnover will decrease.Staff risksQualified employees are highlysought after. LPKF has no problemin recruiting sufficient numbers ofhighly qualified staff thanks to itsvery close university contacts.The company runs a staff shareparticipation scheme on the basis ofconvertible bonds to underpin theclose association of the staff with thecompany. New concepts along theselines will also be relevant in futureto reward and keep the specialexpertise of the out-performers inthe company.Business reportBusiness in 2000 ran according toplan overall and can be described aspositive. One of the importanttransactions in the financial year wasthe co-operation agreementconcluded in December with AtotechGmbH, Berlin, which was extendedby a co-operation agreement withLambda Physik AG, Göttingen. Thesemoves safeguard the supply ofadequate numbers of laser sources.The first MicroLine Laser was deliveredto Atotech and will be integrated byspring 2001 in a complete printedcircuit board production process.Atotech will then immediately beginmarketing this process. The cooperationwith Lambda Physik AGsecures the supply of adequatenumbers of laser sources.Another co-operation agreementwas realised with Enthone-OMIGmbH, Solingen in the third quarterand takes the form of a R & D cooperationfor laser-structured ultrafinecircuits. The results of this cooperationare expected to begenerated during the course of2001. These new co-operationagreements will lead to the newdevelopment of laser processes whichmay significantly influence the courseof business in the following years.Also worth mentioning in this regardis the existing co-operation withMania AG, Weilrod.

Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationSo far, two FlexRouters have beendelivered as demonstration systemsOutlookThe future development of thecompany will be emphaticallyStatement of incomeBalance sheetCash flow statementsfor the processing of flexible circuitsThe future development of thecategorised by highly innovativeConsolidated statements– there were no other sales duringcompany will be determined on thedevelopment work and theAnnual Report AGthe reporting period. The newone hand by innovation-relatedimplementation of the corporatecompany holdings were acquired ondynamism that will have a significantstrategy of establishing worldwidethe one hand to specifically roundeffect on the course of our businessacceptance. This involves technologiesoff the technology skills base, andin subsequent financial years, andthat lie in the future, as well ason the other hand to improve LPKF’son the other hand by harnessingsystems and processes in the finalglobal market presence.synergy effects. This is the back-stage of the development pipeline.The company’s asset and financialsituation is stable. The cash flowstatements reveal the high level ofinvestment activity. These includeR & D projects on the one hand, andincreases in capacity and investmentin shareholdings on the other hand.The significant increase in accountsreceivable is attributable to thestrong turnover towards the end ofthe year. The inventories have beensystematically built up to safeguardthe high levels of service providedfor our customers.ground against which the forecastsfor turnover and the further increasein profitability in future have to beseen. The capacity expansionsachieved in Garbsen and Suhl in thereporting period are adequate toachieve the growth targets. Theexpansion of sales and distributionactivities in China is also an importantcomponent in the opening up of amarket that in future will beassociated with dramatic growth inthe electronics sector.In addition, the holdings inThe above mentioned technologicalrisks and uncertainties of marketacceptance go hand in hand withthe enormous opportunities opento companies actively engaged inthe electronics growth market. Thisconstellation can result in short-termchanges to target figures in the lightof modifications to the productmix. One thing is certain: the trendgoes towards miniaturisation andevershorter life cycles.Events after the balance sheet dateThe rise in liabilities is associated withthe long-term loans for the newbuildings in Garbsen and Suhl.Laserquipment AG and PhotonicNetGmbH are strategic investments toround off the global presence of theLPKF products. They also reflect theIn January 2001, LPKF Laser &Electronics AG acquired five thousandof its own shares. No other eventsinfluencing the situation of theNo increase in capital is currentlycompetence of the Group in all aspectscompany as presented in theplanned. The need for this may ariseinvolving 2D and 3D technology,attached consolidated financialas a consequence of acquisitions orprinted circuit board technology andstatements took place after the enda very strong increase in demand forlaser technology.of the financial year.laser systems.The company’s earnings situation isLPKF Laser & Electronics AG · Garbsen, February 16, 2001good.Bernd HildebrandtBernd HackmannDr. Jörg KickelhainDM7,000,000.00Group net resultCompany bodiesThe annual general meeting6,000,000.005,000,000.004,000,000.006,226,268.134,407,736.18The Supervisory BoardKlaus Sülter · ChairmanDr. Heino Büsching · Deputy ChairmanUdo B. Hartmann3,000,000.002,757,707.682,000,000.001,000,000.000.001998 1999 2000The Board of DirectorsBernd Hildebrandt · ChairmanDipl. Ing. Bernd HackmannDr. Jörg Kickelhain15

Key technologies for the future ...16Annual Report 2000

Success lies in the detail ...18Annual Report 2000

Electronics growth marketMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationThe electronics market –opportunities and challengesThis pressure is intensified by thetrend towards increasingly smallerand lighter devices with a higherof its products also places thecompany in a position to setbenchmark prices itself and toStatement of incomeBalance sheetCash flow statementsConsolidated statements2000 was the most successful yearever for the electronics industry. Thetotal volume of the world's largestmarket exceeded US $ 1,000 billionfor the first time. This figure marksthe latest milestone in a success storygoing back more than twenty years.output. Because more and morefunctions have to be integratedin smaller and smaller spaces,conventional methods soon reachtheir limits when it comes to printedcircuit board production. The needto turn to technologies appears tobe unavoidable.generate optimal value-added.Laser technology revolutioniseselectronics productionThe experts are unanimous: lasertechnologies are increasingly gainingin importance for future productionAnnual Report AGFor more than two decades theprocesses in the electronics industry.average growth rate for electronicShaping new marketsAccording to the sector, the worldappliances and equipment has beenwith know-howmarket for laser material processingmore than eleven per cent.systems will grow to around DM 13If this trend continues, the value ofAs a designer and distributor ofbillion by 2004 and therefore doubleproduced goods in 2005 will reachsystems and processes for electronicsfrom today’s figure (source: Optechthe record figure of US $ 2,000 billionproduction and circuit production inConsulting PK 04/00). A key role(source: VDMA-Market Informationparticular, LPKF Laser & Electronicsis played by laser systems in theProductronic/ Economic Reportalready identified these trends someminiaturisation of electronic09/2000). This development isyears ago. The company searches forcomponents in particular. Anotheralso associated with much stricterthe optimal technical solutions –important aspect here is the ultra-production conditions. This involvesoften by working closely with itsfine structuring of circuit boards withtwo trends in particular which haveclients – with the aim of satisfyinghigh integration densities or HDIsto be tackled by manufacturers andthe challenges facing a strongly(High Density Interconnects) that aredesigners: increasing miniaturisationgrowing market. One of the principlesused today in mobile telephones,and considerably faster developmentof LPKF’s corporate philosophy incamcorders, organisers and digitalspeeds.this regard is not to jump on tocameras.Because of the increasing competition,the life cycles of electronic productsin recent years have been dramaticallyshortened. Development periods ofseveral months which were normal“moving trains” but rather to lookfor new and innovative processes.The goal of this corporate policy is:identify new markets, establish,expand and maintain supremacy.The putting into practice ofinnovative concepts for installationand connection technology(packaging) would be either notpossible or only incomplete withoutuntil recently are no longer acceptable.One of LPKF’s recipes for success hasthe application of laser technology.Time-to-market and time-to-profitalways been to develop all of the keyare becoming the factors thatcomponents itself where possible:determine success or failure forfrom software to mechanics, rightdesigners and producers. Thisthrough to control technology andconsequently means that thein-house laser technology. Thisproduction numbers of each productensures perfect harmonisation andare also lower. As a result, newsupports the provision of very simpletechnologies are required whichand rapid service. Our clients, whichmake it possible on the one handinclude a number of multinationalto accelerate the developmentelectronics companies in addition toprocess, and on the other hand,small and medium-sized producers,to manufacture small and averagerecognise and appreciate theseseries at an economical price.advantages. The market supremacywhich LPKF has established for most19

