gsig-10q_20150703.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2015

Or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission File No. 001-35083

 

GSI Group Inc.

(Exact name of registrant as specified in its charter)

 

 

New Brunswick, Canada

 

98-0110412

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

125 Middlesex Turnpike

Bedford, Massachusetts, USA

 

01730

(Address of principal executive offices)

 

(Zip Code)

(781) 266-5700

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

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   x

As of July 31, 2015, there were 34,410,418 of the Registrant’s common shares, no par value, issued and outstanding.

 

 

 

 

 


 

GSI GROUP INC.

TABLE OF CONTENTS

 

Item No.

 

  

Page
No.

 

 

PART I — FINANCIAL INFORMATION

  

1

 

 

 

ITEM 1.

  

FINANCIAL STATEMENTS

  

1

 

 

 

 

  

CONSOLIDATED BALANCE SHEETS (unaudited)

  

1

 

 

 

 

  

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

  

2

 

 

 

 

  

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

  

3

 

 

 

 

  

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

  

4

 

 

 

 

  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

  

5

 

 

 

ITEM 2.

  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

20

 

 

 

ITEM 3.

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  

32

 

 

 

ITEM 4.

  

CONTROLS AND PROCEDURES

  

32

 

 

PART II — OTHER INFORMATION

  

33

 

 

 

ITEM 1.

  

LEGAL PROCEEDINGS

  

33

 

 

 

ITEM 1A.

  

RISK FACTORS

  

33

 

 

 

ITEM 2.

  

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

  

33

 

 

 

ITEM 3.

  

DEFAULTS UPON SENIOR SECURITIES

  

33

 

 

 

ITEM 4.

  

MINE SAFETY DISCLOSURES

  

33

 

 

 

ITEM 5.

  

OTHER INFORMATION

  

33

 

 

 

ITEM 6.

  

EXHIBITS

  

34

 

 

SIGNATURES

  

35

 

 

EXHIBIT INDEX

  

36

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GSI GROUP INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars or shares)

(Unaudited)

 

 

July 3,

 

 

December 31,

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

81,051

 

 

$

51,146

 

Accounts receivable, net of allowance of $253 and $282, respectively

 

54,379

 

 

 

51,494

 

Inventories

 

60,410

 

 

 

62,943

 

Income taxes receivable

 

5,025

 

 

 

5,906

 

Deferred tax assets

 

6,124

 

 

 

5,971

 

Prepaid expenses and other current assets

 

5,644

 

 

 

5,236

 

Assets of discontinued operations

 

 

 

 

631

 

Total current assets

 

212,633

 

 

 

183,327

 

Property, plant and equipment, net

 

37,780

 

 

 

40,088

 

Deferred tax assets

 

2,801

 

 

 

2,912

 

Other assets

 

13,578

 

 

 

14,604

 

Intangible assets, net

 

67,278

 

 

 

67,242

 

Goodwill

 

98,358

 

 

 

90,746

 

Total assets

$

432,428

 

 

$

398,919

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Current portion of long-term debt

$

7,500

 

 

$

7,500

 

Accounts payable

 

26,942

 

 

 

25,592

 

Income taxes payable

 

5,299

 

 

 

1,189

 

Deferred tax liabilities

 

208

 

 

 

208

 

Accrued expenses and other current liabilities

 

22,037

 

 

 

19,401

 

Liabilities of discontinued operations

 

 

 

 

324

 

Total current liabilities

 

61,986

 

 

 

54,214

 

Long-term debt

 

108,750

 

 

 

107,500

 

Deferred tax liabilities

 

2,509

 

 

 

35

 

Income taxes payable

 

6,339

 

 

 

7,097

 

Other liabilities

 

18,257

 

 

 

18,819

 

Total liabilities

 

197,841

 

 

 

187,665

 

Commitments and Contingencies (Note 13)

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

Common shares, no par value; Authorized shares: unlimited;

   Issued and outstanding: 34,409 and 34,219, respectively

 

