-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IzPy26jK6cGPel0gBDq37htYuPK7tKWR7HxHcrDHzis7+Y1h0QmO2nwJlRbexNOT aV2ZkDgRRFmcSi7d5s3Pxw== 0000071241-03-000004.txt : 20030320 0000071241-03-000004.hdr.sgml : 20030320 20030320135318 ACCESSION NUMBER: 0000071241-03-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW BRUNSWICK SCIENTIFIC CO INC CENTRAL INDEX KEY: 0000071241 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 221630072 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06994 FILM NUMBER: 03610313 BUSINESS ADDRESS: STREET 1: 44 TALMADGE RD STREET 2: PO BOX 4005 CITY: EDISON STATE: NJ ZIP: 08818-4005 BUSINESS PHONE: 9082871200 MAIL ADDRESS: STREET 1: 44 TALMADGE ROAD STREET 2: PO BOX 4005 CITY: EDISON STATE: NJ ZIP: 08818-4005 10-K 1 doc1.txt - 22 - SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K 405 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2002 Commission File Number 0-6994 NEW BRUNSWICK SCIENTIFIC CO., INC. (Exact name of registrant as specified in its charter) New Jersey 22-1630072 ----------- ---------- (State of incorporation) (I.R.S. Employer Identification Number) 44 Talmadge Road, Edison, N.J. 08817 ------------------------------------ (Address of principal office) Registrant's telephone number: (732) 287-1200 -------------- Securities registered pursuant to Section 12(b) of the Act: - ------------------------------------------------------------------ Name of each exchange Title of each class on which registered ---------------------- ------------------------ None N/A Securities registered pursuant to Section 12(g) of the Act: - ------------------------------------------------------------------ Title of class ---------------- Common stock - par value $0.0625 Common stock Purchase Rights 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 (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 90 days. (Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).Yes _No X - The aggregate market value of the voting stock held by non-affiliates of the registrant was $29,696,134 as of February 10, 2003. This figure was calculated by reference to the high and low prices of such stock on February 10, 2003. The number of shares outstanding of the Registrant's Common stock as of February 10, 2003: 7,790,796. DOCUMENTS INCORPORATED BY REFERENCE Registrant's Proxy Statement and Annual Report to be filed within 120 days after the end of the fiscal year 2002, are incorporated in Part III herein. The EXHIBITS INDEX is on Page 55. 1 ------ PART I ------ ITEM 1. BUSINESS -------- New Brunswick Scientific Co., Inc. and its subsidiaries ("NBS" or "the Company") design, manufacture and market a variety of equipment used in biotechnology to create, maintain, measure and control the physical and biochemical conditions required for the growth, detection and storage of microorganisms. This equipment is used in medical, biological, chemical, and environmental research and for the commercial development of antibiotics, proteins, hormones, enzymes, monoclonal antibodies, agricultural products, fuels, vitamins, vaccines and other substances. The equipment sold by NBS includes fermentation equipment, bioreactors, biological shakers, ultra-low temperature freezers, nutrient sterilizing and dispensing equipment, tissue culture apparatus and air samplers. On June 29, 2001, the Company announced that it had ceased accepting orders for large fully custom-engineered bioprocess equipment which represented a small niche business for the Company. Net sales of custom engineered products for the year ended December 31, 2001 amounted to slightly more than $5 million, primarily from orders received in 2000. Net sales of custom engineered products were negligible during the year ended December 31, 2002. The Company continues to market its broad-based fermentor and bioreactor products as well as to offer special modifications to such equipment. The Company is developing a new family of sterilizable-in-place fermentors the first of which were introduced in late 2002 when both 500L and 300L models became available. 75L and 150L models are expected to be available during the first half of 2003. NBS was incorporated in 1958 as the successor to a business founded in 1946 by David and Sigmund Freedman, its principal stockholders and two of its directors and executive officers. The Company owns its 243,000 square foot headquarters and primary production facility located on 17 acres of land in Edison, New Jersey. 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 BankInvest, 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, the Company no longer exercises control and as required by accounting principles generally accepted in the United States of America, ceased consolidating the operations of DGI and began reporting 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. During the period from June 14, 2001 to December 31, 2001, the carrying value of the Company's investment in DGI was reduced to zero through the application of the equity method. 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 2 it has no further obligation or intent to fund the DGI operations. As of December 31, 2002 and 2001, the Company's investment in DGI is zero. On September 27, 2002, the Company and BankInvest, DGI's two major shareholders, provided DGI with a bridge loan in order to sustain its operations until DGI's anticipated closing of a financing transaction with an investment group, which DGI management has informed the Company that it hopes to consummate during the first half of 2003, however, no assurance can be made as to the closing of this financing. The inability to close this financing or the realization of funds from another source could have a material adverse effect on DGI's ability to survive. The Company made the loan solely as a means of allowing DGI more time to complete its financing. The Company had no obligation to make this loan and has no obligation or intent to provide any future financing or support to DGI. As compensation for making the loans, the Company and BankInvest each received Series B Convertible Preferred shares in DGI in proportion to their respective share of the loan. Consequently, the Company's ownership interest in DGI at December 31, 2002 was reduced from 47.0% to 41.3%. The $150,000 portion advanced to DGI by the Company has been expensed as a charge to equity in operations of DGI due to the uncertainty surrounding DGI's ability to consummate the equity financing and the resulting uncertainty as to the ability of DGI to repay the loan, absent the procurement of financing. Under the terms of the loan agreement, should the financing be consummated, the Company will be repaid in full from the proceeds. Such repayment would then be recorded as income from equity in operations of DGI in the Company's consolidated statement of operations. In the event DGI is unable to obtain additional financing, the Company may be required to fund up to $134,000, related to DGI equipment leases guaranteed by the Company (which has been fully reserved by the Company). The Company is a party to a two-year lease with DGI under which DGI occupies 8,800 square feet of office and specifically designed laboratory space at the Company's headquarters facility in Edison, New Jersey for a gross rental of $211,200 per year. Under the terms of the lease, DGI has the right to cancel upon providing the Company with 90 days notice. The lease was established at arm's length utilizing current market information. Should the anticipated round of financing, described above, be consummated, the Company expects to receive shares in DGI in lieu of future rent payments. PRODUCTS -------- Fermentation Equipment and Bioreactors. A fermentor is a device used to ----------------------------------------- create, maintain and control the physical, chemical, and biochemical environmental conditions required for growing bacteria, yeast, fungi and other similar microorganisms. Bioreactors serve an identical purpose for the propagation of animal and plant cells. The Company's fermentors and bioreactors range in size from small research models to larger systems that are used in cGMP production facilities. NBS has supplied fermentors and bioreactors to universities, biotechnology and pharmaceutical company laboratories since the 1950's. NBS' fermentors and bioreactors are used for applications using microorganisms engineered by 3 recombinant DNA techniques; immunology; and the production of monoclonal antibodies. Animal and plant cells as well as bacteria and viruses are usually grown on a small scale for research purposes. As the process is scaled up (i.e., replicated, using larger volumes), physical and chemical parameters, such as pH, vessel pressure and chemical composition may change, and the equipment used may require increasingly sophisticated control systems. Scale-up, which is one of the important uses of the Company's pilot scale systems is a complex technical procedure critical to successful commercialization of biological processes. Pilot scale systems may be used to set parameters or to determine the feasibility of production at greater volumes, depending upon the goal of the customer. Particularly in the area of bioreactors, the Company has developed unique designs and has been issued patents to protect its technology. The Company's fermentors and bioreactors incorporate sophisticated instrumentation systems to measure, record and control a multiplicity of process variables. The Company manufactures digital instrumentation for control of fermentors and bioreactors. This instrumentation significantly enhances the utility of any size fermentor or bioreactor. Consisting of an operator display and a series of microprocessor-controlled instrument modules, this control unit uses software developed by the Company to simplify the operation of fermentors and bioreactors while enhancing their performance. It automatically monitors, displays, analyzes, and makes immediately available, data concerning the culture process and permits automatic modification of the various growth conditions without the need of a host computer. This system is designed to replace manually operated controls as well as more complex and more costly automatic systems. Biological Shakers. Biological shakers perform a function similar to fermentors - ------------------ and bioreactors, as they are also used in the process of propagating biological cultures. Under controlled conditions shakers agitate flasks containing biological cultures in a liquid media in which nutrients are dissolved. Nutrients are the source of energy needed for growth, while shaking furnishes the dissolved oxygen needed to permit life processes to take place within the microorganism. NBS Shakers are in worldwide use in biological laboratories for research, development, and in some cases, for production of various medical, biological and chemical products. In addition, shakers are widely used in microbiological and recombinant DNA research. The Company manufactures an extensive line of biological shakers ranging in size from portable laboratory benchtop models to large multi-tier industrial machines. Some models of the Company's shakers are designed to agitate flasks under controlled environmental conditions of temperature, atmosphere and light. Each shaker incorporates a variable speed regulator and may be equipped to accommodate flasks of various sizes. To permit culture growth under constant and reproducible conditions, shakers manufactured by NBS are precision engineered and manufactured to agitate flasks uniformly and continuously over prolonged periods. The Company manufactures three distinct lines of shakers. Its INNOVA line, which is its most sophisticated shaker, its C-Line which is intended primarily for sale through distributors and its I-Series which is manufactured exclusively for Fisher Scientific. 4 Ultra-Low Temperature Freezers. Ultra-low temperature ("ULT") freezers are - -------------------------------- utilized in research, clinical and industrial applications. They are primarily - -- used to store or conserve biological products that include specimens (cells, tissue) stock cultures (bacteria, viruses) and vaccines. ULT freezers have a temperature range of -50 degrees C to -86 degrees C and come in both upright and chest models of varying sizes. The Company manufactures two distinct lines of ULT freeezers. Five models in its space saving line, which utilizes ultra-thin vacuum insulation panels for up to a 30% increase in storage capacity over traditionally insulated models in the same footprint. The four models in our standard line offer an economical alternative and make use of conventional urethane insulating techniques. To maximize storage capacity, the Company's space saving Freezers utilize a highly efficient thermal insulation panel called NanogelTM to form ultra-thin vacuum insulation panels; the wall thickness has been reduced resulting in increased storage capacity. The optional RS-485 interface allows remote control and data-logging of all five models in the space saving range, which includes a "personal-sized" freezer for use on or under the bench, as well as two large upright and two chest-style units. Nutrient Sterilizing and Dispensing Equipment. The Company manufactures devices - --------------------------------------------- that automatically sterilize biological nutrients and then maintains those nutrients at the required temperature for subsequent use. As a complement to its nutrient sterilizers, NBS sells an apparatus which automatically fills culture dishes with sterile nutrient. Tissue Culture Apparatus. The Company manufactures apparatus to rotate bottles - ------------------------- and test tubes slowly and constantly for the purpose of growing animal and plant cells as well as bacteria. Certain models of this apparatus may be placed into an incubator and equipped to regulate the speed of rotation. The Company also markets carbon dioxide incubators used in the propagation of tissue cultures. This apparatus has applications in vaccine production, cancer and heart disease research, and the commercial production of pharmaceuticals. Air Samplers. The Company also manufactures air samplers which are used to ------------ detect the presence of spores and other microbial organisms in the environment. These instruments can sample large volumes in environments having limited contamination such as clean rooms, as well as sample smaller volumes in areas with larger amounts of viable organisms. Other Scientific Products. NBS distributes the NucleoCounter , which is an - --------------------------- automated cell counting device for mammalian cells and a line of centrifuges for - ---- separating cells from fermentation broth. 5 PRODUCT DEVELOPMENT - -------------------- NBS designs and develops substantially all the products it sells. Its personnel, who include biochemical, electrical, chemical, mechanical, electronic and software engineers as well as scientists and technical support staff, formulate plans and concepts for new products and improvements or modifications to existing products. The Company develops specialized software for use with its computer-coupled systems and the microprocessor-controlled instrumentation systems for shakers, fermentors and bioreactors. RESEARCH AND DEVELOPMENT - -------------------------- Research and development expenditures, all of which are sponsored by the Company, amounted to $2,453,000 in 2002, $2,744,000 in 2001 and $3,981,000 in 2000. Research expenditures related to DGI included in these amounts were zero in 2002, $1,312,000 in 2001 and $3,480,000 in 2000. Twenty-Four (24) of the Company's professional employees were engaged full time in research and development activities. MANUFACTURING - ------------- Manufacturing is conducted according to planning and production control procedures primarily on a lot production basis rather than on an assembly line. NBS fabricates its parts from purchased raw materials and components and produces most of its subassemblies. These parts, components and subassemblies are carried in inventory in anticipation of projected sales and are then assembled into finished products according to production schedules. In general, manufacturing is commenced in anticipation of orders. The manufacturing processes for the Company's products range from two weeks to months, depending upon the product size, complexity and quantity. However, a substantial portion of orders received are for items in the process of being manufactured or in inventory. The raw materials used by the Company include stainless steel, carbon steel, copper, brass, aluminum and various plastics. Some components are purchased from others, including pumps, compressors, plumbing fittings, electrical and electronic components, gauges, meters, motors, glassware and general purpose hardware. Many of these components are built to the Company's specifications. NBS is not dependent upon any single supplier for any raw material or component, but delay in receipt of key components can affect the manufacturing schedule. The Company's products are designed to operate continuously over long periods with precision and regularity so that research and production may be conducted under controlled, constant and reproducible conditions. The Company manufactures its products from materials which it selects as having characteristics necessary to meet its requirements. In addition, to ensure that its manufacturing processes result in products meeting exacting specifications and tolerances, NBS follows rigorous inspection procedures. NBS maintains a quality control department which is responsible for inspecting raw materials and parts upon arrival at its plant as well as inspecting products during manufacture. NBS' products are serviced at its plant and at its customers' 6 premises by Company technicians, distributors' technicians or, in the case of minor repairs, by sales personnel. MARKETING AND SALES --------------------- The Company sells its equipment to pharmaceutical companies, agricultural and chemical companies, other industrial customers engaged in biotechnology, and to medical schools, universities, research institutes, hospitals, private laboratories and laboratories of Federal, State and Municipal government departments and agencies in the United States. While only a small percentage of the Company's sales are made directly to United States government departments and agencies, its domestic business is significantly affected by government expenditures and grants for research to educational research institutions and to industry. The Company regularly evaluates credit granted to customers. NBS also sells its equipment, both directly and through scientific equipment dealers, to foreign companies, institutions, and governments. The major portion of its foreign sales are made in Canada, Western Europe, the Middle East, China, Japan, India, Taiwan and Brazil. NBS also sells its products in the former Soviet Union, Eastern Europe, Africa, other Asian countries and Latin America. These sales may be substantially affected by changes in the capital investment policies of foreign governments, or by the availability of hard currency. These sales may also be affected by US export control regulations applicable to scientific equipment. Fisher Scientific is the exclusive U.S. distributor of the Company's C-Line and I-Series biological shakers. While Fisher is the exclusive U.S. distributor for these NBS Shakers, NBS markets and sells its INNOVA shakers and other products on a direct basis as well. Fisher also distributes a few selected INNOVA models. Fisher Scientific is also the exclusive distributor for the Company's C-Line shakers in certain European countries and has a broader distribution arrangement with the Company in Canada and in France. For information concerning net sales in the United States and foreign countries, income (loss) from operations derived therefrom, identifiable assets located in the United States and foreign countries, and export sales for each of the three years ended December 31, 2002, see Note 10 of Notes to Consolidated Financial Statements. Export sales consist of all sales by the Company's domestic operations to customers located outside the United States. Hence, foreign sales include export sales. Substantially all of the orders of the Company's domestic operations, including export orders are recorded in United States dollars. The Company's wholly-owned European subsidiaries book orders for equipment in local currencies and in some instances in United States dollars. The assets and liabilities of the Company's European subsidiaries are valued in local currencies. Fluctuations in exchange rates between those currencies and the dollar have had an impact upon the Company's consolidated financial statements, as measured in United States dollars. 