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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER COMMISSION FILE NUMBER 1-5881
31, 1995
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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 OF ORGANIZATION) IDENTIFICATION NO.)
PRECISION PARK,
200 FRENCHTOWN ROAD,
NORTH KINGSTOWN, RHODE ISLAND 02852
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 401-886-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Class A Common Stock--Par Value $1.00................ New York Stock Exchange
Preferred Stock Purchase Rights...................... New York Stock Exchange
9 1/4% Convertible Subordinated Debentures due New York Stock Exchange
December 15, 2005...................................
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS B COMMON STOCK--PAR VALUE $1.00
(TITLE OF CLASS)
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value (as calculated under the rules) of the voting
common stock held by non-affiliates of the Registrant was approximately
$33,000,000 as of March 22, 1996.
There were 8,216,181 Shares of Class A Common Stock and 522,244 Shares of
Class B Common Stock, each having a par value of $1.00 per share, outstanding
as of March 22, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been incorporated by reference in the following
parts of the Form 10-K: (1) Definitive Proxy Statement for the May 2, 1996
Annual Meeting incorporated by reference (to the extent specified) in Part
III.
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BROWN & SHARPE MANUFACTURING COMPANY
INDEX
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PART I
Item 1 Business........................................................ 3--11
General......................................................... 3
Dimensional Metrology Industry.................................. 3--4
Metrology Business Strategy..................................... 4--5
MS Group........................................................ 5--6
PMI Division.................................................... 6
CM Division..................................................... 6--7
Foreign Operations.............................................. 7
Engineering and Product Development............................. 7--8
Raw Materials and Sources of Supply............................. 8
Patents, Licenses, Trademarks, and Proprietary Information...... 8
Environmental Matters........................................... 8
Employees....................................................... 8--9
Competition..................................................... 9--10
Backlog......................................................... 10
Significant Customers........................................... 10
Working Capital................................................. 10
Segment Information............................................. 10--11
Item 2 Properties...................................................... 12
Item 3 Legal Proceedings............................................... 12
Item 4 Submission of Matters to a Vote of Security Holders............. 12
Item 4A Executive Officers of the Registrant........................... 13
PART II
Item 5 Market Price of the Registrant's Common Stock and Related
Security Holder Matters......................................... 14
Item 6 Selected Financial Data......................................... 14--15
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 15--22
Item 8 Financial Statements and Supplementary Data..................... 22--41
Item 9 Disagreements With Accountants on Accounting and Financial
Disclosure...................................................... 42
PART III
Item 10 Directors and Executive Officers of the Registrant............. 42
Item 11 Management Remuneration and Transactions....................... 42
Item 12 Security Ownership of Certain Beneficial Owners and
Management..................................................... 42
Item 13 Certain Relationships and Related Transactions................. 42
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K....................................................... 42--43
Signatures..................................................... 44--45
Directors...................................................... 46
Officers....................................................... 46
Investor Information........................................... 46
Financial Statement Schedules.................................. 47
Exhibit Index.................................................. 48--52
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PART I
ITEM 1--BUSINESS
(DOLLARS IN THOUSANDS)
General
Brown & Sharpe Manufacturing Company, together with its domestic and foreign
subsidiaries, collectively referred to as "Brown & Sharpe" or the "Company",
is a leader in the design, manufacture, and marketing of dimensional metrology
products worldwide under several internationally recognized brand names. Brown
& Sharpe's products measure the physical dimensions of objects and are used by
a wide variety of industrial companies to monitor product conformance to
specifications. Manufacturers use Brown & Sharpe's products to monitor product
quality and are increasingly integrating quality control functions, and
therefore Brown & Shape's products, directly into the manufacturing process.
Brown & Sharpe markets its dimensional metrology products and services in
North America, Europe, Asia, South America, and the Middle East. Primary end
markets for Brown & Sharpe's products are the automotive, aerospace, and
industrial machinery industries.
Brown & Sharpe's operations are conducted through three units: Measuring
Systems, Precision Measuring Instruments, and Custom Metrology.
. THE MEASURING SYSTEMS GROUP (the "MS Group"), Brown & Sharpe's largest
unit, manufactures and markets a wide range of manual and computer-
controlled, high-precision CMMs. CMMs measure manufactured products and
their components within exacting dimensional tolerances, thereby
enabling manufacturers to minimize scrap and rework costs, reduce
warranty expense, and monitor product quality. The MS Group also sells a
wide variety of attachments, accessories, and related software and
provides aftermarket parts and services. Its products are sold under the
Brown & Sharpe(R), DEA(R), and Leitz(R), brand names. Brown & Sharpe
believes that it is the leader in the world market for CMM products as
measured by net sales.
. THE PRECISION MEASURING INSTRUMENTS DIVISION (the "PMI Division")
manufactures and markets a wide range of mechanical and electronic
measuring and inspection tools including micrometers, dial indicators,
calipers, gauge blocks, and height gauges. PMI Division products are
sold under the Brown & Sharpe(R), Tesa(R), Etalon(R), Interapid(R),
Standard Gage(R), Mauser(R), Select Gauge(TM), Mercer(TM), and Roch(R)
brand names.
. THE CUSTOM METROLOGY DIVISION (the "CM Division") designs and engineers
specialty products and systems to provide customized solutions for
unique measurement or inspection problems, such as applications
requiring several simultaneous measurements or inspection of an entire
object in a high volume production line. CM Division products are sold
under the Tesa(R) brand name.
Dimensional Metrology Industry
Dimensional metrology products measure, digitize, and inspect manufactured
parts and components for conformance to specifications. These products include
a wide range of measuring devices such as calipers, micrometers, dial
indicators, fixed gauges, height gauges, measuring microscopes, electronic
probes, customized semiautomatic and automatic measuring devices, optical and
laser measuring devices, robots, coordinate measuring machines, and related
software. Prices range from $20 for a caliper to over $3 million for a large
gantry CMM. A customer generally will choose between different dimensional
metrology technologies or products based upon the features, complexity,
variety and throughput of the items to be measured, degree of accuracy
required, and cost differences between the available metrology products. For
example, fixed gauges are more likely to meet a customer's metrology needs if
the items that a customer must measure are manufactured in high volume, are
all uniform in size and shape, such as automobile connecting rods, and results
are needed instantly. If, however, a customer needs to measure a large number
of items all having different features from one another, such as the parts of
a prototype automobile engine, a more flexible measuring device such as a CMM
would more likely meet the customer's metrology needs. As manufactured
products and components
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become more complex, the flexibility of CMMs should give them an advantage in
certain applications over less flexible dimensional metrology products such as
manual, semiautomatic, and fixed gauges, conversely, the ultimate in speed and
accuracy is generally achieved by dedicated fixed gauging.
Although the metrology industry is fragmented for lower-priced products,
Brown & Sharpe believes it is one of only five major worldwide competitors
that manufacture high precision CMMs. CMM products can be grouped into three
categories: small (which can be used to measure a product such as an
automobile carburetor), medium (which can be used to measure an item such as
an engine block), and large (which can be used to measure an item such as the
body of a truck or bus). CMMs were first introduced in the 1950s, but early
models were only capable of two-axis measurement. Over time, CMMs have evolved
into complex, computer assisted or computer driven, multi-axis systems, often
with attachments such as two-axis articulated probe holders, contact and non-
contact sensors of various types, electronic touch trigger probes, continuous
scanning analog probes, marking systems, laser probes, and rotary tables.
Today, CMMs are utilized to measure, digitize, and inspect finished products,
mechanical components, and families of parts in many basic industries,
including the automotive, aerospace, construction and farm equipment,
industrial machinery, defense, appliance, computer and electronics, medical
equipment, and semiconductor industries. CMM prices range from approximately
$10,000 to over $3 million depending upon accuracy, attachments, and size.
The increasing use of more sophisticated software has played an important
role in the evolution of the CMM. Improved software, CAD/CAM, and network
technologies enable CMMs to automatically compensate for the position of the
piece to be measured relative to the measuring axes of the machine,
eliminating the need for the time-consuming manual positioning necessary with
other dimensional metrology products. Although CMM-type software can be added
to on-machine gauging, vision systems of various types, and a small percentage
of fixed gauges, CMMs are easier to use, more flexible, and generally provide
more analytical information than most products using competing technologies.
Manufacturers of component parts, as well as manufacturers of finished
products, are purchasers of CMMs and other dimensional metrology products.
Manufacturers depend upon dimensional metrology products to improve the
reliability, fit, and finish of their products and to improve efficiency by
reducing errors, scrap, throughput time, and work-in-progress inventories.
Traditionally, customers used either fixed gauges, optical comparators or
calipers, or other hand or bench tools to inspect product conformance to
specifications on the factory floor, while CMMs were used in factory quality
control departments due to the necessity for a controlled environment for
optimum CMM operation. Improved hardware and software technologies have
allowed customers to move CMMs onto the factory floor to facilitate direct
integration of CMM measurement capabilities into the manufacturing process.
Because CMMs, fixed gauges, and certain other types of dimensional metrology
products can be configured to accommodate a wide variety of customer
specifications for accuracy, speed, set-up time, and physical characteristics
of the objects to be measured, Brown & Sharpe believes these products can
effectively meet the evolving quality control needs of manufacturers.
Despite growth in the dimensional metrology markets in China, India, and the
Pacific Rim countries, management believes that in the period 1991--1993 the
total world market for dimensional metrology products had declined
significantly in terms of dollar denominated sales. In the three major world
markets, the decline had been more significant in Europe and Japan than in the
United States. Brown & Sharpe believes that this overall market decline had
been primarily related to global economic conditions which had resulted in
reduced levels of capital expenditures by manufacturers in many market
segments. In addition, during this period, revenues from sales of CMMs and
other dimensional metrology products were impacted by vigorous price and
performance competition due to over capacity in the dimensional metrology
industry and reduced demand by the capital goods sector for dimensional
metrology products.
Metrology Business Strategy
Brown & Sharpe is implementing a strategy designed to improve its
competitiveness and position itself for improvement in its markets, including
the currently depressed European market. Key elements of this strategy
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are (i) expanding its market presence in the metrology industry, including
through acquisition and consolidation opportunities, (ii) reducing product
costs through more cost-effective product design, selective outsourcing, and
consolidation of manufacturing processes, (iii) providing "best in class"
customer service and strengthening its worldwide distribution network, and
(iv) focusing on technological innovations designed to improve product
performance, the development of new products, and the development of new
markets in the packaging and electronics industries.
. EXPANDED MARKET PRESENCE. Through the acquisition of Roch, Mauser, and
DEA, Brown & Sharpe has expanded its product lines and its marketing and
distribution capabilities in Europe, South America, the Middle East,
India, and China. Brown & Sharpe intends to continue to expand and
strengthen its market presence and broaden its product lines and may
pursue selected small acquisition and consolidation opportunities within
the dimensional metrology industry. Brown & Sharpe believes that the
dimensional metrology industry has continuing over capacity and that
competitors having complementary product lines and geographic market
coverage may continue to become available for acquisition.
. COMPETITIVE COSTS. Brown & Sharpe intends to continue to increase
production efficiency through more cost-effective product designs and
through other cost reductions. Brown & Sharpe intends to reduce costs by
using the "Design for Manufacturability and Assembly" (DFMA) engineering
principle, which strives to use the fewest parts and the lowest cost
assembly process by examining the production processes at each facility
in order to maximize efficiency, and by outsourcing components and
complete products in cases where it can achieve its high quality
standards at reduced costs.
. "BEST IN CLASS" CUSTOMER SERVICE AND WORLDWIDE DISTRIBUTION
CAPABILITY. Brown & Sharpe provides post-sale service and support to its
customers through its customer service departments and its regional and
international demonstration centers. Brown & Sharpe is committed to
providing "best in class" customer service and believes that the level
of customer service provided by Brown & Sharpe has improved in recent
years and is superior to the service provided by its principal
competitors. In order to continue to improve its customer service, Brown
& Sharpe has increased its emphasis on customer training by improving
user manuals and documentation relating to Brown & Sharpe's products and
directly supporting greater number of its customers by adding new
demonstration and service centers in previously unserved geographic
areas. In addition, Brown & Sharpe plans to continue to strengthen its
worldwide distribution capability, principally by continuing to
rationalize its existing distribution network and by opening new
demonstration centers and adding new direct sales capacity or
distributors where increased volume makes such distribution methods cost
effective.
. TECHNOLOGICAL INNOVATION. Brown & Sharpe intends to continue to enhance
and expand its offering of systems and products through sustained design
and manufacturing engineering at levels consistent with the past few
years. Brown & Sharpe performs some additional engineering development
activities through government grants in some countries and engages in
special projects that utilize customer funding.
MS Group
The MS Group, the largest of Brown & Sharpe's three units, accounted for
approximately 65% of Brown & Sharpe's revenues in 1995. The MS Group is
headquartered in North Kingstown, Rhode Island. Products sold under the Brown
& Sharpe(R) name are manufactured at the North Kingstown facility, products
sold under the DEA(R) name are manufactured in Turin, Italy, and products sold
under the Leitz(R) name are manufactured in Wetzlar, Germany. Brown & Sharpe
also manufactures some CMM products in the United Kingdom. The primary end
markets for the CMM products of the MS Group are the automotive, aerospace,
and industrial machinery industries.
MS Group products range from small, manually operated CMMs to large, high
speed, high precision automatic CMMs. In addition to these standard and
custom-configured CMMs, Brown & Sharpe also produces and sells high-speed
process control robots. The smallest machines can measure in a volume up to
16x14x12
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inches and are priced at approximately $10,000, and the larger, high speed,
high accuracy CMMs with integrated software systems can cost over $3 million.
The MS Group also provides optically based measuring machinery from
microscopes to vision systems. In addition, the MS Group provides accessories,
parts, after-sales service, rebuilds, and computer hardware and software
upgrades for Brown & Sharpe's CMMs and competing machines.
The MS Group's "user-friendly" CMM application software is an important
component of its marketing strategy for its CMM products. Management believes
that the MS Group's uniquely functional CMM software packages give it a
competitive advantage in the marketplace for CMMs. These proprietary software
products provide the MS Group's customers with an easily understood, icon-
based inspection analysis capability, graphical user interfaces and outputs,
and networking capability with manufacturing systems. The MS Group also
provides its customers with special software and systems integration of the MS
Group's products with the customer's host computer.
The MS Group distributes its products primarily through its worldwide sales
force directly to customers, which is supplemented by a distribution network
of independent agents and distributors, especially in foreign markets. The
typical sales process involves lengthy, technical, one-on-one discussions
between the salesperson or the distributor/sales agent and the customer. As an
important part of its marketing and distribution strategy, Brown & Sharpe
provides in-depth training to the customer at its support and demonstration
centers. Brown & Sharpe currently operates demonstration centers in eleven
cities throughout the United States, eighteen centers throughout Europe, and
two in Asia, including four located at Brown & Sharpe's CMM manufacturing
facilities. Brown & Sharpe also operates contract inspection and measuring
services from these demonstration centers. Service revenue generated by the
demonstration centers offsets a portion of the cost of operating the centers.
In 1995, Brown & Sharpe closed three demonstration centers in Europe and one
in the United States as part of its planned consolidation.
PMI Division
The principal products of Brown & Sharpe's PMI Division are precision
measuring tools and related instruments such as micrometers, dial indicators,
calipers, electronic height gauges, and gauge blocks. These tools and
instruments have a broad application and lower unit list prices (with a range
of $20 to approximately $13,000) than the prices of the MS Group's products
(which range from approximately $10,000 to over $3 million). PMI products
account for approximately 30% of Brown & Sharpe's revenues in 1995 and
typically measure in one or two dimensions, and are often used in comparative
measuring where an unknown part or dimension is compared to a previously
measured part or dimension. PMI products also include systems and application
software for measuring and statistical process control. The primary end
markets for the products of Brown & Sharpe's PMI Division are the automotive,
aerospace, metal processing, and defense industries, although Brown & Sharpe's
PMI products are used in virtually all types of industrial settings. Brown &
Sharpe's PMI Division is headquartered in Renens, Switzerland, and its
products are manufactured at its plants in Rolle and Renens, Switzerland;
Poughkeepsie, New York; Leicester, St. Albans, and Plymouth, England; and in
Luneville, France.
The PMI Division generally distributes its products through international
import companies, regional distributors, and catalog houses throughout the
world. Brown & Sharpe sales offices located in key markets provide support to
the distributors and catalog houses. The PMI Division operates four sales
offices in the United States and eight in other countries, which are staffed
by approximately 74 PMI Division employees.
CM Division
The CM Division is an engineering division which is headquartered in
Telford, England, and designs and engineers specialty products and systems to
provide customized solutions for unique measurement or inspection problems.
For example, the CM Division recently designed and implemented a system for
measuring the thickness of the metal top of a soda can and the thickness of
the groove scored around the can's pop-up tab, so that the manufacturer could
determine the ease with which the can could be opened by the end user while
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insuring that the can would not rupture. The CM Division's products include
factory networks, contact and optical measuring machines, and fixtures aimed
at specific niche markets. Laser interferometers manufactured by the Division
set National Metrology Standards in 16 countries. CM Division products also
include components such as measuring sensors used in its custom gauges and
fixtures as well as those manufactured by other companies. Prices for CM
Division products range from approximately $20,000 to $1 million for systems.
Often, the CM Division is able to produce a superior customized product
while at the same time gaining the expertise necessary to convert such
customer-funded research into new, standard Company products. For example, the
CM Division has recently developed a family of standard optical measuring
systems, with list prices of approximately $50,000 to $500,000.
The primary end markets for the custom-designed products of the CM Division
currently are automotive, aerospace, defense, package and can manufacturing,
oil drilling, and standards laboratories. Sales of these products typically
involve a close, highly technical relationship with the customer. This direct
relationship with the customer is reinforced by strong and continuing efforts
to provide superior customer service through ongoing customer training and
technical support.
Foreign Operations
Brown & Sharpe manufactures and sells substantial amounts of its dimensional
metrology products in foreign countries. For fiscal 1995, approximately 65% of
Brown & Sharpe's net sales were to customers located outside the United
States. Manufacturing operations take place in Italy, Switzerland, Germany,
Lithuania, England, and France, as well as in the United States, and Brown &
Sharpe's products are sold in over 60 countries worldwide. As of December 31,
1995, approximately 74% of Brown & Sharpe's assets were located outside the
United States (based on book values). Accordingly, margins and the ability to
export competitively from the Company's manufacturing locations are affected
by fluctuations in foreign currency exchange rates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Brown & Sharpe" in Item 7 of this Report. For additional financial information
concerning the foreign operations of Brown & Sharpe for 1993, 1994, and 1995,
see "Segment Information" below in this Item 1.
Engineering and Product Development
Brown & Sharpe's commercial success is dependent upon its ability to develop
products, enhancements, and applications that meet changing customer metrology
needs and anticipate and respond to technological changes. Brown & Sharpe
designs, develops, and refines its products internally through engineering
departments within its product groups and divisions. Brown & Sharpe employs
approximately 119 engineers and technicians, the majority of whom hold
engineering or other university degrees, in its design engineering activities.
When it is more cost-effective to do so, Brown & Sharpe purchases product
designs or portions of product designs from engineering subcontractors or
acquires such designs through licensing arrangements. Brown & Sharpe also
benefits from research and development efforts which are subsidized by
customer funds and, in certain countries, by government research grants. Brown
& Sharpe research, development, and manufacturing engineering activities are
conducted in the United States, Italy, France, Switzerland, Germany, the
United Kingdom, and Lithuania.
Brown & Sharpe derived substantial net sales in 1995 from the sale of
products that were introduced into the market since 1993. Brown & Sharpe has
been successful in bringing to market new, high-quality products and has
introduced at least one major new product every year since 1987. The current
objectives of Brown & Sharpe's design and manufacturing engineering activities
are the continued integration of the DEA and Roch technologies with Brown &
Sharpe's previously existing technologies and the introduction of new MS and
PMI products. In 1995, Brown & Sharpe invested $15.8 million in product design
and manufacturing engineering, or about 4.9% of its 1995 net sales. In 1993
and 1994, Brown & Sharpe expended $8.7 million and $9.2 million, respectively,
for product design, development, refinement, and manufacturing engineering.
The increase from $9.2 million is due to the inclusion of DEA for all of 1995.
In addition, Brown & Sharpe performs engineering
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development activities funded by government grants in some countries and
engages in special projects that utilize customer funding and are not included
in the numbers above.
