<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 28, 1999
-----------------
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 - 12,940,126 as of January 4, 2000.
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1: Financial Statements:
<S> <C>
Consolidated Balance Sheets - November 28, 1999 and May 30, 1999................................3
Consolidated Statements of Operations - Three Months and Six Months Ended
November 28, 1999 and November 29, 1998.......................................................5
Consolidated Statements of Cash Flows - Six Months Ended November 28, 1999
and November 29, 1998.........................................................................6
Notes to Consolidated Financial Statements......................................................7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................14
Item 3: Quantitative and Qualitative Disclosures About Market Risk.....................................17
PART II - OTHER INFORMATION.............................................................................18
SIGNATURES..............................................................................................23
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
November 28, May 30,
1999 1999
------------ --------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 11,696 $ 2,283
Trade accounts receivable, less allowance
(November 28,1999 - $489; May 30, 1999 - $401) 18,140 22,275
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,430 1,788
Inventories:
Finished products 1,042 1,106
Work in process 11,328 15,725
Materials and supplies 11,244 9,748
-------- --------
23,614 26,579
Income tax refund receivable 1,717
Deferred income taxes 4,069 4,069
Prepaid expenses and other 2,062 2,020
-------- --------
TOTAL CURRENT ASSETS 62,011 60,731
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 1,479 1,479
Buildings and improvements 16,659 16,639
Machinery and equipment 39,090 38,500
Leasehold improvements 1,071 649
-------- --------
58,299 57,267
Less allowances for depreciation and amortization 34,859 33,090
-------- --------
23,440 24,177
Equipment in process of construction 2,683 1,798
-------- --------
26,123 25,975
INTANGIBLE AND OTHER ASSETS
Available for sale securities 1,800 1,366
Other investments 5,904 5,904
Investment in affiliate 3,500 3,736
Notes receivable from employees 291 -
Excess of cost over net assets acquired, less accumulated
amortization (November 28, 1999- $3,192; May 30, 1999 - $2,518) 16,944 17,618
Other intangibles 8,750 8,750
Other assets 1,274 1,378
-------- --------
TOTAL ASSETS $126,597 $125,458
======== ========
(Continued)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
November 28, May 30,
1999 1999
------------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 323 $ 317
Borrowings under line of credit 4,850
Accounts payable 7,817 5,641
Salaries, wages and related items 3,407 3,025
Customer advances and deposits 1,936 2,065
Product warranty reserve 1,867 1,577
Accrued income taxes 371
Accrued termination payment 4,750 4,750
Accrual for affiliate financial guarantee 1,964 2,000
Other liabilities and accrued expenses 2,538 2,117
-------- --------
TOTAL CURRENT LIABILITIES 24,973 26,342
LONG-TERM DEBT, less current portion 26,518 26,631
DEFERRED INCOME TAXES 446 312
SHAREHOLDERS' EQUITY
Preferred Stock, par value $.10 per share:
Authorized - 2,000,000 shares
Issued and outstanding - 69,992 shares 6,999 6,999
Common Stock, par value $.10 per share:
Authorized - 40,000,000 shares
Issued and outstanding (including shares in treasury):
November 28, 1999 - 13,552,890 shares
May 30, 1999 - 13,523,822 shares 1,355 1,352
Additional paid-in capital 82,388 82,175
Accumulated deficit (5,359) (8,061)
Accumulated other comprehensive loss (457) (668)
-------- --------
84,926 81,797
Less cost of Common Stock in treasury
(November 28, 1999 - 1,267,890 shares; (10,266) (9,624)
-------- --------
May 30, 1999 -1,161,690 shares) 74,660 72,173
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $126,597 $125,458
======== ========
</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 Six Months Ended
----------------------------------- ----------------------------------
November 28, November 29, November 28, November 29,
1999 1998 1999 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $28,490 $25,963 $55,328 $52,457
Cost of products sold 18,298 16,630 35,326 33,343
Inventory written off in restructuring - Note F 1,554 1,554
------- ------- ------- -------
18,298 18,184 35,326 34,897
Gross margin 10,192 7,779 20,002 17,560
Product research and development 1,618 1,392 3,205 3,248
Marketing, general and administrative 5,201 5,683 10,582 11,154
Amortization of intangible assets 333 337 674 674
Restructuring charges - Note F 2,398 2,398
------- ------- ------- -------
7,152 9,810 14,461 17,474
------- ------- ------- -------
Operating income (loss) - Note F 3,040 (2,031) 5,541 86
Interest and other income 269 405 553 777