CSP on a fingerKey technology forthe next chip generationOne of the main fields of applicationfor laser technology at LPKF is theStencilLaser family. The quality oflaser-cut stencils for solder pasteprinting is a key factor in minimisingthe reject rate during the massproduction of electronic components.It guarantees the economical andprecise application of solder pasteon circuit carriers. With the introductionof laser-cut metal stencils,LPKF was already able to establish areliable and environmentally friendlyalternative to the previouslyconventional etching technology.A further step forward was madewith the launch of the LPKF PolymerStencilLaser that now makes itpossible for the first time to createstencils from thin polyimide films.In addition to reducing the rejectrate even further, this material alsomakes it possible to createconsiderably finer structures usingthe solder paste printing method(down to 50 µm). With this futureorientedtechnology, which e.g. isindispensable for connecting the nextchip generation to circuit boards,LPKF further consolidates its leadingposition in the growth market forStencilLasers.The future is called MicroLineIt is now already clear thatconventional structuring processeswill soon reach their limits in HDIboards. The standard structure widthsin this sector are already expectedto be approx. 30 µm in 2003 andeven down to 20 µm in 2006 (source:The Board Authority 10/99). Withthe MicroLine Laser, LPKF has createda tool that already fulfils thesestandards today. The term CSP (ChipSize Packaging) is inseparably linkedwith the change of technology inthe printed circuit board sector. CSPinvolves a revolutionary packagingvariant for semi-conductors whichmakes it possible to reduce thecomponent size of future electroniccomponent generations to a minimum.The share of chips in CSP is currentlyUS $ 1.6 trillion It is forecast thatthis market will have a share of morethan US $ 8.6 trillion by 2005 (source:TechSearch International). Realisingthe extremely fine conductor pathsand insulation channels required iscurrently only achievable with thehelp of MicroLine technologycombined with environmentallyfriendly metal-coating technologies.In co-operation with AtotechDeutschland GmbH, LPKF succeededin integrating MicroLine technologywith conventional etching methodsto create a new method for themass production of high-resolutionprinted circuit boards. This technologymakes it possible to create ultra-finestructures of up to 30 µm bycombining chemical etching andlaser technology. This combinationenables the etching process to bemore effective. Board manufacturersuse etching methods for around 98percent of their production today.MicroLine technology enables themto make the move to HDI technologyin an economical way largely withoutthe need to become involved inexpensive upgrading.3D circuits – fromhousing to carrierThe integration of mechanical andelectronic components is a quantumjump in the miniaturisation ofelectronic assemblies. This “3D-MID”technology involves the housingbecoming a type of three-dimensionalcircuit board, and thus the circuitcarrier. Rational production, newfreedom for component design, andshorter processing chains are themost important advantages of thistechnology that is creating more andmore interest in the circuit boardindustry. LPKF is able to modifyplastic granulates in a special way sothat they can be activated by laserlight. Conductor path structures canthen be metallized out on theseactivated areas in chemical baths.This method is now ready-for-marketand is currently being adapted forseveral materials of interest to theelectronics industry. LPKF has thusagain played a major role indeveloping a market that promisesenormous growth potential.20Annual Report 2000

Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AGLPKF ScanCheck (AOI system)Process controlat an extremely high levelRapid Prototyping application examplesQuality assurance is gaining inimportance amongst industrialcompanies not least because ofISO 9000 certification. Manufacturersand users of stencils in particularcannot and will not any longer dowithout a reliable method for testingtheir products. LPKF thereforeprovides a system for the optimalprocess control of stencil fabrication.The LPKF ScanCheck testing systemrapidly and reliably identifies a widerange of faults in solder paste stencilsfrom production defects to processingfaults right through to “damageduring use”. With the extendedLPKF QuickMeasure inspection andmeasuring system, it is also possibleto measure stencils in a highly preciseway. For instance, this equipmentenables the random sampling andmeasurement of particularly criticalzones. The printed inspection reportsare valid test certificates and also aneffective marketing tool. Theintroduction of the two systems hasenabled LPKF to set new standardsfor the quality control of solder pastestencils.LPKF ProtoMats (circuit board plotters)In-house prototyping boostedThe rapid development of theelectronics market also representsa new situation for developmentlaboratories. There was clear evidencelast year of the extremely tighttime budgets now involved in thedevelopment of new products. Thecomplete production of printedcircuit board prototypes increasinglyneeds to be carried out on siteindependently of external serviceproviders. Designers are thereforemore than ever dependent ontechnologies that enable them tofulfil all of the conditions requiredfor the production of a fully functioningprototype in their own laboratories.LPKF is the only company in theworld that supplies this market withcomplete solutions and the necessaryprocessing expertise. Moreover, theincrease in sales, particularly in theUSA, as well as the rise in demandfor high-quality equipment, highlightsthat in-house prototyping is now onthe way to becoming an industrywidestandard.LPKF sets new benchmarks for prototypeproduction by its pioneeringcombination of conventional plottingtechnology and laser technology.Technical excellence in these twocore business areas are synergisedhere into a future-oriented technologythat also enables laboratoriesto advance into the field of ultra-finestructuring. LPKF’s innovative workthus supports the developmentsector in equipping itself for the nextimportant trend: the miniaturisationof assemblies.21

First LPKF MicroLine Drill installed at a client’s factoryErnst-Christoph Grüter, managing directorKorsten & Goossens GmbHA world’s first in six monthsLast year’s introduction of a laserdrilling machine based on uniquetechnology was a superb example ofthe company’s customer-orienteddevelopment work. The developmentwas initiated by considerable pressurefrom the market that already requiredprinted circuit board (PCB) manufacturersto equip their productiontechnology for the production ofhigh density interconnects (HDIs).Many are therefore compelled toinvest in the indispensable laserdrilling technology and microstructuring which this demands.The high investment costs werepreviously an insurmountable barrierDrilling and structuring ...for medium-sized PCB manufacturers.The launch of the LPKF MicroLineDrill now also enables these printedcircuit board manufacturers toproduce HDIs. Our product is acombined system for structuringultra-fine circuits and drilling microvias (micro vias that connect variouslayers of multilayer circuits). Thesystem is based on a technology thatLPKF had already partially developed.This enabled the development timeto be reduced to an incredibly shortperiod and made it possible to keepdown the price.22Annual Report 2000

