UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 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)
New Brunswick, Canada |
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98-0110412 |
(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 |
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01730 |
Bedford, Massachusetts, USA |
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(Zip Code) |
(Address of principal executive offices) |
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(781) 266-5700
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
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Name of Exchange on Which Registered
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Common Shares, no par value |
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The NASDAQ Stock Market LLC |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
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 þ 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 þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
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. (Check one):
Large accelerated filer ¨ |
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Accelerated filer þ |
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Non-accelerated filer ¨ |
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Smaller reporting company ¨ |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the Registrant’s outstanding common shares held by non-affiliates of the Registrant, based on the closing price of the common shares on the NASDAQ Global Select Market on the last business day of the Registrant’s most recently completed second fiscal quarter (June 27, 2014) was $367,951,219. For purposes of this disclosure, common shares held by officers and directors of the Registrant and by persons who hold more than 5% of the Registrant’s outstanding common shares have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive.
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 þ No ¨
As of February 20, 2015, there were 34,239,720 of the Registrant’s common shares, no par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for the Registrant’s Annual Meeting of Shareholders scheduled to be held on May 12, 2015 to be filed with the Securities and Exchange Commission are incorporated by reference in answer to Part III of this Annual Report on Form 10-K.
GSI GROUP INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Directors Independence |
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As used in this report, the terms “we,” “us,” “our,” “GSI Group,” “GSI,” “GSIG” and the “Company” mean GSI Group Inc. and its subsidiaries, unless the context indicates another meaning.
Unless otherwise noted, all dollar amounts in this report are expressed in United States dollars.
The following brand and trade names of GSI Group Inc. are used in this report: MicroE Systems, Westwind, Synrad, JK Lasers, Cambridge Technology, ExoTec Precision, General Scanning, Photo Research, JADAK, NDS, Dome and NDSsi.
Cautionary Note Regarding Forward Looking Statements
Except for historical information, the matters discussed in this Annual Report on Form 10-K are forward looking statements that involve risks, uncertainties and assumptions that, if they never materialize or if they prove incorrect, could cause our consolidated results to differ materially from those expressed or implied by such forward looking statements. The Company makes such forward looking statements under the provision of the “Safe Harbor” section of the Private Securities Litigation Reform Act of 1995. Actual future results may vary materially from those projected, anticipated, or indicated in any forward looking statements as a result of various factors, including those set forth in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.” Readers should also carefully review the risk factors described in the other documents that we file from time to time with the SEC. In this Annual Report on Form 10-K, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “could,” “estimates,” “plans,” “would,” “should,” “potential,” “continues” and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward looking statements. Forward looking statements also include the assumptions underlying or relating to any of the foregoing statements. The forward looking statements contained in this Annual Report include, but are not limited to, statements related to: anticipated financial performance; expected liquidity and capitalization; drivers of revenue growth; management’s plans and objectives for future operations, expenditures and product development, and investments in research and development; business prospects; potential of future product releases; anticipated sales performance; industry trends; market conditions; changes in accounting principles; changes in actual or assumed tax liabilities; expectations regarding tax exposures; anticipated reinvestment of future earnings; anticipated expenditures in regard to the Company’s benefit plans; future acquisitions and dispositions and anticipated benefits from acquisitions; anticipated impact of the NDS impairment charge; anticipated use of currency hedges; ability to repay our indebtedness; our intentions regarding the use of cash; and other statements that are not historical facts. All forward looking statements included in this document are based on information available to us on the date hereof. We will not undertake and specifically decline any obligation to update any forward looking statements.
OVERVIEW
GSI Group Inc. and its subsidiaries (collectively referred to as the “Company”, “we”, “us”, “our”) 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.
GSI Group Inc. was founded and initially incorporated in Massachusetts in 1968 as General Scanning, Inc. (“General Scanning”). General Scanning developed, manufactured and sold components and subsystems used for high-speed micro positioning of laser beams. In 1999, General Scanning merged with Lumonics Inc., a Canadian company that developed, manufactured and sold laser-based advanced manufacturing systems for electronics, semiconductor, and general industrial applications. The post-merger entity, GSI Lumonics Inc., continued under the laws of the Province of New Brunswick, Canada. In 2005, the Company changed its name to GSI Group Inc.
Strategy
Our strategy is to drive sustainable, profitable growth through short-term and long-term initiatives, including:
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improving our business mix to increase medical sales as a percentage of total revenue by: |
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introducing new products aimed at attractive medical applications such as minimally invasive and robotic surgery, ophthalmology, patient monitoring, drug delivery, diagnostic testing and life science research; |
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cross selling our entire product offering to the leading medical equipment manufacturers and; |
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pursuing complementary medical technology acquisitions; |
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increasing our penetration of high growth advanced industrial technology applications such as laser materials processing, robotics, automation, metrology, and via hole drilling by working closely with OEM customers to launch application specific products that closely match the requirements of each application; |
1
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broadening our portfolio of precision motion control products and capabilities through increased new product development investment in motion control product lines, expanded sales and marketing channels to reach target customers and, acquisitions of additional motion control product technologies used by existing customers; |
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broadening our product and service offerings through the acquisition of innovative and complementary technologies and solutions in medical and advanced industrial technology applications; |
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upgrading our existing operations to expand profit margins and improve customer satisfaction by implementing lean manufacturing principles and strategic sourcing across our major production sites; and |
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attracting, retaining, and developing talented and motivated employees. |
Acquisitions
In February 2015, GSI acquired Applimotion Inc., a Loomis, California-based provider of advanced precision motor and motion control technology to OEMs for advanced industrial and medical markets, for $13.9 million in cash, subject to customary working capital adjustments. The acquisition enhances the Company’s strategic position in precision motion control by enabling the Company to offer a broader range of motion control technologies and integrated solutions. The Applimotion business line will be reported as part of the Precision Motion segment.
In March 2014, GSI acquired JADAK LLC, JADAK Technologies Inc. and Advance 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.
In January 2013, GSI acquired NDS Surgical Imaging (“NDS”) for a final adjusted purchase price of $75.4 million. NDS is a San Jose, California-based company that designs, manufactures, and markets high definition visualization solutions and imaging informatics products for the surgical, radiology and patient monitoring end markets.
Divestitures and Restructuring
Since 2011, we have executed a series of strategic divestures to improve our business mix and financial performance. In October 2012, we divested the Lasers Systems business, operated under the Control Laser and Baublys brand names, for $6.6 million, net of final working capital adjustments. In May 2013, we sold the Semiconductor Systems business, operated under the GSI Group brand name, for $9.7 million, including final working capital adjustments. In July 2014, we completed the sale of our Scientific Lasers business, operated under the Continuum brand name, for $6.5 million in cash, net of working capital adjustments. These businesses have been reported as discontinued operations in our consolidated financial statements for all periods presented in this annual report on Form 10-K.
Since 2011, our strategic initiatives resulted in the elimination of thirteen facilities, including seven facilities exited as part of the sale of the Semiconductor Systems, Laser Systems and Scientific Lasers product lines. These eliminations also resulted in the consolidation of our optics production facilities, consolidation of our German and Japanese sales and service operations into one facility in Germany and Japan, respectively, and consolidation of our laser scanners business into our Bedford, Massachusetts facility.
Segments
The Company evaluates the performance of, and allocates resources to, its segments based on sales, gross profit and operating profit. The Company’s reportable segments have been identified based on commonality of technologies, applications, end markets and customers amongst the Company’s individual product lines, and are consistent with the Company’s operating structure.
The following table shows the external revenues and gross profit margin for each of the segments for the year ended December 31, 2014 (dollars in thousands):
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Sales |
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Gross Profit Margin |
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Laser Products |
$ |
177,726 |
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41.8 |
% |
Medical Technologies |
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122,187 |
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39.8 |
% |
Precision Motion |
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64,793 |
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43.7 |
% |
Total |
$ |
364,706 |
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41.2 |
% |
2
See Note 16 to Consolidated Financial Statements for additional financial information about our reportable segments.
Laser Products
The Laser Products segment designs, manufactures and markets photonics-based solutions to customers worldwide. The segment serves highly demanding photonics-based applications such as industrial material processing, and medical and life science imaging and laser procedures. The vast majority of the segment’s product offerings are sold to Original Equipment Manufacturer customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
The Laser Products segment is comprised of three major product lines:
Product Line |
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Key End Market |
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Brand Names |
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Description |
Beam Delivery |
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Industrial, Medical and Electronics |
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Cambridge Technology, Synrad, JK Lasers, & ExoTec Precision |
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Galvanometer laser scanners and laser scanning solutions, such as laser scanheads. These products provide rapid, precise control and delivery of laser beams through motorized manipulation of mirrors and optical elements in three dimensions. Applications include material processing (such as laser marking, laser machining and laser drilling), scanning microscopy, laser-based vision correction, optical coherence tomography imaging, high resolution printing, holographic imaging and storage, metrology, and 2D or 3D imaging. Laser processing heads, which are used for laser cutting and welding as well as for brazing in the advanced manufacturing industry. |
CO2 Lasers |
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Industrial |
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Synrad, JK Laser |
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Applications include coding, marking, engraving, and cutting of non-metals, laser sintering, laser converting, and laser aesthetics. |
Fiber Lasers |
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Industrial and Electronics |
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JK Lasers |
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Applications include material processing (such as laser cutting, machining, welding and drilling), laser sintering, laser converting, additive manufacturing and micromachining. |
Medical Technologies
The Medical Technologies segment designs, manufactures and markets a range of medical grade technologies, including visualization solutions, imaging informatics products, optical data collection and machine vision technologies, thermal printers, and light and color measurement instrumentation to customers worldwide. The vast majority of the segment’s product offerings are sold to Original Equipment Manufacturer customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
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The Medical Technologies segment has five major product lines:
Product Line |
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Key End Market |
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Brand Names |
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Description |
Visualization Solutions |
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Medical |
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NDS, NDSsi, Dome |
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High definition visualization solutions for minimal invasive surgery, patient monitoring and diagnostic radiology applications. |
Imaging Informatics |
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Medical |
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NDS, NDSsi |
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Imaging management for visual information, including real-time distribution, documentation, control, and streaming for multiple imaging modalities for surgical applications. |
Optical Data Collection and Machine Vision Technologies |
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Medical and Industrial |
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JADAK |
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Data collection solutions ranging from camera based technologies for barcode scanning operations to wireless technologies such as Radio Frequency Identification (RFID). Optimized optical and software platforms performing everything from basic barcode reading applications to more complex functions such as machine vision for the purpose of image analysis within medical devices. |
Thermal Printers |
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Medical |
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General Scanning, NDSsi |
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Rugged thermal paper printers for patient monitoring, defibrillator equipment, blood gas analyzers, and pulse oximeters. |
Light and Color Measurement |
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Industrial, Electronics and Medical |
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Photo Research |
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Light and color measurement metrology devices, including spectroradiometers, photometers, video photometers, and color characterization software used in the visualization solutions market, research and development, quality control, and other testing markets. |
Precision Motion
The Precision Motion segment designs, manufactures and markets optical encoders and air bearing spindles and precision machined components to customers worldwide. The vast majority of the segment’s product offerings are sold to Original Equipment Manufacturer customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
The Precision Motion segment includes two major product lines:
Product Line |
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Key End Market |
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Brand Names |
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Description |
Optical Encoders |
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Electronics, Industrial and Medical |
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MicroE Systems |
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Linear and rotary electro-optical positioning devices that measure movement with sub-micron accuracy. Applications include motion control of semiconductor and electronic manufacturing equipment, confocal microscopes, coordinate measuring systems, drug dispensing, and robotic equipment, including medical equipment. |
Air Bearing Spindles |
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Electronics and Industrial |
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Westwind |
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High-speed and precision air bearing spindles used in the PCB manufacturing, automotive coating, semiconductor manufacturing equipment, and power generation markets. |
4
Customers
We have a diverse group of customers that include companies that are global leaders in their industries. Many of our customers participate in several market industries. No customer accounted for greater than 10% of our consolidated sales during the years ended December 31, 2014, 2013 or 2012.
