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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 333-71449
GSI Lumonics Inc.
(Exact name of registrant as specified in its charter)
NEW BRUNSWICK, CANADA 38-1859358
(Jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
105 SCHNEIDER ROAD, KANATA, ONTARIO, CANADA K2K 1Y3
(Address of principal executive offices) (Zip Code)
(613) 592-1460
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
Title of Each Class
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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
On February 29, 2000, 34,546,875 shares of the Common Stock of GSI Lumonics
Inc. were issued and outstanding. Non-affiliates of the registrant held
27,532,855 shares having an aggregate market value of U.S. $691,762,982 based on
the closing price of the shares on Nasdaq on February 29, 2000 of U.S. $25.125.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 8, 2000 are incorporated by reference in Part III of
the Report. Other documents incorporated by reference are listed in the Exhibit
Index.
GSI LUMONICS INC.
Annual Report - Form 10-K
TABLE OF CONTENTS
PART I....................................................................... 3
ITEM 1. BUSINESS OF GSI LUMONICS INC........................................ 3
Overview.......................................................... 3
Corporate History................................................. 3
Industry Overview................................................. 4
Corporate Strategy................................................ 5
Products and Services............................................. 6
Customers......................................................... 9
Marketing, Sales and Customer Support............................. 9
Competition........................ .............................. 10
Manufacturing...................... .............................. 10
Research and Development........... .............................. 11
Patents and Intellectual Property.. .............................. 11
Human Resources.................... .............................. 11
ITEM 2. PROPERTIES.......................................................... 12
ITEM 3. LEGAL PROCEEDINGS................................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 14
Executive Officers Of The Registrant.............................. 14
PART II...................................................................... 16
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS................................................ 16
Market Information................................................ 16
Currency Prices................................................... 16
Holders........................................................... 16
Dividends......................................................... 17
ITEM 6. SELECTED FINANCIAL DATA............................................. 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 19
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK........................................................ 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................... 27
AUDITORS' REPORT.................................................. 28
CONSOLIDATED BALANCE SHEETS....................................... 29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY................... 30
CONSOLIDATED STATEMENTS OF OPERATIONS............................. 31
CONSOLIDATED STATEMENTS OF CASH FLOWS............................. 32
Notes to Consolidated Financial Statements........................ 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................ 52
PART III..................................................................... 52
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISRANT................... 52
ITEM 11. EXECUTIVE COMPENSATION.............................................. 52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT....... 52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 52
PART IV...................................................................... 53
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..... 53
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As used in this report, the terms "we," "us," "our," "GSI Lumonics" and the
"Company" mean GSI Lumonics Inc. and its subsidiaries, unless the context
indicates another meaning.
The following trademarks and trade names of GSI Lumonics are used in this
report: WaferMark(R), LightWriter(R), ScreenCut(R), ICMARKII(TM), LuxStar(R),
Laserdyne(R), Xymark(R), LaserMark(R) QuantArray(R) and ScanArray(R).
Special Note Regarding Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance, or achievements of the Company
to be materially different from any future results, performance or achievements,
expressed or implied by such forward-looking statements. In making these
forward-looking statements, which are identified by words such as "will",
"expects", "intends", "anticipates" and similar expressions, the Company claims
the protection of the safe-harbor for forward-looking statements contained in
the Reform Act. The Company does not assume any obligation to update these
forward-looking statements to reflect actual results, changes in assumptions, or
changes in other factors affecting such forward-looking statements.
PART I
ITEM 1. BUSINESS OF GSI LUMONICS INC.
Overview
We design, develop, manufacture and market laser-based advanced manufacturing
systems and components for a wide range of applications, including cutting,
drilling, welding, marking, micro-machining, inspection, and optical detection
and transmission. Major markets for these products include the semiconductor,
electronics, automotive, medical/biotechnology and telecommunications
industries. In addition, we sell to other markets such as the aerospace and
packaging industries.
Corporate History
Lumonics Inc. was incorporated in 1970 for the purpose of producing lasers for
scientific and research applications. We first became a public company in 1980,
and our common shares were listed on The Toronto Stock Exchange until 1989. In
1989, all of our common shares were acquired by a wholly owned subsidiary of
Sumitomo Heavy Industries, Ltd., and we ceased to be a public company. On
September 28, 1995, we again became a public company, and our shares were listed
on The Toronto Stock Exchange. At December 31, 1999, Sumitomo owned 17.7% of our
outstanding shares.
General Scanning Inc. was incorporated in 1968 in Massachusetts. In its early
years, General Scanning developed, manufactured and sold components and
subsystems for high-speed micropositioning of laser beams. Starting in the
mid-to-late 1980s, General Scanning began manufacturing complete laser-based,
advanced manufacturing systems for the semiconductor and electronics markets as
well as a number of other applications such as aerospace, assembly and medical
recording and imaging.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals
and continued as a New Brunswick corporation under the name GSI Lumonics Inc.
Our shares commenced trading on the Nasdaq National Market and continued to
trade on The Toronto Stock Exchange. Immediately following the merger, the
General
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Scanning shareholders and the Lumonics shareholders each, as a group, owned
approximately 50% of the combined company's common shares.
Industry Overview
Laser-based systems are used in many different applications such as material
processing, medical therapy, instrumentation, research, telecommunications,
optical storage, entertainment, image recording, inspection, measurement and
control, bar-code scanning and other end uses.
Industrial lasers are generally used in the machine-tool, automotive,
semiconductor and electronics industries. We expect capital equipment
expenditures by the semiconductor and electronics industry, fueled by demand for
computers, cellular phones and communications devices, to stimulate demand for
laser-based systems. Dataquest, an independent market research company,
estimates that capital spending by the semiconductor industry will grow from
$33.9 billion in 1999 to $74.9 billion in 2002, representing a compound annual
growth rate of 30.2%.
Industrial users of lasers generally demand high-speed, highly durable laser
sources which have reliable output power. These lasers must be easily and
flexibly integrated into the customers' production process. Lasers are used for
four main material processing applications: cutting, drilling, welding and
marking.
Laser Cutting. Laser cutting is fast, flexible and high-precision, as it can be
used to cut complex contours on flat, tubular and three-dimensional materials.
The laser source can be easily programmed by a computerized numerical controller
and is able to process many different kinds of materials such as steel,
aluminum, brass, copper, wood, glass, ceramics and plastics at various
thicknesses. Additionally, laser cutting technology is a non-contact, no-wear
process which is easy to integrate into an automated production line. Principal
markets for laser cutting are the semiconductor, electronics, automotive and
aerospace industries.
Laser Drilling. Lasers drill holes at production rates that are difficult to
achieve using conventional processes. In industrial applications, lasers drill
virtually all types of metals, nonmetals, organic graphite-reinforced
composites, and metal matrix composites. Hole shape and size can be controlled
by the laser system software to produce round, oval or rectangular holes. In
electronics applications, blind micro via drilling is best accomplished with
lasers. These holes measure from 25 to 250 microns and are drilled into printed
circuit boards at a speed of up to 1,800 holes per second. End user applications
for these boards include cellular phones, pagers, base stations, automotive
components and other devices.
Laser welding. Laser welding is non-contact, easy to automate, provides high
process speed and results in narrow-seamed, high quality welds which require
little, if any, post-processing machining. Because there is low heat input into
the material being processed and therefore minimal part damage or distortion,
parts can be accurately machined before welding. Additionally, because laser
welding is non-contact based, the process is not subject to tool wear. As with
lasers used for cutting applications, lasers can be used to weld a wide variety
of materials of different thickness. Principal markets served are electronics,
medical, automotive and aerospace.
Laser marking. With the increasing need for source traceability, component
identification, and product tracking as a means to reduce product liability and
prevent falsification, industrial manufacturers are increasingly demanding
variable code marking systems capable of applying serialized alphanumeric,
graphic or bar code identifications directly onto their manufactured components.
Laser marking offers several advantages which are desirable in industrial
applications. Lasers can mark a wide variety of metal and non-metal (for
example, wood, glass and plastics) surfaces at high speeds without contact by
changing the surface structure of the material or by engraving. Laser marking
systems are reliable, flexible, fast, produce permanent marks and, because they
are computer controlled, may be easily integrated into the customer's production
process. Given that laser marking is contact-free, it does not subject the item
being marked to any mechanical stress.
Principal applications for laser marking have been in the semiconductor and
electronics industries, as well as automotive industry. In the semiconductor and
electronics industries, lasers are used to mark electrical components such as
contactors and relays, and assembled components such as integrated circuits,
printed circuit boards and keyboards. With the increase in marking speed in
recent years, laser marking of integrated circuits has decreased in
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cost, improving the price and performance characteristics of this technology and
therefore increasingly displacing alternative methods such as ink-based marking
installations.
Corporate Strategy
We intend to accelerate growth and increase market share. The key elements of
our strategy include:
. Invest in laser-based technologies, products and capabilities which
position us as one of the leading competitors in markets that offer
strong profitable growth opportunities, specifically semiconductor,
electronics and automotive;
. Concentrate on high value-added systems that have a global market;
. Enhance our capabilities to supply parts on precision optical
components used in dense wavelength division multiplexing for the
fiber optic telecommunications networks;
. Further strengthen our competencies in technology, manufacturing and
distribution; and
. Acquire complementary products and.
Consistent with our strategy, we plan to divest product lines that are no
longer strategic. These actions will allow us to redirect capital to
opportunities in our strategic markets including semiconductor, electronics,
automotive and telecommunications. We are considering alternatives for our
nonstrategic product lines, including a product line that serves the medical
market.