Agenda:Diary of an innovationApril 2000Several printed circuit boardmanufacturers inform LPKF of theirinterest in a combined laser systemthat integrates the possibility ofmicrovia drilling and ultra-finestructuring. The appliance requiredhas to be able to drill microvias formultilayer circuits as well as togenerate ultra-fine structuresbetween 30 to 50 µm (as requiredfor HDI circuit boards). Such asolution is commercially interestingfor small and medium-sizedproducers in particular. LPKFwas identified as a company that bycombining both technologies hasthe potential to provide this customergroup with a dual device at areasonable price.Korsten & Goossens GmbH with its headquartersin Haan near Düsseldorf has been manufacturing printedcircuit boards for more than thirty years.May 2000A market survey and competitoranalysis is carried out and revealsthat microvia drilling currently enjoysextremely high growth rates. In thenext few years, this sector alone isforecast to require 4.000 new devices(source: CircuiTree 12/00). The salespotential for a device that is alsocapable of micro structuring couldtherefore be concluded to be wellabove average.June 2000The first feasibility studies are carriedout in cooperation with LPKF d.o.o.in Slovenia. Basis is the use of analready existing in-house laser systemdeveloped using the experiencegained in the StencilLaser field. Testscarried out on the usual circuit boardmaterials used in the market generatevery promising results. The systemis then specifically further developedand optimised after proving itsfeasibility in principle in several testruns.August 2000The first samples of microvias andstructures are sent to potentialclients. These clients are able toevaluate the samples in their ownapplications and further process themto test various aspects, includingcompatibility with the etching mediaand standard chemicals that theyuse. These tests all reveal that thesystem can be fully integrated intoeach of these companies’ inhouseproduction lines, and that thisapplication can be put into practicewithout any delay. This informationinitiates further development in closecollaboration with future users.September/October 2000The first prototype is ready after adevelopment period of only threemonths. More samples with furtheroptimised microvias and structurequality are sent to clients. The furtherdevelopment of the system nowincreasingly takes into considerationsuggestions for improvements withrespect to the quality of results andspecial customer demands.The throughput capacity of theappliance is considerably increased.An operating software concept iselaborated.Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AGLPKF MicroLine DrillNovember 2000The MicroLine Drill is presented tothe public for the first time atelectronica2000 in Munich, theworld’s most important electronicstrade fair. There is enormous interestin the latest LPKF product whichcombines for the first time thetechnical options of microvia drillingand ultra-fine structuring. Thisinterest clearly underlines the pressurethat manufacturers are now underto equip their production chains withHDI-compatible technology. It alsoshows that the LPKF MicroLine Drillperfectly fulfils this need. The firstsystem is already sold during thetrade fair.December 2000/January 2001Another system is sold to a printedcircuit board manufacturer. Theequipment is installed. LPKFimplements the software. Additionalsystem optimisations are carried outin co-operation with the client.February/March 2001LPKF initiates a worldwide marketingcampaign for the MicroLine Drill.23

Growth engine – electronics ...24Annual Report 2000

ContentsStatement of income 27Changes in shareholders’ equity 27Balance sheetAssets 28Liabilities and shareholders’ equity 29Cash flow statement 30Notes to the consolidated financial statementsBasis of preparation 31Consolidated group 31Financial instruments 32Foreign currency translations 32Statement of income1. Sales 332. Own work capitalised 333. Other operating income 344. Cost of materials 345. Personnel expenses and employees 346. Depreciation and amortization 347. Other operating expenses 358. Financial results 359. Taxes on income 35Balance sheetAssets10. Fixed assets 3611. Inventories 3812. Trade accounts receivables 3813. Other assets 3814. Cash and cash equivalents 3815. Prepaid expenses 3816. Deferred tax assets 38Liabilities17. Subscribed capital 3918. Capital reserve 3919. Authorised capital 3920. Minority interest 3921. Provisions for pensions 4022. Tax provisions and other provisions 4023. Liabilities 4124. Bonds 4125. Deferred tax liabilities 41Other information26. Cash flow statement 4127. Earnings per share 4228. Dividend per share 4229. Related party transactions 4230. Other disclosures 4231. Events after the balance sheet date 43Report of the independent auditors 43Annual financial statements of LPKF Laser & Electronics AGBalance sheet of LPKF Laser & Electronics AGAssets 44Liabilities and shareholders’ equity 45Statement of income 4626Annual Report 2000

Statement of incomeMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBalance sheet01.01.-31.12.2000 01.01.-31.12.1999 Cash flow statementsNotes KDM KDMSales (1) 54,761 38,619Increase in finished goodsand work-in-process 2,001 3,631Own work capitalised (2) 2,832 2,950Other operating income (3) 2,728 2,01762,322 47,217Consolidated statementsAnnual Report AGCost of materials (4) 17,172 12,099Personnel expenses (5) 15,590 11,388Depreciationand amortization (6) 4,202 3,016Other operating expenses (7) 13,061 11,390Operating profit 12,297 9,324Financial result (8) -205 -275Result from ordinary activities 12,092 9,049Taxes on income (9) 5,508 4,429Group result before minority interest 6,584 4,620Minority interest -358 -212Net result 6,226 4,408Earnings per share - undiluted - DM (27) 0.59 0.42Earnings per share - diluted - DM (27) 0.57 0.40Consolidated statement of the changes in shareholders’ equity for the financial year ended December 31, 2000(previous year in brackets)As at Not affecting Capital Payments Dividend Net Foreign As at1.1.2000 net income increase resulting payment to result currency 31.12.2000adaptation out of from the shareholders translationof the opening company capital adjustmentbalance sheet figures funds increaseKDM KDM KDM KDM KDM KDM KDM KDMSubscribed capital 10,500 - 10,036 - - - - 20,536(10,500) (-) (-) (-) (-) (-) (-) (10,500)Capital reserve 17,121 - -10,036 - - - - 7,085(17,100) (-) (-) (21) (-) (-) (-) (17,121)Revenue reserves - - - - - - - -(-) (-) (-) (-) (-) (-) (-) (-)Legal reserves - - - - - - - -(-) (-) (-) (-) (-) (-) (-) (-)Reserves from own shares - - - - - - - -(-) (-) (-) (-) (-) (-) (-) (-)Statutory reserves - - - - - - - -(-) (-) (-) (-) (-) (-) (-) (-)Other revenue reserves - - - - - - - -(-) (-) (-) (-) (-) (-) (-) (-)Unappropriated retained earnings 8,660 -180 - - -1,050 6,226 - 13,656(4,252) (-) (-) (-) (-) (4,408) (-) (8,660)Foreign currency 334 - - - - - 195 529translation adjustment ( -159) (-) (-) (-) (-) (-) (493) ( 334)Total 36,615 -180 - - -1,050 6,226 195 41,806(31,693) (-) (-) (21) (-) (4,408) (493) (36,615)The not-affecting net income adaptation of the opening balance sheet figures concerns the valuation of deferredtaxes (cf. Note 9). The capital reserve encompasses the equity interest of the convertible bond totalling KDM 21.27

Balance sheet: Assets31.12.2000 31.12.1999Assets Notes KDM KDMFixed assetsIntangible assets (10)Software 131 91Goodwill 1,089 1,397Development costs 5,034 3,146Rights to use 941 1,1157,195 5,749Tangible assets (10)Land and buildings 11,842 5,431Technical equipment and machinery 1,855 2,605Other equipment, factory and office equipment 3,681 3,191Prepayments and construction in process 0 1,80417,378 13,031Financial assets (10)Shares in affiliated companies 36 36Associated companies 22 0Participations 5 0Other loans 6 769 43Total fixed assets 24,642 18,823Current assetsInventories (11)(System) components 2,170 2,151Work in process 340 820Finished goods and merchandise 11,919 9,831Prepayments 315 26914,744 13,071Accounts receivables and other assetsTrade accounts receivables (12) 14,493 6,076Other assets (13) 1,020 1,66515,513 7,741Securities (14) 120 117Cash on hand, bank balances (14) 7,349 12,875Total current assets 37,726 33,804Deferred charges and prepaid expenses (15) 233 67Deferred tax assets (16) 823 375Total assets 63,424 53,06928Annual Report 2000

Balance sheet: Liabilities and shareholders‘ equity31.12.2000 31.12.1999Liabilities and shareholders’ equity Notes KDM KDMShareholders’ equitySubscribed capital (17) 20,536 10,500Capital reserve (18) 7,085 17,121Retained earnings 7,430 4,252Net result 6,226 4,408Foreign currency translation adjustment 529 334Minority interests (20) 2,553 2,163Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AG44,359 38,778ProvisionsProvisions for pensions (21) 374 362Tax provisions (22) 2,717 1,589Other provisions (22) 1,812 1,3304,903 3,281LiabilitiesBonds (24) 485 482Liabilities due to banks (23) 6,226 3,310Payments received on account of orders 35 0Trade accounts payables 2,538 2,094Payables to companiesin which participations are held 5 0Payables associated companies 22 0Other liabilities 1,761 3,84411,072 9,730Deferred income 127 62Deferred grants (3) 1,036 274Deferred tax liabilities (25) 1,927 944Total liabilities 63,424 53,06929