Customers of our Laser Products, Medical Technologies, and Precision Motion segments include a large number of original equipment manufacturers who integrate our products into their systems for sale to end users. We also sell directly to end users. Our customers include leaders in the medical, industrial, and electronics markets. A typical OEM customer will usually evaluate our products and our ability to provide application support and customization before deciding to incorporate our products into their products or systems. Customers generally choose suppliers based on a number of factors, including product performance, reliability, application support, price, breadth of the supplier’s product offerings, the financial condition of the supplier and the geographical coverage offered by the supplier. Once certain of our products have been designed into a given OEM customer’s product or system, there are generally significant barriers to subsequent supplier changes, especially in the medical market.
Seasonality
While our sales are not highly seasonal on a consolidated basis, the sales of some of our individual product lines, particularly our visualization solutions, imaging informatics, and thermal printer products, are impacted by seasonality due to hospital budgeting cycles.
Backlog
As of December 31, 2014 and 2013, our consolidated backlog was approximately $82.1 million and $67.2 million, respectively. The majority of orders included in backlog represent open orders for products and services that, based on management’s projections, have a reasonable probability of being delivered over the subsequent twelve month period. Orders included in backlog may be canceled or rescheduled by customers without significant penalty. Management believes that backlog is not a meaningful indicator of future business prospects for any of our business segments due to the wide range of lead times required by our various types of customers and the ability of our customers to reschedule or cancel orders. Therefore, backlog as of any particular date should not be relied upon as indicative of our revenues for any future period.
Manufacturing
Manufacturing functions are performed internally when management chooses to maintain control over critical portions of the production process or for cost related reasons. To the extent it makes financial sense, we will consider outsourcing additional portions of the production process.
Products offered by our Laser Products segment are manufactured at facilities in Bedford, Massachusetts; Mukilteo, Washington; Rugby and Taunton, United Kingdom; and Suzhou, China. Products offered by our Medical Technologies segment are manufactured at facilities in Bedford, Massachusetts; Syracuse, New York; San Jose and Chatsworth, California; and Suzhou, China. Products offered by our Precision Motion segment are primarily manufactured at facilities in Bedford, Massachusetts; Poole, United Kingdom; and Suzhou, China.
Many of our products are manufactured under ISO 9001 certification and our visualization solutions, imaging informatics, thermal printers, and optical encoders products are manufactured under ISO13485 certification. Certain visualization solutions and imaging informatics products are manufactured under current good manufacturing practices (CGMP’s), which is a requirement of their medical device classification by the U.S. Food and Drug Administration (the “FDA”). In addition, certain visualization solutions and imaging informatics products are manufactured under section 510(k) of the FDA.
Research and Development and Engineering
We incur research and development and engineering expenses as part of our ongoing operations. The following table shows total research and development and engineering expenses as a percent of total sales for the years ended December 31, 2014, 2013 and 2012 (dollars in thousands):
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2014 |
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2013 |
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2012 |
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Research and development and engineering expenses |
$ |
28,954 |
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$ |
23,787 |
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$ |
18,530 |
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As a percentage of sales |
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7.9 |
% |
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7.5 |
% |
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7.6 |
% |
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We are strongly committed to research and development for core technology programs directed at creating new products, product enhancements and new applications for existing products. We are also committed to funding research into future market opportunities. Our markets have experienced rapid technological changes and product innovations. We believe that continued timely development of new products and product enhancements to serve existing and new markets is necessary for us to remain competitive.
Marketing, Sales and Distribution
We sell our products worldwide through our direct sales force and through distributors, including manufacturers’ representatives. Our local sales, applications and service teams and our distributors work closely with our customers to ensure customer satisfaction with our products. We have sales and service centers located in North America, Europe, Asia Pacific, and Japan.
Competition
The markets in which we compete are dynamic and highly competitive. Due to the wide range of our products, we face many different types of competition and competitors. This affects our ability to sell our products and the prices at which these products are sold. Our competitors range from large foreign and domestic organizations, which produce a comprehensive array of goods and services and may have greater financial and other resources than we do, to small firms producing a limited number of goods or services for specialized market segments.
Competitive factors in our Laser Products, Medical Technologies, and Precision Motion segments include product performance, price, quality and reliability, features, compatibility of products with existing systems, technical support, product breadth, market presence, on-time delivery and our overall reputation. We believe that our products offer a number of competitive advantages. However, some of our competitors are substantially larger and have greater financial and other resources.
Raw Materials, Components and Supplies
Each of our businesses uses a wide variety of raw materials, key components and parts that are generally available from alternative sources of supply and in adequate quantities from domestic and foreign sources. In some instances, we design and/or re-engineer the parts and components used in our products. For certain critical raw materials, key components and parts used in the production of some of our principal products, we have identified only a limited number of suppliers or, in some instances, a single source of supply. We also rely on a limited number of independent contractors to manufacture subassemblies for some of our products.
For a further discussion of the importance and risks associated with our supply chain, see applicable risk factors under Item 1A of this Annual Report on Form 10-K.
Patents and Intellectual Property
We rely upon a combination of copyrights, patents, trademarks, trade secret laws and restrictions on disclosure to protect our intellectual property rights. We hold a number of registered and pending patents in the United States and other countries. In addition, we also have trademarks registered in the United States and foreign countries. We will continue to actively pursue applications for new patents and trademarks as we deem appropriate. However, there can be no assurance that any other patents will be issued to us or that such patents, if and when issued, will provide any protection or benefit to us.
Although we believe that our patents and pending patent applications are important, we rely upon several additional factors that are essential to our business success, including: market position, technological innovation, know-how, application knowledge and product performance. There can be no assurance that we will be able to sustain these advantages.
We also protect our proprietary rights by controlling access to our proprietary information and by maintaining confidentiality agreements with our employees, consultants, and certain customers and suppliers. For a further discussion of the importance of risks associated with our intellectual property rights, see applicable risk factors under Item 1A of this Annual Report on Form 10-K.
Human Resources
As of December 31, 2014 and 2013, we employed 1,418 and 1,287 employees, respectively. As of December 31, 2014 and 2013, there were 36 and 109 employees, respectively, of our discontinued businesses.
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Geographic Information
We are a multinational company with approximately 61% of our 2014 sales outside the United States and approximately 18% of our property, plant and equipment, net, outside the United States at December 31, 2014. Geographic information is discussed in Note 16 to Consolidated Financial Statements. For a further discussion of the risks associated with our foreign operations, see applicable risk factors under Item 1A of this Annual Report on Form 10-K.
Government Regulation
Our current and contemplated activities and the products and processes that will result from such activities are subject to substantial government regulations, both in the United States and internationally.
United States Food and Drug Administration
Certain products manufactured by us are integrated into systems by our customers that are subject to certain regulations administered by the United States Food and Drug Administration. We must comply with certain quality control measurements in order for our products to be effectively used in our customers’ end products. Non-compliance with quality control measurements could result in loss of business with our customers, fines and penalties.
We are subject to certain medical device regulations. Medical devices are subject to extensive and rigorous regulation by the Food and Drug Administration and by other federal, state and local authorities. The Federal Food, Drug and Cosmetic Act and related regulations govern the conditions of safety, efficacy, clearance, approval, manufacturing, quality system requirements, labeling, packaging, distribution, storage, record keeping, reporting, marketing, advertising, and promotion of products. Non-compliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal by the government to grant premarket clearance or approval of products, withdrawal of clearances and approvals, and criminal prosecution.
Other Information
We maintain a website with the address www.gsig.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available, free of charge through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission (“SEC”). In addition, our reports and other information are filed with securities commissions or other similar authorities in Canada, and are available over the Internet at www.sedar.com.
The following risk factors could have a material adverse effect on our business, financial position, results of operations and cash flows and could cause the market value of our common shares to fluctuate or decline. These risk factors may not include all of the important factors that could affect our business or that could cause our future financial results to differ materially from historic or expected results or cause the market price of our common shares to fluctuate or decline.
Risks Relating to our Business
Our results of operations could be adversely affected by economic and political conditions and the effects of these conditions on our customers’ businesses and levels of business activities.
A large portion of our product sales are dependent on the need for increased capacity or replacement of inefficient manufacturing processes. These sales tend to lag behind other businesses in an economic recovery. Weaknesses in our end markets could negatively impact our revenue, gross margin and operating expenses and consequently have a material adverse effect on our business, financial condition and results of operations. For instance, uncertainty in our medical and industrial end markets has caused customers in those markets to purchase fewer products from us during certain recent quarters. If such uncertainty continues or worsens, we may not be able to meet anticipated revenue levels on a quarterly or annual basis. Moreover, a severe and/or prolonged economic downturn or a negative or uncertain political climate could adversely affect our customers’ financial condition and the timing or levels of business activity of our customers and the industries we serve. In particular, reduced growth expectations in China and the uncertain European financial situation could have an impact on our customers’ financial condition and ability to maintain product orders in the future. This may reduce the demand for our products or depress pricing for our products and have a material adverse effect on our results of operations. Changes in global economic conditions could also shift demand to products or services for which we do not have competitive advantages, and this could negatively affect the amount of business that we are able to obtain. In addition, if we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.
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Our business depends significantly upon our customers’ capital expenditures, which are subject to cyclical market fluctuations.
The electronics materials processing industries are cyclical and have historically experienced periods of oversupply, resulting in downturns in demand for capital equipment, in which many of our products are used. The timing, length and severity of these cycles, and their impact on our business, are difficult to predict. Further, our order levels or results of operations for a given period may not be indicative of order levels or results of operations for subsequent periods. For the foreseeable future, our operations will continue to depend upon industries that are subject to market cycles which, in turn, could adversely affect the market for our products.
We experienced significant cyclical fluctuations in the past. We cannot assure you that such slowdowns will not recur or that the impact of such slowdowns will be more or less significant compared to historical fluctuations.
Our business success depends upon our ability to respond to fluctuations in product demand, but doing so may require us to incur costs despite limited visibility toward future business declines.
In periods of weak demand, we may be required to reduce costs while maintaining the ability to motivate and retain key employees at the same time. Additionally, to remain competitive, we must also continually invest in research and development, which may inhibit our ability to reduce costs in a down cycle. Long product lead-times create a risk that we may purchase or manufacture inventories of products that we are unable to sell.
During a period of increasing demand and rapid growth, we must be able to increase manufacturing capacity quickly. Our inability to quickly increase production in response to a surge in demand could prompt customers to look for alternative sources of supply or leave our customers without a supply, both of which events could harm our reputation and make it difficult for us to retain our existing customers or to obtain new customers.
The success of our business requires that we continually innovate.
