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OPERATINGCASH FLOW($ 000)

GENNUM CORPORATION

FINANCIAL HIGHLIGHTSThousands of Dollars

1993 1994 1995 1996 1997 1993 1994 1995 1996 1997

INCOMEPER COMMON SHARE($)

0.352,005

5,052

6,651

8,233

10,510

0.430.57

0.821.00

1996

53,496

9,706

1997

61,522

11,935

1993

27,492

4,257

Revenue

Net Income

1994

33,204

5,113

1995

42,317

6,747

Gennum Corporation, formed in 1973, is a Canadian high technology company which designs,

manufactures and markets electronic components, primarily silicon integrated circuits (ICs)

and thick-film hybrid circuits, for specialized applications in the information world.

The company’s products include low voltage audio electronic amplifiers and analog signal

processing circuitry supplied to the world hearing instrument industry; video signal

distribution and processing components sold to the professional video and broadcast television

markets and user specific integrated circuits for a wide variety of specific applications where

information is being conditioned, transmitted or interpreted.


In 1997 Gennum Corporation continued the commitment to excellence and to a business strategy of delivering value to

customers in chosen markets. The result was record revenues and profits for the seventh consecutive year.

Revenue for the year ended November 30, 1997 was $61,522,000, an increase of 15% over revenue of $53,496,000 in

1996. Net income of $11,935,000 was 23% higher than net income of $9,706,000 the previous year. Increasing

demand for higher-value hybrid hearing instrument products, for Gennum’s proprietary MultiGEN™ digital video

filtering components and for GENLINX™ serial digital video components were the principal drivers of the growth in

both revenue and net income.

With a history of strong profitable growth and prospects for that to continue, the Board of Directors increased the

quarterly dividend in 1997 from 4 cents to 5 cents per share.

The shareholders’ market value of the company rose during the year, tracking the profitable growth of the business.

This resulted in Gennum’s inclusion in the TSE 300 group of companies. That is another milestone in Gennum’s

ongoing success.

Over the last seven years we have been working to increase the depth of senior management expertise and to ensure the

ongoing leadership capability in the company to maintain profitable growth and excellence. As a part of that process,

Dr. Ian McWalter was appointed to the newly created position of Executive Vice President and Chief Operating Officer

in July. Ian joined Gennum in 1991 as Vice President of Research and Development. He became Vice President of

Manufacturing Operations in 1994.

Recruitment within the electronics industry continues to be a challenge. Through 1997 Gennum reinforced its

recruiting efforts, and during the second half of the year was successful in increasing staffing levels in the key, future-

oriented areas of sales, marketing and research and development. The focus on recruiting will continue into 1998 as the

company ensures it has the right number of excellent people in every area to facilitate and support planned growth.

The growth of business and staff requires a commensurate growth of facilities and space. We have planned for this and

expect to begin construction of a new facility at the Fraser Drive location in mid 1998. This facility will permit us to

upgrade all the manufacturing and R&D facilities and to provide the additional office space to accommodate growth for

several years beyond 2000. As planned, we will be using temporarily leased space as this construction proceeds over the

next 18 months.

As part of the pursuit of excellence, improvement of key business processes continues to be a priority. New product

introduction, order fulfilment, and the recruiting processes have undergone extensive evaluation and revision in the last

couple of years. Such changes are a constant part of Gennum’s actions as we strive always to be better in delivering

value to our customers and stakeholders.

1

REPORT TO SHAREHOLDERS


Gennum is developing new products of increasing complexity at an accelerated pace. Products are manufactured using new

technologies and systems. These play an important role in helping Gennum to achieve its goal of sustained profitable

growth. It is the company’s unique adaptations and integration of established technologies that facilitates the development

and manufacture of specialized electronic components for its select niche markets.

In the coming year and beyond, Gennum believes it is well positioned to strengthen its presence within its chosen markets.

A commitment to meeting and exceeding customer needs with respect to both the hearing instrument and video markets

remains a priority. Additionally, there is an ongoing activity focused on identifying and developing another market niche.

Gennum faces the future with a sound business strategy, a thorough understanding of its markets, excellent manufacturing

capability, competent and aligned people and a strong financial base.

Gennum has always believed that excellence is essential to achieving prosperity and well being. In Gennum we strive to be

successful, ethical, respectful of people and aligned in sharing values, vision, goals and direction. These are the foundational

elements of Gennum’s quarter century of stable, profitable growth. We cultivate and cherish them because we believe they

are the basis for achieving our goals in the future.

