-----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, FbyRcQZC1PMT+53khSuo3EyNrotiOsHR8SS5S6rwbOSez7r48pw9fAgDMmf3E+xk +U0DN2ME5rr0TjdDY9/ZPg== 0001015402-01-000952.txt : 20010409 0001015402-01-000952.hdr.sgml : 20010409 ACCESSION NUMBER: 0001015402-01-000952 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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-K405 SEC ACT: SEC FILE NUMBER: 000-06994 FILM NUMBER: 1591982 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-K405 1 0001.txt 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, 2000 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. The aggregate market value of the voting stock held by non-affiliates of the registrant was $16,626,253 as of February 9, 2001. This figure was calculated by reference to the high and low prices of such stock on February 9, 2001. The number of shares outstanding of the Registrant's Common stock as of February 9, 2001: 6,115,557 DOCUMENTS INCORPORATED BY REFERENCE Registrant's Proxy Statement and Annual Report to be filed within 120 days after the end of the fiscal year 2000, are incorporated in Part III herein. The EXHIBITS INDEX is on Page 51. 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 and detection 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, nutrient sterilizing and dispensing equipment, ultra-low temperature freezers and tissue culture apparatus. The Company also owns more than eighty-four (84%) percent of DGI BioTechnologies, Inc. ("DGI"). Since the Company's original investment in DGI in 1995, NBS has both funded the business of DGI and provided specially designed laboratory space at the Company's headquarters in Edison, New Jersey. DGI has developed and attempted to commercialize novel technology, the Diogenesis process which provides the pharmaceutical and biotechnology industries with site-directed assay systems to generate small, orally available drug leads. DGI has obtained a U.S. patent and foreign patents covering its drug lead discovery technology. DGI believes the technology can also be applied to serve as a display technology known as "phenogenix" which involves using peptides as a means of identifying particular genes susceptible to treatment for particular diseases. NBS has directed DGI to obtain independent funding for its future operations. On March 30, 2001, the Company received a preliminary commitment from an institutional investor to make a substantial investment in DGI in return for a significant ownership interest. That preliminary commitment is subject to the satisfactory completion of due diligence, agreement on final terms and entrance into definitive documentation. The Company is hopeful that this investment will be completed by the end of April 2001 and that this investment may lead to others. The investment, if completed as presently contemplated, will reduce the Company's ownership of DGI to under 50%. However, there can be no assurances that the transaction will be consummated. The employees, certain consultants and the Board of Directors of DGI have been issued options, which if exercised, in the aggregate represent approximately 9.1% of DGI. 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. 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 2 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 large systems that are used in cGMP production facilities. The larger systems are typically sold under contract. The number of larger systems sold in any reporting period may materially affect the sales and profitability of the Company. 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 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. Shakers agitate flasks under controlled conditions 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 multitier industrial machines. 3 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 two distinct lines of shakers. Its INNOVA line, which is its most sophisticated shaker, and, its C-Line which is intended primarily for sale through distributors. 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. 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. Ultra-Low Temperature Freezers The Company manufactures ultra-low temperature - -------------------------------- freezers employing vacuum insulation panel technology as well as traditional insulation materials which are used in laboratories handling DNA, enzymes, tissue samples, blood and blood products as well as in laboratories involved in human reproductive technology. Other Scientific Products. NBS distributes a line of centrifuges for separating - ------------------------- cells from fermentation broth. 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. 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 4 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 many 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 Assurance 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' 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 and generally requires progress payments for the purchase of custom bioprocess equipment. 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 Australia. 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. 5 Fisher Scientific is the exclusive U.S. distributor of the Company's C-Line of biological shakers. While Fisher is the exclusive U.S. distributor for these NBS Shakers, NBS markets and sells its' shakers and other products on a direct basis as well. Fisher also distributes a few selected INNOVA models. 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, 2000, see Note 12 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 and are payable promptly upon delivery of the equipment. 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. 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, particularly those in Eastern Europe and the former Soviet Union, 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. In November 1999, the Company acquired DJM Cryo-Research Limited (subsequently renamed NBS Cryo-Research Limited) (DJM), a manufacturer of ultra-low temperature freezers located in Tollesbury, England. Prior to the acquisition, substantially all of DJM's sales were to the Company. The Company sells these freezers on a direct basis in the United Kingdom, the Netherlands, Belgium and Germany and through distributors in many other countries. The DJM freezers, which have not previously been sold in the U.S. market, will be sold in the U.S. beginning in early 2001. In mid-December 1998, the Company acquired, for an insignificant amount, the assets of Inceltech, a small fermentor manufacturing company located in Toulouse, France and established NBS/Inceltech as part of the Company's existing French subsidiary New Brunswick Scientific S.a.r.lInceltech has a customer base in southern France and the United Kingdom which NBS/Inceltech will continue to serve. Foreign sales of the Company's standard products (i.e., those listed in its product catalogs) are generally made directly by these subsidiaries. 6 At December 31, 2000, NBS had a backlog of unfilled orders of $12,543,000, compared with $8,569,000 at the end of 1999. The December 31, 2000 backlog was comprised of orders for standard equipment as well as orders for larger systems. NBS expects to fill all of its existing backlog during the coming year. One customer based in the United States accounted for approximately 12.5%, 10.4% and 11.5%, respectively, of consolidated net sales during the years ended December 31, 2000, 1999 and 1998. RESEARCH AND DEVELOPMENT - -------------------------- Research and development expenditures, all of which are sponsored by the Company, amounted to $3,981,000 in 2000, $3,661,000 in 1999 and $2,632,000 in 1998. Thirty-Two (32) of the Company's professional employees were engaged full time in research and development activities. RESEARCH AND LICENSE AGREEMENT - --------------------------------- On May 28, 1999, DGI entered into a Research and License Agreement (the Agreement) with Novo Nordisk A/S, a corporation based in Denmark (Novo). Under the terms of the Agreement, DGI granted to Novo a license to use and sell products worldwide under certain DGI patent rights and technology. In exchange, DGI received $1.6 million in non-refundable license fees. In addition, the Agreement provides for additional payments if specified development milestones are met and the payment of royalties on future sales of a Novo product resulting from the use of DGI's technology, as well as certain other billings for services provided to Novo. INVESTMENT IN ORGANICA, INC. - ------------------------------- Since November 1994, the Company 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 described in the Company's prior year Annual Report on Form 10-K and current year quarterly reports, 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 the end of the third quarter, the Company determined that the investment was not recoverable and, accordingly, wrote off the remaining $150,000 investment in the third quarter of 2000. 7 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 competitor in the sale of fermentation equipment and bioreactors both in the United States and overseas is B. Braun Biotech, a German company. Additional competitors include L.E. Marubishi Co., Ltd. located in Japan; Applikon, B.V., located in The Netherlands; and Abec, located in Pennsylvania. Although financial information concerning these firms is not readily available, the Company believes that many of its competitors have 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 strong competitors of the Company in this market. 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 477 people, including 249 people engaged in manufacturing and supervision, 70 in research, development and engineering (including 26 employed by DGI), 113 in sales and marketing, and 45 in administrative and clerical duties. 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. WORKING CAPITAL ---------------- NBS maintains a substantial inventory of parts, components and subassemblies to fill orders for its products. Management believes it has adequate working capital for its present level of operations. On April 16, 1999, the Company entered into an agreement (the Bank Agreement) with First Union National Bank for a three year, $31 million secured line of credit. The Bank Agreement provides the Company with a $5 million revolving credit facility for both working capital and letters of credit, a $1 million revolving line of credit for equipment acquisition purposes, a $15 8 million credit line for acquisitions and a $10 million foreign exchange facility. There are no compensating balance requirements and any borrowings under the Bank Agreement bear interest at various rates based upon a function of the bank's prime rate or LIBOR at the discretion of the Company. 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 coverage ratio, a net worth covenant, and a ratio of total liabilities to tangible net worth. The Bank Agreement was amended in November 1999 in connection with the acquisition of the DJM Cryo-Research Group. The Company was not in compliance with certain covenants at June 30, 2000, however, on August 3, 2000, the Company and the bank entered into an amendment to the Bank Agreement which waived such noncompliance at June 30, 2000, and amended certain financial covenants prospectively based upon certain financial information provided by the Company. These amended covenants were waived on December 11, 2000 for anticipated noncompliance at December 31, 2000, and on March 27, 2001 for anticipated noncompliance at March 31, 2001. The Company is presently in discussions with the bank with regard to further amending the covenants due to the Company's expectation of not being in compliance with the existing covenants throughout 2001. However, no such final arrangements have been consummated. Consequently, the Company has classified the bank debt as current in its consolidated balance sheet at December 31, 2000. Management believes the Company will be able to meet its obligations as they come due throughout 2001. At December 31, 2000, $7,555,000 was outstanding under the Bank Agreement, as Amended. 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. DGI has received patents covering its platform technology and has filed patent applications covering certain assays. DGI has also applied for a number of trademarks. 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, consistency in the level of orders for custom bioprocess systems, the ability of DGI to achieve its scientific objectives and enter into corporate partnering and/or licensing agreements, the labor relations of the Company and its customers and other factors identified in the Company's Securities and Exchange Commission filings. 9 ITEM 2. PROPERTY -------- The Company's executive, administrative, engineering and domestic sales offices and its manufacturing operations, warehouse and other facilities are 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 16,000 square feet is laboratory space (including 8,700 square feet occupied by 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, New Brunswick Scientific, S.a.r.l. - approximately 27,000 square feet, NBS GmbH - 1,400 square feet and New Brunswick Scientific NV/SA - 825 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. 10
