SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended April 2, 1994
Commission file number 1-5881
BROWN & SHARPE MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 050113140
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Precision Park, 200 Frenchtown Road, North Kingstown, Rhode Island 02852
(Address of principal executive offices and zip code)
(401) 886-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date; 4,643,292 Class
A common shares, 545,539 Class B common shares, par value $1, outstanding
as of April 2, 1994.
<PAGE> 2
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(Dollars in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended
April 2, 1994 March 27, 1993
------------- --------------
<S> <C> <C>
Net sales $ 36,659 $ 39,758
Cost of goods sold 25,940 28,448
Selling, general and
administrative expense 12,261 10,744
------------ ------------
Operating profit (loss) (1,542) 566
Interest expense (1,280) (1,132)
Other income, net 48 1,794
------------ ------------
Income (loss) before income taxes (2,774) 1,228
Income tax provision 100 --
------------ ------------
Net income (loss) $ (2,874) $ 1,228
============ ============
Primary and fully diluted
income (loss) per common share $ (.57) $ .25
============ ============
Weighted average shares
outstanding during
the period 5,037,507 4,964,368
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 3
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> April 2, 1994 December 25,1993
ASSETS ------------- ----------------
Current Assets: <C> <C>
Cash and cash equivalents $ 3,818 $ 2,094
Restricted cash 6,113 6,078
Accounts receivable, net of allowances for
doubtful accounts of $1,542 and $1,320 42,284 44,525
Inventories 57,550 53,963
Prepaid expenses and other current assets 3,387 3,031
--------- ----------
Total current assets 113,152 109,691
Property, plant and equipment:
Land 6,358 6,398
Buildings and improvements 32,572 32,315
Machinery and equipment 78,615 77,053
--------- ----------
117,545 115,766
Less-accumulated depreciation 73,775 72,212
--------- ----------
43,770 43,554
Other assets 12,760 12,626
--------- ----------
$ 169,682 $ 165,871
========= ==========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable and current
installments of long-term debt $ 33,742 $ 31,804
Accounts payable 12,549 12,716
Accrued expenses and income taxes 22,665 19,146
--------- ---------
Total current liabilities 68,956 63,666
Long-term debt 33,224 32,696
Deferred income taxes 1,781 1,763
Unfunded accrued pension cost 4,345 4,226
Shareowners' Equity:
Preferred stock, $1 par value;
authorized 1,000,000 shares -- --
Common stock:
Class A, par value $1; authorized 15,000,000
shares; issued 4,651,368 shares in 1994
and 4,431,890 shares in 1993 4,651 4,432
Class B, par value $1; authorized 2,000,000 shares;
issued and outstanding 545,539 shares in 1994
and 547,604 shares in 1993 546 548
Additional paid in capital 47,013 45,710
Earnings employed in the business 1,503 4,377
Cumulative foreign currency
translation adjustment 8,547 9,394
Treasury stock: 8,076 shares in 1994 and
in 1993 at cost (163) (163)
Unearned compensation (721) (778)
---------- ---------
Total shareowners' equity 61,376 63,520
---------- ---------
$ 169,682 $ 165,871
============ ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 4
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended
April 2, 1994 March 27, 1993
------------- --------------
<C> <C>
Cash Provided by (Used in) Operations:
Net income (loss) $ (2,874) $ 1,228
Adjustment for Noncash Items:
Depreciation and amortization 1,307 1,646
Pension credits and charges 112 75
Deferred income taxes -- (500)
Gain on sale of operations -- (2,000)
Changes in Working Capital:
Accounts receivable 5,762 (3,251)
Inventories 495 1,757
Prepaid expenses and other current assets (477) 727
Accounts payable and accrued expenses (798) 1,549
------------ -----------
Net Cash Provided by Operations 3,527 1,231
------------ -----------
Investment Transactions:
Capital expenditures (814) (975)
Proceeds from sale of operations -- 3,200
Cash equivalent pledged (35) --
Other investing activities (194) 101
Cash Provided by (Used in) ----------- -----------
Investment Transactions (1,043) 2,326
------------ -----------
Financing Transactions:
Increase in long-term and short-term debt 1,912 272
Payment of long-term and short-term debt (2,488) (2,652)
Other financing activities 498 --
------------ ------------
Cash Used in Financing Transactions (78) (2,380)
------------ ------------
Effect of Exchange Rate Changes on Cash (682) 390
------------ ------------
Cash and Cash Equivalents:
Increase (decrease) during the period 1,724 1,567
Beginning balance 2,094 4,640
------------ ------------
Ending balance $ 3,818 $ 6,207
============ ============
Supplementary Cash Flow Information:
Interest paid $ 532 $ 434
============ ============
Taxes paid $ 694 $ 581
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 5
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Financial statements for interim periods are unaudited and include all
adjustments which are of a normal recurring nature which, in the opinion of
management, are necessary for a fair statement of the results for the interim
periods.
