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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-43089
The GSI Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 37-0856587
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1004 E. Illinois Street, Assumption, Illinois 62510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (217) 226-4421
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant. $0
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: Common stock, par
value $0.01 per share, 1,775,000 shares outstanding as of March 1, 2002.
Documents Incorporated by Reference: None
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business ............................................................................. 3
Item 2. Properties ........................................................................... 9
Item 3. Legal Proceedings .................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders .................................. 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ............ 11
Item 6. Selected Financial Data .............................................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosure About Market Risk ............................ 17
Item 8. Financial Statements and Supplementary Data .......................................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . 44
PART III
Item 10. Directors and Executive Officers of the Registrant ................................... 44
Item 11. Executive Compensation ............................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Management ....................... 46
Item 13. Certain Relationships and Related Transactions ....................................... 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ...................... 48
2
PART I
ITEM 1. BUSINESS.
Note on Forward-Looking Statements
This report contains certain forward-looking statements within the meaning
of the federal securities laws. Forward-looking statements are statements other
than historical information or statements of current condition. Some
forward-looking statements may be identified by use of terms such as "believes,"
"anticipates," "intends" or "expects." These forward-looking statements relate
to the plans, objectives and expectations of The GSI Group, Inc. (the "Company")
for future operations. In light of the risks and uncertainties inherent in all
future projections, the inclusion of forward-looking statements in this report
should not be regarded as a representation by the Company or any other person
that the objectives, plans or expectations of the Company will be achieved. The
Company's objectives, plans and expectations are difficult to forecast and could
differ materially from those projected in the forward-looking statements.
General
The Company is a leading manufacturer and supplier of agricultural
equipment and services worldwide. The Company believes that it is the largest
global provider of both (i) grain storage bins and related drying and handling
systems and (ii) swine feed storage, feed delivery, confinement and ventilation
systems. The Company is also one of the largest global providers of poultry feed
storage, feed delivery, watering, ventilation and nesting systems. The Company
markets its agricultural products in approximately 75 countries through a
network of over 2,500 independent dealers to grain, swine and poultry producers
primarily under its GSI/R/, DMC/TM/, FFI/TM/, Zimmerman/TM/, AP/TM/ and
Cumberland/R/ brand names. The Company's current market position in the industry
reflects both the strong, long-term relationships the Company has developed with
its customers as well as the quality and reliability of its products.
The primary users of the Company's grain storage, drying and handling
products are farm operators or commercial businesses, such as the
Archer-Daniels-Midland Company and Cargill, Inc., that operate feed mills, grain
elevators, port storage facilities and commercial grain processing facilities.
The Company believes that its grain storage, drying and handling equipment is
superior to that of its principal competitors on the basis of strength,
durability, reliability, design efficiency and breadth of product offering. The
Company's feeding and ventilation systems are used primarily by growers that
raise swine and poultry, typically on a contract basis for large integrators
such as Perdue Farms Incorporated and Tyson Foods, Inc. In the swine industry
however, there is a significant portion of the industry that is not integrated
at this time that is also served. Because swine and poultry growers are always
concerned about the efficiency of their operations, especially where it relates
to feed, they seek to purchase systems which minimize the feed-to-meat ratio. As
a result of its proprietary designs, the Company believes that its swine and
poultry systems are the most effective in the industry in serving this customer
objective.
The industry in which the Company operates is characterized both
domestically and internationally by a few large companies with broad product
offerings and numerous small manufacturers of niche product lines. Domestically,
the Company intends to build on its established presence in the grain, swine and
poultry markets. Internationally, the Company intends to capitalize on
opportunities arising from still-developing agricultural industries. The Company
believes that less functionally sophisticated and efficient grain storage
systems used by facilities located outside the U.S. and Western Europe, which
experience relatively high levels of grain spoilage and loss, are likely to be
replaced by more modern systems. The Company also believes that the population
growth occurring in the Company's international markets will result in consumers
devoting larger portions of their income to improved and higher-protein diets,
stimulating demand for poultry, and to a lesser extent, pork. The Company
believes that it is well-positioned to capture increases in worldwide demand for
its products resulting from these industry trends because of its leading brand
names, broad and diversified product lines, strong distribution network and
high-quality product.
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The Company was incorporated in Delaware on April 30, 1964. The Company's
principal executive office is located at 1004 East Illinois Street, Assumption,
Illinois 62510 and its telephone number is (217) 226-4421.
Company Strengths
Market Leader. The Company believes that it is the largest global provider
of both (i) grain storage bins and related drying and handling systems and (ii)
swine feed storage, feed delivery, confinement and ventilation systems. The
Company is also one of the largest global providers of poultry feed storage,
feed delivery, watering, ventilation and nesting systems.
Provider of Fully-Integrated Systems. The Company offers a broad range of
products that permit customers to purchase all of their grain, swine and poultry
production needs from one supplier. The Company believes that providing
fully-integrated systems significantly lowers total production costs and
enhances producer productivity by offering compatible products designed to
promote synergies and achieve maximum operating results. Dealers who purchase
fully-integrated systems also benefit from lower administrative and shipping
costs and the ease of dealing with a single supplier. The Company intends to
maintain its position as a provider of fully-integrated systems by continuing to
offer the most complete line of products available within its markets and by
developing and introducing new products within its existing lines.
Brand Name Recognition and Reputation for Quality Products and Service.
Through its manufacturing expertise and experience, the Company has established
recognition in its markets for the GSI/R/, DMC/TM/, FFI/TM/, Zimmerman/TM/,
AP/TM/ and Cumberland/R/ brand names. The Company seeks to protect the
reputation for high quality, reliability and specialized services that are
associated with such brand names through quality control and customer feedback
programs. The Company believes that its reputation and recognized brand names,
along with its extensive distribution network, will assist it in its efforts to
further penetrate both the domestic and international markets in which the
Company operates.
Effective and Established Distribution Network. The Company believes that
its development of a highly effective and established distribution network
affords it significant competitive advantages. The Company's distribution
network consists of over 2,500 independent dealers that market the Company's
products in approximately 75 countries throughout the world. The breadth and
scope of the Company's distribution network makes its products readily available
in each of the Company's markets and lowers transportation costs for its
customers. Dealers are carefully selected and trained to ensure high levels of
customer service. In addition, the Company has experienced a very low turn-over
rate of its dealers since the Company's inception, which promotes consistency
and stability to customers.
Long-Term Alliances with Customers. The Company has a history of developing
long-term alliances with customers who are market leaders in both the industries
and the geographic markets they serve. The Company works closely with customers
through all stages of product development in order to tailor products and
systems to meet each customer's unique needs, making substitutions with
competitor products more difficult. The Company's commitment to product quality,
dedication to customer service and responsiveness to changing customer needs
have enabled the Company to develop and strengthen long-term alliances with its
customers.
Flexible Manufacturing Facilities. The Company's facilities are designed to
be easily reconfigured to adapt to demand changes for any or all of the
Company's products. The Company's primary manufacturing facility, located in
Assumption, Illinois, consists of approximately 900,000 square feet and operates
on a 24-hour basis during peak production periods. The Company's facilities
employ state-of-the-art machines that have enhanced production efficiency.
Company Operated by Experienced Management Team. The Company is led by a
management team with significant experience in the agricultural products
industry. The Company believes that the agricultural expertise of its management
team permit it to establish strong customer relationships and respond quickly to
market opportunities.
4
Business Strategy
The Company's objective is to capitalize on its strengths through the
implementation of its business strategy, which includes the following principal
elements:
Capitalize on Opportunities in International Markets. The Company intends
to continue to leverage its worldwide brand name recognition, leading market
positions and international distribution network to capture the demand for its
products that exists in the international marketplace. The Company believes that
increasing the diversity of both its customer base and geographic coverage by
expanding its international operations will mitigate the effect of future
reductions in demand within any of its individual product lines, or within a
particular geographic selling region.
Continue Development of Proprietary Product Innovations. The Company's
research and development efforts focus on the development of new and
technologically advanced products to respond to customer demands, changes in the
marketplace and new technology. The Company employs a strategy of working
closely with its customers and capitalizing on existing technology to improve
existing products and develop new value-added products. The Company intends to
continue to actively develop product improvements and innovations to more
effectively serve its customers.
Reduce Expenses and Improve Profitability. The Company focuses on improving
its financial performance by reducing non-strategic expenses and streamlining
the processes at all levels of its organization.
Industry Overview
Demand for the Company's products is driven by the overall worldwide level
of grain, swine and poultry production as well as the increasing focus, both
domestically and internationally, on improving productivity in these industries.
These markets are driven by a number of factors, including consumption trends
affected by economic and population growth and government policies.
Demand for grain and the required infrastructure for grain storage, drying
and handling is driven by several factors, including the need for grain for
worldwide production of meat protein and cereals. The Company believes that less
functionally sophisticated and efficient grain storage facilities located
outside the U.S. and Western Europe, which experience higher levels of grain
spoilage and loss, are over time likely to be replaced by more modern equipment.
The Company also believes that these dynamics will continue to support domestic
and international demand for the Company's grain storage, drying and handling
systems.
Demand for the Company's swine and poultry feeding equipment and feed
storage and delivery systems is impacted by the rate of economic and population
growth occurring in international markets. As disposable incomes increase in
these international markets, consumers have in the past and should in the future
devote larger portions of their income to improved and higher protein-based
diets. In the past, this trend has stimulated stronger demand for meat,
specifically poultry and pork, as these meats provide more cost-effective
sources of animal protein than beef.
The Company's sales of grain equipment have historically been affected by
feed and grain prices, acreage planted, crop yields, demand, government
policies, government subsidies and other factors beyond the Company's control.
Weather conditions also can adversely impact the agricultural industry and delay
planned construction activity, resulting in fluctuating demand for the Company's
grain equipment and delayed or lost revenues. Increases in feed and grain prices
have in the past resulted in a decline in sales of feeding, watering and
ventilation systems. The Company's sales of swine and poultry equipment
historically have been affected by the level of construction activity by swine
and poultry producers, which is affected by feed prices, environmental
regulations and domestic and international demand for pork and poultry.
Products
The Company manufactures and markets (i) grain storage bins and related
drying and handling equipment systems, (ii) swine feed storage, feed delivery,
confinement and ventilation systems and (iii) poultry feed storage, feed
delivery, watering, ventilation and nesting systems. The Company offers a broad
range of products that permits customers to purchase their grain, swine and
poultry production equipment needs from one supplier. The Company
5
believes that its ability to offer integrated systems provides it with a
competitive advantage by enabling producers to purchase complete, integrated
production systems from a single distributor who can offer high-quality
installation and service.
Grain Product Line
The Company's grain equipment consists of the following products:
Grain Storage Bins. The Company manufactures and markets a complete line of
over 1,000 models of both flat and hopper bottomed grain storage bins with
capacities of up to 710,000 bushels. The Company markets its bins to both farm
and commercial end users under its GSI/R/ brand name. The Company's grain
storage bins are manufactured using high-yield, high tensile, galvanized steel
(the thickest in the industry) and are assembled with high strength, galvanized
bolts and anchor brackets. The Company's grain storage bins offer efficient
design enhancements, including patented walk-in doors and a roof design that
provides specialized vents for increased efficiency, extruded lips for
protection against leakage, large and accessible eave and peak openings for ease
of access, and reinforced supportive bends to increase rigidity. The Company
believes that its grain storage bins are the most reliable and heaviest in the
industry.
Grain Conditioning Equipment. To meet the need to dry grain for storage,
the Company manufactures and markets a complete line of over 100 models of grain
drying devices with capacities of up to 10,000 bushels per hour. The Company
markets its grain drying equipment to both farm and commercial end users under
its GSI/R/, DMC/TM/, Zimmerman/TM/, FFI/TM/, and Airstream/R/ brand names. The
Company's drying equipment, which includes fans, heaters, top dryers, stirring
devices, portable dryers, stack dryers, tower dryers and process dryers, is
manufactured using galvanized steel and high-grade electrical components and
utilize patented control systems, which offer computerized control of all dryer
functions from one panel.
Grain Handling Equipment. The Company manufactures and markets a complete
line of grain handling equipment to complement its grain storage and drying
product offerings. The Company markets its grain handling equipment, which
includes bucket elevators, conveyors and augers, to both farm and commercial end
users under its GSI/R/ and Grain King/R/ brand names. The Company's grain
handling equipment offers ease of integration into Company or competitor systems
and enables the Company to offer a fully-integrated product line to grain
producers.
Swine Product Line
The Company's swine equipment consists of the following products:
Feeding Systems. The Company manufactures and markets its swine feeding
products under its AP/TM/ brand name. The Company custom designs a wide array of
state of the art feeding systems used in today's modern swine facilities. These
include the popular Flex-Flo/TM/ auger systems that typically transport feed
from the Bulk Feed Storage Tanks located outside of the buildings to inside of
the structure. Once inside it is moved either by additional Flex-Flo/TM/
equipment or is transferred to the versatile Chain Disk System, which can make
turns and changes in elevation much more easily. Finally, the feed is delivered
to the animals using either a wide variety of ad lib feeders that are
specifically designed to waste a minimum amount of feed, provide the animals a
high degree of comfort, and be user friendly to the producer or an individual
feed dispenser that allows the producer to feed each animal an exact amount of
feed daily. All of these systems are highly automated and address the ever
changing and multifaceted production practices that still abound in the pork
production industry, such as "wean to finish".
Ventilation Systems. The Company manufactures and markets ventilation
systems for swine buildings under its AP/TM/ and Airstream/R/ brand names. These
systems consist of fans, heating and evaporative cooling systems, winches,
inlets and other accessories (including computer based automated control
devices) that regulate temperature and air flow. Proper ventilation systems are
crucial for minimizing the feed-to-meat conversion ratio by reducing stress
caused by extreme temperature fluctuation, allowing for higher density
production and providing optimum swine health through disease prevention. The
Company's swine ventilation systems produce high levels of air output at low
levels of power consumption, adapt to a wide array of specialty fans and other
accessories, operate with little maintenance or cleaning and provide precision
monitoring of environmental control. The Company specializes in designs that
work with the new emerging production practices as they are being developed by
producers so that they are market ready when these practices become commonplace.
6
Other Production Equipment. The Company manufactures and markets a wide
array of equipment used in the balance of the swine production process,
including plastic and cast iron slated flooring, highly efficient watering
devices, a wide variety of PVC extrusions used for construction applications in
the facilities, many sizes of rubber floor mats for pig comfort, creep heating
systems for baby pigs, several styles of steel confinement equipment, and the
latest in practical feed, water, and environmental monitoring equipment.
