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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended May 26, 1996
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ____________ to ___________
Commission File Number 1-11344
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INTERMAGNETICS GENERAL CORPORATION
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(Exact name of registrant as specified in its charter.)
New York 14-1537454
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 Old Niskayuna Road,
Latham, New York 12110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (518) 782-1122
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock - $.10 par value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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 for 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 X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $168,940,591. Such aggregate market value was
computed by reference to the closing price of the Common Stock as reported on
the American Stock Exchange on August 13, 1996. It assumes that all directors
and officers of the registrant are affiliates. In making such calculation, the
registrant does not determine whether any director, officer or other holder of
Common Stock is an affiliate for any other purpose.
The number of shares of the registrant's Common Stock outstanding as of August
13, 1996 was 11,884,367.
DOCUMENTS INCORPORATED BY REFERENCE
The information required for Part III hereof is incorporated by reference from
the registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders to
be filed within 120 days after the end of the registrant's fiscal year.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS DESCRIPTION .................................... 1
MAGNETIC PRODUCTS ....................................... 1
REFRIGERATION PRODUCTS .................................. 7
RESEARCH AND DEVELOPMENT ................................ 10
INVESTMENTS ............................................. 13
PERSONNEL ............................................... 14
EXECUTIVE OFFICERS OF THE REGISTRANT .................... 15
ITEM 2. PROPERTIES .............................................. 16
ITEM 3. LEGAL PROCEEDINGS ....................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..... 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS ............................. 17
ITEM 6. SELECTED FINANCIAL DATA ................................. 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..................... 19
RESULTS OF OPERATIONS -- 1996 COMPARED TO 1995 ...... 20
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994 ....... 21
LIQUIDITY AND CAPITAL COMMITMENTS ................... 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............. 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ..................... 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..... 23
ITEM 11. EXECUTIVE COMPENSATION ................................. 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ......................................... 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......... 24
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K .................................... 24
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS ... 24
(b) REPORTS ON FORM 8-K ............................. 27
SIGNATURES ...................................................... 30
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
The statements contained in this report which are not historical fact are
"forward-looking statements" that involve various important assumptions, risks,
uncertainties and other factors which could cause the Company's actual results
for 1997 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without limitation,
the assumptions, risks, and uncertainties set forth in Management's Discussion
and Analysis of Financial Condition and Results of Operations, as well as other
assumptions, risks, uncertainties and factors disclosed elsewhere in this report
and the Company's other securities filings.
Part I
ITEM 1. BUSINESS DESCRIPTION
Intermagnetics General Corporation (the "Company") designs, develops,
manufactures and sells its products through two significant segments: Magnetic
Products and Refrigeration Products. Magnetic Products consist primarily of low
temperature superconducting ("LTS") magnets, wires and cable. These are
developed and sold through the Company's Magnet Business Unit, and IGC Advanced
Superconductors Division. As a part of its Magnetic Products segment, the
Company also sells permanent magnet products through its Field Effects Division,
low-cost, permanent magnet based MRI systems through a joint venture, IMiG MRI
Systems, LLC, and high temperature superconducting ("HTS") products through its
Technology Development Operations. The Company's Refrigeration Products segment
consists of low and extremely low temperature, refrigerants and refrigeration
equipment, which are designed, developed, manufactured and sold through the
Company's wholly-owned subsidiary, APD Cryogenics Inc., and refrigerants for
mobile and stationary applications, which are designed, developed and sold
through the Company's wholly-owned subsidiary, InterCool Energy Corporation.
MAGNETIC PRODUCTS
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General Background
Superconductivity is the phenomenon in which certain materials lose all
resistance to the flow of electrical current when cooled below a critical
temperature. Consequently, devices made with superconductive materials require
special refrigeration equipment, known as cryogenic systems, to maintain the
materials at the very cold temperatures at which superconductivity occurs.
Superconductors offer advantages over conventional conductors by carrying
electricity with virtually no energy loss, and generating comparatively more
powerful magnetic fields.
There are two broad classes of superconductive materials. LTS materials
are metals and alloys that become superconductive when cooled to temperatures
near absolute zero (approximately 4.2 Kelvin). Because of their superior ductile
characteristics, LTS materials are generally used in the form of flexible wire
or tape ("Wire/Tape"). HTS materials are composed of compounds that become
superconductive when cooled to temperatures close to that of liquid nitrogen (77
Kelvin). Although HTS materials are not yet economically viable in existing
superconducting applications, the Company is currently doing development work on
various applications of HTS technology in the form of flexible Wire/Tape as well
as demonstration devices for the electric power industry. See "Research and
Development - New Products" below.
Applications of Superconductivity Technology
The single largest existing commercial application for
superconductivity is the magnetic resonance imaging ("MRI") medical diagnostic
system ("MRI System"). MRI Systems are used in hospitals and clinics for
non-invasive, diagnostic imaging within a patient's body. At the core of an MRI
System is a large, highly engineered magnet system. The magnet system can be
based upon a conventional resistive electro-magnet, a permanent magnet or a
superconductive magnet. Although more expensive to manufacture, superconductive
magnets offer far more powerful, high quality magnetic fields with virtually no
power loss. Higher magnetic field strengths correlate with improved
"signal-to-noise" ratios which can in turn lead to higher quality images. The
annual commercial market for MRI Systems is estimated at approximately $1.5
billion worldwide. The worldwide market for MRI Systems has been essentially
flat in recent years as declines in the U.S. market are offset by gains in
overseas markets. The decline in sales in the U.S. market has generally been
attributed to increased sensitivity to health care costs within the U.S., and
general economic conditions. The MRI industry is increasingly dominated by a
small number of systems integrators worldwide who sell MRI Systems to end-users.
The General Electric Company ("GE"), Siemens Corporation, Philips Medical
Systems Nederlands B.V. ("Philips"), Hitachi Medical Corporation ("Hitachi"),
Toshiba Corp., and Picker International Ltd. are the major MRI System
integrators. The Company is a supplier of key components to several of the MRI
Systems integrators. See "Principal Products - Superconductive MRI Magnet
Systems" below.
A less significant but well-developed application for superconductivity
is nuclear magnetic resonance ("NMR") spectroscopy. NMR spectroscopy is used in
the research and testing of the composition and structure of non-ferrous
materials. See "Principal Products - Other Superconductive Magnet Systems"
below.
Superconductivity is also applicable to other scientific, defense and
research applications including particle accelerators and light sources. As with
MRI and NMR, superconductive magnets generally compete in these areas on price
and field strength with resistive or permanent magnets.
The Company believes that superconductive Wire/Tape may have
significant application in several other emerging areas. For example, the
electric power industry, the Department of Defense and certain other users of
electric power are currently exploring superconductive magnetic energy storage
("SMES") systems as a means of solving electricity power quality problems such
as power sags and surges. See "Research and Development - New Product
Development: SMES" below. HTS and novel permanent magnet materials may soon
permit the commercially viable manufacture of motors, generators, fault current
limiters, transformers and other power devices that are more compact yet just as
powerful as their conventional counterparts. See "Research and Development - New
Product Development: HTS" below. In addition, superconductive magnets have
transportation uses, which include the magnetic levitation of vehicles
("MAGLEV") including high-speed trains.
Although the potential newer applications of superconductivity outlined
above would incorporate technology currently in use or in development by the
Company, there can be no assurances that commercially usable applications will
emerge in the future or that the Company will be able to participate
successfully in them.
Principal Products
Within its Magnetic Products segment, the Company produces four
distinct, significant types of products: Superconductive MRI Magnet Systems,
Other Superconductive Magnet Systems, Superconductive Wire and Permanent Magnet
Products.
o Superconductive MRI Magnet Systems. Through its Magnet Business Unit, the
Company sells superconductive MRI magnet systems to MRI Systems integrators
for use in mobile and stationary MRI Systems. During fiscal years 1996, 1995
and 1994, MRI magnet systems (excluding the cryogenic shield cooler
component) accounted for 41%, 46% and 31%, respectively, of the Company's
net sales.
The Company's superconductive MRI magnet systems are solenoid magnets. These
systems include a superconductive magnet, a cryostat (insulation device) to
maintain the very cold environment necessary to support superconductivity,
and an electronic system that energizes, monitors, controls and protects the
magnet and the cryostat. The Company's magnets for MRI Systems are made with
wire from its IGC Advanced Superconductors Division ("IGC-AS"), and fitted
with cryogenic refrigerators supplied by its subsidiary, APD Cryogenics Inc.
("APD"). In fact, the Company is the only vertically integrated manufacturer
of superconductive MRI magnet systems, which the Company believes is an
important source of competitive strength.
The Company's latest generation of superconductive MRI magnet systems
consists of three MRI magnet systems with field strengths of 0.5, 1.0 and
1.5 Tesla (the "Superconductive MRI Magnets"). The Company believes that the
Superconductive MRI Magnets offer customers a substantial technological
advantage over other superconductive MRI magnet systems currently available
in commercial quantities from its competitors. Specifically, the Company
believes that the Superconductive MRI Magnets are lighter, more compact,
easier to site in a hospital or clinic and may have lower maintenance costs
than other available superconductive MRI magnet systems - all factors that
the Company believes are important in an end-user's selection of an MRI
System.
o Superconductive Wire. Through IGC-AS, the Company manufactures the two
principal LTS materials that are commercially available for the construction
of superconductive magnets: niobium-titanium ("Nb-Ti") wire, and niobium-tin
("Nb3Sn") wire. In contrast to the relatively large market for Nb-Ti wire,
Nb3Sn multi-filamentary wire, which has been under development for many
years, is sold only in limited quantities. During fiscal years 1996, 1995
and 1994, sales of superconductive wire accounted for 22%, 24% and 30%,
respectively, of the Company's net sales.
Nb-Ti superconductive wire is composed of hundreds to thousands of
continuous Nb-Ti filaments embedded in a matrix of copper or other
nonferrous material. The process of manufacturing Nb-Ti wire is exacting,
and some fabrication losses may be incurred.
o Other Superconductive Magnet Systems. Through its Magnet Business Unit,
the Company also designs and builds superconductive magnet systems for
various scientific and defense applications. These special purpose
superconductive magnet systems are typically one of a kind, custom built
systems. For example, the Company is currently manufacturing a portion of a
45 Tesla Hybrid Magnet for the National High Magnetic Field Laboratory at
Florida State University ("NHMFL"). The Company is also designing and
building a SMES System which it hopes will ultimately lead to a much larger
market for multiple systems. See "Research and Development - New Product
Development: SMES" below. The Company is also working with NHMFL regarding
the design and manufacture of a technology-leading 900 MHz superconductive
magnet for NMR.
o Permanent Magnet Products. The Company's Field Effects Division ("Field
Effects") develops, manufactures and sells permanent magnet systems for use
in low field-strength MRI Systems. A maintenance-free magnet and a
self-contained magnetic field with small fringe fields are among the
advantages of these magnet systems. The potentially lower capital and
operating costs of certain permanent magnet MRI Systems may enable many
smaller community hospitals and hospitals located in developing countries to
provide MRI diagnostic services to their patients. The imaging quality of
such systems is adequate for many diagnostic purposes, but it may not, under
current technology, be comparable to images obtained with higher
field-strength superconductive systems. Sales of such magnet systems to date
have not been significant.
In connection with the Company's strategic alliance with the UK-based firm of
Surrey Medical Imaging Systems Limited ("SMIS") (see "Investments - Surrey
Medical Imaging Systems" below), Field Effects has developed additional MRI
system components, and further developed its MRI permanent magnet
technology, and combined them with SMIS' products to create a complete,
permanent magnet-based MRI system. This product will be marketed via a
newly-created joint venture with SMIS. (See "Research And Development - New
Product Development: Low-cost, Permanent Magnet-Based MRI Systems" below.)
There have been no significant sales of this new product to date.
Marketing
The Company markets its magnetic products and technology through its
own personnel, and licenses the manufacture and marketing of superconductive MRI
magnet systems for certain customers to its European joint venture. The Company
also has a wholly-owned European marketing and service subsidiary located in
England, as well as a foreign sales corporation located in Barbados.
Export Sales. MRI magnets sold to Philips, a Dutch company, and
Hitachi, a Japanese company, were accounted for as export sales even if
installed in the U.S. On that basis, the Company's net export sales (including
the Refrigeration Products segment) for fiscal years 1996, 1995 and 1994 totaled
$46.5 million, $51.6 million and $22.0 million, respectively, most of which were
to European customers.
European Joint Venture. The Company and GEC Alsthom S.A.
("GEC-Alsthom"), a leading French industrial group in the areas of electrical
and electromechanical equipment, have participated since 1987 in a joint venture
named GEC Alsthom Intermagnetics S.A. ("AISA"). AISA manufactures in France,
under license from the Company, superconductive MRI magnet systems.
The Company and GEC Alsthom recently re-negotiated the agreement
pursuant to which the parties created AISA, and the various licenses under which
AISA conducts its business. Under the renegotiated agreement, AISA transferred
its capability for the manufacture of superconductive wire to GEC Alsthom, and
the Company increased its ownership interest in AISA from 25% to 45%.
Additionally, the license from the Company under which AISA manufactures
superconductive MRI magnet systems was extended from May, 1997 to May, 2005.
The Company's investment in AISA has been accounted for using the equity method
of accounting. Accordingly, the Company's share of AISA's losses have been
charged to operations to the extent of the Company's investment in AISA.
Principal Customers. A significant portion of the Company's sales are
through its Magnetic Products segment, and most of those sales consist of MRI
related products - superconductive MRI magnet systems or superconductive wire
for use in such systems. During the past three fiscal years, sales to customers
accounting for more than 10% of the Company's net sales in such years aggregated
approximately 70% of net sales in fiscal 1996, 73% of net sales in fiscal 1995
and 74% of net sales in fiscal 1994. See Notes I and J of Notes to Consolidated
Financial Statements, included in response to Item 8 hereto.
Substantially all of the Company's sales to the MRI industry are to
four customers, two of which are significant. Philips is the current principal
customer for the Company's MRI products. Pursuant to a five-year agreement
(which expires in June, 1997, subject to automatic extension for successive
one-year periods unless previously terminated in accordance with the agreement),
the Company sells to Philips superconductive MRI magnet systems of various field
strengths for incorporation in Philips' proprietary MRI Systems. The agreement
requires Philips to purchase a certain level of its requirements for such
superconductive MRI magnet systems from the Company at annually determined
prices, with the balance to be acquired from AISA, all in accordance with an
agreement between AISA and the Company. See "Marketing - European Joint Venture"
above. Sales to Philips (including sales by the Refrigeration Products segment)
amounted to approximately 44%, 52% and 32% of the Company's net sales for fiscal
1996, 1995 and 1994, respectively.
