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 Quarterly Period Ended July 3, 1994
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 0-17873
GIDDINGS & LEWIS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1643189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
142 Doty Street, Fond du Lac, Wisconsin 54935
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 921-9400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock Outstanding as of July 3, 1994: 34,279,848 shares
GIDDINGS & LEWIS, INC.
Form 10-Q Index
For Quarter Ended July 3, 1994
Page
PART I. Financial Information
Item 1. Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Cash Flows 4
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statement of Changes
in Shareholders' Equity 6
Notes to Condensed Consolidated Financial
Statements 7 - 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 10 - 12
PART II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
GIDDINGS & LEWIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Share and Per Share Data)
(Unaudited)
Three months ended Six months ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
Net sales $ 144,805 $ 135,831 $ 267,835 $ 276,082
Costs and expenses:
Cost of sales 113,868 93,965 208,707 192,663
Selling, general and
administrative
expenses 15,110 17,792 27,995 36,408
Depreciation and
amortization 4,103 3,841 8,187 7,642
------- ------- ------- -------
Total operating expenses 133,081 115,598 244,889 236,713
------- ------- ------- -------
Operating income 11,724 20,233 22,946 39,369
Interest (income)/expense (294) 845 (619) 2,672
Other (income)/expense (27) 474 64 922
------- ------- ------- -------
Income before provision
for income taxes 12,045 18,914 23,501 35,775
Provision for income taxes 4,815 7,432 9,401 14,059
------- ------- ------- -------
Net income $ 7,230 $ 11,482 $ 14,100 $ 21,716
======= ======= ======= =======
Per common share amounts:
Net income available
to common shareholders $ .21 $ .34 $ .41 $ .67
======== ======== ======= =======
Dividends declared $ .03 $ .03 $ .06 $ .06
======== ======== ======= =======
Average number of common
shares outstanding 34,285,358 33,928,047 34,274,808 32,686,582
See accompanying notes.
GIDDINGS & LEWIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three months ended Six months ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
Operating activities:
Net income $ 7,230 $ 11,482 $ 14,100 $ 21,716
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation and
amortization 4,103 3,841 8,187 7,642
Deferred income taxes - 3,280 - 10,264
Net changes in working
capital items (12,097) 36,730 4,422 31,665
Other (2,885) (51) (2,552) (442)
-------- -------- -------- --------
Net cash provided (used) by
operating activities (3,649) 55,282 24,157 70,845
-------- -------- -------- --------
Investing activities:
Additions to property,
plant, and equipment (4,073) (7,196) (8,574) (11,767)
Other 3,768 506 3,490 3,339
-------- -------- -------- ---------
Net cash used by
investing activities (305) (6,690) (5,084) (8,428)
Financing activities:
Net decrease in notes
payable - (7,361) - (18,351)
Payment of long-term
borrowings - (11,000) - (11,000)
Payments on debenture
redemptions and conversions - (116) - (224)
Proceeds from restricted
stock transactions - 9 - 9
Proceeds from stock option
transactions 16 - 456 114
Cash dividends (1,029) (1,017) (2,057) (2,022)
-------- -------- -------- --------
Net cash used by financing
activities (1,013) (19,485) (1,601) (31,474)
-------- -------- -------- --------
Effect of exchange rate
changes on cash 1,653 (407) 2,230 (407)
------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents (3,314) 28,700 19,702 30,536
Cash and cash equivalents -
beginning of period 76,893 10,337 53,877 8,501
-------- -------- -------- -------
Cash and cash equivalents -
end of period $ 73,579 $ 39,037 $ 73,579 $ 39,037
======== ======== ======== =======
See accompanying notes.
