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 March 31, 2001 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
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There are 6,115,557 Common shares outstanding as of May 4, 2001.
1
NEW BRUNSWICK SCIENTIFIC CO., INC.
Index
PAGE NO.
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PART I. FINANCIAL INFORMATION:
Item 1:
Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 3
Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 5
Consolidated Statements of Comprehensive Loss -
Three Months Ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item II:
Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
PART II. OTHER INFORMATION 14
2
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
ASSETS
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March 31, December 31,
2001 2000
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Current Assets (Unaudited)
- --------------------------------------------
Cash and cash equivalents $ 2,125 $ 2,473
Accounts receivable, net 9,473 10,403
Inventories:
Raw materials and sub-assemblies 7,032 6,325
Work-in-process 4,151 4,344
Finished goods 6,124 6,052
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Total inventories 17,307 16,721
Prepaid expenses and other current assets 1,421 1,269
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Total current assets 30,326 30,866
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Property, plant and equipment, net 5,725 5,936
Excess of cost over net assets acquired, net 4,275 4,552
Deferred income taxes 153 153
Other assets 1,497 1,499
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$ 41,976 $ 43,006
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
- --------------------------------------------------
Current installments of long-term debt $ 252 $ 7,598
Accounts payable and accrued expenses 7,960 8,200
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Total current liabilities 8,212 15,798
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Long-term debt, net of current installments 7,935 694
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Other liabilities 519 572
Commitments and contingencies
Shareholders' equity:
Common stock, $0.0625 par value per share,
authorized 25,000,000 shares; outstanding, 2001
and 2000 - 6,115,557 383 383
Capital in excess of par 38,874 36,963
Retained earnings (10,937) (9,140)
Accumulated other comprehensive loss (2,948) (2,202)
Notes receivable from exercise of stock options (62) ( 62)
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Total shareholders' equity 25,310 25,942
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$ 41,976 $43,006
========= ========
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
March 31,
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2001 2000
-------------------- -----------
Net sales $ 14,700 $ 10,541
Operating costs and expenses:
Cost of sales 8,882 6,019
Selling, general and administrative expenses 4,100 4,009
Research, development and engineering expenses 1,431 1,776
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Total operating costs and expenses 14,413 11,804
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Income (loss) from operations 287 (1,263)
Other income (expense):
Interest income 18 12
Interest expense (152) (149)
Other income (expense), net (28) (7)
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(162) (144)
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Income (loss) before income tax expense (benefit) 125 (1,407)
Income tax expense (benefit) 11 (29)
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Net income (loss) $ 114 $ (1,378)
==================== ===========
Basic income (loss) per share $ .02 $ (.21)
==================== ===========
Diluted income (loss) per share $ .02 $ (.21)
==================== ===========
Basic weighted average number of shares outstanding 6,728 6,538
==================== ===========
Diluted weighted average number of shares outstanding 6,728 6,538
==================== ===========
See notes to consolidated financial statements.
4
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
-------------------- --------
Cash flows from operating activities:
Net income (loss) $ 114 $(1,378)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 348 239
Change in related balance sheet accounts:
Accounts receivable 727 2,890
Inventories (791) (2,129)
Prepaid expenses and other current assets (185) (478)
Accounts payable and accrued expenses 168 (319)
Advance payments from customers (339) 571
Other assets (2) (33)
Other liabilities (53) 10
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Net cash used in operating activities (13) (627)
-------------------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (194) (139)
Increase in goodwill related to acquisition costs - (218)
-------------------- --------
Net cash used in investing activities (194) (357)
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Cash flows from financing activities:
Repayment of long-term debt (57) (55)
Proceeds from issue of common stock under
stock option plans - 681
Payments on notes receivable related to exercised
stock options - 270
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Net cash (used in) provided by financing activities (57) 896
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Net effect of exchange rate changes on cash (84) (54)
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Net decrease in cash and cash equivalents (348) (142)
Cash and cash equivalents at beginning of period 2,473 2,111
-------------------- --------
Cash and cash equivalents at end of period $ 2,125 $ 1,969
==================== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 144 $ 157
Income taxes 141 89
See notes to consolidated financial statements.