7 Export sales are influenced by changes in the exchange rate of the dollar as those changes affect the cost of the Company's equipment to foreign purchasers. Certain countries, may not be able to make substantial capital purchases in dollars for economic or political reasons. NBS maintains five European sales offices through wholly-owned subsidiaries, New Brunswick Scientific (U.K.) Limited, in England, New Brunswick Scientific B.V. in The Netherlands, New Brunswick Scientific GmbH in Germany, New Brunswick Scientific NV/SA in Belgium and New Brunswick Scientific S.a.r.l. in France. NBS with three offices, also sells on a direct basis in China. At December 31, 2002, NBS had a backlog of unfilled orders of $6,668,000, compared with $10,381,000 at the end of 2001. NBS expects to satisfy all of its existing backlog during the coming year. Sluggishness in both the U.S. and foreign economies may result in a slower pace of orders for NBS equipment in 2003. One multi-national distributor based in the United States accounted for approximately 18.9%, 14.2% and 14.9%, respectively, of consolidated net sales during the years ended December 31, 2002, 2001 and 2000. Net sales to no other customer exceeded 10% of consolidated net sales in any year. COMPETITION - ----------- The competitive factors affecting the Company's position as a manufacturer of biotechnology equipment include availability, reliability, ease of operation, the price of its products, its responsiveness to the technical needs and service requirements of customers, and product innovation. NBS encounters competition from approximately 11 domestic and 15 foreign competitors in the sale of its products. The Company's principal competitors in the sale of fermentation equipment and bioreactors both in the United States and overseas are B. Braun Biotech, a German company and Applikon, B.V., located in The Netherlands. Although financial information concerning these firms is not readily available, the Company believes that B. Braun has substantially greater financial resources than the Company. The Company believes that it has the largest worldwide market share for biological shakers. LabLine Instruments, Inc. and Forma Scientific in the United States as well as several manufacturers in Europe are competitors of the Company in this market. The Company, having begun in 2001 to sell ultra-low temperature freezers in the U.S., has a relatively small market share there but believes it has a substantial market share for freezers in the European market where it has been selling freezers for over 20 years. The Company's main competitors in the sale of freezers are Revco, Forma and Sanyo. 8 NBS encounters substantial competition in the sale of most of its other equipment where its sales do not represent major market shares. Although the Company does not encounter substantial competition in the sale of its nutrient sterilizing and dispensing equipment in the U.S. market, substantial competition exists in foreign markets. EMPLOYEES --------- NBS employs approximately 405 people, including 232 people engaged in manufacturing and supervision, 31 in research, development and engineering, 112 in sales and marketing, and 30 in administrative and clerical capacities. Manufacturing employees currently work a single shift, however, in certain areas a second shift has been employed. The Company's New Jersey manufacturing employees are represented by District 15 of the International Association of Machinists, AFL-CIO under a contract which expires in December 2003. The Company considers its labor relations to be good. PATENTS AND TRADEMARKS - ------------------------ NBS holds and has filed applications for United States and foreign patents relating to many of its products, their integral components and significant accessories. NBS also has certain registered trademarks. However, NBS believes that its business is not dependent upon patent, trademark, or other proprietary protection in any material respect. WEBSITE ACCESS TO REPORTS - ---------------------------- The Company makes its periodic and current reports available, free of charge on its website (www.nbsc.com) as soon as reasonably practicable after such material ------------ is electronically filed with the Securities and Exchange Commission. CAUTIONARY STATEMENT --------------------- Statements included herein which are not historical facts are forward-looking statements. Such forward looking statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve a number of risks and uncertainties, including but not limited to, changes in economic conditions, demand for the Company's products, pricing pressures, intense competition in the industries in which the Company operates, the need for the Company to keep pace with technological developments and timely respond to changes in customer needs, the Company's dependence on third party suppliers, the effect on foreign sales of currency fluctuations, acceptance of new products, the labor relations of the Company and its customers and other factors identified in the Company's Securities and Exchange Commission filings. ITEM 2. PROPERTY -------- The Company's executive, administrative, engineering and domestic sales offices and its manufacturing operations, warehouse and other facilities are 9 located in a Company-owned 243,000 square foot one-story steel and concrete block building situated on a 17-acre site in Edison, New Jersey. Approximately 50,000 square feet is office space, approximately 7,300 square feet is laboratory space, approximately 8,800 square feet is leased to DGI, and the balance is devoted to manufacturing and warehouse facilities. The Company's NBS B.V. subsidiary owns its 22,825 square foot building in Nijmegen, The Netherlands. The Company's wholly-owned European subsidiaries lease facilities as follows: New Brunswick Scientific (UK) Limited - 17,000 square feet, NBS Cryo-Research Limited - 24,664 square feet, NBS GmbH - 1,400 square feet and New Brunswick Scientific NV/SA - 3,000 square feet. ITEM 3. LEGAL PROCEEDINGS ------------------ No material legal proceedings are currently pending. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ----------------------------------------------------------- None. ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER ------------------------------------------------------------------- MATTERS ----- (A) The Company's Common stock is traded in the National over-the-counter market (Nasdaq symbol NBSC). The following table sets forth the high and low prices for the Company's Common stock as reported by Nasdaq for the periods indicated. The prices represent quotations between dealers reflecting prevailing market factors which may include anticipated markups or markdowns and do not necessarily represent actual transactions.
HIGH LOW ------ ----- 2001 First Quarter $ 4.09 $3.13 Second Quarter 5.80 3.00 Third Quarter 4.95 3.80 Fourth Quarter 6.25 3.70 2002 First Quarter $10.00 $5.35 Second Quarter 10.62 5.81 Third Quarter 7.29 4.25 Fourth Quarter 8.25 4.85 2003 First Quarter $ 5.75 $4.85 (through February 10, 2003) (B) The number of holders, including beneficial owners, of NBS' Common stock as of February 10, 2003, is 1,767. (C) NBS paid 10% Common stock dividends on May 15, 2002 and 2001.
10 ITEM 6. SELECTED FINANCIAL DATA ------------------------- The following table sets forth selected consolidated financial information regarding the Company's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto which appear elsewhere herein.
Year Ended December 31, - ---------------------------------------- 2002 2001 2000 1999 1998 ------- ------- ----------- -------- -------- (In thousands, except per share amounts) Net sales $57,226 $60,294 $ 49,864 $54,866 $46,968 Net income (loss) (a) 2,584 2,211 (3,927)(b) (1,148) (156) Basic income (loss) per share (c) .34 .30 (.54) (.16) (.02) Diluted income (loss) per share (c) .33 .30 (.54) (.16) (.02) Total assets (d) 45,264 44,543 43,006 46,026 39,066 Long-term debt, net of current installments (d) 5,213 6,751 694 7,347 239 (a) Includes pre-tax charges of $260,000 in 2001 and $663,000 in 1999 related to non-recurring severance costs. (b) Includes a pre-tax charge of $950,000 related to the write-off of investment in Organica, Inc. (c) Adjusted to reflect 10% stock dividend distributed on May 15, 2002. (d) At year-end.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ------------------------------------------------------------------- RESULTS OF OPERATIONS ------------------- Statements included herein which are not historical facts are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve a number of risks and uncertainties, including but not limited to, changes in economic conditions, demand for the Company's products, pricing pressures, intense competition in the industries in which the Company operates, the need for the Company to keep pace with technological developments and timely respond to changes in customer needs, the Company's dependence on third party suppliers, the effect on foreign sales of currency fluctuations, acceptance of new products, the labor relations of the Company and its customers and other factors identified in the Company's Securities and Exchange Commission filings. Results of Operations --------------------- 2002 vs. 2001 - --------------- 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 as a result of the September 11, 2001 terrorist 11 attacks, these regulations may be made more restrictive. The impact of these anticipated regulations cannot be determined at this time. For the year ended December 31, 2002, the Company generated net income of $2,584,000 or $.33 per diluted share on net sales of $57,226,000 compared with net income of $2,211,000 or $.30 per diluted share on net sales of $60,294,000 for the year ended December 31, 2001. The 5.1% decrease in net sales is due to the absence in 2002 of sales of fully custom-engineered bioprocess equipment, which amounted to $5,088,000 in 2001, for which the Company ceased accepting orders after June 29, 2001 and $400,000 of 2001 DGI revenues (which was not consolidated after June 14, 2001). Net sales on a comparable basis increased 4.4% during 2002 as a result of increased sales of cell culture equipment, shakers and ultra-low temperature freezers. Net sales in Europe declined during 2002, however shipments in the United States remained strong. Overall, net sales benefited from a large backlog of unfilled orders, which was reduced to $6,668,000 at the end of 2002 from $10,381,000 at December 31, 2001. The decline in the backlog was the result of improvements in manufacturing efficiencies allowing the Company to substantially reduce average lead times. While only a small percentage of the Company's sales are made directly to United States and foreign government departments and agencies, its business is significantly affected by government expenditures and grants for research to educational research institutions and to industry. Gross profit for the year ended December 31, 2002 decreased to $23,881,000 from $24,029,000 for 2001. The small dollar decrease was despite the 5% sales decrease since gross margin increased to 41.7% from 39.9% in 2001 due primarily to the absence of lower margin sales of fully custom-engineered bioprocess equipment as noted above, as well as a larger percentage of the Company's sales coming from the U.S. domestic market, which provides higher margins than foreign sales. Selling, general and administrative expenses and research, development and engineering expenses remained relatively flat during 2002 as normal yearly increases in costs were balanced by selective reductions in costs. Effective January 1, 2002, the Company adopted the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead they will be tested at least annually for impairment. Consequently, the Company ceased amortizing goodwill upon adoption. Amortization expense related to goodwill was $182,000 for the year ended December 31, 2001. DGI research expenses amounted to zero in 2002 compared with $1,312,000 in 2001 since DGI's operations are no longer consolidated with those of the Company effective June 14, 2001 as the Company's ownership interest was reduced to 47% at that time (41.3% at December 31, 2002). 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. 12 Interest income increased to $64,000 in 2002 from $56,000 in 2001 due to higher average invested cash, partially offset by lower interest rates. Interest expense decreased to $460,000 in 2002 from $561,000 in 2001 as a result of the full repayment of the working capital portion of the Company's debt under its line of credit, lower balances on its acquisition and mortgage debt due to payments as well as to lower rates. Other, net decreased in 2002 to an expense of $35,000 from an expense of $113,000 in 2001 due primarily to lower realized foreign exchange losses. Income tax expense increased to $1,491,000 in 2002, an effective rate of 35.3% from $145,000 in 2001, an effective rate of 5%. During 2002 the Company was subject to more normalized income tax rates whereas, as a result of carry-forward losses related primarily to DGI, income tax expense for 2001 represents tax provisions of the Company's European subsidiaries, partially offset by a U.S. tax benefit. The primary reason for the Company's effective tax rate of 5% for 2001 vs. the statutory tax rate of 34% was a reduction in the valuation allowance allocated to income tax expense. Equity in operations of DGI was $150,000 in 2002 compared with $527,000 in 2001. The 2001 amount represents the Company's equity in DGI's losses from June 14 through December 31, 2001. The $150,000 charge in 2002 is related to a loan made by the Company to DGI on September 27, 2002 as further described below under "Financial Condition". During 2002, the U.S. dollar weakened against the currencies of the European countries where the Company has subsidiary operations. The effect of balance sheet translation resulted in an unrealized currency translation gain of $1,126,000, which is reflected as a component of accumulated other comprehensive loss in the equity section of the Consolidated Balance Sheet. 2001 vs. 2000 - --------------- For the year ended December 31, 2001, the Company generated net income of $2,211,000 or $.30 per diluted share on net sales of $60,294,000 compared with a net loss of $3,927,000 or $.54 per diluted share on net sales of $49,864,000 for the year ended December 31, 2000. The 20.9% increase in net sales resulted from increases in both the U.S. and export markets as well as from the Company's European subsidiary operations. Sales of shakers, fermentation equipment and ultra-low temperature freezers increased 8%, 50% and 68%, respectively, as sales in Europe rebounded from a significant downturn which occurred in 2000 and from the strong demand for laboratory research equipment in the United States. While only a small percentage of the Company's sales are made directly to United States and foreign government departments and agencies, its business is significantly affected by government expenditures and grants for research to educational research institutions and to industry. 13 Gross profit for the year ended December 31, 2001 increased to $24,029,000 from $20,154,000 for 2000. The 19.2% increase is due primarily to the 20.9% increase in net sales as gross margin declined slightly to 39.9% in 2001 from 40.4% in 2000. 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. Selling general and administrative expenses increased modestly to $16,205,000 in 2001 from $15,607,000 in 2000. The 3.8% increase was due to normal annual salary and other increases. Research, development and engineering expenses decreased $672,000 or 19.6% due primarily to a reduction in engineering expenses related to the fully custom-engineered bioprocess equipment business for which the Company ceased accepting orders effective June 29, 2001. Custom-engineered products had represented a small niche business for the Company. The $260,000 of non-recurring severance costs incurred in 2001 are in connection with the Company's withdrawal from this business. DGI research expenses declined to $1,312,000 in 2001 from $3,480,000 in 2000 as a result of DGI having received an infusion of funds on June 14, 2001 from an institutional investor, as described below and the fact that DGI's operations were no longer consolidated with those of the Company after June 14, 2001, as the Company's ownership interest was reduced to 47% and the investment is now accounted for using the equity method. Interest expense decreased to $561,000 in 2001 from $638,000 in 2000 due primarily to lower interest rates. Write-off of investment decreased from $950,000 in 2000 to zero in 2001 since all of the costs which relate to the Company's investment in Organica, Inc. were written-off in 2000. As a result of carry-forward losses related primarily to DGI, income tax expense for 2001 represents tax provisions of the Company's European subsidiaries, partially offset by a U.S. tax benefit. The primary reason for the Company's effective tax rate of 5% for 2001 vs. the statutory tax rate of 34% was a reduction in the valuation allowance allocated to income tax expense. Equity in operations of DGI resulted in a charge of $527,000 in 2001 and relates to the Company's 47% equity interest in DGI. The Company is not required to, and will not record losses in the future from DGI's operations since it has no further obligation or intent to fund the DGI operations and the carrying value of its investment had been reduced to zero at December 31, 2001. The following table reconciles income before income taxes on an as reported basis to non-GAAP pro-forma income before income taxes before the effects of DGI, non-recurring severance costs in 2001 and write-off of investment in 2000. 14 Such non-GAAP pro-forma amounts are not intended to be a measurement in accordance with generally accepted accounting principles (in thousands):