The Company's second principal customer for MRI products is GE. The
Company has an agreement (which expires in December 1996) with GE providing for
the sale of superconductive wire for use in MRI magnets manufactured by GE.
Under the agreement, GE retains the right to decrease or cancel orders upon
notice to the Company and payment for work performed prior to such decrease or
cancellation. GE accounted for approximately 18%, 21% and 26% of the Company's
net sales in fiscal 1996, 1995 and 1994, respectively.
Within the Magnetic Products segment as a whole, the Company's third
most significant customer is the U.S. government or its agencies. Approximately
9%, 9% and 16% of the Company's net sales in fiscal 1996, 1995 and 1994,
respectively, involved direct sales to the U.S. government or its agencies. The
Company also has contracts with private parties that are funded under U.S.
government programs and which are not included in the percentage above. Direct
and indirect U.S. government programs are a principal portion of the Company's
externally funded research and development activities. See "Research and
Development" below. In general, direct and indirect U.S. government contracts
are subject to renegotiation or termination under various circumstances. See
"Backlog" below.
Competition/Market
Across the four principal types of products for its Magnetic Products
segment (see "Principal Products" above), the Company derives more than 73% of
its revenue from manufacturing and selling superconducting MRI magnet systems,
superconductive wire and permanent MRI magnet systems for use in MRI Systems.
Although US demand for MRI Systems appears to have declined and non-US demand is
growing, the Company believes that worldwide sales of MRI Systems in 1997 will
not be significantly different from 1996.
A significant factor affecting the Company is the fact that MRI Systems
compete indirectly with other diagnostic imaging methods such as conventional
and digital X-ray systems, nuclear medical systems, ultrasound, and X-ray CT
scanners. Additionally, most large MRI Systems suppliers perceive that there are
technical advantages to higher field-strength (0.5T or greater) imaging systems
based upon superconductive magnets. However, there are MRI Systems that use
resistive electromagnets and permanent magnets, which are limited by high power
consumption or by basic material properties. As a result, these systems produce
lower magnetic field-strengths than do superconductive magnets. Lower field
strengths generally translate into lower quality images. The cost of certain
cryogenic liquids, such as helium, may cause markets in developing countries to
prefer the use of resistive or permanent magnets, despite image quality.
Moreover, improved MRI System components for low field strength magnet systems
have improved image quality. Indeed, several MRI Systems integrators, including
the Company's joint venture with SMIS, have recently introduced MRI Systems
based upon such low field resistive or permanent magnets. (See "Research And
Development - New Product Development: Low-cost, Permanent Magnet-Based MRI
Systems" below.)
The Company's Magnetic Products are subject to substantial competition
within each of the markets for its principal products. Moreover, practical and
cost-effective conductors developed as a result of new discoveries in the field
of HTS materials could eventually reduce the market for the Company's current
LTS technology, although the Company (based upon the information currently
available to it) does not believe this is likely to happen in the near future.
See "Research and Development - New Product Development: HTS" below.
o Superconductive MRI Magnet Systems. Within the market for MRI magnet
systems, the Company's competitors fall into two categories: (1) magnet
manufacturers that make MRI magnet systems for sale to MRI Systems
integrators, and (2) MRI Systems integrators that manufacture
superconductive magnet systems for their own use.
The Company considers its principal competitor in the manufacture of
superconductive MRI magnet systems to be Oxford Magnet Technology Limited
("OMT"), a joint-venture between Siemens AG (51%) and Oxford Instruments
Group, plc (49%) ("Oxford"), a United Kingdom company that formerly owned
100% of OMT. While OMT has sold substantially more superconductive MRI
magnet systems, has greater production capacity, and greater financial
resources than the Company, the Company believes it can compete effectively
against OMT on both technological and cost bases.
GE and Toshiba are examples of MRI Systems integrators that manufacture MRI
magnet systems for use in their own MRI Systems. Historically, these
integrators have been unavailable to the Company as customers for its
superconductive MRI magnet systems, notwithstanding the fact that they
represent a substantial portion of the potential market for superconductive
MRI magnet systems. The Company has instead treated these companies as
customers or potential customers for the Company's component products, such
as superconductive wire or cryogenic coolers.
o Superconductive Wires. The single largest market for superconductive wire is
MRI. In fact, most of the superconductive wire manufactured by the Company
is used to manufacture superconductive MRI magnets (either internally by its
own Magnet Business Unit, or externally by other customers). Regarding its
superconductive wire products, the Company believes that it, Oxford
Superconducting Technology, and Supercon, Inc. are the major suppliers of
Nb-Ti in LTS wire form for the domestic (U.S.) markets. The Company also
believes that the three of them along with Teledyne S.C. (a subsidiary of
Teledyne Wah Chang) are the major suppliers of Nb3Sn superconductive
materials for the domestic markets. There are several foreign manufacturers
of Nb-Ti superconductive materials in wire form; none of them have been a
significant factor in the domestic market.
The Company's prices for superconductive materials are generally
competitive, and the Company believes that product quality and the ability
to meet delivery schedules are factors important to its market position.
o Other Superconductive Magnet Systems. With respect to Other Superconductive
Magnet Systems, the Company has no single identifiable competitor.
Historically, the Company has competed against many different companies,
domestically and internationally, for the opportunity to design and build
non-MRI superconductive magnet systems, including Oxford. The Company
expects that competition for such opportunities will vary on a case to case
basis, but that such competition will generally focus on price and
technology. While the Company believes that it can remain competitive
within this area, there can be no assurances that the Company will continue
to be successful.
o Permanent Magnet Products. In the development and manufacture of permanent
magnets for MRI Systems, the principal competitor of the Company's Field
Effects Division is Sumitomo Special Metals Co., Ltd. ("Sumitomo"), a
Japanese company which was the first company to market such magnets
utilizing neodymium boron iron (NdBFe) material. The Company believes that
Sumitomo's primary customer for its permanent magnet products is Hitachi.
The Company believes that patents are not a significant competitive
factor in the conduct of its business in this segment. While the Company does
not have any substantial patent protection in this segment, it owns, or is a
licensee under, a number of patents relating to superconductive materials, the
manufacture of superconductive materials, and the permanent magnet systems
manufactured by the Field Effects Division.
Backlog
The Magnetic Products backlog at July 28, 1996 was approximately $23.7
million, compared to approximately $33.7 million on July 30, 1995. Approximately
14%, 24% and 29% of this segment's backlog at July 28, 1996 were represented by
orders from GE, the U.S. government or its agencies and Philips, respectively.
Most of the July 28, 1996 backlog is expected to be completed in fiscal 1997.
However, the amount of backlog is not necessarily indicative of future revenues
because the Company's backlog in this segment is subject to variations from time
to time as products are manufactured and new orders are received.
Backlog represents orders believed by the Company to be firm on the
date indicated, subject, in certain cases, to future agreement on delivery dates
and technical specifications. The Company's contract with GE for superconductive
wire, contains provisions allowing GE to increase, reduce or cancel orders, or
delay delivery dates, subject to certain restrictions and payments. Direct
contracts with the U.S. government (including cost-plus contracts) are included
in the backlog figures at the contract amount less amounts previously recognized
as revenue. Approximately $2 million of such backlog has not yet been funded by
the government. Certain direct and indirect (as a subcontractor) contracts with
the U.S. government have provisions permitting the government to perform a final
audit of such contracts and possibly seek a downward adjustment of the contract
price on the basis of such audit and also contain provisions permitting
termination for the convenience of the government. Upon such termination, the
Company would be entitled to be compensated for costs incurred, including
reasonable termination costs. Certain of such contracts may also be subject to
termination in the event that more than 5% of the Company's outstanding shares
become subject to foreign ownership.
Raw Materials and Inventory
The Company's manufacturing process for superconducting and permanent
magnet systems requires production periods of up to six months. Additionally,
certain materials and parts used in production must be ordered well in advance
of required delivery dates. The Company's investment in inventories for
production of MRI magnet systems is based primarily on production schedules
required to fill existing and anticipated customer orders.
Nb-Ti raw material required for production of Nb-Ti superconductive
wire is purchased from several different sources. The Company has not
experienced substantial difficulty in obtaining such materials.
The Company's Field Effects Division employs permanent magnet (ferrite)
materials. There are several qualified domestic and international sources for
these ferrite materials, but the industry is currently running at capacity in
response to strong demand from the automotive industry. The principal effect of
this strong demand has been to increase the price for ferrite materials and
lengthen the Company's lead time for ordering the substantial quantities of this
material required for its products. In light of the current low level of demand
for its permanent magnet products and efficient management of its needs, the
Company does not at this time believe that the supply of permanent magnet
materials would have a substantial impact on its business.
Warranty
The expense to the Company to date for performance of its warranty
obligations has not been significant.
REFRIGERATION PRODUCTS
----------------------
Principal Products
The Company's subsidiary, APD, produces specialty cryogenic
refrigeration equipment for use in medical diagnostic equipment, laboratory
research and semiconductor manufacturing. The Company's subsidiary, InterCool
Energy Corporation ("ICE"), designs, develops and sells its proprietary
refrigerants.
APD produces four distinct products:
o MRI Products. APD produces specialized shield coolers and recondensers
(refrigerators) that reduce or eliminate liquid helium and liquid nitrogen
boil-off during normal operation of conventional superconductive MRI magnet
systems. The Company's Magnet Business Unit uses APD refrigerators for its
superconductive MRI magnet systems. In addition, APD sells these
refrigerators to other manufacturers of superconducting MRI magnet systems.
APD licenses Daikin Industries, Ltd. ("Daikin"), a Japanese company, to
produce shield coolers and other cryogenic products for the Japanese market.
It has captured a significant portion of that market for shield coolers.
o Laboratory Cryogenic Systems. Laboratory cryogenic systems are sold to
government, university and industrial research laboratories for use in
applications such as spectroscopy, X-ray diffraction and narrow gap magnet
studies, where they are used to reduce the temperatures of materials under
study. These products generate cryogenic interface temperatures ranging from
2 Kelvin to 77 Kelvin using liquid nitrogen or helium open-cycle transfer
systems or closed-cycle refrigeration systems.
o Cryogenic Vacuum Pumps (Cryopumps). Cryopumps are used principally in the
semiconductor industry, but have other industrial and research applications.
APD sells cryopumps principally to manufacturers of semiconductor production
equipment. Through a joint effort with Daikin, APD manufactures and sells
the Marathon(R) line of cryopumps. The product line is tailored for
semiconductor processing equipment and is supported by APD and Daikin with a
comprehensive world-wide sales and service network.
o CRYOTIGER(R) Refrigeration Systems. APD also sells a line of specialized
cryogenic refrigeration systems under the registered tradename "CRYOTIGER".
These refrigeration systems are intended to provide refrigeration
optimization in the range of 70 Kelvin to 120 Kelvin for a broad range of
applications. The first application of CRYOTIGER systems has been in
electronic detector systems. Because the CRYOTIGER line is a closed-cycle
refrigeration system, it competes principally against liquid nitrogen
coolers, which in contrast to the CRYOTIGER line, require the continued
purchase of liquid nitrogen.
In addition to these cryogenic products made by APD, the Refrigeration
Products segment includes the Company's proprietary refrigerants. The Company
believes that its FRIGC(R) family of environmentally acceptable refrigerants has
broad-based commercial potential to replace ozone-depleting chlorofluorocarbons
("CFC's") currently being used as refrigerants. In June, 1995, the Company
created a new subsidiary, InterCool Energy Corporation ("ICE") through which it
will pursue commercialization of FRIGC refrigerants.
FRIGC refrigerants are each custom designed for a specific application.
ICE has demonstrated various custom tailored blends of its FRIGC refrigerants
under different operating conditions in automobiles, household refrigerators,
home and commercial air conditioners and commercial freezers.
ICE's FR-12(R) refrigerant is the first commercial product from its
FRIGC family of refrigerants. ICE markets FR-12 refrigerant for use as a
replacement for R-12 (also known as CFC-12) for mobile air conditioning
applications and certain stationary refrigerant applications.
ICE has made significant progress with respect to commercializing FRIGC
FR-12 refrigerant. ICE successfully obtained final EPA listing of FRIGC FR-12
refrigerant as an acceptable substitute for R-12 in mobile air conditioning
applications effective as of July 13, 1995, and as a replacement for R-12 in
certain stationary applications in November, 1995. In this regard, FR-12
refrigerant met or exceeded the EPA's listing requirements, including proof that
FR-12 refrigerant meets ozone depletion and global warming targets, and that
FR-12 refrigerant is neither toxic nor flammable with respect to the conditions
under which it is used. Use of FR-12 refrigerant is nonetheless subject to
certain standard conditions (for example, the use of special fittings and labels
which are required for all refrigerants in mobile applications) to prevent
unintended mixing of different refrigerants and facilitate recovery of
refrigerants for recycling.
In June, 1995, the U.S. Patent Office issued to ICE U.S. Patent #
5,425,890 entitled Substitute Refrigerant For Dichlorodifluoromethane
Refrigeration Systems. This patent, which broadly protects FRIGC FR-12
refrigerant, covers the specific formula accepted for listing by the EPA. ICE is
currently pursuing foreign protection in targeted markets.
Notwithstanding ICE's significant progress to date in commercializing
FRIGC FR-12 refrigerant, there can be no assurances that FRIGC FR-12 will win
wide-spread acceptance in the market or otherwise prove a commercial success.
Marketing
The Company markets its MRI products in this segment through a direct
sales force based in APD's Allentown, Pennsylvania headquarters, APD's West
Coast office in Sunnyvale, California and a European office near Oxford,
England. APD also markets its laboratory systems and cryopump products through
scientific and medical equipment sales representatives and distributors. APD
also has a world-wide partnership with Daikin pursuant to which the parties sell
common cryopumps under the "Marathon" trademark in well-defined territories.
CRYOTIGER refrigeration systems are sold through APD's direct sales force, as
noted above, and through scientific equipment sales representatives.
Because it does not have experience distributing and selling
refrigerants, ICE is pursuing a strategy of securing distributors with
significant experience in relevant consumer and other end-user markets. On
September 20, 1995, ICE announced the appointment of Pennzoil Products Company
("Pennzoil") as the Master Distributor of FRIGC FR-12 refrigerant for mobile
applications and certain stationary markets in North America pursuant to a long-
term agreement. Subsequently, ICE entered a non-exclusive distribution agreement
with Ausimont S.p.A. of Milan, Italy with respect to Europe, In addition, ICE
made sales of FRIGC FR-12 refrigerant in the Middle East. ICE is continually
working to identify qualified distributors for new and existing territories.
