<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 August 27, 2000
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 - 15,232,836 as of September 18, 2000.
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets - August 27, 2000 and May 28, 2000........................3
Consolidated Statements of Operations - Three Months Ended
August 27, 2000 and August 29, 1999.................................................5
Consolidated Statements of Cash Flows - Three Months Ended August 27, 2000
and August 29, 1999.................................................................6
Notes to Consolidated Financial Statements............................................7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................13
Item 3: Quantitative and Qualitative Disclosures About Market Risk...........................18
PART II - OTHER INFORMATION...................................................................19
SIGNATURES....................................................................................20
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
August 27, May 28,
2000 2000
----------- --------
ASSETS (unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 17,701 $ 12,527
Trade accounts receivable, less allowance
(August 27, 2000 - $437; May 28, 2000 - $478) 21,067 21,319
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,340 1,525
Inventories:
Finished products 2,753 1,600
Work in process 10,807 10,174
Materials and supplies 6,802 9,436
-------- --------
20,362 21,210
Deferred income taxes 6,187 6,187
Prepaid expenses and other 1,616 1,442
-------- --------
TOTAL CURRENT ASSETS 68,273 64,210
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 1,479 1,479
Buildings and improvements 16,653 16,639
Machinery and equipment 40,170 39,470
Leasehold improvements 919 910
-------- --------
59,221 58,498
Less allowances for depreciation and amortization 36,199 35,342
-------- --------
23,022 23,156
Equipment in process of construction 3,672 3,110
-------- --------
26,694 26,266
INTANGIBLE AND OTHER ASSETS
Available for sale securities 10,207 6,806
Other investments 4,544 4,544
Excess of cost over net assets acquired, less accumulated
amortization (August 27, 2000 - $4,203; May 28, 2000 -
$3,866) 15,933 16,270
Other intangibles, less accumulated amortization
(August 27, 2000 - $1,087; May 28, 2000 - $663) 10,760 8,087
Other assets 1,614 1,794
-------- --------
TOTAL ASSETS $138,025 $127,977
======== ========
(Continued)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
August 27, May 28,
2000 2000
----------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 1,432 $ 1,428
Accounts payable 6,315 5,255
Salaries, wages and related items 2,489 2,988
Accrual for compensated absences 892 1,014
Customer advances and deposits 2,054 1,753
Product warranty reserve 2,095 2,059
Accrued income taxes 2,644 1,220
Other liabilities and accrued expenses 4,028 3,677
--------- ---------
TOTAL CURRENT LIABILITIES 21,949 19,394
LONG-TERM DEBT, less current portion 16,279 26,524
DEFERRED INCOME TAXES 4,822 3,596
SHAREHOLDERS' EQUITY
Common Stock, par value $.10 per share:
Authorized - 40,000,000 shares
Issued and outstanding (including shares in treasury):
August 27, 2000 - 15,208,775 shares;
May 28, 2000 - 14,425,981 shares 1,521 1,442
Additional paid-in capital 102,956 90,943
Notes receivable for executive stock purchases (1,666) (1,666)
Accumulated deficit (3,732) (6,159)
Accumulated other comprehensive income (loss) 1,717 (276)
--------- ---------
100,796 84,284
Less cost of Common Stock in treasury
August 27, 2000 - 661,282 shares;
May 28, 2000 - 661,282 shares; (5,821) (5,821)
--------- ---------
94,975 78,463
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 138,025 $ 127,977
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
August 27, August 29,
2000 1999
---------- ----------
<S> <C> <C>
Net sales $ 31,711 $ 26,838
Cost of products sold 18,906 17,028
Inventory written off in restructuring (recovery) (38)
-------- --------
18,868 17,028
-------- --------
Gross margin 12,843 9,810
Product research and development 1,562 1,587
Marketing, general and administrative 6,053 5,381
Amortization of intangible assets 761 341
-------- --------
8,376 7,309
-------- --------
Operating income 4,467 2,501
Interest and other income 261 284
Interest and other expense (776) (606)
