<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5881
------
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 050113140
-------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Precision Park, 200 Frenchtown Road, North Kingstown, Rhode Island 02852
-------------------------------------------------------------------------
(Address of principal executive offices and zip code)
(401) 886-2000
--------------
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date; 8,216,507 Class A common
shares, 521,918 Class B common shares, par value $1, outstanding as of March 31,
1996.
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. FINANCIAL STATEMENTS*
- ------ --------------------
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED STATEMENT OF INCOME (LOSS)
---------------------------------------
(Dollars in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
---------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Net sales $76,231 $74,095
Cost of goods sold 51,676 50,911
Selling, general and
administrative expense 21,762 22,732
Restructuring expense - 130
------- -------
Operating profit 2,793 322
Interest expense 2,077 1,724
Other income (expense), net (46) 147
------- -------
Income (loss) before income taxes 670 (1,255)
Income tax provision 120 200
------- -------
Net income (loss) $ 550 $(1,455)
======= =======
Primary and fully diluted
income (loss) per common share $.06 $(.17)
======= =======
Weighted average shares outstanding
and common stock equivalents
during the period 8,878,508 8,680,146
========= =========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
--------------- ------------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,749 $ 6,262
Accounts receivable, net of allowances for
doubtful accounts of $3,197 and $3,030 113,105 113,579
Inventories 97,479 88,558
Deferred income taxes 3,322 3,322
Prepaid expenses and other current assets 5,493 5,436
-------- --------
Total current assets 224,148 217,157
Property, plant and equipment:
Land 6,983 7,141
Buildings and improvements 40,811 37,447
Machinery and equipment 93,215 95,482
-------- --------
141,009 140,070
Less-accumulated depreciation 87,777 87,183
-------- --------
53,232 52,887
Goodwill, net 11,208 11,529
Other assets 13,400 13,827
-------- --------
$301,988 $295,400
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable and current
installments of long-term debt $ 41,418 $ 45,229
Accounts payable 51,205 44,936
Accrued expenses and income taxes 39,047 39,423
-------- --------
Total current liabilities 131,670 129,588
Long-term debt 61,530 56,839
Other long-term liabilities 6,178 6,310
Deferred income taxes 2,765 2,765
Unfunded accrued pension cost 5,775 5,823
Termination indemnities 8,390 8,218
Shareowners' Equity:
Preferred stock, $1 par value;
authorized 1,000,000 shares - -
Common stock:
Class A, par value $1; authorized 15,000,000
shares; issued 8,240,099 shares in 1996
and 8,195,795 shares in 1995 8,240 8,196
Class B, par value $1; authorized 2,000,000
shares; issued and outstanding 521,918 shares
in 1996 and 522,575 shares in 1995 522 523
Additional paid in capital 67,248 66,863
Earnings employed in the business (7,482) (8,032)
Cumulative foreign currency translation
adjustment 17,710 18,926
Treasury stock: 23,592 shares in 1996 and
in 1995 at cost (270) (270)
Unearned compensation (288) (349)
-------- --------
Total shareowners' equity 85,680 85,857
-------- --------
$301,988 $295,400
======== ========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
---------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Cash Provided by (Used in) Operations:
Net income (loss) $ 550 $(1,455)
Adjustment for Noncash Items:
Depreciation and amortization 2,009 2,108
Deferred income taxes - (392)
Unfunded pension 111 102
Deferred compensation 61 54
Termination indemnities 53 -
Changes in Working Capital:
(Increase) Decrease in accounts receivable (758) 11,119
Increase in inventories (10,463) (4,032)
Increase in prepaid expenses and other
current assets (43) (2,778)
Increase in accounts payable and accrued
expenses 6,713 3,518
-------- -------
Net Cash (Used in) Provided by Operations (1,767) 8,244
-------- -------
Investment Transactions:
Capital expenditures (3,664) (2,474)
Other investing activities (81) (188)
-------- -------
Cash (Used in) Investment Transactions (3,745) (2,662)
-------- -------
Financing Transactions:
Increase in short-term debt 1,978 741
Proceeds from issuance of long-term debt - 163
Principal payments of long-term debt (324) (1,104)
Other financing activities 428 334
-------- -------
Cash Provided by Financing Transactions 2,082 134
-------- -------
Effect of Exchange Rate Changes on Cash 1,917 (4,015)
-------- -------
Cash and Cash Equivalents:
Increase (decrease) during the period (1,513) 1,701
Beginning balance 6,262 6,676
-------- -------
Ending balance $ 4,749 $ 8,377
======== =======
Supplementary Cash Flow Information:
Interest paid $ 1,877 $ 1,132
======== =======
Taxes paid $ 50 $ 1,025
======== =======
</TABLE>
* The accompanying notes are an integral part of the financial statements.
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Dollars in Thousands)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulations S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Brown & Sharpe
Manufacturing Company's annual report on Form 10-K for the year ended
December 31, 1995.
