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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 28, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-43089
THE GSI GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 37-0856587
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1004 E. ILLINOIS STREET, ASSUMPTION, ILLINOIS 62510
(Address of principal executive offices) (Zip Code)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer: Yes
[ ] No [X]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. Common stock, par
value $0.01 per share, 1,775,000 shares outstanding as of May 2, 2003.
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1
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 19
* No response to this item is included herein for the reason that it is
inapplicable.
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE GSI GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
MARCH 28, DECEMBER 31,
ASSETS 2003 2002
- ------------------------------------------------------------------------- ----------- --------------
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 1,478 $ 2,936
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . 25,899 23,274
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,984 63,893
Prepaids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813 2,039
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,666 5,327
----------- --------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . 102,840 97,469
----------- --------------
Property, Plant and Equipment, net. . . . . . . . . . . . . . . . . . . . 38,338 38,705
----------- --------------
Other Assets:
Goodwill and other intangible assets, net . . . . . . . . . . . . . . . 12,764 12,975
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,484 2,858
----------- --------------
Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . 15,248 15,833
----------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,426 $ 152,007
=========== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------------------------------------------
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,925 $ 11,063
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,244 1,937
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . 5,982 6,535
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,412 7,159
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . 3,247 3,404
----------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 37,810 30,098
----------- --------------
Long-Term Debt, less current maturities . . . . . . . . . . . . . . . . . 138,621 139,735
----------- --------------
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 337 474
----------- --------------
Commitments and Contingencies
Stockholders' Deficit:
Common stock, $.01 par value, voting (authorized 6,900,000 shares;
issued 6,633,652 shares; outstanding 1,575,000 shares). . . . . . . . 16 16
Common stock, $.01 par value, nonvoting (authorized 1,100,000 shares;
issued 1,059,316 shares; outstanding 200,000 shares). . . . . . . . . 2 2
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,006 3,006
Accumulated other comprehensive loss (cumulative currency translation
adjustment). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,668) (14,336)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,261 19,971
Treasury stock, at cost, voting (5,058,652 shares). . . . . . . . . . . (26,950) (26,950)
Treasury stock, at cost, nonvoting (859,316 shares) . . . . . . . . . . (9) (9)
----------- --------------
Total stockholders' deficit . . . . . . . . . . . . . . . . . . . . (20,342) (18,300)
----------- --------------
Total liabilities and stockholders' deficit . . . . . . . . . . . . $ 156,426 $ 152,007
=========== ==============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
3
THE GSI GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE FISCAL MONTHS ENDED
-------------------------
MARCH 28, MARCH 29,
2003 2002
----------- -----------
Sales $ 44,310 $ 52,928
Cost of sales 35,130 41,250
----------- -----------
Gross profit . . . . . . . . . . . . . . 9,180 11,678
Selling, general and administrative expenses 8,595 8,812
Amortization expense . . . . . . . . . . . . 311 312
----------- -----------
Total operating expenses . . . . . . . . . 8,906 9,124
----------- -----------
Operating income . . . . . . . . . . . . . . 274 2,554
Other income (expense):
Interest expense . . . . . . . . . . . . . (3,014) (3,154)
Other, net . . . . . . . . . . . . . . . . 167 (326)
----------- -----------
Loss before income tax expense . . . . . (2,573) (926)
----------- -----------
Income tax expense . . . . . . . . . . . . . 137 9
----------- -----------
Net loss . . . . . . . . . . . . . . . . $ (2,710) $ (935)
----------- -----------
Basic and diluted loss per share . . . . . . $ (1.53) $ (0.53)
----------- -----------
Weighted average common shares outstanding . 1,775,000 1,775,000
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
THE GSI GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE FISCAL MONTHS ENDED
---------------------------
MARCH 28, MARCH 29,
2003 2002
------------ -----------
Cash Flows From Operating Activities:
Depreciation and amortization expense . . . . . . . . . . . . . . 1,664 1,898
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,650) (1,816)
-------------- -----------
Net cash flows provided by operating activities . . . . . 14 82
-------------- -----------
Cash Flows From Investing Activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . (885) (1,155)
Proceeds from sale of fixed assets. . . . . . . . . . . . . . . . 31 1,231
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 (106)
-------------- -----------
Net cash flows used in investing activities . . . . . . . (598) (30)
-------------- -----------
Cash Flows From Financing Activities:
Proceeds from shareholder loan. . . . . . . . . . . . . . . . . 69 417
Payments on shareholder loan. . . . . . . . . . . . . . . . . . (199) (30)
Payments on long-term debt. . . . . . . . . . . . . . . . . . . . (658) (1,781)
Net borrowings under line of credit agreement . . . . . . . . . . (525) 2,400
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (948)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393 (49)
-------------- -----------
Net cash flows provided by (used in) financing activities (920) 9
-------------- -----------
Effect of Exchange Rate Changes on Cash . . . . . . . . . . . . . . 46 6
Increase (Decrease) In Cash and Cash Equivalents. . . . . . . . . . $ (1,458) $ 67
Cash and Cash Equivalents, beginning of period. . . . . . . . . . . 2,936 2,828
-------------- -----------
Cash and Cash Equivalents, end of period. . . . . . . . . . . . . . $ 1,478 $ 2,895
============== ===========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
5
THE GSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared by The GSI Group, Inc.
(the "Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information not misleading. These
financial statements should be read in conjunction with the financial statements
and related notes contained in the Company's December 31, 2002 Form 10-K as
filed with the Securities and Exchange Commission. Other than as indicated
herein, there have been no significant changes from the data presented in said
10-K.
In the opinion of management, the financial statements contain all
adjustments necessary to present fairly the financial position of the Company as
of March 28, 2003 and the results of operations for the three months ended March
28, 2003 and cash flows for the three months ended March 28, 2003. Certain
prior year amounts have been reclassified to be consistent with the current year
presentation.
The results of operations for the three-month period ended March 28, 2003
are not necessarily indicative of the operating results for the full year.
2. COMPREHENSIVE LOSS
The components of comprehensive loss for the periods presented are as
follows (in thousands):
March 28, March 29,
2003 2002
----------- -----------
Net loss . . . . . . . . . . . . . . . . . $ (2,710) $ (935)
Cumulative currency translation adjustment 668 (45)
Comprehensive loss . . . . . . . . . . . $ (2,042) $ (980)
=========== ===========
3. NEW ACCOUNTING PRONOUNCEMENTS
During 2002, the Financial Accounting Standards Board issued Statement No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." This
statement provides financial accounting and reporting standards for costs
associated with exit or disposal activities. This statement requires that a
liability for a cost associated with an exit or disposal activity is recognized
when the liability is incurred and establishes that fair value is the objective
for initial measurement of the liability. The Company has determined that the
adoption of Statement No. 146 will have no impact on the Company's financial
condition and results of operation.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." This
interpretation addresses the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees.
This interpretation also clarifies the requirements related to the recognition
of a liability by a guarantor at the inception of a guarantee for the
obligations the guarantor has undertaken in issuing that guarantee. The Company
had determined FASB Interpretation No. 45 has no impact on the Company's
financial condition and results of operation at this time. If the Company's
guarantee with FarmPro falls under FASB Interpretation No. 45, the Company would
be required to record a liability for the fair market value of the guarantee.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities." This
interpretation clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
Company has determined FASB Interpretation No. 46 will have no impact on the
Company's financial condition and results of operation.
6
4. DETAIL OF CERTAIN ASSETS
MARCH 28, DECEMBER 31,
2003 2002
---------- -------------
(IN THOUSANDS)
Inventories
Raw materials. . $ 17,556 $ 16,834
Work-in-process. 20,385 19,236
Finished goods . 31,043 27,823
---------- -------------
Total . . . $ 68,984 $ 63,893
========== =============
5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid approximately $0.5 million and $0.4 million in interest
during the quarters ended March 28, 2003 and March 29, 2002, respectively. The
Company paid no income taxes during the first quarters of 2003 and 2002.