GIDDINGS & LEWIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
July 3, December 31,
1994 1993
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 73,579 $ 53,877
Accounts receivable 237,609 246,130
Inventories (Note 2) 53,541 57,393
Deferred income taxes 23,770 23,770
Other current assets 6,328 6,304
------- -------
Total current assets 394,827 387,474
Fixed assets - net 104,960 101,269
Costs in excess of net acquired assets 90,178 91,386
Other assets 9,304 12,897
Deferred income taxes 20,990 20,990
-------- --------
TOTAL ASSETS $620,259 $614,016
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,880 $ 31,059
Accrued expenses and other
liabilities 87,417 98,337
-------- --------
Total current liabilities 122,297 129,396
Long-term employee benefits and
other long-term liabilities 45,607 48,610
------- -------
Total liabilities 167,904 178,006
Contingencies (Note 3)
Shareholders' equity:
Class A preferred stock - -
Common stock 3,428 3,425
Capital in excess of par 324,286 323,679
Retained earnings 126,735 114,692
Cumulative translation adjustment (527) (3,444)
Unamortized compensation expense (1,567) (2,342)
------- -------
Total shareholders' equity 452,355 436,010
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $620,259 $614,016
======= =======
See accompanying notes.
GIDDINGS & LEWIS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JULY 3, 1994
(In Thousands, Except Share Amounts)
(Unaudited)
Capital in Cumulative Unamortized Total
Common Stock Excess of Retained Translation Compensation Shareholders'
Shares Amount Par Earnings Adjustment Expense Equity
Balance, December 31, 1993 34,254,068 $ 3,425 $ 323,679 $114,692 $ (3,444) $ (2,342) $ 436,010
Issuance of shares under
restricted stock awards 8,840 1 217 (217) 1
Cancellation of shares under
restricted stock awards (27,500) (2) (334) 156 (180)
Issuance of shares for options
exercised under stock
option plan 44,440 4 452 456
Tax benefit related to
options exercised 272 272
Net income 14,100 14,100
Amortization of compensation
expense 836 836
Cash dividends (2,057) (2,057)
Translation adjustment 2,917 2,917
__________ _______ _________ ________ _______ _______ __________
Balance, July 3, 1994 34,279,848 $ 3,428 $ 324,286 $126,735 $ (527) $(1,567) $ 452,355
========== ======= ======== ======= ====== ====== =========
See accompanying notes.
GIDDINGS & LEWIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 3, 1994
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three and six month periods ended July 3, 1994 are
not necessarily indicative of the results that may be expected for
the year ending December 31, 1994. For further information, refer
to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended December 31, 1993.
The Company is organized into four major operating groups:
Automation Technology, Integrated Automation, Automation Measurement
and Control, and European Operations. The Automation Technology
Group is responsible for the manufacture of cellular and smart
manufacturing systems, automated standalone machine tools, tooling
and fixtures, gray iron castings and remanufacturing. The
Integrated Automation Group produces assembly automation products
and systems and flexible transfer lines. Programmable industrial
computers, servo systems, CNC controls, and measurement products are
offered by the Automation Measurement and Control Group. The
European Operations Group offers the Company's complete product
lines through its sales, engineering, manufacturing, and service
facilities in Scotland, England and Germany.
2. Inventories
July 3, December 31,
1994 1993
(in thousands)
Raw materials $ 29,117 $ 29,613
Work-in-process 12,730 16,594
Finished goods 11,694 11,186
---------- ----------
$ 53,541 $ 57,393
========== ==========
3. Contingencies
The Company is involved in various environmental matters, including
matters in which the Company and certain of its subsidiaries have
either been named as potentially responsible parties under the
Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") or are involved with state environmental authorities.
The sites involved include facilities acquired by the Company in
connection with the acquisition of Cross & Trecker Corporation,
including a soil and water contamination matter at the Company's
former West Allis, Wisconsin facility. In May, 1994, the Company
sold a portion of the West Allis site containing the manufacturing
facility along with the associated environmental remediation
responsibilities for that portion of the site. The Company has
developed and submitted plans to the Wisconsin Department of Natural
Resources which will lead to the remediation of the remainder of the
West Allis site which has been retained by the Company.