Technology requirements in our markets are constantly advancing. We must continually introduce new products that meet evolving customer needs. Our ability to grow depends on the successful development, introduction and market acceptance of new or enhanced products that address our customer’s requirements. Developing new technology is a complex and uncertain process requiring us to accurately anticipate technological and market trends and meet those trends with responsive products. Additionally, this requires that we manage the transition from older products to minimize disruption in customer ordering patterns, avoid excess inventory and ensure adequate supplies of new products. Failure to develop new products, failed market acceptance of new products or problems associated with new product transitions could harm our business.
If we fail to introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets.
Our research and development efforts may not lead to the successful introduction of products within the time period our customers demand. Our competitors may introduce new or improved products, processes or technologies that make our current or proposed products obsolete or less competitive. We may encounter delays or problems in connection with our research and development efforts. Product development delays may result from numerous factors, including:
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changing product specifications and customer requirements; |
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inability to manufacture new products cost effectively; |
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difficulties in reallocating engineering resources and overcoming resource limitations; |
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changing market or competitive product requirements; and |
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unanticipated engineering complexities. |
New products often take longer to develop, may have fewer features than originally considered desirable and have higher costs than initially estimated. There may be delays in starting volume production of new products and/or new products may not be commercially successful. There may also be difficulty in sourcing components for new products. Any of these developments could harm our business, including our results of operations.
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Customer order timing and other factors beyond our control may cause our operating results to fluctuate from period to period.
Changes in customer order timing and the existence of certain other factors beyond our control may cause our operating results to fluctuate from period to period. Such factors include:
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fluctuations in our customers’ businesses; |
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timing and recognition of revenues from customer orders; |
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timing and market acceptance of new products or enhancements introduced by us or our competitors; |
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availability of parts from our suppliers and the manufacturing capacity of our subcontractors; |
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decisions by customers to reduce their purchases of our products; |
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changes in the prices of our products or of our competitors’ products; and |
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fluctuations in exchange rates of foreign currencies. |
Certain of our sales come from products with high selling prices and significant lead times. We may receive several large orders in one quarter from a customer and then receive no orders from that customer in the next quarter. As a result, the timing and recognition of sales from customer orders can cause significant fluctuations in our operating results from quarter to quarter. In addition, our sales are reactive to changes in our customers’ businesses. For instance, a customer that placed a large order in one period could subsequently experience a downturn in business and, as a result, could cancel an order or reduce the amount of products it purchases from us in future periods.
A delay in a shipment or failure to meet our revenue recognition criteria near the end of a reporting period due, for example, to rescheduling or cancellations by customers or to unexpected difficulties experienced by us may cause sales in the period to decline significantly and may have a material adverse effect on our operations for that period.
We cannot predict how the market will react to new products produced by us or to enhancements made to our existing products. If any of our new or enhanced products contain defects or perceived defects or have reliability, quality or compatibility problems or perceived problems, or if our competitors release similar products or enhancements at the same time as us that are more widely accepted by our customers, our sales and results of operations for one or more reporting periods could be adversely affected.
In addition, we or our competitors may raise or lower the prices of products in response to market demands or competitive pressures. If we lower the prices of our products, or if our competitors lower the prices of their products such that demand for our products weakens, our sales for one or more quarters may decline and our operating results would be adversely affected. Changes in foreign currency exchange rates can also cause significant fluctuations in our results of operations from quarter to quarter.
As a result of these factors, our results of operations for any quarter are not necessarily indicative of results to be expected in future periods.
If we experience a significant disruption in, or breach in security of, our information technology systems, our business may be adversely affected.
We rely on information technology systems throughout the Company to manage orders, process shipments to customers, manage inventory levels and maintain financial information. Events could result in the disruption of our systems, including power outages, computer attacks by hackers, viruses, catastrophes, hardware and software failures and other unforeseen events. If we were to experience a significant period of system disruption in information technology systems that involve our interactions with customers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. In addition, security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in significant financial or reputational damage to us.
As we transact a portion of our sales, and maintain significant cash balances, in foreign currencies, changes in interest rates, credit ratings or foreign currency rates could have a material adverse effect on our operations, financial position, results of operations, and cash flows.
A portion of our sales are derived from our European and Asian operations and include transactions in Euros, British Pounds and Japanese Yen, while our products are mainly manufactured in the United States, United Kingdom and China. In the event of a decline in the value of the Euro, Japanese Yen or British Pound, we would typically experience a decline in our revenues and profit margins. If we increase the sale prices on our products sold in Europe and Japan in order to maintain profit margins and recover costs, we may lose customer sales to lower cost competitors.
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Additionally, balances we maintain in foreign currencies create additional financial exposure to changing currency rates. We have in the past, and may in the future, attempt to mitigate these risks by purchasing foreign currency exchange contracts, and by investing in United States government issued treasury bills. However, if foreign currency rates were to change rapidly, we could incur material losses.
Our reliance on international operations in foreign countries subjects us to risks not typically faced by companies operating exclusively in the United States.
During the year ended December 31, 2014, approximately 61% of our revenues from continuing operations were derived from operations and customers outside of the United States. The scope of our international operations subjects us to risks which could materially impact our results of operations, including:
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foreign exchange rate fluctuations; |
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increases in shipping costs or increases in fuel costs; |
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longer customer payment cycles; |
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greater difficulty in collecting accounts receivable; |
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use of incompatible systems and equipment; |
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problems with staffing and managing foreign operations in diverse cultures; |
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protective tariffs; |
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trade barriers and export/import controls; |
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transportation delays and interruptions; |
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increased vulnerability to the theft of, and reduced protection for, intellectual property rights; |
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government currency control and restrictions, delays, penalties or required withholdings on repatriation of earnings; |
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the impact of recessionary foreign economies; and |
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acts of terrorism. |
We cannot predict whether the United States or any other country will impose new quotas, tariffs, taxes or other trade barriers upon the importation or exportation of our products or supplies or gauge the effect that new barriers would have on our financial position or results of operations.
We also are subject to risks that our operations outside the United States could be conducted by our employees, contractors, service providers, representatives or agents in ways that violate the Foreign Corrupt Practices Act or other similar anti-bribery laws. Any such violations could have a negative impact on our business and could result in government investigations and/or injunctive, monetary or other penalties. Moreover, we face additional risks that our anti-bribery policy and procedures may be violated by third-party sales representatives or other agents that help sell our products or provide other services, because such representatives or agents are not our employees and it may be more difficult to oversee their conduct.
Increased outsourcing of components manufacturing to manufacturers outside the United States leads to additional risks which could negatively impact our business.
We are increasingly outsourcing the manufacture of subassemblies to suppliers based in China and elsewhere overseas in order to reduce our manufacturing cost. However, economic, political or trade problems with foreign countries could substantially impact our ability to obtain critical parts needed in the timely manufacture of our products. Additionally, this practice increases our vulnerability to the theft of, and reduced protection for, our intellectual property.
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Our global operations are subject to extensive and complex import and export rules that vary among the legal jurisdictions in which we operate. Failure to comply with these rules could result in substantial penalties.
Due to the international scope of our operations, we are subject to a complex system of import and export related laws and regulations, including U.S. export control and customs regulations and customs regulations of other countries. These regulations are complex and vary among the legal jurisdictions in which we operate. Any alleged or actual failure to comply with such regulations may subject us to government scrutiny, investigation and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States. Any of these penalties could have a material impact on our financial position, results of operations and cash flows.
We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets, which could adversely affect our results of operations.
Customers with liquidity issues may lead to additional bad debt expense. There can be no assurance that our open credit customers will pay the amounts they owe to us or that the reserves we maintain will be adequate to cover such credit exposure. In addition, to the extent that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers’ ability to pay may be adversely impacted. Our customers’ failure to pay and/or our failure to maintain sufficient reserves could have a material adverse effect on our operating results and financial condition.
Our reliance upon third party distribution channels subjects us to credit, inventory, business concentration, and business failure risks beyond our control.
We sell many of our products through resellers, distributors, and system integrators. As these third parties tend to have more limited financial resources than OEMs and end-user customers, they generally represent sources of increased credit risk. Any downturn in the business of our resellers, distributors, and systems integrators would in turn harm our results of operations or financial condition.
Our sales also depend upon the ability of our OEM customers to develop and sell systems that incorporate our products. Adverse economic conditions, large inventory positions, limited marketing resources and other factors influencing these OEM customers could have a substantial adverse effect on our financial results. We cannot assure investors that our OEM customers will not experience financial or other difficulties that could adversely affect their operations and, in turn, our financial condition or results of operations.
Others may violate our intellectual property rights and cause us to incur significant costs to protect our rights.
Our future success depends in part upon our intellectual property rights, including trade secrets, know-how and continuing technological innovation. We do not have personnel dedicated to the oversight, organization and management of our intellectual property. There can be no assurance that the steps we take to protect our intellectual property rights will be adequate to prevent misappropriation or disclosure, or that others will not develop competitive technologies or products outside of our patented intellectual property. It is possible that, despite our efforts, other parties may use, obtain or try to copy our technology and products. There can be no assurance that other companies are not investigating or developing other technologies that are similar to ours, that any patents will be issued from any application filed by us or that, if patents are issued, the claims allowed will be sufficient to deter or prohibit others from marketing similar products. In addition, our patents may be challenged, invalidated or circumvented in a legal or administrative proceeding. Policing unauthorized use of our intellectual property rights is difficult and time consuming and may involve initiating claims or litigation against third parties for infringement of our proprietary rights, which could be costly.
Our efforts to protect our intellectual property rights against infringement may not be effective in some foreign countries where we operate or sell our products. If we fail to adequately protect our intellectual property in these countries, we may lose significant business to our competitors.
Our operating results would suffer if we are unable to successfully defend against claims of infringement by third parties.
We have received in the past, and could receive in the future, notices from third parties alleging that our products infringe patent or other proprietary rights. We believe that our products are non-infringing or that we have the patents and/or licenses to allow us to lawfully sell our products throughout the world. However, we may be sued for infringement. In the event any third party makes a valid claim against us or our customers for which a license was not available to us on commercially reasonable terms, our operating results would be adversely affected. Adverse consequences may also apply to our failure to avoid litigation for infringement or misappropriation of proprietary rights of third parties.
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We operate in highly competitive industries and, if we lose competitive advantages, our business would suffer adverse consequences.
Some of our competition comes from established competitors that have greater financial, engineering, manufacturing and marketing resources than we do. Our competitors will continue to improve the design and performance of their products and introduce new products. It is possible that we may not successfully differentiate our current and proposed products from the products of our competitors, or that the marketplace will not consider our products to be superior to competing products. To remain competitive, we will be required to invest heavily in research and development, marketing and customer service and support. However, we may not be able to make the necessary technological advances to maintain our competitive position and our products may not receive market acceptance. These factors would cause us not to be able to compete successfully in the future. Increased competition may also result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand our development of new products.
Our results of operations will be adversely affected if we fail to successfully integrate future acquisitions into our business or to grow the acquired businesses.
As part of our business strategy, we expect to broaden our product and service offerings by acquiring businesses, technologies, assets and product lines that we believe complement or expand our existing businesses. We have made, and expect to continue to make, acquisitions. We may fail to successfully integrate acquisitions into our business and, as a result, may fail to realize the synergies, cost savings and other benefits expected from acquisitions. If we are not able to successfully achieve these objectives, the anticipated benefits of such acquisitions may not be realized fully or at all, and our results of operations could be adversely affected.
