<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 July 2, 1999
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 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 August 1, 1999.
<PAGE>
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.................................... 16
Item 3. Quantitative and Qualitative Disclosure About Market Risk.... 20
PART II -- Other Information
Item 1. Legal Proceedings............................................ 21
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............................. 21
- ----------------------------
* No response to this item is included herein for the reason that it is
inapplicable.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
July 2, December 31,
Assets 1999 1998
- ------------------------------------------------------------------------------- -------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................................... $ 2,392 $ 1,192
Accounts receivable, net...................................................... 35,409 36,969
Inventories, net.............................................................. 50,393 49,219
Prepaids...................................................................... 1,825 2,820
Other......................................................................... 3,445 4,773
-------- --------
Total current assets........................................................ 93,464 94,973
-------- --------
Notes Receivable............................................................... 59 1,084
-------- --------
Long-Term Retainage............................................................ 4,187 3,570
-------- --------
Property, Plant and Equipment, net............................................. 51,115 50,257
-------- --------
Other Assets:
Goodwill, net................................................................. 10,549 12,646
Other intangible assets, net.................................................. 7,126 7,541
Deferred financing costs, net................................................. 3,612 4,063
Other......................................................................... 860 514
-------- --------
Total other assets.......................................................... 22,147 24,764
-------- --------
Total assets................................................................ $170,972 $174,648
======== ========
Liabilities and Stockholders' Deficit
- -------------------------------------------------------------------------------
Current Liabilities:
Accounts payable.............................................................. $ 15,400 $ 14,459
Payroll and payroll related expenses.......................................... 4,069 4,950
Deferred income taxes......................................................... 1,049 1,049
Billings in excess of costs................................................... 4,991 4,983
Accrued warranty.............................................................. 2,068 2,527
Accrued interest.............................................................. 2,587 1,807
Other accrued expenses........................................................ 2,963 5,095
Customer deposits............................................................. 8,021 6,278
Current maturities of long-term debt.......................................... 3,416 4,572
-------- --------
Total current liabilities................................................... 44,564 45,720
-------- --------
Long-Term Debt, less current maturities........................................ 142,446 134,216
-------- --------
Deferred Income Taxes.......................................................... 1,538 1,678
-------- --------
Commitments and Contingencies
Stockholders' Deficit:
Common stock, $.01 par value, voting (authorized 6,900,000 shares;
issued 6,633,652 shares; outstanding 1,800,000 shares)....................... 18 18
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............................................................... 2,870 2,473
Accumulated other comprehensive loss (cumulative currency
adjustment).................................................................. (7,394) (2,203)
Retained earnings............................................................. 12,461 18,277
Treasury stock, at cost, voting (4,833,652 shares)............................ (25,524) (25,524)
Treasury stock, at cost, nonvoting (859,316 shares)........................... (9) (9)
-------- --------
Total stockholders' deficit................................................. $(17,576) $ (6,966)
-------- --------
Total liabilities and stockholders' deficit................................. $170,972 $174,648
======== ========
</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
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Fiscal Months Ended Six Fiscal Months Ended
-------------------------------------------------------
July 2, July 3, July 2, July 3,
1999 1998 1999 1998
------ ------ ------ -------
<S> <C> <C> <C> <C>
Net sales...................................................... $ 58,248 $ 64,386 $ 102,999 $ 116,547
Cost of sales.................................................. 45,707 49,035 81,894 89,189
Cost of sales--restructuring charges........................... (100) -- 248 --
---------- ---------- ---------- ----------
Total cost of sales......................................... 45,607 49,035 82,142 89,189
Gross profit............................................. 12,641 15,351 20,857 27,358
Selling, general and administrative expenses................... 7,293 11,206 18,167 21,492
Amortization expense........................................... 304 90 634 194
Restructuring charges.......................................... -- -- 669 --
---------- ---------- ---------- ----------
Total operating expenses.................................... 7,597 11,296 19,470 21,686
Operating income............................................... 5,044 4,055 1,387 5,672
Other income (expense):
Interest expense............................................ (3,854) (3,294) (7,535) (6,204)
Interest income............................................. 7 192 18 425
Other, net.................................................. (106) 483 36 457
---------- ---------- ---------- ----------
Income (loss) before income taxes........................ 1,091 1,436 (6,094) 350
---------- ---------- ---------- ----------
Income tax benefit............................................. (37) (43) (278) (208)
---------- ---------- ---------- ----------
Net income (loss)........................................ $ 1,128 $ 1,479 $ (5,816) $ 558
---------- ---------- ---------- ----------
Basic and diluted income (loss) per share:
Net income (loss)........................................... $0.56 $0.74 $(2.91) $0.28
---------- ---------- ---------- ----------
Weighted average common shares outstanding..................... 2,000,000 2,000,000 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 CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Fiscal Months Ended
-------------------------
July 2, July 3,
1999 1998
------ -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).......................................................... $(5,816) $ 558
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization............................................ 3,353 2,561
Amortization of deferred financing costs................................. 351 261
Gain on sale of assets................................................... (99) (376)
Deferred taxes........................................................... (140) --
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................................... (1,444) (15,177)
Inventories............................................................ (3,723) (8,658)
Other current assets................................................... 2,032 4,444
Accounts payable....................................................... 3,281 5,844
Accrued expenses and payroll and payroll related expenses.............. (2,684) 1,716
Customer deposits...................................................... 1,743 2,079
------- --------
Net cash flows used in operating activities........................... (3,146) (6,748)
------- --------
Cash Flows From Investing Activities:
Capital expenditures....................................................... (7,024) (7,815)
Proceeds from sale of fixed assets......................................... 398 1,335
Payments received on notes receivable...................................... 1,025 --
Write-down of goodwill for Avemarau Equipamentos Agricolas Ltda.
related to the Brazilian Real devaluation................................. (1,598) --
Acquisition of Avemarau Equipamentos Agricolas Ltda. stock, net
of cash acquired.......................................................... -- (4,954)
Payment for noncompete agreement to former stockholders of
Avemarau Equipamentos Agricolas Ltda...................................... -- (7,590)
Other...................................................................... (345) (518)
------- --------
Net cash flows used in investing activities........................... (7,544) (19,542)
------- --------
Cash Flows From Financing Activities:
Payments on former shareholder loans....................................... -- (14,312)
Payments on long-term debt................................................. (1,509) (182)
Deferred financing costs................................................... (18) (234)
Net borrowings under line-of-credit agreement.............................. 11,361 28,147
Contributed capital........................................................ 398 --
Dividends.................................................................. -- (5,687)
Write-down of note payable to former stockholders of Avemarau
Equipamentos Agricolas Ltda. related to the Brazilian Real devaluation.... 1,307 --
Other...................................................................... 351 (14)
------- --------
Net cash flows provided by financing activities....................... 11,890 7,718
------- --------
Increase (Decrease) In Cash and Cash Equivalents............................ $ 1,200 $(18,572)
Cash and Cash Equivalents, beginning of period.............................. 1,192 18,572
------- --------
Cash and Cash Equivalents, end of period.................................... $ 2,392 $ 0
======= ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements
5
<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. All intercompany transactions and balances
have been eliminated.
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 adopted thirteen week
fiscal quarter periods for operational and financial reporting purposes. The
Company's year end will continue to be December 31.
Financial Information About Industry Segments
The Company operates in primarily one industry segment, which includes the
design, manufacture and sale of agricultural equipment.
