10-Q 1 a15-18091_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from        to        

 

Commission File Number 1-6549

 

American Science and Engineering, Inc.

(Exact name of Registrant as specified in its charter)

 

Massachusetts

 

04-2240991

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

829 Middlesex Turnpike

 

 

Billerica, Massachusetts

 

01821

(Address of principal executive offices)

 

(Zip Code)

 

(978) 262-8700

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 (Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes o  No x

 

The number of shares of the registrant’s common stock, $0.66 2/3 par value, outstanding as of November 3, 2015 was 7,167,424.

 

 

 


 


Table of Contents

 

TABLE OF CONTENTS

 

Part I — Financial Information

 

Item 1 — Financial Statements

3

Unaudited Condensed Consolidated Balance Sheets — September 30, 2015 and March 31, 2015

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)— For the three and six months ended September 30, 2015 and September 30, 2014

4

Unaudited Condensed Consolidated Statements of Cash Flows — For the six months ended September 30, 2015 and September 30, 2014

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

Item 3 — Quantitative and Qualitative Disclosure About Market Risk

15

Item 4 — Controls and Procedures

15

Part II — Other Information

 

Item 1A — Risk Factors

16

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

16

Item 6 —Exhibits

16

Signatures

17

 

2


 


Table of Contents

 

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

 

AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In thousands, except share and per share amounts)

 

September 30,
2015

 

March 31,
2015

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

79,293

 

$

68,835

 

Restricted cash

 

5,596

 

6,193

 

Short-term investments, at fair value

 

7,694

 

24,533

 

Accounts receivable, net of allowances of $250 and $333 at September 30, 2015 and March 31, 2015, respectively 

 

20,873

 

22,124

 

Unbilled costs and fees

 

3,478

 

1,848

 

Inventories, net

 

38,329

 

40,983

 

Prepaid expenses and other current assets

 

8,823

 

10,701

 

Deferred income taxes

 

2,486

 

2,486

 

 

 

275,700

 

275,700

 

Total current assets

 

166,572

 

177,703

 

Equipment and leasehold improvements, net

 

7,117

 

8,711

 

Restricted cash

 

231

 

208

 

Deferred income taxes

 

5,952

 

5,952

 

Other assets, net

 

301

 

534

 

Total assets

 

$

180,173

 

$

193,108

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

4,747

 

$

7,200

 

Accrued salaries and benefits

 

4,549

 

6,769

 

Accrued warranty costs

 

200

 

159

 

Deferred revenue

 

8,653

 

7,355

 

Customer deposits

 

11,557

 

13,956

 

Other current liabilities

 

4,579

 

5,736

 

Total current liabilities

 

34,285

 

41,175

 

Deferred revenue

 

3,344

 

1,019

 

Other long-term liabilities

 

622

 

507

 

Total liabilities

 

38,251

 

42,701

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, no par value, 100,000 shares authorized; no shares issued

 

 

 

Common stock, $0.66 2/3 par value, 20,000,000 shares authorized; 7,163,642 and 7,193,247 shares issued and outstanding at September 30, 2015 and March 31, 2015, respectively

 

4,775

 

4,795

 

Capital in excess of par value

 

2,126

 

3,334

 

Accumulated other comprehensive loss, net

 

(7

)

(11

)

Retained earnings

 

135,028

 

142,289

 

Total stockholders’ equity

 

141,922

 

150,407

 

Total liabilities and stockholders’ equity

 

$

180,173

 

$

193,108

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands, except per share amounts)

 

September 30,
2015

 

September 30,
2014

 

September 30,
2015

 

September 30,
2014

 

Net sales and contract revenues:

 

 

 

 

 

 

 

 

 

Net product sales and contract revenues

 

$

13,425

 

$

11,004

 

$

32,566

 

$

34,255

 

Net service revenues

 

11,712

 

12,062

 

24,015

 

24,348

 

Total net sales and contract revenues

 

25,137

 

23,066

 

56,581

 

58,603

 

 

 

 

 

 

 

 

 

 

 

Cost of sales and contracts:

 

 

 

 

 

 

 

 

 

Cost of product sales and contracts

 

7,045

 

6,531

 

17,665

 

18,829

 

Cost of service revenues

 

5,738

 

6,852

 

12,136

 

13,622

 

Total cost of sales and contracts

 

12,783

 

13,383

 

29,801

 

32,451

 

Gross profit

 

12,354

 

9,683

 

26,780

 

26,152

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

6,772

 

9,118

 

15,042

 

17,309

 

Research and development costs

 

4,751

 

6,418

 

11,640

 

12,424

 

Total operating expenses

 

11,523

 

15,536

 

26,682

 

29,733

 

Operating income (loss)

 

831

 

(5,853

)

98

 

(3,581

)

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest and investment income

 

55

 

87

 

89

 

165

 

Interest expense

 

 

(9

)

 

(19

)

Other, net

 

(172

)

(99

)

(265

)

(252

)

Total other expense

 

(117

)

(21

)

(176

)

(106

)

Income (loss) before provision for (benefit from) income taxes

 

714

 

(5,874

)

(78

)

(3,687

)

Provision for (benefit from) income taxes

 

250

 

(1,968

)

(27

)

(1,235

)

Net income (loss)

 

$

464

 

$

(3,906

)

$

(51

)

$

(2,452

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available for sale securities (net of tax)

 

3

 

(15

)

4

 

(29

)

Comprehensive income (loss)

 

$

467

 

$

(3,921

)

$

(47

)

$

(2,481

)

Income (loss) per share — Basic

 

