<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
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 May 5, 2000.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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............................................................ 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk............... 14
PART II - Other Information
Item 1. Legal Proceedings....................................................... 16
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........................................ 16
</TABLE>
______________________________
* 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
- ------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 2,247 $ 3,240
Accounts receivable, net...................................................... 28,885 26,433
Inventories, net.............................................................. 54,265 47,156
Prepaids...................................................................... 2,692 3,370
Other......................................................................... 3,164 2,795
-------- --------
Total current assets........................................................ 91,253 82,994
-------- --------
Notes Receivable............................................................... 59 59
-------- --------
Property, Plant and Equipment, net............................................. 49,131 48,808
-------- --------
Other Assets:
Goodwill and other intangible assets, net..................................... 20,838 21,126
Other......................................................................... 5,015 5,063
-------- --------
Total other assets.......................................................... 25,853 26,189
-------- --------
Total assets................................................................ $166,296 $158,050
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 16,097 $ 11,012
Deferred income taxes......................................................... 1,011 1,011
Accrued interest.............................................................. 4,648 1,899
Other accrued expenses........................................................ 12,297 12,088
Customer deposits............................................................. 8,914 6,667
Current maturities of long-term debt.......................................... 4,616 4,305
-------- --------
Total current liabilities................................................... 47,583 36,982
-------- --------
Long-Term Debt, less current maturities........................................ 132,426 133,315
-------- --------
Deferred Income Taxes.......................................................... 1,317 1,387
-------- --------
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............................................................... 2,999 2,939
Accumulated other comprehensive loss (cumulative currency
adjustment).................................................................. (6,302) (6,996)
Retained earnings............................................................. 13,786 15,936
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................................................. (15,030) (13,634)
-------- --------
Total liabilities and stockholders' deficit................................. $166,296 $158,050
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
3
<PAGE>
THE GSI GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Fiscal Months Ended
-----------------------------
March 31, April 2,
2000 1999
---- ----
<S> <C> <C>
Net sales...................................................... $ 47,367 $ 44,751
Cost of sales.................................................. 37,017 36,187
Cost of sales - restructuring charges.......................... -- 348
---------- ----------
Total cost of sales......................................... 37,017 36,535
Gross profit............................................. 10,350 8,216
Selling, general and administrative expenses................... 8,790 10,874
Amortization expense........................................... 335 330
Restructuring charges.......................................... -- 669
---------- ----------
Total operating expenses.................................... 9,125 11,873
Operating income (loss)........................................ 1,225 (3,657)
Other income (expense):
Interest expense............................................ (3,580) (3,681)
Other, net.................................................. 94 153
---------- ----------
Loss before income taxes................................. (2,261) (7,185)
---------- ----------
Income taxes................................................... (111) (241)
---------- ----------
Net loss................................................. $ (2,150) $ (6,944)
---------- ----------
Basic loss per share:
Net loss.................................................... $ (1.08) $ (3.47)
---------- ----------
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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Fiscal Months Ended
-------------------------------
March 31, April 2,
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net cash flows provided by (used in) operating activities............. $ 1,472 $(1,821)
------- -------
Cash Flows From Investing Activities:
Capital expenditures....................................................... (2,356) (4,647)
Proceeds from sale of fixed assets......................................... 160 108
Payments received on notes receivable...................................... -- 5
Write-down of goodwill for Avemarau Equipamentos Agricolas Ltda.