Further, our ability to maintain and increase profitability of an acquired business will depend on our ability to manage and control operating expenses and to generate and sustain increased levels of revenue. Our expectations to achieve more consistent and predictable levels of revenue and to increase profitability as a result of any acquisition may not be realized. Such revenues and profitability may even decline as we integrate operations into our business. If revenues of acquired businesses grow more slowly than we anticipate or decline, or if their operating expenses are higher than we expect, we may not be able to sustain or increase their profitability, in which case our financial condition will suffer and our stock price could decline. For example, reductions in orders by a customer within our Visualization Solutions product line have caused our revenues in that business in 2013 and 2014 to be lower than we had expected when we acquired the business. Moreover, our acquisition activities may divert management’s attention from our regular operations and managing a larger and more geographically dispersed operation and product portfolio could pose challenges for our management. In addition, through our acquisitions, we may assume liabilities, losses or costs for which we are not indemnified or insured or for which our indemnity or insurance is inadequate. Any such liabilities may have a material adverse effect on our financial position or results of operations.
Our business strategy may include making strategic divestitures. There can be no assurance that any divestitures will provide business benefit.
Our business strategy includes divesting certain non-core businesses. We sold certain assets and liabilities of our Laser Systems businesses in October 2012. During the second quarter of 2013, we sold our Semiconductor Systems business, and in July 2014, we sold our Scientific Lasers business. There may be additional sales of other non-core businesses in the future. The divestiture of an existing business could reduce our future profits and operating cash flows and make our financial results more volatile. A divestiture could also cause a decline in the price of our common shares and increased reliance on other elements of our core business operations. If we do not successfully manage the risks associated with a divestiture, our business, financial condition, and results of operations could be adversely affected. In addition, there could be other negative unforeseen effects from a divestiture. We also may not find suitable purchasers for our non-core businesses and may continue to pay operating costs associated with these businesses. Failed attempts to divest non-core businesses may distract management’s attention from other business activities, erode employee morale and customers’ confidence and harm our business.
If we do not attract and retain our key personnel, our ability to execute our business strategy will be limited.
Our success depends, to a significant extent, upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers, and upon our ability to continue to attract, retain, and motivate qualified personnel. The competition for these employees is intense. The loss of the services of one or more of our key personnel could have a material adverse effect on our operating results. In addition, there could be a material adverse effect on us should the turnover rates for engineers and other key personnel increase significantly or if we are unable to continue to attract qualified personnel.
Our success also depends on our ability to execute leadership succession plans. The inability to successfully transition key management roles could have a material adverse effect on our operating results.
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We have undertaken restructuring and realignment activities in the past, and we will continue to assess our operating structure in the future. These actions may not improve our financial position, and may ultimately prove detrimental to our operations and sales.
Our ability to reduce operating expenses is dependent upon the nature of the actions we take to reduce expenses and our subsequent ability to implement those actions and realize expected cost savings. If global conditions deteriorate and unfavorably impact our business, we may need to take additional restructuring actions, such as eliminating or consolidating certain of our facilities, reducing our headcount or eliminating certain positions. Failure to successfully implement such restructuring activities could adversely affect our ability to meet customer demand for our products and could increase the cost of production versus our projections, both of which could adversely impact our operating and financial results. Further, expenses and cost inefficiencies associated with our restructuring activities, including severance costs and the loss of trained employees with knowledge of our business and operations, could exceed our expectations and negatively impact our financial results. The elimination or consolidation of operations could also result in restructuring charges that could adversely affect our results of operations and financial condition.
Product defects or problems with integrating our products with other vendors’ products may seriously harm our business and reputation.
We produce complex products that can contain latent errors or performance problems. This could happen to both existing and new products. Such defects or performance problems could be detrimental to our business and reputation.
In addition, customers frequently integrate our products with other vendors’ products. When problems occur in a combined environment, it may be difficult to identify the source of the problem. These problems may cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relationship issues. These issues may also complicate our determination of the timing and amount of revenue recognition and could have a material negative impact on our business.
Disruptions in the supply of certain key components and other goods from our suppliers, including limited or single source suppliers, could have an adverse effect on the results of our business operations, and could damage our relationships with customers.
The production of our products requires a wide variety of raw materials, key components and other goods that are generally available from alternate sources of supply. However, certain critical raw materials, key components and other goods required for the production and sale of some of our principal products are available from limited or single sources of supply. If the receipt of certain limited source or single source materials is delayed, our relationship with customers may be harmed if such delays cause us to miss our scheduled shipment deadlines. Certain of our businesses buy components, including limited or sole source items, from competitors of our other businesses, and certain of our businesses sell products to customers that compete with certain other segments of our business. This dynamic may adversely impact our relationship with these suppliers and customers. For example, these suppliers could increase the price of those components or reduce their supply of those components to us. Similarly, these customers could elect to manufacture products to meet their own requirements rather than purchasing products from us. Our businesses may be adversely affected by our other business relationships with customers and suppliers. Our current or alternative sources may not be able to continue to meet all of our demands on a timely basis. If suppliers or subcontractors experience difficulties or fail to meet any of our manufacturing requirements, our business would be harmed until we are able to secure alternative sources, if any, on commercially reasonable terms. A prolonged inability to obtain certain raw materials, key components or other goods is possible and could have an adverse effect on our business operations, and could damage our relationships with customers.
Production difficulties and product delivery delays or disruptions could have a material adverse effect on our business.
We assemble our products at our facilities in the United States, the United Kingdom and China. Each of our products is typically manufactured in a single manufacturing location. If production activities at any of our manufacturing facilities were interrupted by a natural disaster or otherwise, our operations would be negatively impacted until we could establish alternative production and service operations. Significant production difficulties could be the result of:
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mistakes made while transferring manufacturing processes between locations; |
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changing process technologies; |
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ramping production; |
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installing new equipment at our manufacturing facilities; |
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shortage of key components; and |
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loss of electricity or employees’ access to the manufacturing facilities due to natural disasters. |
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In addition, we may experience product delivery delays in the future. We ship a significant portion of our products to our customers through independent package delivery and import/export companies. We also ship our products through national trucking firms, overnight carrier services and local delivery practices. If one or more of the package delivery or import/export providers experiences a significant disruption in services or institutes a significant price increase, the delivery of our products could be prevented or delayed. Such events could cause us to incur increased shipping costs that could not be passed on to our customers, negatively impacting our profitability and our relationships with certain customers.
We are subject to regulation by various federal, state and foreign agencies that require us to comply with a wide variety of regulations, including those regarding the manufacture of products and the shipping of our products.
Certain medical devices that we manufacture are subject to regulations by the U.S. Food and Drug Administration and similar international agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with such regulations, we may have to recall products and cease their manufacture and distribution, which would increase our costs and reduce our revenues.
In recent years, the medical industry has undergone significant changes in order to reduce healthcare costs. This includes cuts in Medicare, consolidation of healthcare distribution companies and collective purchasing arrangements by office-based healthcare practitioners. Foreign and domestic governments have also undertaken efforts to control healthcare costs through legislation and regulation. In March 2010, President Obama signed into law health care reform legislation in the form of the U.S. Patient Protection and Affordable Care Act (the “PPACA”). One of the components of the PPACA is a 2.3% excise tax on the sales of most medical devices, which started in 2013 and has increased our cost of compliance and negatively affected our profit margin. Many of the impacts of the PPACA will not be known until those regulations are enacted over the next several years. The implementation of health care reform and medical cost containment measures in the U.S. and in foreign countries in which we operate could:
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decrease the price that we might establish for our products, which would result in lower product revenues to us; |
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require additional safety monitoring, labeling changes, restrictions on product distribution or use, or other measures after the introduction of our products to market, which could increase our costs of doing business, or otherwise adversely affect the market for our products; and |
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create new laws, regulations and judicial decisions affecting pricing or marketing practices. |
Changes in governmental regulation of our business or our products could reduce demand for our products or increase our expenses.
We are subject to many governmental regulations, including but not limited to the laser radiation safety regulations of the Radiation Control for Health and Safety Act administered by the National Center for Devices and Radiological Health, a branch of the U.S. Food and Drug Administration, and certain health regulations related to the manufacture of products using beryllium, an element used in some of our products. Among other things, these regulations require us to file annual reports, to maintain quality control and sales records, to perform product testing, to distribute appropriate operating manuals, to conduct safety reviews, to incorporate design and operating features in products sold to end-users and to certify and label our products. Depending on the class of the product, various warning labels must be affixed and certain protective devices must be installed.
We are also subject to regulatory oversight, including comparable enforcement remedies, in the markets we serve. We compete in many markets in which we and our customers must comply with federal, state, local and international regulations, such as environmental, health and safety and food and drug regulations. We develop, configure and market our products to meet customer needs created by those regulations. Any significant change in these regulations could reduce demand for our products or increase our expenses, which in turn could adversely affect our business, financial condition, results of operations and cash flows.
Conflict minerals regulations will cause us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products.
On August 22, 2012, the SEC adopted rules requiring disclosures by public companies concerning tin, tantalum, tungsten and gold, known as Conflict Minerals that are necessary to the functionality or production of products manufactured or contracted to be manufactured. The rules require companies to perform due diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo or an adjoining country. There are, and will be, costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, as well as costs of possible changes to processes or sources of supply as a consequence of such verification activities. As our supply chain is complex, we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. In addition, we may encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict-free, which could place us at a competitive disadvantage if we are unable to do so.
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Compliance or the failure to comply with current and future environmental regulations could cause us significant expense.
Our operations are subject to a variety of federal, state, local and international environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during our manufacturing process or requiring design changes or recycling of products we manufacture. We are subject to the federal regulation of the Environmental Protection Agency in the United States and comparable authorities in other countries. If we fail to comply with any present or future regulations, we could be subject to regulatory fines.
Future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on our business, results of operations or financial condition. It is difficult to anticipate how such regulations will be implemented and enforced. We continue to evaluate the necessary steps for compliance with regulations as they are enacted. Certain regulations may require us to re-design our products to ensure compliance with the applicable standards. These redesigns may adversely affect the performance of our products, add greater testing lead-times for product introductions and reduce our profitability.
If we fail to implement new information technology systems successfully, our business could be adversely affected.
We rely on various centralized information systems throughout the Company to keep financial records, process orders, manage inventory, process shipments to customers, and operate other critical functions. Some of our existing systems are no longer supported by the software system providers and need to be upgraded or replaced. If we are unable to successfully implement new systems or upgrade the existing systems, particularly those that record, process or manage financial information, we may experience disruption in our operations and may be unable to recognize the expected benefits associated with new systems.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.
As of December 31, 2014, our total assets included $158.0 million of net intangible assets, including goodwill. Net intangible assets consist principally of goodwill, customer relationships, patents, trademarks, core technologies and technology licenses. Goodwill and indefinite-lived intangible assets are tested for impairment at least on an annual basis. All other intangible assets are evaluated for impairment should discrete events occur that call into question the recoverability of the intangible assets.
Adverse changes in our business, adverse changes in the assumptions used to determine the fair value of our reporting units, or the failure to grow our businesses may result in impairment of our intangible assets, which could adversely affect our results of operations. For example, the Company recorded a non-cash impairment charge of $41.4 million in the consolidated financial statements for the year ended December 31, 2014, as a result of lower expectations for sales and operating profit from our NDS business.