Interest and other expense (426) (630) (1,032) (1,157)
Equity in net loss of unconsolidated affiliates (198) (242) (236) (472)
------- ------- ------- -------
Income (loss) before income taxes 2,685 (2,498) 4,826 (766)
Provision for income taxes (benefit) 1,182 (1,049) 2,124 (322)
------- ------- ------- -------
NET INCOME (LOSS) $ 1,503 ($1,449) $ 2,702 ($444)
======= ======= ======= =======
Earnings (loss) per Common Share:
Basic $0.12 ($0.12) $0.22 ($0.04)
======= ======= ======= =======
Diluted $0.11 ($0.12) $0.20 ($0.04)
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
November 28, November 29,
1999 1998
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $2,702 ($444)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Non-cash restructuring charges 3,952
Depreciation and amortization 2,763 2,850
Equity in net loss of unconsolidated affiliates 236 472
Non-cash loss on disposal of assets 150
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts 3,493 (2,608)
Decrease in inventories and prepaid expenses and other 4,640 2,162
(Decrease) increase in accounts payable and accrued expenses 3,475 (748)
Change in foreign currency translation adjustments (86) 359
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,373 5,995
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,286) (1,572)
Loans to employees (291)
Purchases of other investments (1,112)
Investment in and advances to unconsolidated affiliates (614)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (2,577) (3,298)
FINANCING ACTIVITIES
Net proceeds from (repayments of) short term borrowings (4,850) 1,250
Purchases of Treasury Stock (642) (3,426)
Proceeds from sales of Common Stock 216 116
Principal payments on note payable and long-term debt (107) (80)
-------- -------
NET CASH USED IN FINANCING ACTIVITIES (5,383) (2,140)
-------- -------
INCREASE IN CASH AND SHORT-TERM INVESTMENTS 9,413 557
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 2,283 2,993
-------- -------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 11,696 $ 3,550
======== =======
</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 28, 1999
and the results of operations and cash flows for the six-month periods ended
November 28, 1999 and November 29, 1998. The results for the three months and
six months ended November 28, 1999 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 30, 1999, filed on Form 10-K on
August 30, 1999.
Note B - Earnings (Loss) Per Common Share
A summary of the shares used in the calculation of earnings (loss) per Common
Share is shown below:
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended
------------------------------------------------------------------
November 28, 1999 November 29, 1998
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Income (loss) available to common stockholders $ 1,503 ($ 1,449)
Weighted average shares 12,330,921 12,414,537
Plus incremental shares from assumed conversions:
Convertible preferred stock 1,035,609 -
Stock options 72,409 -
--------- ---------
Dilutive potential common shares 1,108,018
---------- -----------
Adjusted weighted average shares 13,438,939 12,414,537
========== ===========
Earnings (loss) per common share:
Basic $ 0.12 ($ 0.12)
========== ===========
Diluted $ 0.11 ($ 0.12)
========== ===========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts)
Six Months Ended
------------------------------------------------------------------
November 28, 1999 November 29, 1998
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Income (loss) available to common stockholders $ 2,702 ($ 444)
Weighted average shares 12,354,032 12,515,462
Plus incremental shares from assumed conversions:
Convertible preferred stock 1,035,609 -
Stock options 85,204 -
---------- -----------
Dilutive potential common shares 1,120,813
---------- ----------
Adjusted weighted average shares 13,474,845 12,515,462
========== ==========
Earnings (loss) per common share:
Basic $ 0.22 ($ 0.04)
========== ==========
Diluted $ 0.20 ($ 0.04)
========== ==========
</TABLE>
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 be antidilutive.
Note C - Comprehensive Income
The Company's total comprehensive income (loss) was as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
Nov 28, 1999 Nov 29, 1998 Nov 28, 1999 Nov 29, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $1,503 ($1,449) $2,702 ($ 444)
Other comprehensive income (loss):
Unrealized gain (loss) on available-
for-sale securities, net of
related taxes 241 (60) 300 (993)
Foreign currency translation 83 152 (87) 359
------ ------ ------ -------
Total comprehensive income (loss) $1,827 ($1,357) $2,915 ($1,078)
====== ======= ====== =======
</TABLE>
8
<PAGE>
Note D - New Accounting Pronouncements
During the quarter ended August 29, 1999, the Company adopted the
American Institute of Certified Public Accountants' 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. The adoption of SOP 98-1 did not
have a material effect on the Company's consolidated financial statements.
