<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 3, 1998
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)
Registrant's telephone number, including area code: (217) 226-4421
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 [ ] 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, 2,000,000 shares outstanding as of May 4, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
PART I-Financial Information
Item 1. - Financial Statements
Balance Sheets.......................................................................... 3
Statements of Operations................................................................ 4
Statements of Changes in Stockholder's Equity........................................... 5
Statements of Cash Flows................................................................ 6
Notes to Financial Statements........................................................... 7
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations... 10
Item 3. - Quantitative and Qualitative Disclosures about Market Risk.............................. 12
PART II-Other Information
Item 1. Legal Proceedings.................................................................. 13
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................................................... 13
</TABLE>
- ----------------
* No response to this item is included herein for the reason that it is
inapplicable.
<PAGE>
PART I - FINANCIAL INFORMATION
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF APRIL 3, 1998 AND DECEMBER 31, 1997
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
April 3, December 31,
ASSETS 1998 1997
- ------------------------------------------------------------------------------- -------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 0 $ 18,572
Accounts receivable, net...................................................... 27,833 23,214
Inventories, net.............................................................. 54,441 46,882
Prepaids...................................................................... 6,756 8,165
Other......................................................................... 3,050 3,155
-------- --------
Total current assets........................................................ 92,080 99,988
-------- --------
NOTES RECEIVABLE, less current portion......................................... 1,084 1,084
-------- --------
LONG-TERM RETAINAGE............................................................ 579 579
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net............................................. 37,647 36,143
-------- --------
OTHER ASSETS:
Goodwill, net................................................................. 8,364 7,991
Other intangible assets, net.................................................. 515 564
Deferred financing costs...................................................... 3,483 3,514
Other......................................................................... 453 246
-------- --------
Total other assets.......................................................... 12,815 12,315
-------- --------
Total assets................................................................ $144,205 $150,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 12,407 $ 11,948
Dividend payable.............................................................. 3,509 5,300
Payroll and payroll related expenses.......................................... 5,052 3,843
Deferred taxes................................................................ 1,234 1,234
Accrued expenses.............................................................. 13,044 9,067
Customer deposits............................................................. 9,664 4,883
Current maturities of long-term debt.......................................... 339 14,663
-------- --------
Total current liabilities................................................... 45,249 50,938
-------- --------
LONG-TERM DEBT, less current maturities........................................ 102,606 101,868
-------- --------
DEFERRED INCOME TAXES.......................................................... 2,087 2,087
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value, voting (authorized 6,900,000 shares;
issued 6,633,652 shares)..................................................... 18 18
Common stock, $.01 par value, nonvoting (authorized 1,100,000 shares;
issued 200,000 shares)....................................................... 2 2
Paid-in capital............................................................... 2,473 2,473
Cumulative translation adjustment............................................. (901) (869)
Retained earnings............................................................. 18,204 19,125
Treasury stock, at cost....................................................... (25,533) (25,533)
-------- --------
Total stockholders' equity (deficit)....................................... $ (5,737) $ (4,784)
-------- --------
Total liabilities and stockholders' equity.................................. $144,205 $150,109
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
3
<PAGE>
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Period Ended April 3, 1998 and March 31, 1997
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Period Ended
-------------------------------
April 3, March 31,
1998 1997
-------------- ---------------
<S> <C> <C>
NET SALES................................................................ $ 52,161 $ 33,604
COST OF SALES............................................................ 40,154 26,598
---------- ----------
Gross profit........................................................ 12,007 7,006
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................. 10,390 6,987
---------- ----------
Operating income.................................................... 1,617 19
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense....................................................... (2,910) (999)
Interest income........................................................ 233 33
Other, net............................................................. (26) (48)
---------- ----------
Income (loss) before income taxes................................... (1,086) (995)
---------- ----------
INCOME TAXES............................................................. (165) (10)
---------- ----------