$

0.06

 

$

(0.49

)

$

(0.01

)

$

(0.31

)

Income (loss) per share — Diluted

 

$

0.06

 

$

(0.49

)

$

(0.01

)

$

(0.31

)

Weighted average shares — Basic

 

7,151

 

7,917

 

7,156

 

7,904

 

Weighted average shares — Diluted

 

7,156

 

7,917

 

7,156

 

7,904

 

Dividends declared per share

 

$

0.50

 

$

0.50

 

$

1.00

 

$

1.00

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Six Months Ended

 

(In thousands)

 

September 30,
2015

 

September 30,
2014

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(51

)

$

(2,452

)

Adjustments to reconcile net loss to net cash provided by (used for) operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,965

 

2,605

 

Provisions for contracts, inventory and accounts receivable reserves

 

(80

)

(270

)

Amortization of bond premium

 

63

 

540

 

Stock compensation expense

 

1,044

 

1,770

 

Other

 

202

 

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

1,326

 

4,878

 

Unbilled costs and fees

 

(1,630

)

(3,272

)

Inventories

 

2,659

 

(11,534

)

Prepaid expenses and other assets

 

2,111

 

(5,436

)

Accounts payable

 

(2,453

)

(6,762

)

Accrued income taxes

 

 

(2,338

)

Customer deposits

 

(2,399

)

5,433

 

Deferred revenue

 

3,623

 

(1,847

)

Accrued expenses and other liabilities

 

(3,221

)

(7,274

)

Net cash provided by (used for) operating activities

 

3,159

 

(25,959

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of short-term investments

 

 

(29,212

)

Proceeds from sales and maturities of short-term investments

 

16,780

 

40,933

 

Purchases of property and equipment, net

 

(573

)

(943

)

Net cash provided by investing activities

 

16,207

 

10,778

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Decrease in restricted cash

 

574

 

726

 

Proceeds from exercise of stock options

 

 

888

 

Repurchase of shares of common stock

 

(2,263

)

 

Repayment of leasehold financing liability

 

 

(754

)

Payment of common stock dividend

 

(7,219

)

(7,993

)

Net cash used for financing activities

 

(8,908

)

(7,133

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

10,458

 

(22,314

)

Cash and cash equivalents at beginning of period

 

68,835

 

62,143

 

Cash and cash equivalents at end of period

 

$

79,293

 

$

39,829

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.   GENERAL

 

The condensed consolidated financial statements include the accounts of American Science and Engineering, Inc. and its wholly owned subsidiaries (the “Company”). All significant intercompany transactions and balances have been eliminated.

 

The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required by Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015, or fiscal 2015, as filed with the Securities and Exchange Commission on June 5, 2015.

 

The unaudited condensed consolidated financial statements, in the opinion of management, include all necessary adjustments, consisting solely of normal recurring adjustments, to present fairly the Company’s financial position, results of operations and cash flows.  These results are not necessarily indicative of the results to be expected for the entire year.

 

Nature of Operations

 

The Company develops, manufactures, markets, and sells X-ray inspection and other detection products for homeland security, force protection, public safety and other critical defense and security applications.  The Company provides maintenance, warranty, engineering, and training and operator services related to these products.  The Company has one reporting segment, X-ray screening products.

 

Significant Accounting Policies

 

For systems that are produced in a standard manufacturing operation and have shorter order to delivery cycles, the Company recognizes sales when title passes and when other revenue recognition criteria (such as transfer of risk and customer acceptance) are met.  Revenues on cost reimbursable and custom long-term fixed price contracts are generally recorded as costs are incurred using the percentage of completion method.

 

The other significant accounting policies followed by the Company and its subsidiaries in preparing its consolidated financial statements are set forth in Note 1 to the consolidated financial statements included in its Form 10-K for the year ended March 31, 2015.  There have been no changes to the Company’s critical accounting policies during the three and six months ended September 30, 2015.

 

Stock Repurchase Program

 

On May 7, 2013, the Board of Directors announced the approval of its fifth Stock Repurchase Program which authorized the Company to repurchase up to $35 million of shares of its common stock from time to time on the open market or in privately negotiated transactions.  On December 1, 2014, the Board of Directors announced an expansion of this stock repurchase program increasing the program authorization to $50 million of shares of its common stock.

 

During the three months ended June 30, 2015, the Company repurchased 54,056 shares of its common stock at an average price of $41.86.  During the three months ended September 30, 2015, the Company did not repurchase any shares of its common stock.  As of September 30, 2015, the remaining balance available under the Stock Repurchase Program was $11,225,000.

 

Dividends

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

 

September 30,
2015

 

September 30,
2014

 

September 30,
2015

 

September 30,
2014

 

Dividends declared

 

$

0.50

 

$

0.50

 

$

1.00

 

$

1.00

 

Dividends paid

 

$

0.50

 

$

0.50

 

$

1.00

 

$

1.00

 

 

On November 9, 2015, the Company declared a cash dividend of $0.50 per share. The dividend will be paid on December 2, 2015 to all shareholders of record at the close of business on November 24, 2015.  Future dividends will be declared at the discretion of the Board of Directors and will depend upon such factors as the Board of Directors deems relevant.

 

Concentrations of Credit Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, restricted cash, short-term investments and accounts and unbilled receivables.  At times, the Company maintains

 

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cash balances in excess of insured limits. The Company maintains its cash and cash equivalents with major financial institutions.  The Company’s credit risk is managed by investing its cash in investment grade corporate debentures/bonds, U.S. government agency bonds, commercial paper, U.S. treasury bills, money market funds, and certificates of deposit.