Equity in net loss of unconsolidated affiliates (38)
-------- --------
Income before income taxes 3,952 2,141
Provision for income taxes 1,525 942
-------- --------
NET INCOME $ 2,427 $ 1,199
======== ========
Earnings per Common Share:
Basic $ 0.17 $ 0.09
======== ========
Diluted $ 0.16 $ 0.09
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
August 27, August 29,
2000 1999
--------- ----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 2,427 $ 1,199
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,770 1,353
Equity in net loss of unconsolidated affiliates 38
Non-cash compensation 45
(Gain) Loss on disposal of property, plant and equipment (14) 150
Premium on debt redemption 401
Change in operating assets and liabilities:
Decrease in accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts 437 3,739
Decrease in inventories and prepaid expenses and other 649 2,659
Increase in accounts payable and accrued expenses 2,764 1,922
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,479 11,060
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,425) (909)
Proceeds from the sale of property, plant and equipment 22
Purchases of other intangibles (1,000)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,403) (909)
FINANCING ACTIVITIES
Net proceeds from (repayments of) short term borrowings (4,850)
Proceeds from the exercise of stock options 431 160
Principal payments on long-term debt (1,151) (54)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (720) (4,744)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (182) (170)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 5,174 5,237
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,527 2,283
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,701 $ 7,520
======== ========
</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 August 27, 2000
and the results of operations and cash flows for the three-month periods ended
August 27, 2000 and August 29, 1999. The results for the three months ended
August 27, 2000 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 28, 2000, filed on Form 10-K on August 28, 2000.
Note B - Earnings Per Common Share
A summary of the shares used in the calculation of earnings per Common Share is
shown below:
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
August 27, 2000 August 29, 1999
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Income available to common stockholders $ 2,427 $ 1,199
Weighted average shares 14,170,704 12,748,457
Plus incremental shares from assumed conversions:
Convertible preferred stock 1,241,072
Stock options 1,122,581 100,938
--------- ---------
Dilutive potential common shares 1,122,581 1,342,010
------------- ----------
Adjusted weighted average shares 15,293,285 14,090,467
============= ==========
Earnings per common share:
Basic $ 0.17 $ 0.09
==========
=============
Diluted $ 0.16 $ 0.09
============= ==========
</TABLE>
7
<PAGE>
Diluted shares include the potential dilutive effect of outstanding
convertible preferred stock and stock options. Shares issuable upon conversion
of convertible subordinated debentures have been excluded from the calculation
as their effect would not be material.
Note C - Comprehensive Income
The Company's total comprehensive income was as follows:
(Dollars in Thousands)
Three Months Ended
---------------------------------
August 27, 2000 August 29, 1999
---------------- ---------------
Net income $ 2,427 $1,199
Other comprehensive income:
Unrealized gain on available-for-
sale securities, net of related taxes 2,178 59
Foreign currency translation (185) (170)
------------- --------------
Total comprehensive income $ 4,420 $ 1,088
============= ==============
Note D - New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 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 No. 133 has
subsequently been amended by SFAS No. 137, issued in June 1999, which delays the
effective date for implementation of SFAS No. 133 until fiscal quarters of
fiscal years beginning after June 15, 2000. Management is currently evaluating
the impact of SFAS No. 133 on the Company's consolidated financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company is required to adopt
SAB 101 in the quarter ended May 27, 2001. Management does not expect the
adoption of SAB 101 to have a material effect on the Company's financial
condition or results of operations.