Net Income.......................................................... $ (921) $ (985)
---------- ----------
BASIC AND DILUTED EARNINGS PER SHARE:
Net Income.......................................................... $ (0.46) $ (0.49)
---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................... 2,000,000 2,000,000
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1997
and the Quarter Ended April 3, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------
Voting Nonvoting
-----------------------------------------
Additional Cumulative
Shares Shares Paid-in Translation Retained
Issued Amount Issued Amount Capital Adjustment Earnings
---------- ------ ------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995......... 1,800,000 18 -- -- 182 -- 12,687
Treasury stock purchased......... (1,460,158) (15) -- -- 15 -- --
Stock split --
Voting common stock............ 785,158 8 -- -- 26 -- --
Non-voting common stock........ -- -- 200,000 2 7 -- --
Stock sold pursuant to four
purchase agreements............ 675,000 7 -- -- 2,243 -- --
Net income....................... -- -- -- -- -- -- 10,499
Dividends........................ -- -- -- -- -- -- (5,527)
---------- ------ ------- ------ ---------- ----------- --------
Balance, December 31, 1996......... 1,800,000 18 200,000 2 2,473 -- 17,659
Net income....................... -- -- -- -- -- -- 17,562
Dividends........................ -- -- -- -- -- -- (16,096)
Cumulative translation
adjustment...................... -- -- -- -- -- (869) --
---------- ------ ------- ------ ---------- ----------- --------
Balance, December 31, 1997......... 1,800,000 $ 18 200,000 $ 2 $ 2,473 $ (869) $ 19,125
Net income....................... -- -- -- -- -- -- (921)
Cumulative translation
adjustment...................... -- -- -- -- -- (32) --
---------- ------ ------- ------ ---------- ----------- --------
Balance, April 3, 1998............. 1,800,000 $ 18 200,000 $ 2 $ 2,473 $ (901) $ 18,204
========== ====== ======= ====== ========== =========== ========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
-----------------------------------------
Voting Nonvoting
-----------------------------------------
The
Stockholders'
Shares Amount Shares Amount Equity
--------- ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995......... -- -- -- -- $ 12,887
Treasury stock purchased......... 1,460,158 (25,490) -- -- (25,490)
Stock split --
Voting common stock............ 3,373,494 (34) -- -- --
Non-voting common stock........ -- -- 859,316 (9) --
Stock sold pursuant to four
purchase agreements............ -- -- -- -- 2,250
Net income....................... -- -- -- -- 10,499
Dividends........................ -- -- -- -- (5,527)
--------- -------- ------- ------ ------------
Balance, December 31, 1996......... 4,833,652 (25,524) 859,316 $ (9) $ (5,381)
Net income....................... -- -- -- -- 17,562
Dividends........................ -- -- -- -- (16,096)
Cumulative translation
adjustment...................... -- -- -- -- (869)
--------- -------- ------- ------ ------------
Balance, December 31, 1997......... 4,833,652 $(25,524) 859,316 $ (9) $ (4,784)
Net income....................... -- -- -- -- (921)
Cumulative translation
adjustment...................... -- -- -- -- (32)
--------- -------- ------- ------ ------------
Balance, April 3, 1998............. 4,833,652 $(25,524) 859,316 $ (9) $ (5,737)
========= ======== ======= ====== ============
</TABLE>
5
<PAGE>
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended April 3, 1998 and March 31, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
April 3, March 31,
1998 1997
---------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)........................................................... $ (921) $ (985)
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization............................................ 1,257 940
Amortization of deferred financing costs................................. 96 --
Gain (loss) on sale of equipment......................................... (1) (2)
Changes in assets and liabilities:
Accounts receivable................................................... (4,619) 34
Inventories........................................................... (7,559) (4,892)
Other current assets.................................................. 1,514 529
Accounts payable...................................................... 448 (1,271)
Accrued expenses and payroll and payroll related expenses............. 5,279 574
Customer deposits..................................................... 4,781 3,291
Other................................................................. -- 63
-------- -------
Net cash flows provided by (used in) operating activities.......... 275 (1,719)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................ (2,669) (2,870)
Proceeds from sale of fixed assets.......................................... 75 12
Payments received on notes receivable....................................... -- 171
Acquisition of Clark Products, Inc., net of cash acquired................... -- (835)
Other....................................................................... -- (354)
-------- -------
Net cash flows provided by (used in) investing activities.......... (2,594) (3,876)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on former shareholder loans........................................ (14,312) --
Payments on long-term debt.................................................. (85) (719)
Deferred financing costs.................................................... (65) --
Net (payments) borrowings under line-of-credit agreement.................... -- 6,331
Dividends................................................................... (1,791) --
Other....................................................................... -- (110)
-------- -------
Net cash flows provided by (used in) financing activities.......... (16,253) 5,502
-------- -------
INCREASE IN CASH AND CASH EQUIVALENTS......................................... $(18,572) $ (93)
CASH & CASH EQUIVALENTS, beginning of period.................................. 18,572 1,490
-------- -------
CASH AND CASH EQUIVALENTS, end of period...................................... $ 0 $ 1,397
======== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements
6
<PAGE>
THE GSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements reflect the consolidated results of
the GSI Group, Inc. and its subsidiaries (the "Company").