The Company has established accruals for all environmental
contingencies of which management is currently aware in accordance
with generally accepted accounting principles. In establishing
these accruals, management considered (a) reports of environmental
consultants retained by the Company, (b) the costs incurred to date
by the Company at sites where clean-up is presently ongoing and the
estimated costs to complete the necessary remediation work remaining
at such sites, (c) the financial solvency, where appropriate, of
other parties that have been identified as responsible for effecting
remediation at specified sites, and (d) the experience of other
parties who have been involved in the remediation of comparable
sites. The accruals recorded by the Company with respect to
environmental matters have not been reduced by potential insurance
recoveries or other recoveries and are not discounted. Although the
Company has and will continue to pursue such claims against
insurance carriers and other responsible parties, future potential
recoveries remain uncertain and, therefore, were not recorded as a
reduction to the estimated gross environmental liabilities. Based
on the foregoing and given current information, management believes
that future costs in excess of the amounts accrued on all presently
known and quantifiable environmental contingencies will not be
material to the Company's financial position or results of
operations.
In addition, the Michigan Department of Natural Resources is
investigating alleged environmental violations at the Company's
Menominee, Michigan facility. The investigation focuses on air
emissions, and their potential impact on surrounding soil and waste
disposal practices. Two related civil lawsuits have also been filed
regarding this matter. Information presently available to the
Company does not enable it to reasonably estimate potential civil or
criminal penalties, or remediation costs, if any, related to the
Menominee matter.
The Company is also involved in other litigation and proceedings,
including product liability claims. In the case of product
liability, the Company is partially self-insured and accrues for
estimated claim exposures determined to be probable. The Company
does not believe that the outcome of such litigation will have a
material adverse effect upon the Company.
As part of the acquisition of Cross & Trecker Corporation in
October, 1991, the Company acquired two contracts with customers
located in the former Soviet Union (Russian contracts). These
contracts, totalling approximately $48.2 million, were entered into
by Cross & Trecker Corporation prior to the acquisition. In light
of the political and economic instability in the former Soviet
Union, the Company was unable to predict when or if effective
guarantees (see below) would be obtained or additional payments
would be received under these contracts. Accordingly, at the time
of the acquisition, the Company wrote off the uncollected
receivables and reserved for the costs committed to be incurred with
respect to these contracts.
In August, 1992, Export-Import Bank of the United States issued a
conditional guarantee for one of the Russian contracts. At
July 3, 1994, all of the specified procedures needed to activate
this guarantee had not yet been satisfied. However, in November,
1993, the Company received the remaining contractual downpayment
relating to this contract. Because the related receivable had
previously been written off, the downpayment was recorded as income
in 1993. For the other Russian contract, no payments have been
received and no credit guarantee has been issued. The Company
continues to pursue collection of the remaining amounts outstanding
under these contracts.
GIDDINGS & LEWIS, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations for the First Six Months
of 1994 Compared to 1993
The following table sets forth the Company's bookings by operating group
in the period and consolidated backlog at period-end on a quarterly basis
for the period January 1, 1993 through July 3, 1994.
April 4, July 4, Oct. 3, Dec. 31, April 3, July 3,
1993 1993 1993 1993 1994 1994
(In Thousands)
Operating group:
Automation
Technology $ 36,987 $ 31,716 $ 36,561 $ 39,857 $ 32,034 $ 31,724
Integrated
Automation 26,612 59,723 39,837 79,270 117,610 113,870
European
Operations 52,367 28,543 55,404 8,433 6,138 5,771
Automation
Measurement
and Control 13,328 11,954 13,818 14,511 13,647 17,831
------- -------- ------- ------- ------- -------
Consolidated
Bookings $129,294 $131,936 $145,620 $142,071 $169,429 $169,196
======= ======= ======= ======= ======= =======
Consolidated
Backlog $349,070 $342,605 $367,857 $382,694 $431,448 $460,370
======= ======= ======= ======= ======= =======
Bookings in the first six months of 1994 were $338.6 million compared to
bookings in the first six months of 1993 of $261.2 million. Automation
Technology bookings of $63.8 million in the first six months of 1994
decreased 7.2% from the comparable 1993 period. The decrease reflects
continued weakness in the demand for large machine tools and sophisticated
cells and systems. Integrated Automation bookings in the first six months
totalled $231.5 million, a 168.1% increase from the year earlier period
total of $86.3 million. The increase in bookings is attributable to
significant order placement by the domestic automotive industry during the
first half of 1994. The Company believes that order placement by the
domestic automotive sector will remain above average throughout 1994.