2. The Company operates and reports with its accounting year ending on
the last Saturday of the calendar year. Thus, most years encompass 52 weeks
with an occasional year encompassing 53 weeks. This results in most accounting
quarters of 13 weeks with one quarter in the 53 week year including 14 weeks.
The year 1994 will include 53 weeks and the first quarter of 1994 includes 14
weeks. This compares to 1993 being 13 weeks in each quarter and 52 weeks in
the year.
3. During the first quarter of 1994, the Company changed its method of
accounting from the completed contract method to the percentage-of-completion
accounting method for its long-term large machinery construction contracts
for its European operations. This conforms the worldwide accounting to the
U.S. reporting percentage-of-completion basis. Management believes that this
method more appropriately reports revenue and costs in related accounting
periods rather than recognizing substantially all revenue and cost at the
time of shipment. Information with respect to the quarter ended March 27,
1993 and the year ended December 25, 1993 has been restated to reflect this
change in accounting. The effect of this restatement was to increase retained
earnings at December 25, 1993 by $294. Net income for the first quarter of
1994 was increased by $164 or $.03 per share and net income in the first
quarter of 1993 was reduced by $299 or $.06 per share.
4. Income taxes include provisions for federal, foreign and state income
taxes and is based on the Company's estimate of effective income tax rates
for the full year. The current tax provision for the first quarter of 1994 is
$100. The tax provision for the first quarter of 1993 was $500 which was
offset by a $500 deferred tax credit resulting from timing differences.
5. Earnings (loss) per share is based upon the weighted average number of
common shares outstanding for the periods presented since inclusion of common
stock equivalents would be antidilutive. Fully diluted earnings per share are
not materially different.
6. Certain information in 1993 has been reclassified to conform to the
1994 presentation.
7. Brown & Sharpe Manufacturing Company through its subsidiary Brown &
Sharpe International Capital Corporation purchased, on March 24, 1994, the
stock of the French company Ets. Pierre Roch, S.A. (Roch) and its German
sister company, Mauser Prazisions - Messmittel GmbH, which together
manufacture and market micrometers, calipers, height gages, digital indicators,
and other similar precision measuring instrument products. The business is
headquartered in Luneville, France which is its sole manufacturing site. The
German operation is a sales office. These operations were purchased from
Diehl GmbH & Co. of Nurnberg, Germany ("Diehl"). The Company intends to
continue using the acquired assets in businesses in which they have been
previously employed.
The purchase price was delivery to Diehl of 175,000 shares of Brown &
Sharpe Class A Common Stock, subject to certain post closing adjustments and
granting Diehl the right to receive additional 50,000 shares of such stock in
the event the Company's Class A Common Stock attains a market price of $15 or
more per share for a total of 30 days or more during any twelve month period
within the five years following the purchase. The purchase price was
determined through negotiation by the parties subject to adjustment based on
specified closing balance sheet changes. Roch entered into a nine year lease
agreement to lease the Luneville facility from Societe Immobiliere Lunevilloise
S.A.R.L., a subsidiary of Diehl, for about $34,000 annually and has options
to purchase the facility during the lease term.
