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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended July 2, 2004
 
or
 
o
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-25705

GSI Lumonics Inc.

(Exact name of registrant as specified in its charter)
     
New Brunswick, Canada
   98-0110412
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)
 
 
39 Manning Road
Billerica, MA
(Address of principal executive offices)		   01821
(Zip Code)

(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 þ          No o

      Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

      As at July 30, 2004, there were 41,214,221 shares of the Registrant’s common shares, no par value, issued and outstanding.

GSI LUMONICS INC.

TABLE OF CONTENTS

               
Item No. Page No.
 PART I — FINANCIAL INFORMATION     2  
     FINANCIAL STATEMENTS     2  
     CONSOLIDATED BALANCE SHEETS (unaudited)     2  
     CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)     3  
     CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)     4  
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)     5  
     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     27  
     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     47  
     CONTROLS AND PROCEDURES     48  
 PART II — OTHER INFORMATION     48  
     LEGAL PROCEEDINGS     48  
     EXHIBITS AND REPORTS ON FORM 8-K     49  
 SIGNATURES     50  
 EX-31.1 SECT. 302 CERTIFICATION OF C.E.O.
 EX-31.2 SECT. 302 CERTIFICATION OF C.F.O.
 EX-32.1 SECT. 906 CERTIFICATION OF C.E.O.
 EX-32.2 SECT. 906 CERTIFICATION OF C.F.O.
 EX-99.1 CANADIAN SUPPLEMENT

1

Table of Contents

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)
                     
July 2, December 31,
2004 2003
ASSETS
Current
               
 
Cash and cash equivalents (note 8)
  $ 53,192     $ 64,035  
 
Short-term investments (note 8)
    17,954       39,562  
 
Accounts receivable, less allowance of $4,185 (December 31, 2003 — $4,465)
    59,720       53,040  
 
Income taxes receivable
    —       4,839  
 
Inventories (note 3)
    57,194       43,916  
 
Deferred tax assets (note 11)
    12,620       5,507  
 
Other current assets
    8,817       8,048  
     
     
 
   
Total current assets
    209,497       218,947  
Property, plant and equipment, net of accumulated depreciation of $24,421 (December 31, 2003 — $22,305)
    50,926       52,982  
Deferred tax assets (note 11)
    8,013       8,521  
Other assets (note 3)
    2,487       2,297  
Long-term investments (note 8)
    1,644       3,743  
Intangible assets, net of amortization of $24,652 (December 31, 2003 — $21,924) (note 3)
    53,839       23,985  
Goodwill (note 2, 3)
    31,094       —  
     
     
 
    $ 357,500     $ 310,475  
     
     
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current
               
 
Accounts payable
  $ 23,809     $ 18,218  
 
Income taxes payable
    829       —  
 
Accrued compensation and benefits
    10,170       7,424  
 
Other accrued expenses (note 3)
    20,137       18,451  
     
     
 
   
Total current liabilities
    54,945       44,093  
Deferred compensation
    2,127       2,162  
Deferred tax liability (note 2, 11)
    13,735       1,879  
Other liability
    30       —  
Accrued minimum pension liability (note 12)
    1,595       1,553  
     
     
 
   
Total liabilities
    72,432       49,687  
Commitments and contingencies (note 10) 
                
Stockholders’ equity (note 6) 
                
 
Common shares, no par value; Authorized shares: unlimited; Issued and outstanding: 41,191,885 (December 31, 2003 — 40,927,499)
    307,149       305,512  
 
Additional paid-in capital
    2,919       2,800  
 
Accumulated deficit
    (22,687 )     (43,440 )
 
Accumulated other comprehensive loss
    (2,313 )     (4,084 )
     
     
 
   
Total stockholders’ equity
    285,068       260,788  
     
     
 
    $ 357,500     $ 310,475  
     
     
 

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

2

Table of Contents

GSI LUMONICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(U.S. GAAP and in thousands of U.S. dollars, except share amounts)
                                     
Three Months Ended Six Months Ended
July 2, June 27, July 2, June 27,
2004 2003 2004 2003
Sales
  $ 84,537     $ 44,682     $ 159,390     $ 85,801  
Cost of goods sold
    49,019       29,043       94,132       55,422  
     
     
     
     
 
Gross profit
    35,518       15,639       65,258       30,379  
Operating expenses:
                               
 
Research and development
    6,002       3,523       10,761       6,832  
 
Selling, general and administrative
    14,527       13,201       28,012       25,039  
 
Amortization of purchased intangibles
    1,162       1,369       2,710       2,647  
 
Acquired in-process research and development
    430       —       430       —  
 
Restructuring
    —       1,559       —       2,187  
 
Other
    —       485       —       841  
     
     
     
     
 
   
Total operating expenses
    22,121       20,137       41,913       37,546  
Income (loss) from operations
    13,397       (4,498 )     23,345       (7,167 )
 
Other income (expense)
    —       64       (15 )     64  
 
Interest income
    211       687       390       1,328  
 
Interest expense
    (26 )     (95 )     (55 )     (150 )
 
