<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 November 29, 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 - 12,346,322 as of December 31, 1998.
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1: Financial Statements:
<S> <C>
Consolidated Balance Sheets - November 29, 1998 and May 31, 1998................................3
Consolidated Statements of Income - Three Months and Six Months Ended
November 29, 1998 and November 23, 1997.......................................................5
Consolidated Statements of Cash Flows - Six Months Ended November 29, 1998
and November 23, 1997...........................................................................6
Notes to Consolidated Financial Statements......................................................7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................13
PART II - OTHER INFORMATION.............................................................................17
SIGNATURES..............................................................................................18
</TABLE>
2
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
November 29, May 31,
1998 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 3,550 $ 2,993
Trade accounts receivable, less allowance
(November 29 - $539; May 31 - $350) 20,112 14,802
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,820 4,660
Inventories:
Finished products 966 1,045
Work in process 15,559 18,313
Materials and supplies 11,082 13,491
--------------- ---------------
27,607 32,849
Prepaid expenses and other 6,807 5,006
--------------- ---------------
TOTAL CURRENT ASSETS 59,896 60,310
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 1,479 1,479
Buildings and improvements 16,619 16,604
Machinery and equipment 39,234 39,421
Leasehold improvements 650 649
--------------- ---------------
57,982 58,153
Less allowances for depreciation and amortization 34,533 32,445
--------------- ---------------
23,449 25,708
Equipment in process of construction 2,873 2,231
--------------- ---------------
26,322 27,939
INTANGIBLE AND OTHER ASSETS
Available for sale securities 1,857 3,450
Other investments 6,290 5,178
Investment in affiliates 7,092 7,564
Notes receivable from affiliate 3,090 2,476
Excess of cost over net assets acquired, less
accumulated amortization (November 29 - $1,840; May 31 - $1,166) 18,292 18,966
Other assets 1,568 1,893
--------------- ---------------
TOTAL ASSETS $124,407 $127,776
=============== ===============
</TABLE>
3
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS, Continued
(Dollars in Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY November 29, May 31,
1998 1998
------------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 280 $ 272
Note payable 1,250 -
Accounts payable 5,485 6,076
Salaries, wages and related items 3,891 3,647
Customer advances and deposits 1,563 298
Product warranty reserve 1,092 996
Accrued income taxes 1,212 2,411
Other liabilities and accrued expenses 1,476 1,117
-------------- -----------
TOTAL CURRENT LIABILITIES 16,249 14,817
LONG-TERM DEBT, less current portion 28,745 28,833
DEFERRED INCOME TAXES - 325
SHAREHOLDERS' EQUITY
Preferred Stock, par value $.10 per share:
Authorized - 2,000,000 shares
Issued and outstanding - 6,999 6,999
(November 29, 1998 - 69,992 shares;
May 31, 1998 - 69,992 shares)
Common Stock, par value $.10 per share:
Authorized - 40,000,000 shares
Issued and outstanding (including shares in treasury):
November 29, 1998 - 13,466,880 shares
May 31, 1998 - 13,334,280 shares 1,347 1,334
Additional paid-in capital 81,692 81,008
Accumulated deficit (1,525) (1,081)
Accumulated other comprehensive income (loss) (138) 496
-------------- -----------
88,375 88,756
Less cost of Common Stock in treasury
(November 29, 1998 - 1,037,673 shares;
May 31, 1998 - 562,175 shares) (8,962) (4,955)
-------------- -----------
79,413 83,801
-------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $124,407 $127,776
============== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------------------------- ------------------------------------
November 29, 1998 November 23, 1997 November 29, 1998 November 23, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $25,963 $22,215 $52,457 $43,235
Cost of products sold 16,630 14,445 33,343 27,417
Inventory written off in restructuring - Note D 1,554 - 1,554 -
----------------- ------------------- ----------------- -----------------
18,184 14,445 34,897 27,417
----------------- ------------------- ----------------- -----------------
Gross Margin 7,779 7,770 17,560 15,818
Product research and development 1,392 1,953 3,248 4,066
Marketing, general and administrative 5,683 4,625 11,154 9,537
Amortization of intangible assets 337 163 674 326
Restructuring charges - Note D 2,398 - 2,398 -
----------------- ------------------- ----------------- -----------------
9,810 6,741 17,474 13,929
----------------- ------------------- ----------------- -----------------
Operating income (loss) - Note D (2,031) 1,029 86 1,889
Interest and other income 405 479 777 965
Interest and other expense (630) (542) (1,157) (1,045)
Equity in net income (loss) of unconsolidated affiliate (242) 4 (472) (83)
----------------- ------------------- ----------------- -----------------
Income (loss) before income taxes (2,498) 970 (766) 1,726
Provision (benefit) for income taxes (1,049) 378 (322) 673
----------------- ------------------- ----------------- -----------------
NET INCOME (LOSS) $(1,449) $ 592 $ (444) $ 1,053
================= =================== ================= =================
Earnings (loss) per Common Share:
Basic $ (0.12) $ 0.05 $ (0.04) $ 0.08
================= =================== ================= =================
Diluted $ (0.12) $ 0.05 $ (0.04) $ 0.08
================= =================== ================= =================
</TABLE>
See Note D of Notes to Financial Statements for a description of the
restructuring charges included herein.
