FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-6549
American Science and Engineering, Inc.
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(Exact name of Registrant as specified in its charter)
Massachusetts 04-2240991
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
829 Middlesex Turnpike
Billerica, Massachusetts 01821
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(Address of principal executive offices) (Zip Code)
(978) 262-8700
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date
Outstanding at
Class of Common Stock Dec. 31, 2000
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$.66 2/3 par value 4,982,857
Page 1 of 12 Pages
The Exhibit Index is Located at Page 11
AMERICAN SCIENCE AND ENGINEERING, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands December 31, March 31,
2000 2000
---------------- -----------
(Unaudited)
ASSETS Current assets:
Cash and cash equivalents $ 3,765 $ 1,246
Accounts receivable, net of allowances of $350 at 6,325 6,276
December 31, 2000 and $250 at March 31, 2000
Unbilled costs and fees, net of allowances
of $447 at December 31, 2000 and
March 31, 2000 8,404 9,117
Inventories 12,350 10,446
Deferred income taxes 2,220 1,911
Prepaid expenses and other current assets 1,400 1,118
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Total current assets 34,464 30,114
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Non-current assets:
Non-current deferred income taxes 1,048 1,038
Deposits 44 44
Other assets 132 132
Patents and other intangibles, net of accumulated
amortization of $246 at December 31, 2000 and
$165 at March 31, 2000 224 300
Property and equipment, net of accumulated
depreciation of $12,518 at December 31,
2000 and $11,000 at March 31, 2000 6,258 6,577
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$ 42,170 $ 38,205
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
Dollars in thousands December 31, March 31,
2000 2000
---------------- -----------
(Unaudited)
LIABILITIES & Current liabilities:
STOCKHOLDERS' Line of credit $ 5,019 $ 4,000
INVESTMENT Current maturities of obligations
under capital leases -- 16
Accounts payable 5,447 5,714
Accrued salaries and benefits 1,685 1,136
Accrued warranty costs 480 698
Deferred revenue 1,113 756
Customer deposits 3,464 2,209
Other current liabilities 1,404 679
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Total current liabilities 18,612 15,208
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Non-current liabilities:
Deferred revenue 916 1,113
Deferred compensation 107 146
Deferred rent 306 363
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Total non-current liabilities 1,329 1,622
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Stockholders' investment:
Preferred stock, no par value
Authorized - 100,000 shares
Issued - none
Common stock, $.66-2/3 par value
Authorized - 20,000,000 shares
Issued 4,982,857 shares at Dec. 31, 2000
and 4,961,874 shares at Mar. 31, 2000 3,322 3,308
Capital in excess of par value 18,354 17,907
Retained earnings 1,193 800
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22,869 22,015
Note receivable-officer (640) (640)
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Total stockholders' investment 22,229 21,375
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$ 42,170 $ 38,205
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For Three Months Ended For Nine Months Ended
--------------------------------- ----------------------------------
Dollars and shares in thousands, except per share December 31, December 31, December 31, December 31,
amounts 2000 1999 2000 1999
---------------- --------------- ---------------- --------------
NET SALES AND CONTRACT REVENUE $ 17,018 $ 17,217 $ 48,547 $ 46,992
---------------- --------------- ---------------- --------------
COSTS AND EXPENSES:
Cost of sales and contracts 12,828 12,272 36,576 33,068
Selling, general and administrative expenses 2,514 2,461 7,176 7,834
Research and development 1,304 1,373 3,765 3,976
---------------- --------------- ---------------- --------------
Total costs and expenses 16,646 16,106 47,517 44,878
---------------- --------------- ---------------- --------------
OPERATING INCOME 372 1,111 1,030 2,114
---------------- --------------- ---------------- --------------
OTHER INCOME (EXPENSE):
Interest, net (93) (169) (357) (195)
Other, net (38) (15) (142) (54)
---------------- --------------- ---------------- --------------
Total other expense (131) (184) (499) (249)
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INCOME BEFORE PROVISION
FOR INCOME TAXES 241 927 531 1,865
PROVISION FOR INCOME TAXES 30 326 138 682
---------------- --------------- ---------------- --------------
NET INCOME $ 211 $ 601 $ 393 $ 1,183
---------------- --------------- ---------------- --------------
---------------- --------------- ---------------- --------------
INCOME PER SHARE - BASIC $ 0.04 $ 0.12 $ 0.08 $ .24
---------------- --------------- ---------------- --------------
- DILUTED $ 0.04 $ 0.12 $ 0.08 $ .24
---------------- --------------- ---------------- --------------
WEIGHTED AVERAGE SHARES - BASIC 4,972 4,931 4,970 4,912
---------------- --------------- ---------------- --------------
- DILUTED 4,980 5,023 5,005 5,013
---------------- --------------- ---------------- --------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in Thousands For the Nine Months Ended
---------------------------------------
December 31, December 31,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 393 $ 1,183
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 1,599 1,078
Provisions for contract, inventory, accounts receivable
and warranty reserves 866 454
Deferred income taxes (10) -