In 2000, we plan to take specific actions to strengthen our position in our
strategic markets:
. Semiconductors. We are developing and plan to introduce, in the second
half of 2000, a new technology platform for memory repair, an
application for our manufacturing systems. We estimate the market for
memory repair systems is between $80 million and $100 million of which
we currently have less than a 15% share.
. Electronics. We plan to enhance our market position in printed circuit
board manufacturing processes, including solder paste inspection, via
drilling and thick film trimming by investing significantly in
research and development. We believe that demand for products such as
telecommunications equipment, cell phones and pagers will drive demand
for our newly developed products.
. Automotive. We believe that new manufacturing techniques in the
automotive industry are well suited to the use of our high power laser
technology. Applications such as welding dissimilar materials, welding
aluminum, cutting hydroformed parts and welding tailored blanks are
gaining acceptance with automotive manufacturers. We are currently
developing the next generation of high power laser systems for
introduction in late 2000 to serve this market.
. Telecommunications. With the recent acceleration in the construction
of fiber optic networks, demand for our precision optic products has
increased significantly. In 1999, we began to enhance our capability
to supply precision optical components used in dense wavelength
division multiplexing for fiber optic telecommunication networks.
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PRODUCTS AND SERVICES
Semiconductor Market
Our laser systems are used in numerous production process steps within the
semiconductor industry, which is characterized by ever increasing demands on
throughput, reduced device size and increased device complexity, performance,
traceability and quality. Semiconductor devices are used in a variety of
products including automotive electronics, consumer products, personal
computers, communications products, appliances and medical instruments.
Laser Trim and Test Systems. These systems enable production of electronic
circuits by precisely tuning the performance of linear and mixed signal devices.
Tuning is accomplished by adjusting various component parameters with selective
laser cuts, while the circuit is under test, thereby achieving the desired
electrical performance. These systems combine material handling, test stimulus,
temperature control and laser trim subsystems to form turnkey production process
packages.
Permanent Marking Systems. We provide products to support the product marking
requirements of the semiconductor industry. WaferMark laser systems are used for
marking of silicon wafers at the front end of the semiconductor process, aiding
process control and device traceability. These systems incorporate advanced
robotics and proprietary process control technology to provide debris free
marking of high-density silicon wafers along automated production lines. We also
supply systems for die marking of wafers. Our automated wafer marking system
supports individual bare die traceability marks. The system incorporates a
tightly coupled vision system for automated wafer identification and mark
alignment on each die. Complete system operation is managed with software for
intuitive process monitoring and automated wafer map downloading through a
single graphical user interface. Additional semiconductor device marking
capabilities, such as in-tray marking of integrated circuits, are supported by
our HM, LM, and LightWriter series of laser marker products.
Memory Repair Systems. Dynamic random access memory chips are critical
components in the active memory portion of computers and a broad range of other
digital electronic products. First-pass manufacturing yields are typically low
at the start of production of a new generation of higher capacity devices. Laser
processing is used to raise production yields to acceptable economic levels. Our
memory repair laser systems allow semiconductor manufacturers to effectively
disconnect defective or redundant circuits in a memory chip with accurately
positioned and power modulated laser pulses. This improves the yield of usable
components per treated wafer, effectively lowering the cost per unit produced.
Electronics Market
Producers of electronic components and assemblies, particularly surface mount
technology assemblies, have a number of our laser systems available to support
their process requirements. Features of these systems include precision laser
spot size, laser power control, high-speed parts handling, and applications
adaptability.
Printed Circuit Board Processing Systems. Our laser systems are used in various
process steps in the production of printed circuit boards and flex circuits. Our
GS series of products, which is capable of drilling micro vias at very high
speeds in every type of material commonly used for printed circuit board
fabrication, supports the miniaturization trend within the industry. Our
ScreenCut systems are used for cutting stencils as an alternative or, in some
cases, a complement to the traditional photochemical machining process.
Surface Mount Measurement Systems. Our surface mount measurement products are
used in the manufacture of printed circuit board assemblies. In the manufacture
process, surface-mount solder, in paste form, is stenciled onto the circuit
board with a screen printer, and components are then placed in their respective
positions on the board by automated equipment. Our systems use our patented
three-dimensional scanning laser data acquisition technology, to inspect either
solder paste depositions or component placement accuracy.
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Thick Film Laser Processing Systems. Our laser systems are used in the
production of thick film resistive components for surface mount technology
electronic circuits, known as chip resistors, as well as more general-purpose
hybrid thick film electronic circuits.
Permanent Marking Systems. We offer a broad line of laser marking systems for
printed circuit boards and other electronic components. These systems place
permanent high-contrast marks in any combination of text, barcodes, or 2D cell
codes on even the highest density circuit boards using an industry standard
interface. We manufacture many other component marking systems which have found
wide acceptance in the electronics market. Among the features offered by these
systems are speed, accuracy, power control, wide field marking and application
specific control software.
Welding Systems. Our laser welding systems produce welds that would be difficult
or impossible for conventional welding systems to produce. The system's low heat
input avoids damage or distortion to surrounding components. In addition, our
proprietary control software promotes reliable laser output and consistent weld
quality. Our laser welding systems, with laser beams deliverable through
flexible fiber optics, are used in the electronics industry for welding micro
components in the manufacture of televisions, computers, hard disk drives and
related applications.
Metrology Systems. Our metrology products are automated, non-contact,
dimensional coordinate measurement systems which provide micron-accurate
measurements of component parts and assemblies for electronics,
telecommunications and computer manufacturers.
Automotive, Aerospace and Other Industrial Markets
We manufacture laser systems for the automotive, aerospace and other industrial
markets for advanced manufacturing applications including cutting, drilling,
welding, scribing and machining. Our laser systems can be controlled and
directed with precision and used in a wide spectrum of applications. Lasers
offer lower production costs, fast solutions and flexibility on the production
line. In addition to lasers, systems may include precision optics, fiber optics,
control software, robotics, machine vision, motion control and parts handling.
Welding, Cutting and Drilling Systems. Our AM Series of high power solid-state
laser systems produce continuous and modulated power with throughput speeds and
power flexibility to achieve cutting and high speed, deep penetration welding in
reflective materials. These systems are often integrated with customers' robotic
systems in various applications, including:
. processing of dissimilar materials such as zinc coated materials and
aluminum in the automotive industry, including welding aluminum,
cutting hydroformed parts and welding tailored blanks;
. processing reflective and difficult materials in the manufacture of
airframes and turbines in the aerospace industry; and
. deep penetration welding for energy and petrochemical applications.
Our JK Series laser systems incorporate advanced solid-state laser technology to
produce efficient, reliable, dependable and accurate production systems. These
systems operate at uniform energy density, offer improved process efficiency and
require less energy. These systems use our patented power supply, allowing a
wide range of applications, including drilling cooling holes in jet engine turbo
fans and welding automotive parts such as ignition components, fuel injector
assemblies and smog detection sensors. They also permit high speed, repetitive
processing which maximizes production rates. Our JK Series can be readily linked
with robotics systems to provide manufacturers with a flexible production tool.
Our Laserdyne systems provide fully integrated motion and laser control on
multi-axis, articulated machines. These systems incorporate proprietary control
software and permit high speed, precision processing of large parts where the
workpiece cannot be in motion during processing. Our Laserdyne systems are used
in the manufacture and
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repair of jet aircraft engines, and the trimming of aerospace and automobile
stampings and other large formed parts. They can also be integrated with
automated guided vehicles and conveyor systems.
Permanent Marking Systems. Our LaserMark and HM systems provide marking
capabilities for automotive, aerospace and other industrial markets.
Optical and Other Components
Telecommunications. We design and manufacture precision optical components used
in dense wavelength division multiplexing technology for increasing the
bandwidth of fiber optic networks. These networks have been used mostly for
`long-haul' inter-city applications and, more recently, over short-range `metro'
applications using optical add drop multiplexing. Our products select, shift or
interleave very precise wavelengths of light, thereby increasing the bandwidth
and efficiency of dense wavelength division multiplexing systems. These products
require highly precise polishing and measurement technology to produce these
components to exacting specifications that are critical to their performance.
Specialty Optical Components. Our specialty optical components are used
primarily for high performance lasers used in lithography, industrial processing
and medical applications.
Scanning Components and Subsystems. We produce optical scanners, scanner
subsystems, and diode-pumped solid state lasers. These are used in a variety of
applications including materials processing, test and measurement, alignment,
inspection, displays, graphics, vision, rapid prototyping, and medical
applications such as dermatology and ophthalmology.
Other Markets and Products
Biotechnology. Our laser-based fluorescence imaging systems address a great
variety of microarray applications including gene expression, genotyping,
mapping, high-throughput screening and drug discovery. The ScanArray biochip
analysis system measures the fluorescent intensity at each DNA grid spot
facilitating, at high speed, the analysis of the expression level of a
particular gene.
Printing Products. We produce a variety of printing products. Thermal printers
are used in end products such as defibrillators, patient care monitors, and
cardiac pacemaker programmers. We also produce specialty printing products.
Film Imaging Systems. We produce laser imaging and digitizing equipment for use
with data sets from computer assisted tomography, magnetic resonance imaging or
nuclear medicine equipment.
