SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 27, 2006
or
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from to
Commission file number 1-11344
INTERMAGNETICS GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 14-1537454 (I.R.S. Employer Identification No.) |
450 Old Niskayuna Road, PO Box 461, Latham, NY 12110-0461
(Address of principal executive offices) (Zip Code)
(518) 782-1122
(Registrant’s telephone number, including area code)
__________________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No .
As of September 25, 2006, the registrant had 42,798,327 shares of $.10 par value Common Stock outstanding.
INTERMAGNETICS GENERAL CORPORATION
|
|
CERTIFICATIONS | 27 |
2
PART I – FINANCIAL INFORMATION
INTERMAGNETICS GENERAL CORPORATION
(Dollars in Thousands, Except Share Amounts)
(Unaudited)
|
| August 27, |
| May 28, |
| ||
|
|
|
| ||||
ASSETS |
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 32,274 |
| $ | 36,584 |
|
Trade accounts receivable, less allowance (August 27, 2006 - $2,496; May 28, 2006 - $2,586) |
|
| 61,770 |
|
| 71,812 |
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
| 1,046 |
|
| 355 |
|
Inventories: |
|
|
|
|
|
|
|
Consigned products |
|
| 1,767 |
|
| 1,888 |
|
Finished products |
|
| 7,264 |
|
| 7,170 |
|
Work in process |
|
| 15,777 |
|
| 14,247 |
|
Materials and supplies |
|
| 31,352 |
|
| 29,271 |
|
|
|
|
| ||||
|
|
| 56,160 |
|
| 52,576 |
|
Deferred income taxes, net |
|
| 5,605 |
|
| 5,605 |
|
Prepaid expenses and other |
|
| 2,811 |
|
| 2,795 |
|
Income tax receivable |
|
| 3,021 |
|
| 3,352 |
|
|
|
|
| ||||
TOTAL CURRENT ASSETS |
|
| 162,687 |
|
| 173,079 |
|
PROPERTY, PLANT AND EQUIPMENT |
|
|
|
|
|
|
|
Land and improvements |
|
| 2,160 |
|
| 2,160 |
|
Buildings and improvements |
|
| 20,027 |
|
| 20,025 |
|
Machinery and equipment |
|
| 54,052 |
|
| 52,004 |
|
Leasehold improvements |
|
| 1,181 |
|
| 1,175 |
|
|
|
|
| ||||
|
|
| 77,420 |
|
| 75,364 |
|
Less accumulated depreciation and amortization |
|
| 32,517 |
|
| 30,592 |
|
|
|
|
| ||||
TOTAL PROPERTY, PLANT AND EQUIPMENT, net |
|
| 44,903 |
|
| 44,772 |
|
INTANGIBLE AND OTHER ASSETS |
|
|
|
|
|
|
|
Goodwill |
|
| 168,145 |
|
| 168,145 |
|
Other intangibles, less accumulated amortization (August 27, 2006 - $21,529; May 28, 2006 - $20,266) |
|
| 44,922 |
|
| 46,185 |
|
Derivative asset |
|
| 1,907 |
|
| 2,494 |
|
Deferred compensation investments |
|
| 4,208 |
|
| 4,065 |
|
Other assets |
|
| 4,619 |
|
| 4,598 |
|
|
|
|
| ||||
TOTAL ASSETS |
| $ | 431,391 |
| $ | 443,338 |
|
|
|
|
|
3
INTERMAGNETICS GENERAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Amounts)
(Unaudited)
|
| August 27, |
| May 28, |
| ||
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Accounts payable |
| $ | 14,799 |
| $ | 17,453 |
|
Salaries, wages and related items |
|
| 6,634 |
|
| 12,185 |
|
Current portion of long-term debt |
|
| 276 |
|
| 268 |
|
Customer advances and deposits |
|
| 2,218 |
|
| 1,336 |
|
Product warranty reserve |
|
| 2,220 |
|
| 2,828 |
|
Note payable |
|
| 5,000 |
|
| — |
|
Other liabilities and accrued expenses |
|
| 7,430 |
|
| 8,737 |
|
|
|
|
| ||||
TOTAL CURRENT LIABILITIES |
|
| 38,577 |
|
| 42,807 |
|
LONG-TERM DEBT, less current portion |
|
| 58,294 |
|
| 58,369 |
|
DEFERRED INCOME TAXES, net |
|
| 20,880 |
|
| 21,085 |
|
NOTE PAYABLE |
|
| — |
|
| 5,000 |
|
DEFERRED COMPENSATION OBLIGATION |
|
| 4,208 |
|
| 4,065 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Preferred Stock, par value $.10 per share: |
|
|
|
|
|
|
|
Authorized - 2,000,000 shares |
|
|
|
|
|
|
|
Issued and outstanding - None |
|
| — |
|
| — |
|
Common Stock, par value $.10 per share: |
|
|
|
|
|
|
|
Authorized - 80,000,000 shares |
|
|
|
|
|
|
|
Issued (including shares in treasury): |
|
|
|
|
|
|
|
August 27, 2006 - 46,220,477 shares; |
|
|
|
|
|
|
|
May 28, 2006 - 45,593,035 shares |
|
| 4,622 |
|
| 4,559 |
|
Additional paid-in capital |
|
| 226,615 |
|
| 221,976 |
|
Retained earnings |
|
| 104,895 |
|
| 106,287 |
|
Deferred compensation obligation |
|
| 2,998 |
|
| 2,291 |
|
Accumulated other comprehensive income |
|
| 1,153 |
|
| 1,330 |
|
|
|
|
| ||||
|
|
| 340,283 |
|
| 336,443 |
|
Less cost of Common Stock in treasury |
|
|
|
|
|
|
|
August 27, 2006 - 3,424,550 shares; |
|
|
|
|
|
|
|
May 28, 2006 - 3,187,723 shares |
|
| (30,851 | ) |
| (24,431 | ) |
|
|
|
| ||||
TOTAL STOCKHOLDERS’ EQUITY |
|
| 309,432 |
|
| 312,012 |
|
|
|
|
| ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 431,391 |
| $ | 443,338 |
|
|
|
|
|
See notes to consolidated financial statements.
4
INTERMAGNETICS GENERAL CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
|
| Three Months Ended |
| ||||
|
|
| |||||
|
| August 27, |
| August 28, |
| ||
|
|
|
| ||||
Net revenues |
| $ | 66,263 |
| $ | 71,016 |
|
Cost of revenues |
|
| 39,971 |
|
| 39,870 |
|
|
|
|
| ||||
Gross margin |
|
| 26,292 |
|
| 31,146 |
|
Product research and development |
|
| 7,562 |
|
| 7,336 |
|
Selling, general and administrative |
|
| 19,258 |
|
| 14,783 |
|
Amortization of intangible assets |
|
| 1,263 |
|
| 1,397 |
|
|
|
|
| ||||
|
|
| 28,083 |
|
| 23,516 |
|
Operating (loss) income |
|
| (1,791 | ) |
| 7,630 |
|
Interest and other income |
|
| 644 |
|
| 154 |
|
Interest and other expense |
|
| (1,038 | ) |
| (646 | ) |
Gain on litigation settlement |
|
| — |
|
| 600 |
|
|
|
|
| ||||
(Loss) income before income taxes |
|
| (2,185 | ) |
| 7,738 |
|
Income tax (benefit) expense |
|
| (793 | ) |
| 2,654 |
|
|
|
|
| ||||
NET (LOSS) INCOME |
| $ | (1,392 | ) | $ | 5,084 |
|
|
|
|
| ||||
Net (loss) income per share: |
|
|
|
|
|
|
|
Basic |
| $ | (0.03 | ) | $ | 0.12 |
|
|
|
|
| ||||
Diluted |
| $ | (0.03 | ) | $ | 0.12 |
|
|
|
|
|
See notes to consolidated financial statements.