Comprehensive Income
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 (loss) for the fiscal periods
presented are as follows:
<TABLE>
<CAPTION>
July 2, July 3,
1999 1998
--------------- ---------------
<S> <C> <C>
Net income (loss).................................. $ (5,816) $ 558
Cumulative translation adjustment.................. (5,191) (1,070)
--------------- ---------------
Comprehensive loss............................... $(11,007) $ (512)
=============== ===============
</TABLE>
2. Restructuring Charges
During the first quarter of 1999, the Company recorded a restructuring
charge of approximately $1.0 million related to cost-cutting measures,
including primarily work force reductions and facility closures. During the
second quarter of 1999, the Company changed its restructuring plan to allow
its Nova Odessa, Brazil facility to remain open. This change resulted in a
reduction of the restructuring charge of approximately $0.1 million. The
charges associated with the reduction in work force include severance costs
for approximately 186 employees, of whom 52% effected cost of goods sold and
48% effected operating expenses. The charges associated with facility closures
consist of remaining lease obligations and related expenses for the Company's
facility in Lenni, Pennsylvania. For the six fiscal months ending July 2,
1999, this lease obligation and related expenses totaling $48,000 has been
included in cost of goods sold. Of the $0.9 million charge, $0.7 million has
been utilized and $0.2 million remains as a current liability as of July 2,
1999. The $0.2 million remaining balance consists of severance costs for
approximately 31 employees and the Company expects to utilize this remaining
balance by the end of the third quarter. As of July 2, 1999, the Company has
terminated 155 employees who were paid severance.
6
<PAGE>
3. Detail Of Certain Assets
<TABLE>
<CAPTION>
As Of
--------------------------------
July 2, December 31,
1999 1998
------------- --------------
(In thousands)
Accounts Receivable
<S> <C> <C> <C>
Trade receivables......................... $ 37,023 $ 38,764
Allowance for doubtful accounts........... (1,614) (1,795)
------------- --------------
Total.................................. $ 35,409 $ 36,969
============= ==============
Inventories
Raw materials............................ $ 13,955 $ 11,817
Work-in-process.......................... 13,134 14,330
Finished goods........................... 23,304 23,072
------------- --------------
Total................................. $ 50,393 $ 49,219
============= ==============
Property, Plant and Equipment
Land..................................... $ 925 $ 865
Buildings and improvements............... 21,169 18,866
Machinery and equipment.................. 43,309 41,237
Office equipment and furniture........... 6,295 5,322
Construction-in-progress................. 8,142 10,104
------------- --------------
79,840 76,394
Accumulated depreciation................. (28,725) (26,137)
------------- --------------
Property, plant and equipment, net....... $ 51,115 $ 50,257
============= ==============
Intangible Assets
Goodwill................................. $ 11,379 $ 13,286
Accumulated amortization................. (830) (640)
------------- --------------
Total................................. $ 10,549 $ 12,646
============= ==============
Non-compete agreements................... $ 8,227 $ 8,227
Accumulated amortization................. (1,345) (991)
------------- --------------
Total................................. $ 6,882 $ 7,236
============= ==============
Patents and other intangible assets...... $ 333 $ 453
Accumulated amortization................. (89) (148)
------------- --------------
Total................................. $ 244 $ 305
============= ==============
Deferred Financing Costs
Deferred financing costs................. $ 4,430 $ 4,612
Accumulated amortization................. (818) (549)
------------- --------------
Total................................. $ 3,612 $ 4,063
============= ==============
</TABLE>
7
<PAGE>
4. Supplemental Cash Flow Information
The Company paid approximately $6.5 and $5.8 million in interest during the
first two quarters ended July 2, 1999 and July 3, 1998, respectively. The
Company paid income taxes of $0.1 during the first two quarters of 1999 and no
income taxes during the first two quarters of 1998.
The following is a cash flow statement that isolates the cumulative
translation adjustment impact from the other components of cash flow. This
presentation is not in compliance with generally accepted accounting principles;
however, management desires to include this information because management
believes this presentation of cash flow information segregates the effect of the
foreign translation adjustments from the operating results of the Company.
<TABLE>
<CAPTION>
Six Fiscal Months Ended
----------------------------------
July 2, July 3,
1999 1998
---------------- ----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss................................................................ $(5,816) $ 558
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization......................................... 3,353 2,561
Amortization of deferred financing costs.............................. 351 261
Gain on sale of assets................................................ (99) (376)
Deferred taxes........................................................ (140) --
Changes in assets and liabilities, net of acquisitions:
Accounts receivable................................................. 943 (14,832)
Inventories......................................................... (1,174) (7,828)
Other current assets................................................ 2,323 4,311
Accounts payable.................................................... 941 5,810
Accrued expenses and payroll and payroll related expenses........... (2,684) 1,716
Customer deposits................................................... 1,743 2,078
------- --------
Net cash flows provided by (used in) operating activities.......... (259) (5,741)
------- --------
Cash Flows From Investing Activities:
Capital expenditures.................................................... (5,011) (7,716)
Proceeds from sale of fixed assets...................................... 398 1,335
Payments received on notes receivable................................... 1,025 --
Acquisition of Avemarau Equipamentos Agricolas Ltda. stock, net
of cash acquired....................................................... -- (4,954)
Payment for noncompete agreement with former stockholders of
Avemarau Equipamentos Agricolas Ltda................................... -- (7,590)
Other................................................................... (345) (518)
------- --------
Net cash flows provided by (used in) investing activities.......... (3,933) (19,443)
------- --------
Cash Flows From Financing Activities:
Payments on former shareholder loans.................................... -- (14,312)
Payments on long-term debt.............................................. (1,509) (182)
Deferred financing costs................................................ (18) (234)
Net borrowings under line-of-credit agreement........................... 11,361 28,147
Contributed capital..................................................... 398 --
Dividends............................................................... -- (5,687)
Other................................................................... 351 --
------- --------
Net cash flows provided by (used in) financing activities.......... 10,583 7,732
------- --------
Cumulative translation adjustment impact................................. (5,191) (1,120)
------- --------
Increase (Decrease) In Cash and Cash Equivalents......................... $ 1,200 $(18,572)
Cash and Cash Equivalents, beginning of period........................... 1,192 18,572
------- --------
Cash and Cash Equivalents, end of period................................. $ 2,392 $ 0
======= ========
</TABLE>
8
<PAGE>
5. Long-Term Debt
Long-term debt at July 2, 1999 and December 31, 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
July 2, December 31,
1999 1998
---------- ------------
<S> <C> <C> <C>
Citizens National Bank IRB.................................................. $ 1,792 $ 1,875
Various noncompete, license and patent agreements........................... 52 65
LaSalle National Bank revolving line of credit.............................. 11,361 --
LaSalle National Bank term note............................................. 31,300 32,500
Clark Products, Inc. promissory note........................................ 334 429
10.25% senior subordinated notes payable.................................... 98,615 98,533
Note payable to former stockholders of Avemarau Equipamentos Agricolas Ltda. 1,570 3,900
City of Assumption promissory note.......................................... 444 991
Various notes payable....................................................... 394 495
----------- -------------
Total.......................................................... 145,862 138,788
Less -
Current maturities................................................ (3,416) (4,572)
----------- -------------
Total long-term debt........................................... $142,446 $134,216
=========== =============
</TABLE>
The indenture governing the Company's senior subordinated notes provides for
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 July
2, 1999.
On February 4, 1999, LaSalle Bank National Association ("LaSalle") and the
Company amended the existing credit facility (as amended, the "Credit Facility")
to provide for revolving loans up to a maximum of $27.5 million (limited based
on a borrowing base that includes accounts receivable, inventory and principal
reductions of the LaSalle term loan) and a $32.5 million term loan. The
borrowings bear interest at a floating rate per annum equal to (at the Company's
option) 1.50% to 3.50% over LIBOR or 0.25% to 0.75% over the banks floating rate
based on the senior debt to EBITDA ratio of the Company. The term loan is
payable in quarterly principal installments of $0.6 million plus interest over
three years and matures on February 1, 2002. As the principal amount outstanding
on the term loan is reduced, the availability on the revolving loans is
increased, maintaining a total commitment of $60.0 million under the Credit
Facility. The Credit Facility requires the Company to maintain a certain senior
debt to EBITDA ratio, tangible net worth and certain levels of capital
expenditures and EBITDA. 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. The Credit Facility expires on February 1,
2002.
