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NOVANTA INC - Quarter Report: 2012 September (Form 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 28, 2012

Or

 

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

For the transition period from              to             

Commission File No. 001-35083

 

 

GSI Group Inc.

(Exact name of registrant as specified in its charter)

 

 

 

New Brunswick, Canada   98-0110412

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

125 Middlesex Turnpike

Bedford, Massachusetts, USA

  01730
(Address of principal executive offices)   (Zip Code)

(781) 266-5700

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  ¨

As of October 29, 2012, there were 33,711,064 of the Registrant’s common shares, no par value, issued and outstanding.

 

 

 


Table of Contents

GSI GROUP INC.

TABLE OF CONTENTS

 

Item No.

   Page
No.
 

PART I — FINANCIAL INFORMATION

     3   

ITEM 1.

 

FINANCIAL STATEMENTS

     3   
 

CONSOLIDATED BALANCE SHEETS (unaudited)

     3   
 

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

     4   
 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

     5   
 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

     6   
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

     7   

ITEM 2.

 

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

     17   

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     26   

ITEM 4.

 

CONTROLS AND PROCEDURES

     26   

PART II — OTHER INFORMATION

     27   

ITEM 1.

 

LEGAL PROCEEDINGS

     27   

ITEM 1A.

 

RISK FACTORS

     27   

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     27   

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

     27   

ITEM 4.

 

MINE SAFETY DISCLOSURES

     27   

ITEM 5.

 

OTHER INFORMATION

     27   

ITEM 6.

 

EXHIBITS

     28   

SIGNATURES

     30   

EXHIBIT INDEX

     31   

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

GSI GROUP INC.

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

 

     September 28,
2012
    December 31,
2011
 

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 52,863      $ 54,835   

Accounts receivable, net of allowance of $348 and $337, respectively

     48,421        38,847   

Income taxes receivable

     22,588        22,707   

Inventories

     53,431        51,539   

Deferred tax assets

     5,468        5,335   

Prepaid expenses and other current assets

     4,859        5,385   

Assets of discontinued operations

     27,396        35,663   
  

 

 

   

 

 

 

Total current assets

     215,026        214,311   

Property, plant and equipment, net of accumulated depreciation

     32,630        35,955   

Deferred tax assets

     1,613        814   

Other assets

     6,510        7,048   

Intangible assets, net

     41,470        45,797   

Goodwill

     44,578        44,578   
  

 

 

   

 

 

 

Total assets

   $ 341,827      $ 348,503   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current Liabilities

    

Current portion of long-term debt

   $ 10,000      $ 10,000   

Accounts payable

     19,630        12,532   

Income taxes payable

     2,214        1,835   

Deferred revenue

     895        852   

Deferred tax liabilities

     111        109   

Accrued expenses and other current liabilities

     19,309        18,927   

Liabilities of discontinued operations

     9,688        14,806   
  

 

 

   

 

 

 

Total current liabilities

     61,847        59,061   

Long-term debt

     37,500        58,000   

Deferred tax liabilities

     8,989        8,722   

Income taxes payable

     9,019        8,057   

Other liabilities

     5,381        5,303   
  

 

 

   

 

 

 

Total liabilities

     122,736        139,143   
  

 

 

   

 

 

 

Commitments and Contingencies (Note 14)

    

Stockholders’ Equity:

    

Common shares, no par value; Authorized shares: unlimited; Issued and outstanding: 33,710 and 33,478, respectively

     423,856        423,856   

Additional paid-in capital

     21,361        17,931   

Accumulated deficit

     (224,040     (227,760

Accumulated other comprehensive loss

     (2,488     (5,024
  

 

 

   

 

 

 

Total GSI Group Inc. stockholders’ equity

     218,689        209,003   

Noncontrolling interest

     402        357   
  

 

 

   

 

 

 

Total stockholders’ equity

     219,091        209,360   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 341,827      $ 348,503   
  

 

 

   

 

 

 

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

 

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Table of Contents

GSI GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Sales

   $ 69,520      $ 78,704      $ 205,085      $ 238,816   

Cost of goods sold

     40,667        44,119        117,884        133,489   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     28,853        34,585        87,201        105,327   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development and engineering

     5,545        6,183        16,933        17,942   

Selling, general and administrative

     16,125        16,627        49,174        52,037   

Amortization of purchased intangible assets

     663        874        1,988        2,853   

Restructuring, restatement related costs and other

     2,728        14        7,396        136   

Post-emergence professional fees

     —          63        —          296   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     25,061        23,761        75,491        73,264   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     3,792        10,824        11,710        32,063   

Interest expense, net

     (656     (3,254     (2,143     (10,303

Foreign exchange transaction gains (losses), net

     (685     731        (957     (79

Other income (expense), net

     167        (123     399        1,261   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     2,618        8,178        9,009        22,942   

Income tax provision

     563        851        1,410        3,870   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     2,055        7,327        7,599        19,072   

Income (loss) from discontinued operations, net of tax

     (4,570     1,489        (3,834     6,081   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

     (2,515     8,816        3,765        25,153   

Less: Net (income) loss attributable to noncontrolling interest

     (19     29        (45     (35
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to GSI Group Inc.

   $ (2,534   $ 8,845      $ 3,720      $ 25,118   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share from continuing operations:

        

Basic

   $ 0.06      $ 0.22      $ 0.23      $ 0.57   

Diluted

   $ 0.06      $ 0.22      $ 0.22      $ 0.57   

Earnings (Loss) per common share from discontinued operations:

        

Basic

   $ (0.14   $ 0.04      $ (0.11   $ 0.18   

Diluted

   $ (0.14   $ 0.04      $ (0.11   $ 0.18   

Earnings (Loss) per common share attributable to GSI Group Inc.:

        

Basic

   $ (0.07   $ 0.26      $ 0.11      $ 0.75   

Diluted

   $ (0.07   $ 0.26      $ 0.11      $ 0.75   

Weighted average common shares outstanding—basic

     33,803        33,489        33,755        33,472   

Weighted average common shares outstanding—diluted

     33,912        33,588        33,914        33,572   

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

 

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Table of Contents

GSI GROUP INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Consolidated net income (loss)

   $ (2,515   $ 8,816      $ 3,765      $ 25,153   

Other comprehensive income (loss):

        

Foreign currency translation adjustments

     2,070        (1,661     1,924        1,348   

Pension liability adjustments, net of tax (1)

     120        76        612        227   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     2,190        (1,585     2,536        1,575   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income (loss)

     (325     7,231        6,301        26,728   

Less: Comprehensive (income) loss attributable to noncontrolling interest

     (19     29        (45     (35
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to GSI Group Inc.

   $ (344   $ 7,260      $ 6,256      $ 26,693   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The tax effect on the component of comprehensive income is nominal for all periods presented.

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

 

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Table of Contents

GSI GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

 

     Nine Months Ended  
     September 28,
2012
    September 30,
2011
 

Cash flows from operating activities:

    

Consolidated net income

   $ 3,765      $ 25,153   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     10,429        11,463   

Share-based compensation

     3,479        2,518   

Deferred income taxes

     (657     59   

Earnings from equity investment

     (364     (1,302

Non-cash interest expense

     796        540   

Non-cash restructuring charges

     3,599        48   

Other non-cash items

     91        685   

Changes in operating assets and liabilities:

    

Accounts receivable

     (5,766     (1,453

Inventories

     (62     (4,021

Prepaid expenses, income taxes receivable and other current assets

     1,935        5,958   

Deferred revenue

     (2,975     (11,055

Accounts payable, accrued expenses and income taxes payable

     6,183        4,017   

Other non-current assets and liabilities

     1,046        (1,888
  

 

 

   

 

 

 

Cash provided by operating activities

     21,499        30,722   

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (3,734     (2,607

Proceeds from the sale of property, plant and equipment

     283        —     
  

 

 

   

 

 

 

Cash used in investing activities

     (3,451     (2,607

Cash flows from financing activities:

    

Payments for debt issuance cost

     (92     —     

Payments of withholding taxes from stock-based awards

     (100     —     

Capital lease payments

     (596     —     

Repayments of long-term debt

     (7,500     (35,000

Repayments of borrowings under the revolving credit facility

     (13,000     —     
  

 

 

   

 

 

 

Cash used in financing activities

     (21,288     (35,000

Effect of exchange rates on cash and cash equivalents

     1,268        759   
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (1,972     (6,126

Cash and cash equivalents, beginning of period

     54,835        56,781   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 52,863      $ 50,655   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 1,441      $ 9,940   

Cash paid for income taxes

     686        1,581   

Income tax refunds received

     222        14   

Supplemental disclosure of non cash investing and financing activity:

    

Issuance of PIK notes

     —          532   

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

 

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Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 28, 2012

(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

GSI Group Inc. and its subsidiaries (collectively referred to as the “Company”) design, develop, manufacture and sell laser-based solutions, optical control devices, and associated precision technologies. Our technology is incorporated into customer products or manufacturing processes for a wide range of applications in a variety of markets, including: electronics, industrial, medical, and scientific. Our products enable customers to make advances in materials and processing technology and to meet extremely precise manufacturing specifications.

The accompanying unaudited consolidated financial statements have been prepared in U.S. dollars and in accordance with U.S. generally accepted accounting principles, applied on a consistent basis. The accounting policies underlying these unaudited consolidated financial statements are those set forth in Note 3 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Those policies are not presented herein, except to the extent that new policies have been adopted, or there is material current period activity or changes to our policies. As discussed in Note 2, the Company classified the Semiconductor Systems and Laser Systems businesses as held for sale beginning in the second quarter of 2012. As a result, certain prior period information included in the consolidated statements has been reclassified to conform to the current period presentation.

The interim consolidated financial statements include the accounts of the Company and its 50% owned joint venture, Excel Laser Technology Private Limited (“Excel SouthAsia JV”). Intercompany transactions and balances have been eliminated.

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

The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X pertaining to interim financial statements. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements and notes included in this report should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

In the opinion of management, these interim consolidated financial statements include all significant adjustments and accruals necessary for a fair presentation of the results of the interim periods presented. The results for interim periods are not necessarily indicative of results to be expected for the year or for any future periods.

