-----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, AN/8dReJWYVxGshml512ULd4/gqRtRcoKp8AAZZX5Rq9bMG0tT+RmYFilb0b1KfN X+8JMVBOYvJjcJWAkOrHMQ== 0000950116-99-000749.txt : 19990415 0000950116-99-000749.hdr.sgml : 19990415 ACCESSION NUMBER: 0000950116-99-000749 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 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: SEC FILE NUMBER: 001-11344 FILM NUMBER: 99593569 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 FORM 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 28, 1999 ----------------- or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________ Commission file number 1-11344 ------- INTERMAGNETICS GENERAL CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) New York 14-1537454 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 450 Old Niskayuna Road, PO Box 461, Latham, NY 12110-0461 --------------------------------------------------------- (Address of principal executive offices) (Zip Code) (518) 782-1122 -------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No . --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common Stock, $.10 par value - 12,328,628 as of April 7, 1999. INTERMAGNETICS GENERAL CORPORATION CONTENTS PART I - FINANCIAL INFORMATION Item 1: Financial Statements: Consolidated Balance Sheets - February 28, 1999 and May 31, 1998..... 3 Consolidated Statements of Income - Three Months and Nine Months Ended February 28, 1999 and February 22, 1998....................... 5 Consolidated Statements of Cash Flows - Nine Months Ended February 28, 1999 and February 22, 1998...................................... 6 Notes to Consolidated Financial Statements........................... 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations............................................12 PART II - OTHER INFORMATION...................................................17 SIGNATURES....................................................................18 2 INTERMAGNETICS GENERAL CORPORATION ITEM 1: FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) February 28, May 31, 1999 1998 ------------ -------- (Unaudited) ASSETS CURRENT ASSETS Cash and short-term investments $ 3,328 $ 2,993 Trade accounts receivable, less allowance (February 28 - $527; May 31 - $350) 19,773 14,802 Costs and estimated earnings in excess of billings on uncompleted contracts 1,196 4,660 Inventories: Finished products 439 1,045 Work in process 17,519 18,313 Materials and supplies 14,342 13,491 ------- ------- 32,300 32,849 Prepaid expenses and other 5,124 5,006 ------- ------- TOTAL CURRENT ASSETS 61,721 60,310 PROPERTY, PLANT AND EQUIPMENT Land and improvements 1,479 1,479 Buildings and improvements 16,619 16,604 Machinery and equipment 39,643 39,421 Leasehold improvements 692 649 ------- ------- 58,433 58,153 Less allowances for depreciation and amortization 35,550 32,445 ------- ------- 22,883 25,708 Equipment in process of construction 3,260 2,231 ------- ------- 26,143 27,939 INTANGIBLE AND OTHER ASSETS Available for sale securities 1,557 3,450 Other investments 6,027 5,178 Investment in affiliates 6,648 7,564 Notes receivable from affiliate 2,709 2,476 Excess of cost over net assets acquired, less accumulated amortization (February 28 - $2,181; May 31 - $1,166) 17,951 18,966 Other assets 1,748 1,893 ------- ------- TOTAL ASSETS $124,504 $127,776 ======== ======== See notes to consolidated financial statements. 3 INTERMAGNETICS GENERAL CORPORATION CONSOLIDATED BALANCE SHEETS, Continued (Dollars in Thousands, Except Per Share Amounts) LIABILITIES AND SHAREHOLDERS' EQUITY February 28, May 31, 1999 1998 ------------ ------- (Unaudited) CURRENT LIABILITIES Current portion of long-term debt $ 326 $ 272 Note payable 1,600 Accounts payable 8,127 6,076 Salaries, wages and related items 3,865 3,647 Customer advances and deposits 1,778 298 Product warranty reserve 1,066 996 Accrued income taxes 2,411 Other liabilities and accrued expenses 2,316 1,117 ------ ------ TOTAL CURRENT LIABILITIES 19,078 14,817 LONG-TERM DEBT, less current portion 26,708 28,833 DEFERRED INCOME TAXES 325 SHAREHOLDERS' EQUITY Preferred Stock, par value $.10 per share: Authorized - 2,000,000 shares Issued and outstanding: 6,999 6,999 February 28, 1999 - 69,992 shares May 31, 1998 - 69,992 shares Common Stock, par value $.10 per share: Authorized - 40,000,000 shares Issued and outstanding (including shares in treasury): February 28, 1999 - 13,466,379 shares May 31, 1998 - 13,334,280 shares 1,347 1,334 Additional paid-in capital 81,671 81,008 Accumulated deficit (1,073) (1,081) Accumulated other comprehensive income (loss) (609) 496 ------- ------- 88,335 88,756 Less cost of Common Stock in treasury (February 28, 1999 - 1,160,988 shares; May 31, 1998 - 562,175 shares) (9,617) (4,955) ------- ------- 78,718 83,801 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $124,504 $127,776 ======== ======== See notes to consolidated financial statements. 