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 March 31, 1996
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 March 31, 1996: 34,583,373 shares
GIDDINGS & LEWIS, INC.
Form 10-Q Index
For Quarter Ended March 31, 1996
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 - 11
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
GIDDINGS & LEWIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Share and Per Share Data)
(Unaudited)
Three months ended
March 31, April 2,
1996 1995
Net sales $192,420 $154,576
Costs and expenses:
Cost of sales 149,725 122,862
Selling, general and
administrative expenses 20,404 15,583
Depreciation and amortization 5,480 4,182
------- -------
Total operating expenses 175,609 142,627
------- -------
Operating income 16,811 11,949
Interest expense, net 2,254 290
Other income (108) (31)
------- -------
Income before provision for income taxes 14,665 11,690
Provision for income taxes 4,248 4,594
------- -------
Net income $ 10,417 $ 7,096
======== ========
Per common share amounts:
Net income $ .30 $ .21
======== ========
Dividends declared $ .03 $ .03
======== ========
Average number of common shares outstanding 34,526,964 34,363,937
See accompanying notes.
GIDDINGS & LEWIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three months ended
March 31, April 2,
1996 1995
Operating activities:
Net income $ 10,417 $ 7,096
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 5,480 4,182
Net changes in working capital items
(18,784) (57,452)
Other 3,488 (1,119)
------- -------
Net cash provided (used) by
operating activities 601 (47,293)
------- -------
Investing activities:
Additions to property, plant,
and equipment (5,564) (3,357)
Other 164 933
------- -------
Net cash used by investing activities (5,400) (2,424)
------- -------
Financing activities:
Proceeds from draws on line of credit 45,467 55,000
Repayments under line of credit (47,000) (19,000)
Cash dividends (1,038) (1,032)
------- -------
Net cash (used) provided by
financing activities (2,571) 34,968
------- -------
Effect of exchange rate changes
on cash 245 872
------- -------
Net decrease in cash and cash equivalents
(7,125) (13,877)
Cash and cash equivalents - beginning
of period 14,216 24,072
------- -------
Cash and cash equivalents - end
of period $ 7,091 $ 10,195
======== ========
See accompanying notes.
GIDDINGS & LEWIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 7,091 $ 14,216
Accounts receivable 353,370 350,593
Inventories 105,562 102,281
Deferred income taxes 4,776 4,776
Other current assets 5,619 5,921
------- -------
Total current assets 476,418 477,787
Fixed assets - net 113,099 111,382
Costs in excess of net acquired assets 189,802 192,522
Deferred income taxes 19,700 19,700
Other assets 15,189 16,200
------- -------
TOTAL ASSETS $814,208 $817,591
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 35,230 $ 36,763
Accounts payable 55,546 67,676
Accrued expenses and other liabilities 78,314 77,888
------- -------
Total current liabilities 169,090 182,327
Long-term debt 100,000 100,000
Long-term employee benefits and other
long-term liabilities 43,610 42,723
------- -------
Total liabilities 312,700 325,050
Contingencies
Shareholders' equity:
Class A preferred stock - -
Common stock 3,458 3,442
Capital in excess of par 329,107 326,608
Retained earnings 170,162 160,783
Cumulative translation adjustment 3,390 4,223
Unamortized compensation expense (4,609) (2,515)
------- -------
Total shareholders' equity 501,508 492,541
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $814,208 $817,591
======== ========
See accompanying notes.
GIDDINGS & LEWIS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended March 31, 1996
(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, 1995 34,422,043 $ 3,442 $ 326,608 $160,783 $ 4,223 $ (2,515) $ 492,541
Net stock awards and options 161,330 16 2,403 (2,508) (89)
Tax benefit related to
vesting of restricted stock 96 96
Net income 10,417 10,417
Amortization of compensation
expense 414 414
Cash dividends (1,038) (1,038)
Translation adjustment (833) (833)
---------- ------- --------- -------- ------- -------- ---------
Balance, March 31, 1996 34,583,373 $ 3,458 $ 329,107 $170,162 $ 3,390 $ (4,609) $ 501,508
========== ======= ========= ======== ======= ======== =========
See accompanying notes.