- ---------------------
5
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited) Six Months Ended
---------------------------------------
November 29, November 23,
1998 1997
------------------ ------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) ($444) $ 1,053
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Non-cash restructuring charges 3,952 -
Depreciation and amortization 2,850 2,479
Non-cash expense from warrants issued - 300
Equity in net loss of unconsolidated affiliates 472 83
Gain on sale of assets - (91)
Change in operating assets and liabilities:
Increase in accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts (2,608) (1,528)
(Increase) decrease in inventories and prepaid expenses and other 2,162 (2,486)
Increase (decrease) in accounts payable and accrued expenses (748) 158
Change in foreign currency translation adjustments and other 359 44
------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,995 12
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,572) (1,631)
Proceeds from the sale of assets - 93
Purchases of other investments (1,112) -
Investment in and advances to unconsolidated affiliates (614) (1,219)
------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (3,298) (2,757)
FINANCING ACTIVITIES
Net proceeds from short-term borrowings 1,250 -
Proceeds from the sale of warrants 120
Purchase of Treasury Stock (3,426) (1,108)
Proceeds from sales of Common Stock 116 504
Principal payments on note payable and long-term debt (80) (91)
------------------ ------------------
NET CASH USED IN FINANCING ACTIVITIES (2,140) (575)
------------------ ------------------
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 557 (3,320)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 2,993 12,667
------------------ ------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $3,550 $9,347
================== ==================
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - General
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments, which are of a normal recurring
nature, necessary to present fairly the financial position at November 29, 1998
and the results of operations and cash flows for the six-month periods ended
November 29, 1998 and November 23, 1997. See Note D for a description of the
restructuring charges included in these financial statements. The results for
the three months and six months ended November 29, 1998 are not necessarily
indicative of the results to be expected for the entire year. The Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Company's consolidated financial statements for the year ended May 31, 1998,
filed on Form 10-K on August 28, 1998.
Certain prior year financial information has been reclassified to
conform to current year presentation.
Note B - Earnings (Loss) Per Share
A summary of the shares used in the calculation of earnings (loss) per share is
shown below:
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended
---------------------------------------------------
November 29, 1998 November 23, 1997
------------------------ ------------------------
<S> <C> <C>
Income (loss) available to common shareholders ($ 1,449) $ 592
Weighted average shares 12,414,537 12,753,644
Plus incremental shares from assumed
exercise of Stock options - 314,339
---------- -----------
Dilutive potential common shares - -
---------- -----------
Adjusted weighted average shares 12,414,537 13,067,983
========== ===========
Earnings (loss) per common share:
Basic ($ 0.12) $ 0.05
==========
==========
Diluted ($ 0.12) $ 0.05
========== ==========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended
---------------------------------------------------
November 29, 1998 November 23, 1997
------------------------ ------------------------
<S> <C> <C>
Income (loss) available to common shareholders ($ 444) $ 1,053
Weighted average shares 12,515,462 12,748,415
Plus incremental shares from assumed
exercise of Stock options - 339,821
---------- ----------
Dilutive potential common shares - -
---------- ----------
Adjusted weighted average shares 12,515,462 13,088,236
========== ==========
Earnings (loss) per common share:
Basic ($ 0.04) $ 0.08
==========
==========
Diluted ($ 0.04) $ 0.08
========== ==========
</TABLE>
Diluted shares in 1997 include the potential dilutive effect of stock
options. Shares issuable upon exercise of warrants and conversion of convertible
subordinated debentures, and in 1998 convertible preferred stock and stock
options, have been excluded from the calculation, as their effect would be
antidilutive. Shares for the periods presented have been adjusted to reflect a
2% stock dividend distributed September 17, 1998 as described in Note E.