4 INTERMAGNETICS GENERAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended ----------------------------- ------------------------------ February February February February 28, 1999 22, 1998 28, 1999 22, 1998 ------------- ------------- ------------- -------------- Net sales $23,004 $25,235 $75,461 $68,470 Cost of products sold 15,245 16,177 48,588 43,594 Inventory written off in restructuring - Note D 1,554 ------------- ------------- ------------- -------------- 15,245 16,177 50,142 43,594 ------------- ------------- ------------- -------------- Gross margin 7,759 9,058 25,319 24,876 Product research and development 1,552 1,665 4,800 5,731 Marketing, general and administrative 4,735 5,357 15,889 14,894 Amortization of intangible assets 341 334 1,015 660 Restructuring charges - Note D 2,398 ------------- ------------- ------------- -------------- 6,628 7,356 24,102 21,285 ------------- ------------- ------------- -------------- Operating income 1,131 1,702 1,217 3,591 Interest and other income 681 507 1,458 1,472 Interest and other expense (465) (555) (1,622) (1,600) Equity in net loss of unconsolidated affiliates (444) (317) (916) (400) ------------- ------------- ------------- -------------- Income before income taxes 903 1,337 137 3,063 Provision for income taxes 451 522 129 1,195 ------------- ------------- ------------- -------------- NET INCOME $ 452 $ 815 $ 8 $1,868 ============= ============= ============= ============== Earnings per Common Share: Basic $ 0.04 $ 0.06 $ 0.00 $ 0.15 ============= ============= ============= ============== Diluted $ 0.03 $ 0.06 $ 0.00 $ 0.14 ============= ============= ============= ==============
See notes to consolidated financial statements. See Note D of Notes to Financial Statements for a description of the restructuring charges included herein. 5 INTERMAGNETICS GENERAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended ------------------------------------- February 28, February 22, 1999 1998 ----------------- ----------------- OPERATING ACTIVITIES Net income $ 8 $ 1,868 Adjustments to reconcile net income to net cash provided by operating activities: Non-cash restructuring charges 3,952 Depreciation and amortization 4,468 3,857 Non-cash expense from warrants issued 450 Equity in net loss of unconsolidated affiliates 916 400 Gain on sale of assets (91) Gain on debt redemption (275) Change in operating assets and liabilities: Increase in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (1,645) (408) Increase in inventories and prepaid expenses and other (1,122) (3,123) Increase (decrease) in accounts payable and accrued expenses 1,684 (449) Change in foreign currency translation adjustments and other 177 (62) --------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,163 2,442 INVESTING ACTIVITIES Cash acquired in acquisition 3,706 Purchases of property, plant and equipment (2,410) (2,059) Proceeds from the sale of assets 93 Purchases of other investments (1,038) Investment in and advances to unconsolidated affiliates (614) (1,427) Repayments of advances by unconsolidated affiliate 381 --------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,681) 313 FINANCING ACTIVITIES Net proceeds from short-term borrowings 1,600 Proceeds from the sale of warrants 120 Purchase of Treasury Stock (4,182) (3,962) Proceeds from sales of Common Stock 196 621 Early debt redemption (1,550) Principal payments on note payable and long-term debt (211) (212) --------- ---------- NET CASH USED IN FINANCING ACTIVITIES (4,147) (3,433) --------- ---------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 335 (678) CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 2,993 12,667 --------- ---------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 3,328 $ 11,989 ========= ==========
See notes to consolidated financial statements. 6 INTERMAGNETICS GENERAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - General In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position at February 28, 1999 and the results of operations and cash flows for the nine-month periods ended February 28, 1999 and February 22, 1998. See Note D for a description of the restructuring charges included in these financial statements. The results for the three months and nine months ended February 28, 1999 are not necessarily indicative of the results to be expected for the entire year. The Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's consolidated financial statements for the year ended May 31, 1998, filed on Form 10-K on August 28, 1998. Certain prior year financial information has been reclassified to conform to current year presentation. Note B - Earnings Per Share A summary of the shares used in the calculation of earnings per share is shown below: (Dollars in Thousands, Except Per Share Amounts)
