-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KEr8mguMDqo+1+4MJYHMMy5823i0BZXLgJNOe5IpOIEeNgBdv2dj86N6klxjx//O p3cB3VEv208COq03dWaONw== 0000950116-02-000679.txt : 20020416 0000950116-02-000679.hdr.sgml : 20020416 ACCESSION NUMBER: 0000950116-02-000679 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020224 FILED AS OF DATE: 20020410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERMAGNETICS GENERAL CORP CENTRAL INDEX KEY: 0000351012 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 141537454 STATE OF INCORPORATION: NY FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11344 FILM NUMBER: 02607575 BUSINESS ADDRESS: STREET 1: 450 OLD NISKAYUNA RD STREET 2: PO BOX 461 CITY: LATHAM STATE: NY ZIP: 12110-0461 BUSINESS PHONE: 5187821122 MAIL ADDRESS: STREET 1: 450 OLD NISKAYUNA ROAD STREET 2: PO BOX 461 CITY: LATHAM STATE: NY ZIP: 12110-0461 10-Q 1 tenq.txt 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 24, 2002 ----------------- 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 - 16,565,589 as of March 29, 2002. INTERMAGNETICS GENERAL CORPORATION CONTENTS
PART I - FINANCIAL INFORMATION Item 1: Financial Statements: Consolidated Balance Sheets - February 24, 2002 and May 27, 2001................................3 Consolidated Income Statements - Three Months and Nine Months Ended February 24, 2002 and February 25, 2001.......................................................5 Consolidated Statements of Cash Flows - Nine Months Ended February 24, 2002 and February 25, 2001.......................................................6 Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income - Nine Months Ended February 24, 2002 ..........................................................7 Notes to Consolidated Financial Statements......................................................8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................17 Item 3: Quantitative and Qualitative Disclosures About Market Risk.....................................23 PART II - OTHER INFORMATION.............................................................................24 SIGNATURES..............................................................................................25
CONSOLIDATED BALANCE SHEETS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands, Except Per Share Amounts)
February 24, May 27, 2002 2001 ------------ -------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 69,173 $ 27,675 Trade accounts receivable, less allowance (February 24, 2002 - $285; May 27, 2001 - $496) 21,037 21,615 Costs and estimated earnings in excess of billings on uncompleted contracts 407 642 Inventories: Consigned products 3,059 7,176 Finished products 1,133 2,142 Work in process 9,037 12,768 Materials and supplies 8,440 12,337 -------- -------- 21,669 34,423 Deferred income taxes 3,362 3,362 Prepaid expenses and other 1,666 1,228 -------- -------- TOTAL CURRENT ASSETS 117,314 88,945 PROPERTY, PLANT AND EQUIPMENT Land and improvements 1,128 1,479 Buildings and improvements 12,172 18,243 Machinery and equipment 31,329 41,604 Leasehold improvements 792 923 -------- -------- 45,421 62,249 Less allowances for depreciation and amortization 23,269 37,787 -------- -------- 22,152 24,462 Equipment in process of construction 5,647 2,801 -------- -------- 27,799 27,263 INTANGIBLE AND OTHER ASSETS Available for sale securities 3,377 6,145 Other investments 3,500 Goodwill 13,750 13,750 Other intangibles, less accumulated amortization (February 24, 2002- $5,141; May 27, 2001 - $3,765) 9,237 10,890 Note receivable 3,836 Other assets 1,665 1,665 -------- -------- TOTAL ASSETS $176,978 $152,158 ======== ========
3 CONSOLIDATED BALANCE SHEETS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands, Except Per Share Amounts)
February 24, May 27, 2002 2001 --------- --------- LIABILITIES AND SHAREHOLDERS EQUITY (Unaudited) CURRENT LIABILITIES Current portion of long-term debt $ 263 $ 2,445 Accounts payable 12,709 10,749 Salaries, wages and related items 6,834 6,840 Customer advances and deposits 1,323 2,054 Product warranty reserve 1,229 1,474 Accrued income taxes 5,671 2,143 Other liabilities and accrued expenses 2,106 2,870 --------- --------- TOTAL CURRENT LIABILITIES 30,135 28,575 LONG-TERM DEBT, less current portion 4,740 6,185 DEFERRED INCOME TAXES 2,383 2,383 DERIVATIVE LIABILITY 296 SHAREHOLDERS' EQUITY Preferred Stock, par value $.10 per share: Authorized - 2,000,000 shares Issued and outstanding - None Common Stock, par value $.10 per share: Authorized - 40,000,000 shares Issued and outstanding (including shares in treasury): February 24, 2002 - 17,144,473 shares; May 27, 2001 - 16,693,997 shares; 1,714 1,671 Additional paid-in capital 132,539 127,303 Notes receivable from employees (1,174) (1,501) Retained earnings (deficit) 12,555 (4,590) Accumulated other comprehensive loss (389) (2,047) --------- --------- 145,245 120,836 Less cost of Common Stock in treasury February 24, 2002 and May 27, 2001 - 661,282 shares (5,821) (5,821) --------- --------- 139,424 115,015 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 176,978 $ 152,158 ========= =========