HIGH LOW ---- --- 1999 First Quarter $7.28 $3.98 Second Quarter 9.75 4.32 Third Quarter 9.00 5.88 Fourth Quarter 7.13 5.00 2000 First Quarter $16.82 $4.55 Second Quarter 7.84 4.94 Third Quarter 9.38 5.88 Fourth Quarter 8.25 3.38 2001 First Quarter (through February 9, 2001) $5.00 $3.69
(B) The number of holders, including beneficial owners, of NBS' Common stock as of February 9, 2001, is 1,855. (C) NBS paid 10% Common stock dividends on May 15, 2000 and May 14, 1999. 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. 11
Year Ended December 31, ----------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In thousands, except per share amounts) Net sales (a) $49,864 $54,866 $46,968 $46,059 $43,432 Net income (loss) (3,927)(b) (1,148)(c) (156) 1,012 882 Basic earnings (loss) per share (d) (.65) (.20) (.03) .18 .16 Diluted earnings (loss) per share (d) (.65) (.20) (.03) .18 .16 Total assets (e) 43,006 46,026 39,066 38,090 37,226 Long-term debt, net of current installments (e) 694 7,347 239 247 401 Cash dividends per share - - - - .05 (a) In fiscal 2000, the Company adopted the provisions of the FASB's Emerging Issues Task Force (EITF), Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," which requires the Company to report all amounts billed to a customer related to shipping and handling costs as revenue and report all costs incurred by the seller for shipping and handling as cost of goods sold. Consequently, the Company has reclassified such cost amounts, which were previously netted in sales, to cost of sales. As a result of this reclassification, sales and cost of sales were increased by $730,000 in 2000, $618,000 in 1999, $473,000 in 1998, $463,000 in 1997 and $505,000 in 1996. (b) Includes a charge of $950,000 related to the write-off of investment in Organica, Inc. (c) Includes a charge of $663,000 related to non-recurring severance. (d) Adjusted to reflect 10% stock dividend distributed on May 15, 2000. (e) 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, possible completion of one or more institutional investments in DGI, 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, consistency in the level of orders for custom bioprocess systems, the ability of DGI to achieve its scientific objectives and enter into corporate partnering and/or licensing 12 agreements, 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 --------------------- 2000 vs. 1999 - --------------- For the year ended December 31, 2000, the Company incurred a net loss of $3,927,000 or $.65 per diluted share on net sales of $49,864,000 compared with a net loss of $1,148,000 or $.20 per diluted share on net sales of $54,866,000 for the year ended December 31, 1999. The 9.1% decrease in net sales in 2000 resulted primarily from a decrease in DGI revenues of $1,365,000 from $1,785,000 in 1999 to $420,000 in 2000, a significant downturn in shipments by the Company's European subsidiaries as a result of the continued strength of the U.S. dollar against currencies in the countries where the Company's European subsidiaries operate and what management believes to be a short-term weakening in the European market. In addition, the sale of a large custom bioprocess system in Europe in the amount of $800,000 was included in 1999 sales with no comparable sale in 2000. No tax benefit was recognized for the Company's U.S. operating losses which are primarily attributable to losses incurred by the Company's majority-owned drug-lead discovery operation, DGI BioTechnologies (DGI). Gross margins increased to 40.4% in 2000 from 39.7% in 1999 inclusive of DGI revenues against which there is no cost of sales (2000 - $420,000 and 1999 - $1,785,000). Excluding DGI revenues from the 2000 and 1999 periods, gross margins increased to 39.9% in 2000 from 37.7% in 1999, primarily as a result of the Company's acquisition of DJM Cryo-Research in November 1999, which prior to the acquisition was a supplier to the Company. In addition, in 2000 the Company benefited from a more profitable mix of products sold than in 1999. Selling, general and administrative expenses remained relatively flat at $15,607,000 in 2000 and $15,506,000 in 1999. During 2000, the Company did not incur any significant increases to its selling, general and administrative expenses and made some reductions in order to offset normal inflationary increases in salaries and other expenses. Research, development and engineering expenses increased $727,000 or 11.8% to $6,903,000 in 2000 from $6,176,000 in 1999 primarily as the result of an 8.8% increase in costs to support the research efforts of DGI, the Company's drug-lead discovery operation whose expenses increased to $3,480,000 in 2000 from $3,198,000 in 1999. Also contributing to the increase were expenses of DJM (which was acquired in November 1999), and consequently not included in the Company's results of operations for most of 1999 and additional costs incurred during 2000 to strengthen the Company's engineering staff. Non recurring severance costs decreased from $663,000 to zero as all such costs were accrued at December 31, 1999. 13 Interest expense increased to $638,000 in 2000 compared with $127,000 for 1999 as a result of borrowings under the Company's bank agreement for the acquisition of DJM in November 1999 and for working capital purposes. The $950,000 write-off of the Company's investment in Organica, Inc. during 2000 is a result of a permanent impairment of its investment in Organica as described above in Item 1. Business, Investment in Organica, Inc Other expense, net was $87,000 in 2000 and $53,000 in 1999 due primarily to the disposal of fixed assets and the Company's equity loss in a joint venture entered into in 1998. During 2000, the U.S. dollar strengthened against the currencies of the European countries where the Company has subsidiary operations. The effects of balance sheet translation resulted in a currency translation adjustment of $827,000, which is reflected as a component of accumulated other comprehensive loss in the equity section of the Consolidated Balance Sheet. 1999 vs. 1998 - --------------- For the year ended December 31, 1999, the Company incurred a net loss of $1,148,000 or $.20 per diluted share on net sales of $54,866,000 compared with a net loss of $156,000 or $.03 per diluted share on net sales of $46,968,000 for the year ended December 31, 1998. The 1999 loss reflects non-recurring severance costs of $663,000 for the Company's former President and Chief Executive Officer, Ezra Weisman, who left the Company in January 2000 to pursue other interests. During late 1999, it was agreed that Mr. Weisman would leave the Company in early 2000. Excluding the severance charge there was a loss before income taxes of $40,000. In addition, although there was a consolidated loss before income taxes, a tax expense of $445,000, was required, which is attributable to the Company's foreign subsidiary operations. No tax benefit was recognized for the Company's U.S. operating losses which are primarily attributable to losses incurred by the Company's majority-owned drug-lead discovery operation, DGI BioTechnologies (DGI). Net sales increased $7,898,000, from $46,968,000 to $54,866,000, or 16.8%. The increase in net sales in 1999 is attributable to the receipt by DGI of its first revenues in the amount of $1,785,000 ($1,600,000 of non-refundable license fees and billings for services rendered related to the Research and License Agreement with Novo Nordisk A/S), a 19% increase in export sales and a 33% increase in sales by the Company's European subsidiaries which benefited from strong sales of the Company's core products and ultra-low temperature freezers. Gross margins increased to 39.7% in 1999 from 38.9% in 1998 as a result of the inclusion in net sales of $1,785,000 of the aforementioned licensing revenue for DGI against which there is no cost of sales and which was partially offset by 14 lower margins on core products due to the significant increase in export sales which carry lower margins than sales in the U.S. market. Selling, general and administrative expenses increased $1,705,000 from $13,801,000 to $15,506,000 or 12.4% during 1999 as a result of normal year to year increases, expenses related to the higher level of sales and the strengthening of the Company's European sales and marketing organization including the operating costs of Inceltech, the French fermentor manufacturer acquired by the Company in late 1998. Research, development and engineering expenses increased $1,333,000 or 27.5% to $6,176,000 in 1999 from $4,843,000 in 1998 primarily as the result of a 45.6% increase in costs to support the research efforts of DGI, the Company's drug-lead discovery operation whose expenses increased to $3,198,000 in 1999 from $2,196,000 in 1998, primarily as a result of a significant increase in scientific personnel. Interest income decreased to $45,000 in 1999 from $114,000 in 1998 due to a lower level of invested cash and lower interest rates. The increase in interest expense to $127,000 in 1999 from $8,000 in 1998 is due to borrowings during 1999 under the Company's working capital line and to borrowings in November under the Company's credit agreement for the purchase of DJM Cryo-Research Limited, a manufacturer of ultra-low temperature freezers located in the United Kingdom. Other income (expense), net decreased to an expense of $53,000 in 1999 from an expense of $79,000 in 1998 due to the inclusion in 1998 of a loss related to the disposal of fixed assets which did not occur in 1999. The Company's equity in loss in a joint venture entered into in 1998 increased to $48,000 in 1999 from $36,000 in 1998 due to increased selling and marketing costs of the venture. During 1999, the U.S. dollar strengthened against the currencies of the European countries where the Company has subsidiary operations. The effects of balance sheet translation resulted in a currency translation adjustment of $539,000, 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 decreased from $23,180,000 at December 31, 1999 to $15,068,000 at December 31, 2000 and cash and cash equivalents increased to $2,473,000 at December 31, 2000 from $2,111,000 at December 31, 1999. During the year ended December 31, 2000, accounts receivable decreased to $10,403,000 from $13,769,000 at December 31, 1999 due primarily to the lower level of net sales in the quarter ended December 31, 2000 compared with the quarter ended December 31, 1999. The cash proceeds related to the decrease in accounts receivable was offset by an increase in inventories to $16,721,000 at December 15 31, 2000 compared with $14,997,000 at December 31, 1999. The increase in inventories resulted primarily from slower than anticipated sales by the Company's European subsidiaries and the related build-up of inventory and an increase in the number of custom bioprocess units in production which take from six to nine months to complete. On April 16, 1999, the Company entered into an agreement (the Bank Agreement) with First Union National Bank for a three year, $31 million secured line of credit. The Bank Agreement provides the Company with a $5 million revolving credit facility for both working capital and letters of credit, a $1 million Revolving Line of Credit for equipment acquisition purposes, a $15 million credit line for acquisitions and a $10 million foreign exchange facility. There are no compensating balance requirements and any borrowings under the Bank Agreement bear interest at various rates based upon a function of the bank's prime rate or LIBOR at the discretion of the Company. All of the Company's domestic assets, which are not otherwise subject to lien, have been pledged as security for any borrowings under this Bank Agreement. The Bank Agreement contains various business and financial covenants including among other things, a debt service coverage ratio, a net worth covenant, and a ratio of total liabilities to tangible net worth. The Bank Agreement was amended in November 1999 in connection with the acquisition of DJM Cryo-Research Group. The Company was not in compliance with certain covenants at June 30, 2000, however, on August 3, 2000, the Company and the bank entered into an amendment to the Bank Agreement which waived such noncompliance at June 30, 2000, and amended certain financial covenants prospectively based upon certain financial information provided by the Company. These amended covenants were waived on December 11, 2000 for anticipated noncompliance at December 31, 2000, and on March 27, 2001 for anticipated noncompliance at March 31, 2001. The Company is presently in discussions with the bank with regard to further amending the covenants due to the Company's expectation of not being in compliance with the existing covenants throughout 2001. However, no such final arrangements have been consummated. Consequently, the Company has classified the bank debt as current in its consolidated balance sheet at December 31, 2000. Management believes the Company will be able to meet its obligations as they come due throughout 2001. At December 31, 2000 and 1999, $7,555,000 and $6,745,000, respectively, was outstanding under the Bank Agreement. 