6. LONG-TERM DEBT
The indenture governing the Company's senior subordinated notes contains
certain restrictive covenants. The more significant of the covenants restrict
the ability of the Company to dispose of assets, incur additional indebtedness,
pay dividends or make distributions and other payments affecting subsidiaries.
The Company was in compliance with the covenants under the indenture as of March
28, 2003.
On April 30, 2003, LaSalle Bank National Association and the Company
amended the existing credit facility (the "Credit Facility") to provide for
revolving loans up to a maximum of $47.0 million (limited based on a borrowing
base which includes accounts receivable and inventory), as well as changes in
certain covenants. The Credit Facility requires the Company to maintain
quarterly EBITDA and fixed charge coverage ratio covenants, as well as an annual
senior debt to EBITDA ratio, fixed charge coverage ratio, tangible net worth and
certain levels of EBITDA and capital expenditures. The Company was in
compliance with or obtained waivers for all covenants under the Credit Facility
as of March 28, 2003. In addition, the Credit Facility provides for a $5.0
million borrowing base over-advance from May 1, 2003 through and including
September 30, 2003. The Credit Facility expires on July 25, 2004.
7. COMMITMENTS AND CONTINGENCIES
Sales of agricultural equipment are seasonal, with farmers traditionally
purchasing grain storage bins and grain drying and handling equipment in the
summer and fall in conjunction with the harvesting season, and swine and poultry
producers purchasing equipment during prime construction periods in the spring,
summer and fall. The Company's sales and net income have historically been
lower during the first and fourth fiscal quarters as compared to the second and
third quarters.
The Company has a contract with the Syrian government and one with the
Yemen Company for Industrial Development to manufacture and supervise the
assembly of grain handling systems. Other current assets and other assets
include $2.8 million of retainage withheld until completion of the projects and
the meeting of certain performance criteria.
The Company has an operating lease agreement that requires the Company to
maintain a certain senior debt to EBITDA ratio, tangible net worth and certain
levels of capital expenditures and EBITDA. The Company was in compliance with
these covenants under the operating lease agreement as of March 28, 2003.
Certain lease agreements are collateralized by a letter of credit of $1.5
million that expires on October 15, 2003.
During April of 2003, the Company declared and paid a $0.54 dividend on all
issued and outstanding shares of common stock.
7
8. BUSINESS SEGMENT
The Company has no separately reportable segments in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosure About
Segments of an Enterprise and Related Information." Under the enterprise wide
disclosure requirements of SFAS 131, the Company reports sales by each product
line. Amounts for the first quarters of 2003 and 2002 are as shown in the table
below (in thousands).
MARCH 28, MARCH 29,
2003 2002
---------- ----------
Grain product line . $ 24,543 $ 28,624
Swine product line . 8,602 11,848
Poultry product line 11,165 12,456
---------- ----------
Sales . . . . . $ 44,310 $ 52,928
========== ==========
For the first quarters of 2003 and 2002, sales in Brazil were $3.6 million
and $5.7 million, respectively. Long-lived assets in Brazil were $2.2 million
at March 28, 2003.
9. GUARANTOR SUBSIDIARIES
The Company's payment obligation under the senior subordinated notes are
fully and unconditionally guaranteed on a joint and several basis by David
Manufacturing Company, GSI/Cumberland de Mexico S. de R.L. de C.V., The GSI
Group (Europe) Ltd., The GSI Group (Africa) (Pty) Ltd., GSI Group (Asia) Sdn.
Bhd., Agromarau Industria e Comercio Ltda., The GSI Group (Shanghai) Ltd., and
The GSI Group (Canada) Inc. (the "Guarantor Subsidiaries"). The Guarantor
Subsidiaries are direct wholly owned subsidiaries of the Company. The
obligations of the Guarantor Subsidiaries under their guarantees are
subordinated to such subsidiaries' obligations under their guarantee of the
Credit Facility.
Presented below is unaudited condensed consolidating financial information
for The GSI Group, Inc. ("Parent Company") and the Guarantor Subsidiaries. In
the Company's opinion, separate financial statements and other disclosures
concerning the Guarantor Subsidiaries would not provide additional information
that is material to investors.