See notes to consolidated financial statements. 4 CONSOLIDATED INCOME STATEMENTS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Three Months Ended Nine Months Ended ------------------------------ ----------------------------- February 24, February 25, February 24, February 25, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net sales $ 37,201 $ 34,297 $ 116,260 $ 98,433 Cost of products sold 22,582 20,196 68,368 57,706 Recovery of inventory written off in restructuring (13) (1,361) --------- --------- --------- ---------- 22,582 20,183 68,368 56,345 --------- --------- --------- ---------- Gross margin 14,619 14,114 47,892 42,088 Product research and development 3,278 2,684 10,985 5,931 Marketing, general and administrative 6,683 6,156 20,338 19,273 Amortization of intangible assets 488 773 1,501 2,308 --------- --------- --------- ---------- 10,449 9,613 32,824 27,512 --------- --------- --------- ---------- Operating income 4,170 4,501 15,068 14,576 Interest and other income 343 381 1,399 961 Interest and other expense (201) (175) (508) (1,765) Gain on sale of divisions 10 15,385 Write down of investments (6,290) Realized gain on available for sale securities 230 230 --------- --------- --------- ---------- Income before income taxes 4,552 4,707 25,284 13,772 Provision for income taxes 1,434 1,817 8,139 5,316 --------- --------- --------- ---------- NET INCOME $ 3,118 $ 2,890 $ 17,145 $ 8,456 ========= ========= ========= ========== Net Income per Common Share: Basic $ 0.19 $ 0.18 $ 1.05 $ 0.56 ========= ========= ========= ========== Diluted $ 0.18 $ 0.17 $ 0.99 $ 0.51 ========= ========= ========= ==========
See notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands) (Unaudited)
Nine Months Ended ------------------------------- February 24, February 25, 2002 2001 ------------ ------------ OPERATING ACTIVITIES Net income $ 17,145 $ 8,456 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,315 5,349 Gain on sale of divisions (15,385) Write down of investments 6,290 Realized gain on available for sale securities (230) Stock based compensation 465 367 Proceeds from sale of assets 1,812 Loss on disposal of assets 127 122 Change in discount on note receivable (32) Premium on debt conversion 1,037 Change in operating assets and liabilities (excluding changes resulting from sale of divisions): (Increase) decrease in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (1,987) 2,417 (Increase) in inventories and prepaid expenses and other (2,965) (9,122) Increase in accounts payable and accrued expenses 2,267 7,182 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,010 17,620 INVESTING ACTIVITIES Purchases of property, plant and equipment (10,004) (3,565) Proceeds from the sale of property, plant and equipment 42 Proceeds from sale of divisions 39,002 Proceeds from available for sale securities 1,300 Purchase of other intangibles (1,000) -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 30,298 (4,523) FINANCING ACTIVITIES Proceeds from sale of Common Stock 3,336 2,041 Repayments of note receivable from employees 327 Principal payments on note payable and long-term debt (2,377) (1,367) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,286 674 EFFECT OF EXCHANGE RATE CHANGES ON CASH (96) (64) -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 41,498 13,707 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 27,675 12,527 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 69,173 $ 26,234 ======== ========
See notes to consolidated financial statements. 6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME INTERMAGNETICS GENERAL CORPORATION Nine months ended February 24, 2002 (Dollars in Thousands) (Unaudited)
Accumulated Other Notes Additional Retained Compre- Receivable Compre- Common Paid-in Earnings hensive Treasury from hensive Stock Capital (Deficit) Income (Loss) Stock Employees Income ------ ---------- -------- -------------- -------- ---------- ------- Balances at May 27, 2001 $ 1,671 $ 127,303 $ (4,590) $ (2,047) $(5,821) $ (1,501) Comprehensive income: Net Income 3,640 3,640 Unrealized loss on available for sale securities, net (111) (111) Unrealizd loss on foreign currency translation (497) (497) Loss on derivative (104) (104) Transitional adjustment - on derivatives (128) (128) ------- Total comprehensive income $ 2,800 ======= Net repayments 147 Issuance of 137,855 shares of Common Stock, including exercise of stock options and sale of 1,648 shares to IGC Savings Trust 12 921 ------- --------- -------- --------- -------- ------- Balances at August 26, 2001 $ 1,683 $ 128,224 $ (950) $ (2,887) $ (5,821) $(1,354) ------- --------- -------- --------- -------- ------- Comprehensive income: Net Income 10,387 10,387 Reclassification adjustments - write down of investments 1,583 1,583 Unrealized gain on foreign currency translation 333 333 Loss on derivative (78) (78) ------- Total comprehensive income $12,225 ======= Repayments of note receivable from employees 110 Stock based compensation 987 Issuance of 185,479 shares of Common Stock, including exercise of stock options and sale of 6,025 shares to IGC Savings Trust 