UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 September 27, 2002
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 333-71449
GSI Lumonics Inc.
|
New Brunswick, Canada (State or other jurisdiction of incorporation or organization) |
98-0110412 (I.R.S. Employer Identification No.) |
|
|
39 Auriga Drive, Nepean, Ontario, Canada (Address of principal executive offices) |
K2E 7Y8 (Zip Code) |
(613) 224-4868
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
As at October 22, 2002, there were 40,706,362 shares of the Common Stock of GSI Lumonics Inc., no par value, issued and outstanding.
GSI LUMONICS INC.
TABLE OF CONTENTS
| Item No. | Page No. | ||||||
| PART I — Financial Information | 2 | ||||||
|
Item 1.
|
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 | ||||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | |||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 27 | |||||
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Item 4.
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Controls and Procedures | 28 | |||||
| PART II — Other Information | 28 | ||||||
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Item 1.
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Legal Proceedings | 28 | |||||
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Item 6.
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Exhibits and Reports on Form 8-K | 28 | |||||
| Signatures | 29 | ||||||
| Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 30 | ||||||
1
PART I — Financial Information
| ITEM 1. | Financial Statements |
GSI LUMONICS INC.
| September 27, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (unaudited) | ||||||||||
| (U.S. GAAP and in thousands of | ||||||||||
| U.S. dollars, except share amounts) | ||||||||||
| ASSETS | ||||||||||
|
Current
|
||||||||||
|
Cash and cash equivalents
|
$ | 69,264 | $ | 102,959 | ||||||
|
Short-term investments (note 4)
|
31,976 | 43,541 | ||||||||
|
Accounts receivable, less allowance of $3,019
(December 31, 2001 — $3,034)
|
35,291 | 39,919 | ||||||||
|
Income taxes receivable
|
3,666 | 9,224 | ||||||||
|
Inventories
|
52,047 | 57,794 | ||||||||
|
Deferred tax assets
|
14,524 | 15,097 | ||||||||
|
Other current assets
|
5,331 | 8,528 | ||||||||
|
Total current assets
|
212,099 | 277,062 | ||||||||
|
Property, plant and equipment, net of accumulated
depreciation of $21,130 (December 31, 2001 —
$20,575)
|
28,362 | 32,482 | ||||||||
|
Deferred tax assets
|
6,815 | 6,537 | ||||||||
|
Other assets
|
3,167 | 1,539 | ||||||||
|
Other investments (note 7)
|
48,530 | — | ||||||||
|
Intangible assets, net of amortization of $14,914
|
||||||||||
|
(December 31, 2001 — $11,857)
|
14,719 | 19,067 | ||||||||
| $ | 313,692 | $ | 336,687 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
|
Current
|
||||||||||
|
Bank indebtedness
|
$ | 10,250 | $ | 6,171 | ||||||
|
Accounts payable
|
11,443 | 10,839 | ||||||||
|
Accrued compensation and benefits
|
7,462 | 7,515 | ||||||||
|
Other accrued expenses
|
20,922 | 25,096 | ||||||||
|
Current portion of long-term debt
|
— | 2,654 | ||||||||
|
Total current liabilities
|
50,077 | 52,275 | ||||||||
|
Deferred compensation
|
2,105 | 2,082 | ||||||||
|
Total liabilities
|
52,182 | 54,357 | ||||||||
|
Commitments and contingencies (note 9)
|
||||||||||
|
Stockholders’ equity
|
||||||||||
|
Common shares, no par value; Authorized shares:
unlimited; Issued and outstanding: 40,704,862 (December 31,
2001 — 40,556,130)
|
304,306 | 303,504 | ||||||||
|
Additional paid-in capital
|
2,592 | 2,592 | ||||||||
|
Deficit
|
(36,693 | ) | (13,546 | ) | ||||||
|
Accumulated other comprehensive loss
|
(8,695 | ) | (10,220 | ) | ||||||
|
Total stockholders’ equity
|
261,510 | 282,330 | ||||||||
| $ | 313,692 | $ | 336,687 | |||||||
The accompanying notes are an integral part of these financial statements
2
GSI LUMONICS INC.
