<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended APRIL 2, 1999
or
[_] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File No. 333-71449
-------------
GSI LUMONICS ROAD
(Exact name of registrant as specified in its charter)
NEW BRUNSWICK, CANADA 38-1859358
(Jurisdiction of incorporation) (I.R.S. Employer No.)
105 SCHNEIDER ROAD
KANATA, ONTARIO, CANADA K2K 1Y3
(Address of principal executive officers)
TELEPHONE: (613)592-1460
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [_] No [X]
As of April 28, 1999, there were 34,164,225 shares of Common Stock, no par
value, outstanding.
<PAGE>
GSI LUMONICS INC.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets.................................... 3
Consolidated Statements of Operations.......................... 4
Consolidated Statements of Cash Flows.......................... 5
Notes to Consolidated Financial Statements..................... 6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 13-17
Part II - Other Information.......................................................... 18-19
Signatures........................................................................... 20
</TABLE>
2
<PAGE>
GSI LUMONICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN US$ THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 2, DEC. 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 37,423 $ 24,229
Short term investments................................................................ - 8,098
Accounts receivable, less allowance of $2,986 (December 31, 1998 - $311).............. 57,126 31,673
Due from related party................................................................ 3,283 3,844
Inventories........................................................................... 69,771 44,096
Deferred tax and other current assets................................................. 33,972 8,305
Current portion of swap contracts..................................................... 820 1,076
----------- -----------
Total current assets............................................................. 202,395 121,321
----------- -----------
Property, plant and equipment, net of accumulated depreciation
of $59,620 (December 31, 1998 - $24,299)................................................ 51,101 32,209
Long term portion of swap contracts........................................................ 820 1,076
Other assets............................................................................... 3,892 964
Intangible assets, net of amortization of $4,760 (December 31, 1998 - $2,953).............. 18,992 4,072
----------- -----------
$ 277,200 $ 159,642
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness..................................................................... $ 13,669 $ 7,261
Accounts payable...................................................................... 14,863 5,605
Accrued expenses and income taxes..................................................... 68,846 18,937
Current portion of deferred compensation.............................................. 757 -
Current portion of long term debt..................................................... 4,826 3,541
----------- -----------
Total current liabilities........................................................ 102,961 35,344
----------- -----------
Long-term debt due after one year 3,328 3,541
Deferred compensation, less current portion 1,430 -
Commitments and contingencies (see note 10)
Stockholders' equity:
Capital stock, no par value;
issued shares of 34,164,225 (December 31, 1998 - 17,056,001)......................... 222,513 138,871
Deficit............................................................................... (44,942) (9,451)
Cumulative translation adjustment..................................................... (7,945) (8,663)
Unrealized (loss) on marketable equity securities, net................................ (145) -
----------- -----------
Total stockholders' equity....................................................... 169,481 120,757
----------- -----------
$ 277,200 $ 159,642
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
GSI LUMONICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN US$ THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
APRIL 2, MARCH 31,
1999 1998
-------------- ---------------
<S> <C> <C>
Sales:
Laser systems and components............................ $ 37,385 $ 39,065
Printers................................................ 1,209 -
------------- --------------
Total sales.......................................... 38,594 39,065
------------- --------------
Cost of sales:
Laser systems and components............................ 30,424 25,855
Printers................................................ 651 -
------------- --------------
Total cost of sales.................................. 31,075 25,855
------------- --------------
Gross profit:
Laser systems and components............................ 6,961 13,210
Printers................................................ 558 -
------------- --------------
Total gross profit................................... 7,519 13,210
------------- --------------
Operating expenses:
Research and product development........................ 3,336 3,269
Selling, general and administrative..................... 10,821 9,454
Acquired in-process research and development............ 13,000 -
Restructuring and other charges......................... 19,631 -
------------- --------------
Total operating expenses............................. 46,788 12,723
------------- --------------
Income (loss) from operations............................. (39,269) 487
Interest income (expense), net............................ 194 326
Foreign exchange transaction gains (losses)............... (787) (531)
------------- --------------
Income (loss) before income taxes......................... (39,862) 282
Income taxes provision (benefit).......................... (4,371) 132
------------- --------------
Net income (loss)......................................... $ (35,491) $ 150
============= ==============
Foreign currency translation adjustments.................. 718 1,516
Change in unrealized gain (loss) on marketable equity
securities, net......................................... (145) -
------------- --------------
Comprehensive income (loss)............................... $ (34,918) $ 1,666
============= ==============
Net income (loss) per common share:
Basic................................................... $ (1.85) $ 0.01
Diluted................................................. $ (1.85) $ 0.01
============= ==============
Weighted average common shares outstanding................ 19,204 17,105
============= ==============
Weighted average common shares outstanding
and dilutive potential common shares.................... 19,204 17,379
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
GSI LUMONICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN US$ THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
APRIL 2, MARCH 31,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $ (35,491) $ 150
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Acquired in-process research and development.................................. 13,000 -
Depreciation and amortization................................................. 5,071 1,274
Deferred compensation......................................................... 65 -
Deferred income taxes......................................................... (4,009) (59)
Unrealized currency exchange loss (gain)...................................... (70) (73)
Changes in current assets and liabilities:
Accounts receivable........................................................... 6,414 4,224
Inventories................................................................... 7,466 (5,641)
Other current assets.......................................................... (354) (573)
Accounts payable, accrued expenses, and taxes payable......................... 9,650 36
------------ ------------
Net cash provided by (used in) operating activities............................. 1,742 (662)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Merger with General Scanning Inc.............................................. 1,451 -
Additions to property, plant, and equipment, net.............................. (1,043) (2,777)
Maturity of short term investments............................................ 8,208 2,062
Purchase of short term investments............................................ - (22,741)
Decrease in other assets...................................................... 249 -
------------ ------------
Net cash (used in) investing activities....................................... 8,865 (23,456)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) of bank indebtedness and others, net...................... 2,017 (4,701)
Payments on long-term debt.................................................... (3) -
Proceeds from exercise of stock options....................................... 114 36
------------ ------------
Net cash provided by (used in) financing activities........................... 2,128 (4,665)
------------ ------------
Effect of exchange rate changes on cash and cash equivalents.................. 459 858
------------ ------------
Increase (decrease) in cash and cash equivalents.............................. 13,194 (27,925)
Cash and cash equivalents, beginning of period................................ 24,229 56,828
------------ ------------
Cash and cash equivalents, end of period...................................... $ 37,423 $ 28,903
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for :
Interest...................................................................... $ 85 $ 258
Income taxes.................................................................. $ 432 $ 1,745
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
GSI LUMONICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IN U.S. DOLLARS
1. BASIS OF PRESENTATION
---------------------
The unaudited interim financial statements presented herein have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial statements and with the instructions to Form
10-Q and Regulation S-X pertaining to interim financial statements. Accordingly,
these interim financial statements do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial statements reflect all adjustments and accruals which
management considers necessary for a fair presentation of financial position and
results of operations for the periods presented. The financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1998, and the Form S-4 registration statement filed in February 1999. The
results for the interim periods are not necessarily indicative of results to be
expected for the year or any future periods.
