-----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, HGEgqAYZq1Gb7CSzyQqLCABpBRzUVpv/8ER9AJlZCOXHKXSMaJ6/kRPzE1lx1PCI z6F+wW4aiXa5BhWige83QA== 0000950116-03-000047.txt : 20030114 0000950116-03-000047.hdr.sgml : 20030114 20030108120542 ACCESSION NUMBER: 0000950116-03-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021124 FILED AS OF DATE: 20030108 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: 03507379 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 November 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 - 16,490,700 as of December 29, 2002. INTERMAGNETICS GENERAL CORPORATION CONTENTS
PART I - FINANCIAL INFORMATION Item 1: Financial Statements: Consolidated Balance Sheets - November 24, 2002 and May 26, 2002............................... 3 Consolidated Income Statements - Three Months and Six Months Ended November 24, 2002 and November 25, 2001...................................................... 5 Consolidated Statements of Cash Flows - Six Months Ended November 24, 2002 and November 25, 2001...................................................... 6 Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income - Six Months Ended November 24, 2002 ........................................................... 7 Notes to Consolidated Financial Statements..................................................... 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................... 15 Item 3: Quantitative and Qualitative Disclosures About Market Risk..................................... 21 Item 4: Controls and Procedures........................................................................ 22 PART II - OTHER INFORMATION............................................................................. 23 SIGNATURES.............................................................................................. 24 CERTIFICATIONS.......................................................................................... 24
2 CONSOLIDATED BALANCE SHEETS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands, Except Per Share Amounts)
November 24, May 26, 2002 2002 ------------ -------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 74,639 $ 73,517 Trade accounts receivable, less allowance (November 24, 2002 - $182; May 26, 2002 - $293) 20,812 20,612 Costs and estimated earnings in excess of billings on uncompleted contracts 380 428 Inventories: Consigned products 301 2,799 Finished products 906 659 Work in process 9,116 7,405 Materials and supplies 8,160 9,054 -------- -------- 18,483 19,917 Deferred income taxes 1,497 1,497 Prepaid expenses and other 2,913 2,037 -------- -------- TOTAL CURRENT ASSETS 118,724 118,008 PROPERTY, PLANT AND EQUIPMENT Land and improvements 1,128 1,128 Buildings and improvements 12,172 12,172 Machinery and equipment 36,083 34,642 Leasehold improvements 3,705 3,705 -------- -------- 53,088 51,647 Less accumulated depreciation and amortization 25,278 23,310 -------- -------- 27,810 28,337 INTANGIBLE AND OTHER ASSETS Available-for-sale securities 2,833 Goodwill 13,750 13,750 Other intangibles, less accumulated amortization (November 24, 2002- $6,666; May 26, 2002 - $5,746) 7,839 8,759 Note receivable 3,910 3,861 Other assets 1,818 1,677 -------- -------- TOTAL ASSETS $173,851 $177,225 ======== ========
3 CONSOLIDATED BALANCE SHEETS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands, Except Per Share Amounts)
November 24, May 26, 2002 2002 ------------ --------- LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) CURRENT LIABILITIES Current portion of long-term debt $ 277 $ 267 Accounts payable 11,171 10,757 Salaries, wages and related items 6,191 7,221 Customer advances and deposits 451 1,007 Product warranty reserve 1,163 1,326 Accrued income taxes 2,332 Other liabilities and accrued expenses 2,215 1,985 -------- -------- TOTAL CURRENT LIABILITIES 21,468 24,895 LONG-TERM DEBT, less current portion 4,529 4,668 DERIVATIVE LIABILITY 407 268 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): November 24, 2002 - 17,471,493 shares; May 26, 2002 - 17,333,459 shares; 1,747 1,733 Additional paid-in capital 138,151 137,419 Notes receivable from employees (3,725) (799) Retained earnings 22,322 15,999 Accumulated other comprehensive loss (266) (906) -------- -------- 158,229 153,446 Less cost of Common Stock in treasury November 24, 2002 - 982,576 shares May 26, 2002 - 671,316 shares (10,782) (6,052) -------- -------- 147,447 147,394 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $173,851 $177,225 ======== ========
