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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 27, 2003

OR

Commission File No. 000-25705

GSI Lumonics Inc.

(978) 439-5511
(Registrant’s telephone number, including area code)

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 [ü] NO [  ]

As at August 1, 2003, there were 40,857,901 shares of the Registrant’s common shares, no par value, issued and outstanding.

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GSI LUMONICS INC.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GSI LUMONICS INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(U.S. GAAP and in thousands of U.S. dollars, except share amounts)

The accompanying notes are an integral part of these financial statements.

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GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(U.S. GAAP and in thousands of U.S. dollars, except per share amounts)

The accompanying notes are an integral part of these financial statements.

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GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(U.S. GAAP and in thousands of U.S. dollars)

The accompanying notes are an integral part of these financial statements.

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GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
As of June 27, 2003
(U.S. GAAP and tabular amounts in thousands of U.S. dollars, except share amounts)

1.

Basis of Presentation

These unaudited interim consolidated financial statements have been prepared by GSI Lumonics, Inc. in United States (U.S.) dollars and in accordance with accounting principles generally accepted in the U.S. for interim financial statements and with the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements. Accordingly, these interim consolidated financial statements do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements reflect all adjustments and accruals, consisting only of adjustments and accruals of a normal recurring nature, which management considers necessary for a fair presentation of financial position and results of operations for the periods presented. The consolidated financial statements include the accounts of GSI Lumonics Inc. and its wholly-owned subsidiaries (the Company). Intercompany transactions and balances have been eliminated. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K, as amended, for the year ended December 31, 2002. The results for interim periods are not necessarily indicative of results to be expected for the year or any future periods.

As indicated in note 8, effective January 1, 2003, the Company has removed the designation of all short-term hedge contracts from their corresponding hedge relationships. Accordingly, such contracts are recorded at fair value with changes in fair value recognized currently in income starting January 1, 2003, instead of being included in accumulated other comprehensive income. Unrealized gains on these contracts included in accumulated other comprehensive income at December 31, 2002 are recognized in the same periods as the underlying hedged transactions.

Comparative Amounts

Certain prior year amounts have been reclassified to conform to the current year presentation in the financial statements for the quarter and six-months ended June 27, 2003. These reclassifications had no effect on the previously reported results of operations or financial position.

2.

Acquisitions

On May 2, 2003, the Company acquired the principal assets of the Encoder division of Dynamics Research Corporation (DRC), located in Wilmington, Massachusetts. The purchase price of $3.1 million, subject to final adjustment, was comprised of $3.0 million in cash and $0.1 million in costs of the acquisition. The purchase price allocation is not yet final, as the Company is negotiating with DRC on the final balance sheet that was provided to the Company as of the closing date. The purchase price, which is subject to final adjustment, is allocated to the assets and liabilities based upon their estimated fair value at the date of acquisition. The estimated excess of the purchase price over the fair value of net identifiable tangible assets acquired (approximately $1.1 million) is recorded as acquired technology to be amortized over its estimated useful life of four years. There was no goodwill associated with this acquisition. There were no purchased research and development costs in process with this acquisition, therefore no amounts were written off to results of operations. The Company’s consolidated results of operations have included the Encoder division activity as of the closing date of May 2, 2003. Pro forma results of operations have not been presented because the effects of the acquisition were not material to the Company. The addition of the Encoder division assets represents the addition of technology and products that expand the Company’s offering of precision motion control components. The integration of the Encoder division into the Company’s Components Group in Billerica, Massachusetts is currently scheduled for completion by the end of August 2003.

The acquisition of the principal assets of Spectron Laser Systems, a subsidiary of Lumenis Ltd (Spectron), located in Rugby, United Kingdom was closed on May 7, 2003. The purchase price of approximately $6.5 million, subject to final adjustment, was comprised of $5.8 million in cash and $0.7 million in estimated costs of the acquisition. The purchase price allocation is not yet final, as the Company is negotiating with Spectron on the final balance sheet that was provided to the Company as of the closing date. The purchase price, which is subject to final adjustment, is

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allocated to the assets and liabilities based upon their estimated fair value at the date of acquisition. The estimated excess of the purchase price over the fair value of net identifiable tangible assets acquired (approximately $1.8 million) is recorded as acquired technology to be amortized over its estimated useful life of five years. There was no goodwill associated with this acquisition. There were no purchased research and development costs in process with this acquisition, therefore no amounts were written off to results of operations. The results of operations from the Spectron acquisition are included in the Company’s consolidated results of operations from the closing date of May 7, 2003. Pro forma results of operations have not been presented because the effects of the acquisition were not material to the Company. This acquisition adds both diode pumped laser solid state (DPSS) technology and products to the Company’s marketplace offerings, as well as expanded product lines in both lamp pumped (LPSS) and CO(2)-based technologies. The lasers are primarily used in material processing applications such as marking, cutting plastic and diamonds, silicon machining and micro-welding. They will complement the Company’s product lines by expanding applications in the 7W to 100W range. The integration of this acquisition into the Company’s Laser Group in Rugby, United Kingdom is scheduled for completion by the end of August 2003.

Both of these acquisitions were consistent with the Company’s stated strategy to acquire new technologies and expand into new products complementary with its existing markets.

3.

Supplementary Balance Sheet Information

The following tables provide details of selected balance sheet accounts.

Inventories

Intangible Assets