<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 February 22, 1998
or
[ ] Transition report pursuant to section 13 or
15(d) of the Securities Exchange Act of 1934
for the transition period from ________ to ________
Commission file number 1-11344
------
INTERMAGNETICS GENERAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
New York 14-1537454
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 Old Niskayuna Road, PO Box 461, Latham, NY 12110-0461
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(518) 782-1122
--------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 issuer's classes of
common stock as of the latest practicable date.
Common Stock, $.10 par value - 12,533,535 as of March 30, 1998.
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INTERMAGNETICS GENERAL CORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1: Financial Statements:
Consolidated Balance Sheets - February 22, 1998 and May 25, 1997................................3
Consolidated Statements of Income - Three Months and Nine Months Ended February 22, 1998
and February 23, 1997.........................................................................5
Consolidated Statements of Cash Flows - Nine Months Ended February 22, 1998
and February 23, 1997........................................................................6
Notes to Consolidated Financial Statements......................................................7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................................................9
PART II - OTHER INFORMATION.............................................................................11
SIGNATURES..............................................................................................12
</TABLE>
2
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INTERMAGNETICS GENERAL CORPORATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS Feb 22, 1998 May 25, 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 11,989 $ 12,667
Trade accounts receivable, less allowance
(February 22 - $287; May 25 - $302) 18,673 16,899
Costs and estimated earnings in excess of
billings on uncompleted contracts 4,691 3,543
Inventories:
Finished products 975 811
Work in process 17,192 14,196
Materials and supplies 12,246 11,410
-------- --------
30,413 26,417
Prepaid expenses and other 4,006 3,272
-------- --------
TOTAL CURRENT ASSETS 69,772 62,798
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 1,479 1,479
Buildings and improvements 16,605 16,425
Machinery and equipment 38,241 36,181
Leasehold improvements 648 35
-------- --------
56,973 54,120
Less allowances for depreciation and amortization 31,392 28,616
-------- --------
25,581 25,504
Equipment in process of construction 2,521 3,048
-------- --------
28,102 28,552
INTANGIBLE AND OTHER ASSETS
Available for sale securities 4,557 3,112
Other investments 8,604 8,932
Excess of cost over net assets acquired, less accumulated
amortization (February 22 - $831; May 25 - $169) 19,298 9,538
Other assets 4,382 3,057
-------- --------
TOTAL ASSETS $134,715 $115,989
======== ========
</TABLE>
3
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
CONSOLIDATED BALANCE SHEETS, Continued
(Dollars in Thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY Feb 22, 1998 May 25, 1997
----------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 269 $ 259
Note payable 6,821
Accounts payable 5,398 6,441
Salaries, wages and related items 3,225 2,660
Customer advances and deposits 1,195 811
Product warranty reserve 1,143 911
Accrued income taxes 1,285 1,453
Other liabilities and accrued expenses 1,974 917
---------------- ----------------
TOTAL CURRENT LIABILITIES 21,310 13,452
LONG-TERM DEBT, less current portion 28,882 29,105
DEFERRED INCOME TAXES, on unrealized gain on
available for sale securities 864 345
SHAREHOLDERS' EQUITY
Preferred Stock, par value $.10 per share:
Authorized - 2,000,000 shares
Issued and outstanding - 69,992 shares 6,999
Common Stock, par value $.10 per share:
Authorized - 40,000,000 shares
Issued and outstanding (including shares in treasury):
February 22, 1998 - 13,046,761 shares
May 25, 1997 - 12,642,508 shares 1,305 1,264
Additional paid-in capital 78,440 74,378
Retained earnings (deficit) 225 (1,643)
Unrealized gain on available for sale securities, net 1,537 613
Foreign currency translation adjustments (12) (16)
---------------- ----------------
88,494 74,596
Less cost of Common Stock in treasury
(February 22, 1998 - 553,698 shares;
May 25, 1997 - 163,700 shares) (4,835) (1,509)
---------------- ----------------
83,659 73,087
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $134,715 $115,989
================ ================
</TABLE>
4
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INTERMAGNETICS GENERAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
Feb 22, 1998 Feb 23, 1997 Feb 22, 1998 Feb 23, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $25,235 $17,325 $68,470 $61,955
Other revenue 507 838 1,472 2,411
------- ------- ------- -------
Total revenue 25,742 18,163 69,942 64,366
Costs and expenses:
Cost of products sold 16,511 12,730 44,254 43,839
Product research and development 1,665 1,304 5,731 4,500
Marketing, general and administrative 5,357 3,465 14,894 11,433
Interest and other expense 555 515 1,600 1,585
Equity in net loss of
unconsolidated affiliate 317 111 400 34
------- ------- ------- -------
24,405 18,125 66,879 61,391
------- ------- ------- -------
Income before income taxes 1,337 38 3,063 2,975
Provision for income taxes 522 14 1,195 1,071
------- ------- ------- -------
NET INCOME $ 815 $ 24 $ 1,868 $ 1,904
======= ======= ======= =======
Earnings per Common Share:
Basic $ 0.07 $ 0.00 $ 0.15 $ 0.16
======= ======= ======= =======
Diluted $ 0.06 $ 0.00 $ 0.14 $ 0.15
======= ======= ======= =======
</TABLE>
NOTE: Shares and earnings per share have been adjusted to reflect a 2% stock
dividend distributed September 16, 1997.
