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 30, 2002 Commission File No. 0-6994
------
NEW BRUNSWICK SCIENTIFIC CO., INC.
State of Incorporation - New Jersey E. I. #22-1630072
-----------
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
---
There are 7,676,519 Common shares outstanding as of August 1, 2002.
NEW BRUNSWICK SCIENTIFIC CO., INC.
Index
PAGE NO.
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PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2002 and 2001 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001 5
Consolidated Statements of Comprehensive Income (Loss) -
Three and Six Months Ended June 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
PART II. OTHER INFORMATION 17
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
ASSETS
------
June 30, December 31,
2002 2001
------------ --------------
Current Assets (Unaudited)
- --------------------------------------------------------
Cash and cash equivalents $ 5,208 $ 3,794
Accounts receivable, net 11,876 12,811
Inventories:
Raw materials and sub-assemblies 6,253 6,704
Work-in-process 1,858 2,647
Finished goods 6,963 5,817
------------ --------------
Total inventories 15,074 15,168
Deferred Income Taxes 1,162 1,162
Prepaid expenses and other current assets 1,467 856
------------ --------------
Total current assets 34,787 33,791
------------ --------------
Property, plant and equipment, net 4,772 4,868
Excess of cost over net assets acquired, net 4,478 4,256
Other assets 1,626 1,628
------------ --------------
$ 45,663 $ 44,543
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------
Current Liabilities
- --------------------------------------------------------
Current installments of long-term debt $ 280 $ 266
Accounts payable and accrued expenses 6,984 9,136
------------ --------------
Total current liabilities 7,264 9,402
------------ --------------
Long-term debt, net of current installments 6,657 6,751
Other liabilities 2,069 2,094
Commitments and contingencies
Shareholders' equity:
Common stock, $0.0625 par value per share,
authorized 25,000,000 shares; issued and outstanding,
2002 - 7,670,563 and 2001 - 6,761,892 479 423
Capital in excess of par 47,445 40,124
Accumulated deficit (14,928) (10,014)
Accumulated other comprehensive loss (3,278) (4,180)
Notes receivable from exercise of stock options (45) ( 57)
------------ --------------
Total shareholders' equity 29,673 26,296
------------ --------------
$ 45,663 $ 44,543
============ ==============
See notes to consolidated financial statements.
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 30, June 30,
-------------------- ------------------
2002 2001 2002 2001
-------------------- ------------------ ---------- ------------
Net sales $ 16,113 $ 14,799 $ 29,376 $ 29,499
Operating costs and expenses:
Cost of sales 9,676 8,703 17,259 17,585
Selling, general and administrative expenses 4,308 4,069 8,418 8,169
Research, development and engineering expenses 723 735 1,322 1,448
DGI research expenses - 594 - 1,312
Non-recurring severance costs - 260 - 260
-------------------- ------------------ ---------- ------------
Total operating costs and expenses 14,707 14,361 26,999 28,774
-------------------- ------------------ ---------- ------------
Income from operations 1,406 438 2,377 725
Other income (expense):
Interest income 8 15 17 33
Interest expense (121) (144) (236) (296)
Other, net 8 (19) 14 (47)
-------------------- ------------------ ---------- ------------
(105) (148) (205) (310)
-------------------- ------------------ ---------- ------------
Income before income tax expense
and equity in operations of DGI 1,301 290 2,172 415
Income tax expense 455 62 760 73
-------------------- ------------------ ---------- ------------
Income before equity in operations of DGI 846 228 1,412 342
Equity in operations of DGI - (90) - (90)
-------------------- ------------------ ---------- ------------
Net Income $ 846 $ 138 $ 1,412 $ 252
==================== ================== ========== ============
Basic earnings per share $ .11 $ .02 $ .19 $ .03
==================== ================== ========== ============
Diluted earnings per share $ .11 $ .02 $ .18 $ .03
==================== ================== ========== ============
Basic weighted average number of
shares outstanding 7,645 7,404 7,563 7,402
==================== ================== ========== ============
Diluted weighted average number of
shares outstanding 7,986 7,428 7,826 7,421
==================== ================== ========== ============
See notes to consolidated financial statements.