The consolidated financial statements includes the accounts of the Company
and its subsidiaries. All intercompany transactions and balances have been
eliminated.
In the opinion of management, the accompanying unaudited financial
statements of the Company contain adjustments which are of a normal recurring
nature necessary to present fairly the financial position as of April 3, 1998
and March 31, 1997 and the results of operations, changes in stockholder's
equity and cash flows for the periods indicated in accordance with generally
accepted accounting principals. Interim financial results are not necessarily
indicative of operating results for an entire year.
Certain reclassifications have been made to prior-year amounts to conform
to the current-year presentation.
Beginning with the first quarter of 1998, the Company has adopted thirteen
week fiscal quarter periods for operational and financial reporting purposes.
Financial Information About Industry Segments
The Company operates in primarily one industry segment, which includes the
design, manufacture and sale of agricultural equipment.
New Accounting Pronouncements
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS
No. 130"), which requires companies to report all changes in equity during a
period, except those resulting from investment by owners and distributions to
owners, in a financial statement for the period in which they are recognized.
The Company has chosen to disclose Comprehensive Income, which encompasses net
income and foreign currency translation adjustments, in the notes to financial
statements for interim periods.
The components of Comprehensive Income for the periods presented are as
follows:
<TABLE>
<CAPTION>
April 3, March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Net Income $ (921) $ (985)
Cumulative Translation Adjustment (32) --
--------------- ---------------
Comprehensive Income $ (953) $ (985)
=============== ===============
</TABLE>
7
<PAGE>
2. Detail Of Certain Assets
<TABLE>
<CAPTION>
As of
-------------------------------
April 3, December 31,
------------ -------------
1998 1997
------------ -------------
Accounts Receivable (In thousands)
-------------------------------
<S> <C> <C> <C>
Trade receivables............................ $ 29,906 $ 25,050
Allowance for doubtful accounts.............. (2,073) (1,836)
---------- -----------
Total........................................ $ 27,833 $ 23,214
========== ===========
Inventories
Raw materials................................ $ 13,039 $ 8,883
Work-in-process.............................. 11,754 12,464
Finished goods............................... 29,648 25,535
---------- -----------
Total........................................ $ 54,441 $ 46,882
========== ===========
Property, Plant and Equipment
Land......................................... $ 895 $ 895
Buildings.................................... 18,437 18,799
Machinery.................................... 36,642 34,897
Furniture and fixtures....................... 4,601 4,514
Construction-in-progress..................... 2,543 1,364
---------- -----------
63,118 60,469
Accumulated depreciation..................... (25,471) (24,326)
---------- -----------
Property, Plant and equipment, net........... $ 37,647 $ 36,143
========== ===========
Intangible Assets
Goodwill $ 8,616 $ 8,182
Accumulated amortization (252) (191)
---------- -----------
Total........................................ $ 8,364 $ 7,991
========== ===========
Other intangible assets $ 1,963 $ 1,963
Accumulated amortization (1,448) (1,399)
---------- -----------
Total........................................ $ 515 $ 564
========== ===========
Deferred Financing Costs
Deferred financing costs $ 3,793 $ 3,728
Accumulated amortization (310) (214)
---------- -----------
Total........................................ $ 3,483 $ 3,514
========== ===========
</TABLE>
3. Supplemental Cash Flow Information
The Company paid approximately $0.7 and $1.0 million in interest during
the first quarters ended April 3, 1998 and March 31, 1997, respectively. The
Company paid no income taxes during the first quarters of 1998 and 1997.
