GSI Group Reports Second Quarter Results

BEDFORD, Mass., July 31 /PRNewswire-FirstCall/ -- GSI Group Inc., (Nasdaq:
GSIG), a supplier of precision technology and semiconductor systems, today
announced financial results for the second quarter ended June 27, 2008.
Second quarter revenue was $66.0 million, compared to $71.7 million in the
first quarter of 2008 and $73.1 million for the second quarter of 2007.
Excluding restructuring charges, operating profit was $1.6 million in the
second quarter versus $1.5 million in the first quarter and $5.4 million in
the second quarter of 2007. GAAP net income for the quarter was $1.1 million,
or $0.03 per diluted share, compared to the first quarter results of $2.1
million, or $0.05 per diluted share, and $3.3 million, or $0.08 per diluted
share in the second quarter of 2007.
Second quarter bookings were $51.2 million, compared to $56.1 million in
the first quarter of 2008. The book-to-bill ratio was 0.78.
The backlog as of June 27, 2008 was $60.0 million, compared with $74.8
million in the first quarter of 2008. The backlog as of June 27, 2008
includes deferred revenue of $10.6 million.
Dr. Sergio Edelstein, President and CEO commented, "Although GSI's overall
slower business levels mirror the current state of the semiconductor industry,
our laser, scanner and encoder product lines continue to perform well. I am
particularly pleased with the market's increasing acceptance of our new
Lightning Scanners, JK and Fiber Lasers, and Mercury II Encoders."
"In addition, we have recently announced the execution of a definitive
agreement to acquire Excel Technology," Dr. Edelstein continued. "This
transaction will nearly double the revenues from our Precision Technology
segment. Going forward, we expect the Precision Technology segment of our
business will approach 80% of GSI's total revenue, and will expand our
presence in several of our most attractive target markets."
Gross margin was 38.5% in the second quarter, versus 38.1% in the first
quarter of 2008. Operating expenses, excluding restructuring charges, were
$23.8 million in the second quarter compared to $25.9 million in the first
quarter. Stock based compensation was $0.7 million in the second quarter
versus $0.8 million in the first quarter of 2008.
Cash and cash equivalents were $183.3 million, an increase of $12.6
million from the first quarter. Second quarter cash usage includes
disbursements of $3.3 million in connection with the Company's previously
announced stock buyback program.
GSI launched a tender offer to purchase the outstanding shares of Excel
Technology on July 23, 2008 and it is expected to remain open until August 19,
2008. The Company continues to expect that both the US Optics and Excel
Technology transactions will close in the third quarter. For more
information, please refer to our recent filings with the Securities and
Exchange Commission.
Dial In: July 31st at 8:30 a.m. ET
GSI Group will host a conference call for investors at 8:30 a.m. Eastern
time on July 31, 2008. Participants are invited to join by dialing
(706) 634-5123 with an access code: 57330611. The replay will be available
for two weeks by dialing (706) 645-9291 with the replay passcode: 57330611.
The conference call also will be broadcast live over the Internet at
www.gsig.com.
About GSI Group Inc.
GSI Group Inc. supplies precision technology to the global medical,
electronics, and industrial markets and semiconductor systems. GSI Group
Inc.'s common shares are listed on Nasdaq (GSIG).
Forward Looking Information
Certain statements in this news release may constitute forward-looking
statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995, Section 27A of the United States Securities Act
of 1933 and Section 21E of the United States Securities Exchange Act of 1934.
These forward-looking statements include, but are not limited to, anticipated
financial performance; management's plans and objectives for achieving more
stable revenues and predictable growth, including as a result of the pending
acquisition of Excel Technology (Excel); business prospects; industry trends;
and market conditions. All statements contained in this news release that do
not relate to matters of historical fact should be considered forward-looking
statements, and are generally identified by words such as "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "objective" and other
similar expressions. Such statements are based on our management's beliefs
and assumptions and on information currently available to our management and
are subject to risks, uncertainties and changes in condition, significance,
value and effect. Some of the risks and uncertainties that may cause actual
results and events to differ materially from those set forth in the forward-
looking statements include the following: our management's ability to maintain
or accurately forecast revenue growth or to anticipate and accurately forecast
a decline in revenue from any of our products or services; our ability to
compete in an intensely competitive market; its ability to develop and
introduce new products or enhancements on schedule and that respond to
customer requirements and rapid technological change; new product
introductions and enhancements by competitors; our ability to select and
implement appropriate business models; plans and strategies and efforts to
execute on them; our ability to identify, hire, train, motivate, and retain
highly qualified management/other key personnel and its ability to manage
changes and transitions in management/other key personnel; the impact of
global economic conditions on GSI's business; unauthorized use or
misappropriation of its intellectual property; as well as the risk factors
discussed previously and in periodic reports filed by us with the SEC or with
securities regulatory authorities in Canada.
In addition, to the extent the forward-looking statements assume, or are
based upon, successful completion of the pending acquisition of Excel, such
statements also involve risks and uncertainties that may cause actual results
and events to differ materially from those set forth in the statements,
including the following: (a) the occurrence of any event, change or other
circumstance that could give rise to the termination of our definitive merger
agreement with Excel Technology, Inc. (Excel), including our external
financing being unavailable due to the non-satisfaction of the conditions
contained in the financing agreements or the failure of the investors party
thereto to fulfill their obligations thereunder; the inability to complete the
acquisition of Excel due to the failure to receive required regulatory or
other approvals or to satisfy other conditions to the transaction; the risk
that the proposed acquisition disrupts current plans and operations; the risk
that anticipated synergies and opportunities as a result of the acquisition
will not be realized; difficulties or unanticipated expenses in connection
with integrating Excel into GSI; the risk that the acquisition does not
perform as planned, including the risk that we or Excel will not achieve
revenue projections; the risk that the substantial indebtedness we will incur
to finance the acquisition will materially and adversely affect our business
by, among other things, requiring us to apply all or substantially all of our
free cash flow to service the indebtedness and/or to dispose of assets to
obtain cash for other permitted uses; the inability to retain key employees of
either company; and changes in either company's business between now and the
closing of the acquisition.
Readers should not place undue reliance on any such forward-looking
statements, which speak only as of the date they are made. Management and GSI
disclaim any obligation to publicly update or revise any such statement to
reflect any change in its expectations or in events, conditions, or
circumstances on which any such statements may be based, or that may affect
the likelihood that actual results and events will differ from those contained
in the forward-looking statements.
CONTACT: Ray Ruddy of GSI Group Inc., +1-781-266-5873