Use of Estimates

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

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2011-08, “Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment” (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 became effective for the Company in the second quarter of 2012. The adoption of ASU 2011-08 did not have an impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”. Similar to goodwill impairment testing guidance under ASU 2011-08, the revised standard allows entities to use a qualitative approach to test indefinite-lived intangible assets for impairment. ASU 2012-02 permits entities to perform a qualitative assessment by considering events and circumstances which would impact the fair value of the entity’s indefinite-lived intangible assets to determine whether it is more likely than not that the fair value of the entity’s indefinite-lived intangible assets are impaired. If it is determined that this is the case, it is

 

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Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

necessary to perform the currently prescribed two-step impairment test. Otherwise, the two-step impairment test is not required. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this amendment will not have a material impact on the Company’s consolidated financial statements.

2. Discontinued Operations

Beginning in 2011, the Company initiated a strategic review of its businesses to focus its growth priorities and simplify the Company’s business model. In June 2012, the Company committed to a plan for the sale of the Semiconductor Systems operating segment, sold under the GSI brand name, and Laser Systems product lines, sold under the Control Laser and Baublys brand names. In October 2012, the Company sold certain assets and liabilities of the Laser Systems business for $7 million, subject to working capital adjustments. The Company expects to sell the Semiconductor Systems business by the end of the second quarter of 2013. The Company began accounting for these businesses as discontinued operations beginning in the second quarter of 2012. The Company includes all current and historical results of these businesses in income (loss) from discontinued operations, net of tax, in the accompanying consolidated statements of operations. The Company classified the assets and liabilities for these businesses for the current and prior period in the consolidated balance sheets as current assets and current liabilities, respectively. The Company’s consolidated statements of cash flows include the cash flows from both continuing and discontinued operations.

The major components of the assets and liabilities of discontinued operations as of September 28, 2012 and December 31, 2011 are as follows (in thousands):

 

     September 28,
2012
     December 31,
2011
 

Accounts receivable, net

   $ 7,687       $ 11,320   

Inventories

     12,103         14,271   

Other assets

     1,379         2,616   

Property, plant and equipment

     6,227         7,456   
  

 

 

    

 

 

 

Assets of discontinued operations

   $ 27,396       $ 35,663   
  

 

 

    

 

 

 

Accounts payable, accrued expenses and other current liabilities

   $ 6,869       $ 8,861   

Deferred revenue

     2,017         5,061   

Other liabilities

     802         884   
  

 

 

    

 

 

 

Liabilities of discontinued operations

   $ 9,688       $ 14,806   
  

 

 

    

 

 

 

The following table presents the Semiconductor Systems and Laser Systems operating results which are reported as discontinued operations in the Company’s consolidated statement of operations and were historically included in the Semiconductor Systems and Laser Products segments, respectively (in thousands):

 

     Three Months Ended      Nine Months Ended  
     September 28,
2012
    September 30,
2011
     September 28,
2012
    September 30,
2011
 

Sales from discontinued operations

   $ 9,618      $ 14,553       $ 38,342      $ 47,669   

Income (loss) from discontinued operations before income taxes

   $ (4,825   $ 1,545       $ (3,973   $ 6,223   

Income (loss) from discontinued operations, net of tax

   $ (4,570   $ 1,489       $ (3,834   $ 6,081   

3. Bankruptcy Disclosures

On November 20, 2009, GSI Group Inc. and two of its United States subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”). On May 27, 2010, the Bankruptcy Court entered an order confirming and approving the plan of reorganization (the “Final Chapter 11 Plan”). The transactions contemplated under the Final Chapter 11 Plan were consummated on July 23, 2010. The Chapter 11 Cases were closed on September 2, 2011, and the Company no longer has any legal or material financial constraint relating to those cases.

Post-Emergence Professional Fees

Post-emergence professional fees represent costs incurred subsequent to bankruptcy emergence for financial and legal advisors to assist with matters in finalizing the bankruptcy process, including bankruptcy claim matters. Post-emergence professional fees totaled $0.1 million and $0.3 million during the three and nine months ended September 30, 2011 with no comparable amounts during the three and nine months ended September 28, 2012.

 

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Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

4. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss is as follows (in thousands):

 

     Total accumulated other
comprehensive loss
    Foreign currency
translation adjustments
     Pension  liability
adjustments
 

Balance at December 31, 2011

   $ (5,024   $ 2,809       $ (7,833

Other comprehensive income

     2,536        1,924         612   
  

 

 

   

 

 

    

 

 

 

Balance at September 28, 2012

   $ (2,488   $ 4,733       $ (7,221
  

 

 

   

 

 

    

 

 

 

During the nine months ended September 28, 2012 and September 30, 2011, the Company reclassified $0.6 million and $0.2 million, respectively, of pension liability adjustments from accumulated other comprehensive loss into net income attributable to GSI Group Inc. The tax effects on the components of comprehensive income were nominal for all periods presented.

5. Earnings per Share

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

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

 

     Three Months Ended      Nine Months Ended  
     September 28,
2012
    September 30,
2011
     September 28,
2012
    September 30,
2011
 

Numerators:

         

Income from continuing operations

   $ 2,055      $ 7,327       $ 7,599      $ 19,072   

Income (loss) from discontinued operations, net of tax

     (4,570     1,489         (3,834     6,081   

Less: Net (income) loss attributable to noncontrolling interest

     (19     29         (45     (35
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to GSI Group Inc.

   $ (2,534   $ 8,845       $ 3,720      $ 25,118   
  

 

 

   

 

 

    

 

 

   

 

 

 

Denominators:

         

Weighted average common shares outstanding—basic

     33,803        33,489         33,755        33,472   

Dilutive potential common shares

     109        99         159        100   
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average common shares outstanding—diluted

     33,912        33,588         33,914        33,572   
  

 

 

   

 

 

    

 

 

   

 

 

 

Antidilutive common shares excluded from above

     424        183         141        118   

Basic Earnings (Loss) per Common Share:

         

From continuing operations

   $ 0.06      $ 0.22       $ 0.23      $ 0.57   

From discontinued operations

   $ (0.14   $ 0.04       $ (0.11   $ 0.18   

Basic earnings (loss) per share attributable to GSI Group Inc.

   $ (0.07   $ 0.26       $ 0.11      $ 0.75   

Diluted Earnings (Loss) per Common Share:

         

From continuing operations

   $ 0.06      $ 0.22       $ 0.22      $ 0.57   

From discontinued operations

   $ (0.14   $ 0.04       $ (0.11   $ 0.18   

Diluted earnings (loss) per share attributable to GSI Group Inc.

   $ (0.07   $ 0.26       $ 0.11      $ 0.75   

6. Fair Value Measurements

Accounting Standards Codification (“ASC”) 820 establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the third is considered unobservable:

 

   

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

 

   

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

 

   

Level 3: Unobservable inputs.

 

9


Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

The Company’s cash equivalents are investments in money market accounts, which represent the only asset the Company measures at fair value on a recurring basis. Cash equivalents of $6.9 million and $4.1 million as of September 28, 2012 and December 31, 2011, respectively, are classified as Level 1 in the fair value hierarchy because they are valued at quoted prices in active markets. The fair values of cash, accounts receivable, income taxes receivable, accounts payable, income taxes payable, and accrued expenses and other current liabilities approximate their carrying values because of their short-term nature. See Note 9 to Consolidated Financial Statements for discussion of the estimated fair value of the Company’s outstanding debt.

7. Goodwill and Intangible Assets

Goodwill

Goodwill is recorded when the consideration for a business combination exceeds the fair value of net tangible and identifiable intangible assets acquired. There were no changes in the carrying amount of goodwill during the three and nine months ended September 28, 2012. The Company performed its annual goodwill impairment test at the beginning of the second quarter and noted no impairment of goodwill.

Goodwill by reportable segment as of September 28, 2012 and December 31, 2011 is as follows (in thousands):

 

     Reportable Segment     Total  
     Laser
Products
    Precision Motion
and Technologies
   

Goodwill

   $ 67,926      $ 108,306      $ 176,232   

Accumulated impairment of goodwill

     (54,099     (77,555     (131,654
  

 

 

   

 

 

   

 

 

 

Total

   $ 13,827      $ 30,751      $ 44,578   
  

 

 

   

 

 

   

 

 

 

Intangible Assets

Intangible assets as of September 28, 2012 and December 31, 2011, respectively, are summarized as follows (in thousands):

 

     September 28, 2012      December 31, 2011  
     Gross Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
     Gross Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
 

Amortizable intangible assets:

               

Patents and acquired technologies

   $ 61,622       $ (50,067   $ 11,555       $ 61,279       $ (47,350   $ 13,929   

Customer relationships

     33,230         (18,382     14,848         33,115         (16,514     16,601   

Trademarks, trade names and other

     5,770         (3,730     2,040         5,692         (3,452     2,240   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Amortizable intangible assets

     100,622         (72,179     28,443         100,086         (67,316     32,770   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Non-amortizable intangible assets:

               

Trade names

     13,027         —          13,027         13,027         —          13,027   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Totals

   $ 113,649       $ (72,179   $ 41,470       $ 113,113       $ (67,316   $ 45,797   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

All definite-lived intangible assets are amortized on a straight-line basis over their remaining useful life. Amortization expense was $1.5 million and $1.9 million for the three months ended September 28, 2012 and September 30, 2011, respectively, and $4.4 million and $5.8 million for the nine months ended September 28, 2012 and September 30, 2011, respectively.