January 22, 1998.

H. Patrick ThodeChairman

H. Douglas BarberPresident & CEO

Ian L. McWalterExecutive Vice President & COO

2

H. Patrick ThodeChairman

H. Douglas BarberPresident & CEO

Ian L. McWalterExecutive Vice President & COO


INVESTING IN THE FUTURE — MARKETING AND TECHNOLOGY DEVELOPMENT

From our beginning 24 years ago, we at Gennum have been committed to

understanding the unique needs of our customers and finding the best

way to help meet some of those needs. Our marketing efforts are about

understanding needs. Technology development is about finding ways to

do something about those needs. We typically spend about 30% of our

sales income on these future oriented activities every year.

Because we serve relatively small markets that have unique needs we have

to find suitable established technologies where the capability infrastructure

already exists. We then acquire that technology and adapt it to make it

more suitable to meet the needs. That’s why we have a silicon wafer

fabrication facility, a packaging facility, a test facility, a design facility and a

modelling facility. That’s also why every one of these capabilities is

uniquely adapted to meet the needs of our customers. That’s also the

reason why the combination of those exact capabilities is not available

elsewhere.

Our customers know that we offer our capability to help them be more

successful in their markets. They also know that we listen and, within our business constraints, respond to what we learn

from them.

In 1998 we will start a major investment in new facilities to upgrade our capabilities and to adopt new

capabilities that we know are needed in the future. For example, we have to move to larger wafers

in our silicon wafer fabrication facility. Because most of our existing equipment

cannot be upgraded, we will build a new facility. As a result, we will not only

be able to make our existing products better but we will increase our capability

to provide components for the high performance digitally programmed and

fully digital hearing aids and the faster, more complex digital video products

of the future. Such an increased capability also enlarges the world of

opportunity for finding new business opportunities with unique needs.

Every part of our manufacturing and our development capabilities will be significantly enhanced as we relocate and re-equip

our plants over the next four years.

Over the last three to four years we have had three major technology developments under way. We have invested between

five and ten million dollars in each of these.

USA

1997$61,522,000

1992$26,050,000

Europe

Pacific Rim12%

Europe

USA PacificRim

36%

40%

12%Canada

Canada13%

42% 22%

23%

GEOGRAPHICBREAKDOWN

OF SALES

3


First, for the hearing instrument

market we have developed a special

miniature package that allows us to

make multi-chip modules small

enough to fit easily in hearing

instruments that are worn deep in

the ear canal and are almost

invisible. We have found that for

optimum size and functionality the

chips need to be designed as much

for the package as for the function. These modules

will be less than one-half the size of what we could

do to achieve the same performance in our current technology. In order to ensure that this capability provides

superior value to the market, we worked in partnership with one of the hearing instrument industry leaders

throughout this development. We expect that the results of this program will be introduced in 1998 in the form of,

and incorporated in, a high performance in-the-canal product.

Secondly, for the video and broadcast market we have developed a special high speed process for making silicon chips.

It reduces the power needed for handling high rates of information and it is adjustable on test to give very accurate

and reproducible performance. In 1998 we will be launching our second family of circuits to handle digital video

information in the broadcast studio. This family, called GENLINX™ II will be faster than GENLINX™ I, will be easier

to use and will meet many new needs in the video world. We also expect that this capability will be applicable to High

Definition Television (HDTV) as our customers evolve to this standard.

Thirdly, and again for the video and broadcast market, we have

developed a family of digital signal processing (DSP) chips, called

MultiGEN™, which do very special tasks. For example, computers,

which are not television monitors, are used increasingly in program

editing and in producing special effects. Here a format conversion is

required. These MultiGEN™ chips have to be made on very advanced

silicon technology. We have acquired the computer-aided design (CAD)

tools and models which have given us capability to design these very

demanding chips for manufacture on external state-of-the-art

semiconductor facilities.

These are important and substantial parts of the investments Gennum has made and is making for the future. These

investments are guided by our marketing efforts to understand what’s needed. We expect them all to result in real

value creators and winners for our customers and so also for us.

R&D EXPENDITURES ($000)

88 89 90 91 92 93 94 95 96 97

YEAR

12,000

10,000

8,000

6,000

4,000

2,000

0

4

To ensure the highest quality of circuit design, R&D engineerswork with the latest in electronic design tools.