5
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
Feb 22, 1998 Feb 23, 1997
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,868 $ 1,904
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,857 2,645
Cost of warrants issued 450
Imputed interest on unsecured notes 137
Equity in net loss of unconsolidated affiliate 400 34
Gain on sale of assets (91)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable and costs
and estimated earnings in excess of billings
on uncompleted contracts (408) 2395
Increase in inventories and prepaid expenses and other (3,123) (1,533)
Decrease in accounts payable and accrued expenses (449) (2,284)
Other (62) (29)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,442 3,269
INVESTING ACTIVITIES
Cash acquired in acquisition 3,706
Investment in unconsolidated affiliate (1,427)
Purchases of property, plant and equipment (2,059) (3,559)
Proceeds from sale of assets 93
Increase in other assets (26)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING 313 (3,585)
ACTIVITIES
FINANCING ACTIVITIES
Proceeds from sales of Common Stock 621 697
Proceeds from sale of warrants 120
Purchase of Treasury Stock (3,962) (2,034)
Principal payments on long-term debt (212) (2,371)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (3,433) (3,708)
-------- --------
DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (678) (4,024)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 12,667 18,696
-------- --------
CASH AND SHORT-TERM INVESTMENTS AT END
OF PERIOD $ 11,989 $ 14,672
======== ========
</TABLE>
6
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INTERMAGNETICS GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments, which are of a
normal recurring nature, necessary to present fairly the financial position at
February 22, 1998 and the results of operations and cash flows for the
nine-month periods ended February 22, 1998 and February 23, 1997. The results
for the three months and nine months ended February 22, 1998 are not
necessarily indicative of the results to be expected for the entire year. The
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Company's financial statements for the year ended May 25, 1997, filed on Form
10-K on August 25, 1997.
NOTE B -
During the quarter, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share". The SFAS replaces
the concept of "primary" and "fully diluted" earnings per share with "basic" and
"diluted" earnings per share. The impact of SFAS No. 128 was to increase basic
earnings per share (as compared with primary) by $0.01 per share for the nine
months ended February 23, 1997 and to decrease diluted earnings per share (as
compared with fully diluted) for all periods except the nine months ended
February 23, 1997. All other periods were unaffected.
"Basic" earnings per common share amounts are based on the weighted
average number of common shares outstanding during the periods. "Diluted"
earnings per share are based on the weighted average shares outstanding during
the period increased by dilutive potential common shares as shown below:
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Share and Per Share Amounts)
Three Months Ended Nine Months Ended
----------------------------------------- ------------------------------------------
Feb 22, 1998 Feb 23, 1997 Feb 22, 1998 Feb 23, 1997
-------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income available to common
stockholders $ 815 $ 24 $ 1,868 $ 1,904
Weighted average shares 12,503,724 11,940,206 12,500,206 11,958,694
Plus incremental shares from
assumed conversions:
Convertible preferred stock 666,268 0 222,116 0
Stock options 243,647 444,914 309,954 578,533
------- ------- ------- -------
Dilutive potential common shares 909,915 444,914 532,070 578,553
----------- ----------- ----------- -----------
Adjusted weighted average shares 13,413,639 12,385,119 13,032,276 12,537,247
=========== =========== =========== ===========
Earnings per Common Share:
Basic $ 0.07 $ 0.00 $ 0.15 $ 0.16
=========== =========== =========== ===========
Diluted $ 0.06 $ 0.00 $ 0.14 $ 0.15
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
NOTE C -
On November 24, 1997, the Company completed its acquisition of
Polycold Systems International, Inc. of San Rafael, CA, a manufacturer of
low-temperature refrigeration systems including water vapor cryopumps,
cryocoolers, cold trap chillers and gas chillers. The consideration consisted
of a promissory note for $6.82 million, approximately 276,050 shares of common
stock, and approximately 70,000 shares of Series A Preferred Stock, par value
$.10 per share. The Note bears interest at the compound rate of 5.75% per
annum, and is payable, subject to certain obligations of the stockholders of
Polycold as set forth in greater detail in the Agreement, ninety (90) days
after issuance. The total value of the consideration received by the
Stockholders of Polycold was approximately $16.5 million.