The acquisition has been accounted for by the purchase method of
accounting, and accordingly, the purchase price has been allocated to assets
acquired and liabilities assumed based on an estimate of their fair values at
the date of acquisition. The book value of the net assets exceeded the
purchase price before allocation by approximately $2,100. The estimated fair
values of assets and liabilities after allocation are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 1,380,000
Accounts receivable 2,700,000
Inventory 3,250,000
Machinery and equipment 510,000
Accounts payable and accruals 3,880,000
Short-term debt 2,350,000
Long-term debt 410,000
---------------
$ 1,200,000
</TABLE>
The Company's unaudited combined results of operations for the quarter
ended April 2, 1994 and the year ended December 25, 1993 on a pro forma basis
assuming the acquisition of Roch occurred at the beginning of 1994 and 1993,
respectively are as follows:
<TABLE>
<CAPTION>
First
Quarter Year
1994 1993
------- ----
<S> <C> <C>
Net sales $ 40,072 $ 169,542
Net (loss) $ (2,714) $ (2,004)
Primary and fully diluted
(loss) per common share $ (.52) $ (.39)
</TABLE>
<PAGE> 6
BROWN & SHARPE MANUFACTURING COMPANY
Part I - Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(14 weeks ended April 2, 1994 compared to 13 weeks ended March 27, 1993)
Orders for the first quarter of 1994 were $38 million, compared to
$37 million for the first quarter of 1993. Backlog at April 2, 1994 increased
to $27 million compared to $26 million at year end 1993 and $25 million at
the end of the first quarter of 1993. Brown & Sharpe sold its machine tool
spare parts and rebuild operations near the end of the first quarter of 1993.
The first quarter of 1993 included about $2 million of orders from the
subsequently sold operations. Foreign currency exchange rate changes caused
an increase of about $1 million in reported first quarter 1994 orders as
compared to first quarter 1993.
Net sales for the first quarter of 1994 were $37 million, compared to
$40 million for the first quarter of 1993 including about $2 million from
operations subsequently sold in the first quarter a year ago. Foreign
currency exchange rate changes caused an increase of about $1 million in
reported first quarter 1994 sales as compared to first quarter 1993. The
sales decline from 1993 to 1994 occurred largely in Measuring Systems
products. It reflected the effect of entering the 1993 first quarter with a
larger shippable backlog than shippable backlog at the start of the 1994
first quarter, the continued effect of competitive discounting on sales
revenues. It also reflected a greater percentage of lower priced units
shipped in the first quarter of 1994 for both Brown & Sharpe and Leitz
products within and outside the U.S. While the first quarter of 1994
included 14 weeks as compared with 13 weeks in the 1993 quarter, quarters
with an extra week do not typically result in a proportionate sales increase
since, historically, the largest volume of shipments occurs in the few weeks
at quarter end.
Cost of goods sold as a percentage of net sales was 70.8% in the first
quarter of 1994, compared to 71.6% in the first quarter of 1993 reflecting
engineering staff reductions at a few locations.
Selling, general, and administrative expense in the first quarter of
1994 at $12.3 million was more than the $10.7 million incurred in the
comparable period in the prior year. The increase results primarily from the
effect of 14 weeks of operating costs in the 1994 versus 13 weeks of costs in
the 1993 period. Also, the 1993 first quarter benefited from the receipt of
litigation settlement proceeds.
The first quarter of 1994 operating loss was $(1.5) million compared
to a first quarter 1993 operating profit of $.6 million, reflecting the impact
of 14 weeks of expense in 1994 and the inpact of lower sales. At the operating
level, the U.S. had a loss of $(.3) million in the first quarter of 1994
compared to an operating loss of $(1.2) million for foreign operations.
Interest expense was $1.3 million in the first quarter of 1994,
compared to $1.1 million in the first quarter of 1993. The increase in the
first quarter of 1994 reflects increased borrowing in the U.S.
Other income, net, was $.1 million in the first quarter 1994 and $1.8
million in the first quarter 1993. The 1993 first quarter included a $2
million gain on the sale of the machine tool spare parts and rebuild
operations referred to in the first paragraph.
Income tax provision amounted to $.1 million in the first quarter of
1994, as compared to $.5 million in the first quarter of 1993 which was offset
by deferred tax benefits of $.5 million in the first quarter of 1993 due to
reductions in deferred tax liabilities as a result of losses for certain
subsidiaries in Europe.
The first quarter 1994 net loss of $2.9 million ($.57 loss per share)
compared to net income of $1.0 million ($.25 income per share) in the first
quarter of 1993.
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
On a net basis, cash in the amount of $3.5 million was provided by
operations in the first quarter of 1994 as compared with $1.2 million in the
first quarter of 1993. Offsetting the net loss of $2.9 million, cash was
largely provided by accounts receivable collections from typically higher
seasonal sales near the end of the preceding fourth quarter. Cash in the
amount of $1.0 million was used in the 1994 first quarter for investment
transactions, principally for capital expenditures. There was no net
provision or use of cash flow from financing transactions in the first quarter
of 1994 as borrowings during the quarter approximated debt repayments. At the
end of the first quarter, cash had increased to $3.8 million from $2.0
million at year end 1993.