related to the Brazilian Real devaluation................................. -- (1,556)
Other...................................................................... 290 (344)
------- -------
Net cash flows used in investing activities........................... (1,906) (6,434)
------- -------
Cash Flows From Financing Activities:
Payments on long-term debt................................................. (1,818) (713)
Net borrowings under line-of-credit agreement.............................. 900 8,097
Contributed capital........................................................ 60 --
Write-down of note payable to former stockholders of Avemarau
Equipamentos Agricolas Ltda. related to the Brazilian Real devaluation.... -- 1,235
Other...................................................................... 299 276
------- -------
Net cash flows provided by (used in) financing activities............. (559) 8,895
------- -------
Increase (Decrease) In Cash and Cash Equivalents............................ $ (993) $ 640
Cash and Cash Equivalents, beginning of period.............................. 3,240 1,192
------- -------
Cash and Cash Equivalents, end of period.................................... $ 2,247 $ 1,832
======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements
5
<PAGE>
THE GSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The financial statements have been prepared by The GSI Group, Inc. (the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information not misleading. These
financial statements should be read in conjunction with the financial statements
and related notes contained in the Company's 1999 10-K as filed with the
Securities and Exchange Commission. Other than as indicated herein, there have
been no significant changes from the data presented in said 10-K.
In the opinion of management, the financial statements contain all
adjustments necessary to present fairly the financial position of the Company as
of March 31, 2000 and the results of operations for the three months ended March
31, 2000 and cash flows for the three months ended March 31, 2000. Certain prior
year amounts have been reclassified to be consistent with the current year
presentation.
The results of operations for the three month period ended March 31, 2000
are not necessarily indicative of the operating results for the full year.
2. Comprehensive Income
The components of comprehensive income (loss) for the periods presented are
as follows (in thousands):
<TABLE>
<CAPTION>
March 31, April 2,
2000 1999
--------- --------
<S> <C> <C>
Net income (loss)............................ $ (2,149) $ (6,944)
Cumulative translation adjustment............ 694 (5,070)
--------- --------
Comprehensive loss......................... $ (1,455) $(12,014)
========= ========
</TABLE>
3. Detail Of Certain Assets
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Inventories
Raw materials................................ $18,149 $18,751
Work-in-process.............................. 12,085 10,500
Finished goods............................... 24,031 17,905
------- -------
Total..................................... $54,265 $47,156
======= =======
</TABLE>
4. Supplemental Cash Flow Information
The Company paid approximately $0.5 and $0.6 million in interest during the
first quarters ended March 31, 2000 and April 2, 1999, respectively. The
Company paid no income taxes during the first quarters of 2000 and 1999,
respectively.
6
<PAGE>
5. Long-Term Debt
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 March 31, 2000.
The Credit Facility with LaSalle Bank National Association requires the
Company to maintain certain financial covenants. The Company was in compliance
with the covenants under the Credit Facility as of March 31, 2000.
6. Commitments and Contingencies
Sales of agricultural equipment are seasonal, with farmers traditionally
purchasing grain storage bins and grain drying and handling equipment in the
summer and fall in conjunction with the harvesting season, and swine and poultry
producers purchasing equipment during prime construction periods in the spring,
summer and fall. The Company's net sales and net income have historically been
lower during the first and fourth fiscal quarters as compared to the second and
third quarters.
In April 2000, the Company exercised its call option to purchase all shares
owned by John Funk, a director and former executive officer, in accordance with
previously executed agreements. The Company is currently determining the
purchase price as specified in the executed agreements. As the Company has
previously disclosed, Mr. Funk may dispute the Company's right to acquire his
stock under those agreements.
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 other assets
include $5.4 million of retainage withheld until completion of the projects and
the meeting of certain performance criteria. These receivables are secured by
letters of credit totaling $5.4 million and are expected to be collected through
the year 2001.
The Company has an operating lease agreement that requires the Company to
maintain a certain senior debt to EBITDA ratio, tangible net worth and certain
levels of capital expenditures and EBITDA. The Company was in compliance with
these covenants under the operating lease agreement as of March 31, 2000.
Certain lease agreements are collateralized by a letter of credit of $2.0
million that expires on October 15, 2000.
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 product line. Amounts for the first quarters of 2000 and 1999 are
as shown in the table below (in thousands).
