<PAGE>
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, 1998
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. 08818-4005
-------------------------------------------
(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 $18,798,230 as of February 10, 1999. This figure was calculated
by reference to the high and low prices of such stock on February 10, 1999.
The number of shares outstanding of the Registrant's Common stock as of
February 10, 1999: 4,770,444
-----------
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement and Annual Report to be filed within 120 days
after the end of the fiscal year 1998, are incorporated in Part III herein.
The EXHIBITS INDEX is on Page 44.
<PAGE>
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,
low temperature freezers and tissue culture apparatus.
DGI BioTechnologies, LLC. (DGI) was established in 1995 by the
Company to develop and commercialize a novel technology, the Diogenesis(TM)
process, that facilitates the discovery of new drugs. DGI is more than eighty
percent (80%) owned and fully funded by the Company and occupies specially
designed laboratory space at the Company's headquarters facility in Edison, New
Jersey. Diogenesis(TM) is being developed to provide the pharmaceutical and
biotechnology industries with site-directed assay systems to rapidly generate
small, orally available, organic drug leads. Unlike other techniques, leads
generated by DGI's process will uniformly possess the defining characteristics
of effective drugs: activity, selectivity and affinity for the biological
target.
DGI has applied for U.S. and foreign patents covering its
proprietary drug lead discovery technology which utilizes state-of-the-art
molecular-biological and immunological tools to scan known pharmaceutical
targets in a manner that offers major advantages over existing drug discovery
approaches. DGI's strategy is to enter into partnership agreements with multiple
pharmaceutical and/or biotechnology companies whereby DGI will generate focused
libraries of small molecule compounds known to be active against the partner's
target. DGI will generate revenues from research on behalf of corporate
partners, milestone payments for the identification of leads and product
royalties.
The founders of DGI hold options which can be exercised under
certain conditions and the employees, certain consultants and the Board of
Managers have been issued options, which if exercised, in the aggregate
represent approximately 13.3% 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 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 being used for applications which have received
increased attention in the scientific and commercial community; namely,
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 applied for
patents to protect its technology. The Company's fermentors and bioreactors
-2-
<PAGE>
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.
Since maintenance of pure culture conditions is critical for
the proper functioning of fermentors and bioreactors, NBS offers devices and
procedures which it has developed for sterilizing its systems and maintaining an
aseptic environment over long operating periods. NBS designs, manufactures and
sells benchtop and pilot scale fermentors that are sterilizable in place.
Although significantly more expensive than other models, these devices eliminate
the need to move the fermentor from its place of use for sterilization.
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.
-3-
<PAGE>
The Company manufactures an extensive line of biological
shakers ranging in size from portable laboratory benchtop models to large
multitier industrial machines. Some models of the Company's shakers are designed
to agitate flasks under controlled environmental conditions of temperature,
atmosphere and light. Each shaker incorporates a variable speed regulator and
may be equipped to accommodate flasks of various sizes. To permit culture growth
under constant and reproducible conditions, shakers manufactured by NBS are
precision engineered and manufactured to agitate flasks uniformly and
continuously over prolonged periods.
The Company currently manufactures three distinct lines of
shakers. Its INNOVA(R) line, which is its most sophisticated shaker, its
original Gyrotory(R) shaker line, and, its "Classic" Line, which was introduced
in early 1997. The Classic line is intended primarily for sale to distributors
and is expected to supercede the original Gyrotory(R) line in the near future.
Nutrient Sterilizing and Dispensing Equipment. The Company
manufactures devices that automatically sterilize biological nutrients and then
maintain 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.
Other Scientific Products. NBS distributes a line of
centrifuges for separating cells from fermentation broth, and a line of low
temperature freezers.
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 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,
-4-
<PAGE>
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. It also tests every piece of equipment prior to shipment. 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 and Australia. NBS also sells its products
in the former Soviet Union, Eastern Europe, Africa, other Asian countires 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.
Fisher Scientific is the exclusive U.S. distributor of the
Company's Classic line of biological shakers. While Fisher is the exclusive U.S.
distributor for these NBS Shakers and media preparation equipment, 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
-5-
<PAGE>
assets located in the United States and foreign countries, and export sales for
each of the three years ended December 31, 1998, see Note 9 of Notes to
Consolidated Financial Statements under the heading "Operations by Geographic
Areas." 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 booked 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 U.S. 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, NBS Benelux
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. 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 Sarl. Inceltech had 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.
At December 31, 1998, NBS had a backlog of unfilled orders of
approximately $8,726,000, compared with $7,858,000 at the end of 1997. The
December 31, 1998 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 11.6%, 12.0% and 10.0%, respectively, of consolidated net sales
during the years ended December 31, 1998, 1997 and 1996.
Research and Development
Research and development expenditures, all of which are
sponsored by the Company, amounted to $2,995,000, in 1998, $2,637,000 in 1997
and $2,141,000 in 1996.
Twenty-Seven (27) of the Company's professional employees were
engaged full time in research and development activities.
-6-
<PAGE>
Investment in Organica, Inc.
Since November 1994, the Company has invested $950,000 (less
than a twenty-percent interest) in Organica, Inc. (Organica) which was formed
in 1993 to develop and commercialize various "environmentally friendly" products
produced via fermentation processes. Organica isolates and cultures naturally
occurring microorganisms and fungi and blends them with various nutrient sources
and carriers to create its products, which are offered as alternatives to
various hazardous products. Organica has focused primarily on natural turf
products, compost accelerators, hydrocarbon remediation products and non-caustic
drain openers.
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 433 people, including 222 people
engaged in manufacturing and supervision, 56 in research, development and
engineering (including 17 employed by DGI), 109 in sales and marketing, and 46
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 1999. The Company considers its labor relations to be good.
-7-
<PAGE>
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.
The Company has a $5 million secured line of credit with
Summit Bank, primarily for working capital and letters of credit, and a $1
million revolving credit line for equipment acquisition purposes, effective
through May 31, 1999.
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 filed patent
applications covering its platform technology and 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 provisions 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.
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 14,000 square
feet is laboratory space (including 7,500 square feet occupied by DGI), and the
balance is devoted to manufacturing and warehouse facilities. The Company's NBS
Benelux B.V. subsidiary owns its 13,000 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, New Brunswick Scientific, S.a.r.l.
-8-
<PAGE>
- - 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.