Income (loss) available to common shareholders includes charges of
$2,292,000, representing the after-tax effect of a restructuring charge for the
three months and six months ended November 29, 1998. See Note D for details.
Note C - Comprehensive Income
Effective June 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that all items recognized under accounting standards as components of
comprehensive income or loss be reported in an annual financial statement that
is displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
income or loss by their nature in annual financial statements.
8
<PAGE>
The Company's total comprehensive income (loss) was as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
Nov 29, 1998 Nov 23, 1997 Nov 29, 1998 Nov 23, 1997
<S> <C> <C> <C> <C>
Net income (loss) ($1,449) $ 592 ($ 444) $1,053
Other comprehensive income (loss):
Unrealized gain (loss) on available-
for-sale securities, net of (60) (141) (993) 720
related taxes
Foreign currency translation 152 (105) 359 44
------- -------- ------- ------
Total comprehensive income (loss) ($1,357) $ 346 ($1,078) $1,817
======= ======== ======= ======
</TABLE>
Note D - Restructuring
During the second quarter, the Company received notice from Trex
Medical Corporation ("Trex") that it was not prepared to continue operating
under a distributor agreement under which Trex was to distribute the Company's
permanent magnet-based clinical MRI systems. The Company has filed suit against
Trex for breaching and repudiating the agreement. In November 1998, the Company
decided to exit this business and restructured its operations through the
closure of its Field Effects division, which was engaged in the manufacture and
sale of clinical MRI systems. As a result, the Company recorded a total
restructuring charge of $3,952,000 including liabilities recorded of $922,000,
comprised of the following:
Inventory write-down included in cost of
products sold $1,554,000
Restructuring charges:
Write-down of equipment to fair value 1,104,000
Provision for severance and lease obligations 722,000
Write-off of other assets 237,000
Other 335,000
-----------
2,398,000
-----------
Total $3,952,000
===========
The Company has terminated its lease, and moved existing equipment and
inventory to storage near its corporate headquarters. All usable equipment has
been transferred to other operations at its book value. Other equipment and
inventory have been written down to estimated realizable value. The Company is
actively engaged in attempting to sell such inventory and equipment. It is
estimated that this would take approximately one year.
9
<PAGE>
The foregoing charges were included in operating income (loss) for the
three-month and six-month periods ended November 29, 1998. Also included were
the following amounts from operations of the Field Effects division:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
Nov 29, 1998 Nov 23, 1997 Nov 29, 1998 Nov 23, 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ - $ 466 $ 35 $ 559
Cost of products sold 74 465 103 612
------- ------- ------- -------
Gross margin (74) 1 (68) (53)
Operating expenses 529 659 1,261 1,312
------- ------- ------- -------
Operating loss ($ 603) ($ 658) ($1,329) ($1,365)
======= ======= ======= =======
</TABLE>
Exclusive of the foregoing restructuring charges and results of
operations, the operating results of the Company are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
Nov 29, 1998 Nov 23, 1997 Nov 29, 1998 Nov 23, 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $25,963 $21,749 $52,422 $42,676
Gross margin 9,407 7,769 19,182 15,871
Operating income 2,524 1,687 5,367 3,254
</TABLE>
No provision has been made for any possible recovery from Trex.