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue From Contracts With Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue in an amount that reflects the consideration to which an entity expects to be entitled in exchange for the goods or services transferred to its customers. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The guidance is effective for annual periods beginning on or after December 15, 2017 (early adoption for annual periods beginning on or after December 15, 2016 is permitted). The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

 

In January 2015 the FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items, which eliminates from U.S. GAAP the concept of extraordinary items.  Entities may apply the amendments prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted.  ASU No. 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. It is effective for annual reporting periods beginning after December 15, 2016. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

 

2.   ACCOUNTING FOR STOCK-BASED COMPENSATION

 

The Company accounts for stock-based awards made to its employees and Board of Directors in accordance with FASB Accounting Standards Codification (“FASB ASC”) 718, Compensation—Stock Compensation, which requires the measurement and recognition of all compensation costs for stock-based awards made to employees and the Board of Directors based upon the grant date fair value over the requisite service period for awards expected to vest.

 

The Company recognized $710,000 and $991,000 of stock-based compensation costs for the three months ended September 30, 2015 and September 30, 2014, respectively.  The Company recognized $1,044,000 and $1,770,000 of stock-based compensation costs for the six months ended September 30, 2015 and September 30, 2014, respectively.  The income tax benefit recognized related to the compensation costs for the three months ended September 30, 2015 and September 30, 2014 was approximately $249,000 and $332,000 respectively.  The income tax benefit recognized related to the compensation costs for the six months ended September 30, 2015 and September 30, 2014 was approximately $366,000 and $593,000, respectively.

 

The following table summarizes stock-based compensation costs included in the Company’s consolidated statements of operations and comprehensive income (loss):

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

 

September 30,
2015

 

September 30,
2014

 

September 30,
2015

 

September 30,
2014

 

Cost of sales and contracts

 

$

148

 

$

297

 

$

113

 

$

523

 

Selling, general and administrative

 

562

 

694

 

931

 

1,247

 

Total share-based compensation expense before tax

 

$

710

 

$

991

 

$

1,044

 

$

1,770

 

 

Stock Option and Other Compensation Plans

 

The Company has various stock option and other compensation plans for directors, officers, and employees.  The Company had the following stock plans outstanding as of September 30, 2015: the 2003 Stock Plan for Non-Employee Directors, the 2005 Equity and Incentive Plan and the 2014 Equity and Incentive Plan. There are 367,000 shares remaining available for issuance under these plans. Vesting periods are at the discretion of the Board of Directors and typically range from one to three years.  Options under these plans are granted at fair market value and have a term of ten years from the date of grant.

 

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Stock Options

 

The following tables summarize stock option activity for the six months ended September 30, 2015:

 

 

 

Number of
Shares

 

Weighted
Average
Exercise
Price ($)

 

Weighted
Average
Contractual
Life
(years)

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

Options outstanding at March 31, 2015

 

191,834

 

$

66.03

 

2.88

 

 

 

Grants

 

 

 

 

 

 

 

Exercises

 

 

 

 

 

 

Cancellations

 

(4,721

)

56.92

 

 

 

 

 

Options outstanding at September 30, 2015

 

187,113

 

$

66.26

 

2.42

 

 

 

Options exercisable at September 30, 2015

 

187,113

 

 

 

 

 

 

 

 

Information related to the stock options outstanding as of September 30, 2015 is as follows:

 

Range of Exercise Prices

 

Number of
Shares

 

Weighted-Average
Remaining
Contractual
Life (years)

 

Weighted-Average
Exercise Price
($)

 

Exercisable
Number of
Shares

 

Exercisable
Weighted-Average
Exercise Price
($)

 

$ 53.55-$60.00

 

24,450

 

0.07

 

$

53.55

 

24,450

 

$

53.55

 

$ 60.01-$75.82

 

162,663

 

2.78

 

68.17

 

162,663

 

68.17

 

$ 53.55-$75.82

 

187,113

 

2.42

 

$

66.26

 

187,113

 

$

66.26

 

 

The Company deems the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of stock-based awards. The Black-Scholes method of valuation requires several assumptions: (1) the expected term of the stock-based award; (2) the expected future stock volatility over the expected term; (3) a risk-free interest rate; and (4) the expected dividend yield. The expected term represents the expected period of time that the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock and the risk-free interest rate is based on the U.S. Zero-Bond rate.

 

There were no options granted in the three or six month period ended September 30, 2015.

 

As of September 30, 2015, there was no remaining unrecognized compensation cost related to options granted.

 

Restricted Stock and Restricted Stock Units

 

The Company has instituted long-term incentive plans for certain key employees. These plans call for the issuance of restricted stock, restricted stock units, restricted stock options, and/or cash incentives which vest or are paid upon the achievement of certain performance-based goals as well as service time incurred.  Restricted stock and restricted stock units may also be granted to other employees with vesting periods that range from one to three years.  In addition, annually the non-employee directors are granted restricted stock. Restricted stock shares granted to our non-employee directors vest on a pro-rata basis, based on service performed over a one-year period. Certain of the stock and stock unit awards contain rights to receive non-forfeitable dividends. The fair values of the restricted stock and restricted stock unit awards are equal to the fair value of the Company’s common stock on the date of grant.

 

Non-vested restricted stock and restricted stock unit awards are subject to the risk of forfeiture until the fulfillment of specified conditions. As of September 30, 2015, there was $6,578,000 of total unrecognized compensation costs related to non-vested restricted stock and restricted stock unit awards granted under the Company’s stock plans. These costs are expected to be recognized over a weighted average period of 1.7 years.