423,856

 

 

 

423,856

 

Additional paid-in capital

 

29,536

 

 

 

28,590

 

Accumulated deficit

 

(202,221

)

 

 

(225,165

)

Accumulated other comprehensive loss

 

(16,584

)

 

 

(16,456

)

Total GSI Group Inc. stockholders’ equity

 

234,587

 

 

 

210,825

 

Noncontrolling interest

 

 

 

 

429

 

Total stockholders’ equity

 

234,587

 

 

 

211,254

 

Total liabilities and stockholders’ equity

$

432,428

 

 

$

398,919

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

1

 


 

GSI GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars or shares, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

July 3,

 

 

June 27,

 

 

July 3,

 

 

June 27,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

$

96,494

 

 

$

96,905

 

 

$

191,108

 

 

$

176,038

 

Cost of revenue

 

55,149

 

 

 

58,254

 

 

 

109,757

 

 

 

105,282

 

Gross profit

 

41,345

 

 

 

38,651

 

 

 

81,351

 

 

 

70,756

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development and engineering

 

7,840

 

 

 

7,525

 

 

 

16,055

 

 

 

13,382

 

Selling, general and administrative

 

20,922

 

 

 

21,410

 

 

 

42,990

 

 

 

41,028

 

Amortization of purchased intangible assets

 

1,852

 

 

 

2,876

 

 

 

3,741

 

 

 

4,620

 

Restructuring, acquisition and divestiture related costs

 

416

 

 

 

360

 

 

 

2,853

 

 

 

1,178

 

Total operating expenses

 

31,030

 

 

 

32,171

 

 

 

65,639

 

 

 

60,208

 

Operating income from continuing operations

 

10,315

 

 

 

6,480

 

 

 

15,712

 

 

 

10,548

 

Interest income (expense), net

 

(1,375

)

 

 

(1,375

)

 

 

(2,772

)

 

 

(2,212

)

Foreign exchange transaction gains (losses), net

 

(3,153

)

 

 

(61

)

 

 

(2,636

)

 

 

(80

)

Other income (expense), net

 

20,034

 

 

 

419

 

 

 

20,763

 

 

 

1,000

 

Income from continuing operations before income taxes

 

25,821

 

 

 

5,463

 

 

 

31,067

 

 

 

9,256

 

Income tax provision

 

6,310

 

 

 

2,057

 

 

 

8,110

 

 

 

2,994

 

Income from continuing operations

 

19,511

 

 

 

3,406

 

 

 

22,957

 

 

 

6,262

 

Loss from discontinued operations, net of tax

 

(13

)

 

 

(2,678

)

 

 

(13

)

 

 

(4,544

)

Consolidated net income

 

19,498

 

 

 

728

 

 

 

22,944

 

 

 

1,718

 

Less: Net income attributable to noncontrolling interest

 

 

 

 

(3

)

 

 

 

 

 

(10

)

Net income attributable to GSI Group Inc.

$

19,498

 

 

$

725

 

 

$

22,944

 

 

$

1,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.56

 

 

$

0.10

 

 

$

0.66

 

 

$

0.18

 

Diluted

$

0.56

 

 

$

0.10

 

 

$

0.66

 

 

$

0.18

 

Loss per common share from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.00

)

 

$

(0.08

)

 

$

(0.00

)

 

$

(0.13

)

Diluted

$

(0.00

)

 

$

(0.08

)

 

$

(0.00

)

 

$

(0.13

)

Earnings per common share attributable to GSI Group Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.56

 

 

$

0.02

 

 

$

0.66

 

 

$

0.05

 

Diluted

$

0.56

 

 

$

0.02

 

 

$

0.66

 

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding—basic

 

34,630

 

 

 

34,378

 

 

 

34,567

 

 

 

34,304

 

Weighted average common shares outstanding—diluted

 

35,029

 

 

 

34,707

 

 

 

35,014

 

 

 

34,690

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

2

 


 

GSI GROUP INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands of U.S. dollars)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