19 1,668 Stock dividend adjustment of (121) shares and payments for fractional shares (18) ------- --------- -------- --------- -------- ------- Balances at November 25, 2001 $ 1,702 $ 130,861 $ 9,437 $ (1,049) $ (5,821) $(1,244) ------- --------- -------- --------- -------- ------- Comprehensive income: Net Income 3,118 3,118 Unrealized loss on available for sale securities, net (94) (94) Reclassification adjustments - foreign currency translation 1,051 1,051 Reclassification adjustments - available for sale securities (311) (311) Gain on derivative 14 14 ------- Total comprehensive income $ 3,778 ======= Repayments of note receivable from employees 70 Stock based compensation 941 Issuance of 127,263 shares of Common Stock, related to exercise of stock options 12 737 ------- --------- -------- --------- -------- ------- Balances at February 24, 2002 $ 1,714 $ 132,539 $ 12,555 $ (389) $ (5,821) $(1,174) ======= ========= ======== ========= ======== =======
See notes to consolidated financial statements 7 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 Company's financial position at February 24, 2002 and the results of its operations, cash flows and changes in shareholders' equity for the periods presented. The results for the nine months ended February 24, 2002 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 27, 2001, filed on Form 10-K on August 27, 2001. It is the Company's policy to reclassify prior year consolidated financial statements to conform to current year presentation. Note B - Earnings Per Common Share A summary of the shares used in the calculation of net income per Common Share is shown below: (Dollars in Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended ------------------------------ ------------------------------- Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Income available to common stockholders $ 3,118 $ 2,890 $ 17,145 $ 8,456 Weighted average shares 16,425,850 15,689,371 16,253,071 15,220,576 Dilutive potential common shares: Warrants 23,937 7,191 33,457 4,093 Stock options 976,119 1,290,879 1,044,710 1,264,475 ----------- ----------- ----------- ----------- Adjusted weighted average shares 17,425,906 16,987,441 17,331,238 16,489,144 =========== =========== =========== =========== Net income per common share: Basic $ 0.19 $ 0.18 $ 1.05 $ 0.56 =========== =========== =========== =========== Diluted $ 0.18 $ 0.17 $ 0.99 $ 0.51 =========== =========== =========== ===========
8 Note C - Segment and Related Information The Company operates in three reportable segments: Magnetic Resonance Imaging (MRI), Instrumentation, and Energy Technology. The MRI 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.), which are used principally in the medical diagnostic imaging market. Until October 25, 2001 this segment also included the manufacture and sale of low-temperature superconducting wire (by IGC-Advanced Superconductors, also known as IGC-AS). The Company sold substantially all of the assets of IGC-AS on October 25, 2001. The Instrumentation segment consists of the manufacture and sale of refrigeration equipment (by IGC-Polycold Systems Inc.), used primarily in ultra-high vacuum applications, industrial coatings, analytical instrumentation, medical diagnostics and semiconductor processing and testing. This segment also included IGC-APD Cryogenics Inc., which also manufactured and sold refrigeration equipment. On February 5, 2002 the Company sold the helium portion of this subsidiary and transferred the mixed-gas portion of the business to IGC-Polycold, Inc. (see Note F). The Energy Technology segment, operated through IGC-SuperPower LLC, is developing second generation, high-temperature superconducting (HTS) materials that we expect to use in devices designed to enhance capacity, reliability and quality of transmission and distribution of electrical power. 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 Summarized financial information concerning the Company's reportable segments is shown in the following table:
(Dollars in Thousands) Three Months Ended ----------------------------------------------------------------- February 24, 2002 ----------------------------------------------------------------- Magnetic Resonance Energy Imaging Instrumentation Technology Total ------------- -------------- ------------- ------------- Net sales to external customers: Magnet systems $ 27,464 $ 27,464 RF Coils 3,565 3,565 Refrigeration equipment $4,959 4,959 Other $ 1,213 1,213 ------------- -------------- ------------- ------------- Total 31,029 4,959 1,213 37,201 Intersegment net sales 550 550 Segment operating profit (loss) 7,390 (2,914) (1,526) 2,950 Total assets $157,518 $ 10,277 $9,183 $176,978 Three Months Ended ----------------------------------------------------------------- February 25, 2001 ----------------------------------------------------------------- Magnetic Resonance Energy Imaging Instrumentation Technology Total ------------- -------------- ------------- ------------- Net sales to external customers: Magnet systems $ 19,396 $ 19,396 RF Coils 3,204 3,204 Superconductive wire 1,220 1,220 Refrigeration equipment $ 10,097 10,097 Other $ 380 380 ------------- -------------- ------------- ------------- Total 23,820 10,097 380 34,297 Intersegment net sales 1,129 1,129 Segment operating profit (loss) 5,491 581 (1,314) 4,758 Total assets $122,573 $ 18,535 $4,932 $146,040