Year Ended December 31, ------------------------------------ 2001 2000 ------------------------- ---------- Income (loss) before income tax expense (benefit) and equity in operations of DGI as reported $ 2,883 $ (3,975) Add: DGI research and other expenses 1,312 3,480 Non-recurring severance costs 260 - Write-off of investment - 950 Less: DGI revenues (400) (420) ------------------------- ---------- $ 4,055 $ 35 ========================= ==========
During 2001, the U.S. dollar strengthened against the currencies of the European countries where the Company has subsidiary operations. The effect of balance sheet translation resulted in an unrealized currency translation loss of $825,000, which is reflected as a component of accumulated other comprehensive loss in the equity section of the Consolidated Balance Sheet. Financial Condition ------------------- Liquidity and Capital Resources ---------------------------------- Working capital increased to $26,671,000 at December 31, 2002 from $24,389,000 at December 31, 2001 and cash and cash equivalents increased to $9,718,000 from $3,794,000 at December 31, 2001. Accounts receivable decreased to $9,991,000 at December 31, 2002 from $12,811,000 at December 31, 2001 due primarily to a 14.3% decrease in net sales in the fourth quarter of 2002 compared with the fourth quarter of 2001, which was an exceptionally strong quarter for the Company. Inventories decreased to $12,096,000 at December 31, 2002 from $15,168,000 at December 31, 2001 primarily as a result of reductions in raw materials and work-in-process inventories due to improvements in sourcing of materials and in manufacturing efficiencies and procedures. Excess of cost over net assets acquired increased to $4,707,000 at December 31, 2001 from $4,256,000 at December 31, 2001 as a result of the strengthening of the pound sterling vs. the dollar during 2002 since the goodwill is denominated in pounds. Accounts payable and accrued expenses decreased to $6,489,000 at December 31, 2002 from $9,136,000 at December 31, 2001 primarily as a result of a decrease in trade payables, and advance payments from customers. Long-term debt, net of current installments decreased to $5,213,000 at December 31, 2002 from $6,751,000 at December 31, 2001 as a result of the payments of fixed debt and the repayment of the working capital portion of the Company's bank debt down to zero during the year. Other liabilities increased to $2,547,000 at December 31, 2002 from $2,094,000 at December 31, 2001 as a result of an increase in pension liabilities. 15 At December 31, 2002 NBS had a backlog of unfilled orders of $6,668,000 all of which it expects to satisfy in the coming year. Sluggishness in both the U.S. and foreign economies may result in a slower pace of orders for NBS equipment in 2003. 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 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 other than the fixed term acquisition debt, bear interest at the bank's prime rate less 125 basis points or libor plus 125 basis points, at the discretion of the Company. At December 31, 2002, the bank's prime rate was 4.25% and libor was 1.4175%. All of the Company's domestic assets, which are not otherwise subject to lien, have been pledged as security for any borrowings under the Bank Agreement. The Bank Agreement contains various business and financial covenants including among other things, a debt service ratio, a net worth covenant, and a ratio of total liabilities to tangible net worth. The Company is in compliance with its covenants pursuant to the Bank Agreement at December 31, 2002. At December 31, 2002, $4,874,000 was outstanding under the Bank Agreement related to acquisition loans bearing fixed interest at 8% per annum, $276,000 was being utilized for letters of credit and $54,000 for foreign exchange transactions. The following amounts were available at December 31, 2002 under the Bank Agreement: $4,724,000 for working capital and letters of credit, $2,000,000 for equipment acquisitions, $7,626,000 for acquisitions and $9,946,000 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 the DJM Cryo-Research Group. The notes bear interest at 6% which are payable annually and principal is payable in five equal annual installments commencing November 2003. At December 31, 2002 the balance due on the notes was $403,000. The Company is a party to first and second mortgages on the facility of the Company's Netherlands subsidiary, which bear interest at 5.50% and 5.45%, respectively, per annum. At December 31, 2002, an aggregate of $309,000 was outstanding on both mortgages. The Company's contractual obligations and commitments principally include obligations associated with its outstanding indebtedness and future minimum operating lease obligations as set forth in the following table: 16
Payments Due by Period ------------------------ (In thousands) ------------------------ Contractual obligations: Within 1 1-2 3-4 After 4 Total Year Years Years Years - ------------------------- ------------------------ ------ -------- ------ Long-term debt, notes and credit facility $ 5,586 $ 373 $ 805 $4,334 $ 74 Operating leases 4,149 852 1,241 790 1,266 ------------------------ ------ -------- ------ ------ Total contractual cash obligations $ 9,735 $1,225 $ 2,046 $5,124 $1,340 ======================== ====== ======== ====== ======
Drug-Lead Discovery Business ------------------------------ In October 1995, the Company entered the drug-lead discovery business by forming a new company to develop a novel, small molecule drug discovery platform. The company, DGI BioTechnologies, Inc. (DGI), was majority-owned and fully funded by the Company until June 14, 2001 at which time BankInvest, 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, the Company no longer exercises control and as required by accounting principles generally accepted in the United States of America, ceased consolidating the operations of DGI and began reporting 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. During the period from June 14, 2001 to December 31, 2001, the carrying value of the Company's investment in DGI was reduced to zero through the application of the equity method. 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 obligation or intent to fund the DGI operations. As of December 31, 2002 and 2001, the Company's investment in DGI is zero. On September 27, 2002, the Company and BankInvest, DGI's two major shareholders, provided DGI with a bridge loan in order to sustain its operations until DGI's anticipated closing of a financing transaction with an investment group, which DGI management has informed the Company that it hopes to consummate during the first half of 2003, however, no assurance can be made as to the closing of this financing. The inability to close this financing or the realization of funds from another source could have a material adverse effect on DGI's ability to survive. The Company made the loan solely as a means of allowing DGI more time to complete its financing. The Company had no obligation to make this loan and has no obligation or intent to provide any future financing or support to DGI. As compensation for making the loans, the Company and BankInvest each received 17 Series B Convertible Preferred shares in DGI in proportion to their respective share of the loan. Consequently, the Company's ownership interest in DGI at December 31, 2002 was reduced from 47.0% to 41.3%. The $150,000 portion advanced to DGI by the Company has been expensed as a charge to equity in operations of DGI due to the uncertainty surrounding DGI's ability to consummate the equity financing and the resulting uncertainty as to the ability of DGI to repay the loan, absent the procurement of financing. Under the terms of the loan agreement, should the financing be consummated, the Company will be repaid in full from the proceeds. Such repayment would then be recorded as income from equity in operations of DGI in the Company's consolidated statement of operations. In the event DGI is unable to obtain additional financing, the Company may be required to fund up to $134,000, related to DGI equipment leases guaranteed by the Company (which has been fully reserved by the Company). The Company is a party to a two-year lease with DGI under which DGI occupies 8,800 square feet of office and specifically designed laboratory space at the Company's headquarters facility in Edison, New Jersey for a gross rental of $211,200 per year. Under the terms of the lease, DGI has the right to cancel upon providing the Company with 90 days notice. The lease was established at arm's length utilizing current market information. Should the anticipated round of financing, described above, be consummated, the Company expects to receive shares in DGI in lieu of future rent payments. Cash Flows from Operating Activities ---------------------------------------- Net cash provided by operating activities was $7,417,000 in 2002 compared with $3,180,000 in 2001. Net cash provided by operating activities in 2002 was composed of net income of $2,584,000 adjusted for depreciation and amortization and equity in operations of DGI, which are non-cash items aggregating $1,215,000 and net cash provided by changes in operating assets and liabilities of $3,618,000 which are primarily attributable to a decrease of $3,260,000 in accounts receivable due to the lower level of fourth quarter 2002 shipments compared with the fourth quarter of 2001, a decrease in inventories of $3,373,000 due to improvements in sourcing of materials and in manufacturing efficiencies and procedures and a decrease in other assets of $478,000, partially offset by a decrease in accounts payable and accrued expenses of $1,222,000 and a decrease of $1,558,000 in advance payments from customers related to the Company's decision to cease accepting orders for fully custom-engineered bioprocess equipment. Net cash provided by operating activities in 2001 of $3,180,000 was composed of net income of $2,211,000 adjusted for depreciation and amortization and equity in operations of DGI which are non-cash items aggregating $1,842,000 and net cash used for changes in operating assets and liabilities of $873,000 which are primarily attributable to an increase in accounts receivable due to the high level of shipments late in the year and a substantial reduction in other assets directly related to the reduction in the valuation allowance against the deferred tax asset due to the significant improvement in the Company's operating income, offset by a decrease in inventories partly attributable to the Company's decision to stop accepting orders for large fully custom-engineered bioprocess equipment. 18 Cash Flows from Investing Activities ---------------------------------------- Net cash used in investing activities amounted to $1,365,000 in 2002 compared with $700,000 in 2001. Both years included expenditures for property, plant and equipment and increases in insurance cash surrender value. Cash Flows from Financing Activities ---------------------------------------- Net cash used in financing activities amounted to $366,000 in 2002 compared with net cash used of $1,101,000 in 2001. Both years reflect the scheduled repayment of long-term debt (2002-$248,000; 2001-$222,000), repayments under the working capital portion of the Company's revolving credit facility (2002-$1,250,000; 2001-$1,000,000), proceeds under stock option and purchase plans (2002-$1,270,000; 2001-$116,000) and proceeds from notes receivable related to exercised stock options (2002-$12,000; 2001-$5,000). Management believes that the resources available to the Company, including current cash and cash equivalents, cash 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. Related Party Transactions ---------------------------- David Freedman, Chairman of the Board of the Company, is the owner of Bio-Instrument Ltd., a foreign firm that acts as an agent for sales of the Company's products to customers in Israel, and earns commissions on those sales. During 2002, 2001 and 2000, this firm earned commissions in the amounts of $248,033, $212,128 and $204,357, respectively, on purchases by customers in Israel of the Company's products. These commissions paid by the Company to Bio-Instrument Ltd. were comparable to commissions paid to unrelated distributors and sales representatives. Carol Freedman, the daughter of David Freedman, the niece of Sigmund Freedman and the sister of Kenneth Freedman, has been employed by the Company in various capacities since 1979. Ms. Freedman is currently Customer Service Manager and also is an Assistant Treasurer of the Company. Her compensation for 2002 was $63,162; she also received options to purchase 1,100 shares of the Company's Common stock in 2002, under the Company's 2001 Stock Option Plan for Officers and Key Employees. Critical Accounting Policies ------------------------------ The Securities and Exchange Commission has issued disclosure guidance for "critical accounting policies." The SEC defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. 19 Management is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results could differ from those estimates. The significant accounting policies are described in Note 1 of the notes to consolidated financial statements included in the Company's 2002 Annual Report on Form 10-K. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, management considers the following policies to be critical within the SEC definition. Inventories ----------- Inventories are valued at the lower of cost (first in, first out or average) or market value and have been reduced by an allowance for excess and obsolete inventories. The estimate is based on managements' review of inventories on hand compared to estimated future usage and sales. Cost includes material, labor and manufacturing overhead. Long-Lived Assets ------------------ Long-lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows. Goodwill, which is not subject to amortization is tested annually for impairment, and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the Company exceeds its fair value. Deferred Income Taxes ----------------------- A portion of the deferred tax assets, which have been recorded by the Company, represent net operating loss carry-forwards. A valuation allowance has been recorded for certain capital losses and other deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in 20 which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Accounts Receivable -------------------- The Company estimates an allowance for doubtful accounts after considering the collectibility of balances due, the credit worthiness of the customer and its current level of business with the customer. Actual results could differ from these estimates. Recently Issued Accounting Standards Not Yet Adopted ---------------------------------------------------------- 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. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Statement No. 146 is different from EITF Issue No. 94-3 in that Statement No. 146 requires that a liability be recognized for a cost associated with an exit or disposal activity only when the liability is incurred, that is when it meets the definition of a liability in the FASB's conceptual framework. Statement No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. In contrast, under EITF Issue 94-3, a company recognized a liability for an exit cost when it committed to an exit plan. Statement No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of Statement No. 146 can be expected to impact the timing of liability recognition associated with any future exit activities. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------------- In the normal course of business, the Company is exposed to fluctuations in interest rates as it seeks debt financing to make capital expenditures, potential acquisitions, and invest in cash equivalents and marketable debt securities. Cash equivalents and other marketable investments are carried at fair value on the consolidated balance sheets. At times, management might employ specific strategies, such as the use of derivative instruments or hedging to manage foreign currency or other exposures. Further, the Company does not 21 expect its market risk exposures to change in the near term. At December 31, 2002, the outstanding borrowings of the Company consisted primarily of fixed rate long-term debt, which had a carrying value of $4,874,000 and a fair value of approximately $5,574,000. Assuming other factors are held constant, interest rate changes generally affect the fair value of fixed rate debt, but do not impact the carrying value, earnings or cash flows. Accordingly, assuming a hypothetical increase of 1% in interest rates and all other variables remaining constant, interest expense would not change, however, the fair market value of the fixed rate long-term debt would decrease by approximately $170,000. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ----------------------------------------------- NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheets as of December 31, 2002 and 2001 Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements Schedule II - Valuation and Qualifying Accounts 23 Independent Auditors' Report The Board of Directors and Shareholders New Brunswick Scientific Co., Inc.: We have audited the consolidated financial statements of New Brunswick Scientific Co., Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Brunswick Scientific Co., Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As described in note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" in 2002, which changes its accounting for goodwill and intangible assets. /s/ KPMG LLP KPMG LLP Short Hills, New Jersey February 18, 2003 24