5
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
-------------------- --------
Net income (loss) $ 114 $(1,378)
Other comprehensive loss:
Foreign currency translation adjustment (746) (435)
-------------------- --------
Net comprehensive loss $ (632) $(1,813)
==================== ========
See notes to consolidated financial statements.
6
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(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 March 31, 2001 and the results of its operations and cash flows for the
three months ended March 31, 2001 and 2000. Interim results may not be
indicative of the results that may be expected for the year.
In 2000, the Company adopted the provisions of the FASB's Emerging Issues Task
Force (EITF), Issue No. 00-10, "Accounting for Shipping and Handling Fees and
Costs," which requires the Company to report all amounts billed to a customer
related to shipping and handling as revenue, and to disclose the classification
of costs incurred for shipping and handling costs if such costs are not included
in cost of goods sold. The Company has reclassified such cost amounts, which
were previously netted in sales to cost of sales. As a result of this
reclassification, sales and cost of sales were increased by $166,000 in the 2001
period and by $156,000 in the 2000 period.
Note 2 - Segment information as of and for the three months ended March 31, 2001
and 2000:
Laboratory Drug
Research Lead Total
Equipment Discovery Segments
----------- ----------- ----------
2001:
Net sales $ 14,500 $ 200 $14,700
Percentage of sales 98.6% 1.4% 100%
Income (loss) from operations 805 (518) 287
Total assets (1) 41,642 334 41,976
Capital expenditures 194 - 194
Depreciation and amortization(1) 348 - 348
2000:
Net sales $ 10,423 $ 118 $10,541
Percentage of sales 98.9% 1.1% 100%
Loss from operations (528) (735) (1,263)
Total assets (1) 42,132 874 43,006
Capital expenditures 139 - 139
Depreciation and amortization(1) 239 - 239
<FN>
(1) Fixed assets and depreciation related to the Drug Lead Discovery segment
are not allocated to the segment as the assets are owned directly by New Brunswick
Scientific Co., Inc. and are included in the Laboratory Research Equipment Segment.
However, rental expense in lieu of depreciation expense is charged to the Drug Lead
Discovery segment which is comprised of DGI BioTechnologies, the Company's drug
lead discovery operation.
7
Note 3 - Income (loss) per share:
Basic income (loss) per share is calculated by dividing net income (loss) by the
weighted average number of shares outstanding. Diluted income (loss) per share
is calculated by dividing net income (loss) 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, unless the effect of the stock options is
antidilutive.
Note 4 - Long-term debt and credit agreement:
On April 16, 2000, the Company entered into an agreement (the Bank Agreement)
with First Union National Bank for a three year, $31 million secured line of
credit. The Bank Agreement provides the Company with a $5 million revolving
credit facility for both working capital and for letters of credit, a $1 million
Revolving Line of Credit for equipment acquisition purposes, a $15 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 bear interest at various rates based upon a function of the bank's
prime rate or Libor at the discretion of the Company. All of the Company's
domestic assets, which are not otherwise subject to lien have been pledged as
security for any borrowings under this Bank Agreement. The Bank Agreement
contains various business and financial covenants including among other things,
a debt service coverage ratio, a net worth covenant, and a ratio of total
liabilities to tangible net worth. The Company was not in compliance with
certain financial covenance at December 31, 2000 and March 31, 2001 which
non-compliance was waived by the bank. On May 10, 2001, the financial covenants
were amended and, as a result, the Company expects to be in compliance with the
amended covenants for the ensuing twelve months. At March 31, 2001, $6,698,000
was outstanding under the Bank Agreement.
As of March 31, 2001, the Company has $2.4 million available against the
revolving credit facility for working capital and for letters of credit, $1.0
million available against the revolving credit facility for equipment
acquisitions, $9.7 million available against the credit line for acquisitions
and $10.0 million available against 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 the 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
2004. At March 31, 2001, the balance of the notes was
$354,000.
The Company is a party to first and second mortgages on the facility of the
Company's Netherlands subsidiary. At March 31, 2001, $367,000 was outstanding.
Note 5 - Stock dividend
On April 2, 2001 and February 28, 2000, the Company declared a 10% stock
dividend. The April 2, 2001 stock dividend is payable on May 15, 2001 to
shareholders of record as of April 16, 2001. Basic and diluted income(loss)
per share amounts have been retroactively restated to reflect the stock
dividends. The 2001 dividend has been reflected in retained earnings as of
March 31, 2001.