Investments in subsidiaries are accounted for by the Parent Company using
the equity method of accounting. Earnings of subsidiaries are, therefore,
reflected in the Parent Company's investments in and advances to/from
subsidiaries' accounts and earnings. The elimination entries eliminate
investments in subsidiaries and intercompany balances and transactions.
8
9. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 28, 2003
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 144 $ 1,334 $ -- $ 1,478
Accounts receivable, net. . . . . . . . . . . . . 23,511 7,765 (5,377) 25,899
Inventories, net. . . . . . . . . . . . . . . . . 51,729 17,255 -- 68,984
Other current assets. . . . . . . . . . . . . . . 5,032 1,447 -- 6,479
--------- -------------- -------------- --------------
Total current assets . . . . . . . . . . . . . . . . 80,416 27,801 (5,377) 102,840
Property, plant and equipment, net . . . . . . . . . 30,888 7,450 -- 38,338
Goodwill and other intangible assets, net. . . . . . 2,908 9,856 -- 12,764
Investment in and advances to/from subsidiaries. . . 46,090 (6,016) (40,074) --
Other long-term assets . . . . . . . . . . . . . . . 2,477 7 -- 2,484
--------- -------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . $162,779 $ 39,098 $ (45,451) $ 156,426
========= ============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Current portion of long-term debt . . . . . . . . $ 3,247 $ -- $ -- $ 3,247
Accounts payable. . . . . . . . . . . . . . . . . 12,934 8,368 (5,377) 15,925
Accrued liabilities . . . . . . . . . . . . . . . 17,783 855 -- 18,638
--------- -------------- -------------- --------------
Total current liabilities. . . . . . . . . . . . . . 33,964 9,223 (5,377) 37,810
Long-term debt . . . . . . . . . . . . . . . . . . . 135,489 12,521 (9,389) 138,621
Other long-term liabilities. . . . . . . . . . . . . -- 337 -- 337
--------- -------------- -------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . 169,453 22,081 (14,766) 176,768
Stockholders' equity (deficit):
Common stock. . . . . . . . . . . . . . . . . . . 18 23,022 (23,022) 18
Additional paid-in capital. . . . . . . . . . . . 3,006 385 (385) 3,006
Accumulated other comprehensive loss. . . . . . . -- (13,668) -- (13,668)
Retained earnings (deficit) . . . . . . . . . . . 17,261 7,278 (7,278) 17,261
Treasury stock, at cost . . . . . . . . . . . . . (26,959) -- -- (26,959)
--------- -------------- -------------- --------------
Total stockholders' equity (deficit) . . . . . . . . (6,674) 17,017 (30,685) (20,342)
--------- -------------- -------------- --------------
Total liabilities and stockholders' equity (deficit) $162,779 $ 39,098 $ (45,451) $ 156,426
========= ============== ============== ==============
9
9. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 29, 2002
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 126 $ 2,769 $ -- $ 2,895
Accounts receivable, net. . . . . . . . . . . . . 27,817 10,469 (5,660) 32,626
Inventories, net. . . . . . . . . . . . . . . . . 51,004 14,973 (580) 65,397
Other current assets. . . . . . . . . . . . . . . 5,331 1,971 -- 7,302
--------- -------------- -------------- --------------
Total current assets . . . . . . . . . . . . . . . . 84,278 30,182 (6,240) 108,220
Property, plant and equipment, net . . . . . . . . . 32,600 7,660 -- 40,260
Goodwill and other intangible assets, net. . . . . . 2,988 11,748 -- 14,736
Investment in and advances to/from subsidiaries. . . 44,586 (4,922) (39,664) --
Other long-term assets . . . . . . . . . . . . . . . 3,146 76 -- 3,222
--------- -------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . $167,598 $ 44,744 $ (45,904) $ 166,438
========= ============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Current portion of long-term debt . . . . . . . . $ 3,022 $ 51 $ -- $ 3,073
Accounts payable. . . . . . . . . . . . . . . . . 15,757 8,479 (5,660) 18,576
Accrued liabilities . . . . . . . . . . . . . . . 21,026 2,933 (11) 23,948
--------- -------------- -------------- --------------
Total current liabilities. . . . . . . . . . . . . . 39,805 11,463 (5,671) 45,597
Long-term debt . . . . . . . . . . . . . . . . . . . 135,015 10,784 (8,907) 136,892
Other long-term liabilities. . . . . . . . . . . . . (712) 1,191 -- 479