Changes in assets and liabilities:
Accounts receivable (149) (694)
Unbilled costs and fees 713 (5,447)
Inventories (2,004) 1,627
Prepaid expenses, deposits and other assets (282) (231)
Accounts payable (267) 927
Accrued income taxes 16 42
Customer deposits 1,255 730
Deferred revenue 160 184
Accrued expenses and other current liabilities 457 (99)
Non-current liabilities (96) 154
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Total adjustments 2,258 (1,275)
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Net cash provided by (used for) operating activiti 2,651 (92)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,199) (1,239)
Purchase of patents and intangibles (5) (9)
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Net cash used by investing activities (1,204) (1,248)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 1,019 1,500
Proceeds from exercise of stock options 69 82
Principal payments of capital lease obligations (16) (20)
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Net cash provided by financing activities 1,072 1,562
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NET INCREASE IN CASH AND CASH EQUIVALENTS 2,519 222
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,246 366
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,765 $ 588
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 370 $ 270
Income taxes paid $ 95 $ 1,098
NON-CASH TRANSACTIONS:
Issuance of stock in lieu of fees $ 84 $ 268
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AMERICAN SCIENCE AND ENGINEERING, INC.
PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by American Science and Engineering, Inc. (the Company) pursuant to the
rules and regulations of the Securities and Exchange Commission, and the annual
condensed consolidated financial statements are subject to year end audit by
independent public accountants. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes, however, that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
The condensed consolidated financial statements, in the opinion of management,
include all adjustments necessary to present fairly the Company's financial
position and the results of operations. These results are not necessarily
indicative of the results to be expected for the entire year.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Nature of Operations and Significant Accounting Policies
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American Science and Engineering, Inc., is engaged in the development
and manufacture of sophisticated X-ray inspection systems for critical
detection and security screening solutions for sale primarily to U.S.
and foreign government agencies. The Company has only one reporting
segment, x-ray screening products.
The significant accounting policies followed by the Company and its
subsidiary in preparing its consolidated financial statements are set
forth in Note 1 to the consolidated financial statements included in
Form 10-K for the year ended March 31, 2000. The Company has made no
changes to these policies during this quarter.
2. Inventories
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(Dollars in thousands)
Inventories consisted of:
December 31, March 31,
2000 2000
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Raw materials and completed
sub-assemblies $ 6,762 $ 6,416
Work in process 5,588 4,030
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Total $ 12,350 $ 10,446
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3. Income per Common and Common Equivalent Share
---------------------------------------------
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period. No dilution for any potentially dilutive securities is included.
Diluted earnings per share includes the dilutive impact of options and
warrants using the average share price of the Company's common stock for
the period.
Earnings Per Share Three Months Ended Nine Months Ended
------------------ ------------------ -----------------
(in thousands except per share December 31, December 31, December 31, December 31,
amounts) 2000 1999 2000 1999
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BASIC
Net income $ 211 $ 601 $ 393 $ 1,183
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Weighted average shares 4,972 4,931 4,970 4,912
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Basic earnings per share $ 0.04 $ 0.12 $ 0.08 $ 0.24
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DILUTED
Net income $ 211 $ 601 $ 393 $ 1,183
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Weighted average shares 4,972 4,931 4,970 4,912
Effect of stock options 8 92 35 101
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Weighted average shares, as
adjusted 4,980 5,023 5,005 5,013
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Diluted earnings per share $ 0.04 $ 0.12 $ 0.08 $ 0.24
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4. Income Taxes
------------
At March 31, 2000, the Company had approximately $855,000 of unused
investment tax and other credits, which expire through 2018.
5. Borrowings
----------
On November 30, 2000, the Company signed two new credit agreements with
HSBC Bank USA ("HSBC"). The first agreement is for a $10 million domestic
revolving credit facility to support the Company's routine working capital
and standby letter of credit needs. The second is a $30 million export
credit and security agreement, guaranteed by the Export-Import Bank of the
United States ("Ex-Im"), to support the Company's overseas contract, trade
finance and working capital needs. The credit facility bears an interest
rate of the HSBC Bank USA prime rate or LIBOR plus 2.0% at the Company's
option.