 

10


Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

8. Supplementary Balance Sheet Information

The following tables provide the details of selected balance sheet items as of the periods indicated (in thousands):

Inventories

 

     September 28,
2012
     December 31,
2011
 

Raw materials

   $ 32,150       $ 30,406   

Work-in-process

     12,373         12,943   

Finished goods

     6,929         6,563   

Demo and consigned inventory

     1,979         1,627   
  

 

 

    

 

 

 

Total inventories

   $ 53,431       $ 51,539   
  

 

 

    

 

 

 

Accrued Expenses and Other Current Liabilities

 

     September 28,
2012
     December 31,
2011
 

Accrued compensation and benefits

   $ 6,095       $ 7,512   

Accrued warranty

     2,852         3,035   

Customer deposits

     2,540         380   

Other

     7,822         8,000   
  

 

 

    

 

 

 

Total

   $ 19,309       $ 18,927   
  

 

 

    

 

 

 

Accrued Warranty

 

     Nine Months Ended  
     September 28,
2012
    September 30,
2011
 

Balance at beginning of the period

   $ 3,035      $ 3,174   

Provision charged to cost of goods sold

     1,958        1,787   

Use of provision

     (2,191     (1,927

Foreign currency exchange rate changes

     50        15   
  

 

 

   

 

 

 

Balance at end of period

   $ 2,852      $ 3,049   
  

 

 

   

 

 

 

9. Debt

Debt consisted of the following (in thousands):

 

     September 28,
2012
     December 31,
2011
 

Senior Credit Facility – term loan

   $ 10,000       $ 10,000   
  

 

 

    

 

 

 

Total current portion of long-term debt

   $ 10,000       $ 10,000   
  

 

 

    

 

 

 

Senior Credit Facility – term loan

   $ 22,500       $ 30,000   

Senior Credit Facility – revolving credit facility

     15,000         28,000   
  

 

 

    

 

 

 

Total long-term debt

   $ 37,500       $ 58,000   
  

 

 

    

 

 

 
     
  

 

 

    

 

 

 

Total Senior Credit Facility

   $ 47,500       $ 68,000   
  

 

 

    

 

 

 

Senior Credit Facility

The Company’s senior secured credit agreement (the “Credit Agreement”) provides for a $40.0 million, 4-year, term loan facility due in quarterly installments of $2.5 million beginning in January 2012 and a $40.0 million, 4-year, revolving credit facility (collectively, the “Senior Credit Facility”) that matures in 2015. The Credit Agreement also provides for an additional uncommitted $25.0 million incremental facility, subject to the satisfaction of certain customary covenants.

 

11


Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

Fair Value of Debt

As of September 28, 2012 and December 31, 2011, the outstanding balance of the Company’s Senior Credit Facility approximated fair value based on current rates available to the Company for debt of the same maturity, and is classified as Level 2 within the fair value hierarchy.

10. Share-Based Compensation

The table below summarizes activities relating to restricted stock units issued and outstanding under the 2010 Incentive Award Plan during the nine months ended September 28, 2012:

 

     Restricted
Stock Units
(In thousands)
    Weighted
Average Grant
Date Fair Value
 

Unvested at December 31, 2011

     741      $ 10.94   

Granted

     317        11.42   

Vested

     (162     11.54   

Forfeited

     (5     9.62   
  

 

 

   

Unvested at September 28, 2012

     891      $ 11.01   
  

 

 

   

Expected to vest as of September 28, 2012

     880     
  

 

 

   

The total fair value of restricted stock units that vested during the nine months ended September 28, 2012 was $1.9 million based on the market price of the underlying stock on the day of vesting.

The Company recognized share-based compensation expense, including expense associated with fully vested deferred stock units granted during the period, totaling $1.2 million and $0.8 million during the three months ended September 28, 2012 and September 30, 2011, respectively, and $3.5 million and $2.5 million during the nine months ended September 28, 2012 and September 30, 2011, respectively. Share-based compensation expense is primarily included in selling, general, and administrative expense in the Company’s consolidated statements of operations and as an increase to additional paid-in capital on the Company’s consolidated balance sheets. With the exception of the fully vested, non-forfeitable deferred stock units granted, the Company generally recognizes share-based compensation expense on a straight-line basis over the requisite service period, typically three years, net of estimated forfeitures. The forfeiture rate is determined based on anticipated forfeitures and actual experience.

11. Employee Benefit Plans

The net periodic pension cost for the U.K. defined benefit pension plan includes the following components (in thousands):

 

     Three Months Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Components of the net periodic pension cost:

        

Interest cost

   $ 343      $ 377      $ 1,028      $ 1,134   

Expected return on plan assets

     (315     (393     (943     (1,182

Amortization of actuarial loss

     98        56        293        169   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 126      $ 40      $ 378      $ 121   
  

 

 

   

 

 

   

 

 

   

 

 

 

The net periodic pension cost for the Japan defined benefit pension plan for the three and nine months ended September 28, 2012 and September 30, 2011 was not material.

12. Income Taxes

At the end of each interim reporting period, the Company determines its estimated annual effective tax rate, which is revised, as required, at the end of each successive interim period based on facts known at that time. The estimated annual effective tax rate is applied to the year-to-date pre-tax income at the end of each interim period. The tax effect of significant unusual items is reflected in the period in which they occur. Since the Company is incorporated in Canada, it is required to use Canada’s statutory tax rate of 25.0% in the determination of the estimated annual effective tax rate. The Company’s reported effective tax rate on income from continuing operations of 21.5% and 15.7% for the three and nine months ended September 28, 2012, respectively, differs from the expected Canadian federal statutory rate of 25.0% primarily due to the release of a portion of the Company’s valuation allowance and income earned in jurisdictions with varying tax rates.

 

12


Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

The Company maintains a valuation allowance on its deferred tax assets in certain jurisdictions. A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company continuously reassesses the possibility of releasing the remaining valuation allowance currently in place on its deferred tax assets. It is reasonably possible that a significant portion of the valuation allowance will be released within the next twelve months. Such a release will be reported as a reduction to income tax expense without any impact on cash flows in the quarter in which it is released.

13. Restructuring, Restatement Related Costs and Other

The following table summarizes restructuring, restatement related costs and other expenses in the accompanying consolidated statements of operations (in thousands):

 

     Three Months Ended      Nine Months Ended  
     September 28,
2012
     September 30,
2011
     September 28,
2012
     September 30,
2011
 

2011 restructuring

   $ 974       $ —         $ 5,626       $ —     

2012 restructuring

     1,711         —           1,711         —     

Germany restructuring

     43         14         59         74   
  

 

 

    

 

 

    

 

 

    

 

 

 

Restructuring charges

     2,728         14         7,396         74   

Restatement related costs and other charges

     —           —           —           62   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total restructuring, restatement related costs and other

   $ 2,728       $ 14       $ 7,396       $ 136   
  

 

 

    

 

 

    

 

 

    

 

 

 

2011 Restructuring

In November 2011, the Company announced a strategic initiative (“2011 restructuring”), which aims to consolidate operations to reduce our cost structure and improve operational efficiency. As part of this initiative, the Company expects to eliminate facilities in 2012 and 2013 through consolidation of certain manufacturing, sales and distribution facilities and exit of businesses. The following represents the expected, actual and remaining number of facilities (including facilities of discontinued operations) to be eliminated as part of the 2011 restructuring plan:

 

     Expected      Actual      Remaining  
     September 28,
2012
     September 28,
2012
     September 28,
2012
 

Total facilities – 2011 restructuring

     12         5         7   
  

 

 

    

 

 

    

 

 

 

Expected and actual cash charges, including severance and relocation costs, facility closure costs and consulting costs and non-cash charges related to accelerated depreciation for changes in estimated useful lives of certain long-lived assets for which the Company intends to exit were as follows (in thousands):

 

     Three Months
Ended
     Nine Months
Ended
     Cumulative Costs
for Plan
     Expected
Cumulative Costs
 
     September 28,
2012
     September 28,
2012
     September 28,
2012
     September 28,
2012
 

Cash charges

   $ 974       $ 3,735       $ 4,797       $ 5,500   

Non-cash charges

     —           1,891         2,796         3,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total restructuring costs

   $ 974       $ 5,626       $ 7,593       $ 8,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

The following summarizes restructuring costs for each segment and unallocated corporate costs related to the 2011 restructuring plan (in thousands):

 

     Three Months
Ended
     Nine Months
Ended
     Cumulative Costs
for Plan
 
     September 28,
2012
     September 28,
2012
     September 28,
2012
 

Laser Products

   $ 371       $ 4,335       $ 5,978   

Precision Motion and Technologies

     452         652         864   

Unallocated Restructuring Costs(1)

     151         639         751   
  

 

 

    

 

 

    

 

 

 

Total restructuring costs

   $ 974       $ 5,626       $ 7,593   
  

 

 

    

 

 

    

 

 

 

 

(1) Represents consulting and severance restructuring costs related to corporate and shared service functions.

2012 Restructuring

During the third quarter of 2012, we initiated a program to identify additional cost savings due to the continued uncertainty and volatility of the macroeconomic environment (“2012 restructuring”). We expect total cash costs expected to be incurred under the program to be approximately $2.0 million. We incurred $1.7 million of severance costs associated with the 2012 restructuring program during the three and nine months ended September 28, 2012.

The following summarizes the total costs associated with the 2012 restructuring program for each segment for the three and nine months ended September 28, 2012 (in thousands):

 

     Three and Nine
Months Ended
 
     September 28,
2012
 

Laser Products

   $ 501   

Precision Motion and Technologies

     885   

Unallocated Restructuring Costs

     325   
  

 

 

 

Total restructuring costs

   $ 1,711   
  

 

 

 

Germany Restructuring

The Company records restructuring charges related to the Company’s Munich, Germany facility as a result of the restructuring program undertaken beginning in 2000 for the Precision Motion and Technologies segment. These charges primarily relate to the accretion of the restructuring liability and revised future lease payment assumptions. The following summarizes restructuring costs for the Precision Motion and Technologies segment related to the Germany restructuring (in thousands):

 

     Three Months
Ended
     Nine Months
Ended
     Cumulative Costs
for Plan
 
     September 28,
2012
     September 28,
2012
     September 28,
2012
 

Precision Motion and Technologies

   $ 43       $ 59       $ 4,750   
  

 

 

    

 

 

    

 

 

 

Rollforward of Accrued Expenses Related to Restructuring

The following table summarizes the accrual activities, by component, related to the Company’s restructuring charges recorded in the accompanying consolidated balance sheets (in thousands):

 

     Total     Severance     Facility     Accelerated
Depreciation
    Other  

Balance at December 31, 2011

   $ 1,561      $ 470      $ 1,062      $ —        $ 29   

Restructuring charges

     7,396        3,396        432        1,891        1,677   

Cash payments

     (4,153     (2,128     (840     —          (1,185

Non-cash write-offs or other adjustments

     (2,110     (45     (175     (1,891     1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 28, 2012

   $ 2,694      $ 1,693      $ 479      $ —        $ 522   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

14


Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

14. Commitments and Contingencies

Operating Leases

The Company leases certain equipment and facilities under operating lease agreements. There have been no material changes to the Company’s operating leases or other commitments through September 28, 2012 from those discussed in Note 12 to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, other than the new seven-year lease agreement for the existing Bedford facility signed in May 2012. Under the terms of the new lease, the lease term is extended from May 2013 to May 2019. The Company will pay annual rent of $1.5 million through the end of the lease term.