See notes to consolidated financial statements. 4 CONSOLIDATED INCOME STATEMENTS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Three Months Ended Six Months Ended --------------------------------- ----------------------------------- November 24, November 25, November 24, November 25, 2002 2001 2002 2001 ------------- -------------- --------------- --------------- Net sales $ 36,664 $ 38,971 $ 71,844 $ 79,060 Cost of products sold 22,521 22,937 44,101 45,787 ---------- ----------- ----------- ----------- Gross margin 14,143 16,034 27,743 33,273 Product research and development 3,226 3,689 6,698 7,707 Marketing, general and administrative 4,952 6,579 9,305 13,655 Amortization of intangible assets 460 486 920 1,013 ---------- ----------- ----------- ----------- 8,638 10,754 16,923 22,375 ---------- ----------- ----------- ----------- Operating income 5,505 5,280 10,820 10,898 Interest and other income 244 703 675 1,055 Interest and other expense (130) (180) (241) (307) Loss on available-for-sale securities (2,090) (2,108) Gain on litigation settlement 537 537 Gain on sale of division 15,376 15,376 Write down of investments (6,290) (6,290) ---------- ----------- ----------- ----------- Income before income taxes 4,066 14,889 9,683 20,732 Provision for income taxes 1,411 4,502 3,360 6,705 ---------- ----------- ----------- ----------- NET INCOME $ 2,655 $ 10,387 $ 6,323 $ 14,027 ========== =========== =========== =========== Net Income per Common Share: Basic $ 0.16 $ 0.64 $ 0.38 $ 0.87 ========== =========== =========== =========== Diluted $ 0.16 $ 0.60 $ 0.37 $ 0.81 ========== =========== =========== ===========
See notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands) (Unaudited)
Six Months Endedc --------------------------------------- November 24, November 25, 2002 2001 ------------------- ------------------- OPERATING ACTIVITIES Net income $ 6,323 $ 14,027 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,954 2,935 Gain on sale of division (15,376) Write down of investments 6,290 Stock based compensation 302 326 Loss on sale and disposal of assets 46 14 Realized loss on available-for-sale securities 2,108 Change in discount on note receivable (49) Change in operating assets and liabilities: (Increase) decrease in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (152) 1,303 (Increase) decrease in inventories and prepaid expenses and other 362 (2,629) Decrease in accounts payable and accrued expenses (3,484) (68) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,410 6,822 INVESTING ACTIVITIES Purchases of property, plant and equipment (1,570) (5,385) Proceeds from sale of available-for-sale securities 1,363 Proceeds from the sale of property, plant and equipment 17 Proceeds from sale of division 29,771 ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (190) 24,386 FINANCING ACTIVITIES Proceeds from sale of Common Stock and exercise of stock options 359 2,588 Proceeds from (advances for) Executive Stock Purchase Plan (2,926) 257 Purchase of Treasury Stock (4,402) Principal payments on note payable and long-term debt (129) (2,217) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (7,098) 628 EFFECT OF EXCHANGE RATE CHANGES ON CASH - (164) ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 1,122 31,672 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 73,517 27,675 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74,639 $ 59,347 =========== ===========
See notes to consolidated financial statements. 6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME INTERMAGNETICS GENERAL CORPORATION Six months ended November 24, 2002 (Dollars in Thousands) (Unaudited)
Accumulated Additional Other Notes Common Paid-in Retained Comprehensive Treasury Receivable Comprehensive Stock Capital Earnings Income (Loss) Stock from Employees Income -------- ------------ ----------- ---------------- ---------- ---------------- --------------- Balances at May 26, 2002 $ 1,733 $ 137,421 $ 15,999 $ (906) $ (6,052) $ (799) Comprehensive income: Net Income 6,323 $ 6,323 Unrealized loss on available-for-sale securities, net of tax benefit of $157,000 9 9 Reclassification adjustment - available-for-sale securities 628 628 Gain on derivative, net of tax benefit of $141,000 3 3 ------- Total comprehensive income $ 6,963 ======= Loans to employees for purchase of common stock (2,926) Issuance of 138,034 shares of Common Stock, including exercise of stock options 14 402 Receipt of treasury stock, upon exercise of stock options 328 (328) Treasury stock purchase (4,402) ------- --------- -------- -------- --------- -------- Balances at November 24, 2002 $ 1,747 $ 138,151 $ 22,322 $ (266) $ (10,782) $ (3,725) ======= ========= ======== ======== ========= ========
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 November 24, 2002 and the results of its operations, cash flows and changes in shareholders' equity for the periods presented. The results for the three and six months ended November 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 26, 2002, filed on Form 10-K on August 23, 2002. 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:
Three Months Ended Six Months Ended ------------------------------- ------------------------------- Nov. 24, 2002 Nov. 25, 2001 Nov. 24, 2002 Nov. 25, 2001 --------------- --------------- --------------- --------------- Income available to common stockholders $ 2,655 $ 10,387 $ 6,323 $ 14,027 Weighted average shares 16,466,089 16,229,361 16,567,001 16,166,681 Dilutive potential Common Shares: Warrants 32,345 37,425 Stock Options 503,025 1,120,471 510,149 1,155,538 ------------ ------------- ------------- ------------- Adjusted weighted average shares 16,969,114 17,382,177 17,077,150 17,359,644 ============ ============= ============= ============= Net income per common share: Basic $ 0.16 $ 0.64 $ 0.38 $ 0.87 ============ ============= ============= ============= Diluted $ 0.16 $ 0.60 $ 0.37 $ 0.81 ============ ============= ============= =============