Poultry Product Line
The Company's poultry equipment consists of the following products:
Feeding Systems. The Company manufactures and markets its poultry feeding
systems under its Cumberland/R/ brand name. The Company manufactures feeding
systems that are custom tailored to both the general industry needs of different
types of poultry producers and to the specialized needs of individual poultry
producers. The Company's poultry feeding systems consist of a feed storage bin
located outside the poultry house, a feed delivery system that delivers the feed
from the feed storage bin into the house and an internal feed distribution
system that delivers feed to the birds. The Company's poultry feed storage bins
contain a number of patented features designed to maximize capacity, manage the
quality of stored feed, prevent rain and condensation from entering feed storage
bins and provide first-in, first-out material flow, thereby keeping feed fresh
to help prevent spoilage, and blended to provide uniform quality rations. The
Company's poultry feed delivery systems use non-corrosive plastic and galvanized
steel parts specially engineered for durability and reliable operations and
specialized tubing and auguring or chain components that allow feed to be
conveyed up, down and around corners. The Company believes that its patented
HI-LO/R/ pan feeder is superior to competitor products due to its unique ability
to adjust from floor feeding for young chicks to regulated feed levels for older
birds.
Watering Systems. The Company manufactures and markets nipple watering
systems for poultry producers under its Cumberland/R/ brand name. The ability of
a bird to obtain water easily and rapidly is an essential factor in facilitating
weight gain. The Company's poultry watering system consists of pipes that
distribute water throughout the house to drinking units supported by winches,
cables and other components. The water is delivered through a regulator designed
to provide differential water pressure according to demand. The Company's
poultry watering systems are distinguished by their toggle action nipples, which
transmit water from nipple to beak without causing undue stress on the bird or
excess water to be splashed onto the floor. The watering nipples produced by the
Company also are designed to allow large water droplets to form on the cavity of
the nipple, thereby attracting young birds to drink, which ultimately promotes
weight gain.
Ventilation Systems. The Company manufactures and markets ventilation
systems for poultry producers under its Cumberland/R/ brand name. Equipment
utilized in such systems include fiberglass and galvanized fans, the Komfort
Kooler evaporative cooling systems, manual and automated curtains, heating
systems and automated controls for complete ventilation, cooling and heating
management. The Company believes its poultry ventilation products are reliable
and easy to assemble in the field, permit energy-efficient airflow management
and are well-suited for international sales because they ship compactly and
inexpensively and assemble with little hardware and few tools.
Nesting Systems. The Company manufactures and markets nesting systems for
poultry producers under its Cumberland/R/ brand name. These systems consist of
mechanical nests and egg collection tables. The Company's nesting systems are
manufactured using high-yield, high tensile galvanized steel and are designed to
promote comfort for nesting birds and efficiency for production personnel. The
Company believes that its nesting systems are among the most reliable and
cost-effective in the poultry industry.
In 2001, 2000 and 1999, no single customer represented more than 10% of the
Company's sales.
Product Distribution
The Company distributes its products primarily through a network of U.S.
and international independent dealers who offer targeted geographic coverage in
key grain, swine and poultry producing markets throughout the world. The
Company's dealers sell products to grain, swine and poultry producers,
agricultural companies and various other farm and commercial end-users. The
Company believes that its distribution network is one of the strongest in the
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industry, providing its customers with high levels of service. Since its
inception, the Company has experienced a very low turnover rate of its dealers.
The Company believes this has resulted in a reputation of consistency in its
products and stability with its customers. The Company further believes that the
high level of commitment its dealers have to the Company is evidenced by the
fact that many of the Company's dealers choose not to sell products of the
Company's competitors.
The Company also maintains a sales force to provide oversight services for
the Company's distribution network, interact with integrators and end users,
recruit additional dealers for the Company's products, and educate the dealers
on the uses and functions of the Company's products. The Company further
supports and markets its products with a technical service and support team,
which provides training and advice to dealers and end users regarding
installation, operation and service of products and, when necessary, on-site
service.
For information regarding the Company's sales by geographic region, see
Note 15 to the Consolidated Financial Statements included in Item 8 hereof.
Competition
The market for the Company's products is competitive. Domestically and
internationally, the Company competes with a variety of manufacturers and
suppliers that offer only a limited number of the products offered by the
Company. The Company believes that only one of its competitors, CTB
International Corp., offers products across most of the Company's product lines.
Competition is based on the price, value, reputation, quality and design of
the products offered and the customer service provided by distributors, dealers
and manufacturers of the products. The Company believes that its leading brand
names, diversified product lines, strong distribution network and high quality
products enable it to compete effectively. The Company further believes that its
ability to offer integrated systems to grain, swine and poultry producers, which
significantly lowers total production costs and enhances producer productivity,
provides it with a competitive advantage. Integrated equipment systems offer
significant benefits to dealers, including lower administrative and shipping
costs and the ease of dealing with a single supplier for all of their customer
needs. In addition, the Company's dealers provide producers with high quality
service, installation and repair.
New Product Development
The Company has a product development and design engineering staff, most of
whom are located in Assumption, Illinois. Expenditures by the Company for
product research and development were approximately $2.8 million, $2.3 million
and $2.1 million for the years ended December 31, 2001, 2000 and 1999,
respectively. The Company charges research and development costs to operations
as incurred.
Raw Materials
The primary raw materials used by the Company to manufacture its products
are steel and polymer materials, including PVC pipe, polypropylene and
polyethylene. The Company also purchases various component parts that are
integrated into the Company's products. The Company is not dependent on any one
of its suppliers and in the past has not experienced difficulty in obtaining
materials or components. In addition, materials and components purchased by the
Company are readily available from alternative suppliers. The Company has no
long-term supply contracts for materials or components.
Regulatory and Environmental Matters
Like other manufacturers, the Company is subject to a broad range of
federal, state, local and foreign laws and requirements, including those
governing discharges to the air and water, the handling and disposal of solid
and hazardous substances and wastes, the remediation of contamination associated
with releases of hazardous substances at the Company's facilities and offsite
disposal locations, workplace safety and equal employment opportunities.
Expenditures made by the Company to comply with such laws and requirements
historically have not been material.
Backlog
Backlog is not a significant factor in the Company's business because most
of the Company's products are delivered within a few weeks of their order. The
Company's backlog at December 31, 2001 was $28.3 million
8
compared to $28.8 million at December 31, 2000. The Company believes that all
such backlog will be filled by the end of 2002.
Patents and Trademarks
The Company protects its technological and proprietary developments. The
Company currently has several active U.S. and foreign patents, trademarks and
various licenses for other intellectual property. While the Company believes its
patents, trademarks and licensed information have significant value, the Company
does not believe that its competitive position or that its operations are
dependent on any individual patent or trademark or group of related patents or
trademarks.
Employees
As of December 31, 2001, the Company had 1,516 employees of which 1,184
were permanent and 332 were seasonal. The Company's employees are not
represented by a union. Management believes that its relationships with the
Company's employees are good.
ITEM 2. PROPERTIES.
The principal properties of The GSI Group as of March 1, 2002, were as
follows:
Location Description of Property
-------- -----------------------
Assumption, Illinois....................... Manufacturing/Sales
Paris, Illinois............................ Manufacturing/Assembly
Newton, Illinois........................... Manufacturing/Assembly
Vandalia, Illinois......................... Manufacturing/Assembly
Mason City, Iowa........................... Sales/Warehouse
Sioux City, Iowa........................... Sales/Warehouse
Geneva, Indiana............................ Sales/Warehouse
Watertown, South Dakota.................... Sales/Warehouse
Garrett, Indiana........................... Sales/Warehouse
Oakland, Illinois.......................... Sales/Warehouse
West Memphis, Arkansas..................... Sales/Warehouse
Hampton, Nebraska.......................... Sales/Warehouse/Research
Marau, Brazil ............................. Manufacturing/Sales
Penang, Malaysia........................... Manufacturing/Sales/Warehouse
Queretero, Mexico.......................... Sales/Warehouse
Fourways, South Africa..................... Sales/Warehouse
Sambeek, The Netherlands................... Sales/Warehouse
Shanghai, China ........................... Sales/Warehouse
The corporate headquarters for the Company is located in Assumption,
Illinois.
During 2001, the Company re-arranged its manufacturing processes which
enabled it to close its Duquoin, Illinois and Mason City, Iowa manufacturing
facilities and re-open its Vandalia, Illinois facility in connection with the
Company's consolidation efforts. The Company also closed its Indianapolis,
Indiana facility.
The Company's owned facilities are subject to mortgages. The Company's
leased facilities are leased through operating lease agreements with varying
expiration dates. For information on operating leases, see Note 14 to the
Consolidated Financial Statements included in Item 8 hereof.
The Company believes that its facilities are suitable for their present and
intended purposes and have adequate capacity for the Company's current levels of
operation.
9
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against the Company which,
in the opinion of management, would have a material adverse affect on the
Company's business, financial position or results of operations if determined
adversely.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year ended December 31, 2001.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There is no established public trading market for any class of the
Company's Common Stock. As of March 1, 2002, the Company had 11 holders of its
Common Stock. See Item 12, "Security Ownership of Certain Beneficial Owners and
Management".
The Company generally has not paid dividends in the past, except to enable
its stockholders to pay taxes resulting from the Company's status as a
subchapter S corporation. During the year ended December 31, 2001 and December
31, 2000, the Company declared dividends totaling $1.2 million and $1.9 million,
respectively. The Company is subject to certain restrictions on the payment of
dividends contained in the indenture governing the Company's 10 1/4 % Senior
Subordinated Notes due 2007 (the "Notes") and in the Company's credit facility
with LaSalle National Bank (the "Credit Facility"). Future dividends, if any,
will depend upon, among other things, the Company's operations, capital
requirements, surplus, general financial condition, contractual restrictions and
such other factors as the Board of Directors may deem relevant.
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ITEM 6. SELECTED FINANCIAL DATA.
Set forth below is certain selected historical consolidated financial data
for the Company as of and for the years ended December 31, 1997, 1998, 1999,
2000 and 2001. The selected historical consolidated financial data for the years
indicated were derived from the consolidated financial statements of the
Company, which were audited by Arthur Andersen LLP. The information set forth
below should be read in conjunction with Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto included in Item 8 hereof.
Years Ended December 31,
-------------------------------------------------------------
1997 1998 1999 2000* 2001
--------- --------- --------- --------- ---------
Income Statement (000's):
Sales...................................... $ 225,987 $ 270,127 $ 229,210 $ 243,961 $ 229,921
Cost of sales.............................. 170,636 209,236 179,927 184,622 174,254
--------- --------- --------- --------- ---------
Gross profit............................... 55,351 60,891 49,283 59,339 55,667
Operating expenses......................... 35,189 50,245 38,669 40,070 41,114
--------- --------- --------- --------- ---------
Operating income........................... 20,162 10,646 10,614 19,269 14,553
Interest expense........................... (6,174) (12,946) (14,768) (14,997) (14,397)
Other income............................... 943 1,117 477 439 242
--------- --------- --------- --------- ---------
Income (loss) from continuing operations... 14,931 (1,183) (3,677) 4,711 398
Extraordinary gain on extinguishment
of debt.................................. 2,119 -- -- -- --
Provision (benefit) for income taxes ...... 288 (260) (336) (568) (656)
--------- --------- --------- --------- ---------
Net income (loss)........................ $ 16,762 $ (923) $ (3,341) $ 5,279 $ 1,054
========= ========= ========= ========= =========
Basic and Diluted Earnings Per Share:
Continuing operations...................... $ 7.32 $ (0.46) $ (1.67) $ 2.82 $ 0.59
Extraordinary item......................... 1.06 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)........................ $ 8.38 $ (0.46) $ (1.67) $ 2.82 $ 0.59
========= ========= ========= ========= =========
* Restated for a change in the method of accounting for DMC inventories. The
effect of the change was to increase the 2000 net income by $82. See Note 4
of Notes to Consolidated Financial Statements for additional information.
----------
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the notes included in Item 8 hereof.
General
The Company is a leading manufacturer and supplier of agricultural
equipment and services worldwide. The Company's grain, swine and poultry
products are used by producers and purchasers of grain, and by producers of
swine and poultry. Fluctuations in grain and feed prices directly impact sales
of the Company's grain equipment. Because the primary cost of producing swine
and poultry is the cost of the feed grain consumed by animals, fluctuations in
the supply and cost of grain to users of the Company's products in the past has
impacted sales of the Company's swine and poultry equipment. The Company
believes, however, that its diversified product offerings mitigate some of the
effects of fluctuations in the price of grain since the demand for grain
storage, drying and handling equipment tends to increase during periods of
higher grain prices, which somewhat offsets the reduction in demand during such
periods for the Company's products by producers of swine and poultry.
Sales of agricultural equipment are seasonal, with farmers traditionally
purchasing grain storage bins and grain drying and handling equipment in the
summer and fall in conjunction with the harvesting season, and swine and poultry
producers purchasing equipment during prime construction periods in the spring,
summer and fall. The Company's net sales and net income have historically been
lower during the first and fourth fiscal quarters as compared to the second and
third quarters.
Although the Company's sales are primarily denominated in U.S. dollars and
are not generally affected by currency fluctuations (except for transactions
from the Company's Brazilian and South African operations), the production
costs, profit margins and competitive position of the Company are affected by
the strength of the U.S. dollar relative to the strength of the currencies in
countries where its products are sold.
The Company's international sales have historically comprised a significant
portion of net sales. In 2001, 2000 and 1999, the Company's international sales
accounted for 32.3%, 36.2% and 34.3% of net sales, respectively. International
operations generally are subject to various risks that are not present in
domestic operations, including restrictions on dividends, restrictions on
repatriation of funds, unexpected changes in tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, political instability,
fluctuations in currency exchange rates, reduced protection for intellectual
property rights in some countries, seasonal reductions in business activity and
potentially adverse tax consequences, any of which could adversely impact the
Company's international operations.
The primary raw materials used by the Company to manufacture its products
are steel and polymers. Fluctuations in the prices of steel and, to a lesser
extent, polymer materials can impact the Company's cost of sales. There can be
no assurances that prices for these materials will not increase in the future.
The Company currently operates as a subchapter S corporation and,
accordingly, is not subject to federal income taxation for the periods for which
financial information has been presented herein. Because the Company's
stockholders are subject to tax liabilities based on their pro rata shares of
the Company's income, the Company's policy is to make periodic distributions to
its stockholders in amounts equal to such tax liabilities. The Company intends
to continue this policy.
Results of Operations
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Sales decreased 5.8% or $14.0 million to $229.9 million in 2001 compared to
$244.0 million in 2000. The decrease was primarily driven by weaker domestic
demand for grain storage and conditioning equipment. Brazilian and domestic
poultry sales were also lower due to weaker demand. This decrease was partially
offset by increased swine equipment sales which were higher due to strengthening
demand.