Legal Proceedings

During the third quarter of 2005, the Company’s French subsidiary, GSI Lumonics SARL (“GSI France”), filed for bankruptcy protection, which was granted on July 7, 2005. On April 18, 2006, the commercial court of Le Creusot (France) ordered GSI France to pay approximately 0.7 million Euros to SCGI in the context of a claim filed by SCGI that a Laserdyne 890 system delivered in 1999 had unresolved technical problems. No appeal was lodged. On May 6, 2011, GSI Group Ltd. was served with summons from the official receiver of GSI France demanding that GSI Group Ltd. and the Company’s German subsidiary, GSI Group GmbH, appear before the Paris commercial court. GSI Group GmbH was subsequently served with a separate summons from the official receiver. The cases against GSI Group Ltd. and GSI Group GmbH were subsequently combined into a single case (docket number 2011/088718). The receiver claimed (i) that the bankruptcy proceedings initiated against GSI France in 2005 should be extended to GSI Group Ltd. and GSI Group GmbH on the ground that GSI France’s decisions were actually made by GSI Group Ltd. and that GSI Group GmbH made financial advances for no consideration, which would reveal in both cases confusion of personhood, or (ii) alternatively, that GSI Group Ltd. be ordered to pay approximately 3.1 million Euros (i.e. the aggregate of GSI France’s liabilities, consisting primarily of approximately 0.7 million Euros to SCGI and approximately 2.4 million Euros to GSI Group GmbH) on the ground that GSI Group Ltd. is liable in tort for having disposed of GSI France’s assets freely and for having paid all of GSI France’s debts except for the liability to SCGI. On June 19, 2012, the receiver withdrew its claim with respect to extending the bankruptcy proceedings to GSI Group Ltd. and GSI Group GmbH, and as a result only the tort claim remains pending before the court. The Company currently does not believe a loss is probable. Accordingly, no accrual has been made in the Company’s accompanying consolidated financial statements with respect to this claim.

The Company is also subject to various legal proceedings and claims that arise in the ordinary course of business. The Company does not believe that the outcome of these claims will have a material adverse effect upon its financial condition or results of operations but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect upon its financial condition or results of operations.

IRS Claim

On April 5, 2010, the IRS filed amended proofs of claim aggregating approximately $7.7 million with the Bankruptcy Court as part of the Company’s proceedings under Chapter 11 of the Bankruptcy Code. On July 13, 2010, the Company filed a complaint, GSI Group Corporation v. United States of America, in Bankruptcy Court in an attempt to recover refunds totaling approximately $18.8 million in federal income taxes the Company asserts it overpaid to the IRS relating to tax years 2000 through 2008, together with applicable interest. The complaint includes an objection to the IRS’ proofs of claim which the Company believes are not allowable claims and should be expunged in their entirety. Those tax proceedings remain pending, and their resolution in the ordinary course was not affected by the closing of the Chapter 11 Cases.

Guarantees and Indemnifications

In the normal course of its operations, the Company executes agreements that provide for indemnification and guarantees to counterparties in transactions such as business dispositions, sale of assets, sale of products and operating leases. Additionally, the by-laws of the Company require it to indemnify certain current or former directors, officers, and employees of the Company against expenses incurred by them in connection with each proceeding in which he or she is involved as a result of serving or having served in certain capacities. Indemnification is not available with respect to a proceeding as to which it has been adjudicated that the person did not act in good faith in the reasonable belief that the action was in the best interests of the Company. On June 5, 2009, the Board of Directors of the Company approved a form of indemnification agreement to be implemented by the Company with respect to its directors and officers. The form of indemnification agreement provides, among other things, that each director and officer of the Company who signs the indemnification agreement shall be indemnified to the fullest extent permitted by applicable law against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such officer or director in connection with any proceeding by reason of his or her relationship with the Company. In addition, the form of indemnification agreement provides for the advancement of expenses incurred by such director or officer in connection with any proceeding covered by the indemnification agreement, subject to the conditions set forth therein and to the extent such advancement is not prohibited by law. The indemnification agreement also sets out the procedures for determining entitlement to indemnification, the requirements relating to notice and defense of claims for which indemnification is sought, the procedures for enforcement of indemnification rights, the limitations on and exclusions from indemnification, and the minimum levels of directors’ and officers’ liability insurance to be maintained by the Company.

 

15


Table of Contents

GSI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AS OF SEPTEMBER 28, 2012

(Unaudited)

 

15. Segment Information

Reportable Segments

The Company evaluates the performance of, and allocates resources to, its segments based on sales and gross profit. The Company reports operating expenses and assets on a consolidated basis to the chief operating decision maker, which is the Chief Executive Officer. The Company’s reportable segments have been identified based on commonality of end markets, customers and technologies amongst the Company’s individual product lines, which is consistent with the Company’s operating structure and associated management structure.

The Company previously operated in three reportable segments: Laser Products, Precision Motion and Technologies and Semiconductor Systems. The Company committed to a plan for the sale of the Semiconductor Systems and Laser Systems businesses in the second quarter of 2012. As a result, these businesses have been reported as discontinued operations in the consolidated financial statements. Reportable segment financial information has been revised to exclude these businesses. The remaining reportable segments and their principal activities consist of the following:

Laser Products

The Laser Products segment designs, manufactures and markets photonics-based solutions to customers worldwide. The segment serves highly demanding photonics-based applications such as cutting, welding, marking and scientific research. The segment sells these products both directly utilizing a highly technical sales force and indirectly through resellers and distributors.

Precision Motion and Technologies

The Precision Motion and Technologies segment designs, manufactures and markets air bearing spindles, encoders, thermal printers, laser scanning devices, and light and color measurement systems to customers worldwide. The vast majority of the segment’s product offerings in precision motion and optical control technologies are sold to original equipment manufacturers (“OEM’s”). The segment sells these products both directly utilizing a highly technical sales force and indirectly through resellers and distributors.

Reportable Segment Financial Information

The following represents sales and gross margin of the Company’s reportable segments (in thousands):

 

     Three Months Ended      Nine Months Ended  
     September 28,
2012
     September 30,
2011
     September 28,
2012
     September 30,
2011
 

Sales

           

Laser Products

   $ 28,336       $ 29,763       $ 80,350       $ 86,609   

Precision Motion and Technologies

     41,184         48,941         124,735         152,207   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 69,520       $ 78,704       $ 205,085       $ 238,816   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Gross Profit

        

Laser Products

   $ 9,489      $ 11,719      $ 27,365      $ 34,204   

Precision Motion and Technologies

     19,660        23,374          60,549          72,599   

Corporate (1)

     (296     (508 )     (713     (1,476
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 28,853      $ 34,585      $ 87,201      $ 105,327   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Corporate costs primarily represent unallocated overhead related to discontinued operations.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and Notes included in Item 1 of this Quarterly Report on Form 10-Q. The MD&A contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. These forward-looking statements include, but are not limited to, anticipated financial performance; expected liquidity and capitalization; expectations regarding our restructuring plans; drivers of revenue growth; management’s plans and objectives for future operations, expenditures and product development and investments in research and development; business prospects; potential of future product releases; anticipated sales performance; industry trends; market conditions; changes in accounting principles and changes in actual or assumed tax liabilities; expectations regarding tax exposure; anticipated reinvestment of future earnings; anticipated expenditures in regard to the Company’s benefit plans; future acquisitions and dispositions and anticipated benefits from prior acquisitions; anticipated outcomes of legal proceedings and litigation matters; and anticipated use of currency hedges. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, but not limited to, the following: economic and political conditions and the effects of these conditions on our customers’ businesses and level of business activity; our significant dependence upon our customers’ capital expenditures, which are subject to cyclical market fluctuations; our dependence upon our ability to respond to fluctuations in product demand; our ability to continually innovate; delays in our delivery of new products; our reliance upon third party distribution channels subject to credit, business concentration and business failure risks beyond our control; fluctuations in our quarterly results, and our failure to meet or exceed the expectations of securities analysts or investors; customer order timing and other similar factors beyond our control; changes in interest rates, credit ratings or foreign currency exchange rates; risk associated with our operations in foreign countries; our increased use of outsourcing in foreign countries; our failure to comply with local import and export regulations in the jurisdictions in which we operate; our history of operating losses and our ability to sustain our profitability; our exposure to the credit risk of some of our customers and in weakened markets; violations of our intellectual property rights and our ability to protect our intellectual property against infringement by third parties; risk of losing our competitive advantage; our ability to make acquisitions or divestitures that provide business benefits; our failure to successfully integrate future acquisitions into our business; our ability to retain key personnel; our restructuring and realignment activities and disruptions to our operations as a result of consolidation of our operations; product defects or problems integrating our products with other vendors’ products; disruptions in the supply of or defects in raw materials, certain key components or other goods from our suppliers; production difficulties and product delivery delays or disruptions; changes in governmental regulation of our business or products; disruption in our information technology systems or our failure to implement new systems and software successfully; our failure to realize the full value of our intangible assets; any requirement to make additional tax payments and/or recalculate certain of our tax attributes depending on the resolution of the complaint we filed against the U.S. government; our ability to utilize our net operating loss carryforwards and other tax attributes; fluctuations in our effective tax rates and audit of our estimates of tax liabilities; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; being subject to the Alternative Minimum Tax for U.S. federal income tax purposes; any need for additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, which may not be available on acceptable terms or at all; volatility in the market for our common shares; our dependence on significant cash flow to service our indebtedness and fund our operations; our ability to access cash and other assets of our subsidiaries; the influence over our business of several significant shareholders; provisions of our articles of incorporation may delay or prevent a change in control; our significant existing indebtedness and restrictions in our new senior secured credit agreement that may limit our ability to engage in certain activities; our intention not to pay dividends in the near future; and our failure to maintain appropriate internal controls in the future. Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect the Company’s operating results and financial condition are discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and elsewhere in such Annual Report on Form 10-K. In this Quarterly Report on Form 10-Q, the words “anticipates”, “believes”, “expects”, “intends”, “future”, “could”, “estimates”, “plans”, “would”, “should”, “potential”, “continues”, and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Management and the Company disclaim any obligation to publicly update or revise any such statement to reflect any change in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements.