8 Note C - New Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", ("SFAS No. 144") which supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 establishes a single accounting method for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and extends the presentation of discontinued operations to include more disposal transactions. SFAS No. 144 also requires that an impairment loss be recognized for assets held-for-use when the carrying amount of an asset (group) is not recoverable. The carrying amount of an asset (group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (group), excluding interest charges. Estimates of future cash flows used to test the recoverability of a long-lived asset (group) must incorporate the entity's own assumptions about its use of the asset (group) and must factor in all available evidence. The Company adopted SFAS No. 144 effective May 27, 2002; this did not have a material impact on the financial statements. In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002". This Standard addresses a number of items related to leases and other matters. The Company adopted this Standard effective May 27, 2002; this did not have a material impact on the financial statements. In June 2002, the Financial Accounting Standards Board issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". This Standard addresses the recognition, measurement and reporting costs that are associated with exit or disposal activities. SFAS No.146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a material effect on its financial statements. Note D - 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 9 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 manufactured and sold refrigeration equipment. The Company transferred the mixed-gas portion of IGC-APD to IGC-Polycold and sold the remaining IGC-APD business in a stock sale effective February 5, 2002. The Energy Technology segment, operated through SuperPower Inc., 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). Summarized financial information concerning the Company's reportable segments is shown in the following table:
Three Months Ended ----------------------------------------------------------------------- November 24, 2002 ----------------------------------------------------------------------- (Dollars in Thousands) Magnetic Resonance Energy Imaging Instrumentation Technology Total ----------------------------------------------------------------------- Net sales to external customers: Magnet systems & components $ 31,261 $ 31,261 Refrigeration equipment $ 4,999 4,999 Other $ 404 404 ---------- ---------- --------- ---------- Total 31,261 4,999 404 36,664 Intersegment net sales Segment operating income (loss) 7,059 12 (1,577) 5,494 Total assets $ 155,199 $ 10,682 $ 7,970 $ 173,851
10
(Dollars in Thousands) November 25, 2001 ------------------------------------------------------------------------- Magnetic Resonance Energy Imaging Instrumentation Technology Total ------------------------------------------------------------------------- Net sales to external customers: Magnet systems & components $ 29,690 $ 29,690 Refrigeration equipment $ 7,568 7,568 Other 1,061 $ 652 1,713 ----------- ----------- --------- --------- Total 30,751 7,568 652 38,971 Intersegment net sales 1,236 1,236 Segment operating income (loss) 6,790 (426) (1,659) 4,705 Total assets $ 146,177 $ 16,048 $ 7,368 $ 169,593 (Dollars in Thousands) Six Months Ended ------------------------------------------------------------------------- November 24, 2002 ------------------------------------------------------------------------- Magnetic Resonance Energy Imaging Instrumentation Technology Total ------------------------------------------------------------------------- Net sales to external customers: Magnet systems & components $ 61,521 $ 61,521 Refrigeration equipment $ 9,556 9,556 Other $ 767 767 ----------- ----------- --------- --------- Total 61,521 9,556 767 71,844 Intersegment net sales - Segment operating income (loss) 14,544 (102) (3,649) 10,793 Total assets $ 155,199 $ 10,682 $ 7,970 $ 173,851 November 25, 2001 ------------------------------------------------------------------------ Magnetic Resonance Energy Imaging Instrumentation Technology Total ------------------------------------------------------------------------ Net sales to external customers: Magnet systems & components $ 57,506 $ 57,506 Refrigeration equipment $ 17,911 17,911 Other 2,092 $ 1,551 3,643 ----------- ----------- --------- --------- Total 59,598 17,911 1,551 79,060 Intersegment net sales 2,931 2,931 Segment operating income (loss) 13,502 289 (3,126) 10,665 Total assets $ 146,177 $ 16,048 $ 7,368 $ 169,593