The consolidated financial statements include the accounts of GSI Lumonics
Inc. and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
2. MERGER
------
On March 22, 1999, the Company completed a merger of equals with General
Scanning Inc., Watertown, Massachusetts, a leading manufacturer of laser systems
and components, and printers. The merger transaction has been accounted for as a
purchase for accounting purposes and accordingly, the operations of General
Scanning have been included in the consolidated financial statements from the
date of merger. The aggregate purchase price of $84 million was allocated to
General Scanning net identifiable assets, in accordance with the purchase method
of accounting, as follows:
<TABLE>
(in thousands)
<S> <C>
Shares purchased (a).......................... $ 83,074
Options purchased (b) & (c)................... 917
------------
Total purchase price.......................... $ 83,991
============
Current assets, including cash of $4,719...... 89,070
Fixed assets.................................. 21,546
Acquired technology (d)....................... 13,000
Allocated to goodwill (e)..................... 3,704
Other long term assets (f).................... 3,950
Current liabilities........................... (56,081)
Long term debt................................ (28)
Deferred compensation, net of $757 current
portion....................................... (1,365)
Transaction costs............................. (2,805)
In-process research and development (g)....... 13,000
------------
$ 83,991
============
</TABLE>
(a) 17,079,475 common shares of GSI Lumonics Inc. valued at US$4.864 per share,
in exchange for all 12,679,640 thousand General Scanning outstanding shares
of common stock, on the basis of an exchange ratio of 1.347 shares of GSI
Lumonics Inc. for each one share of General Scanning common stock. The
total value assigned to these issued shares is $83,074 thousand. Issue and
registration costs of $463 thousand were charged against equity.
(b) 2,051,903 GSI Lumonics Inc. stock options valued at US$0.443 per share
option, total $909 thousand, in exchange for 1,523,314 General Scanning
outstanding stock options.
(c) 70,717 GSI Lumonics Inc. stock options valued at US$0.11 per share option,
total $8 thousand, in exchange for 52,500 General Scanning outstanding
stock warrants.
6
<PAGE>
(d) Acquired technology of $13 million is being amortized on a straight line
basis over the useful life of 60 months
(e) Goodwill arising from the transaction of $3.7 million is being amortized on
a straight-line basis over a ten year period.
(f) Other long term assets includes note receivable from Robotic Vision
Systems, Inc. (RVSI) of $2,250, 271,493 shares of RVSI common stock $764
thousand, and other deposits of $936 thousand.
(g) Acquired in-process research and development of $13 million charged against
income in 1999 results from an appraisal of General Scanning intangible
assets.
The allocation of purchase price may be subject to adjustment, as additional
information regarding preacquisition contingencies becomes available during the
year.
The following unaudited pro forma results of operations have been prepared
using the purchase method of accounting as if the merger had occurred at the
beginning of each fiscal period.
<TABLE>
<CAPTION>
(in thousands except per share amounts) Pro forma combined
Three months ended
------------------------
April 2, March 31,
1999 1998
---- ----
<S> <C> <C>
Sales....................................... $ 59,053 $ 89,517
========================
Net income (loss)........................... $(42,619) $ 2,032
========================
Net income (loss) per common share:
Basic $ (1.25) $ 0.06
Diluted $ (1.25) $ 0.06
========================
Weighted average common shares outstanding 34,145 33,994
========================
Weighted average common shares outstanding
and dilutive potential common shares 34,145 34,715
========================
</TABLE>
3. NET INCOME (LOSS) PER SHARE OF COMMON STOCK
-------------------------------------------
Basic net income (loss) per common share was computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period. For diluted net income (loss) per common share, the denominator also
includes dilutive outstanding stock options and warrants determined using the
treasury stock method.
Common and diluted per common shares amounts are calculated using the following
weighted average number of shares:
<TABLE>
<CAPTION>
(in thousands) Three months ended
----------------------
April 2, March 31,
1999 1998
----------------------
<S> <C> <C>
Weighted average common shares 19,204 17,105
outstanding
Dilutive potential common shares -0- 274
----------------------
Diluted common shares 19,204 17,379
======================
Weighted options and warrants excluded from
Diluted income per common share
as their effect would be anti-dilutive 2,317 512
======================
</TABLE>
4. CASH EQUIVALENTS
----------------
Cash equivalents, are highly liquid investments with original maturity
dates of less than three months.
7
<PAGE>
5. RELATED PARTY TRANSACTIONS
--------------------------
The company recorded sales revenue from Sumitomo Heavy Industries, Ltd., a
significant shareholder, of $3.4 million in the three months ended April 2, 1999
and $5.2 million in the three months ended March 31, 1998 at values and terms
approximately equivalent to third party transactions. Transactions with Sumitomo
are at normal trade terms. The balance sheet reflects receivables from Sumitomo
as due from related party.
The Company has a long-term loan from Sumitomo, all of which is repayable
in Japanese yen. The Company has entered into currency and interest rate swap
contracts which oblige it to pay Canadian dollars and receive Japanese yen, and
pay U.S. dollars and receive Japanese yen, on the dates principal and interest
payments are due.
6. INVENTORIES
-----------
Inventories, which include materials, labor, and manufacturing overhead,
are stated at the lower of cost (first-in, first-out) or market. The components
of inventory are:
<TABLE>
<CAPTION>
(thousands) April 2, Dec. 31,
1999 1998
--------- ----------
<S> <C> <C>
Materials $22,488 $ 9,123
Work-in-process 17,326 14,062
Finished goods 29,957 20,911
------- -------
$69,771 $44,096
======= =======
</TABLE>
7. COMPREHENSIVE INCOME
--------------------
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, establishes standards for reporting and displaying
comprehensive income and its components in a full set of general- purpose
financial statements.