Additionally, ICE is working extensively with its existing distributors to
market FRIGC FR-12 refrigerant to increase consumer awareness and maximize
market penetration.
Competition/Market
The Company's Refrigeration Products are subject to substantial
competition within each of the markets for its principal products.
o MRI Products. The Company considers its principal competitor in the
manufacture of recondensers and shield coolers to be Leybold AG ("Leybold").
Leybold is headquartered in Germany, and has sold substantially more
recondensers and shield coolers than the Company. Moreover, Leybold has
greater production capacity, greater financial resources than the Company,
and successfully locked up many of APD's potential customers in multi-year
supply agreements. The Company nonetheless believes that it can compete with
Leybold on both technological and cost bases.
o Laboratory Cryogenic Systems. With respect to Laboratory Cryogenic Systems,
the Company has no single identifiable competitor. Historically, the Company
has competed against many different companies, domestically and
internationally. The Company generally competes in this area on the basis of
price and product quality.
o Cryogenic Vacuum Pumps (Cryopumps).The Company believes Helix Technology
Corporation ("Helix") (which markets its products under the names "CTI
Cryogenics" and "CTI") to be the world leader in marketing cryopumps. The
Company believes that Helix controls 50% or more of the world market for
cryopumps. Notwithstanding Helix's market predominance, the Company believes
that it can compete with Helix on technological and equipment performance
bases.
o CRYOTIGER Refrigeration Systems. The CRYOTIGER line is based upon
proprietary technology recently developed and patented by APD. The Company
feels that there is a significant opportunity for this product in the
marketplace. CRYOTIGER refrigeration systems presently compete against
certain closed-cycle machines, known as a Stirling refrigerator, which the
Company believes are more costly and less reliable than its CRYOTIGER
product. Additionally, CRYOTIGER refrigerators, which are closed-cycle
refrigeration systems, compete principally against open-cycle coolers that
rely on reservoirs of liquid nitrogen which must be replenished
periodically. Consequently, although the initial purchase price for a
CRYOTIGER refrigerator may exceed the price of a comparable liquid nitrogen
cooler, this higher initial cost will be offset by lower operating and
maintenance costs and greater ease of use.
o FRIGC Refrigerants. With respect to the mobile applications, most post-1994
automobile air conditioning systems have been designed for use with R-134a
refrigerant (also known as HFC-134a). R-134a, however, cannot be used in
most pre-1994 R-12 automotive air conditioning systems without substantial
and costly changes - changes not required for use of the company's FR-12
refrigerant. Although this market for pre-1994 automobile air conditioning
systems is finite in nature, ICE believes that by entering this market now
it will gain valuable experience and name recognition that will greatly
facilitate future commercialization of other FRIGC refrigerants for other
applications. ICE also believes that this market opportunity could prove
significant as production of R-12 in the United States ceased after December
31, 1995, and existing stockpiles of R-12 are steadily depleted over the
next several years. There are other alternative refrigerants offered by
competitors as substitutes for R-12, but ICE does not currently view these
alternatives as posing a significant competitive threat. ICE currently
believes that its most significant competitive challenges are posed by the
cost and availability of R-12, and the cost and convenience of retrofit kits
to adapt mobile air conditioning systems from R-12 to the use of R-134a.
R-12 is also used in many stationary applications such as commercial
refrigeration and air conditioning equipment, ice machines and food
chillers. ICE believes that FR-12 refrigerant may also find market
acceptance in one or more of these applications. However, there are other
alternative refrigerants currently or soon to be marketed as R-12
substitutes in these stationary applications, and there are no assurances
that ICE's FR-12 will succeed in winning any significant portion of these
markets.
Backlog
Due to the relatively short production cycle, the Company does not
consider backlog to be material to an understanding of the Refrigeration
Products business.
Raw Materials and Inventory
For its cryogenics products, APD purchases certain major components for
its products from single sources, but the Company believes alternate sources are
available. APD generally maintains a sufficient inventory of raw materials,
assembled parts, and partially and fully assembled major components to meet
production requirements.
With respect to its refrigerant products, on May 11, 1995, ICE signed
an agreement with Schenectady International, Inc. ("SII") for the manufacture of
FR-12 refrigerant. ICE believes that the agreement with SII, a privately held,
multinational chemical company with thirteen (13) manufacturing facilities in
ten (10) countries, will assure a quality supply of FR-12. SII's ability to
supply commercial quantities of FR-12 will depend on the availability of certain
raw materials, which are manufactured by a small number of companies. Due to the
small number of suppliers, there are no assurances ICE will be able to produce
FR-12 at a competitive cost.
Warranty
The expense to the Company to date for the performance of its warranty
obligations has not been significant.
RESEARCH AND DEVELOPMENT
------------------------
General Research and Development
The Company believes its research and development activities are
important to its continued success in new and existing markets.
Externally-funded development programs have directly increased sales of design
services and products and, at the same time, assisted in expanding the Company's
technical capabilities without burdening operating expenses. Under many of the
Company's government contracts, the Company must share any new technology
resulting from such contracts with the government, which would include the
rights to transfer such technology to other government contractors; however, the
Company does not currently expect such rights to have a material adverse effect
on it.
Previously, a substantial portion of research and development
expenditures has been covered by external funding, principally from the U.S.
government. In fiscal 1996, approximately 56% of total research and development
activities were paid by such external programs compared to approximately 53% and
74% in fiscal years 1995 and 1994, respectively. During fiscal years 1996, 1995
and 1994, product research and development expenses, including those of the
Refrigeration Products segment, were as follows:
Fiscal Year Ended
------------------------------------------------
May 26, 1996 May 28, 1995 May 29, 1994
------------ ------------ ------------
Internally-funded $ 5,075,000 $ 5,005,000 $ 2,603,000
Externally-funded $ 6,603,000 5,539,000 7,483,000
----------- --------- ---------
Total $11,678,000 $10,544,000 $10,086,000
=========== =========== ===========
The Company expects total research and development expenditures to continue to
increase in absolute dollar amounts, but the percentage of these activities
funded by external sources to decrease.
The Company believes that, apart from continued reductions in federal
spending on research and development, two other trends will limit external
funding from U.S. government sources. First, and especially in the context of
HTS technology, government contracts are emphasizing cost-sharing, which
requires the awardee to contribute 20% to 50% of the total cost of the
development effort. This cost-sharing requirement may limit the Company's
reliance on the government as a significant source of research and development
funds.
Second, the Company's continued growth has now placed it outside the
definition of a "small business" for certain government-sponsored research and
development programs for small businesses, such as Small Business Innovation
Research ("SBIR") grants. "Small businesses" are defined, for this purpose, as
concerns which employ fewer than 500 employees. During its fiscal year 1995,
the Company won SBIR grants totaling approximately $5,004,000, all of which will
be completed even though the Company is no longer eligible for new SBIR grants.
The Company can experience, in any given year, significant increases or
decreases in external funding depending on its success in obtaining funded
contracts.
New Product Development: HTS.
The Company believes that HTS materials in the form of Wire/Tape may,
in the future, have a substantial impact on commercial markets and applications
for superconductors. In particular, the Company believes HTS materials could be
suitable for larger scale, specialized electric power applications and high
field magnets in five to ten years, depending upon further advances.
Accordingly, the Company's research and development activities are focused on:
(1) converting HTS materials into usable Wire/Tape with acceptable current
densities, and (2) creating devices and equipment based upon such Wire/Tape.
Because the Company believes that its expertise in processing LTS
materials into wire and tape is applicable to the processing of HTS materials,
the Company has focused its efforts on the development of HTS Wire/Tape. The
Company does not currently conduct substantial research and development on the
use of HTS materials in the form of thin films, but relies instead on pursuing
strategic alliances with some of the national laboratories. Additionally,
although the Company has done some basic research on identifying new HTS
materials, the Company does not believe it currently has the resources to make a
meaningful contribution in the highly competitive and costly endeavor of
identifying new HTS materials.
The Company's activities in this area have been funded primarily
through government-supported research and development programs, including joint
research agreements. During the Company's 1996 fiscal year, the Company
continued to work under its development agreement with the U.S. Department of
Energy's Argonne National Laboratory to develop commercial HTS wire products
from bismuth-based materials. The project's goal is to implement a prototype
manufacturing process that would improve the properties and reproducibility, and
reduce the costs of manufacturing longer HTS wire lengths. This collaboration
between the Company and Argonne resulted in the successful manufacture of up to
1,200-meter lengths of multi-filament conductor and high-performance
multi-filament tape conductors. The long lengths of conductor were used to
fabricate an engineering model magnet that generated a field strength of .47T
at liquid nitrogen temperatures (77 Kelvin) and a record field strength of 4.2T
at liquid helium temperatures (4.2 Kelvin).
While the Company expects to continue its focus on bismuth-based HTS
materials, it is seeking to broaden its technology base by developing wires
using thallium- and yttrium-based materials, which show promise of even higher
superconducting performance than their bismuth-based counterparts.
The Company has continued to develop applications of HTS materials and
Advanced Devices. In a partnership agreement with Oak Ridge National Laboratory,
Waukesha Electric System and Rochester Gas and Electric, the company is
developing HTS transformers. A 1 MVA demonstration system is now being
fabricated.
The Company is also part of a group that includes Lockheed Martin
Corporation, Southern California Edison Corporation and Los Alamos National
Laboratory. This team received an award under the U.S. Department of Energy
("DOE") Superconductivity Partnership Initiative ("SPI") program to develop a
15-KV HTS Fault Current Limiter. This two year program totaling $8.4 million
will be 50% cost shared by the industrial partners.
Under a previous DOE SPI related program the company has provided HTS
materials to General Electric Company that recently enabled them to fabricate
the worlds largest HTS racetrack generator coil. A similar program funded by the
Naval Research Laboratories resulted in the demonstration of a record
performance homopolar motor that utilized HTS coils supplied by the Company.
An Advanced Technology Program funded by the Department of Commerce has
enabled the Company, teamed with Dupont, to develop HTS pick-up coils for low
field MRI and high field NMR systems and HTS flux trap high field insert magnets
for NMR spectrometers.
The Company does not believe its current operations depend upon
successful market acceptance of HTS-based products, nor are the Company's
continued operations necessarily dependent on its success in the HTS marketplace
even if HTS-based products do become commercially viable. However, if technical
problems are solved and HTS materials become feasible for commercial
applications in fields in which the Company competes, then the Company could be
adversely affected unless it is able to develop products using HTS materials.
Accordingly, while representing a relatively high-risk, long-term investment of
its resources, the Company perceives HTS technology as an important future
commercial opportunity of major strategic significance. Consequently, the
Company expects to continue to work in this area.
Because of the perceived high commercial potential of HTS materials,
HTS research is a highly competitive field, and currently involves many
commercial and academic institutions that may have more substantial economic and
human resources to devote to HTS research and development than the Company. In
addition, due to the proliferation of patents and patent applications, there can
be no assurance that the Company will be able to compete effectively in this
area due to the potential patent position of competitors.
New Product Development: SMES
The Company recently was awarded a contract to build a micro
superconductive magnetic energy storage ("SMES") system for the U.S. Air Force.
The Company believes the contract award represents an opportunity to enter a new
market with promising commercial applications for superconductive magnets. A
SMES system acts as an electro-magnetic storage system that protects critical
power loads from interruptions, spikes and sags. Utilities currently minimize
power interruptions through use of Uninterruptible Power Supplies ("UPS"), which
may use tens of hundreds of conventional lead acid batteries per system, require
costly maintenance, and present an environmental hazard upon disposal. By
contrast, a micro SMES is more energy efficient, easier to maintain, has a life
of more than 20 years, and is environmentally friendly. While the potential SMES
market appears substantial, there can be no assurances that the market will
develop or that the Company will be able to successfully build on its entrance
into that market through the award of the micro SMES system contract.
Additionally, the Company faces other competitors interested in the SMES market,
some of which may have superior resources and patent positions.
New Product Development: Refrigerants
ICE currently expects that, over the long run, it will introduce other
refrigerants from its FRIGC family of refrigerants for other carefully targeted
market opportunities. ICE believes that its refrigerant technology - which is an
outgrowth of its expertise in cryogenic technology - may give it a superior
insight into refrigerant design and more flexibility in designing refrigerating
hardware. Nonetheless, many other companies and research facilities currently
are working to identify environmentally acceptable alternatives to the existing
CFC- and HFC-based refrigerants. Many of these companies are larger, better
financed, better staffed and more experienced in the refrigerant business than
ICE. There can be no assurances that ICE's future refrigerants will meet all
relevant regulatory and commercial requirements or that they will be accepted in
the market.
Moreover, ICE's success in developing and commercializing FRIGC
refrigerant and associated technology will depend on its continued ability to
obtain patents, maintain trade secret protection and operate without infringing
on the proprietary rights of third parties. ICE expects to continue filing
additional patent applications relating to its new refrigerant technology in the
near future. No assurance can be given that any additional patents will issue
with respect to patent applications filed or to be filed by ICE. Furthermore,
even if such patents issue, there can be no assurance that any issued patents
will protect against competitive products or otherwise be commercially valuable.
New Product Development: Low-cost, Permanent Magnet-Based MRI Systems
The Company has been working through its Field Effects Division with
SMIS ("see "Investments - Surrey Medical Imaging Systems Limited", below) to
develop a low-cost, permanent magnet-based MRI System. In May, 1996, the Company
formally entered a joint venture with SMIS through the formation of a limited
liability company, IMiG MRI Systems LLC ("IMiG LLC"). Under the joint venture
agreement, the Company owns a fifty percent share of IMiG LLC and the balance is
owned by SMIS. (The ownership shares can shift in favor of the Company in the
event that SMIS does not elect to meet certain funding requirements of IMiG
LLC.)
IMiG LLC will market products developed jointly by the parent
companies, including a permanent magnet-based MRI system for clinical diagnostic
use. This system will be for sale initially into non-U.S. markets. While IMiG
LLC believes that it has developed a product which is especially attractive in
certain niche markets by virtue of its relatively low purchase, operating and
maintenance costs, there can be no assurance that it will be able to compete
successfully in markets which have until now been largely dominated by the major
MRI systems integrators referenced earlier. Additionally, IMiG LLC is pursuing
FDA approval of the system, which is a pre-requisite to its sale in the U.S.,
but there can be no assurance that IMiG LLC will succeed in obtaining such
approval. At the end of fiscal year 1996, the Company had installed one system
in a hospital in the U.K., for clinical demonstration purposes, and made its
first commercial sale to a customer in Russia.
INVESTMENTS
-----------
ULTRALIFE BATTERIES, INC.
The Company owns 975,753 shares of the common stock (approximately 12%
of the outstanding common stock) of Ultralife Batteries, Inc. ("Ultralife").