Package Coding. Our Xymark systems provide marking for packaging, medical
devices, pharmaceuticals and other consumer products. Depending on the
application, a variety of laser marking techniques, including steered beam, dot
matrix, and flash, are used to apply laser marks on a wide variety of metals,
plastics, paper and ceramics at high speed, without contact or ink. These
systems are reliable, flexible, and adaptable and allow the user to incorporate
off-the-shelf graphics and font software.
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Customers
We have over 1,000 customers, many of whom are among the largest global
participants in their industries. Many of our customers participate in several
market segments. These customers include:
Semiconductor Electronics Automotive Other
- -------------------------------- ----------------------- ----------------------- -----------------------
Anadigics A.T.&S. Audi 3M
Analog Devices Bosch Chrysler AB Dick
Cypress Semiconductor Celestica Ford Bell Helicopter
Dominion Semiconductor Ericsson General Motors Boeing
Flip Chip Semiconductor Hadco Harley Davidson Cardiac Pacemakers
IBM Hewlett Packard Honda Ciba
Intel IBM Magna Corning
Maxim Jabil Circuits Magnetti-Marelli General Electric
Micron Kyocera Pico Industrial Tools Gillette
Mitsubishi Lucent Tower Automotive Glaxo
Motorola Matsushita Toyota Kodak
National Semiconductor Motorola TRW Automotive Lockheed
Powerchip Semiconductor Nippon Denso Medtronic
Samsung Nortel Northrop Grumman
Texas Instruments Philips Pratt & Whitney
Toshiba SDL Rolls Royce
Seagate Vickers
SGS Thomson
Siemens
Toshiba
Vishay
Marketing, Sales and Customer Support
We believe that our marketing, sales and customer support organizations are
important to our long-term growth and give us the ability to respond rapidly to
the needs of our customers. Our product line managers have worldwide
responsibility for determining product strategy based on their knowledge of the
industry, customer requirements and product performance. These managers have
direct contact with customers and, working with the sales and customer service
organizations, develop and implement strategic and tactical plans aimed at
serving the needs of existing customers as well as identifying new opportunities
based on the market's medium-to-long term requirements.
We direct our worldwide advanced manufacturing systems sales activities from
the United States. Sales management for components is based in Massachusetts.
Field offices are located close to key customers to maximize sales and support
effectiveness. In Europe, we maintain offices in the United Kingdom, Germany,
France and Italy, and in the Asia-Pacific region, in Hong Kong, Japan, Korea,
Malaysia, the Philippines, Singapore and Taiwan. Our direct sales organization
is augmented by selected independent distributors and agents who sell our
products in areas such as Eastern Europe, People's Republic of China, Australia
and Latin America.
We provide 24-hour, 365-day-a-year service support to our advanced
manufacturing systems customers. Our service support organization is based in
Livonia, Michigan; Munich; and Hong Kong for the North American, European, and
Asia-Pacific regions, respectively. This support includes field service
personnel who reside close to concentrations of customer sites. These field
service and in-house technical support personnel receive ongoing training with
respect to our laser-based systems, maintenance procedures, laser-operating
techniques and processing technology. Many of our distributors also provide
customer service and support. In order to minimize disruption to
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customers' manufacturing operations, we provide same or next day delivery of
replacement parts worldwide from three regional replacement parts logistics
centers.
Competition
We face substantial competition in several markets from both established
competitors and potential new market entrants. Significant competitive factors
include product functionality, performance, size, flexibility, cost, market
presence, customer satisfaction, customer support capabilities and breadth of
product line. We believe that we compete favorably on the basis of each of these
factors.
Competition for our products is concentrated in certain markets and fragmented
in others. In laser-based processing systems for the semiconductor and
electronics markets, we compete primarily with a few large companies such as
Electro Scientific Industries and NEC. In laser-based marking systems there are
several significant competitors such as Excel Technology and Rofin-Sinar as well
as a large number of smaller companies that compete with us on a limited
geographic, industry-specific or application-specific basis. In automotive and
industrial markets, we compete with Trumpf-Haas, Prima, Robomatix, and Unitek.
In other markets, we compete with CTI, a unit of Excel Technology, in scanning
components and with several companies in optical components.
We also compete with manufacturers of non-laser products in applications such
as welding, drilling, cutting and marking. We believe that, as industries
continue to modernize, seek to reduce production costs and require more precise
and flexible manufacturing, the features of laser-based systems will become more
desirable than systems incorporating conventional manufacturing techniques and
processes.
We expect our competitors to continue to improve the design and performance of
their products. There is a risk that our competitors will develop enhancements
to, or future generations of, competitive products that will offer superior
price or performance features, or that new processes or technologies will emerge
that render our products less competitive or obsolete. Increased competitive
pressure could lead to lower prices for our products, adversely affecting
business.
Manufacturing
We perform internally those manufacturing functions that enable us to maintain
control over critical portions of the production process and outsource other
portions of the production process. This approach has led to changes in our
manufacturing organization as we move attention from the management of internal
production processes to the management of supplier quality and production. The
retained internal activity is focused on module integration and testing with
particular emphasis on our customers' applications. We believe we achieve a
number of competitive advantages from this integration, including the ability to
achieve lower costs and higher quality, bring new products and product
enhancements more quickly and reliably to market, and produce sophisticated
component parts not available from other sources.
We manufacture at eleven facilities: four near Boston, Massachusetts, one each
in Arizona, California, and Minnesota, two near Ottawa, Canada, and two in the
United Kingdom. Each of our manufacturing facilities has co-located
manufacturing, manufacturing engineering, marketing and product design
personnel. We believe that this organizational proximity greatly accelerates
development and entry into production of new products and aids economical
manufacturing. Many of our products are manufactured under ISO 9001
certification.
We are subject to a variety of governmental regulations related to the
discharge or disposal of toxic, volatile, or otherwise hazardous chemicals used
on our premises. We believe we are in material compliance with these regulations
and have obtained all necessary environmental permits to conduct our business.
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Research and Development
We devote significant resources to development programs directed at
creating new products, product enhancements and new applications for existing
products, as well as funding research into formative market opportunities. The
markets we serve are generally characterized by rapid technological change and
product innovation. We believe that continued timely development of new products
and product enhancements to serve both existing and new markets is necessary to
remain competitive.
We carry out our research and development activities in multiple locations
around the world. We also maintain links with leading industrial, government and
university research laboratories worldwide. We work closely with customers and
institutions to develop new or extended applications of our technology.
We maintain significant expertise in the following core technologies:
Lasers: both gas and solid-state, designed to produce efficient, reliable and
accurate laser sources in a broad range of configurations for material
processing applications.
Precision Optics: design and manufacturing process capability for production
of laser quality lenses, mirrors of high dynamic rigidity, high performance
mirrors and lens coatings.
Mechanics: design of large laser-based advanced manufacturing systems and
small precision servo mechanisms and optical scanners, typically associated with
a broad spectrum of laser systems.
Electronics: design of wide bandwidth power amplifiers and high signal-to-noise
ratio and low thermal drift signal detection circuits; design and manufacture of
analog servo controllers with low electromagnetic interference circuitry.
Software: development of real-time control of servomechanisms, process system
control and machine interfaces.
Inspection: design of non-contact measurement probes, systems and related
software.
Systems Design and Integration: leveraging our core technologies to produce
highly efficient and effective application-specific manufacturing solutions
typically based on lasers and their interaction with materials including
integration with robotics systems.
Patents and Intellectual Property
Our intellectual property includes copyrights, patents, proprietary software,
technical know-how and expertise, designs, process techniques and inventions. We
own 85 United States and 52 foreign patents; in addition, applications are
pending for 43 United States and 89 foreign patents. We have also been licensed
under a number of patents in the United States and foreign countries. There can
be no assurance as to the degree of protection offered by these patents or as to
the likelihood that patents will be issued for pending applications.
We also rely on trade secret protection for our confidential and proprietary
information. We routinely enter into confidentiality agreements with our
employees and consultants. There is a risk that these agreements will not
provide meaningful protection of our proprietary information in the event of
misappropriation or disclosure.
11
Human Resources
At December 31, 1999, we had 1,581 employees in the following areas:
Number of
employees Percentage
--------- ----------
Production and operations ....................... 565 36%
Customer service ................................ 204 13%
Sales, marketing and distribution ............... 314 20%
Research and development ........................ 299 19%
Administration .................................. 199 12%
----- -----
Total ........................................ 1,581 100%
===== =====
Other
Information concerning product lines, working capital, research and
development expenses, and seasonality may be found in section seven, Management
Discussion and Analysis. Information about geographic segments may be found in
note 18 to the financial statements.
ITEM 2. PROPERTIES
The principal owned and leased properties of GSI Lumonics and its
subsidiaries are listed in the table below.