HIGH LOW
---- ---
1997
First Quarter $ 8.25 $ 6.50
Second Quarter 8.00 6.25
Third Quarter 7.25 6.00
Fourth Quarter 9.50 6.88
1998
First Quarter $ 9.40 $ 6.82
Second Quarter 13.00 8.63
Third Quarter 8.94 4.00
Fourth Quarter 7.38 5.25
1999
First Quarter
(through February 10, 1999) $ 7.28 $ 4.88
(B) The number of holders, including beneficial owners, of
NBS' Common stock as of February 10, 1999, is 1,467.
(C) NBS paid 10% Common stock dividends on May 15, 1998 and
1997.
-9-
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $46,495 $45,596 $42,927 $39,085 $38,789
Net income (loss) (156) 1,012 882 1,172 1,068
Basic earnings (loss)
Per Share (a) (.03) .22 .19 .26 .23
Diluted earnings (loss)
per Share (a) (.03) .21 .19 .25 .23
Total assets (b) 39,323 38,090 37,226 35,685 34,504
Long-term debt, net of
current installments (b) 239 247 401 564 665
Cash dividends per
Share - - - .05 -
</TABLE>
(a) Adjusted to reflect 10% stock dividend distributed on May 15, 1998.
(b) 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 provisions 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.
-10-
<PAGE>
Results of Operations
1998 vs. 1997
For the year ended December 31, 1998, the Company incurred a
net loss of $156,000 or $.03 per diluted share on net sales of $46,495,000
compared with net income of $1,012,000 or $.21 per diluted share on net sales of
$45,596,000 for the year ended December 31, 1997.
In 1998, U.S. domestic sales increased 21.6%, but were offset
by a 14.2% decrease in international sales resulting in an overall increase in
consolidated net sales of 2%. International sales were affected by the Asian
financial crisis and its spread to other areas of the world where the Company
does business.
Gross profit as a percentage of sales declined to 39.3% in
1998 from 40.1% in 1997 as a result of increased shipments in 1998 of custom
bioprocess systems which carry lower profit margins than core products. Selling,
general and administrative expenses increased to $13,801,000 in 1998 from
$13,086,000 in 1997 due to normal annual increases and as the result of an
effort to strengthen the Company's sales and service capabilities.
Research, development and engineering expenses increased to
$4,843,000 in 1998 from $4,139,000 in 1997 due primarily to the strengthening of
the Company's bioprocess engineering division as well as its new product
development efforts and also included $2,196,000 and $1,923,000, respectively,
for 1998 and 1997 to support the research efforts of DGI BioTechnologies, the
Company's drug lead discovery operation.
Interest income decreased to $114,000 in 1998 from $149,000 in
1997 due to a lower level of invested cash and lower interest rates.
The reduction in interest expense in 1998 is primarily the
result of the inclusion in 1997 of interest costs related to the settlement of
tax audits.
The increase in other expense to $43,000 in 1998 from $9,000
in 1997 is primarily due to costs related to the disposal of fixed assets.
The Company incurred a loss of $36,000 related to the joint
venture entered into during 1998.
During 1998, the U.S. dollar remained stable against the
currencies of the European countries where the Company has subsidiary operations
resulting in virtually no effect on income from foreign operations. The effects
of balance sheet translation resulted in a currency translation adjustment of
$622,000 which is reflected as a component of accumulated other comprehensive
loss in the equity section of the Consolidated Balance Sheet.
1997 vs. 1996
For the year ended December 31, 1997, the Company had net
income of $1,012,000 or $.21 per diluted share on net sales of $45,596,000
compared with net income of $882,000 or $.19 per diluted share on net sales of
$42,927,000 for the year ended December 31, 1996.
-11-
<PAGE>
In 1997, net sales increased 6.2% due to a 19% increase in
U.S. domestic sales and higher sales in the United Kingdom which benefited from
the delivery of a large custom bioprocess system. Gross margins improved to
40.1% in 1997 from 38.8% in 1996 due to continuing improvements in productivity
in the Company's manufacturing operations and from the higher component of
domestic sales which tends to carry a somewhat higher margin than export sales,
a large portion of which go through dealers and distributors. Research,
development and engineering expenses increased 13.9% in 1997 primarily to
support the operations of DGI BioTechnologies, L.L.C. (DGI), the Company's
majority-owned drug lead discovery operation. Interest income decreased to
$149,000 in 1997 from $244,000 in 1996 primarily as a result of lower average
cash available for investment.
During 1997, the U.S. dollar strengthened against the
currencies of the European countries where the Company has subsidiary
operations. The effect of these currency movements decreased income from foreign
operations by approximately $102,000 to $1,542,000. The effects of balance sheet
translation resulted in a currency translation adjustment of $723,000 which is
reflected in the equity section of the Consolidated Balance Sheet.
Financial Condition
Liquidity and Capital Resources
During the year ended December 31, 1998 work-in-process
inventories increased to $3,457,000 from $2,668,000 for the year ended 1997
primarily as a result of contracts for custom bioprocess systems which will be
delivered during the first quarter 1999. Inventories of finished goods increased
to $5,375,000 at the end of 1998 compared with $4,701,000 at the end of 1997.
The increase in finished goods is due primarily to equipment which was shipped
prior to December 31, 1998 but had terms of FOB destination and therefore was
added back to inventory and not recorded as a 1998 sale.
Cash Flows from Operating Activities
During the year ended December 31, 1998 net cash provided by
operating activities amounted to $659,000 as compared to net cash used of
$45,000 during the year ended December 31, 1997. The primary reasons for the
$704,000 net increase from 1997 to 1998 were: a decrease in accounts receivable
of $721,000 in 1998 as compared to an increase of $964,000 in 1997; an increase
in inventories of $905,000 in 1998 as compared to an increase of $2,171,000 in
1997 offset by a net loss of $156,000 in 1998 as compared to net income of
$1,012,000 in 1997; and an increase in the deferred income tax benefit of
$361,000 in 1998 as compared to $37,000 in 1997.
Cash Flows from Investing Activities
Net cash used in investing activities was $1,234,000 in 1998
as compared to $965,000 in 1997, primarily as a result of additions to property,
plant and equipment in both years as well as from an investment in another
entity in 1997.
-12-
<PAGE>
Cash Flows from Financing Activities
Net cash provided by financing activities amounted to $334,000
in 1998 as compared to net cash used of $47,000 in 1997. The 1998 amount
includes $449,000 as proceeds from the issuance of shares under stock purchase
and options plans partially offset by the repayment of long-term debt. The 1997
amount reflects the repayment of long-term debt, partially offset by proceeds
from the issuance of shares under stock purchase and option plans.
Management believes that the resources available to the
Company, including a $21 million revolving line of credit which the Company is
in the process of closing with First Union National Bank, are sufficient to meet
its near and intermediate-term needs.