Headquartered in Newark, N.Y., Ultralife produces lithium batteries that are
the same size and voltage as standard batteries, but have double the operating
life and a longer shelf life (up to 10 years) than alkaline or zinc carbon
batteries. These batteries currently command a premium price in the market for
long-life batteries.
Ultralife focuses on markets which require increased energy density and
extended shelf life. The Company is represented on Ultralife's Board of
Directors.
Ultralife completed an initial public offering of its common stock on
December 31, 1992, and a second public offering on December 9, 1994. During
fiscal year 1996, the Company sold, in a series of transactions, 85,000 shares
of its Ultralife holdings on which it reported an aggregate gain of $1,414,000.
The Company may in the future sell additional Ultralife shares as market
conditions warrant.
Ultralife's common stock is traded on the NASDAQ National Market System
under the symbol ULBI. On July 29, 1996, Ultralife's common stock closed at a
price of $12 per share.
SURREY MEDICAL IMAGING SYSTEMS LIMITED
As of July 31, 1996, the Company owns 354,223 of the outstanding
ordinary shares (approximately 23%) of Surrey Medical Imaging Systems Limited
("SMIS"), acquired at a cost of $3,529,000. In addition, the Company purchased
980,000 redeemable preference shares of SMIS at a cost of $1,511,000. These
shares are non-voting unless SMIS is unable to attain certain specified
financial targets. These preference shares are redeemable on the earlier of
October 31, 1997 or the date of a public offering. Additionally, these
preference shares carry a cumulative redemption premium of 15% per annum. The
purchase of the preference shares included the acquisition of an option to
purchase an additional 2.5% of the ordinary shares of SMIS at a price of
approximately $6 per share.
Located in Guildford, England, SMIS focuses on developing and
marketing electronics and software for MRI and nuclear magnetic resonance
spectroscopy applications. It also supplies equipment using X-ray and gamma-ray
Computerized Tomography ("CT") and Ultrasonics for use in non-destructive
testing of a variety of materials.
The Company believes that complete magnetic resonance system products
can be built by combining SMIS' systems electronics and software with
Intermagnetics' magnet systems. In this way, Intermagnetics and SMIS are able to
address certain niche markets in both the clinical and industrial sectors which
would be largely unavailable to the parties separately. The recently formed
joint venture, IMiG LLC, is one such example. (See "Research And Development -
New Products: Low-cost, Permanent Magnet-Based MRI Systems" above.) Further,
access of each party to a broader customer base, and augmented market
intelligence, are expected to provide a greater sales potential for each of the
parties' products individually. To date, the parties have collaborated on a
variety of different opportunities including most recently a successful joint
bid to develop a non-destructive NMR System for food analysis.
As SMIS is privately held, the market value of this investment is not
readily determinable.
PERSONNEL
---------
On May 26, 1996, the Company employed 504 people.
Within the Magnetic Products segment, the production and maintenance
employees of the Company's IGC-AS Division, which is located in Waterbury,
Connecticut, are represented by the United Steelworkers of America ("United
Steelworkers"). The Company and the United Steelworkers negotiated a five year
collective bargaining agreement, effective May 31, 1993. Within the
Refrigeration Products segment, the production employees of the Company's
subsidiary, APD, which is located in Allentown, Pennsylvania, are also
represented by a labor union, the International Association of Machinists and
Aerospace Workers ("IAMAW"). The Company and IAMAW negotiated a three-year
collective bargaining agreement, effective August 8, 1994.
There is great demand for trained scientific and technical personnel,
and the Company's growth and success will require it to attract and retain such
personnel. Many of the prospective employers of such personnel are larger and
have greater financial resources than the Company and may be in a better
position to compete with the Company for prospective employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The executive officers of the Company are:
Name Position Age
- ---- --------- ---
Carl H. Rosner Chairman of the Board of Directors, 67
President and Chief Executive Officer
Charles J. Dannemann Senior Vice President- Operations 56
Michael C. Zeigler Senior Vice President- Finance 49
& Chief Financial Officer
Gary L. Hamilton InterCool Energy Corporation - 46
Senior Vice President
Ian L. Pykett Technology Development Operations 43
- Vice President
Richard L. Rhodenizer Magnet Business Unit - Vice President 59
Robert S. Sokolowski IGC-AS - Vice President, 43
General Manager
Bruce A. Zeitlin Corporate Vice President, 53
APD Cryogenics Inc. - General Manager
A principal founder of the Company, Mr. Rosner has been Chairman of the
Board of Directors of the Company since the Company's formation in 1971 and
before that headed the Superconductive Products Operation of GE. Mr. Rosner also
serves as the Company's President and Chief Executive Officer.
Mr. Dannemann was named Senior Vice President-Operations on May 1,
1995. Before joining the Company he was a corporate Vice President at Spar
Aerospace, Ltd., in Toronto, Canada from May, 1984, and before that spent
seventeen years at General Electric in aerospace marketing and business
development.
Mr. Zeigler was appointed Senior Vice President-Finance and Chief
Financial Officer of the Company in September 1993. He previously served as Vice
President-Finance and Chief Financial Officer of the Company from June 1987
until his appointment as a Senior Vice President, and served as the Company's
Controller from June 1985 through June 1987.
Mr. Hamilton, formerly Hordeski, was appointed InterCool Energy
Corporation - Senior Vice President in February, 1995. Prior to that
appointment, Mr. Hamilton served as APD Cryogenics Inc. - Vice President and
General Manager since 1990. Before joining the Company, he was employed by
Leybold Vacuum Products, Inc. from 1982 to 1990, most recently as Vice President
of Marketing.
Dr. Pykett was appointed Technology Development Operations - Vice
President in 1991. Prior to joining the Company, he had been President and Chief
Executive Officer of Advanced NMR Systems, Inc., a diagnostic imaging company he
co-founded in 1983.
Mr. Rhodenizer was appointed Magnet Business Unit - Vice President in
1991. He originally joined the Company in 1971 as a project engineer and then
served as Manager of Cryomagnetics and Manager of Projects until 1977. Between
1977 and 1990, Mr. Rhodenizer was employed by General Electric in a succession
of management positions, culminating with the position of Manager,
Superconducting Applications Program.
Dr. Sokolowski was appointed Vice President and General Manager of the
Company's IGC-Advanced Superconductors division in February, 1996. Dr.
Sokolowski served as the Company's Manager of High Temperature Superconductor
Operations, a part of the Company's Technology Development Operations, between
November, 1991 and February, 1996.
Mr. Zeitlin has been employed by the Company in various capacities
since 1974. He has been responsible for marketing superconductive materials
since 1982, and became Vice President-Materials Technology of the Company in
1985. Mr. Zeitlin has also headed the Company's superconductive materials
operations (now IGC-AS) between 1987 and February, 1996. In February, 1996, Mr.
Zeitlin was appointed Corporate Vice President and APD Cryogenics, Inc. -
General Manager.
ITEM 2. PROPERTIES
Since March, 1994, the Company's corporate offices, MBU and HTS
Laboratory have been located in 145,810 square feet of newly constructed or
newly renovated space located in Latham, New York (the "Latham Facility"). The
Company financed the construction of the Latham Facility using existing cash
reserves. In April, 1994, the Company executed a promissory note in the
principal amount of $6,500,000 payable to a bank, which note was secured by a
collateral assignment of a deposit account containing proceeds from a $6,500,000
loan from the bank. In August, 1994, the Company executed a mortgage in favor of
the bank on the Latham Facility (including the land on which it is sited, and
certain fixtures associated with the Latham Facility) in the amount of the
unpaid principal due on the promissory note and the collateral assignment on the
deposit account was released. The loan which is secured by the mortgage bears
interest at the rate of 7.5%, and matures in May, 2001.
The Company's production facilities for superconductive materials are
located in Waterbury, Connecticut in premises of approximately 212,700 square
feet (of which 57,900 square feet are presently being used) pursuant to a thirty
year prepaid lease which expires in December 2021. The facility's equipment
includes a drawbench with a pulling force of up to 150,000 pounds and a length
of approximately 400 feet. The Company believes that this drawbench is one of
the largest in the world.
The Field Effects Division currently operates out of premises totaling
12,600 square feet in Acton, Massachusetts. In late summer or early fall of
1996, Field Effects' will relocate to leased premises totaling 21,906 square
feet in Tyngsboro, Massachusetts. The new facilities are subject to a five year
lease expiring in the fall of 2001.
APD operates out of a building, which it owns, in Allentown,
Pennsylvania totaling 56,550 square feet.
The Company believes its facilities are adequate and suitable for its
current and near-term needs.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any
material legal proceeding. To the Company's knowledge, no director, officer,
affiliate of the Company, holder of 5% or more of the Company's Common Stock, or
associate of any of the foregoing, is a party adverse to, or has a material
interest adverse to, the Company or any of its subsidiaries in any proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange
under the symbol IMG. The high and low sales prices of the Common Stock for each
quarterly period for the last two fiscal years, as reported on the American
Stock Exchange, are shown below.
Closing Prices(1)
-----------------------
High Low
--------- ---------
Fiscal Year 1995
- ----------------
Quarter Ended August 28, 1994 $ 17 3/4 $ 13
Quarter Ended November 27, 1994 16 1/8 13 1/4
Quarter Ended February 26, 1995 14 10 3/4
Quarter Ended May 28, 1995 14 5/8 10
Fiscal Year 1996
- ----------------
Quarter Ended August 27, 1995 $ 19 $ 13 3/4
Quarter Ended November 26, 1995 20 3/8 16 3/8
Quarter Ended February 25, 1996 25 1/4 17 5/8
Quarter Ended May 26, 1996 20 1/8 14 3/4
- ----------
(1) The closing prices have been adjusted to reflect a three percent stock
dividend distributed on June 15, 1995 to stockholders of record on May 31,
1995, rounded to the nearest $1/8, and a two percent stock dividend
distributed on August 22, 1996 to stockholders of record on August 1, 1996,
rounded to the nearest $1/8.
There were 1,982 holders of record of Common Stock as of August 6,
1996. The Company has not paid cash dividends in the past ten years, and it does
not anticipate that it will pay cash dividends or adopt such a cash dividend
policy in the near future. The Board of Directors of the Company has declared a
policy of granting annual stock dividends where, and to the extent that, the
performance of the Company warrants such a declaration. Under the Company's bank
agreements, prior bank approval is required for cash dividends in excess of the
Company's net income for the year to which the dividend pertains.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information has been taken
from the consolidated financial statements of the Company. The selected
statement of operations data and the selected balance sheet data set forth below
should be read in conjunction with, and is qualified in its entirety by,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and related Notes included
in response to Items 7 and 8 hereto.
(Dollars in Thousands, Except Per Share Amounts)
For the Fiscal Year Ended
-------------------------------------------------------------------------------------
May 26, 1996 May 28, 1995 May 29, 1994 May 30, 1993 May 31, 1992
------------ ------------ ------------ ------------ ------------
Net sales $88,467 $83,877 $51,238 $56,308 $58,219
Total revenue 94,019 85,747 52,257 57,295 59,179
Cost of products sold 66,188 60,174 34,894 40,030 41,256
Income before income taxes 6,882 6,512 2,099 3,901 4,774
Net income 4,427 4,007 2,148 3,140 4,264
Per primary share:
Income before
cumulative effect of
accounting change .36 .34 .11 .31 .42
Cumulative effect of
accounting change .08
Net income .36 .34 .19 .31 .42
At End of Fiscal Year 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Working capital 53,642 $52,655 $49,339 $19,601 $24,966
Total assets 112,397 103,706 93,787 58,359 53,187
Long-term debt
(net of current maturities) 29,364 39,807 39,859 4,991 10,650
Retained earnings (deficit) (1,727) (2,495) (2,595) (2,735) (5,873)
Shareholders' equity 67,296 53,305 46,935 41,765 35,081
- ---------
(a) Income per primary share has been computed during each period based on the
weighted average number of shares of Common Stock outstanding plus dilutive
common stock equivalents (where applicable).
(b) The Company did not pay a cash dividend on its Common Stock during any of
the periods indicated.
(c) Net income per primary share has been restated to give effect to the 2%
stock dividend distributed in August, 1996, the five-for-four stock split
effected September 8, 1994, and the 3% stock dividends distributed in
September, 1991, September, 1992, September, 1993, and June, 1995.
(d) Net income for the fiscal year ended May 29, 1994 reflects a cumulative
effect of accounting change in the amount of $888,000 or $.08 per primary
share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, the
percentages which certain items reflected in the financial data bear to total
revenues of the Company and the percentage change of such items from period to
period. See the Consolidated Financial Statements, located elsewhere in this
report, for financial information to which the percentages set forth below
relate.
Period to Period
Relationship to Total Revenues Increase (Decrease)
------------------------------- ---------------------
Fiscal Year Ended Fiscal Years
------------------------------- ---------------------
May 26, May 28, May 29, 1995- 1994-
1996 1995 1994 1996 1995
--------- --------- --------- -------- --------
Net sales 94.1% 97.8% 98.1% 5.5% 63.7%
Other revenue 4.4 2.2 1.9 121.3 83.5
Realized gain on sale
of marketable securities 1.5 -- -- ** **
----- ----- -----
Total revenue 100.0 100.0 100.0 9.6 64.1
Costs and expenses:
Cost of products sold 70.4 70.2 66.8 10.0 72.4
Product research and
development 5.4 5.8 5.0 1.4 92.3
Marketing, general and
administrative 13.3 13.2 20.7 10.9 4.0
Interest and other
expense 2.8 3.2 3.5 (5.6) 53.1
Equity in net loss of
unconsolidated affiliate 0.8 -- -- ** **
----- ----- -----
92.7 92.4 96.0 10.0 58.0
----- ----- -----
Income before income
taxes 7.3 7.6 4.0 5.7 210.2
Provision for income
taxes 2.6 2.9 1.6 (2.0) 198.6
----- ----- -----
Income before cumulative
effect of accounting change 4.7 4.7 2.4 10.5 218.0
Cumulative effect of
change in method of
accounting for income
taxes -- -- 1.7 ** **
----- ----- -----
Net income 4.7% 4.7% 4.1% 10.5% 86.5%
===== ===== =====
- ----------
**Not applicable for purposes of this table.
22
RESULTS OF OPERATIONS -- 1996 COMPARED TO 1995
----------------------------------------------
In fiscal 1996 total revenues increased approximately 9.6% compared to
fiscal 1995. Sales of Magnetic Products declined approximately 4.4% while sales
of Refrigeration Products increased approximately 49%. Gross margin, as a
percentage of sales, decreased in the Magnetic Products segment by 3.1% and by
3.9% in the Refrigeration Products segment. The increase in revenues was due to
a substantial increase in sales of Refrigeration Products, royalty and interest
income, and a gain on the sale of investments. Gross margins, as a percentage of
net sales, declined due to substantial competitive pressure on selling prices
for magnets and superconducting wire for MRI systems, yield losses in the wire
operation, rework costs associated with the introduction of certain
Refrigeration Products and slower than planned reductions in magnet production
costs. See Note I of Notes to Consolidated Financial Statements, located
elsewhere in this report, for financial information by industry segment.