Inventories increased to $57.6 million at April 2, 1994, an increase
of $3.6 million or 6.7% from $54.0 million at year-end 1993, but this did not
require the use of cash as it resulted from Brown & Sharpe completing on
March 24, 1994 the purchase of the French precision measuring instruments
business, Ets. Pierre Roch, S.A. (Roch) and its sister company, Mauser
Prazisions-Messmittel GmbH. The business, which produces calipers, height
gages, indicators, and other similar products was acquired for approximately
175,000 shares of Brown & Sharpe Class A Common Stock, with an additional
50,000 shares of Brown & Sharpe Class A Common Stock contingently issuable in
the event that the Class A Common Stock attains a market price of $15 or more
per share for a total of 30 days or more during any 12 month period within
the five year period after the Roch closing. Roch had 1993 sales of
approximately $10 million, primarily in France and Germany, and had assets of
approximately $8 million on the closing date. Accounts receivable decreased
$5.8 million in the first quarter of 1994 reflecting collections during the
quarter of the typical seasonably high level of receivables at the prior year
end.
Working capital was $44.2 million at the end of the first quarter of
1994 compared with $46.0 million at year-end 1993. The current ratio was
1.64:1 at the end of the first quarter of 1994 compared to 1.72:1 at year-end
1993. Net capital expenditures of $.8 million for the quarter were less than
depreciation of $1.2 million. Total debt increased $2.5 million to $67
million during the first three months of 1994 from $64.5 million at year-end
1993. Debt ratios (total debt divided by total debt plus shareowners' equity)
increased to 52.2% at the end of the first quarter compared to 50.4% at the
end of 1993.
Available secured and unsecured lines of credit were approximately
$39 million at the end of the first quarter with $30 million borrowed at the
end of the second quarter of 1994 compared to having lines of credit of $40
million with $30 million borrowed at year-end 1993. Borrowings under the
Company's two year revolving credit agreement entered into on June 30, 1993
were $7.7 million at April 2, 1994 and $9.0 million at May 13, 1994. At
April 30, 1994, the maximum borrowing base, (determined by a formula for
eligible accounts receivable and finished inventory) was $12.4 million, and
the Company was in compliance with all covenants under the agreement at
May 13, 1994. As at year-end substantially all lines are payable on demand.
Management is continuing its efforts to secure a plant-based mortgage term
borrowing and to increase the Company's permanent equity capital. The
Company has had meetings with the agents of an insurance company with regard
to a contemplated $8 million North Kingstown, RI plant-based mortgage
financing and expects, based on discussions to date, that it will obtain a
commitment for such plant-based mortgage financing. However, there can be no
assurance that this commitment will be received or that the financing
transaction will be closed on terms acceptable to the Company.
In view of the foregoing, Management believes that the current lines
of credit are adequate to meet anticipated cash needs through the end of 1994.
As announced in 1993, the Company is continuing negotiations to
purchase Finmeccanica's DEA Group of metrology companies and business units.
The DEA Group, headquartered in Turin, Italy, manufactures and markets
worldwide a variety of types of coordinate measuring machines and systems
with 1993 worldwide sales of about $110 million. Under the proposed
transaction, the DEA Group would have approximately $15 million debt, and
Brown & Sharpe would issue 2,500,000 shares of Brown & Sharpe Class A Common
Stock to Finmeccanica, and issue a contingent non-assignable right to obtain
an additional 950,000 shares based upon Brown & Sharpe Class A Common Stock
attaining a certain future market price during the five years following the
closing of the transaction. The letter of intent would require Finmeccanica
not to transfer the acquired Brown & Sharpe shares to any person other than
Brown & Sharpe for a specified period and to afford Brown & Sharpe certain
rights of first refusal with respect thereto for a further specified period.