5
INTERMAGNETICS GENERAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
|
| Three Months Ended |
| ||||
|
|
| |||||
|
| August 27, |
| August 28, |
| ||
|
|
|
| ||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net (loss) income |
| $ | (1,392 | ) | $ | 5,084 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 3,240 |
|
| 3,131 |
|
Stock based compensation |
|
| 3,463 |
|
| 2,076 |
|
Loss on sale and disposal of assets |
|
| 23 |
|
| 164 |
|
Amortization of debt issuance costs |
|
| 67 |
|
| 75 |
|
Change in operating assets and liabilities net of effects from acquisitions: |
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts |
|
| 9,351 |
|
| (3,789 | ) |
Increase in inventories and prepaid expenses and other assets |
|
| (3,851 | ) |
| (13,442 | ) |
Decrease in accounts payable and accrued expenses |
|
| (9,540 | ) |
| (1,322 | ) |
|
|
|
| ||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
|
| 1,361 |
|
| (8,023 | ) |
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (2,131 | ) |
| (3,183 | ) |
Other investing activities |
|
| — |
|
| (26 | ) |
|
|
|
| ||||
NET CASH USED IN INVESTING ACTIVITIES |
|
| (2,131 | ) |
| (3,209 | ) |
FINANCING ACTIVITIES |
|
|
| ||||
Proceeds from sale of Common Stock through the exercise of stock options |
|
| 41 |
|
| 399 |
|
Purchase of Treasury Stock |
|
| (3,719 | ) |
| — |
|
Proceeds from long term borrowings |
|
| — |
|
| 10,000 |
|
Principal payments on note payable and long-term debt |
|
| (67 | ) |
| (1,082 | ) |
|
|
|
| ||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
|
| (3,745 | ) |
| 9,317 |
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
| 205 |
|
| (41 | ) |
|
|
|
| ||||
DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (4,310 | ) |
| (1,956 | ) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
| 36,584 |
|
| 6,970 |
|
|
|
|
| ||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ | 32,274 |
| $ | 5,014 |
|
|
|
|
| ||||
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Payment of warrant conversion price from forfeiture of Company Common Stock |
| $ | 1,994 |
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
INTERMAGNETICS GENERAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Three Months Ended August 27, 2006
(Dollars in Thousands)
(Unaudited)
|
| Common |
| Additional |
| Retained |
| Deferred |
| Accumulated |
| Treasury |
| Comprehensive Loss |
| |||||||
|
|
|
|
|
|
|
|
| ||||||||||||||
Balances at May 28, 2006 |
| $ | 4,559 |
| $ | 221,976 |
| $ | 106,287 |
| $ | 2,291 |
| $ | 1,330 |
| $ | (24,431 | ) |
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
| (1,392 | ) |
|
|
|
|
|
|
|
|
| $ | (1,392 | ) |
Unrealized loss on derivatives, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (382 | ) |
|
|
|
| (382 | ) |
Unrealized gain on foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 205 |
|
|
|
|
| 205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (1,569 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of 627,442 shares of Common Stock, related to exercises of stock options, restricted stock, and warrants |
|
| 63 |
|
| 1,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for stock based compensation |
|
|
|
|
| 3,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation recognized in accordance with SFAS 123R |
|
|
|
|
| 246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock upon issuance of restricted stock and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,713 | ) |
|
|
|
Employee shares held by the Company’s Deferred Compensation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (707 | ) |
|
|
|
Deferred compensation obligation for employee shares held in a non-diversified trust |
|
|
|
|
|
|
|
|
|
|
| 707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balances at August 27, 2006 |
| $ | 4,622 |
| $ | 226,615 |
| $ | 104,895 |
| $ | 2,998 |
| $ | 1,153 |
| $ | (30,851 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
7
INTERMAGNETICS GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A – Significant Accounting Policies
Basis of Presentation and Consolidation:
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the Securities and Exchange Commission’s (SEC) instructions to Form 10-Q. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted. The interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the operating results for the interim periods ended August 27, 2006 and August 28, 2005 and the financial position at August 27, 2006. The operating results for the three months ended August 27, 2006, are not necessarily indicative of the results to be expected for the entire year. The Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Consolidated Financial Statements for the year ended May 28, 2006 as included in our Annual Report filed on Form 10-K on August 11, 2006.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company transactions have been eliminated in consolidation. It is the Company’s policy to reclassify prior year consolidated financial statements to conform to current year presentation.
The U.S. dollar is the functional currency for the Company’s U.S. operations. At the Company’s foreign locations, local currency asset and liability amounts are translated into U.S. dollars at end-of-period exchange rates. Foreign currency income and expenses are translated using average exchange rates in effect during the periods presented. Translation adjustments are included in other comprehensive income (loss) in stockholders’ equity on the accompanying consolidated balance sheets.
Use of Estimates:
In order to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Revenue Recognition:
The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 101 as amended by Staff Accounting Bulletin No. 104, on product that has been shipped. In these cases, all the criteria for revenue recognition have been met including, but not limited to: persuasive evidence of an arrangement exists; the arrangement includes a product price that is fixed and determinable; the Company has accomplished what it must do to satisfy the terms of the arrangement including passing title and risk of loss to customers upon shipment; and collection from customers is reasonably assured in accordance with the terms of the arrangement.
In accordance with the disclosure requirements under Emerging Issues Task Force (EITF) No. 06-3, the Company does not include sales tax billed to customers on product sales in net revenues.
In other instances, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 101 as amended by Staff Accounting Bulletin No. 104, on product that is complete and ready to ship for which our customer has requested a delay in delivery (“bill and hold sales”). In these cases, all the criteria for revenue recognition have been met including, but not limited to: the customer has a substantial business purpose; there is a fixed delivery date; title and risk of loss has transferred to the customer; the product is complete and ready for shipment; and the product has been segregated and is not available to be used to fill other orders. Upon notification from the customer the product is shipped to the stated destination. As of August 27, 2006 and August 28, 2005, there were no bill and hold sales.
The Company recognizes revenue and profit on long-term development contracts based upon actual time and material costs incurred plus contractual earned profit. These types of contracts typically provide engineering services to achieve a specific scientific result relating to superconductivity. The customers for these contracts are both commercial customers and various state and federal government agencies. When government agencies are providing revenue, the Company does not expect the government to be a significant end user of the resulting products. Therefore, the Company does not reduce product research and development by the funding received.
8
Product Warranty:
The Company accrues for possible future claims arising under terms of various warranties (one to three years) made in connection with the sale of products. Warranty expense for the three months ended August 27, 2006 and August 28, 2005 was $720,000 and $252,000, respectively. The following table represents the activity in product warranty reserve:
|
| Three Months Ended |
| ||||
|
|
| |||||
(Dollars in Thousands) |
|
| August 27, |
|
| August 28, |
|
|
|
|
|
| |||
Beginning Balance |
| $ | 2,828 |
| $ | 4,073 |
|
Warranty expense |
|
| 720 |
|
| 252 |
|
Cost of warranty performed |
|
| (1,328 | ) |
| (352 | ) |
|
|
|
|
|
| ||
Ending Balance |
| $ | 2,220 |
| $ | 3,973 |
|
|
|
|
|
|
|
Inventories:
Inventories are stated at the lower of cost or market value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Variances from standard costs are accumulated as they are incurred and are included in the carrying value of inventory to the extent appropriate. Market value is determined based on the net realizable value. Appropriate consideration is given to obsolescence, excessive levels and other factors in evaluating net realizable value. At August 27, 2006 and May 28, 2006, the Company had reserves for excess and obsolete inventory of $3,928,000 and $3,292,000, respectively.
Goodwill and Other Intangibles:
In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 142 “Goodwill and Other Intangible Assets”, the Company performs a test for goodwill impairment annually during the second fiscal quarter of each year (or at an interim date if certain events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount). A determination of impairment is made based upon the estimated discounted future cash flows of the operations associated with the related reporting unit. If goodwill is determined to be impaired the Company would be required to record a charge to its results of operations. There were no changes to recorded goodwill during the three months ended August 27, 2006.
Stock-Based Compensation:
On May 29, 2006, the first day of the Company’s fiscal year ended May 27, 2007, the Company adopted SFAS No. 123R, “Share-Based Payment,”(“SFAS 123R”) which requires the Company to account for stock-based payment transactions using a fair value-based method and recognize the related expense in its results of operations. The Company applied the provisions of Staff Accounting Bulletin No. 107 and the related Staff Positions issued by the Financial Accounting Standards Board in its adoption of SFAS No. 123R. Prior to its adoption of SFAS No. 123R, the Company accounted for stock-based payments to employees using the intrinsic value method under APB No. 25, “Accounting for Stock Issued to Employees”. Therefore, the Company generally recognized compensation expense for restricted stock awards and did not recognize compensation cost for employee stock options. In addition, APB No. 25 required that the compensation expense associated with performance based restricted stock unit plans be adjusted to fair value each reporting period using the current market price of the Company’s common stock and the number of shares that would eventually be issued based upon the achievement of the performance criteria. Under SFAS 123R, fair value of performance based restricted stock unit plans is determined at grant date and under normal circumstances is not adjusted in future periods. For stock options, SFAS No. 123R allows companies to choose one of two transition methods: the modified prospective method or the modified retrospective transition method. Effective May 29, 2006, the Company elected the modified prospective method of transition and accordingly has not restated the results of prior periods. Stock-based compensation expense includes expense for restricted stock awards and for the unvested stock option awards outstanding at May 28, 2006. No new option awards have been granted during the three months ended August 27, 2006 (See Note D).