Three Months Ended --------------------------------------------------- February 28, 1999 February 22, 1998 ------------------------ ------------------------ Income available to common shareholders $ 452 $ 815 Weighted average shares 12,349,960 12,753,799 Dilutive Potential Common Shares: Convertible Preferred Stock 1,269,696 679,593 Stock options 66,668 248,520 --------- --------- 1,336,364 928,113 ---------- ----------- Adjusted weighted average shares 13,686,324 13,681,912 ========== =========== Earnings per common share: Basic $ 0.04 $ 0.06 ========= =========== Diluted $ 0.03 $ 0.06 ========= ===========
7 (Dollars in Thousands, Except Per Share Amounts)
Nine Months Ended --------------------------------------------------- February 28, 1999 February 22, 1998 ------------------------ ------------------------ Income available to common shareholders $ 8 $ 1,868 Weighted average shares 12,460,295 12,750,210 Dilutive Potential Common Shares: Convertible Preferred Stock 1,269,696 226,559 Stock options 124,723 325,324 ---------- -------- 1,394,419 551,883 ---------- ---------- Adjusted weighted average shares 13,854,714 13,302,093 ========== ========== Earnings per common share: Basic $ 0.00 $ 0.15 ========== ========== Diluted $ 0.00 $ 0.14 ========== ==========
Diluted shares include the potential dilutive effect of Convertible Preferred Stock (which has increased dramatically due to the recent decline in the Company's stock price) and stock options. Shares issuable upon conversion of convertible subordinated debentures have been excluded from the calculation, as their effect would be antidilutive. Shares for the periods presented have been adjusted to reflect a 2% stock dividend distributed September 17, 1998 as described in Note E. Note C - Comprehensive Income Effective June 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement requires that all items recognized under accounting standards as components of comprehensive income or loss be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This Statement also requires that an entity classify items of other comprehensive income or loss by their nature in annual financial statements. 8 The Company's total comprehensive income (loss) was as follows: (Dollars in Thousands)
Three Months Ended Nine Months Ended --------------------------- --------------------------- Feb 28, 1999 Feb 22, 1998 Feb 28, 1999 Feb 22, 1998 ------------ ------------ ------------ ------------ Net income $ 452 $ 815 $ 8 $1,868 Other comprehensive income (loss): Unrealized gain (loss) on available- for-sale securities, net of related taxes (289) 204 (1,282) 924 Foreign currency translation (182) (40) 177 4 ----- ----- ------ ------ Total comprehensive income (loss) $ (19) $ 979 ($1,097) $2,796 ====== ===== ======= ======
Note D - Restructuring During the second quarter, the Company received notice from Trex Medical Corporation ("Trex") that it was not prepared to continue operating under a distributor agreement under which Trex was to distribute the Company's permanent magnet-based clinical MRI systems. The Company has filed suit against Trex for breaching and repudiating the agreement. In November 1998, the Company decided to exit this business and restructured its operations through the closure of its Field Effects division, which was engaged in the manufacture and sale of clinical MRI systems. As a result, the Company recorded a total restructuring charge of $3,952,000, including liabilities recorded of $919,000, comprised of the following: Inventory write-down included in cost of products sold $1,554,000 Restructuring charges: Write-down of equipment to fair value 1,104,000 Provision for severance and lease obligations 722,000 Write-off of other assets 237,000 Other 335,000 --------- 2,398,000 --------- Total $3,952,000 ========== 9 The Company vacated its premises, and moved existing equipment and inventory to storage near its corporate headquarters. All usable equipment has been transferred to other operations at its book value. Other equipment and inventory have been written down to estimated realizable value. The Company is actively engaged in attempting to sell such inventory and equipment. It is estimated that this will take approximately one year. The Company made a total of $433,000 in payments on liabilities resulting from the business restructuring, as follows: Beginning Ending Balance Payments Balance ---------- ---------- ---------- Lease payments $475,000 $ 52,000 $423,000 Payroll related 226,000 226,000 Other 218,000 155,000 63,000 ======== ======== ======== Total $919,000 $433,000 $486,000 ======== ======== ======== Note E - Stock Dividend On July 21, 1998, the Company declared a 2% stock dividend which was distributed on all outstanding shares, except Treasury Stock, on September 17, 1998 to all shareholders of record on