--------- -------------- -------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . 174,108 23,438 (14,578) 182,968
Stockholders' equity (deficit):
Common stock. . . . . . . . . . . . . . . . . . . 18 23,539 (23,539) 18
Additional paid-in capital. . . . . . . . . . . . 3,006 305 (305) 3,006
Accumulated other comprehensive loss. . . . . . . -- (10,261) -- (10,261)
Retained earnings (deficit) . . . . . . . . . . . 17,425 7,723 (7,482) 17,666
Treasury stock, at cost . . . . . . . . . . . . . (26,959) -- -- (26,959)
--------- -------------- -------------- --------------
Total stockholders' equity (deficit) . . . . . . . . (6,510) 21,306 (31,326) (16,530)
--------- -------------- -------------- --------------
Total liabilities and stockholders' equity (deficit) $167,598 $ 44,744 $ (45,904) $ 166,438
========= ============== ============== ==============
10
9. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE FISCAL MONTHS ENDED MARCH 28, 2003
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- -------------- --------------
Sales. . . . . . . . . . . . . . . . . . . . . $ 39,174 $ 9,207 $ (4,071) $ 44,310
Cost of sales. . . . . . . . . . . . . . . . . 32,335 6,818 (4,023) 35,130
--------- -------------- -------------- --------------
Gross profit . . . . . . . . . . . . . . . . . 6,839 2,389 (48) 9,180
Selling, general and administrative expenses . 5,936 2,970 -- 8,906
--------- -------------- -------------- --------------
Operating income (loss). . . . . . . . . . . . 903 (581) (48) 274
Interest expense . . . . . . . . . . . . . . . (3,005) (9) -- (3,014)
Other expense. . . . . . . . . . . . . . . . . (162) 329 -- 167
--------- -------------- -------------- --------------
(Loss) income before income taxes. . . . . . . (2,264) (261) (48) (2,573)
Provision for income taxes . . . . . . . . . . - 137 -- 137
--------- -------------- -------------- --------------
(Loss) income before equity in income of
Consolidated subsidiaries. . . . . . . . . . . (2,264) (398) (48) (2,710)
Equity in income of consolidated subsidiaries. (398) -- 398 --
--------- -------------- -------------- --------------
Net (loss) income. . . . . . . . . . . . . . . $ (2,662) $ (398) $ 350 $ (2,710)
========= ============== ============== ==============
11
9. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE FISCAL MONTHS ENDED MARCH 29, 2002
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- -------------- --------------
Sales. . . . . . . . . . . . . . . . . . . . . $ 47,114 $ 12,174 $ (6,360) $ 52,928
Cost of sales. . . . . . . . . . . . . . . . . 38,319 8,988 (6,057) 41,250
--------- -------------- -------------- --------------
Gross profit . . . . . . . . . . . . . . . . . 8,795 3,186 (303) 11,678
Selling, general and administrative expenses . 6,393 2,731 -- 9,124
--------- -------------- -------------- --------------
Operating income (loss). . . . . . . . . . . . 2,402 455 (303) 2,554
Interest expense . . . . . . . . . . . . . . . (3,138) (16) -- (3,154)
Other expense. . . . . . . . . . . . . . . . . (140) (186) -- (326)
--------- -------------- -------------- --------------
(Loss) income before income taxes. . . . . . . (876) 253 (303) (926)
Provision for income taxes . . . . . . . . . . 6 3 -- 9
--------- -------------- -------------- --------------
(Loss) income before equity in income of
Consolidated subsidiaries. . . . . . . . . . . (882) 250 (303) (935)
Equity in income of consolidated subsidiaries. (250) -- 250 --
--------- -------------- -------------- --------------
Net (loss) income. . . . . . . . . . . . . . . $ (1,132) $ 250 $ (53) $ (935)
========= ============== ============== ==============
12
9. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE FISCAL MONTHS ENDED MARCH 28, 2003
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- ------------- --------------
Cash flows (used in) provided by operating activities. . . . $ 3,725 $ (3,711) $ -- $ 14
--------- -------------- ------------- --------------
Cash flows from investing activities:
Capital expenditures and proceeds from sales of fixed assets 169 (1,054) -- (885)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (730) 1,017 -- 287
--------- -------------- ------------- --------------
Net cash provided by (used in) investing activities. . . . . (561) (37) -- (598)
--------- -------------- ------------- --------------