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 2004. At December 31, 2000 the balance of the notes was $373,000. Cash Flows from Operating Activities ---------------------------------------- During the years ended December 31, 2000 and 1999 net cash used in operating activities amounted to $753,000 and $2,105,000, respectively. The primary reasons for the $1,352,000 net change from 1999 to 2000 were a decrease in accounts receivable in 2000 of $2,985,000 vs. an increase of $3,242,000 in 1999 and an increase in advance payments from customers of $1,611,000 in 2000 vs. a decrease of $956,000 in 1999 partially offset by (i) a net loss in 2000 of $3,927,000 compared with a net loss in 1999 of $1,148,000, (ii) an increase in 16 prepaid expenses and other current assets of $464,000 in 2000 vs. a decrease of $321,000 in 1999, (iii) an increase in inventories of $1,868,000 in 2000 vs. a decrease of $1,101,000 in 1999, (iv) a decrease in accounts payable and accrued expenses of $1,292,000 in 2000 vs. an increase of $506,000 in 1999 and (v) a decrease in other liabilities of $151,000 in 2000 vs. an increase of $380,000 in 1999. Cash Flows from Investing Activities ---------------------------------------- Net cash used in investing activities amounted to $832,000 in 2000 vs. cash used of $6,902,000 in 1999. 2000 consisted primarily of expenditures for property, plant and equipment and additional goodwill related to the acquisition of DJM Cryo-Research. 1999 consisted of expenditures for property, plant and equipment of $1,435,000 and $5,476,000 related to the acquisition of DJM Cryo-Research partially offset by sales of equipment of $129,000. Cash Flows from Financing Activities ---------------------------------------- Net cash provided by financing activities amounted to $2,037,000 in 2000 vs. $7,455,000 in 1999. 2000 and 1999 include $999,000 and $518,000, respectively, from the issuance of Common stock under stock purchase and option plans and $1,000,000 and $6,745,000, respectively, from borrowings under the Company's revolving credit facility. The proceeds in both years were partially offset by the repayment of long-term debt. 2000 also includes $270,000 of repayments on notes receivable related to exercised stock options and 1999 includes $215,000 of proceeds from a mortgage related to the expansion of the Company's building in the Netherlands. Management believes that the resources available to the Company, including its line of credit are sufficient to meet its near and intermediate-term needs. Other Matters ------------- Recently Issued Accounting Standards --------------------------------------- In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities." In June 2000 the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters of all fiscal years beginning after June 30, 2000. The Company adopted SFAS No. 133 on January 1, 2001. As of December 31, 2000, the Company does not have any derivative financial instruments. In 2000, the Company adopted the provisions of the FASB's Emerging Issues Task Force (EITF), Issue No. 00-10, "Accounting for Shipping and Handling Fees 17 and Costs," which requires the Company to report all amounts billed to a customer related to shipping and handling costs as revenue and report all costs incurred by the seller for shipping and handling as cost of goods sold. Consequently, the Company has reclassified such cost amounts, which were previously netted in sales to cost of sales. As a result of this reclassification, sales and cost of sales were increased by $730,000 in 2000 and by $618,000 in 1999. 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), is majority-owned and fully funded by the Company and occupies specially designed laboratory space at the Company's headquarters facility in Edison, New Jersey. DGI's operations have had a significant negative impact on the Company's 2000 and 1999 earnings. During 2000 and 1999, $3,480,000 and $3,198,000, respectively, of research and development expenses were charged to operations. However, in 2000 DGI recorded $420,000 in revenues resulting in a net loss of $3,061,000 and in 1999, DGI recorded $1,785,000 in revenues thereby reducing the 1999 net loss to $1,413,000. On March 30, 2001, the Company received a preliminary commitment from an institutional investor to make a substantial investment in DGI in return for a significant ownership interest. That preliminary commitment is subject to the satisfactory completion of due diligence, agreement on final terms and entrance into definitive documentation. The Company is hopeful that this investment will be completed by the end of April 2001 and that this investment may lead to others. The investment, if completed as presently contemplated, will reduce the Company's ownership of DGI to under 50%. However, there can be no assurances that the transaction will be consummated. Euro Conversion ---------------- On January 1, 1999, eleven of the fifteen member countries of the European Union (the "participating countries") - established fixed conversion rates between their existing sovereign currencies (the "legacy currencies") and the Euro. The participating countries adopted the Euro as their common legal currency on that date. As of January 1, 1999, a newly created European Central Bank was established to control monetary policy, including money supply and interest rates for the participating countries. The legacy currencies are scheduled to remain legal tender in the participating countries as denominations of the Euro between January 1, 1999 and January 1, 2002 (the "transition period"). During the transition period, public and private parties may pay for goods and services using either the Euro or the participating country's legacy currency on a "no compulsion, no prohibition" basis. The Company has evaluated and continues to evaluate on an on-going basis the effects, if any, of the Euro conversion upon its business. Factors being considered include, but are not limited to: the possible impact of the Euro conversion on revenues, expenses and income from operations, the ability to adapt information technology to accommodate Euro-denominated transactions, the market risks with respect to financial instruments, the continuity of material contracts, and the potential tax consequences. 18 The Company does not believe that the Euro-conversion has had or will have a material operational or financial impact. Investment in Organica, Inc. ------------------------------- Beginning in November 1994, the Company 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 described in the Company's prior year Annual Report on Form 10-K and current year quarterly reports, 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 the end of the third quarter, the Company determined that the investment was not recoverable and, accordingly, wrote off the remaining $150,000 investment in the third quarter of 2000. 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, 2000 and 1999 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Schedule II - Valuation and Qualifying Accounts 19 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2000 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. /s/ KPMG LLP KPMG LLP Short Hills, New Jersey February 12, 2001, except as to the second paragraph of note 6, which is as of March 27, 2001 20 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (Dollars in thousands, except per share amounts)
2000 1999 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 2,473 $ 2,111 Accounts receivable, net of allowance for doubtful accounts, 2000 - $354 and 1999 - $339 10,403 13,769 Inventories 16,721 14,997 Prepaid expenses and other current assets 1,269 832 -------- -------- Total current assets 30,866 31,709 -------- -------- Property, plant and equipment, net 5,936 7,023 Excess of cost over net assets acquired less accumulated amortization of $208 in 2000 and $18 in 1999 4,552 4,751 Deferred income taxes 153 153 Other assets 1,499 2,390 -------- -------- $43,006 $46,026 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 7,598 $ 236 Accounts payable and accrued expenses 8,200 8,293 -------- -------- Total current liabilities 15,798 8,529 -------- -------- Long-term debt, net of current installments 694 7,347 Other liabilities 572 380 Commitments and contingencies Shareholders' equity: Common stock, $0.0625 par; authorized 25,000,000 shares; issued and outstanding: 2000 - 6,115,557 shares; 1999 - 5,344,000 shares 383 334 Capital in excess of par 36,963 32,907 Retained earnings (9,140) (2,107) Accumulated other comprehensive loss (2,202) (1,032) Notes receivable from exercise of stock options (62) (332) -------- -------- Total shareholders' equity 25,942 29,770 -------- -------- $43,006 $46,026 ======== ========
See notes to consolidated financial statements. 21 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (In thousands, except per share amounts)
2000 1999 1998 --------- ---------- ----------- Net sales $ 49,864 $ 54,866 $ 46,968 Operating costs and expenses: Cost of sales 29,710 33,089 28,715 Selling, general and administrative expenses 15,607 15,506 13,801 Research, development and engineering expenses 6,903 6,176 4,843 Non-recurring severance costs - 663 - --------- ---------- ----------- Total operating costs and expenses 52,220 55,434 47,359 --------- ---------- ----------- Loss from operations (2,356) (568) (391) --------- ---------- ----------- Other income (expense): Interest income 56 45 114 Interest expense (638) (127) (8) Other expense, net (87) (53) (79) Write-off of investment in Organica, Inc. (950) - - --------- ---------- ----------- (1,619) (135) 27 --------- ---------- ----------- Loss before income tax expense (benefit) (3,975) (703) (364) Income tax expense (benefit) (48) 445 (208) --------- ---------- ----------- Net loss $ (3,927) $ (1,148) $ (156) ========= ========== =========== Basic loss per share $ (.65) $ (.20) $ (.03) ========= ========== =========== Diluted loss per share $ (.65) $ (.20) $ (.03) ========= ========== =========== Basic weighted average number of shares outstanding 6,036 5,837 5,678 ========= ========== =========== Diluted weighted average number of shares outstanding 6,036 5,837 5,678 ========= ========== ===========
See notes to consolidated financial statements. 22 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in thousands, except per share amounts)
Notes Receivable Accumulated From Common Stock Capital Other Exercise ------------- in Excess Retained Comprehensive Of Stock Shares Amount of Par Earnings Income (Loss) Options Total ------------- ---------- -------------- ---------- -------------- --------- ------- Balance, January 1, 1998 4,204,845 $ 263 $ 23,854 $ 7,085 $ (1,115) $ (63) $30,024 Issue of shares under employee stock purchase plan 14,813 1 90 91 Issue of shares under stock option plans 129,430 8 524 532 Tax benefits related to exercise of stock options 127 127 Notes receivable from exercise of stock options (301) (301) 10% stock dividend 421,356 26 3,766 (3,792) - Net loss (156) (156) Other comprehensive income adjustment 130 130 Balance, December 31, 1998 4,770,444 $ 298 $ 28,361 $ 3,137 $ (985) $ (364) $30,447 Issue of shares under employee stock purchase plan 21,790 2 106 108 Issue of shares under stock option plans 69,895 4 346 350 Tax benefits related to exercise of stock options 28 28 Payment on notes receivable from exercise of stock options 32 32 10% stock dividend 481,871 30 4,066 (4,096) - Net loss (1,148) (1,148) Other comprehensive loss adjustment (47) (47) Balance, December 31, 1999 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 ============= ========== ============== ========== ============== ========= =======