The letter of intent contemplates that Finmeccanica would have representatives
on Brown & Sharpe's Board of Directors. The proposed combination is subject
to negotiation of a definitive acquisition agreement and to a number of other
conditions, including satisfactory completion of due diligence, approval by
the Board of Directors of each party, approval by Brown & Sharpe's stock-
holders, receipt of relevant governmental approvals in applicable countries
and successful negotiation of financing arrangements with certain financial
institutions to obtain consent of certain existing lenders and to obtain an
additional line of credit based on DEA Group assets or upon other financing
arrangements deemed satisfactory by the Company. The waiting period with
respect to the proposed transaction under the Hart-Scott-Rodino Antitrust
Improvements Act expired in August 1993. There can be no assurance that a
definitive acquisition agreement can be negotiated and executed or that the
financing arrangement conditions or all other closing conditions will be
satisfied.
<PAGE> 8
PART II. OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
A. See Exhibit Index annexed.
B. No Form 8-K was filed during the quarter ended April 2, 1994.
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
BROWN & SHARPE MANUFACTURING COMPANY
By: /s/ Charles A.Junkunc
Charles A. Junkunc
Vice President and
Chief Financial Officer
(Principal Financial Officer)
May 17, 1994
<PAGE> 9
BROWN & SHARPE MANUFACTURING COMPANY
EXHIBIT INDEX
4. Indenture dated as of October 1, 1980 (including form of
debenture) between the Company and Morgan Guaranty Trust Company of New York
as trustee relating to 9-1/4% convertible subordinated debentures due
December 15, 2005, originally filed as Exhibit (b) (1) to Form S-16
Registration Statement No. 2-69203 dated October 1, 1980 and incorporated
herein by reference.
The Registrant hereby agrees to furnish a copy to the
Commission of other instruments defining the rights of holders of long-term
debt, as to which the securities thereunder do not exceed ten percent of
total assets on a consolidated basis.
11. Computation of Per Share Data for the fourteen week period
ended April 2, 1994 and the thirteen week period ended March 27, 1993.
18. Letter of Coopers & Lybrand, independent accountants,
regarding preferability of change in accounting principles to conform
worldwide use of percent-of-completion basis accounting for long-term large
machinery construction contracts of the European operations.
EXHIBIT 11
BROWN & SHARPE MANUFACTURING COMPANY
COMPUTATION OF PER SHARE DATA
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
For the Quarter Ended
April 2, 1994 March 27, 1993
<S> ------------- --------------
Computation of income (loss): <C> <C>
Net income (loss) used for computation
of primary earnings per share $ (2,874) $ 1,228
Add interest expense, net of taxes,
assuming conversion of debentures 226 295
Net income (loss) used for computation ---------- -----------
of fully diluted earnings per share $ (2,648) $ 1,523
========== ===========
Computation of shares:
Weighted average number of common shares
outstanding during the period 5,037,507 4,964,368
Dilutive stock options -- --
Weighted average number of common shares
used for computation of
primary earnings per share 5,037,507 4,964,368
Additional dilutive stock options -- --
Assumed conversion of convertible
debentures 609,523 647,619
Weighted average number of common ----------- ----------
shares used for computation of
fully diluted earnings per share 5,647,030 5,611,987
=========== ==========
Per common share:
Primary and fully diluted net income
(loss) per share $ (.57) $ .25
========== =========
</TABLE>
EXHIBIT 18
May 13, 1994
Brown & Sharpe Manufacturing Company
Precision Park
North Kingstown, RI 02852
Gentlemen:
We are providing this letter to you for inclusion as an exhibit to your
Form 10-Q filing pursuant to Item 601 of Regulation S-K.
We read management's justification for the change in accounting from the
completed contract method to the percentage of completion method contained in
the Company's Form 10-Q for the quarter ended April 2, 1994. Based on our
reading of the data and discussions with Company officials of the business
judgment and business planning factors relating to the change, we believe
management's justification to be reasonable. Accordingly, in reliance on
management's determination as regards elements of business judgment and
business planning, we concur that the newly adopted accounting principle
described above is preferable in the Company's circumstances to the method
previously applied.
We have not examined any financial statements of Brown & Sharpe Manufacturing
Company as of any date or for any period subsequent to December 25, 1993, or
have we audited the application of the change accounting principle disclosed
in Form 10-Q of Brown & Sharpe Manufacturing Company for the three months
ended April 2, 1994; accordingly, our comments are subject to revision on
completion of an audit of the financial statements that include the accounting
change.
Very truly yours,
Coopers & Lybrand