 

The following table summarizes the status of the Company’s non-vested restricted stock and restricted stock unit awards for the six months ended September 30, 2015:

 

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Number of
Shares

 

Weighted Average
Grant Date
Fair Value
($)

 

Outstanding at March 31, 2015

 

91,837

 

$

62.99

 

Granted

 

119,439

 

43.78

 

Vested

 

(15,332

)

58.95

 

Forfeited

 

(7,838

)

63.65

 

Outstanding at September 30, 2015

 

188,106

 

$

51.09

 

 

3.              INVENTORIES

 

Inventories consist of material, labor and manufacturing overhead and are recorded at the lower of cost, using the weighted average cost method, or net realizable value. Excess manufacturing overhead costs attributable to idle facility expenses, freight, handling costs and wasted material (spoilage) attributable to abnormally low production volumes (levels that materially differ from budgeted production plans due primarily to changes in customer demand) are excluded from inventory and recorded as an expense in the period incurred.

 

The components of inventories at September 30, 2015 and March 31, 2015 were as follows:

 

(In thousands)

 

September 30,
2015

 

March 31,
2015

 

Raw materials, completed sub-assemblies, and spare parts

 

$

20,451

 

$

20,334

 

Work-in-process

 

13,092

 

17,853

 

Finished goods

 

4,786

 

2,796

 

Total

 

$

38,329

 

$

40,983

 

 

4.              INCOME PER COMMON AND COMMON EQUIVALENT SHARE

 

Basic earnings per common share is computed by dividing distributed and undistributed earnings to common stockholders by the weighted average number of shares of common stock outstanding during the period.   Share-based payment awards entitling holders to receive non-forfeitable dividends before vesting are considered participating securities and thus are included in the calculation of basic earnings per share under the two-class method.  Diluted earnings per share include the dilutive impact of options, and restricted stock units using the average share price of the Company’s common stock for the period.  For the three months ended September 30, 2015 and September 30, 2014, common stock equivalents of 291,000 and 298,000 shares, respectively, are excluded from diluted earnings per share, as their effect is anti-dilutive. For the six months ended September 30, 2015 and September 30, 2014, common stock equivalents of 291,000 and 294,000 shares, respectively, are excluded from diluted earnings per share, as their effect is anti-dilutive.

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands except per share amounts)

 

September 30,
2015

 

September 30,
2014

 

September 30,
2015

 

September 30,
2014

 

Income (Loss) Per Share — Basic:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

464

 

$

(3,906

)

$

(51

)

$

(2,452

)

Less: Distributed and undistributed earnings (loss) to unvested restricted stock units

 

7

 

 

(6

)

 

Distributed and undistributed earnings (loss) to common shareholders — Basic

 

457

 

(3,906

)

(45

)

(2,452

)

Weighted average number of common shares outstanding — basic

 

7,151

 

7,917

 

7,156

 

7,904

 

Net income (loss) per share — basic

 

$

0.06

 

$

(0.49

)

$

(0.01

)

$

(0.31

)

Diluted:

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

7,151

 

7,917

 

7,156

 

7,904

 

Add dilutive effect of potential common shares

 

5

 

 

 

 

Weighted average number of common and potential common shares outstanding — diluted

 

7,156

 

7,917

 

7,156

 

7,904

 

Net income (loss) per share — diluted

 

$

0.06

 

$

(0.49

)

$

(0.01

)

$

(0.31

)

 

5.   LETTERS OF CREDIT

 

In the normal course of business, the Company may provide certain customers and potential customers with performance

 

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guarantees, which are generally backed by standby letters of credit. In general, the Company would only be liable for the amount of these guarantees in the event of default in the performance of its obligations, the probability of which management believes is low.   As of September 30, 2015, the Company had outstanding $10,817,000 in standby letters of credit.  These outstanding standby letters of credit are cash-secured at amounts ranging from 52% to 63% of the outstanding letters of credit, resulting in restricted cash balance of $5,827,000 at September 30, 2015, of which $231,000 was considered long-term restricted cash and investments due to the expiration date of the underlying letters of credit.

 

6.   FAIR VALUE MEASUREMENTS

 

The Company has categorized its financial assets, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure a financial instrument fall within different levels of the hierarchy, the categorization of such financial asset is based on the lowest level input that is significant to the fair value measurement of such instrument.

 

Financial assets are categorized based on the inputs to the valuation techniques as follows:

 

Level 1 - Financial assets whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access at the measurement date (examples include actively exchange-traded equity securities, listed derivatives, and most U.S. government and agency securities).

 

Level 2 - Financial assets whose values are based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.  Level 2 inputs include the following:

 

·                  Quoted prices for identical or similar assets or liabilities in non-active markets;

 

·                  Inputs other than quoted prices that are observable for substantially the full term of the asset or liability; and

 

·                  Inputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.

 

Level 3 - Financial assets whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s assumptions about the assumptions a market participant would use in pricing the asset or liability. The Company currently does not have any Level 3 financial assets or liabilities.