Looking forward, the Company expects increased revenue in fiscal 1997
with a commensurate increase in net income provided the market for MRI systems
continues to grow, the Company can successfully contend with continued
competitive pressure on selling prices in the MRI marketplace, the planned
reductions in production costs in both business segments are achieved and
planned sales of refrigerants occur. Most of this improvement should be
reflected in the second half of fiscal 1997.
Company-funded product research and development was slightly higher in
fiscal 1996 compared to fiscal 1995 with increased spending on Magnetic Products
and reduced spending on Refrigeration Products. Third party contracts and
government programs to conduct research and development projects increased
approximately 19%. During fiscal 1996, the Company's average employment level
increased to the point where it no longer qualified as a small business and thus
is no longer eligible for future Small Business Innovation Research awards.
Although existing grants and contracts are not affected, this source of
externally-funded research and development contracts will no longer be available
and the Company must look to other external sources or increase its use of
internal funds to maintain its commitment to a high level of research and
development activity.
Marketing, general and administrative expenses increased approximately
10.9% in fiscal 1996 compared to fiscal 1995, most of which was due to the
creation of a separate organization, InterCool Energy Corporation, to develop
and market FRIGC(R) refrigerants. Interest expense was lower in fiscal 1996 due
to the conversion of $8,375,000 of the Company's convertible, subordinated
debentures in September, 1995. During the first quarter of fiscal 1996, the
Company made an additional investment in Surrey Medical Imaging Systems Limited
("SMIS"), bringing its ownership to approximately 23%. SMIS is a UK Company
engaged in the manufacture and sale of electronics and software for magnetic
resonance imaging and nuclear magnetic resonance spectroscopy applications. Due
to its increased ownership, the Company adopted the equity method of accounting
for its investment. As a result, the Company recorded a loss on its investment
of approximately $748,000 in fiscal 1996.
The Company's effective income tax rate decreased slightly in fiscal
1996 due primarily to the increased tax benefits derived from the Company's
foreign sales corporation and lower state income taxes. See Note F of Notes to
Consolidated Financial Statements, located elsewhere in this report, for
detailed information regarding income taxes.
Magnetic Products Segment. Sales in this segment, which consists of the
design, development, manufacture and sale of superconductive magnets
and materials, permanent magnets and other magnetic products, decreased
approximately 4.4% in fiscal 1996 compared to the prior year. Magnet
sales decreased by approximately 6.2% and material sales increased
nominally. The sales decline in this segment reflects the effect of
reduced selling prices for MRI products and a leveling off in the
growth of the MRI market. Gross profit margins, as a percentage of net
sales, declined for both magnets and materials, reflecting lower
selling prices, slower than planned reductions in magnet production
costs and yield losses in wire manufacturing.
Refrigeration Products Segment. This segment, which consists of the
design, development, manufacture and sale of cryogenic refrigeration
equipment and refrigerants had increased sales of approximately 49% in
fiscal 1996. This increase was primarily the result of sales of
FR-12(TM) refrigerant and a substantial increase in sales of shield
coolers for MRI magnet systems. Gross profit margin, as a percentage of
net sales decreased slightly in fiscal 1996 compared to fiscal 1995 due
to price reductions for shield coolers and substantial rework costs
associated with the introduction of certain cryogenic refrigeration
equipment.
In September, 1995, the Company entered into a long-term master
distributorship agreement with Pennzoil Products Company ("Pennzoil") to market
FR-12 refrigerant in North America and in July, 1996, Pennzoil announced that it
was accelerating the rollout of this refrigerant by one year, initially in 37
Jiffy Lube stores in Houston and eventually about 500 stores nationwide.
In November, 1995, the Company announced that it had signed a long-term
agreement with Ausimont S.p.A. of Milan, Italy (a Montedison affiliate) to
distribute FR-12 refrigerant in Europe. The distributorship covers the territory
of Italy, Scandinavia, the United Kingdom, Germany, Spain, Portugal, Austria and
France. In March, 1996, the Company announced that it had reached an agreement
with Al-Murjan Environmental Management and Technology Co., Ltd. (of Jeddah,
Saudi Arabia) to be its sales representative for FR-12 refrigerant in the Middle
East. The Company continues to look for qualified distributors in other
international territories.
RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994
----------------------------------------------
In fiscal 1995 total revenues increased approximately 64% compared to
fiscal 1994. Sales of Magnetic Products increased approximately 79% while sales
of Refrigeration Products increased approximately 18%. Gross margin, as a
percentage of sales, decreased in the Magnetic Products segment by 4.2% and by
2.8% in the Refrigeration Products segment. See Note I of Notes to Consolidated
Financial Statements, located elsewhere in this report, for financial
information by industry segment.
The substantial increase in revenues was due primarily to increased
sales of a new family of magnet systems for MRI. These new magnet systems range
in field strength from 0.5T to 1.5T and the Company delivered a large quantity
(more than 50% of shipments) of the higher field strength magnets. Previously,
the Company mainly sold 0.5T magnets. Gross margin, as a percentage of net
sales, declined slightly reflecting the higher than normal costs associated with
the initial production of new products.
During fiscal 1995, the Company received EPA final acceptance of its
CFC refrigerant replacement with the trademark FRIGC FR-12 refrigerant for use
in mobile air conditioning systems and also received a US Patent for FRIGC FR-12
refrigerant. The Company also signed agreements with Schenectady International,
Inc. to manufacture FRIGC FR-12 refrigerant, with Aeroquip to manufacture the
necessary field couplings, adapters and hose assemblies for FR-12 refrigerant
adaption and with Robinair for the necessary FR-12 refrigerant installation
equipment. The first commercial order of FR-12 refrigerant was shipped to a
military base and the Company announced that FR-12 refrigerant was being made
available to the fleet vehicle market.
Company-funded product research and development increased approximately
92% in fiscal 1995 compared to fiscal 1994 as the Company continued its
engineering effort on internally-funded development programs related to
cryogenic products, high temperature superconductors, FRIGC refrigerants and
other highly proprietary product areas. The higher levels of Company
expenditures were required since third party contracts and government programs
to conduct research and development projects, continued to decline. These
externally-funded contracts which are included in net sales, decreased
approximately 26% in fiscal 1995 compared to fiscal 1994. Total research and
development (internally and externally funded) rose from approximately $10.1
million to approximately $10.5 million. Because the Company's continued growth
may disqualify it for small business research awards at some point in the near
future, the ability of the Company to look to the government as a significant
source of external funds for research and development activities will continue
to diminish.
Marketing, general and administrative expenses increased a modest 4% in
fiscal 1995 compared to fiscal 1994, all of which was in the marketing area, as
the Company continued tight control over general and administrative
expenditures. Interest expense was higher in fiscal 1995 due to the issuance of
the convertible, subordinated debentures in September, 1993 and the mortgage on
the Company's new facility in April, 1994.
The Company's effective income tax rate decreased slightly in fiscal
1995 due primarily to the tax benefits derived from the establishment of a
foreign sales corporation. See Note F of Notes to Consolidated Financial
Statements, located elsewhere in this report, for detailed information regarding
income taxes.
Magnetic Products Segment. Sales in this segment increased
approximately 79% in fiscal 1995 compared to the prior year. Magnet
sales increased by approximately 116% and material sales increased
approximately 27% due to strong demand for the new family of magnet
systems for MRI and increased demand for superconductive wire for MRI
magnets. Gross profit margin, as a percentage of net sales, declined
for magnet systems, reflecting the higher costs associated with the
initial production of a newly designed product line.
Refrigeration Products Segment. This segment had increased sales of
approximately 18% in fiscal 1995. This increase was primarily the
result of a substantial increase in sales of shield coolers for MRI
magnet systems and sales of a new line of cryogenic refrigeration
equipment ("Cryotiger"(R)). Gross profit margin, as a percentage of net
sales decreased slightly in fiscal 1995 compared to fiscal 1994 due to
price reductions for shield coolers and higher initial production costs
for the new Cryotigero line.
LIQUIDITY AND CAPITAL COMMITMENTS
---------------------------------
In fiscal 1996 the Company generated net cash of approximately
$10,130,000 from operating activities which was partially used to purchase
property, plant and equipment and to make additional investments in Surrey
Medical Imaging Systems, Limited. In June, 1996, the Company announced the
formation of a joint venture with SMIS, called IMiG MRI(TM) Systems, LLC to
commercialize a new low-cost permanent magnet-based magnetic resonance imaging
system which the parties have jointly developed for use by the medical
diagnostic industry worldwide. The Company does not expect the IMiG-MRI system
to be competitive with higher field MRI systems. The initially targeted markets
include the territories of Southeast Asia, India, South America, the former
Soviet Union and Eastern Europe. The Company expects to meet its funding
obligations of the joint venture from working capital.
During the year the Company sold 85,000 shares of Ultralife Batteries,
Inc. for approximately $1,927,000. The Company may make similar sales in the
future as market conditions warrant.
In September, 1995, the holders of $8,375,000 of the Company's
convertible, subordinated debentures due September, 2003 converted those
debentures into 564,026 shares of Common Stock. In connection with the
conversion, the Company paid these holders a payment of 2% of the face amount of
the converted debentures to induce early conversion and in lieu of all accrued
interest due. In March 1995, the Company announced a stock buy-back program
under which the Company may, from time-to-time through December 31,1995,
(subsequently extended indefinitely), repurchase up to 1,000,000 shares of its
Common Stock depending on market conditions. The repurchases are expected to be
financed from working capital and would be used, among other things, to meet
future obligations under stock option plans and outstanding convertible
securities. During fiscal 1996, the Company repurchased a total of 62,700 shares
for approximately $985,000. See the Consolidated Statements of Cash Flows in the
Consolidated Financial Statements, located elsewhere in this report, for a
detailed description of the sources and uses of cash during fiscal 1996 as well
as the two preceding years.
The Company's capital resource commitments as of July 28, 1996
consisted principally of capital equipment commitments of approximately $450,000
and maturing installment notes with a payment of $2,167,000 due December 30,
1996.
The Company has a three year, unsecured $10,000,000 line of credit with
a bank which bears interest at the London Interbank Offered Rate (LIBOR) plus
1.25% or prime and will expire in November, 1997, none of which was in use on
July 28, 1996.
The Company believes that it will have sufficient working capital to
meet its needs for the short-term by using internally generated funds and
existing credit facilities. However, on a longer-term basis with substantial
increases in sales volume and/or unusually large expenditure requirements to
commercialize the FRIGC family of refrigerants, the Company may be required to
obtain additional lines of credit for working capital purposes and possibly make
periodic public offerings or private placements in order to meet the liquidity
needs of such growth. While the Company does not believe it will be restricted
in financing such growth, there can be no assurances that such sources of
financing will be available to the Company in sufficient amounts or on
acceptable terms. Under such circumstances, the Company would expect to manage
its growth within the financing available.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as part of this report are the financial
statements and supplementary data listed in the list of Financial Statements and
Schedules included in response to Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective September 1, 1994, the Company's certifying accountant, the
firm of Ernst & Young, LLP ("Ernst & Young"), closed their Albany, New York
practice. As of September 12, 1994, the client-auditor relationship between the
Company and Ernst & Young ceased.
Ernst & Young had been the Company's auditors since the Company's
initial public offering. The reports of Ernst & Young on the Company's financial
statements for fiscal 1994 and 1993 did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended May 29, 1994 and May 30, 1993, and in the
subsequent interim period, there were no disagreements on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young, would have caused Ernst & Young to make reference to the matter in their
report. In connection with the filing by the Company of a Report on Form 8-K,
dated September 12, 1994, Ernst & Young submitted a letter addressed to the
Securities and Exchange Commission in which it agreed with the Company's
foregoing statements.
At a meeting held on November 9, 1994, the Audit Committee of the Board
of Directors of the Company approved the engagement as of that date of KPMG Peat
Marwick LLP ("KPMG") as the Company's independent auditors for the fiscal year
ending May 28, 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors called for by Item 10 of Form 10-K
will be set forth under the heading "Election of Directors" in the Company's
definitive proxy statement relating to the 1996 Annual Meeting of Shareholders
(the "Proxy Statement"), and is hereby incorporated herein by reference.
The information concerning executive officers called for by Item 10 of
Form 10-K is set forth in "Item 1. Business" of this annual report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to compensation of certain executive
officers and all executive officers of the Company as a group to be contained
under the headings "Executive Compensation" and "Certain Transactions" in the
Proxy Statement is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to ownership of the Company's Common Stock
by management and by certain other beneficial owners to be contained under the
heading "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to certain relationships and related
transactions to be contained under the heading "Certain Transactions" in the
Proxy Statement is hereby incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
Attached hereto and filed as part of this report are the financial statements,
schedules and the exhibits listed below.
1. Financial Statements
--------------------
Report of Independent Auditors
Consolidated Balance Sheets as of May 26, 1996 and May 28, 1995
Consolidated Statements of Income for the fiscal years ended May 26, 1996,
May 28, 1995 and May 29, 1994
Consolidated Statements of Shareholders' Equity for the fiscal years ended
May 26, 1996, May 28, 1995 and May 29, 1994
Consolidated Statements of Cash Flows for the fiscal years ended May 26,
1996, May 28, 1995 and May 29, 1994
Notes to Consolidated Financial Statements
2. Schedule
--------
II Valuation and Qualifying Accounts
All other schedules are not required or are inapplicable and, therefore,
have been omitted.
3. Exhibits
Articles of Incorporation and By-laws
3(i) Restated Certificate of Incorporation (3) (Exhibit 3.1)
3(ii) By-laws, as amended (4) (Exhibit 3.2)
Instruments defining the rights of security holders, including indentures
4.1 Form of Common Stock certificate (6) (Exhibit 4.1)
4.2 Amended and Restated Loan Agreement dated as of December 23, 1991
among Meridian Bank, Intermagnetics General Corporation, APD
Cryogenics Inc., Magstream Corporation and IGC Advanced
Superconductors Inc. (6) (Exhibit 4.3)
4.3 First Amendment dated as of February 26, 1992 to the Amended and
Restated Loan Agreement dated as of December 23, 1991 among
Meridian Bank, Intermagnetics General Corporation, APD Cryogenics
Inc., Magstream Corporation and IGC Advanced Superconductors Inc.
