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EXHIBIT 99.4
MICROE SYSTEMS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 4, 2004 AND SEPTEMBER 28, 2003
(Stated in thousands of U.S. dollars)
April 4, September 28,
2004 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,481 $ 9,634
Accounts receivable, net 4,119 4,691
Inventories 1,656 1,183
Deferred taxes 639 639
Prepaid expenses and other current assets 132 174
-------- --------
Total current assets 10,027 16,321
PROPERTY AND EQUIPMENT--Net 390 456
DEFERRED TAXES 46 46
OTHER ASSETS--Net 130 54
-------- --------
TOTAL ASSETS $ 10,593 $ 16,877
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 811 $ 572
Accrued income taxes 888 487
Accrued expenses 948 1,355
-------- --------
Total current liabilities 2,647 2,414
DEFERRED RENT 30 34
-------- --------
Total liabilities 2,677 2,448
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 4)
REDEEMABLE PREFERRED STOCK:
Class A Redeemable Preferred Stock, at liquidation value; $0.01 par value 0 2,638
Class B Redeemable Preferred Stock, at liquidation value; $0.01 par value 0 5,142
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value 9 9
Treasury stock, at cost (1,157) (1,101)
Additional paid-in capital 794 701
Accumulated other comprehensive gain (loss) 20 (23)
Retained earnings 8,250 7,063
-------- --------
Total stockholders' equity 7,916 6,649
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,593 $ 16,877
======== ========
-1-
MICROE SYSTEMS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED APRIL 4, 2004 AND MARCH 30, 2003
(Stated in thousands of U.S. dollars)
2004 2003
REVENUE $ 12,895 $ 11,522
COST OF REVENUE 5,207 4,691
-------- --------
GROSS MARGIN 7,688 6,831
-------- --------
OPERATING EXPENSES:
Research and development 2,378 2,323
Selling and marketing 2,342 2,079
General and administrative 1,027 900
-------- --------
Total operating expenses 5,747 5,302
-------- --------
INCOME FROM OPERATIONS 1,941 1,529
OTHER INCOME/(EXPENSE)--Net (346) 57
-------- --------
INCOME BEFORE INCOME TAX PROVISION 1,595 1,586
INCOME TAX PROVISION 402 461
-------- --------
NET INCOME $ 1,193 $ 1,125
-------- --------
PREFERRED STOCK DIVIDENDS AND ACCRETION 234
-------- --------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 1,193 $ 891
======== ========
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MICROE SYSTEMS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 4, 2004 AND MARCH 30, 2003
(Stated in thousands of U.S. dollars)
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,193 $ 1,125
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 127 148
Changes in operating assets and liabilities:
Accounts receivable 572 745
Inventories (473) (63)
Prepaid expenses and other assets 43 101
Accounts payable 238 (186)
Accrued income taxes 402 243
Accrued expenses and other (413) (260)
-------- --------
Net cash provided by operating activities 1,689 1,853
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (60) (157)
Decrease (increase) in other assets (76) 7
-------- --------
Net cash used in investing activities (136) (150)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of preferred stock (7,785)
Proceeds from the exercise of common stock options 93 21
Purchase & settlement of treasury stock transactions (56) (31)
-------- --------
Net cash used in financing activities (7,748) (10)
-------- --------
Effects of exchange rates on cash & cash equivalents 42 (10)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (6,153) 1,683
CASH AND CASH EQUIVALENTS--Beginning of period 9,634 9,010
-------- --------
CASH AND CASH EQUIVALENTS--End of period $ 3,481 $ 10,693
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES--Accretion
of dividends on redeemable preferred stock $ 0 $ 234
======== ========
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MICROE SYSTEMS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in $000s)
1. NATURE OF OPERATIONS
MicroE Systems (the "Company" or "MicroE") develops, manufactures and
markets high-performance, position-sensing systems called encoders for
motion-controlled applications. The Company's patented technology enables
the development of encoders that are smaller and more robust while
delivering high resolution and accuracy.
The Company targets specific motion control applications in a variety of
high-tech and industrial markets. These markets include data storage,
semiconductor processing and packaging, electronics assembly and other
high-precision industries. The Company sells to customers located
throughout the world.
2. BASIS OF PRESENTATION
INTERIM FINANCIALS -- These unaudited interim condensed consolidated
financial statements have been prepared by the Company in United States
(U.S.) dollars and in accordance with accounting principles generally
accepted in the U.S. for interim financial statements. The condensed
consolidated financial statements reflect all adjustments and accruals,
consisting only of adjustments and accruals of a normal recurring nature,
which management considers necessary for a fair presentation of financial
position and results of operations for the periods presented. The
condensed consolidated interim financial statements should be read in
conjunction with the consolidated financial statements and notes for the
year ended September 28, 2003 included in Exhibit 99.3 of this Current
Report on 8-K/A. The results for interim periods are not necessarily
indicative of results to be expected for the year or for any future
periods.
PRINCIPLES OF CONSOLIDATION -- The accompanying condensed consolidated
financial statements include the accounts of the Company and its wholly
owned subsidiary, MicroE International, which operates branches in Japan,
Singapore and Switzerland. All intercompany accounts and transactions have
been eliminated in consolidation.
