UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 26, 2014
Or
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¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-35083
GSI Group Inc.
(Exact name of registrant as specified in its charter)
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New Brunswick, Canada |
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98-0110412 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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125 Middlesex Turnpike Bedford, Massachusetts, USA |
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01730 |
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(Address of principal executive offices) |
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(Zip Code) |
(781) 266-5700
(Registrant’s telephone number, including area code)
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 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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¨ |
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Accelerated filer |
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x |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
As of October 27, 2014, there were 34,211,282 of the Registrant’s common shares, no par value, issued and outstanding.
GSI GROUP INC.
TABLE OF CONTENTS
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Item No. |
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ITEM 1. |
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1 |
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2 |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) |
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3 |
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ITEM 2. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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20 |
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ITEM 3. |
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32 |
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ITEM 4. |
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32 |
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33 |
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ITEM 1. |
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33 |
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ITEM 1A. |
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33 |
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ITEM 2. |
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33 |
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ITEM 3. |
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33 |
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ITEM 4. |
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33 |
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ITEM 5. |
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33 |
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ITEM 6. |
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34 |
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35 |
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36 |
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GSI GROUP INC.
(In thousands of U.S. dollars or shares)
(Unaudited)
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September 26, |
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December 31, |
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2014 |
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2013 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ |
53,549 |
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$ |
60,980 |
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Accounts receivable, net of allowance of $435 and $575, respectively |
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56,673 |
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48,552 |
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Inventories |
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62,815 |
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58,290 |
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Income taxes receivable |
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5,251 |
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5,715 |
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Deferred tax assets |
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8,699 |
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6,351 |
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Prepaid expenses and other current assets |
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4,392 |
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5,134 |
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Assets of discontinued operations |
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631 |
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16,088 |
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Total current assets |
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192,010 |
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201,110 |
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Property, plant and equipment, net |
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39,634 |
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31,303 |
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Deferred tax assets |
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438 |
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519 |
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Other assets |
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14,131 |
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9,426 |
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Intangible assets, net |
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93,543 |
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65,293 |
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Goodwill |
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110,783 |
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71,156 |
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Total assets |
$ |
450,539 |
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$ |
378,807 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Current portion of long-term debt |
$ |
7,500 |
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$ |
7,500 |
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Accounts payable |
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31,223 |
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24,361 |
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Income taxes payable |
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2,305 |
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1,018 |
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Deferred tax liabilities |
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172 |
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214 |
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Accrued expenses and other current liabilities |
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19,078 |
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22,288 |
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Liabilities of discontinued operations |
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1,437 |
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6,398 |
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Total current liabilities |
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61,715 |
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61,779 |
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Long-term debt |
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114,375 |
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64,000 |
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Deferred tax liabilities |
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4,636 |
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— |
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Income taxes payable |
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7,484 |
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5,596 |
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Other liabilities |
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13,551 |
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5,029 |
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Total liabilities |
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201,761 |
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136,404 |
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Commitments and Contingencies (Note 13) |
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Stockholders’ Equity: |
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Common shares, no par value; Authorized shares: unlimited; Issued and outstanding: 34,209 and 33,991, respectively |
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423,856 |
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423,856 |
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Additional paid-in capital |
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27,968 |
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25,383 |
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Accumulated deficit |
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(194,680 |
) |
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(200,913 |
) |
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Accumulated other comprehensive loss |
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(8,795 |
) |
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(6,342 |
) |
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Total GSI Group Inc. stockholders’ equity |
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248,349 |
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241,984 |
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Noncontrolling interest |
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429 |
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419 |
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Total stockholders’ equity |
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248,778 |
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242,403 |
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Total liabilities and stockholders’ equity |
$ |
450,539 |
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$ |
378,807 |
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The accompanying notes are an integral part of these consolidated financial statements.