Cash flow statements31.12.2000 31.12.1999Notes KDM KDMOperating activitiesNet result for the year 6,584 4,620Depreciation and amortization of fixed assets 4,202 3,016Other non-payment income/expenses 142 -3Changes in inventories and accounts receivables and other assets -10,062 -2,669Changes in liabilities and deferred income 630 576Changes in provisions and accrued liabilities 1,545 1,802Cash flows from operating activities (26) 3,041 7,342Investing activitiesInvestments in tangible and intangible assetsand intangible fixed assets -10,273 -8,950Investments in affiliated companies 0 1,545Cash proceeds from disposal of tangible and intangible fixed assets 45 40Cash flows from investing activities -10,228 -7,365Financing activitiesDividends paid -1,050 0Dividends paid to minority interest -94 0Equity portion of convertible bond 0 21Change in long-term bank borrowings 3,669 -4,701Cash flows from financing activities 2,525 -4,680Changes in cash and cash equivalentsChange in cash and cash equivalents due to exchange rates -111 37Changes in cash and cash equivalents -4,662 -4,703Cash and cash equivalents as at 1.1.2000 12,122 16,788Cash and cash equivalents as at 31.12.2000 7,349 12,122Composition of cash and cash equivalentsCash 7,349 12,875Bank overdraft 0 -753Cash and cash equivalents 7,349 12,12230Annual Report 2000

Notes to the consolidated financial statementsMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBasis of preparationThe consolidated financial statements of LPKF Laser &Electronics AG, Garbsen, for the year ended December 31,2000 have been prepared using uniform accountingpolicies. The adaptation of deferred taxes in accordancewith the revised IAS 12 was incorporated for 2000.IAS 39 was not adopted in advance of its effective date.In all other respects, the standards of the InternationalAccounting Standards Committee (IASC) were appliedas valid on the balance sheet date.Balance sheetCash flow statementsConsolidated statementsThe fiscal year corresponds to the calendarAnnual Report AGyear. The consolidated financial statementshave been prepared in German Marks.Consolidated groupIn addition to the Group’s parent company, LPKF Laser& Electronics AG, Garbsen, the following subsidiarieshave been included in the consolidated statements:Name Domicile Holding % AcquiredFull consolidationELASER Gesellschaft für Elektronik, Suhl/Thuringia 100.0 1989Laser und Automation GmbHLPKF d.o.o. Kranj/Slovenia 75.0 1995LPKF Franklin Industries N.V. Mechelen/Belgium 100.0 1999LPKF Laser & Electronics Inc. Wilsonville/USA 60.0 1999A-Laser Inc. Beaverton/USA 100.0 1999LPKF Motion & Control GmbH Suhl/Thuringia 50.9 1999LPKF Properties LLC Wilsonville/USA 60.0 1999LPKF France S.A.R.L. Lisses/France 94.0 1999LPKF Laser Components GmbH Garbsen/Lower Saxony 80.0 1999LPKF (Tianjin) Co. Ltd. Tianjin/China 100.0 2000LPKF (Tianjin) Co. Ltd. was acquired for 1,125 KDM. The contribution involves cash and a contribution in kind.KDM 117 have been paid so far in cash. The contribution in kind has still to be made. Other Group companieswhich are not controlled by LPKF Laser & Electronics AG and have therefore not been fully consolidated are:Name Domicile Holding % AcquiredLaserquipment AG Erlangen/Bavaria 19.99 2000PhotonicNet GmbH Hannover/Lower Saxony 9.09 2000Laserquipment AG was still in foundation on the balancesheet date. The payment of KDM 22 for a holding of19.99 % was not made in the 2000 financial year.The consolidated group in 2000 has changed as follows:two start-ups were added at the end of the year.LPKF (Tianjin) Co. Ltd. in China has been consolidatedin accordance with IAS 27. Because the group has thepower to participate in the financial and operatingpolicy making processes (significant influence),Laserquipment AG has been consolidated according tothe equity method.31

Notes to the consolidated financial statementsPrinciples of consolidationBasis for the consolidated financial statement are thefinancial statements of those companies included in theconsolidated financial statement. The individual financialstatements have been prepared using uniform accountingpolicies.For the purposes of capital consolidation, the acquisitioncosts of investment are offset against the proportionateshare of the fair values of the equity at the date ofacquisition.Any difference which arises is assigned to the assets andliabilities to the extent to which the fair value differsfrom the book value. Any remaining positive balance isshown as goodwill and is amortised over five years.Intercompany profits and losses, expenses and income,accounts receivables and accounts payable between thegroup companies have been eliminated. Intercompanyprofit and losses with associated companies have beeneliminated on a proportional basis.Deferred taxes are accounted according to the liabilitymethod on all of the temporary differences between thetax values and the book values of the assets and liabilities.The income taxes are calculated in compliance with thevalid laws and directives.Financial instrumentsThe reported financial instruments comprise cash andcash equivalents, investments, trade accounts receivables,trade accounts payables and other external financingand financial assets. The various accounting methodsare explained under the relevant entries.Reference to the financial debts are made in Note 23.No derivatives were held at the balance sheet date.However, forward exchange deals during the financialyear were transacted to hedge US $ transactions.Other recognition and evaluation methodsThe assets are stated at cost.Development costs are capitalized if they met the criteriaaccording to IAS 38, and valued in accordance with theirmaterial and personnel costs.Foreign currency translationThe translation of the foreign companies’ financialstatements is effected according to the functional currencymethod. In effecting this translation into German Marks,the assets and debts were translated at a middle exchangerate at the balance sheet date. Expenses and incomewere translated at the average annual rate. The conversiondifferences are shown under shareholders’ equity asforeign currency translation adjustments without anyeffect on net income. The consolidated figures werecalculated on the basis of the exchange rates detailedin the following table.In DM Reporting date rate Average rate31.12.2000 31.12.1999 31.12.2000 31.12.1999100 French Francs 29.81640 29.81640 29.81640 29.81640100 Belgian Francs 4.84838 4.84838 4.84838 4.8483810,000 Slovenian Tolar 91.6508 98.5702 94.6930 100.62231 US-Dollar 2.10124 1.94881 2.12240 1.83571 Chinese Renminbi Yuan 0.25382 0.25568032Annual Report 2000