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
------------------
2002 2001
------------------ --------
Cash flows from operating activities:
Net income $ 1,412 $ 252
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 546 667
Tax benefit from exercise of stock options 250 -
Equity in operations of DGI - 90
Change in related balance sheet accounts:
Accounts receivable 1,287 (245)
Refundable income taxes 3 51
Inventories 335 (343)
Prepaid expenses and other current assets (578) (69)
Other assets 2 69
Accounts payable and accrued expenses (889) 729
Advance payments from customers (1,403) (1,485)
Other liabilities (25) (107)
------------------ --------
Net cash provided by (used in) operating activities 940 (391)
------------------ --------
Cash flows from investing activities:
Capital expenditures (334) (358)
Sale of equipment - 18
------------------ --------
Net cash used in investing activities (334) (340)
------------------ --------
Cash flows from financing activities:
Repayment of long-term debt (133) (94)
Proceeds from issue of common stock under stock purchase and
option plans 801 64
Payments on notes receivable related to exercised stock options 12 5
------------------ --------
Net cash provided by (used in) financing activities 680 (25)
------------------ --------
Net effect of exchange rate changes on cash 128 (104)
------------------ --------
Net increase (decrease) in cash and cash equivalents 1,414 (860)
Cash and cash equivalents at beginning of period 3,794 2,473
------------------ --------
Cash and cash equivalents at end of period $ 5,208 $ 1,613
================== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 250 $ 288
Income taxes 565 141
Non-cash contribution of equipment to DGI - 429
See notes to consolidated financial statements.
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2002 2001 2002 2001
------------------- ------------------ ------ --------
Net income $ 846 $ 138 $1,412 $ 252
Other comprehensive income (loss):
Foreign currency translation adjustment 1,218 (541) _902 (1,287)
------------------- ------------------ ------ --------
Net comprehensive income (loss) $ 2,064 $ (403) $2,314 $(1,035)
=================== ================== ====== ========
See notes to consolidated financial statements.
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 June 30, 2002 and the results of its operations for the three and six
months ended June 30, 2002 and 2001 and its cash flows for the six months ended
June 30, 2002 and 2001. Interim results may not be indicative of the results
that may be expected for the year.
Note 2 - Investment in DGI:
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), was majority-owned and fully funded by
the Company until June 14, 2001 at which time an institutional investor invested
$5,000,000 in DGI in exchange for Series B voting convertible preferred stock of
DGI. The Series B convertible preferred stock of DGI has certain dividend,
liquidation and other rights senior to the Series A preferred stock of DGI held
by the Company. This transaction reduced the Company's ownership interest in
DGI to 47%. Accordingly, effective June 14, 2001, as required by accounting
principles generally accepted in the United States of America, the Company no
longer exercises control and ceased consolidating the operations of DGI but
reports its percentage of income or loss in DGI's operations on the equity
method of accounting based upon its continued ability to exercise significant
influence over DGI. The Company is not required to, and has not recorded losses
from its share of DGI's operations beyond the carrying value of its investment
since it has no further obligations to fund the DGI operations. At December 31,
2001 and June 30, 2002, the Company's investment in DGI is zero. Accordingly,
no losses have been recorded in 2002. DGI expects to require additional
financing or other alternative source of funds this year to support its
continuing operations.