9
Provision for Income Taxes
The Company’s effective tax rate of 36.3% for the three months ended August 27, 2006, increased 2.0% from 34.3% for the three months ended August 28, 2005. The increase in the effective rate resulted from the phase out of the Extraterritorial Income Exclusion deductions and an increase in state income taxes resulting from a shift of taxable income to higher tax states.
New Accounting Pronouncements:
A discussion of new accounting pronouncements in addition to the pronouncements noted below, is included in Note A to the consolidated financial statements included in the Company’s Annual Report filed on Form 10-K with the Securities and Exchange Commission on August 11, 2006.
On September 15, 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies in conjunction with other accounting pronouncements that require or permit fair value measurements. This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is in the process of analyzing the impact of SFAS 157.
Note B – Merger
On June 14, 2006, the Company entered into a definitive agreement and plan of merger (“Merger Agreement”) with Philips Holding USA, Inc. (“Philips”) whereby Philips will acquire 100% of the Company’s outstanding shares of common stock for $27.50 per share. In addition, each outstanding option to acquire common stock and restricted stock unit granted under equity compensation plans will be canceled and convert into the right to receive $27.50 per share less, in the case of options, the exercise price thereof. The total equity value of approximately $1.3 billion will be paid in cash upon completion of the transaction. If the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, the Company may be required to pay Philips a termination fee of $38,970,000. On July 21, 2006, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired without imposition by the Federal Trade Commission or the Antitrust Division of the United States Department of Justice of any conditions to or restrictions on the consummation of the merger. The Company has not yet obtained clearance for the merger from the European Commission (See Note H).
On June 16, 2006, and June 20, 2006, two putative class action complaints were filed in the Supreme Court of the State of New York, Albany County, naming Intermagnetics and its directors (and, in one complaint, Royal Philips) as defendants. The actions, Mohamed Farouk Gani v. Intermagnetics General Corporation, et al., No. 3884-06, and Thomas Scionti v. Intermagnetics General Corporation, et al., No. 3946-06, challenge the merger agreement and related transactions. The complaints allege that the directors of Intermagnetics breached their fiduciary duties, including by failing to publicly announce an open bidding process or otherwise seek additional offers to acquire Intermagnetics, and by failing to provide full disclosure of certain material financial information. The complaints also allege that Intermagnetics (and, in one of the complaints, Royal Philips) aided and abetted these alleged fiduciary violations. On August 16, 2006, we reached an agreement in principle to settle these cases.
Note C – Long-term Debt
As of August 27, 2006 and May 28, 2006, the Company had the following long-term debt outstanding:
|
| As of |
| ||||
|
|
| |||||
(Dollars in Thousands) |
| August 27, |
| May 28, |
| ||
|
|
| |||||
Long-term debt: |
|
|
|
|
|
|
|
Mortgage and notes payable |
| $ | 3,570 |
| $ | 3,637 |
|
Revolving line of credit |
|
| 55,000 |
|
| 55,000 |
|
|
|
|
|
|
| ||
Total long-term debt |
|
| 58,570 |
|
| 58,637 |
|
Less current maturities |
|
| 276 |
|
| 268 |
|
|
|
|
| ||||
Long-term debt excluding current maturities |
| $ | 58,294 |
| $ | 58,369 |
|
|
|
|
|
10
In addition to the long-term debt noted above, the Company issued a $5.0 million three-year note payable in conjunction with the acquisition of MRI Devices. Interest on the note accrues at LIBOR plus 0.5%. The note and accrued interest are due in July of 2007.
As of August 27, 2006, the Company had $144.4 million additional borrowing capacity under its unsecured revolving credit facility which is net of $640,000 of standby letters of credit issued to the Company’s insurance agent as collateral for potential workers’ compensation claims in the ordinary course.
Note D – Stock-Based Compensation
Stock Options:
The Company has two current stock option plans: the 1990 Stock Option Plan and the 2000 Stock Option and Stock Award Plan. A total of 6,826,500 shares have been authorized under the 2000 Plan. Options granted under the 2000 Stock Option and Stock Award Plan have lives ranging from three to ten years and vest over periods ranging from one to five years. The Company is no longer issuing stock under the 1990 Stock Option Plan.
There have been no options granted under either Stock Option Plan since August 2004. For options granted, the fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model. The assumptions used under the Black-Scholes model include estimating stock price volatilities of the Company’s common stock, expected terms, forfeiture rates and dividend yields. The expected volatility rates are estimated based on historical and implied volatilities of the Company’s common stock. The expected term represents the average time that options are expected to be outstanding based on the vesting provisions and the Company’s historical exercise, cancellation and expiration patterns. The Company estimated pre-vesting forfeitures based on historical and forward-looking factors. The company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. No adjustments were made to these assumptions as a result of adopting SFAS No. 123R.
For the three months ended August 27, 2006, the Company recognized $246,000 of stock based compensation associated with the adoption of SFAS No. 123R. The after tax impact of this additional non-cash charge on net income was $227,000 which did not have a significant impact on loss per share. Stock based compensation for periods prior to May 29, 2006, which was accounted for under APB No. 25 “Accounting for Stock Issued to Employees”, have not been restated. The following pro forma net income and earnings per share information has been determined for periods presented prior to May 29, 2006 as if the Company had accounted for stock options awarded under its stock option plans using the fair value-based method under SFAS No. 123:
(Dollars in Thousands, Except Per Share Amounts) |
| For the Three |
| |
|
| |||
Net income (as reported) |
| $ | 5,084 |
|
Add recorded non-cash stock compensation, net of tax |
|
| 1,364 |
|
Less non-cash stock compensation under SFAS No. 123, net of tax |
|
| (1,665 | ) |
|
|
| ||
Pro forma Net Income |
| $ | 4,783 |
|
Earnings per share (as reported): |
|
|
|
|
Basic |
| $ | 0.12 |
|
|
|
| ||
Diluted |
| $ | 0.12 |
|
|
|
| ||
Earnings per share (pro forma): |
|
|
|
|
Basic |
| $ | 0.11 |
|
|
|
| ||
Diluted |
| $ | 0.11 |
|
|
|
|
Prior to the adoption of SFAS No. 123R, the Company presented all tax benefits for deductions resulting from the exercise of stock options and disqualifying dispositions as operating cash flows in the Consolidated Statement of Cash Flows. SFAS No. 123R requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow. Total cash flow will remain unchanged from what would have been reported under prior accounting rules.