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 ----------------------------------------------- November 24, 2002 November 25, 2001 ----------------------- ----------------------- Reconciliation of income before income taxes: Total profit from reportable segments $ 5,494 $ 4,705 Intercompany profit in ending inventory 11 575 ------------ ----------- Net operating income 5,505 5,280 Interest and other income 244 703 Interest and other expense (130) (180) Loss on available-for-sale securities (2,090) Gain on litigation settlement 537 Gain on sale of division 15,376 Write down of investments (6,290) ------------ ----------- Income before income taxes $ 4,066 $ 14,889 ============ =========== Six Months Ended ----------------------------------------------- November 24, 2002 November 25, 2001 --------------------- ------------------------ Reconciliation of income before income taxes: Total profit from reportable segments $ 10,793 $ 10,665 Intercompany profit in ending inventory 27 233 ------------ ----------- Net operating income 10,820 10,898 Interest and other income 675 1,055 Interest and other expense (241) (307) Loss on available-for-sale securities (2,108) Gain on litigation settlement 537 Gain on sale of division 15,376 Write down of investments (6,290) ------------ ----------- Income before income taxes $ 9,683 $ 20,732 ============ ===========
Note E - Business Combinations, Goodwill and Other Intangible Assets The Company adopted Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets" effective May 28, 2001. SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that identifiable intangible assets other than goodwill be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. 12 The components of other intangibles are as follows:
(Dollars in Thousands) As of November 24, 2002 ---------------------------------------------------------- Gross Carrying Accumulated Weighted Amount Amortization Average Life ----------------- ----------------- ---------------- Amortized Intangible Assets Production Rights $ 8,750 $4,640 5.5 Patents 3,832 775 17.9 Trade Name 960 288 20.0 Unpatented Technology 930 930 5.0 Other 33 33 5.0 ------- ------ ------ $14,505 $6,666 9.8
Aggregate amortization expense for the quarter and six months ended November 24, 2002 was $460,000 and $920,000 respectively. Estimated Amortization Expense: For the year ending May 2003 $1,841 For the year ending May 2004 $1,841 For the year ending May 2005 $1,841 For the year ending May 2006 $ 382 For the year ending May 2007 $ 250 All intangibles are amortized on a straight line basis. There have been no changes in the carrying amount of goodwill for the quarter ended November 24, 2002. Management has evaluated goodwill for impairment during the quarter ending November 24, 2002 in accordance with SFAS No. 142 and has determined no impairment exists. Note F - Derivative Instruments and Hedging Activities The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" effective May 26, 2001. 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. For the quarter and six months ended November 24, 2002, the Company recorded other comprehensive gain of $8,000 and $3,000 respectively net of tax. 13 The Company has entered into interest rate swap agreements to reduce the effect of changes in interest rates on its floating rate long-term debt. At November 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 2004 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. Note G - Available-for-Sale Securities During October 2002 the Company sold its remaining 827,153 shares of Ultralife Batteries, Inc. for total proceeds of $1,283,230 with a gross realized loss of $2,090,000. In connection with the sale, net unrealized holding loss of $628,000 has been reclassified from accumulated other comprehensive income. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------------- Intermagnetics General Corporation ("Intermagnetics", "Company", "we" or "us") makes forward-looking statements in this document. Typically, we identify forward-looking statements with words like "believe," "anticipate," "perceive," "expect," "estimate" and similar expressions. Unless a passage describes a historical event, it should be considered a forward-looking statement. These forward-looking statements are not guarantees of future performance and involve important assumptions, risks, uncertainties and other factors that could cause the Company's actual results for fiscal year 2003 and beyond to differ materially from those expressed in the forward-looking statements. These important factors include, without limitation, the assumptions, risks, and uncertainties set forth in this Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as other assumptions, risks, uncertainties and factors disclosed throughout this report. Except for our continuing obligations to disclose material information under federal securities laws, we are not obligated to update these forward-looking statements, even though situations may change in the future. We qualify all of our forward-looking statements by these cautionary statements. 