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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended June 28, 2003 Commission File No. 0-6994
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NEW BRUNSWICK SCIENTIFIC CO., INC.
State of Incorporation - New Jersey E. I. #22-1630072
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44 Talmadge Road, Edison, N.J. 08818-4005
Registrant's Telephone Number: 732-287-1200
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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 twelve (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 ninety (90) days. Yes X No __
--
Indicate by checkmark whether the registrant is an accelerated files (as defined
in Rule 12b-2 of the Act). Yes No X
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There are 8,609,475 Common shares outstanding as of August 1, 2003.
1
NEW BRUNSWICK SCIENTIFIC CO., INC.
Index
PAGE NO.
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PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets -
June 28, 2003 and December 31, 2002. . . . . . . . . . . . 3
Consolidated Statements of Operations -
Three and Six Months Ended June 28, 2003 and June 30, 2002 4
Consolidated Statements of Cash Flows -
Six Months Ended June 28, 2003 and June 30, 2002 . . . . . 5
Consolidated Statements of Comprehensive (Loss) Income -
Three and Six Months Ended June 28, 2003 and June 30, 2002 6
Notes to Consolidated Financial Statements. . . . . . . . . 7
Management's Discussion and Analysis of Results
of Operations and Financial Condition. . . . . . . . . . . 12
PART II.OTHER INFORMATION 18
2
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
ASSETS
------
June 28, December 31,
2003 2002
---------- --------------
Current Assets
- --------------------------------------------------------
Cash and cash equivalents. . . . . . . . . . . . . . . $ 6,994 $ 9,718
Accounts receivable, net . . . . . . . . . . . . . . . 7,738 9,991
Inventories:
Raw materials and sub-assemblies . . . . . . . . . . 5,483 4,514
Work-in-process. . . . . . . . . . . . . . . . . . . 2,207 1,705
Finished goods . . . . . . . . . . . . . . . . . . . 5,709 5,457
---------- --------------
Total inventories. . . . . . . . . . . . . . . . . 13,399 11,676
Deferred income taxes. . . . . . . . . . . . . . . . . 962 962
Prepaid expenses and other current assets. . . . . . . 888 766
---------- --------------
Total current assets . . . . . . . . . . . . . . . . 29,981 33,113
---------- --------------
Property, plant and equipment, net . . . . . . . . . . . 5,996 5,615
Excess of cost over net assets acquired, net . . . . . . 4,820 4,707
Other assets . . . . . . . . . . . . . . . . . . . . . . 1,827 1,829
---------- --------------
$ 42,624 $ 45,264
========== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------
Current Liabilities
- --------------------------------------------------------
Current installments of long-term debt . . . . . . . . $ 387 $ 373
Accounts payable and accrued expenses. . . . . . . . . 4,986 6,489
---------- --------------
Total current liabilities. . . . . . . . . . . . . . 5,373 6,862
---------- --------------
Long-term debt, net of current installments. . . . . . . 5,096 5,213
Other liabilities. . . . . . . . . . . . . . . . . . . . 2,505 2,547
Commitments and contingencies
Shareholders' equity:
Common stock, $0.0625 par value per share,
authorized 25,000,000 shares; issued and outstanding,
2003 - 8,596,591 and 2002 - 7,790,796 . . . . . . . . 537 487
Capital in excess of par . . . . . . . . . . . . . . . 51,675 47,959
Accumulated deficit. . . . . . . . . . . . . . . . . . (19,051) (13,756)
Accumulated other comprehensive loss . . . . . . . . . (3,477) (4,003)
Notes receivable from exercise of stock options. . . . (34) ( 45)
---------- --------------
Total shareholders' equity . . . . . . . . . . . . . 29,650 30,642
---------- --------------
$ 42,624 $ 45,264
========== ==============
See notes to consolidated financial statements.