13
Gross profit decreased to $55.7 million in 2001 or 24.2% of sales from
$59.3 million or 24.3% of net sales in 2000. This decrease was caused by
decreased sales and restructuring expenses incurred at the end of the year to
consolidate manufacturing operations.
Operating expenses increased 2.6% or $1.0 million to $41.1 million in 2001
from $40.1 million in 2000. This increase was primarily the result of
integration costs necessary to support the sales volume resulting from the FFI
acquisition. Restructuring charges incurred during the period were offset by
cost reduction and consolidation actions. As a percentage of sales, operating
expenses increased to 17.9% in 2001 from 16.4% in 2000.
Operating income decreased to $14.6 million in 2001 from $19.3 million in
2000. Operating income margins decreased to 6.3% of sales in 2001 from 7.9% in
2000. This decrease was attributable to the decrease in sales and increased
operating expenses.
Interest expense decreased $0.6 million due to lower borrowing costs.
Net income decreased to $1.1 million in 2001 from $5.3 million in 2000. The
decrease was primarily attributable to the factors discussed above relating to
operating expenses and operating income.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Sales increased 6.4% or $14.8 million to $244.0 million in 2000 compared to
$229.2 million in 1999. The increase was primarily driven by increased demand
for grain equipment caused by a successful early-order program, increased export
activity, a strong harvest and price increases. Poultry and swine equipment
sales were essentially flat with increased international activity offsetting
weak domestic demand.
Gross profit increased to $59.3 million in 2000 or 24.3% of sales from
$49.3 million or 21.5% of sales in 1999. This increase was caused by increased
sales, increased prices, the absence of low-margin international projects, the
absence of restructuring charges and reduced expenses related to cost
containment measures related to plant closures at the end of 1999.
Operating expenses increased 3.6% or $1.4 million to $40.1 million in 2000
from $38.7 million in 1999. This increase was primarily due to a change in
compensation structure for the Company's employees and the increase in the
doubtful account reserve in recognition of the weaker agricultural market. This
increase was partially offset by the reduction in staffing that was a
significant part of the restructuring program in 1999. As a percentage of sales,
operating expenses decreased to 16.4% in 2000 from 16.9% in 1999.
Operating income increased to $19.3 million in 2000 from $10.6 million in
1999. Operating income margins increased to 7.9% of sales in 2000 from 4.6% in
1999. This increase was attributable to the increase in sales and improved
margins.
Interest expense was essentially flat for 2000 as compared to 1999.
Net income improved to $5.3 million in 2000 from a net loss of $3.3 million
in 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Sales decreased 15.1% or $40.9 million to $229.2 million in 1999 compared
to $270.1 million in 1998. The decrease was primarily driven by the reduced
demand for swine equipment, which was caused by low swine prices and
environmental regulations.
Gross profit decreased to $49.3 million in 1999 or 21.5% of sales from
$60.9 million or 22.5% of sales in 1998. This decrease in the gross profit as a
percentage of net sales was caused by overhead expenses that were not eliminated
in anticipation of lower revenues and capacity needs.
Operating expenses decreased 23% or $11.6 million to $38.7 million in 1999
from $50.2 million in 1998. This decrease resulted from savings from the
restructuring program that was implemented toward the end of the first quarter
of 1999. As a percentage of sales, operating expenses decreased to 16.9% in 1999
from 18.6% in 1998.
14
Operating income remained consistent between 1999 and 1998 at $10.6
million. Operating income margins increased to 4.6% of sales in 1999 from 3.9%
in 1998. This increase was attributable to the decreased selling, general and
administrative expenses primarily offset by lower sales volume and reduced
margins.
Interest expense increased $1.8 million for 1999. This increase was
primarily due to the interest expense on the term note portion of the Credit
Facility issued to finance, among other things, the acquisition of the Company's
Brazilian operation.
Net loss increased from $0.9 million in 1998 to $3.3 million in 1999.
Liquidity and Capital Resources
The Company has historically funded capital expenditures, working capital
requirements, debt service, stockholder dividends and stock repurchases from
cash flow from its operations, augmented by borrowings made under various credit
agreements and the sale of the Notes.
The Company's working capital requirements for its operations are seasonal,
with investments in working capital typically building in the second and third
quarters and then declining in the first and fourth quarters. The Company
defines working capital as current assets less current liabilities. As of
December 31, 2001, the Company had $61.5 million of working capital, an increase
of $11.7 million as compared to its working capital as of December 31, 2000.
This increase in working capital was primarily due to increases in cash and
other current assets, and decreases in accounts payable, billings in excess of
costs, accrued expenses, customer deposits and current maturities of long-term
debt.
Operating activities generated $5.0 million, $9.5 million and $9.8 million
of cash in 2001, 2000 and 1999, respectively. The decrease in cash flow from
operating activities from 2000 to 2001 of $4.5 million was primarily the result
of decreased net income, and changes in deferred taxes, other current assets,
accounts payable, accrued expenses and customer deposits of $20.3 million offset
by decreases in inventory and changes in accounts receivable of $15.8 million.
The Company's capital expenditures totaled $4.4 million, $6.3 million and
$7.7 million in 2001, 2000 and 1999, respectively. Capital expenditures have
primarily been for machinery and equipment and the expansion of facilities. In
2001 and 2000, capital expenditures were primarily for enhancements of
equipment. In 1999, approximately $5.5 million was primarily for the purchase of
machinery and equipment and $2.2 million was the impact of the Brazilian Real
devaluation on property, plant and equipment. The Company anticipates that its
capital expenditures in 2002 will be similar to that of 2001.
Cash used in financing activities in 2001 consisted primarily of $6.7
million of payments of long-term debt, a $1.2 million dividend for taxes, and a
$2.2 million payment of shareholder loans offset by $8.0 million of increased
borrowings under the Credit Facility and a $1.0 million shareholder loan. Cash
used in financing activities in 2000 consisted primarily of $4.9 million of
payments on long-term debt, a $1.9 million dividend for taxes, and a $1.4
million purchase of treasury shares offset by $2.6 million of increased
borrowings under the Credit Facility and a $1.2 million shareholder loan net of
payments. Cash used by financing activities in 1999 consisted of $5.1 million of
payments on long-term debt offset by $2.8 million of borrowings under the Credit
Facility and additional long-term debt and $0.5 million of contributed capital.
During the third quarter of 2001, the Credit Facility was amended to
provide for a $43.1 million revolving loan facility and a $16.9 million term
loan. LaSalle Bank N.A. and the Company further amended the Credit Facility to
modify certain covenants for the remainder of 2001 and for the year 2002 as well
as to provide a seasonal over-advance facility for the third and fourth quarters
of 2001. The Company was in compliance with all covenants under the Credit
Facility as of December 31, 2001. The Company does not anticipate any future
defaults in any of its financial covenants. For a more detailed description of
the Credit Facility, see Note 11 to the Consolidated Financial Statements
included in Item 8 hereof.
The Company believes that existing cash, cash flow from operations and
available borrowings under the Credit Facility will be sufficient to support its
working capital, capital expenditure and debt service requirements for the
foreseeable future.
15
Inflation
The Company believes that inflation has not had a material effect on its
results of operations or financial condition during recent periods.
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with adverse changes in
interest rates and foreign currency exchange rates. The Company does not hold
any market risk sensitive instruments for trading purposes. At December 31,
2001, principle exposed to interest rate risk was limited to $38.3 million in
variable rate debt. The interest rates on the various debt instruments range
from 5.34% to 19.63%. The Company measures its interest rate risk by estimating
the net amount by which potential future net earnings would be impacted by
hypothetical changes in market interest rates related to all interest rate
sensitive assets and liabilities. Therefore, a change in the interest rate of 1%
will change earnings by $0.4 million.
At December 31, 2001, approximately 14.8% of net sales were derived from
international operations with exposure to foreign currency exchange rate risk.
The Company mitigates its foreign currency exchange rate risk principally by
establishing local production facilities in the markets it serves and by
invoicing customers in the same currency as the source of the products. The
Company also monitors its foreign currency exposure in each country and
implements strategies to respond to changing economic and political
environments. The Company's exposure to foreign currency exchange rate risk
relates primarily to the financial position and the results of operations of its
Brazilian and South African subsidiaries. The Company's exposure to such
exchange rate risk as it relates to the Company's financial position and results
of operations would be adversely impacted by further devaluation of the
Brazilian Real per U.S. dollar and the South African Rand per U.S. dollar. These
amounts are difficult to accurately estimate due to factors such as the inherent
fluctuations of intercompany account balances, balance sheet accounts and the
existing economic uncertainty and future economic conditions in the
international marketplace.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF THE GSI GROUP, INC. AND
SUBSIDIARIES
Page
----
Report of Independent Public Accountants.............................................................. 18
Consolidated Balance Sheets as of December 31, 2001 and 2000.......................................... 19
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999............ 20
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 1999, 2000 and
2001............................................................................................... 21
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999............ 22
Notes to Consolidated Financial Statements............................................................ 23
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The GSI Group, Inc.
We have audited the accompanying consolidated balance sheets of The GSI
Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The GSI
Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
As explained in Note 4 to the consolidated financial statements, effective
for the year ended December 31, 2001, the Company has given retroactive effect
to the change in accounting principle for David Manufacturing Company, a wholly
owned subsidiary of The GSI Group Inc., from the last-in-first-out ("LIFO")
method to the first-in-first-out ("FIFO") method.
As explained in Note 4 to the consolidated financial statements, effective
for the year ended December 31, 2000, the Company has given retroactive effect
to the change in accounting principle for all of the Company's domestic
inventory except that of David Manufacturing Company, a wholly owned subsidiary
of The GSI Group Inc., from the last-in-first-out ("LIFO") method to the
first-in-first-out ("FIFO") method.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 25, 2002
19
PART I - FINANCIAL INFORMATION
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(In thousands, except share and per share data)
ASSETS 2001 2000
------------------------------------------------------------------- --------- ---------
Restated
--------
Current Assets:
Cash and cash equivalents ............................................. $ 2,828 $ 2,679
Accounts receivable, net .............................................. 28,887 29,120
Inventories, net ...................................................... 55,294 55,862
Prepaids .............................................................. 2,245 2,344
Deferred income taxes ................................................. -- 167
Other ................................................................. 4,816 3,650
--------- ---------
Total current assets ............................................ 94,070 93,822
--------- ---------
Notes Receivable .......................................................... 59 59
--------- ---------
Long-Term Retainage ....................................................... 95 3,648
--------- ---------
Property, Plant and Equipment, net ........................................ 42,116 47,063
--------- ---------
Other Assets:
Goodwill, net ......................................................... 10,578 10,418
Other intangible assets, net .......................................... 4,483 5,565
Deferred financing costs, net ......................................... 2,532 2,776
Other ................................................................. 808 854
--------- ---------
Total other assets .............................................. 18,401 19,613
--------- ---------
Total assets .................................................... $ 154,741 $ 164,205
========= =========
Liabilities and Stockholders' Deficit
-------------------------------------------------------------------
Current Liabilities:
Accounts payable ...................................................... $ 12,247 $ 15,687
Payroll and payroll related expenses .................................. 4,234 3,947
Deferred income taxes ................................................. 14 --
Billings in excess of costs ........................................... 257 2,034
Accrued warranty ...................................................... 2,031 2,440
Other accrued expenses ................................................ 4,855 6,785
Customer deposits ..................................................... 6,204 7,018
Current maturities of long-term debt .................................. 2,707 6,074
--------- ---------
Total current liabilities ....................................... 32,549 43,985
--------- ---------
Long-Term Debt, less current maturities ................................... 136,211 130,870
--------- ---------
Deferred Income Taxes ..................................................... 582 1,736
--------- ---------
Commitments and Contingencies
Stockholders' Deficit:
Common stock, $.01 par value, voting (authorized 6,900,000 shares;
issued 6,633,652 shares; outstanding 1,575,000 shares) ........ 16 16
Common stock, $.01 par value, nonvoting (authorized 1,100,000 shares;
issued 1,059,316 shares; outstanding 200,000 shares) ............... 2 2
Additional paid-in capital ............................................ 3,006 3,006
Accumulated other comprehensive loss .................................. (10,216) (8,105)
Retained earnings ..................................................... 19,550 19,654
Treasury stock, at cost, voting (5,058,652 shares) .................... (26,950) (26,950)
Treasury stock, at cost, nonvoting (859,316 shares) ................... (9) (9)
--------- ---------
Total stockholders' deficit ..................................... (14,601) (12,386)
--------- ---------
Total liabilities and stockholders' deficit ..................... $ 154,741 $ 164,205
========= =========
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
20
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands, except share and per share data)
2001 2000 1999
----------- ----------- -----------
Restated
-----------
Sales ........................................ $ 229,921 $ 243,961 $ 229,210
Cost of Sales ................................ 174,254 184,622 179,679
Cost of Sales - restructuring charges ........ -- -- 248
----------- ----------- -----------
Total cost of sales ...................... 174,254 184,622 179,927
----------- ----------- -----------
Gross profit .......................... 55,667 59,339 49,283
Selling, General and Administrative Expenses . 39,386 38,492 36,411
Amortization Expense ......................... 1,728 1,578 1,589
Restructuring Charges ........................ -- -- 669
----------- ----------- -----------
Total operating expenses ................. 41,114 40,070 38,669
----------- ----------- -----------
Operating income ...................... 14,553 19,269 10,614
Other Income (Expense):
Interest expense ......................... (14,397) (14,997) (14,768)
Interest income .......................... 485 152 147
Gain (loss) on sale of fixed assets ...... (350) (155) 232
Foreign currency transaction gain ........ 33 247 42
Other, net ............................... 74 195 56
----------- ----------- -----------
Income (loss) before income tax benefit 398 4,711 (3,677)
----------- ----------- -----------
Income Tax Benefit ........................... (656) (568) (336)
----------- ----------- -----------
Net income (loss) ..................... $ 1,054 $ 5,279 $ (3,341)
=========== =========== ===========
Basic and Diluted Earnings (Loss) Per Share .. $ 0.59 $ 2.82 $ (1.67)
----------- ----------- -----------
Weighted Average Common Shares Outstanding ... 1,775,000 1,872,397 2,000,000
=========== =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
21
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 1999, 2000 and 2001
(In thousands, except share data)
Common Stock
------------------------------------------------
Voting Nonvoting
----------------------- ---------------------- Accumulated
Other
Additional Comprehensive
Shares Shares Paid-In Income
Outstanding Amount Outstanding Amount Capital (Loss)
----------- --------- ------------ ------ ---------- -------------
Balance, December 31, 1998 ............. 1,800,000 $ 18 200,000 $ 2 $2,473 $ (2,203)
Net loss ............................ -- -- -- -- -- --
Capital contributions ............... -- -- -- -- 466 --
Other comprehensive
loss - foreign currency
translation adjustments ........... -- -- -- -- -- (4,793)