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001 (In thousands, except share and per share amounts) 2002 2001 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 9,718 $ 3,794 Accounts receivable, net of allowance for doubtful accounts, 9,991 12,811 2002 - $467 and 2001 - $466 Inventories 12,096 15,168 Deferred income taxes 962 1,162 Prepaid expenses and other current assets 766 856 --------- --------- Total current assets 33,533 33,791 --------- --------- Property, plant and equipment, net 5,195 4,868 Excess of cost over net assets acquired less accumulated amortization of $386 in 2001 4,707 4,256 Other assets 1,829 1,628 --------- --------- $ 45,264 $ 44,543 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 373 $ 266 Accounts payable and accrued expenses 6,489 9,136 --------- --------- Total current liabilities 6,862 9,402 --------- --------- Long-term debt, net of current installments 5,213 6,751 Other liabilities 2,547 2,094 Commitments and contingencies Shareholders' equity: Common stock, $0.0625 par; authorized 25,000,000 shares; issued and outstanding: 2002 - 7,790,796 shares; 2001 - 6,761,892 shares 487 423 Capital in excess of par 47,959 40,124 Accumulated deficit (13,756) (10,014) Accumulated other comprehensive loss (4,003) (4,180) Notes receivable from exercise of stock options (45) (57) --------- --------- Total shareholders' equity 30,642 26,296 --------- --------- $ 45,264 $ 44,543 ========= =========
See notes to consolidated financial statements. 25
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (In thousands, except per share amounts) 2002 2001 2000 ----------- ----------- ---------- Net sales $ 57,226 $ 60,294 $ 49,864 Operating costs and expenses: Cost of sales 33,345 36,265 29,710 Selling, general and administrative expenses 16,353 16,205 15,607 Research, development and engineering expenses 2,872 2,751 3,423 DGI research expenses - 1,312 3,480 Non-recurring severance costs - 260 - ----------- ----------- ---------- Total operating costs and expenses 52,570 56,793 52,220 ----------- ----------- ---------- Income (loss) from operations 4,656 3,501 (2,356) ----------- ----------- ---------- Other income (expense): Interest income 64 56 56 Interest expense (460) (561) (638) Other expense, net (35) (113) (87) Write-off of investment - - (950) ----------- ----------- ---------- (431) (618) (1,619) ----------- ----------- ---------- Income (loss) before income tax expense (benefit) and equity in operations of DGI 4,225 2,883 (3,975) Income tax expense (benefit) 1,491 145 (48) ----------- ----------- ---------- Income (loss) before equity in operations of DGI 2,734 2,738 (3,927) Equity in operations of DGI (150) (527) - ----------- ----------- ---------- Net income (loss) $ 2,584 $ 2,211 $ (3,927) =========== =========== ========== Basic income (loss) per share $ .34 $ .30 $ (.54) =========== =========== ========== Diluted income (loss) per share $ .33 $ .30 $ (.54) =========== =========== ========== Basic weighted average number of shares outstanding 7,651 7,412 7,304 =========== =========== ========== Diluted weighted average number of shares outstanding 7,837 7,449 7,304 =========== =========== ==========
See notes to consolidated financial statements. 26
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (In thousands, except share amounts) Notes Receivable Accumulated From Capital Other Exercise Common Stock in Excess Accumulated Comprehensive Of Stock Shares Amount Of Par Deficit Loss Options Total ------------- ------------- --------------- ---------- --------- ------- Balance, January 1, 2000 5,344,000 $ 334 $ 32,907 $ (2,107) $ (1,032) $ (332) $29,770 Issue of shares under employee stock purchase plan 27,545 2 117 119 Issue of shares under stock option plans 194,823 13 867 880 Payment on notes receivable from exercise of stock options 270 270 10% stock dividend 549,189 34 3,072 (3,106) - Net loss (3,927) (3,927) Other comprehensive loss adjustment (1,170) (1,170) ------------- ----------- ------------- -------------- ----------- --------- ------- Balance, December 31, 2000 6,115,557 $ 383 $ 36,963 $ (9,140) $ (2,202) $ (62) $25,942 ------------- ----------- ------------- --------------- ---------- --------- ------- Issue of shares under employee stock purchase plan 34,939 2 114 116 Payment on notes receivable from exercise of stock options 5 5 10% stock dividend 611,396 38 3,047 (3,085) - Net income 2,211 2,211 Other comprehensive loss adjustment (1,978) (1,978) ------------- ----------- ------------ -------------- ---------- --------- ------- Balance, December 31, 2001 6,761,892 $ 423 $ 40,124 $ (10,014) $ (4,180) $ (57) $26,296 ------------- ----------- ------------- --------------- ---------- --------- ------- Issue of shares under employee stock purchase plan 36,895 2 170 172 Issue of shares under stock option plans 371,027 22 1,582 1,604 Tax benefits related to exercise of stock options 303 303 Mature shares received as payment in lieu of cash for exercised stock options (74,235) (4) (502) (506) Payment on notes receivable from exercise of stock options 12 12 10% stock dividend 695,217 44 6,282 (6,326) - Net income 2,584 2,584 Other comprehensive loss adjustment 177 177 ------------- ----------- ------------ -------------- ---------- --------- ------- Balance, December 31, 2002 7,790,796 $ 487 $ 47,959 $ (13,756) $ (4,003) $ (45) $30,642 ============= =========== ============= =============== ========== ========= =======
See notes to consolidated financial statements. 27
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (In thousands) 2002 2001 2000 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 2,584 $ 2,211 $ (3,927) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,065 1,315 1,501 Equity in operations of DGI 150 527 - Write-off of investment - - 950 Change in related balance sheet accounts, excluding effect of acquisition: Accounts and notes receivable 3,260 (2,632) 2,985 Inventories 3,373 1,326 (1,868) Prepaid expenses and other current assets (163) (622) (324) Other assets 478 (274) (85) Accounts payable and accrued expenses (1,222) 1,370 (1,292) Advance payments from customers (1,558) (336) 1,611 Other liabilities (550) 295 (304) --------- --------- --------- Net cash provided by (used in) operating activities 7,417 3,180 (753) --------- --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (1,203) (577) (351) Sale of equipment - 18 3 Acquisition of DJM Cryo-Research Group, net of cash acquired - - (352) Increase in insurance cash surrender value (162) (141) (132) --------- --------- --------- Net cash used in investing activities (1,365) (700) (832) --------- --------- --------- Cash flows from financing activities: Borrowings under long-term credit facility - - 1,000 Repayments of long-term debt (1,498) (1,222) (232) Proceeds from issue of shares under stock purchase and option plans 1,270 116 999 Loan to DGI (150) - - Payments on notes receivable related to exercised stock options 12 5 270 --------- --------- --------- Net cash (used in) provided by financing activities (366) (1,101) 2,037 --------- --------- --------- Net effect of exchange rate changes on cash 238 (58) (90) --------- --------- --------- Net increase in cash and cash equivalents 5,924 1,321 362 Cash and cash equivalents at beginning of year 3,794 2,473 2,111 --------- --------- --------- Cash and cash equivalents at end of year $ 9,718 $ 3,794 $ 2,473 ========= ========= ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 497 $ 551 $ 647 Income taxes 1,171 155 621
See notes to consolidated financial statements. 28
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (In thousands) 2002 2001 2000 -------- --------- -------- Net income (loss) $ 2,584 $ 2,211 $(3,927) Other comprehensive income (loss): Foreign currency translation adjustment 1,126 (825) (827) Minimum pension liability adjustment (949) (1,153) (343) -------- --------- -------- Net comprehensive income (loss) $ 2,761 $ 233 $(5,097) ======== ========= ========
See notes to consolidated financial statements. 29 1. Nature of operations and summary of significant accounting policies: Nature of operations: New Brunswick Scientific Co., Inc. and its subsidiaries ("NBS" or "the Company") design, manufacture and market a variety of equipment used in biotechnology to create, maintain, measure and control the physical and biochemical conditions required for the growth, detection and storage of microorganisms. This equipment is used in medical, biological, chemical, and environmental research and for the commercial development of antibiotics, proteins, hormones, enzymes, monoclonal antibodies, agricultural products, fuels, vitamins, vaccines and other substances. The equipment sold by NBS includes fermentation equipment, bioreactors, biological shakers, ultra-low temperature freezers, nutrient sterilizing and dispensing equipment, tissue culture apparatus and air samplers. Principles of consolidation: The consolidated financial statements include the accounts of New Brunswick Scientific Co., Inc., and its wholly-owned subsidiaries (the Company). All significant intercompany transactions and balances have been eliminated. Translation of foreign currencies: Translation adjustments for the Company's foreign operations are included as a component of accumulated other comprehensive loss in shareholders' equity. Transaction gains and losses, which are not significant in amount, are included in the consolidated statements of operations as part of "Other income (expense), net". Cash and cash equivalents: The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents in the consolidated statements of cash flows. Inventories: Inventories are stated at the lower of cost (first in, first out or average) or market and have been reduced by an allowance for excess and obsolete inventories. Cost elements include material, labor and manufacturing overhead. Property, plant and equipment: Property, plant and equipment are stated at cost. The cost of repairs, maintenance and replacements which do not significantly improve or extend the life of the respective assets are charged to expense as incurred. 30 Depreciation is provided by the straight-line method over the estimated useful lives of the related assets, generally 33-1/3 years for buildings and 10 years for machinery and equipment. Goodwill: In July 2001, the FASB issued Statement No. 141, Business Combinations ("SFAS No. 141") and Statement No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS No. 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 No. 142 requires 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 No. 142. SFAS No. 142 also requires 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 No. 141 for acquisitions initiated after June 30, 2001, and SFAS No. 142 effective January 1, 2002. In connection therewith, the Company determined that it has one reporting unit. Goodwill acquired in business combinations completed before July 1, 2001 has been amortized through December 31, 2001. Effective January 1, 2002, as part of the adoption of SFAS No. 142 the Company is no longer amortizing goodwill. SFAS No. 142 requires that the Company perform an assessment of whether there is an indication that goodwill is impaired based on the provisions of SFAS No. 142. To the extent an indication exists that the goodwill may be impaired, the Company must measure the impairment loss, if any. Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Company performed an assessment to determine whether goodwill was impaired as of December 31, 2002 and January 1, 2002, the date of adoption and determined that there is no impairment to its goodwill balance at these dates. The Company will test for impairment at December 31 each year. Amortization expense related to goodwill was $182,000 and $195,000 for the years ended December 31, 2001 and 2000, respectively. All of the Company's goodwill relates to a 1999 acquisition by one of the Company's United Kingdom subsidiaries. Unamortized goodwill at December 31, 2001 was $4,256,000. The only change in goodwill in 2002 was due to the translation adjustment. The following table reconciles previously reported net income (loss) to net income (loss) adjusted as if the provisions of SFAS No. 142 were in effect in 2001 and 2000 (in thousands, except per share amounts): 31
Year Ended December 31 --------------------------------- 2001 2000 ----------------------- --------- Reported net income (loss) $ 2,211 $ (3,927) Addback: goodwill amortization 109 117 ----------------------- --------- Adjusted net income (loss) $ 2,320 $ (3,810) ======================= ========= Basic income (loss) per share: Reported net income (loss) $ .30 $ (.54) Goodwill amortization .01 .02 ----------------------- --------- Adjusted net income (loss) $ .31 $ (.52) ======================= ========= Diluted income (loss) per share: Reported net income $ .30 $ (.54) Goodwill amortization .01 .02 ----------------------- --------- Adjusted net income (loss) $ .31 $ (.52) ======================= =========
Prior to the adoption of SFAS No. 142 goodwill was amortized on a straight-line basis over 25 years. The Company assessed the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows. The amount of goodwill impairment, if any, was measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. Research and development: Research and development costs are expensed as incurred. Research and development expenditures, all of which are sponsored by the Company, amounted to $2,453,000 in 2002, $2,744,000 in 2001 and $3,981,000 in 2000. Research expenditures related to DGI included in these amounts were zero in 2002, $1,312,000 in 2001 and $3,480,000 in 2000. Income taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 32 No provision has been made for federal income or withholding taxes which may be payable on the remittance of the undistributed retained earnings of foreign subsidiaries. These earnings have been reinvested to meet future operating requirements and the Company has the ability to, and intends to continue such policy for the foreseeable future. Income (loss) per share: Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding. Diluted income (loss) per share is calculated by dividing net income (loss) by the sum of the weighted average number of shares outstanding plus the dilutive effect of stock options which have been issued by the Company using the treasury stock method. Antidilutive options are excluded from the calculation of diluted income (loss) per share. Information related to dilutive and antidilutive stock options is as follows (in thousands):
Year Ended December 31, ------------------------ 2002 2001 2000 ----------------------- ---- ---- Dilutive effect 186 37 - Antidilutive options 126 337 162
A 10% stock dividend was distributed on May 15, 2002. The weighted average number of shares outstanding used in the computation of basic and diluted income (loss) per share for prior periods have been restated to reflect this dividend. Stock option plans: At December 31, 2002, the Company has stock based employee compensation plans which are described more fully in Note 9. The Company accounts for its stock option plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. No stock based employee compensation cost is reflected in net income (loss), as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company has adopted the disclosure standards of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which requires the Company to provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method of accounting for stock options as defined in SFAS No. 123 had been applied. The following table illustrates the effect on net income (loss) and per share amounts if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation: 33
Year Ended December 31 ------------------------ 2002 2001 2000 ------------------------ --------- ---------- (In thousands, except per share amounts) Net income (loss), as reported $ 2,584 $ 2,211 $ (3,927) Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects (424) (446) (385) ------------------------ --------- ---------- Pro forma net income (loss) $ 2,160 $ 1,765 $ (4,312) ======================== ========= ========== Net income (loss) per share: Basic-as reported $ .34 $ .30 $ (.54) ======================== ========= ========== Basic-pro forma $ .28 $ .24 $ (.59) ======================== ========= ========== Diluted-as reported $ .33 $ .30 $ (.54) ======================== ========= ========== Diluted-pro forma $ .28 $ .24 $ (.59) ======================== ========= ==========
The fair value of each stock option granted during the year is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
2002 2001 2000 ------- ------- ------- Expected life (years) 5.2 5.7 7.4 Expected volatility 63.67% 71.21% 68.30% Expected dividend yield - - - Risk-free interest rate 4.34% 5.17% 5.39% Weighed average fair value of options granted during the year $ 3.09 $ 5.32 $ 3.42