2. The composition of inventory is as follows:
<TABLE>
<CAPTION>
Mar. 31, 1996 Dec. 31, 1995
------------- -------------
<S> <C> <C>
Parts, raw materials, and supplies $38,957 $39,857
Work in process 21,345 15,906
Finished goods 37,177 32,795
------- -------
$97,479 $88,558
======= =======
</TABLE>
3. Income taxes include provisions for federal, foreign and state income taxes
and is based on the Company's estimate of effective income tax rates for
the full year. The current tax provision for the first quarter of 1996 and
1995 is $120 and $200, respectively.
4. Primary and fully diluted earnings per share for the quarter ended March
31, 1996 is based upon the weighted average number of common shares
outstanding and common stock equivalents. For the three month period ended
March 31, 1995, earnings (loss) per share was based upon the weighted
average number of common shares outstanding since inclusion of common stock
equivalents would be antidilutive.
5. 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 practices
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 Union
as being newly discovered was material and of such a nature to justify
tolling the statute of limitations so as to permit the filing of the
reinstated unfair labor practice charges. 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 is not likely to rule that the case must
go forward on its merits and that a finding of liability against the
Company in this matter continues to be remote.
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
The following table sets forth the percentage of net sales of Brown & Sharpe
represented by the components of income and expense for the quarters ended March
31, 1996 and 1995:
<TABLE>
<CAPTION>
Mar. 31 Mar. 31
1996 1995
-------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 67.8 68.7
Selling, general and administrative expense 28.5 30.7
Restructuring charges - 0.2
----- -----
Operating profit 3.7 0.4
Interest expense 2.7 2.3
Other income (expense), net (0.1) 0.2
----- -----
Income (loss) before income taxes 0.9 (1.7)
Income tax provision 0.2 0.3
----- -----
Net income (loss) 0.7 (2.0)
===== =====
</TABLE>
RESULTS OF OPERATIONS
(Quarter Ended March 31, 1996 compared to Quarter Ended March 31, 1995)
Orders and Backlog. Orders during the first quarter of 1996 totaled $84.9
million compared to $79.1 million for the first quarter of 1995. Foreign
currency fluctuations caused a $0.5 million increase in first quarter 1996
orders compared to the first quarter of 1995. Excluding the effect of this
item, orders in the first quarter of 1996 increased $5.3 million or 6.7% from
the first quarter of 1995. The first quarter orders increased both in the U.S.
and Europe. Backlog at March 31, 1996 increased to $70.2 million compared to
$59.0 million at the end of 1995.
Net Sales. Net sales in the first quarter of 1996 were $76.2 million, compared
to $74.1 million in the first quarter of 1995. Foreign currency exchange rate
fluctuations caused an increase in net sales in the first quarter of 1996 of
$0.4 million as compared to the first quarter of 1995. Excluding the effect of
this item, first quarter 1996 net sales increased approximately $1.7 million or
2.3% from first quarter 1995 sales. Sales increased in Europe for all the
divisions and decreased slightly in the United States.
Gross Profit. Gross profit margin increased to 32.2% of sales in the first
quarter of 1996 from 31.3% in the first quarter of 1995. This percentage
increase resulted largely from product sales mix.
Selling, General and Administrative Expense. Selling, general and
administrative expense in the first quarter of 1996 was $21.8 million or 28.5%
of net sales, representing a decrease from $22.7 million or 30.7% of net sales
in the comparable period in 1995. The increasing foreign currency exchange
rates in the first quarter of 1996 resulted in increasing translated U.S. dollar
costs of about $0.2 million. The decrease of $1.1 million, including foreign
currency, is a result of reductions of selling, general and administrative
expenses company wide.
Operating Profit (Loss). Brown & Sharpe operating profit was $2.8 million in
the first quarter of 1996 compared to an operating profit of $0.3 million in the
first quarter of 1995. In the United States, operations has an operating profit
of $1.7 million for the first quarter of 1996 as compared with break-even in the
first quarter of 1995. Foreign operations had an operating profit of $1.1
million in the first quarter of 1996 as compared with an operating profit of
$0.3 million in the first quarter of 1995.
<PAGE>
Interest Expense. Interest expense totaled $2.1 million in the first quarter of
1996 compared to $1.7 million in the first quarter of 1995. This increase
reflects a $6.4 million increase in the average balance of borrowings, primarily
in the United States, along with higher average interest rates in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, Brown & Sharpe had borrowings of $29.7 million under its
lines of credit compared with total availability at that date of $73.8 million
under the lines of credit. The total borrowings at March 31, 1996 included an
outstanding balance of $14.5 million under the Company's secured three-year
revolving credit facility. The Company has successfully refinanced a $6.1
million outstanding Swiss mortgage and is continuing to negotiate the
refinancing of the other $6.1 million mortgage. The Company incurred a violation
of a current ratio covenant contained in one of its lending agreements and was
granted a waiver for this violation.
Cash Flow. The net income of $0.5 million increased by depreciation and other
non-cash items amounting to $2.2 million and offset by increases in working
capital amounting to $4.5 million resulted in operations in the first quarter of
1996 using $1.8 million of cash. In the first quarter of 1995, decreased
working capital of $7.8 million resulted in $8.2 million of cash being provided
by operations.