At December 31, 2000, $5.0 million in borrowings were outstanding and $21.9
million in letters of credit were in effect against this credit facility.
The Company's credit facility restricts the payment of dividends, except in
shares of the Company's stock, without consent of the bank. The credit
facility requires the Company to meet certain financial covenants. As of
December 31, 2000, the Company was in compliance with all of the financial
covenants.
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AMERICAN SCIENCE AND ENGINEERING, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
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In the third quarter of fiscal 2001 net sales and contract revenues were
$17,018,000, a 1% decrease from the comparable period a year ago and a 3%
increase from the previous quarter. The Company earned a net profit of
$211,000 in the current quarter, compared to a net profit of $601,000 in
the corresponding period a year ago and a net profit of $153,000 in the
previous quarter.
Results of Operations
---------------------
Net sales and contract revenues in the third quarter decreased by $199,000
(1%) in comparison to the corresponding year ago period and increased by
$552,000 (3%) compared to the second quarter of fiscal 2001. This increase
in revenues from the previous quarter is due to increased sales of x-ray
equipment.
For the third quarter, costs of sales and contracts increased to
$12,828,000 from $12,272,000 in the corresponding period a year ago. Costs
of sales and contracts represented 75% of revenues versus 71% for the
corresponding period last year and 75% for the second quarter of fiscal
year 2001. The costs of sales as a percentage of revenue in the current
quarter increased from the corresponding period last year primarily due to
investments in operations infrastructure and sales mix.
Selling, general and administrative expenses of $2,514,000 for the third
quarter were higher by 2% compared to the corresponding period last year
and higher by 3% compared to the second quarter of fiscal 2001. As a
percent of sales, selling, general and administrative expenses were 15% of
revenues in the current quarter compared to 14% of revenues for the
corresponding period a year ago and 15% for the second quarter of fiscal
year 2001.
Company-funded research and development expenses of $1,304,000 for the
third quarter decreased by $69,000 (5%) compared to the corresponding
period last year and increased by $149,000 (13%) compared to the second
quarter of fiscal year 2001. The current quarter's result is essentially on
budget.
The Company produced net income of $211,000 during the third quarter. This
is a decline of $390,000 (65%) over net income in the prior year quarter
and an increase of $58,000 (38%) from the second quarter of fiscal 2001.
The decrease in net income from the prior year can be attributed primarily
to the higher cost of sales incurred in the current quarter.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents increased by $2,519,000 to $3,765,000 at December
31, 2000 compared to $1,246,000 at March 31, 2000. This increase in cash
and cash equivalents was primarily due to increased customer deposits and
additional borrowings against the line of credit partially offset by the
increase in inventory and capital expenditures. Working capital increased
by $946,000 (6%) since March 31, 2000, increasing from $14,906,000 to
$15,852,000 at the end of the third quarter.
On November 30, 2000, the Company signed two new credit agreements with
HSBC Bank USA ("HSBC"). The first agreement is for a $10 million domestic
revolving credit facility to support the
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Company's routine working capital and standby letter of credit needs. The
second is a $30 million export credit and security agreement, guaranteed by
the Export-Import Bank of the United States ("Ex-Im"), to support the
Company's overseas contract, trade finance and working capital needs. The
credit facility bears an interest rate of the HSBC Bank USA prime rate or
LIBOR plus 2.0% at the Company's option.
At December 31, 2000, $5.0 million in borrowings were outstanding and $21.9
million in letters of credit were in effect against this credit facility.
The Company's credit facility restricts the payment of dividends, except in
shares of the Company's stock, without consent of the bank. The credit
facility requires the Company to meet certain financial covenants. As of
December 31, 2000, the Company was in compliance with all of the financial
covenants.
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AMERICAN SCIENCE AND ENGINEERING, INC.
Part II - Other Information
Item 1 - Legal Proceedings
--------------------------
The United States Court of Appeals for the Federal Circuit in Washington,
D.C., in a decision issued December 29, 1999, ruled that American Science &
Engineering, may pursue a patent infringement claim against Vivid
Technologies which produces x-ray detection devices used in baggage
scanning equipment.
The Appeals Court overturned a 1998 decision in Vivid's favor by the
Massachusetts Federal District. The lawsuit filed in May 1996, concerns
whether Vivid's x-ray detection devices infringed on AS&E's patent. The
District Court had ruled that AS&E could not assert a claim that Vivid's
devices infringed on AS&E's patent. The Appeals Court also reversed the
district court's finding on summary judgment that Vivid did not infringe on
AS&E's patent, as well as the district court's denial of AS&E's request for
discovery to oppose Vivid's summary judgment motion. Discovery is now
proceeding.