Accounting Period

GSI Group Inc. and its subsidiaries (collectively referred to as the “Company”, “we”, “us”, “our”) interim financial statements are prepared on a quarterly basis ending on the Friday closest to the end of the calendar quarter, with the exception of the fourth quarter which always ends on December 31.

 

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Business Overview

We design, develop, manufacture and sell laser-based solutions, optical control devices, and associated precision technologies. Our technology is incorporated into customer products or manufacturing processes for a wide range of applications in a variety of markets, including: electronics, industrial, medical, and scientific. Our products enable customers to make advances in materials and processing technology and to meet extremely precise manufacturing specifications.

Our Laser Products segment designs, manufactures and markets photonics-based solutions to customers worldwide. The segment serves highly demanding photonics-based applications such as cutting, welding, marking and scientific research. The segment sells these products both directly utilizing a highly technical sales force and indirectly through resellers and distributors.

Our Precision Motion and Technologies segment designs, manufactures and markets precision motion and optical control technologies, consisting of air bearing spindles, encoders, thermal printers, laser scanning devices, and light and color measurement systems to customers worldwide. The vast majority of the segment’s product offerings are sold to original equipment manufacturers (“OEM’s”). The segment sells these products both directly utilizing a highly technical sales force and indirectly through resellers and distributors.

Strategy

Our strategy is to drive sustainable, profitable growth through short-term and long-term initiatives, including:

 

   

strengthening our strategic position in scanning solutions, fiber lasers, and medical components through continual investment in differentiated new products and solutions;

 

   

expanding our market access and reach, particularly in higher growth, emerging regions, through investment in internal sales channels as well as external channel partners;

 

   

broadening our product and service offerings through the acquisition of innovative and complementary technologies and solutions;

 

   

streamlining our existing operations through site consolidations and strategic divestitures and expanding our business through strategic acquisitions; and

 

   

expanding operating margins by establishing a continuous improvement culture through formalized productivity programs and initiatives; and attracting, retaining, and developing talented and motivated employees.

Significant Events and Updates

Appointment and Departure of Executive Officers

In October 2012, Matthijs Glastra joined the Company as corporate officer and Group President of our Laser Products segment. Mr. Glastra brings significant experience in the opto-electronics space, most recently as Chief Executive Officer of Philips Entertainment Lighting and formerly as Chief Operating Officer of Phillips Lumileds. In September 2012, David Clarke, our former Vice President, Group President of Laser Products and President of Synrad, departed the organization after 18 years of service with the Company.

Discontinued Operations Update

Beginning in 2011, we initiated a strategic review of our businesses to focus our growth priorities and simplify our business model. In June 2012, we committed to a plan for the sale of the Semiconductor Systems operating segment, sold under the GSI brand name, and Laser Systems product lines, sold under the Control Laser and Baublys brand names, and began accounting for these businesses as discontinued operations in the second quarter of 2012. In October 2012, we sold certain assets and liabilities of the Lasers Systems business for $7 million, subject to working capital adjustments. We continue to make progress in the marketing of the Semiconductor Systems business and expect to sell this business by the end of the second quarter of 2013.

2011 Restructuring Plan Update

We have continued to make progress on our 2011 restructuring program that began in the fourth quarter of 2011, with a goal of eliminating up to twelve (12) facilities. These reductions are expected to be achieved through a combination of site consolidations and divestitures, with divestitures resulting in the elimination of up to six facilities. Five facilities have been eliminated as of September 28, 2012. During the third quarter of 2012, we completed the closure of our optics production facility in California, substantially completed the consolidation of our German operations, and began executing on the consolidation of our laser scanners business into our corporate headquarters located in Bedford, Massachusetts. We expect to substantially complete the consolidation and exit of up to seven additional facilities in 2012 and 2013.

We incurred $1.0 million and $5.6 million of charges during the three and nine months ended September 28, 2012, respectively, related to the 2011 restructuring plan. These consisted of cash charges of $1.0 million and $3.7 million during the three and nine months ended September 28, 2012, respectively, and non-cash charges of $0 million and $1.9 million during the three and nine months ended September 28, 2012, respectively, primarily related to accelerated depreciation resulting from changes in estimated useful lives of certain long-lived assets for which we intend to exit.

 

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We expect to incur cash charges of up to $5.5 million related to the 2011 restructuring plan, of which $4.8 million had been recorded through September 28, 2012. Additionally, we expect to incur non-cash restructuring charges, related to accelerated depreciation, of up to $3.0 million, of which $2.8 million had been recorded through September 28, 2012.

2012 Restructuring Plan

During the third quarter of 2012, we initiated a program (the “2012 restructuring program”) to identify additional cost savings due to the continued uncertainty and volatility of the macroeconomic environment. This program aims to identify an additional $1.0 million to $2.0 million of annualized cost savings beyond the savings expected from the 2011 restructuring program. We incurred $1.7 million of severance costs associated with the 2012 restructuring program during the three months ended September 28, 2012, and we expect to incur a total of $2.0 million of cash charges related to the plan. We expect to substantially complete this program during the fourth quarter of 2012. The severance costs incurred include $0.5 million of severance for David Clarke, our former Vice President, Group President of Laser Products and President of Synrad.

Overview of Financial Results

Overall sales for the three months ended September 28, 2012 decreased $9.2 million, or 11.7%, compared to the prior year comparable period primarily as a result of a steep downturn in the capital equipment market, particularly in the microelectronics market. We currently expect this downturn to continue into 2013. To a lesser extent, the decrease was attributable to lower specialty laser sales, which serve scientific end markets. The year-over-year comparison is also affected by our adoption of Accounting Standards Update (“ASU”) 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”), which amended the revenue recognition guidance for multi-element arrangements. Following our adoption of ASU 2009-13 as of the beginning of 2011, we did not defer any revenue on new multiple-element orders received from customers during the period but delivered over multiple periods. For orders that had been deferred under multi-element arrangements, delivered over multiple periods, entered into prior to the adoption of ASU 2009-13, we recognized $1.3 million of net revenue with net gross profit of $0.6 million in the three months ended September 30, 2011, with no comparable amount for the three months ended September 28, 2012.

Income from operations for the three months ended September 28, 2012 of $3.8 million decreased $7.0 million, or 65.0%, versus the prior year comparable period. This decrease was primarily attributable to a decrease in gross margin as a result of lower sales volume, product mix, and a $2.7 million charge in connection with our 2011 and 2012 restructuring programs, compared to a less than $0.1 million restructuring charge for the prior year comparable period. Partially offsetting the decrease in income from operations was lower spending on operating costs resulting from restructuring actions taken in the fourth quarter of 2011 and the first half of 2012.

Diluted earnings per share (“EPS”) from continuing operations of $0.06 in the three months ended September 28, 2012 decreased $0.16 from the prior year comparable period. The decrease was largely because of a drop in operating profit of $7.0 million, partially offset by a $2.6 million reduction in interest expense for the three months ended September 28, 2012 as a result of the reduction in our overall debt levels since we refinanced our debt during the second half of 2011.

Results of Operations for the Three and Nine Months Ended September 28, 2012 Compared with the Three and Nine Months Ended September 30, 2011

The following table sets forth our unaudited results of operations as a percentage of sales for the periods indicated:

 

     Three Months Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Sales

     100.0     100.0     100.0     100.0

Cost of goods sold

     58.5        56.1        57.5        55.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     41.5        43.9        42.5        44.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development and engineering

     8.0        7.8        8.2        7.5   

Selling, general and administrative

     23.2        21.1        24.0        21.8   

Amortization of purchased intangible assets

     0.9        1.1        1.0        1.2   

Restructuring, restatement related costs and other

     3.9        0.0        3.6        0.1   

Post-emergence professional fees

     0.0        0.1        0.0        0.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     36.0        30.1        36.8        30.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     5.5        13.8        5.7        13.4   

 

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Interest expense, net

     (0.9     (4.1     (1.0     (4.3

Foreign exchange transaction gains (losses), net

     (1.0     0.9        (0.5     0.0   

Other income (expense), net

     0.2        (0.2     0.2        0.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     3.8        10.4        4.4        9.6   

Income tax provision

     0.8        1.1        0.7        1.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     3.0        9.3        3.7        8.0   

Income (loss) from discontinued operations, net of tax

     (6.6     1.9        (1.9     2.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

     (3.6     11.2        1.8        10.5   

Less: Net (income) loss attributable to noncontrolling interest

     0.0        0.0        0.0        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to GSI Group Inc.