--------- ------- ------- --- ------ --------
Balance, December 31, 1999 ............. 1,800,000 18 200,000 2 2,939 (6,996)
Restated net income ................. -- -- -- -- -- --
Capital contributions ............... -- -- -- -- 65 --
Purchase of treasury shares......... (225,000) (2) 2 --
Other comprehensive
loss- foreign currency
translation adjustments ........... -- -- -- - -- (1,109)
Dividends .......................... -- -- -- - -- --
--------- ------- ------- --- ------ --------
Restated balance, December 31, 2000 1,575,000 16 200,000 2 3,006 (8,105)
Net income .......................... -- -- -- -- -- --
Other comprehensive
loss- foreign currency
translation adjustments............ -- -- -- -- -- (2,111)
Dividends ......................... -- -- -- -- -- --
--------- ------- ------- --- ------ --------
Balance, December 31, 2001 ............. 1,575,000 $ 16 200,000 $ 2 $3,006 $(10,216)
========= ======= ======= === ====== ========
Treasury Stock
------------------------------------------
Voting Nonvoting
--------------------- -----------------
Total Comprehensive
Retained Stockholders' Income
Earnings Shares Amount Shares Amount Deficit (Loss)
--------- --------- -------- ------- ------ ------------- -------------
Balance, December 31, 1998 ........ $19,578 4,833,652 $(25,524) 859,316 $ (9) $ (5,665)
Net loss ....................... (3,341) -- -- -- -- (3,341) $ (3,341)
Capital contributions .......... -- -- -- -- -- 466 --
Other comprehensive
loss- foreign currency
translation adjustments -- -- -- -- -- (4,793) (4,793)
--------
Comprehensive loss (8,134)
------- --------- -------- ------- ------ --------- ========
Balance, December 31, 1999 16,237 4,833,652 (25,524) 859,316 (9) (13,333)
Restated net income ............ 5,279 -- -- -- -- 5,279 5,279
Capital contributions .......... -- -- -- -- -- 65 --
Purchase of treasury shares..... -- 225,000 (1,426) -- -- (1,426) --
Other comprehensive
loss- foreign currency
translation adjustments -- -- -- -- -- (1,109) (1,109)
--------
Comprehensive income
4,170
========
Dividends ...................... (1,862) -- -- -- -- (1,862)
------- --------- -------- ------- ------ ---------
Restated balance, December
31, 2000 .......................... 19,654 5,058,652 (26,950) 859,316 (9) (12,386)
Net income ..................... 1,054 -- -- -- -- 1,054 1,054
Other comprehensive
loss- foreign currency
translation adjustments ...... -- -- -- -- -- (2,111) (2,111)
--------
Comprehensive loss ............. $ (1,057)
========
Dividends ...................... (1,158) -- -- -- -- (1,158)
------- --------- -------- ------- ------ ---------
Balance, December 31, 2001 ........ $19,550 5,058,652 $(26,950) 859,316 $ (9) $ (14,601)
======= ========= ======== ======= ====== =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
22
THE GSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands)
2001 2000 1999
------- ------- -------
Restated
--------
Cash Flows From Operating Activities:
Net income (loss) ............................................ $ 1,054 $ 5,279 $(3,341)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization ............................ 8,775 8,744 8,160
Amortization of deferred financing costs and debt discount 725 730 715
Loss (Gain) on sale of assets ............................ 350 155 (232)
Deferred taxes ........................................... (973) (829) (329)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net ............................... 3,621 (2,643) 7,689
Inventories, net ....................................... 568 (8,855) 1,448
Other current assets ................................... (1,069) 142 1,124
Accounts payable ....................................... (3,437) 5,223 (450)
Payroll and payroll related expenses ................... 287 1,005 (2,008)
Billings in excess of costs ............................ (1,777) (642) (2,307)
Accrued warranty ....................................... (409) 55 (142)
Other accrued expenses ................................. (1,931) 801 (918)
Customer deposits ...................................... (814) 351 389
------- ------- -------
Net cash flows provided by operating activities ...... 4,970 9,516 9,798
------- ------- -------
Cash Flows From Investing Activities:
Capital expenditures ......................................... (4,387) (6,251) (7,728)
Proceeds from sale of fixed assets ........................... 1,523 360 801
Payments received on notes receivable ........................ -- -- 1,025
Acquisition of FFI Corp., net of cash acquired ............... (1,457) -- --
Other ........................................................ 25 5 (310)
------- ------- -------
Net cash flows used in investing activities .......... (4,296) (5,886) (6,212)
------- ------- -------
Cash Flows From Financing Activities:
Payments on shareholder loans ................................ (2,182) (335) --
Proceeds from shareholder loans ............................. 1,017 1,500 --
Proceeds from issuance of debt .............................. -- -- 643
Payments on debt ............................................. (6,690) (4,905) (5,075)
Payments of deferred financing costs ......................... -- -- (28)
Net borrowings under line-of-credit agreement ................ 8,000 2,600 2,800
Contributed capital .......................................... -- 65 466
Purchase of treasury shares .................................. -- (1,426) --
Dividends .................................................... (1,158) (1,862) --
Other ........................................................ 541 298 499
------- ------- -------
Net cash flows used in financing activities .......... (472) (4,065) (695)
------- ------- -------
Effect of Exchange Rate Changes on Cash ......................... (53) (126) (843)
------- ------- -------
Increase (decrease) in Cash and Cash Equivalents ................ $ 149 $ (561) $ 2,048
Cash and Cash Equivalents, beginning of period .................. 2,679 3,240 1,192
------- ------- -------
Cash and Cash Equivalents, end of period ........................ $ 2,828 $ 2,679 $ 3,240
======= ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these statements
23
THE GSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
The GSI Group, Inc., a Delaware corporation, and its subsidiaries (the
"Company") manufacture and sell equipment for the agricultural industry. In
limited cases, the Company enters into contracts to manufacture and supervise
the assembly of grain handling systems. The Company's product lines include:
grain storage bins and related drying and handling equipment systems and swine
and poultry feed storage and delivery, ventilation, and watering systems. The
Company's headquarters and main manufacturing facility are in Assumption,
Illinois, with other manufacturing facilities in Illinois. In addition, the
Company has manufacturing and assembly operations in Brazil, Malaysia and Canada
and selling and distribution operations in South Africa, The Netherlands, Mexico
and China.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying financial statements reflect the consolidated results of
The GSI Group, Inc. and its subsidiaries. All intercompany transactions and
balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash and temporary investments with high
quality financial institutions. At times, such investments may be in excess of
the FDIC insurance limit. Temporary investments are valued at the lower of cost
or market and at the balance sheet dates approximate fair market value. The
Company primarily serves customers in the agricultural industry. This risk
exposure is limited due to the large number of customers comprising the
Company's customer base and its dispersion across many geographic areas. The
Company grants unsecured credit to its customers. In doing so, the Company
reviews a customer's credit history before extending credit. In addition, the
Company routinely assesses the financial strength of its customers, and, as a
consequence, believes that its trade accounts receivable risk is limited.
Fair Value of Financial Instruments
The carrying amounts of cash, receivables, accounts payable and accrued
expenses approximate fair value because of the short-term nature of the items.
The carrying amount of the Company's lines of credit, notes and other payables
approximate their fair values either due to their short term nature, the
variable rates associated with these debt instruments or based on current rates
offered to the Company for debt with similar characteristics.
Inventories
Inventories are stated at the lower of cost or market. Cost includes the
cost of materials, labor and factory overhead. The cost of all domestic and
international inventories were determined using the first-in-first-out ("FIFO")
method. As explained in Note 4 the Company has given retroactive effect to the
change in accounting principle for
24
all of the Company's domestic inventory except that of David Manufacturing
Company ("DMC"), a wholly owned subsidiary of The GSI Group, Inc., from the
last-in-first-out ("LIFO") method to the first-in-first-out ("FIFO") method
effective October 1, 2000. The Company has also given retroactive effect to the
change in accounting principle for DMC inventories from the LIFO method to the
FIFO method effective October 1, 2001. Inventories and cost of sales are based
in part on accounting estimates relating to differences resulting from periodic
physical inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. The cost of property, plant and equipment acquired as part of a
business acquisition represents the estimated fair market value of such assets
at the acquisition date. Depreciation is provided using the straight-line method
over the following estimated useful lives.
Years
-----
Building and Improvements ................... 10-25
Machinery and Equipment ..................... 3-10
Office Equipment and Furniture .............. 3-10
Repairs and maintenance are charged to expense as incurred. Gains or losses
resulting from sales or retirements are recorded as incurred, at which time
related costs and accumulated depreciation are removed from accounts.
Property, plant and equipment under capital leases are amortized over the
shorter of the estimated useful life of the asset or the term of the lease.
Research and Development
Costs associated with research and development are expensed as incurred.
Such costs incurred were $2.8 million, $2.3 million and $2.1 million for the
years ended December 31, 2001, 2000 and 1999, respectively.
Intangible Assets
The excess of purchase costs over amounts allocated to identifiable assets
and liabilities of businesses acquired ("goodwill") is amortized on the
straight-line basis over periods ranging from 15 to 40 years. Goodwill is
recorded net of accumulated amortization. Should events or circumstances occur
subsequent to the acquisition of a business which bring into question the
realizable value or impairment of the related goodwill, the Company will
evaluate the remaining useful life and balance of goodwill and make appropriate
adjustments. The Company's principal considerations in determining impairment
include the strategic benefit to the Company of the particular business as
measured by undiscounted current and expected future operating cash flows of
that particular business. Should an impairment be identified, a loss would be
reported to the extent that the carrying value of the related goodwill exceeds
the fair value. Other intangible assets, which consist of patents and
non-compete agreements, are recorded net of accumulated amortization and are
being amortized on a straight-line basis over periods ranging from 3 to 17
years.
Deferred Financing Costs
Costs incurred in connection with obtaining financing are capitalized and
amortized over the maturity period of the debt.
Revenue Recognition
Revenue is recorded when products are shipped, collection is reasonably
assured, the price is fixed and determinable and there is persuasive evidence of
an arrangement. Provisions are made at that time, when applicable, for warranty
costs to be incurred.
Revenues on long term fixed price contracts are recognized using the
percentage of completion method. Percentage of completion is determined by
relating the actual costs incurred to date to the total estimated cost for each
contract. If the estimate indicates a loss on a particular contract, a provision
is made for the entire estimated loss. Retainages are included as current and
noncurrent assets in the accompanying consolidated balance sheets.
25
Revenue earned in excess of billings is comprised of revenue recognized on
certain contracts in excess of contractual billings on such contracts. Billings
in excess of costs are classified as a current liability.
Shipping and Handling Fees
As a result of adopting Emerging Issues Task Force ("EITF") EITF-00-10,
"Accounting for Shipping and Handling Fees and Costs" in 2000, the Company
reclassified freight expense from sales to cost of goods sold. In 2000, the
amounts reclassified were approximately $8.2 million and $8.0 million for the
years ending December 31, 2000 and 1999, respectively. Freight expense for 2001
was approximately $8.3 million, which is included in cost of goods sold.
Translation of Foreign Currency
The Company translates the financial statements of its foreign subsidiaries
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
"Foreign Currency Translation." The Company's foreign operations are reported in
the local currency and translated to U.S. dollars. The balance sheets of the
Company's foreign operations are translated at the exchange rate in effect at
the end of the periods presented. The revenues and expenses of the Company's
foreign operations are translated at the average rates in effect during the
period. Exchange losses resulting from translations for the years ended December
31, 2001, 2000 and 1999 have been recorded in the accompanying Consolidated
Statements of Stockholders' Deficit.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Such approach results in the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the book carrying amounts and the tax basis of
assets and liabilities.
Earnings Per Share
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." Under the provisions of SFAS No. 128, basic net income per
share is computed by dividing the net income for the period by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is computed by dividing the net income for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Diluted earnings per share equals basic earnings per share
for all periods presented.
Reclassification
Certain reclassifications have been made to prior-year amounts to conform
to the current-year presentation.
Thirteen Week Fiscal Periods
The Company uses thirteen week fiscal quarter periods for operational and
financial reporting purposes. The Company's year end will continue to be
December 31.
3. New Accounting Pronouncements
On June 30, 2001, the Financial Accounting Standards Board issued Statement
No. 141, "Business Combinations" ("Statement No. 141"). Under Statement No. 141,
all business combinations initiated after June 30, 2001 must be accounted for
using the purchase method of accounting. The use of the pooling-of-interests
method is prohibited. Additionally, Statement No. 141 requires that certain
intangible assets that can be identified and named be recognized as assets apart
from goodwill. Statement No. 141 is effective for all business combinations
initiated after June 30, 2001.
On June 30, 2001, the Financial Accounting Standards Board issued Statement
No. 142, "Goodwill and Other Intangible Assets" ("Statement No. 142"). Under
Statement No. 142, goodwill and intangible assets that have indefinite useful
lives will not be amortized but rather will be tested at least annually for
impairment. Intangible assets that have finite useful lives will continue to be
amortized over their useful lives. The Company will adopt Statement 142 as of
January 1, 2002. As of December 31, 2001, goodwill, net of accumulated
amortization, is $10.6 million and amortization expense for the year ended
December 31, 2001 was $0.6 million. As a result of Statement
26
No. 142, this goodwill will no longer be subject to amortization. The Company
has not yet determined the impact that the adoption of Statement No. 142 will
have on the Company's financial condition and results of operations.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". SFAS No. 144 created one accounting
model for long-lived assets to be disposed of by sale that applies to all
long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, "Reporting Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business", for the disposal of
segments of a business. SFAS No. 144 requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reporting in continuing operations or in discontinued operations.
Discontinued operations will no longer include amounts for operating losses that
have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated from the
ongoing operations of the entity in a disposal transaction. The provisions of
SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally are to be applied
prospectively. The Company has not yet determined the impact that the adoption
of Statement No. 144 will have on the Company's financial condition and results
of operations.
4. Accounting Change
Effective October 1, 2001, the Company has given retroactive effect to the
change in accounting principle for DMC's inventory from the LIFO method to the
FIFO method. The Company recently moved DMC manufacturing operations from Mason
City, Iowa to other domestic locations, which resulted in reduced costs in most
product categories resulting from reductions in the cost of their components.
Therefore, management believes the FIFO method provides a better measurement of
operating results. The combined effect of the change on the Company's net income
and retained earnings for the year ended December 31, 2000 was an increase of
$0.1 million ($0.04 per share).
Effective October 1, 2000, the Company has given retroactive effect to the
change in accounting principle for all of the Company's domestic inventory
except that of DMC from the LIFO method to the FIFO method. The Company has been
experiencing reduced costs in most domestic product categories (other than DMC
products) resulting from reductions in the cost of their components. Therefore,
management believes the FIFO method provides a better measurement of operating
results. The effect of the change on the Company's net income (loss) and
retained earnings for the years ended December 31, 1999 and December 31, 1998
was a decrease of $1.0 million ($0.65 per share) and $1.2 million ($0.60 per
share), respectively.