(6) (Exhibit 4.4)
4.4 Second Amendment dated as of June 14, 1994 to the Amended and
Restated Loan Agreement dated as of December 23, 1991 among
Meridian Bank, Intermagnetics General Corporation, APD Cryogenics
Inc. and Magstream Corporation. (8)
4.5 Third Amendment dated as of August 1, 1994 to the Amended and
Restated Loan Agreement dated as of December 23, 1991 among
Meridian Bank, Intermagnetics General Corporation, APD Cryogenics
Inc. and Magstream Corporation (8)
Material Contracts
10.1 Agreement Restating and Superseding Lease and Granting Rights to
Use Common Areas and Other Rights dated as of December 23, 1991
between Waterbury Industrial Commons Associates, IGC Advanced
Superconductors Inc. and Intermagnetics General Corporation (6)
(Exhibit 10.1)
+ 10.2 1990 Stock Option Plan (5) (Appendix A)
+ 10.3 1981 Stock Option Plan, as amended (2) (Exhibit 10.7)
+ 10.4 Supplemental Executive Benefit Agreement (1) (Exhibit 10.37)
10.5 Agreement dated June 9, 1992 between Philips Medical Systems
Nederlands B.V. and Intermagnetics General Corporation for sales
of magnet systems (9) (Exhibit 10.6)
10.6 Purchase Agreement dated as of January 1, 1994 between
Intermagnetics General Corporation and General Electric Company
(9) (Exhibit 10.7)
+ 10.7 Employment Agreement between Intermagnetics General Corporation
and Carl H. Rosner (6) (Exhibit 10.8)
10.8 Share Purchase Agreement, dated January 23, 1992, by and between
Ultralife Batteries, Inc. and Intermagnetics General Corporation
(7) (Exhibit 10.1)
Letter regarding change in certifying accountant
16.1 Letter, dated September 12, 1994, to the Securities and Exchange
Commission from Ernst & Young LLP, the registrant's former
certifying accountant (10) (Exhibit 16.1)
16.2 Letter, dated November 10, 1994, to the Securities and Exchange
Commission from Ernst & Young LLP, the registrant's former
certifying accountant (11) (Exhibit 16.1)
Subsidiaries of the registrant
* 21 Subsidiaries of the Company
Consents of experts and counsel
* 23 Consent of KPMG Peat Marwick LLP with respect to the Registration
Statements Numbers 2-80041, 2-94701, 33-2517, 33-12762, 33-12763,
33-38145, 33-44693, 33-50598, 33-55092, 33-72160 and 333-10553 on
Form S-8
- --------------------------------------
(1) Exhibit incorporated hereby reference to the Registration
Statement on Form S-2 (Registration No. 2-99408) filed by the
Company on August 2, 1985.
(2) Exhibit incorporated herein reference to the Annual Report on Form
10-K filed by the Company for the fiscal year ended May 31, 1987.
(3) Exhibit incorporated herein reference to the Annual Report on Form
10-K filed by the Company for the fiscal year ended May 28, 1989.
(4) Exhibit incorporated herein reference to the Annual Report on Form
10-K filed by the Company for the fiscal year ended May 27, 1990.
(5) Exhibit incorporated by reference to the Proxy Statement dated
October 4, 1991 for the 1991 Annual Meeting of Shareholders.
(6) Exhibit incorporated herein reference to the Annual Report on Form
10-K filed by the Company for the fiscal year ended May 31, 1992,
as amended by Amendment No. 1 on Form 8 dated November 17, 1992.
(7) Exhibit incorporated herein by reference to the Quarterly Report
on Form 10-Q filed by the Company for the six months ended
November 29, 1992.
(8) Exhibit incorporated herein reference to the Annual Report on Form
10-K filed by the Company for the fiscal year ended May 29, 1994.
(9) Exhibit incorported herein by reference to the Annual Report on
Form 10-K/A2 for the fiscal year ended May 29, 1994. Portions of
this Exhibit were omitted and filed separately with the Secretary
and Exchange Commission pursuant to an Application for
Confidential Treatment under Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
(10) Exhibit incorporated here by reference to the Report on Form 8-K
filed by the Company on September 12, 1994.
(11) Exhibit incorporated herein by reference to the Report on Form S-K
filed by the Company on November 11. 1994.
* Filed With the Annual Rcport on Form 10-K for the fiscal year
ended May 26. 1996,
+ Management contract or compensatory plan or arrangement required
to be filed as in exhibit to this annual report on Form 10-K.
The Company agrees to provide the SEC upon request with copies of
certain long-term debt obligations which have been omitted pursuant to the
applicable rules.
The Company agrees to furnish supplementally a copy of ommitted
Schedules and Exhibits, if any, with respect to Exhibits listed above upon
request,
(b) REPORTS ON FORM 8-K
-------------------
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERMAGNETICS GENERAL CORPORATION
Date: August 23, 1996 By: /s/ Carl H. Rosner
-------------------------------------
Carl H, Rosner
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Each person in so signing also makes, constitutes and appoints Carl H,
Rosner. Chairman, President and Chief Executive Officer. Michael C. Zeigler,
Senior Vice President - Finance and Chief Financial Officer, and each of them.
his true and lawful attorneys-in-fact, in his name. place and stead to execute
and cause to be filed with the Securities and Exchange Commisson any or all
amendments to this report.
Name Capacity Date
- -----------------------------------------------------------------------------------------------------------------
/s/Carl H. Rosner Chairman, President, August 23, 1996
- ----------------------------- Chief Executive Officer
Carl H. Rosner (principal executive
officer) and Director
/s/Michael C. Zeigler Senior Vice President- August 23, 1996
- ----------------------------- Finance: Chief Financial
Michael C. Zeigler Officer (principal financial
and accounting officer)
/s/Joscph C. Abeles Director August 23, 1996
- -----------------------------
Joseph C. Abeles
/s/Edward E. David, Jr. Director August 23, 1996
- -----------------------------
Edward E. David. Jr.
/S/Jack E. Goldman Director August 23, 1996
- -----------------------------
Jack E. Goldman
/s/Thomas; L. Kempner Director August 23, 1996
- -----------------------------
Thomas L. Kempner
/s/Stuart A. Shikiar Director August 23, 1996
- -----------------------------
Stuart A. Shikiar
/s/Sheldon Weinig Director August 23, 1996
- -----------------------------
Sheldon Weinig
1. Financial Statements
Independent Auditors' Report
The Board of Directors and Shareholders
Intermagnetics General Corporation:
We have audited the consolidated financial statements of Intermagnetics General
Corporation as of and for the years ended May 26, 1996 and May 28, 1995, as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Intermagnetics General Corporation as of May 26, 1996 and May 28, 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Albany, New York
July 12, 1996
Report of Independent Auditors
Board of Directors and Shareholders
Intermagnetics General Corporation:
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of Intermagnetics General Corporation for
the year ended May 29, 1994. Our audit also included the financial statement
schedule listed in the Index at Item 14(a) as it pertains to fiscal 1994. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations, changes in
shareholders' equity, and cash flows of Intermagnetics General Corporation for
the year ended May 29, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, in 1994 the
Company changed its method of accounting for income taxes.
/s/ Ernst & Young LLP
Albany, New York
July 18, 1994, except for Note C,
as to which the date is August 1, 1994
CONSOLIDATED BALANCE SHEETS
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands)
May 26, May 28,
1996 1995
-------- --------
ASSETS
CURRENT ASSETS
Cash and short-term investments $18,696 $13,009
Trade accounts receivable, less allowance
(1996 - $169; 1995 - $145) 20,587 20,267
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,094 1,144
Inventories:
Finished products 477 605
Work in process 13,933 16,960
Materials and supplies 10,447 8,828
-------- --------
24,857 26,393
Prepaid expenses and other 1,581 1,244
-------- --------
TOTAL CURRENT ASSETS 67,815 62,057
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 1,479 1,502
Buildings and improvements 16,610 16,214
Machinery and equipment 31,321 27,364
Leasehold improvements 233 233
-------- --------
49,643 45,313
Less allowances for depreciation and amortization 25,648 22,766
-------- --------
23,995 22,547
Equipment in process of construction 2,381 2,632
-------- --------
26,376 25,179
INTANGIBLE AND OTHER ASSETS
Available for sale securities 7,500 5,100
Other investments 7,760 8,502
Purchased technology, less accumulated amortization
(1996 - $1,180; 1995 - $1,108) 411 483
Other assets 2,535 2,385
-------- --------
TOTAL ASSETS $112,397 $103,706
======== ========
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
May 26, May 28,
1996 1995
-------- --------
CURRENT LIABILITIES
Current portion of long-term debt $2,277 $238
Accounts payable 5,806 4,032
Salaries, wages and related items 2,373 2,402
Customer advances and deposits 539 496
Product warranty reserve 1,100 822
Accrued income taxes 1,203 367
Other liabilities and accrued expenses 875 1,045
-------- --------
TOTAL CURRENT LIABILITIES 14,173 9,402
LONG-TERM DEBT, less current portion 29,364 39,807
DEFERRED INCOME TAXES, on unrealized gain
on available for sale securities 1,564 1,192
SHAREHOLDERS' EQUITY
Preferred Stock, par value $.10 per share:
Authorized - 2,000,000 shares
Issued and outstanding - None
Common Stock, par value $.10 per share:
Authorized - 20,000,000 shares
Issued and outstanding (including shares in treasury):
1996 - 12,076,499 shares
1995 - 11,298,073 shares 1,208 1,108
Additional paid-in capital 69,040 55,166
Retained earnings (deficit) (1,727) (2,495)
Unrealized gain on available for sale securities, net 2,346 1,787
Foreign currency translation adjustments (96) (46)
-------- --------
70,771 55,520
Less cost of Common Stock in treasury
(1996 - 322,540 shares; 1995 - 242,768 shares) (3,475) (2,215)
-------- --------
67,296 53,305
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $112,397 $103,706
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands, Except Per Share Amounts)
Fiscal Year Ended
----------------------------------------------------
May 26, May 28, May 29,
1996 1995 1994
------- ------- -------
Net sales $88,467 $83,877 $51,238
Other revenue 4,138 1,870 1,019
Realized gain on sale of available for sale securities 1,414
------- ------- -------
Total revenue 94,019 85,747 52,257
Costs and expenses:
Cost of products sold 66,188 60,174 34,894
Product research and development 5,075 5,005 2,603
Marketing, general and administrative 12,502 11,275 10,844
Interest and other expense 2,624 2,781 1,817
Equity in net loss of unconsolidated affiliate 748
------- ------- -------
Total costs and expenses 87,137 79,235 50,158
------- ------- -------
Income before income taxes 6,882 6,512 2,099
Provision for income taxes 2,455 2,505 839
------- ------- -------
Income before cumulative effect of accounting change 4,427 4,007 1,260
Cumulative effect of change in method of
accounting for income taxes 888
------- ------- -------
NET INCOME $4,427 $4,007 $2,148
======= ======= =======
PER SHARE:
Primary and fully diluted:
Income before cumulative effect of accounting change $ .36 $ .34 $ .11
Cumulative effect of accounting change .08
------- ------- -------
Net income $ .36 $ .34 $ .19
======= ======= =======
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
INTERMAGNETICS GENERAL CORPORATION
Fiscal Years Ended May 26, 1996, May 28, 1995 and May 29, 1994
(Dollars in Thousands, Except Per Share Amounts)
Unrealized
Gain on Foreign
Additional Retained Available Currency
Common Paid-In Earnings For Sale Translation Treasury
Stock Capital (Deficit) Securities, net Adjustments Stock
------ -------- --------- --------------- ----------- --------
Balances at May 30, 1993 $776 $44,449 $(2,735) $(104) $(621)
Net income 2,148
Tax benefit from exercise of stock options 491
Sale of 584,212 shares of Common Stock,
including receipt of 23,400 shares of
Treasury Stock, upon exercise of stock
options at $2.614 to $8.344 per share 44 2,402 (231)
Sale of 3,714 shares of Common Stock to IGC
Savings Trust at $5.927 to $17.075 per share 17
Stock dividends and payment for
fractional shares 24 1,985 (2,008)
Adjustment for five-for-four stock split,
2,217,334 shares 211 (211)
Unrealized gain on foreign currency
translation 298
------ ------- ------- ------ ---- -------
Balances at May 29, 1994 1,055 49,133 (2,595) 194 (852)
Net income 4,007
Tax benefit from exercise of stock options 1,025
Sale of 211,167 shares of Common Stock,
including receipt of 27,856 shares of
Treasury Stock, upon exercise of stock
options at $3.397 to $10.496 per share 18 1,124 (329)
Sale of 15,884 shares of Common Stock
to IGC Savings Trust at $10.232 to
$16.562 per share 2 26
Stock dividends and payments for
fractional shares 33 3,858 (3,907)
Unrealized gain on available for
sale securities, net $1,787
Unrealized loss on foreign currency
translation (240)
Purchase of 88,100 shares of Treasury
Stock at $10.750 to $14.625 (1,034)
------ ------- ------- ------ ---- -------
Balances at May 28, 1995 1,108 55,166 (2,495) 1,787 (46) (2,215)
Net income 4,427
Tax benefit from exercise of stock options 837
Sale of 209,322 shares of Common Stock,
including receipt of 17,072 shares of
Treasury Stock, upon exercise of stock
options at $3.397 to $14.468 per share 21 1,236 (275)
Sale of 7,570 shares of Common Stock
to IGC Savings Trust at $14.093 to
$24.020 per share 1 140
Stock dividends and payments for
fractional shares 23 3,623 (3,659)
Unrealized gain on available for
sale securities, net 559
Unrealized loss on foreign currency
translation (50)
Purchase of 62,700 shares of Treasury
Stock at $13.875 to $19.375 (985)
Conversion of $8,375,000 of 5.75%
convertible subordinated debentures at
$14.848 per share 55 8,038
------ ------- ------- ------ ---- -------
Balances at May 26, 1996 $1,208 $69,040 $(1,727) $2,346 $(96) $(3,475)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands)
Fiscal Year Ended
---------------------------------------------
May 26, May 28, May 29,
1996 1995 1994
----------- -------------- --------------
OPERATING ACTIVITIES
Net income $4,427 $4,007 $2,148
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Cumulative effect of accounting change (888)
Depreciation and amortization 3,165 3,270 3,266
Provision for deferred taxes (533) 18 (486)
Imputed interest on royalties receivable (29) (45)
Imputed interest on unsecured notes 210 189 169
Equity in net loss of unconsolidated affiliate 748
Gain on sale of available for sale securities (1,414)
Change in operating assets and liabilities:
Increase in accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts (1,270) (5,750) (3,436)
(Increase) decrease in inventories and prepaid expenses and other 1,482 (162) (9,314)
Increase in accounts payable and accrued expenses 3,365 3,550 1,318
Change in foreign currency translation adjustments (50) (240) 305
Other 2
----------- -------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 10,130 4,853 (6,961)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,079) (3,935) (9,443)
Payments received on royalties receivable 97 190
Proceeds from sale of available for sale securities 1,927
Investment in unconsolidated affiliate (2,070) (445) (2,525)
Increase in other assets (121) (172) (52)
----------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (4,343) (4,455) (11,830)
FINANCING ACTIVITIES
Proceeds from note payable and long-term borrowing 1,914 45,719
Debt issue costs (1,161)
Purchase of Treasury Stock (985) (1,034)
Proceeds from sales of Common Stock 1,123 825 2,233
Principal payments on note payable and long-term debt (238) (2,290) (16,457)
----------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (100) (585) 30,334
----------- -------------- --------------
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 5,687 (187) 11,543
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 13,009 13,196 1,653
----------- -------------- --------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $18,696 $13,009 $13,196
=========== ============== ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Exchange of Common Stock in partial payment of exercise
price on options $275 $329 $231
=========== ============== ==============
Tax benefit from exercise of stock options $837 $1,025 $491
=========== ============== ==============
Stock Dividends $3,659 $3,907 $2,008
=========== ============== ==============
Conversion of debt to equity, net of deferred debt issue
cost reduction of $282 $8,093
===========
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERMAGNETICS GENERAL CORPORATION
NOTE A - ACCOUNTING POLICIES
Description of Business:
Intermagnetics General Corporation ("Company") operates in two industry
segments: Magnetic Products and Refrigeration Products. The Magnetic Products
segment consists primarily of the manufacture and sale of superconductive
materials and magnets and permanent magnets used mainly in Magnetic Resonance
Imaging (MRI) for medical diagnostics. The majority of the Company's sales in
this segment are to European and US customers. The Refrigeration Products
segment consists of cryogenic refrigeration equipment produced by a subsidiary,
APD Cryogenics, Inc., and refrigerants which are sold by another subsidiary,
InterCool Energy Corporation. Cryogenic refrigeration equipment is used in the
semi-conductor manufacturing process, MRI, and in a variety of research
applications. Refrigerants consist of a family of environmentally friendly
refrigerants designed to replace recently banned CFC refrigerants. Sales of this
segment are primarily to US and European customers. The Company operates on a
52/53 week year ending the last Sunday during the month of May. See Notes I and
J for additional information regarding financial information by segment and
sales to principal customers.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions have been eliminated
in consolidation. The Company's 45% investment in a joint venture (GEC Alsthom
Intermagnetics, a European manufacturer of magnetic products) and 23% investment
in Surrey Medical Imaging Systems Limited ("SMIS") are accounted for using the
equity method of accounting. Prior to the fiscal year ended May 26, 1996, the
Company's investment in SMIS was recorded at cost.