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.
Note E - Segment Information
The Company's individual business units have been aggregated into three
reportable segments: (1) Electromagnetics; (2) Superconducting Materials; and
(3) Refrigeration, 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 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.
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:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
(Dollars in Thousands) November 28, 1999
---------------------------------------------------------------------------------
Superconducting
Electromagnetics Materials Refrigeration Total
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Total segment sales $ 18,949 $ 5,093 $ 7,382 $ 31,424
Intersegment net sales (2,432) (502) (2,934)
---------------- ---------------- ---------------- ----------------
Net sales
to external customers 18,949 2,661 6,880 28,490
Segment operating income (loss) 3,111 605 (937) 2,779
Total assets $ 83,925 $ 13,260 $ 29,412 $ 126,597
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
November 29, 1998
---------------------------------------------------------------------------------
Superconducting
Electromagnetics Materials Refrigeration Total
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Total segment sales $ 14,506 $ 5,301 $ 8,522 $ 28,329
Intersegment net sales (1,836) (530) (2,366)
---------------- ---------------- ---------------- ----------------
Net sales
to external customers 14,506 3,465 7,992 25,963
Segment operating income (loss) (1,676) 773 (860) (1,763)
Non-cash item: Restructuring
charges included in segment
operating income (loss) 3,952 3,952
Total assets $ 76,444 $ 12,971 $ 34,992 $ 124,407
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------------------------------------------
(Dollars in Thousands) November 28, 1999
---------------------------------------------------------------------------------
Superconducting
Electromagnetics Materials Refrigeration Total
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Total segment sales $ 34,422 $ 10,494 $ 16,765 $ 61,681
Intersegment net sales (5,325) (1,028) (6,353)
---------------- ---------------- ---------------- ----------------
Net sales
to external customers 34,422 5,169 15,737 55,328
Segment operating income (loss) 4,645 1,503 (1,117) 5,040
Total assets $ 83,925 $ 13,260 $ 29,412 $ 126,597
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------------------------------------------
November 29, 1998
---------------------------------------------------------------------------------
Superconducting
Electromagnetics Materials Refrigeration Total
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Total segment sales $ 29,794 $ 9,231 $ 17,542 $ 56,567
Intersegment net sales (2,946) (1,164) (4,110)
---------------- ---------------- ---------------- ----------------
Net sales
to external customers 29,794 6,285 16,378 52,457
Segment operating income (loss) 1,056 1,099 (1,162) 993
Non-cash charges 3,952 3,952
Total assets $ 76,444 $ 12,971 $ 34,992 $ 124,407
</TABLE>
The following are reconciliations of the information used by the chief operating
decision maker to the Company's consolidated totals:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
November 28, 1999 November 29, 1998
------------------- -------------------
<S> <C> <C>
Reconciliation of income before income taxes:
Total operating income (loss) from reportable
segments $ 2,779 $ (1,763)
Net intersegment adjustments and eliminations 261 (268)
----------------- -----------------
Operating income 3,040 (2,031)
Unallocated amounts:
Interest and other income 269 405
Interest and other expense (426) (630)
Equity in net loss of unconsolidated affiliates (198) (242)
----------------- -----------------
Income (loss) before income taxes $ 2,685 $ (2,498)
================= =================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------------
November 28, 1999 November 29, 1998
------------------- -------------------
Reconciliation of income before income taxes:
<S> <C> <C>
Total operating income from reportable segments $ 5,040 $ 993
Net intersegment adjustments and eliminations 501 (907)
----------------- -----------------
Operating income 5,541 86
Unallocated amounts:
Interest and other income 553 777
Interest and other expense (1,032) (1,157)
Equity in net loss of unconsolidated affiliates (236) (472)
----------------- -----------------
Income (loss) before income taxes $ 4,826 $ (766)
================= =================
</TABLE>
11
<PAGE>
Note F - Restructuring
In October, 1998, 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 $4,739,000 ($3,952,000 in November 1998 and $787,000 in May 1999),
including liabilities recorded of $1,277,000 ($922,000 in November 1998 and
$355,000 in May 1999), comprised of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C> <C>
Inventory write-down included in cost of products sold $ 1,820
Restructuring charges:
Write-down of equipment to fair value $ 1,267
Write-off of accounts receivable and other assets 375 1,642
-------------
Liabilities for:
Severance and lease obligations 722
Other 555 1,277
------------- ------------
2,919
------------
Total $ 4,739
============
</TABLE>
The Company vacated the premises 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. All
inventory and equipment will be sold or otherwise disposed of by the end of
February 2000.