8
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 Financial Condition and Results of Operations. 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 quarter ended March 31, 2001.
Results of Operations
---------------------
Quarter Ended March 31, 2001 vs. Quarter Ended March 31, 2000.
- ------------------------------------------------------------------------
For the quarter ended March 31, 2001, net sales were $14,700,000 compared with
net sales of $10,541,000 for the quarter ended March 31, 2000, an increase of
39.5%. Net income for the 2001 quarter of $114,000 or $.02 per diluted share
compares with a net loss of $1,378,000 or $.23 per diluted share for the first
quarter of 2000.
The increase in net sales for the 2001 quarter is attributable to higher
shipments of ultra-low temperature freezers which benefited from the recent
well-received introduction of our new freezer line incorporating vacuum
insulated panel technology and which doubled vs. last year's first quarter. In
addition, shipments of shakers, fermentors and custom bioprocess systems
increased significantly. Gross margins decreased during the 2001 quarter to
39.6% from 42.9% during the quarter ended March 31, 2000 primarily as a result
of lower margins generated by the Company's European subsidiaries due to
competitive pressures and the effect of the strong dollar.
Selling, general and administrative expenses remained relatively flat at
$4,100,000 in the 2001 quarter compared with $4,009,000 in 2000. During 2000,
the Company did not incur any significant increases in its selling, general and
administrative expenses. This cost control trend continued into 2001 and the
Company has made certain cost reductions in order to offset normal inflationary
increases in salaries and other expenses.
Research, development and engineering expenses decreased to $1,431,000 in 2001
from $1,776,000 during the first quarter of 2000 primarily as a result of a
decline in spending by DGI and a reduction in engineering costs.
Financial Condition
-------------------
Liquidity and Capital Resources
- ----------------------------------
Working capital increased to $22,114,000 at March 31, 2001 from $15,068,000 at
December 31, 2000 and cash and cash equivalents decreased to $2,125,000 from
$2,473,000 at December 31, 2000. In addition, during the quarter ended March
9
31, 2001, accounts receivable, net decreased to $9,473,000 from $10,403,000 at
December 31, 2000 and inventories increased to $17,307,000 from $16,721,000 at
December 31, 2000. Also, during the 2001 quarter, current installments of
long-term debt decreased to $252,000 from $7,598,000 at December 31, 2000 due to
the reclassification of certain bank debt from long-term debt to current at
December 31, 2000 due to the Company's expectation at December 31, 2000 of not
being in compliance with the financial covenants throughout 2001. As a result
of the May 2001 amendment to the debt agreement described below this debt has
been classified as long-term at March 31, 2001.
On April 16, 2000, the Company entered into an agreement (the Bank Agreement)
with First Union National Bank for a three year, $31 million secured line of
credit. The Bank Agreement provides the Company with a $5 million revolving
credit facility for both working capital and for letters of credit, a $1 million
Revolving Line of Credit for equipment acquisition purposes, a $15 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 bear interest at various rates based upon a function of the bank's
prime rate or Libor at the discretion of the Company. All of the Company's
domestic assets, which are not otherwise subject to lien, have been pledged as
security for any borrowings under this Bank Agreement. The Bank Agreement
contains various business and financial covenants including among other things,
a debt service coverage ratio, a net worth covenant, and a ratio of total
liabilities to tangible net worth. The Company was not in compliance with
certain financial covenants at December 31, 2000 and March 31, 2001 which
non-compliance was waived by the bank. On May 10, 2001, the financial covenants
were amended and, as a result, the Company expects to be in compliance with the
amended covenants for the ensuing twelve months. At March 31, 2001, $6,698,000
was outstanding under the Bank Agreement.
As of March 31, 2001, the Company has $2.4 million available against the
revolving credit facility for working capital and for letters of credit, $1.0
million available against the revolving credit facility for equipment
acquisitions, $9.7 million available against the credit line for acquisitions
and $10.0 million available against 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 the 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
2004. At March 31, 2001 the balance of the notes was $354,000.
The Company is a party to first and second mortgages on the facility of the
Company's Netherlands subsidiary. At March 31, 2001, $367,000 was outstanding.