3
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2003 2002 2003 2002
-------------------- ------------------ ----------- ------------
Net sales . . . . . . . . . . . . . . . . . . . . . . $ 10,747 $ 16,113 $ 22,332 $ 29,376
Operating costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . 7,292 9,676 14,684 17,259
Selling, general and administrative expenses. . . . 4,045 4,308 8,149 8,418
Research, development and engineering expenses. . . 894 723 1,751 1,322
-------------------- ------------------ ----------- ------------
Total operating costs and expenses. . . . . . . . 12,231 14,707 24,584 26,999
-------------------- ------------------ ----------- ------------
(Loss) income from operations . . . . . . . . . . . . (1,484) 1,406 (2,252) 2,377
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . 19 8 37 17
Interest expense. . . . . . . . . . . . . . . . . . (106) (121) (220) (236)
Other, net. . . . . . . . . . . . . . . . . . . . . (14) 8 130 14
-------------------- ------------------ ----------- ------------
(101) (105) (53) (205)
-------------------- ------------------ ----------- ------------
(Loss) income before income tax (benefit) expense . . (1,585) 1,301 (2,305) 2,172
Income tax (benefit) expense. . . . . . . . . . . . . (390) 455 (678) 760
-------------------- ------------------ ----------- ------------
Net (loss) income . . . . . . . . . . . . . . . . . . $ (1,195) $ 846 $ (1,627) $ 1,412
==================== ================== =========== ============
Basic net (loss) income per share . . . . . . . . . . $ (.14) $ .10 $ (.19) $ .17
==================== ================== =========== ============
Diluted net (loss) income per share . . . . . . . . . $ (.14) $ .10 $ (.19) $ .16
==================== ================== =========== ============
Basic weighted average number of shares outstanding . 8,576 8,410 8,573 8,319
==================== ================== =========== ============
Diluted weighted average number of shares outstanding 8,576 8,785 8,573 8,609
==================== ================== =========== ============
See notes to consolidated financial statements.
4
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 28, June 30,
2003 2002
--------- ----------
Cash flows from operating activities:
Net (loss) income. . . . . . . . . . . . . . . . . . . $ (1,627) $ 1,412
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . 624 546
Gain on sale of property . . . . . . . . . . . . . . (202) -
Change in related balance sheet accounts:
Accounts and notes receivable. . . . . . . . . . . . 2,420 1,287
Inventories. . . . . . . . . . . . . . . . . . . . . (1,589) 335
Prepaid expenses and other current assets. . . . . . (104) (573)
Accounts payable and accrued expenses. . . . . . . . (1,792) (639)
Advance payments from customers. . . . . . . . . . . 221 (1,403)
Other liabilities. . . . . . . . . . . . . . . . . . (42) (25)
-------------------------------------- ----------
Net cash (used in) provided by operating activities. . (2,091) 940
--------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment . . . . . (979) (334)
Sale of property and equipment . . . . . . . . . . . 261 -
-------------------------------------- ----------
Net cash used in investing activities. . . . . . . . . (718) (334)
-------------------------------------- ----------
Cash flows from financing activities:
Repayment of long-term debt. . . . . . . . . . . . . (137) (133)
Proceeds from issue of shares under stock purchase
and option plans . . . . . . . . . . . . . . . . . 98 801
Payments on notes receivable related to exercised
stock options . . . . . . . . . . . . . . . . 11 12
-------------------------------------- ----------
Net cash (used in) provided by financing activities . (28) 680
-------------------------------------- ----------
Net effect of exchange rate changes on cash. . . . . . 113 128
-------------------------------------- ----------
Net (decrease) increase in cash and cash equivalents. (2,724) 1,414
Cash and cash equivalents at beginning of period . . . 9,718 3,794
-------------------------------------- ----------
Cash and cash equivalents at end of period . . . . . . $ 6,994 $ 5,208
====================================== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 218 $ 250
Income taxes . . . . . . . . . . . . . . . . . . . . 750 565
See notes to consolidated financial statements.
5
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2003 2002 2003 2002
-------------------- ----------------- ---------- ---------
Net (loss) income. . . . . . . $ (1,195) $ 846 $ (1,627) $ 1,412
Other comprehensive income:
Foreign currency translation
adjustment . . . . . . . . 643 1,218 526 902
-------------------- ----------------- ---------- ---------
Comprehensive (loss) income. . $ (552) $ 2,064 $ (1,101) $ 2,314
==================== ================= ========== =========
See notes to consolidated financial statements.
6
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Interim results:
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly, the financial position of the Company
as of June 28, 2003 and the results of its operations for the three and six
months ended June 28, 2003 and June 30, 2002 and its cash flows for the six
months ended June 28, 2003 and June 30, 2002. Interim results may not be
indicative of the results that may be expected for the year.
During the first quarter of 2003, the Company adopted a 4 week, 4 week, 5 week
quarterly closing schedule resulting in a reporting date of June 28, 2003. The
effect of this change on the consolidated financial statements is not material.
The accompaning consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K.
Note 2 - Net (loss) income per share:
Basic net (loss) income per share is calculated by dividing net (loss) income by
the weighted average number of shares outstanding. Diluted net (loss) income
per share is calculated by dividing net (loss) income by the sum of the weighted
average number of shares outstanding plus the dilutive effect of stock options
which have been issued by the Company using the treasury stock method.