Note 3 - Segment information:
Effective June 14, 2001, as a result of the Company's reduction in ownership in
DGI to 47%, the Company ceased consolidating the operations of DGI and,
accordingly, has only one segment (Laboratory Research Equipment). Segment
Information as of and for the three and six months ended June 30, 2001 is as
follows: (in thousands)
Three Months Ended Six Months Ended
June 30 June 30
- ----------------------------------- ------------------
Laboratory Drug Laboratory Drug
Research Lead Total Research Lead Total
Equipment Discovery Segments Equipment Discovery Segments
- ----------------------------------- ------------------ ------------ ----------- ----------- ----------
2001
------------------
Net sales $ 14,599 $ 200 $ 14,799 $ 29,099 $ 400 $29,499
Percentage of sales 98.6% 1.4% 100% 98.6% 1.4% 100%
Income (loss) from operations 832 (394) 438 1,637 (912) 725
Total assets (1) 41,137 - 41,137 41,137 - 41,137
Capital expenditures 164 - 164 358 - 358
Depreciation and amortization (1) 319 - 319 667 - 667
<FN>
(1) As described in Note 2, the Company's interest in DGI was reduced to 47% as of June 14, 2001 and subsequent
to that date, is reported using the equity method of accounting. Fixed assets and depreciation related to the Drug
Lead Discovery segment were not allocated to the segment as the assets were owned directly by New Brunswick
Scientific Co., Inc. and were included in the Laboratory Research Equipment Segment. However, rental expense in lieu
of depreciation expense is charged to the Drug Lead Discovery segment through the transaction date June 14, 2001 (see
Note 2), which is comprised of DGI BioTechnologies, Inc.
Note 4 - Income per share:
Basic income per share is calculated by dividing net income by the weighted
average number of shares outstanding. Diluted income per share is calculated by
dividing net 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 income per share. Information related to
dilutive and antidilutive stock options is as follows: (in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2002 2001 2002 2001
------------------ ---------------- ---- ----
Dilutive effect 341 24 263 19
Antidilutive options - 776 - 776
Note 5 - Long-term debt and credit agreement:
On March 15, 2002, the Company and 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 for 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 bear interest at various rates based upon a function of
the bank's prime rate or libor at the descretion of the Company. The Company is
in compliance with its covenants pursuant to the Bank Agreement at June 30,
2002.
At June 30, 2002, $6,239,000 was outstanding under the Bank Agreement related to
working capital and acquisition loans, $489,000 was being utilized for letters
of credit and foreign exchange transactions. The following amounts were
available at June 30, 2002 under the Bank
Agreement: $3,311,000 for working capital and letters of credit, $2,000,000 for
equipment acquisitions, $7,511,000 for acquisitions and $9,950,000 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
2004. At June 30, 2002 the balance of the notes was $383,000.
The Company is a party to first and second mortgages on the facility of the
Company's Netherlands subsidiary. At June 30, 2002, an aggregate of $315,000
was outstanding on both mortgages.
Note 6 - Goodwill:
In July 2001, the FASB issued Statement No. 141, Business Combinations ("SFAS
141") and Statement No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
SFAS 141 requires that the purchase method of accounting be used for all
business combinations completed after June 30, 2001. SFAS 141 also specifies
the criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. SFAS
142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead they will be tested for impairment at
least annually in accordance with the provisions of SFAS 142. SFAS 142 will
also require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No.144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
The Company has adopted the provisions of SFAS 141 for acquisitions initiated
after June 30, 2001, and SFAS 142 effective January 1, 2002. Goodwill acquired
in business combinations completed before July 1, 2001 pertains to the
laboratory research equipment segment and has been amortized through December
31, 2001. Effective January 1, 2002, as part of the adoption of SFAS 142 the
Company is no longer amortizing goodwill. SFAS 142 requires that the Company
perform an assessment of whether there is an indication that goodwill is
impaired based on the provisions of SFAS 142. To the extent an indication exists
that the goodwill may be impaired, the Company must measure the impairment loss,
if any. The Company has determined that there is no impairment to its goodwill
balance of $4,478,000 as of January 1, 2002 and the Company will test for
impairment at December 31 each year. Amortization expense related to goodwill
was $47,000 and $91,000 for the three and six months ended June 30, 2001,
respectively.