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.). These products are used principally in the medical diagnostic imaging market. Until October 24, 2001 this segment also included the manufacture and sale of low-temperature superconducting wire by our IGC-Advanced Superconductor division ("IGC-AS"). The Instrumentation segment consists of refrigeration equipment produced by IGC-Polycold Systems Inc. ("IGC-Polycold"). These systems are used primarily in ultra-high vacuum applications, industrial coatings, analytical instrumentation, medical diagnostics and semiconductor processing and testing. For the first three quarters of fiscal year 2002, this segment also included IGC-APD Cryogenics Inc ("IGC-APD"). The Energy Technology segment, operated through SuperPower, Inc. 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. 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. 15 Critical Accounting Policies and Estimates The Company's discussion and analysis of its financial condition and results of operations are based upon; in part, the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires the Company to make estimates and judgments that affect assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company recognizes revenue and profit on long-term development contracts based upon the lesser of, milestones achieved or costs incurred plus earned profit. Some of these contracts require the Company to contribute to the development effort. Should the actual costs exceed the estimates for these development efforts and the Company was not successful in securing additional funding, it would be necessary to record additional expense. The Company maintains a reserve for inventory that may become damaged in the manufacturing process or technologically obsolete. If technology advances more rapidly than expected, manufacturing processes improve substantially or the market for our products declines substantially, adjustments to reserves may be required. The provision for warranty for potential defects with our manufactured products is based on historical experience for the period the product was under warranty during the fiscal year. The Company believes this reserve is adequate based on the evaluation criteria, procedures in place to control the manufacturing process and pre-testing of newly developed products to ensure their manufacturability prior to commercial introduction. If product quality declines the Company may require additional provisions. The Company maintains a provision for potential environmental remediation for businesses disposed of during fiscal 2002. These provisions are based upon estimates from environmental engineers that have visited the sites and understand the scope of the project, should a cleanup be required. The Company believes these provisions are adequate based on estimates from environmental engineers. The Company records an investment impairment charge on available-for-sale securities when it believes an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investment. Should this occur the Company would be required to record an impairment charge in the future. 16 Results Of Operations Throughout this commentary reference is made to "as reported" and "on-going" results. "As reported" results refers to prior year results which include our current business plus the effect of contributions and costs of the divested superconducting wire and helium businesses. "As reported" also includes the contributions and costs related to our mixed gas business. "On-going" results refers to our current business with the past contributions and costs of the divested businesses removed from prior year results. Additionally, "on-going" results include the contribution and cost of mixed gas business transferred to our California facility. For the three months ended November 24, 2002, as reported sales decreased approximately 6%, to $36.7 million, from $39.0 million for the same period last year. Sales from on-going operations increased 5% to $36.7 million from $35.0 million for the same period last year. As reported sales for the six month period ended November 24, 2002 decreased about 9% to $71.8 million from $79.1 million due primarily to the divesture of IGC-AS and IGC-APD and reduced customer demand in the Instrumentation segment partially offset by increased sales related to the MRI segment. Sales from on-going operations increased about $200,000 to $71.8 million from $71.6 million in the previous year. This increase is primarily related to improved product mix in the MRI segment. MRI segment sales, as reported increased 2% or $500,000 to $31.3 million for the quarter. Magnet system and component sales increased more than 5% or, $1.6 million from last year's second quarter due largely to an improved product mix. Partially offsetting this increase was a decline in sales of superconducting wire of approximately $1.1 million for the quarter due to the divestiture of IGC-AS. Sales from on-going operations increased 5% or $1.6 million for the period due primarily to improved product mix. On an as reported basis, sales of the MRI segment, for the six months ended increased 3.2% or nearly $2.0 million to $61.5 million. Magnet