Other Matters
Recently Issued Accounting Standards
In June 1997, Statement of Financial Accounting Standards
(SFAS) No. 131 "Disclosure About Segments of an Enterprise and Related
Information", was issued to establish standards for public business enterprises
reporting information regarding operating segments in annual and interim
financial statements issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement is effective for financial statements for periods
beginning after December 15, 1997. As required, the Company has adopted the
disclosures required by SFAS No. 131 in its 1998 consolidated financial
statements.
In June 1998, SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", was issued to establish standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for all quarters of fiscal years beginning after June 15, 1999. The
Company does not believe that this statement will have a material impact on the
consolidated financial statements.
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, L.L.C. (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 1998
and 1997 earnings and will continue to do so during the balance of its
development phase, which is expected to last through 1999. During 1998 and 1997,
$2,196,000 and $1,923,000, respectively, were charged to operations. It is
currently anticipated that expenditures for 1999 will exceed $3,000,000. This
amount could be affected by revenues from licensing agreements and other
corporate collaborations which are currently being pursued.
-13-
<PAGE>
Year 2000 Issues
The Company has no internally developed software that it
utilizes for its operations, but uses Version 11 of Computer Associates ManMan
Classic software, a total MRPII system which it employs for its manufacturing,
sales and accounting needs and Windows NT which is used for the Company's
network. Management believes, based on the representations of the software
companies, that both of these software packages are Year 2000 (Y2K) compliant.
In addition, the Company uses a number of computer controlled machine tools
which are all Y2K compliant.
Most of the Company's products have no date functions and
consequently do not have a Y2K problem with the exception of its process control
software products which do have data related functions but with one exception
are Y2K compliant. The exception is a now obsolete DOS-based process control
system introduced in 1987 for which a Y2K compliant upgrade is available.
The Company has sent letters to the majority of its suppliers
and companies accounted for using the equity method requesting information as to
their readiness for the Y2K and is in the process of evaluating responses. The
Company expects to complete the survey of its suppliers during the first quarter
of 1999 and make changes as it sees necessary in order to ensure that its
operations are not negatively affected. The Company also intends to replace
obsolete, non-compliant personal computers by the middle of 1999 in the normal
course of events since these older machines are not capable of running the
latest software upgrades. Any costs which will be incurred as the result of the
acceleration of purchases due to Y2K considerations are not material to the
consolidated financial statements.
The Company is in the process of developing business
contingency plans to mitigate the risk of the potential of a noncompliant vendor
or system and will continue to assess its exposure to possible Y2K problems or
potential disruptions. Based upon all of the information it has developed to
date, Management believes that no disruptions will occur in the Company's
operations. However, the Company is subject to financial and other risks should
the Company or a third party vendor or service provider be unable to resolve
issues related to the Year 2000.
Costs of addressing the Year 2000 issue have not been material
to date and, based on information gathered to date from the Company and its
vendors, are not currently expected to have a material adverse impact on the
Company's consolidated financial position, results of operations or cash flows.
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
-14-
<PAGE>
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 initiated and is evaluating 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.
The Company does not believe that the Euro-conversion will
have a material operational or financial impact.
-15-
<PAGE>
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, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31, 1998,
1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996
Consolidated Statements of Comprehensive Income for the years ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
-16-
<PAGE>
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 generally accepted auditing
standards. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG LLP
Short Hills, New Jersey
February 10, 1999
-17-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(In thousands, except for share data)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,793 $ 3,968
Accounts receivable, net of allowance for
doubtful accounts, 1998 - $235 and 1997 - $284 10,230 10,602
Refundable income taxes 173 314
Deferred income taxes (Note 7) 134 134
Inventories (Note 2) 15,923 14,862
Prepaid expenses and other current assets 2,025 1,819
-------- --------
Total current assets 32,278 31,699
-------- --------
Property, plant and equipment, net (Notes 3 and 5) 5,622 5,354
Deferred income taxes (Note 7) 361 --
Other assets (Note 4) 1,062 1,037
-------- --------
$ 39,323 $ 38,090
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (Note 5) $ 27 $ 110
Accounts payable and accrued expenses (Note 6) 8,118 7,709
-------- --------
Total current liabilities 8,145 7,819
-------- --------
Long-term debt, net of current installments (Note 5) 239 247
Other liabilities (Note 8) 492 --
Commitments and contingencies (Note 12)
Shareholders' equity (Note 9):
Common stock, $0.0625 par; authorized 25,000,000 shares; issued and
outstanding, 1998 - 4,770,444 shares; 1997 - 4,204,845 shares; net of shares
held in treasury, 1998 -
430,063 and 1997 - 390,967 298 263
Capital in excess of par 28,361 23,854
Retained earnings 3,137 7,085
Accumulated other comprehensive loss (985) (1,115)
Notes receivable from exercise of stock options (364) (63)
-------- --------
30,447 30,024
-------- --------
$ 39,323 $ 38,090
======== ========
</TABLE>
See notes to consolidated financial statements.