See notes to consolidated financial statements. 23 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (In thousands)
2000 1999 1998 --------- -------- -------- Cash flows from operating activities: Net loss $ (3,927) $(1,148) $ (156) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,501 1,111 1,178 Deferred income taxes - - (104) Write-off of investment in Organica, Inc. 950 - - Change in related balance sheet accounts, excluding effect of acquisition: Accounts receivable 2,985 (3,242) 721 Inventories (1,868) 1,101 (905) Prepaid expenses and other current assets (464) 321 (8) Accounts payable and accrued expenses (1,292) 506 62 Advance payments from customers 1,611 (956) (22) Other assets (98) (178) - Other liabilities (151) 380 - --------- -------- -------- Net cash provided by (used in) operating activities (753) (2,105) 766 --------- -------- -------- Cash flows from investing activities: Additions to property, plant and equipment (351) (1,435) (1,280) Sale of equipment 3 129 46 Acquisition of DJM Cryo-Research Group, net of cash acquired (352) (5,476) - Increase in insurance cash surrender value (132) (120) (107) --------- -------- -------- Net cash used in investing activities (832) (6,902) (1,341) --------- -------- -------- Cash flows from financing activities: Proceeds from mortgage - 215 - Borrowings under long-term credit facility 1,000 6,745 - Repayments of long-term debt (232) (23) (115) Proceeds from issue of shares under stock purchase and option plans 999 518 449 Proceeds from notes receivable related to stock options 270 - - --------- -------- -------- Net cash provided by financing activities 2,037 7,455 334 --------- -------- -------- Net effect of exchange rate changes on cash (90) (130) 66 --------- -------- -------- (175) Net increase (decrease) in cash and cash equivalents 362 (1,682) Cash and cash equivalents at beginning of year 2,111 3,793 3,968 --------- -------- -------- Cash and cash equivalents at end of year $ 2,473 $ 2,111 $ 3,793 ========= ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 647 $ 85 $ 6 Income taxes 621 145 104 Supplemental disclosure of non cash financing activities: Notes received upon exercise of stock options $ - $ - $ 301 Notes payable related to DJM Cryo-Research acquisition - 404 -
See notes to consolidated financial statements. 24 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (In thousands)
2000 1999 1998 -------- -------- ------- Net loss $(3,927) $(1,148) $ (156) Other comprehensive income (loss): Foreign currency translation adjustment (827) (539) 622 Minimum pension liability adjustment (343) 492 (492) -------- -------- ------- Net comprehensive loss $(5,097) $(1,195) $ (26) ======== ======== =======
See notes to consolidated financial statements. 25 1. Summary of significant accounting policies: Principles of consolidation: The consolidated financial statements include the accounts of New Brunswick Scientific Co., Inc., its wholly and majority 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. Cost elements include material, labor and manufacturing overhead. Property, plant and equipment: Property, plant and equipment are stated at cost. Gains and losses resulting from sales or disposals, which are not significant in amount, are included in "Other income (expense), net". 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. 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. Investments: In June 1998, the Company entered into a joint venture, New Brunswick Scientific Projects Limited, with W.H. Promation Ltd. in the United Kingdom with each party owning 50%. The joint venture specialized in the design and construction of bioprocess systems for the pharmaceutical and biotechnology industries. No monies were invested at inception, however, investments in the joint venture occurred based upon its need for operating funds. This investment, which was 26 accounted for using the equity method, was terminated effective December 31, 2000. Goodwill: Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 25 years. The Company assesses 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 of the acquired operation. The amount of goodwill impairment, if any, is 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. 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 carryforwards. 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. 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 intends to continue such policy for the foreseeable future. Earnings per share: Basic loss per share is calculated by dividing net loss by the weighted average number of shares outstanding. Diluted loss per share is calculated by dividing net 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. The dilutive effect of stock options was zero for the years ended December 31, 2000, 1999 and 1998. 10% stock dividends were distributed on May 15, 2000, May 14, 1999 and May 15, 1998, respectively. The weighted average 27 number of shares outstanding for prior periods have been restated to reflect these dividends. Stock option plans: Prior to January 1, 1996, the Company accounted 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 would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and 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 defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Treasury stock: Repurchase of the Company's outstanding Common stock had been accounted for by treating the stock as if retired. At December 31, 2000 all treasury stock was retired. Financial instruments: The carrying values of the Company's financial instruments, principally cash and cash equivalents, accounts receivable and accounts payable, accrued expenses, and long-term debt, at December 31, 2000 approximate their estimated fair values. Fair values were determined through a combination of management estimates and information obtained from independent third parties using latest available market data. 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, 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. 28 Impairment of long-lived assets and long-lived assets to be disposed of: The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This Statement requires that long-lived assets and certain identifiable intangibles be 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 future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Comprehensive income: On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of financial statements. Comprehensive loss consists of net loss, foreign currency translation adjustment, and minimum pension liability adjustment and is presented in the consolidated statements of comprehensive loss. The Statement requires only additional disclosures in the consolidated financial statements; it does not affect the Company's financial position or results of operations. Segment information: As of December 31, 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement requires the Company to disclose financial information on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Revenue Recognition: Revenue is recognized when products are shipped. In 2000, the Company adopted the provisions of the FASB's Emerging Issues Task Force (EITF), Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," which requires the Company to report all amounts billed to a customer related to shipping and handling as revenue. The Company includes all costs incurred for shipping and handling as cost of sales. The Company has reclassified such cost amounts, which were previously netted in sales, to cost of sales. As a result of this reclassification, sales and cost of sales were increased by $730,000 in 2000, $618,000 in 1999 and $473,000 in 1998. 29 Derivative instruments and hedging activities: In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities." In June 2000 the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters of all fiscal years beginning after June 30, 2000. The Company adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. The Company has only limited involvement with derivative financial instruments and uses them only to manage foreign currency risks. As of December 31, 2000, the Company does not have any derivative financial instruments. All derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, the Company designates the derivative as either a fair value hedge, a cash flow hedge, or a foreign currency hedge. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value, cash-flow, or foreign-currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the hedged item that is attributable to the hedged risk are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability in cash flows or unrecognized firm commitment of the designated hedged item. Changes in the fair value of derivatives that are highly effective as hedges and that are designated and qualify as foreign-currency hedges are recorded in either earnings or other comprehensive income, depending on whether the hedge transaction is a fair-value hedge or a cash-flow hedge. 30 The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the Company continues to carry the derivative on the balance sheet at its fair value, and no longer adjusts the hedged asset or liability for changes in fair value. Reclassifications: Certain amounts in the 1999 and 1998 consolidated financial statements have been reclassified to conform to the 2000 financial statement presentation. 2. Inventories at December 31 consist of:
2000 1999 ------- ------- (In thousands) Raw materials and sub-assemblies $ 6,325 $ 6,397 Work-in-process 4,344 3,669 Finished goods 6,052 4,931 ------- ------- $16,721 $14,997 ======= =======
3. Property, plant and equipment at December 31 consists of:
2000 1999 -------- -------- (In thousands) Land $ 800 $ 800 Buildings and improvements 4,339 4,404 Machinery and equipment 13,283 13,195 -------- -------- 18,422 18,399 Less accumulated depreciation 12,486 11,376 -------- -------- $ 5,936 $ 7,023 ======== ========
4. Acquisitions: On November 23, 1999, the Company acquired all of the outstanding common stock of DJM Cryo-Research Limited and the net assets of DJM Fabrications (collectively, "DJM Cryo-Research Group"), a United Kingdom Corporation and Partnership under common control, respectively, located in Tollesbury, England (the Acquisition). The purchase price consisted of 3.5 million ($5.5 million) 31 in cash, and 250,000 ($392,500) in term notes payable in annual installments over a five year period beginning in November 2004 with 6% interest payable annually. The source of the cash consideration paid was the Company's line of credit for acquisition purposes provided by First Union National Bank, payable in monthly installments of $52,513 with 8.07% fixed interest. DJM Cryo-Research Group is in the business of designing, developing and manufacturing ultra-low temperature freezers for laboratories. The acquisition has been accounted for by the purchase method and, accordingly, the results of operations of DJM Cryo-Research Group have been included in the Company's consolidated financial statements from November 23, 1999. The excess of the purchase price over the fair value of net identifiable assets acquired (which was finalized in 2000 upon completion of the appraisal) of $4,760,000 has been recorded as goodwill and is being amortized on a straight-line basis over 25 years. The acquisition of DJM Cryo-Research Group consisted of the following:
Net cash paid $ 5,476 Liabilities assumed 1,576 Fair value of assets acquired (2,292) --------- Goodwill $ 4,760 =========
The following unaudited pro forma financial information presents the combined results of operations of the Company and DJM Cryo-Research Group as if the acquisition had occurred as of the beginning of 1999 and 1998, after giving effect to certain adjustments, including amortization of goodwill, additional depreciation expense, increased interest expense on debt related to the acquisition and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and DJM Cryo-Research Group constituted a single entity during such periods.