system and components increased $4.0 million to $61.5 million or 7%. This increase was primarily a result of improved product mix as well as increased customer demand. Partially offsetting this increase was a decline in superconducting wire sales of about $2.1 million due to the divestiture of IGC-AS. Sales from on-going operations increased 7% to $61.5 million from $57.5 million in the previous year due to improved product mix as well as increased customer demand. Instrumentation segment sales, as reported decreased $2.6 million or 34% to $5.0 million for the quarter over the same period last year due primarily to the divesture of IGC-APD ($3.8 million) partially offset by an increase of $1.2 million from IGC-Polycold related to increased demand as well as the transfer of IGC-APD's mixed gas product line. 17 On-going Instrumentation segment sales increased $300,000 to nearly $5.0 million or 7% for the quarter due to increased customer demand. Instrumentation segment sales, as reported declined $8.4 million or 47% to $9.6 million for the six months ended November 24, 2002. About $6.9 million of this decline was related to the divesture of IGC-APD and $1.5 million due to reduced customer demand during the first quarter of fiscal 2003. On-going sales declined about $3.0 million for the six months ended. Prior year results included a period of significant demand which was related to increased capacity requirements from the telecommunications, fiber optics and other industries requiring our technology. During the past year this demand has diminished and is not expected to reach similar levels in the near future. Sales of the Energy Technology segment decreased $250,000 or 38% to about $400,000 for the quarter due to increased efforts being applied to unfunded programs. The prior period contained sales from various funded programs now completed. In the current period the effort dedicated to those programs has been applied to programs for which funding is not available at this time relating primarily to superconducting devices. Energy Technology segment sales for the six months ended November 24, 2002 declined nearly $800,000 or 51% to about $770,000 related to reduced customer funding and additional effort applied to unfunded programs for similar reasons stated above. Overall, as reported gross margins decreased $1.9 million to $14.1 million or 39% of sales for the quarter, from $16.0 million, or 41% of sales for the same period last year. Of this decline $2.3 million is related to disposed businesses partially offset by a $400,000 increase related to increased sales, primarily in the MRI segment. Gross margins for the three months ended related to on-going operations increased $300,000 from $13.9 million, or 40% of sales to $14.1 million, or 39% of sales. This increase is a result of increased sales in all segments except Energy Technology. Gross margin for the six months ended, on an as reported basis, declined $5.5 million or 17% to $27.7 million or 39% of sales, from $33.3 million or 42% of sales. The Company realized about a $4.5 million decline in margin relating to the sale of divested businesses. The remainder of this decline is related to reduced margins primarily in the Instrumentation segment as a result of the decline in markets served, partially offset by increased margins in the MRI segment related to increased sales. 18 Gross margin for the six months related to on-going operations declined about $1.3 million from $29.0 million or 41% of sales to $27.7 million or 39% of sales. This decline is also a result of reduced customer demand in the Instrumentation segment partially offset by improved customer demand in the MRI segment. Internal research and development declined about $500,000 to $3.2 million from $3.7 million for the three months ended November 24, 2002, on an as reported basis. Primarily this decline was related to businesses no longer being consolidated partially offset by increased spending in the MRI segment. Internal research and development related to on-going operations was essentially the same as last year. MRI sector internal research and development increased about 18% or $300,000 resulting from additional effort applied to new magnet development. This increase was partially offset by a slight decline in spending at other segments. Internal Research and Development on an as reported basis, for the six months ended, declined approximately $1.0 million to $6.7 million. This decline is primarily related to the sale of IGC-AS and IGC-APD. Internal research and development related to on-going operations for the six months ended increased about $300,000 resulting from additional focus on new magnet systems and second generation high temperature superconductors and first generation devices. Marketing, general and administrative expenses, on an as reported basis decreased by $1.6 million to $5.0 million for the quarter. About $900,000 of this decline was due to the sale of IGC-AS and IGC-APD, with the remainder resulting from reduced spending relating to salaries, consulting, recruiting and a reduction of