5

This review is management’s analysis of Gennum’s 1997 financial results, compared with 1996, and its outlook for the future.

It should be read in conjunction with the sections of the Company’s annual report referred to as Report to Shareholders,

Investing in the Future - Marketing and Technology Development, Financial Statements and Accompanying Notes.

Results of Operations

Revenues for the fiscal year ended November 30, 1997 increased by more than 15% over revenues for 1996. These revenues

come mainly from two distinct niche markets, hearing instrument products and video and broadcast products.

Sales of hearing instrument components in 1997 accounted for an increase in revenues of more than 8% over revenues in

1996. In this market niche, the major generator of revenue growth was sales of higher value-added hybrid components.

Revenues from the sales of hybrid components increased by more than 53% in 1997 versus 1996. The driving force for the

increase in hybrid component sales was continued market acceptance of the DynamEQ® II. This family of components,

introduced in late 1995, offers maximum fitting flexibility while compensating for abnormal loudness growth common to

many hearing losses. In addition, the trend toward increasing use of miniature modular components used in completely-in-

the-canal (CIC) hearing instruments continued in 1997.

Total unit sales of hearing instrument components decreased in 1997 versus 1996. The decrease was caused by inventory

corrections with some customers and a move to highly functional single device solutions rather than the multiple device

solutions of prior years.

Overall sales of hearing instrument products were slightly more than 51% of total sales. Total hearing instrument product

margin as a percentage of sales increased slightly as higher value-added components were introduced into the marketplace.

In dollar terms, overall gross margins increased for this product group as a result of the increase in sales from higher value-

added products.

Strong growth was experienced in 1997 in the sale of components for the video and broadcast markets. Revenues from sales

of these components represented almost 46% of the total company sales. Growth was experienced in the sale of GENLINX™

serial digital transmission products. Strong growth was also experienced in sales of MultiGEN™ digital filters. Sales of the

company’s older analog products continued to decline in 1996 as more customers move to digital systems.

Unit sales of video components declined as a result of the decreased unit sales of lower priced analog components being

greater than the increased unit sales of the higher value GENLINX™ and MultiGEN™ components. Total gross margin for

these products as a percentage of sales also increased slightly.

Sales of the company’s older User Specific Integrated Circuit (USIC) products remained steady in the year at less than 3% of

sales as the company continues to focus on its chosen niches.

On-time delivery increased in the year to over 98% delivered on the day promised. The level of on-time deliveries achieved

in 1997 was the highest in the company’s history. In addition, monthly backorders were less than 1% of sales. Both of these

indicators demonstrate the company’s strong performance in delivering components to customers in an as-needed, minimum

lead time environment.

As a percent of sales, gross research & development expenses increased slightly to 20% in 1997 from 19% in 1996.

Government support of R&D came largely through the application for R&D investment tax credits. Investment in research

and development remains a key element in the company’s strategy for continued growth. Research and development

initiatives in 1997 included projects on miniaturization of hearing instrument components, process developments, and new

product developments in the GENLINX™ and MultiGEN™ product families.

MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIALCONDITIONS AND RESULTS OF OPERATIONS


As a result of the successful introduction of new products, the development of which had been partially funded by

governments, $157,000 is repayable to the Government of Canada as of the end of 1997 as a royalty on products sold.

Selling, marketing and administration expenses stayed constant as a percentage of sales in 1997 versus 1996. Some

recruiting delays were experienced in the hiring of technical marketing personnel in 1997.

Major capital acquisitions in the year included design software, test equipment and computer equipment for business

operations. Engineering design of a new research and development and manufacturing facility commenced in the year.

During the year there were no major dispositions of capital equipment.

There were no material returns from customers of faulty components.

Investment income increased over last year as a result of the larger amounts of cash invested.

The overall tax rate decreased in 1997 versus 1996. The decrease was caused by the generation of larger amounts of income

in lower taxing jurisdictions in 1997 versus 1996.

Net Income in 1997 increased by 23% over 1996.

Dividends of $0.19 per share were paid in 1997. This compares to $0.153 per share paid in 1996.

Financial Condition

The company operations continue to generate sufficient amounts of cash from net income to finance capital expenditures

and to allow for the payment of dividends. Prior to the payment of dividends, cash flow in 1997 was $10.5 million

compared to $8.2 million in 1996. Excess cash is held in the bank or invested in short-term financial instruments such as

treasury bills and bankers acceptances.