APPROXIMATE OWNED/
LOCATION PRINCIPAL USE SQUARE FEET LEASED
- -------- ------------- ----------- ------
Kanata, Ontario, Canada Principal corporate executive offices; 75,000 Owned
Manufacturing, R&D, Marketing, Sales
Nepean, Ontario, Canada Manufacturing, R&D, Marketing, Sales 41,000 Owned
(two sites)
Maple Grove, MN, USA Manufacturing, R&D, Marketing, Sales 104,000 Leased; expires in 2004
Watertown, MA, USA Manufacturing, R&D, Marketing, Sales 84,000 Owned
Billerica, MA, USA Manufacturing, R&D, Marketing, Sales 80,000 Leased; expires in 2008 with two
5-year renewal options
Wilmington, MA, USA Manufacturing, R&D, Marketing, Sales 78,000 Leased; expires in 2007 with two
5-year renewal options
Bedford, MA, USA Manufacturing, R&D, Marketing, Sales 51,000 Leased; expires in 2003 with one
(currently unoccupied) 3-year renewal option
Oxnard, CA, USA Manufacturing, R&D, Marketing, Sales 44,000 Leased; expires in 2004 with
(operations discontinued; 9,000 square option to purchase
feet used for sales and administration)
Simi Valley, CA, USA Manufacturing, R&D, Marketing, Sales 40,000 Owned
Livonia, MI, USA Customer Support and Logistics Center 30,000 Leased; expires in March 2000
Ann Arbor, MI, USA R&D, Marketing, Sales 16,000 Leased; expires in 2001 with two
3-year renewal options
Rugby, England Manufacturing, R&D, Marketing, Sales 113,000 Owned
Hull, England Manufacturing, R&D, Marketing, Sales 35,000 Leased; expires in 2002
Munich, Germany Customer Support and Logistics Center 29,000 Leased; expires in 2013 with
option to renew
Additional sales, service and logistics sites are located in France, Hong
Kong, Italy, Japan, Korea, Malaysia, the Philippines, Singapore, and Taiwan.
These additional marketing and sales offices are in leased facilities occupying
approximately 42,000 square feet in the aggregate. The Company will soon occupy
a 56,000 square foot facility in Farmington Hills, Michigan which will be
subject to a five year lease commitment, and, as a result, will close the
facilities in Ann Arbor, Michigan and Livonia, Michigan.
12
ITEM 3. LEGAL PROCEEDINGS
Electro Scientific Industries, Inc. v. GSI Lumonics, Inc. On March 16, 2000,
Electro Scientific Industries, Inc. filed an action for patent infringement in
the United States District Court for the Central District of California against
us and Dynamic Details Inc., an unrelated party who is one of our customers.
Electro Scientific alleges that we offer to sell, sell and import into the
United States our GS-600 high speed laser drilling system and that Dynamic
Details possesses and uses a GS-600 System. It further alleges that Dynamic
Details' use of our GS-600 laser system infringes on Electro Scientific's U.S.
patent number 5,847,960 and that we have actively induced the infringement of,
and contributorily infringed on the patent. Electro Scientific seeks an
injunction, unspecified damages, trebling of those damages, and attorney fees.
Electro Scientific Industries, Inc. v. General Scanning Inc. In September 1998,
the United States District Court for the Northern District of California granted
Electro Scientific's motions for summary judgment against General Scanning in
this case on a claim of patent 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 our motion for summary judgment that the 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 patents in suit. In April
1999, a federal court jury issued a verdict that Electro Scientific's patent no.
5,473,624 was invalid, and that Electro Scientific's patent no. 5,265,114 was
valid, and awarded a $13.1 million damage judgment against us. In July 1999, the
court refused Electro Scientific's requests to increase damages awarded by the
jury in April, and for attorney fees, but granted interest on the damages. We
have recorded a provision during the three months ended April 2, 1999 of
approximately $19 million to reflect the amount of the damages awarded plus
accrued interest and related costs. The court also affirmed the jury's decision
to invalidate one of the two patents asserted by Electro Scientific in the case.
We have appealed the decisions on infringement, the validity of the second
patent, which was not overturned, and the award of damages. We were required to
post an unsecured bond with the court in order to proceed with the appeal. No
date has been set for arguments.
Robotic Vision Systems, Inc. v. View Engineering, Inc. This action involves a
complaint by Robotic Vision Systems, Inc. alleging infringement of a patent by
View Engineering, Inc., our wholly owned subsidiary. The matter was tried before
a judge sitting in the United States District Court for the Central District of
California in November 1999, and we are currently awaiting the court's decision.
Robotic Vision alleges infringement relating to lead inspection machines
formerly sold by View and seeks damages of $60.5 million. We believe that the
claims in this action are without merit and are vigorously defending the
proceedings.
If we lose on one or more of these claims there could be a material adverse
effect on our operating results and/or financial condition.
GSI Lumonics Inc. v. BioDiscovery, Inc. On December 10, 1999 we filed suit in
the United States District Court for the District of Massachusetts seeking a
declaration that our QuantArray Microarray Analysis Software does not infringe
any copyright owned by BioDiscovery, Inc. or its president. BioDiscovery, Inc.
is a manufacturer of microarray quantification software under the name
ImaGene(R). We had previously distributed ImaGene(R) software under a
non-exclusive arrangement with BioDiscovery, but subsequently developed our own
software when BioDiscovery refused to develop necessary enhancements to stay
abreast of industry trends, especially in the field of multi-channel scanning.
On December 21, 1999, BioDiscovery's president responded to our action for
declaratory judgment by filing a separate suit in the United States District
Court for the Southern District of California, alleging that we reverse
engineered his software, and additionally sued us for copyright infringement. We
have applied to the California court to seek the prompt dismissal of the
California action in favor of our prior pending action. In the matter before the
United States District Court for the District of Massachusetts, the court denied
BioDiscovery's president's motion to dismiss and has scheduled the trial for May
2000. We believe that the claim in this action is without merit.
Potential Claim. In 1994, a party commenced legal proceedings in the United
States against a number of U.S. manufacturing companies, including companies
that have purchased systems from us. The plaintiff has alleged that
13
certain equipment used by these manufacturers infringes patents claimed to be
held by the plaintiff. We are not a defendant in any of the proceedings.
However, several of our customers have notified us that, if the party
successfully pursues infringement claims against them, they may require us to
indemnify them to the extent that any of their losses can be attributed to
systems we sold to them. We do not believe that the outcome of these claims will
have a material adverse effect on us, but there is a risk that these claims, or
similar claims, may have a material adverse effect on our financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Executive Officers of the Registrant
The following table sets forth the names, ages and positions of the current
executive officers of the Company as at March 15, 2000, and the principal
occupations held by each person named for at least the past five years.
Executive officers serve at the pleasure of the Board of Directors.
NAME AGE POSITION WITH GSI LUMONICS
---- --- --------------------------
Charles D. Winston 58 President and Chief Executive Officer
Desmond J. Bradley 43 Vice President, Finance and Chief Financial Officer
Patrick D. Austin 48 Vice President, Sales, Advanced Manufacturing Systems
John W. George 57 Vice President, Customer Support, Advanced Manufacturing Systems
Michael R. Kampfe 50 Vice President, Operations, Advanced Manufacturing Systems
Felix Stukalin 39 Vice President, Components
Linda Palmer 48 Vice President, Human Resources
Kurt A. Pelsue 46 Vice President, Technology
Victor H. Woolley 58 Vice President, Business Development
Charles D. Winston has served as Chief Executive Officer of GSI Lumonics since
March 1999 and as President since November, 1999. He previously served as
President and Chief Executive Officer of General Scanning commencing in
September 1988. Mr. Winston served as a Director of General Scanning from 1989
until the merger.
Desmond J. Bradley has held his current position since October 1994. From
September 1993 until October 1994, Mr. Bradley was Vice President, Finance and
Administration of Lumonics. Prior to September 1993, he was Vice President,
Laser Products Division.
Patrick D. Austin has held his current position since March 1999, and has
served as Vice President, Sales since January 1996. Prior to that time he was
Vice President, Market Development of Lumonics and prior to October 1992 was
Vice President, Laser Marking Division.
John W. George has held his position since March 1999, and has served as Vice
President, Customer Support since January 1997. Prior to that time he was
Director, North American Service.
Michael R. Kampfe assumed his current role in March 1999. From 1996 to 1999,
he was Vice President and General Manager of General Scanning's optical scanning
products division, and from 1990 through 1996 he served as Vice President and
General Manager of General Scanning's laser graphics division. Mr. Kampfe joined
General Scanning in 1984.
14
Felix Stukalin was appointed Vice President, Components in February 2000. He
joined General Scanning in 1994 as Director of Engineering, Components and
assumed the position of General Manager in July 1999.
Linda Palmer assumed her current role in December 1999, having served as the
Vice President of Integration from March 1999 through December 1999. She had
been General Scanning's Vice President of Human Resources since joining General
Scanning in 1996. Prior to that time, Ms. Palmer served as Director of Human
Resources of Analog Devices.
Kurt A. Pelsue assumed his current position in March 1999, having served since
1997 as Vice President, Corporate Engineering for General Scanning. Prior to
that time, Mr. Pelsue held numerous senior level engineering assignments within
General Scanning. He joined the firm in 1976.
Victor H. Woolley assumed his current role in March 1999, having served as
Chief Financial Officer, Treasurer and Clerk of General Scanning since August
1995. From 1986 to 1995, Mr. Woolley was Vice President and Chief Financial
Officer of Sepracor Inc., a drug development company.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
GSI Lumonics common stock, no par value, trades on The Nasdaq Stock Market(R)
under the symbol GSLI and on The Toronto Stock Exchange (the "TSE") under the
symbol LSI. Prior to the merger, Lumonics' common stock was traded on The
Toronto Stock Exchange under the symbol LUM beginning September 29, 1995. From
May 1989 to September 28, 1995 the Company's Common Stock was not publicly
traded.
The following table sets forth, for the periods indicated, the high and low
prices per share of the common stock as reported by Nasdaq in U.S. dollars and
the TSE in Canadian dollars.