August 27, 1998. The consolidated financial statements have been adjusted retroactively to reflect this stock dividend in all numbers of shares, prices per share and earnings per share. Note F - New Accounting Pronouncements In June, 1997, the FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. SFAS 131 focuses on a "management approach" concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. SFAS 131 is effective for fiscal years beginning after December 15, 1997. The Company will comply with the reporting requirements of SFAS 131 for the fiscal year ending May 30, 1999. Management anticipates that the effect of the adoption of SFAS 131 will not significantly impact the 10 current presentation of the Company's segment disclosure as the current reportable segments are consistent with the "management approach" methodology outlined in SFAS 131. In February, 1998, the FASB issued SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans, but does not change the measurement or recognition of those plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997. The Company will comply with the reporting requirements of SFAS 132 for the fiscal year ending May 30, 1999. In March, 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. SOP 98-1 also requires that costs related to the preliminary project stage and post-implementation/operations stage of an internal-use computer software development project be expensed as incurred. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company will comply with the reporting requirements of SOP 98-1 for the fiscal year ending May 28, 2000. Management anticipates that the adoption of SOP 98-1 will not have a material effect on the Company's consolidated financial statements. In March, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5 requires the expensing of certain costs such as pre-operating expenses and organizational costs associated with a company's start-up activities. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The effect of adoption is required to be accounted for as a cumulative change in accounting principle. The Company will comply with the reporting requirements of SOP 98-5 for the fiscal year ending May 28, 2000. Management anticipates that the adoption of SOP 98-5 will not have a material effect on the Company's consolidated financial statements. In June, 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management is currently evaluating the impact of SFAS 133 on the Company's consolidated financial statements. 11 INTERMAGNETICS GENERAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------------------ Safe Harbor Statement - --------------------- The statements contained in this report which are not historical fact are "forward-looking statements" that involve various important assumptions, risks, uncertainties and other factors which could cause the Company's actual results for 1999 and beyond to differ materially from those expressed in such forward-looking statements. These important factors include, without limitation, any assumptions, risks, and uncertainties set forth herein, as well as other assumptions, risks, uncertainties and factors disclosed elsewhere in this report and in the Company's press releases, shareholders' reports and filings with the Securities and Exchange Commission, including, but not limited to, the risks inherent in any litigation, the Company's ability to win greater market acceptance for FRIGC, resolution of production problems and expanded product sales for IGC-APD, continued strength and expansion in its core wire and MRI magnet markets, as well as the Company's ability to identify and mitigate risks associated with the year 2000 problem. Results of Operations - --------------------- During the first nine months of fiscal 1999, net sales were 10% higher, but were 9% lower in the third quarter than in the same periods of fiscal 1998. Results for the current periods include IGC Polycold Systems, Inc. ("Polycold"), which was acquired in November, 1997. Gross margin rates declined in the third quarter due to increased manufacturing variances in the Refrigeration Products segment and for the nine months due primarily to the write-off in November, 1998 of inventory associated with the closing of the Company's Field Effects ("FE") division. See Note D of Notes to Financial Statements. In the first nine months of fiscal 1999, sales were slightly higher in the Magnetic Products segment due to increased demand for RF coils and much higher sales of superconducting materials for MRI, but lower in the third quarter due to the timing of shipments of, and continuing price reductions for, MRI magnets. Sales were higher in the Refrigeration Products segment during the first nine months with the inclusion of Polycold, but lower in the third quarter due to the effect of the economic situation in Asia. Exclusive of the inventory write-off discussed above, gross margin rates increased for Magnetic Products. Gross margin rates for Refrigeration Products were lower, despite the inclusion of Polycold, due to reduced sales, a less favorable sales mix, continued competitive pricing pressures, and manufacturing variances. 