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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 June 30, 1998
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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 ___________
Commission File Number 1-6549
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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 [ ]
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, 1998
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$.66 2/3 par value 4,771,800
Page 1 of 10 Pages
The Exhibit Index is Located at Page 10
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AMERICAN SCIENCE AND ENGINEERING, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended
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Dollars and shares in thousands, except per share amounts June 30, 1998 June 27, 1997
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NET SALES AND CONTRACT REVENUE $11,692 $7,532
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COSTS AND EXPENSES:
Cost of sales and contracts 7,239 4,782
Selling, general and administrative expenses 2,131 1,670
Research and development 1,408 464
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Total costs and expenses 10,778 6,916
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OPERATING INCOME 914 616
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OTHER INCOME (EXPENSE):
Interest, net 10 27
Other, net (48) (3)
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Total other income (expense) (38) 24
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INCOME BEFORE PROVISION FOR INCOME TAXES 876 640
PROVISION FOR INCOME TAXES 350 30
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NET INCOME $ 526 $ 610
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INCOME PER SHARE - BASIC $ .11 $ .13
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- DILUTED $ .10 $ .13
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DIVIDENDS PAID PER SHARE None None
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WEIGHTED AVERAGE SHARES - BASIC 4,749 4,562
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- DILUTED 5,111 4,805
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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
Dollars in thousands
June 30, 1998 March 31, 1998
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(Unaudited)
ASSETS CURRENT ASSETS:
Cash and cash equivalents $ 1,401 $ 2,290
Accounts receivable, net 7,760 6,955
Unbilled costs and fees, net 4,955 3,190
Inventories 9,396 8,737
Deferred income taxes 2,094 2,351
Prepaid expenses and other current assets 764 389
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TOTAL CURRENT ASSETS 26,370 23,912
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NON CURRENT ASSETS:
Non-current deferred income taxes 205 205
Deposits 16 24
Property and equipment, net
of accumulated depreciation of
$9,578 at June 30, 1998 and
$9,394 at March 31, 1998 2,218 1,852
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$28,809 $25,993
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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, 1998 March 31, 1998
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(Unaudited)
LIABILITIES & CURRENT LIABILITIES:
STOCKHOLDERS' Line of credit $ 1,000 $ --
INVESTMENT Current maturities of obligations
under capital leases 20 20
Accounts payable 4,387 4,360
Accrued salaries and benefits 1,026 831
Accrued warranty costs 446 497
Accrued income taxes 375 615
Deferred revenue 992 1,240
Customer deposits 2,531 1,151
Other current liabilities 477 507
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TOTAL CURRENT LIABILITIES 11,254 9,221
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NONCURRENT LIABILITIES:
Obligations under capital leases, net
of current maturities 17 22
Deferred revenue 243 232
Deferred compensation 154 154
Deferred rent 281 280
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TOTAL NONCURRENT LIABILITIES 695 688
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STOCKHOLDERS' INVESTMENT:
Jr. Preferred stock, no par value
Authorized - 10,000 shares, issued none
Preferred stock, no par value
Authorized - 100,000 shares, issued none
Common stock, $.66-2/3 par value
Authorized -20,000,000 shares
Issued 4,771,800 shares at June 30, 1998
and 4,743,569 shares at March 31, 1998 3,181 3,162
Capital in excess of par value 16,509 16,278
Accumulated deficit (2,178) (2,704)
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17,512 16,736
Note receivable-Officer (640) (640)
Less: treasury stock -
6,678 shares at June 30, 1998
and March 31, 1998 at cost (12) (12)
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TOTAL STOCKHOLDERS' INVESTMENT 16,860 16,084
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$28,809 $25,993
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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, 1998 June 27, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 526 $ 610
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 184 152
Provisions for contract, inventory and warranty reserves 257 208
Changes in assets and liabilities:
Accounts receivable (805) (1,698)
Unbilled costs and fees (1,765) (974)
Inventories (659) (332)
Prepaid expenses, other current assets, and deposits (367) 58
Accounts payable 27 432
Customer deposits 1,380 137
Accrued expenses and other current liabilities (374) 438
Noncurrent liabilities 12 53
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Total adjustments (2,110) (1,526)
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Net cash used for operating activities (1,584) (916)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (550) (340)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 250 378
Net borrowings Line of credit 1,000 --
Principal payments of capital lease obligations (5) (5)
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Cash provided by financing activities 1,245 373
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NET INCREASE IN CASH AND CASH EQUIVALENTS (889) (883)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,290 3,202
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,401 $ 2,319
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 9 $ 2
Income taxes paid $ 324 $ --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AMERICAN SCIENCE AND ENGINEERING, INC.
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 to be
considered indicative of the results 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 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, 1998. The Company has made no change in
these policies during this quarter.