     (3.6 )%      11.2     1.8     10.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Sales

The following table sets forth sales by segment for the periods noted (dollars in thousands):

 

     Three Months Ended  
     September 28,
2012
     September 30,
2011
     Increase
(Decrease)
    Percentage
Change
 

Laser Products

   $ 28,336       $ 29,763       $ (1,427     (4.8 )% 

Precision Motion and Technologies

     41,184         48,941         (7,757     (15.8 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 69,520       $ 78,704       $ (9,184     (11.7 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     Nine Months Ended  
     September 28,
2012
     September 30,
2011
     Increase
(Decrease)
    Percentage
Change
 

Laser Products

   $ 80,350       $ 86,609       $ (6,259     (7.2 )% 

Precision Motion and Technologies

     124,735         152,207         (27,472     (18.0 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 205,085       $ 238,816       $ (33,731     (14.1 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Laser Products

Laser Products segment sales for the three months ended September 28, 2012 decreased by $1.4 million, or 4.8%, primarily due to a decline in sales of our specialty lasers, sold into the scientific markets. This product line was negatively impacted by continued economic challenges and as a consequence of rationalizing certain specialty laser products. This decrease was partially offset by an increase in sales volume of our sealed Co2 lasers quarter over quarter and a significant increase in demand for our fiber lasers.

Laser Products segment sales for the nine months ended September 28, 2012 decreased by $6.3 million, or 7.2%, primarily due to a significant decline in sales of our specialty lasers as a result of economic challenges and a delay in government funding in the scientific market.

Precision Motion and Technologies

Precision Motion and Technologies segment sales for the three months ended September 28, 2012 decreased by $7.8 million, or 15.8%, primarily due to a significant decline in demand in the microelectronics market, principally related to mechanical drilling of printed circuit boards. The decline in demand in this market resulted in a decline of approximately 40% in sales of our Westwind spindles product line as compared to the prior year comparable period. In addition, we also experienced a decrease in sales volume in certain scanning technology components as a consequence of the downturn in the microelectronics market. The decrease in our Precision Motion and Technologies segment sales was also partially attributable to approximately $1.2 million of net revenue recognized in the three months ended September 30, 2011, with no comparable amount for the three months ended September 28, 2012, for orders that had been deferred under multiple-element arrangements, delivered over multiple periods, entered into prior to the adoption of ASU 2009-13.

Precision Motion and Technologies segment sales for the nine months ended September 28, 2012 decreased by $27.5 million, or 18.0%, primarily due to similar business dynamics that we experienced during the three months ended September 28, 2012. We recognized approximately $7.1 million of net revenue during the nine months ended September 30, 2011, with no comparable amount for the nine months ended September 28, 2012, for orders that had been deferred under multiple-element arrangements, delivered over multiple periods, entered into prior to the adoption of ASU 2009-13. Although overall sales of our Precision Motion and Technologies segment declined, we experienced stronger sales of our optical encoders due to an increase in sales volume associated with an upgrade program for a customer in the data storage industry and strong growth in our light and color measurement business.

 

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Table of Contents

Gross Profit

The following table sets forth the gross profit and gross profit margin for each of our reportable segments for the periods noted (dollars in thousands):

 

     Three Months Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Gross profit:

        

Laser Products

   $ 9,489      $ 11,719      $ 27,365      $ 34,204   

Precision Motion and Technologies

     19,660        23,374        60,549        72,599   

Corporate

     (296     (508     (713     (1,476
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 28,853      $ 34,585      $ 87,201      $ 105,327   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit margin:

        

Laser Products

     33.5     39.4     34.1     39.5

Precision Motion and Technologies

     47.7     47.8     48.5     47.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     41.5     43.9     42.5     44.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit and gross profit margin can be influenced by a number of factors, including product mix, pricing, volume, manufacturing efficiencies and utilization, costs for raw materials and outsourced manufacturing, headcount, inventory and warranty expenses, and shipping and handling costs.

Laser Products

Laser Products segment gross profit for the three months ended September 28, 2012 decreased $2.2 million, or 19.0%, primarily due to the 4.8% decrease in sales. Laser Products segment gross profit margin was 33.5% for the three months ended September 28, 2012, compared with a gross profit margin of 39.4% for the prior year comparable period. The 5.9 percentage point decrease in gross profit margin was primarily due to a significant ramp-up in manufacturing costs for our fiber lasers product line to meet the demand expectations for this business over the next twelve months, higher sales of our lower margin fiber lasers and an increase in sales in Europe related to a high energy specialty laser project within the scientific market.

Laser Products segment gross profit for the nine months ended September 28, 2012 decreased by $6.8 million, or 20.0%. Laser Products segment gross profit margin was 34.1% during the nine months ended September 28, 2012, compared with a gross profit margin of 39.5% during the prior year comparable period. The decrease in gross profit and 5.4 percentage point decrease in gross profit margin was due to similar factors that affected our gross profit and gross profit margin during the three months ended September 28, 2012.

Precision Motion and Technologies

Precision Motion and Technologies segment gross profit for the three months ended September 28, 2012 decreased $3.7 million, or 15.9%, primarily due to a significant drop in sales in our Westwind Spindles product line, primarily due to a significant decline in demand in the microelectronics market. In addition, we recognized approximately $0.5 million of net gross profit during the three months ended September 30, 2011, with no comparable amount for the three months ended September 28, 2012, for orders that had been deferred under multiple-element arrangements, delivered over multiple periods, entered into prior to the adoption of ASU 2009-13. Precision Motion and Technologies segment gross profit margin remained flat quarter over quarter with gross profit margin of 47.7% during the three months ended September 28, 2012, compared with a gross profit margin of 47.8% during the prior year comparable period.

Precision Motion and Technologies segment gross profit for the nine months ended September 28, 2012 decreased by $12.1 million, or 16.6%, due to similar factors that affected our gross profit during the three months ended September 28, 2012 as well as approximately $3.0 million of net gross profit recognized during the nine months ended September 30, 2011, with no comparable amount for the nine months ended September 28, 2012, for orders that had been deferred under multiple-element arrangements, delivered over multiple periods, entered into prior to the adoption of ASU 2009-13. Precision Motion and Technologies segment gross profit margin was 48.5% during the nine months ended September 28, 2012, compared with a gross profit margin of 47.7% during the prior year comparable period. The overall increase in gross profit margin was due to stronger sales of optical encoders related to an increase in sales volume associated with an upgrade program for a customer in the data storage industry.

 

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Table of Contents

Operating Expenses

The following table sets forth operating expenses for the periods noted (dollars in thousands):

 

     Three Months Ended      Nine Months Ended  
     September 28,
2012
     September 30,
2011
     September 28,
2012
     September 30,
2011
 

Research and development and engineering

   $ 5,545       $ 6,183       $ 16,933       $ 17,942   

Selling, general and administrative

     16,125         16,627         49,174         52,037   

Amortization of purchased intangible assets

     663         874         1,988         2,853   

Restructuring, restatement related costs and other

     2,728         14         7,396         136   

Post-emergence professional fees

     —           63         —           296   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,061       $ 23,761       $ 75,491       $ 73,264   
  

 

 

    

 

 

    

 

 

    

 

 

 

Research and Development and Engineering Expenses

Research and development and engineering (“R&D”) expenses are primarily comprised of labor, other employee-related expenses and materials. R&D expenses were $5.5 million, or 8.0% of sales, during the three months ended September 28, 2012, compared with $6.2 million, or 7.8% of sales, during the prior year comparable period. R&D expenses decreased in terms of total dollars primarily due to savings achieved as a result of our 2011 restructuring plan.

R&D expenses were $16.9 million, or 8.2% of sales, during the nine months ended September 28, 2012, compared with $17.9 million, or 7.5% of sales, during the nine months ended September 30, 2011. R&D expenses, in terms of total dollars, decreased due to similar factors experienced during the three months ended September 28, 2012.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses include costs for sales and marketing, sales administration, finance, human resources, legal, information systems, facilities and executive management. SG&A expenses were $16.1 million, or 23.2% of sales, during the three months ended September 28, 2012, compared with $16.6 million, or 21.1% of sales, during the prior year comparable period. SG&A expenses, in terms of total dollars, decreased primarily due to a decrease in outside service fees and, to a lesser extent, savings achieved as a result of our 2011 restructuring plan. These decreases were partially offset by higher employee compensation.

SG&A expenses were $49.2 million during the nine months ended September 28, 2012, representing 24.0% of sales compared to $52.0 million, or 21.8% of sales, during the nine months ended September 30, 2011. SG&A expenses, in terms of total dollars, decreased due to similar factors experienced during the three months ended September 28, 2012.

Amortization of Purchased Intangible Assets

Amortization of purchased intangible assets, excluding the amortization for core technology that is included in cost of goods sold, was $0.7 million, or 0.9% of sales, during the three months ended September 28, 2012, compared with $0.9 million, or 1.1% of sales, during the prior year comparable period. The decreases, in terms of total dollars and as a percentage of sales, were related to the completion of amortization related to non-compete agreements acquired as part of the 2008 Excel acquisition.

Amortization of purchased intangible assets, excluding the amortization for core technology that is included in cost of goods sold, was $2.0 million, or 1.0% of sales, during the nine months ended September 28, 2012, compared with $2.9 million, or 1.2% of sales, during the prior year comparable period. Consistent with the three months ended September 28, 2012, the decrease in terms of total dollars was due to completion of amortization related to non-compete agreements acquired as part of the 2008 Excel acquisition.

Restructuring, Restatement Related Costs and Other

We recorded restructuring, restatement related costs and other charges of $2.7 million during the three months ended September 28, 2012, compared with less than $0.1 million during the prior year comparable period. During the three months ended September 28,

 

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Table of Contents

2012, we recorded restructuring charges of $1.0 million and $1.7 million related to our 2011 and 2012 restructuring programs, respectively, consisting of cash charges primarily for severance, facility and other related costs of $2.7 million. During the prior year comparable period, we recorded less than $0.1 million of restructuring charges related to accretion charges and revised future lease payment assumptions for our abandoned facility in Germany.

We recorded restructuring, restatement related costs and other charges of $7.4 million during the nine months ended September 28, 2012, compared with $0.1 million during the prior year comparable period. During the nine months ended September 28, 2012, we recorded restructuring charges of $5.6 million and $1.7 million related to our 2011 and 2012 restructuring programs, respectively. Total cash related charges, primarily severance, facility costs, legal and consulting fees and other related costs, totaled $5.5 million, while non-cash charges, primarily related to accelerated depreciation for changes in estimated useful lives of certain long-lived assets for which we intend to exit, totaled $1.9 million. During the prior year comparable period, we recorded a $0.1 million restructuring charge related to accretion charges and revised future lease payment assumptions for our abandoned facility in Germany.