Financial instruments: The carrying values of the Company's financial instruments, principally cash and cash equivalents, accounts receivable, accounts payable and certain other assets and liabilities included in the Company's Consolidated Balance Sheets approximated their fair values at December 31, 2002 and 2001. Fair 34 values were determined through a combination of management estimates and information obtained from independent third parties using the latest available market data. The approximate fair value of long-term debt was $5,574,000 at December 31, 2002. Impairment of long-lived assets and long-lived assets to be disposed of: Long-lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows. Comprehensive income (loss): Comprehensive income (loss) consists of net income (loss), foreign currency translation adjustment, and minimum pension liability adjustment and is presented in the consolidated statements of comprehensive income (loss). At December 31, 2002, accumulated comprehensive loss consists of $1,558,000 of cumulative foreign currency translation adjustment and $2,445,000 of additional minimum pension liability (net of tax of $517,000). Segment information: Effective June 14, 2001, as a result of the Company's reduction in ownership in DGI to below 50%, the Company ceased consolidating the operations of DGI and, accordingly, has only one segment. 2001 segment information for the Drug Lead Discovery segment represents the operations of DGI from January 1 to June 14, 2001. Revenue recognition: Revenue is recognized when products are shipped. The Company's products are tested by its quality control department prior to shipment. The Company has no other obligation associated with its products once shipment has occurred except for customary warranty provisions. Historically, returns have been immaterial to the Company's consolidated financial statements and are projected to remain at a consistent immaterial level in the future. The Company reports all amounts billed to customers related to shipping and handling as revenue and includes all costs incurred for shipping and handling as cost of sales. 35 Derivative instruments and hedging activities: The Company accounts for its derivative and hedging transactions in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. The Company adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. The adoption did not have an effect on the Company's consolidated financial statements. From time to time, the Company has entered into forward foreign exchange contracts to hedge certain firm and anticipated sales commitments, net of offsetting purchases, denominated in certain foreign currencies. The purpose of such foreign currency derivatives is to mitigate the risk that the eventual cash flows resulting from the sale of products to certain foreign customers (net of purchases from applicable foreign suppliers) will be adversely affected by fluctuations in exchange rates. At December 31, 2002 and 2001, the Company did not have any derivative instruments outstanding. Supplemental non-cash investing and financing activities: During 2002, the Company had an exchange of mature shares of common stock upon the exercise of stock options in the amount of $506,000. During 2001, the Company made a non-cash contribution of equipment to DGI in the amount of $429,000. Use of estimates: Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and revenue and expenses, such as the valuation of accounts receivable and inventories, and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. 36 2. Inventories at December 31 consist of:
2002 2001 ------- ------- (In thousands) Raw materials and sub-assemblies $ 4,514 $ 6,704 Work-in-process 1,705 2,647 Finished goods 5,877 5,817 ------- ------- $12,096 $15,168 ======= =======
3. Property, plant and equipment at December 31 consists of:
2002 2001 --------- -------- (In thousands) Land $ 800 $ 800 Buildings and improvements 4,440 4,294 Machinery and equipment 14,154 12,753 --------- -------- 19,394 17,847 Less accumulated depreciation 14,199 12,979 --------- -------- $ 5,195 $ 4,868 ========= ========
4. Investments: 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 BankInvest, 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, the Company no longer exercises control and as required by accounting principles generally accepted in the United States of America, ceased consolidating the operations of DGI and began reporting 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. During the period from June 14, 2001 to December 31, 2001, the carrying value of the Company's investment in DGI was reduced to zero through the application of the equity method. 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 37 it has no further obligation or intent to fund the DGI operations. As of December 31, 2002 and 2001, the Company's investment in DGI is zero. On September 27, 2002, the Company and BankInvest, DGI's two major shareholders, provided DGI with a bridge loan in order to sustain its operations until DGI's anticipated closing of a financing transaction with an investment group, which DGI management has informed the Company that it hopes to consummate during the first half of 2003, however, no assurance can be made as to the closing of this financing. The inability to close this financing or the realization of funds from another source could have a material adverse effect on DGI's ability to survive. The Company made the loan solely as a means of allowing DGI more time to complete its financing. The Company had no obligation to make this loan and has no obligation or intent to provide any future financing or support to DGI. As compensation for making the loans, the Company and BankInvest each received Series B Convertible Preferred shares in DGI in proportion to their respective share of the loan. Consequently, the Company's ownership interest in DGI at December 31, 2002 was reduced from 47.0% to 41.3%. The $150,000 portion advanced to DGI by the Company has been expensed as a charge to equity in operations of DGI due to the uncertainty surrounding DGI's ability to consummate the equity financing and the resulting uncertainty as to the ability of DGI to repay the loan, absent the procurement of financing. Under the terms of the loan agreement, should the financing be consummated, the Company will be repaid in full from the proceeds. Such repayment would then be recorded as income from equity in operations of DGI in the Company's consolidated statement of operations. In the event DGI is unable to obtain additional financing, the Company may be required to fund up to $134,000, related to DGI equipment leases guaranteed by the Company (which has been fully reserved by the Company). Through the third quarter of 2000, the Company had invested $950,000 (less than a twenty-percent voting interest) in Organica, Inc. (Organica) which was formed in 1993 to develop and commercialize various "environmentally friendly" products produced via fermentation processes. As previously reported , there had been continuing uncertainties as to the future direction of Organica, Inc. as it continued to generate losses. The Company concluded that a portion of its investment in Organica, Inc. had become permanently impaired and recorded an $800,000 writedown in the second quarter of 2000 to reduce its investment balance to $150,000 the then estimated recoverable amount. Subsequently, the two members of the Organica Board of Directors appointed by the Company resigned. On October 30, 2000 Organica filed in the United States Bankruptcy Court for the District of Delaware, a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. Based on the information available at that time, the Company determined that its investment was not recoverable and, accordingly, wrote off the remaining $150,000 investment in the third quarter of 2000. There has been no substantial change as of December 31, 2002 and the Company has not recovered any portion of the Organica investment. 38 5. Long-term debt and credit agreement: The Company is a party to first and second mortgages on the facility of the Company's Netherlands subsidiary, which bear interest of 5.50% and 5.65%, respectively, per annum. During the terms of the mortgages, the Company is obligated to make monthly payments of interest and quarterly payments of principal. At December 31, 2002, $144,000 and $165,000 was outstanding under the first and second mortgages, respectively, and at December 31, 2001, $141,000 and $162,000 was outstanding under the first and second mortgages, respectively. Each mortgage requires 80 equal quarterly payments of principal. 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 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 other than the fixed term acquisition debt, bear interest at the bank's prime rate less 125 basis points or libor plus 125 basis points, at the discretion of the Company. At December 31, 2002, the bank's prime rate was 4.25% and libor was 1.4175%. All of the Company's domestic assets, which are not otherwise subject to lien, have been pledged as security for any borrowings under the Bank Agreement. The Bank Agreement contains various business and financial covenants including among other things, a debt service ratio, a net worth covenant, and a ratio of total liabilities to tangible net worth. The Company is in compliance with its covenants pursuant to the Bank Agreement at December 31, 2002. At December 31, 2002, $4,874,000 was outstanding under the Bank Agreement related to acquisition loans bearing fixed interest at 8% per annum, $276,000 was being utilized for letters of credit and $54,000 for foreign exchange transactions. The following amounts were available at December 31, 2002 under the Bank Agreement: $4,724,000 for working capital and letters of credit, $2,000,000 for equipment acquisitions, $7,626,000 for acquisitions and $9,946,000 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 2003. At December 31, 2002 the balance of the notes was $403,000. 39 Aggregate annual maturities of long-term debt are as follows:
Year ending December 31 Amount - --------------------------------------- --------------- (In thousands) 2003 $ 373 2004 390 2005 415 2006 4,206 2007 128 After 2007 74 --------------- 5,586 ===============
6. Accounts payable and accrued expenses at December 31, consists of:
2002 2001 ------ ------ (In thousands) Accounts payable-trade $1,948 $2,875 Accrued salaries, wages and payroll taxes 2,217 2,501 Advance payments from customers 168 1,715 Other accrued liabilities 2,156 2,045 ------ ------ $6,489 $9,136 ====== ======
On June 29, 2001, the Company announced that it had ceased accepting orders for large fully custom-engineered bioprocess equipment which represented a small niche business for the Company. In connection therewith, the Company recorded a $260,000 charge for severance costs in 2001, which was fully paid as of December 31, 2002. 40 7. Income taxes
: Year Ended December 31 --------------------------- 2002 2001 2000 ------- ------- ---------- (In thousands) Income (loss) before income tax expense (benefit) and equity in operations of DGI: Domestic $3,969 $1,975 $ (2,690) Foreign 256 908 (1,285) ------- ------- ---------- $4,225 $2,883 $ (3,975) ======= ======= ========== Income tax expense (benefit) consists of: Federal Current $ 820 $ 611 $ - Federal-deferred 294 (850) - State-current 338 71 - State -deferred (94) (112) - Foreign-current 133 425 (48) ------- ------- ---------- $1,491 $ 145 $ (48) ======= ======= ==========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2002 and 2001 are as follows:
2002 2001 ------ ------ (In thousands) Deferred tax assets: Inventories $ 810 $ 755 Allowance for doubtful accounts 150 100 Accrued expenses 450 585 Alternative minimum tax credit carry-forward - 67 Foreign net operating loss carry-forward 522 - Domestic capital loss and contribution carry- 386 360 forwards Other assets 517 - ------ ------ Gross deferred tax assets 2,835 1,867 Less: valuation allowance 823 360 ------ ------ 2,012 1,507 ------ ------ Deferred tax liabilities: Accumulated depreciation 308 218 Other liabilities 187 89 ------ ------ 495 307 ------ ------ Net deferred tax asset $1,517 $1,200 ====== ======
41 At December 31, 2002 and 2001, respectively, approximately $555,000 and $38,000 of the deferred tax asset is included in other assets in the accompanying consolidated balance sheets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company has a U.S. capital loss carry-forward at December 31, 2002 of $967,000 which expires in 2006. The Company also has foreign net operating loss carry-forwards of approximately $1,313,000. Based upon the projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2002. The net change in the total valuation allowance for the year ended December 31, 2002 and 2001 was an increase of $463,000 and a decrease of $2,117,000 respectively. The Company's effective income tax rates for 2002, 2001 and 2000 differed from the U.S. statutory Federal income tax rate of 34% as follows:
Percentage of income (loss) before taxes ----------------------------------------- 2002 2001 2000 ----------------------------------------- ------ ------- Computed "expected" tax expense (benefit) 34.0% 34.0% (34.0)% Increase (decrease) in taxes resulting from: State taxes, net of federal benefit 3.8 (1.0) - Rate differential between U.S. and foreign income taxes 1.1 6.7 - Change in valuation allowance allocated to income tax expense (2.0) (37.8) 31.8 Benefit due to foreign loss carry-back - - (1.2) Other (1.6) 3.1 2.2 ----------------------------------------- ------ ------- Actual tax expense (benefit) 35.3% 5.0% (1.2)% ========================================= ====== =======
42 8. Pension plans and other liabilities: The Company has a noncontributory defined benefit pension plan covering qualified U.S. salaried employees, including officers. Additionally, the Company made contributions to a union sponsored multi-employer defined benefit plan, in the amount of $138,000, $131,000 and $133,000 in 2002, 2001, and 2000, respectively. The following table sets forth the U.S. defined benefit plan's benefit obligation, fair value of plan assets and funded status at December 31, 2002 and 2001:
2002 2001 --------------- --------- (In thousands) CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ ,7095 $ 6,216 Actuarial loss 188 563 Service cost 287 227 Interest cost 449 443 Benefits paid (389) (354) --------------- --------- Benefit obligation at end of year $ 7,630 $ 7,095 =============== ========= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 5,110 $ 5,452 Actual return on plan assets (676) (453) Employer contribution 801 465 Benefits paid (389) (354) --------------- --------- Fair value of plan assets at end of year $ 4,846 $ 5,110 =============== ========= MISCELLANEOUS ITEMS AT END OF YEAR Funded status $ (2,784) $ (1,985) Unrecognized net transition obligation 73 92 Unrecognized prior service cost (14) ( 19) Unrecognized net loss 3,498 2,375 --------------- --------- Prepaid pension $ 773 $ 463 =============== ========= AMOUNTS RECOGNIZED IN FINANCIAL STATEMENTS Accrued benefit cost $ (2,247) $ (1,569) Intangible asset 58 73 --------------- --------- Accumulated other comprehensive loss (2,189) (1,496) Unfunded pension liability 2,962 1,959 --------------- --------- Prepaid pension $ 773 $ 463 =============== ========= 2002 2001 2000 --------------- --------- ------- COMPONENTS OF NET PERIODIC BENEFIT COST (In thousands) Service cost $ 287 $ 227 $ 269 Interest cost 449 443 420 Expected return on plan assets (424) (475) (503) Transition obligation 19 19 19 Amortization of prior service cost (4) (4) (4) Recognized net actuarial loss 165 29 - --------------- --------- ------- Net periodic benefit cost $ 492 $ 239 $ 201 =============== ========= ======= WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate 6.50% 6.50% 7.25% Expected return on plan assets 8.00% 8.50% 8.50% Rate of compensation increase 3.00% 3.00% 3.00% 43
The minimum additional pension liability in 2002 and 2001 are non-cash items which are offset by a direct reduction to shareholders' equity of $2,189,000 and $1,496,000 respectively. The Company has a defined contribution plan for its U.S. employees, with a specified matching Company contribution. The expense to the Company in 2002, 2001 and 2000 was $164,000, $173,000 and $180,000 respectively. International pension expense in 2002, 2001 and 2000 was not material. Foreign plans generally are insured or otherwise fully funded. In October 1999, the Company and its President agreed that the President would leave the Company to pursue other business interests. In accordance with a pre-existing employment contract the Company is making severance payments over three years in the amount of $200,000 per year. At December 31, 1999, the Company accrued the present value of the future payments ($20,000 outstanding at December 31, 2002) and is recognizing interest expense over the three-year term. 9. Shareholders' equity: Data for the stock options and rights plans for 2001 and all previous years described below have been restated to reflect the 10% stock dividend which was distributed on May 15, 2002. 2001 NON-QUALIFIED STOCK OPTION PLAN The 2001 Non-Qualified Stock Option Plan (the 2001 Plan) for officers and key employees provides for the granting of options to purchase up to 220,000 shares of the Company's Common stock. Options generally may be exercised over five years in cumulative installments of 20% per year and expire up to ten years from the date of grant. The exercise price per share of each option may not be less than the fair market value of the Company's common stock on the date of grant. 1991 NON-QUALIFIED STOCK OPTION PLAN The 1991 Non-Qualified Stock Option Plan (the 1991 Plan) for officers and key employees of the Company expired on December 11, 2001. The 1991 Plan provided for the granting of options to purchase up to 1,066,157 shares of the Company's Common stock. Options granted are generally exercisable in five equal installments commencing one year after date of grant. Options expire up to 10 years from the date of grant. The exercise price per share of each option could not be less than the fair market value of the Company's Common stock on the date of grant. No further options will be granted under the 1991 Plan due to its expiration during 2001. 44 1999 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS The 1999 Stock Option Plan for Nonemployee Directors (the 1999 Plan) provides for the granting of options to purchase up to 133,100 shares of the Company's Common stock. No options may be granted under the 1999 Plan after March 17, 2009. Options generally may be exercised over five years in cumulative installments of 20% per year and expire up to ten years from the date of grant. The exercise price per share of each option may not be less than eighty-five percent (85%) of the fair market value of the Company's Common stock on the date of grant. 1998 STOCK OPTION PLAN FOR 10% SHAREHOLDER - DIRECTORS The 1998 Stock Option Plan for 10% Shareholder-Directors (the 1998 Plan) provides for the granting of options to purchase up to 146,410 shares of the Company's Common stock. No options may be granted under the 1998 Plan after March 17, 2008. Options generally may be exercised over five years in cumulative installments of 20% per year and expire up to ten years after grant. The exercise price per share of each option may not be less than the fair market value of the Company's Common stock on the date of grant. STOCK OPTION AGREEMENTS Stock option agreements were entered into in 1997 with the two Shareholder-Directors of the Company for a grant of options to purchase 177,154 shares of the Company's Common stock. The options were issued at fair market value on the date of grant, were exercisable in five equal annual installments commencing one year after date of grant and were due to expire five years after date of grant. All options granted under these agreements were exercised in 2002. The following table summarizes the Company's activity in the aggregate, for the aforementioned stock option plans and agreements:
Weighted Stock Range of Average Options Exercise Prices Exercise Price ---------- ---------------- --------------- Outstanding, December 31, 1999 1,320,930 $ 2.89 -$11.29 $ 4.09 Granted 378,125 5.06 - 5.78 5.32 Exercised (245,150) 2.89 - 4.35 3.44 Cancelled (172,012) 2.89 - 11.29 6.43 ---------- ---------------- --------------- Outstanding, December 31, 2000 1,281,893 3.39 - 10.25 4.29 Granted 6,050 2.48 2.48 Exercised - - - Cancelled (177,987) 3.42 - 10.25 4.77 ---------- ---------------- --------------- Outstanding, December 31, 2001 1,109,956 2.48 - 5.79 4.20 Granted 204,400 4.94 - 6.24 4.98 Exercised (395,854) 3.39 - 5.79 3.89 Cancelled (38,340) 3.54 - 5.06 4.39 ---------- ---------------- --------------- Outstanding, December 31, 2002 880,162 $ 2.48- $6.24 $ 4.52 ========== ================ =============== 45
Information regarding stock options outstanding as of December 31, 2002 is as follows:
Outstanding Weighted Average Number of Exercise Number of Remaining Shares Price Shares Contractual Life Exercisable --------- ---------------- ---------------- ----------- $3.54 175,817 2.80 137,738 5.06 188,518 3.58 75,262 4.94 151,800 5.01 - 6.24 2,000 5.94 - 5.79 124,025 2.59 124,025 2.48 6,050 4.28 1,210 5.10 44,000 5.78 - 3.39 34,224 2.66 34,224 3.42 80,524 2.21 60,026 3.93 73,204 1.92 58,560 ---------------- ---------------- ----------- 880,162 3.35 491,045 ========= ================ ===========
In the aggregate, related to the aforementioned stock option plans, there were 304,500 additional shares available for grant at December 31, 2002. In 1987, the Company adopted an Employee Stock Purchase Plan. Under the Stock Purchase Plan, employees may purchase shares of the Company's Common stock at 85% of fair market value on specified dates. The Company has reserved 372,028 shares of its authorized shares of Common stock for this purpose. During 2002, 2001 and 2000, 36,895, 38,433 and 33,329 Common shares, respectively, were issued under the plan. On October 15, 1999, the Company declared a dividend of one Common share purchase right (the Rights) on each share of Common stock outstanding. The Rights entitle the holder to purchase one share of Common stock at $18.78 (the Purchase Price) per share. Upon the occurrence of certain events related to non-negotiated attempts to acquire control of the Company, the Rights: (i) will entitle holders to purchase at the Purchase Price that number of shares of Common stock having an aggregate fair market value of two times the Purchase Price; (ii) will become exchangeable at the Company's election at an exchange ratio of one share of Common stock per right; and (iii) will become tradable separately from the Common stock. Further, if the Company is a party to a merger or business combination transaction, the Rights will entitle the holders to purchase at the Purchase Price, shares of Common stock of the surviving company having a fair market value of two times the Purchase Price. 46 In 1989, the Company adopted an Employee Stock Ownership Plan and Declaration of Trust (ESOP). The ESOP provides for the annual contribution by the Company of cash, Company stock or other property to a trust for the benefit of eligible employees. The amount of the Company's annual contribution to the ESOP is within the discretion of the Board of Directors but must be of sufficient amount to repay indebtedness incurred by the ESOP trust, if any, for the purpose of acquiring the Company's stock. The Company made contributions to the ESOP of $11,000 $4,000 and $3,000 during 2002, 2001 and 2000, respectively. Shareholders' Equity includes non-interest bearing notes receivable, resulting from the exercise of stock options, from the Vice President, Finance in the amount of $35,000 and from another key employee in the amount of $10,000. Imputed interest on these loans amounted to $1,000, $3,000 and $5,000 during 2002, 2001 and 2000, respectively. 10. Segment information: Business segments are defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131)" as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker assessing performance and making operating and capital decisions. Since June 14, 2001, the Company operates in one business segment. This segment consists of the manufacture and marketing of equipment used in the pharmaceutical, medical, biotechnology, chemical and environmental research fields throughout the world. Prior to June 14, 2001, the Company had a second segment, DGI BioTechnologies, Inc. (DGI). This segment was involved in the development of a novel technology that facilitates the discovery of new drugs. Effective June 14, 2001, as a result of the Company's reduction in ownership in DGI to below 50%, the Company ceased consolidating the operations of DGI and, accordingly, has only one segment for the year ended December 31, 2002. 2001 segment information for the Drug Lead Discovery segment represents the operations of DGI from January 1 to June 14, 2001. 47 Summarized segment information for the years ended December 31, 2002, 2001 and 2000 are as follows (in thousands, except percentages):
Laboratory Research DGI Total Equipment BioTechnologies Segments ------------ ----------------- ---------- 2002 - ---- Net sales from external customers $ 57,226 $ - $ 57,226 Income from operations 4,656 - 4,656 Percentage of sales 100% - 100% Total assets 45,264 - 45,264 Capital expenditures 1,203 - 1,203 Depreciation 1,065 - 1,065 2001 - ---- Net sales from external customers $ 59,894 $ 400 $ 60,294 Income (loss) from operations 4,413 (912) 3,501 Percentage of sales 99.3% 0.7% 100% Total assets (1) 44,543 - 44,543 Capital expenditures 577 - 577 Depreciation and amortization (1) 1,315 - 1,315 2000 - ---- Net sales from external customers $ 49,444 $ 420 $ 49,864 Income (loss) from operations 704 (3,060) (2,356) Percentage of sales 99.2% 0.8% 100% Total assets (1) 42,636 370 43,006 Capital expenditures 351 - 351 Depreciation and amortization (1) 1,501 - 1,501 (1) As described in Note 4, the Company's interest in DGI was reduced to 47% (41.3% as of December 31, 2002) 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 4), which is comprised of DGI BioTechnologies, Inc.
The Company sells its equipment to pharmaceutical companies, agricultural and chemical companies, other industrial customers engaged in biotechnology, and to medical schools, universities, research institutes, hospitals, private laboratories and laboratories of Federal, State and Municipal government departments and agencies in the United States and abroad. 48 While only a small percentage of the Company's sales are made directly to United States government departments and agencies, its domestic business is significantly affected by government expenditures and grants for research to educational research institutions and to industry. The Company regularly evaluates credit granted to customers. The following table sets forth the Company's operations by geographic area for 2002, 2001 and 2000. The information shown under the caption "Europe" represents the operations of the Company's wholly-owned foreign subsidiaries primarily in the UK, The Netherlands, Belgium and Germany (in thousands):
Transfers and eliminations United between geo- Conso- States Europe graphic areas lidated --------------- -------------- --------------- -------- Net sales: 2002 $ 47,752 $ 14,151 $ 4,677 $ 57,226 2001 48,855 17,605 6,166 60,294 2000 41,657 13,921 5,714 49,864 Income (loss) from operations: 2002 $ 4,011 $ 645 $ 4,656 2001 2,161 1,340 3,501 2000 (1,719) (637) (2,356) Identifiable assets: 2002 $ 23,792 $ 21,472 $ 45,264 2001 23,304 21,239 44,543 2000 22,261 20,745 43,006
Total sales by geographic area include both sales to unaffiliated customers and transfers between geographic areas. Such transfers are accounted for at prices comparable to normal unaffiliated customer sales. One multi-national distributor based in the United States accounted for approximately 18.9%, 14.2% and 14.9%, respectively, of consolidated net sales during the years ended December 31, 2002, 2001 and 2000. Income from operations from the United States has been significantly affected by the research and development costs of DGI BioTechnologies, Inc. prior to 2002. During 2002, 2001 and 2000, net sales from domestic operations to foreign customers were $11,564,000, $11,916,000 and $9,284,000, respectively. Export sales from the United States are made to many countries and areas of the world including the Far East, India, the Middle East and South America with the most significant sales going to Canada, China, Israel, Japan, Switzerland and Taiwan. 49 11. Related party transactions: David Freedman, Chairman of the Board of the Company, is the owner of Bio-Instrument Ltd., a foreign firm that acts as an agent for sales of the Company's products to customers in Israel, and earns commissions on those sales. During 2002, 2001 and 2000, this firm earned commissions in the amounts of $248,000, $212,000, and $204,000, respectively, on purchases by customers in Israel of the Company's products. These commissions paid by the Company to Bio-Instrument Ltd. were comparable to commissions paid to unrelated distributors and sales representatives. Carol Freedman, the daughter of David Freedman, the niece of Sigmund Freedman and the sister of Kenneth Freedman, has been employed by the Company in various capacities since 1979. Ms. Freedman is currently Customer Service Manager and also is an Assistant Treasurer of the Company. Her compensation for 2002 was $63,162; she also received options to purchase 1,100 shares of the Company's Common stock in 2002, under the Company's 2001 Stock Option Plan for Officers and Key Employees. 12. Commitments and contingencies: The Company is obligated under the terms of various operating leases. Rental expense under such leases for 2002, 2001 and 2000 was $772,000, $762,000, and $849,000, respectively. As of December 31, 2001, estimated future minimum annual rental commitments under noncancelable leases expiring through 2014 are as follows (in thousands):
Sublease Obligation Rentals Net ----------------- ------- --- 2003 $ 852 $ 56 $ 796 2004 708 47 661 2005 533 - 533 2006 428 - 428 2007 362 - 362 After 2007 1,266 - 1,266 ----------------- ---- ------ Total minimum payments required $ 4,149 $103 $4,046 ================= ==== ======
From time to time, the Company is involved in litigation in the normal course of business, which management believes, after consultation with counsel, the ultimate disposition of which will not have a material adverse effect on the Company's consolidated results of operations or financial position. 50 13. Quarterly financial information (unaudited) (in thousands, except per share amounts):
First Second Third Fourth Total ------- ------- ------- ------- ------- Year ended December 31, 2002 Net sales $13,263 $16,113 $13,057 $14,793 $57,226 Gross profit 5,680 6,437 5,559 6,205 23,881 Net income 566 846 258 914 2,584 Income per share: Basic $ .08 $ .11 $ .03 $ .12 $ .34 Diluted .07 .11 .03 .12 .33 Year ended December 31, 2001 Net sales $14,700 $14,799 $13,542 $17,253 $60,294 Gross profit 5,818 6,096 5,042 7,073 24,029 Net income 114 138 123 1,836 2,211 Income per share: (a) Basic $ .02 $ .02 $ .02 $ .25 $ .30 Diluted .02 .02 .02 .24 .30
(a) Due to rounding, the sum of the quarters does not necessarily equal the amount for the full year. ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------------------------- None. 51 ------ PART III -------- The information required by Part III is contained in the Registrant's proxy statement which will be filed pursuant to Regulation 14A or an information statement pursuant to Regulation 14C of the General Rules and Regulations under the Securities Exchange Act of 1934 not later than 120 days after the close of the fiscal year ended December 31, 2002. The information is incorporated herein by reference. ITEM 14. CONTROLS AND PROCEDURES ------------------------- As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer along with the Company's Chief Financial Officer. Based upon that evaluation, the Company's Chief Executive Officer along with the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding disclosure. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ------------------------------------------------------------------ (a) The following documents are filed as a part of this report: 1. Financial statements and supplementary data included in Part II of this report: New Brunswick Scientific Co., Inc. and Subsidiaries, consolidated financial statements: Consolidated Balance Sheets as of December 31, 2002 and 2001 Consolidated Statements of Operations for the years Ended December 31, 2002, 2001 and 2000 52 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements 2. Financial statement schedules included in part IV of this report: Schedule II Schedules other than those listed above have been omitted because They are not applicable or the required information is shown in the financial statements or notes thereto. 3. Controls and Procedures 4. Exhibits: The Exhibits index is on Page 55. 53 Schedule II NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (In thousands) Additions ----------------------
Balance Charged to Balance At Costs and Charged to At Beginning (Credited) to Other End of of Period Expenses Accounts Deductions Period ----------- -------------- ---------- ----------- ------- Year ended December 31, 2002 Allowance for doubtful accounts $ 466 $ 1 - $ - $ 467 Inventory valuation allowance 1,759 400 - 227 1,932 Year ended December 31, 2001 Allowance for doubtful accounts 354 145 - 33 466 Inventory valuation allowance 1,112 931 - 284 1,759 Year ended December 31, 2000 Allowance for doubtful accounts 339 22 - 7 354 Inventory valuation allowance 934 222 - 44 1,112
54 EXHIBIT INDEX ------------- (3a) Restated Certificate of Incorporation, as amended is incorporated herein by reference from Exhibit (4) to the Registrant's Registration Statement on Form S-8 on file with the commission (No. 33-15606), and with respect to two amendments to said Restated Certificate of Incorporation, to Exhibit (4b) of Registrant's Registration Statement on Form S-8 (No. 33-16024). (3b)* Restated By-Laws of the Company, as amended and restated (3c) Rights Agreement dated as of October 31, 1999 between New Brunswick Scientific Co., Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the Form of Right Certificate as Exhibit A and the Summary of Terms of the Rights Agreement as Exhibit B is incorporated herein by reference to Registrant's Current Report on Form 8-K filed on October 29, 1999. (3d) Amendment to the Restated Certificate of Incorporation of the Company is incorporated herein by reference to Item 2 of Registrant's Proxy Statement filed with the Commission on or about April 13, 1999. (4) See the provisions relating to capital structure in the Restated Certificate of Incorporation, amendment thereto, incorporated herein by reference from the Exhibits to the Registration Statements identified in Exhibit (3) above. (10-2) Pension Plan is incorporated herein by reference from Registrant's Form 10-K for the year ended December 31, 1985. (10-3) The New Brunswick Scientific Co., Inc., 1989 Stock Option Plan for Nonemployee Directors is incorporated herein by reference to Exhibit "A" appended to the Company's Proxy Statement filed with the Commission on or about April 22, 1989. (10-8) Termination Agreement with David Freedman is incorporated herein by reference to Exhibit of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (10-9) Termination Agreement with Samuel Eichenbaum is incorporated herein by reference to Exhibit (10-9) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (10-10)* Involuntary Termination Agreement with Samuel Eichenbaum. 55 (10-11) Termination Agreement with Sigmund Freedman is incorporated herein by reference to Exhibit (10-11) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (10-12) 1991 Nonqualified Stock Option Plan is incorporated herein by reference to Exhibit (10-12) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (10-13) Indemnification Agreements in substantially the same form as with all the Directors and Officers of the Company is incorporated herein by reference to Schedule A to Exhibit (10-13) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (10-19) Credit Agreement between New Brunswick Scientific Co., Inc. and First Union National Bank dated April 1, 1999 is incorporated herein by reference to Exhibit (10-19) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (10-20) Financial Statements and Proforma financial information related to the Company's acquisition of the outstanding Common stock of DJM Cryo-Research Limited and the net assets of DJM Fabrications, collectively (DJM) are incorporated herein by reference to Registrant's Current Report on Form 8-K/A filed on February 4, 2000. (10-21) Purchase Agreement and Cross Option Agreement related to the acquisition of DJM are incorporated herein by reference to the exhibits contained in Registrant's Current Report on Form 8-K filed on December 8, 1999. (10-22) Settlement Agreement and General Release between New Brunswick Scientific Co., Inc. and Ezra Weisman is incorporated herein by reference to Registrant's Current Report on Form 8-K filed on February 2, 2000. (10-23) Indemnification Agreements with Kenneth Freedman and Peter Schkeeper are incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1999. (10-24) Indemnification Agreements with Jerome Birnbaum and Lee Eppstein are incorporated herein by reference to Exhibit (10-24) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (10-25) Indemnification Agreements with James T. Orcutt and Daniel S. Van Riper are incorporated herein by reference to Exhibit (10-25) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001. (10-26) The New Brunswick Scientific Co., Inc., 1998 Nonqualified Stock Option Plan for Ten Percent Shareholder - Directors is incorporated herein by reference to Appendix "A" appended to the Company's Proxy Statement filed with the Commission on or about April 10, 1998. 56 (10-27) The New Brunswick Scientific Co., Inc., 1999 Stock Option Plan for Nonemployee Directors is incorporated herein by reference to Appendix "C" appended to the Company's Proxy Statement filed with the Commission on or about April 13, 1999. (10-28) The New Brunswick Scientific Co., Inc. 2001 Nonqualified Stock Option Plan for Officers and Key Employees is incorporated herein by reference to Appendix "A" appended to the Company's Proxy Statement filed with the Commission on or about April 17, 2001. (10-29) Involuntary Termination Agreement with James T. Orcutt is incorporated herein by reference to Exhibit (10-29) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. (10-30) Employment Agreement with David Freedman is incorporated herein by reference to Exhibit (10-30) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. (10-31) Fifth Amendment to Credit Agreement between New Brunswick Scientific Co., Inc. and First Union National Bank dated April 1, 1999 is incorporated herein by reference to Exhibit (10-31) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. (10-32)* Involuntary Termination Agreement with Lee Eppstein. (13) Annual Report to Shareholders, to be filed within 120 days of the end of the fiscal year ended December 31, 2002, is incorporated herein by reference. (22) Subsidiaries of the Company appear on Page 58. (24a)* Consent of KPMG LLP. * Filed herewith. 