The Company considers the RVSI (ROBV) common stock to be available-for-sale
and, accordingly, is recording changes in its fair market value as a component
of stockholders' equity and comprehensive income (loss) for the reporting
periods.
8. NEW ACCOUNTING PRONOUNCEMENT
----------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No.133 is effective for fiscal years beginning after June
15, 1999. The Company has not yet quantified the impact of adopting SFAS No. 133
on its financial statements and has not determined the timing of or method of
adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in
earnings and other comprehensive income.
9. RESTRUCTURING AND OTHER CHARGES
-------------------------------
A charge of $19.6 million was taken during the three months ended April 2,
1999 to accrue employee severance of $5.6 million, leased facility and related
costs of $4 million associated with the closure of the plant in Oxnard,
California and redundant facilities worldwide, and costs of $10 million
associated with restructuring and integration of operations as a result of the
merger. Accruals remaining as of April 2, 1999 from current and prior quarter
restructuring charges are $5 million of employee severance, $5 million of leased
facility costs and $10 million of merger integration costs.
8
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
-----------------------------
Operating leases
The Company leases certain equipment and facilities under operating lease
agreements that expire through 2008. The facility leases require the Company to
pay real estate taxes and other operating costs. For the years ended December
31, 1996, 1997 and 1998, lease expense was approximately $1,787 thousand, $1,948
thousand and $2,717 thousand, respectively.
Minimum lease payments under operating leases expiring subsequent to April
2, 1999 are:
<TABLE>
(in thousands)
<S> <C>
Remaining nine months of 1999 $ 4,130
2000 5,081
2001 4,372
2002 3,697
2003 2,786
Thereafter 8,199
-------
Total minimum lease payments $28,265
=======
</TABLE>
Litigation
A provision of $19 million was recorded during the three months ended April
2, 1999 to accrue damages and legal fees, through to appeal, relating to Electro
Scientific Industries, Inc. v. General Scanning Inc. USDC Case No. C-96-4628 and
is reflected as a reduction in net assets acquired at the time of merger. In
October, 1998 the U.S. District Court for the Northern District of California
issued a decision on motions for summary judgment in an action filed against
General Scanning Inc. for alleged patent infringement concerning U.S. Patent
Nos. 5,265,114 and 5,473,624. The Court granted Electro Scientific's motions for
summary judgment on infringement and on the issue of whether Electro Scientific
committed inequitable conduct by intentionally failing to cite prior art to the
U.S. Patent Office in connection with one of its patents. The Court denied
General Scanning Inc.'s motion for summary judgment that the Electro Scientific
patents are invalid due to prior art. During March, 1999, the Court granted
Electro Scientific's motion for partial summary judgment that upgrade kits, sold
by General Scanning for 1.3 micron laser wavelength memory repair, infringe the
ESI patents in suit. The referenced patents cover the use of 1.32 micron
wavelength lasers in the repair of memory chips and semiconductors with imbedded
memory. In April, 1999 a federal court jury issued a verdict that ESI's patent
5,473,624 was found to be invalid, and that ESI's patent 5,265,114 was valid,
and awarded a $13.1 million damage judgment. The company intends to appeal the
decisions on validity and damages.
Electro Scientific Industries, Inc. v. General Scanning Inc. USDC Case No.
98-4027. On or about October 20, 1998, Electro Scientific commenced an action in
the U.S. District Court for the Northern District of California alleging
infringement of three Electro Scientific patents (U.S. Patent Nos. 5,569,398,
5,685,995 and 5,808,272) and seeking an injunction, damages and attorneys' fees.
Discovery has not yet commenced, and a trial date has not been set. The
referenced patents cover the use of 1.32 micron wavelength lasers in the
trimming of certain semiconductor devices. To date, General Scanning Inc. has
shipped only one system employing such technology for an application covered by
the patents and this unit is being converted to another wavelength at the
request of the customer.
Robotic Vision Systems, Inc. v. View Engineering, Inc. USDC Case No. 95-
7441. This case involves a patent infringement complaint by Robotic Vision
Systems, Inc. (''RVSI'') alleging infringement of U.S. Patent No. 5,463,227. A
trial date is scheduled for June 1, 1999. The referenced patent covers a method
of inspecting the electronic interconnect leads of certain semiconductor
components. In settlement of separate litigation with RVSI in June 1998, arising
from General Scanning Inc.'s acquisition of View in August 1996, General
Scanning Inc. agreed not to compete in the field of semiconductor
interconnection
9
<PAGE>
inspection. During the first six months of 1998, sales by General Scanning Inc.
of all products used in semiconductor lead interconnection inspection which
involved products relating to the alleged infringement totaled approximately 2%
of General Scanning Inc.'s total sales.
Robotic Vision Systems Inc. v. View Engineering, Inc. USDC Case No. 96-
2288. In June 1998, the U.S. District Court for the Central District of
California found infringement by View Engineering, Inc. ("View") on a particular
method of measuring substrate coplanarity of unpopulated ball grid array
packages. RVSI had previously dropped all claims for damages; hence, no damages
were awarded. The Court determined that View had not willfully infringed and
therefore refused RVSI's claim for attorneys' fees. The Court enjoined View from
infringing or inducing infringement of the patent in question, No. 5,465,152.
General Scanning Inc., on behalf of View, has appealed the injunction. No date
has been set for oral argument on the appeal. In settlement of separate
litigation with RVSI, in June 1998, arising from the General Scanning Inc.
acquisition of View in August 1996, General Scanning Inc. agreed not to compete
in the field of semiconductor interconnection inspection. Systems for use in
inspection of ball grid electronic interconnection and for measuring substrate
coplanarity accounted for approximately 1% of total sales during the first six
months of 1998.
GSI Lumonics believes that RVSI's and Electro Scientific's claims in each
of the above actions are without merit and GSI Lumonics Inc. is vigorously
defending these proceedings. However, if RVSI or Electro Scientific prevails on
one or more of its claims, there could be a material adverse effect on GSI
Lumonics Inc.'s business, operating results and/or financial condition.