Cash Flows:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Short-term investments (approximately $15,796,000 at May 26, 1996 and
approximately $10,649,000 at May 28, 1995) primarily consist of US Government
and Agency obligations, commercial paper, and other corporate obligations and
are stated at market. The Company considers these short-term investments to be
cash equivalents for purposes of the Consolidated Statements of Cash Flows.
Sales:
Sales are generally recognized as of the date of shipment or in accordance with
customer agreements.
Sales to the United States Government or its contractors under cost
reimbursement contracts are recorded as costs are incurred and include estimated
earned fees.
Sales of products involving long-term production periods and manufactured to
customer specifications are generally recognized by the percentage-of-completion
method, by multiplying the total contract price by the percentage that incurred
costs to date bear to estimated total job costs, except when material costs are
substantially incurred at the beginning of a contract, in which case material
costs are charged to the contract as they are placed into production. At the
time a loss on a contract is indicated, the Company accrues the entire amount of
the estimated ultimate loss.
The Company accrues for possible future claims arising under terms of various
warranties made in connection with the sale of products.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market
value.
Property, Plant and Equipment:
Land and improvements, buildings and improvements, machinery and equipment and
leasehold improvements are recorded at cost. Provisions for depreciation are
computed using the straight-line method in a manner that is intended to amortize
the cost of such assets over their estimated useful lives. Leasehold
improvements are amortized on a straight-line basis over the remaining initial
term of the lease. For financial reporting purposes, the Company provides for
depreciation of property, plant and equipment over the following estimated
useful lives:
Land Improvements 25 years
Buildings and Improvements 7 - 40 years
Machinery and Equipment 3 - 15 years
Leasehold Improvements 2 - 15 years
In March, 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which will be effective for the Company in its fiscal year ending May, 1997.
Management of the Company does not believe that the implementation of this new
accounting standard will have a material effect on the Company's consolidated
financial statements.
Investments:
Certain investments are categorized as available for sale securities in
accordance with SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities". Available for sale securities are reported at fair value, with
unrealized gains and losses included in shareholders' equity.
A decline in the market value of any available for sale security below cost that
is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available for sale are included in earnings
and are derived using the specific identification method for determining the
cost of securities sold.
Income Taxes:
Effective May 31, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) 109, "Accounting for Income Taxes." Under SFAS 109, the
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and income tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. As permitted under this new standard, prior
years' financial statements have not been restated. The cumulative effect of
adopting SFAS 109, on the Company's financial statements was to increase net
income by $888,000 for the year ended May 29, 1994.
Foreign Currency Translation:
Foreign currency translation adjustments arise from conversion of the Company's
foreign subsidiary's financial statements to US currency for reporting purposes,
and are reflected in shareholders' equity in the accompanying consolidated
balance sheets. Realized foreign currency transaction gains and losses are
included in interest and other expense in the accompanying consolidated
statements of income.
Pension Plan:
The Company has a pension plan covering all eligible employees. Prior service
costs are amortized over a period of 30 years. It is the policy of the Company
to fund pension costs accrued.
Purchased Technology:
The Company has acquired technology in connection with business acquisitions.
The cost of such purchased technology is amortized over the estimated useful
life (ten to fifteen years) using the straight-line method.
Capitalized Interest:
The Company capitalizes interest costs on certain assets constructed for its own
use. No interest was capitalized during fiscal 1995 or fiscal 1996. In fiscal
1994 $186,000 ($.02 per share) of the $1,999,000 interest incurred was
capitalized as part of buildings and improvements.
Use of Estimates:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, and the disclosure of
contingent assets and liabilities, to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Stock-Based Compensation:
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation" which will be effective for the Company in its fiscal year ending
May, 1997. As permitted under SFAS 123, the Company elected not to adopt the
fair value based method of accounting for its stock-based compensation plans,
but will continue to account for such compensation under the provisions of APB
Opinion 25. The Company will comply with the disclosure requirements of SFAS 123
in its fiscal year ending May, 1997.
NOTE B - INVESTMENTS
Available for Sale Securities:
As of May 28, 1995, the Company owned 1,060,753 shares (approximately 14%) of
the common stock of Ultralife Batteries, Inc. ("Ultralife"), a manufacturer of
lithium batteries, acquired at a total cost of $7,528,000. During fiscal 1996,
the Company sold 85,000 shares, bringing its ownership to 975,753 shares
(approximately 12%). Proceeds from the sale totaled $1,927,000, resulting in a
pretax gain of $1,414,000. The cost of the securities sold was based on specific
identification of the securities held at the time of sale. The market value of
the Company's total investment in Ultralife, the sale of which is restricted
under US Securities laws, was $14,636,000 and $18,033,000 at May 26, 1996 and
May 28, 1995, respectively. The cost and market value of "Available for Sale"
securities, representing those shares salable under Securities laws, were as
shown below:
May 26, 1996 May 28, 1995
------------ ------------
Cost $3,590,000 $2,121,000
Gross Unrealized Holding Gain 3,910,000 2,979,000
------------ ------------
Market Value $7,500,000 $5,100,000
============ ============
The balance of the Ultralife investment is included at cost in other
investments.
Other Investments:
Investments in other securities at May 26, 1996 and May 28, 1995 consist of:
1996 1995
---- ----
SMIS $4,210 $2,971
Ultralife Batteries, Inc. 3,425 5,406
Other 125 125
------ ------
$7,760 $8,502
====== ======
As of May 26, 1996 and May 28, 1995 the Company owned 354,223 shares
(approximately 23%) and 292,612 shares (approximately 19%), respectively of
"SMIS" acquired at a cost of $3,530,000 and $2,971,000, respectively. SMIS is a
UK company engaged in the manufacture and sale of electronics and software for
magnetic resonance imaging and nuclear magnetic resonance spectroscopy
applications. Due to its increased level of ownership, the Company adopted the
equity method of accounting for its investment during the first quarter of
fiscal 1996. The acquisition cost exceeded the underlying equity in net assets
by $3,298,000, which is being amortized over a period of 40 years. At May 26,
1996, accumulated amortization was approximately $82,000. As SMIS is privately
held, the market value of this investment is not readily determinable.
In addition, the Company purchased 980,000 SMIS redeemable preference shares
during the year ended May 26, 1996 at a cost of $1,511,000. These shares are
non-voting unless SMIS is unable to attain certain specified financial targets,
are redeemable on the earlier of October 31, 1997 or the date of a public
offering and carry a cumulative redemption premium of 15% per annum. The
purchase of the preference shares included the acquisition of an option to
purchase 2.5% of SMIS' common stock at a price of approximately $6 per share.
NOTE C - NOTES PAYABLE AND LONG-TERM DEBT
The Company has an unsecured $10,000,000 bank line of credit which is scheduled
to expire in November, 1997. Borrowings under the line (none at May 26, 1996 and
May 28, 1995) bear interest at either the London Interbank Offered Rate (LIBOR)
for the applicable term (for example, the one year rate: 5.91% at May 26, 1996
and 6.06% at May 28, 1995) plus 1.25% or prime (8.25% at May 26, 1996 and 9% at
May 28, 1995), at the Company's option.
Long-term debt consists of the following:
(In Thousands) May 26, May 28,
1996 1995
-------- --------
Revenue bonds $ 1,800 $ 1,875
Mortgage payable 6,185 6,343
Installment notes 6
Unsecured notes 2,031 1,821
Convertible debentures 21,625 30,000
------- -------
31,641 40,045
Less current portion 2,277 238
------- -------
Long-term debt $29,364 $39,807
======= =======
Revenue bonds consist of a subsidiary's obligation under an agreement with an
Economic Development Authority with respect to revenue bonds issued in
connection with the acquisition of certain land, building and equipment acquired
at a total cost of approximately $2,408,000. The bonds bear interest at a weekly
adjustable annual rate (convertible to fixed rate at the option of the Company)
which averaged 3.95% for the year ended May 26, 1996 (3.74% for the year ended
May 28, 1995). The bonds mature serially in amounts ranging from $75,000 in
December, 1996 to $200,000 in December, 2009. In the event of default or upon
the occurrence of certain conditions, the bonds are subject to mandatory
redemption at prices ranging from 100% to 103% of face value. As long as the
interest rate on the bonds is adjustable weekly, the bonds are redeemable at the
option of the Company at face value. The Company makes monthly advance payments
to restricted cash accounts in amounts sufficient to meet the interest and
principal payments on the bonds when due. The balances of these accounts,
included in "Cash and Short-Term Investments" on the accompanying consolidated
balance sheets, were $33,000 at May 26, 1996 and $32,000 at May 28, 1995.
The mortgage payable bears interest at the rate of 7.5%, is payable in monthly
installments of $52,000, including principal and interest through April, 2001
with a final payment of $5,155,000 due in May, 2001. The loan is secured by land
and buildings and certain equipment acquired at a cost of approximately
$10,800,000.
Unsecured notes consist of ten-year notes payable in one installment on December
30, 1996, in the principal amount of $1,700,000 issued in connection with an
acquisition. Such notes were non-interest bearing through May 31, 1992, and
thereafter bear interest at 6% per annum payable on December 30, 1996. The notes
have been discounted to reflect a market rate of interest.
Convertible debentures at May 26, 1996 consist of $21,625,000 of 5.75%
convertible subordinated debentures due September, 2003, issued in a private
placement. The debentures are convertible into Common Stock at approximately
$14.85 per share. Interest on the debentures is payable semi-annually. The
debentures are redeemable, in whole or in part, at the option of the Company at
any time on or after September, 1996 at prices ranging from 104.025% to
100.575%. The debentures also provide for redemption at the option of the holder
upon a change in control of the Company, as defined, and are subordinated to
senior indebtedness, as defined. In September, 1995, the holders of $8,375,000
of debentures converted those debentures into 564,026 shares of Common Stock. In
connection with the conversion, the Company paid these holders a payment of 2%
of the face amount of the converted debentures to induce early conversion and in
lieu of all accrued interest due.
Aggregate maturities of long-term debt for the next five fiscal years are:
1997 - $2,277,000; 1998 - $283,000, 1999 - $298,000, 2000 - $312,000,
and 2001 - $5,521,000.
Interest paid for the years ended May 26, 1996, May 28, 1995, and May 29,
1994 amounted to $2,214,000, $2,461,000 and $1,434,000, respectively.
NOTE D - SHAREHOLDERS' EQUITY
In May 1996, the Company declared a 2% stock dividend to be distributed on all
outstanding shares, except Treasury Stock, on August 22, 1996. The consolidated
financial statements have been adjusted retroactively to reflect this stock
dividend in all numbers of shares, prices per share and earnings per share.
The Company has established two stock option plans: the 1981 Stock Option Plan
and the 1990 Stock Option Plan. The Stock Option Plan for Non-Employee Directors
expired in 1990 and all option grants under the Plan were exercised by the end
of fiscal 1995. Shares and prices per share have been adjusted to reflect the 2%
and 3% stock dividends declared in May, 1996 and March, 1995, respectively.
During fiscal 1996 shareholders approved an increase of 525,300 shares available
for grant under the 1990 Stock Option Plan. The total shares authorized for
grant under such plans are 1,435,022 and 1,931,918, respectively.