1999 1998 -------- -------- (In thousands, except per share amounts) (unaudited) Net sales $55,002 $47,254 Net loss (1,375) (268) Net loss per share $ (.24) $ (.05)
In December 1998, the Company acquired the assets of Inceltech, a manufacturer of fermentors and cell culture bioreactors in France, for an immaterial purchase price. The acquisition was accounted for as a purchase and, accordingly, the results of operations of Inceltech (which are immaterial) are included in the Company's results of operations from the date of acquisition. The fair value of the assets acquired approximated the purchase price. The effects of the 32 acquisition and the allocation of the purchase price is immaterial to the consolidated financial statements. 5. Other assets: Beginning in November 1994, the Company 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 described in the Company's prior year Annual Report on Form 10-K and current year quarterly reports, 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 the end of the third quarter, the Company determined that the investment was not recoverable and, accordingly, wrote off the remaining $150,000 investment in the third quarter of 2000. 6. 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, 2000, $171,000 and $193,000, respectively, was outstanding under the first and second mortgages and at December 31, 1999, $206,000 and $228,000, respectively, was outstanding under the first and second mortgages. Each mortgage requires 80 equal quarterly payments of principal. The Company has an agreement with First Union National Bank (the Bank Agreement) for a three year, $31 million secured line of credit. The Bank Agreement provides the Company with a $5 million revolving credit facility for both working capital and for letters of credit, a $1 million revolving line of credit for equipment acquisition purposes, a $15 million credit line for acquisitions and a $10 million foreign exchange facility. There are no compensating balance requirements and any borrowings under the Bank Agreement bear interest at various rates based upon a function of the bank's prime rate or LIBOR at the discretion of the Company. At December 31, 2000, the interest rates ranged from 7.82% to 8.07%. 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 coverage ratio, a net worth covenant, and a ratio of total liabilities to tangible net worth. The Bank Agreement was amended in November 1999 in 33 connection with the acquisition of the DJM Cryo-Research Group. The Company was not in compliance with certain covenants at June 30, 2000, however, on August 3, 2000, the Company and the bank entered into an amendment to the Bank Agreement which waived such noncompliance at June 30, 2000, and amended certain financial covenants prospectively based upon certain financial information provided by the Company. These amended covenants were waived on December 11, 2000 for anticipated noncompliance at December 31, 2000, and on March 27, 2001 for anticipated noncompliance at March 31, 2001. The Company is presently in discussions with the bank with regard to further amending the covenants due to the Company's expectation of not being in compliance with the existing covenants throughout 2001. However, no such final arrangements have been consummated. Consequently, the Company has classified the bank debt as current in its consolidated balance sheet at December 31, 2000. Management believes the Company will be able to meet its obligations as they come due throughout 2001. At December 31, 2000 and 1999, $7,555,000 and $6,745,000, respectively, was outstanding under the Bank Agreement. In November 1999, the Company issued notes in the amount of 250,000 ($392,500 at the date of acquisition) in connection with the acquisition of DJM Cryo-Research Group. The notes bear interest at 6% which are payable annually and principal is payable in five equal annual installments commencing November 2004. At December 31, 2000 the balance of the notes was $373,000. Aggregate annual maturities of long-term debt are as follows:
Year ending December 31 Amount - --------------------------------------- --------------- (In thousands) 2001 $ 7,598 2002 43 2003 43 2004 43 2005 43 After 2005 522 --------------- $ 8,292 ==============
34 7.Accounts payable and accrued expenses at December 31, consists of:
2000 1999 ------ ------ (In thousands) Accounts payable-trade $3,109 $3,950 Accrued salaries, wages and payroll taxes 1,842 2,647 Accrued foreign dealer commissions 367 324 Advance payments from customers 2,057 462 Other accrued liabilities 825 910 ------ ------ $8,200 $8,293 ====== ======
8. Income taxes:
Years Ended December 31, ------------------------------- 2000 1999 1998 ---------- ---------- --------- (In thousands) Income (loss) before income taxes: Domestic $ (2,690) $ (2,149) $ (1,014) Foreign (1,285) 1,446 650 ---------- ---------- --------- $ (3,975) $ (703) $ (364) ========== ========== ========= Income tax expense (benefit) consists of: Federal: Current $ - $ - $ (257) Deferred - - (104) State-current - - 3 Foreign-current (48) 445 150 ---------- ---------- --------- $ (48) $ 445 $ (208) ========== ========== =========
35 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2000 and 1999 are as follows:
2000 1999 ------- ------- (In thousands) Deferred tax assets: Inventories $ 290 $ 320 Allowance for doubtful accounts 122 99 Accrued expenses 702 273 Alternative minimum tax credit carryforward 67 67 Domestic net operating loss carryforward 1,911 1,103 Domestic capital loss and contribution carryforwards 15 33 ------- ------- Gross deferred tax assets 3,107 1,895 Less: Valuation allowance 2,477 1,213 ------- ------- 630 682 ------- ------- Deferred tax liabilities: Accumulated depreciation 255 264 Other liabilities 137 180 ------- ------- Gross deferred tax liabilities 392 444 ------- ------- Net deferred tax asset $ 238 $ 238 ======= =======
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. Management believes there are significant cost efficiencies to be realized in its operations and is focused on achieving such efficiencies during 2001 and has identified other strategies to realize the deferred tax asset. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. 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, 2000. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The net change in the total valuation allowance at December 31, 2000 and 1999 was an increase of $1,264,000 and $513,000, respectively. The domestic net operating loss carryforwards at December 31, 2000 of $4,958,000 for federal and $6,800,000 for state are available to offset future taxable income, if any, through 2020 for federal tax purposes. 36 The Company's effective income tax rates for 2000, 1999 and 1998 differed from the U.S. statutory Federal income tax rates of 34% as follows:
Percentage of loss before taxes -------------------------------- 2000 1999 1998 --------- ------- ------- Computed "expected" tax benefit (34.0)% (34.0)% (34.0)% Increase (decrease) in taxes resulting from: Rate differential between U.S. and foreign income taxes - (6.6) - Change in valuation allowance allocated to income tax expense 31.8 98.1 30.5 Benefit due to foreign loss carryback (1.2) - - Change in tax accruals related to open tax years - - (47.8) Other 2.2 5.8 (5.8) -------- ------- ------- Actual tax expense (benefit) (1.2)% 63.3% (57.1)% ======== ======= =======
9. 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 $133,000, $131,000 and $124,000 in 2000, 1999 and 1998, respectively. 37 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, 2000 and 1999:
2000 1999 -------- -------- (In thousands) CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 5,912 $ 5,712 Actuarial gain (223) (122) Service cost 269 228 Interest cost 594 402 Benefits paid (336) (308) -------- -------- Benefit obligation at end of year $ 6,216 $ 5,912 ======== ======== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 6,044 $ 5,059 Actual return on plan assets (331) 1,109 Employer contribution 75 238 Benefits paid (336) (308) Other expenses - (54) -------- -------- Fair value of plan assets at end of year $ 5,452 $ 6,044 ======== ======== CHANGE IN PREPAID PENSION COST Prepaid benefit cost at beginning of year $ 363 $ 374 Net periodic pension cost (201) (249) Contributions 75 238 -------- -------- Prepaid benefit cost at end of year $ 237 $ 363 ======== ======== MISCELLANEOUS ITEMS AT END OF YEAR Funded status $ (764) $ 132 Unrecognized net transition obligation $ 111 $ 130 Unrecognized prior service cost $ (23) $ (27) Unrecognized net loss $ 913 $ 128 Prepaid benefit cost before additional liability $ 237 $ 363 Additional liability $ 357 $ - Prepaid benefit cost after additional liability $ 594 $ 363 Intangible asset $ 343 $ -
2000 1999 1998 ------ ------ -------- COMPONENTS OF NET PERIODIC BENEFIT COST (In thousands except percentages) Service cost $ 269 $ 228 $ 207 Interest cost 420 402 376 Expected return on plan assets (503) (426) (385) Transition obligation 19 19 19 Amortization of prior service cost (4) (4) (4) Recognized net actuarial loss - 30 47 ------ ------ -------- Net periodic benefit cost $ 201 $ 249 $ 260 ====== ====== ======== WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate 7.25% 7.25% 7.25% Expected return on plan assets 8.50% 8.50% 7.50% Rate of compensation increase 3.00% 4.00% 4.00%
38 The minimum additional pension liability in 2000 and 1998 are non-cash items which are offset by a direct reduction to shareholders' equity of $343,000 and $492,000, respectively. In 1999 there was no minimum additional pension liability. The Company has a defined contribution plan for its U.S. employees, with a specified matching Company contribution. The expense to the Company in 2000, 1999 and 1998 was $180,000, $163,000 and $160,000, respectively. International pension expense in 2000, 1999 and 1998 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 ($442,000 outstanding at December 31, 2000) and is recognizing interest expense over the three-year term. 10. Shareholders' equity: All stock options were issued at fair market value at the time of grant. The 1999 and 1998 data for the stock options and rights plans described below have been restated to reflect the 10% stock dividend which was distributed on May 15, 2000. The 1991 Non-Qualified Stock Option Plan (the 1991 Plan) for officers and key employees of the Company provides for the granting of options to purchase up to 881,122 shares of the Company's Common stock. Options are 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 may not be less than the fair market value on the date of grant. 39 Shares under option related to the 1991 Plan at December 31 are as follows:
2000 1999 1998 ----------------- ----------------- --------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares xercise Price Shares Exercise Price ------------- ----------------- ------------- ------------- ------- __------------- Outstanding, Beginning of Year 523,205 $ 5.50 532,180 $ 5.47 435,159 $5.08 Granted 202,500 6.13 - - 258,940 4.29 Exercised (123,219) 3.84 (8,975) 3.68 (151,573) 3.34 Cancelled (142,129) 8.10 - - (10,346) 4.15 ----------------- ----------------- --------------- ------- --------------- ----- Outstanding, end of year 460,357 $ 5.42 523,205 $ 5.50 532,180 $5.47 ================= =============== ===============
At December 31, 2000, options were exercisable as follows:
Exercise Shares Price - ------ --------- 40,565 $ 4.51 4,840 8.26 2,420 10.33 2,420 12.40 62,920 4.29
At December 31, 2000, 108,741 options were available for future grant. The weighted-average remaining contractual life for the options outstanding at December 31, 2000 was 4.4 years. The 1999 Stock Option Plan for Nonemployee Directors (the 1999 Plan) provides for the granting of options to purchase up to 110,000 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 after grant. The exercise price per share of each option may not be less than eighty-five percent (85%) of the fair market value on the date of grant. During 2000, 52,500 options exercisable at $7.00 per share were granted pursuant to the 1999 Plan all of which were outstanding at December 31, 2000. In addition, 26,250 options were exercisable at an exercise price of $7.00 per share and 57,500 options were available for future grant. In 1989, the Company adopted a stock option plan for nonemployee directors which expired on April 30, 1999. The plan provided for the granting of options 40 to purchase up to 407,830 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 after grant. The exercise price per share of each option could not be less than eighty-five percent (85%) of the fair market value on the date of grant. Shares under option related to the 1989 Plan for Nonemployee Directors at December 31, are as follows:
2000 1999 1998 ----------------- ----------------- --------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - ---------------- ----------------- ----------------- --------------- ------- --------------- Outstanding, Beginning of Year 313,192 $ 4.66 334,925 $ 4.64 268,608 $4.72 Granted - - 36,300 4.13 72,600 4.29 Exercised (79,382) 4.66 (58,033) 4.25 (6,283) 4.07 ----------------- --------------- --------------- Outstanding, end of year 233,810 $ 4.66 313,192 $ 4.66 334,925 $4.64 ================= =============== ===============
At December 31, 2000 options were exercisable as follows:
Exercise Shares Price - ------ --------- 29,514 $ 4.10 17,052 4.57 57,695 5.26 29,040 4.29 7,865 4.13
The weighted-average remaining contractual life for the options outstanding at December 31, 2000 was 6.8 years. At December 31, 2000 pursuant to the 1998 Stock Option Plan for 10% Shareholder-Directors 24,200 options were exercisable at $4.75 per share, 29,040 options were exercisable at $4.13 per share and 28,750 options were exercisable at $7.00 per share. At December 31, 2000, 42,500 options were available for future grant. 41 Shares under option related to the 1998 stock option plan for 10% Shareholder-Directors at December 31, are as follows:
2000 1999 1998 ---------------- ----------------- -------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ---------------- ---------------- ----------------- -------------- ------- ------- Outstanding, Beginning of Year 108,900 $ 4.48 60,500 $ 4.75 - $ - Granted 57,500 7.00 48,400 4.13 60,500 4.75 ---------------- -------------- -------------- Outstanding, end of year 166,400 $ 5.35 108,900 $ 4.48 60,500 $4.75 ================ ============== ==============
The weighted-average remaining contractual life for the options outstanding at December 31, 2000 was 8.6 years. In the aggregate, related to the aforementioned stock option plans, there were 208,741 additional shares available for grant at December 31, 2000. The per share weighted-average fair value of stock options granted during 2000 and 1999 was $6.43 and $4.14, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 2000 - no expected dividend yield, risk-free interest rate of 5.39%, volatility factor of 68.3%, and an expected life of 7.4 years. 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 307,461 shares of its authorized shares of Common stock for this purpose. During 2000, 1999 and 1998, 27,545, 21,790 and 14,813 Common shares, respectively, were issued under the plan. The Company applies APB Opinion No. 25 in accounting for its Plans and, accordingly, no compensation cost has been recognized for stock options issued with an exercise price at least equal to the fair value of the stock at the date of grant. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's 2000, 1999 and 1998 net loss and loss per share would have been increased to the proforma amounts as follows: 42
2000 1999 1998 -------- -------- ------ Net loss (in thousands): As reported $(3,927) $(1,148) $(156) Proforma (4,312) (1,531) (374) Basic loss per share: As reported $ (.65) $ (.20) $(.03) Proforma (.71) (.26) (.07) Diluted loss per share: As reported $ (.65) $ (.20) $(.03) Proforma (.71) (.26) (.07)
Pro forma net loss reflects only options granted since 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net loss amounts presented above because compensation cost is reflected over the options' vesting periods of 5 years and compensation cost for options granted prior to January 1, 1995 is not considered. 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 $22.73 (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. 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 $2,600, $2,500 and $1,900 during 2000, 1999 and 1998, 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 $51,250, and from other key employees in the amount of $10,250. Imputed interest on these loans amounted to $5,498, $22,418 and $8,244, during 2000, 1999 and 1998, respectively. 43 11. Segment information: As discussed in Note 1, the Company has adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". Management of the Company has evaluated the way the business is organized internally for operating decisions and has determined that the Company is comprised of two operating segments. The first operating segment is laboratory research equipment. This segment consists of the manufacture and marketing of equipment used in the pharmaceutical, medical, biotechnology, chemical and environmental research fields throughout the world. The second operating segment is DGI BioTechnologies, Inc. (DGI). This segment is involved in the development of a novel technology that facilitates the discovery of new drugs. 44 Summarized segment information for the years ended December 31, 2000, 1999 and 1998 are as follows (in thousands, except percentages):
Laboratory Research DGI Total Equipment BioTechnologies Segments ------------ ----------------- ---------- 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 (1) 1,270 - 1,270 1999 - ----- Net sales from external customers $ 53,081 $ 1,785 $ 54,866 Income (loss) from operations 845 (1,413) (568) Percentage of sales 96.7% 3.3% 100% Total assets (1) 45,321 705 46,026 Capital expenditures 1,435 - 1,435 Depreciation (1) 1,072 - 1,072 1998 - ----- Net sales from external customers $ 46,968 $ - $ 46,968 Income (loss) from operations 1,805 (2,196) (391) Percentage of sales 100% - 100% Total assets (1) 39,205 118 39,323 Capital expenditures 1,280 - 1,280 Depreciation (1) 1,178 - 1,178 (1) Fixed assets and depreciation related to the DGI BioTechnolgoies segment are not allocated to the segment as the assets are owned directly by New Brunswick Scientific Co., Inc., however, rental expense is charged to the DGI BioTechnologies segment in lieu of depreciation expense.
12. Operations by geographic areas: 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. 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 and generally requires progress payments 45 for the purchase of custom bioprocess equipment which is typically sold under contract. The number of these larger systems sold in any reporting period may materially affect the sales and profitability of the Company. The following table sets forth the Company's operations by geographic area for 2000, 1999 and 1998. The information shown under the caption "Europe" represents the operations of the Company's wholly owned foreign subsidiaries primarily in the UK and The Netherlands (in thousands):
Transfers and eliminations United between geo- Conso- States Europe graphic areas lidated --------------- -------------- --------------- -------- Net sales: 2000 $ 41,657 $ 13,921 $ 5,714 $ 49,864 1999 42,057 19,174 6,365 54,866 1998 37,321 14,375 4,728 46,968 Income (loss) from operations: 2000 $ (1,719) $ (637) $ (2,356) 1999 (2,100) 1,532 (568) 1998 (1,036) 645 (391) Identifiable assets: 2000 $ 22,261 $ 20,745 $ 43,006 1999 29,210 16,816 46,026 1998 30,177 9,146 39,323
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 customer based in the United States accounted for approximately 12.5%, 10.4% and 11.5%, respectively, of consolidated net sales during the years ended December 31, 2000, 1999 and 1998. Income from operations from the United States has been significantly affected by the research and development costs of DGI BioTechnologies, the Company's drug-lead discovery operation (Note 11). During 2000, 1999 and 1998, net sales from domestic operations to foreign customers were$9,284,000, $8,711,000 and $7,291,000, respectively. Export sales from the United States are made to many countries and areas of the world including the Far East, the Middle East, Canada, South America, India and Australia. 46 13. Commitments and contingencies: The Company is obligated under the terms of various operating leases. Rental expense under such leases for 2000, 1999 and 1998 was $849,000, $786,000 and $581,000, respectively. As of December 31, 2000, estimated future minimum annual rental commitments under noncancelable leases expiring through 2014 are as follows (in thousands):
2001 $ 782 2002 626 2003 498 2004 376 2005 388 After 2005 2,376 ------- Total minimum payments required $5,046* ======= * Minimum payments have not been reduced by minimum sublease rentals of $200,000 due in future years under noncancelable subleases.