Year-end accounts receivable increased from the previous year as a result of the increase of sales in the final quarter of the fiscal

year compared to the previous year. No major collection problems were experienced in the year.

Inventories grew by 22.8% in the year. The increase in inventory was mainly due to increases in materials, work in process

and finished goods related to hybrid devices sold to hearing instrument customers.

The company has sufficient 4 inch silicon wafers in inventory to meet its requirements until the conversion to 6 inch wafers

is completed.

The company continues to acquire all necessary capital equipment to meet its

requirements and maintains them in good operating condition.

Gennum annually accrues amounts required to meet its obligations under

its profit sharing and incentive plans. These amounts are paid out in the first

half of the subsequent fiscal year. Accounts payable and accrued liability

balances at the end of the fiscal year reflect accruals for these obligations.

Income taxes payable increased as a result of higher profits made by the

company. Payment of income tax liabilities to the taxing jurisdictions takes

place in the first quarter of the subsequent fiscal year.

There were no capital stock transactions in the year.

6

ON-TIME DELIVERY(measured to the day)

10099989796959493929190 93 94 95 96 97

YEAR

PE

RC

EN

TA

GE


Outlook

Revenues from sales of Gennum’s hearing instrument products are expected

to increase above normal market growth. The company continues to focus

on offering highly sophisticated, miniaturized products. These miniaturized

products which include programming devices and complex amplification

components will give manufacturers the ability to offer technologically superior

products in the quickly growing completely-in-the-canal (CIC) hearing

instrument market.

Moderate growth in revenues from sales of video and broadcast products is expected in the short-term. Decreases in the

sales of older analog products will somewhat offset the growth in the company’s GENLINX™ and MultiGEN™ digital

products. The company will continue to respond to the evolving needs of this market through the introduction of new

higher performance versions of the GENLINX™ product line throughout the year.

There has been a great deal of discussion in the television industry about High Definition Television (HDTV). Any

company activities associated with HDTV are not expected to affect operating results in the short term.

The company began its efforts to develop new business opportunities in 1997. Developing new niches is an integral part of

the company’s strategy and efforts in this area will continue in 1998.

USIC product revenues are expected to remain at low levels.

During 1997 the company continued to experience some delays in the hiring of individuals with appropriate technical

expertise. This resulted in lower research and development and marketing expenses in 1997 than the company felt

appropriate. In 1997 a concerted effort was made to improve hiring effectiveness. The results associated with these efforts

began to improve in late 1997. Expenses for these technical employees will result in higher research and development and

marketing expenses in 1998. The benefits of these investments will be sustained profitable growth in the future.

As a result of facilities expansion to accommodate the increasing research and development, manufacturing and support

activities, capital expenditures in the next few years will be at a higher level than in the past. As these capital expenditures are

completed, depreciation expense will increase.

The year 2000 computer problem poses a major challenge to all businesses. Gennum has formed a cross-functional team of

employees to deal with all issues surrounding the year 2000 matter. The team is reviewing all potential impacts on

Gennum’s business both internally and with respect to its dealings with third parties and is recommending actions to be

taken. The company will take all necessary action and expects that remediation will be accomplished without material impact

on Gennum’s business.

The company operates in the high technology world selling in the international marketplace. Risks in this business

environment include rapid product obsolescence, shortages of knowledge workers, currency fluctuations and manufacturing

process changes. The company is constantly vigilant and takes action to mitigate risk where appropriate.

The soundness of the company’s strategy to focus on niche markets has been demonstrated by a consistent record of

profitable growth for the past seven years. The company believes continued success in serving customers in market niches in

the information world will allow it to grow revenues and profits in the future.

7

HearingProducts

51%

HearingProducts

55%Video &Broadcast

42%

Video &Broadcast

46%

1996 1997

Other

Other

PRODUCT BREAKDOWN(% of SALES)


The accompanying financial statements of Gennum Corporation and the information in this annual report are the responsibility

of management and have been approved by the Board of Directors.

The financial statements have been prepared by management in accordance with generally accepted accounting principles.

When alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances.

Financial statements include certain amounts based on estimates and judgements. Management has determined such amounts

on a reasonable basis to ensure that the financial statements are presented fairly in all material respects. Management has

prepared the financial information presented elsewhere in the annual report, and has ensured that it is consistent with the

financial statements.

