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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 April 2, 2004
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 10, 2004.
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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 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 17
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
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 18
* 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)
APRIL 2, DECEMBER 31,
ASSETS 2004 2003
- ------------------------------------------------------------------------- ----------- --------------
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 2,508 $ 3,439
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . 30,359 27,083
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,901 54,165
Prepaids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,894 4,468
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,572 2,882
----------- --------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . 97,234 92,037
----------- --------------
Property, Plant and Equipment, net. . . . . . . . . . . . . . . . . . . . 31,366 32,673
----------- --------------
Other Assets:
Goodwill and other intangible assets, net . . . . . . . . . . . . . . . 12,062 12,243
Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,399 1,077
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,826 2,881
----------- --------------
Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . 16,287 16,201
----------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,887 $ 140,911
=========== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------------------------------------------
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,830 $ 17,139
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,041 1,751
Payroll and payroll related expenses. . . . . . . . . . . . . . . . . . 4,167 3,071
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . 3,861 3,697
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,760 8,875
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . 352 148
----------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 46,011 34,681
----------- --------------
Long-Term Debt, less current maturities . . . . . . . . . . . . . . . . . 123,016 129,563
----------- --------------
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). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,327) (11,929)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,122 12,531
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 . . . . . . . . . . . . . . . . . . . . (24,140) (23,333)
----------- --------------
Total liabilities and stockholders' deficit . . . . . . . . . . . . $ 144,887 $ 140,911
=========== ==============
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
-------------------------
APRIL 2, MARCH 28,
2004 2003
----------- -----------
Sales $ 58,634 $ 44,310
Cost of sales 47,104 35,130
----------- -----------
Gross profit . . . . . . . . . . . . . . 11,530 9,180
Selling, general and administrative expenses 8,161 8,595
Amortization expense . . . . . . . . . . . . 162 311
----------- -----------
Total operating expenses . . . . . . . . . 8,323 8,906
----------- -----------
Operating income . . . . . . . . . . . . . . 3,207 274
Other income (expense):
Interest expense . . . . . . . . . . . . . (3,076) (3,014)
Other, net . . . . . . . . . . . . . . . . (179) 167
----------- -----------
Loss before income tax expense . . . . . (48) (2,573)
----------- -----------
Income tax expense . . . . . . . . . . . . . 111 137
----------- -----------
Net loss . . . . . . . . . . . . . . . . $ (159) $ (2,710)
----------- -----------
Basic and diluted loss per share . . . . . . $ (0.09) $ (1.53)
----------- -----------
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
---------------------------
APRIL 2, MARCH 28,
2004 2003
--------------------------- -----------
Cash Flows From Operating Activities:
Depreciation and amortization expense . . . . . . . . . 1,364 1,664
Other . . . . . . . . . . . . . . . . . . . . . . . . . 5,094 (1,650)
--------------------------- -----------
Net cash flows provided by operating activities 6,458 14
--------------------------- -----------
Cash Flows From Investing Activities:
Capital expenditures. . . . . . . . . . . . . . . . . . (577) (885)
Proceeds from sale of fixed assets. . . . . . . . . . . 352 31
Other . . . . . . . . . . . . . . . . . . . . . . . . . (30) 256
--------------------------- -----------
Net cash flows used in investing activities . . (255) (598)
--------------------------- -----------
Cash Flows From Financing Activities:
Proceeds from shareholder loan. . . . . . . . . . . . 734 69
Payments on shareholder loan. . . . . . . . . . . . . (530) (199)
Payments on long-term debt. . . . . . . . . . . . . . . -- (658)
Net payments under line of credit agreement . . . . . . (6,589) (525)
Dividends . . . . . . . . . . . . . . . . . . . . . . (250) --
Other . . . . . . . . . . . . . . . . . . . . . . . . . (500) 393
--------------------------- -----------
Net cash flows used in financing activities . . (7,135) (920)
--------------------------- -----------
Effect of Exchange Rate Changes on Cash . . . . . . . . . 1 46
Decrease In Cash and Cash Equivalents . . . . . . . . . . $ (931) $ (1,458)
Cash and Cash Equivalents, beginning of period. . . . . . 3,439 2,936
--------------------------- -----------
Cash and Cash Equivalents, end of period. . . . . . . . . $ 2,508 $ 1,478
=========================== ===========
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 accounting principles generally accepted in the United States of America
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, 2003 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 April 2, 2004 and the results of operations for the three months ended April
2, 2004 and cash flows for the three months ended April 2, 2004. Those
adjustments consist only of normal recurring adjustments.