The Company made a total of $113,000 in payments on liabilities recorded
in the restructuring during the first half of fiscal 2000, as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Balance as of Balance as of
May 30, 1999 Payments November 28, 1999
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Lease obligation $ 405 $ 113 $ 292
Product liability 304 304
----------------- ------------------ ------------------
Total $ 709 $ 113 $ 596
================= ================== ==================
</TABLE>
12
<PAGE>
Note G - Subsequent Events
In December 1999 the Company paid $874,000 against a total loan
guarantee of $1,964,000 on behalf of SMIS a UK company in which the Company had
an investment. The full amount of the guarantee was included in the write off of
the investmenst in May 1999. SMIS is in receivership and at the present time,
the best estimate based on currently available data is that the Company will
have to pay no more than the remaining balance under the guarantee.
In addition, on November 30, 1999, the Company elected to redeem
$2,873,616 of the Series A Preferred Stock and made an initial payment of
$682,000 in cash and issued $2,191,616 of notes payable for the balance. The
notes bear interest at the three month LIBOR rate. One half of the notes are
payable in June 2000 and the balance in June 2001. On December 1, 1999 the
remaining $4,265,568 of the Series A Preferred Stock was automatically
converted into 618,763 shares of Common Stock at $6.8937 per share.
13
<PAGE>
INTERMAGNETICS GENERAL CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
The statements contained in this report that are not historical fact
are "forward-looking statements" that involve various important assumptions,
risks, uncertainties and other factors that could cause the Company's actual
results for fiscal 2000 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, particularly the most
recent annual report on Form 10-K, including but not limited to the Company's
ability to successfully increase its production capacity for MRI magnets and
expand product sales from, and continue manufacturing improvements at, IGC-APD
as well as continued strength and expansion in its core wire and MRI magnet
markets.
Information for the prior fiscal year has been restated to conform to
the current year's presentation to show the separation of Superconducting
Materials from Electromagnetic Products (formerly Magnetic Products). The
Segment Discussion reflects results before intersegment eliminations.
Consolidated
- ------------
Net sales increased in the first half and second quarter of fiscal
2000, compared to the same periods of fiscal 1999, due to increased sales in the
Electromagnetics Segment, which was somewhat offset by lower sales in the
Superconducting Materials and Refrigeration Segments. Gross margin rates
increased in the current periods even with a less favorable product mix and
continued reductions in selling prices (due to competitive pressures), because
the prior year was adversely affected by a $1,554,000 write-off of inventory
associated with the closing of the Company's Field Effects division. Without
this restructuring charge in fiscal 1999, gross margin rates would have remained
fairly consistent.
Internal research and development expenses were higher in the current
quarter compared to the second quarter of fiscal 1999, with most of the
increases occurring in the Refrigeration Segment for improved and more
cost-effective cryogenic products. For the first half these expenses were lower
due to the termination of the Field Effects division in November 1998.
Marketing, general and administrative expenses, as a percentage of net sales,
decreased slightly due mainly to reductions of personnel and marketing expenses
in the Refrigeration Segment and the closing of Field Effects.
14
<PAGE>
Operating income was substantially higher in the second quarter and
first half of fiscal 2000 compared to fiscal 1999, principally due to increased
sales and improved gross margins, as well as reductions in operating expenses
that were the result of the termination of the Field Effects division and other
cost reduction programs. Operating income was adversely affected in the prior
year when the Company recorded a total charge of $3,952,000 relating to costs
and expenses associated with the closing of the Field Effects division.
Segment Discussion
- ------------------
Electromagnetics Segment - Net sales in this segment increased
approximately 31% and 16%, respectively, in the second quarter and first half of
fiscal 2000 compared to the same periods in fiscal 1999 due to increased sales
of magnets formerly supplied by the European joint venture. Gross margins
declined due to continued declines in selling prices and an unfavorable sales
mix with gross margin rates declining for all product lines. Operating income
was higher in the second quarter due to increased sales, but lower in the first
half due to lower gross margins and higher operating expenses.