On July 6, 1999, LaSalle and the Company amended the Credit Facility to modify
the EBITDA and the senior debt to EBITDA covenants for the remainder of 1999 and
the year 2000 as well as to provide for a seasonal over-advance facility of up
to $5 million for the third and fourth quarters of 1999. At July 2, 1999, the
term loan and revolving line of credit bore interest at rates ranging from 8.00%
to 8.25%. The overall level of borrowings available under the revolving line of
credit are reduced by the Company's revolving credit loans outstanding,
outstanding letters of credit and debt of FarmPRO, Inc. guaranteed by the
Company and increased by principal reductions of the term loan. As of July 2,
1999, the overall availability of the line was $6.4 million. The Company was in
compliance with the covenants under the Credit Facility as of July 2, 1999.
9
<PAGE>
6. Commitments and Contingencies
The Company has two contracts 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 long-term retainage
include $5.7 million of retainage withheld until completion of the projects and
the meeting of certain performance criteria. These assets are secured by letters
of credit totaling $5.7 million and are expected to be collected through the
year 2001.
On June 8, 1999, John Funk, the Company's General Counsel and Chief Financial
Officer, submitted a letter of resignation to Craig Sloan, Chief Executive
Officer of the Company. Based on subsequent discussions, it appears Mr. Funk may
maintain that the Company has a contractual obligation to repurchase his stock
if and when the Company meets certain financial performance criteria. Management
believes that the Company has meritorious defenses against this and other claims
Mr. Funk may make in the future, and management will defend these positions
vigorously; however, if Mr. Funk were to prevail, the Company's liability could
be very substantial. Messrs. Sloan, Andrade and Buffett have agreed to take
whatever steps are necessary so that none of them could maintain a similar
position under their agreements with the Company. Management is uncertain at
this time of the amount of any potential liabilities resulting from this matter.
No liability relating thereto has been recorded as of the date of this filing.
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 July 2, 1999.
7. Business Segment
In January 1998, the Company adopted SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." The Company has no separately
reportable segments in accordance with this standard. Under the enterprise wide
disclosure requirements of SFAS 131, the Company reports net sales by each group
of product line. Amounts for the first two quarters of 1999 and 1998 are as
shown in the table below (in thousands).
<TABLE>
<CAPTION>
July 2, July 3,
1999 1998
------------- -------------
<S> <C> <C>
Grain product line....................... $ 55,121 $ 57,891
Poultry product line..................... 27,614 21,537
Swine product line....................... 20,264 37,119
-------- --------
Net sales........................... $102,999 $116,547
======== ========
</TABLE>
For the first and second quarters of 1999 and 1998, sales in Brazil were $9.0
and $1.4 million, respectively. Long-lived assets in Brazil were $19.4 and $21.7
million at July 2, 1999 and July 3, 1998, respectively.
8. Change in Estimate
During the quarter ended July 2, 1999, the Company revised the cost estimates
relating to its contract with the Yemen Company for Industrial Development as
well as other outstanding contracts. These estimate revisions resulted in an
increase to income of approximately $0.4 million for the six fiscal months ended
July 2, 1999.
9. Shareholders Contribution
During the second quarter of 1999, various shareholders of the corporation
made cash contributions totaling approximately $398,000. This amount was
included in Paid-In Capital in the accompanying consolidated balance sheet.
10
<PAGE>
10. 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.,
GSI/Cumberland BV, GSI/Cumberland SA (Pty) Ltd., GSI/Cumberland Sdn. Bhd. and
Agromarau Industria e Comercio Ltda. (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.
11
<PAGE>
10. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 2, 1999
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $ 42 $ 2,350 $ -- $ 2,392
Accounts receivable, net.................. 36,347 10,160 (11,098) 35,409
Inventories, net.......................... 33,119 19,590 (2,316) 50,393
Other current assets...................... 3,261 2,009 -- 5,270
-------- --------- ---------- ---------
Total current assets...................... 72,769 34,109 (13,414) 93,464
Property, plant and equipment, net............ 37,971 13,144 -- 51,115
Good will..................................... 1,551 8,998 -- 10,549
Investment in and advances to/from
subsidiaries.............................. 53,655 (29,454) (24,201) --
Other long-term assets........................ 8,866 6,978 -- 15,844
-------- --------- ---------- ---------
Total assets.............................. $174,812 $ 33,775 $ (37,615) $ 170,972
======== ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabiliities
Current portion of long-term debt......... $ 2,851 $ 565 $ -- $ 3,416
Accounts payable.......................... 12,245 11,168 (8,013) 15,400
Accured liabilities....................... 21,060 4,688 -- 25,748
-------- --------- ---------- ---------
Total current liabilities................. 36,156 16,421 (8,013) 44,564
Long-term debt................................ 139,537 2,909 -- 142,446
Other long-term liabilities................... -- 1,538 -- 1,538
-------- --------- ---------- ---------
Total liabilities......................... 175,693 20,868 (8,013) 188,548
Stockholders' equity:
Common stock.............................. 20 17,968 (17,968) 20
Additional paid-in capital................ 2,870 -- -- 2,870
Accumulated other comprehensive income.... -- (7,394) -- (7,394)
Retained earnings (deficit)............... 21,762 2,333 (11,634) 12,461
Treasury stock, at cost................... (25,533) -- -- (25,533)
-------- --------- ---------- ---------
Total stockholders' equity (deficit)...... (881) 12,907 (29,602) (17,576)
-------- --------- ---------- ---------
Total liabilities and stockholders' equity.... $174,812 $ 33,775 $ (37,615) $ 170,972
======== ========= ========== =========
</TABLE>
12
<PAGE>
10. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE FISCAL MONTHS ENDED JULY 2, 1999
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales....................................... $ 48,391 $ 13,388 $ (3,531) $ 58,248
Cost of sales................................... 37,663 10,635 (2,691) 45,607
-------- ----------- ---------- ---------
Gross profit................................. 10,728 2,753 (840) 12,641
Selling, general and administrative expenses.... 4,465 3,132 -- 7,597
-------- ----------- --------- ---------
Operating income (loss)...................... 6,263 (379) (840) 5,044
Interest expense................................ (3,778) (76) -- (3,854)
Other income (expense).......................... 161 (260) -- (99)
-------- ----------- --------- ---------
Income (loss) before income taxes............... 2,646 (715) (840) 1,091
Provision (benefit) for income taxes............ -- (37) -- (37)
-------- ---------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries.................... 2,646 (678) (840) 1,128
Equity in income of consolidated subsidiaries... (678) -- 678 --
-------- ----------- --------- ---------
Net income (loss)............................... $ 1,968 $ (678) $ (162) $ 1,128
======== =========== ========== =========
</TABLE>
13
<PAGE>
10. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX FISCAL MONTHS ENDED JULY 2, 1999
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 85,734 $ 23,194 $ (5,929) $ 102,999
Cost of sales.................................. 67,354 18,971 (4,183) 82,142
--------- --------- ---------- ---------
Gross profit................................ 18,380 4,223 (1,746) 20,857
Selling, general and administrative expenses... 12,958 6,512 -- 19,470
--------- --------- ---------- ---------
Operating income (loss)..................... 5,422 (2,289) (1,746) 1,387
Interest expense............................... (7,381) (154) -- (7,535)
Other income (expense)......................... 275 (221) -- 54
--------- --------- ---------- ---------
Income (loss) before income taxes.............. (1,684) (2,664) (1,746) (6,094)
Provision (benefit) for income taxes........... 18 (296) -- (278)
--------- --------- ---------- ---------
Income (loss) before equity in income of
consolidated subsidiaries................... (1,702) (2,368) (1,746) (5,816)
Equity in income of consolidated subsidiaries.. (2,368) -- 2,368 --
--------- --------- ---------- ---------
Net income (loss).............................. $ (4,070) $ (2,368) $ 622 $ (5,816)
========= ========= ========== =========
</TABLE>
14
<PAGE>
10. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX FISCAL MONTHS ENDED JULY 2, 1999
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities.......... $ (954) $ (2,192) $ -- $ (3,146)
------- --------- --------- -----------
Cash flows from investing activities:
Capital expenditures....................... (6,136) (888) -- (7,024)
Other...................................... (880) 360 -- (520)
------- ---------- ----------- -----------
Net cash provided by (used in)
investing activities....................... (7,016) (528) -- (7,544)
------- ---------- ----------- ------------
Cash flows from financing activities:
Advances (to) from affiliates.............. (2,813) 2,813 -- --
Net borrowings (payments) on debt.......... 8,408 1,444 -- 9,852
Other...................................... 2,038 -- -- 2,038
------- ---------- ----------- -----------
Net cash provided by (used in)
financing activities....................... 7,633 4,257 -- 11,890
------- ---------- ----------- -----------
Change in cash and cash equivalents........... (337) 1,537 -- 1,200
Cash and cash equivalents, beginning of period 379 813 -- 1,192
------- ---------- ----------- -----------
Cash and cash equivalents, end of period...... $ 42 $ 2,350 -- $ 2,392
======= ========== =========== ===========
</TABLE>
15
<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 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 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. However, the Company believes that
low swine prices and environmental regulations will for the foreseeable future
continue to effect negatively the sales of its swine equipment, and, therefore,
its overall results of operations and financial condition.