Cash Flows from Operating Activities
- ----------------------------------------
During the three months ended March 31, 2001 and 2000 net cash used in operating
activities amounted to $13,000 and $627,000, respectively. The primary reasons
for the $614,000 net change were a decrease in accounts receivable of $727,000
in 2001 vs. a decrease of $2,890,000 in 2000 and a decrease in advance payments
from customers in 2001 of $339,000 vs. an increase of $571,000 in 2000 partially
offset by (i) net income in 2001 of $114,000 compared with a net loss of
$1,378,000 in 2000, (ii) depreciation and amortization in 2001 of $348,000 vs.
$239,000 in 2000, (iii) an increase in inventories in 2001 of $791,000 vs. an
increase of $2,129,000 in 2000, (iv) an increase in prepaid expenses and other
current assets in 2001 of $185,000 vs. an increase of $478,000 in 2000 and (v)
an increase in accounts payable and accrued expenses in 2001 of $168,000 vs. a
decrease of $319,000 in 2000.
10
Cash Flows from Investing Activities
- ----------------------------------------
Net cash used in investing activities amounted to $194,000 in 2001 vs. $357,000
in 2000. The 2001 and 2000 periods included expenditures for property, plant
and equipment and the 2000 period included additional goodwill related to
additional acquisition costs of DJM Cryo-Research.
Cash Flows from Financing Activities
- ----------------------------------------
Net cash used in financing activities in 2001 amounted to $57,000 vs. net cash
provided by financing activities of $896,000 in 2000. Both periods reflect the
repayment of long-term debt and the 2000 period includes $681,000 from the
exercise of stock options and $270,000 of repayments on notes receivable related
to exercised stock options.
Management believes that the resources available to the Company, including its
line of credit are sufficient to meet its near and intermediate-term needs.
Other Matters
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Recently Issued Accounting Standards
- ---------------------------------------
In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Certain Hedging Activities". In June 2000 the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that
all derivative instruments be recorded on the balance sheet at their respective
fair values. SFAS No. 133 and SFAS No. 138 are effective for all fiscal
quarters of all fiscal years beginning after June 30, 2000. The Company adopted
SFAS No. 133 on January 1, 2001. Management believes the affect of such
adoption was not material to the financial statements. As of March 31, 2001,
the Company does not have any derivative financial instruments.
In 2000, the Company adopted the provisions of the FASB's Emerging Issues Task
Force (EITF), Issue No. 00-10, "Accounting for Shipping and Handling Fees and
Costs," which requires the Company to report all amounts billed to a customer
related to shipping and handling as revenue, and to disclose the classification
of costs incurred for shipping and handling if such costs are not included in
cost of goods sold. The Company has reclassified such cost amounts, which were
previously netted in sales to cost of sales. As a result of this
reclassification, sales and cost of sales were increased by $166,000 in the 2001
period and by $156,000 in the 2000 period.
Drug-Lead Discovery Business
- ------------------------------
In October 1995, the Company entered the drug-lead discovery business by forming
a new company to develop a novel, small molecule drug discovery platform. The
company, DGI BioTechnologies, Inc. (DGI), is majority-owned and fully funded by
the Company and occupies specially designed laboratory space at the Company's
headquarters facility in Edison, New Jersey. DGI's operations have had a
significant negative impact on the Company's 2001 and 2000 earnings. During the
three month periods ended March 31, 2001 and 2000, $718,000 and $853,000,
respectively, of research and development expenses were charged to operations
resulting in net losses related to DGI of $518,000 in 2001 and $735,000 in 2000.
On March 30, 2001, the Company received a preliminary commitment from an
institutional investor to make a substantial investment in DGI in return for a
significant ownership interest. That preliminary commitment is subject to the
satisfactory completion of due diligence, agreement on final terms and entrance
into definitive documentation. The Company is hopeful that this investment will
11
be completed in the second quarter of 2001 and that this investment may lead to
others. The investment, if completed as presently contemplated, will reduce the
Company's ownership in DGI to under 50%. However, there can be no assurances
that the transaction will be consummated.
12
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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 March 31, 2001.
13
SIGNATURES
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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: May 14, 2001 /s/ David Freedman
--------------------
David Freedman
Chairman
(Chief Executive Officer)
/s/ Samuel Eichenbaum
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Samuel Eichenbaum
Vice President - Finance
(Principal Accounting Officer)
14