Gennum Corporation maintains systems of internal accounting and administrative controls of high quality. Such systems are

designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the company’s

assets are appropriately accounted for and adequately safeguarded.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting, and the Board

is ultimately responsible for reviewing and approving the financial statements.

An Audit Committee is appointed by the Board and all of its members are outside directors. The Committee meets periodically

with management, as well as with the external auditors, to discuss internal controls over the financial reporting process, auditing

matters and financial reporting issues, and to review the annual financial statements. The Committee reports its findings to the

Board of Directors for consideration in approving the financial statements for issuance to the shareholders. The Committee

also considers, for review by the Board and approval by the shareholders, the engagement or re-appointment of the external

auditors.

Financial statements have been audited by Ernst & Young, the external auditors, in accordance with generally accepted auditing

standards on behalf of the shareholders. Ernst & Young has full and free access to the Audit Committee.

H.D. Barber C.T. Zahavich, Vice President

President & CEO Finance & Administration and CFO

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

8


To the Shareholders ofGennum Corporation

We have audited the consolidated balance sheets of Gennum Corporationas at November 30, 1997 and 1996 and the consolidated statements ofincome and retained earnings and cash flows for the years then ended.These financial statements are the responsibility of the company’smanagement. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with generally accepted auditingstandards. Those standards require that we plan and perform an audit toobtain reasonable assurance whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluatingthe overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in allmaterial respects, the financial position of the company as atNovember 30, 1997 and 1996 and the results of its operations and thechanges in its financial position for the years then ended in accordancewith generally accepted accounting principles.

Hamilton, Canada,December 17, 1997. Chartered Accountants

AUDITORS’ REPORT

9


1997 ($000’s) 1996

ASSETSCurrentCash and short-term investments 27,776 19,525Accounts receivable 8,301 6,816Inventories [note 2] 12,800 10,426Prepaid expenses and other assets 1,015 859Total current assets 49,892 37,626Capital assets [note 3] 12,943 13,318

62,835 50,944

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrentAccounts payable and accrued liabilities 12,395 10,943Income taxes payable 3,783 3,309Total current liabilities 16,178 14,252Deferred income taxes 1,438 1,149Shareholders’ equityCapital stock [note 4] 6,994 6,994Retained earnings 38,225 28,549

Total shareholders’ equity 45,219 35,543

62,835 50,944

See accompanying notes

On behalf of the Board:

H.P. Thode, Director Douglas Barber, Director

CONSOLIDATED BALANCE SHEETSAs at November 30

GENNUM CORPORATIONIncorporated under the laws of Ontario

10


1997 ($000’s) 1996

Revenues [note 5] 61,522 53,496

Investment income 715 705

62,237 54,201Expenses excluding amounts shown below 33,869 31,099Research and development expense 12,393 10,148Less government assistance (2,969) (2,780)

43,293 38,467

Income before income taxes 18,944 15,734

Income taxes [note 6] 7,009 6,028Net income for year 11,935 9,706

Retained earnings, beginning of year 28,549 20,666Dividends (2,259) (1,823)Retained earnings, end of year 38,225 28,549

Per common share

Net income 1.00 0.82

Dividends 0.19 0.153


CONSOLIDATED STATEMENTS OFINCOME AND RETAINED EARNINGSYears ended November 30

11


CONSOLIDATED STATEMENTS OFCASH FLOWSYears ended November 30

1997 ($000’s) 1996

OPERATING ACTIVITIESNet income for year 11,935 9,706Items not affecting cash

Amortization 3,941 3,154Deferred income taxes 289 (47)

16,165 12,813Net change in non-cash working capital balances

related to operations [note 8] (2,089) 899Cash provided by operating activities 14,076 13,712

INVESTING ACTIVITIESExpenditures on capital assets (3,566) (5,479)

FINANCING ACTIVITIESDividends (2,259) (1,823)

Increase in cash during year 8,251 6,410Cash and short-term investments at beginning of year 19,525 13,115Cash and short-term investments at end of year 27,776 19,525


12


1. SUMMARY OF ACCOUNTING POLICIES

The financial statements have been prepared in accordance with generally acceptedaccounting principles and are within the framework of the accounting policies summarizedbelow:

Revenue recognitionRevenue from sales of products is recognized at the time goods are shipped to customers.Revenue from sale of research is recognized when milestones defined in the contract are reached.