8
<PAGE>
Note E - Segment and Related Information
The Company's individual business units have been aggregated into four
reportable segments: (1) Electromagnetics; (2) LTS Superconducting Materials;
and (3) Refrigeration, and (4) Energy Technology on the basis of similar
products, processes and economic circumstances, among other things. The
Electromagnetics Segment designs, manufactures and sells magnet systems and
radio frequency ("RF") coils used in MRI for medical diagnostics. The LTS
Superconducting Materials Segment manufactures and sells superconducting wire
principally for the construction of superconducting MRI magnet systems. The
Refrigeration Segment designs, develops, manufactures and sells refrigeration
equipment and refrigerants. The Energy Technology segment consists primarily of
the design and manufacture of High Temperature Superconductor ("HTS") material
and the development of devices used to transmit and distribute electric power
such as HTS transmission cables and power transformers. Through February 27,
2000, the activities of the Energy Technology Segment were included in the
Electromagnetics Segment. Segment data for prior periods have been adjusted to
conform with current period presentation.
Intersegment sales and transfers are accounted for as if the sales or
transfers were to third parties, that is, at current market prices. The Company
evaluates the performance of its reportable segments based on operating income
(loss).
9
<PAGE>
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
(Dollars in Thousands)
<TABLE>
<CAPTION> Three Months Ended
--------------------------------------------------------------------------
August 27, 2000
--------------------------------------------------------------------------
LTS Super-
Electro- conducting Energy
magnetics Materials Refrigeration Technology Total
--------- --------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net sales to external customers:
Magnet systems $16,747 $ 16,747
RF Coils 3,114 3,114
Superconductive wire $ 2,868 2,868
Refrigeration equipment $ 7,802 7,802
Refrigerants 922 922
Other $ 258 258
------- ------- ------ ------ --------
Total 19,861 2,868 8,724 258 31,711
Intersegment net sales 2,823 704 3,527
Segment operating profit (loss) 3,666 765 662 (626) 4,467
Total assets $91,858 $14,387 $26,942 $4,838 $138,025
</TABLE>
<TABLE>
<CAPTION>
August 29, 1999
--------------------------------------------------------------------------
LTS Super-
Electro- conducting Energy
magnetics Materials Refrigeration Technology Total
--------- --------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net sales to external customers:
Magnet systems $12,176 $ 12,176
RF Coils 2,873 2,873
Superconductive wire $ 2,508 2,508
Refrigeration equipment $ 6,983 6,983
Refrigerants 1,874 1,874
Other $ 424 424
------- ------- ------- ------ --------
Total 15,049 2,508 8,857 424 26,838
Intersegment net sales 2,893 526 3,419
Segment operating profit (loss) 1,886 1,145 (187) (343) 2,501
Total assets $76,621 $ 13,435 $32,152 $1,516 $123,724
</TABLE>
10
<PAGE>
The following are reconciliations of the information used by the chief operating
decision maker to the Company's consolidated totals:
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
August 27, 2000 August 29, 1999
--------------- ---------------
<S> <C> <C>
Reconciliation of income (loss) before income taxes:
Total profit from reportable segments $ 4,467 $ 2,501
Unallocated amounts:
Interest and other income 261 284
Interest and other expense (776) (606)
Equity in net loss of unconsolidated affiliates (38)
------- -------
Income before income taxes $ 3,952 $ 2,141
======= =======
</TABLE>
Note F - Restructuring
In February 2000, the Company decided to exit its refrigerant business,
a part of the Refrigeration Segment, over a 15 month period. As a result, the
Company recorded a restructuring charge of $2,000,000, including liabilities of
$191,000, comprised of the following:
(Dollars in Thousands)
Inventory write-down $1,770
Write-down of equipment 39
Severance costs 191
------
$2,000
======
Under the exit plan, the Company terminated all but two of its
employees. The plan involves continuing operations through a master distributor
while attempting to find a buyer for the business, and contemplates sales of
product through May 2001, at which time operations would cease. The Company paid
a total of $99,000 in payments of the severance costs during fiscal 2000, and an
additional $3,000 during the quarter ended August 27, 2000. The remaining
balance of the accrued severance liability at August 27, 2000 was approximately
$89,000.