Raw Materials and Sources of Supply
Brown & Sharpe purchases certain products, raw materials, supplies, and
other components from a variety of suppliers, and considers its source of
supply to be adequate. Brown & Sharpe does, at times, depend upon various sole
sources of supply for various procurement requirements (generally of items
designed by Brown & Sharpe), but has not experienced any significant
difficulty in meeting delivery obligations because of its reliance on such a
supplier. The loss of any one of these various sole suppliers would not have a
material adverse effect on Brown & Sharpe. Brown & Sharpe depends, as do other
leading CMM manufacturers, on a sole source of supply for certain of the
electronic probes used on CMM machines and, in the event of unavailability of
such source, would be adversely affected, as would its competitors. Brown &
Sharpe continues to explore means of lowering production costs through
selective outsourcing in situations where Brown & Sharpe can achieve its high
quality standards via subcontractors.
Patents, Licenses, Trademarks, and Proprietary Information
Brown & Sharpe's business is not significantly affected by or dependent upon
the procurement or maintenance of patents covering Brown & Sharpe's products.
Nevertheless, Brown & Sharpe pursues, where appropriate, patent protection for
inventions, developments, and improvements relating to its products both in
the United States and abroad. Brown & Sharpe owns, or has the right to use, a
number of trademarks which it believes are valuable in promoting the sale of
certain of its principal products, and it has registered the trademarks that
it owns in the United States and in some foreign countries. The
internationally recognized brand names under which Brown & Sharpe sells its
products are the subject of trademarks owned or licensed by Brown & Sharpe and
are important to Brown & Sharpe's marketing strategy, as brand name
recognition is a significant factor in the dimensional metrology market.
One of Brown & Sharpe's CMM products, a horizontal arm-type CMM, has been
manufactured and sold in North America under an exclusive license from an
independent German company which has recently been modified to a non-exclusive
license agreement. Brown & Sharpe entered into an exclusive arrangement in
1994 with another German CMM manufacturer to market and sell its horizontal
CMM on an exclusive basis in North America and on a non-exclusive basis in the
rest of the world. In addition, through December 31, 1995, DEA marketed and
sold its horizontal arm CMM under a non-exclusive license granted by a German
company. In addition, Brown & Sharpe uses the Leitz(R) and Mauser(R) brand
names under royalty-free license agreements entered into in connection with
Brown & Sharpe's acquisition of these product lines. These licenses expire in
1997 and 1999, respectively. Brown & Sharpe believes it will be able to
negotiate satisfactory extensions prior to expiration and/or that the failure
to renew these licenses would not have a material adverse effect on Brown &
Sharpe.
Environmental Matters
The Company is not significantly affected by compliance with rules and
regulations promulgated under environmental laws since its manufacturing
processes do not produce, as a by-product, material amounts of waste, water
discharges or air emissions deemed hazardous under such laws. However, the
Company is subject from time to time to environmental claims. See Note 8,
"Contingencies" of Notes to Consolidated Financial Statements in Item 8 of
this Annual Report.
Employees
At December 31, 1995, Brown & Sharpe had 2,373 employees, (as compared with
2,370 at December 31, 1994), including approximately 1,757 employees located
outside the United States. Brown & Sharpe considers
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its relations with its employees to be good, although there can be no
assurance that Brown & Sharpe's cost-cutting efforts or other factors will not
cause a deterioration in these relations.
Approximately 939 of Brown & Sharpe's employees located at sites in the
United States, Italy, Switzerland, England, Germany, and France are covered by
collective bargaining agreements which expire at various times between
December 31, 1996 and June 30, 1998. Brown & Sharpe expects that these
collective bargaining agreements will be renegotiated successfully prior to
their expiration. However, there can be no assurance that successor collective
bargaining agreements will be successfully negotiated, that negotiations will
not result in work stoppages, or that a work stoppage would not materially
interfere with Brown & Sharpe's ability to produce the products manufactured
at the affected location.
In addition to the collective bargaining agreements that cover workers at
certain of Brown & Sharpe's foreign subsidiaries, it is customary for these
employees to be represented by various works or shop councils. These councils
are governed by applicable labor laws and are comprised of members who are
elected or appointed by the work force. Except for the top level of
management, these councils represent the entire work force at their location
in its dealings with senior management on matters affecting the work force or
arising under the relevant labor contracts in effect at the location.
A collective bargaining agreement with the International Association of
Machinists and Aerospace Workers (the "IAM") relating to certain manufacturing
employees in North Kingstown, Rhode Island expired in October 1981. Brown &
Sharpe and the IAM failed to reach agreement on the terms of a successor
collective bargaining agreement, resulting in a strike by the IAM. See Item 3
"Legal Proceedings" in this Report. No successor collective bargaining
agreement was entered into, although the IAM remains the representative of the
bargaining unit. Brown & Sharpe continues to satisfy its obligation to bargain
with respect to, proposed changes to the terms and conditions of employment,
although no collective bargaining has occurred in recent years, and although
the manufacturing employees represented by the IAM remain technically on
strike, no work stoppage or picket activity has occurred since 1985 and
management does not anticipate that any such activities will occur in the
future. Following the strike in 1981, and the impasse reached in negotiations,
Brown & Sharpe hired new employees to replace striking employees. Since that
time, many of the striking employees have been rehired by Brown & Sharpe, but
such employees are not working under an IAM contract. The continuing strike by
the IAM does not have a material adverse effect on the operations of Brown &
Sharpe.
The following table sets forth the location of Brown & Sharpe's employees as
of December 31, 1995:
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COUNTRY EMPLOYEES(1)
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France........................................................ 237
Germany....................................................... 269
Italy......................................................... 463
Japan......................................................... 26
Spain......................................................... 16
Switzerland................................................... 332
United Kingdom................................................ 414
United States................................................. 616
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TOTAL....................................................... 2,373
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(1) Other part-time employees are included on a full-time equivalent basis.
Competition
Brown & Sharpe's business is subject to intense direct and indirect
competition from a considerable number of domestic and foreign firms, a number
of which, in certain markets, are larger in overall size than Brown & Sharpe.
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Most of these firms, however, do not compete with Brown & Sharpe in all
product lines. The principal factors affecting competition include reliability
and quality of product, technological proficiency, price, ease of system
configuration and use, application expertise, engineering support, local
presence, distribution networks, and delivery times. Price competition has
been intense for dimensional metrology products, due to the recent period of
decreased demand for these products that has resulted in excess capacity
within the industry. Brown & Sharpe believes that competition in the
dimensional metrology field will continue to be intense in the future as a
result of advances in technology, continuing excess capacity in the
dimensional metrology industry, and consolidations and/or strategic alliances
among competitors. In addition to direct competition from companies that
market similar types of products, Brown & Sharpe is also subject to indirect
but effective competition from firms that market other dimensional metrology
products, such as fixed gauging and vision-based systems, which utilize
alternative technology or methodologies to perform functions similar to those
of the CMMs and other products manufactured or sold by Brown & Sharpe.
Brown & Sharpe's single largest global competitor is Mitutoyo/MTI Corp., a
subsidiary of Mitutoyo Solsakusho Co. Ltd., a Japan-based company, which is
the largest supplier of metrology equipment and products worldwide. In
addition to Mitutoyo, the MS Group's main competitors are Carl Zeiss, Inc., a
subsidiary of Carl Zeiss-Stiftung AG, the Sheffield Measurement Division of
Giddings & Lewis, Inc., and LK Tool Co. Ltd., a subsidiary of TransTech Ltd.
The primary competitors faced by the PMI Division are Mitutoyo, L.S. Starrett
Co. and Federal Products Co. (Inc.), a subsidiary of Esterline Technologies
Corporation. Marposs S.p.A., an Italian company, is a major competitor of the
CM Division for custom metrology sales in all major markets.
Backlog
The Company's backlog of product orders was $59,000 at year-end 1995,
compared to $61,000 and $26,000 at year-end 1994 and 1993, respectively.
Backlog at year-end 1995 and 1994 includes $32,000 and $26,000, respectively,
attributable to DEA.
All of the orders included in the Company's year-end 1995 backlog were
requested to be filled and completed within one year and are, subject to
possible customer cancellation, expected to be completed in 1996.
Significant Customers
The Company has no single customer which accounts for 10% or more of its
consolidated net sales; however, several well recognized major automotive
manufacturers (excluding their suppliers) account for a significant portion of
the Company's net sales. The loss of a few of these major manufacturers would
have a substantial effect upon the Company.
Working Capital
A substantial amount of working capital investment in inventory and accounts
receivable is required to operate the Company's businesses. Working capital
was $87,569 at year-end 1995 compared to $102,883 at year-end 1994. See the
discussion of working capital in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 of this Annual
Report.
Segment Information
The Company operates exclusively in the Metrology Business. See Note 1 for a
further description of the Company's business. Sales to unaffiliated customers
from Europe are defined as sales of products that are primarily assembled in a
foreign country.
10
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
GEOGRAPHIC AREA:
Sales to Unaffiliated Customers From:
United States.................................... $124,673 $ 90,040 $ 78,819
Europe........................................... 196,226 114,960 78,216
-------- -------- --------
$320,899 $205,000 $157,035
======== ======== ========
Transfers Between Geographic Areas:
United States.................................... $ 3,870 $ 3,144 $ 4,040
Europe........................................... 33,713 19,288 12,365
-------- -------- --------
$ 37,583 $ 22,432 $ 16,405
======== ======== ========
Operating Profit (Loss):
United States.................................... $ 492 $ 1,303 $ 5,151
Europe........................................... 11,125 (7,976) (4,431)
-------- -------- --------
$ 11,617 $ (5,609) $ 877
======== ======== ========
Identifiable Assets:
United States.................................... $ 77,726 $ 74,252 $ 39,521
Europe........................................... 211,412 191,346 118,178
Corporate........................................ 6,262 6,676 8,172
-------- -------- --------
$295,400 $272,274 $165,871
======== ======== ========
</TABLE>
11
<PAGE>
ITEM 2--PROPERTIES
The following table sets forth certain information concerning Brown &
Sharpe's major operating facilities:
<TABLE>
<CAPTION>
OWNED/ APPROXIMATE
LOCATION LEASED PRINCIPAL USE SQUARE FOOTAGE
-------- ------ ------------- --------------
<C> <C> <S> <C>
UNITED STATES
N. Kingstown, Rhode Island.... Owned Manufacturing,
Engineering, Sales, and
Administration 343,000(1)
Poughkeepsie, New York........ Owned Manufacturing 58,000
Farmington Hills, Michigan.... Leased Sales and Administration 31,207
ITALY
Moncalieri.................... Leased Engineering, Sales, and
Administration 260,000
Grugliasco.................... Leased Assembly 105,000
Moncalieri.................... Leased Manufacturing 70,000
SWITZERLAND
Renens........................ Owned Manufacturing,
Engineering, Sales, and
Administration 139,000
Rolle......................... Owned Manufacturing 51,000
GERMANY
Wetzlar....................... Owned Manufacturing,
Engineering, Sales, and
Administration 280,000
Ludwigsburg................... Leased Sales 15,000
UNITED KINGDOM
St. Albans.................... Owned Manufacturing and Sales 36,000
Telford....................... Leased Manufacturing,
Engineering, Sales, and
Administration 32,000
Leicester..................... Owned Manufacturing 14,000
Swindon....................... Leased Sales 5,200
Plymouth...................... Leased Manufacturing, Sales,
and Administration 5,000
FRANCE
Luneville..................... Leased Manufacturing,
Engineering, and Sales 77,100
Villebon...................... Leased Sales 18,000
SPAIN
Barcelona..................... Leased Sales 16,000
</TABLE>
- --------
(1) Excludes approximately 417,000 square feet leased to unrelated parties.
In addition, Brown & Sharpe leases smaller sales offices located in the
United States, Europe, and Asia. In the opinion of management, Brown &
Sharpe's properties are in good condition and adequate for Brown & Sharpe's
business as presently conducted.
ITEM 3--LEGAL PROCEEDINGS
Litigation
Refer to Note 8 "Contingencies" of Notes to Consolidated Financial
Statements in Item 8 of this Annual Report.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
quarter ended December 31, 1995.
12
<PAGE>
ITEM 4A--EXECUTIVE OFFICERS OF THE REGISTRANT
The following table summarizes information regarding Executive Officers of
the Company as of March 22, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD DURING THE LAST FIVE YEARS
---- --- -----------------------------------------
<C> <C> <S>
Frank T. Curtin..... 61 President & Chief Executive Officer and a Director of the
Company since May 2, 1995; from 1992 to May 1995, Vice
President, National Center for Manufacturing Sciences, a
research and development organization, Ann Arbor, MI; from
1989 to May 1995, President, Curtin & Associates, a
software development company, Santa Barbara, CA and Ann
Arbor, MI.
Charles A. Junkunc.. 53 Vice President & Chief Financial Officer since May 1, 1992;
previously self-employed consultant since November 1990;
previously Senior Vice President--Finance and Chief
Financial Officer of Data Products Corporation
(manufacturer of computer printers) since April 1987.
Antonio Aparicio.... 45 Vice President & General Manager--Precision Measuring
Instruments since September 1991; previously Marketing
Director--Precision Measuring Instruments.
John Cooke.......... 59 Vice President & General Manager--Custom Metrology since
September 1991; previously Managing Director of Tesa
Metrology Limited (a subsidiary).
Karl J. Lenz........ 50 Vice President since September 1991: General Manager--
Leitz--Brown & Sharpe Messtechnik GmbH since June 1990;
previously General Manager--Messtechnik Division of Leica
Industrieverwaltung.
Richard F. Paolino.. 51 Vice President & General Manager--Commercial Operations.
Robert D. Batting... 54 Vice President & General Manager--Measuring Systems U.S.A.
since October 1995; previously President, Clearing-Niagra
Inc. since October 1993; Business Consultant--self-employed
since September 1991; Group Vice President, Textron Inc.
prior to September 1991.
Alfred J. Corso..... 59 Controller and Principal Accounting Officer since June 1,
1995; previously Partner with Ernst & Young LLP since 1991.
</TABLE>
To the best of the knowledge of the Registrant, none of the Executive
Officers has any family relationships with any of the others. Each Executive
Officer holds office until the first meeting of the Board of Directors
following the next Annual Stockholders' meeting and until his successor is
elected or appointed and qualified, unless he dies, resigns, is removed or
replaced.
13
<PAGE>
PART II
ITEM 5--MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Class A Common Stock is listed on the New York Stock Exchange with a
symbol "BNS". At March 22, 1996, the Company had approximately 4,400
shareowners of record of its Class A Common Stock including 971 shareowners of
record of its Class B Common Stock. The quarterly high and low closing prices
of the Class A Common Stock on the New York Stock Exchange (the Class B Common
Stock is not traded and is subject to restrictions on transfer) were a high of
$10.13 and a low of $8.63 in 1996 through March 22 and were reported during
fiscal 1995 and 1994 as presented below.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
----------- ------ -----
<S> <C> <C>
1995
4th Quarter................................................... $11.88 $9.25
3rd Quarter................................................... 10.63 6.38
2nd Quarter................................................... 7.25 6.25
1st Quarter................................................... 7.50 5.63
1994
4th Quarter................................................... $ 7.25 $5.25
3rd Quarter................................................... 7.50 6.00
2nd Quarter................................................... 6.75 5.75
1st Quarter................................................... 8.00 6.25
</TABLE>
No dividends have been paid by the Company since 1990. Dividend payments
have been suspended in order to conserve cash. Also, payment of dividends is
currently not permitted under an existing loan facility. See Note 5 "Short-
Term Borrowings" of Notes to Consolidated Financial Statements in Item 8 of
this Annual Report.
ITEM 6--SELECTED FINANCIAL DATA
The following selected consolidated financial data should be reviewed in
conjunction with Part II, Item 7--"Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto in Item 8 of this Annual Report.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA,
NUMBER OF SHAREOWNERS, AND EMPLOYEES)
<S> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS FOR
THE YEAR:
Net sales................ $320,899 $205,000 $157,035 $160,695 $ 175,847
Operating profit (loss).. 11,617 (5,609) 877 (7,613) (42)
Percent................ 3.6% (2.7)% .6 % (4.7)% -- %
Net income (loss)........ 1,926 (14,335) (2,416 ) (7,984) (2,901)
Average shares
outstanding and common
stock equivalents
(thousands)............. 8,773 6,057 4,969 4,899 4,639
Per common share:
Net income (loss)...... .22 (2.37) (.49) (1.63) (.62)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA,
NUMBER OF SHAREOWNERS, AND EMPLOYEES)
<S> <C> <C> <C> <C> <C>
AT YEAR-END:
Backlog..................... 59,000 61,000 26,000 30,000 23,000
Assets...................... 295,400 272,274 165,871 166,086 183,748
Current ratio............... 1.68 1.95 1.73 1.81 2.17
Long-term debt.............. 56,839 70,215 32,696 34,626 35,310
Total notes payable and
long-term debt............. 102,068 92,613 64,500 60,700 61,369
Equity...................... 85,857 78,925 63,520 66,674 80,268
Per share................. 9.85 9.12 12.78 13.43 16.67
Debt ratio.................. .543 .540 .504 .477 .433
Number of shareowners....... 4,400 4,100 4,900 5,400 5,100
Employees................... 2,373 2,370 1,543 1,768 2,000
</TABLE>
- --------
(1) In 1995, the Company changed its accounting period from a fiscal year
ending on the last Saturday in December to a calendar year ending on the
last day in December. All periods presented above contain 52 weeks, except
1993, which contains 53 weeks. See Note 1 to Consolidated Financial
Statements for more information.
(2) The consolidated financial data for 1995 and 1994 include the results of
operations and year-end data of DEA and Roch acquisitions discussed in
Note 2 to Consolidated Financial Statements.
(3) Net income for 1995 includes a $640 adjustment relating to a revaluation
of a 1994 foreign denominated liability recorded at an incorrect foreign
exchange rate. See Note 1 to Consolidated Financial Statements for further
information.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
As disclosed in the Footnotes to the Consolidated Financial Statements,
Brown & Sharpe made two significant acquisitions in 1994, DEA S.p.A. ("DEA")
and Ets. Pierre Roch S.A. and its affiliate, Mauser Prazisions-Messmittel GmbH
("Roch"). The operating results for these companies are included in the 1994
Results of Operations beginning with the date of the acquisition, which was
September 28, 1994 for DEA and March 24, 1994 for Roch. These acquisitions,
along with the disposition of the Company's machine tool spare parts and
rebuild operations in 1993, distort some year-to-year comparisons. In order to
make these comparisons more meaningful, the following discussion will provide
comparative information excluding the operating results of the acquired
companies in order to reflect the trend of the remaining portions of the
business. The following discussion of Brown & Sharpe's historical financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements of Brown & Sharpe and the notes thereto
included elsewhere in this Annual Report.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
DEC. 31, 1995 DEC. 31, 1994 DEC. 25, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................... 100.0% 100.0 % 100.0 %
Cost of goods sold.................. 69.1 69.7 70.5
Selling, general, and administrative
expense............................ 27.2 31.0 28.9
Restructuring charges............... 0.1 2.0 --
----- ----- -----
Operating profit (loss)........... 3.6 (2.7) 0.6
Interest expense.................... 2.8 3.2 3.2
Other income, net................... -- 0.1 1.6
----- ----- -----
Income (Loss) before income taxes... 0.8 (5.8) (1.0)
Income tax provision (benefit)...... 0.2 1.2 0.5
----- ----- -----
Net income (loss)................... 0.6% (7.0)% (1.5)%
===== ===== =====
</TABLE>
15
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Orders. Orders totaled $320.0 million in 1995 which was an increase of
$110.1 million, or 52.5%, from the prior year. Adjusted to exclude orders of
businesses acquired in 1994, orders in 1995 increased approximately $22.6
million or 13.1% compared to 1994. The remaining increase resulted primarily
from customer orders of DEA products of $111.7 million and $28.7 million for
1995 and 1994, respectively, and orders of Roch and MPM products of $12.9
million and $8.4 million for 1995 and 1994, respectively, and an effect of
increased orders of about $11.1 million as a result of strengthening of
certain European currencies against the U.S. dollar in 1994. PMI orders
increased in the United States and in Europe. Backlog at December 31, 1995
decreased slightly to $59.0 million as compared with $61.0 million at year end
1994.
Net Sales. Net sales in 1995 were $320.9 million, an increase of $115.9
million or 56.5% from the prior year. The increase resulted primarily from
sales of DEA products and services in 1995 and 1994 of $107.1 million and
$37.6 million, respectively, sales of Roch and MPM products in 1995 and 1994
of $12.7 million and $7.8 million, respectively, and an effect of increased
sales of about $12.1 million as a result of strengthening of certain European
currencies against the U.S. dollar in 1995. Excluding DEA, MS Group 1995 net
sales were 13.0% above 1994, due to increased European sales. Net sales of PMI
products increased from the prior year primarily due to the success of new
products being introduced in the marketplace during the last three years.