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.
The Company's international sales have historically comprised a significant
portion of net sales. In the first half of 1999 and 1998, the Company's
international sales accounted for 34% and 31% of net sales, respectively.
Although the Company's sales are primarily denominated in U.S. dollars, 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. 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.
In June 1998, the Company acquired a manufacturer and supplier of poultry
feeding equipment in Brazil. In the first quarter of 1999, the Brazilian Real
experienced a devaluation (1.21 Brazilian Reals/U.S. Dollar at December 31, 1998
as compared to 1.66 Brazilian Reals/U.S. Dollar at May 12, 1999). The effect of
the devaluation was a reduction in the Company's stockholders' equity and
results of operations. There was no significant Brazilian Real devaluation
during the second quarter of 1999 (1.66 Brazilian Reals/U.S. Dollar at May 12,
1999 as compared to 1.77 Brazilian Reals/U.S. Dollar at July 21, 1999). However,
further deterioration in the Brazilian economy could negatively effect the
performance of the Company's Brazilian operation.
During the first quarter of 1999, the Company recorded a restructuring charge
of approximately $1.0 million related to cost-cutting measures, including
primarily work force reductions and facility closures. During the second quarter
of 1999, the Company changed its restructuring plan to allow its Nova Odessa,
Brazil facility to remain open. This change resulted in a reduction of the
restructuring charge of approximately $0.1 million. The charges associated with
the reduction in work force include severance costs for approximately 186
employees, of whom 52% effected cost of goods sold and 48% effected operating
expenses. The charges associated with facility closures consist of remaining
lease obligations and related expenses for the Company's facility in Lenni,
Pennsylvania. For the six months ending July 2, 1999, this lease obligation and
related expenses totaling $48,000 has been included in cost of goods sold. Of
the $0.9 million charge, $0.7 million has been utilized and $0.2 million remains
as a current liability as of July 2, 1999. The $0.2 million remaining balance
consists of severance costs and the Company expects to utilize this remaining
balance by the end of the third quarter.
16
<PAGE>
On July 12, 1999, Russell C. Mello was promoted to Senior Vice President,
Finance and appointed Secretary and Treasurer. This promotion was done in
recognition of his role as principal financial officer since September of 1996.
On June 8, 1999, John Funk, the Company's General Counsel and Chief Financial
Officer, submitted a letter of resignation to Craig Sloan, Chief Executive
Officer of the Company. Based on subsequent discussions, it appears Mr. Funk may
maintain that the Company has a contractual obligation to repurchase his stock
if and when the Company meets certain financial performance criteria. Management
believes that the Company has meritorious defenses against this and other claims
Mr. Funk may make in the future, and management will defend these positions
vigorously; however, if Mr. Funk were to prevail, the Company's liability could
be very substantial. Messrs. Sloan, Andrade and Buffett have agreed to take
whatever steps are necessary so that none of them could maintain a similar
position under their agreements with the Company. Management is uncertain at
this time of the amount of any potential liabilities resulting from this matter.
No liability relating thereto has been recorded as of the date of this filing.
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 second
quarter of 1999, the Company did not experience any significant changes in steel
and polymer pricing. There can be no assurances that the current price stability
will continue or that prices for these materials will not increase in the
future.
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 July 2, 1999 Compared to Three Months Ended July 3, 1998
Net sales decreased 9.5% or $6.1 million to $58.2 million in the second
quarter of 1999 from $64.4 million in the same period of 1998. This decrease was
primarily driven by the reduced demand for hog equipment caused by historically
low swine prices as well as reduced international demand in all product
segments. This decrease was partially offset by $3.6 million of increased sales
from the Company's Brazilian operation as well as stronger domestic poultry and
grain sales.
Gross profit decreased to $12.6 million in the second quarter of 1999 or 21.7%
of net sales from $15.4 million or 23.8% of net sales in the same period of
1998. This decrease was caused by reduced sales and the expenses related to
fixed overhead.
Operating expenses decreased 32.8% or $3.7 million to $7.6 million in the
second quarter of 1999 from $11.3 million in the same period of 1998. This
decrease was the result of the restructuring program implemented towards the end
of the first quarter of 1999. It was partially offset by the addition of the
Company's Brazilian operation.
Operating income increased from $4.1 million in the second quarter of 1998 to
$5.0 million in the second quarter of 1999. This increase is attributable to the
reduced operating expenses partially offset by the reduction in sales and
reduced margins.
Interest expense increased $0.6 million for the second quarter of 1999. This
increase was primarily due to the interest expense on the term note issued to
finance, among other things, the acquisition of the Company's Brazilian
operation.
Net income decreased $0.4 million to $1.1 million for the second quarter of
1999 from $1.5 million in the same period of 1998.
17
<PAGE>
Six Months Ended July 2, 1999 Compared to Six Months Ended July 3, 1998
Net sales decreased 11.6% or $13.5 million to $103.0 million in the first half
of 1999 from $116.5 million in the same period of 1998. This decrease was
primarily driven by the reduced demand for hog equipment caused by historically
low swine prices. This decrease was partially offset by $8.0 million of
increased sales from the Company's Brazilian operation.
Gross profit decreased to $20.9 million in the first half of 1999 or 20.3% of
net sales from $27.4 million or 23.5% of net sales in the same period of 1998.
This decrease was caused by reduced sales, shipment of a low-margin
international project, restructuring charges and the expenses related to fixed
overhead.
Operating expenses decreased 10.2% or $2.2 million to $19.5 million in the
first half of 1999 from $21.7 million in the same period of 1998. This decrease
was primarily due to the reduction in staffing which was a significant part of
the restructuring program. This decrease was partially offset by the severance
charges associated with the reduction in staffing as well as the addition of the
Company's Brazilian operation.
Operating income decreased from $5.7 million in the first half of 1998 to $1.4
million in the same period of 1999. This decrease was attributable to the
reduction in sales and reduced margins, partially offset by reduced operating
expenses.
Interest expense increased $1.3 million for the first half of 1999. This
increase was primarily due to the interest expense on the term note issued to
finance, among other things, the acquisition of the Company's Brazilian
operation.
Net income decreased from $0.6 million in the first half of 1998 to a net loss
of $5.8 million in the same period of 1999.
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 1/4% senior subordinated notes.