Notes to the consolidated financial statements: Statement of incomeMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovation1. SalesSales are recognised when the service has been renderedor when the goods and products have been delivered.The breakdown of sales according to product groupsand regional markets is presented in the followingsegment reporting.Segment reportingAnnual financial statement data must be segmentedaccording to divisions and regions in compliance withIAS 14 (segment reporting). The segmentation is basedon the internal reporting. The aim of segment reportingis to make the profitability and potential of each of theGroup’s activities more transparent.The business segments comprise the following activities:• Rapid Prototyping involves the further development,production and marketing of circuit board plotters forthe world market.• Laser Systems includes all systems such as theStencilLaser, MicrolineLaser and other new lasertechnologies.• The Stencils business segment includes all the activitiesStatement of incomeBalance sheetCash flow statementscarried out by Elaser and A-Laser whichConsolidated statementsmanufacture stencils for conductor path printing.• The Others segment involves all of the smaller activitiessuch as marketing special software packages in Belgiumetc.Individual activities which cannot be allocated to anyparticular business segment are reported in the “Notdistributed” column. There are no internal sales betweenthe segments.The segment data were determined as follows:• The segment results were determined taking intoconsideration goodwill depreciation, but withouttaking into consideration the financial results ortaxes.• The investments and depreciations refer to tangibleand intangible assets including goodwill.• The operating segment assets and the segmentliabilities comprise the attributable assets necessaryfor the operation and/or the debt but excludingany interest-bearing entitlements, liabilities, financialresources or taxes.Annual Report AGLaser systems Rapid Prototyping Stencils Others Not distributed TotalExternal sales 2000 KDM 27,785 20,836 3,939 2,201 0 54,7611999 KDM 17,178 17,058 3,431 952 0 38,619Results 2000 KDM 5,342 4,879 1,216 478 382 12,2971999 KDM 3,935 3,012 1,214 194 969 9,324Assets 2000 KDM 23,835 23,258 1,845 0 14,486 63,4241999 KDM 16,283 18,467 2,182 0 16,137 53,069Liabilities 2000 KDM 2,589 2,315 160 174 16,909 22,1471999 KDM 1,215 2,247 2,657 274 10,395 16,788Investments 2000 KDM 6,494 3,633 35 0 111 10,2731999 KDM 2,890 2,607 2,404 0 2,595 10,496Depreciations 2000 KDM 2,027 1,362 474 0 339 4,2021999 KDM 990 494 539 0 993 3,016Non-cash expenses 2000 KDM 0 0 0 0 -142 -1421999 KDM 0 0 0 0 3 3Germany Rest of Europe North America South America Asia Other TotalExternal sales 2000 KDM 13,978 9,675 15,503 85 14,045 1,475 54,7611999 KDM 8,484 8,119 11,386 284 10,065 281 38,619Assets 2000 KDM 46,556 6,947 9,821 0 100 0 63,4241999 KDM 40,018 5,685 7,366 0 0 0 53,069Investments 2000 KDM 9,453 653 159 0 8 0 10,2731999 KDM 5,692 718 4.086 0 0 0 10,496The previous year’s figures were adapted to the current allocation-method to facilitate comparability.2. Own work capitalisedIn connection with eight projects involving laserdevelopment (KDM 2,458) and three developmentprojects in the Rapid Prototyping Division (KDM 184),development costs were capitalized during the financialyear in accordance with IAS 38 because the conditionsof IAS 38 were cumulatively met. Depreciation basedon the probable useful life of five years. The remainingown work capitalised items shown on the assets side(KDM 190) involved services within the group regardingto the building.33

Notes to the consolidated financial statements3. Other operating income (in KDM) 2000 1999Grants for research and development 929 1.107Allocation to the deferred item for grants 0 -298Reversal of deferred item for grants 88 24Exchange gains 1,028 578Leasing and rental income 0 114Utilization of warranty reserves 255 190Gains from reversal other provisions 7 0Investment grants 123 0Others 298 3022,728 2,017The grants for research and development concerns government grants for costs incurred in the financial year.The reversal of the deferred item for grants based on the useful life of the associated capitalized developmentcosts. The same accounting treatment was applied to a grant for building costs in Suhl totalling KDM 808.4. Cost of materials (in KDM) 2000 1999Cost of (system) components and of purchased merchandise 15,765 8,379Cost of purchased services 1,407 940For consolidation reasons, various companies reclassified cost of materials into increase/decrease in finished/unfinishedgoods. This provides a better presentation of the inventories finished and unfinished goods at a Group level. Thisnot affecting net income reclassification causes a numerical increase in the material input ratio.The previous year’s figures were adapted to simplify comparison.17,172 9,3195. Personnel expenses (in KDM) and employees 2000 1999Wages and salariesSalaries 11,521 8,901Wages 1,522 715Other 185 14213,228 9,758Social security and pension costsEmployer’s contribution to social security 2,110 1,420Workmen’s compensation board 50 66Pension costs 202 1442,362 1,63015,590 11,388The breakdown of the employees is as follows at 31 December: 2000 1999Production 53 34Distribution 34 29Research and development 34 22Engineering and administration 65 37Ten part-time employees and five trainees also continued to be employed byLPKF Laser & Electronics AG as at 31.12.2000186 1226. Depreciation and amortization of intangible and tangible fixed assetsThe depreciation and amortization the different groups of fixed assets are shown in the fixed assets movementschedule (10).34Annual Report 2000

Notes to the consolidated financial statementsMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovation7. Other operating expenses (in KDM) 2000 1999Investor relations 592 380Advertising and distribution expenditure 3,425 3,535Supervisory board remunerations including expenditure reimbursement 92 90Research and development 746 803Services 723 1,021Real estate and building costs 55 11Vehicle costs 230 195Insurance, contributions, levies 392 245Postage, telephone, facsimile 421 374Office materials, books, software 225 190Legal and consultancy costs 472 162Financial statements and auditing fees 299 86Patents and licences 286 258Rent, leasing 519 622Bank charges 277 267Exchange losses 1,137 243Losses for disposal of assets 76 56Business gifts, entertainment expenses, travel 1,568 821Allocation provisions for trade accounts receivable 110 0Others 1,416 2,031Statement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AG13,061 11,390Existing leasing agreements entered into by the company are classified as operate leases. The leasing paymentsare expensed in the statement of income. Significant agreements reported under leasing mainly include leasingagreements for vehicles and a telephone system, whereby the latter agreement ended in the 2000 financial year.The terms of the other significant contracts are still between 20-24 months.8. Financial results (in KDM) 2000 1999Income from associated companies 0 201Other interest and similar income 368 524Interest and similar expenses -545 -979Interest on convertible bondChanges in present value -3 -4Payment to subscribers -25 -17-205 -2759. Taxes on income (in KDM) 2000 1999Corporate tax and solidarity surcharge 4,002 3,112Trade tax 1,311 936Deferred taxes 195 3815,508 4,429The corporate tax of the parent company for 2000 was calculated on the basis retention of earnings because noresolution on distribution of profits had been passed when the financial statement was prepared. For the preparationthe consolidated financial statements, the individual corporate tax rates in the countries were used for the calculationof the deferred taxes. The deferred taxes were adjusted for the first time on 01.01.2000 in line with the benchmarkmethod to the standard tax rates for each country according to IAS 8. The adjustment was carried out by reducingthe opening retained earnings.Reconciliation between anticipated and effective expenses (in KDM) 2000 1999Consolidated net income for the year before income taxes 12,092 9,049Anticipated tax expense 39 % · (previous year: 38 %) 4,716 3,439Taxation increase as a result of retention of earnings 776 329Tax expenses unrelated to the accounting period 0 550Tax rate variances amongst the subsidiaries 18 112Other variances -2 -1Effective tax expense 5,508 4,429Because of the early application of IAS 12 (revised 2000) the tax expenses have to be computed with the retentionrate in the absence of a profit appropriation resolution.35

Notes to the consolidated financial statements: balance sheet assets10. Fixed assetsConsolidated fixed asset movement schedule of LPFK Laser & Electronics AG, Garbsen, for the period from 1 Januaryto 31 December 2000. The following schedule shows the development of the individual fixed asset items:Acquisition/manufacturing costsBalance Currency Additions Reclassification Disposals as at1.1.2000 differences 31.12.2000KDM KDM KDM KDM KDM KDMFixed assetsI. Intangible assets1. Software 720 0 148 0 76 7922. Goodwill 1,722 0 31 0 0 1,7533. Development costs 3,368 0 2,642 0 0 6,0104. Rights to use 1,542 34 170 0 44 1,7025. Prepayments 0 0 0 0 0 07,352 34 2,991 0 120 10,257II. Tangible assets1. Land andbuildings 6,346 123 3,508 3,073 0 13,0502. Technical equipment and machinery 6,378 112 94 859 1,003 6,4403. Other equipment,factory and office 8,729 78 2,404 -868 918 9,4254. Prepayments andconstruction in process 1,804 0 1,277 -3,064 17 023,257 313 7,283 0 1,938 28,915III. Financial assets1. Shares inaffiliated companies 36 0 0 0 0 362. Associatedcompanies 0 0 22 0 0 223. Participations 0 0 5 0 0 54. Other loans 7 0 0 0 1 643 0 27 0 1 6930,652 347 10,301 0 2,059 39,241The goodwill arising from company acquisitions(capitalised differences arising from capital consolidation)were reported on the assets’ side in preceding periodsand are reduced by scheduled straight-line amortizationover the probable useful life. The amortization of goodwillfrom the acquisition of companies is reported in the“depreciations” entry.Software is valued as an intangible asset at the acquisitioncost reduced by scheduled depreciation.The development services shown in the assets sectionof the balance sheet for eight laser developments andthree rapid prototyping developments are evaluatedaccording to the personnel costs and material costsinvolved and reduced by straight-line depreciation.The rights of use are valued on the basis of the cost ofacquisition and depreciated linearly.The tangible assets are valued at acquisition or productioncosts reduced by scheduled straight-line depreciation.Land is not depreciated.The production costs cover the costs of direct materialsand material overheads and the manufacturing costsand manufacturing overheads, as well as productionrelatedpro rata administration costs.36Annual Report 2000

Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AGAccumulated depreciationNet book valueAs at Currency Additions Reclassifications Disposals as at as at previous year1.1.2000 31.12.2000 31.12.2000 31.12.1999KDM KDM KDM KDM KDM KDM KDM KDM629 0 83 0 51 661 131 91325 0 339 0 0 664 1,089 1,397222 0 754 0 0 976 5,034 3,146427 30 310 0 6 761 941 1,1150 0 0 0 0 0 0 01,603 30 1,486 0 57 3,062 7,195 5,749915 1 292 0 0 1,208 11,842 5,4313,773 55 965 571 779 4,585 1,855 2,6055,538 70 1,459 -571 752 5,744 3,681 3,1910 0 0 0 0 0 0 1.80410,226 126 2,716 0 1,531 11,537 17,378 13,0310 0 0 0 0 0 36 360 0 0 0 0 0 22 00 0 0 0 0 0 5 00 0 0 0 0 0 6 70 0 0 0 0 0 69 4311,829 156 4,202 0 1,588 14,599 24,642 18,823The following probable useful lives are assumed:yearsSoftware 3Goodwill 5Development costs 5Rights to use 5Buildings 25Outside facilities 10Technical equipment and machinery 3-10Other equipment, factory and office 3-10The interest in Franklin Industries B.V., Netherlands, which is shown under the financial investments, is to besold/liquidated and has thus not been included in the consolidation in accordance with IAS 27.13 (a).37

Notes to the consolidated financial statements11. InventoriesThe (system) components as well as the goods are valuedat their acquisition costs or the lower net realisable valueson the balance sheet date. The manufacturing costs forfinished goods and work-in-process include manufacturingcosts, manufacturing overheads, direct material costsand material overheads, as well as production-relatedproportional administration costs. In line with thebenchmark method, borrowing costs were not capitalized.12. Trade accounts receivables (in KDM) 2000 1999Nominal amount of accounts receivables 14,611 6,118Provision for doubtful accounts ./. 11 ./. 11Lump-sum allowance ./. 107 ./. 31Accounts receivables after provisions 14,493 6,076The trade accounts receivables are shown in the balance sheet at the nominal value. Adequate provision has beenmade for concrete and latent risks of non-payment.13. Other assets (in KDM) 2000 1999Short-term loans 0 208Input VAT refund 279 445Income tax refund 111 258Reinsurance 182 150Outstanding investment grants 57 410Others 391 194KDM 182 fall due after more than one year.1,020 1,66514. Cash and cash equivalentsCash and cash equivalents comprise cash on hand ofKDM 41 (previous year: KDM 18) as well as cash in otherbanking accounts of KDM 7,308 (previous year: KDM12,857).Cash and cash equivalents for the purposes of statementof cash flows encompass cash on hand and cash inbanking accounts reduced by short-term liabilities dueto banks. The balance sheet contains separate entriesfor assets and debts.In the case of the securities, this is a money market fundfrom Dresdner Bank. Measurement was based on therate at year end on the financial statement closing date.15. Prepaid expensesThe deferred charges and prepaid expenses primarily comprise prepaid insurance premiums totalling KDM 233(previous year KDM 67).16. Deferred tax assetThe capitalised deferred tax asset encompasses deferredtaxes primarily on the basis of tax losses carry forwardsinter-company profits and the additions of a special entryfor grants. Deferred taxes were measured in line withthe retention of earnings tax rates valid for the individualcountries. The deferred taxes were solely set up withrespect to capitalised development cost. The developmentof the deferred taxes is as follows:Deferred tax cost assets (in KDM) 2000 1999Tax loss carry forwards 155 116Special item for grants 87 82Inter-company profit elimination and other deductible temporary differences 581 177823 375Deferred tax liabilities (in KDM) 2000 1999Capitalised development costs 1,927 9441,927 94438Annual Report 2000

Notes to the consolidated financial statements: Balance sheet liabilitiesMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovation17. Subscribed capitalIn accordance with the resolutions passed by the annualgeneral meeting on 15.06.2000, the share capital andother DM amounts was converted to EUROs; there wasalso a capital increase from company funds; a reclassificationof the share capital; as well as an adaptation andmodification of the contingent capital, which was alsoassociated with a change in the memorandum andarticles of association.In addition, the authorization of the Board of Directorsin the period to October 13, 2003 to increase the sharecapital with the authorization of the Supervisory Board(authorized capital) was annulled. Instead, the Board ofDirectors was authorized, with the approval of theSupervisory Board, to increase the share capital by upto EUR 5,250,000 (authorized capital) by one or moreissues of up to 5,250,000 new shares for cash orcontributions in kind up to June 14, 2005.The share capital of the company after the share split ata ratio of 1:4, and the capital increase of DM 10,036,215.00Statement of incomeBalance sheetfrom the capital surplus is DM 20,536,215.00 (EURCash flow statements10,500,000) and is divided up into 10,500,000 Consolidated statementsAnnual Report AGshares with a numeracy value of EUR 1.00 each.The resolution at the annual general meeting of 15.06.2000allows the Board of Directors of LPKF Laser & ElectronicsAG the option to repurchase its shares via the stockmarket. The repurchase of shares has the purpose offinancing an employee share participation scheme withthe aim of binding experienced employees even strongerto the company. The company is authorized to repurchaseits own shares on the stock market by 14.11.2001amounting to up to 10 % of the current share capital ofthe company. The purchase price per share shall notexceed or undercut the standard stock market price bymore than 5 %. The standard stock market price in thesense of this regulation is the average value of the finalprice of the shares in Xetra trading at the Frankfurt StockExchange over the last five trading days prior toacquisition of the shares.18. Capital reserveThe capital reserve amounting to DM 10,036,215.00was used to carry out the conversion of the share capitaland the associated capital increase approved by theannual general meeting on 15.06.2000. The capitalreserve results from the premium paid from the issue ofshares in the parent company in the year of the initialpublic offering as well as the option price of theconvertible bond in the previous year.19. Authorized capital/conditional capitalThe conditional capital was adapted in accordance with§ 218 Stock Corporation Law to enable the share capitalto be contingently raised by up to EUR 500,000. Theconditional capital increase shall only be realised inproportion to the extent to which the holders ofconvertible bonds, issued by the company on the basisof the resolution passed by the annual general meetingon October 13, 1998, exercise their conversion rights toconvert the bond for new shares. New shares participatein the profits from the beginning of the financial year inwhich the option to utilise the conversion rights wasexercised. The DM 5.00 nominal value bonds entitle theirowners to exercise a conversion right to acquire five newshares in LPKF Laser & Electronics AG with a numeracyshare of the share capital of LPKF Laser & Electronics AGof EUR 5.00. The conversion price for the acquisition ofsuch a share will be calculated on the basis of a formulareflecting a comparison of the increase in value of LPKF'sshares compared to the German share index (DAX).When exercising the conversion right to acquire a share,a cash payment must be made corresponding to theamount the conversion price exceeds the proportionalnominal amount of a bond being converted. The termof the convertible bond is five years (maturity dateDecember 29, 2003) with an annual interest rate of5 %. The earliest possible conversion time is after theordinary annual general meeting in the 2001 financialyear. The net present value concept was used todetermine the share capital.20. Minority interests (in KDM) 2000 1999The minority interest with respect to shares insubsidiaries has developed as follows:As at 1 January 2,163 902Additions/disposals 390 1,261As at 31 December 2,553 2,163The changes result from the share in the Group’s year end results accruing to outside shareholders, from currencytranslation and from initial consolidation measures, as well as payments with respect to minority interests.39