European Operations bookings decreased from $80.9 million in the first six
months of 1993 to $11.9 million in the first half of 1994. The decrease
was due to unfavorable economic conditions in the Company's European
markets. There appears to be no indication of near term improvement in
the outlook for bookings in Europe. Bookings in the first six months of
1993 were favorably impacted by significant orders received from European
automotive companies and a Korean automotive company. Automation
Measurement and Control bookings of $31.5 million for the first six months
of 1994 increased 24.5% over the comparable 1993 period bookings of $25.3
million due mainly to large orders received from the automotive and mining
industries.
Bookings in the second quarter of 1994 were $169.2 million compared to
bookings in the second quarter of 1993 of $131.9 million. Automation
Technology bookings were $31.7 million in both the second quarter of 1994
and the second quarter of 1993. Integrated Automation bookings of $113.9
million in the second quarter of 1994 increased 90.7% from $59.7 million
in the second quarter of 1993. European Operations bookings decreased
79.8% from $28.5 million in the second quarter 1993 to $5.8 million in the
second quarter of 1994. Automation Measurement and Control bookings of
$17.8 million for the second quarter of 1994 increased 49.1% from $12.0
million in the second quarter of 1993. The reasons for the fluctuations
in second quarter bookings (1994 vs. 1993) are essentially the same as
those noted in the previous paragraph which discussed six-month results.
Consolidated net sales in the first six months of 1994 totalled $267.8
million compared to $276.1 million in the year earlier period. Net sales
for Automation Technology in the first six months of 1994 were $84.8
million, a decrease of 6.9% from the year earlier period total of $91.1
million. Integrated Automation net sales decreased 5.8% from $108.2
million in the first six months of 1993 to $101.9 million in the
comparable 1994 period. European Operations sales in the first six months
of 1994 were $51.4 million, an increase of 5.8% from $48.6 million in the
year earlier period. Automation Measurement and Control net sales
increased 5.2% to $29.7 million in the 1994 period compared to $28.2
million in the 1993 period.
Consolidated net sales increased from $135.8 million in the second quarter
of 1993 to $144.8 million in the second quarter of 1994. The increase in
net sales relates mainly to significant orders received by the European
Operations group in the second and third quarters of 1993. In the second
quarter of 1994, Automation Technology net sales totalled $42.9 million
compared to $43.0 million in the year earlier period. Integrated
Automation net sales of $52.6 million in the second quarter of 1994
decreased from $54.5 million in the comparable 1993 period. European
Operations net sales in the second quarter of 1994 were $35.0 million, a
36.4% increase from 1993 second quarter net sales of $25.6 million. Net
sales for the Automation Measurement and Control group were $14.2 million
in the second quarter of 1994 compared to $12.7 million in the year
earlier period.
The consolidated gross margin percentage (before depreciation and
amortization) for the first six months and the second quarter of 1994 was
22.1% and 21.4%, respectively, as compared to 30.2% and 30.8% for the
comparable 1993 periods. Gross margins for the first six months and
second quarter of 1994 were adversely impacted by competitive pricing
pressures, cost overruns on contracts booked in prior periods, and
increased product development spending. The Company currently does not
expect the gross margin percentage for the second half of 1994 to differ
significantly from the actual gross margin percentage for the six months
ended June 30, 1994.