Antidilutive options are excluded from the calculation of diluted net (loss)
income per share. Information related to dilutive and antidilutive stock
options is as follows: (in thousands)
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2003 2002 2003 2002
------------------ ---------------- -------- --------
Dilutive effect. . . - 375 - 289
Antidilutive options 374 - 374 -
Note 3 - Long-term debt and credit agreement:
The Company is a party to first and second mortgages on the facility of the
Company's Netherlands subsidiary, which bear interest of 5.50% and 5.65%,
respectively, per annum. During the terms of the mortgages, the Company is
obligated to make monthly payments of interest and quarterly payments of
principal. At June 28, 2003, $150,000 and $167,000 was outstanding under the
first and second mortgages, respectively. Each mortgage requires 80 equal
quarterly payments of principal.
7
On March 15, 2002, the Company and Wachovia Bank, National Association (formerly
First Union National Bank) ("the Bank") entered into an amendment to extend
their agreement (the Bank Agreement) by three years to May 31, 2005. The
amendment to the Bank Agreement did not change the maturity date of the
acquisition credit line component, which remains at December 1, 2006. No other
provisions of the Bank Agreement were materially amended. The $29.5 million
secured line of credit provides the Company with a $5 million revolving credit
facility for both working capital and letters of credit, a $2 million Revolving
Line of Credit for equipment acquisition purposes, a $12.5 million credit line
for acquisitions and a $10 million foreign exchange facility. There are no
compensating balance requirements and any borrowings under the Bank Agreement
other than the fixed term acquisition debt, bear interest at the bank's prime
rate less 125 basis points or libor plus 125 basis points, at the discretion of
the Company. At June 28, 2003, the bank's prime rate was 4.0% and libor was
1.12%. All of the Company's domestic assets, which are not otherwise subject to
lien, have been pledged as security for any borrowings under the Bank Agreement.
The Bank Agreement contains various business and financial covenants including
among other things, a debt service ratio, a net worth covenant and a ratio of
total liabilities to tangible net worth. The Company is in compliance with its
covenants pursuant to the Bank Agreement at June 28, 2003.
At June 28, 2003, $4,754,000 was outstanding under the Bank Agreement related to
acquisition loans bearing fixed interest at 8% per annum, $359,000 was being
utilized for letters of credit and zero for foreign exchange transactions. The
following amounts were available at June 28, 2003 under the Bank Agreement:
$4,641,000 for working capital and letters of credit, $2,000,000 for equipment
acquisitions, $7,746,000 for acquisitions and $10,000,000 under the foreign
exchange facility.
In November 1999, the Company issued notes in the amount of 250,000 ($392,500
at the date of acquisition) in connection with the acquisition of DJM
Cryo-Research Group. The notes bear interest at 6% which are payable annually
and principal is payable in five equal annual installments commencing November
2003. At June 28, 2003 the balance of the notes was $412,000.
Note 4 - Adoption of new accounting standards:
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations ("SFAS No. 143"). SFAS No. 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or normal use of the assets. The Company also records a corresponding asset
which is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company adopted SFAS
No. 143 on January 1, 2003. The adoption did not have a material effect on the
Company's consolidated financial statements.
8
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement nullifies EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." Statement No. 146 is different from EITF Issue No. 94-3 in
that Statement No. 146 requires that a liability be recognized for a cost
associated with an exit or disposal activity only when the liability is
incurred, that is when it meets the definition of a liability in the FASB's
conceptual framework. Statement No. 146 also establishes fair value as the
objective for initial measurement of liabilities related to exit or disposal
activities. In contrast, under EITF Issue 94-3, a company recognized a
liability for an exit cost when it committed to an exit plan. Statement No. 146
is effective for exit or disposal activities that are initiated after December
31, 2002. The adoption of Statement No. 146 can be expected to impact the
timing of liability recognition associated with any future exit activities.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or an asset in some
circumstances). The adoption of SFAS 150 will not have an impact on the
Company's consolidated financial position, results of operations or cash flows.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others. This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under guarantees issued. The Interpretation also clarifies that a
guarantor is required to recognize, at inception of a guarantee, a liability for
the fair value of the obligation undertaken. The initial recognition and
measurement provisions of the Interpretation are applicable to guarantees issued
or modified after December 31, 2002. The adoption of this interpretation did
not have a material effect on the Company's consolidated financial statements.