 

The following table presents the financial assets that the Company measures at fair value on a recurring basis, based on the fair value hierarchy as of September 30, 2015 and March 31, 2015:

 

(In thousands)

 

September 30,
2015

 

March 31,
2015

 

Level 1 — Financial Assets

 

 

 

 

 

Money market funds

 

$

58,755

 

$

51,784

 

Treasury bills

 

 

5,403

 

Total Level 1 Financial Assets

 

58,755

 

57,187

 

Level 2 — Financial Assets

 

 

 

 

 

Corporate debentures/bonds

 

5,890

 

13,813

 

Government agency bonds

 

1,804

 

5,317

 

Total Level 2 Financial Assets

 

7,694

 

19,130

 

Total cash equivalents and short-term investments

 

$

66,449

 

$

76,317

 

 

Short-term investments are classified as available-for-sale and are recorded at their fair market values using the specific identification method. As of September 30, 2015, all of the Company’s available-for-sale securities had contractual maturities of seven months or less. The Company had no material realized gains or losses on its available-for-sale securities for the three and six months ended September 30, 2015 and September 30, 2014. The unrealized holding gains or losses on these securities are included as a component of other comprehensive income (loss), as disclosed in the condensed consolidated statements of operations and comprehensive income (loss).

 

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(In thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

September 30, 2015:

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Corporate debentures/bonds

 

$

5,890

 

$

 

$

 

$

5,890

 

Government agency bonds

 

1,804

 

 

 

1,804

 

Total short-term investments

 

$

7,694

 

$

 

$

 

$

7,694

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

58,755

 

 

 

$

58,755

 

Total cash equivalents

 

$

58,755

 

$

 

$

 

$

58,755

 

 

(In thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Corporate debentures/bonds

 

$

13,823

 

$

 

$

(10

)

$

13,813

 

Government agency bonds

 

5,315

 

2

 

 

5,317

 

Treasury bills

 

5,400

 

3

 

 

5,403

 

Total short-term investments

 

$

24,538

 

$

5

 

$

(10

)

$

24,533

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

51,784

 

$

 

$

 

$

51,784

 

Total cash equivalents

 

$

51,784

 

$

 

$

 

$

51,784

 

 

7.   INCOME TAXES

 

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, and recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. The Company evaluates the need for a valuation allowance against its net deferred tax assets at period end based upon its three year cumulative income and its projections of future income, and records a valuation allowance against any net deferred tax assets if it is more likely than not that they will not be realized.

 

The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending March 31, 2012 through 2014 and by various state taxing authorities for the years ending March 31, 2011 through 2014.

 

8.     GUARANTEES

 

Certain of the Company’s products carry a one-year warranty, the costs of which are accrued for at the time of shipment or delivery.  Accrual rates are based upon historical experience for the trailing twelve months and management’s judgment of future exposure.  Warranty experience for the three and six months ended September 30, 2015 and 2014 was as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

 

September 30,
2015

 

September 30,
2014

 

September 30,
2015

 

September 30,
2014

 

Warranty accrual - beginning of period

 

$

188

 

$

246

 

$

159

 

$

404

 

Accruals for warranties issued during the period

 

83

 

43

 

174

 

85

 

Adjustment of preexisting accrual estimates

 

1

 

(16

)

36

 

(160

)

Warranty costs incurred during the period

 

(72

)

(87

)

(169

)

(143

)

Warranty accrual — end of period

 

$

200

 

$

186

 

$

200

 

$

186

 

 

9.   LEASE COMMITMENTS

 

In March 2005, the Company renewed its lease agreement for its corporate headquarters and manufacturing facilities in Billerica, Massachusetts.  As part of the lease agreement, the Company’s landlord agreed to certain renovations to the Billerica facility including the construction of additional high bay manufacturing space.  The Company was responsible for a portion of the construction costs and was deemed to be the owner of the building during the construction period under FASB ASC 840, Leases.

 

In October 2014, the Company entered into an amendment of its lease agreement for the Billerica facilities extending the term of the lease through February 28, 2023 with an adjusted rent schedule commencing October 1, 2014. Due to certain provisions of

 

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the amended lease agreements which removed certain continuing financing obligations related to the building, it was determined that the lease no longer qualified as a capital lease and as such, the Company removed the capitalized building, associated accumulated depreciation and lease financing liability from its books.  The associated gain of $381,000 resulting from the removal of the building from our books was deferred and is being amortized over the modified lease term of the property.

 

10.   COMMITMENTS AND CONTINGENCIES

 

Deferred Revenue

 

The Company offers extended warranty and service contracts to its customers. These contracts typically cover a period of one to five years, and include advance payments that are recorded as deferred revenue. Revenue is recognized as services are performed over the life of the contract, which represents the period over which these revenues are earned. Costs associated with these extended warranty and service contracts are expensed to cost of sales and contracts as incurred.

 

Legal Matters

 

The Company continues to respond to the subpoena received from the Office of the Inspector General (“OIG”) of the U.S. General Services Administration (“GSA”) on April 17, 2015 with respect to the investigation being conducted by the GSA and the Department of Defense.  The investigation relates to the Company’s discount practices and compliance with the pricing provisions of the Company’s GSA Schedule contract. The Company continues to cooperate fully with the investigation and at this time management is unable to predict the outcome of the investigation or estimate the amount of possible loss or range of loss with any certainty.  It is possible that the investigation could lead to claims or findings of violations of the False Claims Act in connection with the Company’s GSA contracting activity. Violations of the False Claims Act could result in the imposition of damages, including up to treble damages, plus civil penalties in some cases. The Company has incurred, and will continue to incur, legal costs in connection with the investigation, and could incur other costs, damages or penalties, depending on its outcome, which could be material.

 

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934.  Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects”, “intends”, “should” and similar expressions are intended to identify forward-looking statements.  These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, and you should not place undue reliance on our forward-looking statements.  The factors referred to under “Item 1A. Risk Factors”, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time.  We expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

Overview

 

American Science and Engineering, Inc. develops and manufactures X-ray inspection systems for homeland security, force protection, public safety and other critical defense applications.   We provide maintenance, warranty, engineering, and training related to these products.