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

June 27, December 31,
2008 2007

ASSETS
Current Assets
Cash and cash equivalents $183,271 $171,714
Accounts receivable, less allowance of $374
(December 31, 2007 - $372) 57,945 73,527
Income taxes receivable 13,594 12,241
Inventories 62,640 65,522
Deferred tax assets 8,264 8,249
Other current assets 8,830 7,394
Total current assets 334,544 338,647
Property, plant and equipment, net of accumulated
depreciation of $24,877 (December 31, 2007
- $32,263) 42,401 30,817
Deferred tax assets 9,904 9,887
Other assets 821 713
Long-term investments 997 854
Intangible assets, net of amortization of $9,713
(December 31, 2007 - $8,603) 11,722 12,817
Patents and acquired technology, net of
amortization of $42,307 (December 31, 2007 -
$40,122) 17,881 20,054
Goodwill 26,421 26,421
Total Assets $444,691 $440,210

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $15,683 $17,504
Income taxes payable 1,365 1,411
Accrued compensation and benefits 8,848 10,369
Deferred revenue 10,629 9,949
Deferred tax liabilities 290 286
Other accrued expenses 12,435 9,353
Total current liabilities 49,250 48,872
Deferred compensation 608 676
Deferred tax liabilities 7,589 7,589
Accrued long term restructuring 1,651 938
Income taxes payable 3,261 3,537
Accrued pension liability 4,598 4,481
Deferred rent 2,938 -
Total liabilities 69,895 66,093
Commitments and contingencies
Stockholders' equity
Common shares, no par value; Authorized shares:
unlimited; Issued and outstanding: 41,607,460
(December 31, 2007-42,161,592) 304,569 310,970
Additional paid-in capital 9,712 8,245
Retained earnings 51,530 48,329
Accumulated other comprehensive income 8,985 6,573

Total stockholders' equity 374,796 374,117

Total Liabilities and Stockholders' Equity $444,691 $440,210

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

Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2008 2007 2008 2007
Sales $66,010 $73,117 $137,690 $147,321
Cost of goods sold 40,623 43,362 84,976 88,131
Gross profit 25,387 29,755 52,714 59,190
Operating expenses:
Research and development
and engineering 7,475 7,729 15,350 15,386
Selling, general,
administrative and other 14,700 14,925 31,017 28,866
Amortization of purchased
intangibles 1,601 1,690 3,280 3,419
Restructuring expense (net
of benefit) 1,501 1,576 1,184 3,928