Superconducting Materials Segment - Total segment sales increased
approximately 14% in the first half of fiscal 2000 due to increased demand, in
particular, intersegment demand, but declined slightly in the second quarter.
Gross margin rates were unchanged for the first half but declined slightly in
the second quarter. Operating income increased for the first half, but declined
slightly in the second quarter due to lower sales and gross margins compared to
the same periods in fiscal 1999.
Refrigeration Segment - Total segment sales declined approximately 13%
and 4%, respectively, during the second quarter and first half of fiscal 2000
due to reduced demand for cryogenic products. Gross margin rates were
essentially unchanged for both periods. Substantially reduced selling, general
and administrative expenses (which were somewhat moderated by higher product
research and development) resulted in a slight decline in the segment's
operating loss for the first half of fiscal 2000 and the reduced sales in the
second quarter resulted in a small increase in the segments operating loss for
that period when compared to fiscal 1999.
Year 2000 Disclosure
- --------------------
The Company's information technology systems and facilities
successfully completed the "roll-over" to the year 2000. The Company's
transition to the year 2000 during the first week of business in January 2000
resulted in no adverse or negative impacts associated with the use of date
sensitive systems and equipment. The Company believes that with its successful
transition to the year 2000, the preponderance of the risk associated with the
year 2000 problem has been identified and eliminated. The Company recognizes the
15
<PAGE>
possibility that latent year 2000 related issues may arise as information
technology systems and facilities are more fully utilized in the coming months.
The Company will continue to evaluate the year 2000 readiness of its business
systems, facilities, and significant vendors to ensure a complete transition
through the year 2000. The Company estimates the total cost of its year 2000
assessment and remediation plan has amounted to approximately $2.2 million,
which has been funded through operating cash flows. Included in this amount is
approximately $2 million for the implementation of an integrated business
system, which was capitalized because its purchase and implementation were
primarily related to increases in system functionality.
Liquidity and Capital Commitments
- ---------------------------------
During the first half of fiscal 2000, the Company generated cash of
$17,373,000 from operating activities. This was accomplished through higher
earnings, substantial improvements in accounts receivable and inventories, and
higher accounts payable. The cash generated was principally used to purchase
$2,286,000 of machinery and equipment, repay short-term bank borrowings of
$4,850,000, repurchase $642,000 of treasury stock, and increase cash balances.
The Company's capital resource commitments as of November 28, 1999
consist principally of capital equipment commitments of approximately
$1,900,000, a loan guarantee of approximately $1,964,000 (of which $874,000 was
paid in December 1999) and $4,750,000 due before March 31, 2000 for the purchase
of rights from the Company's former European joint venture. In addition, on
November 30, 1999, the Company elected to redeem $2,873,616 of the Series A
Preferred Stock and made an initial payment of $682,000 in cash and issued
$2,191,616 of short-term notes for the balance. On December 1, 1999 the
remaining $4,265,568 of the Series A Preferred Stock was automatically converted
into 618,763 shares of Common Stock at $6.8937 per share. The Company has an
unsecured line of credit of $25,000,000 that expires in November 2000, of which
none was in use on November 28, 1999. 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>
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.
17
<PAGE>
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The November 1999 Annual Meeting of Shareholders of the Company was
held on November 9, 1999.
(c)(i) At the Annual Meeting the shareholders of the Company approved an
amendment to increase the number of shares of Common Stock of the
Company available under the Company's 1990 Stock Option Plan by
250,000 shares. The vote was 9,078,607 FOR; 1,784,330 AGAINST;
81,741 ABSTAIN; and 3 BROKER NON-VOTES.
(c)(ii) At the Annual Meeting, the Shareholders of the Company elected to
the Board of Directors all four nominees for director with the
following vote:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
BROKER
DIRECTOR FOR AGAINST ABSTAIN NON-VOTES
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph C. Abeles 9,828,108 1,116,573 -- --
- -------------------------------------------------------------------------------------------------------------
Thomas L. Kempner 9,661,527 1,183,154 -- --
- -------------------------------------------------------------------------------------------------------------
Stuart A. Shikiar 9,838,157 1,106,524 -- --
- -------------------------------------------------------------------------------------------------------------
Sheldon Weinig 9,762,167 1,182,514 -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Material Contracts
10.1 Change In Control Agreement between Intermagnetics
General Corporation and Michael C. Zeigler, dated August
13, 1999.