11
Option activity for the three months ended August 27, 2006 under the Intermagnetics plans excluding SuperPower were as follows:
|
| Options/ Shares |
| Weighted Average |
| |
|
|
|
| |||
Outstanding, at May 28, 2006 |
| 1,225,780 |
| $ | 9.92 |
|
Granted |
| — |
|
| — |
|
Exercised |
| (3,899 | ) |
| 10.58 |
|
Forfeited/Cancelled |
| (7,707 | ) |
| 11.80 |
|
|
|
|
|
|
| |
Outstanding at August 27, 2006 |
| 1,214,174 |
|
| 9.90 |
|
|
|
|
|
|
| |
Exercisable at August 27, 2006 |
| 984,437 |
| $ | 9.70 |
|
|
|
|
|
|
|
|
| As of August 27, 2006 |
| ||||||||||
|
|
| |||||||||||
|
| Options Outstanding |
| Options Exercisable |
| ||||||||
|
|
| |||||||||||
Range of Option Exercise Prices |
| Number |
| Weighted |
| Weighted |
| Number Exercisable |
| Weighted |
| ||
|
|
|
|
|
| ||||||||
$1.578 - $3.156 |
| 31,177 |
| $ | 2.76 |
| 2.5 |
| 31,177 |
| $ | 2.76 |
|
$3.157 - $4.734 |
| 67,402 |
| 3.92 |
| 2.8 |
| 67,402 |
| 3.92 |
| ||
$4.735 - $6.312 |
| 2,400 |
| 5.90 |
| 0.1 |
| 2,400 |
| 5.90 |
| ||
$6.313 - $7.890 |
| 123,238 |
| 7.53 |
| 6.2 |
| 80,938 |
| 7.51 |
| ||
$7.891 - $9.469 |
| 171,857 |
| 9.01 |
| 5.1 |
| 169,607 |
| 9.02 |
| ||
$9.470 - $11.047 |
| 363,953 |
| 10.34 |
| 5.4 |
| 305,003 |
| 10.34 |
| ||
$11.048 - $12.625 |
| 408,814 |
| 11.74 |
| 6.1 |
| 291,577 |
| 11.65 |
| ||
$12.626 - $14.203 |
| 34,083 |
| 13.44 |
| 5.0 |
| 31,833 |
| 13.47 |
| ||
$14.204 - $15.782 |
| 11,250 |
| 14.56 |
| 7.8 |
| 4,500 |
| 14.56 |
| ||
| |||||||||||||
|
| 1,214,174 |
| $ | 9.90 |
| 5.5 |
| 984,437 |
| $ | 9.70 |
|
|
As of August 27, 2006, the aggregate intrinsic value of vested and non-vested options was approximately $17.2 million and $3.8 million, respectively. The intrinsic value of options exercised during the three months ended August 27, 2006 and August 28, 2005 was approximately $61,000 and $495,000, respectively. The unrecognized compensation cost related to stock option grants was $1.4 million as of August 27, 2006. The Company expects to recognize approximately $783,000, $604,000 and $254,000 of stock based compensation related to stock option grants in the fiscal years ended May 27, 2007, May 25, 2008 and thereafter, respectively.
During fiscal 2003, the Company established a stock option plan for SuperPower Inc., a subsidiary. The options which were granted during fiscal year 2003 were valued at a $1.00 each based upon the best available evidence. The plan had 1,160,000 options outstanding as of August 27, 2006 and 16,000 options have been exercised. Options granted under the plan will have lives ranging from five to ten years and vest over periods ranging from one to five years. Under this plan, the Company has 522,250 shares of restricted stock issued to key employees. These shares are restricted units which will only convert into common stock upon a change in control or an initial public offering (IPO). Upon a change in control, 100% of the outstanding restricted stock units will convert to common stock. Upon the effective date of an IPO, one-third of the outstanding restricted stock units will convert with the remaining two-thirds to convert in two equal installments on the first and second anniversaries of the effective date of the IPO.
12
Restricted Stock Awards:
Restricted stock units are granted with a zero dollar strike price. Restricted stock activity for the three months ended August 27, 2006 under the Intermagnetics plans excluding SuperPower were as follows:
|
| Restricted |
|
|
|
| |
Outstanding, at May 28, 2006 |
| 3,269,749 |
|
Granted |
| 3,000 |
|
Issued |
| (387,158 | ) |
Forfeited/Cancelled |
| (1,920 | ) |
|
|
| |
Outstanding at August 27, 2006 |
| 2,883,671 |
|
|
|
|
As of August 27, 2006, the Company had 1,158,666 shares of restricted stock, net of vesting and forfeitures, outstanding to key employees for a performance-based plan that ends May 27, 2007. These shares are restricted units, which will convert into common stock only upon the achievement of compounded growth in the Company’s pre-tax diluted earnings per share greater than eight percent over five fiscal years. For 1,022,286 outstanding shares, the vesting schedule in fiscal years 2003 through 2007 is 0%, 0%, 15%, 20% and 65% respectively. For 99,630 outstanding shares, the vesting schedule in fiscal years 2003 through 2007 is 0%, 0%, 0%, 40% and 60% respectively. For 36,750 shares, the vesting schedule in fiscal years 2003 through 2007 is 0%, 0%, 0%, 0% and 100% respectively. In the current year, based upon forecasted performance, management has determined that performance targets will be met for the fiscal year ended May 27, 2007. For the three months ended August 27, 2006 and August 28, 2005, the Company recognized expense of $2,660,000 and $1,817,000, respectively. Total unrecognized compensation as of August 27, 2006 was $8.0 million.
As of August 27, 2006, the Company has an additional 1,567,500 shares of restricted stock outstanding to key employees for a performance-based plan that ends in fiscal year 2010. These shares are restricted units which will convert into common stock only upon the achievement of compounded growth in the Company’s pre-tax diluted earnings per share greater than eight percent over the next five fiscal years. The vesting schedule in fiscal years 2006 through 2010 is 0%, 0%, 15%, 20% and 65% respectively. In the current year, the stock is not considered dilutive. The Company will record expense for the restricted stock when management determines it will be probable that the performance targets will be met. Total unrecognized compensation as of August 27, 2006 was $27.3 million.
As of August 27, 2006, the Company had outstanding 122,763 time-based shares of restricted stock to certain employees. These shares are vesting over time ranging from 1 to 5 years. For the three months ended August 27, 2006 and August 28, 2005, the Company recorded expense of $300,000 and $97,000, respectively. Total unrecognized compensation as of August 27, 2006 was $1.7 million.
As of August 27, 2006 the Company had outstanding 34,742 shares of restricted stock to the Board of Directors. These shares are vesting over a five year time frame at 10%, 10%, 10%, 10% and 60%, respectively. For the three months ended August 27, 2006 and August 28, 2005, the Company had recorded expense of $93,000 and $20,000, respectively. Total unrecognized compensation as of August 27, 2006 was $248,000.
As of August 27, 2006, the Company had issued 44,269 shares to fund employee benefit plans for MRID employees with a value of $624,000 being recognized as compensation expense ratably over a contractual four year vesting period. The Company recorded expense of $39,000 for the three months ended August 27, 2006 and August 28, 2005. Total unrecognized compensation as of August 27, 2006 was $286,000.
During the year ended May 28, 2006, the Company issued 18,576 shares of Common Stock at a fair market value of $26.89 per share as compensation to the Board of Directors. During the year ended May 29, 2005, the Company issued 24,525 shares of Common Stock at a fair market value of $16.86 per share as compensation to the Board of Directors. For the three months ended August 27, 2006 and August 28, 2005, the Company recorded expense associated with these stock issuances of $125,000 and $103,000, respectively. Total unrecognized compensation as of August 27, 2006 was $125,000.
Executive Deferred Compensation Plan:
In addition to the Company stock and award plans, the Company also maintains a deferred compensation plan (“the plan”) in which certain management and highly compensated employees are eligible to defer a maximum of 25% of the participant’s salary and up to 100% of the participant’s bonus. The compensation deferred under this plan is credited with earnings or losses based upon changes in values of the investments elected by the plan participant. Each plan participant is fully vested in all deferred compensation and any earnings credited to their accounts. The deferrals are invested by the Company through two Rabbi Trusts (Trust I and Trust II, collectively “the trusts”).
13
The Company accounts for the plan in accordance with Emerging Issues Task Force (EITF) No. 97-14. In Trust I, plan participants are allowed to diversify their contributions. Therefore, the deferred compensation obligation is classified as a liability and adjusted, with a corresponding charge or credit to compensation cost, to reflect changes in the fair value of amounts owed to employees under the plan. The equal and offsetting assets held by the trust are recorded as an other asset with equal and offsetting fluctuations in fair value being charged or credited to other non-operating income. As of August 27, 2006, the liability and the equal and offsetting fair value of the Trust I assets amounted to $4,210,000. For the three months ended August 27, 2006 and August 28, 2005, the amount recognized as a charge in compensation expense and the equal and offsetting credit to other non-operating income was $89,000 and $66,000, respectively.
In Trust II, the deferred compensation obligation is classified as equity and the equal and offsetting Company Common Stock held by the trust is classified as treasury stock. Plan participants are not allowed to diversify their contributions in Trust II and therefore, any changes in fair value will not be recognized. Fluctuations in this plan will solely consist of stock contributions and stock withdrawals by plan participants. As of August 27, 2006, the deferred compensation obligation and the equal and offsetting value of Trust II assets included in treasury stock was $2,998,000.
Note E – Earnings Per Share
A summary of the shares used in the calculation of net (loss) income per Common Share is shown below:
|
| Three Months Ended |
| ||
|
|
| |||
|
| August 27, |
| August 28, |
|
|
|
|
| ||
Weighted average shares outstanding |
| 42,579,640 |
| 42,215,528 |
|
Dilutive potential Common Shares: |
|
|
|
|
|
Warrants |
| — |
| 132,324 |
|
Restricted Stock |
| — |
| 28,994 |
|
Stock options and Awards |
| — |
| 615,919 |
|
|
|
|
| ||
Adjusted weighted average shares |
| 42,579,640 |
| 42,992,765 |
|
For the three months ended August 27, 2006, dilutive potential common shares of about 847,000 were not included in the calculation of diluted EPS as they were considered anti-dilutive.