GIDDINGS & LEWIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(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. Due to the nature of a substantial portion of the
Company's business (i.e., long-term and complex contracts), significant
adjustments are sometimes required to reflect experience and other
factors. Such adjustments are recorded as changes in estimates as part
of the percentage-of-completion accounting in the period they become
known. Operating results for the three month period ended March
31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further informa-
tion, 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, 1995.
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 and machining centers, tooling,
fixtures, castings and remanufacturing. The Integrated Automation Group
produces flexible transfer lines, flexible machining systems and
assembly automation systems. Programmable industrial computers, servo
systems, controls, and measurement products are offered by the
Automation Measurement and Control Group. The European Operations Group
offers most of the Company's product lines through its sales,
engineering, manufacturing, and service facilities in England and
Germany.
2. Inventories
March 31, December 31,
1996 1995
(in thousands)
Raw materials $ 52,072 $ 52,694
Work-in-process 41,063 38,038
Finished goods 12,427 11,549
---------- ----------
$ 105,562 $ 102,281
========== ==========
3. Contingencies
The Company is involved in various environmental matters, including
matters in which the Company and certain of its subsidiaries or alleged
predecessors have been named as potentially responsible parties under
the Comprehensive Environmental Response Compensation and Liability Act
(CERCLA). These matters include a soil and water contamination matter
at the Company's former West Allis, Wisconsin facility. In 1992, the
Company was notified by the Wisconsin Department of Natural Resources
(WDNR) of contamination at the West Allis site. In 1994, the Company
sold most of the site, including the manufacturing facility. The
Company has made substantial progress on the implementation of a WDNR
approved clean-up plan on the nine acre portion of the site that was not
sold.
The Company has established accruals ($9.7 million and $10.0 million at
March 31, 1996 and December 31, 1995, respectively) 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 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 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 another matter, a Michigan Department of Natural Resources (now known
as the Michigan Department of Environmental Quality) investigation into
alleged environmental violations at the Company's Menominee, Michigan
facility resulted in the issuance of criminal complaints against the
Company and two of its employees in November 1994. The complaints,
which are pending in Menominee County, Michigan district and circuit
courts, generally focus on alleged releases of hazardous substances and
the alleged illegal treatment and disposal of hazardous wastes. In
these actions, the State of Michigan is seeking, among other relief,
monetary sanctions as specified by applicable law. Two civil lawsuits
are also pending which seek unspecified damages based on allegations of
improper disposal and emissions at this facility. The Company is
vigorously defending itself against all charges and allegations.
Information presently available to the Company does not enable it to
reasonably quantify potential civil or criminal penalties, or
remediation costs, if any, related to these matters.
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 has accrued for all claim
exposure for which a loss is probable and reasonably estimable. Based
on current information, management believes that future costs in excess
of the amounts accrued for all existing litigation will not be material
to the Company's financial position or results of operations.
GIDDINGS & LEWIS, INC.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations for the First Three Months
of 1996 Compared to 1995
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, 1995 through March 31, 1996.