10 (Dollars in Thousands)
Nine Months Ended ----------------------------------------------------------------- February 24, 2002 ----------------------------------------------------------------- Magnetic Resonance Energy Imaging Instrumentation Technology Total ------------- --------------- ------------- ------------- Net sales to external customers: Magnet systems $ 77,954 $ 77,954 RF Coils 10,580 10,580 Superconductive wire 2,092 2,092 Refrigeration equipment $22,870 22,870 Other $ 2,764 2,764 ------------- -------------- ------------- ------------- Total 90,626 22,870 2,764 116,260 Intersegment net sales 3,481 3,481 Segment operating profit (loss) 20,892 (4,652) 13,615 (2,625) Total assets $157,518 $ 10,277 $9,183 $176,978 Nine Months Ended ----------------------------------------------------------------- February 25, 2001 ----------------------------------------------------------------- Magnetic Resonance Energy Imaging Instrumentation Technology Total ------------- -------------- ------------- ------------- Net sales to external customers: Magnet systems $ 52,056 $ 52,056 RF Coils 9,690 9,690 Superconductive wire 6,406 6,406 Refrigeration equipment $ 28,085 28,085 Refrigerants 1,253 1,253 Other $ 943 943 ------------- -------------- ------------- ------------- Total 68,152 29,338 943 98,433 Intersegment net sales 2,765 2,765 Segment operating profit (loss) 13,780 4,035 (2,720) 15,095 Total assets $122,573 $ 18,535 $4,932 $146,040
11 The following are reconciliations of the information used by the chief operating decision maker to the Company's consolidated totals:
(Dollars in Thousands) Three Months Ended ---------------------------------------------- February 24, 2002 February 25, 2001 -------------------- --------------------- Reconciliation of income before income taxes: Total profit from reportable segments $ 2,950 $ 4,758 Change in Intercompany profit in ending inventory 1,220 (257) -------------------- --------------------- Net operating profit 4,170 4,501 Unallocated amounts: Interest and other income 343 381 Interest and other expense (201) (175) Gain on sale of division 10 Realized gain on available for sale securities 230 -------------------- --------------------- Income before income taxes $ 4,552 $ 4,707 ==================== ===================== Nine Months Ended ---------------------------------------------- February 24, 2002 February 25, 2001 -------------------- --------------------- Reconciliation of income before income taxes: Total profit from reportable segments $13,615 $15,095 Change in Intercompany profit in ending inventory 1,453 (519) -------------------- --------------------- Net operating profit 15,068 14,576 Unallocated amounts: Interest and other income 1,399 961 Interest and other expense (508) (1,765) Gain on sale of divisions 15,385 Realized gain on available for sale securities 230 Write down of investments (6,290) -------------------- --------------------- Income before income taxes $25,284 $13,772 ==================== =====================
Note D - Goodwill and Other Intangible Assets In July 2001, Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and other intangibles with indefinite lives be replaced with periodic tests of the goodwill's impairment and that identifiable intangible assets other than goodwill be amortized over their useful lives. The Company adopted this provision effective May 28, 2001. 12 The components of other intangibles are as follows:
(Dollars in Thousands) As of February 24, 2002 ---------------------------------------------------------------- Gross Carrying Accumulated Weighted Average Amount Amortization Life ------------------- ------------------- ------------------- Amortized Intangible Assets Production Rights $8,750 $3,447 5.5 Patents 3,738 529 17.9 Trade Name 960 258 20.0 Unpatented Technology 930 907 5.0 ------------------- ------------------- ------------------- $14,378 $5,141 9.8
Aggregate amortization expense for the quarter and nine months ended February 24, 2002 was $488,000 and $1,501,000, respectively. Estimated Amortization Expense: For the year ending May 2002 $1,979 For the year ending May 2003 $1,817 For the year ending May 2004 $1,817 For the year ending May 2005 $1,817 For the year ending May 2006 $ 359 All intangibles are amortized on a straight-line basis. 13 The table below shows the effect on net income had FAS 142 been adopted in prior periods. (Dollars in Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended ------------------------------------- ------------------------------------- Feb. 24, 2002 Feb. 25, 2001 Feb. 24, 2002 Feb. 25, 2001 ---------------- ---------------- --------------- ---------------- Net income $ 3,118 $ 2,890 $ 17,145 $ 8,456 Goodwill amortization 297 867 ---------------- ---------------- --------------- ---------------- Adjusted net income $ 3,118 $ 3,187 $ 17,145 $ 9,323 ================ ================ =============== ================ Basic Diluted Basic Diluted Basic Diluted Basic Diluted ---------------- ---------------- --------------- --------------- Net income per common share $.19 $.18 $.18 $.17 $1.05 $.99 $.56 $.51 Effect of accounting change .02 .02 .06 .06 ---------------- ---------------- --------------- --------------- Adjusted net income per common share $.19 $.18 $.20 $.19 $1.05 $.99 $.62 $.57 ================ ================ =============== ===============