11
<PAGE>
Note G - Convertible Subordinated Debentures
On July 12, 2000, $10,090,000 of the Company's 5.75% Convertible
Subordinated Debentures were converted into 728,187 shares of the Company's
Common Stock at $13.856 per share. The Company issued an additional 31,415
shares of the Company's Common Stock valued at approximately $614,000, or
$19.539 per share, which is included in interest expense.
On September 7, 2000, $8,765,000 of the Company's 5.75% Convertible
Subordinated Debentures were converted into 632,578 shares of the Company's
Common Stock at $13.856 per share. The Company issued an additional 48,900
shares of the Company's Common Stock valued at approximately $941,000, or $19.25
per share to induce early conversion and in lieu of all accrued interest
Note H - Patents
On June 30, 2000, the Company entered into a non-exclusive,
royalty-free agreement to license certain US and international patents and
pending patents related to superconducting materials and devices. In connection
with the agreement, the Company agreed to pay a lump sum fee payable in two
installments. Additionally, the Company granted the licensor warrants to
purchase 103,000 shares of the Company's Common Stock at a price of $19.36 per
share.
Note I - Retirement Plans
The Company has a non-contributory, defined benefit plan covering all
eligible employees. Benefits under the plan are based on years of service and
employees' career average compensation. The Company's funding policy is to
contribute annually an amount sufficient to meet or exceed the minimum funding
standard contained in the Internal Revenue Code. Contributions are intended to
provide not only for benefits attributable to service to date, but also for
those expected to be earned in the future. As of December 31, 1998, the Company
froze all pension benefits except for approximately 50 bargaining unit employees
at a subsidiary. In September 2000 the Company received approval from the
Internal Revenue Service to terminate the plan and has begun to take the
necessary steps to do so.
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 fiscal year 2001 and beyond to differ materially from those
expressed in such forward-looking statements. These important factors include,
without limitation, the 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.
Company Overview
Intermagnetics General Corporation ("we" or the "Company") operates in
four reportable operating segments: Electromagnetics, LTS Superconducting
Materials, Refrigeration and Energy Technology. The Electromagnetics segment
consists primarily of the manufacture and sale of magnets (by the IGC-Magnet
Business Group) and radio frequency coils (by IGC-Medical Advances, Inc), and
the LTS Superconducting Materials segment consists primarily of the manufacture
and sale of low-temperature superconducting wire and cable (by IGC-AS), all of
which are used mainly in Magnetic Resonance Imaging ("MRI") for medical
diagnostics. The majority of the Company's sales in these two segments are to US
and European customers. The Refrigeration segment consists of refrigeration
equipment produced by two subsidiaries, IGC- APD Cryogenics Inc. (IGC-APD) and
IGC - Polycold Systems Inc. (IGC-Polycold), and refrigerants which are sold by
another subsidiary, InterCool Energy Corporation (ICE). Refrigeration equipment
is used in the vacuum deposition industry, the semiconductor manufacturing
process, MRI, and in a variety of research applications. Refrigerants consist of
a family of environmentally friendly refrigerants designed to replace banned CFC
refrigerants. This business is being phased out pursuant to an exit plan adopted
in February 2000. Sales of this segment are primarily to US, Asian and European
customers. The Energy Technology segment consists primarily of the design and
manufacture of High Temperature Superconductor ("HTS") material and the
development of devices used to transmit and distribute electric power such as
HTS transmission cables and power transformers. Through the third quarter of
fiscal 2000, the activities of the Energy Technology segment were included in
the Electromagnetics segment. Segment data for prior years has been adjusted to
conform with current year presentation. The Company operates on a 52/53 week
fiscal year ending the last Sunday during the month of May.
13
<PAGE>
Results Of Operations
For the quarter ended August 27, 2000, sales increased by 18.2%, to
$31.7 million, from $26.8 million for the same period last year.
Sales of the Electromagnetics segment increased by $4.8 million, or
32%, due mainly to a substantial increase in magnet system sales resulting from
higher demand by the Company's major customer and additional volume resulting
from the purchase of our former joint venture's production rights. Additionally,
sales of RF coils increased by 8%, reversing a prior year decline.