18
<PAGE>
INTERMAGNETICS-ZEIGLER
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is made as of the 13th day of August, 1999, by and
between Intermagnetics General Corporation, a New York corporation (the
"Company") and Michael C. Zeigler ("Executive").
WHEREAS, Executive has served as the Company's Senior Vice President of
Finance and Chief Financial Officer since September, 1993; and
WHEREAS, the Company desires to provide certain compensation to
Executive in the event of an Extraordinary Termination, as that term is defined
in this Agreement; and
WHEREAS, the Company and Executive acknowledge that they do not
otherwise intend to change the status of their relationship, which is at will
and which either party is free to terminate at any time;
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Definitions
(a) "Control Transaction" means a change in control of the company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934 (the "Exchange Act"), as in effect on the date of this Agreement, in a Form
8-K filed under the Exchange Act or in any other filing by the Company with the
Securities and Exchange Commission, provided that, without limitation, such a
Control Transaction shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing thirty percent (30%) or more
of the voting power of the then outstanding securities of the Company;
(ii) during any period of two consecutive calendar years there
is a change of twenty-five percent (25%) or more in the composition of
the Board of Directors of the Company in office at the beginning of the
period except for changes approved by at least two-thirds of the
directors then in office who were directors at the beginning of the
period.
(b) "Extraordinary Termination" means
(i) termination by the Company of the employment of Executive
with the Company for any reason other than for Cause (as defined
below), within three years after a Control Transaction, or
(ii) resignation of Executive upon the occurrence of any of
the following events within two years after a Control Transaction:
(1) an assignment to Executive of any duties
inconsistent with, or a significant change in the nature or
scope of Executive's authority or duties from, those held by
Executive immediately prior to the Control Transaction;
(2) a reduction in Executive's annual salary or bonus
program in effect immediately prior to the Control
Transaction;
(3) the relocation of Executive's place of employment
to a location outside of the 48 contiguous states of the
United States;
19
<PAGE>
(4) the failure by the Company to provide Executive
with a reasonable number of paid personal leave days at least
equal to the number of paid personal leave days to which he
was entitled in the last full calendar year prior to the
Control Transaction;
(5) the failure of the Company to provide Executive
with substantially the same fringe benefits that were provided
to him immediately prior to the Control Transaction, or with a
package of fringe benefits that, though one or more of such
benefits may vary from those in effect immediately prior to
the Control Transaction, is substantially at least as
beneficial to Executive in all material respects to such
fringe benefits taken as a whole; or
(6) the failure of the Company to obtain the express
written assumption of and agreement to perform this Agreement
by any successor as and to the extent required by Section 4 of
this Agreement.
(c) "Cause" means (i) Executive's willful or gross neglect of his
material duties and responsibilities as an employee and officer of the Company;
provided that Executive has received written notice of such neglect from the
President and Chief Executive Officer, has had an opportunity to respond to the
notice, and has failed substantially to cure such neglect within thirty (30)
calendar days of such notice; (ii) conviction of (or his plea of guilty or nolo
contendere to) any felony or any crime involving moral turpitude; or (iii)
fraud, gross misconduct, breach of trust or other act of dishonesty materially
and negatively affecting the Company's business; provided that Executive has
received written notice of such event from the President and Chief Executive
Officer and has had an opportunity to respond to the notice.
2. Termination Payments
(a) In the event of an Extraordinary Termination during the term of
this Agreement, the Company shall, in addition to any amounts due for periods
prior to the Extraordinary Termination, if any, pay to Executive in cash within
sixty (60) days after the Extraordinary Termination an amount equal to the sum
of:
(i) the greater of
(1) Executive's annual salary at the time of the Control
Transaction, or
(2) Executive's annual salary immediately prior to the
Extraordinary Termination; plus
(ii) payment in lieu of all unused paid personal leave.
(b) Executive may elect to defer the payment of all or part of the
amount to be paid to him under subsection (a) for up to twelve months after the
Extraordinary Termination, or to have all or part of such amount paid to him in
installments over a period not to exceed twelve months after the Extraordinary
Termination.
