FORM 10-Q
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 JUNE 30, 2001
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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)
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(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 JUNE 30, 2001
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$.66 2/3 par value 5,027,496
Page 1 of 11 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 June 30, 2001 March 31, 2001
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(Unaudited)
ASSETS Current assets:
Cash and cash equivalents $ 5,474 $ 1,206
Accounts receivable, net of allowances of $117 at
June 30, 2001 and $134 at March 31, 2001 9,677 9,726
Unbilled costs and fees, net of allowances
of $437 at June 30, 2001 and March 31, 2001 5,785 8,907
Inventories 13,205 13,999
Deferred income taxes 2,475 2,475
Prepaid expenses and other current assets 850 951
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Total current assets 37,466 37,264
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Non-current assets:
Non-current deferred income taxes 823 823
Other assets 159 175
Patents and other intangibles, net of accumulated
amortization of $289 at June 30, 2001 and $265
at March 31, 2001 178 200
Property and equipment, net of accumulated
depreciation of $13,650 at June 30, 2001
and $13,071 at March 31, 2001 5,495 5,848
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$ 44,121 $ 44,310
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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 June 30, 2001 March 31, 2001
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(Unaudited)
LIABILITIES & Current liabilities:
STOCKHOLDERS' Line of credit $ 7,519 $ 6,019
INVESTMENT Accounts payable 5,376 7,427
Accrued salaries and benefits 1,327 1,376
Accrued warranty costs 291 348
Deferred revenue 827 722
Customer deposits 3,354 1,892
Accrued income taxes 503 438
Other current liabilities 994 2,291
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Total current liabilities 20,191 20,513
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Non-current liabilities:
Deferred revenue 749 781
Deferred compensation 97 95
Deferred rent 268 287
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Total non-current liabilities 1,114 1,163
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Stockholders' investment:
Preferred stock, no par value
Authorized - 100,000 shares
Issued - none
Common stock, $.66-2/3 par value
Authorized - 20,000,000 shares
Issued 5,027,496 shares at June 30, 2001
and 5,012,752 shares at March 31, 2001 3,351 3,342
Capital in excess of par value 18,546 18,472
Retained earnings 1,559 1,460
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23,456 23,274
Note receivable - officer (640) (640)
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Total stockholders' investment 22,816 22,634
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$ 44,121 $ 44,310
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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 STATEMENTS OF OPERATIONS
(Unaudited)
Dollars and shares in thousands, except per share amounts For Three Months Ended
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June 30, 2001 June 30, 2000
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NET SALES AND CONTRACT REVENUE $ 19,027 $ 15,063
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COSTS AND EXPENSES:
Cost of sales and contracts 14,413 11,335
Selling, general and administrative expenses 2,668 2,224
Research and development 1,597 1,306
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Total costs and expenses 18,678 14,865
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OPERATING INCOME 349 198
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OTHER EXPENSE:
Interest, net (122) (126)
Other, net (70) (25)
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Total other expense (192) (151)
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INCOME BEFORE PROVISION
FOR INCOME TAXES 157 47
PROVISION FOR INCOME TAXES 58 18
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NET INCOME $ 99 $ 29
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INCOME PER SHARE - BASIC $ 0.02 $ 0.01
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- DILUTED $ 0.02 $ 0.01
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WEIGHTED AVERAGE SHARES - BASIC 5,022 4,969
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- DILUTED 5,056 5,000
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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 STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in thousands For the Three Months Ended
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June 30, 2001 June 30, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 99 $ 29
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 603 501
Provisions for contract, inventory, accounts receivable
and warranty reserves 57 45
Changes in assets and liabilities:
Accounts receivable 49 648
Unbilled costs and fees 3,122 (2,497)
Inventories 794 (23)
Prepaid expenses, deposits and other assets 109 85
Accounts payable (2,051) (1,865)
Accrued income taxes 65 -
Customer deposits 1,462 4,521
Deferred revenue 73 -
Accrued expenses and other current liabilities (1,369) (146)
Non-current liabilities (17) (155)
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Total adjustments 2,892 1,114
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Net cash provided by operating activities 2,996 1,143
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (228) (852)
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Net cash used by investing activities (228) (852)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 1,500 1,000
Proceeds from exercise of stock options - 59
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Net cash provided by financing activities 1,500 1,059
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NET INCREASE IN CASH AND CASH EQUIVALENTS 4,268 1,350
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,206 1,246
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,474 $ 2,596
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 134 $ 142
Income taxes paid $ 15 $ -
NON-CASH TRANSACTIONS:
Issuance of stock in lieu of fees $ 92 $ -
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
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, 2001. The Company has made no
changes to these policies during this quarter.