NASDAQ TORONTO STOCK EXCHANGE
PRICE RANGE PRICE RANGE
US$ CDN$
HIGH LOW HIGH LOW
---- --- ---- ---
Fiscal year 1999:
First Quarter ............ $ 6.813 $ 4.500 $ 10.50 $ 6.75
Second Quarter ........... 4.750 3.250 7.00 5.00
Third Quarter ............ 6.875 4.063 10.25 5.95
Fourth Quarter ........... 11.250 4.188 16.20 7.60
Fiscal year 1998:
First Quarter ............ -- -- $ 27.00 $ 21.50
Second Quarter ........... -- -- 23.00 11.80
Third Quarter ............ -- -- 13.75 7.55
Fourth Quarter ........... -- -- 8.75 6.75
Currency Prices
The following table sets forth in Canadian dollars the exchange rates of the
Canadian dollar to the United States dollar, determined based upon publicly
available information from the Federal Reserve Bank of New York for the calendar
years 1999 and 1998. For example, on December 31, 1998, one US dollar bought
1.5375 Canadian dollars.
1999 1998
-------------- ---------------
High ....................................... Cdn$1.5302 Cdn$1.5770
Low......................................... 1.4440 1.4075
End of Period............................... 1.4440 1.5375
Average (1)................................. 1.4827 1.4898
(1) The average of the exchange rate on the last business day of each month
during the applicable period.
Holders
On February 29, 2000, there were approximately 149 holders of record of Common
Stock. Since many of the shares of Common Stock are registered in "nominee" or
"street" name, the Company estimates that the total number of beneficial owners
is considerably higher.
16
Dividends
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to reinvest its earnings for use in the business and does not
expect to pay cash dividends in the foreseeable future. Subject to the
provisions of the Canada-US Income Tax Convention (the "Convention"), Canadian
withholding tax at a rate of 25% will be payable on dividends paid or credited,
or deemed to be paid or credited, by GSI Lumonics to a US holder on GSI Lumonics
common shares. Under the Convention, the withholding tax rate is generally
reduced to 15%, or if the US holder is a corporation that owns 10% or more of
GSI Lumonics voting stock, to 5%.
17
ITEM 6. SELECTED FINANCIAL DATA
This section presents our selected historical consolidated financial data. You
should read carefully the consolidated financial statements included in this
report, including the notes to the consolidated financial statements. The
selected consolidated data in this section is not intended to replace the
consolidated financial statements.
We derived the consolidated statement of operations data for the years ended
December 31, 1999, December 31, 1998 and December 31, 1997 and the consolidated
balance sheet data as of December 31, 1999 and December 31, 1998 from the
audited consolidated financial statements in this report. Those consolidated
financial statements were audited by Ernst & Young LLP, our independent
auditors. We derived the consolidated statement of operations data for the years
ended December 31, 1996 and December 31, 1995 and consolidated balance sheet
data as of December 31, 1996 and December 31, 1995 from audited consolidated
financial statements that are not included in this report.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals.
We recorded this transaction as a purchase for accounting purposes. Accordingly,
the consolidated financial statements exclude the results of General Scanning
before the merger date and therefore do not provide meaningful year-to-year
comparative information. Note 2 to the consolidated financial statements
includes, for illustrative purposes, unaudited pro forma information as if the
merger had occurred January 1, 1998. Results for 1999 reflect $34.5 million of
restructuring and acquired in-process research and development expenses related
to the merger.
Years ended December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- ---------
(in thousands except per share amounts)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales ................................................................. $ 274,550 $ 144,192 $177,328 $153,367 $ 125,268
Gross profit .......................................................... 95,777 40,673 65,922 60,999 48,031
Operating expenses:
Research and development ............................................. 28,700 12,985 11,993 11,872 7,068
Selling, general and administrative .................................. 64,653 38,191 37,591 32,999 28,385
Amortization of technology and other intangibles ..................... 4,070 861 400 381 384
Acquired in-process research and development ......................... 14,830 -- -- -- --
Restructuring and other charges ...................................... 19,631 2,022 -- -- --
Foreign exchange, interest and gain on sales of assets ............... (1,223) 2,210 1,048 634 (854)
--------- --------- -------- -------- ---------
Income (loss) before income taxes ..................................... (37,330) (11,176) 16,986 16,381 11,340
Income tax provision (benefit) ........................................ (2,556) (3,260) 5,074 4,635 3,304
--------- --------- -------- -------- ---------
Net income (loss) for the year ........................................ $ (34,774) $ (7,916) $ 11,912 $ 11,746 $ 8,036
========= ========= ======== ======== =========
Net income (loss) per common share:
Basic ................................................................ $ (1.14) $ (0.46) $ 0.75 $ 0.83 $ 0.70
Diluted .............................................................. $ (1.14) $ (0.46) $ 0.72 $ 0.78 $ 0.65
========= ========= ======== ======== =========
Weighted average common shares outstanding ............................ 30,442 17,079 15,989 14,077 11,521
Weighted average common shares outstanding and dilutive potential
Common shares ........................................................ 30,442 17,079 16,454 15,079 12,457
December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- ---------
(in thousands)
BALANCE SHEET DATA:
Working capital ....................................................... $ 103,727 $ 85,977 $110,895 $ 71,981 $ 58,087
Total assets .......................................................... 289,722 159,642 189,180 135,602 122,802
Long-term liabilities, including current portion ...................... 10,022 7,082 9,239 13,820 19,367
Total shareholders' equity ............................................ 171,730 120,757 133,623 88,345 69,442
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read this discussion together with the consolidated financial
statements and other financial information included in this report. This report
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those indicated in the forward-looking
statements. Please see the "Special Note Regarding Forward-Looking Statements"
elsewhere in this report.
Overview
We design, develop, manufacture and market laser-based advanced manufacturing
systems and components for a wide range of applications, including cutting,
welding, drilling, marking, micro-machining, inspection, and optical detection
and transmission. Markets for these products include the semiconductor,
electronics, automotive, medical/biotechnology and telecommunications
industries. In addition, we sell to other markets such as the aerospace and
packaging industries. Our systems sales depend on our customers' capital
expenditures which are affected by business cycles in the markets they serve.
Results of Operations for Fiscal Years Ended December 31, 1999, 1998 and 1997
The following table sets forth items in the consolidated statement of operations
as a percentage of sales for the periods indicated:
Year ended December 31,
-------------------------------------
1999 1998 1997
------------ ----------- ----------
Sales............................................... 100.0% 100.0% 100.0%
Cost of goods sold.................................. 65.1 71.8 62.8
Gross profit........................................ 34.9 28.2 37.2
Research and development............................ 10.5 9.0 6.8
Selling, general and administrative................. 23.5 26.5 21.2
Amortization of technology and other intangibles.... 1.5 0.6 0.2
Acquired in-process research and development........ 5.4 -- --
Restructuring and other changes..................... 7.2 1.4 --
------ ----- -----
Income (loss) from operations....................... (13.2) (9.3) 9.0
Interest income, net................................ -- 1.1 0.6
Gain on sale of assets.............................. 0.6 -- --
Foreign exchange translation gains (losses)......... (1.0) 0.4 --
------ ----- -----
Income (loss) before income taxes................... (13.6) (7.8) 9.6
Income tax provision (benefit)...................... (0.9) (2.3) 2.9
------ ----- -----
Net income (loss)................................... (12.7)% (5.5)% 6.7%
====== ===== =====
19
The following table sets forth sales in millions of dollars to our primary
markets for 1999, 1998 and 1997.
1999 1998 1997
-------------------------------- --------------------------------- ------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
% OF OVER % OF OVER % OF
SALES TOTAL PRIOR YEAR SALES TOTAL PRIOR YEAR SALES TOTAL
----- ----- ---------- ----- ----- ---------- ----- -----
Semiconductor............. $ 34.5 13% 146% $ 14.0 10% (63)% $ 38.1 21%
Electronics............... 67.9 25 120 30.8 21 11 27.7 16
Automotive................ 12.0 5 (12) 13.6 9 (27) 18.7 11
Aerospace................. 15.0 5 15 13.1 9 (26) 17.7 10
Packaging................. 11.9 4 (12) 13.5 9 (1) 13.7 8
Components................ 33.4 12 351 7.4 5 28 5.8 3
Medical/Biotechnology..... 50.3 18 1,098 4.2 3 20 3.5 2
Emerging.................. 10.3 4 (32) 15.1 11 (13) 17.3 10
Parts and service......... 39.3 14 21 32.5 23 (7) 34.8 19
------ --- ----- ------ --- ---- ------ ---
Total..................... $274.6 100% 90% $144.2 100% (19)% $177.3 100%
====== === ===== ====== === ==== ====== ===
Sales by Market. Our results of operations are affected by external factors that
impact the markets in which we compete. Sales to Japan and the Asia-Pacific
region were impacted by the financial crisis that occurred there in the fall of
1997 and the effects which extended into 1999. Japan suffered a recession during
the same period, brought about partly by the financial crisis. The semiconductor
equipment business was in a recession from mid-1998 through the first quarter of
1999.
In 1999, sales increased by 90% due primarily to the merger and improved
market conditions in the second half of the year in some of our markets. Product
prices in some of our markets faced increased competitive pressures during 1999,
particularly in the first half of the year, and had a negative effect on
reported gross profit. Sales in 1998 declined 19% overall due to a sharp decline
in the semiconductor market as well as declines of 26% in the automotive market
and 27% in the aerospace market.