Principles of consolidationThese consolidated financial statements include the accounts of the company and itswholly-owned subsidiary, Gennum Japan KK (prior to 1997, the subsidiary operated as abranch of the company). All significant intercompany transactions have been eliminated.

Translation of foreign currenciesGennum Japan KK is considered to be an integrated operation, and accordingly, themonetary assets and liabilities, both current and long-term, are translated at current ratesof exchange, and other assets and liabilities are translated at historic rates of exchange. Salesand expenses are translated at average rates of exchange for the year, except theamortization which is translated at rates in effect when the related assets were acquired.Gains and losses on translation are included in earnings.

InventoriesInventories are recorded at the lower of cost and net realizable value. Inventory cost isbased on average cost and includes material, labour and manufacturing overhead whereapplicable.

Capital assetsCapital assets are recorded at cost, net of related government assistance.

Buildings are amortized using the straight-line method over estimated useful lives of twentyyears. Machinery and equipment are amortized using the straight-line method overestimated useful lives ranging from three to seven years.

Government assistanceThe company makes periodic applications for financial assistance under availablegovernment incentive programs including investment tax credits. Government assistancerelating to capital expenditures is reflected as a reduction of the cost of such assets.Government assistance relating to research and development expense is recorded as areduction of expenses when the related expenditures are incurred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNovember 30, 1997 and 1996

13


Income taxesIncome tax regulations permit the company to deduct certain costs relating to capital assetsat different rates than are reflected in its accounts. The tax effect of these timing differencesis recognized in the accounts as deferred income taxes.

Income per common shareNet income per common share has been based on the monthly weighted average number of common shares outstanding during the years.

2. INVENTORIES1997 ( $000’s) 1996

Raw materials and supplies 2,550 2,037Work in process 5,883 4,839Finished goods 4,367 3,550

12,800 10,426

3. CAPITAL ASSETS1997 ($000’s) 1996

Land 1,141 1,127Buildings 7,475 7,169Machinery and equipment 28,981 25,908

37,597 34,204Less accumulated amortization

Buildings 4,743 4,300Machinery and equipment 19,911 16,586

24,654 20,886

12,943 13,318

The cost of machinery and equipment additions for 1997 is reduced by governmentassistance of $466,000 ($230,000 in 1996).

4. CAPITAL STOCK

The issued common shares of the company as at November 30, 1997 and 1996 consist of11,888,208 common shares at a stated value of $6,994,000.

5. REVENUES

The company’s line of business is the design, manufacture and marketing of monolithicintegrated circuits and hybrid circuits. Revenues by principal market are as follows:

1997 ($000’s) 1996

United States 26,055 22,676Europe 14,286 15,364Pacific Rim 13,322 10,467Canada 7,859 4,989

61,522 53,496

14


6. INCOME TAXES

Income tax expense consists of:1997 ($000’s) 1996

Current taxes 6,720 6,075Deferred taxes 289 (47)

7,009 6,028

The company’s effective tax rate on its income from operations is 37.0% (38.3% in 1996)which consists of the following:

1997 1996% %

Corporate tax rate for manufacturing companies in Ontario 36.0 36.0Impact of foreign income tax rate differentials 1.0 2.3

37.0 38.3

7. GOVERNMENT ASSISTANCE

Under the terms of the Microelectronics and System Development Program, theGovernment of Canada has reimbursed the company $1,929,000 in prior years,representing a portion of eligible research and development expenditures incurred. Thegrant is repayable as a royalty based on 2% of the related sales through the year 2003. Theaggregate amount repayable to date is $822,000 ($572,000 as at November 30, 1996). Ofthis amount, $665,000 has been repaid and $157,000 is included in accounts payable andaccrued liabilities.

8. NET CHANGE IN NON-CASH WORKING CAPITALBALANCES RELATED TO OPERATIONS

1997 ($000’s) 1996

Accounts receivable (1,485) (470)Inventories (2,374) (2,564)Prepaid expenses and other assets (156) (140)Accounts payable and accrued liabilities 1,452 2,597Income taxes payable 474 1,476

(2,089) 899

15


Revenue

Net Income

Return on Average Equity (%)

Net Income Per Common Share* ($)

R & D Expense

Number of Employees at Year End

Cash Position

Capital Asset Additions

Working Capital

Shareholders’ Equity

Shares Outstanding*

Market Data -- High* ($)

-- Low* ($)

-- Share Volume*

Shareholders’ Equity Per Common Share* ($)

*Adjusted to reflect three-for-one stock split in April 1996.