USE OF ESTIMATES -- The Company's financial statements are prepared in
accordance with accounting principles generally accepted in the United
States of America. Such principles require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
INVENTORIES -- Inventories are valued at the lower of cost (first-in,
first-out) or market. Inventories at April 4, 2004 and September 28, 2003
consist of the following:
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APRIL 4, SEPTEMBER 28,
2004 2003
Raw materials $ 998 $ 745
Work-in-process 567 353
Finished goods 91 85
------ ------
$1,656 $1,183
====== ======
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In May 2003, FASB issued SFAS
No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity," which establishes
standards for how an issuer of financial instruments classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) if, at inception, the monetary value of the obligation is
based solely or predominantly on a fixed monetary amount known at
inception, or something other than the fair value of the issuer's equity
shares, or on variation inversely related to changes in the fair value of
the issuer's equity shares. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003 and is otherwise
effective at the beginning of the first interim period beginning after
June 15, 2003, except for mandatorily redeemable financial instruments of
nonpublic companies, for which it is applicable for the first fiscal
period beginning after December 15, 2004. The Company's outstanding
preferred stock was redeemed and the Company paid the holders of the
preferred stock during the six months ended April 4, 2004. The Company had
no other securities outstanding impacted by SFAS 150.
3. INCOME TAXES
Income taxes have been provided in accordance with SFAS No. 109,
"Accounting for Income Taxes," under which deferred tax assets and
liabilities at the end of each period are determined based on the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases using enacted tax rates when such differences are
expected to reverse. The Company establishes reserves for potential
adjustments to its filed tax returns.
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to asserted and unasserted claims that may arise in
the ordinary course of business. In the opinion of management, it is
remote that the ultimate resolution of any known matters will have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
5. REDEEMABLE PREFERRED STOCK
Redemption of Preferred Stock -- On September 30, 2003, holders of greater
than 2/3 of Class A and Class B shares elected to require the Company to
redeem all outstanding shares and cumulative unpaid dividends totaling
$7,780. The Board of Directors voted to pay all cumulative dividends on
the Class A and Class B accrued as of September 28, 2003. Such amounts
totaled $2,642 and were paid by the Company in November 2003. The Company
initially settled the obligation for the remaining balance due on the
preferred stock by issuing notes. In addition, the Company paid additional
16% annual rate on the balance outstanding on the redeemed preferred
shares until all amounts were settled. All amounts due were paid in full
on March 26, 2004 and no remaining obligations related to the redemption
remained at April 4, 2004.
-5-
CLASS A REDEEMABLE CLASS B REDEEMABLE
CLASS A CLASS B TOTAL
---------------------- -------------------- -------
NUMBER CARRYING NUMBER CARRYING
OF SHARES VALUE OF SHARES VALUE
BALANCE--September 29, 2002 44,154 2,519 36,000 4,854 7,373
Accretion of dividends on Class A and B
Redeemable Preferred Stock 119 288 407
------- ------- ------- ------- -------
BALANCE--September 28, 2003 44,154 2,638 36,000 5,142 7,780
Redemption of Preferred Stock (44,154) (2,638) (36,000) (5,142) (7,780)
------- ------- ------- ------- -------
BALANCE--April 4, 2004 - $ - - $ - $ -
======= ======= ======= ======= =======
6. OTHER
ACCRUED EXPENSES -- Accrued expenses consist of the following as of April
4, 2004 and September 28, 2003:
APRIL 4, SEPTEMBER 28,
2004 2003
Salaries and wages $ 301 $ 687
Vacation pay and employee benefits 293 175
Other 354 493
------ ------
$ 948 $1,355
====== ======
WARRANTY -- The following table sets forth the activity in the Company's
warranty accrual, included in accrued expenses:
SIX MONTHS BALANCE AT BALANCE AT
ENDED BEGINNING CHARGES TO COSTS ACCRUAL END OF
OF PERIOD AND EXPENSES REDUCTIONS PERIOD
April 4, 2004 $ 414 $ (53) $ (62) $ 299
March 30, 2003 367 (59) 104 412
REVENUE -- Revenue consists of the following for the six months ended
April 4, 2004 and March 30, 2003:
-6-
APRIL 4, MARCH 30,
2004 2003
Products $12,769 $11,077
Services 58 414
Other 68 31
------- -------
$12,895 $11,522
======= =======
7. SUBSEQUENT EVENT
On April 12, 2004, the Company entered into an Agreement and Plan of Merger to
be acquired by GSI Lumonics Inc. ("GSI"). The acquisition was completed on May
14, 2004 with GSI by means of a merger with the Company becoming an indirect
wholly owned subsidiary of GSI.
Pursuant to the terms of the Merger Agreement, GSI paid the MicroE security
holders $57,300 in cash in exchange for all of the Company's outstanding
capital stock. The $57,300 was net of the Company's transaction costs that
were unpaid at the time of the closing of the merger. The Company incurred
approximately $1,200 of transaction costs relating primarily to professional
services.
******
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