5. Restructuring Charges
During the third quarter of 2001, the Company incurred restructuring
charges of approximately $1.0 million related to work force reductions. The
charges associated with the reduction in work force are primarily severance
costs for several employees, which have been included in operating expenses in
the accompanying consolidated statements of operations. Approximately 8.0% of
these costs have been paid as of December 31, 2001
During the first quarter of 1999, the Company recorded a restructuring
charge of approximately $1.0 million related to cost-cutting measures, including
primarily work force reductions and facility closures. During the second quarter
of 1999, the Company changed its restructuring plan to allow its Nova Odessa,
Brazil facility to remain open for one more quarter. This change resulted in a
reduction of the restructuring charge of approximately $0.1 million. The charges
associated with the reduction in work force included severance costs for 155
employees, of whom 52% affected cost of goods sold and 48% affected operating
expenses. The charges associated with facility closures consisted of remaining
lease obligations and related expenses for the Company's facility in Lenni,
Pennsylvania, which was closed during the first quarter of 1999. The charges
associated with the lease obligation and related expenses totaling $48,000 have
been included in cost of goods sold and were paid out during the second quarter
of 1999. Of the $0.9 million charge, $0.7 million was paid out in the second
quarter of 1999 and $0.2 million was paid out in the third quarter of 1999. As
of December 31, 1999, the Company had terminated 155 employees who were paid
severance of $0.6 million in the second quarter of 1999 and $0.2 million in the
third quarter of 1999.
27
6. Trade Receivables Allowance
The following summarizes trade receivables allowance activity for the years
ended December 31, 1999, 2000 and 2001 (in thousands):
Amount
-------
Balance, December 31, 1999 ........................................ $ 1,500
Increase to operating expense ............................. 1,765
Charge to allowance ....................................... (857)
-------
Balance, December 31, 2000 ........................................ 2,408
Increase to operating expense ............................. 169
Charge to allowance ....................................... (660)
-------
Balance, December 31, 2001 ........................................ $ 1,917
=======
The Company has a $5.0 million line of credit arrangement with LaSalle
National Bank. Collateral for borrowings consist of certain insured foreign
receivables that are not included in the Company's borrowing base. As of
December 31, 2001, borrowings were $1.1 million and are reflected as a reduction
of trade receivables. There are no covenant requirements relating to this line
of credit.
7. Business Segment
In January 1998, the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." The Company has no
separately reportable segments in accordance with this standard. Under the
enterprise wide disclosure requirements of SFAS 131, the Company reports sales,
in thousands, by each group of product lines. Amounts for the years ended
December 31, 2001, 2000 and 1999 are as shown in the table below (in thousands):
December 31,
2001 2000 1999
-------- -------- --------
Grain product line $123,801 $145,250 $129,446
Swine product line 55,885 42,437 42,403
Poultry product line 50,235 56,274 57,361
-------- -------- --------
Sales $229,921 $243,961 $229,210
======== ======== ========
For the years ended December 31, 2001, 2000 and 1999, sales in Brazil were
$17.0 million, $20.1 million and $17.8 million, respectively. Net income (loss)
in Brazil was $1.2 million, $0.9 million and ($3.6) million in 2001, 2000 and
1999, respectively. Long-lived assets in Brazil were $3.1 million and $3.9
million at December 31, 2001 and 2000, respectively.
8. Risks and Uncertainties
International operations generally are subject to various risks that are
not present in domestic operations, including restrictions on dividends,
restrictions on repatriation of funds, unexpected changes in tariffs and other
trade barriers, difficulties in staffing and managing foreign operations,
political instability, fluctuations in currency exchange rates, reduced
protection for intellectual property rights in some countries, seasonal
reductions in business activity and potentially adverse tax consequences, any of
which could adversely impact the Company's international operations.
During 2001, the Brazilian Real experienced a devaluation (1.9501 Brazilian
Reals/U.S. Dollar at December 31, 2000 as compared to 2.3105 Brazilian Reals/
U.S. Dollar at December 31, 2001). Any further deterioration in Brazil's economy
could have an adverse effect on the Company's results of operations and
financial condition.
During 2001, the South African Rand experienced a devaluation (7.5653 South
African Rand/U.S. Dollar at December 31, 2000 as compared to 11.9920 South
African Rand/U.S. Dollar at December 31, 2001). Any further deterioration in
South Africa's economy could have an adverse effect on the Company's results of
operations and financial condition.
28
9. Detail of Certain Assets
As of December 31,
--------------------
2001 2000
-------- --------
(In thousands)
--------------------
Accounts Receivable
Trade receivables ................................... $ 30,804 $ 31,528
Allowance for doubtful accounts ..................... (1,917) (2,408)
-------- --------
Total .......................................... $ 28,887 $ 29,120
======== ========
Restated
--------
Inventories
Raw materials ...................................... $ 13,341 20,615
Work-in-process ..................................... 18,322 18,094
Finished goods ...................................... 23,631 17,153
-------- --------
55,294 55,862
======== ========
Property, Plant and Equipment
Land ............................................. $ 974 $ 921
Buildings and improvements ........................ 24,764 22,128
Machinery and equipment ........................... 50,624 51,897
Office equipment and furniture .................... 7,744 7,410
Construction-in-progress ........................... 14 2,798
-------- --------
84,120 85,154
Accumulated depreciation ........................... (42,004) (38,091)
-------- --------
Property, plant and equipment, net ................. $ 42,116 $ 47,063
======== ========
Intangible Assets
Goodwill ............................................ $ 13,492 $ 12,348
Accumulated amortization ............................ (2,914) (1,930)
-------- --------
Total .......................................... $ 10,578 $ 10,418
======== ========
Non-compete agreements .............................. $ 8,227 $ 8,227
Accumulated amortization ............................ (3,971) (2,869)
-------- --------
Total .......................................... $ 4,256 $ 5,358
======== ========
Patents and other intangible assets ................. $ 383 $ 333
Accumulated amortization ............................ (156) (126)
-------- --------
Total .......................................... $ 227 $ 207
======== ========
Deferred Financing Costs
Deferred financing costs ............................ $ 4,756 $ 4,440
Accumulated amortization ............................ (2,224) (1,664)
-------- --------
Total .......................................... $ 2,532 $ 2,776
======== ========
10. Supplemental Cash Flow Information
The Company paid approximately $13.0 million, $13.7 million and $13.5
million in interest during the years ended December 31, 2001, 2000 and 1999,
respectively. The Company paid income taxes of $48,135, $108,898 and $64,343
during the years ended December 31, 2001, 2000 and 1999, respectively.
11. Long-Term Debt
Long-term debt at December 31, 2001 and 2000 consisted of the following (in
thousands):
2001 2000
--------- ---------
Citizens National Bank IRB with variable interest at 6.5% until March, 2000,
at which time the rate is subject to periodic adjustments based on U.S. Treasury
Note rates, the rate at December 31, 2001 is 6.5%, due $14 monthly
plus interest with unpaid principal balance due April, 2010, secured by
certain real estate and improvements in Paris, Illinois ........................ $ 1,376 $ 1,542
29
Various non-compete, license and patent agreements payable, noninterest-bearing
and payable in varying amounts through 2003 .................................... 26 39
LaSalle Bank N. A. revolving line of credit ....................................... 22,000 5,400
LaSalle Bank N. A. term note ...................................................... 16,311 27,300
Clark Products, Inc. promissory note bearing interest at 10%; due $14 monthly
through June, 2001, secured by certain equipment and intangibles ............... -- 33
Shareholder Note, unsecured, payable on demand , under the same interest terms as
the La Salle Bank N.A. revolving line of credit .............................. -- 1,165
10.25% senior subordinated notes payable, principal due November, 2007, net of
Unamortized debt discount of $1,071 and $1,138 as of December 31, 2001
and 2000, respectively; amortization of debt discount was $166 for the
years ended December 31, 2001 and 2000; interest is payable
semi-annually in May and November .............................................. 98,929 98,864
Note payable to the former shareholders of Avemarau Equipamentos Agricolas
Ltda., noninterest-bearing and payable in equal annual installments
beginning December 1998 through December 2001; interest imputed at 8%,
face amount of note is 4.0 million Brazilian Reals ............................. -- 2,015
Various notes payable, bearing interest at rates ranging from 14.63% to 19.63%
and payable in varying amounts through 2002 .................................... 72 282
City of Assumption promissory note bearing interest at 5%; due $9 monthly through
December, 2003, secured by a $495 letter of credit ............................. 204 304
--------- ---------
Total ............................................................. 138,918 136,944
Less -
Current maturities ......................................................... (2,707) (6,074)
--------- ---------
Total long-term debt .............................................. $ 136,211 $ 130,870
========= =========
Maturities of long-term debt during the next five years and thereafter are as
follows (in thousands):
2002 .................................... 2,707
2003 .................................... 2,640
2004 .................................... 24,523
2005 .................................... 2,523
2006 .................................... 2,523
Thereafter .............................. 104,002
--------
Total .............................. $138,918
========
In November 1997, the Company issued $100 million of Senior Subordinated
Notes ("Notes") which are due in 2007. The Notes represent unsecured senior
subordinated obligations of the Company. Upon occurrence of a change in control
(as defined), the Company is required to repurchase the Notes at a price equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase. The indenture governing the Company's senior
subordinated notes provides for certain restrictive covenants. The more
significant of the covenants restrict the ability of the Company to dispose of
assets, incur additional indebtedness, pay dividends or make distributions and
other payments affecting subsidiaries. The Company was in compliance with the
covenants contained in the indenture as of December 31, 2001.
In June 2000, a shareholder of the Company extended a loan to the Company
for $1.5 million, which is payable on demand. In 2001, a shareholder of the
Company extended a loan to the Company for $1.0 million that was paid off during
the year. This loan has the same interest terms as the LaSalle Bank N.A.
revolving line of credit. The balance of the loan was $0.0 and $1.2 million as
of December 31, 2001 and December 31, 2000, respectively and is included in
current maturities of long-term debt.
On July 25, 2001, LaSalle Bank National Association and the Company amended
the Company's credit facility (the "Credit Facility") to provide for revolving
loans up to a maximum of $43.1 million (limited based on a borrowing base which
includes accounts receivable, inventory, principal reductions of the LaSalle
Bank National Association term loan, letters of credit and certain guaranteed
debt) and a $16.9 million term loan. The borrowings bear interest at a floating
rate per annum equal to (at the Company's option) 1.75% to 3.25% over LIBOR or
0.25% to 0.75% over the bank's floating rate, both based on the senior debt to
EBITDA ratio of the Company. The term loan is payable in quarterly principal
installments of $0.6 million plus interest over three years and matures on July
25, 2004. The Credit Facility expires on July 25, 2004. As the principal amount
outstanding on the term loan, letters of credit, and certain guaranteed debt is
reduced, the availability on the revolving loan is increased
30
maintaining a total commitment of $60.0 million under the Credit Facility. In
addition, the Credit Facility provided for a $5.0 million borrowing base
over-advance which expired on September 1, 2001 and bore an interest rate of
LIBOR plus 3.5%. The Credit Facility requires the Company to maintain a certain
senior debt to EBITDA ratio, fixed charge coverage ratio, tangible net worth and
certain levels of EBITDA and capital expenditures. In addition, the Credit
Facility requires that a percentage of Excess Cash, as defined, be used to pay
down the term loan on an annual basis. The Company was in compliance with the
covenants under the Credit Facility as of December 31, 2001. Borrowings under
the Credit Facility are secured by substantially all of the assets of the
Company, including the capital stock of any existing or future subsidiaries. The
term loan and revolving line of credit bore interest at rates ranging from 4.2%
to 8.8% for the fiscal year 2001. The Company had $22.0 million of revolving
loans outstanding, $6.2 million of standby letters of credit and $5.0 million of
guaranteed FarmPro debt which reduced the overall availability on the line to
$10.1 million as of December 31, 2001.
In September 2001, the Company purchased $100,000 of Senior subordinated
debt that was outstanding from a shareholder of the Company that is reflected as
a reduction of debt. The bonds were purchased at fair market value.
12. Employee Benefit Plans
The Company has a defined contribution plan covering virtually all
full-time employees. Under the plan, Company contributions are discretionary.
During 2001, 2000 and the first quarter of 1999, the Company provided a 25%
matching contribution up to 1% of the employees' compensation. Contributions to
the plan were temporarily suspended for the last three quarters of 1999.
Employer contributions to this plan were $203,873, $171,346 and $59,425 during
2001, 2000 and 1999, respectively.
13. Income Tax Matters
The GSI Group, Inc. ("GSI") has elected to be treated as an S corporation
for income tax purposes. Accordingly, no provision for federal income taxes
related to GSI has been recorded. Earnings or losses of GSI are reported on the
personal income tax returns of the stockholders. At December 31, 2001, all of
the Company's foreign subsidiaries are eligible foreign entities which have
elected to be classified as a partnership or disregarded as a separate entity
under U.S. Treasury Regulation Section 301.7701. As a result, earnings or losses
of the foreign subsidiaries are not subject to U.S. tax except as reported on
the personal income tax returns of the stockholders. Dividends sufficient to pay
the resulting income taxes of the owners are declared and paid as needed. DMC is
taxed pursuant to the C Corporation provisions of the Internal Revenue Code.
Accordingly, provisions for federal taxes related to DMC have been recorded.
Both GSI and DMC are subject to certain state taxes. All foreign entities are
subject to local taxes. Accordingly, the provisions for foreign local taxes have
been recorded.