Risks Relating to Taxes
Our ability to utilize our net operating loss carryforwards and other tax attributes is dependent on our ability to generate sufficient future taxable income.
As of December 31, 2014, our total net operating loss carryforwards totaled $4.5 million (tax effected). Our ability to use future tax deductions is dependent on our ability to generate sufficient future taxable income in tax jurisdictions in which we operate. The determination of our tax attributes and liabilities and any valuation allowance recorded against our net tax attributes requires significant judgment and complex analysis. We consistently evaluate our tax attributes based on taxes recoverable in the carryback period, existing deferred tax liabilities, tax planning strategies and projected future taxable income. Our ability to recover all of our tax attributes in certain jurisdictions depends upon our ability to continue to generate future profits. If actual results differ from our plans or we do not achieve the desired level of profitability in a given jurisdiction, we may be required to increase or record a valuation allowance on our tax attributes by taking a charge in the statement of operations.
Changes in tax laws could adversely affect future results.
We are subject to regular examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our operating results and financial condition. From time to time, the United States, foreign and state governments make substantive changes to tax rules where significant judgment is required to determine the impact of such changes on our provision for income taxes.
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Our effective tax rate is subject to fluctuation, which could impact our financial position.
Our effective tax rate is subject to fluctuation as the effective income tax rate for each year is a function of (a) taxable income levels in numerous tax jurisdictions, (b) our ability to utilize recorded deferred tax assets, (c) taxes, interest, or penalties resulting from tax audits and (d) credits and deductions as a percentage of total taxable income. Further, tax law changes may cause our effective tax rate to fluctuate between periods.
We may be subject to U.S. federal income taxation even though GSIG is a non-U.S. corporation.
GSI Group, Inc. is a holding company organized in Canada and is subject to Canadian tax laws. However, we are subject to U.S. tax rules and file U.S. federal income tax returns for our operations in the United States. In addition, distributions or payments from entities in one jurisdiction to entities in another jurisdiction may be subject to withholding taxes. We do not intend to operate in a manner that will cause GSI Group, Inc. to be treated as engaged in a U.S. trade or business or otherwise be subject to U.S. federal income taxes on its income, but it generally will be subject to U.S. federal withholding tax on certain U.S.-sourced passive income items, such as dividends and certain types of interest.
Risks Relating to Our Common Shares and Our Capital Structure
We may require additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, and this capital may not be available on acceptable terms or at all.
We may require additional capital to adequately respond to future business challenges or opportunities, including, but not limited to, the need to develop new products or enhance our existing products, maintaining or expanding research and development projects, the need to build inventory or to invest other cash to support business growth, and opportunities to acquire complementary businesses and technologies.
As of December 31, 2014, we had outstanding debt of $115.0 million under the amended and restated senior secured credit agreement (the “Amended and Restated Credit Agreement”) and $95.0 million available to be drawn under the revolving credit facility. If we are unable to satisfy the conditions in the Amended and Restated Credit Agreement or our needs exceed the amounts available under the Senior Credit Facilities, we may need to engage in equity or debt financings to obtain additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution. Any new equity securities we issue could have rights, preferences and privileges superior to those of the holders of our common shares. Further, our Amended and Restated Credit Agreement restricts our ability to obtain additional debt financing from other sources. If we are unable to obtain adequate financing or obtain financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited. In addition, the terms of any additional equity or debt issuances may adversely affect the value and price of our common shares.
Global credit conditions have varied widely over the last several years and could continue to vary significantly in the future. Although these conditions have not affected our current plans, adverse credit conditions in the future could have a negative impact on our ability to execute on future strategic activities.
The market price for our common shares may be volatile.
The market price of our common shares could be subject to wide fluctuations. These fluctuations could be caused by:
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quarterly variations in our results of operations; |
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changes in earnings estimates by analysts; |
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conditions in the markets we serve; or |
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general market or economic conditions. |
In addition, in recent years the stock market has experienced extreme price and volume fluctuations. These fluctuations have had a substantial effect on the market prices of many companies, often unrelated to the operating performance of the specific companies. These market fluctuations could adversely affect the price of our common shares.
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We may not have access to the cash flow and other assets of our subsidiaries that may be needed to service our indebtedness and fund our operations.
Although much of our business is conducted through our subsidiaries, none of our subsidiaries are obligated to make funds available to us. Accordingly, our ability to make payments on our indebtedness and fund our operations may be dependent on the earnings and the distribution of funds from our subsidiaries. Local laws and regulations and/or the terms of our indebtedness may restrict certain of our subsidiaries from paying dividends and otherwise transferring assets to us. We cannot assure you that applicable laws and regulations and/or the terms of our indebtedness will permit our subsidiaries to provide us with sufficient dividends, distributions or loans when necessary.
Certain significant shareholders could have substantial influence over our Board of Directors and our outstanding common shares, which could limit our other shareholders’ ability to influence the outcome of key transactions.
Our largest shareholders and their respective affiliates, in the aggregate, beneficially own a substantial amount of our outstanding common shares. As a result, these shareholders may be able to influence matters requiring approval by our shareholders, including the election of directors and the approval of mergers, or other extraordinary transactions. One of these shareholders also serves on our Board of Directors and therefore could have a substantial influence over our Board of Directors. These significant shareholders may have interests that differ from other shareholders and may vote in a way that may be adverse to the interests of other shareholders.
Certain provisions of our articles of incorporation may delay or prevent a change in control of the Company.
Our corporate documents and our existence as a corporation under the laws of New Brunswick subject us to provisions of Canadian law that may enable our Board of Directors to resist a change in control of the Company. These provisions include:
· |
limitations on persons authorized to call a special meeting of shareholders; |
· |
the ability to issue an unlimited number of common shares; and |
· |
advance notice procedures required for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of shareholders. |
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of the Company. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors of their choosing and cause us to take other corporate actions that shareholders desire. In addition, New Brunswick law provides that cumulative voting is mandatory in director elections which can result in stockholders holding less than a majority of shares being able to elect persons to the Board of Directors and prevent a majority stockholder from controlling the election of all of the directors.
Our existing indebtedness could adversely affect our future business, financial condition and results of operations.
As of December 31, 2014, we had $115.0 million of outstanding debt. This level of debt could have significant consequences on our future operations, including:
· |
reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; |
· |
limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, market changes in the industries in which we operate and the general economy; and |
· |
placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged. |
Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations.
In addition, our Amended and Restated Credit Agreement contains covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our borrowings thereunder.
17
Risks Relating to Our Internal Controls
If we fail to maintain appropriate internal controls in the future, we may not be able to report our financial results accurately, which may adversely affect our stock price and our business.
While our management and our independent registered public accounting firm concluded that our internal control over financial reporting was effective as of December 31, 2014, it is possible that material weaknesses may be identified in the future.
If we are unable to maintain effective internal controls, we may not have adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations as a publicly traded company or comply with the requirements of the SEC or the Sarbanes-Oxley Act of 2002. This could result in a restatement of our financial statements, the imposition of sanctions, including the inability of registered broker dealers to make a market in our common shares, or investigation by regulatory authorities. Any such action or other negative results caused by our inability to meet our reporting requirements or comply with legal and regulatory requirements or by disclosure of an accounting, reporting or control issue could adversely affect the trading price of our securities and our business. Material weaknesses in our internal control over financial reporting could also reduce our ability to obtain financing or could increase the cost of any financing we obtain.
As part of our growth strategy, we may make additional acquisitions of privately held businesses. Prior to becoming part of our consolidated company, the acquired business would not be required to implement or maintain the disclosure controls and procedures or internal control over financial reporting that are required of public companies. We are required to integrate the acquired businesses into our consolidated company’s system of disclosure controls and procedures and internal control over financial reporting, but we cannot provide assurance as to how long the integration process may take for our recently acquired business or any business that we may acquire in the future. Additionally, we may need to improve our internal control or those of any business we acquire and may be required to design enhanced processes and controls in order to make such improvements. This could result in significant costs to us and could require us to divert substantial resources, including management time, from other activities.
Item 1B. Unresolved Staff Comments
None.
The principal owned and leased properties of the Company and its subsidiaries related to our continuing operations as of December 31, 2014 are listed in the table below.
Location |
|
Principal Use |
|
Current |
|
Approximate |
|
Owned/Leased |
Bedford, Massachusetts, USA |
|
Manufacturing, R&D, Marketing, Sales and Administration |
|
1,2,3,4 |
|
147,000 |
|
Leased; expires in 2019 |
Rugby, United Kingdom |
|
Manufacturing, R&D, Marketing, Sales and Administration |
|
1 |
|
43,000 |
|
Leased; expires in 2019 |
Poole, United Kingdom |
|
Manufacturing, R&D, Marketing, Sales and Administration |
|
3 |
|
51,000 |
|
Building owned; land leased through 2078 |
Mukilteo, Washington, USA |
|
Manufacturing, R&D, Marketing, Sales and Administration |
|
1 |
|
63,000 |
|
Owned |
Suzhou, People’s Republic of China |
|
Manufacturing, R&D, Marketing, Sales and Administration |
|
1,2,3 |
|
55,000 |
|
Leased; expires in 2015 |
San Jose, California, USA |
|
Manufacturing, R&D, Marketing, Sales and Administration |
|
2 |
|
73,000 |
|
Leased; expires in 2019 |
North Syracuse, New York, USA |
|
Manufacturing, R&D, Marketing, Sales and Administration |
|
2 |
|
55,000 |
|
Leased; expires in 2029 |
Chatsworth, California, USA |
|
Manufacturing, R&D, Marketing, Sales and Administration |
|
2 |
|
22,000 |
|
Owned |
Taunton, United Kingdom |
|
Manufacturing, R&D, Marketing and Sales |
|
1 |
|
19,000 |
|
Leased; expires in 2017 |
a) |
The facilities house product lines that belong to the following segments: |
1 |
— Laser Products Segment |
18
2 |
— Medical Technologies Segment |
3 |
— Precision Motion Segment |
4 |
— Corporate |
In connection with our senior credit facility, we entered into open ended deeds of trust for our properties in Orlando, Florida, Chatsworth, California and Mukilteo, Washington.
Additional research and development, sales, service and logistics sites are located in Germany, the Netherlands, Japan, China, Italy and Sri Lanka. These additional offices are leased facilities occupying approximately 43,000 square feet in the aggregate, and are related to our Laser Products, Medical Technologies and Precision Motion segments.
Our owned facility in Orlando, Florida and leased facilities in Lexington, Massachusetts were restructured and are not in use by the Company. These owned and leased facilities constitute approximately 80,000 and 33,000 square feet, respectively. In May 2013, we entered into a sublease agreement for our Lexington facility through December 2016.
In connection with the sale of our Scientific Lasers business, we assigned to the buyer the lease for the facility in San Jose, California, where the Scientific Lasers business operated. The buyer assumed all of our rights and obligations under the original lease, including the duty to pay the rent for the remainder term of the lease. So long as the buyer performs its obligations as the tenant, as required by the Asset and Equity Purchase Agreement for its acquisition of the Scientific Lasers business, the Company has no responsibilities for the lease. If the buyer should cease performance under the lease, however, the landlord could still pursue the Company as the original tenant until February 28, 2019, the end of the lease term. The Company has indemnification rights against the buyer under the Asset and Equity Purchase Agreement.