Note E - Stock Dividend
On July 21, 1998, the Company declared a 2% stock dividend which was
distributed on all outstanding shares, except Treasury Stock, on September 17,
1998 to all shareholders of record on August 27, 1998. The consolidated
financial statements have been adjusted retroactively to reflect this stock
dividend in all numbers of shares, prices per share and earnings (loss) per
share.
10
<PAGE>
Note F - New Accounting Pronouncements
In June, 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders, SFAS 131 focuses on a "management approach" concept as
the basis for identifying reportable segments. The management approach is based
on the way that management organizes the segments within the enterprise for
making operating decisions and assessing performance.
SFAS 131 is effective for fiscal years beginning after December 15,
1997. The Company will comply with the reporting requirements of SFAS 131 for
the fiscal year ending May 30, 1999. Management anticipates that the effect of
the adoption of SFAS 131 will not significantly impact the current presentation
of the Company's segment disclosure as the current reportable segments are
consistent with the "management approach" methodology outlined in SFAS 131.
In February, 1998, the FASB issued SFAS 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 revises employers'
disclosures about pension and other postretirement benefit plans, but does not
change the measurement or recognition of those plans. SFAS 132 is effective for
fiscal years beginning after December 15, 1997. The Company will comply with the
reporting requirements of SFAS 132 for the fiscal year ending May 30, 1999.
In March, 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that certain costs related to the development or purchase of internal-use
software be capitalized and amortized over the estimated useful life of the
software. SOP 98-1 also requires that costs related to the preliminary project
stage and post-implementation/operations stage of an internal-use computer
software development project be expensed as incurred. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The Company will comply with the
reporting requirements of SOP 98-1 for the fiscal year ending May 28, 2000.
Management anticipates that the adoption of SOP 98-1 will not have a material
effect on the Company's consolidated financial statements.
In March, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5 requires the expensing of certain costs such as
pre-operating expenses and organizational costs associated with a company's
start-up activities. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The effect of adoption is required to be accounted for as a
cumulative change in accounting principle. The Company will comply with the
reporting requirements of SOP 98-5 for the fiscal year ending May 28, 2000.
Management anticipates that the adoption of SOP 98-5 will not have a material
effect on the Company's consolidated financial statements.
11
<PAGE>
In June, 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management is currently evaluating the impact of SFAS 133 on the Company's
consolidated financial statements.
12
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this report which are not historical fact
are "forward-looking statements" that involve various important assumptions,
risks, uncertainties and other factors which could cause the Company's actual
results for 1999 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without limitation,
any assumptions, risks, and uncertainties set forth herein, as well as other
assumptions, risks, uncertainties and factors disclosed elsewhere in this report
and in the Company's press releases, shareholders' reports and filings with the
Securities and Exchange Commission, including, but not limited to, the risks
inherent in any litigation, the Company's ability to win greater market
acceptance for FRIGC, as well as continued strength and expansion in its core
wire and MRI magnet markets.
During the first half and second quarter of fiscal 1999, net sales were
21% and 17%, respectively, higher than in the same periods of fiscal 1998.
Results for the current periods include IGC Polycold Systems, Inc. ("Polycold"),
which was acquired in November, 1997. Gross margin rates declined due to the
write-off of inventory associated with the closing of the Company's Field
Effects ("FE") division following the unilateral cancellation of a marketing
agreement by the exclusive distributor of the FE permanent magnet-based clinical
MRI system. See Note D of Notes to Financial Statements.
In the first half of fiscal 1999, sales were higher in the Magnetic
Products segment due to increased demand for RF coils and much higher sales of
superconducting materials for MRI, but slightly lower in the second quarter due
to continuing price reductions for MRI magnets. Sales were higher in the
Refrigeration Products segment with the inclusion of Polycold. Exclusive of the
inventory write-off discussed above, gross margin rates increased slightly for
Magnetic Products. Gross margin rates for Refrigeration Products were slightly
lower, despite the inclusion of Polycold, due to a less favorable sales mix and
continued competitive pricing pressures. Excluding the discontinuance of FE,
operating results would have improved substantially, as shown in Note D of Notes
to Financial Statements contained in this report.