1
GSI GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars or shares, except per share amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 26, |
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September 27, |
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September 26, |
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September 27, |
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2014 |
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2013 |
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2014 |
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2013 |
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Sales |
$ |
94,656 |
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$ |
79,858 |
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$ |
270,694 |
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$ |
234,698 |
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Cost of sales |
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54,973 |
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45,697 |
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160,255 |
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136,667 |
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Gross profit |
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39,683 |
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34,161 |
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110,439 |
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98,031 |
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Operating expenses: |
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Research and development and engineering |
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7,735 |
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6,031 |
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21,117 |
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17,962 |
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Selling, general and administrative |
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21,512 |
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19,006 |
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62,540 |
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57,069 |
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Amortization of purchased intangible assets |
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2,843 |
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1,772 |
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7,463 |
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5,625 |
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Restructuring and acquisition related costs |
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771 |
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1,553 |
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1,949 |
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4,724 |
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Total operating expenses |
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32,861 |
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28,362 |
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93,069 |
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85,380 |
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Operating income from continuing operations |
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6,822 |
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5,799 |
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17,370 |
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|
12,651 |
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Interest income (expense), net |
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(1,453 |
) |
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|
(841 |
) |
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(3,665 |
) |
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(2,660 |
) |
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Foreign exchange transaction gains (losses), net |
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1,030 |
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(1,723 |
) |
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950 |
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(963 |
) |
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Other income (expense), net |
|
733 |
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|
542 |
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1,733 |
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1,204 |
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Income from continuing operations before income taxes |
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7,132 |
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3,777 |
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16,388 |
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10,232 |
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Income tax provision |
|
2,013 |
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1,533 |
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5,007 |
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4,954 |
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Income from continuing operations |
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5,119 |
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2,244 |
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11,381 |
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5,278 |
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Loss from discontinued operations, net of tax |
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(273 |
) |
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(185 |
) |
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(4,817 |
) |
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(1,643 |
) |
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Loss on disposal of discontinued operations, net of tax |
|
(321 |
) |
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(281 |
) |
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(321 |
) |
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(592 |
) |
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Consolidated net income |
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4,525 |
|
|
|
1,778 |
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|
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6,243 |
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|
|
3,043 |
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Less: Net income (loss) attributable to noncontrolling interest |
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— |
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12 |
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(10 |
) |
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(42 |
) |
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Net income attributable to GSI Group Inc. |
$ |
4,525 |
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|
$ |
1,790 |
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$ |
6,233 |
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$ |
3,001 |
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Earnings per common share from continuing operations: |
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Basic |
$ |
0.15 |
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|
$ |
0.07 |
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$ |
0.33 |
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$ |
0.15 |
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Diluted |
$ |
0.15 |
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$ |
0.07 |
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$ |
0.33 |
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$ |
0.15 |
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Loss per common share from discontinued operations: |
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|
|
|
|
|
|
|
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|
|
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|
|
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Basic |
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.15 |
) |
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$ |
(0.07 |
) |
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Diluted |
$ |
(0.02 |
) |
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$ |
(0.02 |
) |
|
$ |
(0.15 |
) |
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$ |
(0.07 |
) |
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Earnings per common share attributable to GSI Group Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
$ |
0.13 |
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|
$ |
0.05 |
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|
$ |
0.18 |
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|
$ |
0.08 |
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Diluted |
$ |
0.13 |
|
|
$ |
0.05 |
|
|
$ |
0.18 |
|
|
$ |
0.08 |
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|
|
|
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|
|
|
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|
|
|
|
|
|
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Weighted average common shares outstanding—basic |
|
34,389 |
|
|
|
34,102 |
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|
|
34,333 |
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|
|
34,058 |
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Weighted average common shares outstanding—diluted |
|
34,793 |
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|
|
34,417 |
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|
|
34,725 |
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|
|
34,325 |
|
The accompanying notes are an integral part of these consolidated financial statements.