The Company is also subject to various legal proceedings and claims that arise in the ordinary course of business. The Company does not believe that the outcome of these claims will have a material adverse effect upon its financial condition or results of operations but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect upon its financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
19
Item 5. Market for Registrant’s Common Shares, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
From December 29, 2010 to January 27, 2011, the Company’s common shares were quoted on the OTC Markets Group, Inc. under the trading symbol “LASRD.PK”. Between January 28 and February 14, 2011, the Company’s trading symbol was “LASR.PK”. Since February 14, 2011, the Company’s common shares, no par value, have traded on the NASDAQ Global Select Market under the trading symbol “GSIG”.
The following table sets forth the high and low prices of the Company’s common shares during the periods indicated.
|
2014 |
|
|
2013 |
|
||||||||||
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
||||
First Quarter |
$ |
13.05 |
|
|
$ |
10.33 |
|
|
$ |
10.00 |
|
|
$ |
8.40 |
|
Second Quarter |
$ |
13.60 |
|
|
$ |
11.92 |
|
|
$ |
8.88 |
|
|
$ |
7.98 |
|
Third Quarter |
$ |
12.97 |
|
|
$ |
11.29 |
|
|
$ |
9.64 |
|
|
$ |
8.18 |
|
Fourth Quarter |
$ |
14.87 |
|
|
$ |
11.15 |
|
|
$ |
11.24 |
|
|
$ |
9.47 |
|
Holders
As of the close of business on February 20, 2015, there were approximately 38 holders of record of the Company’s common shares. Since many of the common shares are registered in “nominee” or “street” names, the Company believes that the total number of beneficial owners is considerably higher.
Dividend Policy
The Company has never declared or paid cash dividends on its common shares and does not anticipate paying any cash dividends in the foreseeable future.
Purchases of Equity Securities by the Issuer and Affiliated Purchaser
During 2013, the Board of Directors authorized the repurchase of up to $10 million of the Company’s common stock. The share repurchase plan does not obligate the Company to acquire any particular amount of our common stock. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.
After the adoption of the share repurchase plan, the Company repurchased 50 thousand shares of our common stock for an aggregate purchase price of $0.5 million at an average price of $10.49 per share in December 2013. No repurchases occurred during the twelve months ended December 31, 2014.
20
Performance Graph
The following graph compares the cumulative total return to stockholders for the Company’s common shares for the period from December 31, 2009 through December 31, 2014 with the NASDAQ Composite Index, the S&P Technology Index and the Russell 2000 Index. The comparison assumes an investment of $100 is made on December 31, 2009 in the Company’s common shares and in each of the indices and, in the case of the indices, it also assumes reinvestment of all dividends. The performance shown is not necessarily indicative of future performance.
The Company added the Russell 2000 Index (RUT) in 2014 as the Company believes that the Russell 2000 Index (RUT) closely aligns to the long-term strategic focus and growth outlook of the Company.
|
December 31, 2009 |
|
|
December 31, 2010 |
|
|
December 31, 2011 |
|
|
December 31, 2012 |
|
|
December 31, 2013 |
|
|
December 31, 2014 |
|
||||||
GSI Group Inc. |
$ |
100.00 |
|
|
$ |
405.36 |
|
|
$ |
391.95 |
|
|
$ |
331.80 |
|
|
$ |
430.65 |
|
|
$ |
563.98 |
|
NASDAQ Composite Index |
$ |
100.00 |
|
|
$ |
116.91 |
|
|
$ |
114.81 |
|
|
$ |
133.07 |
|
|
$ |
184.06 |
|
|
$ |
208.71 |
|
S&P Technology Index(1) |
$ |
100.00 |
|
|
$ |
109.66 |
|
|
$ |
104.82 |
|
|
$ |
120.17 |
|
|
$ |
148.71 |
|
|
$ |
169.40 |
|
Russell 2000 Index(2) |
$ |
100.00 |
|
|
$ |
125.31 |
|
|
$ |
118.47 |
|
|
$ |
135.81 |
|
|
$ |
186.07 |
|
|
$ |
192.63 |
|
(1) |
The S&P 500 Information Technology Index is proprietary to and is calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P® and S&P 500®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. © 2013 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. All rights reserved. |
(2) |
Copyright © Russell Investments 2015. All rights reserved. |
Item 6. Selected Financial Data
The selected financial data set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and the
21
consolidated financial statements and related notes thereto in Item 8 of this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below. The selected consolidated financial data in this section is not intended to replace the consolidated financial statements.
The consolidated statements of operations data for the years ended December 31, 2014, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014 and 2013 are derived from our audited consolidated financial statements in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2011 and 2010 and the consolidated balance sheet data as of December 31, 2012, 2011 and 2010 are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. The prior period information stated herein has been revised to conform to the new presentation as a result of classifying certain of our businesses as discontinued operations.
|
Year Ended December 31, |
|
|||||||||||||||||
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
2010 |
|
|||||
|
(In thousands, except per share data) |
|
|||||||||||||||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
364,706 |
|
|
$ |
316,910 |
|
|
$ |
243,796 |
|
|
$ |
269,697 |
|
|
$ |
254,683 |
|
Gross profit |
|
150,167 |
|
|
|
132,227 |
|
|
|
105,518 |
|
|
|
119,559 |
|
|
|
116,749 |
|
Operating expenses (1) |
|
166,973 |
|
|
|
112,781 |
|
|
|
85,256 |
|
|
|
81,213 |
|
|
|
81,245 |
|
Operating income (loss) from continuing operations |
|
(16,806 |
) |
|
|
19,446 |
|
|
|
20,262 |
|
|
|
38,346 |
|
|
|
35,505 |
|
Reorganization items(2) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(26,156 |
) |
Income (loss) from continuing operations before income taxes |
|
(17,915 |
) |
|
|
16,177 |
|
|
|
16,702 |
|
|
|
26,553 |
|
|
|
(7,999 |
) |
Income tax provision (benefit)(3) |
|
(1,006 |
) |
|
|
6,200 |
|
|
|
(11,595 |
) |
|
|
2,136 |
|
|
|
11,805 |
|
Income (loss) from continuing operations |
|
(16,909 |
) |
|
|
9,977 |
|
|
|
28,297 |
|
|
|
24,417 |
|
|
|
(19,804 |
) |
Income (loss) from discontinued operations, net of tax |
|
(5,607 |
) |
|
|
(2,054 |
) |
|
|
(10,974 |
) |
|
|
4,584 |
|
|
|
19,165 |
|
Gain (loss) on disposal of discontinued operations, net of tax(4) |
|
(1,726 |
) |
|
|
(592 |
) |
|
|
2,255 |
|
|
|
— |
|
|
|
— |
|
Consolidated net income (loss) |
|
(24,242 |
) |
|
|
7,331 |
|
|
|
19,578 |
|
|
|
29,001 |
|
|
|
(639 |
) |
Less: Net income attributable to noncontrolling interest |
|
(10 |
) |
|
|
(22 |
) |
|
|
(40 |
) |
|
|
(28 |
) |
|
|
(48 |
) |
Net income (loss) attributable to GSI Group Inc. |
$ |
(24,252 |
) |
|
$ |
7,309 |
|
|
$ |
19,538 |
|
|
$ |
28,973 |
|
|
$ |
(687 |
) |
Earnings (loss) per common share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.49 |
) |
|
$ |
0.29 |
|
|
$ |
0.84 |
|
|
$ |
0.73 |
|
|
$ |
(0.84 |
) |
Diluted |
$ |
(0.49 |
) |
|
$ |
0.29 |
|
|
$ |
0.84 |
|
|
$ |
0.73 |
|
|
$ |
(0.84 |
) |
Loss per common share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.21 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.26 |
) |
|
$ |
0.14 |
|
|
$ |
0.81 |
|
Diluted |
$ |
(0.21 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.26 |
) |
|
$ |
0.13 |
|
|
$ |
0.81 |
|
Earnings (loss) per common share attributable to GSI Group Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.70 |
) |
|
$ |
0.21 |
|
|
$ |
0.58 |
|
|
$ |
0.87 |
|
|
$ |
(0.03 |
) |
Diluted |
$ |
(0.70 |
) |
|
$ |
0.21 |
|
|
$ |
0.58 |
|
|
$ |
0.86 |
|
|
$ |
(0.03 |
) |
Weighted average common shares outstanding—basic |
|
34,352 |
|
|
|
34,073 |
|
|
|
33,775 |
|
|
|
33,481 |
|
|
|
23,703 |
|
Weighted average common shares outstanding—diluted |
|
34,352 |
|
|
|
34,396 |
|
|
|
33,936 |
|
|
|
33,589 |
|
|
|
23,703 |
|
(1) |
The Company recorded an impairment charge of $41.4 million in 2014 related to goodwill ($19.6 million) and intangible assets ($21.8 million) related to our NDS business acquired in January 2013. |
(2) |
The Company recorded $26.2 million in 2010 related to our bankruptcy proceedings. Refer to Note 1 in the accompanying consolidated financial statements. |
(3) |
The Company released $15.3 million of valuation allowance on deferred tax assets in 2012 based on the conclusion that it is more likely than not that its deferred tax assets in the U.S. and U.K. will be realized in the future. In 2010, the Company recorded $9.6 million unfavorable permanent differences in its income tax provisions primarily related to non-deductible bankruptcy costs. |
(4) |
The Company sold its Scientific Lasers business in 2014, Semiconductor Systems business in 2013 and Laser Systems business in 2012 and recorded a (loss) gain on disposal, net of tax, of ($1.7) million, ($0.6) million and $2.3 million, respectively. |
22
|
December 31, |
|
|||||||||||||||||
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
2010 |
|
|||||
|
(in thousands) |
|
|||||||||||||||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments |
$ |
51,146 |
|
|
$ |
60,980 |
|
|
$ |
65,788 |
|
|
$ |
54,835 |
|
|
$ |
56,781 |
|
Total assets |
|
398,919 |
|
|
|
378,807 |
|
|
|
337,460 |
|
|
|
348,503 |
|
|
|
367,167 |
|
Debt, current |
|
7,500 |
|
|
|
7,500 |
|
|
|
7,500 |
|
|
|
10,000 |
|
|
|
— |
|
Debt, long-term |
|
107,500 |
|
|
|
64,000 |
|
|
|
42,500 |
|
|
|
58,000 |
|
|
|
107,575 |
|
Long-term liabilities, excluding debt |
|
25,951 |
|
|
|
10,917 |
|
|
|
11,308 |
|
|
|
22,440 |
|
|
|
21,250 |
|
Total stockholders’ equity |
|
210,825 |
|
|
|
241,984 |
|
|
|
227,809 |
|
|
|
209,003 |
|
|
|
178,678 |
|
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and Notes included in Item 8 of this Annual Report on Form 10-K. The MD&A contains certain forward looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition to historical financial information, the following discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions. These forward looking statements include, but are not limited to, anticipated financial performance; expected liquidity and capitalization; drivers of revenue growth; management’s plans and objectives for future operations, expenditures and product development, and investments in research and development; business prospects; potential of future product releases; anticipated sales performance; industry trends; market conditions; changes in accounting principles; changes in actual or assumed tax liabilities; expectations regarding tax exposures; anticipated reinvestment of future earnings; anticipated expenditures in regard to the Company’s benefit plans; future acquisitions and dispositions and anticipated benefits from acquisitions; anticipated impact of the NDS impairment charge; anticipated use of currency hedges; ability to repay our indebtedness; our intentions regarding the use of cash; and other statements that are not historical facts. These forward looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward looking statements. Our actual results could differ materially from those anticipated in these forward looking statements as a result of various factors, including those set forth in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.” The words “anticipates,” “believes,” “expects,” “intends,” “future,” “could,” “estimates,” “plans,” “would,” “should,” “potential,” “continues,” and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward looking statements. Readers should not place undue reliance on any such forward looking statements, which speak only as of the date they are made. Management and the Company disclaim any obligation to publicly update or revise any such statement to reflect any change in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward looking statements.