-18-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 46,495 $ 45,596 $ 42,927
Operating costs and expenses:
Cost of sales 28,242 27,319 26,280
Selling, general and administrative
Expenses 13,801 13,086 12,179
Research, development and engineering
Expenses 4,843 4,139 3,633
-------- -------- --------
Total operating costs and expenses 46,886 44,544 42,092
-------- -------- --------
Income (loss) from operations (391) 1,052 835
-------- -------- --------
Other income (expense):
Interest income 114 149 244
Interest expense (8) (71) (75)
Other income (expense), net (43) (9) (26)
Equity in loss in joint venture company (36) -- --
-------- -------- --------
27 69 143
-------- -------- --------
Income (loss) before income tax expense
(benefit) (364) 1,121 978
Income tax expense (benefit) (Note 7) (208) 109 96
-------- -------- --------
Net income (loss) $ (156) $ 1,012 $ 882
======== ======== ========
Basic income (loss) per share $ (.03) $ .22 $ .19
======== ======== ========
Diluted income (loss) per share $ (.03) $ .21 $ .19
======== ======== ========
Basic weighted average number of shares
Outstanding 4,693 4,616 4,583
======== ======== ========
Diluted weighted average number of shares
Outstanding 4,693 4,727 4,643
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-19-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Notes
Receivable
Accumulated From
Common Stock Capital Other Exercise
------------------ in Excess Retained Comprehensive Of Stock
Shares Amount of Par Earnings Income (Loss) Options Total
------ ------ ------ -------- ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,595,651 $225 $19,283 $ 9,488 $ (815) $ -- $ 28,181
Issue of shares under employee
stock purchase plan 13,492 1 75 76
Issue of shares under stock
option plans 20,065 1 113 114
5% stock dividend 179,724 11 1,267 (1,278) --
Net income 882 882
Other comprehensive loss
adjustment (2) (2)
--------- ---- ------- -------- ------- ----- --------
Balance, December 31, 1996 3,808,932 $238 $20,738 $ 9,092 $ (817) $ -- $ 29,251
Issue of shares under employee
stock purchase plan 13,997 1 78 79
Discount from fair market value
upon issue of options under
stock option plan for
nonemployee directors 35 35
Issue of shares under stock
option plans 1,050 8 8
Notes receivable from exercise
of stock options (63) (63)
10% stock dividend 380,866 24 2,995 (3,019) --
Net income 1,012 1,012
Other comprehensive loss
adjustment (298) (298)
--------- ---- ------- -------- ------- ----- --------
Balance, December 31, 1997 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
========= ==== ======= ======= ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
-20-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (156) $ 1,012 $ 882
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 1,178 931 858
Deferred income taxes (361) (37) 91
Discount from fair market value upon issue of
Options under stock option plan for
Nonemployee directors -- 35 --
Change in related balance sheet accounts:
Accounts receivable 721 (964) (1,005)
Refundable income taxes 141 20 (118)
Inventories (905) (2,171) (310)
Prepaid expenses and other current assets (169) (37) (520)
Accounts payable and accrued expenses 232 536 92
Advance payments from customers (22) 630 581
------- ------- -------
Net cash provided by (used in) operating activities 659 (45) 551
------- ------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (1,280) (733) (1,355)
Sale of equipment 46 18 22
Investment in Organica -- (250) (400)
------- ------- -------
Net cash used in investing activities (1,234) (965) (1,733)
------- ------- -------
Cash flows from financing activities:
Repayments of long-term debt (115) (134) (154)
Proceeds from issuance of shares under stock
purchase and option plans 449 87 128
------- ------- -------
Net cash provided by (used in) financing activities 334 (47) (26)
Net effect of exchange rate changes on cash 66 (171) 22
------- ------- -------
Net decrease in cash and cash equivalents (175) (1,228) (1,186)
Cash and cash equivalents at beginning of year 3,968 5,196 6,382
------- ------- -------
Cash and cash equivalents at end of year $ 3,793 $ 3,968 $ 5,196
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 6 $ 58 $ 63
Income taxes 104 377 128
Supplemental disclosure of non cash financing activities:
Notes received upon exercise
of stock options $ 301 $ -- $ 63
</TABLE>
See notes to consolidated financial statements.
-21-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ (156) $ 1,012 $ 882
Other comprehensive income (loss):
Foreign currency translation adjustment 622 (723) (48)
Pension liability adjustment (492) 425 46
------- ------- -------
Net comprehensive income (loss) $ (26) $ 714 $ 880
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
-22-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of New
Brunswick Scientific Co., Inc., its wholly owned subsidiaries and
majority owned limited liability company (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 statement 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 December 1998, the Company acquired the assets of Inceltech, a
manufacturer of fermentors and cell culture bioreactors in France,
for an immaterial purchase price.
-23-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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 acquisition and the allocation of
the purchase price is immaterial to the consolidated financial
statements.
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 specializes 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 may occur
based upon the future needs of the joint venture. This investment is
accounted for using the equity method.
The Company has an investment (representing approximately 14% of the
outstanding shares of common stock) in Organica, Inc. Organica
manufactures and distributes environmentally friendly products for
cleaning, grease removal, and other applications. This investment is
accounted for using the cost method.
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 earning have been reinvested
to meet future operating requirements and the Company intends to
continue such policy for the foreseeable future.
Earnings per share:
Basic earnings per share is calculated by dividing net income by the
weighted average number of shares outstanding. Diluted earnings per
share is calculated by dividing net income by the sum of the weighted
average number of shares outstanding plus the dilutive effect of
-24-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
stock options which have been issued by the Company. The dilutive
effect of stock options was zero, 110,569, and 59,818 shares for the
years ended December 31, 1998, 1997, and 1996, respectively. 10%
stock dividends were distributed on May 15, 1998 and 1997,
respectively, and a 5% stock dividend was distributed on May 15,
1996. The weighted average 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 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 is accounted for
by treating the stock as if 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, 1998 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 financial statements in conformity with
-25-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
generally accepted accounting principles. Actual results could differ
from those estimates.
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.
Pension and other postretirement plans:
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits". SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit
plans. SFAS No. 132 does not change the method of accounting for such
plans.
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 and its components
in a full set of financial statements. Comprehensive income consists
of net income, foreign currency translation adjustment, and pension
liability adjustment and is presented in the consolidated statements
of comprehensive income. The Statement requires only additional
disclosures in the consolidated financial statements; it does not
affect the Company's financial position or results of operations.
Prior financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
Segment information:
As of December 31, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (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
-26-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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.
Reclassifications:
Certain reclassifications have been made to the prior years
presentation to conform to the 1998 presentation.
2. Inventories:
<TABLE>
<CAPTION>
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Raw materials and sub-assemblies $7,091 $7,493
Work-in-process 3,457 2,668
Finished goods 5,375 4,701
------- -------
$15,923 $14,862
======= =======
</TABLE>
3. Property, plant and equipment, net:
<TABLE>
<CAPTION>
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Land $ 800 $ 800
Buildings and improvements 4,111 3,983
Machinery and equipment 11,689 10,572
-------- --------
16,600 15,355
Less accumulated depreciation 10,978 10,001
-------- --------
$ 5,622 $ 5,354
======== ========
</TABLE>
4. Other assets:
Other assets consists primarily of an investment in Organica, Inc. of
$950,000 (representing ownership of less than 20%), carried at cost, as
of December 31, 1998 and 1997. Organica, Inc. manufactures and
distributes environmentally friendly products for cleaning, grease
removal, and other applications.
5. Long-term debt and credit agreement:
The Company is a party to a mortgage on the facility of the Company's
Netherlands subsidiary which bears interest of 7.5% per annum. During the
twenty-year term of the mortgage, the Company is obligated to make
monthly payments of interest and 80 equal quarterly payments of
-27-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
principal. At December 31, 1998 and 1997, $266,000 and $272,000,
respectively, was outstanding.
Aggregate annual maturities of long-term debt are as follows:
Year ending December 31 Amount
----------------------- ------
(In thousands)
1999 $ 27
2000 27
2001 27
2002 27
2003 27
After 2003 131
----
$266
The Company has a $5 Million Secured Revolving Credit Agreement (the
Agreement) with Summit Bank (the Bank), which expires May 31, 1999. The
Agreement provides the Company with a facility for both working capital
and for letters of credit. In addition, the Bank has provided a $1
million Revolving Line of Credit for equipment acquisition purposes.