July 3,

 

 

June 27,

 

 

July 3,

 

 

June 27,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Consolidated net income

$

19,498

 

 

$

728

 

 

$

22,944

 

 

$

1,718

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax (1)

 

3,958

 

 

 

1,006

 

 

 

(548

)

 

 

943

 

Pension liability adjustments, net of tax (2)

 

(309

)

 

 

(50

)

 

 

420

 

 

 

14

 

Total other comprehensive income (loss)

 

3,649

 

 

 

956

 

 

 

(128

)

 

 

957

 

Total consolidated comprehensive income (loss)

 

23,147

 

 

 

1,684

 

 

 

22,816

 

 

 

2,675

 

Less: Comprehensive income attributable to

   noncontrolling interest

 

 

 

 

(3

)

 

 

 

 

 

(10

)

Comprehensive income (loss) attributable to GSI Group Inc.

$

23,147

 

 

$

1,681

 

 

$

22,816

 

 

$

2,665

 

 

(1) 

The tax effect on this component of comprehensive income was $0.5 million for the three and six months ended July 3, 2015 and $0.2 million for the three and six months ended June 27, 2014.

(2) 

The tax effect on this component of comprehensive income was not material for all periods presented. See Note 4 for the total amount of pension liability adjustments reclassified out of accumulated other comprehensive income (loss).

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

3

 


 

GSI GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

 

 

Six Months Ended

 

 

July 3,

 

 

June 27,

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Consolidated net income

$

22,944

 

 

$

1,718

 

Less: Loss from discontinued operations, net of tax

 

13

 

 

 

4,544

 

Income from continuing operations

 

22,957

 

 

 

6,262

 

Adjustments to reconcile income from continuing operations to

   net cash provided by operating activities of continuing operations:

 

 

 

 

 

 

 

Depreciation and amortization

 

9,385

 

 

 

11,151

 

Provision for inventory excess and obsolescence

 

801

 

 

 

602

 

Share-based compensation

 

2,533

 

 

 

2,434

 

Deferred income taxes

 

172

 

 

 

(1,250

)

Earnings from equity-method investment

 

(1,121

)

 

 

(989

)

Gain on disposal of business

 

(19,638

)

 

 

 

Non-cash restructuring and acquisition related charges

 

261

 

 

 

553

 

Other

 

574

 

 

 

1,023

 

Changes in assets and liabilities which (used) provided cash, excluding

   effects from businesses purchased or classified as discontinued operations:

 

 

 

 

 

 

 

Accounts receivable

 

(5,243

)

 

 

(429

)

Inventories

 

(3,841

)

 

 

60

 

Income taxes receivable, prepaid expenses and other current assets

 

1,745

 

 

 

215

 

Accounts payable, income taxes payable, accrued expenses

   and other current liabilities

 

7,184

 

 

 

583

 

Other non-current assets and liabilities

 

(1,201

)

 

 

(291

)

Cash provided by operating activities of continuing operations

 

14,568

 

 

 

19,924

 

Cash provided by (used in) operating activities of discontinued operations

 

(13

)

 

 

121

 

Cash provided by operating activities

 

14,555

 

 

 

20,045

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(2,133

)

 

 

(2,589

)

Acquisition of businesses, net of cash acquired

 

(13,048

)

 

 

(93,656

)

Proceeds from sale of business, net of transaction costs

 

30,623

 

 

 

 

Proceeds from the sale of property, plant and equipment

 

116

 

 

 

52

 

Cash provided by (used in) investing activities of continuing operations

 

15,558

 

 

 

(96,193

)

Cash used in investing activities of discontinued operations

 

 

 

 

(898

)

Cash provided by (used in) investing activities

 

15,558

 

 

 

(97,091

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

13,000

 

 

 

77,000

 

Repayments of long-term debt and revolving credit facility

 

(11,750

)

 

 

(13,750

)

Payments for debt issuance costs

 

 

 

 

(712

)

Payments of withholding taxes from stock-based awards

 