Foreign exchange transaction (losses) gains
    (347 )     287       (606 )     704  
     
     
     
     
 
Income (loss) before income taxes
    13,235       (3,555 )     23,059       (5,221 )
Income tax provision
    1,421       —       2,306       —  
     
     
     
     
 
Net income (loss)
  $ 11,814     $ (3,555 )   $ 20,753     $ (5,221 )
     
     
     
     
 
Net income (loss) per common share:
                               
 
Basic
  $ 0.29     $ (0.09 )   $ 0.51     $ (0.13 )
 
Diluted
  $ 0.28     $ (0.09 )   $ 0.49     $ (0.13 )
Weighted average common shares outstanding (000’s)
    41,059       40,797       41,009       40,793  
Weighted average common shares outstanding for diluted net income (loss) per common share (000’s)
    42,250       40,797       42,200       40,793  

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

3

Table of Contents

GSI LUMONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. GAAP and in thousands of U.S. dollars, except share amounts)
                                   
Three Months Ended Six Months Ended
July 2, June 27, July 2, June 27,
2004 2003 2004 2003
Cash flows from operating activities:
                                
Net income (loss)
  $ 11,814     $ (3,555 )   $ 20,753     $ (5,221 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                               
 
Loss on disposal of assets
    —       421       —       421  
 
Loss on sale of investments
    —       —       15       —  
 
Acquired in-process research and development
    430       —       430       —  
 
Depreciation and amortization
    2,855       2,386       6,601       4,928  
 
Unrealized (gain) loss on derivatives
    —       (491 )     —       13  
 
Stock-based compensation
    68       —       119       —  
 
Deferred income taxes
    (3,120 )     —       (5,690 )     —  
Changes in current assets and liabilities:
                               
 
Accounts receivable
    7,161       (139 )     (1,998 )     (4,740 )
 
Inventories
    (4,015 )     1,781       (10,896 )     4,614  
 
Other current assets
    (1,285 )     (1,771 )     (721 )     (693 )
 
Accounts payable, accruals and taxes (receivable) payable
    (1,303 )     2,367       10,480       815  
     
     
     
     
 
Cash provided by operating activities
    12,605       999       19,093       137  
Cash flows from investing activities:
                                
 
Acquisitions of businesses
    (54,744 )     (9,553 )     (54,744 )     (9,553 )
 
Purchase of leased buildings
    —       (18,925 )     —       (18,925 )
 
Sale of assets
    —       847       —       847  
 
Other additions to property, plant and equipment
    (589 )     (306 )     (866 )     (904 )
 
Proceeds from the sale and maturities of investments
    15,485       101,184       63,105       142,328  
 
Purchases of investments
    (12,945 )     (86,123 )     (39,436 )     (112,404 )
 
(Increase) decrease in other assets
    (156 )     107       (153 )     149  
     
     
     
     
 
Cash (used in) provided by investing activities
    (52,949 )     (12,769 )     (32,094 )     1,538  
Cash flows from financing activities:
                                
 
Issue of share capital from the exercise of stock options and employee share purchase plan
    1,309       106       1,637       114  
     
     
     
     
 
Cash provided by financing activities
    1,309       106       1,637       114  
Effect of exchange rates on cash and cash equivalents
    230       (64 )     521       328  
     
     
     
     
 
(Decrease) increase in cash and cash equivalents
    (38,805 )     (11,728 )     (10,843 )     2,117  
Cash and cash equivalents, beginning of period
    91,997       97,478       64,035       83,633  
     
     
     
     
 
Cash and cash equivalents, end of period
  $ 53,192     $ 85,750     $ 53,192     $ 85,750  
     
     
     
     
 

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

4

Table of Contents

GSI LUMONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of July 2, 2004
(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 the rules and regulations promulgated by the U.S. Securities and Exchange Commission, including the instructions to Form 10-Q and the provisions of 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 Annual Report on Form 10-K for the year ended December 31, 2003. The results for interim periods are not necessarily indicative of results to be expected for the year or for any future periods.

      A reconciliation of the differences between United States and Canadian generally accepted accounting principles (GAAP) is presented in note 14.

Comparative Amounts

      Certain prior year amounts have been reclassified to conform to the current year presentation in the financial statements as of and for the quarter and six months ended July 2, 2004. These reclassifications had no effect on the previously reported results of operations.

2.     Acquisitions

 
Purchases

      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 was comprised of $3.0 million in cash and $0.1 million in costs of the acquisition. The purchase price was allocated to the assets and liabilities based upon their estimated fair value at the date of acquisition, as noted below.

         
Estimated Fair
Value at
Acquisition Date
(In millions)
Accounts receivable
  $ 0.9  
Inventories
    1.1  
Property, plant and equipment
    0.2  
Acquired technology
    1.1  
Accounts payable and other accrued expenses
    (0.2 )
     
 
Total purchase price
  $ 3.1  
     
 
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