Gross Profit. Gross profit margin increased to 30.9% in 1995 compared with
30.3% in 1994. This increase is primarily due to improved margins of the PMI
Division offset by slightly reduced margins of the MS Group.
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") was $87.2 million or 27.2% of net sales
compared to $63.7 million or 31.1% of net sales in 1994. In 1995 and 1994,
exclusive of DEA, SG&A was 27.9% and 32.8% of sales. The reductions in SG&A as
a percentage of net sales is largely due to consolidation savings at both B&S
and DEA that were planned and achieved as a result of the merging of DEA into
the B&S coordinate measuring machine business (together the "MS Group"). SG&A
in 1995 decreased $0.9 million due to a revaluation of a 1994 foreign
denominated liability that was incorrectly recorded at historical, rather than
current, foreign exchange rate in the Company's previously issued consolidated
financial statements.
Restructuring Charges. Restructuring charges amounting to $0.3 million and
$4.2 million in 1995 and 1994, respectively, were due principally to Company
employee severance incurred both because of Brown & Sharpe sales offices
closings associated with integrating Brown & Sharpe's existing operations with
those of DEA and a restructuring at the Tesa subsidiary. In addition, $1.8
million of restructuring costs, principally severance, in 1994 arose from
consolidations upon the acquisition of Roch in France.
Operating Profit (Loss). Brown & Sharpe generated an operating income of
$11.6 million in 1995 compared to an operating loss of $5.6 million in 1994.
Excluding restructuring charges and inventory writedowns, 1994 operating
profit was $2.3 million. In the United States, operating profit for 1995
totaled $0.5 million compared to an operating profit of $1.3 million in 1994.
The lower operating profit in the U.S. in 1995 was substantially due to the
increased cost of European sourced PMI products resulting from unfavorable
foreign currency exchange rates. Foreign operations generated operating profit
of $11.1 million in 1995 compared to an operating loss of $8 million in 1994.
The improvement in operating earnings occurred because of the significantly
improved financial performance of the Company's Tesa subsidiary in
Switzerland, which is the headquarters of the PMI Division, the inclusion in
1995 of a full years' profitability of the DEA S.p.A. and Roch S.A.
subsidiaries where sales are concentrated in Europe, and the reduction in
restructuring charges incurred. In addition, as a result of the adjustments to
the preliminary 1994 DEA acquisition purchase price accounting estimates, net
income for 1995 increased approximately $350.
Interest Expense. Interest expense totaled $9.1 million in 1995 compared to
$6.6 million in 1994. Average borrowings in 1995 increased to approximately
$100 million compared with average borrowings of $81 million in 1994, which
resulted in increased interest expense in 1995. The increase in average
outstanding balances has
16
<PAGE>
occurred since the addition of the DEA operations in September 1994 and is the
result of additional working capital requirements arising from increased sales
and the payment of costs associated with restructuring and achieving the
acquisition consolidation savings.
Income Tax Provision. The Company has recorded a deferred tax asset for
deductible temporary differences that exist related to its U.S. operations.
This deferred tax asset has been recorded based on the existence of sufficient
taxable income in the carryback period and the reversal of existing taxable
temporary differences. For further information concerning the provision for
income taxes, as well as information regarding differences between effective
tax rates and statutory rates, see Note 4 of the Notes to Consolidated
Financial Statements.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 25, 1993
Orders. Orders totaled $209.9 million in 1994, an increase of $54.0 million,
or 34.6%, from the prior year. Adjusted to exclude orders of businesses
acquired in 1994 and sold in 1993, orders in 1994 increased $15.8 million or
10.1% compared to 1993. The remaining increase of $28.7 million resulted
primarily from customer orders of DEA products since its acquisition on
September 28, 1994, $8.4 million for orders of Roch and MPM products since
their acquisition on March 24, 1994, and an effect of increased orders of
about $3.0 million as a result of strengthening of certain European currencies
against the U.S. dollar in 1994. Also, the machine tool spare parts and
rebuild operations, sold near the end of the first quarter of 1993,
represented $1.9 million of orders in 1993. CM equipment machine orders
increased in 1994 from the canning industry, and PMI orders increased,
primarily from its European distributors. MS orders were higher in 1994 than
in 1993. Backlog at December 31, 1994 increased to $61.0 million, including
$26.4 million from the purchase of DEA and $1.7 million from the purchase of
Roch and MPM, as compared with $26.1 million at year end 1993.
Net Sales. Net sales in 1994 were $205.0 million, an increase of $48.0
million or 30.6% from the prior year. The increase resulted primarily from
sales of DEA products and services since its acquisition of $37.6 million,
sales of Roch and MPM products of $7.8 million, and an effect of increased
sales of about $3.3 million as a result of strengthening of certain European
currencies against the U.S. dollar in 1994. Also, $1.9 million of sales in
1993 were attributable to machine tool spare parts and rebuild operations sold
in early 1993. Excluding the effect of these items, sales increased $1.2
million, or 0.8%, from 1993. Excluding DEA, MS 1994 net sales were 2.9% below
1993, largely as a result of entering 1993 with a larger backlog than at the
beginning of 1994. In 1994, increasing U.S. orders have been received for
larger value, larger size machines which are not generally included in sales
until subsequent quarters due to required lead times. Net sales of PMI and CM
products increased from the prior year primarily due to the resolution of the
financial difficulties of a German distributor, which had depressed net sales
in 1993.
Gross Profit. Gross profit margin increased to 30.3% in 1994 compared to
29.4% in 1993. Excluding DEA, gross profit declined to 29.1% in 1994. The
Company's gross profit includes benefits from the liquidation of LIFO
inventories of $0.6 million and $0.7 million in 1994 and 1993, respectively.
During 1994, the Company recorded inventory write-downs amounting to $3.7
million, almost totally at European operations, compared to $0.3 million
reduction of inventory reserves in 1993.
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") was $63.7 million or 31.1% of net sales
compared to $45.3 million or 28.9% of net sales in 1993. In 1994, exclusive of
DEA SG&A of $9.9 million, SG&A was 32.8% of sales. The increase in 1994 was
generally due to special items including an extra week of expenses in fiscal
1994 or about $1 million compared to 1993, the receipt of U.S. litigation
proceeds in 1993 of about $.5 million, the addition of Roch and MPM SG&A costs
since acquisition in late March 1994 of about $2.2 million, and the recording
in the second quarter of 1994 of a provision increasing the allowance for
uncollectible accounts receivable by about $.6 million for collection
uncertainties arising from one prior year sale to a single customer. SG&A also
increased during the fourth quarter of 1994 because of increased use of
consultants, relocation, and other costs arising as a result of the DEA and
17
<PAGE>
Roch acquisitions. SG&A in 1994 and 1993 includes foreign exchange gains
amounting to $1.1 million and $0.2 million, respectively.
Restructuring Charges. Restructuring charges amounted to $4.2 million in
1994 ($1.0 million and $3.2 million in the third and fourth quarters,
respectively), principally Brown & Sharpe employee severance and Brown &
Sharpe sales offices closing costs of $2.4 million associated with integrating
Brown & Sharpe's existing operations with those of DEA, acquired on September
28, 1994, and $1.8 million of such costs arising from the acquisition of Roch
in France on March 24, 1994.
Operating Profit (Loss). Brown & Sharpe generated an operating loss of $5.6
million in 1994 compared to an operating profit of $0.9 million in 1993.
Excluding restructuring charges and inventory writedowns, 1994 operating
profit was $2.3 million. DEA generated an operating profit of $3.6 million in
the fourth quarter of 1994 subsequent to its acquisition. In the United
States, operating profit for 1994 totaled $1.3 million compared to an
operating profit of $5.2 million in 1993. The lower operating profit in the
U.S. in 1994 was substantially due to the increased cost of European purchased
goods resulting from unfavorable foreign currency exchange rates and the
additional week of selling, general and administrative expense in 1994, the
53rd week, as well as due to the other reasons discussed above. Brown & Sharpe
believes that its normal sales pattern would not generally result in
proportionate increases in net sales in a fifty three week year as compared to
a fifty two week year. Foreign operations generated a loss of $6.9 million in
1994 compared to an operating loss of $4.3 million in 1993. Excluding
restructuring charges and inventory writedowns, foreign operations generated a
loss of $0.7 million in 1994.
Interest Expense. Interest expense totaled $6.6 million in 1994 compared to
$5.1 million in 1993. This increase reflects a $19.8 million increase in the
average annual balance of borrowings, primarily the $16.8 million of debt on
the balance sheets of the companies acquired in 1994, with a slight decrease
in the average effective interest rate in 1994.
Other Income, Net. 1994 other income decreased because 1993 other income
included a one-time gain of $2 million resulting from the sale of certain
small business operations.
Income Tax Provision. The Company has recorded a deferred tax asset for
deductible temporary differences that exist related to its U.S. operations.
This deferred tax asset has been recorded based on the existence of sufficient
taxable income in the carryback period and the reversal of existing taxable
temporary differences. For information concerning the provision for income
taxes, see Note 4 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, Brown & Sharpe has met its liquidity needs, including
capital expenditures, working capital needs, and the funding of operating
losses, through cash generated from operations, sale proceeds of discontinued
businesses, borrowings under secured and unsecured lines of credit and certain
"New Financing" that included two three year term loans toalling $25 million
"Term Loans", and $8.5 million U.S, mortgage, a renewable secured guaranteed
three-year revolving credit facility, "The Facility". The Facility was
provided by a commercial lender and entered into in June 1993 at $15 million
and increased in September 1994 to $25 million through September 1997 with
automatic annual renewal thereafter, subject to termination provisions in the
agreement.
Amounts outstanding under Brown & Sharpe's lines of credit excluding The
Facility are generally payable on demand, and certain of the lines extended to
Brown & Sharpe's foreign subsidiaries are secured by other assets. The
Facility provides for demand borrowings up to an amount based on a percentage
of eligible domestic accounts receivable and finished inventory, is secured by
substantially all domestic assets (including the stock of domestic
subsidiaries and 65% of the stock of certain foreign subsidiaries), and
requires maintenance of a minimum current ratio, a maximum ratio of debt to
adjusted net worth, minimum adjusted net worth and
18
<PAGE>
minimum working capital, all as defined. At December 31, 1995, Brown & Sharpe
had total borrowings of $28.1 million under the lines of credit and The
Facility compared to total maximum availability at that date of $74.1 million
under the lines of credit and The Facility. Certain of the domestic and
foreign lines of credit provide availability of borrowing capacity and funds
only to the degree of availability of certain kinds of eligible receivables
and inventories (only in the case of the domestic lines of credit). At
December 31, 1995, $17.6 million of the total lines of credit were restricted
to foreign eligible receivables and also to certain foreign countries, of
which $16.5 million was available at that date.
Management believes that the availability of borrowings, under the financing
arrangements described above, and the two Swiss mortgages described below,
together with the current planned levels of cash flow from operations and cash
on hand, will be sufficient to meet operational cash requirements expenditures
during 1996. However, levels of growth during 1995, described above, which has
continued during early 1996, has increased working capital requirements and
therefore borrowing needs and had an adverse impact on liquidity. As a result,
management has temporarily restricted planned capital expenditures and funding
for other projects considered necessary for achieving planned cost reductions
and growth. In addition, $12.1 million of Swiss mortgages mature on June 30,
1996, and two three-year term loans, totaling $25 million, mature in September
1997. Commitments for $10 million have been received for the refinancing of
the Swiss mortgages, although negotiations are required with regard to half
that amount to make them acceptable to the Company. Although the ultimate
conclusion of these negotiations is uncertain, management is confident that
the refinancing of the remaining portion will be successful. While the
Company's current total credit lines remain adequate, those available in the
U.S. remain inadequate to cure a capital structure problem inherited in the
DEA acquisition which has adverse tax consequences. In order to alleviate the
current short term funding limitations, and to meet increased working capital
requirements, management has entered negotiations with a number of U.S. based
banks and financial institutions to secure $15 million "bridge financing".
Management is optimistic that the bridge financing will be successful.
However, there can be no assurance that the additional financing can be
obtained on acceptable terms. Management also has commenced preparations for
refinancing of the Company during late 1996 to achieve a more flexible capital
structure. The desired refinancing would include a new equity offering, new
term debt, and multi-currency bank revolving credit lines. However, there can
be no assurance that the desired elements of the refiancing can be obtained on
terms that are acceptable to the Company.
Cash Flow. Net income of $1.9 million in 1995, increased by depreciation and
other non-cash items of $13.3 million, provided cash of $15.2 million was
offset by the net increase in working capital of $15.3 million which together
resulted in operations using $75 thousand of cash.
In 1995, investment transactions used cash of $10.4 million, of which
capital expenditures, net of dispositions, were $10.0 million, as compared
with depreciation of $9.0 million in 1995.
Cash provided from financing transactions was $6.9 million in 1995 compared
to $15.8 million in 1994. This largely resulted from borrowing on The Facility
in the U.S.
Working Capital. Working capital was $87.6 million at the end of 1995
compared to $102.9 million at the end of 1994. This reduction resulted largely
from the increased borrowing on The Facility in the U.S. and two long term
mortgage in Switzerland becoming current in 1995. Inventories remained the
same at $88.6 million at December 31, 1995. Accounts receivable increased to
$113.6 million at December 31, 1995, an increase of $5.4 million from year end
1994. Also, total debt increased $9.5 million to a total of $102.1 million at
December 31, 1995 as compared to $92.6 million outstanding at December 31,
1994 primarily due to increased borrowing to fund working capital and capital
additions, and also due to the impact of foreign currency exchange rate
changes on the U.S. dollar value of foreign currency denominated debt.
Capital Expenditures. Brown & Sharpe's capital expenditures net of disposal
proceeds were approximately $10.0 million in 1995 compared to $5.5 million in
1994. Management estimates that annual on going capital expenditures of
approximately $10 million are required for appropriate levels of tooling new
products, improving product and service quality, expansion of the distribution
network, and support of the
19
<PAGE>
operations of the combined Company. Planned capital expenditures in 1996 will
include an aggregate of approximately $3.8 million for the construction of a
new facility in Telford, England to both replace an existing facility for
which the lease expires and is non-renewable, and consolidate the operations
now conducted in three other facilities. Committments for mortgage plus term
financing for 100% of the amount of the expenditures for this facility are in
place.
PROSPECTIVE INFORMATION
This section, as well as other portions of this document and the Annual
Letter to the Shareholders from the Chairman and Chief Executive Officer,
include certain forward-looking statements about the Company's business and
new products, sales, expenditures and cost savings, effective tax rate and
operating and capital requirements and refinancings. In addition, forward-
looking statements may be included in various other Company documents to be
issued in the future and in various oral statements by Company representatives
to security analysts and investors from time to time. Any such statements are
subject to risks that could cause the actual results or needs to vary
materially. These risks are discussed below in "Risk Factors" in this
document.
RISK FACTORS
Risks Related to 1994 Strategic Acquisitions. The Company expects that its
profitability in the foreseeable future, and accordingly its ability to fund
necessary capital expenditures, increased working capital requirements, and
service its debt obligations as well as its ability at some time in the future
to resume dividend payments, will depend in large part on its success in
integrating the operations of DEA, Roch and Mauser with Brown & Sharpe's pre-
existing operations and realizing anticipated cost savings on a long-term
profitable basis. The combined net sales of DEA, Roch and Mauser prior to the
acquisition in 1994 were approximately 78% of Brown & Sharpe's 1993 net sales.
The Company's plan for integrating the operations of DEA into the MS Group
and Roch and Mauser into the PMI Division anticipated cost savings (before
one-time implementation cash costs) of $8.3 million to be realized within the
first twelve months of combined operations. These savings were substantially
achieved on time. The Company expects to realize total annualized savings of
nearly $14 million after 24 months of combined operations through various
actions, further reductions in selling and administrative expenses,
rationalization of European manufacturing facilities and reductions in
associated manufacturing overhead costs. The Company expects to have spent a
total of approximately $12.4 million from acquisition date through the
completion of the integration process for severance and other one-time cash
costs in eliminating duplicative operations and taking other planned measures
intended to produce these savings.
Due to the inherent risks in integrating the separate operations of the
Company, in particular operations located in different countries and that in
the aggregate are large in relation to Brown & Sharpe pre-existing operations,
there can be no assurance that the Company will realize the full amount of
anticipated cost savings or realize the savings on the contemplated timetable,
or that as a result of its decentralized management structure or other
factors, the Company will not experience unanticipated one- time or ongoing
costs or difficulties in implementing the integration of DEA, Roch and Mauser
into Brown & Sharpe. In addition, there can be no assurance that net sales
will not be adversely affected by planned cost cutting measures, possible
discontinuance of certain similar products, customers' desires to maintain
alternative sources of supply or for other reasons.
Risks Related to Liquidity. At December 31, 1995, Brown & Sharpe had
unrestricted cash (and cash equivalents) of $6.3 million, and unused
availability under its borrowing arrangements of $37.2 million, $16.5 million
of which is dependent on the availability, only partially satisfied at year-
end 1995, of certain kinds and amounts of eligible receivables. However,
because of issues regarding the potential tax impact of the DEA Group capital
structure resulting from the DEA acquisition, availability of adequate
borrowing capacity in the US to cure the DEA capital structure problem, and
the maturation of certain foreign mortgages in June 1996 and the $25 million
three year term loans in the US in September 1997, refinancing of the Company
during 1996 on a "bridge" basis and then more permanently in 1996 or 1997 must
be accomplished. Brown & Sharpe also will
20
<PAGE>
require positive cash generated by operations and the realization of
additional anticipated cost savings from the further integration of DEA, Roch
and Mauser in order to meet its anticipated cash needs (including one-time
costs involved in integrating DEA, Roch and Mauser. As noted above, there can
be no assurance that the Company will be able to complete the refinancing of
the $12.1 million of Swiss mortgages, the U.S. $15 million "bridge" financing
or the entire refinancing of the Company's debt structure during the projected
lat 1996 time frame.
Risks Related to Indebtedness. The Company has significant debt service
obligations. As of December 31, 1995, Brown & Sharpe had total outstanding
indebtedness and total shareowners' equity of $102.1 million and $85.9
million, respectively.
The Company's indebtedness and debt to capital ratio could have important
consequences to stockholders, including the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or other corporate purposes may be
impaired, (ii) a substantial portion of the Company's cash flow from
operations will be used to pay principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations, future
business opportunities and resumption at some future date of payment of
dividends, (iii) the Company's borrowings under the rates of interest, which
could result in higher interest expense in the event of an increase in market
interest rates, (iv) the Facility contains financial and other restrictive
covenants which could limit the Company's operating and financial flexibility
and, if violated, would result in an event of default which, if not cured or
waived, could preclude the Company's access to credit under such facility or
otherwise have a material adverse effect on the Company, (v) the three-year
Term Loans, the Facility and certain Swiss mortgage loans expire by their
terms in 1996 and 1997, requiring the Company to seek refinancing of this debt
at that time or before and (vi) as a result, the Company may be more
vulnerable to general economic and industry downturns.
Risks Related to Historical Losses. Brown & Sharpe had losses from
continuing operations of approximately $2.9 million, $8.0 million, $2.4
million and $14.3 million in fiscal 1991, 1992, 1993, and 1994, respectively,
before the 1995 profit of $1.9 million. In addition, DEA had operating losses
of $10 million and $4.6 million in 1991 and 1992, respectively, an operating
profit of $5.5 million in 1993, and an operating loss of $1.2 million in the
first half of 1994.
In 1990, Brown & Sharpe acquired Leitz. In the year prior to the
acquisition, Leitz's net sales were approximately 21% of Brown & Sharpe's net
sales in that year. While Leitz has strategic value to Brown & Sharpe, Leitz
has produced operating losses in each year since its acquisition. Brown &
Sharpe believes that these losses have resulted from the severe, prolonged
recession in Europe that began a year after the acquisition and severe
competitive pricing pressure which together have resulted in gross margin
erosion for Leitz's products and revenues below expected levels, and from
unexpected difficulties and additional expenses in integrating Leitz with
Brown & Sharpe's other CMM operations. These difficulties were heightened by
the fact that the Leitz business acquired by Brown & Sharpe did not have a
complete freestanding operating and management structure or its own dedicated
facilities.