2. INVENTORIES
Inventories consisted of:
(Dollars in thousands) June 30, 2001 March 31, 2001
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Raw materials and completed
sub-assemblies $ 8,158 $ 7,839
Work in process 5,047 6,160
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Total $ 13,205 $ 13,999
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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. 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
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(in thousands except per share amounts) June 30, 2001 June 30, 2000
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BASIC
Net income $ 99 $ 29
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Weighted average shares 5,022 4,969
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Basic earnings per share $ 0.02 $ 0.01
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DILUTED
Net income $ 99 $ 29
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Weighted average shares 5,022 4,969
Effect of stock options 34 31
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Weighted average shares, as adjusted 5,056 5,000
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Diluted earnings per share $ 0.02 $ 0.01
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4. INCOME TAXES
At March 31, 2001, the Company had approximately $708,000 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 June 30, 2001, $7.5 million in borrowings were outstanding and $19.2
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 June 30, 2001, 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
In the first quarter of fiscal 2002 net sales and contract revenues
were $19,027,000, a 26% increase from the comparable period a year ago
and a 2% increase from the previous quarter. The Company earned a net
profit of $99,000 in the current quarter, compared to a net profit of
$29,000 in the corresponding period a year ago and a net profit of
$267,000 in the previous quarter.
RESULTS OF OPERATIONS
Net sales and contract revenues in the first quarter increased by
$3,964,000 (26%) in comparison to the corresponding period a year ago
and increased by $463,000 (2%) compared to the fourth quarter of fiscal
2001. This increase in revenues from the previous quarter is due to
progress made on CargoSearch(TM) projects and increased field services
revenues.
For the first quarter, costs of sales and contracts increased to
$14,413,000 from $11,335,000 in the corresponding period a year ago.
Costs of sales and contracts represented 76% of revenues versus 75% for
the corresponding period last year and 76% for the fourth quarter of
fiscal year 2001. The costs of sales as a percentage of revenue in the
current quarter increased slightly from the corresponding period last
year due primarily to sales mix.
Selling, general and administrative expenses of $2,668,000 for the
first quarter were higher by 20% compared to the corresponding period
last year and higher by 6% compared to the fourth quarter of fiscal
2001. As a percent of sales, selling, general and administrative
expenses were 14% of revenues in the current quarter compared to 15% of
revenues for the corresponding period a year ago and 14% for the fourth
quarter of fiscal year 2001.
Company-funded research and development expenses of $1,597,000 for the
first quarter increased by $291,000 (22%) compared to the corresponding
period last year and increased by $302,000 (23%) compared to the fourth
quarter of fiscal year 2001. The current quarter's results are a result
of increased efforts on internal research and development projects and
are consistent with plan.
The Company produced net income of $99,000 during the first quarter.
This is an increase of $70,000 (241%) over net income in the prior year
quarter and a decrease of $69,000 (41%) from the fourth quarter of
fiscal 2001. The increase in net income from the prior year can be
attributed primarily to the higher revenues realized in the current
quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $4,268,000 to $5,474,000 at June
30, 2001 compared to $1,206,000 at March 31, 2001. This increase in
cash and cash equivalents was primarily due to increased customer
deposits, decreases in unbilled costs and fees and additional
borrowings against the line of credit partially offset by the decrease
in accounts payable and accrued expenses. Working capital increased by
$524,000 (3%) since March 31, 2001, increasing from $16,751,000 to
$17,275,000 at the end of the first quarter.
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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 June 30, 2001, $7.5 million in borrowings were outstanding and $19.2
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 June 30, 2001, the Company was in compliance
with all of the financial covenants.
-9-
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. In February 2001,
the Court denied EG&G's motion for Summary Judgment. 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(R)
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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(c)(x) Employment Agreement between the Company and
Andrew R. Morrison dated May 30, 2001.
(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: August 12, 2001
________________________________________
Andrew R. Morrison
Vice President, Chief Financial Officer and Treasurer
SAFE HARBOR STATEMENT
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, 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 "FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING
FUTURE PERFORMANCE" IN THE COMPANY'S REGISTRATION STATEMENT ON FORM 10-K.
11