The acquisition has been accounted for using the purchase method of
accounting, and the results of operations of Polycold have been included in
the consolidated financial statements since November 24, 1997, the date of
acquisition. The excess of cost over net assets acquired of approximately
$10,200,000 is being amortized on a straight-line basis over 15 years.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Polycold as if the
acquisition had occurred at the beginning of the fiscal year, with pro forma
adjustments to give effect to amortization of the excess of cost over net
assets acquired and interest income on short-term investments, together with
related income tax effects.
(Dollars in Thousands, Except Per Share Amounts)
Nine Months Ended
--------------------------------
Feb 22, 1998 Feb 23, 1997
--------------- ---------------
Net revenue $78,591 $75,277
Net income 2,814 2,022
Earnings per common share 0.16 0.17
Diluted earnings per common share 0.15 0.16
NOTE D -
On July 22, 1997, the Company declared a 2% stock dividend which was
distributed on all outstanding shares, except Treasury Stock, on September 16,
1997 for all shareholders of record on August 26, 1997. The financial
statements have been adjusted retroactively to reflect this stock dividend in
all numbers of shares, prices per share and earnings per share.
8
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INTERMAGNETICS GENERAL CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The results of operations for the nine month and three month periods
ended February 22, 1998 include the results of Medical Advances, Inc. ("MAI"),
which was acquired in March 1997, and Polycold Systems International, Inc.
("Polycold"), which was acquired in December, 1997, as described below.
During the third quarter and nine months of fiscal 1998 net sales
were approximately 46% and 11% higher, respectively, than the same periods in
fiscal 1997. Other revenue declined approximately 40% in both periods due to
lower royalty and interest income. Also in the first quarter of fiscal 1997,
the Company sold a low volume, defense-related product line, which resulted in
an after-tax gain of $186,000. In both the third quarter and nine month
periods gross margins, as a percentage of net sales, increased for Magnetic
Products and decreased slightly for Refrigeration Products.
During the third quarter and first nine months of fiscal 1998, sales
of Magnetic Products were higher than in the same periods of fiscal 1997 due
to the inclusion of MAI and increased demand for magnets. Sales of
superconducting materials were lower in the nine month period but increased in
the third quarter with increased demand from a major customer. Sales of
Refrigeration Products were lower in the nine month period due to reduced
demand for refrigerants and refrigeration equipment, but increased in the
third quarter due to the inclusion of Polycold. Gross margins, as a percentage
of net sales, increased for Magnetic Products in both periods, reflecting the
ongoing cost reduction efforts in magnets and superconducting materials and
the MAI acquisition. Gross margins for Refrigeration Products declined
slightly due to an unfavorable sales mix in the fiscal 1998 periods.
Internal research and development expenses were 27.4% higher in the
nine month period of fiscal 1998 compared to the same period in fiscal 1997,
due principally to the inclusion of MAI and Polycold, and externally-funded
programs declined by approximately 21%. Marketing, general and administrative
expenses increased 30.3% in the first nine months of fiscal 1998 compared to
the same period in fiscal 1997, principally due to the addition of MAI and
Polycold. The Company's tax rate increased to 39% from 37% in the prior year,
largely due to the effects of non-deductible amortization of the excess of the
purchase price over the fair market value of net assets acquired in the MAI
and Polycold acquisitions.