2
GSI GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. dollars)
(Unaudited)
|
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Three Months Ended |
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Nine Months Ended |
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September 26, |
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September 27, |
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September 26, |
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September 27, |
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2014 |
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2013 |
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2014 |
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2013 |
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Consolidated net income |
$ |
4,525 |
|
|
$ |
1,778 |
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|
$ |
6,243 |
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|
$ |
3,043 |
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Other comprehensive income (loss): |
|
|
|
|
|
|
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|
|
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|
|
|
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Foreign currency translation adjustments, net of tax (1) |
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(3,845 |
) |
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3,764 |
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|
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(2,902 |
) |
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|
(2,016 |
) |
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Pension liability adjustments, net of tax (2) |
|
435 |
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|
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(370 |
) |
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|
449 |
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|
|
802 |
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Total other comprehensive income (loss) |
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(3,410 |
) |
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|
3,394 |
|
|
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(2,453 |
) |
|
|
(1,214 |
) |
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Total consolidated comprehensive income |
|
1,115 |
|
|
|
5,172 |
|
|
|
3,790 |
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|
|
1,829 |
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Less: Comprehensive (income) loss attributable to noncontrolling interest |
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— |
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|
|
12 |
|
|
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(10 |
) |
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|
(42 |
) |
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Comprehensive income attributable to GSI Group Inc. |
$ |
1,115 |
|
|
$ |
5,184 |
|
|
$ |
3,780 |
|
|
$ |
1,787 |
|
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(1) |
The tax effect on this component of comprehensive income was $0.4 million and $0.2 million for the three and nine months ended September 26, 2014, respectively. The impact was zero and $1.3 million for the three and nine months ended September 27, 2013, respectively. |
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(2) |
The tax effect on this component of comprehensive income was not material for all periods presented. See Note 4 for the total amount of pension liability adjustments reclassified out of accumulated other comprehensive income (loss). |
The accompanying notes are an integral part of these consolidated financial statements.
3
GSI GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
|
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Nine Months Ended |
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September 26, |
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September 27, |
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2014 |
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2013 |
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Cash flows from operating activities: |
|
|
|
|
|
|
|
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Consolidated net income |
$ |
6,243 |
|
|
$ |
3,043 |
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Less: Loss from discontinued operations, net of tax |
|
5,138 |
|
|
|
2,235 |
|
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Income from continuing operations |
|
11,381 |
|
|
|
5,278 |
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Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations: |
|
|
|
|
|
|
|
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Depreciation and amortization |
|
17,495 |
|
|
|
14,792 |
|
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Provision for inventory excess and obsolescence |
|
704 |
|
|
|
1,407 |
|
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Share-based compensation |
|
3,412 |
|
|
|
4,170 |
|
|
Deferred income taxes |
|
(1,653 |
) |
|
|
2,166 |
|
|
Earnings from equity investment |
|
(1,707 |
) |
|
|
(1,181 |
) |
|
Non-cash interest expense |
|
982 |
|
|
|
735 |
|
|
Non-cash restructuring and acquisition related charges |
|
944 |
|
|
|
19 |
|
|
Other non-cash items |
|
496 |
|
|
|
1,059 |
|
|
Changes in assets and liabilities which (used) provided cash, excluding effects from businesses purchased or classified as held for sale: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
(835 |
) |
|
|
(6,330 |
) |
|
Inventories |
|
116 |
|
|
|
(636 |
) |
|
Prepaid expenses, income taxes receivable and other current assets |
|
911 |
|
|
|
13,955 |
|
|
Accounts payable, accrued expenses, income taxes payable and other current liabilities |
|
1,706 |
|
|
|
5,244 |
|
|
Other non-current assets and liabilities |
|
463 |
|
|
|
645 |
|
|
Cash provided by operating activities of continuing operations |
|
34,415 |
|
|
|
41,323 |
|
|
Cash used in operating activities of discontinued operations |