Risks Related to Foreign Operations. As of December 31, 1995, approximately
74% of Brown & Sharpe's assets were located outside the United States (based
on book values) as were the customers for 65% of its net sales. Foreign
operations are subject to special risks that can materially affect the sales,
profits, cash flows, and financial position of the Company, including taxes on
distributions and payments, currency exchange rate fluctuations, inflation,
minimum capital requirements, and exchange controls.
Risks Related to Cyclical Nature of the Metrology Industry. The market for
Brown & Sharpe's and DEA's products is subject to general economic conditions
and, more specifically, to the level of capital spending by industrial
companies, especially those in the primary end markets for Brown & Sharpe's
and DEA's products. Management believes that in recent years, the total world
market for dimensional metrology products declined. Although the recession has
subsided, the dimensional metrology industry continues to be impacted by
overcapacity in the industry and reduced demand by the capital goods sector
for dimensional metrology products.
21
<PAGE>
Risks Related to Competition. Brown & Sharpe's and DEA's business is subject
to direct and indirect competition from a considerable number of both domestic
and foreign firms, a number of which are part of entities which are larger in
overall size than Brown & Sharpe and DEA. In addition, the dimensional
metrology market has suffered from overcapacity, which, together with reduced
demand for capital goods, has resulted in intense competitive pricing pressure
and performance competition that have reduced margins throughout the industry.
Risks Related to Control of the Company. The Company's common stock is
divided into two classes, the Class A Common Stock and the Class B Common
Stock. Shares of Class A Common Stock are entitled to one vote per share.
Shares of Class B Common Stock are entitled to ten votes per share, except as
otherwise provided by law or in Brown & Sharpe's certificate of incorporation
or by-laws. The Class A Common Stock and the Class B Common Stock vote
together as a single class on all matters, except that the Class A Common
Stock, voting alone, elects one director each year, and except as otherwise
required by law. No dividend may be declared on shares of Class B Common Stock
unless a dividend at least equal in amount is declared on shares of Class A
Common Stock. Various members of the Sharpe family, including Henry D. Sharpe,
Jr. and Henry D. Sharpe, III (each of whom is a director of the Company), hold
approximately 483,966 shares of Class A Common Stock and approximately 161,320
shares of Class B Common Stock, representing approximately 7.5% of the
outstanding aggregate equity in the Company and approximately 15.5% of the
combined voting power of the Company's outstanding common stock, and
Finmeccanica holds 3,450,000 shares of Class A Common Stock, representing
approximately 39.9% of the outstanding aggregate equity of the Company and
approximately 25.5% of the combined voting power of the Company's outstanding
common stock. Finmeccanica has the right to designate three nominees for
election to the Company's Board of Directors.
Pursuant to certain preemptive rights provided to Finmeccanica in connection
with the DEA acquisition in September 1994, so long as Finmeccanica owns at
least 862,500 shares of the Company's Class A Common Stock, with certain
exceptions, the Company may not issue any shares of its Class A Common Stock,
or equity securities exercisable, exchangeable or convertible into shares of
Class A Common Stock ("Derivative Securities") to any third party without
first offering to Finmeccanica the right to purchase that percentage of such
newly issued securities such that Finmeccanica's percentage ownership of the
Company's common stock on a fully diluted basis remains constant. After
receiving notice of the proposed issuance, Finmeccanica will have 30 days to
exercise its preemptive rights, and the closing under such exercise will occur
within 20 days of such 30-day period. The existing holders of Class A Common
Stock do not have any preemptive rights. If the Company issues Class A Common
Stock or Derivative Securities while Finmeccanica's preemptive rights are in
effect, Finmeccanica would, subject to certain exceptions, retain its
percentage ownership of Brown & Sharpe common stock, while the equity
interests of the Company's existing holders of Class A Common Stock would be
diluted.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE NUMBER
----------------------------- -----------
<S> <C>
Report of Independent Auditors--Ernst & Young LLP.................. 23
Report of Independent Auditors--Coopers & Lybrand L.L.P............ 24
Consolidated Statements of Operations for the Years Ended December
31, 1995 and 1994 and December 25, 1993........................... 25
Consolidated Balance Sheets at December 31, 1995 and 1994.......... 26
Consolidated Statements of Cash Flows for the Years Ended December
31, 1995 and 1994 and December 25, 1993........................... 27
Consolidated Statements of Shareowners' Equity for the Years Ended
December 31, 1995 and 1994 and December 25, 1993.................. 28
Notes to Consolidated Financial Statements......................... 29-41
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareowners and Directors
of Brown & Sharpe Manufacturing Company:
We have audited the accompanying consolidated balance sheet of Brown &
Sharpe Manufacturing Company as of December 31, 1995, and the related
consolidated statements of operations, shareowners' equity, and cash flows for
the year then ended. Our audit also included the related financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Brown & Sharpe Manufacturing Company at December 31, 1995, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Providence, Rhode Island
February 14, 1996
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners and Directors
of Brown & Sharpe Manufacturing Company:
We have audited the consolidated financial statements and the financial
statement schedule of Brown & Sharpe Manufacturing Company listed in Item 14
of this Form 10-K for the years ended December 31, 1994 and December 25, 1993.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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 financial statements referred to above presents fairly,
in all material respects, the consolidated financial position of Brown &
Sharpe Manufacturing Company as of December 31, 1994 and December 25, 1993,
and the consolidated results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information required
to be included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 29, 1995
24
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND DECEMBER 25, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $320,899 $205,000 $157,035
Cost of goods sold............................... 221,729 142,776 110,841
Selling, general and administrative expense...... 87,217 63,664 45,317
Restructuring expense............................ 336 4,169 --
-------- -------- --------
Operating profit (loss)........................ 11,617 (5,609) 877
Interest expense................................. 9,129 6,575 5,100
Other income, net................................ 135 249 2,607
-------- -------- --------
Income (loss) before income taxes.............. 2,623 (11,935) (1,616)
Income tax provision............................. 697 2,400 800
-------- -------- --------
Net income (loss)................................ $ 1,926 $(14,335) $ (2,416)
======== ======== ========
Primary and fully diluted income (loss) per com-
mon share....................................... $ .22 $ (2.37) $ (.49)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 6,262 $ 6,676
Accounts receivable, net of allowances for doubtful
accounts of $3,030 and $3,103........................... 113,579 108,234
Inventories.............................................. 88,558 88,639
Deferred income taxes.................................... 3,322 2,000
Prepaid expenses and other current assets................ 5,436 5,981
-------- --------
Total current assets................................. 217,157 211,530
Property, plant and equipment:
Land..................................................... 7,141 6,858
Buildings and improvements............................... 37,447 33,124
Machinery and equipment.................................. 95,482 85,583
-------- --------
140,070 125,565
Less--accumulated depreciation........................... 87,183 80,210
-------- --------
52,887 45,355
Goodwill, net.............................................. 11,529 1,875
Other assets............................................... 13,827 13,514
-------- --------
$295,400 $272,274
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable and current installments of long-term
debt.................................................... $ 45,229 $ 22,398
Accounts payable......................................... 44,936 36,896
Accrued expenses and income taxes........................ 39,423 49,353
-------- --------
Total current liabilities............................ 129,588 108,647
Long-term debt............................................. 56,839 70,215
Other long-term liabilities................................ 6,310 --
Deferred income taxes...................................... 2,765 1,737
Unfunded accrued pension cost.............................. 5,823 5,035
Termination indemnities.................................... 8,218 7,715
Shareowners' Equity:
Preferred stock, $1 par value; authorized 1,000,000
shares; none issued..................................... -- --
Common stock:
Class A, par value $1; authorized 15,000,000 shares;
issued 8,195,795 in 1995 and 8,122,086 shares in
1994.................................................. 8,196 8,122
Class B, par value $1; authorized 2,000,000 shares;
issued 522,575 in 1995 and 534,821 shares in 1994..... 523 535
Additional paid in capital................................. 66,863 66,412
(Deficit) earnings employed in the business................ (8,032) (9,958)
Cumulative foreign currency translation adjustment......... 18,926 14,530
Treasury stock; 23,592 shares in 1995 and 7,492 shares in
1994, at cost............................................. (270) (151)
Unearned compensation...................................... (349) (565)
-------- --------
Total shareowners' equity............................ 85,857 78,925
-------- --------
$295,400 $272,274
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND DECEMBER 25, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Cash Provided by (Used in) Operations:
Net Income (Loss)............................... $ 1,926 $(14,335) $(2,416)
Adjustment for Noncash Items:
Depreciation and amortization................. 11,010 6,743 6,355
Pension credits and charges................... 1,369 212 269
Deferred income taxes......................... 376 (1,900) 500
Gain on sale of operations.................... -- -- (2,182)
Termination indemnities....................... 331 -- --
Deferred compensation......................... 216 213 55
Changes in Working Capital:
Accounts receivable........................... (4,324) (15,912) (8,204)
Inventories................................... (7,389) 7,103 957
Prepaid expenses and other current assets..... 1,208 1,001 323
Accounts payable and accrued expenses......... (4,798) 6,693 (1,455)
-------- -------- -------
Net Cash (Used in) Operations............... (75) (10,182) (5,798)
-------- -------- -------
Investment Transactions:
Capital expenditures............................ (12,054) (8,929) (4,399)
Proceeds from dispositions...................... 2,096 3,456 599
Proceeds from sale of operations................ -- -- 8,700
Cash equivalent pledged......................... -- 6,078 (6,078)
Other investing activities...................... (445) (1,988) (563)
-------- -------- -------
Net Cash (Used in) Investment Transactions.. (10,403) (1,383) (1,741)
-------- -------- -------
Financing Transactions:
Increase (decrease) in short-term debt.......... 10,915 (16,420) 5,810
Proceeds from issuance of long-term debt........ -- 33,500 --
Principal payments of long-term debt............ (3,444) (1,661) (1,000)
Other financing transactions.................... (600) 353 --
-------- -------- -------
Net Cash Provided by Financing Transac-
tions...................................... 6,871 15,772 4,810
-------- -------- -------
Effect of Exchange Rate Changes on Cash........... 3,193 375 183
-------- -------- -------
Cash and Cash Equivalents:
Increase (decrease) during the year............. (414) 4,582 (2,546)
Beginning balance............................... 6,676 2,094 4,640
-------- -------- -------
Ending balance.................................. $ 6,262 $ 6,676 $ 2,094
======== ======== =======
Supplementary Cash Flow Information:
Interest paid................................... $ 8,004 $ 6,223 $ 4,942
======== ======== =======
Taxes paid...................................... $ 2,598 $ 1,496 $ 1,158
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND DECEMBER 25, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(DEFICIT) CUMULATIVE
COMMON EARNINGS FOREIGN
STOCK ADDITIONAL EMPLOYED CURRENCY
$1 PAR PAID IN IN THE TRANSLATION TREASURY UNEARNED
VALUE CAPITAL BUSINESS ADJUSTMENT STOCK COMPENSATION
------ ---------- --------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance--December 26,
1992................... $4,979 $45,710 $ 6,894 $10,260 $(336) $(833)
Net Loss................ -- -- (2,416) -- -- --
Treasury Stock Transac-
tions.................. -- -- (101) -- 12 --
Restricted Stock
Awards................. 1 -- -- -- 161 55
Foreign currency trans-
lation adjustment...... -- -- -- (866) -- --
------ ------- -------- ------- ----- -----
Balance--December 25,
1993................... 4,980 45,710 4,377 9,394 (163) (778)
------ ------- -------- ------- ----- -----
Net Loss................ -- -- (14,335) -- -- --
Acquisitions............ 3,625 20,413 -- -- -- --
Treasury Stock Transac-
tions.................. -- -- -- -- 12 --
Restricted Stock
Awards................. 10 (8) -- -- -- 213
ESOP Contribution....... 42 297 -- -- -- --
Foreign currency trans-
lation adjustment...... -- -- -- 5,136 -- --
------ ------- -------- ------- ----- -----
Balance--December 31,
1994................... 8,657 66,412 (9,958) 14,530 (151) (565)
------ ------- -------- ------- ----- -----
Net Income.............. -- -- 1,926 -- -- --
Treasury Stock Transac-
tions.................. -- -- -- -- (119) --
Restricted Stock
Awards................. -- 153 -- -- -- 216
ESOP Contribution....... 62 298 -- -- -- --
Foreign currency trans-
lation adjustment...... -- -- -- 4,396 -- --
------ ------- -------- ------- ----- -----
Balance--December 31,
1995................... $8,719 $66,863 $ (8,032) $18,926 $(270) $(349)
====== ======= ======== ======= ===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
Business
Brown & Sharpe Manufacturing Company is a multinational manufacturer of
dimensional metrology products, which include manual and computer-controlled,
high precision machines; mechanical and electronic measuring and inspection
tools; and specialty products and systems. The principal markets for its
products are North America, Europe, Asia, South America, and the Middle East.
The primary end markets for its products are the automotive, aerospace, and
industrial machinery industries.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and all subsidiaries. Intercompany transactions have been eliminated from the
consolidated financial statements. Investments in 20% to 50% part-owned
affiliates are accounted for on the equity method.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's fiscal year ended on the last day of the calendar
year in 1995 and 1994 and the last Saturday in December for 1993. Results for
1995 and 1993 include 52 weeks, while 1994 had 53 weeks.
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost is determined on
a last-in, first-out (LIFO) basis for all domestic inventories in 1995 (40% of
cost in 1994) and principally on a first-in, first-out (FIFO) basis for
inventories outside the United States. Provision is made to reduce slow-moving
and obsolete inventories to net realizable values. Current FIFO cost exceeds
the LIFO value of inventories by approximately $12,293 and $12,473 at December
31, 1995 and 1994, respectively. Year-end inventories valued under the LIFO
method were $16,081 in 1995 and $7,231 in 1994. During 1994 and 1993,
quantities for certain segments of the LIFO inventories were reduced. The
reductions resulted in liquidation of LIFO quantities carried at lower costs
prevailing in prior years compared with the cost of current purchases, the
effect of which decreased net loss by $631 ($.10 per share) and $749 ($.15 per
share) in 1994 and 1993, respectively.
The composition of inventory at year-end was as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Parts, raw materials and supplies......................... $39,857 $42,665
Work in progress.......................................... 15,906 17,069
Finished goods............................................ 32,795 28,905
------- -------
$88,558 $88,639
======= =======
</TABLE>
Property, Plant and Equipment
Property, plant, and equipment are carried at cost and are being depreciated
principally on a straight-line basis over the estimated useful lives of the
assets which generally range from 20 to 40 years for buildings and
improvements and from 3 to 12 years for machinery and equipment. Depreciation
expense was $8,980, $6,442,
29
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and $5,862 in 1995, 1994, and 1993, respectively. Repair and maintenance costs
are charged against income while renewals and betterments are capitalized as
additions to the related assets. Retirements, sales, and disposals of assets
are recorded by removing the cost and accumulated depreciation from the asset
and accumulated depreciation accounts with any resulting gain or loss
reflected in income. At December 31, 1995, land and buildings with a book
value of $19,973 were pledged as collateral for mortgage loans of $26,800.
Goodwill
Goodwill, which is net of accumulated amortization of $771 in 1995 and $154
in 1994, is being amortized on a straight-line basis over periods ranging from
7 to 20 years.
Other Assets
Other assets consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Prepaid pension............................................ $ 4,673 $ 5,106
Equity investments......................................... 2,492 1,956
Other...................................................... 6,662 6,452
------- -------
$13,827 $13,514
======= =======
</TABLE>
Revenue Recognition
The Company records revenue upon shipment other than for long-term
contracts, upon rendering of service for installation and training, and
ratably over the contract period for service contracts. Sales under long-term
contracts are recorded using the percentage of completion method, wherein
costs and estimated gross margin are recorded as sales during the period the
work is being performed. Estimated gross margin is based on the total contract
sales value and the most recent estimate of total costs. When the current
contract estimate indicates a loss, a provision is made for the total
anticipated loss.
Foreign Currency
Assets and liabilities of those subsidiaries located outside the United
States whose cash flows are primarily in local currencies are translated at
year-end exchange rates and, income and expense items are translated at
average monthly rates. Translation gains and losses are accounted for in a
separate shareowners' equity account "Cumulative foreign currency translation
adjustment."
There were no forward exchange contracts outstanding at December 31, 1995
and 1994. Transaction gains were recorded in 1995, 1994, and 1993 of $601,
$1,064, and $157, respectively. Transaction gains in 1995 includes an
adjustment, which increased the gain, amounting to $640 ($.07 per share),
after taxes, relating to a revaluation of a 1994 foreign denominated liability
that was incorrectly recorded at historical, rather than current, foreign
exchange rate in the Company's consolidated financial statements issued in
prior years. Prior year financial statements were not restated due to the
immaterial effect on the previously-issued financial statements.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company places its temporary cash
investments with high credit quality financial institutions and, by policy,
limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited
due to the
30
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's large number of customers and their dispersion across many different
industries and countries worldwide. At December 31, 1995, the Company had no
significant concentrations of credit risk.
Stock Incentive Plans
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees", and intends
to continue to do so.
Postretirement and Postemployment Benefits
The Company does not provide postretirement or postemployment benefits as
contemplated by SFAS 106 and SFAS 112, respectively, and accordingly these
statements have no impact upon the Company's financial position or results of
operations.
Income Taxes
The Company provides for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes". SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to reflect the tax
consequences on future years of temporary differences of revenue and expense
items for financial statement and income tax purposes. Valuation allowances
are provided against assets which are not likely to be realized. Federal
income taxes are not provided on the unremitted earnings of foreign
subsidiaries since it has been the practice and is the intention of the
Company to continue to reinvest these earnings in the business outside the
United States.
Net Income (Loss) Per Share
Net income per share is computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding during each
year, while net loss per share is based only on the weighted average number of
shares of common stock. Common stock equivalents are additional shares which
may be issued upon the exercise of dilutive stock options using the average
market price of the Company's common stock during the year for primary
earnings per share and market price at the end of the year for fully diluted
earnings per share. Conversion of the convertible subordinated debentures (see
Note 6) was not assumed in the 1995 computation of fully diluted net income
(loss) per share because such conversion was antidilutive. Shares used to
compute net income (loss) per share were 8,772,748 in 1995, 6,057,090 in 1994,
and 4,969,543 in 1993.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash on hand, deposits in banks,
and short-term marketable securities with a maturity at acquisition of three
months or less.
Recently Issued Accounting Pronouncements
The Company has not yet adopted Statement of Financial Accounting Standards
(FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which is effective for the Company's
1996 fiscal year. The Company does not anticipate that the Statement will have
a material effect on the statement of operations or financial position upon
adoption.
Reclassifications
Certain amounts reported in 1994 and 1993 have been reclassified to conform
with the 1995 presentation.
31
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS
DEA
Brown & Sharpe Manufacturing Company, together with its subsidiary Brown &
Sharpe International Capital Corporation, acquired on September 28, 1994, the
stock of DEA S.p.A., an Italian corporation, and its related metrology
business from Finmeccanica S.p.A., an Italian corporation, for 3,450,000
shares of Class A common stock with a market value amounting to $22,856. In
addition, the Company incurred professional accounting, legal, and other costs
of $2,301 in conjunction with the acquisition which have been accounted for as
part of the purchase price. The acquisition has been accounted for as a
purchase. Accordingly, the Company's consolidated balance sheet at October 1,
1994 included the assets and liabilities of DEA S.p.A. and its subsidiaries.
The Company's consolidated statements of operations and cash flows includes
the results of operation of DEA S.p.A. and its subsidiaries commencing October
2, 1994.
The DEA purchase agreement provided for a post-closing adjustment to the
purchase price based upon the final valuation of the acquired assets and
assumed liabilities which occurred in 1995. No such adjustment was made.
However, differences in final valuation calculations resulted in a settlement
whereby Finmeccanica S.p.A. waived lease payments of approximately $1,000 for
a DEA facility leased from Finmeccanica. (See Note 12.)
Because DEA was acquired late in 1994 and was a complex worldwide operation
that required a comprehensive review of asset values and liabilities and a
significant part of the study had to take into consideration the integration
of DEA into the Measuring Systems Group, the final assessment of asset values,
restructuring the manufacturing and marketing organization, and making other
necessary changes was not completed until the third quarter of 1995. The
determination of the final fair values resulted in adjustments consisting of
changes from initially determined values as of September 28, 1994 amounting to
an increase in goodwill; property, plant and equipment; deferred income taxes;
and other assets amounting to $10,360, $4,142, $1,800, and $1,044,
respectively, and a decrease in inventory and accounts receivable amounting to
$12,582 and $1,175, respectively. Adjustments to other balance sheet amounts
were individually not significant.