The increase in sales during 1999 to the semiconductor industry was due
primarily to the merger between Lumonics and General Scanning. The decline
experienced in the semiconductor market during 1997 continued through 1998 and
into 1999. Excess capacity in semiconductor fabrication plants worldwide
resulted in a 63% decline in 1998 semiconductor sales relative to 1997. The
semiconductor market is cyclical, and the downturn in the industry slowed demand
for our products through this period. The semiconductor equipment market,
however, has been on a slow recovery as reflected in quarterly improvements in
sales during 1999.
Sales to the electronics market grew in each quarter in 1999. This increase
was due primarily to the success of the new GS-600 systems for drilling micro
vias, or precise holes, and increased demand for trim and test systems. During
1998, sales to the electronics market increased by 11% over 1997, as a result
primarily of increased demand for systems from the printed circuit board
industry, particularly the GS-600.
During 1999, sales to the automotive market declined 12% following a decline
of 27% in 1998, each due to lower capital spending by automotive companies.
The increased sales to the aerospace market in 1999 were due primarily to the
merger. Sales to the aerospace market declined by 26% during 1998, due primarily
to a decreased demand for systems from the aerospace sector in North America. In
addition, sales in 1997 were unusually high because we delivered a $3.5 million
order representing the largest advanced laser-based systems we have ever built.
Packaging market sales declined in 1999 by 12% compared to 1998. Sales in this
market sector were not affected significantly by the merger. Packaging market
sales were essentially flat during 1998 compared to 1997.
Component sales increased in 1999 due primarily to the merger. Sales to the
medical and biotechnology markets increased in 1999 due primarily to the merger
and the increased market acceptance of ScanArray systems.
20
Sales of systems to our emerging product markets declined in 1999 due to a
decline in consumer products sales and a further decline in sales to the nuclear
energy industry. During 1998, in aggregate dollars, sales to the emerging
products component and medical and biotechnology markets were essentially flat.
Parts and service full year sales increased 21% for 1999, with about half of
the increase due to the merger. The remaining increase reflects customers'
increased utilization of existing installed systems, as well as the improvement
of parts and service support for the former General Scanning systems. Largely as
a result of the slowdown in the semiconductor market in 1998, parts and service
revenues declined by 7% relative to the previous year.
Sales by Region. We distribute our systems and services via our global sales
and service network and through third-party distributors and agents. Our sales
territories are divided into the following regions: the United States; Canada;
Latin and South America; Europe, consisting of Europe, the Middle East and
Africa; Japan; and Asia-Pacific, consisting of ASEAN countries, China and other
Asia-Pacific countries. The table below shows sales in millions of dollars to
each geographic region for 1999, 1998 and 1997.
1999 1998 1997
-------------------------------- --------------------------------- ------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
% OF OVER % OF OVER % OF
SALES TOTAL PRIOR YEAR SALES TOTAL PRIOR YEAR SALES TOTAL
----- ----- ---------- ----- ----- ---------- ----- -----
United States............... $143.0 52% 133% $ 61.3 42% (33)% $ 91.8 52%
Canada...................... 10.8 4 30 8.3 6 (14) 9.7 6
Latin and South America..... 1.6 -- 167 0.6 -- (63) 1.6 1
Europe...................... 65.3 24 62 40.4 28 21 33.4 19
Japan....................... 32.6 12 104 16.0 11 (19) 19.8 11
Asia-Pacific................ 21.3 8 21 17.6 13 (16) 21.0 11
------ --- --- ------ --- ---- ------ ---
Total..................... $274.6 100% 90% $144.2 100% (19)% $177.3 100%
====== === === ====== === ==== ====== ===
Sales increases in 1999 in all regions were due primarily to the merger.
Economic conditions in Japan have depressed our sales in that country during
the past few years. Before the merger, the Japanese market was served primarily
by our largest distributor and significant shareholder, Sumitomo Heavy
Industries, Ltd., which accounted for $11.7 million of 1999 sales, $15.5 million
of 1998 sales and $18.9 million of 1997 sales. In October 1999, we purchased
part of this distribution business from Sumitomo to broaden our direct sales and
service in Japan.
Backlog. We define backlog as unconditional purchase orders or other
contractual agreements for products for which customers have requested delivery
within the next twelve months. Backlog was approximately $83 million on December
31, 1999 compared to $29 million on 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.
Gross Profit Margin. Gross profit margin was 34.9% in 1999, 28.2% in 1998 and
37.2% in 1997. Gross profit margin in 1999 was affected by increased sales of
higher margin products, varying levels of capacity utilization at our
manufacturing plants and warranty settlements on large custom systems and
printers. Gross profit margin in 1998 was lower due to declines in sales of
higher margin products, lower capacity utilization, cost overruns on large and
custom systems and costs associated with consolidating facilities.
Research and Development Expenses. Research and development expenses, net of
government assistance, for 1999 were 10.5% of sales or $28.7 million (excluding
the $14.8 million merger related in-process research and development charge),
compared with 9.0% of sales or $13.0 million in 1998 and 6.8% of sales or $12.0
million in 1997. The increase in 1999 was due primarily to the merger. During
1999, research and development activities focused on products targeted at the
electronics, semiconductor, biotechnology, aerospace and automotive markets.
During 1998, research and development activities focused on products targeted at
the aerospace and electronics markets.
21
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 23.5% of sales in 1999 due primarily to
operating efficiencies realized from the merger and increased sales. In 1998, in
dollar terms, selling, general and administrative expenses were essentially the
same as 1997.
Amortization of Technology and Other Intangibles. Amortization of technology
and other intangibles increased to 1.5% of sales or $4.1 million in 1999 as a
result of amortizing intangible assets acquired in the merger.
Restructuring and Other Charges. During 1999, we took a charge of $19.6
million to accrue for employee severance, leased facility and related costs
associated with the closure of our plant in Oxnard, California and other
facilities worldwide. These costs resulted from restructuring and integration of
operations following the merger. The Oxnard manufacturing operation shutdown was
completed during December 1999. Other integration activities included incurring
exit costs for some product lines, reducing redundant resources worldwide, and
abandoning redundant sales and service facilities. The remaining accrual is
$10.1 million at December 31, 1999. During 1998, we took a restructuring charge
of $2.0 million for severance costs associated with a downsizing of our global
workforce.
Acquired In-Process Research and Development Costs. During 1999, we wrote
off $14.8 million of in-process research and development costs acquired in the
merger.
Interest Income. Net interest income was $0.1 million in 1999 compared with
$1.6 million or 1.1% of sales in 1998 and $1.0 million or 0.6% in 1997. The
decrease in net interest income in 1999 was due to higher average debt balances
and lower average cash and investments balances compared to 1998. The increase
in 1998 was a result of interest accrued for a full year on the investment of
proceeds received from the public issuance of two million shares in May 1997,
which raised $35.7 million.
Income Taxes. The effective rate of recovery for taxes for 1999 was 6.8% of
income before taxes, compared with an effective rate of recovery of 29.2% for
1998. In 1997, we had an effective tax rate of 29.9%. Our recovery rate in 1999
reflects the non-deductibility for tax purposes of acquired in-process research
and development costs arising from the merger and the non-recognition of the tax
benefit from losses in certain countries where future use of the losses is
uncertain. Our 29.2% recovery rate in 1998 derives primarily from our ability to
carry back current losses against prior year profits to recover taxes paid in
prior years. In addition, our annual effective tax rate is generally less than
the Canadian statutory tax rate as tax rates in many of the countries where we
operate are lower than the Canadian statutory rate.
Net Income (Loss). The net loss during 1999 was $34.8 million compared with a
net loss of $7.9 million in 1998 and a net income of $11.9 million in 1997. The
net loss during 1999 was due primarily to one-time restructuring and acquired
in-process research and development charges related to the merger offset in part
by improved operating margins. The net loss in 1998 was due primarily to
decreased sales volumes, gross margin erosion and downsizing activities.
22
Quarterly Results of Operations
The following tables present unaudited quarterly data for the quarters ended
December 31, 1999, October 1, 1999, July 2, 1999 and April 2, 1999. We believe
this information is helpful in isolating ongoing trends in our business from the
effects of the merger. This information has been presented on the same basis as
the audited consolidated financial statements appearing elsewhere in this
report. Revenues from operations for any quarter are not necessarily indicative
of the results to be expected for the entire fiscal year or for any future
period.
Our quarterly operating results are subject to fluctuation due to a variety of
factors, some of which are outside of our control. Accordingly, you should not
rely on our results for any past quarter as an indication of future performance.
Generally, our sales are higher in the second and fourth quarters of the year.
This table reflects all adjustments, consisting only of all normal recurring
accruals, necessary in the view of management to fairly present results of
operations.