The Brazilian Real experienced a 46% devaluation during the first half of
1999, from 1.21 Reals/U.S. Dollar at December 31, 1998 to 1.77 Reals/U.S. Dollar
at July 2, 1999. The impact of this devaluation on the balance sheet was to
decrease the Company's assets by approximately $8.7 million and decrease
liabilities by approximately $3.5 million, resulting in an approximate $5.2
million decrease in stockholders' equity.
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 July 2,
1999, the Company had $48.9 million of working capital, a decrease of $0.4
million from working capital as of December 31, 1998. The decrease in working
capital was primarily due to increased customer deposits partially offset by
decreased accrued expenses.
Operating activities used $3.1 million and $6.7 million in cash flow in the
first half of 1999 and 1998, respectively. This $3.6 million increase in cash
flow was primarily the result of a decrease in accounts receivable and inventory
of $18.7 million, partially offset by a decrease in net income, accrued
expenses, accounts payable and other current assets of $15.7 million.
Investing activities used $7.5 million and $19.5 million in cash flow in the
first half of 1999 and 1998, respectively. Cash used in investing activities in
the first half of 1999 consisted primarily of $7.0 million of capital
expenditures, $5.0 million of which was for the purchase of machinery and
equipment and $2.0 million of which was the impact of the Brazilian Real
devaluation on property, plant and equipment. Cash used in investing activities
in the first half of 1998 consisted primarily of $12.5 million for the
acquisition of Avemarau Equipmentos Agricolas, Ltda. and the related noncompete
agreement with its former stockholders and $7.8 million for machinery and
equipment purchases.
18
<PAGE>
Financing activities provided $11.9 million and $7.7 million in cash flow in
the first half of 1999 and 1998, respectively. Cash provided by financing
activities in the first half of 1999 consisted primarily of $11.4 million from
net borrowings under the Credit Facility. Cash provided by financing activities
in the first half of 1998 consisted primarily of $28.1 million from net
borrowings under the Credit Facility, offset by the retirement of former
stockholder debt of $14.3 million and $5.7 million of dividends for stockholder
estimated tax liabilities.
During the first quarter of 1999, the Company's Credit Facility was amended to
provide for a $27.5 million revolving loan facility and a $32.5 million term
loan. As a part of this amendment, the financial covenants were eased and the
amortization of the term loan was reduced from $5.0 million per year to $2.4
million per year. The Company was in compliance with all covenants under the
Credit Facility as of July 2, 1999. LaSalle Bank N.A. and the Company have
further amended the Credit Facility to modify certain covenants for the rest of
1999 and 2000 as well as to provide a seasonal over-advance facility for the
third and fourth quarters of 1999. For a more detailed description of the Credit
Facility, see Note 5 to the Consolidated Financial Statements included in Item 1
hereof.
The Company believes that existing cash, cash flow from operations and
available borrowings under the proposed amendments to the Credit Facility will
be sufficient to support its working capital, capital expenditures and debt
service requirements for the foreseeable future.
Year 2000 Issues
The year 2000 issue is the result of computer systems using two digits rather
than four to define the applicable year. Such systems may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations leading to disruptions in the Company's operations
(the "year 2000" or "Y2K" issue). If the Company or its significant suppliers or
customers fail to make necessary modifications, conversions and contingency
plans on a timely basis, the year 2000 issue could have a material adverse
effect on the Company's business, operations, cash flow and financial condition.
However, the effect cannot be quantified at this time because the Company cannot
accurately estimate the magnitude, duration or ultimate impact of noncompliance
by suppliers, customers and third parties that have no direct relationship to
the Company. The Company believes that its competitors face a similar risk.
In 1997, the Company began identifying non-compliant software and identified
three categories of software and systems that require attention:
(1) information technology ("IT") systems, such as mainframes, PCs, networks
and production control systems,
(2) non-IT systems, such as equipment, machinery, climate control and security
systems, which may contain microcontrollers with embedded technology, and
(3) supplier and customer IT and non-IT systems
The Company has modified or replaced all of its non-compliant IT and non-IT
software and systems. The costs associated with these compliance projects ranged
from $0.3 to $0.4 million.
The Company has also assessed the compliance of its major customers and
suppliers. The Company has conducted formal communications with its significant
suppliers and customers to determine the extent to which it may be affected by
those third parties' Y2K compliance plans. The Company believes that customers
and suppliers present the area of greatest risk in part because of the Company's
limited ability to influence actions of third parties and in part because of the
Company's inability to estimate the level and impact of noncompliance by these
third parties. Year 2000 problems with a significant portion of the Company's
customers in processing and paying invoices could impact the Company's cash
flows and financial liquidity. A prolonged interruption in the supply of
essential services or products could adversely effect the Company's operations
and ability to generate revenues. In the event that the Company experiences
problems with a service provider or supplier, it will attempt to obtain services
and products from other available sources.
Finally, the Company is developing contingency plans that assume some
estimated level of noncompliance by, or business disruption to, suppliers and
customers. The contingency plans will include development of the
19
<PAGE>
capabilities to process critical transactions manually. The Company intends to
have contingency plans finalized by the third quarter of 1999.
Inflation
The Company believes that inflation has not had a material effect on its
results of operations or financial condition during recent periods.
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 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. 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 July 2, 1999,
principal exposed to interest rate risk was limited to $42.7 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.
At July 2, 1999, approximately 14% of net 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.
20
<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:
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 GSI Group, Inc. did not file any Current Reports on Form 8-K during
its fiscal quarter ended July 2, 1999.
21
<PAGE>
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
------------------------------------------
Senior Vice-President--Finance,
Secretary and Treasurer (Authorized
Signatory and Principal Financial Officer)
Date: July 23, 1999
22
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
<S> <C>
No. Document Description
- --------- --------------------
10.1 First Amendment to Fourth Amended and Restated Loan and Security
Agreement dated as of July 6, 1999 by and among The GSI Group, Inc.
and LaSalle Bank National Association.
27.1 Financial Data Schedule
</TABLE>
- ---------
23
<PAGE>
FIRST AMENDMENT TO FOURTH AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") is dated and effective as of July 6, 1999 by and
among THE GSI GROUP, INC., a Delaware corporation (the "Borrower"), the several
financial institutions which are or may from time to time become parties to this
Agreement (each a "Bank" and collectively, the "Banks") and LASALLE BANK
NATIONAL ASSOCIATION (formerly known as LaSalle National Bank), as "Agent" for
the Banks.
RECITALS
A. Borrower, the Agent and Banks entered into a Fourth Amended and
Restated Loan and Security Agreement dated as of February 4, 1999 (the "Loan
Agreement").
B. Borrower, the Agent and Banks desire to amend the Loan Agreement as
hereinafter provided effective as of the date hereof, except for certain
financial covenants set forth in Article VIII of the Loan Agreement which are
amended effective as of March 31, 1999 in order to reflect Borrower's actual
performance for the fiscal quarter then ended and for all periods thereafter.
NOW THEREFORE, in consideration of the foregoing Recitals, and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined
in this Amendment shall have the meanings specified for such terms in the Loan
Agreement. All references herein to Articles and Sections shall mean the
Articles and Sections of the Loan Agreement.