Note F – Segment and Related Information
The Company operates in three reportable segments: Magnetic Resonance Imaging (MRI), Medical Devices and Energy Technology.
The MRI segment consists primarily of the manufacture and sale of low temperature superconducting (“LTS”) magnets (by the IGC-Magnet Business Group).
The Medical Devices segment consists of one collectively managed entity, Invivo Corporation, with a universal brand identity of “Invivo”. Invivo develops, manufactures and sells RF-coils, vital sign patient monitors, visualization and analysis products and service for these products. Invivo sells its products to original equipment manufacturers such as Philips Medical Systems, GE Healthcare, Siemens Medical Solutions, Toshiba Medical Systems and Hitachi Medical Systems. Invivo also distributes its products directly through a global sales network as well as to group purchasing organizations, research hospitals, universities and other luminary sites.
The Energy Technology segment, operated through SuperPower Inc. (SuperPower), is developing second generation, high-temperature superconducting (HTS) materials that the Company expects to use in devices designed to enhance capacity, reliability and quality of transmission and distribution of electrical power.
The accounting policies of the reportable segments are the same as those described in Note A of the Notes to Consolidated Financial Statements. The Company evaluates the performance of its reportable segments based on operating income (loss).
14
Summarized financial information concerning the Company’s reportable segments is shown in the following table:
SEGMENT DATA
|
| Three Months Ended |
| ||||||||||
(Dollars in Thousands) |
| August 27, 2006 |
| ||||||||||
|
| ||||||||||||
|
| Magnetic Resonance |
| Medical |
| Energy |
| Total |
| ||||
|
|
|
|
|
| ||||||||
Net revenues to external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Magnet systems |
| $ | 24,983 |
|
|
|
|
|
|
| $ | 24,983 |
|
Patient Monitors and RF Coils |
|
|
|
| $ | 38,554 |
|
|
|
|
| 38,554 |
|
Other |
|
|
|
|
|
|
| $ | 2,726 |
|
| 2,726 |
|
|
|
|
|
|
| ||||||||
Total |
|
| 24,983 |
|
| 38,554 |
|
| 2,726 |
|
| 66,263 |
|
Segment operating (loss) |
|
| (153 | ) |
| (222 | ) |
| (1,416 | ) |
| (1,791 | ) |
|
|
|
|
| |||||||||
|
|
| As of August 27, 2006 |
| |||||||||
|
|
|
| ||||||||||
Goodwill |
| $ | — |
| $ | 168,145 |
| $ | — |
| $ | 168,145 |
|
Total assets |
|
| 153,541 |
|
| 266,360 |
|
| 11,490 |
|
| 431,391 |
|
|
| Three Months Ended |
| ||||||||||
|
| August 28, 2005 |
| ||||||||||
|
|
| |||||||||||
|
| Magnetic Resonance |
| Medical |
| Energy |
| Total |
| ||||
|
|
|
|
|
| ||||||||
Net revenues to external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Magnet systems |
| $ | 28,115 |
|
|
|
|
|
|
| $ | 28,115 |
|
Patient Monitors and RF Coils |
|
|
|
| $ | 39,866 |
|
|
|
|
| 39,866 |
|
Other |
|
|
|
|
|
|
| $ | 3,035 |
|
| 3,035 |
|
|
|
|
|
|
| ||||||||
Total |
|
| 28,115 |
|
| 39,866 |
|
| 3,035 |
|
| 71,016 |
|
Segment operating income (loss) |
|
| 4,728 |
|
| 4,647 |
|
| (1,745 | ) |
| 7,630 |
|
|
|
|
|
| |||||||||
|
|
| As of May 28, 2006 |
| |||||||||
|
|
|
| ||||||||||
Goodwill |
| $ | — |
| $ | 168,145 |
| $ | — |
| $ | 168,145 |
|
Total assets |
|
| 169,585 |
|
| 263,193 |
|
| 10,560 |
|
| 443,338 |
|
The following are reconciliations of the information used by the chief operating decision maker to the Company’s consolidated totals:
|
| Three Months Ended |
| ||||
|
|
| |||||
(Dollars in Thousands) |
| August 27, |
| August 28, |
| ||
|
|
| |||||
Reconciliation of (loss) income before income taxes: |
|
|
|
|
| ||
Total operating (loss) income from reportable segments |
| $ | (1,791) |
| $ | 7,630 |
|
|
|
|
| ||||
Net operating (loss) income |
|
| (1,791) |
|
| 7,630 |
|
Interest and other income |
|
| 644 |
|
| 154 |
|
Interest and other expense |
|
| (1,038) |
|
| (646) |
|
Gain on litigation settlement |
|
| — |
|
| 600 |
|
|
|
|
| ||||
(Loss) income before income taxes |
| $ | (2,185) |
| $ | 7,738 |
|
|
|
|
|
15
Note G – Derivative Instruments and Hedging Activities
During the fiscal year ended May 28, 2006, the Company entered into an interest rate swap agreement with a commercial bank in connection with the $55.0 million borrowing under its amended and restated credit facility. This interest rate swap is designated as a cash flow hedge, having a notional principle amount as of August 27, 2006 of $40.0 million. This agreement will effectively hedge the Company’s interest rate exposure on a portion of its long term debt to a fixed rate of 4.27%. This interest rate swap agreement will mature on September 1, 2010. The fair value of this interest rate swap decreased $497,000 to $1,492,000 during the three months ended August 27, 2006.
During the fiscal year ended May 29, 2005, the Company entered into an interest rate swap agreement designated as a cash flow hedge with a commercial bank, having notional principle amount of $15.0 million as of August 27, 2006. This agreement effectively hedges the Company’s interest rate exposure on a portion of its long term debt to a fixed rate of 2.95% plus applicable margins. This interest rate swap agreement matures on December 31, 2008. The fair value of this interest rate swap decreased $89,000 to $416,000 during the three months ended August 27, 2006.
The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreements. However, the Company does not anticipate non-performance by the counterparties.
Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction. The Company’s interest rate swaps qualify as effective cash flow hedges and therefore, changes in fair value are recorded in other comprehensive income. For the three months ended August 27, 2006 the Company recorded a net other comprehensive loss of $382,000 net of tax, for the interest rate swap agreements.
Note H – Subsequent Event
On September 26, 2006, at a Special Meeting, the Company’s Stockholders’ approved the plan of merger with Philips Holding USA, Inc. Holders of 33,955,957 or 79.3% of the Company’s outstanding common stock eligible to vote at the meeting were present in person or by proxy of which 33,428,562 or 98.4% of these shares voted in favor of the merger. The Company has not yet obtained clearance for the merger from the European Commission (See Note B).
16
Intermagnetics General Corporation (“Intermagnetics”, “Company”, “we” or “us”) makes forward-looking statements in this document. Typically, we identify forward-looking statements with words like “believe,” “anticipate,” “perceive,” “expect,” “estimate” and similar expressions. Unless a passage describes a historical event, it should be considered a forward-looking statement. These forward-looking statements are not guarantees of future performance and involve important assumptions, risks, uncertainties and other factors that could cause our actual results for fiscal year 2007 and beyond to differ materially from those expressed in the forward-looking statements. These important factors include, without limitation, the assumptions, risks, and uncertainties set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q, as well as other assumptions, risks, uncertainties and factors disclosed throughout this quarterly report and in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on August 11, 2006.
Except for our continuing obligations to disclose material information under federal securities laws, we are not obligated to update these forward-looking statements, even though situations may change in the future. We qualify all of our forward-looking statements by these cautionary statements.
OVERVIEW OF SIGNIFICANT EVENTS
On June 14, 2006, we entered into an Agreement and Plan of Merger, with Philips Holding USA Inc., and Jumbo Acquisition Corp., a wholly owned subsidiary of Philips Holding. Pursuant to the merger agreement, Philips Holding will acquire Intermagnetics, and we will cease to be an independent public company. As of the filing of this Quarterly Report on Form 10-Q, we have not yet obtained clearance for the merger from the European Commission (See Note B and H in the Notes to the Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q).