 

Our primary technologies are Z Backscatter technology, which is used to detect explosives, illegal drugs, and other contraband even when concealed in complex backgrounds, and other technologies that expand the detection capability of our products beyond the material discrimination features of the Z Backscatter technology to include the penetration capability of high-energy transmission X-rays for dense cargos and/or other detection techniques.

 

Net sales and contract revenues for the second quarter of fiscal year ending March 31, 2016, or fiscal 2016, increased to $25,137,000 compared to revenues of $23,066,000 for the second quarter of fiscal 2015. We reported operating income of $831,000 for the second quarter of fiscal 2016 compared to an operating loss of $5,853,000 for the second quarter of fiscal 2015.  Net income for the second quarter of fiscal 2016 was $464,000 ($0.06 per share, on a diluted basis) compared to net loss of $3,906,000 ($0.49 per share, on a diluted basis) for the second quarter of fiscal 2015. These results represent a 9% increase in revenues, a $6,684,000 increase in operating income and a $0.55 increase in earnings per share when compared to results for the second quarter of fiscal 2015.

 

Net sales and contract revenues for the first six months of fiscal year ending March 31, 2016, or fiscal 2016, decreased to $56,581,000 compared to revenues of $58,603,000 for the first six months of fiscal 2015. We reported operating income of

 

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$98,000 for the first six months of fiscal 2016 compared to an operating loss of $3,581,000 for the first six months of fiscal 2015.  Net loss for the first six months of fiscal 2016 was $51,000 ($0.01 loss per share, on a diluted basis) compared to net loss of $2,452,000 ($0.31 loss per share, on a diluted basis) for the first six months of fiscal 2015. These results represent a 3% decrease in revenues, a $3,679,000 increase in operating income and a $0.30 increase in earnings per share when compared to results for the second quarter of fiscal 2015.

 

The following table presents net sales and contract revenues by product and service categories:

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

 

September 30,
2015

 

September 30,
2014

 

September 30,
2015

 

September 30,
2014

 

Cargo Inspection Systems

 

$

681

 

$

4,035

 

$

9,590

 

$

13,181

 

Mobile Cargo Inspection Systems

 

9,210

 

2,772

 

16,318

 

14,335

 

Parcel and Personnel Screening Inspection Systems

 

2,317

 

1,534

 

4,823

 

2,299

 

Other product sales and contract revenue

 

1,217

 

2,663

 

1,835

 

4,440

 

Total net product sales and contract revenues

 

13,425

 

11,004

 

32,566

 

34,255

 

Net service revenues

 

11,712

 

12,062

 

24,015

 

24,348

 

Total net sales and contract revenues

 

$

25,137

 

$

23,066

 

$

56,581

 

$

58,603

 

 

Critical Accounting Policies

 

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results.

 

The critical accounting policies we identified in our most recent Annual Report on Form 10-K for the fiscal year ended March 31, 2015 are policies related to revenue recognition, inventories and related allowances for obsolete and excess inventory, and income taxes. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on June 5, 2015.  There have been no changes to our critical accounting policies during the three month period ended September 30, 2015.

 

Results of Operations

 

Net sales and contract revenues for the second quarter of fiscal 2016 increased by $2,071,000 to $25,137,000 compared to the net sales and contract revenues of $23,066,000 for the corresponding period in the prior fiscal year.  Product sales and contract revenues increased by $2,421,000 from the prior year due primarily to an increase of $6,438,000 in Mobile Cargo Inspection Systems revenues due to a higher number of units delivered as compared to the prior period and an increase in Parcel and Personnel Screening Inspection revenues of $783,000 due to our introduction of the MINI Z system in June of 2014.  These increases were offset in part by a decrease of $3,354,000 in Cargo Inspection System revenues due to delays in the fulfillment of orders in backlog due to customer site delays.   Net service revenues of $11,712,000 were down slightly from the corresponding period of the prior year due to delays in the renewal of certain service contracts.

 

Net sales and contract revenues for the six months of fiscal 2016 decreased by $2,022,000 to $56,581,000 compared to the net sales and contract revenues of $58,603,000 for the corresponding period in the prior fiscal year.  Product sales and contract revenues decreased by $1,689,000 from the prior year due to a decrease in Cargo Inspection Systems revenues of $3,591,000, and a decrease in aftermarket parts revenue of $2,349,000.  This decrease was offset in part by an increase of $2,524,000 in Parcel and Personnel Inspection Systems attributable to our introduction of the MINI Z system in June of 2014, and an increase of $1,983,000 in Mobile Cargo Inspection Systems revenues.  Net service revenues decreased by $333,000 to $24,015,000 as compared to the first six months of fiscal 2015 due primarily to delays in renewals of certain service contracts scheduled for renewal in the period.

 

Total cost of sales and contract revenues for the second quarter of fiscal 2016 decreased by $600,000 to $12,783,000 as compared to the corresponding period a year ago. Cost of product sales and contract revenues increased by $514,000 to $7,045,000 as compared to the corresponding period a year ago.  Cost of product sales and contract revenues represented 53% of revenues versus 59% of revenues for the corresponding period in the prior year.  The increase in product gross margin percentage

 

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was primarily attributable to the shift in product mix in the quarter to the higher margin Mobile Cargo Inspection Systems.  The cost of service revenues for the second quarter of fiscal 2016 decreased by $1,114,000 to $5,738,000 as compared to the corresponding period a year ago.  Cost of service revenues decreased to 49% of revenues from 57% of revenues in the corresponding period.  The increase in service gross margins in the second quarter of fiscal 2016 is attributable primarily to reduced third party subcontractor costs to support systems under fixed price contracts as compared to the prior year and the refund of $594,000 in employment related taxes associated with international service engineers during the period.