Note E - Derivative Instruments and Hedging Activities On June 15, 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 was amended by SFAS No. 137, which modified the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133, as amended, requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company adopted SFAS No. 133 at the beginning of the quarter ended August 26, 2001. This resulted in the recording of a derivative liability of $104,000 and other comprehensive loss of $104,000, as well as a transition adjustment of $128,000. For the quarter ended February 24, 2002 the Company recorded an other comprehensive gain of $14,000 related to derivative activity. The Company has entered into interest rate swap agreements to reduce the effect of changes in interest rates on certain of its floating rate long-term debt. At February 24, 2002, the Company had outstanding interest rate swap agreements with a commercial bank, having a total original notional principal amount of approximately $5.735 million. Those agreements effectively change the Company's interest rate exposure on its mortgages due 2005 to a fixed 6.88%. The interest rate swap agreement matures at the time the related notes mature. The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreement. However, the Company does not anticipate non-performance by the counterparties. 14 Note F - Sale of IGC-Advanced Superconductors On October 25, 2001, the Company sold substantially all of the assets of IGC-AS, a division that manufactures low temperature superconducting wire and tape. The sale was subject to a purchase agreement, dated October 4, 2001, between the Company and Outokumpu Copper Products Oy and Outokumpu Advanced Superconductors Inc. (together, the "Purchasers"). The purchase consideration was arrived at by arms length negotiation and consisted of $29.8 million in cash paid on October 25 and the recording of a note receivable of $4 million, with a net present value of $3.8 million, due in two years from the closing date. The net pretax gain from the sale was $15.4 million. The agreement also includes a six-year strategic supply arrangement under which the Company will purchase from Outokumpu a substantial portion of the LTS wire it requires internally, primarily for manufacturing superconducting magnet systems. The Company can earn up to $4 million as a performance payment if it attains specified levels of LTS wire purchases over the next two years. In connection with the sale of IGC-AS, the Company has recorded a liability related to environmental investigation and potential remediation costs to be incurred by the Company under certain property transfer laws of the State of Connecticut. During the third quarter approximately $18,000 was recorded for legal fees relating to the environmental liability of $1.5 million. Additionally, the Company recorded an expense of about $795,000 for stock based compensation related to the sale. Note G - Sale of IGC-APD Cryogenics On February 5, 2002, the Company sold the stock of its subsidiaries IGC-APD Cryogenics, Inc and IG-Europe, Ltd. The sale was subject to a stock purchase agreement between the Company and Sumitomo Heavy Industries (SHI) of Japan dated January 7, 2002. The sale to SHI included only the helium related assets and the assumption of related liabilities. The purchase consideration was arrived at by arms length negotiation and consisted of $9.5 million in cash paid on February 5, 2002. The Company was also able to withdraw an additional $1.2 million in cash prior to closing. The net pretax gain from the sale was $10,000. The agreement includes a six-year strategic supply agreement under which the Company will purchase from SHI shield coolers it requires internally, primarily for manufacturing superconducting magnet systems. The mixed-gas portion of the refrigeration systems business, previously conducted at IGC-APD, was transferred and integrated into IGC-Polycold, Inc. Additionally, the Company recorded stock based compensation expense of $528,000 related to the sale. Note H - Available-for-sale securities During the quarter ended February 24, 2002, the Company sold its shares in Powercold Corporation for total proceeds of $1,300,000 with a gross realized gain on the sale of $230,000. In determining gross realized gain, the cost of securities is based on specific identification. In connection with the sale, net unrealized holding gain of $311,000 has been reclassified from accumulated other comprehension income. 