<TABLE>
<CAPTION>
March 31, April 2,
2000 1999
---- ----
<S> <C> <C>
Grain product line....................... $25,039 $23,019
Swine product line....................... 9,470 8,908
Poultry product line..................... 12,858 12,824
------- -------
Net sales........................... $47,367 $44,751
======= =======
</TABLE>
For the first quarters of 2000 and 1999, sales in Brazil were $4.9 and $4.8
million, respectively. Long-lived assets in Brazil were $4.5 million at March
31, 2000.
7
<PAGE>
8. Guarantor Subsidiaries
The Company's payment obligation under the senior subordinated notes are fully
and unconditionally guaranteed on a joint and several basis by David
Manufacturing Company, GSI/Cumberland de Mexico S. de R.L. de C.V.,
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.
8
<PAGE>
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 151 $ 2,096 $ -- $ 2,247
Accounts receivable, net........................ 29,160 9,760 (10,035) 28,885
Inventories, net................................ 39,715 18,257 (3,707) 54,265
Other current assets............................ 3,042 2,814 -- 5,856
-------- -------- -------- --------
Total current assets............................ 72,068 32,927 (13,742) 91,253
Property, plant and equipment, net................. 36,586 12,545 -- 49,131
Goodwill and other intangible assets, net.......... 4,858 15,980 -- 20,838
Investment in and advances to/from
subsidiaries.................................... 50,492 (14,461) (36,031) --
Other long-term assets............................. 5,066 8 -- 5,074
-------- -------- -------- --------
Total assets.................................... $169,070 $ 46,999 $(49,773) $166,296
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............... $ 2,858 $ 1,758 $ -- $ 4,616
Accounts payable................................ 14,727 7,175 (5,805) 16,097
Accrued liabilities............................. 21,456 5,414 -- 26,870
-------- -------- -------- --------
Total current liabilities....................... 39,041 14,347 (5,805) 47,583
Long-term debt..................................... 132,258 13,958 (13,790) 132,426
Other long-term liabilities........................ -- 1,317 -- 1,317
-------- -------- -------- --------
Total liabilities............................... 171,299 29,622 (19,595) 181,326
Stockholders' equity:
Common stock.................................... 20 23,248 (23,248) 20
Additional paid-in capital...................... 2,999 305 (305) 2,999
Accumulated other comprehensive income.......... -- (6,302) -- (6,302)
Retained earnings (deficit)..................... 20,285 126 (6,625) 13,786
Treasury stock, at cost......................... (25,533) -- -- (25,533)
-------- -------- -------- --------
Total stockholders' equity (deficit)............ (2,229) 17,377 (30,178) (15,030)
-------- -------- -------- --------
Total liabilities and stockholders' equity......... $169,070 $ 46,999 $(49,773) $166,296
======== ======== ======== ========
</TABLE>
9
<PAGE>
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE FISCAL MONTHS ENDED MARCH 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.............................................. $38,560 $12,250 $(3,443) $47,367
Cost of sales.......................................... 29,665 9,576 (2,224) 37,017
------- ------- ------- -------
Gross profit........................................ 8,895 2,674 (1,219) 10,350
Selling, general and administrative expenses........... 6,181 2,944 -- 9,125
------- ------- ------- -------
Operating income (loss)............................. 2,714 (270) (1,219) 1,225
Interest expense....................................... (3,472) (108) -- (3,580)
Other income (expense)................................. (21) 115 -- 94
------- ------- ------- -------
Income (loss) before income taxes...................... (779) (263) (1,219) (2,261)
Provision (benefit) for income taxes................... 8 (119) -- (111)
------- ------- ------- -------
Income (loss) before equity in income of
consolidated subsidiaries........................... (787) (144) (1,219) (2,150)
Equity in income of consolidated subsidiaries.......... (144) -- 144 --
------- ------- ------- -------
Net income (loss)...................................... $ (931) $ (144) $(1,075) $(2,150)
======= ======= ======= =======
</TABLE>
10
<PAGE>
8. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE FISCAL MONTHS ENDED MARCH 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities..................... $ 1,111 $ 361 $ -- $ 1,472
------- ------- ------- --------
Cash flows from investing activities:
Capital expenditures.................................. (1,876) (480) -- (2,356)
Other................................................. 232 218 -- 450
------- ------- ------- --------
Net cash provided by (used in) investing Activities... (1,644) (262) -- (1,906)
------- ------- ------- --------
Cash flows from financing activities:
Net borrowings (payments) on debt..................... 110 (1,028) -- (918)
Other................................................. 359 -- -- 359
------- ------- ------- --------
Net cash provided by (used in) financing activities... 469 (1,028) -- (559)
------- ------- ------- --------
Change in cash and cash equivalents...................... (64) (929) -- (993)
Cash and cash equivalents, beginning of period........... 215 3,025 -- 3,240
------- ------- ------- --------
Cash and cash equivalents, end of period................. $ 151 $ 2,096 -- $ 2,247
======= ======= ======= ========
</TABLE>
11
<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, 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. 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.