 

Total cost of sales and contract revenues for the first six months of fiscal 2016 decreased by $2,650,000 to $29,801,000 as compared to the corresponding period a year ago. Cost of product sales and contract revenues decreased by $1,164,000 to $17,665,000 as compared to the corresponding period a year ago.  Cost of product sales and contract revenues represented 54% of revenues versus 55% of revenues for the corresponding period in the prior year. This margin improvement is attributable to the shift in the product mix from the corresponding period with a greater percentage of revenues derived from our Mobile Cargo products which historically earn higher margins than our other product groups. The cost of service revenues for the first six months of fiscal 2016 decreased by $1,486,000 to $12,136,000 as compared to the corresponding period a year ago.  Cost of service revenues decreased to 51% of revenues from 56% of revenues in the corresponding period.  The increase in gross margin percentage in the first six months of fiscal 2016 as compared to the corresponding prior period is due to reduced costs to support systems under fixed price contracts and the refund of $594,000 in certain employment related taxes associated with international service engineers during the period.

 

Selling, general and administrative expenses for the second quarter of fiscal 2016 decreased by $2,346,000 to $6,772,000 as compared to $9,118,000 in corresponding period a year ago.  Selling, general and administrative expenses represented 27% of revenues in the current period compared to 40% for the corresponding period in the prior year. This decrease in cost was due primarily to decreases in payroll and payroll related costs of $1,160,000 resulting from headcount reductions effected over the last five quarters, a decrease in incentive compensation expense of $606,000, a decrease in consulting expenses of $121,000 and decreases in bid and proposal related costs of $234,000.

 

Selling, general and administrative expenses for the first six months of fiscal 2016 decreased by $2,267,000 to $15,042,000 as compared to the corresponding period a year ago.  Selling, general and administrative expenses represented 27% of revenues in the current period compared to 30% for the corresponding period in the prior year.  The decrease in selling, general and administrative expenses from the prior year period was primarily the result of a decrease in payroll and payroll related costs of $1,105,000 due to headcount reductions effected over the prior five quarters, a decrease in incentive compensation expense of $1,326,000, and a decrease in travel related expenses of $167,000 as compared to the prior period,   These decreases were offset in part by an increase in legal costs of $609,000 related to the GSA investigation,  intellectual property and other contract related matters, and an increase in consulting expenses of $203,000 as compared to the prior year.

 

Company funded research and development expenses for the second quarter of fiscal 2016 decreased by $1,667,000 to $4,751,000 as compared to the corresponding period a year ago.  Research and development expenses represented 19% of revenues in the current quarter compared to 28% for the corresponding period in the prior year. Research and development expenses decreased from the prior year primarily due to cost-cutting measures and headcount reductions effected during the past five quarters.  In addition, our fiscal quarter ended September 30, 2014 included research and development expenses of $350,000 in severance costs which did not recur in our fiscal quarter ended September 30, 2015.

 

Company funded research and development expenses for the first six months of fiscal 2016 decreased by $784,000 to $11,640,000 as compared to the corresponding period a year ago.  Research and development expenses remained consistent at 21% of revenues for both years presented. Research and development expenses decreased from the prior year primarily due to cost-cutting measures and headcount reductions effected during the past five quarters.

 

Other income (expense), net, was $117,000 of expense for the second quarter of fiscal 2016 as compared to $21,000 of expense for the corresponding period a year ago.  Other income (expense), net was $176,000 of expense for the first six months of fiscal 2016 as compared to $106,000 of expense for the corresponding period a year ago.   The increase in other expense was the result of reduced investment income as well as an increase in foreign currency transaction losses as compared to the prior year.

 

We reported pre-tax income of $714,000 in the second quarter of fiscal 2015 as compared to a pre-tax loss of $5,874,000 in the corresponding period due to the factors described above.  We reported a pre-tax loss of $78,000 in the first six months of fiscal 2016 as compared to a pre-tax loss of $3,687,000 in the corresponding period due to the factors described above.

 

Our effective tax rate was 35.0% for the second quarter and first six months of fiscal 2016 as compared to an effective tax rate of 33.5% for the second quarter and first six months of fiscal 2015.  The increase in the effective tax rate was due primarily decreases in projected manufacturing deductions for the year.

 

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Liquidity and Capital Resources

 

Our primary source of liquidity is our cash flows from operations.  We believe that our operating cash flows and cash and investments on hand are sufficient for the foreseeable future to fund our working capital requirements, capital expenditures, income tax obligations, dividends payable to our shareholders and performance guarantee collateralizations and also to fund stock repurchases as desired.

 

Summary of Cash Activities

 

Cash and cash equivalents increased by $10,458,000 to $79,293,000 at September 30, 2015 compared to $68,835,000 at March 31, 2015.  Cash inflows for the period consisted primarily of:

 

1)             net proceeds from sales and maturities of short-term investments of $16,780,000;

2)             a decrease of $2,659,000 in inventories from year end due to shipments made during the period;

3)             a decrease of $1,326,000 in accounts receivable due to the collection of year-end receivables;

4)             an increase in deferred revenue of $3,623,000 due to advance billings effected on certain contracts during the period;

5)             a decrease in restricted cash of $574,000 due to a reduction in the amount of standby letters of credit from year end; and

6)             a decrease of $2,111,000 in prepaid expenses and other assets due primarily to the receipt of tax refunds during the period.