15 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 2002 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 The Company operates in three reportable operating segments: Magnetic Resonance Imaging (MRI), Instrumentation, and Energy Technology. The MRI segment consists primarily of the manufacture and sale of magnet systems (by the IGC-Magnet Business Group) and radio frequency coils (by IGC-Medical Advances Inc.), which are used principally in the medical diagnostic imaging market. Until October 25, 2001 this segment also included the manufacture and sale of low-temperature superconducting wire by IGC-AS. The Company sold substantially all of the assets of IGC-AS on October 25, 2001. The Instrumentation segment consists of refrigeration equipment produced (by IGC-Polycold), used primarily in ultra-high vacuum applications, industrial coatings, analytical instrumentation, medical diagnostics and semiconductor processing and testing. This segment also included IGC-APD Cryogenics Inc., which also manufactured and sold refrigeration equipment. On February 5, 2002 the Company sold essentially all of the assets relating to the helium portion of the business pursuant to a stock purchase agreement and transferred the mixed-gas portion to IGC-Polycold. The Energy Technology segment, operated through IGC-SuperPower LLC, a wholly owned entity, is developing second generation, high-temperature superconducting materials that we expect to use in devices designed to enhance capacity, reliability and quality of transmission and distribution of electrical power. Through February 25, 2001, the Company reported its operations in four segments: Electromagnetics, Low-Temperature Superconductors, Refrigeration, and Energy Technology. The change to these segments reflects our continued focus on commercial market applications of core technology. The resulting reporting segments are intended to relate to the primary markets which each serves, rather than the technologies that give rise to individual products. Prior year segment data has been reclassified to conform to current year presentation. 16 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). The Company operates on a 52/53 week fiscal year ending the last Sunday during the month of May. Results Of Operations For the three months ended February 24, 2002, sales increased approximately 9% to $37.2 million, from $34.3 million for the same period last year. Sales for the nine months of the current fiscal year increased about 18% to $116.2 million from $98.4 million last year. Prior year sales contained $1.2 million for the three months and $6.4 million for the nine months relating to low temperature superconducting wire (LTS). Additionally, the prior year nine months had $1.3 million of refrigerant sales not included in the current year. Excluding these sales, the increase relating to ongoing businesses would have been 12% or $4.1 million for the quarter and 26% or $23.4 million for the nine months. Magnetic Resonance Imaging segment sales increased $7.2 million or 30% to $31.0 million for the quarter and 33% or $22.5 million for nine months. Magnet system sales were up 42% to $27.5 million from last year's third quarter and 50% to $78.0 million year-to-date due to increased demand from the Company's largest customer. Sales of RF coils had a nominal increase for the quarter of about 11% or $0.4 million and for the nine months of about 9% or $0.9 million over the same periods last year. Sales of superconducting wire declined about $1.2 million for the third quarter and about $4.3 million over the nine months, due to the Company's decision to divest the LTS wire business. Instrumentation sales declined $3.1 million or 51% to $5.0 million for the quarter due primarily to a decrease in product demand resulting from a slower economy. Additionally, production was reduced due to the transfer of the mixed-gas product line and the relocation of the Company's San Rafael, California plant to a more modern facility in Petaluma, California. Sales for the nine months declined 22% to $22.9 million or $6.5 million. In addition to the reasons mentioned above, prior year sales included $1.3 million of refrigerant sales from a divested division. Sales of the Energy Technology segment increased by $0.8 million or 219% to $1.2 million and 193% to $2.8 million or $1.8 million for the quarter and year-to-date, respectively, as a result of increased efforts being applied to funded programs. These programs relate principally to second generation HTS materials and first generation devices. We are continuing to seek additional strategic partners to assist in the development and marketing of second-generation materials and related devices. Gross margin for the three months ended increased approximately $500,000 to $14.6 million. As a percent of sales, margin declined to 39% from 41% in the prior year. Gross margin for the quarter included a charge of approximately $450,000 related to the transfer of the mixed-gas product line to Petaluma, California from Allentown, Pennsylvania. Without this charge, margin would have been about $15.1 million or 41% of sales. Gross margin year to date increased over last year by $5.8 million to $47.9 million. As a percent of sales, margins declined to 41% from 43% on an as reported basis. After eliminating costs associated with the transfer of the mixed-gas product line in the current year and recovery of inventory written off in restructuring in the prior year, margins as a percent of sales would be about 42% in the current nine months compared to 41% for the same period last year. This increase in margins for the nine months is related to reduced costs, increased sales and improved mix of magnet systems. 