Three months ended
----------------------------------------------------
December 31, October 1, July 2, April 2,
1999 1999 1999 1999
------- ------- -------- --------
(In thousands except per share amounts)
QUARTERLY STATEMENT OF OPERATIONS DATA:
Sales .................................................. $88,667 $78,041 $ 69,248 $ 38,594
Gross profit ........................................... 34,394 30,488 23,376 7,519
Operating expenses:
Research and development .............................. 8,676 8,104 8,584 3,336
Selling, general and administrative ................... 17,931 17,704 18,521 10,497
Amortization of technology and other intangibles ...... 1,251 1,251 1,251 317
Acquired in-process research and development .......... -- -- -- 14,830
Restructuring and other charges ....................... -- -- -- 19,631
Foreign exchange, interest and gain on sale of assets . 182 512 (64) 593
------- ------- -------- --------
Income (loss) before income taxes ...................... 6,354 2,917 (4,916) (41,685)
Income taxes provision (benefit) ....................... 2,115 874 (1,174) (4,371)
------- ------- -------- --------
Net income (loss) ...................................... $ 4,239 $ 2,043 $ (3,742) $(37,314)
======= ======= ======== ========
Net income (loss) per common share:
Basic ................................................. $ 0.12 $ 0.06 $ (0.11) $ (1.94)
Diluted ............................................... $ 0.12 $ 0.06 $ (0.11) $ (1.94)
======= ======= ======== ========
Weighted average common shares outstanding ............. 34,222 34,173 34,167 19,204
Weighted average common shares outstanding and
dilutive potential common shares ....................... 35,755 35,085 34,167 19,204
(1) Includes General Scanning from March 22, 1999, the date of the merger of
General Scanning and Lumonics.
23
Three months ended
------------------------------------------------
December 31, October 1, July 2, April 2,
1999 1999 1999 1999
----- ----- ----- -----
(millions)
QUARTERLY REVENUES BY MARKET:
Semiconductor .............. $12.5 $ 9.3 $ 9.0 $ 3.7
Electronics ................ 26.1 16.1 15.7 10.0
Automotive ................. 4.9 3.4 2.1 1.6
Aerospace .................. 1.4 5.7 6.0 1.9
Packaging .................. 2.3 4.0 2.4 3.2
Components ................. 10.3 11.5 7.9 3.7
Medical/Biotechnology ...... 17.9 14.6 14.6 3.2
Emerging ................... 1.5 3.3 2.8 2.7
Parts and services ......... 11.8 10.1 8.8 8.6
----- ----- ----- -----
Total .................. $88.7 $78.0 $69.3 $38.6
===== ===== ===== =====
- ------------------
(1) Includes General Scanning from March 22, 1999, the date of the merger of
General Scanning and Lumonics.
Beginning in 1999, financial conditions in Japan and the Asia-Pacific region
began to improve. During the first half of 1999, the semiconductor equipment
industry emerged from a recession. Activity increased in the front end of the
fabrication process resulting in an increase in orders for wafer marking. In the
second half of the year, activity increased in the back end of the fabrication
process resulting in increased sales of laser markers. Electronic equipment
demand was stirred by consumer demand for cellular phones. Late in the fall,
activity increased in the auto industry as shown by a $12 million order we
received from Tower Automotive to be delivered during 2000.
Our sales were $88.7 million in the fourth quarter of 1999 compared to $78.0
million in the third quarter of 1999, an increase of 14%. The increase in sales
quarter to quarter was due primarily to increased levels of orders and revenues
from the semiconductor and electronics market. For the three months ended
December 31, 1999, sales to these two markets totaled $38.6 million, compared to
$25.4 million for the three months ended October 1, 1999.
Sales in the third quarter of 1999 were $78.0 million compared to $69.3 in the
second quarter of 1999, an increase of 13%. The increase in sales quarter to
quarter was due primarily to increased orders from the components market. For
the three months ended October 1, 1999, sales to the components markets totaled
$11.5 million compared to $7.9 million for the three months ended July 2, 1999.
Sales in the second quarter of 1999 were $69.3 million compared to $38.6
million in the first quarter of 1999, an increase of 80%. The increase in sales
quarter to quarter was due primarily to the merger.
Gross profit margins were 38.8% in the fourth quarter of 1999, 39.1% in the
third quarter, 33.8% in the second quarter and 19.5% in the first quarter. The
gross profit margin in the fourth quarter reflected increased warranty expense
accrued related to emerging market products. This factor outweighed the benefits
from improved product mix and higher capacity utilization. Third quarter gross
profit margin increased, benefiting from a more favorable product mix, volume
leverage and consolidation of manufacturing operations. Second quarter gross
profit margin reflected the first full quarter of combined General Scanning and
Lumonics results and the favorable mix of relatively high margin systems from
General Scanning's product line. Gross profit margin in the first quarter
reflected reduced sales volumes, pricing pressures, inventory provisions and an
unfavorable product mix, related primarily to our operations prior to the merger
in March 1999.
Liquidity and Capital Resources
Cash and cash equivalents totaled $25.3 million at December 31, 1999 compared
to $24.2 million at December 31, 1998 and $56.8 million at December 31, 1997.
During 1999, we used $4.4 million in operating activities. The net loss, after
adjustment for non-cash items, resulted in the use of cash of $6.7 million in
1999. Accounts receivable used a further $14.4 million, which was
24
more than offset by inventories, other current assets and current liabilities
providing $16.7 million. In 1998 we used $6.9 million to fund operations. In
1998, the net loss of $7.9 million, after adjustment for non-cash items,
resulted in the use of cash of $3.3 million in 1998. Accounts receivable
provided $14.4 million in cash during the year, offset by an $8.3 million
increase in inventory and a reduction of $6.4 million in accounts payable and
other current liabilities. During 1997, a net $5.3 million was used in operating
activities, including $21.0 million in non-cash working capital, consisting
mainly of an increase in accounts receivable from shipments late in the fourth
quarter.
In 1999, we used $0.9 million in investing activities, including $7.3 million
of purchases and $8.2 million of maturities of short-term investments. During
the year, we generated $3.9 million from the sale of business assets and
invested $6.2 million in property, plant and equipment. At the date of merger,
General Scanning added $4.7 million in cash and cash equivalents, offset by
merger costs of $3.3 million. The acquisition of the Sumitomo distribution
business added $0.1 million in cash, offset by $0.4 million cash to acquire the
company.
In 1998, we used a total of $11.3 million in cash in investing activities.
These activities included $43.5 million of purchases of short-term investments,
$47.1 million of maturities of short-term investments, $13.6 million in capital
expenditures and $1.2 million to acquire Meteor Optics Inc. Capital expenditures
in 1998 included $6.3 million to complete the expansion of manufacturing
facilities in Rugby, England that began in 1997 and approximately $1.5 million
to purchase and equip a second optics facility in Nepean, Canada. Cash flows
used in investing activities totaled $9.3 million in 1997, including $80.2
million of purchases of short-term investments, $79.4 million of maturities of
short term investments, and $8.7 million in capital expenditures. Capital
expenditures included $4.2 million of costs incurred in the expansion and
modernization of the facility in Rugby, England and $4.5 million invested in
machinery and equipment at other locations.
Cash flow provided by financing activities was $5.4 million for the year ended
December 31, 1999 compared to cash used in financing activities of $10.6 million
in 1998 and $42.8 million provided by financing activities in 1997. The increase
in cash in 1999 relates primarily to a $7.5 million increase in bank
indebtedness less $2.6 million of payments of long-term debt. Changes during
1998 were due primarily to $7.9 million reduction in bank indebtedness, $2.3
million used to repay long-term debt and $0.6 million used to repurchase and
cancel 94,900 common shares. Changes during 1997 were due primarily to $7.7
million increase in bank indebtedness, $2.5 million used to repay long-term
debt, $35.7 million raised through a public offering of 2 million common shares
and $1.9 million raised from the exercise of stock options.
Term loans from Sumitomo made in 1990 and 1991 are repayable in 10 equal
semi-annual installments, which commenced in April 1996. We made two payments in
1999 totaling $2.6 million and two payments in 1998 totaling $2.3 million. At
December 31, 1999, Sumitomo debt, which is due in 2000, was $3.9 million. In
addition, we have a loan balance of $1.5 million, also due in 2000, under a
mortgage on property in California.
We have credit facilities of approximately $40 million denominated in Canadian
dollars, U.S. dollars, British pounds and Japanese yen (1998--$20 million).
Actual bank indebtedness is due on demand and bears interest based on prime
which resulted in an effective average rate of 4.98% in 1999 (1998--7%). As at
December 31, 1999, we had unused and available demand lines of credit amounting
to approximately $19 million (1998--$9 million).
Accounts receivable and inventories have been pledged as collateral for the
bank indebtedness under general security agreements. The borrowings require us
to maintain specified financial ratios and conditions. We are currently in
compliance with those ratios and conditions.
We believe that existing cash balances, together with cash generated from
operations and available bank lines of credit, will be sufficient to satisfy
anticipated cash needs to fund working capital and investments in facilities and
equipment for the next two years.
Currency Exchange Matters
We have substantial sales and expenses in currencies other than U.S. dollars.
As a result we have exposure to foreign exchange fluctuations, which may be
material.
25
Update On Year 2000 Compliance
We have not experienced material problems related to the Year 2000. We are not
aware of customers having related problems with system products manufactured by
us. We are also not aware of any significant problems in receiving payments on
customer receivables due to Year 2000 problems. In addition, we are not aware of
any significant vendor performance issues due to Year 2000 problems identified.
We have not experienced significant internal operations problems related to Year
2000. We intend to maintain efforts to identify possible problems related to
Year 2000 with internal systems, customers and vendors.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our exposure to market risk associated with changes in
interest rates relates primarily to our debt obligations and short-term
investments. We do not use derivative financial instruments in our investment
portfolio. We do not actively trade derivative financial instruments but may use
them to manage interest rate positions associated with our debt instruments. We
currently have three such contracts outstanding, two of which convert yen
denominated interest on long term debt into U.S. dollar denominated interest and
one contract which converts yen denominated interest on long term debt into
Canadian dollar denominated interest.