Other. A party has commenced legal proceedings in the United States against
a number of U.S. manufacturing companies, including companies that have
purchased systems from GSI Lumonics Inc.. The plaintiff in the proceedings has
alleged that certain equipment used by these manufacturers infringes patents
claimed to be held by the claimant. While GSI Lumonics Inc. is not a defendant
in any of the proceedings, several of GSI Lumonics Inc.'s customers have
notified GSI Lumonics Inc. that, if the party successfully pursues infringement
claims against them, they may require GSI Lumonics Inc. to indemnify them to the
extent that any of their losses can be attributed to systems sold to them by GSI
Lumonics Inc.. While GSI Lumonics does not believe that the outcome of these
claims will have a material adverse effect upon GSI Lumonics, there can be no
assurance that any such claims, or any similar claims, would not have a material
adverse effect upon GSI Lumonics' financial condition or results of operations.
10
<PAGE>
11. SEGMENT INFORMATION
-------------------
In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The new disclosure requirements established
revised standards for public companies relating to the reporting of financial
and descriptive information in financial statements about their operating
segments.
Business segment information
The Company has two reportable segments as set forth in the table below. In
classifying operational entities into a particular segment, the Company
aggregated businesses with similar economic characteristics, products and
services, production processes, customers and methods of distribution. The
accounting policies for segments are the same as the Company's accounting
policies as described in Note 1. There are no transfers between segments.
Management evaluates segment performance based on segment income (loss) from
operations before interest income and expense, foreign exchange transaction
gains (losses), certain non-recurring items such as legal expenses, and income
taxes.
<TABLE>
<CAPTION>
(in thousands) Three months ended,
----------------------------
April 2, March 31,
1999 1998
----------------------------
<S> <C> <C>
Sales to unaffiliated
customers:
Laser systems and components $ 37,385 $ 39,065
Printers 1,209 -
Total $ 38,594 $ 39,065
============================
Income (loss) from operations:
Laser systems and components (1,2) $(37,269) $ 1,542
Printers - -
Corporate expenses (2,000) (1,055)
----------------------------
Total $(39,269) $ 487
============================
Total assets:
Laser systems and components $166,180 $116,623
Printers 34,020 -
Corporate assets (3) 77,000 70,000
----------------------------
Total $277,200 $186,623
============================
Capital expenditures:
Laser systems and components $ 519 $ 2,777
Printers 524 -
----------------------------
Total $ 1,043 $ 2,777
============================
Depreciation and amortization:
Laser systems and components $ 5,052 $ 1,274
Printers 19 -
----------------------------
Total $ 5,071 $ 1,274
============================
</TABLE>
(1) Includes $13,000 charge for acquired in-process research and development in
1999.
(2) Includes $19,631 charges for restructuring, and other charges in 1999.
(3) Consists primarily of cash, cash equivalents, short-term investments, and
deferred tax assets.
11
<PAGE>
Geographic segment information
The Company attributes revenues to geographic areas on the basis of the
customer bill to location. Long-lived assets are attributed to geographic areas
in which Company assets reside.
<TABLE>
<CAPTION>
(in millions) Three months ended
April 2, March 31,
1999 1998
------- ---------
<S> <C> <C> <C> <C>
Revenues from external customers:
USA................................. $16.1 42% $16.0 41%
Canada.............................. 2.5 6% 2.0 5%
Latin & South America............... 0.4 1% 0.2 1%
Europe.............................. 11.9 31% 8.6 22%
Japan............................... 5.2 13% 5.7 14%
Asia................................ 2.5 6% 6.6 17%
------- -------
Total.......................... 38.6 100% 39.1 100%
======= =======
Long lived assets:
USA................................. $22.5 $ 3.4
Canada.............................. 9.9 10.3
Europe.............................. 18.1 18.1
Japan............................... 0.1 -
Asia................................ 0.5 0.4
------- -------
Total.......................... 51.1 32.2
======= =======
</TABLE>
12
<PAGE>
GSI LUMONICS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS IN U.S. DOLLARS
OVERVIEW
GSI Lumonics Inc. is a leading manufacturer of laser systems and components, and
printers. The results of operations include post acquisition results of General
Scanning of $9 million revenue, $3 million gross profit and insignificant net
income.
The Company sells its laser systems primarily to manufacturers of products
containing advanced electronic components and circuitry. In addition, the
Company produces a line of laser subsystems and components that are used in the
Company's own systems, as well as sold to other manufacturers of laser systems.
The Company's laser system sales have been, and are expected to continue to be,
dependent upon its customers' capital expenditures which are, in turn, affected
by business cycles in the markets served by those customers. The Company's
strategy is to expand applications for its products into different and varied
markets in order to limit dependency on any one market, but it may not always be
successful in doing so.
The Company also sells printers. These products have historically been sold
primarily to manufacturers of medical equipment for patient care monitoring.
This segment of the Company's business has not experienced significant
cyclicality in the past; however, sales of certain printers used in the greeting
card industry tend to increase in the third quarter in anticipation of holiday
greeting card sales.
Product prices experienced increased competitive pressure during the quarter,
and pricing actions did have a negative effect on reported gross profit. Because
substantial portions of the Company's sales, costs of sales and other expenses
are denominated in Canadian dollars, U.K. pounds sterling, Japanese yen and
several other currencies, the Company's results of operations are subject to the
effects of exchange rate fluctuations of those currencies relative to the US
dollar. Changes in currency exchange rates may also affect the relative prices
at which the Company and its competition sell their products in the same
markets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 2, 1999 AND MARCH 31, 1998
Sales. Total sales were $39 million for the three months ended April 2, 1999,
unchanged compared to $39 million in total sales in the three months ended March
31, 1998. Laser systems and component sales for the three months ended April 2,
1999 decreased 4% to $37 million from $39 million in the comparable period of
1998 primarily due to slower activity in the semiconductor, automotive and
aerospace sectors and decreased sales in Asia. The Company does not anticipate
marked improvement in these market sectors or in the Asian markets it serves
until later in the year, at the earliest. Printer sales for the three months
ended April 2, 1999 compared to nil in the comparable period of 1998 due to the
merger with General Scanning.
<TABLE>
<CAPTION>
(in millions) Three months ended
April 2, March 31,
1999 1998
---- ----
<S> <C> <C> <C> <C>
Revenues by market:
Semiconductor........................ $ 3.7 10% $ 5.0 13%
Electronics.......................... 10.0 26% 5.7 15%
Automotive........................... 1.6 4% 5.1 13%
Aerospace............................ 1.9 5% 5.7 15%
Packaging............................ 3.2 8% 2.9 7%
Emerging............................. 2.7 7% 3.4 9%
Medical/Biotechnology................ 3.2 8% 1.6 4%
Components........................... 3.7 10% 1.7 4%
Parts & service...................... 8.6 22% 8.0 20%
------- -------
Total.............................. 38.6 100% 39.1 100%
======= =======
</TABLE>
13
<PAGE>
Gross profit. Total gross profit was $8 million, or 19% of sales, for the three
months ended April 2, 1999, compared to $13 million, or 34% of sales, for the
three-month period ended March 31, 1998. Laser systems and components gross
profit decreased to 19% of sales in the three months ended April 2, 1999 from
34% of sales for the comparable three-month period of 1998. The decrease was
primarily due to lower sales volume, product mix, pricing, and $3 million of
inventory provisions. Printers gross profit was 46% of sales in the three months
ended April 2, 1999.