12 Internal research and development expenses were lower in the first nine months and third quarter compared to the same periods of fiscal 1998, as certain developmental programs were completed and engineering efforts were devoted to marketing and manufacturing support. Externally-funded programs continued to decline. Marketing, general and administrative expenses decreased in the third quarter, but increased in the first nine months of fiscal 1999 compared to the same period in fiscal 1998 due to the inclusion of Polycold, which more than offset declines in other business units. In connection with the termination of the FE business operations in the second quarter of fiscal 1999, the Company recorded a charge to operations of $2,398,000 relating to costs associated with present and future expenses necessary to close out the business unit. During the third quarter the Company recorded a pre-tax gain of approximately $275,000 resulting from the early redemption of $1,860,000 of the outstanding 5 3/4% Convertible Subordinated Debentures due 2003, which is included in Interest and other income. Interest expense was lower in the third quarter of fiscal 1999 than in the same period of fiscal 1998, due to the repayment of the short-term note issued last year in the acquisition of Polycold. The Company's tax rate increased in fiscal 1999 due to the increase in amortization of intangible assets arising from the Polycold acquisition in fiscal 1998. This amortization expense, along with amortization associated with intangibles acquired in the acquisition of Medical Advances, Inc., must be recorded on the Company's books, but is not allowed as a deduction on the Company's tax return, resulting in a much higher provision for income taxes than one would expect based on the current level of pre-tax income. Year 2000 Issues - ---------------- The "year 2000 problem" arises because many existing computer programs ("information technology" or "IT"), as well as non-IT systems that use embedded technology such as microcontrollers or "chips," only use the last two digits to refer to a year and therefore do not properly recognize that a year that ends with "00" (i.e. "2000") should follow the year that ends with "99" (i.e. "1999"). If not corrected, it is possible that many IT and non-IT systems will fail or create errors. Generally, no one knows the extent of the potential impact of the year 2000 problem. State of Readiness: The Company has developed and is implementing an assessment and remediation plan to identify and, if necessary, correct potential year 2000 problems in the following areas: 13 1. Computer Systems. The Company has evaluated all desktop and server systems for the existence of year 2000 problems using commercial evaluation software. A small number of systems will require upgrade or replacement. These should be corrected before November, 1999. 2. Business Software. The Company's assessment and remediation plan has identified that several of the present business systems are not year 2000 compliant. The Company has had an ongoing project to install an enterprise-wide software system designed to integrate all business entities. This project began in 1996. Both the software and hardware selected for this project are year 2000 compliant and are expected to be implemented before August, 1999. This represents about a three-month delay from the originally expected implementation date of May, 1999. 3. Non-IT Systems. These include heating and air conditioning (HVAC), communication and security systems, as well as tools using embedded chips used in the manufacturing process. The Company has completed its evaluation of all HVAC, communication and security systems, and has developed replacement or upgrade plans to correct the problems encountered. These plans will be completed before the end of 1999. The Company has also completed the evaluation of tools using embedded chips. A small number of non-IT systems used as test systems require upgrade. These systems should be corrected before September, 1999. 