|
(761 |
) |
|
|
(6,875 |
) |
|
Cash provided by operating activities |
|
33,654 |
|
|
|
34,448 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
(3,783 |
) |
|
|
(2,962 |
) |
|
Acquisition of businesses, net of cash acquired and escrow recovery |
|
(88,238 |
) |
|
|
(82,653 |
) |
|
Proceeds from the sale of property, plant and equipment |
|
57 |
|
|
|
255 |
|
|
Cash used in investing activities of continuing operations |
|
(91,964 |
) |
|
|
(85,360 |
) |
|
Cash provided by investing activities of discontinued operations |
|
4,344 |
|
|
|
12,439 |
|
|
Cash used in investing activities |
|
(87,620 |
) |
|
|
(72,921 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility |
|
77,000 |
|
|
|
60,000 |
|
|
Repayments of long-term debt and revolving credit facility |
|
(26,625 |
) |
|
|
(31,625 |
) |
|
Payments for debt issuance costs |
|
(712 |
) |
|
|
(145 |
) |
|
Payments of withholding taxes from stock-based awards |
|
(1,605 |
) |
|
|
(820 |
) |
|
Capital lease payments |
|
(938 |
) |
|
|
(608 |
) |
|
Excess tax benefits from stock-based awards |
|
210 |
|
|
|
— |
|
|
Other financing activities |
|
261 |
|
|
|
— |
|
|
Cash provided by financing activities of continuing operations |
|
47,591 |
|
|
|
26,802 |
|
|
Cash provided by financing activities of discontinued operations |
|
— |
|
|
|
— |
|
|
Cash provided by financing activities |
|
47,591 |
|
|
|
26,802 |
|
|
Effect of exchange rates on cash and cash equivalents |
|
(1,056 |
) |
|
|
(427 |
) |
|
Decrease in cash and cash equivalents |
|
(7,431 |
) |
|
|
(12,098 |
) |
|
Cash and cash equivalents, beginning of period |
|
60,980 |
|
|
|
65,788 |
|
|
Cash and cash equivalents, end of period |
$ |
53,549 |
|
|
$ |
53,690 |
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
$ |
2,644 |
|
|
$ |
1,674 |
|
|
Cash paid for income taxes |
$ |
3,944 |
|
|
$ |
1,935 |
|
|
Income tax refunds received |
$ |
150 |
|
|
$ |
12,607 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activity: |
|
|
|
|
|
|
|
|
Assets acquired under capital lease obligations |
$ |
9,133 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
GSI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 26, 2014
(Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
GSI Group Inc. and its subsidiaries (collectively referred to as the “Company”) design, develop, manufacture and sell precision photonic and motion control components and subsystems to Original Equipment Manufacturers (OEM’s) in the medical equipment and advanced industrial technology markets. Our highly engineered enabling technologies include laser sources, laser scanning and beam delivery products, optical data collection and machine vision technologies, medical visualization and informatics solutions and precision motion control products. We specialize in collaborating with OEM customers to adapt our component and subsystem technologies to deliver highly differentiated performance in their applications.
The accompanying unaudited interim consolidated financial statements have been prepared in U.S. dollars and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X pertaining to interim financial statements. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements and notes included in this report should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of management, these interim consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary for a fair presentation of the results of the interim periods presented. The results for interim periods are not necessarily indicative of results to be expected for the full year or for any future periods.
The interim consolidated financial statements include the accounts of the Company and its 50% owned joint venture, Excel Laser Technology Private Limited (the “India JV”), which is reported as discontinued operations in the Company’s consolidated statements of operations. Intercompany transactions and balances have been eliminated. During the second quarter of 2013, the Company’s ownership percentage in a privately held company located in the United Kingdom, Laser Quantum Ltd. (“Laser Quantum”), increased from approximately 25% to 41% as a result of a share buy-back program by Laser Quantum. The Company continues to record the results of this entity under the equity method as it does not have a controlling interest in the entity.
The Company’s unaudited interim financial statements are prepared on a quarterly basis ending on the Friday closest to the end of the calendar quarter, with the exception of the fourth quarter which always ends on December 31.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of sales and expenses during the reporting periods. The Company evaluates its estimates based on historical experience, current conditions and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions are reviewed on an on-going basis and the effects of revisions are reflected in the period in which they are deemed to be necessary. Actual results could differ significantly from those estimates.
Recent Accounting Pronouncements
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)," which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. ASU 2014-15 will be effective for annual reporting periods ending after December 15, 2016. Early application is permitted. The Company does not expect the adoption of ASU 2014-15 to have an impact on the Company’s financial statements.
5
GSI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 26, 2014
(Unaudited)
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, “Revenue Recognition,” and requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. Upon adoption, an entity may apply the new guidance either retrospectively to each prior reporting period presented or retrospectively only to customer contracts not yet completed as of the date of adoption with the cumulative effect of initially applying the standard recognized in beginning retained earnings at the date of the initial application. The Company is currently evaluating the impact of the new standard on the Company’s financial statements.