Notes to the consolidated financial statements21. Provisions for pensionsGermany has a statutory contribution-orientated basicpension system for employees which pays out pensionsdependent on income and effected contributions. Inother countries, there are performance-orientated pensionobligations dependent on the legal, taxation andeconomic conditions in each country in question, andwhich are normally based on the length of the periodof employment and the salary of the employee. Theprovisions for pensions have been established exclusivelyfor the pension commitments relating to the executiveboard members of the parent company.In addition, performance related pensions relating toforeign subsidiaries are also reported. Calculation hasbeen effected in accordance with the standardinternational method (projected unit credit method).The calculation of the pension obligation of the Germanparent company has been effected on the basis of the“guidelines” issued by Dr. Klaus Heubeck, allowing forfuture pension adjustments at the rate of 2 %.The discount factor stands at 7 %.22. Tax provisions and other provisionsProvisions are set up for legal or effective obligationswhich arose in the past when it appears possible thatthe fulfilment of the obligations could lead to anoutflow of Group resources, and when it is possible tomake a reliable estimate of the size of the obligation.Tax provisions and other provisions (in KDM) 2000 1999Corporation tax and solidarity surcharge 1,752 1,337Trade tax 845 252Other taxes 120 02,717 1,589Bonuses 625 549Guarantees 234 358Vacation 316 244Annual financial statements costs 245 78Legal and consulting fees 152 0Workers’ compensations board 44 44Others 196 571,812 1,330Provisions chartProvisions as at Utilization Releases Additions as atin KDM 01.01.2000 31.12.2000Provisions for pensions 362 - - 12 374Accrued taxes 1,589 1,337 - 2,465 2,717Bonuses 549 549 - 625 625Vacations 244 244 - 316 316Guarantees 358 255 103 234 234Other 179 179 - 637 637Total 3,281 2,564 103 4,289 4,90340Annual Report 2000

Notes to the consolidated financial statementsMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovation23. LiabilitiesThe table below shows a summary of the liabilitiesbroken down according to remaining terms:Summary of liabilities (in KDM) with a remaining term of:Statement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AGType of liability Total up to 1 to 5 more than secured type ofamount 1 year years 5 years amount securityLiabilities due to banks 6,226 658 2,018 3,550 6,095 *(3,310) (287) (780) (2,243) (3,057) (*)Convertible bond 485 485 - - - -(482) (-) (482) (-) (-) (-)Trade accounts payable 2,538 2,538 - - - -(2,094) (2,094) (-) (-) (-) (-)Prepayments received on orders 35 35 - - - -(-) (-) (-) (-) (-) (-)Liabilities with respect to participations 27 27 - - - -(-) (-) (-) (-) (-) (-)Other liabilities 1,761 1,761 - - - -(3,844) (3,844) (-) (-) (-) (-)11,072 5,504 2,018 3,550 6,095(9,730) (6,225) (1,262) (2,243) (3,057)* Land chargeFurther note on liabilities: The amount due to banks includes long-term borrowings to the amount of KDM 6,226which are subject to interest at a rate of 3.75 % p.a. to 6.25 % p.a.Original loan in KDM Interest rate p.a. Term113 6.25 % 01/98 – 12/01121 4.50 % 09/99 – 09/041,286 3.75 % 09/99 – 09/142,250 5.85 % 09/99 – 09/093,100 5.41 % 01/00 – 09/0924. BondsThe debenture loan involves a convertible bond discussed in Note 19. The share capital proportion wasdetermined on the basis of the net present value method. Discounting was carried out using a standard marketinterest rate.25. Deferred taxesDeferred tax liablility based on the capitalisation of development costs.The deferred taxes were calculated using the tax rate stipulated for eachof the countries involved (cf. Note 16).Other information26. Cash flow statementThe cash flow from operating activities include tax payments to the amount ofKDM 2,790 (previous year: KDM 2,961) as well as interest paid totalling KDM 525(previous year: KDM 999) and interest received of KDM 368 (previous year: KDM 523).41

Notes to the consolidated financial statements27. Earnings per shareThe undiluted earnings per share is determined accordingto IAS 33 as a quotient of the consolidated net incomeattributable to the shareholders of LPKF Laser &Electronics AG and the number of shares in circulationin the financial year. Dilution of the earnings per shareapplies when the average number of shares incirculation is increased by including the issue of potentialshares in connection with the LPKF Laser & ElectronicsAG convertible bond issue. Convertible bonds alwaysdilute the earnings.2000 1999Number of shares, undiluted 10,500,000 10,500,000 *)Number of shares, diluted 11,000,000 11,000,000 *)Consolidated earnings (in KDM) 6,226 4,408Elimination of the interest expense for the convertible bond 25 17Elimination of the taxation effect on the interest expenditurefor the convertible bond -10 -7Undiluted earnings per share (in DM) 0.59 0.42Diluted earnings per share (in DM 0.57 0.40*) for reason of comparison, a corresponding option right was assumed for the previous year for the number ofshares in circulation.28. Dividend per shareDividends are only taken into consideration after resolutionon profit appropriation by the annual general meeting.A dividend of DM 0.12 per share will be proposed atthe annual general meeting on 17.05.2001. This dividendwill be taken into consideration in the 2001 annualfinancial statements as an appropriation of profits.29. Related parties transactionsRelated partiesKDMZeltra Naklo d.o.o., Slovenia, purchased deliveries and services 203PMV d.o.o., Slovenia, purchased services 521The managing director and shareholder of a subsidiaryowns 80 % of Zeltra Naklo d.o.o. shares. The remaining20 % of the shares are owned by an executive of asubsidiary. Materials and equipment, merchandise andservices to the sum of KDM 203 were purchased fromthis related party in 1999.The managing director and shareholder of a subsidiaryhas a 50 % shareholding in PMV d.o.o.In 2000, business relations with this company covereddevelopment and production services and rentals to theamount of KDM 521.A member of the Supervisory Board provided legal advicein 2000 totalling KDM 55.In addition, two close relativesof the management in the parent company were alsoemployed as salaried employees.30. Other disclosuresOther financial commitmentsLaserquipment AG was issued a loan totalling DM 117,600.00at the beginning of the 2001 financial year. In line withour business plan obligations, further payments totallingDM 705,530.00 are planned which shall be convertedinto share capital after reaching pre-determined milestones.OtherThe conditions according to § 292a HGB to exempt acompany from the obligation of preparing consolidatedannual financial statements according to Germanaccounting standards have been fulfilled.The consolidated annual financial statements follow therules in accordance with DRS 1 of the German AccountingStandards Committee, and in particular, the EuropeanUnion guidelines on consolidated accounting (directive83/349/EU). They include the following variances fromthe German commercial code regulations with respectto accounting methods, valuation methods andconsolidation methods:• capitalisation of development costs• accounting the convertible bond at present value• capitalisation of deferred taxes on tax loss carryforwardsLPKF Laser & Electronics AG has thus been exemptedfrom the obligation of preparing its annual financialstatements according to the German commercial code.42Annual Report 2000