There are no compensating balance requirements and any borrowings under
the Agreement bear interest at the Bank's prime rate. All of the
Company's domestic assets, with the exception of its headquarters
facility, which are not otherwise subject to lien have been pledged as
security for any borrowings under this Agreement. As of and during the
years ended December 31, 1998 and 1997, there were no outstanding
balances under the Summit Bank facility.
-28-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. Accounts payable and accrued expenses:
<TABLE>
<CAPTION>
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Accounts payable-trade $ 3,772 $ 2,652
Accrued salaries, wages and payroll taxes 1,622 1,712
Accrued foreign dealer commissions 354 761
Advance payments from customers 1,454 1,476
Other accrued liabilities 916 1,108
------- -------
$ 8,118 $ 7,709
====== =======
</TABLE>
7. Income taxes:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic $(1,014) $ (446) $ (327)
Foreign 650 1,567 1,305
------- ------ ------
$ (364) $1,121 $ 978
======= ====== ======
Income tax expense (benefit):
Federal:
Current $ -- $ - $ (106)
Deferred (361) (37) 91
State-current 3 7 15
Foreign-current 150 139 96
------- ------ ------
$ (208) $ 109 $ 96
======= ====== ======
</TABLE>
-29-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Deferred tax asset/(liability):
Accumulated depreciation $(247) $(221)
Inventories 326 296
Allowance for doubtful accounts 58 53
Accrued expenses 231 184
Other liabilities (116) (162)
Alternative minimum tax credit carryforward 88 138
Domestic net operating loss carryforward 588 107
Domestic capital loss and contribution carryforwards 10 69
Foreign net operating loss carryforwards -- 176
------ -----
938 640
Less: Valuation allowance 443 506
----- -----
Net deferred tax asset $ 495 $ 134
===== ====
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1998 and 1997 was a decrease of $63,000 and $112,000,
respectively. 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 considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and 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, 1998. 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 domestic net operating loss carryforward is available to offset
future taxable income, if any, through 2018.
-30-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The Company's effective income tax rates for 1998, 1997 and 1996 were
(57.1)%, 9.7% and 9.8%, respectively. These rates differ from the
statutory Federal income tax rates as follows:
<TABLE>
<CAPTION>
Percentage of income before taxes
----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense
(benefit) (34.0)% 34.0% 34.0%
Increase (decrease) in taxes resulting
From:
Rate differential between U.S. and
foreign income taxes -- (13.0) (10.0)
Change in valuation allowance (17.3) (10.0) (12.7)
Other (5.8) (1.3) (1.5)
----- ----- -----
(57.1)% 9.7% 9.8%
===== ===== =====
</TABLE>
8. Pension plans:
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 $124,000, $110,000 and $107,000 in 1998,
1997 and 1996, respectively.
-31-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 5,159 $ 4,693
Actuarial loss 223 165
Service cost 260 224
Interest cost 376 343
Benefits paid (306) (266)
------- -------
Benefit obligation at end of year $ 5,712 $ 5,159
======= =======
Change in plan assets
Fair value of plan assets at beginning of year $ 4,635 $ 4,016
Actual return on plan assets 645 657
Employer contribution 132 300
Benefits paid
(306) (291)
Other expenses (47) (47)
------- -------
Fair value of plan assets at end of year $ 5,059 $ 4,635
======= =======
Change in prepaid pension cost
Prepaid benefit cost at beginning of year $ 502 $ 535
Net periodic pension cost (260) (333)
Contributions 132 300
------- -------
Prepaid benefit cost at end of year $ 374 $ 502
======= =======
Miscellaneous items at end of year
Funded status $ (653) $ (524)
Unrecognized net transition obligation $ 149 $ 168
Unrecognized prior service cost $ (31) $ (35)
Unrecognized net loss $ 908 $ 893
Prepaid benefit cost before additional liability $ 374 $ 502
Additional liability $ 610 $ --
Prepaid (accrued) benefit cost after additional liability $ (236) $ 502
Intangible asset $ 118 $ --
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands except percentages)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 207 $ 224 $ 202
Interest cost 376 343 312
Expected return on plan assets (385) (305) (275)
Transition obligation 19 19 19
Amortization of prior service cost (4) (4) (4)
Recognized net actuarial loss 47 56 53
------- ------- -------
Net periodic benefit cost $ 260 $ 333 $ 307
======= ======= =======
Weighted-average assumptions as of December 31
Discount rate 7.25% 7.25% 7.25%
Expected return on plan assets 7.50% 7.50% 7.50%
Rate of compensation increase 4.00% 4.00% 4.00%
</TABLE>
-32-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The 1998 minimum additional pension liability is a non cash item which is
offset by a direct reduction to shareholders' equity of $492,000. In
1997, there was no 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
1998, 1997 and 1996 was $160,000, $130,000 and $123,000, respectively.
International pension expense in 1998, 1997 and 1996 was not material.
Foreign plans generally are insured or otherwise fully funded.
9. Shareholders' equity:
The 1997 and 1996 data for the stock options and rights plans described
below have been restated to reflect 10% stock dividends which were
distributed on May 15, 1998 and 1997, respectively.
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 728,200 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.
Shares under option at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- -------------------------- --------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of
year 359,660 $ 6.15 224,872 $ 4.21 313,487 $ 4.40
Granted 214,000 5.83 138,600 9.24 -- --
Exercised (125,267) 4.04 -- -- (23,325) 4.77
Cancelled (8,549) 5.02 (3,812) 4.03 (4,128) 4.92
Expired -- -- -- -- (61,162) 4.92
-------- ------- --------
Outstanding,
end of year 439,844 $ 6.62 359,660 $ 6.15 224,872 $ 4.21
======== ======= =======
</TABLE>
-33-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
During 1998, options were granted at $5.19, $5.63, $10.00, $12.50 and
$15.00 per share and during 1997, options were granted at $5.45, $9.09,
$13.64 and $18.18 per share. No options were granted in 1996. At December
31, 1998, options were exercisable as follows:
Exercise
Shares Price
------ -----
46,500 $ 4.23
15,620 5.45
9,147 5.51
2,200 9.09
3,300 13.64
5,500 18.18
At December 31, 1998, 139,763 options were available for future grant.
The weighted-average remaining contractual life for the options
outstanding at December 31, 1998 was 3.8 years.
