UNITED STATES
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 26, 2003 | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission File No. 000-25705
GSI Lumonics Inc.
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New Brunswick, Canada
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98-0110412 | |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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39 Manning Road Billerica, MA (Address of principal executive offices) |
01821 (Zip Code) |
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(978) 439-5511
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 October 31, 2003, there were 40,891,315 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 | ||||||
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ITEM 1.
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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 | 25 | |||||
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 48 | |||||
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ITEM 4.
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CONTROLS AND PROCEDURES | 49 | |||||
| PART II — OTHER INFORMATION | 50 | ||||||
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ITEM 1.
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LEGAL PROCEEDINGS | 50 | |||||
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ITEM 6.
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EXHIBITS AND REPORTS ON FORM 8-K | 50 | |||||
| SIGNATURES | 52 | ||||||
1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
GSI LUMONICS INC.
| September 26, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| ASSETS | ||||||||||
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Current
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Cash and cash equivalents (note 8)
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$ | 74,049 | $ | 83,633 | ||||||
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Short-term investments (note 8)
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54,186 | 28,999 | ||||||||
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Accounts receivable, less allowance of $2,600
(December 31, 2002 — $2,681)
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41,951 | 33,793 | ||||||||
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Income taxes receivable
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10,054 | 8,431 | ||||||||
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Inventories (note 3)
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38,404 | 39,671 | ||||||||
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Deferred tax assets (note 11)
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9,327 | 9,763 | ||||||||
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Other current assets
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6,503 | 4,448 | ||||||||
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Total current assets
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234,474 | 208,738 | ||||||||
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Property, plant and equipment, net of accumulated
depreciation of $21,563 (December 31, 2002 —
$21,453)
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32,755 | 26,675 | ||||||||
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Deferred tax assets (note 11)
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7,353 | 7,443 | ||||||||
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Other assets (note 3)
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8,661 | 3,360 | ||||||||
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Long-term investments (note 8)
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3,729 | 37,405 | ||||||||
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Intangible assets, net of amortization of $20,296
(December 31, 2002 — $16,217) (note 3)
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12,063 | 13,467 | ||||||||
| $ | 299,035 | $ | 297,088 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current
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||||||||||
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Accounts payable
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$ | 14,678 | $ | 9,235 | ||||||
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Accrued compensation and benefits
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5,797 | 6,523 | ||||||||
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Other accrued expenses (note 3)
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19,501 | 20,845 | ||||||||
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Total current liabilities
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39,976 | 36,603 | ||||||||
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Deferred compensation
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2,141 | 2,129 | ||||||||
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Accrued minimum pension liability (note 12)
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4,032 | 3,875 | ||||||||
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Total liabilities
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46,149 | 42,607 | ||||||||
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Commitments and contingencies (note 10)
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||||||||||
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Stockholders’ equity (note 6)
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||||||||||
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Common shares, no par value; Authorized shares:
unlimited; Issued and outstanding: 40,880,399 (December 31,
2002 — 40,785,922)
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305,220 | 304,713 | ||||||||
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Additional paid-in capital
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2,592 | 2,592 | ||||||||
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Accumulated deficit
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(45,940 | ) | (41,270 | ) | ||||||
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Accumulated other comprehensive loss
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(8,986 | ) | (11,554 | ) | ||||||
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Total stockholders’ equity
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252,886 | 254,481 | ||||||||
| $ | 299,035 | $ | 297,088 | |||||||
The accompanying notes are an integral part of these financial statements.
2
GSI LUMONICS INC.
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 26, | September 27, | September 26, | September 27, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
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Sales
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$ | 44,881 | $ | 37,419 | $ | 130,682 | $ | 113,971 | ||||||||||
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Cost of goods sold
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28,237 | 26,109 | 83,659 | 78,185 | ||||||||||||||
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Gross profit
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16,644 | 11,310 | 47,023 | 35,786 | ||||||||||||||
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Operating expenses:
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Research and development
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3,297 | 5,242 | 10,454 | 16,116 | ||||||||||||||
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Selling, general and administrative
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11,021 | 14,237 | 35,735 | 42,891 | ||||||||||||||
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Amortization of purchased intangibles
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1,408 | 1,278 | 4,055 | 3,835 | ||||||||||||||
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Restructuring
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264 | — | 2,451 | 4,152 | ||||||||||||||
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Other
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— | (1,250 | ) | 841 | (1,250 | ) | ||||||||||||
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Total operating expenses
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15,990 | 19,507 | 53,536 | 65,744 | ||||||||||||||
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Income (loss) from operations
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654 | (8,197 | ) | (6,513 | ) | (29,958 | ) | |||||||||||
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Other income (expense)
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— | — | 64 | (203 | ) | |||||||||||||
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Interest income
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293 | 508 | 1,601 | 1,707 | ||||||||||||||
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Interest expense
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— | (188 | ) | (129 | ) | (541 | ) | |||||||||||
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Foreign exchange transaction gains (losses)
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(75 | ) | 609 | 629 | (275 | ) | ||||||||||||
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Income (loss) before income taxes
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872 | (7,268 | ) | (4,348 | ) | (29,270 | ) | |||||||||||
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Income tax provision (benefit)
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322 | (1,853 | ) | 322 | (6,123 | ) | ||||||||||||
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Net income (loss)
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$ | 550 | $ | (5,415 | ) | $ | (4,670 | ) | $ | (23,147 | ) | |||||||
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Net income (loss) per common share:
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Basic
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$ | 0.01 | $ | (0.13 | ) | $ | (0.11 | ) | $ | (0.57 | ) | |||||||
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Diluted
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$ | 0.01 | $ | (0.13 | ) | $ | (0.11 | ) | $ | (0.57 | ) | |||||||
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Weighted average common shares outstanding
(000’s)
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40,857 | 40,699 | 40,817 | 40,641 | ||||||||||||||
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Weighted average common shares outstanding and
dilutive potential common shares (000’s)
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41,343 | 40,699 | 40,817 | 40,641 | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
3
GSI LUMONICS INC.