Business Overview
GSI Group Inc. and its subsidiaries (collectively referred to as the “Company”, “we”, “us”, “our”) 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.
Our strategy is to drive sustainable, profitable growth through short-term and long-term initiatives, including:
· |
improving our business mix to increase medical sales as a percentage of total revenue by: |
- |
introducing new products aimed at attractive medical applications such as minimally invasive and robotic surgery, ophthalmology, patient monitoring, drug delivery, diagnostic testing and life science research; |
- |
cross selling our entire product offering to the leading medical equipment manufacturers and; |
- |
pursuing complementary medical technology acquisitions; |
· |
increasing our penetration of high growth advanced industrial technology applications such as laser materials processing, robotics, automation, metrology, and via hole drilling by working closely with OEM customers to launch application specific products that closely match the requirements of each application; |
· |
broadening our portfolio of precision motion control products and capabilities through increased new product development investment in motion control product lines, expanded sales and marketing to reach target customers and, acquisitions of additional motion control product technologies used by existing customers; |
· |
broadening our product and service offerings through the acquisition of innovative and complementary technologies and solutions in medical and advanced industrial technology applications; |
· |
upgrading our existing operations to expand profit margins and improve customer satisfaction by implementing lean manufacturing principles and strategic sourcing across our major production sites; and |
· |
attracting, retaining, and developing talented and motivated employees. |
24
Significant Events and Updates
Acquisition of JADAK
On March 14, 2014, we completed the acquisition of JADAK LLC, JADAK Technologies Inc. and Advance 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 addition of the JADAK technology platforms expands our portfolio of highly-differentiated enabling technologies. JADAK provides data collection and machine vision solutions to its customers, which primarily consist of OEM medical device manufacturers. JADAK’s products are based on technologies that include barcode components and scanners, machine vision cameras, RFID technology, magnetic stripe readers, portable platforms and associated software. JADAK’s products are highly engineered, application-specific components that are developed and manufactured to meet the extremely high performance and quality requirements of major medical OEMs. JADAK’s products are used in medical equipment to increase safety and reduce medical errors by verifying patient identity, validating the specified therapy or function, and enhancing the accuracy of the medical procedure.
Discontinued Operations
On July 15, 2014, we completed the sale of our Scientific Lasers business operating under the Continuum brand name for $6.5 million in cash, net of working capital adjustments, and recognized a $1.7 million loss on sale, net of tax, in the consolidated statement of operations. The loss from discontinued operations of $5.6 million during 2014 includes a $3.0 million fair value write-down of the Scientific Lasers business to its estimated fair value less cost to sell. The Scientific Lasers purchase and sale agreement requires $1.5 million of the sales proceeds to be held in escrow that can be utilized as indemnification for certain representations and warranties claims against the Company until the expiration of the escrow arrangement in January 2016. The Company has recorded the $1.5 million escrow in other long term assets on the consolidated balance sheet.
We began to report the Scientific Lasers business as discontinued operations in the first quarter of 2014. As a result, prior period information related to the business has been reclassified into discontinued operations to conform to current period presentation. See Notes 1 and 4 to our Consolidated Financial Statements for further information.
NDS Escrow Recovery
On January 15, 2013, we completed the acquisition of NDS Surgical Imaging LLC (“NDS”), a San Jose, California-based company that designs, manufactures, and markets high definition visualization solutions and imaging informatics products for the surgical, patient monitoring and radiology end-markets, for $80.8 million in cash, net of working capital adjustments. On September 24, 2014, we received a payment of $5.4 million, the full remaining amount held in the escrow account established upon the closing of the acquisition. The escrow recovery resulted from the Company’s claims for a breach of certain terms of the January 15, 2013 Securities Purchase Agreement for the acquisition of NDS. The escrow recovery was accounted for as a reduction to goodwill as the $5.4 million payment was clearly and directly related to the acquisition price. The escrow recovery resulted in a final adjusted purchase price of $75.4 million.
NDS Impairment Charge
During the fourth quarter of 2014, the Company recorded a non-cash impairment charge of $41.4 million related to our NDS business in the consolidated financial statements for the year ended December 31, 2014. The impairment charge will not result in future cash expenditures, or otherwise impact the Company’s liquidity, cash flows, or compliance with its debt covenants.
Overview of Financial Results
Total sales for 2014 were $364.7 million, an increase of $47.8 million, or 15.1%, versus the prior year primarily as a result of the JADAK acquisition which accounted for $45.4 million or 14.3% of the increase in total sales. In addition, foreign exchange rates favorably impacted our sales by 0.1% during the year ended December 31, 2014. Excluding the impact of the JADAK acquisition and changes in foreign exchange rates, total sales for 2014 increased 0.7% versus the prior year. Our organic sales growth is summarized as follows:
|
% Change 2014 vs. 2013 |
|
|
Reported growth |
|
15.1 |
% |
Less: Change attributable to JADAK acquisition |
|
14.3 |
% |
Less: Change due to foreign currency |
|
0.1 |
% |
Organic growth |
|
0.7 |
% |
25
The organic growth in our sales for the year ended December 31, 2014 compared to the prior year was primarily attributable to growth in our Laser Products and Precision Motion segments offset by a decline in sales in our Medical Technologies segment. The increase in sales in our Laser Products segment was attributable to an increase in sales volume across our product portfolio. The growth in our Precision Motion segment was driven by increases in sales volume of optical encoders products. These increases were partially offset by a decline in sales in our Medical Technologies segment related to our visualization solutions product line.
Operating income from continuing operations for 2014 decreased $36.2 million, or 186.4%, from an operating income of $19.4 million in 2013 to an operating loss of $16.8 million. This decrease was primarily attributable to an impairment charge related to the NDS business of $41.4 million.
Diluted earnings per share (“EPS”) from continuing operations decreased $0.78 from an earnings per share of $0.29 in 2013 to a loss per share of ($0.49) in 2014. The decrease was primarily attributable to operating loss from continuing operations in the current year versus operating income from continuing operations in the prior year and an increase in interest expense as a result of higher average debt levels during 2014, offset by foreign currency gains in the current year versus foreign currency losses in the prior year, an increase in earnings from our equity-method investment in Laser Quantum and lower effective tax rate in the current year versus the prior year.
The specific components of our operating results for 2014, 2013 and 2012 are further discussed below.
Results of Operations
The following table sets forth our results of operations as a percentage of sales for the years indicated:
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
Sales |
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
58.8 |
|
|
|
58.3 |
|
|
|
56.7 |
|
Gross profit |
|
41.2 |
|
|
|
41.7 |
|
|
|
43.3 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
Research and development and engineering |
|
7.9 |
|
|
|
7.5 |
|
|
|
7.6 |
|
Selling, general and administrative |
|
23.1 |
|
|
|
24.1 |
|
|
|
24.5 |
|
Amortization of purchased intangible assets |
|
2.8 |
|
|
|
2.3 |
|
|
|
1.1 |
|
Restructuring and acquisition related costs |
|
0.6 |
|
|
|
1.7 |
|
|
|
1.8 |
|
Impairment of goodwill and intangible assets |
|
11.4 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
45.8 |
|
|
|
35.6 |
|
|
|
35.0 |
|
Operating income (loss) from continuing operations |
|
(4.6 |
) |
|
|
6.1 |
|
|
|
8.3 |
|
Interest income (expense), net |
|
(1.4 |
) |
|
|
(1.1 |
) |
|
|
(1.1 |
) |
Foreign exchange transaction gains (losses), net |
|
0.4 |
|
|
|
(0.4 |
) |
|
|
(0.6 |
) |
Other income (expense), net |
|
0.7 |
|
|
|
0.5 |
|
|
|
0.2 |
|
Income (loss) from continuing operations before income taxes |
|
(4.9 |
) |
|
|
5.1 |
|
|
|
6.8 |
|
Income tax provision (benefit) |
|
(0.3 |
) |
|
|
2.0 |
|
|
|
(4.8 |
) |
Income (loss) from continuing operations |
|
(4.6 |
) |
|
|
3.1 |
|
|
|
11.6 |
|
Loss from discontinued operations, net of tax |
|
(1.6 |
) |
|
|
(0.6 |
) |
|
|
(4.5 |
) |
Gain (loss) on disposal of discontinued operations, net of tax |
|
(0.4 |
) |
|
|
(0.2 |
) |
|
|
0.9 |
|
Consolidated net income (loss) |
|
(6.6 |
) |
|
|
2.3 |
|
|
|
8.0 |
|
Less: Net income attributable to noncontrolling interest |
|
— |
|
|
|
— |
|
|
|
— |
|
Net income (loss) attributable to GSI Group Inc. |
|
(6.6 |
)% |
|
|
2.3 |
% |
|
|
8.0 |
% |
26
Sales
The following table sets forth external sales by reportable segment for 2014, 2013 and 2012 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|||||
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 vs. 2013 |
|
|
2013 vs. 2012 |
|
|||||
Laser Products |
$ |
177,726 |
|
|
$ |
166,598 |
|
|
$ |
158,639 |
|
|
|
6.7 |
% |
|
|
5.0 |
% |
Medical Technologies |
|
122,187 |
|
|
|
90,276 |
|
|
|
25,915 |
|
|
|
35.3 |
% |
|
|
248.4 |
% |
Precision Motion |
|
64,793 |
|
|
|
60,036 |
|
|
|
59,242 |
|
|
|
7.9 |
% |
|
|
1.3 |
% |
Total |
$ |
364,706 |
|
|
$ |
316,910 |
|
|
$ |
243,796 |
|
|
|
15.1 |
% |
|
|
30.0 |
% |
Laser Products
2014 Compared with 2013
Laser Products segment sales in 2014 increased by $11.1 million, or 6.7%, versus the prior year, due to growth across all product lines. The sales growth was primarily due to an increase in sales of our CO2 lasers and fiber lasers products, driven by new product launches, new customer wins, and market growth. In addition, sales of our beam delivery products grew due to increased demand in material processing in advanced industrial markets.
2013 Compared with 2012
Laser Products segment sales in 2013 increased by $8.0 million, or 5.0%, versus the prior year. Sales growth was primarily attributable to growth in sales of our beam delivery products, driven by strong demand and greater market penetration of our laser scanning solutions products. In addition, CO2 lasers products experienced an increase in demand from customers in both marking and coding applications for the food, beverage and pharmaceutical industries.
Medical Technologies
2014 Compared with 2013
Medical Technologies segment sales in 2014 increased by $31.9 million, or 35.3%, versus the prior year. A $45.4 million increase in sales attributable to the JADAK acquisition was partially offset by a decline in sales in our visualization solutions products as a result of dual sourcing at an OEM customer that began in 2013, softness in medical equipment spending impacting our customer’s demand for our products, and delays in new product introductions.