57 EXHIBIT 22 ---------- SUBSIDIARIES OF THE COMPANY --------------------------- Percentage of Name and Place of Incorporation Ownership - ------------------------------------------------- ------------------ New Brunswick Scientific (U.K.) Limited Incorporated in the United Kingdom 100% New Brunswick Scientific B.V. Incorporated in The Netherlands 100% New Brunswick Scientific N.V. Incorporated in Belgium 100% New Brunswick Scientific GmbH Incorporated in Germany 100% New Brunswick Scientific of Delaware, Inc. Incorporated in the State of Delaware 100% New Brunswick Scientific International, Inc. Incorporated in the State of Delaware 100% New Brunswick Scientific West Inc. Incorporated in the State of California 100% New Brunswick Scientific S.a.r.l. Incorporated in France 100% NBS ULT Limited Incorporated in the United Kingdom 100% NBS Cryo-Research Limited Incorporated in the United Kingdom 100% 58 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) 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. Dated: March 17, 2003 By: /s/ David Freedman -------------------- David Freedman Chairman of the Board (Principal Executive Officer) and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: March 17, 2003 By: /s/ Adele Lavender -------------------- Adele Lavender Corporate Secretary Dated: March 17, 2003 By: /s/ Sigmund Freedman ---------------------- Sigmund Freedman Treasurer and Director Dated: March 17, 2003 By: /s/ Samuel Eichenbaum ----------------------- Samuel Eichenbaum Vice President, Finance Dated: March 17, 2003 By: /s/ James T. Orcutt ---------------------- James T. Orcutt President and Director 59 Dated: March 14, 2003 By: /s/ Dr. Jerome Birnbaum -------------------------- Dr. Jerome Birnbaum Director Dated: March 17, 2003 By: /s/ Kenneth Freedman ---------------------- Kenneth Freedman Director Dated: March 17, 2003 By: /s/ Ernest Gross ------------------ Ernest Gross Director Dated: March 17, 2003 By: /s/ Kiyoshi Masuda -------------------- Kiyoshi Masuda Director Dated: March 17, 2003 By: /s/ Dr. David Pramer ----------------------- Dr. David Pramer Director Dated: March 15, 2003 By: /s/ Peter Schkeeper --------------------- Peter Schkeeper Director Dated: March 17, 2003 By: /s/ Daniel S. Van Riper --------------------------- Daniel S. Van Riper Director 60 CERTIFICATIONS -------------- I, David Freedman, hereby certify that the annual report being filed 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 annual report. March 17, 2003 /s/ David Freedman -------------------- Name: David Freedman Chairman and Chief Executive Officer I, Samuel Eichenbaum, hereby certify that the annual report being filed 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 annual report. March 17, 2003 /s/ Samuel Eichenbaum ----------------------- Name: Samuel Eichenbaum Vice President, Finance and Chief Financial Officer 61 CERTIFICATION I, Samuel Eichenbaum, certify that: 1. I have reviewed this annual report on Form 10-K 405 of New Brunswick Scientific Co., Inc. (the "Registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 17, 2003 /s/ Samuel Eichenbaum ----------------------- Vice President, Finance and Chief Financial Officer 62 I, David Freedman, certify that: 1. I have reviewed this annual report on Form 10-K 405 of New Brunswick Scientific Co., Inc. (the "Registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 17, 2003 /s/ David Freedman -------------------- Chairman and Chief Executive Officer 63 EX-3.B 3 doc2.txt Exhibit 3b NEW BRUNSWICK SCIENTIFIC CO., INC. BY-LAWS (AS AMENDED AND RESTATED ON DECEMBER 17, 2002) ARTICLE I OFFICES Section 1. The registered office of the corporation shall be at 44 Talmadge Road, Edison, New Jersey. Section 2. The corporation may have such other offices either within or without the state as the Board of Directors may designate or as the business of the corporation may require from time to time. Section 3. ARTICLE II SEAL Section 1. The corporate seal shall have inscribed thereon the name of the corporation, the year of its creation and the words "Corporate Seal, New Jersey". Section 2. ARTICLE III SHAREHOLDERS' MEETING Section 1. Meeting Location. All meetings of the shareholders ----------------- shall be held at the corporation's registered office, or at such other place or places either within or without the State of New Jersey as may from time to time be selected by the Board of Directors. Section 2. Annual Meeting. The annual meeting of shareholders --------------- shall be held on the fourth Tuesday of May in each year if not a 1egal holiday, and if a legal holiday, then on the next full business day following at 10:00 o'clock A.M. when they shall elect, by a plurality vote, persons to serve on the Board of Directors, and transact such other business as may properly be brought before the meeting. Section 3. If the annual meeting for election of directors in not held on the day designated therefore, the directors shall cause the meeting to be held as soon thereafter as convenient. 1 Section 4. Special Meetings. Special meetings of the shareholders ---------------- may be called by the Chairman of the Board or the Board of Directors. Section 5. Notice of Shareholders' Meetings. Written notice of ---------------------------------- the time, place and purpose or purposes of every meeting of shareholders shall be given not less 10 days than nor more than sixty days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at the meeting, unless a greater period of notice is required by statute in a particular case. Section 6. When a meeting is adjourned to another time or place, it shall not be necessary to give notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken and at the adjourned meeting only such business is transacted as might have been transacted at the original meeting. However, if after the adjournment, the Board fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date. Section 7. SECTION 5. Waiver of Notice. Notice of a meeting need not ---------------- be given to any shareholder who signs a waiver of such notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Section 8. Whenever shareholders are authorized to take any action after the lapse of a prescribed period of time, the action may be taken without such lapse if such requirement is waived in writing, in person or by proxy, whether before or after the meeting, taking of such action by every shareholder entitled to vote thereon and at the date of the taking at such action. Section 9. SECTION 6. Fixing Record Date. For the purposes of -------------------- determining the shareholders entitled to notice of, or to vote, at any meeting of shareholders or any adjournment thereof, or for the purpose of determining shareholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board may fix in advance, a date as the record date for any such determination of shareholders. Such date 2 shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice in given, or, if no notice is given, the day next preceding the day on which the meeting is held, and the record date for determining shareholders for any other purpose shall be at the close of business on the date on which the resolution of the board relating thereto is adopted. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders, has been made as provided in this Section, such determination shall apply to any adjournment thereof, unless the Board fixes a new record date under this section for the adjourned meeting. SECTION 7. Voting List. The officer or agent having charge of the stock ------------ transfer books for shares of the corporation shall make and certify a complete list of shareholders entitled to vote at a shareholders' meeting or any adjournment thereof. Such list shall be arranged a1phabetically within each class and series, with the address of, and the number of shares held by each shareholder; be produced at the time and place of the meeting; be subject to the inspection of any shareholder during the whole time of the meeting; and be prima facie evidence as to who are the shareholders entitled to examine such list or to vote at any meeting. If the requirements of this Section have not been complied with, the meeting shall, on the demand of any shareholder in person or by proxy, be adjourned until the requirements are complied with. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting prior to the making of any such demand. SECTION 8. Quorum. Unless otherwise provided in the Certificate of ------ Incorporation or by statute, the holders of shares entitled to cast a majority of the votes at a meeting shall constitute a quorum at such meeting. The shareholders present in person or by proxy at a duly organized meeting may 3 continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Less than a quorum may adjourn the meeting. Whenever the holders of any class or series of shares are entitled to vote separately on a specified item of business, the provisions of this section shall apply to determining the presence of a quorum of such class or series for the transaction of such specified item of business. SECTION 9. Voting. Each holder of shares with voting rights shall be ------ entitled to one vote for each such share registered in his name, except as otherwise provided in the Certificate of Incorporation. Whenever any action, other than the election of directors, is to be taken by vote of the shareholders, it shall be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereof, unless a greater plurality is required by statute or by the Certificate of Incorporation. Every shareholder entitled to vote at a meeting of shareholders may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or his agent. No proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy be valid after three years from the date of execution. Unless it is coupled with an interest, a proxy shall be revocable at will. A proxy shall not be revoked by the death or incapacity of the shareholder, but such proxy shall continue in force until revoked by the personal representative or guardian of the shareholder. The presence at any meeting of any shareholder who has given a proxy shall not revoke such proxy unless the shareholder shall file written notice of such revocation with the secretary of the meeting prior to the voting of such proxy. SECTION 10. Election of Directors. At each election of directors every ----------------------- shareholder entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. Directors shall be elected by a plurality of the votes cast at the election, except as otherwise provided by the Certificate of Incorporation. 4 Elections of directors need not be by ballot unless a shareholder demands election by ballot at the election and before the voting begins. SECTION 11. Inspectors of Election. The Board may, in advance of any ----------------------- shareholder meeting, appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed or shall fail to qualify, the person presiding at the meeting may, and on the request of any shareholder entitled to vote thereat, shall make such appointment. Each inspector, before entering upon the discharge of his duties shall take and sign an oath faithfully to execute the duties of inspector at the meeting with strict impartiality and according to the best of his ability. No person shall be elected a director at a meeting at which he has served as an inspector. ARTICLE IV - DIRECTORS SECTION 1. The business of this corporation shall be conducted by its Board of Directors, which shall consist of not less then three nor more than 10 directors, and the exact number of directors shall be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into three classes designated Class I, Class II, and Class III. Each class shall consist as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At each annual meeting of shareholders, successors to the class of directors whose term expires at that annual meeting shall be elected for a three--year term. It the number of directors is changed, any increase and decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors that results from an increase in the number of directors may be 5 filled by a majority of the Board of Directors then in office, although less than a quorum, or by a sole remaining director. Any directors elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. SECTION 2. Regular Meetings. Regular meetings of the Board shall be held ---------------- without notice immediately after the Annual Meeting of Shareholders at the registered office of the corporation, or at such other time and place as shall be determined by the Board. SECTION 3. Quorum. A majority of the entire Board, or of any committee ------ thereof, as then constituted, shall constitute a quorum for the transaction of business, and the act of the majority present at a meeting at which a quorum is present shall be the act of the Board or of the committee. SECTION 4. Action Without Meeting. Any action required or permitted to be ---------------------- taken pursuant to authorization voted at a meeting of the Board or any committee thereof, may be taken without a meeting if, prior or subsequent to such action, all members of the Board or of such committee, as the case may be, consent thereto in writing and such written consents are filed with the minutes of the proceedings of the Board or committee. SECTION 5. Special Meetings. Special meetings of the Board may be called ---------------- by the Chairman of the Board, or the majority of the Board on three days' notice to each director, personally, by mail, facsimile transmission, e-mail or other reasonable method. SECTION 6. Waiver of Notice. Notice of any meeting need not be given to ----------------- any director who signs a waiver of notice, whether before or after the meeting. The attendance of any director at a meeting without protesting prior to the conclusion of the meeting the lack of notice of such meeting shall constitute a waiver of notice by him. Neither the business to be transacted at, nor the purposes of, any meeting of the Board need be specified in the notice or waiver of notice of such meeting. Notice of an adjourned meeting need not be given it the period of adjournment does not exceed ten days in any one adjournment. 6 SECTION 7. Powers of Directors. The Board of Directors shall manage the -------------------- business of the corporation. In addition to the powers and authorities expressly conferred upon them by these Bylaws, the Board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by these By-Laws directed or required to be exercised or done by the shareholders. SECTION 8. Compensation of Directors. The Board, by the affirmative vote ------------------------- of a majority of directors in office and irrespective of any personal interest of any of them, shall have authority to establish reasonable compensation of directors for services to the corporation as directors, officers, or otherwise. SECTION 9. Committees of the Board of Directors. ----------------------------------------- A. The Board of Directors, by resolution adopted by a majority of the entire Board, shall appoint from among its members the following committees: 1. An Executive Committee, which shall be comprised of at least three members of the Board of Directors, one of whom shall be the Chairman of the Board. The Executive Committee shall be the decision-making body of the Board of Directors during the period between the meetings of the Board of Directors. Board approval of the actions of the Executive Committee shall not be required. 2. A Nominating Committee, which shall be comprised of at least three members of the Board of Directors. The Committee shall evaluate prospective candidates for election to the Board of Directors and recommend nominees for consideration at the annual meeting. 3. An Audit Committee, which shall be comprised of at least three members of the Board of Directors each of whom shall meet the applicable "independence" requirements imposed by law and/or by any trading market where stock of the corporation is listed. The Committee shall meet with management 7 and independent auditors on matters pertaining to the corporation's financial statements and internal accounting controls. 