(1,382

)

 

 

(1,508

)

Capital lease payments

 

(348

)

 

 

(540

)

Other financing activities

 

118

 

 

 

439

 

Cash provided by (used in) financing activities of continuing operations

 

(362

)

 

 

60,929

 

Cash provided by financing activities of discontinued operations

 

 

 

 

 

Cash provided by (used in) financing activities

 

(362

)

 

 

60,929

 

Effect of exchange rates on cash and cash equivalents

 

154

 

 

 

144

 

Increase (decrease) in cash and cash equivalents

 

29,905

 

 

 

(15,973

)

Cash and cash equivalents, beginning of period

 

51,146

 

 

 

60,980

 

Cash and cash equivalents, end of period

$

81,051

 

 

$

45,007

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

$

2,011

 

 

$

1,608

 

Cash paid for income taxes

$

3,661

 

 

$

2,032

 

Income tax refunds received

$

17

 

 

$

109

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

4

 


 

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JULY 3, 2015

(Unaudited)

 

1. Basis of Presentation

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 (“OEMs”) in the medical and advanced industrial markets. The Company is a leader in highly engineered enabling technologies, including CO2 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. The Company specializes in collaborating with OEM customers to adapt its component and subsystem technologies to deliver highly differentiated performance in their applications.

The accompanying unaudited interim consolidated financial statements have been prepared in U.S. dollars and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X pertaining to interim financial statements. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements and notes included in this report should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, these interim consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the interim periods presented. The results for interim periods are not necessarily indicative of results to be expected for the full year or for any future periods.

During the quarter ended July 3, 2015, the Company deconsolidated its 50% owned joint venture, Excel Laser Technology Private Limited (the “India JV”), as a result of an agreement executed in June 2015 to sell 100% of the Company’s interest in the India JV. The accounts of the India JV were previously included in discontinued operations in the consolidated financial statements.

The Company owns 41% of Laser Quantum Ltd. (“Laser Quantum”), a privately held company located in the United Kingdom. The Company records the results of this entity under the equity method as it does not have a controlling interest in the entity.

The Company’s unaudited interim financial statements are prepared on a quarterly basis ending on the Friday closest to the end of the calendar quarter, with the exception of the fourth quarter which always ends on December 31.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The Company evaluates its estimates based on historical experience, current conditions and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions are reviewed on an on-going basis and the effects of revisions are reflected in the period in which they are deemed to be necessary. Actual results could differ significantly from those estimates.

Recent Accounting Pronouncements

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 provides guidance on determining when disposals can be presented as discontinued operations. ASU 2014-08 requires that only disposals representing a strategic shift that has (or will have) a major effect on an entity’s operations and financial results should be presented as discontinued operations. A strategic shift may include a disposal of a major line of business, a major equity method investment or a major part of an entity. Additionally, ASU 2014-08 requires expanded disclosures regarding discontinued operations. ASU 2014-08 is effective prospectively for reporting periods beginning after December 15, 2014. The Company adopted this pronouncement in January 2015.

Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement

5

 


GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2015

(Unaudited)

 

consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 will be effective for annual and interim reporting periods beginning after December 15, 2015, with early adoption permitted. Upon adoption, an entity may apply the new guidance either retrospectively or prospectively to all arrangements entered into or materially modified after the effective date. The Company is currently evaluating the impact of ASU 2015-05 on the Company’s consolidated financial statements.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires debt issuance related costs to be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with the presentation of a debt discount. ASU 2015-03 will be effective on a retrospective basis for annual and interim reporting periods beginning after December 15, 2015, with early adoption permitted. The adoption of this amendment is not expected to have a material impact on the Company’s consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, “Revenue Recognition,” and requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. Upon adoption, an entity may apply the new guidance either retrospectively to each prior reporting period presented or retrospectively only to customer contracts not yet completed as of the date of adoption with the cumulative effect of initially applying the standard recognized in beginning retained earnings at the date of the initial application. In July 2015, the FASB reached a decision to defer the effective date of ASU 2014-09 by one year, with the option of early adoption as of the original effective date. The deferral will result in ASU 2014-09 being effective for annual and interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the new standard on the Company’s consolidated financial statements.