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. 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 hedging activities is to protect the Company from 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, 2000 and 1999, the Company had $-0- and $1,600,000, respectively, of forward exchange contracts outstanding. In 1999, the contracts were primarily to exchange various European currencies for U.S. dollars. Substantially, all contracts matured within a period of 13 months. Gains and losses on forward foreign exchange contracts in connection with firm commitments that are designated and effective as hedges of such transactions are deferred and recognized in income in the same period as the hedged transactions. At December 31, 2000, no unrecognized net gains were deferred on such contracts. Gains and losses on forward exchange contracts in connection with anticipated transactions are marked to market monthly with the resulting gain or loss recognized immediately in the consolidated statement of operations. 47 14. Quarterly financial information (unaudited) (in thousands, except per share amounts):
First Second Third Fourth Total -------- ----------- --------- --------- -------- Year ended December 31, 2000 Net sales $10,541 $ 12,007 $ 12,771 $ 14,545 $49,864 Gross profit 4,441 4,831 5,063 5,819 20,154 Net income (loss) (1,378) (1,950)(b) (631)(c) 32 (3,927) Earnings (loss) per share: (a) Basic $ (.23) $ (.32) $ (.10) $ .01 $ (.65) Diluted (.23) (.32) (.10) .01 (.65) Year ended December 31, 1999 Net sales $11,865 $ 14,737 $ 12,304 $ 15,960 $54,866 Gross profit 4,039 6,195 4,896 6,647 21,777 Net income (loss) (995) 692 (485) (360)(d) (1,148) Earnings (loss) per share: (a) Basic $ (.17) $ .12 $ (.08) $ (.06) $ (.20) Diluted (.17) .11 (.08) (.06) (.20) (a) Due to rounding the sum of the quarters does not necessarily equal the amount for the full year. (b) Includes $800,000 related to writedown of Organica investment. (c) Includes $150,000 related to writeoff of balance of Organica investment. (d) Includes $663,000 of non-recurring severance costs.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------------------------- None. 48 ------ 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, 2000. The information is incorporated herein by reference. 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, 2000 and 1999 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2000, 1999 and 1998 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. Exhibits: The Exhibits index is on Page 51. 49 Schedule II NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (In thousands) Additions ---------
Charged to Balance Balance Costs and Charged to At End Beginning (Credited) Other of of Period Expenses Accounts Deductions Period ---------- ---------- ---------- ----------- ------ Allowance deducted from asset to which it applies: Allowance for doubtful accounts: Year ended December 31, 2000 339 22 - 7 (a) 354 Year ended December 31, 1999 235 104 - - 339 Year ended December 31, 1998 284 (14) - 35 (a) 235 (a) Uncollected receivables written off.
50 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, is incorporated herin by reference to Exhibit (3) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (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. (10-5)* Employment Agreement (as amended) with David Freedman. (10-8) Termination Agreement with David Freedman is incorporated herein by reference to Exhibit (10-8) 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. 51 (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. (10-18) Research and Licensing Agreement between DGI BioTechnologies LLC. and Novo Nordisk A/S dated May 28, 1999 is incorporated herein by reference to Exhibit (10-18) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (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. (13) Annual Report to Shareholders, to be filed within 120 days of the end of the fiscal year ended December 31, 2000, is incorporated herein by reference. 52 (22) Subsidiaries of the Company appear on Page 54. (24a)* Consent of KPMG LLP. * Filed herewith. 53 ------ 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% NBS Sales Co., Limited Incorporated in Jamaica 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% 54 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 30, 2001 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 30, 2001 By: /s/ Adele Lavender -------------------- Adele Lavender Corporate Secretary Dated: March 30, 2001 By: /s/ Sigmund Freedman ---------------------- Sigmund Freedman Treasurer and Director Dated: March 30, 2001 By: /s/ Samuel Eichenbaum ----------------------- Samuel Eichenbaum Vice President, Finance 55 Dated: March 30, 2001 By: /s/ Jerome Birnbaum --------------------- Jerome Birnbaum Director Dated: March 30, 2001 By: /s/ Kenneth Freedman ---------------------- Kenneth Freedman Director Dated: March 30, 2001 By: /s/ Ernest Gross ------------------ Ernest Gross Director Dated: March 30, 2001 By: /s/ Kiyoshi Masuda -------------------- Kiyoshi Masuda Director Dated: March 30, 2001 By: /s/ Dr. David Pramer ----------------------- Dr. David Pramer Director Dated: March 30, 2001 By: /s/ Peter Schkeeper --------------------- Peter Schkeeper Director Dated: By: --------------------- Martin Siegel Director 56 EX-10 2 0002.txt EX 10-5 EMPLOYMENT AGREEMENT (AS AMENDED) BETWEEN NEW BRUNSWICK SCIENTIFIC CO., INC. AND DAVID FREEDMAN JANUARY 1, 1999 EMPLOYMENT AND CONSULTING AGREEMENT ----------------------------------- AGREEMENT, made as of the 1st day of January 1999 between NEW BRUNSWICK SCIENTIFIC, CO., INC., a New Jersey corporation, with its principal place of business located at 44 Talmadge Road, P.O. Box 4005, Edison, New Jersey, 08818-4005 (referred to in this Agreement as the "Company") and DAVID FREEDMAN, residing in Highland Park, New Jersey (referred to in this Agreement as "Freedman"). W I T N E S S E T H : ---------------------------- WHEREAS, the Company currently employs Freedman under an Employment Agreement dated January 1, 1996 which expired December 31, 1998 and WHEREAS, the Company desires to continue to retain Freedman's ser-vices as an officer of the Company upon the terms and conditions set forth in this Agreement, and Freedman desires to continue such employment, and NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties agree as follows: ARTICLE 1 EMPLOYMENT ---------- 1.1 EMPLOYMENT. EMPLOYMENT. The Company hereby employs ---------- ---------- Freedman and Freedman hereby accepts such employment. Freedman will devote his best efforts and substantially all his full business time and atten-tion to performing such duties. 1.2 PERFORMANCE OF SERVICES PERFORMANCE OF SERVICES. Freedman ----------------------- ----------------------- shall ob-serve and comply with such rules, regulations and policies as may be determined from time to time by the Board of Directors of the Company (the "Board") in writing, within the scope of his duties. ARTICLE 2 COMPENSATION ------------ 2.1 SALARY. For his services under this Agreement as an employee of ------ the Company, Freedman shall receive a salary, payable in such regular intervals as shall be determined by the Company, which shall be at the rate of Two Hundred and Thirty-Five Thousand Five Hundred Dollars ($235,500.00). 2.2 SALARY INCREASES. The rate of salary provided for in Section 2.1 ----------------- shall be reviewed by the Board not less often than annually and may be increased from time to time and in such amount as the Board, in its discretion, may determine, on the basis of the same criteria used for other executive employees of the Company. 2.3 BONUS. Freedman shall be entitled to participate in bonus programs or arrangements generally available for executive employees of the Company. 1 2.4 WITHHOLDING. All payments of salary, bonuses and other ----------- compensation for services pursuant to this Agreement shall be subject to the customary withhold-ing of taxes as required by law. ARTICLE 3 FRINGE BENEFITSBENEFITS ----------------------- 3.1 PARTICIPATION IN PLANS. (a) During his period of service as an ---------------------- employee of the Company, Freedman shall be en-titled to all additional fringe benefits, including, but not limited to, health and life insurance programs which may be generally available to other executive employees of the Compan-y, subject to Section 3.1(c). (b) Following termination of Freedman's services to the Company as an employee, for any reason other than a termination pursuant to Section 4.3(b), the Company shall pay all premiums necessary to continue the medical and life insurance coverage previously provided to Freedman and his spouse under Section 3.1(a), or other comparable coverage, until the death of Freedman and his spouse. However, following his period of service as an employee of the Company, in place of the health insurance plan generally available for executive employees of the Company, the Company shall thereafter provide for Freedman (and for his spouse when she attains the age of 65) a policy of medical insurance that offers coverage as a supplement to Medicare benefits. The basic terms of such policy shall provide, in conjunction with Medicare, benefits that are comparable to the coverage previously provided to Freedman as an executive employee of the Company. (c) All matters of eligibility for coverage of benefits under any plan or plans of health, hospitalization, life or other insurance provided by the Company shall be determined in accor-dance with the provisions of the insurance policies. The Company shall not be liable to Freedman, or his spouse or beneficia-ries or other succes-sors, for any amount payable or claimed to be payable under any plan of insurance. So long as Freedman beneficially holds 10% or more of the Common stock of the Company, he shall not be eligible to participate in any plan of the Company involving the Common stock or any derivative security of the Company (although otherwise eligible) where his participation in that plan would prevent the Common stock or derivative securities issued under that plan from qualifying for exemption under Section 16(b) of the Securities Exchange Act of 1934, as amended. 3.2 HOLIDAYS AND SICK LEAVE. During his period of service as an -------------------------- employee of the Company, Freedman shall be entitled to such paid holidays and sick leave, and other benef-it programs, as and to the extent that the Company generally provides the same from time to time to other executive employe-es. 3.3 VACATION AND PROFESSIONAL LEAVE. During his period of service as --------------------------------- an employee of the Company, Freedman shall be entitled to vacation and addition-al leave to attend conven-tions and professional meet-ings each year during this Agreement as permitted under the employment policies of the Company in effect at such time. 2 3.4 BUSINESS EXPENSES3.4 BUSINESS EXPENSES. The parties --------------------- ------------------ acknowledge that Freedman shall incur, from time to time, for the benefit of the Company and in furtherance of the Company's business, various business expenses. The Company agrees that it shall either pay such expenses directly, advance sums to Freedman to be used for payment of such expen-ses, or reimburse Freedman for such expenses incurred by him. Freedman agrees to submit to the Company such documen-tation as may be reasonably necessary to substantiate that all expenses paid or reimbursed hereunder were reasonably related to the performance of his duties. 3.5 COMPANY CAR3.5 COMPANY CAR. The Company recognizes --------------- ------------ that Freedman -requires the use of an automobile in the performance of his duties and therefore agrees to furnish an automobile to Freedman for his sole use. Title to such automobile shall at all times remain with the Company. The automobile will be replaced upon request by Freedman, but not more frequently than every three (3) years. The Company shall pay for the fuel, insurance, maintenance, and repair costs associated with said automobile, except the cost of fuel consumed in driving the automobile for personal use. Upon termination of this Agreement for any reason, the automobile shall be returned to the Company unless Freedman- elects, within thirty (30) days after such termina-tion, to purchase the automobile from the Company. Any purchase pur-suant to the preceding sentence shall be at book value unless a lesser price is mutually agreed to and shall be completed within sixty (60) days after the termination of this Agreement. 