SEGMENT STRUCTURE
We operate in three reportable segments: Magnetic Resonance Imaging (MRI), Medical Devices and Energy Technology and measure their performance based on operating income (loss).
The MRI segment consists primarily of the manufacture and sale of low temperature superconducting magnets (by the Magnet Business Group).
Our Medical Devices segment consists of one collectively managed entity, Invivo Corporation, with a universal brand identity of “Invivo”. Invivo develops, manufactures and sells RF-coils, vital sign patient monitors, visualization and analysis products and service for these products. Invivo sells its products to original equipment manufacturers such as Philips Medical Systems, GE Healthcare, Siemens Medical Solutions, Toshiba Medical Systems and Hitachi Medical Systems. Invivo also distributes its products directly through a global sales network as well as to group purchasing organizations, research hospitals, universities and other luminary sites.
In Energy Technology, our subsidiary SuperPower Inc. is developing high-temperature superconducting materials and devices designed to enhance capacity, reliability and quality of electrical power transmission and distribution.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon, in part, our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires that we make estimates and judgments that affect assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. We based our estimates on historical performance and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from our estimates.
17
We refer to our critical accounting policies and estimates set forth in Item 7; “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies Estimates” of our Annual Report filed on Form 10-K for the fiscal year ended May 28, 2006. There have been no significant changes or modifications to our policies, except as follows:
On May 29, 2006, the first day of our fiscal year ended May 27, 2007, we adopted SFAS No. 123R, “Share-Based Payment,”(“SFAS 123R”) which requires us to account for stock-based payment transactions using a fair value-based method and recognize the related expense in our results of operations. We applied the provisions of Staff Accounting Bulletin No. 107 and the related Staff Positions issued by the Financial Accounting Standards Board in its adoption of SFAS No. 123R. Prior to our adoption of SFAS No. 123R, we accounted for stock-based payments to employees using the intrinsic value method under APB No. 25, “Accounting for Stock Issued to Employees”. Therefore, we generally recognized compensation expense for restricted stock awards and did not recognize compensation cost for employee stock options. In addition, APB No. 25 required that the compensation expense associated with performance based restricted stock unit plans be adjusted to fair value each reporting period using the current market price of the our common stock and the number of shares that would eventually be issued based upon the achievement of the performance criteria. Under SFAS 123R, fair value of performance based restricted stock unit plans is determined at grant date and under normal circumstances is not adjusted in future periods. For stock options, SFAS No. 123R allows companies to choose one of two transition methods: the modified prospective method or the modified retrospective transition method. Effective May 29, 2006, we elected the modified prospective method of transition and accordingly have not restated the results of prior periods. Stock-based compensation expense includes expense for restricted stock awards and for the unvested stock option awards outstanding at May 28, 2006. We recognized $246,000 of incremental stock based compensation associated with the adoption of SFAS No. 123R. The impact of this additional non-cash charge on net income was $227,000 which did not impact basic and diluted loss per share. No new awards have been granted during the three months ended August 27, 2006. (See Note D in the Notes to the Consolidated Financial Statements included elsewhere in this quarterly report on Form 10-Q).
See footnote A to the consolidated financial statements located elsewhere in this Quarterly Report on Form 10-Q for a description of recently issued financial standards.
RESULTS OF OPERATIONS
Consolidated Revenue
For the three months ended August 27, 2006, net revenues of $66.3 million decreased $4.8 million or 6.7% from $71.0 million for the three months ended August 28, 2005. This decrease is due to reduced revenue in all of our segments primarily due to reduced shipments and contractual selling prices in our MRI segment.
Revenues MRI Segment
For the three months ended August 27, 2006, MRI segment revenues of $25.0 million decreased $3.1 million or 11.1% from $28.1 million for three months ended August 28, 2005. The decrease is driven by a lower volume of 3.0T and 1.5T cylindrical magnets partially offset by an increase in our 1.0T superconducting open magnet shipments. In addition, all three magnet systems were impacted by lower contractual selling prices with our largest customer.
Revenues Medical Devices Segment
For the three months ended August 27, 2006, revenues from the Medical Devices segment of $38.6 million decreased $1.3 million or 3.3% compared to the three months ended August 28, 2005. Sales to original equipment manufactures were down $2.8 million reflecting fewer shipments and negotiated price reductions on several products. Sales in our direct market channel increased $1.5 million primarily from sales of our RF-coils and related sub-systems.
Revenues Energy Technology Segment
Energy Technology revenues of $2.7 million for the three months ended August 27, 2006, decreased $309,000 or 10.2% from the three months ended August 28, 2005. The decrease is primarily due to the decrease of government and third-party billings on the cable program due to the completion of phase I of our cable project in July of 2006. During the three months ended August 28, 2005, the cable program was in a higher spending phase which allowed for higher billings as compared to the three months ended August 27, 2006. This was partially offset by an increase in billings on our HTS second generation wire program and our superconducting fault current limiter project which was on reduced efforts status during three months ended August 28, 2005.
Consolidated Gross Margin
Consolidated gross margin for the three months ended August 27, 2006 of $26.3 million or 39.7% of net revenues, decreased $4.9 million from $31.1 million or 43.9% of net revenues for the three months ended August 28, 2005. The MRI segment decreased $2.3 million which reflects lower magnet volumes combined with scheduled price decreases on all three magnet systems sold to our largest customer.
18
Medical Devices gross margin decreased $2.5 million in absolute dollars and decreased as a percent of revenues. This decrease is a combination of negotiated price reductions, lower volumes to absorb fixed costs and an increase in the inventory reserve of about $500,000. Based upon the information available as of August 27, 2006, management believes this estimate is warranted to reserve for excess inventory of certain products scheduled for replacement with new product launches during the fiscal year ended May 27, 2007.
Energy Technology gross margin decreased $109,000 from the three months ended August 28, 2005.
Consolidated Operating Expenses
Product Research and Development
Product research and development for the three months ended August 27, 2006 of $7.6 million, increased $226,000 or 3.1% from the three months ended August 28, 2005. Spending increased in our MRI segment by $345,000 on existing product enhancements and $366,000 in our Medical Devices segment primarily related to the next generation of RF-coil and related products. Spending in our Energy Technology segment decreased $485,000 resulting from the completion of phase I of our cable project in July of 2006.
Selling, General and Administrative
For the three months ended August 27, 2006, selling, general and administrative expenses of $19.3 million, increased $4.5 million or 30.3% from the three months ended August 28, 2005. Non-cash stock based compensation of $3.5 million, consisting of $3.1 million from restricted stock awards, $246,000 from stock options under SFAS 123R and $125,000 from stock issuances to our Board of Directors, increased $1.4 million from the three months ended August 28, 2005. In addition, $1.6 million of advisory fees and related expense were incurred associated with our pending merger with Philips. The remaining increase is primarily driven by expenses associated with our over all increase in compensation, commissions and other payroll related costs.
For reporting periods prior to the adoption of SFAS 123R, stock based compensation recognized with our performance based restricted stock unit plan was adjusted each reporting period using the current market price of our common stock and the number of shares that would eventually be issued based upon the achievement of the performance criteria. Under SFAS 123R, fair value for performance based plans is determined at grant date and under normal circumstances is not adjusted in future periods.
Amortization of Intangible Assets
Amortization expense of $1.3 million for the three months ended August 27, 2006 decreased $134,000 or 9.6% from the three months ended August 28, 2005. The decrease is a result of the final month of amortization associated with certain production rights at our Magnet Business Group during the three months ended August 28, 2005.
Operating (Loss) Income
During the three months ended August 27, 2006, we incurred an operating loss of $1.8 million compared to operating income of $7.6 million for three months ended August 28, 2005. This decrease is a combination of lower revenues, an increase in non-cash stock compensation of $1.4 million and about $1.6 million of costs incurred related to our pending merger with Philips.
Interest and Other Income (Expense)
Interest and other income of $644,000 for the three months ended August 27, 2006, increased $490,000 from the three months ended August 28, 2005. This increase is a result of higher invested cash balances and higher interest rates.
During the three months ended August 28, 2005, the Company received $600,000 from a favorable patent litigation settlement.
Interest and other expense of $1.0 million for the three months ended August 27, 2006, increased $392,000 or 60.7% from the three months ended August 28, 2005. This increase is largely driven by higher average borrowings outstanding under our credit facility. Our interest rate swaps have effectively hedged the impact on our variable rate debt.