17 Marketing, general and administrative expenses increased about $525,000 to $6.7 million for the three month period over last year. Included in the current quarter is approximately $1.1 million related to the transfer of the mixed-gas product line and relocation of the San Rafael, California plant to a modern facility in Petaluma, California. This expense was partially offset by a $260,000 reduction due to the sale of the LTS wire division and about $200,000 in reduced selling expenses from continuing businesses. Marketing, general and administrative expenses for the nine months increased about $1.1 million over the prior year to $20.3 million. The increase is due to the transfer to Petaluma mentioned above and increased expenses related to our higher level of business, particularly in the MRI sector, which were partially offset by the reduction of expense related to the LTS wire division sale. Operating income declined on an as reported basis for the quarter approximately $330,000 to $4.2 million. This decline included one time charges of about $1,500,000. Excluding these charges, operating income would have increased $1,170,000. Year-to-date operating income on an as reported basis increased about $500,000 to $15.1 million. Before one time items and restructuring recoveries, operating income increased $3.4 million over the same period last year. Amortization of intangibles decreased by $285,000 in the three month period and $807,000 for the nine month period due to adoption of FAS 142 (see Note D). Interest income for the quarter was essentially the same as last year. Although the Company has considerably more cash than the same period in the prior year, interest rates are significantly lower. Year-to-date interest income has increased as a result of the Company's increased cash position. Interest expense in the three month period is about the same as the prior year. Year-to-date interest expense decreased substantially due to the conversion of all our outstanding convertible debentures last year. During the previous quarter, the Company evaluated the probability of realizing the value of our investments in Ultralife Batteries, Inc. and Kryotech. As a result, the Company determined these investments were impaired and accordingly wrote down Ultralife Batteries, Inc. to current market value at that time and Kryotech to zero, its estimated value. Diluted earnings per share (EPS) as reported was $0.18 for the three months ended and $0.99 year- to-date. For the third quarter EPS included approximately $0.04 of one time charges related to Instrumentation segment and sale of securities. Excluding these charges, EPS would have been $0.22 compared to $0.17 for the same period last year. Year to date EPS included $0.35 of benefit related to the sale of IGC-AS and write down of investments in the second quarter and previously identified one time charges in the third quarter. Excluding these events EPS would have been $0.64 for the nine months ended compared to $0.51 for the same period last year. 18 The effective tax rate for the quarter declined to 31.5% from 38.6% for the same period in the prior year. For the nine months ended the Company's effective tax rate is 32.2% compared to 38.6% last year. The decrease in both periods is related to the use of capital loss carry forwards and more effective utilization of the Company's foreign sales corporation (FSC). On October 25, 2001, the Company sold its low-temperature superconducting (LTS) materials business, IGC-AS of Waterbury, Connecticut, for approximately $33.5 million. The purchase price consisted of a $4 million note payable in two years, which was recorded at its present value of $3.8 million, and the balance in cash. The agreement between Intermagnetics and Outokumpu Copper Products Oy, a subsidiary of the Outokumpu Group of Finland, also includes a six-year strategic supply arrangement that will expand Outokumpu's existing superconducting materials business. Intermagnetics will purchase from Outokumpu a substantial portion of the LTS wire it requires internally, primarily for manufacturing superconducting magnet systems for magnetic resonance imaging systems. Intermagnetics will receive up to an additional $4 million if it attains specified levels of LTS wire purchases over the first two years of the agreement. Excluding that payment, the sale resulted in a one-time pre-tax gain of approximately $15.4 million. On February 5, 2002, the Company sold the stock of its subsidiaries IGC-APD Cryogenics, Inc. and IG-Europe, Ltd. for about $9.5 million in cash. The sale to Sumitomo Heavy Industries (SHI) of Japan includes all helium-related