Sales of LTS superconducting materials were up 14% over last year due
to increased demand from the segment's largest customer.
Sales of refrigeration equipment increased by 12% due to higher demand.
This was partially offset by a reduction in refrigerant sales as we pursue our
exit plan for this business.
During fiscal 2000, the Company increased its emphasis on developing
HTS for application to devices expected to improve electronic power transmission
and distribution. These devices are expected to include HTS power transmission
cables, transformers, and fault current controllers. In view of the expected
increased importance of these activities, the Company began reporting them as a
separate segment, Energy Technology. In prior years, this segment's activities
had been aggregated in the Electromagnetics segment. Prior year segment data
presented in Note E of Notes to Financial Statements has been reclassified to
conform with current year presentation. Sales of this segment declined by 40%
due to the Company's decision to de-emphasize first generation conductors as
well as a current year focus on readying the facility to produce second
generation conductors. The Company believes, in general, that first generation
conductors (consisting of ceramic components in a silver matrix) will be unable
to achieve cost and performance targets necessary to make devices produced with
this material economically feasible. Accordingly, we refocused our efforts on
conductors in which the superconducting components are deposited on a nickel
substrate. We believe the new focus will lead to an increase in sales in the
coming year. We are actively seeking additional strategic partners to assist in
the development and marketing of these products.
Gross margins increased to $12.8 million, or 40.5% of sales from $9.8
million, or 36.6% last year. The improvement was largely due to the substantial
increase in magnet sales in the Electromagnetics segment, as well as improved
margins in the Refrigeration segment resulting from operating improvements in
the refrigeration equipment portion of the segment.
14
<PAGE>
Marketing, general and administrative expenses increased by 13% in the
current fiscal year due primarily an increased level of activity in the Energy
Technology segment and an increase in consulting expenses.
Amortization of intangible assets increased in the current quarter due
to intangibles acquired in connection with the termination of the AISA joint
venture agreement.
Operating income increased substantially during the current quarter due
to the higher level of sales and improved gross margins.
Equity in net loss of unconsolidated affiliates in last year's first
quarter represented losses recognized from application of the equity method to
our investment in Kryotech, a maker of computer chip cooling devices. We used
the equity method only because our ownership interest exceeded 20% of Kryotech's
equity. Since last year, Kryotech raised additional capital through an offering,
and they expect to raise additional capital in the coming months. Our ownership
interest was diluted and, accordingly, we have ceased applying the equity method
to this investment.
Interest expense in the current quarter includes about $400,000 of
premium in connection with the early redemption of $10.1 million of our
convertible debentures.
Our effective tax rate was 38.6% in the current quarter compared with
44% last year. The reduction is largely due to higher benefit from our Foreign
Sales Corporation (FSC). The future of FSC is uncertain due to recently
introduced legislation and the United States' membership in the World Trade
Organization. Accordingly, we are unable to predict how long our tax rate will
remain at its present level.
Looking forward, we expect higher sales and earnings over the remainder
of fiscal 2001 based on expected continuation of increases in Electromagnetics
and Refrigeration segment sales. The Refrigeration segment attained
profitability during the fourth quarter of last year, and improved further in
the current quarter. We expect these improvements to continue. We also believe
that we will be able to continue and expand the gains in gross margins achieved
in fiscal 2000. We expect to devote a portion of this increase to internal
research and development efforts, particularly in the Energy Technology segment,
but we believe that earnings will continue to grow at a faster rate than sales.
These expectations are based on the following assumptions, among others:
o The market for MRI systems continues to grow;
o We are able to continue and expand the recovery in RF coil sales;
15
<PAGE>
o Current order trends for MRI magnets and refrigeration equipment
continue; and
o Reductions in production costs in all business segments continue.