2. INVENTORIES
Inventories consisted of: (dollars in thousands)
June 30, 1998 March 31,1998
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Raw materials and completed
sub-assemblies $4,990 $4,958
Work in process 4,281 3,654
Finished goods 125 125
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Total $9,396 $8,737
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3. INCOME PER COMMON AND COMMON EQUIVALENT SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standards (SFAS) No. 128, `Earnings per
Share"," which establishes standards for computing and presenting earnings
per share for entities with publicly held common stock or potential common
stock. The Company adopted SFAS 128 in fiscal 1998 and as required,
restated per share amounts for all prior periods presented to conform to
the new requirements. Basic earnings per common share is computed by
dividing net income by the weighted average number of shares of common
stock outstanding during the year. 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
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In thousands except per share amounts June 30, 1998 June 27, 1997
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BASIC
Net income $ 526 $ 610
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Weighted average shares 4,749 4,562
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Basic earnings per share $ .11 $ .13
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DILUTED
Net income $ 526 $ 610
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Weighted average shares 4,749 4,562
Effect of:
Stock options 362 247
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Weighted average shares, as adjusted 5,111 4,809
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Diluted earnings per share $ .10 $ .13
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4. INCOME TAXES
At March 31, 1998, the Company had approximately $3,286,000 of federal net
operating loss carryforwards. The carryforwards expire through the year
2010. The Company also has unused investment tax and other credits of
approximately $107,000 expiring through 2001. The effective tax rate of
40% exceeded the statutory federal income tax rate of 34% primarily due to
the impact of state income taxes.
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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 1999 net sales and contract revenues grew to
$11,692,000, a 55% increase from the comparable period a year ago and a 37%
increase from the previous quarter. The company earned net profits of $526,000
in the current quarter, compared to a net profit of $610,000 in the
corresponding period a year ago and a net profit of $2,615,000 in the previous
quarter. This decline in profitability is due to an increase in the effective
tax rate to 40% in the current quarter from approximately 4% in fiscal 1998, as
well as the one-time effect of a $2,072,000 tax benefit in the fourth quarter of
fiscal 1998 associated with recognition of net operating loss carryforwards and
other tax assets.
RESULTS OF OPERATIONS
Net sales and contract revenues in the first quarter increased by $4,160,000
(55%) in comparison to the corresponding year ago period and $3,130,000 (37%)
compared to the fourth quarter of fiscal 1998. Compared to the previous quarter,
security systems and related field service revenues increased by $2,687,000
(34%) and research and engineering revenues improved by $443,000 (71%). The
increase in security equipment and related field service revenues is primarily
due to increased sales of X-ray equipment.
For the first quarter, costs of sales and contracts increased to $7,239,000 from
$4,782,000 in the corresponding period a year ago due primarily to increased
sales volume. Costs of sales and contracts represented 62% of revenues versus
63% for the corresponding period last year and 60% for the fourth quarter of
fiscal year 1998. The costs of sales percentage of revenues in the current
quarter increased from the previous quarter primarily due to sales mix.
Selling, general and administrative expenses of $2,131,000 for the first quarter
were higher by 28% compared to the corresponding year-ago period and higher by
12% compared to the fourth quarter of fiscal 1998. As a percent of sales,
selling, general and administrative expenses were 18% of revenues in the current
quarter compared to 22% of revenues for the corresponding year-ago period and
22% for the fourth quarter of fiscal year 1998. The decrease is due primarily to
an increased sales base over which overhead costs are spread.
Company-funded research and development expenses of $1,408,000 for the first
quarter were higher by $944,000 (203%) compared to the year-ago quarter and
higher by $466,000 (49%) compared to the fourth quarter of fiscal year 1998. The
increase is an intentional result of the Company's commitment to research and
development.
The Company produced a net profit of $526,000 during the first quarter. This is
a decline of $84,000 (14%) over net profit in the year-ago quarter and
$2,089,000 (80%) from the fourth quarter of fiscal 1998. The decline in
profitability is the result of a one-time tax benefit of $2,072,000 associated
with net operating loss carryforwards and other tax assets recorded in the
fourth quarter of fiscal 1998 as well as a change in the effective tax rate from
approximately 4% in fiscal 1998 to 40% in fiscal 1999.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $889,000 to $1,401,000 at June 30, 1998
compared to $2,290,000 on March 31, 1998. This decrease was primarily due to an
increase in unbilled costs and fees and accounts receivable of $1,765,000 and
$805,000, respectively. Working capital increased by $425,000 (3%) since March
31, 1998, growing from $14,691,000 to $15,116,000 at the end of the first
quarter.
During April 1998, the Company renegotiated the line of credit, from $8.0
million to $12.0 million in anticipation of the increased standby letter of
credit capacity required to support the growth in international orders. The
Company's credit facility restricts the payment of dividends, except in shares
of the Company's stock, without the consent of the bank.
Given the Company's receipt of various international contract awards totaling
$45 million, management believes that additional credit facilities will be
necessary for expanded standby letter of credit capacity to support foreign
equipment sales. Management is currently in the process of negotiating with two
commercial banks and the U.S. Export Import Bank to increase its bank lines of
credit and anticipates having a new credit facility in place during the second
quarter of fiscal year 1999.
At June 30, 1998, the company had external borrowings, with a local bank, in the
amount of $1,000,000. Interest is payable monthly at the bank's prime rate of
interest.
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AMERICAN SCIENCE AND ENGINEERING, INC.
Part II - Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K
A report on Form 8-K was filed on April 17, 1998 concerning the
Company's adoption of a Shareholders Rights Plan.
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)
/s/ Lee C. Steele
Date: 11 August 1998 ------------------------------------------
Lee C. Steele
Vice President and Chief Financial Officer
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