The following as adjusted amounts exclude the effects of amortization of
goodwill recognized in prior periods: (in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
------------------- -----------------
2002 2001 2002 2001
------------------- ----------------- ------- -----
Reported net income $ 846 $ 138 $ 1,412 $ 252
Addback: goodwill amortization - _47 - 91
------------------- ----------------- ------- -----
Adjusted net income $ 846 $ 185 $ 1,412 $ 343
=================== ================= ======= =====
Basic income per share:
Reported net income $ .11 $ .02 $ .19 $ .03
Goodwill amortization - .01 - .02
------------------- ----------------- ------- -----
Adjusted net income $ .11 $ .03 $ .19 $ .05
=================== ================= ======= =====
Diluted income per share:
Reported net income $ .11 $ .02 $ .18 $ .03
Goodwill amortization - .01 - .02
------------------- ----------------- ------- -----
Adjusted net income $ .11 $ .03 $ .18 $ .05
=================== ================= ======= =====
Note 7 - Stock dividend:
On February 12, 2002 and April 2, 2001, respectively, the Company declared 10%
stock dividends. The February 12, 2002 stock dividend was paid on May 15, 2002
to shareholders of record as of April 15, 2002. All share and per share amounts
for the three and six month periods ended June 30, 2001, have been restated to
reflect such dividend.
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 30, 2002 which should be read
in conjunction with the Company's December 31, 2001 financial statements.
Results of Operations
---------------------
Quarter Ended June 30, 2002 vs. Quarter Ended June 30, 2001
- ---------------------------------------------------------------------
For the quarter ended June 30, 2002, the Company had net income of $846,000 or
$.11 per diluted share on net sales of $16,113,000 compared with net income of
$138,000 or $.02 per diluted share on net sales of $14,799,000 for the second
quarter of 2001.
Net sales increased $1,314,000 or 8.9% from $14,799,000 to $16,113,000 for the
quarter ended June 30, 2002 as compared to the corresponding quarter of the
prior year. Net sales for the 2002 quarter benefited from increased shipments
of shakers, some of which were the result of manufacturing improvements which
have increased the Company's capacity to fulfill orders in a shorter period of
time. In addition, net sales of fermentors increased during the 2002 quarter.
Net sales for the second quarter of 2001 included $1,679,000 from fully
custom-engineered bioprocess equipment, a product line for which the Company
ceased accepting orders effective June 29, 2001. In addition, the 2001 quarter
included $200,000 of revenues from DGI BioTechnologies, Inc. whose operations,
as a result of having received an infusion of funds from an institutional
investor on June 14, 2001, are no longer consolidated with those of the Company
after that date.
Sales of the Company's equipment to foreign companies, institutions and
governments may be affected by United States export control regulations. The
Company believes that after the September 11, 2001 terrorist attacks, these
regulations may be made more restrictive.
Gross profit for the 2002 quarter of $6,437,000 is up 5.6% from the $6,096,000
reported in the second quarter of 2001 due primarily to the higher level of net
sales in 2002 which resulted from significantly higher shipments of shakers.
Consolidated gross margins declined slightly to 39.9% for the 2002 quarter from
41.2% for the second quarter of 2001. The margin decrease is primarily
attributable to competitive pricing in the European market place. However,
margins on European sales are expected to benefit as a result of the recent
weakening of the dollar.
Selling, general and administrative expenses increased to $4,308,000 in 2002
compared with $4,069,000 in the 2001 quarter primarily as a result of normal
salary, wage, benefits and other increases.
Research, development and engineering expenses remained virtually flat in 2002
at $723,000 with a reduction in staff related to the fully custom-engineered
bioprocess equipment business being offset by normal increases and expenditures
related to a new product development initiative.
DGI research expenses amounted to zero in 2002 compared with $594,000 in 2001
since DGI's operations are no longer being consolidated with those of the
Company effective June 14, 2001 as the Company's ownership interest was reduced
to 47% and the balance sheet carrying value of its investment in DGI is zero.
No non-recurring severance costs were incurred in 2002 compared with $260,000 of
such costs in 2001 which were related to the Company's decision to stop
accepting orders for fully custom-engineered bioprocess equipment effective June
29, 2001.
Interest income and interest expense both declined in the 2002 quarter due
primarily to lower average interest rates than in 2001 and additionally, in the
case of interest expense, to lower average outstanding bank debt.
Income tax expense for the three months ended June 30, 2002 was $455,000, an
effective rate of 35% and compares with income tax expense of $62,000 in 2001,
an effective rate of 21.4 %. The increase in the effective tax rate in 2002 is
due to the Company no longer having the benefit of DGI's losses and,
additionally, the Company has utilized most of its tax carry-forward losses.