Research and product development. Research and product development expenses were
$3 million, or 9% of total sales, for the three months ended April 2, 1999
(excluding a one time expense relating to acquired in-process research and
development associated with the merger with General Scanning) compared to $3
million, or 8% of total sales, for the three months ended March 31, 1998.
Selling, general and administrative. Selling, general and administrative
expenses increased to $11 million in the three months ended April 2, 1999 from
$9 million in the comparable period of 1998. This increase was primarily due to
costs incurred after the merger. These expenses increased to 28% of total sales
for the three-month period ended April 2, 1999 from 24% in the comparable period
in 1998.
Restructuring, litigation settlement and other charges. A charge of $19.6
million was taken during the three months ended April 2, 1999 to accrue employee
severance of $5.6 million, leased facility and related costs of $4 million
associated with the closure of the plant in Oxnard, California and redundant
facilities worldwide, and costs of $10 million associated with restructuring and
integration of operations as a result of the merger. Accruals remaining as of
April 2, 1999 from current and prior quarter restructuring charges are $5
million of employee severance, $5 million of leased facility costs and $10
million of merger integration costs.
A provision of $19 million was recorded during the three months ended April 2,
1999 to accrue damages and legal fees, through to appeal, relating to Electro
Scientific Industries, Inc. v. General Scanning Inc. USDC Case No. C-96-4628 and
is reflected as a reduction in net assets acquired at the time of the merger.
Merger expenses. Charges of $3 million during the three months ended April 2,
1999, including brokers fees and legal and accounting costs are reflected in the
cost of acquisition. Costs spent by the Company of $463 thousand, net of tax
effects, related to issuance of common shares, have been included in equity.
Interest. Interest income was $348 thousand for the three-month period ended
April 2, 1999 compared to $662 thousand for the comparable period of 1998.
Interest expense was $154 thousand for the three-month period ended April 2,
1999 compared to $336 thousand for the comparable period of 1998. There was a
net decrease in cash, resulting in less interest income, and a decrease in long
term debt and bank overdrafts.
Foreign exchange. Foreign exchange transactions resulted in a loss of $0.8
million in the three months ended April 2, 1999 compared to a loss of $0.5
million in the comparable period of 1998. Gains and losses are incurred when the
Company's net receivables denominated in various currencies, including Canadian
dollar, Japanese yen, Deutsche marks, Euro and other major European currencies,
are not fully hedged versus the US dollar.
Income tax. The income tax recovery for the Company was $4.4 million for the
three months ended April 2, 1999 compared to a provision of $132 thousand for
the three months ended March 31, 1998. The low rate of recovery for the current
quarter of 11% is a result of a number of factors, including permanent
differences between income for accounting and income for tax purposes such as
the acquired in-process research and development expense which is not deductible
for tax purposes.
Net income (loss). Net loss for the three months ended April 2, 1999 was $35
million, or $1.85 per share based upon 19.2 million common shares, compared to
$150 thousand in net income, or $0.01 per diluted share based upon 17.4 million
common and dilutive potential common shares in the first quarter of 1998.
14
<PAGE>
Backlog. Backlog at April 2, 1999 was approximately $68 million compared to $29
million at December 31, 1998. On a pro forma basis, as if the merger had
occurred at the beginning of the fiscal period, backlog was $59 million at
December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $37 million on April 2, 1999 compared to $24
million on December 31, 1998. Bank indebtedness and the current portion of long-
term debt increased to $18 million on April 2, 1999 from $11 million on December
31, 1998. The merger with General Scanning accounts for $6 million of this
increase.
During the first three months of 1999, operating activities provided cash flows
of$1.7 million, investing activities provided cash flows of $8.9 million, and
financing activities provided cash flows of $2.1 million.
Net loss of $35 million in the first three months of 1999, offset by non-cash
charges for acquired in-process research and development, depreciation,
amortization, deferred taxes and deferred compensation totaling $14 million, and
by net increase in working capital of $23 million, resulted in $1.7 million from
operating activities.
Cash flow from investing activities was primarily due to $8.2 million maturity
of short-term investments. At the date of merger, General Scanning added $4.7
million in cash and cash equivalents, offset by merger costs of $3 million and
capital expenditures of $1 million.
The Company has credit facilities of approximately $24 million, which are
denominated in Canadian dollars, US dollars, Pound sterling and Japanese yen.
Borrowings under the credit facilities, of which $14 were outstanding at April
2, 1999, are due on demand and bear interest based on prime.
Accounts receivable and inventories have been pledged as collateral for the bank
indebtedness under general security agreements. The borrowings require, among
other things, the Company to maintain specified financial ratios and conditions.
As of April 2, 1999, the Company was in breach of certain covenants and the
lending institutions have provided waivers.
The Company believes that existing cash and investments, together with cash
generated by future operations and the existing credit facilities, will be
sufficient to satisfy anticipated cash needs to fund working capital and
investments in manufacturing facilities and equipment for its existing
businesses over the next twelve months. GSI Lumonics is reviewing and
restructuring its existing lines of credit to meet the needs of the merged
company. The Company may, from time to time, as market and business conditions
warrant, invest in or acquire complementary businesses, products or
technologies. The Company may require additional equity or debt financings to
fund such activities, which could result in additional dilution to the Company's
shareholders.
LEGAL PROCEEDINGS
A provision of $19 million was recorded during the three months ended April 2,
1999 to accrue damages and legal fees, through to appeal, relating to Electro
Scientific Industries, Inc. v. General Scanning Inc. USDC Case No. C-96-4628 and
is reflected as a reduction in net assets acquired at the time of merger. The
company intends to appeal the decisions on validity and damages. * See Note 10
to the consolidated financial statements.
15
<PAGE>
YEAR 2000
The use of computer programs written using two digits rather than four to define
the applicable year gives rise to what is commonly referred to as the Year 2000
problem. The major areas being addressed by the Company in regards to Year 2000
compliance are internal operating systems, the installed base of products at
customer sites and third party compliance issues.