Credit Risk. There is no concentration of credit risk related to our position in
trade accounts receivable other than the amount due from Sumitomo. Credit risk,
with respect to trade receivables, is minimized because of the diversification
of our operations, as well as our large customer base and its geographical
dispersion. We are exposed to credit-related losses with respect to the positive
fair value of our swap contracts described below in the event of non-performance
by the two banks acting as counterparties to the swap contracts. We do not
expect either counterparty to fail to meet its obligations.
Foreign Currency Risk. We have a foreign currency hedging program using currency
forwards and currency options to hedge exposure to foreign currencies. The goal
of the hedging program is to manage risk associated with fluctuations in the
value of the foreign currency. We do not currently use currency forwards or
currency options for trading purposes. We currently have three such contracts
outstanding, two of which convert yen denominated obligations into U.S. dollar
obligations and one contract which converts yen denominated obligations into
Canadian dollar obligations.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GSI LUMONICS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AUDITORS' REPORT................................................. 28
CONSOLIDATED BALANCE SHEETS...................................... 29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.................. 30
CONSOLIDATED STATEMENTS OF OPERATIONS............................ 31
CONSOLIDATED STATEMENTS OF CASH FLOWS............................ 32
Notes to Consolidated Financial Statements....................... 33
27
AUDITORS' REPORT
To the Stockholders of
GSI Lumonics Inc.
We have audited the consolidated balance sheets of GSI Lumonics Inc. as of
December 31, 1999 and 1998 and the consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. Our audits also included the financial statement
schedule listed at Item 14 of this Form 10-K Annual Report. These financial
statements and the schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and Canada. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1999 in accordance with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
On February 11, 2000, we reported without reservation to the stockholders on
the Company's consolidated financial statements prepared in accordance with
accounting principles generally accepted in Canada.
Ernst & Young LLP
Chartered Accountants
Ottawa, Canada,
February 11, 2000
(except with respect
to note 19, which is
as at March 17, 2000)
28
GSI LUMONICS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
AS OF DECEMBER 31,
-------------------------
1999 1998
--------- ---------
ASSETS
------
Current
Cash and cash equivalents .................................................... $ 25,272 $ 24,229
Short-term investments (note 15) ............................................. 7,342 8,098
Accounts receivable, less allowance of $3,197 (1998-$311)(notes 3 and 7) ..... 80,448 31,673
Due from related party (note 14) ............................................. 3,235 3,844
Inventories (notes 4 and 7) .................................................. 72,727 44,096
Deferred tax assets (note 13) ................................................ 24,473 3,214
Other current assets (note 6) ................................................ 2,338 5,091
Current portion of swap contracts (note 15) ................................. 1,411 1,076
--------- ---------
Total current assets ...................................................... 217,246 121,321
Property, plant and equipment, net of accumulated depreciation of $28,024 (1998 45,278 32,209
- $24,299) (note 5) ..........................................................
Long-term portion of swap contracts (note 15) ................................. -- 1,076
Other assets (note 6) ......................................................... 3,851 964
Goodwill and other intangible assets, net of amortization of $8,689 (1998 -
2,953) ....................................................................... 23,347 4,072
--------- ---------
$ 289,722 $ 159,642
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current
Bank indebtedness (note 7) ................................................... $ 23,100 $ 7,261
Accounts payable ............................................................. 28,094 5,605
Accrued compensation and benefits ............................................ 13,709 3,456
Other accrued expenses and income taxes ...................................... 43,067 15,481
Current portion of deferred compensation (note 9) ............................ 124 --
Current portion of long-term debt (note 8) ................................... 5,425 3,541
--------- ---------
Total current liabilities .................................................. 113,519 35,344
-- 3,541
Long-term debt due after one year (note 8) ....................................
Deferred income tax liability (note 13) ....................................... 2,397 --
Deferred compensation, less current portion (note 9) .......................... 2,076 --
--------- ---------
Total liabilities .......................................................... 117,992 38,885
Commitments and contingencies (note 17)
Stockholders' equity (note 10)
Capital stock, no par value; Issued common shares of 34,298,942 ............ 222,865 138,871
(1998 - 17,056,001)
Deficit ...................................................................... (44,225) (9,451)
Accumulated other comprehensive income ....................................... (6,910) (8,663)
--------- ---------
Total stockholders' equity ............................................... 171,730 120,757
--------- ---------
$ 289,722 $ 159,642
========= =========
The accompanying notes are an integral part of these financial statements
29
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
Accumulated
Capital Stock Other
------------------------ Comprehensive Comprehensive
# Shares Amount Deficit Income Income Total
------- --------- --------- -------- -------- ---------
(000's)
BALANCE, DECEMBER 31, 1996 ............... 14,714 $ 101,619 $ (13,360) $ 86 $ 14,138 $ 88,345
=========
Net income ............................... 11,912 11,912 11,912
Issuance of capital stock
--public offering (net of issue costs) . 2,000 35,658 35,658
--stock options ........................ 387 1,901 1,901
Foreign currency translation adjustments . (4,193) (4,193) (4,193)
------- --------- --------- -------- -------- ---------
BALANCE, DECEMBER 31, 1997 ............... 17,101 139,178 (1,448) (4,107) $ 7,719 133,623
========
Net loss ................................. (7,916) (7,916) (7,916)
Issuance of capital stock
--stock options ......................... 50 233 233
Repurchase of capital stock under
normal course issuer bid .............. (95) (540) (87) (627)
Foreign currency translation adjustments . (4,556) (4,556) (4,556)
------- --------- --------- -------- -------- ---------
BALANCE, DECEMBER 31, 1998 ............... 17,056 138,871 (9,451) (8,663) $(12,472) 120,757
========
Net loss ................................. (34,774) (34,774) (34,774)
Issuance of capital stock ................ 17,079 83,528 83,528
--merger with General Scanning Inc. .....
--stock options ......................... 164 466 466
Foreign currency translation adjustments . 1,753 1,753 1,753
------- --------- --------- -------- -------- ---------
BALANCE, DECEMBER 31, 1999 ............... 34,299 $ 222,865 $ (44,225) $ (6,910) $(33,021) $ 171,730
======= ========= ========= ======== ======== =========
The accompanying notes are an integral part of these financial statements
30
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
Year ended December 31,
----------------------------------------
1999 1998 1997
--------- --------- --------
(note 2)
Sales ...................................................... $ 274,550 $ 144,192 $177,328
Cost of goods sold ......................................... 178,773 103,519 111,406
--------- --------- --------
Gross profit ............................................... 95,777 40,673 65,922
Operating expenses:
Research and development ................................. 28,700 12,985 11,993
Selling, general and administrative ...................... 64,653 38,191 37,591
Amortization of technology and other intangibles ......... 4,070 861 400
Acquired in-process research and development (note 2) .... 14,830 -- --
Restructuring and other charges (note 16) ................ 19,631 2,022 --
--------- --------- --------
Income (loss) from operations .............................. (36,107) (13,386) 15,938
Gain on sale of assets (notes 2 and 10) .................. 1,599 -- --
Interest income, net ..................................... 89 1,578 1,048
Foreign exchange transaction gains (losses) .............. (2,911) 632 --
--------- --------- --------
Income (loss) before income taxes .......................... (37,330) (11,176) 16,986
Income taxes provision (benefit) ........................... (2,556) (3,260) 5,074
--------- --------- --------
Net income (loss) .......................................... $ (34,774) $ (7,916) $ 11,912
========= ========= ========
Net income (loss) per common share:
Basic .................................................... $ (1.14) $ (0.46) $ 0.75
Diluted .................................................. $ (1.14) $ (0.46) $ 0.72
Weighted average common shares outstanding (000's) ......... 30,442 17,079 15,989
Weighted average common shares outstanding and dilutive
potential common shares (000's) ........................... 30,442 17,079 16,454
The accompanying notes are an integral part of these financial statements
31
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
Year ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Net income (loss) for the year ........................................... $(34,774) $ (7,916) $ 11,912
Adjustments to reconcile net income (loss) to net cash (used in) operating
activities:
Acquired in-process research and development ........................... 14,830 -- --
Gain on sale of assets ................................................. (1,599) -- --
Depreciation and amortization .......................................... 15,177 5,600 4,007
Deferred compensation .................................................. 78 -- --
Deferred income taxes .................................................. (1,704) (1,306) (434)
Unrealized currency exchange loss ...................................... 1,326 330 241
Changes in current assets and liabilities:
Accounts Receivable .................................................... (14,448) 14,408 (23,491)
Inventories ............................................................ 6,084 (8,343) (3,654)
Other current assets ................................................... 4,540 (3,321) 313
Accounts payable, accrued expenses, and taxes payable .................. 6,073 (6,360) 5,821
-------- -------- --------
Net cash (used in) operating activities .................................. (4,417) (6,908) (5,285)
-------- -------- --------
Cash flows from investing activities:
Merger with General Scanning Inc. (note 2) ............................. 1,451 -- --
Acquisition of Lumonics Pacific KK (note 2) ............................ (336) -- --
Acquisition of Meteor Optics Inc. (note 2) ............................. -- (1,158) --
Sale of assets ......................................................... 3,940 -- --
Additions to property, plant and equipment, net ........................ (6,219) (13,568) (8,412)
Maturity of short-term investments ..................................... 8,208 47,091 79,351
Purchase of short-term investments ..................................... (7,342) (43,522) (80,185)
(Increase) in other assets ............................................. (609) (102) (43)
-------- -------- --------
Cash (used in) investing activities .................................... (907) (11,259) (9,289)
-------- -------- --------