As a result of the adjustments to the preliminary 1994 estimates, net income
for 1995 increased approximately $350 ($.04 per share).
Roch
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 affiliate,
Mauser Prazisions--Messmittel GmbH ("Mauser"). 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 purchase price was 175,000 shares of Brown & Sharpe Class A Common
Stock, subject to certain post closing adjustments and the right to receive an
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. The final purchase price adjustment has not yet been made.
Negotiations to finalize the amount of the adjustment are expected to be
complete by June of 1996.
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.
32
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Proforma Combined (Unaudited)
The Company's unaudited Pro Forma combined results of operations for the
years ended December 31, 1994 and December 25, 1993 assuming the acquisition
of DEA and Roch occurred at the beginning of 1993, are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales............................................... $272,847 $279,742
Net income (loss)....................................... $(11,441) $ 8,924
Primary and fully diluted net income (loss) per common
share.................................................. $ (1.89) $ 1.08
</TABLE>
3. RESTRUCTURING CHARGES
Results of operations for 1995 include restructuring charges of $336 ($.03
per share) compared with 1994 which include charges of $4,169 ($.69 per
share). These charges consist principally of Brown & Sharpe employee severance
and Brown & Sharpe sales offices closing costs of $336 and $2,348 for 1995 and
1994, respectively, associated with integrating Brown & Sharpe's existing
operations with those of DEA mainly outside the U.S. Other cash costs of
integrating DEA were incurred but were accounted for as part of the purchase
price accounting of the acquisition. Also, costs of $1,821 were recorded for
1994 severance of 38 employees and property, plant, and equipment and
inventory write-offs due to a plant closing in Switzerland arising from the
acquisition of Roch, which is discussed in Note 2. Of these costs, $420 was
paid in 1994 and $3,202 in 1995. The balance $547 represents non-cash costs.
4. INCOME TAXES
Income (loss) before income taxes consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Domestic......................................... $(4,850) $ (1,338) $ 1,394
Foreign.......................................... 7,473 (10,597) (3,010)
------- -------- -------
Income (loss) before income taxes................ $ 2,623 $(11,935) $(1,616)
======= ======== =======
</TABLE>
The following table reconciles the income tax provision (benefit) at the
U.S. statutory rate to that in the financial statements:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------- -----
<S> <C> <C> <C>
Taxes computed at 34%................................ $ 892 $(4,058) $(491)
Goodwill amortization................................ 158 -- --
Additional tax on foreign income..................... 113 1,459 --
Alternative minimum and state taxes.................. 31 250 200
Net operating losses and other losses................ (636) 4,749 1,091
Other (net).......................................... 139 -- --
----- ------- -----
Income tax provision................................. $ 697 $ 2,400 $ 800
===== ======= =====
</TABLE>
33
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Current:
Federal........................................... $ (996) $ 3,250 $ 500
State............................................. 31 250 300
Foreign........................................... 1,286 800 500
------ ------- ------
321 4,300 1,300
Deferred:
Federal........................................... 996 (1,000) --
Foreign........................................... (620) (900) (500)
------ ------- ------
376 (1,900) (500)
------ ------- ------
Income tax provision................................ $ 697 $ 2,400 $ 800
====== ======= ======
</TABLE>
Provision has not been made for U.S. taxes on $39,000 of cumulative
undistributed earnings of foreign subsidiaries as those earnings are intended
to be permanently reinvested.
The components of the Company's deferred tax assets and liabilities as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Inventory reserves.......................................... $ 8,553 $ 2,429
Warranty expense............................................ 928 400
Provision for doubtful accounts............................. 226 300
Depreciation................................................ 1,722 3,044
Tax credit and loss carryforwards........................... 46,293 37,600
Other....................................................... 4,827 404
------- -------
Gross deferred assets..................................... 62,549 44,177
Less valuation allowance.................................... 53,590 38,100
------- -------
Deferred tax asset........................................ $ 8,959 $ 6,077
======= =======
Deferred tax liabilities:
Pension expense............................................. $ 1,542 $ 1,542
Inventory reserves.......................................... 1,665 1,196
Depreciation................................................ 2,288 2,752
Other....................................................... 2,907 324
------- -------
Deferred tax liability.................................... $ 8,402 $ 5,814
======= =======
</TABLE>
A valuation allowance has been established due to the uncertainty of
realizing certain tax credit and loss carryforwards and a portion of the other
deferred tax assets. The valuation allowance has been increased by $15,490
during 1995. The recognition of any future tax benefits resulting from the
elimination of $21,300 of the valuation allowance will reduce any goodwill
remaining at the time of such elimination.
For income tax purposes, the Company has operating loss and capital loss
carryforwards of $2,000 and $3,500, respectively, in the U.K. and net
operating loss carryforwards of $26,700, $38,500, $5,000, and $22,700,
34
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
respectively in Switzerland, Germany, France, and Italy. The Swiss, French,
and Italian carryforwards expire between 1996 and 2001. There is no time limit
for the U.K. and German carryforwards.
The Company's domestic income tax return for the 1993 fiscal year is under
examination by the Internal Revenue Service. The Company believes it has made
adequate provision for assessments (if any) which may arise as a result of
this audit.
5. SHORT-TERM BORROWINGS
Outstanding short-term borrowings were $28,061 at December 31, 1995 and
$19,193 at December 31, 1994. Substantially all domestic assets of the Company
are pledged as collateral. Certain borrowing agreements contain covenants
which, among other things, require the Company to maintain certain financial
ratios and restricts the payment of dividends.
Amounts outstanding under Brown & Sharpe's lines of credit, excluding the
Facility, are generally payable on demand, and certain of the lines extended
to Brown & Sharpe's foreign subsidiaries are secured by other assets. The
Facility provides for demand borrowings based on a percentage of eligible
domestic accounts receivable and finished and certain other inventory and, is
secured by substantially all domestic assets. At December 31, 1995, Brown &
Sharpe had borrowings of $28.1 million under all short term lines of credit
compared to total availability at that date of $74.1 million under the lines
of credit. Certain of the domestic and foreign lines of credit provide
availability of borrowing capacity and funds only to the degree of
availability of certain kinds of eligible receivables. At December 31, 1995,
$17.6 million of the total lines of credit were restricted to foreign eligible
receivables and also to certain foreign countries, of which $16.5 million was
available for future use.
No compensating balances were required at December 31, 1995 and 1994. A
credit line of $3,261 in the U.K. is collateralized by the assets in that
country, and the Company has also guaranteed borrowings up to $776. The
weighted average interest rates on short-term borrowings were 7.7% and 7.3% in
1995 and 1994, respectively.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
9-1/4% convertible subordinated debentures due December,
2005...................................................... $14,000 $15,000
Mortgages at rates ranging from 7.75% to 8.75%............. 26,800 27,619
Notes payable, due September 28, 1997 with quarterly inter-
est of Libor
plus .60%................................................. 25,000 25,000
Notes payable, due various dates with interest rates
ranging from 2.1% to 12.39%............................... 8,207 5,801
------- -------
74,007 73,420
Less: current installments................................. 17,168 3,205
------- -------
Total long-term debt....................................... $56,839 $70,215
======= =======
</TABLE>
The 9-1/4% subordinated debentures are convertible, at the option of the
holders, into common shares at $26.25 per share subject to antidilution
provisions. The Company, through a sinking fund, is required to provide for
retirement of $1,000 in principal amount annually with the final $5,000
payable at maturity. At December 31, 1995, 533,333 shares of Class A Common
Stock were reserved for conversion of these debentures. Annual maturities of
long- term debt are as follows: 1996--$17,168, 1997--$30,888; 1998--$3,359;
1999--$8,493; 2000--$2,351; and $11,748 thereafter. Interest rates on long-
term debt average approximately 9% in 1995.
35
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The $25,000 notes payable are guaranteed by Finmeccanica in connection with
the acquisition of DEA. In return, the Company's reimbursement obligation is
secured by a guarantee by DEA pursuant to an agreement between DEA and
Finmeccanica.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company values the financial instruments as required by Statement of
Financial Accounting Standards No. 107. The carrying amounts of cash and cash
equivalents, short-term debt, and long-term variable-rate debt approximates
fair value. The fair value of the Company's 9 1/4% subordinated debentures
approximates $14,000 based on the quoted market prices.
8. CONTINGENCIES
On April 7, 1995, the U.S. Court of Appeals for the District of Columbia
Circuit rendered a decision on the second appeal by the International
Association of Machinists and Aerospace Workers (the "IAM") of a supplemental
decision and order of the National Labor Relations Board ("NLRB") reaffirming
an April 1986 decision of the NLRB dismissing reinstated unfair labor practice
charges brought against the Company by the IAM in September 1982. These
charges arose out of a strike which began at the Company's Rhode Island
operations in October 1981. Although the NLRB has previously upheld dismissal
of the reinstated unfair labor practice charges, the Appeals Court in its
latest decision has stated that the NLRB failed to articulate and apply a
judicially acceptable standard to determine whether certain evidence offered,
and characterized by the IAM as being newly discovered, was material and of
sufficient nature to justify tolling the statute of limitations so as to
permit the filing of the reinstated unfair labor practice charges. Based on
the foregoing, the Court vacated the judgment of the NLRB favorable to the
Company and has remanded the case back to the NLRB for further proceedings to
determine these evidentiary issues and their effect on the application of the
statute of limitations to the reinstated unfair labor practice charges. The
Court has directed that should the NLRB rule against the Company on the
evidentiary issues presented for consideration then it must proceed to
determine the merits of the reinstated unfair labor practice charges.
Management of the Company and its counsel believe the NLRB will not determine
that the case should proceed to a hearing on its merits and that a finding of
ultimate liability against the Company in this matter continues to be remote.
The Company is involved in a lawsuit which arose out of an environmental
proceeding in which the United States Environmental Protection Agency ("EPA")
identified Brown & Sharpe as a potentially responsible party ("PRP") at a
waste disposal site (the "Site") in Rhode Island listed on the EPA's National
Priority List for clean-up and future monitoring remedial action under the
Superfund legislation. While the Company's proportionate share of the total
waste contributed to the Site was minimal in volume and toxicity, the EPA
nevertheless issued an Administrative Order against the Company and other
PRP's to clean up the Site. Subsequently, the Company was permitted by the EPA
to settle its liability at such Site in exchange for releases from the EPA and
the State of Rhode Island and contribution protection from claims of any third
parties who may have liability at the Site. On January 2, 1991, a group of
non-settling major PRP's at the Site brought suit in the Federal District
Court in Rhode Island against all of the settling parties, including the
Company, to recover a portion of their past and anticipated future costs of
performing the clean-up remedy. The Court entered a summary judgment in favor
of the Company and other settling parties on October 30, 1992. The non-
settling group of major PRP's appealed that ruling and have subsequently
brought suit against the EPA seeking to have the settlements of the de minimis
settling parties set aside. The Company is vigorously defending this lawsuit
and believes that the release and contribution protection obtained from the
EPA in connection with settlement of its liability at the Site will ultimately
bar the cost-recovery claim.
On March 1, 1995, the Company received a notice from the State of New York
asserting a claim against it, along with a group of approximately ten other
companies, to recover costs incurred by the New York State
36
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Department of Environmental Conservation to clean up a waste disposal site in
Poughkeepsie, NY. The State has alleged that the Company's former subsidiary,
Standard Gage Company, Poughkeepsie, NY, which was merged with and into the
Company, contributed hazardous waste to the site for disposal and that the
Company is a potentially responsible party as the surviving corporation to the
merger. The total claim asserted by the State against all parties is
approximately $500, and it has expressed a willingness to settle its claim
with all PRP's receiving the notice. The Company is continuing to investigate
the basis for this claim and estimates that any potential loss it might incur
as a result of any involvement or settlement at this site would not be
material.
The Company is also involved in several product liability claims and
lawsuits which are incidental to the conduct of its business, the potential
liability for which is adequately covered by insurance or reserves established
for such contingencies. The Company is contesting or defending these claims
and suits and management believes that the ultimate liability, if any,
resulting from these matters will not have a material effect on the Company's
financial position.
9. INCENTIVE AND RETIREMENT PLANS
Stock Incentive Plans
Under the provisions of the Company's 1989 Equity Incentive Plan (the "`89
Plan"), as amended on May 3, 1995 to increase by 500,000 the number of shares
authorized for delivery in connection with awards, a variety of stock and
stock based incentive awards, including stock options and restricted and
unrestricted stock, are available to be granted to eligible key employees of
the Company and its subsidiaries. The `89 Plan permits the granting of stock
options which qualify as incentive stock options under the Internal Revenue
Code and non-statutory options which do not so qualify. During 1995, there
were no awards of restricted stock, and during 1994, a total of 10,000 shares
of restricted Class A common stock utilizing newly issued shares were made
under the `89 Plan. Since the inception of the `89 Plan, 102,300 restricted
Class A shares have been awarded net of forfeitures. The awards of restricted
stock vest over a five year period with 25% of the award vesting at the end of
the 2nd and 3rd years and 50% at the end of the 5th year with the unvested
shares being subject to forfeiture if the recipient's employment is
terminated. Unearned compensation in the amount of $349 is being amortized to
expense over the forfeiture lapsing period for these awards of restricted
stock. In 1995 and 1994, options to purchase a total of 528,000 and 145,000
shares, respectively, during ten year periods of Class A common stock were
granted at exercise prices between $6.50 and $10.75 per share. The options
granted in 1995 become exerciseable either with respect to 50% of the award
after 2 years and 25% after 3 and 4 years from the date of the award or 50% of
the award after 2 years and 50% after 3 years from the date of the award. The
options granted in 1994 were exerciseable at any time after the date of the
awards. The exercise price for shares covered by options awarded under the `89
Plan is 100% of the market value on the date such options are granted. The
aggregate amount of shares of Class A common stock, including options, which
may be awarded under the `89 Plan is 875,000 shares and the amount of shares
of Class A common stock including forfeitures remaining available for issuance
under the `89 Plan in connection with future awards is 124,700 shares.
No further options or other awards may be granted under the Company's
Amended 1973 Stock Option Plan (the "`73 Plan"). The exercise price for
shares of Class A common stock covered by outstanding options under the `73
Plan is 100% of the market value on the dates such options were granted.
Options granted under the `73 Plan became exerciseable one year after the date
of grant and expire at the end of ten years. On December 31, 1995, options for
17,997 shares of Class A common stock were outstanding and exerciseable at
prices between $12.94 and $17.86. Option activity under both the `89 Plan and
`73 Plan during the past three years is summarized as follows:
37
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES PRICE RANGE
------- ----------------
<S> <C> <C>
Outstanding December 26, 1992..................... 145,192 $10.25 to $17.86
Forfeited or canceled........................... (21,666) $10.78 to $12.13
-------
Outstanding December 25, 1993..................... 123,526 $10.25 to $17.86
Granted......................................... 145,000 $ 6.50
Forfeited or canceled........................... (50,529) $12.47 to $13.10
-------
Outstanding December 31, 1994..................... 217,997 $ 6.50 to $17.86
Granted......................................... 528,000 $ 6.75 to $10.75
Forfeited or canceled........................... (80,000) $ 6.50 to $16.38
-------
Outstanding December 31, 1995..................... 665,997 $ 6.50 to $17.86
=======
</TABLE>
Profit Incentive Plan
Under the provisions of the Company's Amended Profit Incentive Plan as
originally approved in 1979, awards of cash and supplemental awards of
restricted shares of restricted common stock valued at 100% of market on the
date of grant vesting ratably over a five year period and subject to
forfeiture conditions, could be made as bonuses to certain management
employees. Following an amendment of the Plan in 1994, the Plan feature
providing for awards of stock was eliminated resulting in the Plan being a
cash only bonus Plan. Plan awards provisions under the Plan in the amounts of
$1,157, $310, and $601 were made in 1995, 1994, and 1993, respectively, and
there were no awards of stock made in 1995, 1994 or 1993.
Long-Term Deferred Cash Incentive Plan
In February 1996, the Board of Directors approved "The Brown & Sharpe Key
Employee Long-Term Deferred (unfunded) Cash Incentive Plan" (the "LTIP"),
which was effective for 1995. The LTIP provides for deferred cash payments
upon retirement or termination of employment, subject to vesting three years
after the end of the year for which it is earned. Annual total plan awards are
calculated at 6% of adjusted pretax income and shared by the plan participants
(currently eight key executives of the Company) pro rata based on annual
salary paid. The 1995 consolidated financial statements contain a provision
amounting to $200 thousand.
Savings Plans
Company has 401(K) stock bonus and thrift savings plans for U.S. employees,
which include retirement income features consisting of employer contributions
and employee tax deferred contributions. Contributions under all plans are
invested in professionally managed portfolios and Company stock. The savings
plans' expense for 1995, 1994, and 1993 was $941, $793, and $705,
respectively.
Stock Ownership Plan
Under the provisions of the Company's Employee Stock Ownership Plan (ESOP),
the Company may make contributions of common stock or cash to purchase common
stock from the Company or otherwise, to be held in trust for employees meeting
certain eligibility requirements until the employees reach retirement age. The
ESOP may also borrow funds to purchase common shares, for which the Company
will contribute amounts as necessary to pay down the indebtedness. ESOP
expense was $433 in 1995, $360 in 1994, and $327 in 1993. At December 31,
1995, there were no unallocated shares of Class A and B stock held in the ESOP
as all shares were allocated to participants' accounts.
38
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Retirement Plans
The Company's subsidiaries have a defined contribution retirement plan
covering employees in Switzerland and two defined benefit retirement plans
covering employees in the U.K. and Germany, which includes substantially all
employees. Retirement plan expense net of pension income for 1995, 1994, and
1993 was $1,369, $1,593, and $1,223, respectively.
The defined benefit plans which cover employees in the U.K. and Germany,
respectively, provide benefits based on years of service and employee
compensation. Retirement costs under both plans are compiled based on the
projected unit credit actuarial method.
The U.K. plan's actuarial assumptions used settlement rates of 8.0% at the
end of 1995 and 9.0% at the end of 1994, a long-term return on assets of 9.0%
in 1995, 8.0% in 1994, and 10% in 1993, and annual wage increases of 7.0% at
the end of 1995 and 8.0% at the end of 1994. Retirement costs accrued are
funded.
The German plan's actuarial assumptions used a settlement rate of 7.0% and
7.5% at the end of 1995 and 1994 and an annual wage increase of 4.5% at the
end of 1995 and 1994. Retirement costs accrued are not funded.
The following items are the components of net periodic pension income for
the U.K. plan for the years ended December 31, 1995 and 1994 and December 25,
1993:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned........................ $ 823 $ 797 $ 664
Interest cost on projected benefit obligations...... 1,263 943 743
Return on plan assets, net.......................... (3,049) 1,007 (1,200)
Net amortization and deferral....................... 909 (2,948) (345)
------- ------- -------
Net periodic pension income......................... $ (54) $ (201) $ (138)
======= ======= =======
</TABLE>
The plan has assets in excess of the accumulated benefit obligations. Plan
assets include investments in equity securities, corporate and government debt
securities, and cash equivalents. The following table presents a
reconciliation of the funded status of the plan at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Vested and accumulated benefit obligation.................. $(12,012) $(16,311)
======== ========
Projected benefit obligation............................... (15,126) (18,420)
Plan assets at fair value.................................. 20,726 31,290
-------- --------
Funded status.............................................. 5,600 12,870
Unrecognized portion of net assets......................... (927) (7,764)
-------- --------
Prepaid pension............................................ $ 4,673 $ 5,106
======== ========
</TABLE>
The following items are the components of net periodic pension cost for the
unfunded German plan for the years ended December 31, 1995 and 1994 and
December 25, 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ----
<S> <C> <C> <C>
Service cost-benefits earned............................ $ 107 $ 97 $112
Interest cost on projected benefit obligations.......... 372 316 295
------- ------- ----
Net periodic pension cost............................... $ 479 $ 413 $407
======= ======= ====
Vested and accumulated benefit obligation............... $(4,700) $(3,330)
======= =======
Projected benefit obligation............................ $(5,519) $(4,617)
Unrecognized net gain................................... (304) (418)
------- -------
Unfunded accrued pension cost........................... $(5,823) $(5,035)
======= =======
</TABLE>
39
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense was $10,762, $5,694, and $4,855 in 1995,
1994, and 1993, respectively.