Cash flows from financing activities:
Net borrowings (payments) on debt. . . . . . . . . . . . . . (3,249) 1,936 -- (1,313)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 369 -- 393
--------- -------------- ------------- --------------
Net cash (used in) provided by financing activities. . . . . (3,225) 2,305 -- (920)
--------- -------------- ------------- --------------
Effect of exchange rate changes on cash. . . . . . . . . . . -- 46 -- 46
Change in cash and cash equivalents. . . . . . . . . . . . . (61) (1,397) -- (1,458)
Cash and cash equivalents, beginning of period . . . . . . . 205 2,731 -- 2,936
--------- -------------- ------------- --------------
Cash and cash equivalents, end of period . . . . . . . . . . $ 144 $ 1,334 -- $ 1,478
========= ============== ============= ==============
13
9. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE FISCAL MONTHS ENDED MARCH 29, 2002
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- ------------- --------------
Cash flows (used in) provided by operating activities. . . . $ (515) $ 597 $ -- $ 82
--------- -------------- ------------- --------------
Cash flows from investing activities:
Capital expenditures and proceeds from sales of fixed assets (838) (317) -- (1,155)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,883 (758) -- 1,125
--------- -------------- ------------- --------------
Net cash provided by (used in) investing activities. . . . . 1,045 (1,075) -- (30)
--------- -------------- ------------- --------------
Cash flows from financing activities:
Net borrowings (payments) on debt. . . . . . . . . . . . . . (556) 1,562 -- 1,006
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,330) 333 -- (997)
--------- -------------- ------------- --------------
Net cash (used in) provided by financing activities. . . . . (1,886) 1,895 -- 9
--------- -------------- ------------- --------------
Effect of exchange rate changes on cash. . . . . . . . . . . -- 6 -- 6
Change in cash and cash equivalents. . . . . . . . . . . . . (1,356) 1,423 -- 67
Cash and cash equivalents, beginning of period . . . . . . . 1,482 1,346 -- 2,828
--------- -------------- ------------- --------------
Cash and cash equivalents, end of period . . . . . . . . . . $ 126 $ 2,769 -- $ 2,895
========= ============== ============= ==============
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the notes included in Item 1 hereof.
GENERAL
The Company is a leading manufacturer and supplier of agricultural
equipment and services worldwide. The Company's grain, swine and poultry
products are used by producers and purchasers of grain, and by producers of
swine and poultry. Fluctuations in grain and feed prices directly impact sales
of the Company's grain equipment. Because the primary cost of producing swine
and poultry is the cost of the feed grain consumed by animals, fluctuations in
the supply and cost of grain to users of the Company's products in the past has
impacted sales of the Company's swine and poultry equipment. The Company
believes, however, that its diversified product offerings mitigate some of the
effects of fluctuations in the price of grain since the demand for grain
storage, drying and handling equipment tends to increase during periods of
higher grain prices, which somewhat offsets the reduction in demand during such
periods for the Company's products by producers of swine and poultry.
Sales of agricultural equipment are seasonal, with farmers traditionally
purchasing grain storage bins and grain drying and handling equipment in the
summer and fall in conjunction with the harvesting season, and swine and poultry
producers purchasing equipment during prime construction periods in the spring,
summer and fall. The Company's net sales and net income have historically been
lower during the first and fourth fiscal quarters as compared to the second and
third quarters.
Although the Company's sales are primarily denominated in U.S. dollars and
are not generally affected by currency fluctuations (except for the Company's
Brazilian operations), the production costs, profit margins and competitive
position of the Company are affected by the strength of the U.S. dollar relative
to the strength of the currencies in countries where its products are sold.