Internal research and development expenses were lower in the first half
and second quarter compared to the same periods of fiscal 1998, as certain
developmental programs were completed and engineering efforts were devoted to
marketing and manufacturing support. Externally-funded programs continued to
decline. Marketing, general and administrative expenses increased in the second
quarter and first half of fiscal 1999 compared to the same period in fiscal 1998
due to the inclusion of Polycold, which more than offset declines in other
business units. In connection with the termination of the FE business
operations, the Company recorded a charge to operations of $2,398,000 relating
to costs associated with present and future expenses necessary to close out the
business unit.
13
<PAGE>
Year 2000 Issues
The "year 2000 problem" arises because many existing computer programs
("information technology" or "IT"), as well as non-IT systems that use embedded
technology such as microcontrollers or "chips," only use the last two digits to
refer to a year and therefore do not properly recognize that a year that ends
with "00" (i.e. "2000") should follow the year that ends with "99" (i.e.
"1999"). If not corrected, it is possible that many IT and non-IT systems will
fail or create errors. Generally, no one knows the extent of the potential
impact of the year 2000 problem.
State of Readiness:
The Company has developed and is implementing an assessment and
remediation plan to identify and, if necessary, correct potential year 2000
problems in the following areas:
1. Computer Systems. The Company is evaluating all desktop and server systems
for the existence of year 2000 problems using commercial evaluation
software. This process is approximately 60% complete and is expected to be
finished by March, 1999. A small number of systems have been identified
which will require upgrade or replacement. These will be corrected before
December, 1999.
2. Business Software. The Company's assessment and remediation plan has
identified that several of the present business systems are not year 2000
compliant. The Company has had an ongoing project to install an
enterprise-wide software system designed to integrate all business
entities. This project began in 1996. The software and hardware selected
for this project is year 2000 compliant and is expected to be implemented
before August, 1999. This represents about a three-month delay from the
originally expected implementation date of May, 1999.
3. Non-IT Systems. These include HVAC, communication and security systems, as
well as tools using embedded chips used in the manufacturing process. The
Company has completed its evaluation of all HVAC, communication and
security systems, and has developed replacement or upgrade plans to correct
the problems incurred. These plans will be completed before the end of
1999. The Company is also in the process of evaluating tools using embedded
chips. This evaluation is approximately 70% complete and is expected to be
finished by June, 1999. Remediation plans will be developed to the extent
that problems are identified.
14
<PAGE>
4. Business Partners. The Company has requested all of its business partners
and vendors to describe their state of readiness. While it is difficult to
predict the impact of year 2000 problems at our business partners and
vendors, results to date have not indicated any significant problems. This
process is approximately 50% complete and is expected to be finished by
May, 1999. The Company intends to remediate any problems that occur in this
area by qualifying new suppliers or increasing strategic inventory levels
if new suppliers are not considered practical. Currently, the Company
believes that it possesses adequate financial resources to provide for such
additional inventory, however, no assurances can be made.
Costs:
The Company estimates that the total cost of its assessment and
remediation plan will amount to approximately $2.7 million, which is being
funded through operating cash flows. Included in this amount is approximately $2
million for the replacement of the business systems described above, which is
being capitalized because its purchase and implementation was primarily related
to increases in system functionality. Approximately $1.4 million of the expected
total cost has been expended to date.
Risks and Contingency Plans:
While the Company expects to achieve full year 2000 compliance before
the end of 1999, it recognizes that there are certain risks that are outside of
its control. Although there have been no problems identified to date, the
Company believes that the greatest risk comes from the possibility that
significant suppliers of materials or services (electricity, telephone, banking,
etc.) will not be year 2000 compliant and that such lack of compliance will
impact delivery of those materials or services. The Company has established, as
part of its year 2000 team, a group representing each business unit which is
tasked with identifying areas where problems could occur, assessing the
likelihood of problems and developing a list of actions which could be taken to
reduce or eliminate such risks. Examples of such actions are increasing
strategic inventories to enable the Company to work through a period where
supply or production is disrupted, maintaining cash on hand to meet payrolls and
the establishment of alternate arrangements for electric power. The Company
expects this group to complete its evaluation of possible actions and report its
findings to management by June, 1999. Management will then select appropriate
actions based on an assessment of the likelihood of a problem and the
practicality, cost and effectiveness of the proposed action.