Year 2000
Our Information Technology systems and facilities successfully
completed the transition to the year 2000 with no adverse or negative impacts
associated with the processing of date sensitive systems and equipment. We
continue to evaluate the year 2000 compliance of our business systems,
facilities and significant vendors, but we believe that the risk of significant
problems is small. We spent about $0.2 million on our total year 2000 readiness
activities which was expensed as incurred.
Liquidity and Capital Commitments
We generated nearly $8.5 million in cash from operating activities in
the current period, and increased our cash position by over $5 million. Total
cash and cash equivalents total nearly $18 million at the end of the quarter.
See the consolidated statement of cash flows, located elsewhere in this report,
for further details on sources and uses of cash.
During the current quarter, we entered into a non-exclusive license
agreement with respect to certain US and international patents related to HTS
materials and devices. In connection with the agreement, we agreed to pay a lump
sum fee, payable in two installments (one of which was paid during the first
quarter of fiscal 2001) and granted them warrants to purchase 103,000 shares of
our Common Stock at a price of $19.36 per share (shares and prices adjusted for
the stock dividend for holders of record August 4, 2000). The license is valid
for all fields of use and does not require us to pay an ongoing royalty.
Also in the quarter, $10,090,000 of our 5 3/4% convertible subordinated
debentures were converted into 728,187 shares of our Common Stock at $13.856 per
share. Additionally, we issued 31,415 shares of Common Stock valued at $19.539
per share to induce early conversion and in lieu of all accrued interest. The
shares and prices have been adjusted for the upcoming stock dividend. Virtually
all of the remaining debentures were converted shortly after the close of the
quarter.
Our capital and resource commitments at August 27, 2000 consisted of
capital equipment commitments of $800,000 and the $1 million due on the
previously mentioned license agreement.
We have a $27 million unsecured line of credit with two banks.
Borrowings under the line bear interest at the London Interbank Offered Rate
(LIBOR) plus 0.5% or prime less 0.5% at our option. The line was not in use
during the quarter. The line expires in November 2002.
16
<PAGE>
We believe we have adequate resources to meet our needs for the
short-term from our existing cash balances, our expected cash generation in the
current fiscal year, and our line of credit. Longer-term, with substantial
increases in sales volume and/or unusually large research and development or
capital expenditure requirements to pursue new opportunities in the Energy
Technology segment, we could need to raise additional funds. We would expect to
be able to do so through additional lines of credit, public offerings or private
placements. However, in the event funds were not available from these sources,
or on acceptable terms, we would expect to manage our growth within the
financing available.
Inflation has not had a material impact on our financial statements.
17
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk through derivative financial
instruments and other financial instruments, such as investments in short-term
marketable securities and long-term debt, is not material. The financial
instruments of the Company that are interest rate dependent are revenue bonds
issued in connection with the acquisition of certain land, building and
equipment, an unsecured line of credit and a mortgage payable. The Company
manages interest rates through various methods within contracts. For the revenue
bonds, the Company negotiated variable rates with the option to set fixed rates.
On its mortgage payable, the Company negotiated an "interest rate swap"
agreement that, in effect, fixes the rate at 6.88%. With respect to its
unsecured line of credit, the Company may elect to apply interest rates to
borrowings under the line which relate to either the London Interbank Offered
Rate or prime, whichever is most favorable. The Company's objective in managing
its exposure to changes in interest rates is to limit the impact of changing
rates on earnings and cash flow and to lower its borrowing costs.
The Company does not believe that its exposure to commodity and foreign
exchange risk are material.
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PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment agreement between Intermagnetics General
Corporation and Glenn H. Epstein effective June 1, 2000
10.2 Patent License Agreement dated June 30, 2000 between
Intermagnetics General Corporation and Lucent Technologies
GRL Corporation.
(b) Reports on Form 8K
None
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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: October 10, 2000 By: /s/ Glenn H. Epstein
-------------------------------------
Glenn H. Epstein
President and Chief Executive Officer
Dated: October 10, 2000 By: /s/ Michael C. Zeigler
-------------------------------------
Michael C. Zeigler
Senior Vice President, Finance
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