11. OTHER INCOME AND EXPENSE
Other income (expense), net includes:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ------
<S> <C> <C> <C>
Interest income............................................. $540 $468 $ 266
Gain (loss) on sale of fixed assets......................... (90) (284) 44
Gain on sale of operations.................................. -- -- 2,182
Other income (expense)...................................... (315) 65 115
---- ---- ------
$135 $249 $2,607
==== ==== ======
</TABLE>
12. RENTAL EXPENSE AND LEASE COMMITMENTS
At December 31, 1995, the Company was obligated under operating leases
expiring on various dates. Rental expense was $9,767, $4,157, and $3,845 in
1995, 1994, and 1993, respectively. Annual rental commitments under
noncancelable leases pertaining principally to buildings and equipment at
December 31, 1995 are $6,919, $3,706, $2,200, $1,028, and $858 for the years
1996 through 2000, and aggregate to $4,391 for all years subsequent to 2000.
In addition, DEA is the lessee under a lease agreement with the Elsag Bailey
Division of Finmeccanica with respect to its principal headquarters facility
located in Moncalieri, Italy. The lease expires on December 31, 1997, and the
annual rental amount under such lease is approximately $861. (See Note 2.)
Expenditures under this lease after DEA's scheduled vacating of the facility
in September 1996 has been waived by Finmeccanica as part of the purchase
price adjustment settlement.
13. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
Financial Information by Business Segment and Geographic Area as set forth
on page 11 in Item 1 of this Annual Report is an integral part of these
financial statements.
14. COMMON STOCK
Both classes of common stock have equal rights upon liquidation. Class A
common stock may not receive less cash dividends per share than Class B common
stock, nor may such dividends be less frequent. The Class A common stock has
one vote per share. Except as otherwise provided by law, the Class B common
stock has ten votes per share, and the Class B common stock is convertible
into Class A common stock on a one-for-one basis, and can be transferred in
Class B form only to specified transferees, generally members of a
shareowner's family and certain others affiliated with a shareowner. During
1995 and 1994, 12,246 shares and 12,783 shares, respectively, were converted
from Class B to Class A common stock.
During 1995, 16,100 shares were put into the treasury from a forfeiture of
restricted stock award. In 1994, 584 treasury shares were allocated for use as
restricted stock awards, and 584 treasury shares were issued under a
Directors' deferred compensation plan.
40
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
15. PREFERRED STOCK PURCHASE RIGHTS
On March 23, 1988, the Company distributed a dividend of one purchase right
for each outstanding share of common stock. Until the occurrence of specified
events, the rights are represented by the associated common stock
certificates. Following the distribution of the Class B common stock on June
10, 1988, and until the occurrence of specified events, each certificate
representing a share of Class A or Class B common stock also represents three-
quarters of a right. Each right entitles the shareowner to buy from the
Company one-hundredth of a share of Series A Participating Preferred Stock at
an exercise price of $55 per right. The rights become exerciseable ten days
after a party acquires 20% of the Company's common stock. The rights, which
are subject to adjustment, may be redeemed by the Company at a price of $.03
per right at any time prior to the fifteenth day after a person acquires 20%
of the Company's common stock. The rights expire on March 23, 1998.
In the event the Company is involved in certain business combination
transactions with a 20% shareowner, each right will entitle its holder (other
than a 20% shareowner) to purchase, at the right's then exercise price, an
equity interest in the acquiring person having a market value of two times the
exercise price. In the event a 20% shareholder engages in certain other
transactions with the Company or (pursuant to a February, 1989 amendment) any
person becomes a 20% shareowner, each right will entitle its holder (other
than a 20% shareowner) to purchase, at the right's then exercise price, shares
of Class A common stock having a market value of two times the exercise price.
Prior to the DEA acquisition and entering into the Shareholders Agreement
between the Company and Finmeccanica, the Company amended the Rights Agreement
between it and the First National Bank of Boston dated March 9, 1988 pursuant
to authority reserved in such agreement to exclude Finmeccanica from the
definition of an "Acquiring Person" under the Rights Agreement so long as it
does not own shares of Class A Stock other than those acquired in connection
with the DEA acquisition and as provided in the Shareholders Agreement.
16. COMMITMENT
At December 31, 1995, the Company had entered into a commitment to construct
a building in Telford, England. This building, which is to be completed in
1996, will increase the capacity of its Custom Metrology Division. The
building is estimated to cost approximately $3,800.
17. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995
--------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.............................. $74,095 $80,967 $76,945 $ 88,892
Gross profit........................... 23,184 23,704 22,682 29,600
Net income (loss)...................... (1,455) 1,045 220 2,116
Earnings (loss) per common share....... $ (.17) $ .12 $ .03 $ .24
<CAPTION>
1994
--------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.............................. $36,659 $43,152 $39,641 $ 85,548
Gross profit........................... 10,719 13,755 11,031 26,719
Net income (loss)...................... (2,874) (1,368) (4,615) (5,478)
Earnings (loss) per common share....... $ (.57) $ (.26) $ (.86) $ (.63)
</TABLE>
The aggregate effect of 1995 year-end adjustments was to increase fourth
quarter net income by $940 ($.11 per share), after taxes, which, primarily,
resulted from an adjustment to inventory valuation allowances that were
necessary to record inventory at locations outside the United States at FIFO
cost. In addition, as discussed in greater detail in Note 1, the 1995 fourth
quarter also includes an adjustment amounting to $640 ($.07 per share), after
taxes, relating to a revaluation of 1994 foreign denominated liabilities.
41
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
ITEM 9--DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Refer to "INFORMATION WITH RESPECT TO NOMINEES AND OTHER DIRECTORS
CONTINUING IN OFFICE" in the Company's definitive Proxy Statement for the May
2, 1996 Annual Meeting which is incorporated herein by reference.
Executive Officers
Refer to Item 4A of this Annual Report on Form 10-K for information
regarding Executive Officers.
ITEM 11--MANAGEMENT REMUNERATION AND TRANSACTIONS
Refer to "EXECUTIVE COMPENSATION" in the Company's definitive Proxy
Statement for the May 2, 1996 Annual Meeting which is incorporated herein by
reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to "Principal Shareholders" and "STOCK OWNERSHIP OF DIRECTORS AND
OFFICERS" in the Company's definitive Proxy Statement for the May 2, 1996
Annual Meeting which are incorporated herein by reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to "CERTAIN RELATIONSHIPS" in the Company's definitive Proxy Statement
for the May 2, 1996 Annual Meeting which is incorporated herein by reference.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements filed in Item 8 of this Annual Report
Consolidated Statements of Operations for the Years Ended December 31, 1995
and 1994 and December 25, 1993
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995
and 1994 and December 25, 1993
Consolidated Statements of Shareowners' Equity for the Years Ended December
31, 1995 and 1994 and December 25, 1993
Notes to Consolidated Financial Statements
42
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
Statements and Schedules Omitted
Individual financial statements of the Registrant's subsidiaries are omitted
because the Registrant is primarily an operating Company and all subsidiaries
included in the consolidated financial statements are wholly-owned
subsidiaries.
Schedules other than those listed above are omitted because they are not
required, are not applicable, or the information is included in the financial
statements.
Exhibits
Exhibits have been filed separately with the Securities and Exchange
Commission in connection with this Annual Report on Form 10-K or have been
incorporated into the report by reference. A list briefly describing such
Exhibits has been enclosed in this Annual Report.
Reports on Form 8-K
On April 4, 1995, Brown & Sharpe filed a Current Report on Form 8-K under
Item 4 reporting the March 30, 1995 appointment of Ernst & Young LLP as the
Company's independent auditors.
43
<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.
Brown & Sharpe Manufacturing Company
(Registrant)
/s/ Charles A. Junkunc
Date: March 26, 1996 By: _________________________________
CHARLES A. JUNKUNCVICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
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.
SIGNATURE TITLE DATE
/s/ Henry D. Sharpe, Jr. Chairman of the March 26, 1996
- ------------------------------------- Board and Director
HENRY D. SHARPE, JR.
/s/ Frank T. Curtin President, Chief March 26, 1996
- ------------------------------------- Executive Officer
FRANK T. CURTIN (Principal
Executive Officer)
and Director
/s/ Paul R. Tregurtha Director March 26, 1996
- -------------------------------------
PAUL R. TREGURTHA
/s/ Henry D. Sharpe, III Director March 26, 1996
- -------------------------------------
HENRY D. SHARPE, III
/s/ Vincenzo Cannatelli Director March 26, 1996
- -------------------------------------
VINCENZO CANNATELLI
/s/ Alfred J. Corso Controller March 26, 1996
- ------------------------------------- (Principal
ALFRED J. CORSO Accounting Officer)
44
<PAGE>
SIGNATURE TITLE DATE
/s/ Howard K. Fuguet Director March 26, 1996
- -------------------------------------
HOWARD K. FUGUET
/s/ John M. Nelson Director March 26, 1996
- -------------------------------------
JOHN M. NELSON
/s/ Russell A. Boss Director March 26, 1996
- -------------------------------------
RUSSELL A. BOSS
/s/ Enrico Albareto Director March 26, 1996
- -------------------------------------
ENRICO ALBARETO
/s/ Alberto de Benedictis Director March 26, 1996
- -------------------------------------
ALBERTO DE BENEDICTIS
/s/ Charles A. Junkunc Vice President and March 26, 1996
- ------------------------------------- Chief Financial
CHARLES A. JUNKUNC Officer (Principal
Financial Officer)
45
<PAGE>
DIRECTORS
Enrico Albareto, Chief Executive Officer, Elsag Bailey, Division of
Finmeccanica S.p.A.
Russell A. Boss, Director and President & Chief Executive Officer, A. T.
Cross Company
Vincenzo Cannatelli, Managing Director and Chief Executive Officer, Elsag
Bailey Process Automation N.V.
Alberto de Benedictis, Senior Vice President, Corporate Development,
Finmeccanica S.p.A.
Howard K. Fuguet, Partner, in the law firm of Ropes & Gray
John M. Nelson, Chairman & Chief Executive Officer, Wyman-Gordon Company
Henry D. Sharpe, Jr., Chairman of the Board, Brown & Sharpe Manufacturing
Company
Henry D. Sharpe, III, Co-founder & Technical Director, Design Lab, Inc.
Frank T. Curtin, President & Chief Executive Officer, Brown & Sharpe
Manufacturing Company
Paul R. Tregurtha, Chairman of the Board and Chief Executive Officer, Mormac
Marine Group, Inc.
OFFICERS
Henry D. Sharpe, Jr., Chairman of the Board
Frank T. Curtin, President & Chief Executive Officer
Charles A. Junkunc, Vice President & Chief Financial Officer
Antonio Aparicio, Vice President & General Manager--Precision Measuring
Instruments
Dr. John Cooke, Vice President & General Manager--Custom Metrology
Richard F. Paolino, Vice President & General Manager--Measuring Systems,
Commercial Operations
Richard D. Batting, Vice President & General Manager--Measuring Systems
U.S.A.
Andrew Barclay, Vice President
Karl J. Lenz, Vice President
John L. Eppich, Treasurer
James W. Hayes, III, Secretary & Corporate Counsel
Alfred J. Corso, Controller
INVESTOR INFORMATION
ANNUAL MEETING: The Annual Meeting of Stockholders will be held May 2, 1996
at 10:00 a.m. at the Corporate Offices.
CORPORATE OFFICES: Precision Park, 200 Frenchtown Road, North Kingstown, RI
02852; Telephone (401) 886-2000.
FORM 10-K REPORT: A copy of the Company's Annual Report as filed with the
Securities and Exchange Commission is available upon request to the Secretary.
STOCK LISTING: New York Stock Exchange; Symbol BNS
TRUSTEE AND REGISTRAR FOR THE 9 1/4% CONVERTIBLE SUBORDINATED
DEBENTURES: First Trust New York, 100 Wall Street, Suite 1600, New York, NY
10015
TRANSFER AGENT AND REGISTRAR COMMON STOCK: Bank of Boston, c/o Boston
EquiServe, L.P., Mail-Stop 45-02-64, P.O. Box 644, Boston, MA 06114
46
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
BALANCE AT CHARGED TO CURRENCY BALANCE AT
BEGINNING COSTS AND DEDUCTIONS TRANSLATION END OF
YEAR ENDED OF PERIOD EXPENSES (2) (1) PERIOD
- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995
Allowance for doubtful
accounts............... $3,103 $2,124 $2,330 $133 $3,030
DECEMBER 31, 1994
Allowance for doubtful
accounts............... $1,320 $2,833 $1,117 $ 67 $3,103
DECEMBER 25, 1993
Allowance for doubtful
accounts............... $1,452 $ 264 $ 358 $(38) $1,320
</TABLE>
- --------
(1) Adjustment resulting from translating allowance for doubtful accounts of
foreign subsidiaries at year-end exchange rates.
(2) Write-offs of uncollectible accounts.
47
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT INDEX
------ -------------
<C> <S>
3.1 Joint Agreement of Merger between Brown & Sharpe Manufacturing Company,
incorporated in Rhode Island, and Brown & Sharpe Manufacturing Company,
the surviving corporation incorporated in Delaware, filed as the only
Exhibit to Form 8-K for the month of January, 1969, and such is hereby
incorporated by reference.
3.2 Amendment to Certificate of Incorporation, dated April 27, 1979, filed
as Exhibit 13 to Form 10-K for the period ending December 29, 1979, and
such is hereby incorporated by reference.
3.3 Amendment to Certificate of Incorporation, Dated April 25, 1980, filed
as Exhibit 3.1 to Form 10-Q for the period ending June 28, 1980, and
such is hereby incorporated by reference.
3.4 Amendment to Certificate of Incorporation dated April 24, 1987. Exhibit
3.7 was filed as Exhibit 10.4 to Form 10-Q for the period ended June
27, 1987, and such is hereby incorporated by reference.
3.5 Amendment to Certificate of Incorporation dated May 6, 1988 filed as
Exhibit 1 to Current Report on Form 8-K filed May 9, 1988 and such is
hereby incorporated by reference.
3.6 Certificate of Designation filed as Exhibit A to Exhibit 5 of Amendment
on Form 8 filed on March 6, 1989, and such is hereby incorporated by
reference.
3.7 Amendment to Certificate of Incorporation dated May 2, 1989. Exhibit
3.7 was filed as Exhibit 3.7 to the Form 10-K for the year ended
December 30, 1989 and such is hereby incorporated by reference.
3.8 By-laws of Brown & Sharpe Manufacturing Company, as amended through
July 29, 1994; previously filed as Exhibit 3.1 to the Form 10-Q for the
quarter ended July 2, 1994 and such is hereby incorporated by
reference.
3.9 Amendments to By-laws of Brown & Sharpe Manufacturing Company, as of
September 28, 1994; previously filed as Exhibit 3 to the Form 10-Q for
the quarter ended October 1, 1994 and such is hereby incorporated by
reference.
4.1 Indenture dated 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, filed as Exhibit 2 to Form 8-A dated October 8, 1980 and such is
hereby incorporated by reference.
The Registrant hereby agrees to furnish to the Commission upon request
copies of any long-term debt instruments not filed herewith because the
securities authorized under any such instrument do not exceed ten
percent of total assets of the Registrant and its Consolidated
Subsidiaries.
+10.1 (Intentionally omitted)
+10.2 Amended 1973 Stock Option Plan, as amended through March 9, 1988.
Exhibit 10.2 was filed as Exhibit 10.2 to the Form 10-K for the year
ended December 31, 1988, and is hereby incorporated herein by
reference.
+10.3 Amendment dated December 29, 1990 to the Brown & Sharpe Amended 1973
Stock Option Plan. Exhibit 10.3 was filed as Exhibit 10.3 to the Form
10-K for the year ended December 29, 1990 and such is herein
incorporated by reference.
+10.4 Amendment No. 4 of the Restated Brown & Sharpe Employee Stock Ownership
and Profit Participation Plan and Trust Agreement, as amended through
December 21, 1990. Exhibit 10.4 was filed as Exhibit 10.4 to the Form
10-K for the year ended December 29, 1990; and is hereby incorporated
herein by reference.
10.5 (Intentionally omitted)
10.6 (Intentionally omitted)
+10.7 Deferred Stock Equivalent Unit Contract dated December 31, 1982 between
Brown & Sharpe Manufacturing Company and Donald A. Gaudion. Exhibit 10.7
was filed as Exhibit 10.24 to Form 10-K for the period ended December
25, 1982, and such is hereby incorporated by reference.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT INDEX
------ -------------
<C> <S>
+10.8 (Intentionally omitted)
+10.9 The Brown & Sharpe Savings and Retirement Plan for Management Employees
dated October 7, 1987.
10.10 The Brown & Sharpe Savings and Retirement Plan dated October 7, 1987.
+10.11 Amendment and Restatement of the Brown & Sharpe Employee Stock
Ownership and Profit Participation Plan and Trust Agreement dated
October 7, 1987.
Exhibits 10.9 through 10.11 were filed as Exhibits 10.2 through 10.4
respectively, to Form 10-Q for the period ended September 26, 1987 and
such are hereby incorporated by reference.
10.12 Preferred Stock Rights Agreement dated as of March 9, 1988, between the
Company and The First National Bank of Boston, as Rights Agent. Exhibit
10.12 was filed as Exhibits 1-4 to the Registration Statement on Form
8-A filed on April 28, 1988, and is hereby incorporated herein by
reference.
10.13 Amendment No. 1, dated as of May 2, 1988, to Preferred Stock Rights
Agreement. Exhibit 10.13 was filed as Exhibit 5 to Amendment No. 1 on
Form 8, filed on March 6, 1989, to the Registration Statement on Form
8-A filed on April 28, 1988, and is hereby incorporated herein by
reference.
10.14 Amendment No. 2, dated as of February 24, 1989, to Preferred Stock
Rights Agreement. Exhibit 10.14 was filed as Exhibit 6 to Amendment No.
1 on Form 8, filed on March 6, 1989, to the Registration Statement on
Form 8-A filed on April 28, 1988, and is hereby incorporated herein by
reference.
+10.15 Amendment dated February 23, 1989 to The Brown & Sharpe Savings and
Retirement Plan for Management Employees.
+10.16 Amendment No. 2, dated October 19, 1988, to The Brown & Sharpe Savings
and Retirement Plan for Management Employees.
+10.17 Amendment No. 3, dated February 23, 1989, to The Brown & Sharpe Savings
and Retirement Plan for Management Employees.
10.18 Amendment dated February 23, 1989 to The Brown & Sharpe Savings and
Retirement Plan.
10.19 Amendment No. 2, dated October 19, 1988, to The Brown & Sharpe Savings
and Retirement Plan.
10.20 Amendment No. 3, dated February 23, 1989, to The Brown & Sharpe Savings
and Retirement Plan.
+10.21 Amendment dated February 23, 1989, to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement.
+10.22 Amendment No. 2, dated October 19, 1988 to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement.
+10.23 Amendment No. 3, dated February 23, 1989 to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement.
Exhibits 10.15 through 10.23 were filed as Exhibits 10.19 through
10.27, respectively, to the Form 10-K for the year ended December 31,
1988, and are hereby incorporated herein by reference.
+10.24 Amended 1989 Equity Incentive Plan as amended through February 21,
1992. Exhibit 10.24 was filed as Exhibit 10.24 to the Form 10-K for the
year ended December 28, 1991 and such is hereby incorporated by
reference.
+10.25 Deferred Stock Equivalent Unit Contract dated September 3, 1987 between
Brown & Sharpe Manufacturing Company and Paul R. Tregurtha. Exhibit
10.25 was filed as Exhibit 10.24 to the Form 10-K for the year ended
December 30, 1989 and such is herein incorporated by reference.
+10.26 Form of amendment dated April 30, 1991 to Deferred Stock Equivalent
Unit Contract dated September 3, 1987 between Brown & Sharpe
Manufacturing Company and Paul R. Tregurtha. Exhibit 10.26 was filed as
Exhibit 10.26 to the Form 10-K for the year ended December 28, 1991 and
such is hereby incorporated by reference.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT INDEX
------ -------------
<C> <S>
+10.27 Deferred Stock Equivalent Unit Contract dated November 30, 1989 between
Brown & Sharpe Manufacturing Company and Herbert A. Beyer. Exhibit
10.27 was filed as Exhibit 10.25 to the Form 10-K for the year ended
December 30, 1989 and such is hereby incorporated by reference.
+10.28 Form of amendment dated April 30, 1991 to Deferred Stock Equivalent
Unit Contract Dated November 30, 1989 between Brown & Sharpe
Manufacturing Company and Herbert A. Beyer. Exhibit 10.28 was filed as
Exhibit 10.28 to the Form 10-K for the year ended December 28, 1991 and
such is hereby incorporated by reference.
+10.29 Amendment No. 4, dated October 20, 1989, to Brown & Sharpe Savings and
Retirement Plan for Management Employees. Exhibit 10.29 was filed as
Exhibit 10.26 to the Form 10-K for the year ended December 30, 1989 and
such is hereby incorporated by reference.