In 1989, the Company adopted a stock option plan for nonemployee
directors. The plan provides for the granting of options to purchase up
to 337,050 shares of the Company's Common stock. No options may be
granted under the Plan after April 30, 1999. Options 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.
Shares under option at December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of
year 221,999 $ 5.72 87,969 $ 5.06 93,683 $ 5.02
Granted 60,000 5.19 135,300 6.14 -- --
Exercised (5,194) 4.92 (1,270) 5.31 (951) 3.94
Cancelled -- -- -- -- (4,763) 4.49
------- ------- ------
Outstanding,
end of year 276,805 $ 5.62 221,999 $ 5.72 87,969 $ 5.06
======= ======= ======
</TABLE>
During 1998, options were granted at $5.19 per share and during 1997,
options were granted at $5.53 and $6.36 per share. No options were
-34-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
granted in 1996. At December 31, 1998, 2,853, 27,748, 32,406, 7,260 and
19,800 options were exercisable at prices of $3.94, $4.97, $5.31, $5.53
and $6.36 per share, respectively, and 52,258 options were available for
future grant. The weighted-average remaining contractual life for the
options outstanding at December 31, 1998 was 4.1 years.
During 1998, 50,000 options were granted at $5.75 per share under the
1998 Stock Option Plan for 10% Shareholder-Directors and were outstanding
but not exercisable at December 31, 1998 and 50,000 options were
available for future grant. The weighted-average remaining contractual
life for the options outstanding at December 31, 1998 was 5.9 years.
At December 31, 1998, there were 242,021 additional shares available for
grant under the stock option plans. The per share weighted-average fair
value of stock options granted during 1998 and 1997 was $2.79 and $2.66,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1998 - no expected
dividend yield, risk-free interest rate of 4.59%, volatility factor of
52.4%, and an expected life of 5.12 years; 1997 - no expected dividend
yield, risk-free interest rate of 6.46%, volatility factor of 45.2%, and
an expected life of 3 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 254,100 shares of its authorized shares of Common stock for
this purpose. During 1998, 1997 and 1996, 14,813, 13,997 and 13,492
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 its stock
options in the financial statements with the exception of $35,000 in 1997
relating to the discount from fair market value of options issued under
the stock option plan for nonemployee directors. 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 1998, 1997 and
1996 net income and earnings per share would have been reduced to the
proforma amounts as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) (in thousands):
As reported $ (156) $1,012 $ 882
Proforma (374) 902 812
Basic income (loss) per share:
As reported $ (.03) $ .22 $ .19
Proforma (.08) .20 .18
Diluted income (loss) per share:
As reported $ (.03) $ .21 $ .19
Proforma (.08) .19 .17
</TABLE>
-35-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Pro forma net income (loss) reflects only options granted in 1998 and
1997, no options were granted in 1996. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net income amounts presented above because
compensation cost is reflected over the options' vesting periods of 5 and
10 years and compensation cost for options granted prior to January 1,
1995 is not considered.
On October 27, 1989, 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
$23.61 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 exercise price that number of
shares of Common stock having an aggregate fair market value of two times
the exercise price; (ii) will become exchangeable at the Company's
election for that number of shares of Common stock having a fair market
value of two times the exercise price; 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 exercise price, shares of Common stock of the
surviving company having a fair market value of two times the exercise
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 $1,900, $4,235 and
$9,330 during 1998, 1997 and 1996, respectively.
Shareholders' Equity includes non-interest bearing notes receivable,
resulting from the exercise of stock options, from the President and
Chief Executive Officer of the Company due in 2006 and in 2008
aggregating $164,500, from the Vice President, Finance in the amount of
$51,250, and from other key employees in the amount of $148,000. Inputed
interest on these loans amounted to $8,244 in 1998.
10. 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.
-36-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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, L.L.C. This segment
is involved in the development of a novel technology that facilitates the
discovery of new drugs. This segment is still in the development phase
and therefore has not generated revenues since inception in 1995.
-37-
<PAGE>
Summarized segment information for the years ended December 31, 1998,
1997 and 1996 are as follows (in thousands, except percentages);
<TABLE>
<CAPTION>
Laboratory
Research DGI Total
Equipment BioTechnologies Segments
---------- --------------- --------
<S> <C> <C> <C>
1998
----
Net sales from external customers $ 46,495 $ -- $ 46,495
Intersegment net sales -- -- --
-------- -------- --------
Total net sales 46,495 -- 46,495
Earnings (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
1997
----
Net sales from external customers $ 45,596 $ -- $ 45,596
Intersegment net sales -- -- --
-------- -------- --------
Total net sales 45,596 -- 45,596
Earnings (loss) from operations 2,975 (1,923) 1,052
Percentage of sales 100% -- 100%
Total assets (1) 38,090 -- 38,090
Capital expenditures 733 -- 733
Depreciation (1) 931 -- 931
1996
----
Net sales from external customers $ 42,927 $ -- $ 42,927
Intersegment net sales -- -- --
-------- -------- --------
Total net sales 42,927 -- 42,927
Earnings (loss) from operations 2,370 (1,535) 835
Percentage of sales 100% -- 100%
Total assets (1) 37,226 -- 37,226
Capital expenditures 1,355 -- 1,355
Depreciation (1) 858 -- 858
</TABLE>
(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.
-38-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
11. 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 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 1998, 1997 and 1996. The information shown under the caption
"Europe" represents the operations of the Company's wholly owned foreign
subsidiaries (in thousands):
<TABLE>
<CAPTION>
Transfers and
eliminations
United between geo- Conso-
States Europe graphic areas lidated
------ ------ ------------- -------
<S> <C> <C> <C> <C>
Net sales:
1998 $36,848 $14,375 $4,728 $46,495
1997 34,270 15,586 4,260 45,596
1996 32,939 14,172 4,184 42,927
Income (loss) from operations:
1998 $(1,036) $ 645 $ (391)
1997 (490) 1,542 1,052
1996 (476) 1,311 835
Identifiable assets:
1998 $29,624 $ 9,699 $39,323
1997 29,243 8,847 38,090
1996 28,341 8,885 37,226
</TABLE>
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
11.6%, 12.0% and 10.0%, respectively, of consolidated net sales during
the years ended December 31, 1998, 1997 and 1996.
-39-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Income from operations from the United States has been significantly
affected by the research and development costs of DGI BioTechnologies,
L.L.C., the Company's drug lead discovery operation (Note 10).
During 1998, 1997 and 1996, net sales from domestic operations to foreign
customers were $7,104,000, $9,442,000 and $11,413,000, respectively.