2. Amendments to the Loan Agreement. (a) The definition of the term
"Applicable Margin" set forth in Section 1.1 is hereby modified in its
entirety to read as follows:
"'Applicable Margin' shall mean with respect to Euro-Dollar Loans,
Floating Rate Loans and the Non-Use Fee, the rate per annum
determined as set forth below:
[SEE CHART ON NEXT PAGE]
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Senior Debt to EBITDA Ratio Applicable Applicable Applicable
Margin Margin for Margin for
for Euro- Non-Use Fee Floating Rate
Dollar Loans Loans
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Greater Than or And Less
Equal to Than
- -------------------------------------------------------------------------------
3.00 to 1 3.50% .50% .75%
- -------------------------------------------------------------------------------
2.75 to 1 3.00 to 1 3.25% .375% .50%
- -------------------------------------------------------------------------------
2.50 to 1 2.75 to 1 3.00% .375% 50%
- -------------------------------------------------------------------------------
2.25 to 1 2.50 to 1 2.75% .375% .50%
- -------------------------------------------------------------------------------
2.00 to 1 2.25 to 1 2.50% .25% .25%
- -------------------------------------------------------------------------------
1.75 to 1 2.00 to 1 2.25% .25% 0
- -------------------------------------------------------------------------------
1.50 to 1 1.75 to 1 2.00% .20% 0
- -------------------------------------------------------------------------------
1.25 to 1 1.50 to 1 1.75% .20% 0
- -------------------------------------------------------------------------------
1.25 to 1 1.50% .20% 0
- -------------------------------------------------------------------------------
</TABLE>
Any change in the Applicable Margin due to a change in the Senior
Debt to EBITDA Ratio shall take place upon receipt by Agent of the
Compliance Certificate pursuant to Section 7.01(E) indicating such
change in the Senior Debt to EBITDA Ratio."
The Applicable Margin in effect as of the date hereof is 3.50% for Euro-Dollar
Loans; .75% for Floating Rate Loans; and .50% for Non-Use Fee.
(b) The following definitions are hereby added to Section 1.1 of the
Loan Agreement:
"'Excess Collateral Availability' shall mean, as of any date, the
amount by which the lesser of (x) the Available RCL Amount or (y)
the Borrowing Base exceeds the sum of (i) the aggregate face
amounts of all Letters of Credit issued by the Issuing Bank for
the account of Borrower and outstanding or drawn but unreimbursed
as of such date (ii) the amount of Subsidiary Borrower Revolving
Credit Loans outstanding as of such date, (iii) $5,000,000 of
Debt of FarmPro, Inc. guaranteed by Borrower and (iv) the amount
of Revolving Credit Loans outstanding as of such date.
'Lock Box Account' shall have the meaning specified in
Section 7.14.
'Lock Box Agreement' shall have the meaning specified in
Section 7.14."
2
<PAGE>
(c) Clause (iii) of Section 2.01(A) is hereby modified to read as
follows:
"(iii) $5,000,000 of Debt of FarmPro, Inc. guaranteed by
Borrower"
(d) Clause (F) of Section 6.14 is hereby modified to read as follows:
"(F) Debt in the form of the guarantee of Debt of FarmPro, Inc.,
a Pennsylvania corporation in an aggregate amount not in excess
of $5,000,000 at any time outstanding"
(d) Section 7.01(D) is hereby modified to read as follows:
"(D) at the Closing, thereafter no later than 15 days after the
end of each calendar quarter, and at such other times as
Agent shall request, an accounts receivable aging in form
satisfactory to Agent;"
(e) Section 7.01(J) is hereby modified to read as follows:
"(J) immediately upon Agent's request, copies of all regular,
periodic or special reports of the Company or any
Subsidiary thereof filed with the Securities and Exchange
Commission or any other Governmental Authority succeeding
to any of the principal ftinctions thereof; and"
(f) Section 7.01(K) is hereby modified to read as follows:
"(K) at the Closing, thereafter no less often than weekly within
2 Business Days of the end of the immediately preceding
week, and at such other times as Agent shall request, a
borrowing base certificate in the form of Exhibit."
(g) The following Section 7.14 is hereby added to the Loan Agreement.
"7.14 Lock Box Account. (a) Borrower shall at all times maintain
a lock box account (the "Lock Box Account"), and shall enter a
Lock Box Agreement, with Agent in the form customarily used by
Agent (the "Lock Box Agreement").
(b) If at any time Excess Collateral Availability is less than
$2,000,000 or if an Event of Default has occurred and is
continuing, then in addition to Agent's rights with respect to
the Lock Box Account, (i) Agent shall have the rights, remedies
and powers set forth in Section 9.05 and (ii) Agent shall have
the right to apply to the payment of the Obligations then due and
owing any and all balances, credits, deposits, accounts or moneys
of Borrower then or thereafter with the Agent or any Bank, and
the Agent or such Bank shall give reasonably prompt notification
to
3
<PAGE>
Borrower after such application. Without limiting the generality of
the foregoing, Agent shall the right to receive and open mail
addressed to Borrower, to receive cash, checks, drafts, notes and
other instruments for the payment of money and to credit any amounts
so received against the Obligations then due and owing."
(h) Sections 8.01 and 8.02 are hereby modified to read as follows:
"8.01 EBITDA. Have and maintain at all times in respect of any
period of four consecutive calendar quarters ending with a
calendar quarter set forth below EBITDA of not less than as
follows:
---------------------------------------------------------------
Period 1Q, 2Q & 4Q99, 1Q & 3Q & 4Q00 1Q, 2Q, 3Q &
3Q99 2Q00 4Q01
---------------------------------------------------------------
---------------------------------------------------------------
in 000's $12,000 $15,000 $20,000 $22,000
---------------------------------------------------------------
8.02 Senior Debt to EBITDA. Have a Senior Debt to EBITDA Ratio of
not more than (i) 4.75 to 1.00 as of the end of each calendar
quarter through and including the calendar quarter ending June
30, 1999, (ii) 4.00 to 1.00 as of the end of the calendar quarter
ending September 30, 1999, (iii) 3.25 to 1.00 as of the end of
the calendar quarters ending December 31, 1999, March 31, 2000
and June 30, 2000 and (iv) 2.75 to 1.00 as of the end of each
calendar quarter thereafter."
3. Additional Modifications to Loan Agreement. (a) Notwithstanding
anything contained in the definition of the term "Eligible Account" in Section
1.01 to the contrary, from and after the date hereof through August 31, 1999,
25% (up to a maximum of $2,000,000) of the aggregate face amount of Uninsured
Foreign Accounts shall be deemed to be "Eligible Accounts" provided such
Uninsured Foreign Accounts meet all of the requirements of clauses (A) and (C)
through (N) of said definition. For purposes of this paragraph 3(a), the term
"Uninsured Foreign Accounts" shall mean any Account owing from Account Debtors
other than Domestic Account Debtors which is secured neither by a letter of
credit nor credit insurance.
(b) Notwithstanding anything contained in the Loan Agreement to the
contrary, the Revolving Credit Loan Commitment shall be increased to be as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
From the date of this Amendment From November 1, 1999 through
through October 31, 1999 November 30, 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount of the Revolving the lesser of (x) $5,000,000 plus the the lesser of (x) $2,500,000 plus
Credit Loan Commitment Available RCL Amount or (y) the the Available RCL Amount or (y)
Borrowing Base the Borrowing Base
---------------------------------------------------------------------------------------------------------
</TABLE>
From and after December 1, 1999, the Revolving Credit Loan Commitment shall not
exceed the lesser of (x) the Available RCL Amount or (y) the Borrowing Base. Any
amounts otherwise
4
<PAGE>
available under the Revolving Credit Loan Commitment pursuant to this paragraph
3(b) shall nevertheless remain subject to the provisions of the last sentence of
the first grammatical paragraph of Section 2.01(A) and to the other terms,
conditions and limitations contained in the Loan Agreement.
4. Certain Documents; Fee. (a) Simultaneously with the execution and
delivery of this Amendment, Borrower shall execute and deliver, or cause to be
executed and delivered, to the Agent the following:
(i) Substitute Revolving Credit Notes payable to the order of
LaSalle Bank National Association and Mercantile Bank
National Association, respectively; and
(ii) An Officer's Certificate as to No Defaults from Borrower.
All of documents described in clauses (i) and (ii) above shall be deemed
"Documents" within the meaning of that term as used in the Loan Agreement.
(b) Simultaneously with the execution and delivery of this Amendment and
the Documents described in paragraph 4(a) above, Borrower shall pay an amendment
fee of $60,000 to Agent.
(c) Simultaneously with the execution and delivery of this Amendment and
the Documents described in paragraph 4(a) above, Borrower shall deliver an
opinion of legal counsel in form and substance satisfactory to Agent.