assets and liabilities of these subsidiaries. Under the agreement, the Company was able to withdraw approximately an additional $1.2 million in cash prior to closing. The mixed-gas portion of the refrigeration systems business, previously conducted at APD's Allentown, Pennsylvania facility, has been integrated into IGC-Polycold Systems' new facility in Petaluma, California. The agreement also included a strategic six-year supply agreement with SHI, under which the Company will purchase shield coolers used in production of its magnetic resonance imaging (MRI) magnet systems. Prior to the stock sale, the Company purchased all of its shield coolers from either SHI or APD. 19 We expect fourth quarter sales as compared with the same period last year to decline primarily due to divested entities no longer being consolidated. Sales for on-going businesses for the fourth quarter are expected to be about 4.5% higher than the same period last year, primarily from increased contribution from the MRI segment. Instrumentation segment sales will be lower due to reduced market demand. In total we expect sales growth for fiscal 2002 to be 10 to 12% greater than fiscal 2001 and sales from on-going businesses to increase 15 to 20% over last year. We expect gross margin for the fourth quarter will decrease in absolute dollars and as a percent of sales compared to the same period last year. This decrease is due the Company's divestitures and a slow down in the Instrumentation segment. For the full year we expect margins to increase in absolute dollars, which is due primarily to increased sales. Research and development in the fourth quarter is expected to be slightly below the same period last year due principally to the divestitures. On-going businesses in the fourth quarter are expected to have a slight increase in research and development over the same period last year, which is a result of our continuing product development efforts in the Energy Technology and MRI segments. Fiscal 2002 research and development is expected to increase substantially over fiscal 2001. This increase is primarily related to the MRI and Energy Technology segments focus on new product development and commercializing HTS. We expect earnings per diluted share growth of 60 to 70% on an as reported basis. This increase is due mainly to the sale of divisions offset by investment write-offs. Excluding one time items in both years we expect earnings per share growth of 17 to 20%. We continue to believe this even with an increased level of investment and the effect of divested businesses; however, we currently believe that lack of contribution from our Instrumentation segment will likely result in our performing at the low end of this range. These expectations are based on a number of assumptions, including but not limited to: o The market for MRI systems continues to grow; o Current order trends for MRI magnets continue; o Reductions in production costs in all business segments continue and; o We are able to attract and train the necessary personnel to enable us to increase our production rates and conduct additional product development activities. Liquidity and Capital Commitments For the first nine months of the current fiscal year, we generated approximately $10 million of cash from operating activities and approximately $40 million from the sale of the divisions and available for sale securities. We used approximately $10 million of cash for capital expenditures to increase capacity at IGC-MBG and IGC-SuperPower, and $2.4 million for repayment of notes payable. Our net cash position reached nearly $70 million. See the consolidated statement of cash flows, located elsewhere in this report, for further details on the sources and uses of cash. Our capital and resource commitments as of February 24, 2002 consisted of capital equipment commitments of approximately $846,000. At August 26, 2001, we had a $27 million unsecured line of credit with two banks. During September 2001, the line was increased to $50 million and a third bank was added to the group. 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 or the year. It expires in October 2004. 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 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 with available internally generated funds. Inflation has not had a material impact on our financial statements. 20 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 an unsecured line of credit and a mortgage payable. The Company manages interest rates through various methods within contracts. 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 is material. 21 PART II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None 22 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERMAGNETICS GENERAL CORPORATION Dated: April 10, 2002 By: /s/ Glenn H. Epstein ------------------------------------------ Glenn H. Epstein President and Chief Executive Officer Dated: April 10, 2002 By: /s/ Michael K. Burke ------------------------------------------ Michael K. Burke Executive Vice President and Chief Financial Officer 23 -----END PRIVACY-ENHANCED MESSAGE-----