The efficient operation of the Company's business is dependant, in part, on its
computer software and hardware. These systems are used in several key areas of
the Company's business, including sales, purchasing, engineering, inventory
control, manufacturing, service and financial reporting. The Company has been
evaluating its systems to identify potential Year 2000 compliance problems.
These actions are necessary to ensure that the programs and systems will
recognize and accurately process the Year 2000 and beyond. Evaluation and
planning phases have been completed. Based on present information, the Company
believes its systems for operations will be Year 2000 compliant during the
second quarter of 1999.
The company also continues to assess the impact of the Year 2000 issue on the
operations of its products installed at customers. The installed base customers
that have older products that are not Year 2000 compliant are being contacted
and offered upgrade options. This effort should be complete by the third quarter
of 1999.
Finally, the Company is in the process of assessing its major suppliers'
compliance with Year 2000 issues. This will be an ongoing effort through the
next year. The Company believes that suppliers and customers present the area of
greatest risk to the Company in part because of the Company's limited ability to
influence actions of such third parties, and in part because of the Company's
inability to estimate the level of impact of noncompliance of third parties
throughout the extended supply chain. The most reasonably likely worst case
scenario would involve non-performance by a supplier, which could delay
production and delivery of product to customers.
Independent of issues related to Year 2000, the Company began a program to
select, acquire and install a new hardware and software platform to replace the
current operations systems which did not have the capacity to accommodate the
Company's growth plans. Recent upgrades to such systems to make them Year 2000
compliant have been made by the Company's hardware and software providers under
standard maintenance contracts at no additional cost to the Company. Because the
Company has been upgrading its operations systems to newer applications which
are Year 2000 compliant, it is anticipated that the future costs of the Year
2000 compliance for operations will not materially impact the financial results
of the Company. Separate expenditures exclusively for Year 2000 compliance have
been immaterial to date. However, the effect of third party impact cannot be
quantified at this time because the Company cannot accurately estimate the
magnitude, duration, or ultimate impact of noncompliance by suppliers, customers
and other third parties that have no direct relationship to the Company. The
Company believes that its competitors face a similar risk. Going forward the
Company will continue to make every effort to identify and minimize that risk.
Contingency plans include identifying second source suppliers for critical
components, and review of accounts receivable statements with customers and
preparing to assist customers in the event their payable systems fail.
Readers are cautioned that the Year 2000 section contains forward-looking
information. Please see the "Outlook for 1999" for a list of some of the factors
that could cause actual results to differ materially from expected results.*
16
<PAGE>
OUTLOOK FOR 1999
The merger was completed on March 22, 1999. Integration teams continue to refine
and implement plans to guide the first 12 months' integration initiatives. Cross
functional, inter-company teams covering manufacturing operations, distribution,
research and development, technology, customer support and administration were
asked to cover many topics including customer retention, cost saving synergy,
revenue enhancement opportunities and organization structure.
On April 5, 1999 the Company announced measures to consolidate operations and
realize cost savings. The measures include closing the Oxnard, California
manufacturing facility; removing sales office redundancy in key markets outside
North America and improving production capabilities for the semiconductor
industry through a product rationalization and a production transfer. As a
result of the changes, GSI Lumonics' facility in Wilmington, Massachusetts will
begin manufacturing semiconductor wafer marking equipment that was previously
produced in Oxnard. Oxnard's other marking product line will be rationalized and
consolidated with a similar product line developed and manufactured at the
Wilmington facility. To ensure an orderly transition, the changes are being
phased in and will be completed by the summer of 1999. The costs associated with
these restructuring activities were accrued in the first quarter of 1999.
GSI Lumonics has implemented an organization structure to see it through at
least the first 12 months. All redundant employment positions were identified in
the first week following the merger and related costs were accrued in the first
quarter of 1999.
The information included in the above "Outlook for 1999" section, as well as in
certain statements made throughout the Management's Discussion and Analysis of
Financial Condition and Results of Operations that are identified by an asterisk
(*) is forward-looking and involves risks and uncertainties that could result in
actual results differing materially from expected results. It is not reasonably
possible to itemize all of the many factors and specific events that could
affect the outlook of a laser manufacturing business operating in the global
economy. Some factors that could significantly impact expected revenues, costs,
and net income (loss) include: capital expenditures by customers which are in
turn affected by cycles in the markets served by those customers, the Asian
economic environment, the impacts of the Company's merger related activities,
foreign currency exchange rate fluctuations, timing and shipment of significant
orders, the risk of delays by the Company's OEM customers in introducing their
new products and market acceptance of those products incorporating subsystems
supplied by the Company, similar risks to the Company in delays in new product
introductions and market acceptance of its new products, the level of cost-
reduction efforts, the general economic environment and other risks detailed in
the Company's Form 10-K that has been filed in connection with its 1998 fiscal
year. With respect to the forward-looking statements set forth in the "Legal
Proceedings" section, some of the factors that could affect the ultimate
disposition of these contingencies are the development of facts in individual
cases, settlement opportunities and the actions of plaintiffs, judges and
juries. Some factors that could significantly impact the Company's expected Year
2000 readiness and the estimated cost thereof include the results of the
technical assessment, remediation and testing of date-sensitive systems and
equipment and the ability of critical business suppliers and customers to
achieve Year 2000 readiness.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding GSI Lumonics' exposure to certain market risks, see
item 7A, Quantitative and Qualitative Disclosures About Market Risk in GSI
Lumonics' Annual Report on Form 10-K for the year 1998. Significant changes that
have occurred since year end are as follows:
Foreign currency risk - as of April 2, 1999, the Company had two forward
currency exchange contracts:
<TABLE>
<CAPTION>
Notional Contract Estimated fair value
(In thousands except contract rates) Amount Rate Delivery Date as of April 2, 1999
-------- -------- -------------------- -------------------
<S> <C> <C> <C> <C>
Deliver Japanese Yen $ 1,000 118.68 April 9, 1999 $ 14
Deliver Deutsche Marks $ 1,000 1.65 April 29, 1999 $ 88
</TABLE>
17
<PAGE>
GSI LUMONICS INC.