The results of operations for the three-month period ended April 2, 2004
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):
April 2, March 28,
2004 2003
---------- -----------
Net loss . . . . . . . . . . . . . . . . . $ (159) $ (2,710)
Cumulative currency translation adjustment (398) 668
Comprehensive loss . . . . . . . . . . . $ (557) $ (2,042)
========== ===========
3. DETAIL OF CERTAIN ASSETS
APRIL 2, DECEMBER 31,
2004 2003
--------- -------------
(IN THOUSANDS)
Inventories
Raw materials $ 17,350 $ 13,940
Work-in-process 14,562 18,443
Finished goods 25,989 21,782
--------- -------------
Total $ 57,901 $ 54,165
========= =============
4. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid approximately $0.5 million in interest during the quarters
ended April 2, 2004 and March 28, 2003. The Company paid no income taxes during
the first quarters of 2004 and 2003.
6
5. 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 April
2, 2004.
The Credit Facility with Congress Financial Corporation (Central)
requires the Company to maintain a senior debt to EBITDA ratio and a fixed
charge coverage ratio. Borrowings under the Credit Facility are secured by
substantially all of the assets of the Company, including the capital stock of
any existing or future subsidiaries, except the Brazilian subsidiary. The
Company had $19.5 million of availability on the line as of April 2, 2004.
6. 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 Yemen Company for Industrial
Development to manufacture and supervise the assembly of grain handling systems.
Other current assets and other assets include $0.5 million of retainage withheld
until completion of the projects and the meeting of certain performance
criteria.
7. 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 2004 and 2003 are as shown in the table
below (in thousands).
APRIL 2, MARCH 28,
2004 2003
--------- ----------
Grain product line . $ 32,464 $ 24,543
Swine product line . 9,924 8,602
Poultry product line 16,246 11,165
--------- ----------
Sales . . . . . $ 58,634 $ 44,310
========= ==========
For the first quarters of 2004 and 2003, sales in Brazil were $7.3 million
and $3.6 million, respectively. Long-lived assets in Brazil were $2.9 million
at April 2, 2004.
7
8. 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 Poland Sp. z.o.o., 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
8. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
APRIL 2, 2004
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 412 $ 2,096 $ -- $ 2,508
Accounts receivable, net. . . . . . . . . . . . . 24,400 9,855 (3,896) 30,359
Inventories, net. . . . . . . . . . . . . . . . . 45,279 12,622 -- 57,901
Other current assets. . . . . . . . . . . . . . . 3,077 3,389 -- 6,466
--------- -------------- -------------- --------------
Total current assets . . . . . . . . . . . . . . . . 73,168 27,962 (3,896) 97,234
Property, plant and equipment, net . . . . . . . . . 26,525 4,841 -- 31,366
Goodwill and other intangible assets, net. . . . . . 2,891 9,171 -- 12,062
Investment in and advances to/from subsidiaries. . . 44,291 (4,996) (39,295) --
Other long-term assets . . . . . . . . . . . . . . . 4,217 8 -- 4,225
--------- -------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . $151,092 $ 36,986 $ (43,191) $ 144,887
========= ============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Current portion of long-term debt . . . . . . . . $ 352 $ -- $ -- $ 352
Accounts payable. . . . . . . . . . . . . . . . . 17,349 9,377 (3,896) 22,830
Accrued liabilities . . . . . . . . . . . . . . . 20,199 2,630 -- 22,829
--------- -------------- -------------- --------------
Total current liabilities. . . . . . . . . . . . . . 37,900 12,007 (3,896) 46,011
Long-term debt . . . . . . . . . . . . . . . . . . . 125,005 7,125 (9,114) 123,016
--------- -------------- -------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . 162,905 19,132 (13,010) 169,027
Stockholders' equity (deficit):
Common stock. . . . . . . . . . . . . . . . . . . 18 22,398 (22,398) 18
Additional paid-in capital. . . . . . . . . . . . 3,006 505 (505) 3,006
Accumulated other comprehensive loss. . . . . . . -- (12,327) -- (12,327)
Retained earnings (deficit) . . . . . . . . . . . 12,122 7,278 (7,278) 12,122
Treasury stock, at cost . . . . . . . . . . . . . (26,959) -- -- (26,959)
--------- -------------- -------------- --------------
Total stockholders' equity (deficit) . . . . . . . . (11,813) 17,854 (30,181) (24,140)
--------- -------------- -------------- --------------