Note 5 - Stock dividend:
On February 20, 2003 and February 12, 2002, respectively, the Company declared
10% stock dividends. The February 20, 2003 stock dividend was paid on May 15,
2003 to shareholders of record as of April 18, 2003. The weighted average
number of shares outstanding used in the computation of basic and diluted (loss)
income per share for the 2002 periods have been restated to reflect this
dividend.
9
Note 6 - Stock compensation:
At June 28, 2003, the Company has stock based employee compensation plans. The
Company accounts for its stock option plans in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeds the exercise price. No stock based employee compensation cost is
reflected in net (loss) income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The Company has adopted the disclosure standards of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation", which requires the Company to provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method of accounting for
stock options as defined in SFAS No. 123 had been applied. The following table
illustrates the effect on net (loss) income and per share amounts if the Company
had applied the fair value recognition provisions of SFAS No. 123 to stock based
employee compensation:
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2003 2002 2003 2002
-------------------- ----------------- ---------- ---------
Net (loss) income, as reported:. . . . . . . . . $ (1,195) $ 846 $ (1,627) $ 1,412
Total stock-based employee
compensation expense determined under fair
value based method, net of related tax effects 108 120 204 253
-------------------- ----------------- ---------- ---------
Pro forma net (loss) income. . . . . . . . . . . $ (1,303) $ 726 $ (1,831) $ 1,159
Net (loss) income per share:
Basic-as reported. . . . . . . . . . . . . . . $ (0.14) $ 0.10 $ (0.19) $ 0.17
Basic-pro forma. . . . . . . . . . . . . . . . $ (0.16) $ 0.09 $ (0.22) $ 0.14
Diluted-as reported. . . . . . . . . . . . . . $ (0.14) $ 0.10 $ (0.19) $ 0.16
Diluted-pro forma. . . . . . . . . . . . . . . $ (0.16) $ 0.08 $ (0.22) $ 0.13
The fair value of each stock option granted during the period is estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions:
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2003 2002 2003 2002
------------------ ---------------- ---------- ----------
Expected life (years). . . . . . . . . - - 6.0 5.2
Expected volatility. . . . . . . . . . - - 75.80% 63.67%
Expected dividend yield. . . . . . . . - - - -
Risk-free interest rate. . . . . . . . - - 3.10% 4.34%
Weighed average fair value of options
granted during the period. . . . . . - - $ 4.90 $ 3.09
10
Note 7 - Reclassifications:
Certain amounts in the 2002 consolidated financial statements have been
reclassified to conform to the 2003 financial statement presentation.
Note 8 - Investment in DGI:
As previously reported, the Company has an equity investment in Antyra Inc.
(formerly DGI BioTechnologies, Inc.) ("DGI") that was written down to zero in
2001. DGI had anticipated closing a significant financing transaction with an
investment group during the first half of 2003, however, the financing with this
group did not take place. On May 12, 2003, DGI closed on certain new short-term
financing. Under the terms of the agreement, DGI issued preferred shares in
exchange for a $200,000 cash infusion from an investment group consisting of
certain members of DGI management and other investors and warrants to BankInvest
(an existing equity investor) to purchase up to $100,000 of DGI preferred stock
exercisable through October 2003. The agreement includes a provision that if
such warrant is not exercised, the investment group has the right, but not the
obligation to invest an additional $100,000 in preferred stock under the same
terms as the BankInvest warrant. Additionally, under the terms of the
agreement, the Company agreed to accept additional shares of DGI preferred stock
on a monthly basis in lieu of the next 12 months of rent payments due the
Company from DGI (rent is due at $12,367 per month). For financial reporting
purposes, the Company will attribute no value to the shares received under this
arrangement. DGI management believes that the new short-term financing,
together with its expected limited revenues during 2003, should enable DGI to
continue operating into the first quarter of 2004. As a result of the
short-term financing obtained by DGI, the Company's fully diluted interest in
DGI was reduced, and will increase to 23.4% upon the receipt of the DGI stock in
lieu of rent over the 12-month period.
11
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Forward-looking statements, within the meaning of Section 21E of the Securities
Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis of Results of Operations and Financial Condition. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements.
The following is Management's discussion and analysis of significant factors
that have affected the Company's operating results and financial condition
during the three and six month periods ended June 28, 2003, which should be read
in conjunction with the Company's December 31, 2002 financial statements.
Results of Operations
---------------------
Quarter Ended June 28, 2003 vs. Quarter Ended June 30, 2002
- ---------------------------------------------------------------------
For the quarter ended June 28, 2003, the Company incurred a net loss of
$1,195,000 or $0.14 per diluted share on net sales of $10,747,000 compared with
net income of $846,000 or $0.10 per diluted share on net sales of $16,113,000
for the second quarter of 2002.