The income tax benefit differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax income for the years ended
December 31, 2001, 2000 and 1999 (in thousands):
2001 2000 1999
U.S. Federal statutory rate .......................... $ 135 $ 1,574 $(910)
Increase (decrease) in income taxes resulting from:
Non-taxable S Corporation (income) losses ....... 398 (1,466) 879
Foreign local taxes ............................. 295 (419) --
Tax differences resulting from acquisition of DMC (1,274) (279) (279)
Nondeductible goodwill amortization ............. 33 33 33
Effective tax rate differences .................. (221) (38) 11
State and other income taxes .................... (22) 27 (70)
------- ------- -----
$ (656) $ (568) $(336)
======= ======= =====
The following is a summary of the Company's benefit for income taxes (in
thousands):
Years Ended December 31,
----------------------------------
2001 2000 1999
----- ----- ------
Current
Federal ......................... $(113) $ 51 $ 4
State and local ................. (24) 28 (11)
Foreign ......................... 454 182 --
----- ----- -----
317 261 (7)
----- ----- -----
31
Deferred
Federal ......................... (555) (154) (224)
State and local ................. (259) (75) (105)
Foreign ......................... (159) (600) --
----- ----- -----
(973) (829) (329)
----- ----- -----
Total benefit ............. $(656) $(568) $(336)
----- ----- -----
The components of deferred tax assets and liabilities at December 31, 2001
and 2000 are as follows (in thousands):
2001 2000
------- --------
Deferred tax assets:
Tax loss carryforwards - DMC ................ $ 64 $ 30
Tax loss carryforwards - Brazil ............. 1,890 2,245
Tax loss carryforwards - Mexico ............. 158 --
Allowance for doubtful accounts ............. 18 18
Inventory reserves .......................... 21 21
Cash discount reserves ...................... 15 24
Estimated product liability ................. 68 20
Accrued health insurance .................... 13 --
Accrued vacations ........................... 1 54
------- -------
$ 2,248 $ 2,412
======= =======
Deferred tax liabilities:
Property and equipment ...................... 1,031 1,151
Inventory ................................... 445 1,185
------- -------
1,476 2,336
------- -------
Valuation Allowance - Brazil (1,368) (1,645)
------- -------
Net Deferred tax liability ....................... $ 596 $ 1,569
======= =======
DMC has tax loss carryforwards of approximately $289,647, which begin to
expire in the year 2018. Brazil has tax loss carryforwards of approximately
$5,250,000 that do not expire. Mexico has tax loss carryforwards of
approximately $782,093 that begin to expire in 2007.
Remaining realizable assets are supported by anticipated turnaround of
deferred tax liabilities and future projected taxable income.
At December 31, 2001, if GSI's S Corporation election were terminated, a
deferred income tax liability of approximately $816,000 would be recorded.
14. Commitments and Contingencies
The Company is involved in various legal matters arising in the normal
course of business which, in the opinion of management, will not have a material
effect on the Company's financial position or results of operations.
In June 1999, the employment of John Funk, the Company's General Counsel
and Chief Financial Officer, was terminated. In June 2000, the Company entered
into a settlement agreement with Mr. Funk concerning a dispute about the effect
of the termination and his rights as a shareholder under various agreements
between him, the Company and its other shareholders. Pursuant to the settlement
agreement, the Company repurchased all of the shares of the Company held by Mr.
Funk for their original basis of $1.4 million. This purchase is reflected as
treasury stock in the accompanying Consolidated Balance Sheets.
The Company has month to month leases for several buildings and paid
rentals in 2001, 2000 and 1999 of $0.8 million, $0.7 million and $0.7 million,
respectively. The Company also leases equipment and vehicles under operating
lease arrangements. Total lease expense related to the equipment and vehicle
leases for the years ended December 31, 2001, 2000 and 1999 was $1.2 million,
$1.4 million and $1.5 million, respectively.
32
Operating lease commitments are as follows (in thousands):
2002 ................................ 1,055
2003 ................................ 769
2004 ................................ 343
------
Total ............................... $2,167
======
The Company has an operating lease agreement that requires the Company to
maintain a certain senior debt to EBITDA ratio, tangible net worth and certain
levels of capital expenditures and EBITDA. The Company was in compliance with
these covenants under the operating lease agreement as of December 31, 2001.
Certain lease agreements are collateralized by a letter of credit of $2.0
million, which was renewed for another year, expiring on October 15, 2002.
The Company terminated employment agreements with certain executives as of
November 15, 2001.
The Company has two contracts with the Syrian government and one with the
Yemen Company for Industrial Development to manufacture and supervise the
assembly of grain handling systems. Other current and long-term assets include
$2.5 million and $4.7 million as of December 31, 2001 and 2000, respectively, of
retainage withheld until completion of the projects and the meeting of certain
performance criteria. These assets are secured by letters of credit totaling
$1.9 million and are expected to be collected during the year 2002.
15. Regional Information
The Company is engaged in the manufacture and sale of equipment for the
agricultural industry. The Company's product lines include: grain storage bins
and related drying and handling equipment systems and swine and poultry feed
storage and delivery, ventilation, and watering systems. The Company's products
are sold primarily to independent dealers and distributors and are marketed
through the Company's sales personnel and network of independent dealers. Users
of the Company's products include farmers, feed mills, grain elevators, grain
processing plants and poultry/swine integrators. Sales by each major geographic
region are as follows (in millions):
2001 2000 1999
-------- -------- --------
United States ............ $ 155.6 $ 155.7 $ 150.7
Asia ..................... 17.3 18.1 11.8
Canada ................... 17.5 23.2 19.1
Latin America ............ 28.3 31.8 32.0
Mideast .................. 3.3 3.7 6.5
Europe ................... 5.6 6.4 6.4
All other ................ 2.3 5.1 2.7
-------- -------- --------
$ 229.9 $ 244.0 $ 229.2
======== ======== ========
16. Related-Party Transactions
The Company makes sales in the ordinary course of business to Sloan
Implement Company, Inc., a supplier of agricultural equipment that is owned by
certain family members of a shareholder of the Company. Such transactions
generally consist of sales of grain equipment and amounted to $243,849, $221,235
and $133,895 for 2001, 2000 and 1999, respectively.
The Company makes sales in the ordinary course of business to Larry Sloan,
who is a family member of a certain shareholder of the Company. Such
transactions generally consist of sales of grain equipment and amounted to
$65,203, $27,393 and $56,967 for 2001, 2000 and 1999, respectively.
The Company makes sales in the ordinary course of business to Resintech,
which, as a result of a joint venture partnership, has a long-term supply
agreement pursuant to which Resintech agreed to purchase 100% of its equipment
requirements from the Company. Such transactions generally consist of sales of
grain equipment and amounted to $129,245, $7,677 and $93,039 for 2001, 2000 and
1999, respectively.
The Company makes sales in the ordinary course of business to FarmPRO,
Inc., which has a long-term supply agreement pursuant to which FarmPRO agreed to
purchase 90% of its equipment requirements from the Company.
33
In connection with the agreement, the Company agreed to guarantee FarmPRO
borrowings under a line of credit agreement limited to amounts borrowed up to
$5.0 million through 2006. In connection with such guarantee, the Company
received an option to purchase up to 60% of the common stock of FarmPRO at a
formula price which approximates fair market value. The stock of FarmPRO serves
as collateral for the guarantee. In addition, the Company holds two positions on
the Board of Directors of FarmPRO. The amount of the guaranteed borrowings at
December 31, 2001 and 2000 were $4.8 million and $4.4 million, respectively.
Sales to FarmPRO were $2.9 million, $2.5 million and $3.4 million in 2001, 2000
and 1999, respectively.
The Company makes sales in the ordinary course of business to Covell Bros.,
a distributor of poultry equipment, that is owned by an employee of the Company.
Such transactions generally consist of sales of poultry equipment and amounted
to $178,432, $197,223 and $404,249 for 2001, 2000 and 1999, respectively.
The Company makes purchases in the ordinary course of business from the
Segatt family, some of whom are current employees of the Company. Such
transactions generally consist of purchases of materials, freight payments, and
commissions that amounted to $195,000, $90,000 and $43,000 for 2001, 2000 and
1999, respectively and sales of poultry equipment that amounted to $9,000,
$38,000 and $12,000 for 2001, 2000 and 1999, respectively
The Company makes sales and purchases in the ordinary course of business
from Reliance, a supplier of poultry equipment, which is owned by an employee of
the Company. Such transactions generally consist of purchases of materials for
poultry equipment that amounted to $149,070, $7,289 and $135,686 from 2001, 2000
and 1999, respectively and sales of poultry equipment that amounted to $19,263,
$19,700 and $94,075 from 2001, 2000 and 1999, respectively.
The Company makes sales in the ordinary course of business to Mayland
Enterprises, a distributor of grain equipment, that is owned by an employee of
the Company. Such transactions generally consist of sales of grain equipment and
amounted to $22,464, $57,519 and $23,010 for 2001, 2000 and 1999, respectively.
In August, 2001, Cathy Sloan was elected as a director of the Company,
replacing a director who resigned. Cathy Sloan is the wife of Craig Sloan.
The Company and its stockholders entered into certain agreements relating
to the rights of the stockholders with respect to their ownership of the
Company's shares (the "Stockholder Agreements"). These agreements generally (i)
provide that the holders of a majority of the stock may sell all of their shares
at any time if the other stockholders are entitled to participate in such sale
on the same terms and conditions, and that the holders of a majority of the
stock may require the other stockholders to sell all their stock at the same
time on the same terms and conditions, (ii) establish that the stockholders are
restricted in their ability to sell, pledge or transfer such shares, (iii) grant
rights of first refusal, first to the Company and then to all non-transferring
stockholders, with respect to the transfer of any share, (iv) require that an
affirmative vote by a majority of the Company's voting stockholders is required
to approve certain corporate matters and (v) establish procedures for the
optional purchase of shares by the Company (subject to compliance with the terms
of the Indenture) or any remaining voting stockholders upon the death, permanent
disability or termination of employment of any stockholder. The Stockholder
Agreements also (i) provide that the holders of a majority of the Company's
shares may cause the Company to register their shares in an underwritten public
offering and (ii) grant piggy-back registration rights to the stockholders in
the event of an underwritten public offering.
17. Unaudited Quarterly Information
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- -------- --------
(In thousands, except per share date)
2001:
Sales .............................. $ 44,969 $65,498 $ 71,834 $ 47,620
Gross profit ....................... 11,254 15,154 18,984 10,275
Net income (loss) .................. (2,370) 1,133 4,617 (2,326)
Basic and diluted earnings per share (1.34) .64 2.60 (1.31)
======== ======= ======== ========
34
2000:
Sales .............................. $ 49,016 $66,057 $ 83,391 $ 45,497
Gross profit ....................... 10,350 15,098 24,007 9,802
Net income (loss) .................. (2,150) 1,914 9,042 (3,609)
Basic and diluted earnings
per share ....................... (1.08) .96 5.09 (2.03)
======== ======= ======== ========
1999:
Sales .............................. $ 46,371 $60,356 $ 79,839 $ 42,644
Restated Gross profit .............. 8,003 12,374 17,653 11,253
Restated Net income (loss) ......... (7,157) 861 4,656 (1,701)
Restated Basic and diluted earnings
per share ....................... (3.58) .43 2.33 (.85)
======== ======= ======== ========
The change in accounting principle from LIFO to FIFO did not materially
effect the quarterly data for the year 2001 and 2000; thus it was not restated.
18. Acquisitions
On January 2, 2001, the Company purchased certain assets including
inventory, specialized equipment, patents, trademarks, goodwill and customer
lists of the FFI Corporation ("FFI") for approximately $6.2 million. FFI was a
manufacturer of grain drying equipment located in Indianapolis, Indiana. The
transaction was recorded in accordance with the purchase method of accounting
and, accordingly, the acquired assets have been recorded at their estimated fair
market values at the date of acquisition. The intangible assets totaling $1.3
million, including patents, trademarks, goodwill and customer lists, are being
amortized on a straight line basis over the assets estimated useful life ranging
from 10-20 years. The purchase price allocation is based on fair values.
19. Dispositions
On December 30, 2001, the Company sold the inventory, intellectual
property, and specialized equipment relating to one of its minor product lines.
The sale amount ranges from a minimum of $775,000 to a maximum of $1,267,000
contingent on inventory utilization and subsequent product sales by the buyer.
The Company has retained a security interest in the equipment and has a five
year non-compete covenant. The Company received $100,000 upon closing and will
receive $200,000 upon delivery of the inventory with the remaining amount to be
paid upon resolution of the above mentioned contingencies.
20. Guarantor Subsidiaries
The Company's payment obligation under the Notes are fully and unconditionally
guaranteed on a joint and several basis by DMC, GSI/Cumberland de Mexico S. de
R.L. de C.V., GSI/Cumberland BV, GSI/Cumberland SA (Pty) Ltd., GSI Group (Asia)
Sdn. Bhd. and Agromarau Industria E Comercio Ltda., GSI Agricultural Equipment
Shanghai Co. Ltd., and the GSI Group (Canada) Inc. (the "Guarantor
Subsidiaries"). The Guarantor Subsidiaries are direct wholly owned subsidiaries
of the Company. The obligations of the Guarantor Subsidiaries under their
guarantees are subordinated to such subsidiaries' obligations under their
guarantee of the LaSalle National Bank credit facility.
Presented below is unaudited condensed consolidating financial information for
The GSI Group, Inc. ("Parent Company") and the Guarantor Subsidiaries. In the
Company's opinion, separate financial statements and other disclosures
concerning the Guarantor Subsidiaries would not provide additional information
that is material to investors.
Investments in subsidiaries are accounted for by the Parent Company using the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in and advances to/from subsidiaries account
and earnings. The elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions.