8
<PAGE>
4. Long-Term Debt
Long-term debt at April 3, 1998 and December 31, 1997, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
April 3, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Citizens National Bank IRB $ 2,000 $ 2,042
Various noncompete, license and patent agreements 78 78
Notes to former stockholders -- 14,312
LaSalle Bank revolving line -- --
Clark Products, Inc. promissory note 558 600
10.25% senior subordinated notes payable 98,409 98,374
Norwest Bank Iowa revolving line of credit 1,900 1,125
----------- -------------
Total...................................................... 102,945 116,531
Less -
Current maturities............................................ (339) (14,663)
----------- -------------
Total long-term debt....................................... $102,606 $101,868
=========== =============
</TABLE>
The senior subordinated note and credit agreements provide for certain
restrictive financial and non-financial covenants. The more significant of the
non-financial covenants restrict the ability of the Company to dispose of
assets, incur additional indebtedness, pay dividends or make distributions and
other payments affecting subsidiaries. In addition, the Company is required to
maintain a certain funded debt to EBITDA ratio, fixed charge coverage ratio and
certain levels of EBITDA. The Company was in compliance with all covenants as
of April 3, 1998.
The fair value of long-term debt approximates carrying value based on the
borrowing rate currently available to the Company for borrowing with similar
terms and maturities.
5. Acquisitions
On November 5, 1997, the Company acquired all of the capital stock of David
Manufacturing Co. ("DMC") for approximately $17.9 million in cash. DMC is a
manufacturer and supplier of grain drying and handling equipment. The
acquisition was recorded in accordance with the purchase method of accounting
and accordingly, the acquired assets and assumed liabilities have been recorded
at their estimated fair market values at the date of acquisition. The purchase
price exceeded the fair market value of net assets acquired resulting in
goodwill of approximately $6.4 million.
The following summarized unaudited pro forma financial information assumes
the DMC acquisition had occurred on January 1, 1997:
<TABLE>
<CAPTION>
April 3, March 31,
1998 1997
(Unaudited)
(In thousands, except per share data)
-----------------------------------------
<S> <C> <C>
Net sales............................... $52,161 $37,172
Net loss................................ (921) (2,455)
Basic and diluted loss per share........ (.46) (1.23)
</TABLE>
The pro forma results do not necessarily represent results that would have
occurred had the acquisition taken place on the basis assumed above, nor are
they indicative of the results of future operations.
9
<PAGE>
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 thereto.
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 also can impact
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 affected by currency fluctuations, 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. With respect to sales that are not denominated in U.S.
dollars, the Company enters into foreign currency forward exchange contracts on
a limited basis.
The Company's international sales have historically comprised a significant
portion of net sales. In the first quarters of 1998 and 1997, the Company's
international sales accounted for 36.3% and 31.6% of net sales, respectively.
During 1997, the Company opened manufacturing and sales facilities in Malaysia,
South Africa, Brazil and Mexico to promote international expansion. While the
Company anticipates that sales will continue to be generated worldwide, the
Company is targeting the Far East, Latin America and Eastern Europe, where it
believes the greatest potential for significant growth exists. 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. For example, the recent financial crises in
many countries in Southeast Asia has caused some agricultural producers to
cancel orders or has led to the inability of such producers to secure necessary
lines of credit to buy agricultural commodities. While this trend has not led to
material cancellations of orders by the Company's customers, the Company
believes that it has contributed to a slight decline in the number of new orders
that the Company has received from customers located in such region.
The primary raw materials used by the Company to manufacture its products
are steel and polymers. Fluctuations in the prices of steel and, to a lesser
extent, polymer materials can impact the Company's cost of sales. During the
first quarter of 1998, the Company continued to benefit from modest price
decreases in steel and polymers that occurred during 1997. There can be no
assurances that these price decreases will continue or that prices for these
materials will not increase in the future.
10
<PAGE>
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
Quarter Ended April 3, 1998 Compared to Quarter Ended March 31, 1997
Net sales increased 55.2% or $18.6 million to $52.2 million in the first
quarter of 1998 from $33.6 million in the same period of 1997. Of this 55.2%
increase, 19.3% was due to increased sales of grain storage products resulting
from the acquisition of DMC, increased demand for the winter discount program
and a price increase. Approximately 12.5% of this increase was a result of
increased domestic sales of swine equipment attributable to continuing strong
construction demand for larger swine facilities. Approximately 25.4% of this
increase was a result of increased international sales due to the establishment
of sales offices in South Africa, Brazil, Malaysia and Mexico during 1997 and
increased market penetration in Europe.
Gross profit increased to $12.0 million in the first quarter of 1998 or
23.0% of net sales from $7.0 million or 20.9% of net sales in the same period of
1997. This increase reflected the impact of increased sales, as well as the
benefit of price increases in the grain drying and farm storage equipment
product lines. These positive impacts were partially offset by cost overruns in
the poultry product line, and a change in sales mix towards lower margin
products distributed overseas.