During the third quarter, the Company acquired Polycold Systems
International, Inc. of San Rafael, CA, a manufacturer of low-temperature
refrigeration systems including water vapor cryopumps, cryocoolers, cold trap
9
<PAGE>
chillers and gas chillers, for an aggregate consideration of approximately
$16,500,000 consisting of a 90-day promissory note for $6,821,000, 276,050
shares of the Company's Common Stock and approximately 70,000 shares of Series
A Preferred Stock, which is redeemable in cash or Common Stock at the option
of the Company. The $10,175,000 excess of purchase price over the fair market
value of net assets acquired is being amortized over 15 years. The Preferred
Stock is redeemable in cash by the Company at any time at $100 per share.
Also, the Company may convert some or all of the Preferred Stock into Common
Stock at any time after December 11, 1998, but before December 1, 1999. If any
of the Preferred Stock is not so converted by the Company, it shall
automatically convert into Common Stock as of December 1, 1999. The conversion
price per share is $100, subject to adjustment for stock dividends, and the
price of the Stock will be calculated using the average closing price of the
Common Stock for a defined ten-day trading period just prior to conversion.
During the first nine months of fiscal 1998, the Company used net
cash of $678,000. The $2,442,000 provided by operating activities and the
$3,706,000 cash acquired in the Polycold acquisition, together with available
cash, was used for financing activities, principally for repurchases of the
Company's Common Stock under the previously-announced stock buy-back program,
which is continuing, and other investing activities including $2,059,000 for
machinery and equipment and an additional investment of $1,427,000 in Surrey
Medical Imaging Systems Limited.
The Company's capital resource commitments as of March 29, 1998
consist principally of capital equipment commitments of approximately
$1,036,000. The Company has an unsecured line of credit of $25,000,000 which
expires in November, 2000, none of which was in use on March 29, 1998. The
Company believes that it will have sufficient working capital to meet its
needs for the foreseeable future. However, pursuit of large scale applications
in superconductivity and new refrigerants or other business opportunities may
require the Company to seek additional financing in future years.
10
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INTERMAGNETICS GENERAL CORPORATION
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On December 9, 1997 the Company filed a Form 8-K regarding the
acquisition of Polycold Systems International, Inc. which was amended
on February 9, 1998 on Form 8-K/A to provide Financial Statements of
Business Acquired and Pro Forma Financial Information.
11
<PAGE>
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.
INTERMAGNETICS GENERAL CORPORATION
Dated: April 7, 1998 By: /s/Carl H. Rosner
-----------------
Carl H. Rosner
Chairman and Chief Executive Officer
Dated: April 7, 1998 By: /s/Michael C. Zeigler
---------------------
Michael C. Zeigler
Senior Vice President, Finance
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-22-1998
<CASH> 11,989
<SECURITIES> 0
<RECEIVABLES> 18,960
<ALLOWANCES> 287
<INVENTORY> 30,413
<CURRENT-ASSETS> 69,772
<PP&E> 59,494
<DEPRECIATION> 31,392
<TOTAL-ASSETS> 134,715
<CURRENT-LIABILITIES> 21,310
<BONDS> 28,882
0
6,999
<COMMON> 1,305
<OTHER-SE> 75,355
<TOTAL-LIABILITY-AND-EQUITY> 134,715
<SALES> 68,470
<TOTAL-REVENUES> 69,942
<CGS> 44,254
<TOTAL-COSTS> 44,254
<OTHER-EXPENSES> 21,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,600
<INCOME-PRETAX> 3,063
<INCOME-TAX> 1,195
<INCOME-CONTINUING> 1,868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,868
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-25-1997
<PERIOD-END> FEB-23-1997
<CASH> 14,672
<SECURITIES> 0
<RECEIVABLES> 18,631
<ALLOWANCES> 193
<INVENTORY> 26,060
<CURRENT-ASSETS> 62,929
<PP&E> 55,352
<DEPRECIATION> 27,805
<TOTAL-ASSETS> 105,542
<CURRENT-LIABILITIES> 9,867
<BONDS> 29,152
0
0
<COMMON> 1,219
<OTHER-SE> 64,931
<TOTAL-LIABILITY-AND-EQUITY> 105,542
<SALES> 61,955
<TOTAL-REVENUES> 64,366
<CGS> 43,839
<TOTAL-COSTS> 43,839
<OTHER-EXPENSES> 15,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,585
<INCOME-PRETAX> 2,975
<INCOME-TAX> 1,071
<INCOME-CONTINUING> 1,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,904
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