3. Withholding of Taxes
The Company may withhold from any payments under this Agreement all
federal, state or local taxes and FICA taxes as shall be required pursuant to
any law, regulation or ruling.
20
<PAGE>
4. Successor Company
The Company shall require any successor or successors (whether direct or
indirect, by purchase, merger, consolidation or otherwise, and whether in one
transaction or a series of transactions) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement.
5. Governing Law
This Agreement shall be governed by and interpreted under the laws of the
State of New York without giving effect to any conflict of law provisions.
6. Resolution of Disputes
In the event a dispute exists between the parties concerning any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, the parties shall first attempt to resolve such dispute through
mediation under the auspices of JAMS/Endispute in Albany, New York in accordance
with the rules of JAMS/Endispute. The mediation shall be before one (1) mediator
from the existing panel of employment law mediators maintained by
JAMS/Endispute. If mediation is unsuccessful in resolving the dispute the matter
shall be referred to arbitration by an agreed-upon arbitrator selected from the
panel of JAMS/Endispute's arbitrators specializing in employment law which shall
not include the mediator who attempted to mediate the dispute. In the event the
parties are unable to agree upon either a mediator or an arbitrator from the
respective JAMS/Endispute panel, either party may petition the Supreme Court,
County of Albany of the State of New York, for appointment of the mediator or
arbitrator from the JAMS/Endispute panel. The arbitrator shall not have the
authority to add to, subtract from or in any way modify the express written
terms of the Agreement, and in rendering an award, the arbitrator shall be
required to adhere to the express written provisions of this Agreement and the
intention of the parties appearing therefrom. The mediation agreement or the
decision of the arbitrator, as the case may be, shall be final and binding on
the parties and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The costs for the mediation
and/or arbitration shall be borne equally by both parties.
In the event that JAMS/Endispute no longer operates in the State of New
York at the time a dispute arises under this agreement, its name shall be
deleted in every place used in the above paragraph and replaced with the
American Arbitration Association.
In the event a mediation or arbitration is initiated by either party to
enforce the provisions of this Agreement, the prevailing party, if any, as
determined by the mediator or arbitrator, shall be entitled to recover
reasonable costs, expenses and attorneys' fees from the other party.
7. Not an Employment Contract
The Company and Executive acknowledge that this Agreement is not a
contract for employment, that Executive's employment with the Company remains at
will, and that either party is free to terminate that relationship at any time.
8. Entire Agreement
This Agreement supersedes all prior agreements and sets forth the entire
understanding between the parties with respect to its subject matter. This
Agreement cannot be changed, modified or terminated except upon written
amendment signed by Executive and a duly authorized representative of the
Company.
21
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
ATTEST INTERMAGNETICS GENERAL CORPORATION
/s/ Catherine E. Arduini /s/ Glenn H. Epstein
- --------------------------- -------------------------
Glenn H. Epstein
President and Chief Executive Officer
Witness MICHAEL C. ZEIGLER
/s/ Audrey Maynard /s/ Michael C. Zeigler
- --------------------------- -------------------------
(b) Reports on Form 8-K
None filed during the quarter ended November 28, 1999.
22
<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 11, 2000 By: /s/ Glenn H. Epstein
-------------------------------------
Glenn H. Epstein
President and Chief Executive Officer
Dated: January 11, 2000 By: /s/ Michael C. Zeigler
-------------------------------------
Michael C. Zeigler
Senior Vice President, Finance
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-28-2000
<PERIOD-END> NOV-28-1999
<CASH> 11,696
<SECURITIES> 0
<RECEIVABLES> 18,629
<ALLOWANCES> 489
<INVENTORY> 23,614
<CURRENT-ASSETS> 62,011
<PP&E> 60,982
<DEPRECIATION> 34,859
<TOTAL-ASSETS> 126,597
<CURRENT-LIABILITIES> 24,973
<BONDS> 26,518
0
6,999
<COMMON> 1,355
<OTHER-SE> 66,306
<TOTAL-LIABILITY-AND-EQUITY> 126,597
<SALES> 55,328
<TOTAL-REVENUES> 55,881
<CGS> 35,326
<TOTAL-COSTS> 35,326
<OTHER-EXPENSES> 14,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,032
<INCOME-PRETAX> 4,826
<INCOME-TAX> 2,124
<INCOME-CONTINUING> 2,702
<DISCONTINUED> 0
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