Consequently, the Company is now subject to more traditional tax rates. In 2001
the Company provided no tax on its U.S. operations since losses associated with
DGI offset otherwise taxable income.
As further described above, equity in operations of DGI was zero in 2002
compared with $90,000 for the second quarter of 2001, which represented the
Company's equity in DGI's losses from June 14 through June 30, 2001.
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
- -----------------------------------------------------------------------------
For the six months ended June 30, 2002, the Company had net income of $1,412,000
or $.18 per diluted share on net sales of $29,376,000 compared with net income
of $252,000 or $.03 per diluted share on net sales of $29,499,000 for the first
six months of 2001.
For the six months ended June 30, 2002 net sales benefitted from increased
shipments of shakers, cell culture products and fermentors . Net sales for the
first six months of 2001 included $3,732,000 from fully custom-engineered
bioprocess equipment, a product line for which the Company ceased accepting
orders effective June 29, 2001. In addition, the 2001 period included $400,000
of revenues from DGI BioTechnologies, Inc. whose operations, as a result of
having received an infusion of funds from an institutional investor on June 14,
2001, are no longer consolidated with those of the Company after that date.
Sales of the Company's equipment to foreign companies, institutions and
governments may be affected by United States export control regulations. The
Company believes that after the September 11, 2001 terrorist attacks, these
regulations may be made more restrictive.
Gross profit for the 2002 period of $12,117,000 increased slightly from the
$11,914,000 reported for the first half of 2001. Consolidated gross margins
increased to 41.2% for the 2002 period from 40.4% for the first six months of
2001. Selling, general and administrative expenses increased to $8,418,000 in
the 2002 period compared with $8,169,000 in the 2001 period primarily as a
result of normal salary, wage, benefits and other increases.
Research, development and engineering expenses decreased in 2002 to $1,322,000
from $1,448,000 in 2001 with the reduction in staff related to the fully
custom-engineered bioprocess equipment business being offset for the most part
by normal increases and expenditures related to a new product development
initiative.
DGI research expenses amounted to zero in 2002 with $1,312,000 in 2001 since
DGI's operations are no longer being consolidated with those of the Company
effective June 14, 2001 as the Company's ownership interest was reduced to 47%
and the balance sheet carrying value of its investment in DGI is zero.
No non-recurring severance costs were incurred in 2002 compared with $260,000 of
such costs in 2001 which were related to the Company's decision to stop
accepting orders for fully custom-engineered bioprocess equipment effective June
29, 2001.
Interest income and interest expense both declined in the 2002 period due
primarily to lower average interest rates than in 2001 and additionally, in the
case of interest expense, to lower average outstanding bank debt.
Income tax expense for the six months ended June 30, 2002 was $760,000, an
effective rate of 35% and compares with income tax expense of $73,000 in 2001,
an effective rate of 17.6 %. The increase in the effective tax rate in 2002 is
due to the Company no longer having the benefit of DGI's losses and
additionally, the Company has utilized most of its tax carry-forward losses.
Consequently, the Company is now subject to more traditional tax rates. In 2001
the Company provided no tax on its U.S. operations since losses associated with
DGI offset otherwise taxable income.
Equity in operations of DGI was zero in 2002 compared with $90,000 for the first
six months of 2001, which represented the Company's equity in DGI's losses from
June 14 through June 30, 2001.
Financial Condition
-------------------
Liquidity and Capital Resources
- ----------------------------------
Working capital increased to $27,523,000 at June 30, 2002 from $24,389,000 at
December 31, 2001.
Accounts receivable decreased to $11,876,000 at June 30, 2002 from $12,811,000
at December 31, 2001 due to the lower level of net sales in the quarter ended
June 30, 2002 compared with the quarter ended December 31, 2001.
Inventories decreased slightly to $15,074,000 at June 30, 2002 from $15,168,000
at December 31, 2001. Raw materials and sub-assemblies decreased 6.7% and
work-in-process decreased 29.8% while finished goods increased 19.7%. The
decrease in work-in-process was due primarily to the shipment of multiple,
sterilizable-in-place, fermentation systems during the period. The increase in
finished goods resulted primarily from increased inventories of freezers due to
the need to have adequate supplies available for sale in the United States, a
new freezer market for the Company, and due to a buildup of freezers in Europe
as a result of increased production relative to shipments during the quarter
ended June 30, 2002.