FINANCIAL

COMMON SHARE DATA

OPERATIONS 1993

27,492

4,257

24.3

0.35

7,422

240

4,609

1,852

10,843

18,997

12,024

6.33

4.46

3,093

1.58

1992

26,050

4,018

25.6

0.34

6,990

233

3,894

2,640

7,430

16,030

11,880

4.58

2.83

2,370

1.35

1995

42,317

6,747

27.0

0.57

8,523

264

13,115

4,033

17,863

27,660

11,888

9.00

6.42

3,363

2.33

1994

33,204

5,113

24.7

0.43

7,809

247

7,950

2,924

13,731

22,399

11,888

6.79

5.25

1,443

1.88

1996

53,496

9,706

30.7

0.82

10,148

292

19,525

5,479

23,374

35,543

11,888

27.00

15.80

2,112

2.99

GENNUM CORPORATION

SEVEN YEAR REVIEWIn $000’s except as noted

1997

61,522

11,935

29.6

1.00

12,393

325

27,776

3,566

33,714

45,219

11,888

35.45

23.70

3,568

3.81

1991

23,777

3,907

19.0

0.33

5,374

219

1,372

1,645

7,195

15,332

11,712

3.58

1.46

2,259

1.31

16


SHAREHOLDERS’ MEETING

The Annual General Meeting of the Shareholders of Gennum Corporationwill be held at the Burlington Conference Centre,5420 North Service Road, Burlington, Ontario,

on the 15th day of April, 1998 at 4:30 o’clock in the afternoon.

For further information, contact Gennum Investor Relations (905) 632-2999 ext. 3010.

OfficersH. Patrick Thode, CAChairman

H. Douglas Barber, Ph.D.President & Chief Executive Officer

Michael R. FieldingVice President, Marketing & Sales

David L. LynchVice President, Research & Development

Ian L. McWalter, Ph.D.Executive Vice President & Chief Operating Officer

C. Tim Zahavich, CAVice President, Finance & Administrationand Chief Financial Officer

Donald M. Mann, Q.C. Ross & McBride (Hamilton, Ontario)Secretary

Transfer Agent & RegistrarMontreal Trust Vancouver, British Columbia Calgary, Alberta Regina, SaskatchewanWinnipeg, Manitoba Toronto, Ontario

AuditorsErnst & Young (Hamilton, Ontario)

BankersCanadian Imperial Bank of Commerce (Burlington, Ontario)

Legal CounselRoss & McBride (Hamilton, Ontario)

Stock ListingThe Toronto Stock Exchange, Trading Symbol — GND

Plant Locations970 Fraser DriveBurlington, Ontario L7L 5P5

3435 Landmark RoadBurlington, Ontario L7M 1T4

GENNUM CORPORATION

CORPORATE INFORMATIONDirectors

H. Douglas Barber, Ph.D.President & Chief Executive OfficerGennum Corporation

Marcel Bernard §

Corporate Vice President, OperationsGEAC Computer Corporation Limited(Markham, Ontario)

Pierre Choquette†

President and Chief Executive OfficerMethanex Corporation(Vancouver, B.C.)

Robert A. Ferchat, FCA†

Chairman and Chief Executive OfficerBCE Mobile Communications Inc.(Mississauga, Ontario)

Waldemar A. Pieczonka, Ph.D.§ ∆

Retired

Stephen R. Scotchmer ∆ †

Private Investor

H. Patrick Thode, CA § ∆ †

ChairmanGennum Corporation

§ Members of the Audit Committee∆ Members of the Corporate Governance Committee† Members of the Human Resource Committee

Corporate AddressGennum Corporation ‡P.O. Box 489, Station A Burlington, Ontario L7R 3Y3 Tel: (905) 632-2996 Fax: (905) 632-2055E-mail: [email protected] Site: http://www.gennum.com

‡ Incorporated under the laws of Ontario

Gennum Japan Kabushiki KaishaC-101, Miyamae Village2-10-42 MiyamaeSuginami-ku, Tokyo 168-0081JapanTel: (3) 3334-7700Fax: (3) 3247-8839


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