In the first quarter of 1996, investment transactions used cash of $3.7 million,
of which capital expenditures were $3.6 million, as compared with depreciation
of $1.8 million in the first quarter of 1996. This compares to investment
transactions using cash of $2.7 million in the first quarter of 1995, of which
capital expenditures amounted to $2.5 million and depreciation amounted to $2.0
million.
Cash provided from financing transactions was $2.1 million in the first quarter
of 1996 compared to $0.1 million used in the 1995 period.
Working Capital. Working capital was $92.5 million at the end of the first
quarter of 1996 compared to $87.6 million at the end of 1995. Inventories
increased to $97.5 million at March 31, 1996, an increase of $8.9 million from
the end of 1995, and accounts receivable decreased $0.5 million from year end
1995. Also, total short and long term borrowing increased $0.9 million to a
total of $103.0 million at March 31, 1996 as compared to $102.1 million
outstanding at December 31, 1995.
Capital Expenditures. Brown & Sharpe's capital expenditures, net of disposal
proceeds, were approximately $3.6 million in the first quarter of 1996 compared
to $2.5 million in the first quarter of 1995. Management estimates that capital
expenditures for the remainder of 1996 will amount to approximately $8 million
to $10 million, which includes expenditures amounting to $2.6 million for the
construction of a new facility in Telford, England to replace an existing
facility for which the lease expires and is non-renewable.
For additional information on the refinancings planned by the Company and
liquidity, reference is made to the Management's Discussion and Analysis of
Financial Condition and Results of Operation in the Company's Report on Form 10K
for the year 1995.
PROSPECTIVE INFORMATION
This section includes certain forward-looking statements about the Company's
sales, expenditures and cost savings, operating and capital requirements and
refinancings. Any such statements are subject to risks that could cause the
actual results or needs to vary materially. These risks are discussed in "Risk
Factors" in the Company's Report on Form 10-K for the year 1995.
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
A. See Exhibit Index annexed.
B. No Form 8-K was filed during the quarter ended March 31, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROWN & SHARPE MANUFACTURING COMPANY
By: /s/ Charles A. Junkunc
----------------------
Charles A. Junkunc
Vice President and Chief Financial Officer
(Principal Financial Officer)
May 11, 1996
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
EXHIBIT INDEX
-------------
4. Indenture dated as of October 1, 1980 (including form of debenture) between
the Company and Morgan Guaranty Trust Company of New York as trustee
relating to 9-1/4% convertible subordinated debentures due December 15,
2005, originally filed as Exhibit (b) (1) to Form S-16 Registration
Statement No. 2-69203 dated October 1, 1980 and incorporated herein by
reference.
The Registrant hereby agrees to furnish a copy to the Commission of other
instruments defining the rights of holders of long-term debt, as to which
the securities thereunder do not exceed ten percent of total assets on a
consolidated basis.
11. Computation of Per Share Data for the thirteen week period ended March 31,
1996 and 1995.
<PAGE>
EXHIBIT 11
----------
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
COMPUTATION OF PER SHARE DATA
-----------------------------
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
For the Quarter Ended
---------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Primary:
Average shares outstanding 8,738 8,680
Net effect of dilutive stock options
-- based on the treasury stock method
using average market price 140 -
------ -------
Totals 8,878 8,680
====== =======
Net income (loss) $ 550 $ (1,455)
====== =======
Per share amount $ .06 $ (.17)
====== =======
Fully diluted:
Average shares outstanding 8,738 8,680
Net effect of dilutive stock options
-- based on the treasury stock
method using quarter-end market
price which is greater than
average market price 153 -
Assumed conversion of 9 1/4%
convertible subordinated
debentures * *
------ -------
Totals 8,891 8,680
====== =======
Net income (loss) $ 550 $ (1,455)
Add 9 1/4% convertible
subordinated debentures
interest, net of federal
income tax effect * *
------ -------
Totals $ 550 $ (1,455)
====== =======
Per share amount $ .06 $ (.17)
====== =======
</TABLE>
* Conversion of the 9-1/4% convertible subordinated debentures is not assumed in
the computation because its effect is anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 4,749
<SECURITIES> 0
<RECEIVABLES> 116,302
<ALLOWANCES> (3,197)
<INVENTORY> 97,479
<CURRENT-ASSETS> 224,148
<PP&E> 141,009
<DEPRECIATION> 87,777
<TOTAL-ASSETS> 301,988
<CURRENT-LIABILITIES> 131,670
<BONDS> 13,000
0
0
<COMMON> 8,762
<OTHER-SE> 76,918
<TOTAL-LIABILITY-AND-EQUITY> 301,988
<SALES> 76,231
<TOTAL-REVENUES> 76,231
<CGS> 51,676
<TOTAL-COSTS> 51,676
<OTHER-EXPENSES> 21,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,077
<INCOME-PRETAX> 670
<INCOME-TAX> 120
<INCOME-CONTINUING> 550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 550
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