accruals for incentive compensation. On an on-going basis, marketing, general and administrative expenses for the quarter decreased by $700,000 due to the spending reductions mentioned above. Marketing, general and administrative expenses for the six months ended declined $4.4 million on an as reported basis. Approximately $2.0 million of this decline is related to the disposed businesses. The remainder of this spending decrease is a result of decreases in all segments most notably the MRI segment due to the reductions stated above. Amortization of intangibles decreased by $26,000 in the three month period due to the sale of IGC-APD during fiscal 2002. Operating income as reported for the quarter increased by approximately $225,000 over the same period last year. Operating income from on-going operations increased about $945,000 compared to the same period last year. As reported, operating income for the six months ended is essentially the same as last year despite the disposition of IGC-AS and IGC-APD. Operating income from on-going operations increased about $985,000. 19 Interest and other income decreased about $450,000 for the three month period and $400,000 for the six month period. This decrease is primarily related to the prior year containing income of about $540,000 from the sale of a product line. Additionally, the Company's cash balances have increased considerably in the current year however, interest rates have declined therefore resulting in lower interest income earned. Interest and other expense have declined about $50,000 in the three month period and $66,000 in the six month period due to the disposition of IGC-APD. During the three months ended the Company sold its remaining shares of Ultralife Batteries Inc. and realized a pre-tax loss of $2.1 million (see Note G). Looking forward, we expect to continue to maintain our investment in Energy Technology in order to be ready when the market for these products begins to develop, which we believe will be about the middle of the decade. Despite this investment, and a decrease in sales, resulting from the sale of IGC-AS and IGC-APD, we expect net income to increase in the current fiscal year by about 10% to 15% (from on-going operations) as a result of our streamlined business focus, cost containment and manufacturing efficiencies. A portion of this growth is expected to come from increased sales of high field (3.0T) as well as recently developed and new products being developed at IGC-Medical Advances and IGC-Polycold. These products were being developed at the end of the prior fiscal year and continue to be developed now. Our customers are intimately involved in the definition and development of these products. Additionally, the Company has an active cost cutting program in each of its divisions to increase earnings. These expectations are based on the following assumptions, among others: o The market for MRI systems continues to grow and our largest customer retains its share of that market; o Customer acceptance of the new products recently developed and products under development throughout the Company; o New products and recently developed products achieve the level of growth and market acceptance expected; o Uncertainty in economic conditions does not impede further improvement in Instrumentation orders; and, o We are able to maintain gross margins through continued production cost reductions and manufacturing efficiencies. 20 Liquidity and Capital Commitments For the first six months of the current fiscal year, we generated approximately $8.4 million of cash from operating activities, $1.4 million from the sale of available-for-sale securities and about $359,000 from the exercise of stock options. We used approximately $1.6 million of cash for capital expenditures, $2.9 million under our Executive Stock Purchase Plan, net of repayments and $4.7 million for the purchase of treasury stock. 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 November 24, 2002 consisted of capital equipment commitments of approximately $1,956,000. At November 24, 2002, we had a $50 million unsecured line of credit with three banks. Borrowings under the line bear interest at the London Interbank Offered Rate (LIBOR) plus an applicable margin or prime plus an applicable margin, at our option. The line was not in use during the quarter or 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 may need to raise additional funds. We would expect to be able to do so through additional lines of credit, public offerings or private placements. However, in the event funds were not available from these sources, or on acceptable terms, we would expect to manage our growth within the financing available. Inflation has not had a material impact on our financial statements. 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 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 LIBOR plus an applicable margin, or prime plus an applicable margin, 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. 