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 provides guidance on determining when disposals can be presented as discontinued operations. ASU 2014-08 requires that only disposals representing a strategic shift that has (or will have) a major effect on an entity’s operations and financial results should be presented as discontinued operations. A strategic shift may include a disposal of a major line of business, a major equity method investment or a major part of an entity. Additionally, ASU 2014-08 requires expanded disclosures regarding discontinued operations. ASU 2014-08 will be effective prospectively for reporting periods beginning after December 15, 2014, with early adoption permitted. The Company will adopt this pronouncement in January 2015. The adoption of this amendment is not expected to have a material impact on the Company’s consolidated financial statements.
2. Discontinued Operations
On July 15, 2014, the Company completed the sale of certain assets and liabilities of its Scientific Lasers business operating under the Continuum brand name for approximately $6.5 million in cash, net of working capital adjustments. In accordance with the purchase and sale agreement, $1.5 million of the sales proceeds is held in escrow until January 2016. The Company has recorded the $1.5 million escrow in other long term assets on the balance sheet.
In 2013, the Company consummated the sale of certain assets and liabilities of the Semiconductor Systems business for $8.6 million in cash, net of working capital adjustments.
The major components of the assets and liabilities of discontinued operations as of September 26, 2014 and December 31, 2013, respectively, are as follows (in thousands):
|
|
September 26, |
|
|
December 31, |
|
||
|
|
2014 |
|
|
2013 |
|
||
|
Accounts receivable, net |
$ |
95 |
|
|
$ |
5,361 |
|
|
Inventories |
|
161 |
|
|
|
8,454 |
|
|
Prepaid and other current assets |
|
8 |
|
|
|
247 |
|
|
Other assets |
|
367 |
|
|
|
2,026 |
|
|
Assets of discontinued operations |
$ |
631 |
|
|
$ |
16,088 |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
$ |
16 |
|
|
$ |
2,393 |
|
|
Accrued expenses and other current liabilities |
|
1,188 |
|
|
|
2,295 |
|
|
Other liabilities |
|
233 |
|
|
|
1,710 |
|
|
Liabilities of discontinued operations |
$ |
1,437 |
|
|
$ |
6,398 |
|
6
GSI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 26, 2014
(Unaudited)
Assets and liabilities of discontinued operations as of September 26, 2014 include the balances of the India JV. In addition, liabilities of discontinued operations as of September 26, 2014 include a $0.6 million working capital settlement that is due to the buyers of the Scientific Lasers business.
The following table presents the operating results which are reported as discontinued operations in the Company’s consolidated statements of operations (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 26, |
|
|
September 27, |
|
|
September 26, |
|
|
September 27, |
|
||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Sales from discontinued operations |
$ |
225 |
|
|
$ |
5,625 |
|
|
$ |
10,512 |
|
|
$ |
28,296 |
|
|
Loss from discontinued operations, before income tax |
$ |
(1,256 |
) |
|
$ |
(152 |
) |
|
$ |
(6,243 |
) |
|
$ |
(2,831 |
) |
|
Loss from discontinued operations, net of tax |
$ |
(273 |
) |
|
$ |
(185 |
) |
|
$ |
(4,817 |
) |
|
$ |
(1,643 |
) |
|
Loss on disposal of discontinued operations, net of tax |
$ |
(321 |
) |
|
$ |
(281 |
) |
|
$ |
(321 |
) |
|
$ |
(592 |
) |
The loss from discontinued operations during the three months ended September 26, 2014 includes a $0.5 million fair value write-down of the India JV. The Company is currently in negotiations with the joint venture partner to dissolve the joint venture. The loss from discontinued operations during the nine months ended September 26, 2014 includes a $3.0 million fair value write-down of the Scientific Lasers business to its fair value less costs to sell and the $0.5 million fair value write-down of the India JV.