| Three months ended | Nine months ended | |||||||||||||||||
| September 27, | September 28, | September 27, | September 28, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (unaudited) | ||||||||||||||||||
| (U.S. GAAP and in thousands of U.S. dollars, except per share amounts) | ||||||||||||||||||
|
Sales
|
$ | 37,419 | $ | 41,277 | $ | 113,971 | $ | 205,526 | ||||||||||
|
Cost of goods sold
|
26,109 | 30,759 | 78,185 | 129,958 | ||||||||||||||
|
Gross profit
|
11,310 | 10,518 | 35,786 | 75,568 | ||||||||||||||
|
Operating expenses:
|
||||||||||||||||||
|
Research and development
|
5,242 | 5,626 | 16,116 | 19,444 | ||||||||||||||
|
Selling, service and administrative
|
14,237 | 17,573 | 42,891 | 57,458 | ||||||||||||||
|
Amortization of purchased intangibles
|
1,278 | 1,390 | 3,835 | 4,054 | ||||||||||||||
|
Restructuring and other
|
— | (170 | ) | 4,152 | (1,570 | ) | ||||||||||||
|
Loss from operations
|
(9,447 | ) | (13,901 | ) | (31,208 | ) | (3,818 | ) | ||||||||||
|
Other income
|
1,250 | — | 1,047 | — | ||||||||||||||
|
Interest income
|
508 | 992 | 1,707 | 4,163 | ||||||||||||||
|
Interest expense
|
(188 | ) | (233 | ) | (541 | ) | (781 | ) | ||||||||||
|
Foreign exchange transaction gains (losses)
|
609 | 9 | (275 | ) | 256 | |||||||||||||
|
Loss before income taxes
|
(7,268 | ) | (13,133 | ) | (29,270 | ) | (180 | ) | ||||||||||
|
Income tax benefit
|
(1,853 | ) | (4,646 | ) | (6,123 | ) | (57 | ) | ||||||||||
|
Net loss
|
$ | (5,415 | ) | $ | (8,487 | ) | $ | (23,147 | ) | $ | (123 | ) | ||||||
|
Net loss per common share:
|
||||||||||||||||||
|
Basic
|
$ | (0.13 | ) | $ | (0.21 | ) | $ | (0.57 | ) | $ | — | |||||||
|
Diluted
|
$ | (0.13 | ) | $ | (0.21 | ) | $ | (0.57 | ) | $ | — | |||||||
|
Weighted average common shares outstanding
(000’s)
|
40,699 | 40,410 | 40,641 | 40,307 | ||||||||||||||
|
Weighted average common shares outstanding and
dilutive potential common shares (000’s)
|
40,699 | 40,410 | 40,641 | 40,307 | ||||||||||||||
The accompanying notes are an integral part of these financial statements
3
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three months ended | Nine months ended | ||||||||||||||||
| September 27, | September 28, | September 27, | September 28, | ||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
| (unaudited) | |||||||||||||||||
| (U.S. GAAP and in thousands of U.S. dollars) | |||||||||||||||||
|
Cash flows from operating
activities:
|
|||||||||||||||||
|
Net loss
|
$ | (5,415 | ) | $ | (8,487 | ) | $ | (23,147 | ) | $ | (123 | ) | |||||
|
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
|
|||||||||||||||||
|
Loss on disposal of assets
|
— | — | 62 | — | |||||||||||||
|
Stock-based compensation
|
— | 200 | — | 400 | |||||||||||||
|
Reduction of long-lived assets
|
— | — | 1,130 | — | |||||||||||||
|
Translation loss on liquidation of a subsidiary
|
— | 723 | — | 723 | |||||||||||||
|
Depreciation and amortization
|
2,724 | 2,738 | 8,326 | 8,975 | |||||||||||||
|
Deferred income taxes
|
(1,413 | ) | 5,821 | 879 | 8,848 | ||||||||||||
|
Changes in current assets and liabilities:
|
|||||||||||||||||
|
Accounts receivable
|
(3,098 | ) | 15,456 | 5,778 | 32,617 | ||||||||||||
|
Inventories
|
5,592 | 5,061 | 7,037 | 507 | |||||||||||||
|
Other current assets
|
47 | 4,232 | 605 | 852 | |||||||||||||
|
Accounts payable, accrued expenses, and taxes
(receivable) payable
|
(4,117 | ) | (23,691 | ) | 1,469 | (73,709 | ) | ||||||||||
|
Cash provided by (used in) operating activities
|