Notes to the consolidated financial statementsMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketThe Board of Directors consists of:Bernd Hildebrandt · Chairman ·Dipl.-Ing. Bernd HackmannDr.-Ing. Jörg KickelhainThe remuneration of the Board of Directorstotalled KDM 1,936 (previous year: KDM 1,845).As at 31.12.2000, the membersof the Board of Directors held1,142,100 (1,327,500) shares.Diary of an innovationStatement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AGThe members of the Supervisory Board are:Klaus SülterPower of attorney for Cura Consult GmbH· Chairman ·Dr. Heino BüschingLawyer/tax advisorISR AG, Braunschweig, Chairman of the Supervisory Board· Deputy Chairman ·Udo B. HartmannBusinessmanThe remuneration of the Supervisory Board totalledKDM 92 (previous year: KDM 90). As at 31.12.2000,the members of the Supervisory Board held 924,500(1,039,500) shares.The Board of Directors and the Supervisory Board of theparent company proposed a payment of a dividendtotalling DM 0.12 per share and to carry forward theremaining net income for the year. The profitappropriation proposal has not yet become an obligation.31. Events after the balance sheet dateFor the realisation of its employee share participation scheme, LPKF Laser & Electronics AG repurchase 5,000 ofits own shares with a value of DM 260,125.39.LPFK Laser & Electronics AG - Garbsen/Hannover, February 16, 2001sgn. Bernd Hildebrandtsgn. Bernd Hackmannsgn. Dr. Jörg KickelhainAuditor’s ReportWe have audited the consolidated financial statementsof LPKF Laser & Electronics AG consisting of the balancesheets, the income statement and the statements ofchanges in equity and cash flows as well as the notes tothe financial statements for the business year from1st January to 31st December 2000. The preparationand the content of the consolidated financial statementsaccording to the International Accounting Standards ofthe IASC (IAS) are the responsibility of the Board ofManaging Directors. Our responsibility is to express anopinion, based on our audit, whether the consolidatedfinancial statement are in accordance with IAS.We conducted our audit of the consolidated financialstatement in accordance with German auditing regulationsand generally accepted standards for the audit of financialstatements promulgated by the Institut der Wirtschaftsprüferin Deutschland (IDW). Those standards requirethat we plan and perform the audit to obtain reasonableassurance about whether the consolidated financialstatements are free of material misstatements. Theevidence supporting the amounts and disclosures in theconsolidated financial statements are examined on a testbases within the framework of the audit. The auditincludes assessing the accounting principles used andsignificant estimates made by the Board of ManagingDirectors, as well as evaluating the overall presentationof the consolidated financing statements. We believethat our audit provides reasonable basis for our opinion.In our opinion, based on our audit, the consolidatedfinancial statements give a true and fair view of the netassets, financial position, results of operations and cashflows of the LPKF Laser & Electronics AG group for thebusiness year accordance with IAS.Our audit, which according to German auditingregulations also extends to the group managementreport prepared by the Board of Managing Directors forthe business year from 1st January to 31st December2000, has not led to any reservations. In our opinion,on the whole the group management report providesa suitable understanding of the Group’s position andsuitably presents the risks of future development. Inaddition, we confirm that the consolidated financialstatements and the group management report for thebusiness year from 1st January to 31st December 2000satisfy the conditions required for the Company'sexemption from it's duty to prepare consolidated financialstatements and the group management report inaccordance with German accounting law.Hannover, March 2, 2001SOCIETÄTS TREUHAND GRUPPE GMBHWirtschaftsprüfungsgesellschaftT. StieveWirtschaftsprüfer(German Public Accountant)Dr. M. SchellhornWirtschaftsprüfer(German Public Accountant)43

Annual financial statements of LPKF Laser & Electronics AG31.12.2000 31.12.1999Assets KDM KDMFixed assetsIntangible assetsSoftware 75 43Rights to use 105 140180 183Tangible assetsLand and buildings 7,826 3,744Technical equipment, plant and machinery 756 1,411Other equipment, factory and office equipment 2,156 1,700Prepayments and construction in process 0 78110,738 7,636Financial assetsShares in affiliated companies 2,428 1,303Loans to affiliated companies 1,024 769Participations 27 03,479 2,072Total fixed assets 14,397 9,891Current assetsInventories(System) components 77 40Finished goods 9,608 8,947Prepayments 1,640 67011,325 9,657Accounts receivables and other assetsTrade accounts receivables 11,514 3,711Accounts due from affiliated companies 6,063 2,805Other assets 241 1,04217,818 7,558Cash on hand, Cash in other banking accounts 3,383 10,424Total current assets 32,526 27,639Prepaid expenses 124 25Total assets 47,047 37,55544Annual Report 2000

Annual financial statements of LPKF Laser & Electronics AG31.12.2000 31.12.1999Liability and shareholder’s equity KDM KDMShareholder’s equitySubscribed capital 20,536 10,500Capital surplus 7,085 17,121Retained earnings 3,204 1,534Net income 3,857 2,720Message by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AG34,682 31,875Provisions and accrued liabilitiesProvisions for pensions 380 345Tax provisions 1,692 399Other provisions and accrued liabilities 1,482 9833,554 1,727LiabilitiesBonds (of which convertible KDM 499) 499 500Liabilities due to banks 4,793 1,937Trade accounts payables 942 631Accounts due to affiliated companies 2,096 423Accounts due to otherGroup companies 27 0Other liabilities 454 462Thereof for taxes (KDM 170)Thereof for social security (KDM 203)8,811 3,953Total liabilities 47,047 37,55545

Annual financial statements of LPKF Laser & Electronics AG01.01.-31.12.2000 01.01.-31.12.1999Statement of income KDM KDMSales 44,649 32,140Increase in finished goods and work-in-process -936 756Own work capitalised 0 133Other operating income 1,838 2,03245,551 35,061Cost of materials 18,337 13,656Personnel expenses 9,292 8,095Depreciationand amortisation 1,640 1,380Depreciation and amortisation costs and other write-offs on current assets 0 3Other operating expenses 9,135 7,585Operating result 7,147 4,342Income from investments 171 175Income from profit and loss transfer agreements 143 444Municipal trade tax participation passed on to a subsidiary 34 109Other interest and similar income 346 451Interest and similar expenses -314 -352Profit/loss from ordinary operations 7,527 5,169Taxes on income 3,533 2,436Other taxes 137 13Net income 3,857 2,720Retained earnings brought forward from the previous year 3,204 1,534Net income for the year 7,061 4,25446Annual Report 2000

ImprintMessage by the ChairmanReport of the Supervisory BoardGroup management reportElectronics growth marketDiary of an innovationStatement of incomeBalance sheetCash flow statementsConsolidated statementsAnnual Report AGImprintPublisherLPKF Laser & Electronics AGOsteriede 7 · D-30827 GarbsenGermanyPhone: +49 (0) 5131-70 95-0Fax: +49 (0) 5131-70 95-90e-mail:web info:lpkf@lpkf.dewww.lpkf.deConcept, design and layoutHering Werbeagentur GmbH, BückeburgPhone: +49 (0) 5722-2 50 95Fax: +49 (0) 5722-2 29 65e-mail:Internet:agentur@hering.dewww.hering.deCo-ordination and editingPeter Kirch Communications, HannoverPhone: +49 (0) 511-8 56 54-0e-mail:Internet:info@kirch.dewww.kirch.deNumbers of copies5.000 German2.000 English47

One step ahead ...48Annual Report 2000

LPKF Laser & Electronics AGOsteriede 7 · D-30827 GarbsenGermanyPhone +49 (0) 5131-70 95-0Fax +49 (0) 5131-70 95-90Internet www.lpkf.dee-maillpkf@lpkf.de