Option activity under these plans was as follows:
Fiscal Year Ended
----------------------------------------------------------------------------------------
May 26, 1996 May 28, 1995
-------------------------------------------- -----------------------------------------
Number Option Price Number Option Price
of Shares Per Share of Shares Per Share
--------------- -------------------------- ---------------- ----------------------
Options outstanding
at beginning of year 1,492,847 $2.614 to 14.634 1,390,347 $2.614 to 12.755
Options granted 214,216 $13.971 to 20.956 320,487 $11.184 to 14.634
Options exercised (209,322) $3.397 to 14.468 (211,167) $3.397 to 10.946
Options cancelled (5,711) $4.806 to 12.755 (6,820) $3.397 to 12.755
----------- ----------
Options outstanding
at end of year 1,492,030 1,492,847
========= =========
As of May 26, 1996, options under the Plans were exercisable as follows:
1981 Stock Option Plan 97,660
1990 Stock Option Plan 565,573
-------
Exercisable options 663,233
=======
Following are the shares of Common Stock reserved for issuance and the related
exercise prices for the outstanding stock options and covertible subordinated
debentures at May 26, 1996:
Number Exercise Price
of Shares Per Share
---------- ----------------
1981 Stock Option Plan 97,660 $2.614 to 4.791
1990 Stock Option Plan 1,394,370 $4.269 to 20.956
Convertible subordinated debentures 1,456,371 $14.848
---------
Shares reserved for issuance 2,948,401
=========
NOTE E - RETIREMENT PLANS
The Company has a non-contributory, defined benefit plan covering all eligible
employees. Benefits under the plan are based on years of service and employees'
career average compensation. The Company's funding policy is to contribute
annually an amount sufficient to meet or exceed the minimum funding standard
contained in the Internal Revenue Code. Contributions are intended to provide
not only for benefits attributable to service to date, but also for those
expected to be earned in the future.
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated balance sheets at May 26, 1996 and May 28, 1995:
(In Thousands) 1996 1995
---- ----
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits
of $3,911 and $3,515 and as of May 26, 1996 and May 28, 1995,
respectively $ 4,039 $ 3,692
======== ========
Projected benefit obligation for service rendered to date $ (5,937) $ (5,163)
Plan assets (consisting of common stock, US Government and
corporate debt obligations and money funds) at fair value 5,794 4,770
--------- ---------
Projected benefit obligation in excess of plan assets (143) (393)
Unrecognized net (gain) loss from past experience different
from that assumed and effects of changes in assumptions (241) 27
Prior service cost not yet recognized in net periodic pension cost 82 91
Unrecognized net transition obligation 39 45
----------- ----------
Accrued pension cost included in salaries, wages and related items $ (263) $ (230)
========== ==========
Net pension cost includes the following components:
Fiscal Year Ended
---------------------------------------------
May 26, May 28, May 29,
(In Thousands) 1996 1995 1994
---------- -------- ---------
Service cost - benefits earned during the period $ 468 $ 447 $ 458
Interest cost on projected benefit obligation 410 353 275
Actual return on plan assets (398) (528) (285)
Net amortization and deferral 15 219 15
----- ----- -----
Net pension cost $ 495 $ 491 $ 463
===== ===== =====
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8% in each of the three years
ended May 26, 1996. The rate of increase in future compensation levels used in
determining the aforementioned obligation was 6% in each of the three years
ended May 26, 1996. The expected long-term rate of return on plan assets in each
of the years ended May 26, 1996 was 8%.
The Company also maintains an employee savings plan, covering substantially all
employees, under Section 401(k) of the Internal Revenue Code. Under this plan,
the Company matches a portion of employees' contributions. Expenses under the
plan during the years ended May 26, 1996, May 28, 1995 and May 29, 1994
aggregated $249,000, $232,000 and $216,000, respectively.
The Company maintains supplemental retirement and disability plans for certain
of its executive officers. These plans utilize life insurance contracts for
funding purposes. Expenses under these plans were $37,000, $35,000 and $39,000
for the years ended May 26, 1996, May 28, 1995, and May 29, 1994, respectively.
NOTE F - INCOME TAXES
The components of the provision for income taxes are as follows:
(In Thousands) Fiscal Year Ended
----------------------------------------------------------------
May 26, 1996 May 28, 1995 May 29, 1994
------------- -------------- -------------
Current
Federal $ 2,540 $ 2,006 $ 901
State 448 481 424
------- ------- -------
2,988 2,487 1,325
Deferred
Federal (477) 16 (437)
State (56) 2 (49)
------- ------- -------
(533) 18 (486)
------- ------- -------
Provision for income taxes $ 2,455 $ 2,505 $ 839
======= ======= =======
Significant components of the net current and non-current deferred tax assets,
which are included in "Prepaid Expenses and Other" and "Other Assets",
respectively, are as follows:
(In Thousands)
May 26, 1996 May 28, 1995
------------ ------------
Current
- -------
Inventory reserves $1,043 $972
Non-deductible accruals 392 418
Product warranty reserve 489 241
Other (307) (26)
Less: Valuation allowance (517) (517)
----- -----
Total current 1,100 1,088
----- -----
Non-Current
- -----------
Depreciation (44) 112
Foreign subsidiaries 317 317
Equity in net loss of
unconsolidated affiliate 284
Other 549 158
Less: Valuation allowance (317) (319)
----- -----
Total non-current 789 268
----- -----
TOTAL $1,889 $1,356
====== ======
The preceding table does not include the deferred tax liability of $1,564,000
and $1,192,000 at May 26, 1996 and May 28, 1995, respectively, associated with
the unrealized gain on the available for sale securities discussed in Note B.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
projected future taxable income and tax planning strategies in making this
assessment. The Company had Federal taxable income of approximately $5,600,000
in fiscal 1996, $4,500,000 in fiscal 1995 and $0 in fiscal 1994. Based upon the
level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
The reasons for the differences between the provision for income taxes and the
amount of income tax determined by applying the applicable statutory Federal tax
rate to income before income taxes are as follows:
(In Thousands) Fiscal Year Ended
-----------------------------------------------------------
May 26, 1996 May 28, 1995 May 29, 1994
-------------- ------------------- -------------------
Pre-tax income at statutory tax rate (34%) $2,340 $2,214 $714
State taxes, net of Federal benefit 259 317 280
Benefit of Foreign Sales Corporation (172) (113)
Non-deductible amortization of
intangibles 42 42 42
Contract income (153)
Other (14) 45 (44)
------ ------ -----
Provision for income taxes $2,455 $2,505 $839
====== ====== ====
The Company paid income taxes of $1,153,000, $1,118,000, and $411,000
during the years ended May 26, 1996, May 28, 1995, and May 29, 1994,
respectively.
NOTE G - PER SHARE INFORMATION
Income per share amounts are based on the weighted average number of common
shares outstanding during the year plus common stock equivalents as shown below:
Fiscal Year Ended
---------------------------------------------
Primary May 26, 1996 May 28, 1995 May 29,1994
- ------- ------------- ------------ ------------
Weighted average shares
outstanding 11,511,628 11,043,114 10,743,389
Common stock equivalents 810,419 675,686 768,749
============= ============ ===========
TOTAL 12,322,047 11,718,800 11,512,138
============= ============ ===========
Fully Diluted
Weighted average shares
outstanding 11,511,628 11,043,114 10,743,389
Common stock equivalents 810,419 696,208 1,018,654
============= ============ ===========
TOTAL 12,322,047 11,739,322 11,762,043
============= ============ ===========
Both primary and fully diluted shares include the dilutive effect (common stock
equivalents) of outstanding stock options based on the treasury stock method
using average market price for primary and closing market price (unless the
average market price is higher) for fully diluted. Shares issuable upon
conversion of the $21,625,000 convertible subordinated debentures are considered
in calculating fully diluted earnings per share, but have been excluded as the
effect would be antidilutive.
The Company distributed 3% stock dividends to shareholders on June 15, 1995 and
September 1, 1993. The Company declared a 2% stock dividend on May 21, 1996 to
be distributed on August 22, 1996. In September, 1994, the Company distributed a
five-for-four stock split. The distributions have been made from the Company's
authorized but unissued shares. All data with respect to earnings per share,
weighted average shares outstanding and common stock equivalents have been
adjusted to reflect these stock dividends and stock split.
NOTE H - LEASE COMMITMENTS
The Company leases certain manufacturing facilities and equipment under
operating lease agreements expiring at various dates through September, 2001.
Certain of the leases provide for renewal options. Total rent expense was
$266,000 for the year ended May 26, 1996, $302,000 for the year ended May 28,
1995, and $607,000 for the year ended May 29, 1994. Future minimum rental
commitments, excluding renewal options, under the noncancellable leases covering
certain manufacturing facilities and equipment through the term of the lease are
as follows:
Fiscal Year
1997 $181,000
1998 201,000
1999 183,000
2000 162,000
2001 131,000
Balance 44,000
----------
Total $902,000
========
NOTE I - INFORMATION BY INDUSTRY SEGMENT
Net sales by business segment represent sales to unaffiliated customers. No
significant transfers between segments have occurred. Income (loss) from
operations represents net sales less operating expenses.
Identifiable assets are those used specifically in each segment's operations.
Income of foreign subsidiaries, primarily in the Refrigeration Products segment,
amounted to $171,000, $66,000 and $190,000 in fiscal 1996, 1995 and 1994,
respectively.
The Company's segment information is as follows:
(In Thousands) Fiscal Year Ended
--------------------------------------------------------------------------------------------------------
May 26, 1996 May 28, 1995 May 29, 1994
---------------------------------- ------------------------------- ---------------------------------
Magnetic Refrigeration Magnetic Refrigeration Magnetic Refrigeration
Products Products Total Products Products Total Products Products Total
-------- ------------- -------- --------- ------------- ------- -------- ------------- -------
Net sales:
Magnet systems $45,562 $45,562 $48,581 $48,581 $22,481 $22,481
Superconductive wire 19,822 19,822 19,790 19,790 15,622 15,622
Refrigeration Products $23,083 23,083 $15,506 15,506 $13,135 13,135
------- ------- ------- ------- ------- ------- ------- ------- -------
Total 65,384 23,083 88,467 68,371 15,506 83,877 38,103 13,135 51,238
Income (loss) from
operations 5,200 (498) 4,702 7,242 181 7,423 3,322 (425) 2,897
Net income (loss) 3,998 429 4,427 4,306 (299) 4,007 2,970 (822) 2,148
Identifiable assets 94,139 18,258 112,397 91,255 12,451 103,706 81,181 12,606 93,787
Depreciation and
amortization expense 2,736 429 3,165 2,854 416 3,270 2,895 371 3,266
Additions to property,
plant and equipment 3,623 456 4,079 3,532 403 3,935 8,948 495 9,443
NOTE J - PRINCIPAL CUSTOMERS AND EXPORT SALES
Sales to significant customers, substantially all of which were sales by the
Magnetic Products segment, during the last three fiscal years are as follows:
(Dollars in Thousands)
1996 1995 1994
----------------------------- ---------------------------- ----------------------------
% of % of % of
Sales Sales Sales Sales Sales Sales
------------- ----------- ------------- ----------- ------------- ----------
Customer A $38,971 44.1% $43,868 52.3% $16,269 31.8%
Customer B 7,605 8.6% 7,369 8.8% 8,377 16.3%
Customer C 15,634 17.7% 17,708 21.1% 13,108 25.6%
============= =========== ============= =========== ============= ==========
Total $62,210 70.4% $68,945 82.2% $37,754 73.7%
============= =========== ============= =========== ============= ==========
The Company's net export sales for the fiscal years ended May 26, 1996, May 28,
1995, and May 29, 1994 totaled $46,543,000, $51,600,000 and $22,022,000,
respectively, substantially all of which were to European customers.
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS 107. Although the estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies, the estimates presented are
not necessarily indicative of the amounts that the Company could realize in
current market exchanges.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and short-term investments, receivables, and accounts payable: The carrying
amounts reported in the consolidated balance sheets approximate their fair
value.
Available for sale securities and Other investments: The fair value of the
Ultralife investment is estimated from market prices, see Note B. The fair value
of the SMIS investment is not readily determinable as the company is privately
held.
The carrying value of long term debt including current portion, was
approximately $31,600,000 and $40,000,000 at May 26, 1996 and May 28, 1995,
respectively, while the estimated fair value was $30,500,000 and $38,400,000,
respectively, based upon interest rates available to the Company for issuance of
similar debt with similar terms and remaining maturities.
NOTE L - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for fiscal 1996 and 1995 are as follows:
(In Thousands, Except Share and Per Share Amounts)
Weighted Average
Common and
Common
Gross Net Earnings Per Equivalent
Net Sales Profit Income Primary Share Shares
---------- -------- -------- ------------- ----------------
1996 Quarter Ended
August 27, 1995 $20,725 $5,802 $723 $.06 11,789,086
November 26, 1995 21,745 5,239 1,127 .09 12,309,676
February 25, 1996 20,022 5,010 725 .06 12,591,265
May 26, 1996 25,975 6,228 1,852 .15 12,526,193
1995 Quarter Ended
August 28, 1994 $14,900 $4,230 $245 $.02 11,736,789
November 27, 1994 19,787 6,111 830 .07 11,801,183
February 26, 1995 21,653 6,188 1,097 .09 11,723,043
May 28, 1995 27,537 7,174 1,835 .16 11,718,800
2. Schedule
INTERMAGNETICS GENERAL CORPORATION
----------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
---------------------------------
Balance at Charged to Charged to
Beginning Costs and Other Accounts- Deductions- Balance at
DESCRIPTION of Period Expenses Describe Describe End of Period
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended May 26, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 145 $ 30 $(4)(6) $ 2 (3) $ 169
Reserve for inventory obsolescence 4,404 1,208 387 (5) 5,225
Included in liability accounts:
Product warranty reserve $ 822 $ 1,159 $ 881 (1) $ 1,100
Contract adjustment reserve (4) 149 85 234
Year Ended May 28, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 100 $ 59 $ 14 (3) $ 145
Reserve for inventory obsolescence 4,073 663 332 (5) 4,404
Included in liability accounts:
Product warranty reserve $ 562 $ 776 $ 516 (1) $ 822
Contract adjustment reserve (4) 103 46 149
Year Ended May 29, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $ 63 $ 147 $ 110 (3) $ 100
Reserve for inventory obsolescence 3,269 846 42 (5) 4,073
Included in liability accounts:
Product warranty reserve $ 553 $ 245 $ 236 (1) $ 562
Contract adjustment reserve (4) 225 122 (2) 103
(1) Cost of warranty performed.
(2) Settlement of contracts adjustments.
(3) Write-off uncollectible accounts.
(4) Classified in the Balance Sheet with other liabilities and accrued
expenses.
(5) Write-off or sale of obsolete inventory.
(6) Foreign currency translation
3. Exhibits
Exhibit Index
-------------
Page Exhibit
60 21 Subsidiaries of the Company
61 23 Consent of KPMG Peat Marwick LLP with respect to the
Registration Statements Numbers 2-80041, 2-94701, 33-2517,
33-12762, 33-12763, 33-38145, 33-44693, 33-50598, 33-55092,
33-72160 and 333-10553 on Form S-8