4. A Compensation Committee, which shall be comprised of at least three members of the Board of Directors. The Committee shall review the corporation's policies concerning employment, compensation and deferred compensation including pension benefits and stock option plans, and recommend modifications to such policies. B. If deemed advisable, the Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members additional committees, with the members and the purpose of each such committee to be established by resolution of the Board. C. Each of the committees established under subparagraphs A and B shall have and may exercise all of the authority of the Board, to the extent granted to each such committee, except that no such committee shall: 1. make, alter or repeal any By-Law of the corporation; 2. elect or appoint any director, or remove any officer or director; 3. submit to shareholders any action that requires shareholders' approval; or 4. amend or repeal any resolution theretofore adopted by the Board. D. Action taken at a meeting of any committee established under subparagraphs A and B shall be reported to the Board at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting. 8 SECTION 10. Conduct of Meetings. Any meeting of the Board or of any --------------------- committee may include participation by any director or committee member not physically present who is able to participate in a meaningful way in all or any part of the meeting through the use of means of communication to the fullest extent authorized by New Jersey corporation law. ARTICLE V - OFFICERS SECTION 1. The officers of the corporation shall consist of a Chairman of the Board, a President, a Secretary, a Treasurer, and, if desired, a Vice Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents, and such other officers as may be required. They shall be annually chosen by the Board of Directors and shall hold office for one year and until their successors are chosen and quality. The Board may also choose such employees and agents as it shall deem necessary, who shall hold their offices for such terms and shall have such authority and shall perform such duties as from time to time shall be prescribed by the Board. Any two or more offices may be held by the same person but no officer shall execute, acknowledge, or verify any instrument in more than one capacity if such instrument is required by law or by these By-Laws to be executed, acknowledged, or verified by two or more officers. SECTION 2. Salaries. The salaries of all officers, employees and agents -------- of the corporation shall be fixed by the Board of Directors, SECTION 3. Removal. Any officer elected or appointed by the Board of ------- Directors may be removed by the Board with or without cause. An officer elected by the shareholders may be removed, with or without cause, only by vote of the shareholders but his authority to act as an officer may be suspended by the Board for Cause. SECTION 4. Chairman of the Board. The Chairman of the Board shall preside --------------------- at all meetings of the shareholders and of the directors. The Chairman of the Board shall lead the Board of Directors in managing the business of the corporation including devising strategies for profitable growth., The Chairman of the Board shall chair the executive committee and shall serve as an Ex -- Officio member of all other committees established by the Board with the - exception of the Audit Committee. - 9 SECTION 5. The President. The President shall manage the affairs of the -------------- corporation in accordance with the law, the corporate By-Laws and the policies and procedures established by the Board, to optimize growth, profitability and shareholders' equity of the corporation. The President shall report to the Board via the Chairman of the Board. SECTION 6. Secretary. The secretary shall keep full minutes of --------- all meetings of the shareholders and directors; he shall be an EX-OFFICIO Secretary of the Board of Directors; he shall attend all sessions of the Board, shall act an clerk thereof, and record all votes and the minutes or all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required. He shall give or cause to be given, notices of all meetings of the shareholders of the corporation and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chairman of the Board, under whose supervision he shall be. SECTION 7. Treasurer. The Treasurer shall deposit all moneys and other --------- valuable effects in the name and to the credit of the corporation, in such depositories as may be designated by the Board or Directors. He shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, President, and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer. SECTION 8. Vice President, Finance. The Vice President, Finance is the ------------------------- Chief Financial Officer and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation. He shall render to the Chairman of the Board, President, and Directors, at the regular or any special meetings of the Board, an account of the financial condition of the corporation, and shall submit a full financial report at the annual meeting of the shareholders. SECTION 9. Additional officers may be appointed by the Board, including Vice Chairman of the Board, Chief Executive Officer, one or more Vice 10 Presidents, and such other officers as may be required. They shall have the responsibility and authority defined in their position descriptions adopted by the Board's resolution in creating such positions. ARTICLE VI - VACANCIES, RESIGNATION, REMOVAL SECTION 1. Director. Subject to further provision in the Certificate of -------- Incorporation, any directorship not filled at the annual meeting and any vacancy, however caused, occurring on the Board may be filled by the affirmative vote of a majority of the remaining directors even though less than a quorum of the Board, or by a sole remaining director. A director so elected by the Board shall hold office until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualify. SECTION 2. Officers. Any vacancy occurring among the officers, however -------- caused, may be filled by the Board of Directors. SECTION 3. Resignations. Any director or other officer may resign by ------------ written notice to the corporation. The resignation shall be effective upon receipt thereof by the corporation or at such subsequent time as shall have been specified in the notice of resignation. SECTION 4. Removal. So long as the Certificate of Incorporation so ------- provides, the Board of Directors shall have the power to remove directors for cause and to suspend directors pending a final determination that cause exists for removal. ARTICLE VII- SHARE CERTIFICATES SECTION 1. Form. The share certificates of the corporation shall be ---- numbered and registered in the transfer records of the corporation as they are issued. They shall bear the corporate seal, or a facsimile thereof, and be signed by the Chairman of the Board and the Secretary. SECTION 2. Transfers. All transfers of the shares of the corporation --------- shall be made upon the books of the corporation by the holder of the shares in person, or by his legal representative. Share certificates shall be surrendered, properly endorsed and canceled at the time of transfer. 11 SECTION 3. Lost Certificates. In the event that a share certificate shall ----------------- be lost, destroyed or mutilated, a new certificate may be issued therefore upon such terms and indemnity to the corporation as the Board of Directors may prescribe. ARTICLE VIII - BOOKS AND ACCOUNTS' SECTION 1. The corporation shall keep books and records of account and minutes of the proceedings of the shareholders, Board of Directors and executive committee, if any. Such books, records and minutes may be kept outside this State. The corporation shall keep at its registered office, or at the office of a transfer agent in this State, a record or records containing the names and addresses of all shareholders, the number, class and series of shares held by each and the dates when they respectively became the owners of record thereof, except that in the case of shares listed on a national securities exchange, the records of the holders of such shares may be kept at the office of a transfer agent within or without this State. SECTION 2. Inspection. Any person who shall have been a shareholder of ---------- record of the corporation for at least six months immediately preceding his demand, or any person holding, or so authorized in writing by the holders of, at least five percent of the outstanding shares of any class, upon at least five days' written demand shall have the right for any proper purpose to examine in person or by agent or attorney, during usual business hours, the minutes of the proceedings of the shareholders and record of shareholders, and to make extracts therefrom, at the places where the same are kept. ARTICLE LX - MISCELLANEOUS PROVISIONS SECTION 1. Monetary Disbursements. All checks or demands for money and ----------------------- notes of the corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. SECTION 2. Fiscal Year. The fiscal year of the Corporation shall begin on ----------- the date selected from time to time by the Board of Directors. 12 SECTION 3. Dividends. The Board of Directors may declare and pay --------- dividends upon the outstanding shares of the corporation from time to time and to such extent as they deem advisable, in the manner and upon the terms and conditions provided by statute and the Certificate of Incorporation. SECTION 4. Reserve. Before payment of any dividend there may be set aside ------- such sum or sums as the directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interests of the corporation, and the directors may abolish any such reserve in the manner in which it was created. SECTION 5. Giving Notice. Whenever written notice is required to be given ------------- to any person, it may be given to such person either personally or by sending a copy thereof through the mail. If notice is given by mail, the notice shall be deemed to be given when deposited in the mail addressed to the person to whom it is directed at his last address as it appears on the records of the corporation, with postage prepaid thereon, or in the event no address is available, the notice shall be deemed to have been given when addressed to general delivery in the area where the person is suspected of residing or when the company has made any other reasonable attempt to give notice to such person. Such notice shall specify the place, day and hour of the meeting, and in the case of a shareholders' meeting, the general nature of the business to be transacted. In computing the period of time for the giving of any notice required or permitted by statute, or by the Certificate of Incorporation or these By-Laws or any resolution of directors of shareholders, the day on which the notice is given shall be excluded, and the day on which the matter noticed is to occur shall be included. ARTICLE X - INDEMNIFICATION SECTION 1. The corporation shall indemnify to the full extent permitted by law any person made, or threatened to be made, a party to an action, suit or 13 proceeding (whether civil, criminal, administrative or investigative), by reason of the fact that he is or was a director, officer or employee of the corporation or serves or served any other enterprise at the request of the corporation. ARTICLE X1 - LOANS TO OFFICERS, DIRECTORS OR EMPLOYEES SECTION 1. The corporation may lend money to, or guarantee any obligation of, or otherwise assist, any officer or other employee of the corporation or of any subsidiary, whenever, in the judgment of the directors, such loan, guarantee or assistance, may reasonably be expected to benefit the corporation; provided, however, that the corporation shall not lend money to, guarantee any obligation of, or otherwise assist, any officer or other employee who is also a director, of the corporation unless such loan, guarantee or assistance is authorized by a majority of the entire board. The loan, guarantee or other assistance may be made with or without interest, and may be unsecured, or secured in such manner as the Board shall approve including, without limitation, a pledge of shares of the corporation, and may be made upon such other terms and conditions as the board may determine. ARTICLE XII - AMENDMENTS SECTION L. The Board of Directors shall have the power to make, alter and repeal these By-Laws, but By-Laws made by the Board may be altered or repealed, and new By-Laws may be made, by the shareholders. 14 EX-10.10 4 doc3.txt Exhibit 10-10 March 26, 1999 Mr. Samuel Eichenbaum 110 Chichester Road Jamesburg, NJ 08831 Dear Mr. Eichenbaum: In recognition of your services, New Brunswick Scientific Co., Inc. (the "Company") shall, in the event that your employment with the Company is involuntarily terminated for any reason after the occurrence of a Change in Control (as defined below), pay to you an amount equal to 200% of your current annual base salary at the time of such termination. The payment will be made in a single sum within 30 days of your termination of employment. For the purposes of this agreement "Change of Control" generally is defined to take place when disclosure of such a change would be required by rule(s) promulgated by the Securities and Exchange Commission or when either (i) a person (other than a current officer or director nominated, selected or elected by the board) acquires beneficial ownership (as defined in SEC Rule 13d-3) of 25% or more of the combined voting power of the Company's voting securities, (ii) less than a majority of the directors are persons who were either nominated or selected by the current board, (iii) a merger tender offer or sale or exchange of securities involving the Company occurs which results in ownership of more than 50% of the Company's voting stock by a holder or holders not currently owning more than 10% of the outstanding shares of stock of the Company, or (iv) a plan of liquidation or sale of substantially all the assets of the Company occurs. Following a Change in Control, in addition to actual termination of your employment by the Company, you will be considered to have been involuntarily terminated if you resign after any of the following occurs: a material reduction in your responsibilities or authority which is expected to last or in fact continues for more than one month; a reassignment to another geographic location more than 50 miles from 44 Talmadge Road, Edison, New Jersey; a reduction of at least 5% in your compensation; abusive or demeaning conduct toward you that amounts to a constructive discharge under the common law of the State of New Jersey; or failure by a successor employer following a sale, merger, exchange or other disposition of the Company, or any subsidiary, facility, or operation at which you are employed to assume the obligations of the Company under this Agreement. Nothing contained herein shall be construed as conferring upon you the right to continue in the employ of the Company as an executive or in any other capacity. MR. SAMUEL EICHENBAUM PAGE 2 Any severance pay benefits payable under this letter shall not be deemed salary or other compensation to you for the purpose of computing benefits to which you may be entitled under any pension plan or other arrangement of the Company for the benefit of its employees. You shall be responsible for payment of any tax liability which results from payment to you of any amount under this letter. Any payment(s) shall be subject to Federal, State and local withholding rules in effect at the time a payment is made. The parties hereto agree that this Agreement shall supercede any and all other agreements between the parties relating to severance pay except the termination agreement between you and the Company dated March 15, 1985, a copy of which is attached hereto as Exhibit A and the agreement relating to post employment, medical coverage and split dollar life insurance which is attached hereto as Exhibit B. Sincerely, NEW BRUNSWICK SCIENTIFIC CO., INC. ATTEST: Ezra Weisman President Adele Lavender Secretary Acknowledged and Accepted as of the 17 Day of March 1999 Samuel Eichenbaum EX-10.32 5 doc4.txt Exhibit 10-32 May 28, 2002 Dr. Lee Eppstein 2787 Kennedy Blvd. Jersey City, NJ 07306 Dear Dr. Eppstein: In recognition of your services, New Brunswick Scientific Co., Inc. (the "Company") shall, in the event that your employment with the Company is involuntarily terminated for any reason after the occurrence of a Change in Control (as defined below), pay to you an amount equal to 200% of your current annual base salary at the time of such termination. The payment will be made in a single sum within 30 days of your termination of employment. For the purposes of this agreement "Change of Control" generally is defined to take place when disclosure of such a change would be required by rule(s) promulgated by the Securities and Exchange Commission or when either (i) a person (other than a current officer or director nominated, selected or elected by the board) acquires beneficial ownership (as defined in SEC Rule 13d-3) of 25% or more of the combined voting power of the Company's voting securities, (ii) less than a majority of the directors are persons who were either nominated or selected by the current board, (iii) a merger tender offer or sale or exchange of securities involving the Company occurs which results in ownership of more than 50% of the Company's voting stock by a holder or holders not currently owning more than 10% of the outstanding shares of stock of the Company, or (iv) a plan of liquidation or sale of substantially all the assets of the Company occurs. Following a Change in Control, in addition to actual termination of your employment by the Company, you will be considered to have been involuntarily terminated if you resign after any of the following occurs: a material reduction in your responsibilities or authority which is expected to last or in fact continues for more than one month; a reassignment to another geographic location more than 50 miles from 44 Talmadge Road, Edison, New Jersey; a reduction of at least 5% in your compensation; abusive or demeaning conduct toward you that amounts to a constructive discharge under the common law of the State of New Jersey; or failure by a successor employer following a sale, merger, exchange or other disposition of the Company, or any subsidiary, facility, or operation at which you are employed to assume the obligations of the Company under this Agreement. Nothing contained herein shall be construed as conferring upon you the right to continue in the employ of the Company as an executive or in any other capacity. DR. LEE EPPSTEIN PAGE 2 Any severance pay benefits payable under this letter shall not be deemed salary or other compensation to you for the purpose of computing benefits to which you may be entitled under any pension plan or other arrangement of the Company for the benefit of its employees. You shall be responsible for payment of any tax liability which results from payment to you of any amount under this letter. Any payment(s) shall be subject to Federal, State and local withholding rules in effect at the time a payment is made. The parties hereto agree that this Agreement shall supercede any and all other agreements between the parties relating to severance pay except the termination agreement between you and the Company dated September 18, 1984, a copy of which is attached hereto as Exhibit A. Sincerely, NEW BRUNSWICK SCIENTIFIC CO., INC. ATTEST: David Freedman Chief Executive Officer Samuel Eichenbaum Assistant Secretary Acknowledged and Accepted as of the 28th Day of May 2002 Dr. Lee Eppstein EX-24.A 6 doc5.txt Exhibit 24a INDEPENDENT AUDITORS' CONSENT The Board of Directors New Brunswick Scientific Co., Inc. We consent to incorporation by reference in the registration statements (No. 33-70452, No. 333-06029, No. 33-16024, No. 333-69202, No. 333-69206 and No. 333-69208) on Form S-8 of New Brunswick Scientific Co., Inc. of our report dated February 18, 2003, relating to the consolidated balance sheets of New Brunswick Scientific Co., Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity, cash flows, and comprehensive income (loss) for each of the years in the three-year period ended December 31, 2002, and related schedule, which report appears in the December 31, 2002, annual report on Form 10-K of New Brunswick Scientific Co., Inc. Our report described above refers to a change in accounting for goodwill and intangible assets in 2002. /s/ KPMG LLP KPMG LLP Short Hills, New Jersey March 20, 2003 -----END PRIVACY-ENHANCED MESSAGE-----