In September 1998, the Company filed suit against EG&G Astrophysics
Research Corp. ("EG&G") in U.S. District Court in Boston, Massachusetts
alleging that EG&G is infringing on at least two patents owned by the
Company and that EG&G has misappropriated certain trade secrets of the
Company. In February 1999, the Company filed a related action in the same
court against the U.S. Customs Service ("Customs") alleging that Customs
had either misappropriated the Company's trade secrets or facilitated their
misappropriation by EG&G and that Customs had improperly entered into a
contract with EG&G for the acquisition of a product functionally equivalent
to MobileSearch-TM- x-ray inspection system. In May 1999, the Court held a
hearing on the Company's motion for a preliminary injunction against both
Customs and EG&G prohibiting further performance of the contested contract
and preventing EG&G from utilizing the Company's trade secrets. In August
1999, the Court issued a ruling denying the request for the preliminary
injunction. In December 1999, EG&G filed a Motion for Summary Judgment that
EG&G did not misappropriate the Company's trade secrets and in March 2000
EG&G filed a Motion for Summary Judgment that EG&G did not infringe the
Company's patents. The Company has filed opposition to EG&G's motions and
the Court has not yet ruled on these motions. The Company is continuing to
pursue its claims against EG&G, but has filed a motion to dismiss the suit
against U.S. Customs Service.
In a related matter, EG&G had filed a request with the U.S. Patent and
Trademark Office for re-examination of the two patents that currently are
at issue in the patent infringement action described above. The Company
filed oppositions to the re-examination requests and was advised by the
U.S. Patent and Trademark Office that the Company's MobileSearch x-ray
inspection patent was upheld in all material respects. The Company has now
also been advised by the U.S. Patent and Trademark Office that the
Company's patent on its Z-Registered Trademark- Backscatter x-ray
inspection technology has been upheld in all material respects.
In February 2000, Heimann Systems GmBH filed a civil action in U.S.
District Court in Boston, Massachusetts against the Company alleging that
the Company infringed a Heimann patent relating to a mobile vehicle and
x-ray examining device. The Company denies Heimann's assertions and
believes that Heimann's claims are without merit. The Company does not
expect the outcome of this litigation to have a material impact to its
financial position or results of operations.
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Item 5 - Other Information
--------------------------
Dr. Herman Feshbach, a long time member of the Board of Directors of the
Company, passed away on December 12, 2000. The Company is deeply
saddened by his passing and recognizes his long and significant efforts
on behalf of the Company.
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
10 (c) (ix) Employment Agreement between the Company and
Richard Mastronardi dated August 2000
10 (d) (i) Export Credit and Security Agreement between
American Science and Engineering and HSBC Bank USA
10 (d) (ii) Revolving Loan and Security Agreement between
American Science and Engineering, Inc. and HSBC Bank USA
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter.
The information required by Exhibit Item 11 (Statement re: Computation of
Income per Common and Common Equivalent Share) may be found in Footnote No.
3 on Page 7.
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 hereunto duly authorized.
AMERICAN SCIENCE AND ENGINEERING, INC.
(Registrant)
Date: February 12, 2001 __________________________________
Joseph N. Moffa
Vice President, Financial Operations and
Corporate Controller
Safe Harbor Statement
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The foregoing 10-Q contains statements concerning the Company's financial
performance and business operations which may be considered "forward-looking"
under applicable securities laws.
The Company wishes to caution readers of this Form 10-Q that actual results
might differ materially from those projected in any forward-looking statements.
Factors which might cause actual results to differ materially from those
projected in the forward-looking statements contained herein include the
following: Significant reductions or delays in procurements of the Company's
systems by the United States Government; disruption in the supply of any
sole-source component incorporated into the Company's products (of which there
are several); litigation seeking to restrict the use of intellectual property
used by the Company; potential product liability claims against the Company;
global political trends and events which affect public perception of the threat
presented by drugs, explosives and other contraband; the ability of governments
and private organizations to fund purchases of the Company's products to address
such threats; and the potential insufficiency of Company resources,
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including human resources, capital, plant and equipment and management systems,
to accommodate any future growth. These and certain other factors which might
cause actual results to differ materially from those projected are more fully
set forth under the caption "Risk Factors" in the Company's Registration
Statement on Form S-3 (SEC File No. 333-9151).
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