15
<PAGE>
During the first half of fiscal 1999, the Company used cash of
$3,298,000 in investing activities, $1,572,000 for machinery and equipment, a
$1,112,000 investment in a refrigeration product company and a $614,000 advance
to an affiliate. Also, the Company used $2,140,000 in financing activities,
primarily for the repurchase of $3,426,000 of Treasury Stock offset by
$1,250,000 in net proceeds provided by short-term borrowings under the Company's
line of credit. These amounts were financed by cash provided from operations of
$6.0 million.
The Company's capital resource commitments as of December 31, 1998
consist principally of capital equipment commitments of approximately
$1,250,000. The Company has an unsecured line of credit of $25,000,000 which
expires in November, 2000, of which none was in use on December 31, 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 may require the Company to seek
additional financing in future years.
16
<PAGE>
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The November 1998 Annual Meeting of Shareholders of the Company was
held on November 10, 1998.
(b) At the Annual Meeting, the Shareholders of the Company elected to the
Board of Directors all five nominees for director with the following
vote:
BROKER
DIRECTOR FOR AGAINST ABSTAIN NON-VOTES
- --------------------------------------------------------------------------------
John M. Albertine 11,702,721 280,732 -- --
Edward E. David, Jr. 11,702,405 281,048 -- --
Glenn H. Epstein 11,702,038 281,415 -- --
James S. Hyde 11,702,721 280,732 -- --
Carl H. Rosner 11,712,313 271,140 -- --
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On November 10, 1998 the Company filed a Form 8-K announcing that it
had filed suit against Trex Medical Corporation for breach of contract
and the Company's decision to discontinue the operations of its Field
Effects division in Tyngsboro, MA.
17
<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: January 12, 1999 By: /s/ Carl H. Rosner
-------------------------------------
Carl H. Rosner
Chairman and Chief Executive Officer
Dated: January 12, 1999 By: /s/ Michael C. Zeigler
-------------------------------------
Michael C. Zeigler
Senior Vice President, Finance
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-30-1999
<PERIOD-END> NOV-29-1998
<CASH> 3,550
<SECURITIES> 0
<RECEIVABLES> 20,651
<ALLOWANCES> 539
<INVENTORY> 27,607
<CURRENT-ASSETS> 59,896
<PP&E> 60,855
<DEPRECIATION> 34,533
<TOTAL-ASSETS> 124,407
<CURRENT-LIABILITIES> 16,249
<BONDS> 28,745
0
6,999
<COMMON> 1,347
<OTHER-SE> 78,066
<TOTAL-LIABILITY-AND-EQUITY> 124,407
<SALES> 52,457
<TOTAL-REVENUES> 53,234
<CGS> 33,343
<TOTAL-COSTS> 34,897
<OTHER-EXPENSES> 17,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,157
<INCOME-PRETAX> (766)
<INCOME-TAX> (322)
<INCOME-CONTINUING> (444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (444)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-23-1997
<CASH> 9,347
<SECURITIES> 0
<RECEIVABLES> 17,476
<ALLOWANCES> 287
<INVENTORY> 28,553
<CURRENT-ASSETS> 63,792
<PP&E> 58,671
<DEPRECIATION> 30,485
<TOTAL-ASSETS> 118,393
<CURRENT-LIABILITIES> 13,389
<BONDS> 29,008
0
0
<COMMON> 1,272
<OTHER-SE> 73,974
<TOTAL-LIABILITY-AND-EQUITY> 118,393
<SALES> 43,235
<TOTAL-REVENUES> 44,200
<CGS> 27,417
<TOTAL-COSTS> 27,417
<OTHER-EXPENSES> 14,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,045
<INCOME-PRETAX> 1,726
<INCOME-TAX> 673
<INCOME-CONTINUING> 1,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,053
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