5. Representations and Warranties. To induce Banks to enter into this
Amendment, Borrower hereby represents and warrants to Banks that the execution
and delivery of this Amendment and the Documents described in paragraph 4 above
to which Borrower is a party have been duly authorized by all necessary
corporate action on the part of Borrower and this Amendment and said Documents
to which Borrower is a party have been duly executed and delivered by Borrower
and constitute legal and binding obligations of Borrower, enforceable against it
in accordance with their terms.
6. Reimbursement of Expenses. To further induce Banks to enter into this
Amendment, Borrower hereby agrees to pay on demand all costs and expenses of
Banks (including, without limitation, attorneys' fees and disbursements)
incurred by Banks in connection with the preparation, negotiation, execution and
delivery of this Amendment and the Documents contemplated hereby.
7. Readoption. Borrower hereby remakes and readopts each and every
covenant, representation and warranty set forth in the Loan Agreement and the
other Documents. Borrower represents and warrants to Banks that no Event of
Default has occurred and is continuing and no event has occurred or condition
exists that, with the giving of notice or lapse of time, or both, would
constitute an Event of Default.
5
<PAGE>
8. No Waiver. Nothing contained in this Amendment shall be deemed to
constitute or shall be construed as a waiver of any rights, remedies or security
granted to Banks under the Loan Agreement or any of the other Documents executed
and delivered in connection therewith.
9. No Other Modification. Except as expressly set forth herein, all of
the terms, covenants, agreements and conditions set forth in the Loan Agreement
shall remain unmodified and in full force and effect. To the extent any of such
terms, covenants, agreements or conditions in any of the other Documents
executed and delivered in connection with the Loan Agreement or this Amendment
may contradict or be in conflict with the Loan Agreement, as amended hereby,
such terms, covenants, agreements and conditions are hereby deemed modified and
amended accordingly, effective as of the date hereof, to reflect the terms and
conditions of the Loan Agreement as amended hereby.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
BORROWER:
THE GSI GROUP, INC.
By: /s/ Russell C. Mello
-------------------------------------
Its: Asst. Treasurer
------------------------------------
BANKS:
LASALLE BANK NATIONAL ASSOCIATION
(formerly known as LaSalle National
Bank), as both Agent and a Bank within
the meaning of the Amendment
By: /s/ Andrew J. Hykes
-------------------------------------
Its: AVP
------------------------------------
MERCANTILE BANK NATIONAL ASSOCIATION
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
SUBSTITUTE REVOLVING CREDIT NOTE
--------------------------------
$43,333,000.00 Chicago, Illinois
July 6, 1999
FOR VALUE RECEIVED, The GSI Group, Inc., a Delaware corporation (the
"Maker"), promises to pay to the order of LaSalle National Bank, a national
banking association (the "Bank"), at the Agent's Payment Office (as defined in
the Loan Agreement), on or before February 1, 2002, the principal sum of
$43,333,000.00, or the aggregate amount outstanding as endorsed on the grid
attached to this Note (or recorded in the Bank's books and records, if the Bank
is titleholder hereof), pursuant to a certain Fourth Amended and Restated Loan
and Security Agreement made by and among the Maker, LaSalle National Bank, as
agent, and signatory banks including the Bank dated as of February 4, 1999, as
amended by a First Amendment thereto as of even date herewith and as the same
may be further amended from time to time (the "Loan Agreement"), the terms of
which are incorporated by reference and made a part of this Note as though fully
set out herein. Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to such terms in the Loan Agreement. The amount
advanced and outstanding under the Loan Agreement as shown on the grid attached
hereto or the books and records of the Bank shall be considered correct and
conclusively binding on the Maker, absent manifest error.
The Maker further promises to pay interest on the aggregate principal
amount hereof from time to time outstanding as provided in the Loan Agreement.
All payments received from the Maker hereunder shall be applied by the
Agent in accordance with the terms of the Loan Agreement.
This Note and any renewals and extensions hereof, and any other Obligations
of the undersigned to the Holder hereof (the term "Holder" shall include the
Bank and any subsequent holder hereof) due or to become due, now existing or
hereafter contracted, and howsoever acquired by the Holder, are secured in the
manner described in the Loan Agreement.
This Note is issued under the Loan Agreement and this Note and the Holder
is entitled to all of the benefits provided for by the Loan Agreement or
referred to therein, to which Loan Agreement reference is made for a statement
thereof. Pre-payments may be made hereon only at the times, in the events and in
the manner provided in the Loan Agreement.
All unpaid amounts owing on this Note or on any other Obligations
immediately shall become due and payable as provided in the Loan Agreement.
Upon the occurrence of an Event of Default, the Maker hereby agrees that
the Bank may offset all money, bank or other deposits or credits now or
hereafter held by the Bank or owed by the
<PAGE>
Bank to the Maker against all amounts due under this Note or against any other
amounts which may be due the Bank from the Maker.
No clause or provision contained in this Note or any documents related
hereto shall be construed or shall so operate (a) to raise the interest rate set
forth in this Note above the lawful maximum, if any, in effect from time to
time in the applicable jurisdiction for loans to borrowers of the type, in the
amount, for the purposes, and otherwise of the kind contemplated, or (b) to
require the payment or the doing of any act contrary to law, but if any clause
or provision contained shall otherwise so operate to invalidate this Note, in
whole or in part, then (i) such clauses or provisions shall be deemed modified
to the extent necessary to be in compliance with the law, or (ii) to the extent
not possible, shall be deemed void as though not contained and the remainder of
this Note and such document shall remain operative and in full force and effect.
All makers and any endorsers, guarantors, sureties, accommodation parties
and all other persons liable or to become liable for all or any part of this
indebtedness, jointly and severally waive diligence, presentment, protest and
demand, and also notice of protest, of demand, of nonpayment, of dishonor and of
maturity and also recourse or suretyship defenses generally; and they also
jointly and severally hereby consent to any and all renewals, extensions or
modifications of the terms of this Note, including time for payment, and further
agree that any such renewals, extension or modification of the terms of this
Note or the release or substitution of any security for the indebtedness under
this Note or any other indulgences shall not affect the liability of any of the
parties for the indebtedness evidenced by this Note. Any such renewals,
extensions or modifications may be made without notice to any of said parties.
The Maker shall be liable to the Holder for all costs and expenses incurred
in connection with collection, whether by suit or otherwise, of any amount due
under this Note, including, without limitation, reasonable attorneys' fees, as
more fully set forth in the Loan Agreement.
This Note shall be governed by and construed in accordance with the laws of
the State of Illinois.
This Note evidences Senior Indebtedness and Designated Senior Indebtedness
under the terms of that certain Indenture dated November 5, 1997 between the
Maker and LaSalle National Trust, N.A., as trustee as supplemented through and
including the date hereof regarding the Maker's $100,000,000 aggregate principal
amount of 10.25% Senior Subordinated Notes due 2007.
<PAGE>
This Note is delivered in substitution for, but not in payment of, that
certain Substitute Revolving Credit Note made by the Maker in the original
principal amount of $40,000,000.00 and date February 4, 1999.
THE GSI GROUP, INC.
By: /s/ Russell C. Mello
-------------------------------------
Title: Asst. Treasurer
----------------------------------
<PAGE>
SUBSTITUTE REVOLVING CREDIT NOTE
--------------------------------
$21,667,000.00 Chicago, Illinois
July 6, 1999
FOR VALUE RECEIVED, The GSI Group, Inc., a Delaware corporation (the
"Maker"), promises to pay to the order of Mercantile Bank, National Association,
a national banking association (the "Bank"), at the Agent's Payment Office (as
defined in the Loan Agreement), on or before February 1, 2002, the principal sum
of $21,667,000.00, or the aggregate amount outstanding as endorsed on the grid
attached to this Note (or recorded in the Bank's books and records, if the Bank
is titleholder hereof), pursuant to a certain Fourth Amended and Restated Loan
and Security Agreement made by and among the Maker, LaSalle National Bank, as
agent, and the signatory banks including the Bank dated as of February 4, 1999,
as amended by a First Amendment thereto dated as of even date herewith, and as
the same may be further amended from time to time (the "Loan Agreement"), the
terms of which are incorporated by reference and made a part of this Note as
though fully set out herein. Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to such terms in the Loan Agreement. The
amount advanced and outstanding under the Loan Agreement as shown on the grid
attached hereto or the books and records of the Bank shall be considered correct
and conclusively binding on the Maker, absent manifest error.