10.30 Amendment No. 4, dated October 30, 1989, to Brown & Sharpe Savings and
Retirement Plan. Exhibit 10.30 was filed as Exhibit 10.27 to the Form
10-K for the year ended December 30, 1989 and such is hereby
incorporated by reference.
10.31 Amendment No. 5, dated September 7, 1990, of the Brown & Sharpe Savings
and Retirement Plan. Exhibit 10.31 was filed as Exhibit 10.30 to the
Form 10-K for the year ended December 29, 1990 and such is hereby
incorporated by reference.
+10.32 Amendment No. 5, dated September 7, 1990, of the Brown & Sharpe Savings
and Retirement Plan for Management Employees. Exhibit 10.32 was filed
as Exhibit 10.31 to the Form 10-K for the year ended December 29, 1990
and such is hereby incorporated by reference.
10.33 The acquisition agreement pertaining to the acquisition of Wild Leitz
Messtechnik GmbH and The Marketing and Sales Assets of the IMT Division
of LEICA plc by Brown & Sharpe Manufacturing Company, dated June 29,
1990, was filed as Exhibit 10.1 to Form 10-Q for the period ended June
30, 1990 and is hereby incorporated herein by reference.
+10.34 (Intentionally omitted)
+10.35 (Intentionally omitted)
+10.36 Employment/severance agreement dated March 14, 1988 between Brown &
Sharpe Manufacturing Company and Richard F. Paolino.
+10.37 (Intentionally omitted)
Exhibits 10.34 through 10.37 were filed as Exhibits 10.34 through
10.37, respectively, to the Form 10-K for the year ended December 28,
1991, and are hereby incorporated by reference.
+10.38 The sales agreement pertaining to the sale of GageTalker Corporation to
P. Eric Berg by Brown & Sharpe Manufacturing Company dated January,
1992. Exhibit 10.38 was filed as Exhibit 10.38 to the Form 10-K for the
year ended December 28, 1991 and is hereby incorporated by reference.
+10.39 (Intentionally omitted)
+10.40 Amendment No. 5 of the Restated Brown & Sharpe Employee Stock Ownership
and Profit Participation Plan and Trust Agreement, as amended through
March 23, 1991.
+10.41 Employment/Severance Agreement dated April 23, 1992 between Brown &
Sharpe Manufacturing Company and Charles A. Junkunc.
+10.42 Amendment dated July 24, 1992 to Employment/Severance Agreement dated
April 23, 1992 between Brown & Sharpe Manufacturing Company and Charles
A. Junkunc.
+10.43 Amendment dated November 11, 1992 to 1989 Equity Incentive Plan as
amended through November 6, 1992.
Exhibits 10.38 through 10.43 were filed as Exhibits 10.38 through
10.43, respectively, to the Form 10-K for the year ended December 26,
1992, and are hereby incorporated by reference.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT INDEX
------ -------------
<C> <S>
10.44 The Share Purchase and Transfer agreement dated March 24, 1994 by and
between Diehl GmbH & Co. and Brown & Sharpe Manufacturing Company was
filed as Exhibit (c) to Form 8-K filed as of May 13, 1994, and is
hereby incorporated by reference.
10.45 The Acquisition Agreement pertaining to the acquisition of DEA dated as
of June 10, 1994 between Brown & Sharpe Manufacturing Company and
Finmeccanica S.p.A.
10.46 The Form of Shareholders Agreement to be entered into between Brown &
Sharpe Manufacturing Company and Finmeccanica, S.p.A.
10.47 Amendment No. 3, dated June 16, 1994, to Rights Agreement, dated March
9, 1988 between Brown & Sharpe Manufacturing Company and the First
National Bank of Boston, as Rights Agent.
Exhibits 10.45 through 10.47 were filed as Exhibits 1 through 3,
respectively, to the Form 8-K filed as of June 24, 1994, and are hereby
incorporated by reference.
10.48 Definitive acquisition Agreement providing for the combination of the
DEA metrology business of Finmeccanica (the "DEA Group") with the Brown
& Sharpe Measuring Systems Division dated as of June 10, 1994 between
Brown & Sharpe Manufacturing Company and Finmeccanica S.p.A., was filed
as Exhibit 1 to Form 8-K dated June 24, 1994, and is hereby
incorporated by reference.
10.49 Amendment No. 1 dated July 31, 1994, to Acquisition Agreement, amending
certain debt provisions of the agreement was filed as Exhibit 10.1.1 to
Form 10-Q/A for the quarter ended July 2, 1994 and is hereby
incorporated by reference.
10.50 Letter Agreement of Henry D. Sharpe, Jr. dated September 28, 1994
entered into pursuant to the DEA Acquisition Agreement (was filed as
Exhibit No. 3 to Report on Form 8-K as of September 28, 1994), filed
October 13, 1994 is hereby incorporated by reference.
10.51 Amendment No. 6, dated November 10, 1994, to Brown & Sharpe Savings and
Retirement Plan for Management Employees.
10.52 Amendment No. 6, dated November 10, 1994, to Brown & Sharpe Savings and
Retirement Plan.
10.53 Amended Profit Incentive Plan, as amended through February 14, 1994.
10.54 Restated Supplemental Executive Retirement Plan dated January 23, 1995,
filed as Exhibit 10.54 to Form 10-Q for the quarter ended March 31,
1995, and is hereby incorporated by reference.
10.55 Amendment to the Equity Incentive Plan as of February 15, 1995, filed
as Exhibit 10.55 to Form 10-Q for the quarter ended March 31, 1995, and
is hereby incorporated by reference.
10.56 Amendment No. 1 dated May 31, 1995 to the Brown & Sharpe Savings and
Retirement Plan for Management Employees. (1994 Restatement)
10.57 Amendment No. 2 dated May 31, 1995 to the Brown & Sharpe Savings and
Retirement Plan for Management Employees. (1994 Restatement)
10.58 Amendment No. 1 dated May 31, 1995 to the Brown & Sharpe Savings and
Retirement Plan. (1994 Restatement)
10.59 Severance termination agreement for Fred Stuber dated May 3, 1995.
10.60 Employment Agreement with Frank T. Curtin dated May 17, 1995.
Exhibits 10.56 through 10.60 were filed as Exhibits 10.56 through
10.60, respectively, to the Form 10-Q for the quarter ended June 30,
1995, and are hereby incorporated by reference.
10.61 Indemnity Agreement with Frank T. Curtin dated May 3, 1995.
10.62 Indemnity Agreement with Alfred J. Corso dated May 3, 1995.
10.63 Indemnity Agreement with Enrico Albareto dated October 28, 1994.
10.64 Indemnity Agreement with Alberto de Benedictis dated October 28, 1994.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT INDEX
------ -------------
<C> <S>
10.65 Indemnity Agreement with Vincenzo Cannatelli dated October 28, 1994.
Exhibits 10.61 through 10.65 were filed as Exhibits 10.61 through
10.65, respectively, to the Form 10-Q for the quarter ended September
30, 1995, and are hereby incorporated by reference.
*10.66 Indemnity Agreement with Robert D. Batting dated October 5, 1995.
*10.67 Letter Agreement with Finmeccanica dated December 18, 1995 concerning
Purchase Price Adjustment
*10.68 The Brown & Sharpe Key Employee Long-Term Deferred Cash Incentive Plans
dated February 23, 1996 effective January 1, 1995
*11. Computation of Per Share Data for the Three Years Ended December 31,
1995.
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, filed as
Exhibit 18 to Form 10-Q for the quarter ended April 2, 1994, and is
hereby incorporated by reference.
*22. Subsidiaries of the Registrant.
*24. Consent of Independent Auditors--Ernst & Young LLP.
*24. Consent of Independent Auditors--Coopers & Lybrand L.L.P.
</TABLE>
- --------
*These current year Exhibits are located in Exhibit number sequence.
+This identifies management contracts or compensatory plans.
52
<PAGE>
EXHIBIT 10.66
INDEMNITY AGREEMENT
-------------------
THIS AGREEMENT, made and entered into on and as of this 5th day of
October, 1995, (the "Agreement"), is by and between Brown & Sharpe
Manufacturing Company, a Delaware corporation, (the "Company," which term
shall include any one or more of its subsidiaries where appropriate), and
Robert D. Batting (the "Indemnitee"):
RECITALS
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they
are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the
corporation; and,
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the
difficulty of attracting and retaining such persons; and,
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's shareholders and that
the Company should act to assure such persons that there will be increased
certainty of such protection in the future; and,
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to
serve the Company free from undue concern that they will not be so
indemnified; and,
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
take on additional service for or on behalf of the Company on the condition
that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree
as follows:
1. Services by Indemnitee. Indemnitee agrees to serve or continue to
----------------------
serve as an officer of the Company. This Agreement shall not impose any
obligation on the Indemnitee or the Company to continue the Indemnitee's
position with the Company beyond any period otherwise applicable.
2. General. The Company shall indemnify and shall advance Expenses
-------
(as hereinafter defined) to Indemnitee as provided in this Agreement and
to the fullest extent permitted by law.
3. Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification
-------
provided in this Section 3 if, by reason of his Corporate Status, (as
hereinafter defined), he is, or is threatened to be made, a party to any
threatened, pending, or completed Proceeding (as hereinafter defined),
other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, Indemnitee shall be indemnified against expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal Proceeding, had
no reasonable cause to believe his conduct was unlawful.
<PAGE>
4. Proceedings by or in the Right of the Company. Indemnitee shall
---------------------------------------------
be entitled to the rights of indemnification provided in this Section 4,
if, by reason of his Corporate Status, he is, or is threatened to be made,
a party to any threatened, pending or completed Proceeding brought by or in
the right of the Company to procure a judgment in its favor. Pursuant to
this Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company.
Notwithstanding the foregoing, no indemnification against such Expenses
shall be made in respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to the Company if such
indemnification is not permitted by Delaware law; provided, however, that
indemnification against Expenses shall nevertheless be made by the Company
in such event to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or
is pending, shall determine.
5. Indemnification for Expenses of a Party who is Wholly or Partly
---------------------------------------------------------------
Successful. Notwithstanding any other provision of this Agreement, to the
----------
extent that Indemnitee is, by reason of his Corporate Status, a party to
and is successful, on the merits or otherwise, in any Proceeding, he shall
be indemnified against all Expenses actually and reasonably incurred by him
or on his behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in
connection with each successfully resolved claim, issue or matter. For
purposes of this Section and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal or withdrawal,
with or without prejudice, shall be deemed to be a successful result as to
such claim, issue or matter.
6. Advance of Expenses. The Company shall advance all reasonable
-------------------
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Indemnitee and shall include or be preceded or
accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses.
7. Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee
and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company
shall, promptly upon receipt of such a request for indemnification, advise
the Board of Directors in writing that Indemnitee has requested
indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to Section 7(a) hereof, a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee (unless Indemnitee shall request that such determination be made
by the Board of Directors or the shareholders, in which case the
determination shall be made in the manner provided below in clauses (ii) or
(iii); (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (B) if a quorum of the
Board of Directors consisting of Disinterested Directors is not obtainable
or, even if obtainable, such quorum of Disinterested Directors so directs,
by Independent Counsel in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee or (C) by the shareholders
of the Company; or (iii) as provided in Section 8(b) of this Agreement;
and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person,
persons or
<PAGE>
entity making such determination with respect to Indemnitee's entitlement
to indemnification, including providing to such person, persons or entity
upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is
reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs of expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating shall be borne by
the Company (irrespective of the determination), and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 7(b) of this
Agreement, the Independent Counsel shall be selected as provided in this
Section 7(c). If a Change of Control shall not have occurred, the
Independent Counsel shall be selected by the Board of Directors, and the
Company shall give written notice to Indemnitee advising him of the
identity of the Independent Counsel so selected. If a Change of Control
shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by
the Board of Directors, in which event the preceding sentence shall apply),
and Indemnitee shall give written notice to the Company advising it of the
identity of the Independent Counsel so selected. In either event,
Indemnitee or the Company, as the case may be, may within 7 days after such
written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such
selection. Such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 13 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, the Independent Counsel so
selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant
to Section 7(a) hereof, no Independent Counsel shall have been selected or
if selected, shall have been objected to, in accordance with this Section
7(c), either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for
resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by
such other person as the Court shall designate, and the person with respect
to whom an objection is favorably resolved or the person so appointed
shall act as Independent Counsel under Section 7(b) hereof. The Company
shall pay any and all reasonable fees and expenses of Independent Counsel
incurred by such Independent Counsel in connection with acting pursuant to
Section 7(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 7(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon
the due commencement of any judicial proceeding or arbitration pursuant to
Section 9(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then
prevailing).
8. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) If a Change of Control shall have occurred in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if
Indemnitee has submitted a request for indemnification in accordance with
Section 7(a) of this Agreement, and the Company shall have the burden of
proof to overcome that presumption in connection with the making by any
person, persons or entity of any determination contrary to that
presumption.
(b) If the person, persons or entity empowered or selected under
Section 7 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within 60 days after
receipt by the Company of the request therefor, the requisite determination
of entitlement to indemnification shall be deemed to have been made, and
Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of
such indemnification under applicable law; provided,
<PAGE>
however, that such 60-day period may be extended for a reasonable time, not
to exceed an additional 30 days, if the person, persons or entity making
the determination with respect to entitlement to indemnification in good
faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further,
that the foregoing provisions of this Section 8(b) shall not apply (i) if
the determination of entitlement to indemnification is to be made by the
shareholders pursuant to Section 7(b) of this Agreement and if (A) within
15 days after receipt by the Company of the request for such determination
the Board of Directors has resolved to submit such determination to the
shareholders for their consideration at an annual meeting thereof to be
held within 75 days after such receipt and such determination is made
thereat, (B) a special meeting of shareholders is called within 15 days
after such receipt for the purpose of making such determination, such
meeting is held for such purpose within 60 days after having been so called
and such determination is made thereat, or (ii) if the determination of
entitlement to indemnification is to be made by Independent Counsel
pursuant to Section 7(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, shall not (except as otherwise
---- ----------
expressly provided in this Agreement) of itself adversely affect the right
of Indemnitee to indemnification or create a presumption that Indemnitee
did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Company or, with respect
to any criminal Proceeding, that Indemnitee had reasonable cause to believe
that his conduct was unlawful.
9. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to Section
7 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made
pursuant to Section 6 of this Agreement, (iii) the determination of
entitlement to indemnification is to be made by Independent Counsel
pursuant to Section 7(b) of this Agreement and such determination shall not
have been made and delivered in a written opinion within 90 days after
receipt by the Company of the request for indemnification, (iv) payment of
indemnification is not made pursuant to Section 5 of this Agreement within
ten (10) days after receipt by the Company of a written request therefor,
or (v) payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification
or such determination is deemed to have been made pursuant to Section 8 of
this Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may
seek an award in arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association. Indemnitee
shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first
has the right to commence such proceeding pursuant to this Section 9(a).
The Company shall not oppose Indemnitee's right to seek any such
adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant
to Section 7 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant
to this Section 9 shall be conducted in all respects as a de novo trial, or
-- ----
arbitration, on the merits and Indemnitee shall not be prejudiced by reason
of that adverse determination. If a Change of Control shall have occurred
in any judicial proceeding or arbitration commenced pursuant to this
Section 9, the Company shall have the burden of proving that Indemnitee is
not entitled to indemnification or advancement of Expenses, as the case may
be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 7 or 8 of this Agreement that Indemnitee is
entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant
to this Section 9, absent (i) a misstatement by Indemnitee of a material
fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under
applicable law.
<PAGE>
(d) The Company shall be precluded from asserting in any judicial
proceedings or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this
Agreement.
(e) In the event that Indemnitee, pursuant to this Section 9, seeks a
judicial adjudication of or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by
the Company against, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or arbitration,
but only if he prevails therein. If it shall be determined in said
judicial adjudication or arbitration that Indemnitee is entitled to receive
part but not all of the indemnification or advancement of expenses sought,
the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated.
10. Security. To the extent requested by the Indemnitee and approved
--------
by the Board, the Company may at any time and from time to time provide
security to the Indemnitee for the Company's obligations hereunder through
an irrevocable bank line of credit, funded trust, or other collateral. Any
such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of Indemnitee.
11. Non-Exclusivity; Duration of Agreement, Insurance; Subrogation.
--------------------------------------------------------------
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under
applicable law, the Company's certificate of incorporation or by-laws, any
other agreement, a vote of shareholders or a resolution of directors, or
otherwise. This Agreement shall continue until and terminate upon the
later of: (a) 10 years after the date that Indemnitee shall have ceased to
serve as a director or officer of the Company or fiduciary of any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise on which Indemnitee served at the request of the Company;
or (b) the final termination of all pending Proceedings in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Section
9 of this Agreement relating thereto. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his heirs, executors and administrators.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors and officers of the
Company or fiduciaries of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person
serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director or officer under
such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all papers required and take all
action necessary to secure such rights including execution of such
documents as are necessary to enable the Company to bring suit to enforce
such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
12. Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion
of any Section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that is not itself
<PAGE>
invalid, illegal or unenforceable) shall not in any way be affected or
impaired thereby; and (b) to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of any Section
of this Agreement containing any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
13. Exception to Right of Indemnification or Advancement of Expenses.
----------------------------------------------------------------
Notwithstanding any other provision of this Agreement, Indemnitee shall not
be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim therein, brought or
made by him against the Company.
14. Definitions. For purposes of this Agreement:
-----------
(a) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Company is then subject to such
reporting requirement; provided, however, that, without limitation, such a
Change in Control shall be deemed to have occurred if (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such person attaining such
percentage interest; (ii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest,
as a consequence of which members of the Board of Directors in office
immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period
of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new
director whose election or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period)
cease for any reason to constitute at least a majority of the Board of
Directors.
(b) "Corporate Status" describes the status of a person who is or was
or has agreed to become a director of the Company, or is or was an officer
or fiduciary of the Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person
is or was serving at the request of the Company.
(c) "Disinterested Directors" means a director of the Company who is
not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend or investigating a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent:
(i) the Company or Indemnitee in any matter material to either such party,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any
other proceeding, whether civil, criminal, administrative or
<PAGE>
investigative, arising on or after the date of this Agreement (and
regardless of when the Indemnitee's act or failure to act occurred), except
one initiated by an Indemnitee pursuant to Section 9 of this Agreement to
enforce his rights under this Agreement.
15. Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
16. Modification and Waiver. This Agreement may be amended from time
-----------------------
to time to reflect changes in Delaware law or for other reasons. No
supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar) nor shall
such waiver constitute a continuing waiver.
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement
of Expenses covered hereunder, provided, however, that the failure to give
any such notice shall not disqualify the Indemnitee from indemnification
hereunder.
18. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given
if (i) delivered by hand and receipted for by the party to whom said notice
or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business
day after the date on which it is so mailed:
(a) If to Indemnitee, to:
Robert D. Batting
87 Meadow Road
Orchard Park, NY 14127
(b) If to the Company, to:
Secretary
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
19. Governing Law. The parties agree that this Agreement shall be
-------------
governed by and construed and enforced in accordance with the laws of the
State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
Attest: Brown & Sharpe Manufacturing Company
By: /s/ James W. Hayes, III By: /s/ Henry D. Sharpe, Jr.
----------------------- ------------------------
Secretary Henry D. Sharpe, Jr.
Chairman of the Board
Indemnitee
/s/ Robert D. Batting
---------------------
Robert D. Batting
<PAGE>
EXHIBIT 10.67
December 18, 1995
Elsag Bailey Division of
Finmeccanica S.p.A.
Via G. Puccini 2
Genova 16154
Italy
Att: Paolo Caron
Re: Purchase Price Adjustment
-------------------------
Dear Paolo:
Reference is made to the Acquisition Agreement dated as of June 10,
1994 between Brown & Sharpe Manufacturing Company ("Brown & Sharpe") and
Finmeccanica S.p.A. ("Finmeccanica") as amended to date (the "Acquisition
Agreement"). Capitalized terms used herein not otherwise defined shall
have the meanings set forth in the Acquisition Agreement.
We write to you to confirm our agreement regarding the amount of the
Purchase Price Adjustment provided under Section 1.4 of the Acquisition
Agreement.