Export sales from the U.S. are made to many countries and areas of the
world including the Far East, the Middle East, Canada, South America,
India and Australia.
12. Commitments and contingencies:
The Company is obligated under the terms of various operating leases.
Rental expense under such leases for 1998, 1997 and 1996 was $581,000,
$616,000 and $614,000, respectively. As of December 31, 1998, estimated
future minimum annual rental commitments under noncancelable leases
expiring through 2014 are as follows (in thousands):
1999 $ 656
2000 615
2001 447
2002 345
2003 323
After 2003 2,183
------
Total minimum payments required $4,569*
======
* Minimum payments have not been reduced by minimum sublease rentals of
$339,000 due in the future 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.
The Company enters 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, 1998 and 1997, the Company had $5,001,000 and $5,965,000,
respectively, of forward exchange contracts outstanding, primarily to
exchange various European currencies for U.S. dollars. Substantially, all
contracts mature within a period of 13 months. Gains and losses on
forward exchange contracts in connection with firm commitments that are
-40-
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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, 1998, less than $56,000 of 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.
Item 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-41-
<PAGE>
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, 1998. 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, 1998 and
1997
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income for the
years ended December 31, 1998, 1997 and 1996
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 44
-42-
<PAGE>
Schedule II
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
Additions
---------
Charged to Balance
Balance Costs and Charged to At End
Beginning (Credited) Other of
of Period Expenses Accounts Deductions Period
--------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance deducted
from asset to which
it applies:
Allowance for
doubtful accounts:
Year ended
December 31, 1998 $284 $(14) -- $35(a) $235
Year ended
December 31, 1997 224 60 -- -- 284
Year ended
December 31, 1996 306 (82) -- -- 224
</TABLE>
- --------
Notes:
(a) Uncollected receivables written off.
-43-
<PAGE>
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) By laws of the Company as amended and restated as of August
19, 1991 is incorporated herein by reference to Exhibit (3b)
from Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991.
(3c) Rights Agreement dated as of October 31, 1989 between the
Company and American Stock Transfer & Trust Company as Rights
Agent, incorporated therein by reference to Exhibit 1 to the
Company's Report on Form 8-K filed with the Commission on or
about November 22, 1989.
(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 with David Freedman.
(10-6) Employment Agreement with Ezra Weisman is incorporated herein
by reference to Exhibit 10-6 of Registrants Report on Form
10-K for the year ended December 31, 1993.
(10-7) Nonqualified stock option agreement with Ezra Weisman is
incorporated herein by reference to Exhibit (10-7) of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
(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.
-44-
<PAGE>
(10-9) Termination Agreement with Samuel Eichenbaum is incorporated
herein by reference to Exhibit (10-9) of the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1991.
(10-10) Termination Agreement with Ezra Weisman is incorporated herein
by reference to Exhibit (10-10) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.
(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.
(10-14) Loan and Security Agreement with Summit Bank, the successor to
United Jersey Bank/Central NA dated February 17, 1993, is
incorporated herein by reference to Exhibit (10-14) of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
(10-16) Nonqualified stock option agreement with Ezra Weisman is
incorporated herein by reference to the Registrant's Report
on Form 10-K for the year ended December 31, 1993.
(10-17) Amendment dated December 29, 1995 to Loan and Security
Agreement with Summit Bank, the successor to United Jersey
Bank/Central NA dated February 17, 1993.
(13) Annual Report to Shareholders, to be filed within 120 days of
the end of the fiscal year ended December 31, 1998, is
incorporated herein by reference.
(22) Subsidiaries of the Company appear on Page 46.
(24a)* Consent of KPMG LLP.
* Filed herewith.
-45-
<PAGE>
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%
NBS Benelux B.V.
Incorporated in The Netherlands 100%
New Brunswick Scientific NV/SA
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%
-46-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
NEW BRUNSWICK SCIENTIFIC CO., INC.
Dated: March 17, 1999 By: /s/ Ezra Weisman
----------------------------------
Ezra Weisman
President (Principal Executive
Officer) and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Dated: March 17, 1999 By: /s/ David Freedman
-----------------------------
David Freedman
Chairman of the Board
Dated: March 17, 1999 By: /s/ Adele Lavender
-----------------------------
Adele Lavender
Corporate Secretary
Dated: March 17, 1999 By: /s/ Sigmund Freedman
-----------------------------
Sigmund Freedman
Treasurer and Director
Dated: March 17, 1999 By: /s/ Samuel Eichenbaum
-----------------------------
Samuel Eichenbaum
Vice President, Finance
-47-
<PAGE>
Dated: March 17, 1999 By: /s/ Ernest Gross
-----------------------------
Ernest Gross
Director
Dated: March 17, 1999 By: /s/ Bernard Leon
-----------------------------
Bernard Leon
Director
Dated: March 17, 1999 By: /s/ Kiyoshi Masuda
-----------------------------
Kiyoshi Masuda
Director
Dated: March 17, 1999 By: /s/ Dr. David Pramer
-----------------------------
Dr. David Pramer
Director
Dated: March 17, 1999 By: /s/ Martin Siegel
-----------------------------
Martin Siegel
Director
Dated: March 17, 1999 By: /s/ Dr. Marvin Weinstein
-----------------------------
Dr. Marvin Weinstein
Director
-48-
<PAGE>
(EXHIBIT 10-5)
EMPLOYMENT AND CONSULTING AGREEMENT
between
NEW BRUNSWICK SCIENTIFIC CO., INC.
and
DAVID FREEDMAN
January 1, 1999
<PAGE>
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
services as an officer of the Company upon the terms and conditions set forth
in this Agreement, and Freedman desires to continue such employment, and
WHEREAS, the parties desire to provide for the terms and conditions
upon which the Company may secure the services of Freedman as a consultant to
the Company following the expiration of Freedman's term of service as an
employee of the Company,
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, the parties agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 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 attention to performing such
duties.
1.2 Consultant. Following the expiration of Freedman's period of
service as an employee of the Company, as provided in Section 4.1 below,
Freedman agrees to serve as a consultant and independent contractor to the
Company, rendering such advice and assistance to the Company as they may
mutually agree. Freedman agrees to render services as reasonably requested by
the Company on 10-days' advance notice, written or oral, subject to a maximum
of 50 full or partial days of service during each twelve-month period
following the commencement of his services as a consultant under this
Agreement.
1.3 Performance of Services. Freedman shall observe 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 as an employee or consultant.