Other Income and Expense Items

The following table sets forth other income and expense items for the periods noted (dollars in thousands):

 

     Three Months Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Interest expense, net

   $ (656   $ (3,254   $ (2,143   $ (10,303

Foreign exchange transaction gains (losses), net

     (685     731        (957     (79

Other income (expense), net

     167        (123     399        1,261   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (1,174   $ (2,646   $ (2,701   $ (9,121
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest Expense, Net

The decrease in net interest expense quarter over quarter was attributable to the substantial reduction and refinancing of our debt during 2011, which was achieved through a partial redemption of our Senior Secured PIK Elections Notes (the “2014 Notes”), which carried a 12.25% fixed rate interest and repayments on our new variable rate Senior Credit Facility. Our Senior Credit Facility carried a 3.3% weighted average interest rate, inclusive of unused fees, for the three months ended September 28, 2012. During the three months ended September 28, 2012, we capitalized $0.1 million related to the refinancing of our Senior Credit Facility and incurred $0.2 million of non-cash interest expense related to the amortization of deferred financing costs. During the three months ended September 30, 2011, we recognized a $0.4 million loss on extinguishment of debt related to unamortized deferred financing costs associated with the partial redemption of the 2014 Notes.

The factors affecting our decrease in interest expense during the three months ended September 28, 2012 also impacted interest expense during the nine month period. During the nine months ended September 28, 2012, we incurred $0.8 million of non-cash interest expense primarily related to the amortization of deferred financing costs. During the nine months ended September 30, 2011, we incurred $0.3 million of non-cash interest expense related to the amortization of deferred financing costs, PIK interest of $0.3 million related to the 2014 Notes and a $0.4 million loss on extinguishment of debt.

Foreign Exchange Transaction Gains (Losses), Net

Foreign exchange transaction gains (losses), net, were ($0.7) million net losses during the three months ended September 28, 2012, compared to $0.7 million net gains during prior year comparable period, due to the weakening of the U.S. dollar against several foreign currencies during the third quarter of 2012 versus strengthening of the U.S. dollar against foreign currencies during the third quarter of 2011.

Similar market factors experienced during the three months ended September 28, 2012 impacted the fluctuation of foreign currency transaction gains (losses), net, during the nine months ended September 28, 2012 as compared to the prior year comparable period.

Other Income (Expense), Net

Other income (expense), net, was $0.2 million during the three months ended September 28, 2012, compared to ($0.1) million during the prior year comparable period, and is related to the earnings from our equity investment.

Other income (expense), net, was $0.4 million during the nine months ended September 28, 2012, compared to $1.3 million during the prior year comparable period, and is related to the earnings from our equity investment.

 

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Discontinued Operations

Income (loss) from discontinued operations, net of tax, was ($4.6) million during the three months ended September 28, 2012, compared to $1.5 million during the prior year comparable period. The decrease is primarily due to a decline in sales of our discontinued businesses, an increase in our Semiconductor Systems inventory provision of $1.9 million, and a $0.9 million impairment related to our Orlando building, which is the location of our Control Laser business. The increase in the inventory provision was caused by recent industry consolidation in the memory repair market, which resulted in lower expected future demand for our current memory repair product. In addition, we recognized severance costs of $0.2 million related to our memory repair product line and consulting costs of $0.3 million related to our discontinued businesses.

Income (loss) from discontinued operations, net of tax, was ($3.8) million during the nine months ended September 28, 2012 compared to $6.1 million during the prior year comparable period. The decrease is due to similar market factors impacting the discontinued businesses during the three month comparable periods.

Income Taxes

The effective tax rate for the three months ended September 28, 2012 was a provision of 21.5%, compared to a provision of 10.4% for the prior year comparable period. The effective tax rate for the three months ended September 28, 2012 differs from the Canadian statutory rate of 25.0% primarily due to income earned in jurisdictions with varying tax rates and the release of a portion of our valuation allowance.

The effective tax rate for the nine months ended September 28, 2012 was a provision of 15.7%, compared to 16.9% for the prior year comparable period. The effective tax rate for the nine months ended September 28, 2012 differs from the Canadian statutory rate of 25.0% due to similar factors impacting our effective tax rate for the three months ended September 28, 2012.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our primary ongoing cash requirements are funding operations, capital expenditures, investments in businesses, and repayment of our debt and related interest expense. Our primary sources of liquidity are internally generated cash flows and borrowings under our revolving credit facility. We believe our future operating cash flows will be sufficient to meet our future operating and investing cash needs for the foreseeable future, including at least the next twelve months. The availability of borrowings under our revolving credit facility provides an additional potential source of liquidity should it be required. In addition, we may seek to raise additional capital, which could be in the form of bonds, convertible debt or equity to fund business development activities or other future investing cash requirements.

Significant factors affecting the management of our ongoing cash requirements are the adequacy of available bank lines of credit and our ability to attract long-term capital with satisfactory terms. The sources of our liquidity are subject to all of the risks of our business and could be adversely affected by, among other factors, a decrease in demand for our products, our ability to integrate future acquisitions, deterioration in certain financial ratios, and market changes in general. See “Risks Relating to Our Common Shares and Our Capital Structure” included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Although much of our business is conducted through our subsidiaries, none of our subsidiaries are obligated to make funds available to us. Accordingly, our ability to make payments on our indebtedness and fund our operations may be dependent on the earnings and the distribution of funds from our subsidiaries. As of September 28, 2012, $28.2 million of our $52.9 million cash and cash equivalents was held by our subsidiaries outside of Canada and the United States. Generally, our intent is to use cash held in these foreign subsidiaries to fund our local operations. Further, local laws, regulations and/or terms of our indebtedness may also restrict certain of our subsidiaries from paying dividends or otherwise transferring assets to us. However, in certain instances, we have identified excess cash for which we may repatriate and we have established deferred tax liabilities for the expected tax cost.

During the nine months ended September 28, 2012, we made total debt payments of $20.5 million, comprised of our $7.5 million contractual term loan payments ($2.5 million per quarter) and $13.0 million of optional repayments of borrowings under the revolving credit facility, leaving a total principal debt outstanding under the Senior Credit Facility of $47.5 million at September 28, 2012, compared to $68.0 million at December 31, 2011.

The Credit Agreement applicable to our Senior Credit Facility contains various covenants that we believe are usual and customary for this type of agreement. The Senior Credit Facility includes a maximum allowed leverage ratio and a minimum required fixed charge coverage ratio. On July 19, 2012, the Company entered into an amendment to the Credit Agreement (the “Second Amendment”). The Second Amendment provides that the Company has satisfied the Burnoff Condition (as defined in the Credit Agreement) contained in the Credit Agreement effective as of July 19, 2012, which eliminates the requirement for the Company to meet the borrowing base financial restriction and minimum EBIDTA covenant contained in the Credit Agreement. We were compliant with the covenant requirements as of September 28, 2012. The following table summarizes these financial covenant requirements and our compliance as of September 28, 2012:

 

     Requirement      Actual  

Maximum consolidated leverage ratio

     2.50         1.08   

Minimum consolidated fixed charge coverage ratio

     1.50         3.27   

 

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Cash Flows for the Nine Months Ended September 28, 2012 and September 30, 2011

The following table summarizes our cash and cash equivalent balances, cash flows and unused and available funds under our revolving credit facility for the periods indicated (dollars in thousands):

 

     Nine Months Ended  
     September 28,
2012
    September 30,
2011
 

Net cash provided by operating activities

   $ 21,499      $ 30,722   

Net cash used in investing activities

   $ (3,451   $ (2,607

Net cash used in financing activities

   $ (21,288   $ (35,000 )

 

     September 28,
2012
     December 31, 
2011
 

Cash and cash equivalents

   $  52,863      $  54,835   

Unused and available funds under revolving credit facility

   $ 25,000      $ 12,000   

Operating Cash Flows

Cash provided by operating activities was $21.5 million for the nine months ended September 28, 2012, compared to $30.7 million for the prior year comparable period. The cash provided by operating activities for the nine months ended September 28, 2012 was primarily attributable to our consolidated net income of $3.8 million and non-cash adjustments amounting to $17.4 million. These non-cash adjustments included depreciation and amortization expenses of $10.4 million; stock-based compensation of $3.5 million; and non-cash restructuring charges of $3.6 million. The cash inflow from changes in operating assets and liabilities from December 31, 2011 to September 28, 2012 was $0.3 million. This inflow was primarily attributable to an increase in accounts payable and accrued expenses of $6.2 million as a result of improved accounts payable management and the timing of inventory purchases and was offset by an increase in accounts receivable of $5.8 million due to an increase in sales in the last month of the quarter. The increase in accrued liabilities was offset by payments made during the period as part of our restructuring plans of $4.8 million. Our net inventory increased by $0.1 million from December 31, 2011, which was driven by an increase in inventory offset by a $1.9 million inventory write-down in the three months ended September 28, 2012 related to our Semiconductor Systems business.

Investing Cash Flows

Cash used in investing activities was $3.5 million during the nine months ended September 28, 2012, compared to $2.6 million during the nine months ended September 30, 2011, and primarily relates to capital expenditures with respect to both periods. Cash outflows from investing activities during the nine months ended September 28, 2012 were offset by $0.3 million of cash received from the sale of fixed assets during the period.

Financing Cash Flows

Cash used in financing activities was $21.3 million during the nine months ended September 28, 2012, comprised of $7.5 million for our contractual term loan payments ($2.5 million per quarter), $13.0 million of optional repayments of borrowings under our revolving credit facility, and $0.6 million of capital lease payments. This compares to a $35.0 million optional payment of our Senior Secured PIK Election Notes made during the nine months ended September 30, 2011.

We are contractually obligated and expect to use $3.3 million of cash for the remainder of 2012 for financing activities, comprised of $2.5 million for our quarterly contractual term loan payments and $0.8 million for our capital lease obligations.