21 The Company does not believe that its exposure to commodity and foreign exchange risk is material. ITEM 4: CONTROLS AND PROCEDURES The Company, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to the filing date of this quarterly report. Based upon, and as of the date of, that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures of the Company were effective in ensuring that information required to be disclosed in the periodic reports that it files or submits under the Exchange Act is accumulated and communicated to the management of the Company, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There have been no significant changes in the Company's internal controls, or in other factors that could significantly affect these controls, subsequent to the date of the evaluation referred to above. There were no significant deficiencies or material weaknesses identified in the evaluation and, therefore, no corrective actions have been taken since the date of the evaluation. 22 PART II: OTHER INFORMATION ITEM 4:. Submission of Matters to a Vote of Security Holders (a) The November 2002 Annual Meeting of Shareholders of the Company was held on November 12, 2002. (c)(i) At the Annual Meeting, the Shareholders of the Company approved an increase to the number of shares available for issuance under the 2000 Stock Option and Award Plan by 820,000 shares. The vote was 11,728,195 FOR; 3,365,336 AGAINST; 77,245 ABSTAIN. (c)(ii) At the Annual Meeting, the Shareholders of the Company approved an increase to the maximum number of shares for which any individual may receive grants under the 2000 Stock Option and Award Plan to 500,000 per calendar year. The vote was 11,400,564 FOR; 3,691,773 AGAINST; 78,439 ABSTAIN.. (c)(iii) At the Annual Meeting, the Shareholders of the Company elected to the Board of Directors all four nominees for director with the following vote:
- --------------------------------------------------------------------------------------------------------------- BROKER DIRECTOR FOR WITHHELD ABSTAIN NON-VOTES - --------------------------------------------------------------------------------------------------------------- John M. Albertine 14,331,122 859,654 -- -- - --------------------------------------------------------------------------------------------------------------- Glenn H. Epstein 14,341,980 828,796 -- -- - --------------------------------------------------------------------------------------------------------------- James S. Hyde 14,339,492 831,284 -- -- - --------------------------------------------------------------------------------------------------------------- Larry G. Garberding 14,384,397 786,379 -- -- - ---------------------------------------------------------------------------------------------------------------
ITEM 6:. Exhibits and Reports on Form 8K. (a) Exhibits Certifications of Chief Executive Officer and Chief Financial Officer * 99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. * 99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8K On October 23, 2002 the Company filed an 8-K with respect to the sale of all remaining shares of Ultralife Batteries, Inc. 23 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 8, 2003 By: /s/Glenn H. Epstein ---------------------------------- Glenn H. Epstein President and Chief Executive Officer Dated: January 8, 2003 By: /s/Michael K. Burke ------------------------------------- Michael K. Burke Executive Vice President and Chief Financial Officer 24 CERTIFICATIONS - -------------- I, Glenn H. Epstein, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Intermagnetics General Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based upon my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: January 8, 2003 /s/Glenn H. Epstein ---------------------------------- Glenn H. Epstein President and Chief Executive Officer 25 CERTIFICATIONS - -------------- I, Michael K. Burke, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Intermagnetics General Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based upon my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: January 8, 2003 /s/Michael K. Burke --------------------------------------- Michael K. Burke Executive Vice President and Chief Financial Officer EX-99 3 exh99-1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Intermagnetics General Corporation (the "Company") on Form 10-Q for the quarter ending August 25, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Glenn H. Epstein, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as added by ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Glenn H. Epstein - ------------------------- Glenn H. Epstein Chief Executive Officer January 08, 2003 EX-99 4 exh99-2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Intermagnetics General Corporation (the "Company") on Form 10-Q for the year ending August 25, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael K. Burke, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as added by ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Michael K. Burke - -------------------------- Michael K. Burke Chief Financial Officer January 08, 2003 -----END PRIVACY-ENHANCED MESSAGE-----