19
Provision for Income Taxes
Our effective tax rate of 36.3% for the three months ended August 27, 2006, increased 2.0% from 34.3% for the three months ended August 28, 2005. The increase in our rate resulted from the phase out of the Extraterritorial Income Exclusion deductions and an increase in state income taxes resulting from a shift of taxable income to higher tax states. We continue to review optimal tax strategies to minimize our effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
For the three months ended August 27, 2006, we generated $1.4 million in cash from operating activities compared to the $8.0 million of cash used during the three months ended August 28, 2005. Cash generated from operating activities is primarily due to earnings adjusted for non-cash expenses of $5.4 million and a decrease in accounts receivable of $9.4 million. Increases in inventory and other assets and decreases in accounts payable and accrued expenses used about $3.9 million and $9.5 million of cash, respectively.
For the three months ended August 28, 2005, the $8.0 million used in operating activities was primarily due to increases in inventory and accounts receivable of $13.4 million and $3.8 million, respectively. In addition, cash used from the decrease in accounts payable and accrued expenses of $1.3 million were partially offset by earnings adjusted for non-cash items of $10.5 million.
Investing Activities
For the three months ended August 27, 2006 and August 28, 2005, investing activities consisted primarily of $2.1 million and $3.2 million, respectively, for purchases of property and equipment.
Financing Activities
The $3.7 million used in financing activities for the three months ended August 27, 2006, primarily consisted of $3.7 million of treasury stock purchases. In addition, we received $41,000 from exercises of stock options and made $67,000 of scheduled payments on our long-term debt.
Financing activities for the three months ended August 28, 2005, provided about $9.3 million, primarily from proceeds received from our revolving credit facility of $10.0 million, partially offset by $1.1 million of scheduled payments on our long term debt. In addition, proceeds of $400,000 were received from exercises of stock options.
See the consolidated statement of cash flows, located elsewhere in this report for further details on sources and uses of cash.
Commitments
Our capital and resource commitments as of August 27, 2006, consisted of approximately $2.8 million of machinery, equipment and tooling used to improve production processes and in research and development, as well as, for computers and computer equipment to improve engineering efficiency and to update other support functions. Individually, none of these commitments are considered significant.
Adequate Resources
We believe our existing cash balances, expected cash generation from internal operations, and the $144.4 million of additional borrowing capacity available under our unsecured revolving credit facility will be sufficient to meet our needs for the next twelve months.
Inflation has not had a material impact on our financial statements.
20
Our exposure to market risk through foreign currency exchange, derivative financial instruments and other financial instruments, such as investments in short-term cash equivalents and long-term debt, is not material. We have minimal exposure to foreign currency exchange risk with respect to sales because our sales are primarily denominated in U.S. Dollars. We do not currently hedge against foreign currency rate fluctuations and an immediate 10% change in exchange rates would not have a material impact on our future operating results or cash flows.
Our primary financial instrument that is interest rate dependent is an unsecured $200 million revolving credit facility. We may elect to apply interest rates to borrowings under (x) the higher of Wachovia’s prime commercial lending rate or the federal funds rate plus applicable margins or (y) the applicable London Interbank Offered Rate plus applicable margins, whichever is more favorable. In addition, we have entered into two interest rate swap agreements to effectively hedge the total amount currently outstanding. The first agreement, in effect, fixes the rate on $15.0 million of our long-term debt at 2.95% plus applicable margins and the second agreement in effect, fixes the rate on $40.0 million of our long-term debt at about 4.27%. The combination of these interest rate swaps will effectively fix the rate on our long-term debt currently outstanding to 3.88% for the remaining term of the swap contracts. We also have a variable rate mortgage payable of $1.1 million. See also Note G in our Notes to Consolidated Financial Statements located elsewhere in this Quarterly Report on Form 10-Q.
Our objective in managing our exposure to fluctuations in interest rates is to limit the impact of changing rates on earnings and cash flow and to lower our borrowing costs. With respect to invested cash, we invest only in high quality, low risk securities backed by the full faith and credit of the United States Government. The maximum duration of these securities are an average weighted duration of 90 days or less.
Additionally, we make certain estimates about inventory value, collectibility of accounts receivable, warranty expense and market acceptance of new product under development. We use factors such as probability of use, ability of a customer to pay, historical experience of product repair and customer need and or acceptance of new products in making the associated estimates. These estimates are believed to be reasonable and based on information available at the time the estimate is made.
(a) Evaluation of disclosure controls and procedures:
Our management with the participation of the chief executive officer and the chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in filed or submitted reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal controls over financial reporting:
There have not been any changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
21
On June 16, 2006, and June 20, 2006, two putative class action complaints were filed in the Supreme Court of the State of New York, Albany County, naming Intermagnetics and its directors (and, in one complaint, Royal Philips) as defendants. The actions, Mohamed Farouk Gani v. Intermagnetics General Corporation, et al., No. 3884-06, and Thomas Scionti v. Intermagnetics General Corporation, et al., No. 3946-06, challenge the merger agreement and related transactions. The complaints allege that the directors of Intermagnetics breached their fiduciary duties, including by failing to publicly announce an open bidding process or otherwise seek additional offers to acquire Intermagnetics, and by failing to provide full disclosure of certain material financial information. The complaints also allege that Intermagnetics (and, in one of the complaints, Philips) aided and abetted these alleged fiduciary violations. The plaintiffs seek equitable relief, including an injunction preventing us from proceeding with or consummating the merger. On August 16, 2006, we reached an agreement in principle to settle these cases.
To our knowledge, no director, officer, affiliate of Intermagnetics, holder of 5% or more of our common stock, or associate of any of the foregoing, is a party adverse to, or has a material interest adverse to, Intermagnetics or any of our subsidiaries in any proceedings.
The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time.
Failure to complete the proposed merger could negatively impact our stock price, future business and financial results.
On June 14, 2006, we entered into an Agreement and Plan of Merger, with Philips Holding USA Inc., and Jumbo Acquisition Corp., a wholly owned subsidiary of Philips Holding. The merger agreement provides that Jumbo Acquisition Corp. will merge with and into Intermagnetics, with Intermagnetics surviving as a wholly owned subsidiary of Philips Holding and an indirect subsidiary of Koninklijke Philips Electronics, N.V. We have not yet obtained clearance for the merger from the European Commission. We expect to complete the transaction in the fourth quarter of calendar year 2006 and when the transaction is completed, we will no longer be a publicly traded company. However, there is no assurance that the merger agreement and the merger will be cleared by the European Commission. If the merger is not completed, we will be subject to several risks, including the following:
| • | Philips Medical Systems currently accounts for half of our sales. If the merger is not completed our relationship with Philips could be adversely affected; |
| • | under certain circumstances, if the merger is not completed, we may be required to pay Philips a termination fee of $38,970,000; |
| • | the current market price of our common stock may reflect a market assumption that the merger will occur, and a failure to complete the merger could result in a negative perception by the stock market of us generally and a decline in the market price of our common stock; |
| • | certain costs relating to the merger, such as legal, accounting and financial advisory fees, are payable by us whether or not the merger is completed; |
| • | there may be substantial disruption to our business and a distraction of our management and employees from day-to-day operations, because matters related to the merger may require substantial commitments of time and resources, which could otherwise have been devoted to other opportunities that could have been beneficial to us; |
| • | our business could be adversely affected if we are unable to retain key employees or attract replacements; and |
| • | we would continue to face the risks that we currently face as an independent company. |
22
We may be subject to significant litigation.
We do business in the critical healthcare setting, and may from time to time be subject to significant litigation arising from actual or alleged injuries to patients. Litigation is by its nature costly and may divert management’s attention, either of which could adversely affect our operating results. In addition, if any current or future litigation is determined adversely, our operating results and financial condition could be adversely affected.
On June 16, 2006, and June 20, 2006, two putative class action complaints were filed in the Supreme Court of the State of New York, Albany County, naming Intermagnetics and its directors (and, in one complaint, Royal Philips) as defendants. The actions, Mohamed Farouk Gani v. Intermagnetics General Corporation, et al., No. 3884-06, and Thomas Scionti v. Intermagnetics General Corporation, et al., No. 3946-06, challenge the merger agreement and related transactions. The complaints allege that the directors of Intermagnetics breached their fiduciary duties, including by failing to publicly announce an open bidding process or otherwise seek additional offers to acquire Intermagnetics, and by failing to provide full disclosure of certain material financial information. The complaints also allege that Intermagnetics (and, in one of the complaints, Philips) aided and abetted these alleged fiduciary violations. The plaintiffs seek equitable relief, including an injunction preventing us from proceeding with or consummating the merger. On August 16, 2006, we reached an agreement in principle to settle these cases.