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)," which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. ASU 2014-15 will be effective for annual reporting periods ending after December 15, 2016. Early application is permitted. The Company does not expect the adoption of ASU 2014-15 to have any impact on the Company’s consolidated financial statements.

 

 

2. Business Combinations

On February 19, 2015, the Company acquired 100% of the outstanding stock of Applimotion Inc. (“Applimotion”), a Loomis, California based provider of advanced precision motor and motion control technology to OEM customers in the advanced industrial and medical markets, for a total purchase price of $14.0 million, net of working capital adjustments. The purchase price includes $13.0 million in cash paid for the acquisition and $1.0 million estimated fair value of future contingent consideration payable upon the achievement of certain revenue targets for fiscal years 2015 to 2017. The undiscounted range of possible contingent consideration is zero to $4.0 million. The Company expects that the addition of Applimotion will enable the Company to offer a broader range of motion control technologies and integrated solutions to customers. The Company recognized Applimotion acquisition costs of less than $0.1 million and $0.2 million during the three and six months ended July 3, 2015, respectively. Acquisition-related costs are included in restructuring, acquisition and divestiture related costs in the consolidated statements of operations.

The acquisition of Applimotion has been accounted for as a business combination. The allocation of the purchase price is based upon the estimated fair value of assets acquired and liabilities assumed as of the acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Applimotion and the Company. The process for estimating the fair values of identifiable intangible assets and the contingent consideration liability requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

6

 


GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2015

(Unaudited)

 

The total purchase price was allocated as follows (in thousands):

 

Purchase Price

 

 

Allocation

 

Cash

$

317

 

Accounts receivable

 

1,821

 

Inventory

 

2,041

 

Prepaid expenses and other current assets

 

89

 

Property and equipment

 

308

 

Intangible assets

 

6,071

 

Goodwill

 

7,612

 

Total assets acquired

 

18,259

 

 

 

 

 

Accounts payable

 

964

 

Other liabilities

 

717

 

Deferred tax liabilities

 

2,248

 

Total liabilities assumed

 

3,929

 

Total assets acquired and liabilities assumed

 

14,330

 

Less: cash acquired

 

317

 

Total purchase price, net of cash acquired

 

14,013

 

Less: contingent consideration

 

965

 

Net cash used for acquisition of business

$

13,048

 

 

The fair value of intangible assets is comprised of the following (dollar amounts in thousands):

 

 

 

 

 

 

Weighted Average

 

Estimated Fair

 

 

Amortization

 

Value

 

 

Period

Developed technology

$

2,684

 

 

10 years

Customer relationships

 

2,066

 

 

10 years

Non-compete covenant

 

684

 

 

4 years

Backlog

 

637

 

 

1 year

Total

$

6,071

 

 

 

  

The purchase price allocation resulted in $7.6 million of goodwill and $6.1 million of identifiable intangible assets, none of which is expected to be deductible for tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flow potential attributable to: (i) Applimotion’s ability to grow their business with existing and new customers, (ii) the potential to realize cost improvements due to scale and more efficient operations, (iii) the opportunity to serve customers with integrated assemblies that feature products from both Applimotion and the Company and, (iv) the potential to sell the Company’s products into Applimotion’s customer base.

The results of the Applimotion acquisition were included in the Company’s results of operations beginning on February 19, 2015. The pro forma financial information reflecting the operating results of Applimotion, as if it had been acquired on January 1, 2014, is not presented herein as it would not differ materially from the operating results of the Company as reported for 2014. Applimotion is included in the Company’s Precision Motion reportable segment.