(5,680 | ) | 2,053 | 2,139 | (20,910 | ) | |||||||||||
|
Cash flows from investing
activities:
|
|||||||||||||||||
|
Sale of assets
|
— | — | — | 6,000 | |||||||||||||
|
Additions to property, plant and equipment
|
(444 | ) | (1,858 | ) | (2,431 | ) | (6,885 | ) | |||||||||
|
Maturity of investments
|
29,817 | 32,726 | 88,691 | 80,880 | |||||||||||||
|
Purchase of investments
|
(47,311 | ) | (20,005 | ) | (125,656 | ) | (80,865 | ) | |||||||||
|
Decrease (increase) in other assets
|
75 | 423 | 2,150 | (1,819 | ) | ||||||||||||
|
Cash provided by (used in) investing activities
come
|
(17,863 | ) | 11,286 | (37,246 | ) | (2,689 | ) | ||||||||||
|
Cash flows from financing
activities:
|
|||||||||||||||||
|
Proceeds (payments) of bank indebtedness
|
726 | 596 | 3,543 | (316 | ) | ||||||||||||
|
Repayment of long-term debt
|
(3000 | ) | (4,000 | ) | (3,000 | ) | (4,000 | ) | |||||||||
|
Issue of share capital
|
82 | 536 | 802 | 1,300 | |||||||||||||
|
Cash provided by (used in) financing activities
|
(2,192 | ) | (2,868 | ) | 1,345 | (3,016 | ) | ||||||||||
|
Effect of exchange rates on cash and cash
equivalents
|
(488 | ) | 254 | 67 | 651 | ||||||||||||
|
Increase (decrease) in cash and cash
equivalents
|
(26,223 | ) | 10,725 | (33,695 | ) | (25,964 | ) | ||||||||||
|
Cash and cash equivalents, beginning of period
|
95,487 | 77,169 | 102,959 | 113,858 | |||||||||||||
|
Cash and cash equivalents, end of period
|
$ | 69,264 | $ | 87,894 | $ | 69,264 | $ | 87,894 | |||||||||
The accompanying notes are an integral part of these financial statements
4
GSI LUMONICS INC.
1. Basis of Presentation
These unaudited interim consolidated financial statements have been prepared by the Company 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 for the year ended December 31, 2001. The results for interim periods are not necessarily indicative of results to be expected for the year or any future periods.
Comparative amounts
Certain comparative amounts have been reclassified to conform to the presentation of the financial statements for the quarter ended September 27, 2002.
2. Inventories
Inventories consist of the following:
| September 27, | December 31, | ||||||||
| 2002 | 2001 | ||||||||
|
Raw materials
|
$ | 24,844 | $ | 29,779 | |||||
|
Work-in-process
|
9,947 | 8,028 | |||||||
|
Finished goods
|
9,589 | 12,918 | |||||||
|
Demo inventory
|
7,667 | 7,069 | |||||||
|
Total inventories
|
$ | 52,047 | $ | 57,794 | |||||
3. New Accounting Pronouncements
Business Combinations
On January 1, 2002, the Company implemented, on a prospective basis, Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. As a result, all business combinations initiated in the future will be accounted for under the purchase method. Also, SFAS 141 does not permit the Company to recognize an assembled workforce asset. Therefore, the Company reallocated its assembled workforce asset with a cost of $2.8 million and a net carrying value of $2.0 million at January 1, 2002 to other remaining long-lived assets arising from the merger with General Scanning, Inc. in 1999, including $1.4 million to developed technology, $0.5 million to property, plant and equipment and $0.1 million to trademarks and trade names. The adoption of SFAS 141 did not have any other material impact on the Company’s financial position or cash flows. It will accelerate amortization by $0.6 million per year for the next two years and reduce amortization thereafter.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible Assets