Total liabilities and stockholders' equity (deficit) $151,092 $ 36,986 $ (43,191) $ 144,887
========= ============== ============== ==============
9
8. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE FISCAL MONTHS ENDED APRIL 2, 2004
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- -------------- --------------
Sales. . . . . . . . . . . . . . . . . . . . . $ 48,534 $ 12,725 $ (2,625) $ 58,634
Cost of sales. . . . . . . . . . . . . . . . . 40,501 9,216 (2,613) 47,104
--------- -------------- -------------- --------------
Gross profit . . . . . . . . . . . . . . . . . 8,033 3,509 (12) 11,530
Selling, general and administrative expenses . 5,520 2,803 -- 8,323
--------- -------------- -------------- --------------
Operating income (loss). . . . . . . . . . . . 2,513 706 (12) 3,207
Interest expense . . . . . . . . . . . . . . . (3,065) (11) -- (3,076)
Other expense. . . . . . . . . . . . . . . . . (40) (139) -- (179)
--------- -------------- -------------- --------------
(Loss) income before income taxes. . . . . . . (592) 556 (12) (48)
Provision for income taxes . . . . . . . . . . - 111 -- 111
--------- -------------- -------------- --------------
(Loss) income before equity in income of
Consolidated subsidiaries. . . . . . . . . . . (592) 445 (12) (159)
Equity in income of consolidated subsidiaries. 445 -- (445) --
--------- -------------- -------------- --------------
Net (loss) income. . . . . . . . . . . . . . . $ (147) $ 445 $ (457) $ (159)
========= ============== ============== ==============
10
8. 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 income (expense) . . . . . . . . . . . . (162) 329 -- 167
--------- -------------- -------------- --------------
Loss before income taxes . . . . . . . . . . . (2,264) (261) (48) (2,573)
Provision for income taxes . . . . . . . . . . - 137 -- 137
--------- -------------- -------------- --------------
Loss before equity in income of
Consolidated subsidiaries. . . . . . . . . . . (2,264) (398) (48) (2,710)
Equity in income of consolidated subsidiaries. (398) -- 398 --
--------- -------------- -------------- --------------
Net loss . . . . . . . . . . . . . . . . . . . $ (2,662) $ (398) $ 350 $ (2,710)
========= ============== ============== ==============
11
8. GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE FISCAL MONTHS ENDED APRIL 2, 2004
(IN THOUSANDS)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- -------------- ------------- --------------
Cash flows (used in) provided by operating activities. . . . $ 7,019 $ (561) $ -- $ 6,458
--------- -------------- ------------- --------------
Cash flows from investing activities:
Capital expenditures and proceeds from sales of fixed assets (216) (9) -- (225)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,439 (1,469) -- (30)
--------- -------------- ------------- --------------
Net cash provided by (used in) investing activities. . . . . 1,223 (1,478) -- (255)
--------- -------------- ------------- --------------
Cash flows from financing activities:
Net payments on debt . . . . . . . . . . . . . . . . . . . . (6,032) (353) -- (6,385)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,903) 1,153 -- (750)
--------- -------------- ------------- --------------
Net cash provided by (used in) financing activities. . . . . (7,935) 800 -- (7,135)
--------- -------------- ------------- --------------
Effect of exchange rate changes on cash. . . . . . . . . . . -- 1 -- 1
Change in cash and cash equivalents. . . . . . . . . . . . . 307 (1,238) -- (931)
Cash and cash equivalents, beginning of period . . . . . . . 105 3,334 -- 3,439
--------- -------------- ------------- --------------
Cash and cash equivalents, end of period . . . . . . . . . . $ 412 $ 2,096 -- $ 2,508
========= ============== ============= ==============
12
8. 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 176 (1,030) -- (854)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (737) 993 -- 256
--------- -------------- ------------- --------------
Net cash 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
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 and South African 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 2004 and 2003, the Company's
international sales accounted for 31% and 26% 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. Recent sharp increases in the price of steel have forced the
Company to pass along price increases to its customers, which may affect future
demand. In addition, the Company may be unable to recover the full amount of
these steel price increases from its customers.