PART II. OTHER INFORMATION
Item 1. Changes in legal proceedings and arbitration
--------------------------------------------
A provision of $19 million was recorded during the three months ended
April 2, 1999 to accrue damages and legal fees, through to appeal,
relating to Electro Scientific Industries, Inc. v. General Scanning
Inc., USDC Case No. C-96-4628, and is reflected as a reduction in net
assets acquired at the time of the merger between the Company and
General Scanning. In October 1998 the U.S. District Court for the
Northern District of California issued a decision on motions for
summary judgment in an action filed against General Scanning Inc. for
alleged patent infringement concerning U.S. Patent Nos. 5,265,114 and
5,473,624. The Court granted Electro Scientific's motions for summary
judgment on infringement and on the issue of whether Electro
Scientific committed inequitable conduct by intentionally failing to
cite prior art to the U.S. Patent Office in connection with one of its
patents. The Court denied General Scanning Inc.'s motion for summary
judgment that the Electro Scientific patents are invalid due to prior
art. During March 1999, the Court granted Electro Scientific's motion
for partial summary judgment that upgrade kits, sold by General
Scanning for 1.3 micron laser wavelength memory repair, infringe the
ESI patents in suit. The referenced patents cover the use of 1.32
micron wavelength lasers in the repair of memory chips and
semiconductors with imbedded memory. In April, 1999 a federal court
jury issued a verdict that ESI's patent 5,473,624 was invalid, and
that ESI's patent 5,265,114 was valid, and awarded a $13.1 million
damage judgment against General Scanning. The Company intends to
appeal the decisions on validity and damages.
Item 2. Changes in Securities
---------------------
(a) On March 22, 1999 the merger of Lumonics Inc. and General
Scanning Inc. was completed, and the Company changed its name to
GSI Lumonics Inc. In connection with the merger GSI Lumonics Inc.
was continued into the Province of New Brunswick. Differences
between the laws of Ontario and laws of New Brunswick in respect
of the common shares are described in Exhibit 99 hereto.
(b) At various times during the three months ended April 2, 1999, a
total of 28,750 common shares of the Company were issued pursuant
to the exercises of stock options held by directors, officers and
employees of the company. All issuances were exempt pursuant to
Section 4(2) of the United States Securities Act of 1933 or
Regulation S or Rule 701 thereunder. The total consideration
received by the company on the exercise of such options was Cdn.
$171,500 which funds have been or will be used for general
corporate purposes.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On March 12, 1999, the company's shareholders voted at a special
meeting on (i) the merger with General Scanning and related share
issuances, (ii) the continuance into the Province of New Brunswick,
(iii) the confirmation of a new general By-Law conforming to the laws
of New Brunswick and (iv) the change of the Company's name to "GSI
Lumonics Inc.".
18
<PAGE>
All motions were passed with the following results:
<TABLE>
<CAPTION>
For Against
---------- -------
<S> <C> <C>
(i) Merger 13,257,854 58,875
(ii) Continuance 13,109,334 207,695
(iii) By-Law 13,109,334 207,695
(iv) Name Change 13,257,554 59,475
</TABLE>
There were no broker non-votes or abstentions on any motion.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------------
3. Articles of Continuance and By-Law
Incorporated by reference to Annex H to the Company's Management
Information Statement and Prospectus dated February 11, 1999 as filed
on Form S-4, registration statement No. 333-71449.
27. Financial Data Schedule.
99. Description of differences between the law of Ontario and New
Brunswick.
b) Reports on Form 8-K
-------------------------
A report on Form 8-K was filed on March 31, 1999 in connection with
the completion of the merger with General Scanning reporting Item 2
"Acquisition or Disposition of Assets" and Item 7 "Financial
Statements, Pro Forma Financial Information and Exhibits"
19
<PAGE>
GSI LUMONICS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GSI Lumonics Inc.
/s/ Charles D. Winston Date: May 5, 1999
- ----------------------
Charles D. Winston
Chief Executive Officer
/s/ Desmond J. Bradley Date: May 5, 1999
- ----------------------
Desmond J. Bradley
Vice President Finance and
Chief Financial Officer
20
<PAGE>
EXHIBIT 99
DESCRIPTION OF DIFFERENCES BETWEEN
THE LAW OF ONTARIO AND NEW BRUNSWICK
ONTARIO VS. NEW BRUNSWICK
Upon the issuance of a certificate of continuance under New Brunswick law,
the shareholders of GSI Lumonics, became shareholders of a corporation continued
under the laws of the province of New Brunswick. Generally Ontario and New
Brunswick law provide substantially similar rights to shareholders of a
corporation existing under either of those jurisdictions. New Brunswick law
contains derivative action, oppression, and dissent and appraisal rights similar
to those prescribed by Ontario law. There are, however, differences between
Ontario and New Brunswick law which will result in various changes to the rights
of shareholders of GSI Lumonics. The following is a summary of the significant
differences between Ontario and New Brunswick law insofar as they may be
regarded as affecting the rights of shareholders of GSI Lumonics. The following
is a summary only and does not purport to be a comprehensive statement of the
particulars of the actual statutory provisions to which reference is made.
Residency and qualifications of Directors. There is no requirement under
New Brunswick law that directors be residents or citizens of Canada.
Accordingly, following the continuance, GSI Lumonics will not be required to
have a majority of directors who are resident Canadians on the board of
directors of Luminous, or any committee thereof, as currently required under
Ontario law.
Cumulative Voting. Under New Brunswick law, shareholders have cumulative
voting rights in the election of directors. Ontario law permits, but does not
require, such cumulative voting rights. Cumulative voting rights permit each
shareholder entitled to vote at a meeting of shareholders to cast a number of
votes equal to the number of shares held by the shareholder multiplied by that
number of directors to be elected. The shareholder is entitled to cast all such
votes in favour of one candidate for director or distribute them among the
candidates in any manner. The Articles of Continuance, however, provide that,
subject to applicable law, the shareholders of GSI Lumonics will not have
cumulative voting rights. Such provision has been included in the Articles of
Continuance to anticipate any potential future amendment of New Brunswick law,
should New Brunswick law be amended to permit articles to provide that such
cumulative voting rights will not be available to shareholders of GSI Lumonics
subject to New Brunswick law. Shareholders of GSI Lumonics should note,
however, that New Brunswick law does not currently contain any such provision
permitting articles to provide that such cumulative voting rights will not
apply.