1
<PAGE>
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 Discretionary Bonus. The Company may, but is not required to, pay
Freedman such bonus or bonuses as the Board may from time to time determine,
consistent with the bonuses paid to other executive employees of the Company,
and in addition to such bonuses as may be payable to Freedman pursuant to other
bonus plans or arrangements. During his period of service as an employee,
Freedman shall be entitled to participate in bonus programs or arrangements
generally available for executive employees of the Company, but the Board
retains full discretion as to the amount of the bonus, if any, to be paid to
Freedman.
2.4 Consulting Payments. In exchange for his services as a consultant
to the Company pursuant to Section 1.2, Freedman shall be paid at the rate of
One Hundred Thousand Dollars ($100,000.00) per year. Payments shall be made in
regular equal installments as the Company and Freedman may agree, but no less
frequently than monthly.
2.5 Withholding. All payments of salary, bonuses and other compensation
for services pursuant to this Agreement shall be subject to the customary
withholding of taxes as required by law.
ARTICLE 3
FRINGE BENEFITS
3.1 Participation in Plans. (a) During his period of service as an
employee of the Company, Freedman shall be entitled 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 Company,
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
2
<PAGE>
of the Company, in place of the health insurance plan generally available for
executives 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 accordance with the provisions of the
insurance policies. The Company shall not be liable to Freedman, or his spouse
or beneficiaries or other successors, 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 benefit programs, as and to the extent that the Company
generally provides the same from time to time to other executive employees.
3.3 Vacation and Professional Leave. During his period of service as an
employee of the Company, Freedman shall be entitled to vacation and additional
leave to attend conventions and professional meetings each year during this
Agreement as permitted under the employment policies of the Company in effect at
such time.
3.4 Business Expenses. The parties acknowledge that Freedman shall
incur, from time to time as either an employee or as a consultant, 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 expenses, or
reimburse Freedman for such expenses incurred by him. Freedman agrees to submit
to the Company such documentation as may be reasonably necessary to substantiate
that all expenses paid or reimbursed hereunder were reasonably related to the
performance of his duties as an employee or consultant.
3.5 Company Car. The Company recognizes that Freedman, whether serving
as an employee or as a consultant, 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
3
<PAGE>
returned to the Company unless Freedman elects, within thirty (30) days after
such termination, to purchase the automobile from the Company. Any purchase
pursuant 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 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 Consultant Term. Upon expiration of the three-year employment term
of this Agreement pursuant to Section 4.1, this Agreement shall continue for an
additional three-year period, during which time Freedman shall serve as a
consultant to the Company, as provided in Article 1.2 above (the "Consultant
term"), unless this Agreement is terminated prior to such date in accordance
with the terms of this Agreement.
4.3 Termination. This Agreement shall terminate prior to the expiration
of its Employment or Consultant term upon occurrence of any one or more of the
following events:
(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 reasonably likely to bring
discredit upon the Company; material failure to perform or meet
4
<PAGE>
reasonable standards of performance established in writing by the Board
of Directors of the Company with respect to Freedman's position; and
any material violation of reasonable operating 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 Agreement, the term "disabled" or
"disability" 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 consistently 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 disabled on the date that is
six (6) months after the initial onset of his condition, as described
above.
(e) Termination of Consulting by Freedman. At any time during
the Consultant term of this Agreement, Freedman may terminate this
Agreement by written notice to the Company.
4.4 Termination Benefits. Following termination of this Agreement, the
Company shall make the following payments to Freedman, as applicable, subject,
however, to Sections 2.6 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 vacation compensation during the Employment term) and reimbursement
for expenses as may be due, accrued or payable as of the date of such
termination. Payments for Freedman's services as a consultant shall be deemed to
accrue on an equal daily basis throughout the year, regardless of the number of
days of consulting services actually rendered during the final partial year
prior to termination of this Agreement. Following termination of this Agreement,
Freedman, or his successors, as the case may be, shall also be entitled to the
deferred compensation pursuant to Section 2.5 and entitled to 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 designated in writing by Freedman and delivered to the Company
during the lifetime of Freedman), or if no such beneficiary 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)
5
<PAGE>
payable by 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 termination 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.
4.5 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 independent auditors regularly retained by the Company.
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
Agreement to a subsidiary or affiliate, provided that the subsidiary or
affiliate continues the primary business of the Company, and further, provided
that, in the case of a transfer to a subsidiary or affiliate, the Company shall
remain liable for its obligations under this Agreement.
5.2 Amendments. No amendments or additions to this agreement shall be
binding unless in writing and signed by the party against whom enforcement of
such amendment of 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 Agreement.
5.4 Legal Expenses of Enforcement. If either party commences 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.
6
<PAGE>
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
originally included herein. In the event that the provision invalidated 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 construction and interpretation shall be
settled by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered in such arbitration may be
entered in any court having jurisdiction thereof. In addition, any controversy,
claim or dispute concerning the scope of this arbitration clause or whether a
particular dispute falls within this arbitration clause shall also be settled by
arbitration in accordance with the rules of the American Arbitration
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.
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 requested, 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:
------------------------------------
Ezra Weisman
- ----------------------------------
Secretary
- ---------------------------------- ------------------------------------
Witness David Freedman
7
<PAGE>
(EXHIBIT 24a)
Independent Auditors' Consent
The Board of Directors
New Brunswick Scientific Co., Inc.
We consent to incorporation by reference in the registration statements (No.
33-70452, No. 333-06029 and No. 33016024) on Form S-8 of New Brunswick
Scientific Co., Inc. of our report dated February 10, 1999, relating to the
consolidated balance sheets of New Brunswick Scientific Co., Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, cash flows, and comprehensive
income for each of the years in the three-year period ended December 31, 1998,
and related schedule, which report appears in the December 31, 1998 annual
report on from 10-K of New Brunswick Scientific Co., Inc..
KPMG LLP
Short Hills, New Jersey
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000071241
<NAME> NEW BRUNSWICK SCIENTIFIC CO, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,793,000
<SECURITIES> 0
<RECEIVABLES> 10,230,000
<ALLOWANCES> 0
<INVENTORY> 15,923,000
<CURRENT-ASSETS> 32,278,000
<PP&E> 5,622,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,323,000
<CURRENT-LIABILITIES> 8,145,000
<BONDS> 0
0
0
<COMMON> 298,000
<OTHER-SE> 30,149,000
<TOTAL-LIABILITY-AND-EQUITY> 39,323,000
<SALES> 46,495,000
<TOTAL-REVENUES> 46,495,000
<CGS> 28,242,000
<TOTAL-COSTS> 46,886,000
<OTHER-EXPENSES> (35,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> (364,000)
<INCOME-TAX> (208,000)
<INCOME-CONTINUING> (156,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (156,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