Although the Company's sales are primarily denominated in U.S. dollars and
are not generally affected by currency fluctuations (except for the Company's
Brazilian operation), the production costs, profit margins and competitive
position of the Company are affected by the strength of the U.S. dollar relative
to the strength of the currencies in countries where its products are sold.
The Company's international sales have historically comprised a significant
portion of net sales. In the first quarters of 2000 and 1999, the Company's
international sales accounted for 34% and 46% of net sales, respectively.
International operations generally are subject to various risks that are
not present in domestic operations, including restrictions on dividends,
restrictions on repatriation of funds, unexpected changes in tariffs and other
trade barriers, difficulties in staffing and managing foreign operations,
political instability, fluctuations in currency exchange rates, reduced
protection for intellectual property rights in some countries, seasonal
reductions in business activity and potentially adverse tax consequences, any of
which could adversely impact the Company's international operations.
The primary raw materials used by the Company to manufacture its products
are steel and polymers. Fluctuations in the prices of steel and, to a lesser
extent, polymer materials can impact the Company's cost of sales. At the end of
1999, both of these materials experienced modest price increases. 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.
12
<PAGE>
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended April 2, 1999
Net sales increased 5.8% or $2.6 million to $47.4 million in the first
quarter of 2000 compared to $44.8 million in the first quarter of 1999. This
increase was driven by increased demand for grain equipment caused by a
successful early-order program. The swine and poultry equipment sales were
essentially flat.
Gross profit increased to $10.4 million in the first quarter of 2000 or
21.9% of net sales from $8.2 million or 18.4% of net sales in the same period of
1999. This increase was a result of increased sales in the first quarter of 2000
and the absence of a low-margin international project and restructuring charges
that occurred in the first quarter of 1999.
Operating expenses decreased 23.1% or $2.7 million to $9.1 million in the
first quarter of 2000 from $11.9 million in the same period of 1999. This
decrease was primarily the result of the restructuring that took place during
1999 and the absence of the restructuring charge recorded during the first
quarter of 1999. This decrease was partially offset by a change in the
compensation structure of the Company's employees which may lead to a slight
increase in operating expenses in future quarters.
Operating income increased 133.5% from a loss of $3.7 million in the first
quarter of 1999 to operating income of $1.2 million in the first quarter of
2000. This increase is attributable to the increase in sales, increased margins
and a decrease in operating expenses.
Interest expense was essentially flat for the first quarter of 2000 as
compared to the first quarter of 1999.
Net loss decreased $4.8 million to a loss of $2.2 million for the first
quarter of 2000 from a loss of $6.9 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.
As of March 31, 2000, the Company had $43.7 million of working capital, a
decrease of $2.3 million from working capital as of December 31, 1999. The
decrease in working capital was primarily due to increased accounts payable,
accrued interest and customer deposits partially offset by increases in
inventory and accounts receivable.