2013 Compared with 2012
Medical Technologies segment sales in 2013 increased by $64.4 million, or 248.4%, versus the prior year. A $68.4 million increase in sales attributable to the NDS acquisition was partially offset by a decline in volume in our medical grade thermal printer products, which was largely driven by end of life programs with certain customer product platforms and, to a lesser extent, lower hospital capital spending.
Precision Motion
2014 Compared with 2013
Precision Motion segment sales in 2014 increased by $4.8 million, or 7.9%, versus the prior year. This increase was principally driven by increased sales of our optical encoders products as a result of a market share gain with a major OEM customer and new customer wins.
2013 Compared with 2012
Precision Motion segment sales in 2013 increased by $0.8 million, or 1.3%, versus the prior year. This increase was primarily due to an increase in sales of our air bearing spindles products, which experienced a short-term rebound in demand from the printed circuit board industry. This increase was offset by a decline in sales volume of our optical encoders products, which was driven by sales to a customer in the data storage market in 2012 that did not repeat in 2013.
27
Gross Profit
The following table sets forth the gross profit and gross profit margin for each of our reportable segments for 2014, 2013 and 2012 (dollars in thousands):
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
Laser Products |
$ |
74,224 |
|
|
$ |
68,819 |
|
|
$ |
66,498 |
|
Medical Technologies |
|
48,678 |
|
|
|
35,824 |
|
|
|
13,149 |
|
Precision Motion |
|
28,333 |
|
|
|
27,778 |
|
|
|
26,796 |
|
Corporate |
|
(1,068 |
) |
|
|
(194 |
) |
|
|
(925 |
) |
Total |
$ |
150,167 |
|
|
$ |
132,227 |
|
|
$ |
105,518 |
|
Gross profit margin: |
|
|
|
|
|
|
|
|
|
|
|
Laser Products |
|
41.8 |
% |
|
|
41.3 |
% |
|
|
41.9 |
% |
Medical Technologies |
|
39.8 |
% |
|
|
39.7 |
% |
|
|
50.7 |
% |
Precision Motion |
|
43.7 |
% |
|
|
46.3 |
% |
|
|
45.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
41.2 |
% |
|
|
41.7 |
% |
|
|
43.3 |
% |
Gross profit and gross profit margin can be influenced by a number of factors, including product mix, pricing, volume, manufacturing efficiencies and utilization, costs for raw materials and outsourced manufacturing, headcount, inventory obsolescence and warranty expenses.
Laser Products
2014 Compared with 2013
Laser Products segment gross profit in 2014 increased $5.4 million, or 7.9%, versus the prior year primarily due to an increase in sales and an increase in gross profit margin. Laser Products segment gross profit margin was 41.8% for 2014, compared with a gross profit margin of 41.3% for the prior year. The 0.5 percentage point increase in gross profit margin was primarily attributable to productivity improvements as a result of our manufacturing process improvement initiatives and margin improvements in our fiber lasers products.
2013 Compared with 2012
Laser Products segment gross profit for 2013 increased $2.3 million, or 3.5%, versus the prior year primarily due to an increase in sales. Laser Products segment gross profit margin was 41.3% for 2013, compared with a gross profit margin of 41.9% for the prior year. The 0.6 percentage point decrease in gross profit margin was primarily attributable to unfavorable impact of higher sales of our fiber lasers which had a negative impact on our gross profit margin and new product launches in our CO2 lasers products, which temporarily increased our production costs.
Medical Technologies
2014 Compared with 2013
Medical Technologies segment gross profit for 2014 increased $12.9 million, or 35.9%, versus the prior year. The increase was primarily attributable to the JADAK acquisition in March 2014, which accounted for an $18.9 million increase in gross profit year over year, partially offset by a decline in gross profit for our visualization solutions products due to lower sales. Medical Technologies segment gross profit margin remained relatively flat year over year. Included in gross profit was amortization of developed technologies and amortization of inventory fair value step-ups of $3.7 million and $3.1 million for the years ended December 31, 2014 and December 31, 2013, respectively.
2013 Compared with 2012
Medical Technologies segment gross profit for 2013 increased $22.7 million, or 172.4%, versus the prior year primarily due to the acquisition of NDS in January 2013. Excluding the impact of NDS, gross profit decreased by $2.6 million, or 19.5%, primarily attributable to lower sales of our medical grade thermal printers products. Medical Technologies segment gross profit margin was 39.7% for 2013, compared with a gross profit margin of 50.7% for the prior year. The 11.0 percentage point decrease in gross profit margin percentage was primarily driven by the acquisition of NDS, which included $3.1 million in intangibles amortization and acquisition fair value adjustments.
28
Precision Motion
2014 Compared with 2013
Precision Motion segment gross profit for 2014 increased $0.6 million, or 2.0%, versus the prior year primarily due to an increase in sales volume of our optical encoders products. Precision Motion segment gross profit margin was 43.7% for 2014, versus a gross profit margin of 46.3% for the prior year. The 2.6 percentage point decrease in gross profit margin was a consequence of manufacturing ramp-up costs.
2013 Compared with 2012
Precision Motion segment gross profit for 2013 increased $1.0 million, or 3.7%, versus the prior year primarily due to an increase in both sales and gross profit margin. Precision Motion segment gross profit margin was 46.3% for 2013, compared with a gross profit margin of 45.2% for the prior year. The 1.1 percentage point increase in gross profit margin was driven by product mix and cost savings from our 2012 restructuring program.
Operating Expenses
The following table sets forth operating expenses for 2014, 2013 and 2012 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|||||
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 vs. 2013 |
|
|
2013 vs. 2012 |
|
|||||
Research and development and engineering |
$ |
28,954 |
|
|
$ |
23,787 |
|
|
$ |
18,530 |
|
|
|
21.7 |
% |
|
|
28.4 |
% |
Selling, general and administrative |
|
84,380 |
|
|
|
76,337 |
|
|
|
59,707 |
|
|
|
10.5 |
% |
|
|
27.9 |
% |
Amortization of purchased intangible assets |
|
10,262 |
|
|
|
7,270 |
|
|
|
2,650 |
|
|
|
41.2 |
% |
|
|
174.3 |
% |
Restructuring and acquisition related costs |
|
1,935 |
|
|
|
5,387 |
|
|
|
4,369 |
|
|
|
(64.1 |
)% |
|
|
23.3 |
% |
Impairment of goodwill and intangible assets |
|
41,442 |
|
|
|
— |
|
|
|
— |
|
|
N/A |
|
|
N/A |
|
||
Total |
$ |
166,973 |
|
|
$ |
112,781 |
|
|
$ |
85,256 |
|
|
|
48.1 |
% |
|
|
32.3 |
% |
Research and Development and Engineering Expenses
Research and development and engineering (“R&D”) expenses are primarily comprised of employee compensation and related expenses and cost of materials for R&D projects.
2014 Compared with 2013
R&D expenses were $29.0 million, or 7.9% of sales, in 2014, versus $23.8 million, or 7.5% of sales, in 2013. R&D expenses increased in terms of total dollars primarily due to the acquisition of JADAK.
2013 Compared with 2012
R&D expenses were $23.8 million, or 7.5% of sales, in 2013, versus $18.5 million, or 7.6% of sales, in 2012. R&D expenses, in terms of total dollars, increased primarily due to the acquisition of NDS. The increase was partially offset by lower employee compensation as a result of our restructuring plans and lower project costs in 2013.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses include costs for sales and marketing, sales administration, finance, human resources, legal, information systems and executive management.
2014 Compared with 2013
SG&A expenses were $84.4 million, or 23.1% of sales, in 2014, versus $76.3 million, or 24.1% of sales, in 2013. SG&A expenses increased in terms of total dollars primarily due to the acquisition of JADAK.
29
2013 Compared with 2012
SG&A expenses were $76.3 million, or 24.1% of sales, in 2013, versus $59.7 million, or 24.5% of sales, in 2012. SG&A expenses increased in terms of total dollars due to the acquisition of NDS and, to a lesser extent, from the increase in employee compensation versus the prior year.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets is charged to our Laser Products, Medical Technologies and Precision Motion segments. Amortization of core technologies is included in cost of goods sold in the consolidated statement of operations. Amortization of customer relationships, trademarks, backlog and other intangibles are included in operating expenses in the consolidated statement of operations.
2014 Compared with 2013
Amortization of purchased intangible assets, excluding the amortization for developed technologies that is included in cost of sales, was $10.3 million, or 2.8% of sales, in 2014, versus $7.3 million, or 2.3% of sales, in 2013. The increase, in terms of total dollars and as a percentage of sales, was related to the amortization of acquired intangible assets from the JADAK acquisition.
2013 Compared with 2012
Amortization of purchased intangible assets, excluding the amortization of core technologies, was $7.3 million, or 2.3% of sales, in 2013, versus $2.7 million, or 1.1% of sales, in 2012. The increase, in terms of total dollars and as a percentage of sales, was related to the amortization of acquired intangible assets as part of the NDS acquisition.
Restructuring and Acquisition Related Costs
Restructuring and acquisition related charges primarily relate to our prior year restructuring programs as well as the acquisition related costs incurred for the acquisition of JADAK in March 2014 and NDS in January 2013.
2014 Compared with 2013
The Company recorded restructuring and acquisition related costs of $1.9 million in 2014, versus $5.4 million in 2013. We recognized acquisition related costs of $1.5 million in 2014, which included expenses of $0.6 million recognized under earn-out agreements in connection with the JADAK acquisition. We recorded restructuring costs of $0.4 million primarily related to depreciation on our Orlando, Florida facility. The decrease in restructuring and acquisition related costs is primarily due to the decrease in costs related to prior year restructuring programs. Acquisition related costs were $1.6 million during 2013.
2013 Compared with 2012
The Company recorded restructuring and acquisition related costs of $5.4 million in 2013, versus $4.4 million in 2012. The increase in restructuring and acquisition related costs primarily related to higher acquisition related charges, which related to the acquisition of NDS in January 2013 and JADAK in March 2014. Acquisition related charges totaled $1.6 million and $0.8 million during 2013 and 2012, respectively.
In January 2013, the Company consolidated our laser scanners business into our Bedford, Massachusetts production facility. In addition, the Company also recorded severance charges associated with our 2011 and 2013 restructuring plans.
Impairment of Goodwill and Intangible Assets
The Company recorded a non-cash impairment charge of $41.4 million in the consolidated financial statements for the year ended December 31, 2014 as a result of lower expectations for sales and operating profit from our NDS business.
30
Operating Income (Loss) by Segment
The following table sets forth operating income by segment for 2014, 2013 and 2012 (in thousands):
|
2014 |
|
|
|
|
2013 |
|
|
|
|
2012 |
|
|||
Operating Income (Loss) from Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laser Products |
$ |
33,053 |
|
|
|
|
$ |
25,143 |
|
|
|
|
$ |
24,480 |
|
Medical Technologies |
|
(43,079 |
) |
|
|
|
|
3,566 |
|
|
|
|
|
8,285 |
|
Precision Motion |
|
13,023 |
|
|
|
|
|
12,062 |
|
|
|
|
|
9,482 |
|
Corporate, shared services and unallocated |
|
(19,803 |
) |
|
|
|
|
(21,325 |
) |
|