3. Business Combinations
On March 14, 2014, the Company completed the acquisition of JADAK LLC, JADAK Technologies, Inc. and Advanced Data Capture Corporation (together, “JADAK”), a North Syracuse, New York-based provider of optical data collection and machine vision technologies to OEM medical device manufacturers, for $93.7 million in cash, net of working capital adjustments. The Company expects that the addition of JADAK will enable the Company to offer a broader range of highly engineered enabling technologies to leading medical equipment manufacturers. Acquisition-related costs are included in restructuring and acquisition related costs in the consolidated statements of operations. Acquisition related costs are as follows (in thousands):
|
|
Three Months |
|
|
Nine Months |
|
|
Cumulative |
|
|||
|
|
Ended |
|
|
Ended |
|
|
Costs |
|
|||
|
|
September 26, |
|
|
September 26, |
|
|
September 26, |
|
|||
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|||
|
Acquisition-related costs |
$ |
— |
|
|
$ |
668 |
|
|
$ |
975 |
|
The acquisition of JADAK has been accounted for as a business combination. The allocation of the purchase price is based upon a valuation of assets and liabilities acquired. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of JADAK and the Company. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up to one year from the acquisition date) as a result of additional information obtained with regards to facts and circumstances that existed as of the acquisition date. The purchase price allocation is preliminary and the primary areas of the purchase price allocation that are not yet finalized relate to income taxes and the amount of residual goodwill.
7
GSI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 26, 2014
(Unaudited)
Based upon a preliminary valuation, the total purchase price was allocated as follows (in thousands):
|
|
Purchase Price |
|
|
|
|
Allocation |
|
|
|
Cash |
$ |
1,140 |
|
|
Accounts receivable |
|
7,907 |
|
|
Inventory |
|
6,791 |
|
|
Property and equipment |
|
904 |
|
|
Intangible assets |
|
40,250 |
|
|
Goodwill |
|
45,045 |
|
|
Other assets |
|
1,979 |
|
|
Total assets acquired |
|
104,016 |
|
|
|
|
|
|
|
Accounts payable |
|
3,057 |
|
|
Other liabilities |
|
2,074 |
|
|
Deferred tax liabilities |
|
4,089 |
|
|
Total liabilities assumed |
|
9,220 |
|
|
Total purchase price |
|
94,796 |
|
|
Less cash acquired |
|
(1,140 |
) |
|
Total purchase price, net of cash acquired |
$ |
93,656 |
|
During the third quarter of 2014, the Company made adjustments to the preliminary purchase price allocation primarily related to the inventory valuation and an adjustment to other liabilities, resulting in an increase in goodwill of $0.6 million.
The fair value of intangible assets is comprised of the following (dollar amounts in thousands):
|
|
|
|
|
|
Weighted Average |
|
|
Estimated Fair |
|
|
Amortization |
|
|
|
Value |
|
|
Period |
|
|
Customer relationships |
$ |
23,570 |
|
|
20 years |
|
Developed technology |
|
10,910 |
|
|
10 years |
|
Trademarks and trade names |
|
2,130 |
|
|
10 years |
|
Backlog |
|
1,810 |
|
|
1 year |
|
Non-compete covenant |
|
1,830 |
|
|
5 years |
|
Total |
$ |
40,250 |
|
|
|
The purchase price allocation resulted in $45.0 million of goodwill and $40.3 million of identifiable intangible assets, $63.1 million of which is expected to be deductible for tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flow potential attributable to: (i) JADAK’s ability to develop and market new products and technologies, (ii) JADAK’s ability to develop relationships with new customers, and (iii) expected sales synergies from cross-selling current and future product offerings of both JADAK and the Company to OEM customers.