3.6 SPLIT-DOLLAR INSURANCE COVERAGE. The Company and Freedman are --------------------------------- currently parties to a split-dollar life insurance agreement, providing for the division of rights and obligations in connection with a One Million Dollar ($1,000,000.00) life insurance policy on Freedman's life. The Company and Freedman hereby ratify that agreement and further provide that, following termination of this Agreement and for remainder of Freedman's life, the Company will continue to contribute the sum of Forty Thousand Dollars ($40,000.00) (or the actual amount of the premiums, whichever is less) towards each annual premium due under such policy, or replacement policy obtained by Freedman. The Company's contribution following the termination of this Agreement shall be taken into account in determining the amount to which the Company is entitled to receive from the policy proceeds upon Freedman's death. Except, as specifically set forth in this Section 3.6, all matters regarding the insurance policy shall be governed by the terms of the split-dollar life insurance agreement pertaining to the policy. ARTICLE 4 TERM AND TERMINATION OF EMPLOYMENT ---------------------------------- 4.1 EMPLOYMENT TERM4.1 EMPLOYMENT TERM. The employment term ------------------- ---------------- of this Agreement shall be three (3) years commencing on January 1, 1999 (the "Employment term"), unless terminated prior to such date in accordance with the terms of this Agreement. 4.2 TERMINATION. This Agreement shall terminate prior to the ----------- expira-tion of its term upon occurrence of any one or more of the following events: 3 (A) MUTUAL AGREEMENT. The parties may mutually agree to terminate this ----------------- Agreement at any time. (B) TERMINATION FOR CAUSE. The Company may terminate this Agreement ------------------------ for cause at any time. "Cause" shall include, but not be limited to the following: any material violation of the terms of this Agreement by Freedman; conviction of Freedman of any crime (or found criminally liable for any fraud) against the Company or its property or any crime involving moral turpitude or reaso-nab-ly likely to bring discredit upon the Company; material failure to perform or meet reasonable standards of perfor-mance es-tablished in writing by the Board of Directors of the Company with respect to Freedman's position; and any material violation of reasonable operat-ing policy formally adopted by the Company from time to time. The determination of whether Cause exists shall be made in good faith by a majority vote of the entire Board. (C) DEATH OF FREEDMAN. This Agreement shall immediately terminate upon ------------------ the death of Freedman. (D) DISABILITY OF FREEDMAN. In the event that Freedman- becomes ------------------------- "disabled", as defined below, the Company shall have the option to terminate this Agreement by giving 30-days' advance written notice to Freedman. For purposes of this Agree-ment, the term "disabled" or "di-sability" shall mean the inability of Freedman to perform his regular duties for the Company for a period of six (6) consecutive months, as reasonably determined by the Board, in accordance with uniform rules consis-tently applied to all employees and supported by the written opinion of at least one (1) physician. For purposes of this Agreement, Freedman shall first be deemed dis-abled on the date that is six (6) months after the initial onset of his condition, as described above. 4.3 TERMINATION BENEFITS. Following termination of this Agreement or ---------------------- any extension thereof or upon Freedman's retirement from the Company, the Company shall make the following payments to Freedman, as applicable, subject, however, to Sections 2.4 and 4.5, and without limitation on Freedman's rights and obligations, if any, arising other than under this Agreement: (A) ACCRUED COMPENSATION. Regardless of the reason for termination of --------------------- this Agreement, the Company shall pay, within a reasonable period of time following such termination, all compensation payments (including accrued and unused vaca-tion compensation) and reimbursement for expenses as may be due, accrued or payable as of the date of such termination. Following termination of this Agreement, Freedman, or his successors, as the case may be, shall also be entitled to the fringe benefits as expressly provided in Article 3 with regard to the period after termination of this Agreement. (B) DEATH BENEFIT. In the event that this Agreement is terminated by -------------- reason of Freedman's death, the Company shall pay to Freedman's beneficiary (as desig-nated in writing by Freedman and delivered to the Compan-y during the lifetime of Freedman), or if no such benef-iciary is so designated, then to the personal representative of Freedman's estate, a death benefit equal to the annual compensation (exclusive of fringe benefits under Article 3) payable by 4 the Company to Freedman at the time of his death. The payment by the Company shall be made within forty-five (45) days of such termina-tion of employment. (C) DISABILITY BENEFIT. In the event that this Agreement is terminated by ------------------- reason of Freedman's disability, the Company shall pay to Freedman (or his personal representative) a disability benefit equal to the annual compensation (exclusive of fringe benefits under Article 3) payable by the Company to Freedman at the time of such disability. The payment by the Company shall be made within forty-five (45) days of such termination of employment. 4.4 RETIREMENT. In the event that this Agreement is terminated by ----------- reason of Freedman's retirement or upon Freedman's retirement upon termination of this Agreement or any extension thereof, the Company shall pay to Freedman a retirement benefit equal to three (3) times the annual salary payable by the Company to Freedman at the time of such retirement, which shall be payable to Freedman, or his personal representative, over 36 months in equal installments (without interest) as determined by the Company (but no less frequently than monthly), commencing on the first day of the month following the date of retirement. In the event of Freedman's death after his retirement from the Company, the Company shall continue to make the balance of the payments to Freedman's beneficiary (as designated in writing by Freedman and delivered to the Company during Freedman's lifetime), or if no such beneficiary is so designated, then to Freedman's personal representative. 4.5 LIMIT ON TERMINATION PAYMENTS. In no event shall the amounts -------------------------------- payable by the Company pursuant to Section 4.4 exceed the amounts that would be deductible by the Company under the provisions of Section 280G of the Internal Revenue Code of 1986, as amended. The amount deductible by the Company shall be determined by the independ-ent auditors regularly retained by the Company. 4.6.1 COMPETITION AFTER RETIREMENT. For one (1) year after the termination - ----- ----------------------------- of this Agreement or upon his retirement, Freedman shall not advertise or offer services or perform services or otherwise be engaged or interested in any way, directly or indirectly, as proprietor, partner, officer, director, stockholder (except as the owner of up to 1% of the voting securities of a publicly held corporation), consultant, advisor, employee, principal, agent, representative, or in any other capacity, in any business or other activity which is in any way competitive with the business and activities of the Company or any of its subsidiaries. 5 ARTICLE 5 MISCELLANEOUS ------------- 5.1 ASSIGNMENT PROHIBITED. This Agreement is personal to Freedman ---------------------- hereto and he may not assign or delegate any of his rights or obligations hereunder without first obtaining the written consent of the Company. The Company may not assign this Agreement without the written consent of Freedman, except in connection with (i) a merger or consolidation of the Company (in which case the merged or consolidated entity shall remain fully liable for its obligations as the Company under this Agreement), or (ii) a transfer of this Agree-ment to a subsidiary or affiliate, provided that the subsidiary or -------- af-filiate continues the primary business of the Company, and further, provided ------- -------- that, in the case of a transfer to a sub-sidiary or affiliate, the Company shall remain liable for its obliga-tions under this Agreement. 5.2 AMENDMENTS. No amendments or additions to this agre-ement shall be ---------- binding unless in writing and signed by the party against whom enforcement of such amend-ment or addition is sought. 5.3 PARAGRAPH HEADINGS. The paragraph headings used in this Agreement ------------------- are included solely for convenience and shall not affect or be used in connection with the interpretation of this Agree-ment. 5.4 LEGAL EXPENSES OF ENFORCEMENT. If either party commen-ces a legal ------------------------------ action or other proceeding for enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and other costs incurred in connection with that action or proceeding, in addition to any other relief to which it may be entitled. 5.5 SEVERABILITY. If any provision of this Agreement is declared ------------ invalid by any tribunal, then such provision shall be deemed automatically modified to conform to the requirements for validity as declared at such time, and as so modified, shall be deemed a provision of this Agreement as though origin-ally included herein. In the event that the provision invalid-ated is of such a nature that it cannot be so modified, the provision shall be deemed deleted from this Agreement as though the provision had never been included herein. In either case, the remaining provisions of this Agreement shall remain in effect. 5.6 ARBITRATION. Any controversy, claim or dispute arising out of or ----------- relating to this Agreement or its construc-tion and interpretation shall be settled by arbitration in accordance with the rules of the American Arbitration Associa-tion, and judgment upon the award rendered in such arbitration may be entered in any court having jurisdic-tion thereof. In addition, any controversy, claim or dispute concerning the scope of this arbitration clause or whether a particular dis-pute falls within this arbitration clause shall also be settled by arbitration in accordance with the rules of the American Arbitra-tion Association. 5.7 CHOICE OF LAW. This Agreement shall be governed by and construed --------------- in accordance with the laws of the State of New Jersey. 6 5.8 OTHER AGREEMENTS. This Agreement is not intended to and shall not ----------------- affect the rights and obligations of the Company or Freedman under any other agreement between them, pertaining to stock option rights, severance benefits, or otherwise. 5.9 NOTICES. All notices required or permitted hereunder shall be in ------- writing and shall be delivered in person or sent by certified or registered mail, return receipt re-quested, postage prepaid to each party at the address first written above or at such other address as provided in writing. 5.10 BINDING EFFECT. This Agreement shall be binding upon, and inure --------------- to the benefit of, the parties, their heirs, successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ATTEST: NEW BRUNSWICK SCIENTIFIC CO., INC. [Corporate Seal] By: \s\ Samuel Eichenbaum ----------------------- Samuel Eichenbaum VP Finance & CFO \s\ Adele Lavender - -------------------- Adele Lavender Secretary \s\ Douglas Irwin \s\ David Freedman - ------------------- -------------------- Douglas Irwin David Freedman Witness 7 EX-24 3 0003.txt EX 24A 857SH 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 and No. 33-16024) on Form S-8 of New Brunswick Scientific Co., Inc. of our report dated February 12, 2001, except as to the second paragraph of note 6, which is as of March 27, 2001, relating to the consolidated balance sheets of New Brunswick Scientific Co., Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, cash flows, and comprehensive loss for each of the years in the three-year period ended December 31, 2000, and related schedule, which report appears in the December 31, 2000 annual report on Form 10-K of New Brunswick Scientific Co., Inc. /s/ KPMG LLP Short Hills, New Jersey March 30, 2001 EX-27 4 0004.txt
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