Brown & Sharpe and Finmeccanica hereby agree to rescind all previous
submissions made to the other under Section 1.4 of the Acquisition
Agreement containing forms of any Pricing Financial Statements including
any reports or certificates prepared or submitted by their respective
accounts. Instead of proceeding under Section 1.4 of the Agreement with
the review of the Pricing Balance Sheet by a third party accounting firm,
this will confirm that a Purchase Price Adjustment shall be payable to
Brown & Sharpe by Finmeccanica in the amount of Lire 2,100 million,
provided that such Lire 2,100 million amount may be reduced as provided
below if the Premises (as defined below) are vacated after June 30, 1996.
The amount of the Purchase Price Adjustment shall not bear interest.
Payment of such Purchase Price Adjustment shall be satisfied by
Finmeccanica foregoing receipt of amounts otherwise required to be paid in
the future to it by DEA S.p.A. as set forth in the paragraph immediately
below.
Finmeccanica agrees that the rent ("canone di locazione") payable by
DEA S.p.A. ("DEA") with respect to Building No. 1 at Corso Torino 70,
Moncalieri, Italy (the "Premises") under the Lease Agreement between DEA
and Finmeccanica S.p.A. dated December 24, 1991 (the "Lease Agreement"), as
adjusted for inflation pursuant to Article 3 of the Lease Agreement, in
respect of the period commencing on July 1, 1996 and ending on December 31,
1997 shall be reduced by an amount equal to Lire 2,100 million (the "Rent
Waiver Amount"), subject to the provision of the next sentence. In the
event that DEA for any reason vacates the Premises after June 30, 1996, the
Rent Waiver Amount shall be reduced by an amount equal to the portion of
rent due (calculated on a daily basis) for the period from July 1, 1996 to
the effective date the Premises are vacated.
Finmeccanica hereby consents to DEA's terminating the lease at any
time on or after June 30, 1996 without any obligation to make payments
other than the payments required if DEA had continued to occupy the
premises on and after June 30, 1996, which payments are then to be reduced
as provided above in this letter agreement.
<PAGE>
The terms and provisions of the Acquisition, except as expressly
amended hereby, and any agreements entered into at the Closing shall remain
in full force and effect. Each party expressly reserves the right to claim
for breach of any covenant, agreement, representation or warranty made by
any party in the Acquisition Agreement other than under Section 1.4 thereof
(except for a claim related to 1.4(b), which may continue to be made) and
seek indemnification in accordance with the provisions of Section 8 of the
Acquisition Agreement, except to the extent otherwise explicitly settled as
provided in this letter.
This letter agreement is made for the sole purpose of settling certain
matters disputed by the parties. The execution of this letter does not
constitute an admission of liability of any of the parties in respect of
such matters, and shall not be asserted as an admission or as evidence of
liability, except that each party shall be required to fulfill its
obligations under this letter.
This letter contains the entire understanding between Brown & Sharpe
and Finmeccanica with respect to those disputes between them resolved
herein.
To confirm that the foregoing accurately and completely sets forth the
terms of our agreement, please sign two copies of this letter and return
one to the undersigned, whereupon this shall become a binding agreement
between Brown & Sharpe and Finmeccanica and shall constitute an amendment
of the Acquisition Agreement.
Sincerely yours,
BROWN & SHARPE MANUFACTURING COMPANY
By: /s/ C. A. Junkunc
--------------------------
C. A. Junkunc
Vice President and Chief Financial Officer
ACCEPTED:
FINMECCANICA S.p.A.
(through its Elsag Bailey Division)
By: /s/ Paolo Caron
-----------------------
Title:
<PAGE>
EXHIBIT 10.68
Brown & Sharpe Manufacturing Company
Key Employees' Long-Term Deferred Cash Incentive Plan
-----------------------------------------------------
1. Purpose
The purpose of the Brown & Sharpe Long-Term Deferred Cash Incentive
Plan (the "Plan") is to promote the long term success of Brown & Sharpe
(the "Company") and its shareholders by providing long-term incentive
compensation to key employees of the Company.
2. Term
The Plan is effective as of January 1, 1995 and will remain in effect
until terminated by the Company's Board of Directors (the "Board").
3. Plan Administration
The Plan is administered by the Salary Committee of the Board (the
"Committee"). The Committee has full and exclusive power to interpret the
Plan in its discretion and to adopt such rules, regulations, and guidelines
for carrying out the Plan as it may deem necessary.
4. Eligibility
The Committee shall designate those key employees of the Company or
its subsidiaries who will participate in the Plan ("Participants") with
respect to such fiscal year's performance. Participants for any fiscal
year may include additional employees and may not include employees who had
been Participants in prior fiscal years. Employment by a subsidiary shall
be deemed to be employment by the Company for purposes of this Plan.
5. Bonus Pool; Award Credits; Accounts
A. With respect to each fiscal year, commencing with the 1995 fiscal
year, a bonus pool (the "Bonus Pool") shall be established in an
amount equal to 6% of the Company's adjusted pre-tax profit (as
defined on Schedule A) for such fiscal year.
B. Each Participant employed on December 31 of such year shall become,
subject to D below and Section 10, entitled to an award credit (an
"Award Credit") equal to (i) the amount of the Bonus Pool for such
year multiplied by (ii) a fraction, the numerator of which is the
Participant's base salary actually paid in respect of such year and
the denominator of which is the aggregate base salaries actually
paid in respect of such year of all Participants employed on
December 31 of such year. In the case of a participant whose
salary is paid in non-U.S. currency, "base salary" shall be
determined in U.S. dollars at average rates (as defined on Schedule
A) during the year.
B. Each Award Credit shall, as soon as practicable after it is
determined and effective as of the January 1 immediately following
the fiscal year to which the Award Credit relates, be credited to a
memorandum account (an "Account" maintained under the Plan to
reflect the Company's unfunded deferred compensation obligation to
the Participant under the terms of the Plan. The Account shall,
until paid, be credited with interest at a rate equal to the 12
month average of the Merrill Lynch Government Master Treasury Bond
Index (Ten Plus Years) commencing with the January 1 referred to
above.
<PAGE>
D. (i) Subject to subparagraph (ii) below, a Participant shall become
vested in that portion of his or her Account attributable to
an Award Credit (and any interest thereon) upon the earliest
to occur of (a) the date of the Participant's death or
disability (as determined by the Committee) while an employee
of the Company, (b) the date of a participant's retirement
from the Company at or after age 65, or (c) the third
anniversary of the close of the fiscal year to which the Award
Credit relates, provided the Participant has been continuously
employed by the Company through and including such anniversary
date.
(ii) A Participant shall forfeit his or her Account (vested and
unvested) if he or she is terminated for cause at any time.
"Termination for cause" shall mean termination on account of
intentional commission of theft, embezzlement, or other
serious and substantial crimes against the Company,
intentional wrongful engagement of competitive activity with
respect to the Company, or intentional wrongful commission of
material acts in clear and direct contravention of
instructions from the Board or the Chief Executive Officer.
(iii) Notwithstanding clause (i), but subject to the over-riding
provisions of clause (ii) above, in the event of a change in
control of the Company (as defined on Schedule B), all
Participants employed by the Company immediately prior to such
change in control shall have a fully vested and nonforfeitable
interest in their Accounts as of the date immediately
preceding the change in control.
E. Except as otherwise provided by the Committee, in the event that a
Participant forfeits all or a portion of his or her account, the
amount of such forfeiture shall be added to the Bonus Pool for the
fiscal year that includes the date of forfeiture.
6. Payment of Accounts
Unless the Participant irrevocably elects at least one calendar year
prior to his or her termination of employment to defer distribution of his
or her account, distribution of such Account shall be made as follows: 1/3
of the Account shall be paid within 20 days following a Participant's
termination of employment, 1/3 of the Account shall be paid on the first
anniversary of such termination of employment, and 1/3 of the Account shall
be paid on the second anniversary of such termination of employment. Any
amounts that are the subject of a deferred distribution agreement shall be
paid as agreed to by the Participant and the Company at the time of
deferral. In the event of a Participant's death or disability (as
determined by the Committee) during the distribution period, the Committee
may provide for immediate payment of the remaining balance in the
Participant's Account. Payment shall be conditional on a Participant's
compliance with the covenant not to compete described in Section 7 below.
A Participant shall execute all documents as the Committee may deem
appropriate or necessary, including without limitation such documents as
may be appropriate to evidence the covenant not to compete, before any
distributions will be made from his or her Account.
Notwithstanding the foregoing, the Committee may defer payment of all
or a portion of a Participant's Account beyond the scheduled payment dates
if in the judgment of the Committee such deferral is necessary to avoid
disallowance of a deduction under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). Amounts, if any, deferred pursuant
to the preceding sentence shall be paid or commence to be paid not later
than the date Code Section 162(m) would no longer limit the deductibility
of such payment, as reasonably determined by the Committee.
7. Covenant Not to Compete
The Participant agrees that until two years after the Participant's
employment with the Company and its affiliates terminates, the Participant
shall not, without the prior written consent of the Committee, directly or
indirectly, whether as owner, partner, principal, investor, consultant,
agent, employee, co-venturer, or otherwise compete with any business of the
Company or any of its affiliates within the United
<PAGE>
States and any other country in which the Company and its affiliates are
engaged in business at the date of termination of employment, or undertake
any planning for any business competitive with the Company or any of its
affiliates in the United States and such other countries. To the extent any
portion of this Section 7 is determined by a court of competent
jurisdiction to be invalid or unenforceable, this Section 7 shall be
reformed so as to avoid such illegality and unenforceability and the
resulting provisions shall be fully enforceable.
8. Assignment
The Company's obligations under the Plan shall be binding upon its
successors and assigns.
Awards and rights to benefits under the Plan may not be assigned,
alienated, sold or otherwise transferred by the Participant other than by
will or the laws of descent and distribution. A Participant shall file
with the Company the names of the beneficiaries to receive amounts, if any,
remaining in his or her Account at the time of the Participant's death.
9. Withholding Taxes
The Company will have the right to deduct withholding taxes from any
payments made pursuant to the Plan, or make such other provisions as it
deems necessary or appropriate to satisfy its obligations for withholding
federal, state or local income, employment, excise or other taxes of the
United States or other applicable foreign jurisdiction (including without
limitation satisfying withholding obligations from a participant's base
salary) as a result of Plan awards or as a result of other payments or
benefits, not under the Plan, to a Participant.
10. Amendment and Modification
The Board may terminate the Plan at any time and may amend the Plan at
any time and from time to time with or without retroactive effect,
including without limitation amendments that change the form or timing of
distributions or amendments that accelerate the vesting of all or a portion
of a Participant's Account; provided, that no such amendment shall, without
the consent of the affected Participant, reduce the balance (vested and
unvested) of any Participant's Account below what it was immediately prior
to the amendment. Without limiting the foregoing, the Committee shall have
power to make such adjustments in the definition of adjusted pre-tax profit
as it deems equitable to carry out the purposes of the Plan. Any decision
of the Committee shall be final and binding on all parties. The Committee
may also, in its discretion, alter the form or timing of, or otherwise
modify the terms of, an Account distribution. If it determines such action
to be necessary to preserve or reinstate the Plan's status as a "top hat"
plan under Sections 201(a)(2), 301(a)(3), or 401(a)(1) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), or to ensure effective
tax deferral under the Plan, the Committee may at any time exclude any
individual from participation in the Plan or may make such other changes in
the deferral or distribution rules hereunder as are reasonably determined
by the Committee to be necessary to accomplish such result or results.
11. No Contract of Employment
By participating in the Plan, each Participant expressly acknowledges
and agrees that (i) nothing in the Plan or in its operation, including
deferrals hereunder, limits the right of the Company to terminate the
employment of the Participant at any time, with or without cause, and that
(ii) neither the Participant nor his nor her beneficiaries will claim lost
compensation or associated tax benefits related to discontinuance of
participation in the Plan as damages or as a measure of damages in
connection with any termination of employment.
<PAGE>
12. Plan to be Unfunded, Etc.
The Plan is intended to be a "pension plan" (within the meaning of
Section 3(2) of ERISA) that is unfunded for ERISA and tax purposes and that
qualifies for the exemptions described in ERISA sections 201(a)(2),
301(a)(3), and 401(a)(1). The Committee shall be the "plan administrator"
of the Plan and shall have discretion to construe its terms and determine
each participant's eligibility for awards or distributions hereunder. If
any person claims any benefit hereunder, the Committee shall make and
communicate its decision with respect to the claim within 90 days from the
date the claim was received. Where special circumstances require
additional time for processing the claim, the ninety-day response period
may be extended by the plan administrator to 180 days. If the Committee
does not render a written determination prior to the expiration of such 90-
day (or 180-day) period, the claim will be deemed denied. If a claim
hereunder is denied, the claimant may, within 60 days of such denial,
appeal the denial by written request for review delivered to the Board or
its designate, which request may include a request to review pertinent
documents and to submit issues and comments in writing. The Board or its
designate shall render a decision on the appeal within 60 days (or, if
special circumstances require an extension of time for processing, 120
days) after receipt of the request for review; but if no written decision
is rendered within such period(s), the appeal will be deemed denied.
Nothing in this Section or in Section 5 shall be construed as
prohibiting the Company from establishing and maintaining a "rabbi trust"
or similar trust or account in connection with the Plan, so long as the
maintenance and funding of such a trust or account does not jeopardize the
unfunded status of the Plan under ERISA or effective tax deferral under the
Code.
13. Governing Law
The Plan shall be construed under the laws of the State of Delaware.
<PAGE>
Schedule A
"Adjusted Pretax Profit" shall mean the product of (i) Profit Before Tax
for the Current Fiscal Year and (ii) the ratio of The Weighted Average
Outstanding Shares (1995) to The Weighted Average Outstanding Shares for
the Current Fiscal Year where:
"Current Fiscal Year" means the fiscal year on which an Award Credit
is based;
"The Weighted Average Outstanding Shares" means the year's weighted
average number of the Company's common shares including, without
limitation, Class A common stock and Class B common stock determined
by the definitions and methods specified in APB No. 15 and as reported
in Exhibit 11 of the Company's 10-K for the Current Fiscal Year. "The
Weighted Average Outstanding Shares (1995)" shall be 8,715,212 shares,
as adjusted from time to time for all stock splits, stock dividends
and similar transactions;
"Profit Before Tax" means the Company's consolidated net profit before
income taxes, computed taking into account all expenses and charges
except (a) the Current Fiscal Year's expense for the Plan and (b)
gains and losses that result from extraordinary transactions or
events, mergers, consolidations, acquisitions and dispositions, or
other extraordinary or unusual transactions or events, if it is
determined by the Committee that an adjustment in respect of such
transaction or event is appropriate to avoid distortion in the
operation of the Plan; and
"Average Rates" shall mean the average of the local currency
conversion rates to U.S. dollars at the end of each month for which
the Participant is employed and paid his base salary rate as published
by the Company's Treasurer's Office per the Company's Accounting
Procedure 3.1 dated July 1995.
<PAGE>
Schedule B
"Change in Control" shall be deemed to have occurred if:
(a) any "person" as such term is used in Sections 13(d) and 14(d) of
the 1934 Act (other than (i) the Company; (ii) any subsidiary of the
Company; (iii) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of any subsidiary of the Company;
or (iv) any company owned, directly or indirectly, by the shareholders of
the Company in substantially the same proportions as their ownership of
Stock of the Company), who is or becomes the "beneficial owner" (as defined
in Section 13(d) of the 1934 Act), together with all Affiliates and
Associates (as such terms are used in Rule 12b-2 of the General Rules and
Regulations under the 1934 Act) of such person, directly or indirectly, or
securities of the Company representing 35% or more of the combined voting
power of the Company's then outstanding securities; or
(b) the shareholders of the Company approve a merger or consolidation
of the Company with any other company, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any subsidiary of the Company, at least 65% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or (ii)
a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (with the exception
given and the method of determining "beneficial ownership" used in clause
(a) of this definition) acquires more than 50% of the combined voting power
of the Company's then outstanding securities; or
(c) during any period of two consecutive years (not including any
period prior to the execution of the Plan), individuals who, at the
beginning of such period, constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (a), (b), or
(d) of this definition) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved cease for any reason to constitute
at least a majority thereof; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
<PAGE>
EXHIBIT 11
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
STATEMENT REGARDING COMPUTATION OF PER SHARE DATA*
-------------------------------------------------
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Dec. 25,
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Primary
Average shares outstanding 8,715 6,057 4,969
Net effect of dilutive stock options --
based on the treasury stock method
using average market price 58 - -
------ -------- -------
Total 8,773 6,057 4,969
====== ======== =======
Net income (loss) $1,926 $(14,335) $(2,416)
====== ======== =======
Per share amount $ .22 $ (2.37) $ (.49)
====== ======== =======
Fully Diluted
Average shares outstanding 8,715 6,057 4,969
Net effect of dilutive stock options --
based on the treasury stock method
using the year-end market price, if
higher than average market price 143 - -
Assumed conversion of 9-1/4% convertible
subordinated debentures * * *
------ -------- -------
Total 8,858 6,057 4,969
====== ======== =======
Net income (loss) $1,926 $(14,335) $(2,416)
====== ======== =======
Per share amount $ .22 $ (2.37) $ (.49)
====== ======== =======
</TABLE>
* Conversion of the 9-1/4% convertible subordinated debentures is not
assumed in the computation because its effect is anti-dilutive.
<PAGE>
EXHIBIT 22
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Subsidiaries of the Registrant as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Percentage of
Jurisdiction Voting Power
of Owned by the
Name of Subsidiary Incorporation Registrant
- ----------------------------------------------- -------------- --------------
<S> <C> <C>
Borel & Dunner, Inc. Michigan 100%
Technicomp Inc. Delaware 100%
Roch - Brown & Sharpe S.A. France 100%
Mauser Prazisions Messmittel GmbH Germany 100%
DEA - Brown & Sharpe S.p.A. ** and its
subsidiaries: Italy 100%
DEA - Brown & Sharpe S.A. Spain 100%
DEA - Brown & Sharpe S.A. France 100%
DEA - Brown & Sharpe KK Japan 100%
Brown & Sharpe International Capital
Corporation and its subsidiaries: Delaware 100%
Leitz - Brown & Sharpe Messtechnik G.m.b.H. Germany 100%
Tesa - Brown & Sharpe S.A. and its
subsidiaries: Switzerland 100%
P. Roch, S.a.R.L. Switzerland 100%
Tesa - Brown & Sharpe S.A. France 100%
Tesa - Brown & Sharpe KK Japan 100%
Brown & Sharpe Group Ltd.* and its
subsidiaries: United Kingdom 100%
White Lodge Financial Limited United Kingdom 100%
Brown & Sharpe Ltd. United Kingdom 100%
Mercer - Brown & Sharpe Ltd. United Kingdom 100%
</TABLE>
* Owned 71.3% by Brown & Sharpe International Capital Corporation and 28.7%
by Tesa, S.A.
** Owned 85.0% by Brown & Sharpe Manufacturing Company and 15.0% by Brown &
Sharpe International Capital Corporation.
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements
(Form S-8 Nos. 2-33676, 2-56821, 2-60398, 2-77219, 2-77575, 2-83637, 2-
97935, 33-17831, 33-23601, 33-23603, 33-30927, and 33-54496) pertaining to
employee benefit plans of Brown & Sharpe Manufacturing Company of our
report dated February 14,1996, with respect to the consolidated financial
statements and schedule of Brown & Sharpe Manufacturing Company included in
the Annual Report (Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Providence, Rhode Island
March 22, 1996
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Brown & Sharpe Manufacturing Company on Form S-8 (File Nos. 2-33676, 2-
56821, 2-60398, 2-77219, 2-77575, 2-83637, 2-97935, 33-17831, 33-23601, 33-
23603, 33-30927, and 33-54496) of our report dated March 29, 1995, on our
audits of the consolidated financial statements and financial statement
schedule of Brown & Sharpe Manufacturing Company as of December 31, 1994
and December 25, 1993, and for the years then ended, which report is
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-31-1995
<CASH> 6,262
<SECURITIES> 0
<RECEIVABLES> 116,609
<ALLOWANCES> (3,030)
<INVENTORY> 88,558
<CURRENT-ASSETS> 217,157
<PP&E> 140,070
<DEPRECIATION> 87,183
<TOTAL-ASSETS> 295,400
<CURRENT-LIABILITIES> 129,588
<BONDS> 13,000
0
0
<COMMON> 8,719
<OTHER-SE> 77,138
<TOTAL-LIABILITY-AND-EQUITY> 295,400
<SALES> 320,899
<TOTAL-REVENUES> 320,899
<CGS> 221,729
<TOTAL-COSTS> 221,729
<OTHER-EXPENSES> 87,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,129
<INCOME-PRETAX> 2,623
<INCOME-TAX> 697
<INCOME-CONTINUING> 1,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,926
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