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 April 2, 2004 Compared to Three Months Ended March 28, 2003
Sales increased 32.3% or $14.3 million to $58.6 million in the first
quarter of 2004 compared to $44.3 million in the first quarter of 2003. This
increase was driven by increased demand for essentially all of the Company's
products.
14
Gross profit increased to $11.5 million in the first quarter of 2004 or
19.7% of sales from $9.2 million or 20.7% of sales in the same period of 2003.
This increase was a result of increased sales. The decrease in gross profit as
a percent of sales was primarily the result of higher material costs.
Selling, general and administrative expenses decreased 6.6% or $0.6 million
to $8.3 million in the first quarter of 2004 from $8.9 million in the same
period of 2003. This decrease was primarily the result of cost cutting measures.
Operating income increased substantially to $3.2 million in the first
quarter of 2004 from $0.3 million in the first quarter of 2003. This increase
was attributable to the increase in gross profit.
Interest expense increased $0.1 million in the first quarter of 2004 as
compared to the first quarter of 2003 due to higher borrowing costs.
Net loss decreased $2.6 million to a loss of $0.1 million for the first
quarter of 2004 from a loss of $2.7 million in the same period of 2003.
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 April 2, 2004, the Company had $51.2 million of working capital, a
decrease of $6.1 million from working capital as of December 31, 2003. The
decrease in working capital was primarily due to increases in accrued expenses,
customer deposits and accounts payable of $11.1 million, partially offset by
increases in accounts receivable and inventory of $7.0 million.
Operating activities provided $6.4 million and $0.0 million in cash flow in
the first quarters of 2004 and 2003, respectively. This $6.4 million increase
in cash flow was primarily the result of an increase in net income, inventory,
and other current assets, accounts payable, accrued expenses, and customer
deposits of $7.2 million, partially offset by a decrease in depreciation and
amortization, deferred taxes and accounts receivable of $1.2 million compared to
the first quarter of 2003.
Investing activities used $0.3 million and $0.6 million in cash flow in the
first quarters of 2004 and 2003, respectively. The cash was used primarily for
machinery and equipment purchases. The $0.3 million decrease in cash used in
investing activities was partially a result of higher proceeds from the sale of
fixed assets in 2004 compared to 2003.
Financing activities used $7.1 million and $0.9 million in cash flow in the
first quarters of 2004 and 2003, 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, 2003.
15
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 April 2, 2004,
principal exposed to interest rate risk was limited to $25.8 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 $0.3 million impact
on the Company's results of operations.
At April 2, 2004, approximately 16.3% 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 and South African subsidiaries. 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 and the South African Rand 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 the Company's Chief Executive Officer and
Chief Financial Officer have concluded that as of the end of the period covered
by this report, the Company has appropriate disclosure controls and procedures
to ensure that information required to be disclosed by the Company in this
quarterly report has been recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities Exchange
Commission.
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 April 2, 2004.
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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 10, 2004
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluations; and
c) disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 10, 2004
/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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 10, 2004
/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.
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.
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