The Company's international sales have historically comprised a significant
portion of net sales. In the first quarters of 2003 and 2002, the Company's
international sales accounted for 26% and 29% of net sales, respectively.
International operations generally are subject to various risks that are not
present in domestic operations, including restrictions on dividends,
restrictions on repatriation of funds, unexpected changes in tariffs and other
trade barriers, difficulties in staffing and managing foreign operations,
political instability, fluctuations in currency exchange rates, reduced
protection for intellectual property rights in some countries, seasonal
reductions in business activity and potentially adverse tax consequences, any of
which could adversely impact the Company's international operations.
The primary raw materials used by the Company to manufacture its products
are steel and polymers. Fluctuations in the prices and availability of vendors
for steel and, to a lesser extent, polymer materials can impact the Company's
cost of sales.
The Company currently operates as a subchapter S corporation and,
accordingly, is not subject to federal income taxation for the periods for which
financial information has been presented herein. Because the Company's
stockholders are subject to tax liabilities based on their pro rata shares of
the Company's income, the Company's policy is to make periodic distributions to
its stockholders in amounts equal to such tax liabilities.
RESULTS OF OPERATIONS
Three Months Ended March 28, 2003 Compared to Three Months Ended March 29, 2002
Sales decreased 16.3% or $8.6 million to $44.3 million in the first quarter
of 2003 compared to $52.9 million in the first quarter of 2002. This decrease
was driven by decreased demand for essentially all of the Company's products.
Gross profit decreased to $9.2 million in the first quarter of 2003 or
20.7% of sales from $11.7 million or 22.1% of sales in the same period of 2002.
This decrease was a result of decreased sales. The decrease in gross profit as
a percent of sales was primarily the result of costs associated with re-tooling
facilities to a cellular manufacturing approach.
15
Selling, general and administrative expenses decreased 2.4% or $0.2 million
to $8.9 million in the first quarter of 2003 from $9.1 million in the same
period of 2002. This decrease was primarily the result of cost cutting measures.
Operating income decreased 89.3% to $0.3 million in the first quarter of
2003 from $2.6 million in the first quarter of 2002. This decrease was
attributable to the decrease in gross profit.
Interest expense decreased $0.1 million in the first quarter of 2003 as
compared to the first quarter of 2002 due to lower borrowing costs.
Net loss increased $1.8 million to a loss of $2.7 million for the first
quarter of 2003 from a loss of $0.9 million in the same period of 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded capital expenditures, working capital
requirements, debt service, stockholder dividends and stock repurchases from
cash flow from its operations, augmented by borrowings made under various credit
agreements and the sale of the Company's 10 % senior subordinated notes.
As of March 28, 2003, the Company had $65.0 million of working capital, a
decrease of $2.3 million from working capital as of December 31, 2002. The
decrease in working capital was primarily due to increases in accrued expenses,
customer deposits and accounts payable of $7.9 million, partially offset by
increases in accounts receivable and inventory of $5.1 million.
Operating activities provided $0.0 million and $0.1 million in cash flow in
the first quarters of 2003 and 2002, respectively. This $0.1 million decrease
in cash flow was primarily the result of an increase in net loss, accounts
receivable, inventory, and other current assets of $5.2 million, partially
offset by a decrease in accounts payable, accrued expenses, customer deposits,
depreciation and amortization and gain on sale of fixed assets of $5.3 million
compared to the first quarter of 2002.
Investing activities used $0.6 million and $0.0 million in cash flow in the
first quarters of 2003 and 2002, respectively. The cash was used primarily for
machinery and equipment purchases. The $0.6 million increase in cash used in
investing activities was partially a result of fewer proceeds from the sale of
fixed assets in 2003 compared to 2002.
Financing activities used $0.9 million and $0.0 million in cash flow in the
first quarters of 2003 and 2002, respectively. The cash was used primarily for
payments on long-term debt.
The Company believes that existing cash, cash flow from operations and
available borrowings under the Credit Facility will be sufficient to support its
working capital, capital expenditures and debt service requirements for the
foreseeable future.