 

Offsetting these inflows were cash outflows including:

 

1)             the payment of $7,219,000 in common stock dividends during the period as part of our quarterly dividend program;

2)             an increase in unbilled costs and fees of $1,630,000 attributable to invoicing delays due to contract modifications on one contract;

3)             the payment of $2,263,000 to repurchase 54,056 shares of our common stock during the period;

4)             a decrease of $2,399,000 in customer deposits due to revenues earned during the period;

5)             a decrease in accounts payable of $2,453,000 from the year end; and

6)             a decrease in accrued expenses and other liabilities of $3,221,000 due to reductions in payroll and incentive compensation related accruals as compared to year end.

 

In the normal course of business, we may provide certain customers and potential customers with performance guarantees, which are generally backed by standby letters of credit. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations; the probability of which our management believes is low.   As of September 30, 2015, we had outstanding $10,817,000 in standby letters of credit.  These outstanding standby letters of credit are cash-secured at amounts ranging from 52% to 63% of the outstanding letters of credit, resulting in restricted cash balance of $5,827,000 at September 30, 2015, of which $231,000 was considered long-term restricted cash due to the expiration date of the underlying letters of credit.

 

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There were no material changes in the quantitative and qualitative information about market risk since the end of our most recent fiscal year.  For further information, see Item 7A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, as filed with the Securities and Exchange Commission on June 5, 2015.

 

ITEM 4 — CONTROLS AND PROCEDURES

 

a)   Evaluation of disclosure controls and procedures

 

As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we reviewed and evaluated the effectiveness of our Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Based upon their evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports filed and submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

b)   Changes in internal control over financial reporting

 

There have been no changes in our internal control over financial reporting as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

ITEM 1A — RISK FACTORS

 

You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Form 10-K for the fiscal year ended March 31, 2015 as filed with the Securities and Exchange Commission on June 5, 2015. There have been no material changes from the factors disclosed in our Form 10-K for the year ended March 31, 2015, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

 

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On May 7, 2013, the Board of Directors announced the approval of a Stock Repurchase Program which authorizes us to repurchase up to $35.0 million of shares of our common stock from time to time on the open market or in privately negotiated transactions. On December 1, 2014, the Board of Directors announced an expansion of this stock repurchase program increasing the program authorization to $50 million of shares of our common stock.

 

During the three months ended September 30, 2015, the Company did not repurchase any shares of its common stock.  As of September 30, 2015, the remaining balance available under the Stock Repurchase Program was $11,225,000.

 

ITEM 6 — EXHIBITS

 

The exhibits listed on the Exhibit Index immediately following the signature page to this Quarterly Report on Form 10-Q are incorporated herein by reference, and are filed or furnished as part of this Quarterly Report on Form 10-Q.

 

The information required by Exhibit Item 11 (Statement re: Computation of Income per Common and Common Equivalent Share) may be found in Note 4 to the Unaudited Condensed Consolidated Financial Statements in this quarterly report.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

AMERICAN SCIENCE AND ENGINEERING, INC.

 

 

Date: November 9, 2015

/s/ Kenneth J. Galaznik

 

Kenneth J. Galaznik

 

Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

 

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Table of Contents

 

EXHIBIT INDEX

 

Exhibit
Number

 

Description of Exhibits

 

 

 

3.1

 

Restated Articles of Organization of the Company, as amended, including Certificate of Designation, Preferences, and Rights of Preferred Stock of the Company, dated April 16, 2008 (filed as Exhibit 3.1 to the Company’s filing on Form 10-K dated June 9, 2010 and incorporated herein by reference)

 

 

 

3.2

 

Amended and Restated By-laws of the Company (filed as exhibit 3.2 to the Company’s Current Report on Form 8-K filed on September 6, 2013 and incorporated herein by reference)

 

 

 

4.2

 

Rights Agreement, dated April 17, 2008, between the Company and American Stock Transfer & Trust Company (filed as Exhibit 4.1 to the Company’s filing on Form 8-A12B filed on April 18, 2008 and incorporated herein by reference)

 

 

 

4.3

 

Amendment No. 1 to Rights Agreement dated as of April 17, 2008 between American Science and Engineering and American Stock Transfer and Trust Company, LLC, as rights agent (filed as Exhibit 4.1 to the Company’s filing on Form 8-K filed on December 22, 2014 and incorporated herein by reference)

 

 

 

10.1

*

Form of American Science and Engineering, Inc. Time-Based Restricted Stock Unit Agreement (filed as Exhibit 10.1 to the Company’s Report on Form 8-K dated August 4, 2015 and incorporated herein by reference)

 

 

 

10.2

*

Form of American Science and Engineering, Inc. Performance-Based Restricted Stock Unit Agreement (filed as Exhibit 10.2 to the Company’s Report on Form 8-K dated August 4, 2015 and incorporated herein by reference)

 

 

 

31.1

Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

 

 

31.2

Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

 

 

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

 

 

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

 

 

101

The following financial information from American Science and Engineering Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language) includes: (i) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended September 30, 2015 and 2014, (ii) Condensed Consolidated Balance Sheets at September 30, 2015 and March 31, 2015, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2015 and 2014, and (iv) the Notes to Condensed Consolidated Financial Statements.

 


*  Management contract or compensatory plan or arrangement

†   Filed herewith

 

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