Prepaid expenses and other current assets increased to $1,467,000 at June 30,
2002 from $856,000 at December 31, 2001. The increase is primarily attributable
to deposits on capital equipment orders, prepaid insurance and prepaid pension
payments.
Net cash provided by operating activities was $940,000 in 2002 as compared with
cash used of $391,000 in 2001. The $940,000 cash provided by operating
activities for the first six months of 2002 was due to changes in operating
assets and liabilities in the ordinary course of business, primarily (i) net
income of $1,412,000, (ii) tax benefit from the exercise of stock options of
$250,000 (iii) a decrease in accounts receivable of $1,287,000 and (iv) a
decrease in inventories of $335,000 partially offset by (i) increase in prepaid
expenses and other current assets of $578,000 (ii) decrease in accounts payable
and accrued expenses of $889,000 and (iii) decrease in advance payments from
customers of $1,403,000.
Net cash used in investing activities amounted to $334,000 in 2002 as compared
with $340,000 in 2001 and primarily represented expenditures for property, plant
and equipment.
Net cash provided by financing activities amounted to $680,000 in 2002 as
compared with net cash used of $25,000 in 2001. Both periods reflect the
repayment of long-term debt and the 2002 and the 2001 periods include $801,000
and $64,000, respectively, of proceeds resulting from the exercise of stock
options under the Company's stock option plans and from the issuance of shares
under the Company's stock purchase plan.
On March 15, 2002, the Company and 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 for 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 bear interest at various rates based upon a function of
the bank's prime rate or libor at the discretion of the Company. The Company is
in compliance with its covenants pursuant to the Bank Agreement at June 30,
2002.
At June 30, 2002, $6,239,000 was outstanding under the Bank Agreement related to
working capital and acquisition loans, $489,000 was being utilized for letters
of credit and foreign exchange transactions. The following amounts were
available at June 30, 2002 under the Bank Agreement: $3,311,000 for working
capital and letters of credit, $2,000,000 for equipment acquisitions, $7,511,000
for acquisitions and $9,950,000 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
2004. At June 30, 2002 the balance of the notes was $383,000.
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
------------------------
(In thousands)
Contractual Obligations:
Within 1-2 3-4 After 4
Total 1 Year Years Years Years
- ------------------------- ------------------------ ------ -------- ------
Long-term debt, notes and
credit facility $ 6,937 $ 280 $ 696 $5,718 $ 243
Operating leases 4,147 610 964 765 1,808
------------------------ ------ -------- ------ ------
Total contractual
cash obligations $ 11,084 $ 890 $ 1,660 $6,483 $2,051
======================== ====== ======== ====== ======
DGI BioTechnologies, Inc. in which the Company's ownership interest is currently
47%, expects to require additional financing or other alternative source of
funds this year to support its continuing operations.
Management believes that the resources available to the Company, including
current cash and cash equivalents, working capital, cash to be generated from
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.
Other Matters
-------------
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 is required
to adopt SFAS No. 143 on January 1, 2003. The adoption is not expected to have
a material effect on the Company's consolidated financial statements.
Critical Accounting Policies
----------------------------
No changes have been made in the Companies critical accounting policies during
the six months ended June 30, 2002.
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, 2001. There has been
no material change in the disclosures regarding market risk.
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 30, 2002.
------
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 9, 2002 /s/ David Freedman
--------------------
David Freedman
Chairman
(Chief Executive Officer)
/s/ Samuel Eichenbaum
-----------------------
Samuel Eichenbaum
Vice President - Finance
(Principal Accounting Officer)
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 9, 2002 /s/ David Freedman
--------------------
Name: David Freedman
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 9, 2002 /s/ Samuel Eichenbaum
-----------------------
Name: Samuel Eichenbaum
Vice President, Finance and
Chief Financial Officer