Selling, general, and administrative expenses (before depreciation and
amortization) decreased as a percentage of sales to 10.5% in the first six
months of 1994 from 13.2% in the year earlier period, and to 10.4% for the
second quarter of 1994 from 13.1% in the second quarter of 1993. The
percentage decrease is primarily attributable to cost reduction measures,
improved engineering efficiencies and a change in the mix of sales towards
lower commission sales.
Net interest (income)/expense for the first six months and second quarter
of 1994 of ($.6) million and ($.3) million, respectively, decreased from
$2.7 million and $.8 million, respectively, in the comparable 1993
periods. The decrease in net interest expense is attributable to (1) the
redemption or conversion into common stock in March, 1993 of all of the
Company's 10% convertible subordinated debentures, (2) the repayment of
all remaining outstanding debt in the second quarter of 1993, and (3) the
increase in cash and cash equivalents (cash and cash equivalents increased
from $8.5 million at December 31, 1992 to $73.6 million at July 3, 1994).
The provision for income taxes of $9.4 million and $4.8 million,
respectively, for the first six months and second quarter of 1994 is based
on the estimated annual effective tax rate for 1994. The Company's
effective tax rate for the first six months and second quarter of 1994
amounted to 40.0% as compared to 39.3% for the year earlier periods.
Liquidity and Capital Resources at July 3, 1994
On July 3, 1994, the Company had $73.6 million of cash and cash
equivalents on hand, which is an increase of $19.7 million from the
balance on hand at the beginning of the year. For the first six months of
1994, operating activities generated $24.2 million of cash. Net working
capital items decreased by $4.4 million due primarily to lower accounts
receivable and inventory balances and increased accounts payables. The
lower receivable balance resulted from collections on significant
contracts. The increase in accounts payables reflects elevated purchasing
activity required to support the growing backlog of orders. Offsetting
the changes in the above working capital items was a decrease in accrued
expenses and other liabilities which resulted mainly from the payment of
year-end accruals. In the second quarter of 1994, net working capital
items increased by $12.1 million due mainly to higher accounts receivable.
In the second quarter, significant progress was made by the European
Operations group on contracts accounted for under the percentage of
completion method of accounting. Investing activities used $5.1 million
during the first six months of 1994, which included capital expenditures
totalling $8.6 million and proceeds from the sale of assets held for sale
of $4.0 million. During the same period, financing activities used cash
of $1.6 million including dividend payments of $2.1 million.
The Company believes its cash flows from operations and funds available
under domestic and foreign credit agreements will be adequate to finance
capital expenditures and working capital requirements for the foreseeable
future.
Part II - OTHER INFORMATION
Giddings & Lewis, Inc.
Form 10-Q
July 3, 1994
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders held on
April 27, 1994, Joseph R. Coppola, Clyde H. Folley and
Ben R. Stuart were elected as directors of the Company for
terms expiring in 1997. The following table sets forth
certain information with respect to the election of
directors at the annual meeting:
Shares Withholding
Name of Nominee Shares Voted For Authority
Joseph R. Coppola 26,151,288 224,282
Clyde H. Folley 26,152,545 223,025
Ben R. Stuart 26,151,122 224,448
The following table sets forth the other directors of the
Company whose terms of office continued after the 1994
annual meeting:
Year in Which
Name of Director Term Expires
John A. Becker 1995
Peter P. Donis 1995
James R. Underkofler 1995
Albert J. Baciocco, Jr. 1996
Ruth M. Davis 1996
Benjamin F. Garmer, III 1996
Richard C. Kleinfeldt 1996
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the
quarter ended July 3, 1994.
Signatures
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.
Giddings & Lewis, Inc.
Date: August 16, 1994 /s/ Joseph R. Coppola
Joseph R. Coppola
Chairman and Chief Executive
Officer
Date: August 16, 1994 /s/ Richard C. Kleinfeldt
Richard C. Kleinfeldt
Vice-President - Finance and
Secretary (Chief Financial and
Accounting Officer)