The Maker further promises to pay interest on the aggregate principal
amount hereof from time to time outstanding as provided in the Loan Agreement.
All payments received from the Maker hereunder shall be applied by the
Agent in accordance with the terms of the Loan Agreement.
This Note and any renewals and extensions hereof, and any other Obligations
of the undersigned to the Holder hereof (the term "Holder" shall include the
Bank and any subsequent holder hereof) due or to become due, now existing or
hereafter contracted, and howsoever acquired by the Holder, are secured in the
manner described in the Loan Agreement.
This Note is issued under the Loan Agreement and this Note and the Holder
is entitled to all of the benefits provided for by the Loan Agreement or
referred to therein, to which Loan Agreement reference is made for a statement
thereof. Pre-payments may be made hereon only at the times, in the events and
in the manner provided in the Loan Agreement.
All unpaid amounts owing on this Note or on any other Obligations
immediately shall become due and payable as provided in the Loan Agreement.
Upon the occurrence of an Event of Default, the Maker hereby agrees that
the Bank may offset all money, bank or other deposits or credits now or
hereafter held by the Bank or owed by the
<PAGE>
Bank to the Maker against all amounts due under this Note or against any other
amounts which may be due the Bank from the Maker.
No clause or provision contained in this Note or any documents related
hereto shall be construed or shall so operate (a) to raise the interest rate set
forth in this Note above the lawful maximum, if any, in effect from time to time
in the applicable jurisdiction for loans to borrowers of the type, in the
amount, for the purposes, and otherwise of the kind contemplated, or (b) to
require the payment or the doing of any act contrary to law, but if any clause
or provision contained shall otherwise so operate to invalidate this Note, in
whole or in part, then (i) such clauses or provisions shall be deemed modified
to the extent necessary to be in compliance with the law, or (ii) to the extent
not possible, shall be deemed void as though not contained and the remainder of
this Note and such document shall remain operative and in full force and effect.
All makers and any endorsers, guarantors, sureties, accommodation parties
and all other persons liable or to become liable for all or any part of this
indebtedness, jointly and severally waive diligence, presentment, protest and
demand, and also notice of protest, of demand, of nonpayment, of dishonor and of
maturity and also recourse or suretyship defenses generally; and they also
jointly and severally hereby consent to any and all renewals, extensions or
modifications of the terms of this Note, including time for payment, and further
agree that any such renewals, extension or modification of the terms of this
Note or the release or substitution of any security for the indebtedness under
this Note or any other indulgences shall not affect the liability of any of the
parties for the indebtedness evidenced by this Note. Any such renewals,
extensions or modifications may be made without notice to any of said parties.
The Maker shall be liable to the Holder for all costs and expenses incurred
in connection with collection, whether by suit or otherwise, of any amount due
under this Note, including, without limitation, reasonable attorneys' fees, as
more fully set forth in the Loan Agreement.
This Note shall be governed by and construed in accordance with the laws of
the State of Illinois.
This Note evidences Senior Indebtedness and Designated Senior Indebtedness
under the terms of that certain Indenture dated November 5, 1997 between the
Maker and LaSalle National Trust, N.A., as trustee as supplemented through and
including the date hereof regarding the Maker's $100,000,000 aggregate principal
amount of 10.25% Senior Subordinated Notes due 2007.
-2-
<PAGE>
This Note is delivered in substitution for, but not in payment of, that
certain Substitute Revolving Credit Note made by the Maker in the original
principal amount of $20,000,000.00 and dated February 4, 1999.
THE GSI GROUP, INC.
By: /s/ Russell C. Mello
_______________________________
Russell C. Mello
Title: Asst. Treasurer
____________________________
-3-
<PAGE>
Schedule attached to Substitute Revolving Credit Note dated as of July 6, 1999
of The GSI Group, Inc., payable to the order of LaSalle National Bank.
LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Type of Loan & Amount of Unpaid
Amount of Applicable Principal Principal Notation
Date Loan Made Interest Rate Repaid Balance Currency Made By
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
The aggregate unpaid principal amount shown on this schedule shall be considered
correct and conclusively binding evidence of the principal amount owing and
unpaid on this Note, absent manifest error. The failure to record the date and
amount of any loan on this schedule shall not, however, limit or otherwise
affect the obligations of the Borrower under the Loan Agreement or under this
Note to repay the principal amount of the loan together with all interest
accruing thereon.
-4-
<PAGE>
Schedule attached to Substitute Revolving Credit Note dated as of July 6, 1999
of The GSI Group, Inc., payable to the order of Mercantile Bank, National
Association.
LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Type of Loan & Amount of Unpaid
Amount of Applicable Principal Principal Notation
Date Loan Made Interest Rate Repaid Balance Currency Made By
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
The aggregate unpaid principal amount shown on this schedule shall be considered
correct and conclusively binding evidence of the principal amount owing and
unpaid on this Note, absent manifest error. The failure to record the date and
amount of any loan on this schedule shall not, however, limit or otherwise
affect the obligations of the Borrower under the Loan Agreement or under this
Note to repay the principal amount of the loan together with all interest
accruing thereon.
-4-
<PAGE>
OFFICER'S CERTIFICATE AS TO
NO DEFAULT AND RELATED MATTERS
------------------------------
To: LaSalle Bank National Association, as agent
135 South LaSalle Street
Chicago, Illinois 60603
Reference is made to that certain First Amendment to Fourth Amended and
Restated Loan and Security Agreement dated as of July 6, 1999, among The GSI
Group, Inc., LaSalle National Bank, as agent, and signatory financial
institutions (the "Loan Agreement"; capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in Loan Agreement).
As required by the Loan Agreement, and to induce the Banks to extend
financial accommodations pursuant to the Loan Agreement, the undersigned hereby
certifies to Bank that, as of the date hereof:
(i) The representations and warranties set forth in the Loan
Agreement are true and correct;
(ii) No Event of Default has occurred and is continuing; and no
event has occurred and is continuing that, with the giving of notice or
passage of time or both, would be an Event of Default; and
(iii) All liens on Collateral granted to Bank remain valid first
priority liens (subject only to Permitted Liens), in full force and
effect.
This 6th day of July, 1999.
/s/ Russell C. Mello
----------------------------------
Name Printed: Russell C. Mello
------------------
Title: Asst. Treasurer
---------------------------
<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>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-02-1999
<CASH> 2,392
<SECURITIES> 0
<RECEIVABLES> 37,023
<ALLOWANCES> 1,614
<INVENTORY> 50,393
<CURRENT-ASSETS> 93,464
<PP&E> 79,840
<DEPRECIATION> 28,725
<TOTAL-ASSETS> 170,972
<CURRENT-LIABILITIES> 44,564
<BONDS> 142,446
0
0
<COMMON> 20
<OTHER-SE> (17,606)
<TOTAL-LIABILITY-AND-EQUITY> 170,972
<SALES> 102,999
<TOTAL-REVENUES> 102,999
<CGS> 82,142
<TOTAL-COSTS> 82,142
<OTHER-EXPENSES> 19,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,535
<INCOME-PRETAX> (6,094)
<INCOME-TAX> (278)
<INCOME-CONTINUING> (5,816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,816)
<EPS-BASIC> (2.91)
<EPS-DILUTED> (2.91)
</TABLE>