April 2, July 2, Oct. 1, Dec. 31, March 31,
1995 1995 1995 1995 1996
(In Thousands)
Operating group:
Automation
Technology $ 41,523 $ 76,765 $ 83,534 $ 75,782 $ 85,581
Integrated
Automation 91,420 64,884 39,091 (17,956) 35,365
European
Operations 8,680 27,459 24,470 79,699 35,848
Automation
Measurement
and Control 17,741 19,364 14,698 16,436 15,615
-------- -------- -------- -------- --------
Consolidated
bookings $159,364 $188,472 $161,793 $153,961 $172,409
======== ======== ======== ======== ========
Consolidated
backlog $430,121 $478,324 $442,507 $388,156 $365,953
======== ======== ======== ======== ========
Bookings in the first three months of 1996 were $172.4 million compared to
bookings in the first three months of 1995 of $159.4 million. Automation
Technology first quarter bookings for 1996 of $85.6 million increased
106.1% from $41.5 million in the first quarter of 1995 primarily as a
result of the acquisition of Fadal Engineering, Inc. ("Fadal") in April,
1995. Integrated Automation bookings of $35.4 million decreased 61.3% in
the first quarter of 1996 from $91.4 million in the first quarter of 1995
due to the timing of order placement of large contracts. European
Operations bookings increased 313.0% from $8.7 million in the first
quarter of 1995 to $35.8 million in the first quarter of 1996. Orders from
European automobile manufacturers were the primary cause of the increase
in 1996. Automation Measurement and Control bookings of $15.6 million for
the first quarter of 1996 decreased 12.0% from $17.8 million in the first
quarter of 1995. Lower demand for measurement equipment was the biggest
contributor to the lower orders in 1996.
Consolidated net sales in the first three months of 1996 totalled $192.4
million compared to $154.6 million in the year earlier period. The
increase in net sales was related to the additional Fadal sales. In the
1996 period, net sales for Automation Technology of $95.8 million
increased 153.8% from $37.8 million in the year earlier period.
Integrated Automation net sales of $55.2 million decreased 25.4% from
$73.9 million. European Operations sales in the first three months of
1996 were $23.7 million, a decrease of 5% from $25.0 million in the year
earlier period. Automation Measurement and Control net sales of $17.7
million in the 1996 period compared to $17.9 million in the 1995 period.
The consolidated gross margin (before depreciation and amortization)
increased to 22.2% of sales in the first quarter of 1996, from 20.5% in
the first quarter of 1995. The increase in the gross margin percentage is
primarily attributable to the inclusion of the higher margin sales of
Fadal.
Selling, general, and administrative expenses (before depreciation and
amortization) increased as a percentage of sales to 10.5% in the first
three months of 1996 from 10.1% in the year earlier period primarily as a
result of increased commissions.
Net interest expense increased from $.3 million in the first quarter of
1995 to $2.3 million in the first quarter of 1996. The increase in net
interest expense is attributable to increased borrowings resulting from
the acquisition of Fadal.
The provision for income taxes of $4.2 million for the first quarter of
1996 is based on the estimated annual effective tax rate of 38% for 1996
which includes the one time tax benefit in the first quarter of initially
implementing tax planning strategies to capture the benefit of foreign
losses. The Company's effective tax rate for the first three months of
1996 amounted to 29% as compared to 39.3% for the year earlier period.
Liquidity and Capital Resources at March 31, 1996
On March 31, 1996, the Company had $7.1 million of cash and cash
equivalents on hand which was a decrease of $7.1 million from the balance
on hand at the beginning of the year. For the first three months of 1996,
operating activities provided $.6 million of cash. Cash used by working
capital changes totaled $18.8 million due primarily to decreased accounts
payable.
Investing activities used $5.4 million which included $5.6 million in
capital expenditures and $.2 million of proceeds from the sale of assets.
Financing activities used cash of $2.6 million which included net payments
on bank borrowings of $1.6 million plus dividend payments of $1.0 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
March 31, 1996
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amendment to Giddings & Lewis, Inc. By-Laws
effective April 24, 1996
3.2 Giddings & Lewis, Inc. By-Laws as amended
effective April 24, 1996
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
The Company filed no Current Reports on Form 8-K during
the quarter ended March 31, 1996.
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: May 10, 1996 /s/ Joseph R. Coppola
Joseph R. Coppola
Chairman and Chief Executive
Officer
Date: May 10, 1996 /s/ Richard C. Kleinfeldt
Richard C. Kleinfeldt
Vice-President - Finance and
Secretary (Chief Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit No. Exhibit Description
3.1 Amendment to Giddings & Lewis, Inc. By-Laws effective
April 24, 1996
3.2 Giddings & Lewis, Inc. By-Laws as amended effective
April 24, 1996
27 Financial Data Schedule (EDGAR version only)