We are subject to risks associated with acquisitions.
An important aspect of our growth strategy may include making acquisitions. Acquisitions involve numerous risks, including difficulties in the integration of the operations, services, technologies, products and personnel of the acquired companies, diversion of management’s attention from other business concerns, overvaluation of the acquired companies, potential loss of key employees and customers of the acquired companies and lack of acceptance by the marketplace of the acquired companies’ products or services. Moreover, we may face exposure to litigation and other unanticipated contingent liabilities of the acquired companies. Any of these problems or factors could result in a material adverse effect to our business, financial condition and results of operations.
We are subject to risks of new laws related to health care.
Our customer base includes original equipment manufacturers of medical diagnostic equipment, imaging centers, hospitals and other healthcare providers. Changes in the law or new interpretations of existing laws, including, but not limited to the Medicare Modernization Act and the Deficit Reduction Act, may have a significant effect on our costs of doing business and the amount of reimbursement we and our customers receive from both government and third-party payers. In addition, economic forces, regulatory influences and political initiatives are subjecting the health care industry to fundamental changes. Federal, state and local government representatives are likely to continue to review and assess alternative health care delivery systems and payment methods. We expect ongoing public debate on these issues. Any of these efforts or reforms could have a material adverse affect on our business and results of operations.
A significant portion of our revenue currently comes from a small number of customers, and any decrease in revenue from these customers could harm our operating results.
We depend on a small number of customers for a large portion of our business, and changes in our customers’ orders may have a significant impact on our operating results. If a major customer significantly reduces the amount of business it does with us, there would be an adverse impact on our operating results. Although we have broadened our customer base over the past several fiscal years, we will continue to depend on sales to a relatively small number of major customers. Because it often takes significant time to replace lost business, it is likely that our operating results would be adversely affected if one or more of our major customers were to cancel, delay or reduce significant orders in the future. In addition, we generate significant accounts receivable in connection with the products we sell to our major customers. Although our major customers are large corporations, if one or more of our customers were to become insolvent or otherwise be unable to pay for our products, our operating results and financial condition could be adversely affected.
Competition from existing or new companies could cause us to experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.
Our MRI and Medical Device segments operate in a highly competitive industry. We are subject to competition based upon product design, performance, pricing, quality and service. While we try to maintain competitive pricing on those products that are directly comparable to products manufactured by others, in many instances our products will conform to more exacting specifications and carry a higher price than analogous products manufactured by others.
23
Our competitors include divisions of much larger, more diversified organizations as well as a number of specialized companies. Some of them have greater resources and larger staffs than we have. Many of our OEM customers and potential OEM customers have the capacity to design and manufacture internally the products we manufacture for them. We face competition from research and product development groups and the manufacturing operations of our current and potential customers, who continually evaluate the benefits of internal research and product development and manufacturing versus outsourcing.
We depend on our suppliers, some of which are the sole source for our components, and our production would be substantially curtailed if these suppliers are not able to meet our demands and alternative sources are not available.
We order raw materials and components denominated in U.S. Dollars to complete our customers’ orders, and some of these raw materials and components are ordered from sole-source suppliers. Although we work with our customers and suppliers to minimize the impact of shortages in raw materials and components, we sometimes experience short-term adverse effects due to price fluctuations and delayed shipments. If a significant shortage of raw materials or components were to occur, we might have to delay shipments or pay premium pricing, which could adversely affect our operating results. In some cases, supply shortages of particular components will substantially curtail production of products using these components. We are not always able to pass on price increases to our customers. Accordingly, some raw material and component price increases could adversely affect our operating results.
Uncertainties and adverse trends affecting the medical device industry, including the markets of any of our major customers may adversely affect our operating results.
Our business depends primarily on the MRI market, which is subject to rapid technological change, pricing and margin pressure. In addition, changes in government policy relating to reimbursement for the purchase and use of medical capital equipment could also affect our sales.
Our delay or inability to obtain any necessary United States or foreign regulatory clearances or approvals for our new products could have a material adverse effect on our business.
Our products in the Medical Device segment are subject to a high level of regulatory oversight. A delay or inability to obtain any necessary United States or foreign regulatory clearances or approvals for our new products could have a material adverse effect on our business. The process of obtaining clearances and approvals can be costly and time-consuming. There is a further risk that any approvals or clearances, once obtained, may be withdrawn or modified. Medical devices cannot be marketed in the United States without clearance or approval by the FDA. Medical devices sold in the United States must also be manufactured in compliance with FDA rules and regulations, which regulate the design, manufacture, packing, storage and installation of medical devices. Moreover, medical devices are required to comply with FDA regulations relating to investigational research and labeling. States may also regulate the manufacture, sale and use of medical devices. Medical device products are also subject to approval and regulation by foreign regulatory and safety agencies.
Loss of any of our key personnel could hurt our business because of their industry experience and their technological expertise.
We operate in a highly competitive industry and depend on the services of our key senior executives and our technological experts. The loss of the services of one or several of our key employees or an inability to attract, train and retain qualified and skilled employees, specifically engineering and operations personnel, could result in the loss of customers or otherwise inhibit our ability to operate and grow our business successfully.
Our success depends on new product development.
We have continuing programs designed to develop new products and to enhance and improve our products. We are expending significant resources on the development of new products in all of our segments. The successful development of our products and product enhancements are subject to numerous risks, both known and unknown, including:
• | unanticipated delays; |
• | access to capital; |
• | budget overruns; |
• | technical problems; and |
24
• | other difficulties that could result in the abandonment or substantial change in the design, development and commercialization of these new products, including, for example, changes requested by the FDA in connection with pre-market approval applications for our medical device products or lack of government funding for our HTS initiatives. |
Given the uncertainties inherent with product development and introduction, we cannot assure you that any of our product development efforts will be successful on a timely basis or within budget, if at all. Our failure to develop new products and product enhancements on a timely basis or within budget could harm our business and prospects.
Our business could be harmed if our products contain undetected errors or defects or do not meet customer specifications.
We are continuously developing new products and improving our existing products. Newly introduced products can contain undetected errors or defects. In addition, these products may not meet their performance specifications under all conditions or for all applications. If, despite our internal testing and testing by our customers, any of our products contains errors or defects or any of our products fail to meet customer specifications, then we may be required to enhance or improve those products or technologies. We may not be able to do so on a timely basis, if at all, and may only be able to do so at considerable expense. In addition, any significant reliability problems could result in adverse customer reaction, negative publicity or legal claims and could harm our business and prospects.
There are a number of technological challenges that must be successfully addressed before our HTS products can gain widespread commercial acceptance.
Our HTS products are in the early stages of commercialization or development and we must successfully address a number of technological challenges to complete our development and commercialization efforts. We will also need to improve the performance and/or reduce the cost of our HTS wire to expand the number of commercial applications for it. We may be unable to meet such technological challenges. Delays in development, as a result of technological challenges or other factors, may result in the termination of certain HTS product development efforts or delays in the introduction or commercial acceptance of our products.
A widespread commercial market for our HTS products may not develop.
To date, there has been no widespread commercial use of HTS products. It is possible that the market demands we currently anticipate for our HTS products will not develop even if technological hurdles are overcome and that HTS products will never achieve widespread commercial acceptance.
Many of our HTS projects are dependent upon government funding, subcontractors and other business partners.
We partner with other companies, including cable manufacturers and suppliers of cryogenic systems on many of our HTS projects, such as our HTS cable installation program. Accordingly, most of our current and planned revenue-generating projects involve business partners on whose performance our revenue and technical success is dependent. If these business partners fail to deliver their products or perform their obligations on a timely basis, our revenue from these projects may be delayed or decreased and our technical success may be jeopardized. A significant source of revenue for our HTS projects is the U.S. government (e.g., the Department of Energy) and this funding is subject to annual appropriations. If the amount committed to each project is not appropriated annually, then our revenue for HTS projects may be substantially impacted.
Certifications of Chief Executive Officer and Chief Financial Officer
31.1 | Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) |
|
|
31.2 | Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer) |
|
|
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. |
25
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| INTERMAGNETICS GENERAL CORPORATION | |
|
| By: |
|
|
|
| |
|
|
| Glenn H. Epstein |
|
| By: |
|
|
|
| |
|
|
| Michael K. Burke |
26