 

7

 


GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2015

(Unaudited)

 

3. Discontinued Operations and Divestitures

In June 2015, the Company finalized an agreement to divest its 50% owned joint venture, the India JV, and recorded a pre-tax loss of less than $0.1 million in operating loss from discontinued operations, net of tax during the three months ended July 3, 2015. All assets, liabilities, accumulated other comprehensive income and non-controlling interest of the India JV were derecognized as of the date of the agreement.  

On April 15, 2015, the Company completed the sale of certain assets and liabilities of its JK Lasers business, previously included in the Laser Products reportable segment, for approximately $30.6 million in cash, received upon closing, net of transaction costs. As of July 3, 2015, the working capital adjustments had not yet been settled and were estimated to be a cash payment of $1.0 million to the buyer. During the three months ended July 3, 2015, the Company recognized a pre-tax gain on sale of $19.6 million in other income (expense), net on the consolidated statement of operations. The JK Lasers business divestiture does not qualify for discontinued operations accounting treatment.

In July 2014, the Company completed the sale of certain assets and liabilities of its Scientific Lasers business for approximately $6.5 million in cash, net of working capital adjustments.  In accordance with the purchase and sale agreement, $1.5 million of the sales proceeds is held in escrow until January 2016. The $1.5 million escrow is included in prepaid expenses and other current assets on the balance sheet as of July 3, 2015 and other long-term assets as of December 31, 2014.

Assets and liabilities of discontinued operations as of December 31, 2014 included the balances of the India JV. There were no assets and liabilities of discontinued operations as of July 3, 2015. The major components of the assets and liabilities of discontinued operations as of December 31, 2014, respectively, were as follows (in thousands):

 

 

December 31,

 

 

2014

 

Accounts receivable, net

$

95

 

Inventories

 

161

 

Prepaid and other current assets

 

8

 

Other assets

 

367

 

Assets of discontinued operations

$

631

 

 

 

 

 

Accounts payable

$

16

 

Accrued expenses and other current liabilities

 

74

 

Other liabilities

 

234

 

Liabilities of discontinued operations

$

324

 

 

The following table presents the operating results which are reported as discontinued operations in the Company’s consolidated statements of operations (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

July 3,

 

 

June 27,

 

 

July 3,

 

 

June 27,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue from discontinued operations

$

 

 

$

6,271

 

 

$

 

 

$

10,287

 

Operating loss from discontinued operations, before income tax

$

(13

)

 

$

(2,136

)

 

$

(13

)

 

$

(4,987

)

Operating loss from discontinued operations, net of tax

$

(13

)

 

$

(2,678

)

 

$

(13

)

 

$

(4,544

)

 

 

 

8

 


GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2015

(Unaudited)

 

4. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) was as follows (in thousands):

 

 

Total accumulated

 

 

 

 

 

 

 

 

 

 

other

 

 

Foreign currency

 

 

 

 

 

 

comprehensive

 

 

translation

 

 

Pension

 

 

income (loss)

 

 

adjustments

 

 

liability

 

Balance at December 31, 2014

$

(16,456

)

 

$

(5,615

)

 

$

(10,841

)

Other comprehensive income (loss)

 

(897

)

 

 

(882

)

 

 

(15

)

Amounts reclassified from other comprehensive income (loss) (1)

 

769

 

 

 

334

 

 

 

435

 

Balance at July 3, 2015

$

(16,584

)

 

$

(6,163

)

 

$

(10,421

)

 

(1)

The amounts reclassified from other comprehensive income (loss) were included in selling, general and administrative expenses and loss from discontinued operations, net of tax in the consolidated statements of operations.

 

5. Earnings per Share

Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. For diluted earnings per common share, the denominator also includes the dilutive effect of outstanding restricted stock units determined using the treasury stock method. Dilutive effects of contingently issuable shares are included in the weighted average dilutive share calculation when the contingencies have been resolved. For periods in which net losses are generated, the dilutive potential common shares are excluded from the calculation of diluted earnings per share as the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

July 3,

 

 

June 27,

 

 

July 3,

 

 

June 27,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Numerators:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

19,511

 

 

$

3,406

 

 

$

22,957

 

 

$

6,262

 

Loss from discontinued operations

 

(13

)

 

 

(2,678

)

 

 

(13

)

 

 

(4,544

)

Less: Income attributable to noncontrolling interest

 

 

 

 

(3

)

 

 

 

 

 

(10

)

Loss from discontinued operations attributable to GSI Group Inc.