INFLATION
The Company believes that inflation has not had a material effect on its
results of operations or financial condition during recent periods.
CRITICAL ACCOUNTING POLICIES
There are no material changes to the critical accounting policies since
December 31, 2002.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are statements other than historical information or
statements of current condition. Some forward-looking statements may be
identified by the use of terms such as "believes," "anticipates," "intends," or
"expects." Forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from future
results expressed or implied by such statements, and such statements should not
be regarded as a representation the stated objectives will be achieved.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with adverse changes in
interest rates and foreign currency exchange rates. The Company does not hold
any market risk sensitive instruments for trading purposes. At March 28, 2003,
principal exposed to interest rate risk was limited to $41.5 million in variable
rate debt. The Company measures its interest rate risk by estimating the net
amount by which potential future net earnings would be impacted by hypothetical
changes in market interest rates related to all interest rate sensitive assets
and liabilities. A 1% change in interest rates would have a $0.4 million impact
on the Company's results of operations.
At March 28, 2003, approximately 17.4% of sales were derived from
international operations with exposure to foreign currency exchange rate risk.
The Company mitigates its foreign currency exchange rate risk principally by
establishing local production facilities in the markets it serves and by
invoicing customers in the same currency as the source of the products. The
Company also monitors its foreign currency exposure in each country and
implements strategies to respond to changing economic and political
environments. The Company's exposure to foreign currency exchange rate risk
relates primarily to the financial position and the results of operations of its
Brazilian subsidiary. The Company's exposure to such exchange rate risk as it
relates to the Company's financial position and results of operations would be
adversely impacted by further devaluation of the Brazilian Real per U.S. dollar.
These amounts are difficult to accurately estimate due to factors such as the
inherent fluctuation of inter-company account balances, balance sheet accounts
and the existing economic uncertainty and future economic conditions in the
international marketplace.
ITEM 4. CONTROLS AND PROCEDURES
Based on an evaluation of the Company's disclosure controls and procedures
performed by the Company's management within 90 days of the filing date of this
annual report, the Company's Chief Executive Officer and Chief Financial Officer
believe that the Company has appropriate disclosure controls and procedures to
ensure that information required to be disclosed by the Company in its periodic
reports is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities Exchange Commission.
Since the date of such evaluation, there have been no significant changes
in the Company's internal controls or in other factors that could significantly
affect these controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no legal proceedings pending against the Company, which, in the
opinion of management, would have a material adverse affect on the Company's
business, financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
A list of the exhibits included as part of this Form 10-Q is set
forth in the Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
The Company did not file any Current Reports on Form 8-K during its
fiscal quarter ended March 28, 2003.
18
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
The GSI Group, Inc.
By: /s/ Russell C. Mello
-----------------------
Chief Financial Officer,
Secretary and Treasurer (Authorized
Signatory and Principal Financial
Officer)
DATE: MAY 2, 2003
19
CERTIFICATIONS
I, Craig Sloan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The GSI Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 2, 2003
/s/ Craig Sloan
-----------------
Chief Executive Officer
20
I, Russell C. Mello, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The GSI Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 2, 2003
/s/ Russell C. Mello
-----------------------
Chief Financial Officer,
Secretary and Treasurer
21
INDEX TO EXHIBITS
EXHIBIT
NO. DOCUMENT DESCRIPTION
- ------- ---------------------------------------------------------------------------------------------------------
3.1* Amended and Restated Articles of Incorporation of The GSI Group, Inc., as amended as of October 23, 1997.
3.2* By-Laws of The GSI Group, Inc, as amended.
10.1 Waiver and Third Amendment to the July 25, 2001 Fifth Amended and Restated Loan and Security Agreement,
dated April 30, 2003 between The GSI Group, Inc., as borrower, and LaSalle National Bank, as lender.
99.1 Certification of Chief Executive Officer and Chief Financial Officer.
____________
* Incorporated by reference from the Company's Registration Statement of
Form S-4 (Reg. No. 333-43089) filed with the Commission pursuant to the
Securities Act of 1933, as amended.
22