The operating results of JADAK have been included in our consolidated statement of operations since the acquisition date. JADAK has contributed sales of $14.9 million and $32.6 million for the three and nine months ended September 26, 2014, respectively, and operating income from continuing operations of $1.2 million and $2.3 million for the three and nine months ended September 26, 2014, respectively. The pro forma information for all periods presented below includes the effects of business combination accounting resulting from the acquisition of JADAK, including amortization charges from acquired intangible assets, interest expense on borrowings in connection with the acquisition, earn-out expenses, and the related tax effects as though the acquisition had been consummated at the beginning of 2013. These pro forma results exclude the impact of transaction costs and the related tax effects included in the historical results. The pro forma financial information is presented for comparative information
8
GSI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 26, 2014
(Unaudited)
purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had actually taken place at the beginning of 2013.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 26, |
|
|
September 27, |
|
|
September 26, |
|
|
September 27, |
|
||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Sales |
$ |
94,656 |
|
|
$ |
93,681 |
|
|
$ |
281,725 |
|
|
$ |
273,429 |
|
|
Income from continuing operations |
$ |
5,342 |
|
|
$ |
2,591 |
|
|
$ |
12,404 |
|
|
$ |
4,859 |
|
|
Earnings per share from continuing operations - Basic |
$ |
0.15 |
|
|
$ |
0.08 |
|
|
$ |
0.35 |
|
|
$ |
0.14 |
|
|
Earnings per share from continuing operations - Diluted |
$ |
0.15 |
|
|
$ |
0.08 |
|
|
$ |
0.35 |
|
|
$ |
0.14 |
|
4. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) is as follows (in thousands):
|
|
Total accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
Foreign currency |
|
|
|
|
|
||
|
|
comprehensive |
|
|
translation |
|
|
Pension |
|
|||
|
|
income (loss) |
|
|
adjustments |
|
|
liability |
|
|||
|
Balance at December 31, 2013 |
$ |
(6,342 |
) |
|
$ |
1,353 |
|
|
$ |
(7,695 |
) |
|
Other comprehensive income (loss) |
|
(2,783 |
) |
|
|
(2,902 |
) |
|
|
119 |
|
|
Amounts reclassified from other comprehensive income (loss) (1) |
|
330 |
|
|
|
— |
|
|
|
330 |
|
|
Balance at September 26, 2014 |
$ |
(8,795 |
) |
|
$ |
(1,549 |
) |
|
$ |
(7,246 |
) |
|
(1) |
The amounts reclassified from other comprehensive income (loss) were included in selling, general and administrative expenses in the consolidated statement of operations. |
5. Earnings per Share
Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. For diluted earnings per common share, the denominator also includes the dilutive effect of outstanding restricted stock units determined using the treasury stock method. For periods in which net losses are generated, the dilutive potential common shares are excluded from the calculation of diluted earnings per share as the effect would be anti-dilutive. Dilutive effects of contingently issuable shares are included in the weighted average dilutive share calculation when the contingencies have been resolved.
9
GSI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 26, 2014
(Unaudited)
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 26, |
|
|
September 27, |
|
|
September 26, |
|
|
September 27, |
|
||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Numerators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
$ |
5,119 |
|
|
$ |
2,244 |
|
|
$ |
11,381 |
|
|
$ |
5,278 |
|
|
Consolidated loss from discontinued operations |
|
(594 |
) |
|
|
(466 |
) |
|
|
(5,138 |
) |
|
|
(2,235 |
) |
|
Less: income (loss) attributable to noncontrolling interest |
|
— |
|
|
|
12 |
|
|
|
(10 |
) |
|
|
(42 |
) |
|
Loss from discontinued operations attributable to GSI Group Inc. |
|
(594 |
) |
|
|
(454 |
) |
|
|
(5,148 |
) |
|
|
(2,277 |
) |
|
Net income attributable to GSI Group Inc. |
$ |
4,525 |
|
|
$ |
1,790 |
|
|
$ |
6,233 |
|
|
$ |
3,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding— basic |
|
34,389 |
|
|
|
34,102 |
|
|
|
34,333 |
|
|
|
34,058 |
|
|
Dilutive potential common shares |
|
404 |
|
|
|
315 |
|
|
|
392 |
|
|
|
267 |
|
|
Weighted average common shares outstanding— diluted |
|
34,793 |
|
|
|
34,417 |
|
|
|
34,725 |
|
|
|
34,325 |
|
|
Antidilutive common shares excluded from above |
|
— |
|
|
|
37 |
|
|
|
29 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations |
$ |
0.15 |
|
|
$ |
0.07 |
|
|
$ |
0.33 |
|
|
$ |
0.15 |
|
|
From discontinued operations |
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.07 |
) |
|
Basic earnings per share attributable to GSI Group Inc. |
$ |
0.13 |
|
|
$ |
0.05 |
|
|
$ |
0.18 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations |
$ |
0.15 |
|
|
$ |
0.07 |
|||||||||