Net sales decreased $5,366,000 or 33.3% for the quarter ended June 28, 2003 as
compared to the corresponding quarter of the prior year. Net sales for the 2003
quarter have been negatively affected both in the United States and in export
markets by the continuing weakness in the market for life science equipment. All
of the Company's product lines were impacted by lower sales volume during the
quarter. The backlog of unfilled orders increased to $6,097,000 at June 28,
2003 from $5,453,000 at March 29, 2003 due primarily to increased orders for the
Company's new sterilizable-in-place fermentors.
Gross profit for the 2003 quarter of $3,455,000 is down 46.3% from the
$6,437,000 reported in the second quarter of 2002 due primarily to the decrease
in net sales and unabsorbed manufacturing overhead due to lower manufacturing
activity, a less favorable product mix and downward pressure on prices.
Consolidated gross margins decreased to 32.1% for the 2003 quarter from 39.9%
for the second quarter of 2002. The margin decrease is primarily attributable to
the aforementioned unabsorbed manufacturing overhead, less favorable product mix
and downward pressure on prices.
Selling, general and administrative expenses of $4,045,000 in 2003 decreased
6.1% compared with $4,308,000 in the 2002 quarter. The decrease resulted from
the effect of a reduction-in-force effected in early April, reduced commission
expense as a result of lower sales and the absense of incentive bonuses in 2003
due to the operating loss.
12
Research, development and engineering expenses increased 23.7% to $894,000 in
2003 from $723,000 in the 2002 quarter due primarily to the cost of prototypes,
consultants and normal increases and expenditures related to the Company's
product development program.
In response to the difficult market conditions currently being experienced, the
Company effected a 9% reduction-in-force at its Edison, New Jersey facility in
April 2003, which resulted in a second quarter charge of approximately $100,000
for employee severance and related benefits included in operating costs and
expenses.
Interest income increased to $19,000 in the 2003 quarter from $8,000 in the
prior year quarter due to higher average invested cash, partially offset by
lower interest rates.
Interest expense decreased to $106,000 in the 2003 quarter from $121,000 in 2002
due primarily to lower average outstanding debt due to normal repayments of
principal .
Other expense of $14,000 in the 2003 quarter compares with other income of
$8,000 in the 2002 quarter. The change is due primarily to greater realized
foreign exchange losses during the 2003 quarter.
Income tax benefit for the three months ended June 28, 2003 was $390,000, an
effective rate of 24.6% compared with income tax expense of $455,000 in 2002, an
effective rate of 35.0%. The 2003 tax benefit effective tax rate is lower than
the rate utilized in 2002 due to the valuation allowance established on the
deferred tax asset as a result of the inability to carryback losses at certain
of the Company's European subsidiaries.
Six Months Ended June 28, 2003 vs. Six Months Ended June 30, 2002
- -----------------------------------------------------------------------------
For the six months ended June 28, 2003, the Company incurred a net loss of
$1,627,000 or $0.19 per diluted share on net sales of $22,332,000 compared with
net income of $1,412,000 or $0.16 per diluted share on net sales of $29,376,000
for the first half of 2002.
Net sales decreased $7,044,000 or 24.0% for the six months ended June 28, 2003
as compared to the corresponding period of the prior year. Net sales for the
2003 period have been negatively affected both in the United States and in
export markets by the continuing weakness in demand for life science equipment.
All of the Company's product lines were impacted by lower sales volume during
the period. The backlog of unfilled orders decreased to $6,097,000 at June 28,
2003 from $6,668,000 at December 31, 2002 due primarily to an overall lower
level of orders during the first six months of 2003, the exception being the
Company's new sterilizable-in-place fermentors for which the backlog increased
approximately $500,000 during the period.
Gross profit for the 2003 first half of $7,648,000 is down 36.9% from the
$12,117,000 reported in the first half of 2002 due primarily to the decrease in
net sales and unabsorbed manufacturing overhead due to lower manufacturing
activity, a less favorable product mix and downward pressure on prices.
Consolidated gross margins decreased to 34.2% for the 2003 period from 41.2% for
the first six months of 2002. The margin decrease is primarily attributable to
the aforementioned unabsorbed manufacturing overhead, less favorable product mix
and downward pressure on prices.