Off-Balance Sheet Arrangements, Contractual Obligations

Contractual Obligations

Our contractual obligations primarily consist of the principal and interest associated with our debt, operating and capital leases, purchase commitments and pension obligations. Such contractual obligations are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Through September 28, 2012, we have not entered into any material new or modified contractual obligations since the end of the fiscal year ended December 31, 2011, with the exception of the new seven-year lease agreement signed in May 2012 for the Company’s Bedford, Massachusetts headquarters and the Second Amendment to the Credit Agreement signed in July 2012. The Company’s annual rental payments under the new Bedford lease agreement is $1.5 million.

 

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Off-Balance Sheet Arrangements

Through September 28, 2012, we have not entered into any off-balance sheet arrangements or material transactions with unconsolidated entities or other persons.

Critical Accounting Policies and Estimates

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. There have been no material changes to our critical accounting policies through September 28, 2012 from those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Recent Accounting Pronouncements

See Note 1 to Consolidated Financial Statements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposures are foreign currency exchange rate fluctuation and interest rate sensitivity. During the three and nine months ended September 28, 2012, there have been no material changes to the information included under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), as of September 28, 2012, the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 28, 2012.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 28, 2012 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

During the third quarter of 2005, the Company’s French subsidiary, GSI Lumonics SARL (“GSI France”), filed for bankruptcy protection, which was granted on July 7, 2005. On April 18, 2006, the commercial court of Le Creusot (France) ordered GSI France to pay approximately 0.7 million Euros to SCGI in the context of a claim filed by SCGI that a Laserdyne 890 system delivered in 1999 had unresolved technical problems. No appeal was lodged. On May 6, 2011, GSI Group Ltd. was served with summons from the official receiver of GSI France demanding that GSI Group Ltd. and the Company’s German subsidiary, GSI Group GmbH, appear before the Paris commercial court. GSI Group GmbH was subsequently served with a separate summons from the official receiver. The cases against GSI Group Ltd. and GSI Group GmbH were subsequently combined into a single case (docket number 2011/088718). The receiver claimed (i) that the bankruptcy proceedings initiated against GSI France in 2005 should be extended to GSI Group Ltd. and GSI Group GmbH on the ground that GSI France’s decisions were actually made by GSI Group Ltd. and that GSI Group GmbH made financial advances for no consideration, which would reveal in both cases confusion of personhood, or (ii) alternatively, that GSI Group Ltd. be ordered to pay approximately 3.1 million Euros (i.e. the aggregate of GSI France’s liabilities, consisting primarily of approximately 0.7 million Euros to SCGI and approximately 2.4 million Euros to GSI Group GmbH) on the ground that GSI Group Ltd. is liable in tort for having disposed of GSI France’s assets freely and for having paid all of GSI France’s debts except for the liability to SCGI. On June 19, 2012, the receiver withdrew its claim with respect to extending the bankruptcy proceedings to GSI Group Ltd. and GSI Group GmbH, and as a result only the tort claim remains pending before the court. The Company currently does not believe a loss is probable. Accordingly, no accrual has been made in the Company’s accompanying consolidated financial statements with respect to this claim.

The Company is also subject to various legal proceedings and claims that arise in the ordinary course of business. The Company does not believe that the outcome of these claims will have a material adverse effect upon its financial condition or results of operations but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect upon its financial condition or results of operations.

IRS Claim

On April 5, 2010, the IRS filed amended proofs of claim aggregating approximately $7.7 million with the United States Bankruptcy Court for Delaware (the “Bankruptcy Court”) as part of the Company’s proceedings under Chapter 11 of the Bankruptcy Code. On July 13, 2010, the Company filed a complaint, GSI Group Corporation v. United States of America, in Bankruptcy Court in an attempt to recover refunds totaling approximately $18.8 million in federal income taxes the Company asserts it overpaid to the IRS relating to tax years 2000 through 2008, together with applicable interest. The complaint includes an objection to the IRS proofs of claim which the Company believes are not allowable claims and should be expunged in their entirety. Those tax proceedings remain pending, and their resolution in the ordinary course was not affected by the closing of the Chapter 11 Cases on September 2, 2011.

 

Item 1A. Risk Factors

The Company’s risk factors are described in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. There have been no material changes in the risks affecting the Company since the filing of such Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures

None.

 

Item 5. Other Information

None.

 

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Item 6. Exhibits

List of Exhibits

See the Company’s SEC filings on Edgar at: http://www.sec.gov/ for all Exhibits.

 

          Incorporated by Reference  

Exhibit

Number

  

Exhibit Description

  

Form

  

File No.

  

Exhibit

  

Filing

Date

  

Filed

Herewith

 
    3.1    Certificate and Articles of Continuance of the Registrant, dated March 22, 1999.    S-3    333-180098    3.1    3/14/12   
    3.2    Articles of Amendment of the Registrant, dated May 26, 2005.    S-3    333-180098    3.1    3/14/12   
    3.3    By-Laws of the Registrant, as amended    10-Q    000-25705    3.2    4/13/10   
    3.4    Articles of Reorganization of the Registrant, dated July 23, 2010.    8-K    000-25705    3.1    07/23/10   
    3.5    Articles of Amendment of the Registrant, dated December 29, 2010.    8-K    000-25705    3.1    12/29/10   
  10.1    Second Amendment to Credit Agreement, dated July 19, 2012, by and among GSI Group Corporation, GSI Group Inc., each of the other Guarantors party thereto, each lender party thereto, and Bank of America, N.A., as Administrative Agent.    8-K    001-35083    10.1    7/23/12   
  10.2    Letter Agreement, between GSI Group Inc. and David Clarke, dated September 4, 2012.    8-K    001-35083    10.1    9/6/12   
  10.3    Third Amendment to Credit Agreement, dated October 19, 2012, by and among GSI Group Corporation, GSI Group Inc., each of the other Guarantors party thereto, each lender party thereto, and Bank of America, N.A., as Administrative Agent.                  *   
  10.4    Offer Letter, dated August 24, 2012, between GSI Group Inc. and Matthijs Glastra                  *   
  10.5    Severance Agreement by and between GSI Group Inc. and Deborah M. Mulryan.                  *   
  10.6    Severance Agreement by and between GSI Group Inc. and Jamie Bader.                  *   
  10.7    Severance Agreement by and between GSI Group Inc. and Peter L. Chang.                  *   
  31.1    Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                  *   
  31.2    Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                  *   
  32.1    Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                  *   
  32.2    Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                  *   
101.INS    XBRL Instance Document.               
101.SCH    XBRL Schema Document               
101.CAL    XBRL Calculation Linkbase Document.               
101.DEF    XBRL Definition Linkbase Document.               
101.LAB    XBRL Labels Linkbase Document.               
101.PRE    XBRL Presentation Linkbase Document.               

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September 28, 2012 and December 31, 2011, (ii) Consolidated Statements of Operations for the three and nine months ended September 28, 2012 and September 30, 2011, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 28, 2012 and September 30, 2011, (iv) Consolidated Statements of Cash Flows for the nine months ended September 28, 2012 and September 30, 2011, and (v) Notes to Consolidated Financial Statements.

 

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The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 

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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.

GSI Group Inc. (Registrant)

 

Name

  

Title

 

Date

/s/    John A. Roush        

John A. Roush

   Director, Chief Executive Officer   November 7, 2012

/s/    Robert J. Buckley        

Robert J. Buckley

   Chief Financial Officer   November 7, 2012

 

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Table of Contents

EXHIBIT INDEX

 

          Incorporated by Reference  

Exhibit

Number

  

Exhibit Description

  

Form

  

File No.

  

Exhibit

  

Filing

Date

  

Filed

Herewith

 
    3.1    Certificate and Articles of Continuance of the Registrant, dated March 22, 1999.    S-3    333-180098    3.1    3/14/12   
    3.2    Articles of Amendment of the Registrant, dated May 26, 2005.    S-3    333-180098    3.1    3/14/12   
    3.3    By-Laws of the Registrant, as amended    10-Q    000-25705    3.2    4/13/10   
    3.4    Articles of Reorganization of the Registrant, dated July 23, 2010.    8-K    000-25705    3.1    07/23/10   
    3.5    Articles of Amendment of the Registrant, dated December 29, 2010.    8-K    000-25705    3.1    12/29/10   
  10.1    Second Amendment to Credit Agreement, dated July 19, 2012, by and among GSI Group Corporation, GSI Group Inc., each of the other Guarantors party thereto, each lender party thereto, and Bank of America, N.A., as Administrative Agent.    8-K    001-35083    10.1    7/23/12   
  10.2    Letter Agreement, between GSI Group Inc. and David Clarke, dated September 4, 2012.    8-K    001-35083    10.1    9/6/12   
  10.3    Third Amendment to Credit Agreement, dated October 19, 2012, by and among GSI Group Corporation, GSI Group Inc., each of the other Guarantors party thereto, each lender party thereto, and Bank of America, N.A., as Administrative Agent.                  *   
  10.4    Offer Letter, dated August 24, 2012, between GSI Group Inc. and Matthijs Glastra                  *   
  10.5    Severance Agreement by and between GSI Group Inc. and Deborah M. Mulryan.                  *   
  10.6    Severance Agreement by and between GSI Group Inc. and Jamie Bader.                  *   
  10.7    Severance Agreement by and between GSI Group Inc. and Peter L. Chang.                  *   
  31.1    Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                  *   
  31.2    Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                  *   
  32.1    Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                  *   
  32.2    Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                  *   
101.INS    XBRL Instance Document.               
101.SCH    XBRL Schema Document               
101.CAL    XBRL Calculation Linkbase Document.               
101.DEF    XBRL Definition Linkbase Document.               
101.LAB    XBRL Labels Linkbase Document.               
101.PRE    XBRL Presentation Linkbase Document.               

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September 28, 2012 and December 31, 2011, (ii) Consolidated Statements of Operations for the three and nine months ended September 28, 2012 and September 30, 2011, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 28, 2012 and September 30, 2011, (iv) Consolidated Statements of Cash Flows for the nine months ended September 28, 2012 and September 30, 2011, and (v) Notes to Consolidated Financial Statements.

 

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The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 

32