35
20. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
(In thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 1,482 $ 1,346 $ -- $ 2,828
Accounts receivable, net ................................ 23,320 10,762 (5,195) 28,887
Inventories, net ........................................ 43,805 13,939 (2,450) 55,294
Other current assets .................................... 5,454 1,607 -- 7,061
--------- -------- -------- ---------
Total current assets .................................... 74,061 27,654 (7,645) 94,070
Property, plant and equipment, net ............................ 33,071 9,045 -- 42,116
Goodwill and other intangibles, net ........................... 2,929 12,132 -- 15,061
Investment in and advances to/from
Subsidiaries ............................................ 42,532 (6,513) (36,019) --
Other long-term assets ........................................ 3,481 13 -- 3,494
--------- -------- -------- ---------
Total assets ............................................ $ 156,074 $ 42,331 $(43,664) $ 154,741
========= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt ....................... $ 2,635 $ 72 $ -- $ 2,707
Accounts payable ........................................ 11,609 7,750 (7,112) 12,247
Accrued liabilities ..................................... 15,059 2,536 -- 17,595
--------- -------- -------- ---------
Total current liabilities ............................... 29,303 10,358 (7,112) 32,549
Long-term debt ................................................ 131,865 9,201 (4,855) 136,211
Other long-term liabilities ................................... (225) 807 -- 582
--------- -------- -------- ---------
Total liabilities ....................................... 160,943 20,366 (11,967) 169,342
Stockholders' equity (deficit):
Common stock ............................................ 18 23,539 (23,539) 18
Additional paid-in capital .............................. 3,006 305 (305) 3,006
Accumulated other comprehensive loss .................... -- (10,216) -- (10,216)
Retained earnings ....................................... 19,066 8,337 (7,853) 19,550
Treasury stock, at cost ................................. (26,959) -- -- (26,959)
--------- -------- -------- ---------
Total stockholders' equity (deficit) .................... (4,869) 21,965 (31,697) (14,601)
--------- -------- -------- ---------
Total liabilities and stockholders' equity .................... $ 156,074 $ 42,331 $(43,664) $ 154,741
========= ======== ======== =========
36
20. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000, Restated
(In thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 20 $ 2,659 $ -- $ 2,679
Accounts receivable, net ................................ 23,990 10,478 (5,348) 29,120
Inventories, net ........................................ 40,741 15,990 (869) 55,862
Other current assets .................................... 3,792 2,369 -- 6,161
--------- -------- -------- ---------
Total current assets .................................... 68,543 31,496 (6,217) 93,822
Property, plant and equipment, net ............................ 35,870 11,193 -- 47,063
Goodwill and other intangibles, net ........................... 4,396 14,363 -- 18,759
Investment in and advances to/from
Subsidiaries ............................................ 40,966 (4,906) (36,060) --
Other long-term assets ........................................ 4,505 56 -- 4,561
--------- -------- -------- ---------
Total assets ............................................ $ 154,280 $ 52,202 $(42,277) $ 164,205
========= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt ....................... $ 3,877 $ 2,197 $ -- $ 6,074
Accounts payable ........................................ 14,173 6,862 (5,348) 15,687
Accrued liabilities ..................................... 17,877 4,347 -- 22,224
--------- -------- -------- ---------
Total current liabilities ............................... 35,927 13,406 (5,348) 43,985
Long-term debt ................................................ 128,613 11,651 (9,394) 130,870
Other long-term liabilities ................................... -- 1,736 -- 1,736
--------- -------- -------- ---------
Total liabilities ....................................... 164,540 26,793 (14,742) 176,591
Stockholders' equity (deficit):
Common stock ............................................ 18 23,526 (23,526) 18
Additional paid-in capital .............................. 3,006 305 (305) 3,006
Accumulated other comprehensive loss .................... -- (8,105) -- (8,105)
Retained earnings ....................................... 13,675 9,683 (3,704) 19,654
Treasury stock, at cost ................................. (26,959) -- -- (26,959)
--------- -------- -------- ---------
Total stockholders' equity (deficit) .................... (10,260) 25,409 (27,535) (12,386)
Total liabilities and stockholders' equity .................... $ 154,280 $ 52,202 $(42,277) $ 164,205
========= ======== ======== =========
37
20. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(In thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Sales $ 190,509 $ 58,515 $(19,103) $ 229,921
Cost of sales ................................... 147,983 42,194 (15,923) 174,254
--------- -------- -------- ---------
Gross profit .............................. 42,526 16,321 (3,180) 55,667
Selling, general and administrative expenses .... 26,227 14,887 -- 41,114
--------- -------- -------- ---------
Operating income (loss) ................... 16,299 1,434 (3,180) 14,553
Interest expense ................................ (13,755) (642) -- (14,397)
Other (expense) income .......................... (218) 460 -- 242
--------- -------- -------- ---------
Income before income taxes ...................... 2,326 1,252 (3,180) 398
Provision (Benefit) for income taxes ............ 68 (724) -- (656)
--------- -------- -------- ---------
Income before equity in income of
Consolidated subsidiaries ................. 2,258 1,976 (3,180) 1,054
Equity in income of consolidated subsidiaries ... 1,976 -- 1,976 --
--------- -------- -------- ---------
Net income ...................................... $ 4,234 $ 1,976 $ (5,156) $ 1,054
========= ======== ======== =========
38
20. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000, Restated
(In thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Sales ....................................... $ 195,718 $ 63,090 $(14,847) $ 243,961
Cost of sales ............................... 151,691 48,810 (15,879) 184,622
--------- -------- -------- ---------
Gross profit .......................... 44,027 14,280 1,032 59,339
Selling, general and administrative expenses 26,116 13,954 -- 40,070
--------- -------- -------- ---------
Operating income ...................... 17,911 326 1,032 19,269
Interest expense ............................ (14,626) (371) -- (14,997)
Other income ................................ 135 304 -- 439
--------- -------- -------- ---------
Income before income taxes .................. 3,420 259 1,032 4,711
Provision (benefit) for income taxes ........ 3 (571) -- (568)
--------- -------- -------- ---------
Income before equity in income of
Consolidated subsidiaries ............. 3,417 830 1,032 5,279
Equity in income of consolidated subsidiaries 830 -- (830) --
--------- -------- -------- ---------
Net income .................................. $ 4,247 $ 830 $ 202 $ 5,279
========= ======== ======== =========
39
20. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(In thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Sales $ 185,612 $ 57,019 $(13,421) $ 229,210
Cost of sales .................................... 144,395 46,101 (10,569) 179,927
--------- -------- -------- ---------
Gross profit ............................... 41,217 10,918 (2,852) 49,283
Selling, general and administrative expenses ..... 23,571 15,098 -- 38,669
--------- -------- -------- ---------
Operating income (loss) .................... 17,646 (4,180) (2,852) 10,614
Interest expense ................................. (14,378) (390) -- (14,768)
Other income (expense) ........................... 494 (17) -- 477
--------- -------- -------- ---------
Income (loss) before income taxes ................ 3,762 (4,587) (2,852) (3,677)
Benefit for income taxes ......................... (27) (309) -- (336)
--------- -------- -------- ---------
Income (loss) before equity in income of
Consolidated subsidiaries .................. 3,789 (4,278) (2,852) (3,341)
Equity in income of consolidated subsidiaries .... (4,278) -- 4,278 --
--------- -------- -------- ---------
Net loss ......................................... $ (489) $ (4,278) $ 1,426 $ (3,341)
========= ======== ======== =========
40
20. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
(In thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Cash flows from operating activities ............. $ 2,285 $ 2,685 $ -- $ 4,970
------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures ....................... (3,918) (469) -- (4,387)
Other ...................................... (2,751) 2,842 -- 91
------- ------- ------- -------
Net cash provided by (used in) investing
Activities ................................. (6,669) 2,373 -- (4,296)
------- ------- ------- -------
Cash flows from financing activities:
Net borrowings (payments) on debt .......... 4,720 (4,575) -- 145
Other ...................................... 1,126 (1,743) -- (617)
------- ------- ------- -------
Net cash provided by (used in) financing
Activities ................................. 5,846 (6,318) -- (472)
------- ------- ------- -------
Effect of exchange rate changes on cash .......... -- (53) -- (53)
------- ------- ------- -------
Change in cash and cash equivalents .............. 1,462 (1,313) -- 149
Cash and cash equivalents, beginning of period ... 20 2,659 -- 2,679
------- ------- ------- -------
Cash and cash equivalents, end of period ......... $ 1,482 $ 1,346 -- $ 2,828
======= ======= ======= =======
41
20. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000, Restated
(In thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
Cash flows from operating activities ........... $ 4,611 $ 4,905 $ -- $ 9,516
------- ------- ---- -------
Cash flows from investing activities:
Capital expenditures ..................... (5,747) (504) -- (6,251)
Other .................................... 283 82 -- 365
------- ------- ---- -------
Net cash used in investing
Activities ............................... (5,464) (422) -- (5,886)
------- ------- ---- -------
Cash flows from financing activities:
Net borrowings (payments) on debt ........ 2,195 (3,335) -- (1,140)
Other .................................... (1,537) (1,388) -- (2,925)
------- ------- ---- -------
Net cash provided by (used in) financing
Activities ............................... 658 (4,723) -- (4,065)
------- ------- ---- -------
Effect of exchange rate changes on cash ........ -- (126) -- (126)
------- ------- ---- -------
Change in cash and cash equivalents ............ (195) (366) -- (561)
Cash and cash equivalents, beginning of period.. 1,058 2,182 -- 3,240
------- ------- ---- -------
Cash and cash equivalents, end of period ....... $ 863 $ 1,816 -- $ 2,679
======= ======= ==== =======
42
20. Guarantor Subsidiaries (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
(In thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
Cash flows provided by (used in) operating
activities $ 11,413 $(1,615) $ -- $ 9,798
............................................... -------- ------- ---- -------
Cash flows from investing activities:
Capital expenditures ..................... (7,728) -- -- (7,728)
Other .................................... 1,182 334 -- 1,516
-------- ------- ---- -------
Net cash provided by (used in) investing
Activities ............................... (6,546) 334 -- (6,212)
-------- ------- ---- -------
Cash flows from financing activities:
Advances (to) from affiliates ............ (4,354) 4,354 -- --
Net payments on debt ..................... (472) (1,160) -- (1,632)
Other .................................... 638 299 -- 937
-------- ------- ---- -------
Net cash provided by (used in) financing
Activities ............................... (4,188) 3,493 -- (695)
-------- ------- ---- -------
Effect of exchange rate changes on cash ........ -- (843) -- (843)
-------- ------- ---- -------
Change in cash and cash equivalents ............ 679 1,369 -- 2,048
Cash and cash equivalents, beginning of period . 379 813 -- 1,192
-------- ------- ---- -------
Cash and cash equivalents, end of period ....... $ 1,058 $ 2,182 -- $ 3,240
======== ======= ==== =======
21. Subsequent Events
On January 31, 2002, the Company sold its Mason City, Iowa manufacturing
facility for $1.2 million. The Company maintained its distribution facility
in Mason City with a leased facility.
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the executive
officers and directors of the Company:
Name Age Office
---- --- ------
Craig Sloan ..................................... 51 Chief Executive Officer and Director
Russell C. Mello ................................ 40 Chief Financial Officer, Treasurer and Secretary
Eugene A. Wiseman ............................... 52 President of GSI Division
Allen A. Deutsch................................. 51 President of AP/Cumberland Division
Timothy K. Tribbett ............................. 32 President of International Operations
David L. Vettel ................................. 43 President of GSI International Division
Kevin Sloan ..................................... 43 Senior Vice-President-Director of Manufacturing Division
Cathy Sloan ..................................... 51 Director
Craig Sloan joined the Company in November 1971. Mr. Sloan has been Chief
Executive Officer since December 1993. From December 1974 to December 1993, he
served as President of Grain Systems, Inc., a former subsidiary of the Company.
Mr. Sloan has been a Director of the Company since December 1972.
Russell C. Mello joined the Company in March 1995. Mr. Mello has been the
Chief Financial Officer, Secretary and Treasurer since September 2001. From June
1999 to September 2001, he served as Senior Vice President, Finance and
Secretary and Treasurer. From September 1996 to June 1999, he served as Vice
President, Finance and Assistant Secretary and Assistant Treasurer. From March
1995 to September 1996, he served as the Controller of the GSI Division. From
October 1984 to March 1995, he held various management and finance positions
with Emerson Electric Company, a manufacturer of electrical equipment.
Eugene A. Wiseman joined the Company in October 1978. Mr. Wiseman has been
President of the GSI Division since December 1996. From December 1994 to
December 1996, he served as Vice President of the GSI Division. From March 1990
to December 1994, he served as Division Manager of the GSI Division. Prior
thereto, Mr. Wiseman held various sales and management positions.
Allen A. Deutsch joined the Company in January 1993. Mr. Deutsch has been
President of the Livestock Division since September 2001. From June 1996 to
September 2001, he served as President of the AP Division. From April 1995 to
June 1996, he served as Vice President of the AP Division. From January 1993 to
April 1995, he served as National Sales Manager of the AP Division. From August
1983 to January 1993, he served as Sales Manager of AAA Associates,
Incorporated, a manufacturer and marketer of livestock ventilation systems,
which business was acquired by the Company in January 1993.
Timothy K. Tribbett joined the Company in March 1998. Mr. Tribbett has been
President of International Operations, Assistant Secretary and Assistant
Treasurer since September 2001. From March 1999 to September 2001, he served as
Vice President of International Finance. From March 1998 to March 1999, he
served as the Manager of International Finance. From April 1994 to March 1998,
he held various finance positions with Federal-Mogul Corporation, a manufacturer
of automobile components.
David L. Vettel joined the Company in November 1993. Mr. Vettel has been
President of the GSI International Division since December 1995. From November
1993 to December 1995, he served as Vice President of the GSI International
Division. From November 1991 to November 1993, he served as International Sales
Manager of Chief Industries, Inc., a manufacturer of steel buildings and grain
storage bins.
44
Kevin Sloan joined the Company in March 1977. Mr. Sloan has been Senior
Vice-President - Director of Manufacturing since January 1996. From December
1993 to January 1996, he served as Vice-President of the Heritage Vinyl
Division. From February 1987 to December 1993, he served as General Manager of
the Heritage Vinyl Division. Prior thereto, Mr. Sloan has held various
manufacturing positions.
Cathy Sloan has been a director of the Company since September 2001. Ms.
Sloan is the wife of Craig Sloan and is a homemaker.
The Company's bylaws provide that the number of directors shall be two.
Each director is elected to serve until the next annual meeting and until his or
her successor has been elected and qualified or until his or her earlier
resignation or removal. Executive officers are elected by the Board of Directors
and serve until their successors have been elected and qualified or until their
earlier resignation or removal.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth in summary form all compensation for all
services rendered in all capacities to the Company for the year ended December
31, 2000 of the Company's Chief Executive Officer and the other five most highly
compensated executive officers of the Company (the "Named Executives"), plus two
former employees who would have been named if they were still employed by the
Company.
SUMMARY COMPENSATION TABLE
All Other
Name & Principal Position Year Annual Compensation Compensation(1)
------------------------- ---- ------------------ ---------------
Salary Bonus
-------- -------
Craig Sloan ............................... 2001 $407,515 $ -- $11,702
Chief Executive Officer and Director 2000 $407,515 $ -- $ 6,680
1999 $391,000 $ -- $14,784
Eugene A. Wiseman ......................... 2001 $130,000 $19,000 $ --
President of GSI Division 2000 $130,000 $14,387 $ --
1999 $100,000 $28,159 $ --
Allen A. Deutsch .......................... 2001 $130,000 $26,000 $ --
President of AP Division 2000 $130,000 $10,532 $ --
1999 $130,000 $23,812 $ --
David L. Vettel ........................... 2001 $120,000 $19,000 $ --
President of GSI International Division 2000 $120,000 $14,387 $ --
1999 $120,000 $ 9,723 $ --
Kevin Sloan ............................... 2001 $120,000 $30,000 $ --
Vice-President of Manufacturing 2000 $120,000 $25,000 $ --
1999 $120,000 $ -- $ --
Jorge Andrade ............................. 2001 $292,000 $ -- $ 9,043
Former employee 2000 $316,515 $ -- $ 6,268
1999 $300,000 $ -- $ 6,513
Howard Buffett ............................ 2001 $292,000 $ -- $20,145
Former employee 2000 $316,515 $ -- $ 5,838
1999 $300,000 $ -- $ 4,832
----------
/1/ Consists of group insurance and other miscellaneous benefits.