4. Business Partners. The Company has requested all of its customers and vendors to describe their state of readiness. While it is difficult to predict the impact of year 2000 problems at our customers and vendors, results to date have not indicated any significant problems. This process is approximately 75% complete and is expected to be finished by the end of May, 1999. The Company intends to remediate any problems that occur in this area by qualifying new suppliers or increasing strategic inventory levels if new suppliers are not considered practical. Currently, the Company believes that it possesses adequate financial resources to provide for such additional inventory, however, no assurances can be made. Costs: The Company estimates that the total cost of its assessment and remediation plan will amount to approximately $2.7 million, which is being funded through operating cash flows. Included in this amount is approximately $2 million for the replacement of the business systems described above, which is being capitalized because its purchase and implementation was primarily related to increases in system functionality. Approximately $1.7 million of the expected total cost has been incurred to date. 14 Risks and Contingency Plans: While the Company expects to achieve full year 2000 compliance before the end of 1999, it recognizes that there are certain risks that are outside of its control. Although there have been no problems identified to date, the Company believes that the greatest risk comes from the possibility that significant suppliers of materials or services (electricity, telephone, banking, etc.) will not be year 2000 compliant and that such lack of compliance will impact delivery of those materials or services. The Company has established, as part of its year 2000 team, a group representing each business unit which is tasked with identifying areas where problems could occur, assessing the likelihood of problems and developing a list of actions which could be taken to reduce or eliminate such risks. Examples of such actions are increasing strategic inventories to enable the Company to work through a period where supply or production is disrupted, maintaining cash on hand to meet payrolls and the establishment of alternate arrangements for electric power. The Company expects this group to complete its evaluation of possible actions and report its findings to management by June, 1999. Management will then select appropriate actions based on an assessment of the likelihood of a problem and the practicality, cost and effectiveness of the proposed action. Liquidity and Capital Commitments - --------------------------------- During the first nine months of fiscal 1999, the Company generated cash of $8,163,000 from operating activities of which $3,681,000 was used in investing activities, principally for machinery and equipment in the amount of $2,410,000 and a $1,000,000 investment in a refrigeration product company. Also, the Company used $4,147,000 in financing activities, primarily for the repurchase of $4,182,000 of Treasury Stock and $1,550,000 for the early retirement of $1,860,000 5 3/4% Convertible Subordinated Debentures due in September, 2003, offset by $1,600,000 in net proceeds provided by short-term borrowings under the Company's line of credit. Recently the Company confirmed that it is negotiating with its French joint venture partner, Alstom S.A., to assume the Alstom-Intermagnetics ("AISA") magnetic resonance imaging (MRI) magnet production operations currently located in Belfort, France. Production would move to Intermagnetics' New York facility early in the Year 2000. Alstom S.A. currently has a 55% interest in AISA, which produces a total of more than $15 million in annual revenue. The final agreement is subject to the approval of both Companies' Boards of Directors and will require the Company to make a cash payment for the purchase, of which $4,250,000 was advanced to Alstom S.A. in the fourth quarter. The Company expects to utilize its existing line of credit to finance these payments. 15 The Company's capital resource commitments as of February 28, 1999 consist principally of capital equipment commitments of approximately $1,600,000. The Company has an unsecured line of credit of $25,000,000 which expires in November, 2000, of which $1,600,000 was in use on February 28, 1999. The Company believes that it will have sufficient working capital to meet its needs for the foreseeable future. However, pursuit of large-scale applications in superconductivity and new refrigerants may require the Company to seek additional financing in future years. 16 PART II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None filed during the quarter ended February 28, 1999. 17 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 13, 1999 By: /s/Carl H. Rosner ----------------------------------- Carl H. Rosner Chairman and Chief Executive Officer Dated: April 13, 1999 By: /s/Michael C. Zeigler ----------------------------------- Michael C. Zeigler Senior Vice President, Finance 18 EX-27 2 FDS -- 1999 10-Q 3RD QUARTER
5 1,000 9-MOS MAY-30-1999 FEB-28-1999 3,328 0 20,300 527 32,300 61,721 61,693 35,550 124,504 19,078 26,708 0 6,999 1,347 70,372 124,504 75,461 76,919 48,588 50,142 25,018 0 1,622 137 129 8 0 0 0 8 0.00 0.00
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