13
Selling, general and administrative expenses of $8,149,000 in 2003 decreased
3.2% compared with $8,418,000 in the 2002 period. The decrease resulted from
the effect of a reduction-in-force effected in April, reduced commission
accruals as a result of lower sales and the absense of incentive bonus accruals
in 2003 due to the operating loss.
Research, development and engineering expenses increased 32.5% to $1,751,000 in
2003 from $1,322,000 in the 2002 period due primarily to normal increases and
expenditures related to the Company's product development program including the
cost of prototypes and consultants.
Interest income increased to $37,000 in the 2003 period from $17,000 in the
prior year period due to higher average invested cash, partially offset by lower
interest rates.
Interest expense decreased to $220,000 in the 2003 period from $236,000 in 2002
due primarily to lower average outstanding debt due to normal repayments of
principal.
Other income of $130,000 in the 2003 period compares with other income of
$14,000 in the 2002 period. The change is due primarily to a $201,000 gain on
the sale of property partially offset by greater realized foreign exchange
losses during the 2003 period.
Income tax benefit for the six months ended June 28, 2003 was $678,000, an
effective rate of 29.4% compared with income tax expense of $760,000 in 2002, an
effective rate of 35.0%. The 2003 tax benefit effective tax rate is lower than
the rate utilized in 2002 due to the valuation allowance established on the
deferred tax asset as a result of the inability to carryback losses at certain
of the Company's European subsidiaries.
Financial Condition
-------------------
Liquidity and Capital Resources
- ----------------------------------
Working capital decreased to $24,608,000 at June 28, 2003 from $26,251,000 at
December 31, 2002.
Inventories increased to $13,399,000 at June 28, 2003 from $11,676,000 at
December 31, 2002 principally as a result of purchases for various shaker and
freezer products where actual sales were less than expected as well as increases
related to new shaker products. Inventories also increased to support the
Company's new sterilizable-in-place fermentors for which the backlog increased
by approximately $500,000 during the first half of 2003.
Net cash used in operating activities was $2,091,000 in the first six months of
2003 as compared with cash provided of $940,000 in the first six months of 2002.
The $2,091,000 of cash used in operating activities for the first six months of
2003 was due to changes in operating assets and liabilities in the ordinary
course of business, primarily (i) net loss of $1,627,000, (ii) a gain on sale of
property of $202,000, (iii) an increase in inventories of $1,589,000 to support
the new sterilizable-in-place fermentors and shaker products as well as
purchases for various shaker and freezer products where actual sales were less
than expected, (iv) an increase in prepaid expenses and other current assets of
$104,000, and (v) a decrease in accounts payable and accrued expenses of
$1,792,000 primarily due to payments of 2002 year end accrued bonuses and
commissions during 2003, no bonus accruals and lower commission accruals during
14
2003 and a lower level of accrued income taxes due to the losses incurred during
the first six months of 2003, partially offset by (i) depreciation and
amortization of $624,000, (ii) a decrease in accounts receivable of $2,420,000
due to the lower sales volume, and (iii) an increase in advance payments from
customers of $221,000.
Net cash used in investing activities amounted to $718,000 in the first six
months of 2003 as compared with $334,000 in the first six months of 2002 and
primarily represented capital expenditures for equipment partially offset by
$261,000 from the sale of property and equipment in 2003. During the second
half of 2003 the Company expects to take delivery of a piece of CNC equipment
for its sheet metal operations which has both laser and punching capabilities at
a cost of approximately $900,000 as well as a number of normal replacements and
upgrades of other equipment.
Net cash used in financing activities amounted to $28,000 in the first six
months of 2003 as compared with net cash provided of $680,000 in the first six
months of 2002. Both periods reflect the repayment of long-term debt and the
2003 and 2002 periods include $98,000 and $801,000, respectively, of proceeds
resulting from the exercise of stock options under the Company's stock option
plans and the purchase of shares under the Company's employee stock purchase
plan.
The Company is a party to first and second mortgages on the facility of the
Company's Netherlands subsidiary, which bear interest of 5.50% and 5.65%,
respectively, per annum. During the terms of the mortgages, the Company is
obligated to make monthly payments of interest and quarterly payments of
principal. At June 28, 2003, $150,000 and $167,000 was outstanding under the
first and second mortgages, respectively. Each mortgage requires 80 equal
quarterly payments of principal.