Operating activities provided $1.5 million and used $1.8 million in cash
flow in the first quarters of 2000 and 1999, respectively. This $3.3 million
increase in cash flow was primarily the result of an increase in net income,
other current assets and depreciation of $6.3 million, partially offset by
increases in accounts receivable and decreases in customer deposits of $3.8
million compared to the first quarter of 1999.
Cash used in investing activities in the first quarter of 2000 was $1.9
million. The cash was used primarily for machinery and equipment purchases.
Cash used in investing activities in the first quarter of 1999 was $6.4 million.
The cash was used primarily for machinery and equipment purchases and reflected
the impact of the Brazilian Real devaluation on property, plant and equipment
and goodwill.
Cash used in financing activities in the first quarter of 2000 was $0.6
million. The cash was used primarily for payments on long-term debt stemming
from the acquisition of Agromarau, partially offset by borrowings under the
Credit Facility. Cash provided by financing activities in the first quarter of
1999 consisted primarily of $8.1 million from net borrowings under the line-of-
credit facility and a $1.2 million impact from the write down of a note payable
related to the Brazilian Real devaluation.
13
<PAGE>
The Company believes that existing cash, cash flow from operations and
available borrowings under the Credit Facility will be sufficient to support its
working capital, capital expenditures and debt service requirements for the
foreseeable future.
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 it segregates
the effect of the foreign translation adjustments from the operating results of
the Company.
<TABLE>
<CAPTION>
Three Fiscal Months Ended
----------------------------------
March 31, April 2,
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net cash flows provided by operating activities.................... $ 1,375 $ 1,122
------- -------
Cash Flows From Investing Activities:
Capital expenditures.................................................... (2,522) (2,841)
Proceeds from sale of fixed assets...................................... 160 108
Payments received on notes receivable................................... -- 5
Other................................................................... (141) (344)
------- -------
Net cash flows used in investing activities........................ (2,503) (3,072)
------- -------
Cash Flows From Financing Activities:
Payments on long-term debt.............................................. (1,818) (713)
Net borrowings under line-of-credit agreement........................... 900 8,097
Contributed capital..................................................... 60 --
Other................................................................... 299 276
------- -------
Net cash flows provided by (used in) financing activities.......... (559) 7,660
------- -------
Cumulative translation adjustment impact 694 (5,070)
------- -------
Increase (Decrease) In Cash and Cash Equivalents......................... $ (993) $ 640
Cash and Cash Equivalents, beginning of period........................... 3,240 1,192
------- -------
Cash and Cash Equivalents, end of period................................. $ 2,247 $ 1,832
======= =======
</TABLE>
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 March 31, 2000,
principal exposed to interest rate risk was limited to $32.8 million in variable
rate debt. The Company measures its interest rate risk by estimating the net
amount by which potential future net earnings would be impacted
14
<PAGE>
by hypothetical changes in market interest rates related to all interest rate
sensitive assets and liabilities. A 1% change in interest rates would have a
$0.3 million impact on the Company's results of operations.
At March 31, 2000, approximately 18% 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.
15
<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 March 31, 2000.
16
<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: May 5, 2000
17
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Document Description
- --------- --------------------
27.1 Financial Data Schedule
____________
18
<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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,247
<SECURITIES> 0
<RECEIVABLES> 30,460
<ALLOWANCES> 1,575
<INVENTORY> 54,265
<CURRENT-ASSETS> 91,253
<PP&E> 82,566
<DEPRECIATION> 33,435
<TOTAL-ASSETS> 166,296
<CURRENT-LIABILITIES> 47,583
<BONDS> 132,426
0
0
<COMMON> 20
<OTHER-SE> (15,050)
<TOTAL-LIABILITY-AND-EQUITY> 166,296
<SALES> 47,367
<TOTAL-REVENUES> 47,367
<CGS> 37,017
<TOTAL-COSTS> 37,017
<OTHER-EXPENSES> 9,125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,580
<INCOME-PRETAX> (2,261)
<INCOME-TAX> (111)
<INCOME-CONTINUING> (2,150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,150)
<EPS-BASIC> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