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 26, | September 27, | September 26, | September 27, | ||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
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Cash flows from operating
activities:
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Net income (loss)
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$ | 550 | $ | (5,415 | ) | $ | (4,670 | ) | $ | (23,147 | ) | ||||||
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Adjustments to reconcile net income
(loss) to cash provided by (used in) operating activities:
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Loss on disposal of assets
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— | — | 421 | 62 | |||||||||||||
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Reduction of long-lived assets
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— | — | — | 1,130 | |||||||||||||
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Depreciation and amortization
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2,536 | 2,724 | 7,464 | 8,326 | |||||||||||||
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Unrealized loss on derivatives
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166 | — | 179 | — | |||||||||||||
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Deferred income taxes
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— | (1,413 | ) | — | 879 | ||||||||||||
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Changes in current assets and liabilities:
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Accounts receivable
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988 | (3,098 | ) | (3,752 | ) | 5,778 | |||||||||||
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Inventories
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1,923 | 5,592 | 6,537 | 7,037 | |||||||||||||
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Other current assets
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(336 | ) | 47 | (1,029 | ) | 605 | |||||||||||
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Accounts payable, accrued expenses, and taxes
(receivable) payable
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1,970 | (4,117 | ) | 2,784 | 1,469 | ||||||||||||
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Cash provided by (used in) operating activities
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7,797 | (5,680 | ) | 7,934 | 2,139 | ||||||||||||
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Cash flows from investing
activities:
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Acquisitions of businesses
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601 | — | (8,952 | ) | — | ||||||||||||
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Purchase of leased buildings
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— | — | (18,925 | ) | — | ||||||||||||
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Sale of assets
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— | — | 847 | — | |||||||||||||
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Other additions to property, plant and equipment
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(910 | ) | (444 | ) | (1,814 | ) | (2,431 | ) | |||||||||
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Maturities of short-term and long-term investments
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20,562 | 29,817 | 162,890 | 88,691 | |||||||||||||
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Purchases of short-term and long-term investments
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(41,651 | ) | (47,311 | ) | (154,055 | ) | (125,656 | ) | |||||||||
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Decrease in other assets
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209 | 75 | 358 | 2,150 | |||||||||||||
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Cash used in investing activities come
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(21,189 | ) | (17,863 | ) | (19,651 | ) | (37,246 | ) | |||||||||
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Cash flows from financing
activities:
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Proceeds of bank indebtedness
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— | 726 | — | 3,543 | |||||||||||||
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Repayment of long-term debt
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— | (3,000 | ) | — | (3,000 | ) | |||||||||||
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Issue of share capital
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393 | 82 | 507 | 802 | |||||||||||||
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Cash provided by (used in) financing activities
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393 | (2,192 | ) | 507 | 1,345 | ||||||||||||
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Effect of exchange rates on cash and cash
equivalents
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1,298 | (488 | ) | 1,626 | 67 | ||||||||||||
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Decrease in cash and cash equivalents
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(11,701 | ) | (26,223 | ) | (9,584 | ) | (33,695 | ) | |||||||||
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Cash and cash equivalents, beginning of period
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85,750 | 95,487 | 83,633 | 102,959 | |||||||||||||
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Cash and cash equivalents, end of period
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$ | 74,049 | $ | 69,264 | $ | 74,049 | $ | 69,264 | |||||||||
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 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 including the rules and regulations promulgated by the U.S. Securities and Exchange Commission, 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 Annual Report on 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 for 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 three-months and nine-months ended September 26, 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 $0.1 million in costs of the acquisition. The purchase price allocation is not yet final, as the Company is waiting for final agreement from DRC on the adjustment amount. The purchase price, which is subject to final adjustment, was allocated to the assets and liabilities based upon their estimated fair value at the date of acquisition, as noted below.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Estimated Fair | ||||
| Value at | ||||
| Acquisition | ||||
| Date | ||||
| (In millions) | ||||
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Accounts receivable
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$ | 0.9 | ||
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Inventories
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1.1 | |||
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Property, plant and equipment
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0.2 | |||
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Acquired technology
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1.1 | </ | ||