On March 15, 2002, the Company and Wachovia Bank, National Association (formerly
First Union National Bank) ("the Bank") entered into an amendment to extend
their agreement (the Bank Agreement) by three years to May 31, 2005. The
amendment to the Bank Agreement did not change the maturity date of the
acquisition credit line component, which remains at December 1, 2006. No other
provisions of the Bank Agreement were materially amended. The $29.5 million
secured line of credit provides the Company with a $5 million revolving credit
facility for both working capital and letters of credit, a $2 million Revolving
Line of Credit for equipment acquisition purposes, a $12.5 million credit line
for acquisitions and a $10 million foreign exchange facility. There are no
compensating balance requirements and any borrowings under the Bank Agreement
other than the fixed term acquisition debt, bear interest at the bank's prime
rate less 125 basis points or libor plus 125 basis points, at the discretion of
the Company. At June 28, 2003, the bank's prime rate was 4.0% and libor was
1.12%. All of the Company's domestic assets, which are not otherwise subject to
lien, have been pledged as security for any borrowings under the Bank Agreement.
The Bank Agreement contains various business and financial covenants including
among other things, a debt service ratio, a net worth covenant and a ratio of
total liabilities to tangible net worth. The Company is in compliance with its
covenants pursuant to the Bank Agreement at June 28, 2003.
At June 28, 2003, $4,754,000 was outstanding under the Bank Agreement related to
acquisition loans bearing fixed interest at 8% per annum, $359,000 was being
utilized for letters of credit and zero for foreign exchange transactions. The
15
following amounts were available at June 28, 2003 under the Bank Agreement:
$4,641,000 for working capital and letters of credit, $2,000,000 for equipment
acquisitions, $7,746,000 for acquisitions and $10,000,000 under the foreign
exchange facility.
In November 1999, the Company issued notes in the amount of 250,000 ($392,500
at the date of acquisition) in connection with the acquisition of DJM
Cryo-Research Group. The notes bear interest at 6% which are payable annually
and principal is payable in five equal annual installments commencing November
2003. At June 28, 2003 the balance of the notes was $412,000.
The Company's contractual obligations and commitments principally include
obligations associated with outstanding indebtedness and future minimum
operating lease obligations as set forth in the following table:
Payments Due by Period as of June 28, 2003
--------------------------------------------
(In thousands)
Contractual Obligations:
Within. 1-2 3-4 After 4
Total . 1 Year Years Years Years
------- ------ -------- ------ ------
Long-term debt, notes and
credit facility. . . . . $ 5,483 $ 387 $ 830 $4,184 $ 82
Operating leases. . . . . 3,936 852 1,241 790 1,053
------ ------ -------- ------ ------
Total contractual
cash obligations . . . . $ 9,419 $1,239 $ 2,071 $4,974 $1,135
======= ====== ======== ====== ======
As previously reported, the Company has an equity investment in Antyra Inc.
(formerly DGI BioTechnologies, Inc.) ("DGI") that was written down to zero in
2001. DGI had anticipated closing a significant financing transaction with an
investment group during the first half of 2003, however, the financing with this
group did not take place. On May 12, 2003, DGI closed on certain new short-term
financing. Under the terms of the agreement, DGI issued preferred shares in
exchange for a $200,000 cash infusion from an investment group consisting of
certain members of DGI management and other investors and warrants to BankInvest
(an existing equity investor) to purchase up to $100,000 of DGI preferred stock
exercisable through October 2003. The agreement includes a provision that if
such warrant is not exercised, the investment group has the right, but not the
obligation to invest an additional $100,000 in preferred stock under the same
terms as the BankInvest warrant. Additionally, under the terms of the
agreement, the Company agreed to accept additional shares of DGI preferred stock
on a monthly basis in lieu of the next 12 months of rent payments due the
Company from DGI (rent is due at $12,367 per month). For financial reporting
purposes, the Company will attribute no value to the shares received under this
arrangement. DGI management believes that the new short-term financing,
together with its expected limited revenues during 2003, should enable DGI to
continue operating into the first quarter of 2004. As a result of the
short-term financing obtained by DGI, the Company's fully diluted interest in
DGI was reduced and will increase to 23.4% upon the receipt of the DGI stock in
lieu of rent over the 12-month period.
Management believes that the resources available to the Company, including
current cash and cash equivalents, working capital, cash to be generated from
16
operations and its line of credit which matures May 31, 2005, will satisfy its
expected working capital needs and capital expenditures for the near and
intermediate term.