Total operating expenses 25,277 25,920 50,831 51,599

Income from operations 110 3,835 1,883 7,591
Other income 21 47 143 94
Interest income 1,002 1,667 2,167 3,214
Interest expense (18) (24) (36) (81)
Foreign exchange transaction
gains (losses) 133 (62) 192 (434)
Income before income taxes 1,248 5,463 4,349 10,384
Income tax provision (154) (2,140) (1,148) (3,861)
Net income $1,094 $3,323 $3,201 $6,523

Net income per common share:
Basic $0.03 $0.08 $0.08 $0.15
Diluted $0.03 $0.08 $0.08 $0.15
Weighted average common shares
outstanding (000's) 41,736 42,427 41,831 42,204
Weighted average common shares
outstanding for diluted
net income per common share
(000's) 41,853 42,678 42,112 42,409

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

Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2008 2007 2008 2007

Cash flows from operating activities:
Net income for the year $1,094 $3,323 $3,201 $6,523
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,387 4,202 7,254 8,326
Stock-based compensation 651 693 1,433 1,022
Deferred income taxes 24 (214) (29) (199)
Earnings from equity investment (37) (47) (143) (94)
Unrealized gain on derivatives (195) (460) (181) (407)
Gain on disposal of assets (1,561) - (1,561) -
Non-cash restructuring charges 558 - 558 -
Changes in current assets and
liabilities:
Accounts receivable 15,413 (11,143) 15,970 (16,250)
Inventories 3,823 (680) 2,953 849
Other current assets (1,761) (173) (1,471) 5,837
Accounts payable, accruals and
taxes (receivable) payable 934 10,642 (1,726) 8,469
Cash provided by operating
activities 22,330 6,143 26,258 14,076
Cash flows used in investing
activities:
Acquisition of business - (3,006) - (3,006)
Proceeds from the sale of property
and equipment 3,211 - 3,211 -
Additions to property, plant
and equipment (12,475) (1,495) (16,677) (3,293)
(Increase) decrease in other
assets 230 - (108) -
Increase in other liabilities 3,149 11 3,650 27
Cash used in investing activities (5,885) (4,490) (9,924) (6,272)
Cash flows provided by (used in)
financing activities:
Purchase of treasury shares (3,326) (286) (6,439) (760)
Excess Tax benefit of stock
options 15 204 23 258
Issue of share capital (net of
issue costs) 20 3,095 38 6,328
Cash provided by (used in)
financing activities (3,291) 3,013 (6,378) 5,826
Effect of exchange rates on cash
and cash equivalents (535) 191 1,601 348
Increase in cash and cash
equivalents 12,619 4,857 11,557 13,978
Cash and cash equivalents,
beginning of period 170,652 147,436 171,714 138,315
Cash and cash equivalents, end
of period $183,271 $152,293 $183,271 $152,293

GSI GROUP INC.
Consolidated Analysis By Segment (unaudited)
(In thousands of U.S. dollars)

Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2008 2007 2008 2007
Sales:
Precision Technology Business $45,488 $46,921 $89,523 $90,545
Semiconductor Systems Business 20,989 27,110 49,756 58,968
Intersegment sales elimination(1) (467) (914) (1,589) (2,192)
Total $66,010 $73,117 $137,690 $147,321

Gross profit %:
Precision Technology Business 39.0% 38.4% 38.7% 37.2%
Semiconductor Systems Business 37.0% 42.4% 36.4% 43.1%
Intersegment sales elimination 20.0% (22.2)% 2.4% (5.1)%
Total 38.5% 40.7% 38.3% 40.2%

(1) Sales of Precision Technology products to Semiconductor segment

Consolidated Sales Analysis By Geographic Region (unaudited)

Three Months Ended
June 27, 2008 June 29, 2007
Sales % of Total Sales % of Total
(In millions) (In millions)
North America $27.4 41% $19.2 26%
Latin and South America 0.1 - 0.1 -
Europe (EMEA) 11.0 17 12.6 17
Japan 12.5 19 15.7 22
Asia-Pacific, other 15.0 23 25.5 35

Total $66.0 100% $73.1 100%

SOURCE GSI Group Inc.

Ray Ruddy of GSI Group Inc., +1-781-266-5873