 

(13

)

 

 

(2,681

)

 

 

(13

)

 

 

(4,554

)

Net income attributable to GSI Group Inc.

$

19,498

 

 

$

725

 

 

$

22,944

 

 

$

1,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding— basic

 

34,630

 

 

 

34,378

 

 

 

34,567

 

 

 

34,304

 

Dilutive potential common shares

 

399

 

 

 

329

 

 

 

447

 

 

 

386

 

Weighted average common shares outstanding— diluted

 

35,029

 

 

 

34,707

 

 

 

35,014

 

 

 

34,690

 

Antidilutive common shares excluded from above

 

 

 

 

 

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings (Loss) per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

$

0.56

 

 

$

0.10

 

 

$

0.66

 

 

$

0.18

 

From discontinued operations

$

(0.00

)

 

$

(0.08

)

 

$

(0.00

)

 

$

(0.13

)

Basic earnings per share attributable to GSI Group Inc.

$

0.56

 

 

$

0.02

 

 

$

0.66

 

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings (Loss) per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From continuing operations

$

0.56

 

 

$

0.10

 

 

$

0.66

 

 

$

0.18

 

From discontinued operations

$

(0.00

)

 

$

(0.08

)

 

$

(0.00

)

 

$

(0.13

)

Diluted earnings per share attributable to GSI Group Inc.

$

0.56

 

 

$

0.02

 

 

$

0.66

 

 

$

0.05

 

9

 


GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2015

(Unaudited)

 

 

Common Stock Repurchases

In October 2013, the Company’s Board of Directors authorized a share repurchase plan under which the Company may repurchase outstanding shares of the Company’s common stock up to an aggregate amount of $10.0 million. The shares may be repurchased from time to time, at the Company’s discretion, based on ongoing assessment of the capital needs of the business, the market price of the Company’s common stock, and general market conditions. Shares may also be repurchased through an accelerated stock purchase agreement, on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. Repurchases may be made under certain SEC regulations, which would permit common stock to be purchased when the Company would otherwise be prohibited from doing so under insider trading laws. The share repurchase plan does not obligate the Company to acquire any particular amount of 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. As of December 31, 2014, the Company had cumulatively repurchased 50 thousand shares of its common stock for an aggregate amount of $0.5 million. There have been no share repurchases to date in 2015.

 

6. Fair Value Measurements

ASC 820, “Fair Value Measurements,” establishes a fair value hierarchy based on the following three levels of inputs:

·

Level 1: Quoted prices for identical assets or liabilities in active markets which the Company can access.

·

Level 2: Observable inputs other than those described in Level 1.

·

Level 3: Unobservable inputs.

The Company’s cash equivalents are investments in money market accounts, which represent the only asset the Company measures at fair value on a recurring basis. The Company determines the fair value of our cash equivalents using a market approach based on quoted prices in active markets which is classified as Level 1. The contingent consideration is classified as Level 3 as the fair value is based on unobservable inputs. The fair values of cash, accounts receivable, income taxes receivable, accounts payable, income taxes payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.

The following table summarizes the fair values of our financial assets and liabilities as of July 3, 2015 (in thousands):

 

 

 

 

 

Quoted Prices in

 

 

 

 

 

 

Significant Other

 

 

 

 

 

 

Active Markets for

 

 

Significant Other

 

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

 

Observable Inputs

 

 

Inputs

 

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

$

2,581

 

 

$

2,581

 

 

$

 

 

$

 

            Total Assets

$

2,581

 

 

$

2,581

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

965

 

 

$

 

 

$

 

 

$

965

 

            Total Liabilities

$

965

 

 

$

 

 

$