Place of Meetings of Shareholders. Under Ontario law, meetings of
shareholders may be held at such place in or outside Ontario as the directors
determine, or, in the absence of such determination, at the place where the
registered office of GSI Lumonics is located. The by-laws of GSI Lumonics
previously permitted the directors to determine the location of shareholders
meetings. Under New Brunswick law, there is no mandatory requirement to hold
shareholders' meetings within New Brunswick or within Canada. The GSI Lumonics
Articles provide that shareholders' meetings may be held at any one or more
locations throughout the world, including without limitation, locations
specifically identified in such articles.
Auditors and Financial Statements. GSI Lumonics intends to prepare and
deliver quarterly audited annual financial statements in accordance with US
GAAP. As described above, GSI Lumonics notwithstanding continuance under New
Brunswick law, will continue to be subject to applicable securities laws in
Canada and the rules of The Toronto Stock Exchange will provide for
comprehensive financial reporting and audit requirements including, for example,
preparation and delivery of audited financial statements in accordance with
Canadian GAAP and the appointment of an audit committee. Accordingly, the
following differences between the Ontario and New Brunswick law will not impact
upon the financial statements and audit requirements currently imposed upon GSI
Lumonics by such securities laws and stock exchange rules. New Brunswick law
does not require GSI Lumonics to appoint an auditor or that financial
<PAGE>
statements be subject to audit. Further, under New Brunswick law financial
statements can be prepared in accordance with generally accepted accounting
principles applicable in non-Canadian jurisdictions. Under Ontario law a public
company is required to appoint an auditor and to deliver audited financial
statements to shareholders and t the Director under the Ontario Act. Such
financial statements, under the Ontario Act, are required to be prepared in
accordance with standards of the Canadian Institute of chartered Accountants.
Further, under Ontario law, GSI Lumonics is required to appoint an audit
committee. New Brunswick law does not contain a similar requirement.
Capital. Under New Brunswick law, share capital may be specified as having
a par value or no par value. Under Ontario law, there is no provision for par
value shares. However, the GSI Lumonics Articles continue to provide for only
non-par value shares.
Pre-Emptive Rights. Under New Brunswick law, unless otherwise provided in
the articles of a corporation, shareholders have pre-emptive rights in respect
of the issuance of certain securities of the corporation. However, New Brunswick
law provides that a corporation which has its shares listed on a prescribed
stock exchange including The Toronto Stock Exchange is not subject to the
otherwise applicable pre-emptive rights provisions in the New Brunswick Act.
Furthermore, the GSI Lumonics Articles specifically provide that such pre-
emptive rights will not be available to shareholders of the corporation. Under
Ontario law, the granting of pre-emptive rights is permissive rather than
mandatory and, at present, there is no provision in the articles of GSI Lumonics
for pre-emptive rights.
Take-Over Bid Rules. Ontario law does not prescribe take-over bid rules
and requirements. Applicable securities law, however, contain comprehensive
take-over bid rules which stipulate a 20% threshold for their application to an
offer to acquire shares. Generally stated, these rules provide that any person
or company which offers to acquire shares which result in such person or company
holding more than 20% of the outstanding shares of GSI Lumonics, must, with
certain exceptions, make an identical offer to all the shareholders of GSI
Lumonics. The corresponding percentage under New Brunswick law is 50%; however
the 20% threshold under applicable securities laws will continue to apply to GSI
Lumonics.
Financial Assistance. Under New Brunswick law the articles of GSI Lumonics
may provide that financial assistance may be given to certain persons and
related corporations notwithstanding solvency tests otherwise prescribed in New
Brunswick law. The GSI Lumonics Articles do not so provide. Ontario law
subjects financial assistance to prescribed solvency tests, which cannot be
removed by provision in the articles of GSI Lumonics.
Shareholder Proposals. New Brunswick law provides that holders of not less
than 10% of the voting shares of GSI Lumonics may submit a proposal with respect
to the election of directors. Under Ontario law the corresponding threshold is
5%. However, the Articles of Continuance specifically provide that holders of
not less than 5% of the voting shares of GSI Lumonics may submit a proposal with
respect to the election of directors.
Mandatory Solicitation of Proxies. As described above, GSI Lumonics,
notwithstanding continuance under New Brunswick law will continue to be subject
to applicable securities laws and The Toronto Stock Exchange rules which provide
for comprehensive mandatory proxy solicitation rules. Accordingly, the
following differences between New Brunswick and Ontario law will not impact upon
the requirement for the mandatory solicitation of proxies by GSI Lumonics
currently imposed upon GSI Lumonics by such securities laws and stock exchange
rules. New Brunswick law contains no provisions relating to the mandatory
solicitation of proxies. Ontario law provides that, in the event a corporation
offers its securities to the public, management must, in respect of any meeting
of shareholders, provide a form of proxy together with the giving of notice of
such meeting to each shareholder who is entitled at that time to receive notice
of the meeting. Under Ontario law, proxies cannot be solicited without the
delivery of either a management proxy circular or a dissident's proxy circular.
<PAGE>
Requisition of Meeting by Shareholders. New Brunswick law provides that
holders of not less than 10% of the voting shares of GSI Lumonics may require
the directors to call a meeting of shareholders. Under Ontario law, the
corresponding threshold is 5%. The Articles of Continuance specifically provide
that the holders of not less than 10% of the voting shares of GSI Lumonics may
require the directors to call a meeting of shareholders.
Investigations of GSI Lumonics. Under the New Brunswick Act, the holders
of not less than 10% of the issued shares of any class of a corporation may
apply to the Court for an order requiring that an investigation be made of a
corporation or of any affiliated corporation. Under Ontario law, any security
holder (which term includes any shareholder), may make such an application.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-02-1999
<CASH> 37,423
<SECURITIES> 0
<RECEIVABLES> 63,395
<ALLOWANCES> 2,986
<INVENTORY> 69,771
<CURRENT-ASSETS> 202,395
<PP&E> 110,721
<DEPRECIATION> 59,620
<TOTAL-ASSETS> 277,200
<CURRENT-LIABILITIES> 102,961
<BONDS> 0
0
0
<COMMON> 222,513
<OTHER-SE> (53,032)
<TOTAL-LIABILITY-AND-EQUITY> 277,200
<SALES> 38,594
<TOTAL-REVENUES> 38,594
<CGS> 31,075
<TOTAL-COSTS> 31,075
<OTHER-EXPENSES> 47,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (194)
<INCOME-PRETAX> (39,862)
<INCOME-TAX> (4,371)
<INCOME-CONTINUING> (35,491)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,491)
<EPS-PRIMARY> (1.85)
<EPS-DILUTED> (1.85)
</TABLE>