Selling, general and administrative expenses increased 48.7% or $3.4
million to $10.4 million in the first quarter of 1998 from $7.0 million in the
same period of 1997. This increase was primarily due to a $1.4 million increase
in selling, general and administrative compensation attributable to increased
staffing and an increase of $0.8 million resulting from the acquisition of DMC.
As a percentage of net sales, selling, general and administrative expenses
decreased to 19.9% in the first quarter of 1998 from 20.8% in the same period of
1997.
Operating income increased from essentially zero in the first quarter of
1997 to $1.6 million in the same period of 1998. Operating income margins
increased to 3.1% of net sales in the first quarter of 1998 from 0.1% in the
same period of 1997. These increases were attributable to the 55.2% increase in
sales and were offset by increased selling, general and administrative expenses.
Interest expense increased $1.9 million for the first quarter of 1998. This
increase was primarily due to interest expense on the Company's Senior
Subordinated Notes, due 2007, issued in November 1997.
Net loss decreased 6.5% or $0.1 million to $0.9 million for the first
quarter of 1998 from $1.0 million in the same period of 1997. This decrease was
due to increased net sales and gross profit margin partially offset by increased
interest and selling, general and administrative expenses.
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 temporary borrowings made under
various credit agreements.
The Company's working capital requirements for its operations are seasonal,
with investments in working capital typically building in the second and third
quarters and then declining in the first and fourth quarters. As of April 3,
1998, the Company had $46.8 million of working capital, a decrease of $2.2
million from working capital as of December 31, 1997. The decrease in working
capital was primarily due to increased accounts payable, accrued expenses and
customer deposits partially offset by an increase in accounts receivable and
inventory.
11
<PAGE>
Operating activities generated/(used) $0.3 million and $(1.7) million in
cash flow in each of the first quarters of 1998 and 1997, respectively. This
$2.0 million increase in cash flow was primarily the result of an increase of
accounts payable, accrued expenses and customer deposits of $7.9 million and an
increase in accounts receivable and inventory of $7.3 million, offset by a
decrease in other current assets of $1.0 million.
Cash used in investing activities in the first quarter of 1998 and 1997
were $2.6 million and $3.9 million, respectively. The cash was used primarily
for capital expenditures. Capital expenditures have primarily been for machinery
and equipment and the purchase and expansion of facilities. The Company
anticipates that capital expenditures will average approximately $8.0 million to
$9.0 million per year over the next five years.
Cash used in financing activities in the first quarter of 1998 was $16.3
million. The cash was used primarily to retire former shareholder debt of $14.3
million and to pay dividends of $1.8 million primarily for stockholder tax
liabilities. Cash provided by financing activities in the first quarter of 1997
consisted primarily of $6.3 million from net borrowings under the line-of-credit
facility partially offset by $0.7 million of payments on long-term debt.
The Company plans to continue to pursue a selective acquisition strategy,
which may result in the need for additional debt or equity financing in the
future.
The Company believes that existing cash, cash flow from operations and
available borrowings under its new credit Agreement 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.
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 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.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Not applicable.
12
<PAGE>
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. See the Index to Exhibits which immediately precedes such
exhibits and which is incorporated herein by reference.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended April 3, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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/ John W. Funk
John W. Funk, Director, Chief Financial
Officer, Secretary and General Counsel
(Authorized Signatory and Principal
Financial Officer)
Date: May 6, 1998
14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
----------- -----------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Consolidated Balance Sheet, Consolidated Statement of Operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-03-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 29,906
<ALLOWANCES> 2,073
<INVENTORY> 54,441
<CURRENT-ASSETS> 92,080
<PP&E> 63,118
<DEPRECIATION> 25,471
<TOTAL-ASSETS> 144,205
<CURRENT-LIABILITIES> 45,249
<BONDS> 102,606
0
0
<COMMON> 20
<OTHER-SE> (5,757)
<TOTAL-LIABILITY-AND-EQUITY> 144,205
<SALES> 52,161
<TOTAL-REVENUES> 52,161
<CGS> 40,154
<TOTAL-COSTS> 40,154
<OTHER-EXPENSES> 10,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,910
<INCOME-PRETAX> (1,086)
<INCOME-TAX> (165)
<INCOME-CONTINUING> (921)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (921)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