Recently Adopted Accounting Standards
-------------------------------------
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations ("SFAS No. 143"). SFAS No. 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or normal use of the assets. The Company also records a corresponding asset
which is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company adopted SFAS
No. 143 on January 1, 2003. The adoption did not have any effect on the
Company's consolidated financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement nullifies EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." Statement No. 146 is different from EITF Issue No. 94-3 in
that Statement No. 146 requires that a liability be recognized for a cost
associated with an exit or disposal activity only when the liability is
incurred, that is when it meets the definition of a liability in the FASB's
conceptual framework. Statement No. 146 also establishes fair value as the
objective for initial measurement of liabilities related to exit or disposal
activities. In contrast, under EITF Issue 94-3, a company recognized a
liability for an exit cost when it committed to an exit plan. Statement No. 146
is effective for exit or disposal activities that are initiated after December
31, 2002. The adoption of Statement No. 146 can be expected to impact the
timing of liability recognition associated with any future exit activities.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or an asset in some
circumstances). The adoption of SFAS 150 will not have an impact on the
Company's consolidated financial position, results of operations or cash flows.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others. This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under guarantees issued. The Interpretation also clarifies that a
guarantor is required to recognize, at inception of a guarantee, a liability for
the fair value of the obligation undertaken. The initial recognition and
measurement provisions of the Interpretation are applicable to guarantees issued
or modified after December 31, 2002. The adoption of this interpretation did not
have a material effect on the Company's consolidated financial statements.
17
Critical Accounting Policies
----------------------------
No changes have been made in the Company's critical accounting policies during
the six months ended June 28, 2003.
18
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------------
The information required by Item 3 has been disclosed in Item 7 of the Company's
Annual Report on Form 10-K for the year ended December 31, 2002. There has been
no material change in the disclosures regarding market risk.
Item 4. Controls and Procedures
- -----------------------------------
As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to
the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer along with the Company's Chief Financial Officer. Based upon
that evaluation, the Company's Chief Executive Officer along with the Company's
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There have been no significant changes in the
Company's internal controls or in other factors, which could significantly
affect internal controls subsequent to the date the Company carried out its
evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding disclosure.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------------
The exhibits to this report are listed on the Exhibit Index included elsewhere
herein.
No reports on Form 8-K have been filed during the quarter ended June 28, 2003
with the exception of the report related to the reporting of the Company's
earnings press release for the quarter ended March 28, 2003.
19
------
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW BRUNSWICK SCIENTIFIC CO., INC.
--------------------------------------
(Registrant)
Date: August 11, 2003 /s/ David Freedman
--------------------
David Freedman
Chairman and
Chief Executive Officer
Date: August 11, 2003 /s/ Samuel Eichenbaum
-----------------------
Samuel Eichenbaum
Vice President, Finance and
Chief Financial Officer
(Principal Accounting Officer)
20
EXHIBIT 31
CERTIFICATION
I, David Freedman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of New Brunswick
Scientific Co., Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting;
and
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of the Registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.
Date: August 11, 2003 /s/ David Freedman
--------------------
Chairman and
Chief Executive Officer
21
EXHIBIT 31
CERTIFICATION
I, Samuel Eichenbaum, certify that:
1. I have reviewed this quarterly report on Form 10-Q of New Brunswick
Scientific Co., Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting;
and
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal
control over financial reporting, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant
role in the Registrant's internal control over financial reporting.
Date: August 11, 2003 /s/ Samuel Eichenbaum
-----------------------
Vice President, Finance and
Chief Financial Officer
22
EXHIBIT 32
CERTIFICATIONS
--------------
I, David Freedman, hereby certify that the periodic report being filled
herewith containing financial statements fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 (16 U.S. C. 78m or
78o(d)) and that the information contained in said periodic report fairly
presents, in all material respects, the financial condition and results of
operations of New Brunswick Scientific Co., Inc. for the period covered by said
periodic report.
August 11, 2003 /s/ David Freedman
--------------------
Name: David Freedman
Chairman and
Chief Executive Officer
I, Samuel Eichenbaum, hereby certify that the periodic report being filled
herewith containing financial statements fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 (16 U.S. C. 78m or
78o(d)) and that the information contained in said periodic report fairly
presents, in all material respects, the financial condition and results of
operations of New Brunswick Scientific Co., Inc. for the period covered by said
periodic report.
August 11, 2003 /s/ Samuel Eichenbaum
-----------------------
Name: Samuel Eichenbaum
Vice President, Finance and
Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to New Brunswick Scientific Co., Inc. and will be retained by New
Brunswick Scientific Co., Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
23
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
- ----------- -------------------------------------------- --------------------------------------------------------
31. . . . . Section 302 Certfication - David Freedman 21
31. . . . . Section 302 Certfication - Samuel Eichenbaum 22
32. . . . . Section 906 Certifications 23
3.b Restated By-Laws of the Company, as amended and restated
24