45
Compensation Committee Interlocks and Insider Participation
The Company did not have a Compensation Committee during 2001. All members
of the Company's Board of Directors participated in deliberations regarding
executive officer compensation during 2001. See "Certain Relationships and
Related Transactions." During 2001, no member of the Company's Board of
Directors served as a director or a member of the compensation committee of any
other company of which any executive officer served as a member of the Company's
Board of Directors during 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 1, 2001 with
respect to the shares of the Company's voting common stock and non-voting common
stock beneficially owned by (i) each person or group that is known by the
Company to beneficially own more that 5% of the outstanding Common Stock, (ii)
each director of the Company, (iii) each Named Executive and (iv) all directors
and executive officers of the Company as a group.
Non-Voting
Voting Common Stock Common Stock(2)
------------------------- --------------------------
Number of Percentage of Number of Percentage of
Name and Address of Beneficial Owner Shares Voting Shares Non-Voting
------------------------------------ --------- ------------- --------- --------------
Craig Sloan (1) ...................................... 1,575,000 100.00% 93,567 46.78%
Russell C. Mello (1) ................................. -- -- 11,830 5.92%
Eugene A. Wiseman (1) ................................ -- -- 15,773 7.89%
Allen A. Deutsch (1) ................................. -- -- 11,198 5.60%
David L. Vettel (1) .................................. -- -- 13,798 6.90%
Kevin Sloan (1) ...................................... -- -- 11,830 5.92%
Directors and executive officers as a group
(6 persons in group) ............................ 1,575,000 100.00% 157,996 79.00%
(1) The address of each stockholder is c/o The GSI Group, Inc., 1004 East
Illinois Street, Assumption, Illinois 62510, (217) 226-4421.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company, the voting stockholder and each of the holders of the
Company's non-voting common stock have entered into an agreement that (i)
provides that the holders of non-voting common stock are entitled to sell their
shares on the same terms and conditions in the event the voting stockholders
transfer a majority of the voting stock, (ii) provides that the holders of the
non-voting common stock must under certain circumstances agree to sell their
shares on the terms and conditions approved by the Company's Board of Directors,
(iii) established that the holders of the non-voting common stock are restricted
in their ability to sell, pledge or transfer such shares, (iv) grants rights of
first refusal to Craig Sloan with respect to the transfer of any non-voting
common stock to other non-voting stockholders and (v) establishes procedures for
the optional purchase of shares by Mr. Sloan and the Company (subject to
compliance with the terms of the indenture) upon the death, permanent disability
or termination of employment of any holder of non-voting common stock. The
agreement also grants piggy-back registration rights to the holders of
non-voting common stock in the event of an underwritten public offering.
The Company makes sales in the ordinary course of business to Sloan
Implement Company, Inc., a supplier of agricultural equipment that is owned by
certain family members of a shareholder of the Company. Such transactions
generally consist of sales of grain equipment and amounted to $243,849, $221,235
and $133,895 for 2001, 2000 and 1999, respectively.
The Company makes sales in the ordinary course of business to Larry Sloan,
who is a family member of a certain shareholder of the Company. Such
transactions generally consist of sales of grain equipment and amounted to
$65,203, $27,393 and $56,967 for 2001, 2000 and 1999, respectively.
The Company makes sales in the ordinary course of business to Resintech,
which, as a result of a joint venture partnership, has a long-term supply
agreement pursuant to which Resintech agreed to purchase 100% of its equipment
requirements from the Company. Such transactions generally consist of sales of
grain equipment and amounted to $129,245, $7,677 and $93,039 for 2001, 2000 and
1999, respectively.
The Company makes sales in the ordinary course of business to FarmPRO,
Inc., which has a long-term supply agreement pursuant to which FarmPRO agreed to
purchase 90% of its equipment requirements from the Company.
46
In connection with the agreement, the Company agreed to guarantee FarmPRO
borrowings under a line of credit agreement limited to amounts borrowed up to
$5.0 million through 2006. In connection with such guarantee, the Company
received an option to purchase up to 60% of the common stock of FarmPRO at a
formula price which approximates fair market value. The stock of FarmPRO serves
as collateral for the guarantee. In addition, the Company holds two positions on
the Board of Directors of FarmPRO. The amount of the guaranteed borrowings at
December 31, 2001 and 2000 were $4.8 million and $4.4 million, respectively.
Sales to FarmPRO were $2.9 million, $2.5 million and $3.4 million in 2001, 2000
and 1999, respectively.
The Company makes sales in the ordinary course of business to Covell Bros.,
a distributor of poultry equipment, that is owned by an employee of the Company.
Such transactions generally consist of sales of poultry equipment and amounted
to $178,432, $197,223 and $404,249 for 2001, 2000 and 1999, respectively.
The Company makes purchases in the ordinary course of business from the
Segatt family, some of whom are current employees of the Company. Such
transactions generally consist of purchases of materials, freight payments, and
commissions that amounted to $195,000, $90,000 and $43,000 for 2001, 2000 and
1999, respectively and sales of poultry equipment that amounted to $9,000,
$38,000 and $12,000 for 2001, 2000 and 1999, respectively.
The Company makes sales and purchases in the ordinary course of business
from Reliance, a supplier of poultry equipment, which is owned by an employee of
the Company. Such transactions generally consist of purchases of materials for
poultry equipment that amounted to $149,070, $7,289 and $135,686 from 2001, 2000
and 1999, respectively and sales of poultry equipment that amounted to $19,263,
$19,700 and $94,075 from 2001, 2000 and 1999, respectively.
The Company makes sales in the ordinary course of business to Mayland
Enterprises, a distributor of grain equipment, that is owned by an employee of
the Company. Such transactions generally consist of sales of grain equipment and
amounted to $22,464, $57,519 and $23,010 for 2001, 2000 and 1999, respectively.
In August, 2001, Cathy Sloan was elected as a director of the Company,
replacing a director who resigned. Cathy Sloan is the wife of Craig Sloan.
The Company believes that these transactions were, and future transactions
with Sloan Implement Company, Inc., Larry Sloan, Resintech, FarmPRO, Covell
Bros., the Segatt family, Reliance and Mayland Enterprises will be, on terms no
less favorable to the Company than could have been obtained from an independent
third party in arm's length transactions.
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
See "Index to Consolidated Financial Statements of The GSI Group, Inc. and
Subsidiaries" set forth in Item 8 hereof.
(a)(2) Financial Statement Schedules:
Schedules not listed above have been omitted because they are inapplicable
or the information required to be set forth therein is provided in the
Consolidated Financial Statements or the notes thereto.
(a)(3) Exhibits:
A list of the exhibits included as part of this Form 10-K is set forth in
the Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.
(b) Reports on Form 8-K:
The GSI Group, Inc. did not file any Current Reports on Form 8-K
during its fiscal quarter ended December 31, 2001.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, The GSI Group, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Assumption, Illinois on
March 1, 2002.
The GSI Group, Inc.
By: /s/ Craig Sloan
------------------------------------
Craig Sloan
Director and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant in
the capacities indicated on March 1, 2002.
Signature Title
--------- -----
/s/ Craig Sloan Director and Chief Executive Officer (Principal
----------------------------
Craig Sloan Executive Officer)
/s/ Cathy Sloan Director
----------------------------
Cathy Sloan
/s/ Russell C. Mello Chief Financial Officer, Secretary and
----------------------------
Russell C. Mello Treasurer (Principal Financial Officer)
49
INDEX TO EXHIBITS
Exhibit
No. Document Description
------- --------------------
1.1** Stock Purchase Agreement, dated June 30, 1998, by and among Cumberland do Brasil Ltda.,
Avemarau Equipamentos Agricolas Ltda. And the stockholders of Avemarau Equipamentos
Agricolas Ltda.
1.2** Agreement for Non-Competition, dated June 30, 1998, by and among the stockholders of
Avemarau Equipamentos Agricolas Ltda. And The GSI Group, Inc.
2.1* Amended and Restated Articles of Incorporation of The GSI Group, Inc., as amended as of
October 23, 1997
2.2* By-Laws of The GSI Group, Inc.
3.1* Indenture, dated November 1, 1997, between The GSI Group, Inc. and LaSalle National Bank,
as Trustee, including forms of the Old Notes and the New Notes issued pursuant to such
Indenture.
3.2* First Supplemental Indenture, dated December 19, 1997, between The GSI Group, Inc. and
LaSalle National Bank, as Trustee, amending Indenture dated November 1, 1997, between The
GSI Group, Inc. and LaSalle National Bank, as Trustee, to qualify such Indenture under the
Trust Indenture Act of 1939.
3.3* Second Supplemental Indenture, dated December 19, 1997, executed by David Manufacturing Co.,
amending Indenture dated November 1, 1997, between The GSI Group, Inc. and LaSalle National
Bank, as Trustee, to add David Manufacturing Co. as a Guarantor under such Indenture.
3.5* Agreement of The GSI Group, Inc. to furnish the Securities and Exchange Commission with a
copy of certain instruments relating to long-term debt of The GSI Group, Inc. upon request.
4.1*** Fourth Amended and Restated Loan and Security Agreement, dated February 4, 1999, between The
GSI Group, Inc., as borrower, and LaSalle National Bank, as lender.
4.2* First Amendment to Stock Restriction and Cross-Purchase Agreement, dated July 15, 1996,
among John C. Sloan, Jorge Andrade, John Funk and Howard Buffett.
4.3* Second Amendment to Stock Restriction and Cross-Purchase Agreement, dated as of October 2,
1997, among John C. Sloan, Jorge Andrade, John Funk and Howard Buffett.
4.4+++ Letter Agreement dated as of October 27, 1999 among John C. Sloan, Jorge Andrade and Howard
Buffett
4.5+++ Amendment to Addendum dated September 30, 1999 by and between The GSI Group and
Fleet Capital Corporation relating to a certain Master Lease Agreement for machinery and
equipment.
4.6+++ Letter of Credit Amendment to the Master Lease Agreement by and between The GSI Group, Inc.
and Fleet Capital Corporation.
4.7* Lease with Option to Purchase, dated July 12, 1996, between The GSI Group, Inc. and Edgar
County Bank & Trust Company, as Trustee for Trust No. 455-232 relating to property located
in Paris, Illinois.
4.8* Agreement, dated April 9, 1997, between GSI/Cmberland Sdn. Bhd. and Ban Leng Fibre Sdn. Bhd.
relating to property located in Penang, Malaysia.
4.9++ First Amendment to Fourth Amended and Restated Loan and Security Agreement dated as of July
6, 1999 by and among The GSI Group, Inc. and LaSalle Bank National Association.
50
4.10+ Amended and Restated Employment Agreement, dated as of March 18, 1999, between The GSI
Group, Inc. and John Funk.
4.11+ Amended and Restated Stock Restriction and Buy-Sell Agreement, dated March 18, 1999, by and
among Jorge Andrade, Howard Buffett, John Funk, John C. Sloan and The GSI Group, Inc.
4.12+ Stockholder Agreement dated March 18, 1999 between The GSI Group, Inc., Jorge Andrade,
Howard Buffett, John Funk and John C. Sloan.
4.13+ Amended and Restated Stock Restriction and Buy Sell Agreement - Non Voting dated as of
March 31, 1999 by and among The GSI Group, Inc., Jorge Andrade, Howard Buffett, John
Funk, John C. Sloan and the nonvoting shareholders of The GSI Group, Inc.
4.14* Stock Restriction and Cross-Purchase Agreement, dated June 6, 1996, among John C. Sloan,
Jorge Andrade, John Funk and Howard Buffett.
4.15* Guaranty, dated November 26, 1997, executed by The GSI Group, Inc. in favor of Mercantile
Bank National Association.
5.1# Amended and Restated Employment Agreement, dated as of August 30, 2000, between The GSI
Group, Inc. and John C. Sloan.
5.2# Amended and Restated Employment Agreement, dated as August 30, 2000, between The GSI Group,
Inc. and Jorge Andrade.
5.3# Amended and Restated Employment Agreement, dated as of August 30, 2000, between The GSI
Group, Inc. and Howard Buffett.
6.1+ Asset Purchase Agreement, dated December 19, 2000, between The GSI Group, Inc. and FFI
Corporation.
7.1++ By-Laws of The GSI Group, Inc., as amended.
8.1++ Amended and Restated Stock Restriction and Buy Sell Agreement - Non Voting, dated as of
March 3, 2001, by and among The GSI Group, Inc., John C. Sloan, Jorge Andrade, and
Howard Buffett and the nonvoting shareholders of The GSI Group, Inc.
8.2++ Amended and Restated Stock Restriction and Buy Sell Agreement - Voting, dated as of March
3, 2001, by and among John C. Sloan, Jorge Andrade, and Howard Buffett and The GSI Group, Inc.
8.3++ Fifth Amended and Restated Loan and Security Agreement, dated July 25, 2001, between The GSI
Group, Inc., as borrower, and LaSalle National Bank, as lender.
8.4++ Indemnification Agreement, dated July 1, 2001, by and among The GSI Group, Inc. and John C.
Sloan, Howard Buffett, Jorge Andrade, and Russell C. Mello.
8.5+++ Separation Agreement, dated August 30, 2001, by and among The GSI Group, Inc. and Howard
Buffett.
8.6+++ Separation Agreement, dated August 30, 2001, by and among The GSI Group, Inc. and Jorge
Andrade.
12.1 Computation of Ratio of Earnings to Fixed Charges.
13.1 Preferability Letter
21.1 List of Subsidiaries of The GSI Group, Inc.
------------
* Incorporated by reference from the Company's Registration Statement of Form
S-4 (Reg. No. 333-43089) filed with the Commission pursuant to the
Securities Act of 1933, as amended.
** Incorporated by reference from the Company's Form 8-K filed with the
Commission on July 27, 1998 pursuant to the Securities Act of 1934, as
amended.
51
*** Incorporated by reference from the Company's Form 10-K filed with the
Commission on March 31, 1999 pursuant to the Securities Act of 1934.
+ Incorporated by reference from the Company's Form 10-Q filed with the
Commission on May 17, 1999 pursuant to the Securities Act of 1934.
++ Incorporated by reference from the Company's Form 10-Q filed with the
Commission on August 11, 1999 pursuant to the Securities Act of 1934.
+++ Incorporated by reference from the Company's Form 10-Q filed with the
Commission on November 12, 1999 pursuant to the Securities Act of 1934.
# Incorporated by reference from the Company's Form 10-K filed with the
Commission on March 1, 2001 pursuant to the Securities Act of 1934.
+ Incorporated by reference from the Company's Form 10-Q filed with the
Commission on May 4, 2001 pursuant to the Securities Act of 1934.
++ Incorporated by reference from the Company's Form 10-Q filed with the
Commission on August 3, 2001 pursuant to the Securities Act of 1934.
+++ Incorporated by reference from the Company's Form 10-Q filed with the
Commission on November 12, 2001 pursuant to the Securities Act of 1934.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANT WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
The Company did not send an annual report or proxy statement to security
holders covering 2001.
52