<PAGE>
As filed with the Securities and exchange Commission on August 23, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
______________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
BROWN & SHARPE MANUFACTURING COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 3545 05-0113140
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
PRECISION PARK, 200 FRENCHTOWN ROAD
NORTH KINGSTOWN, RHODE ISLAND 02852
TELEPHONE: (401) 886-2000
(Address, including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
______________________
CHARLES A. JUNKUNC
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
BROWN & SHARPE MANUFACTURING COMPANY
PRECISION PARK, 200 FRENCHTOWN ROAD
NORTH KINGSTOWN, RHODE ISLAND 02852
TELEPHONE: (401) 886-2000
(Name, Address, including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
______________________
Copies to:
HOWARD K. FUGUET, ESQ. GAY L. BRONSON, ESQ.
Ropes & Gray Latham & Watkins
One International Place 885 Third Avenue
Boston, MA 02110 New York, NY 10022
(617) 951-7000 (212) 906-1800
______________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
______________________
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered (1) Offering Price Per Aggregate Offering Registration
Share (2) Price (2) Fee
=======================================================================================================================
<S> <C> <C> <C> <C>
Class A Common Stock, $1.00 Par Value 4,779,400 $10.25 $48,988,850 $16,893
=======================================================================================================================
Preferred Stock Purchase Rights (3) 4,779,400 (3) (3) (3)
=======================================================================================================================
</TABLE>
(1) Includes 623,400 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Based on the average of the high and low prices reported on the New York
Stock Exchange on August 20, 1996.
(3) Each of the purchasers of Class A Common Stock will receive one preferred
stock purchase right (the "Rights") for each share of Class A Common Stock
purchased in the offering. No additional consideration will be payable with
respect to the Rights, and prior to the occurrence of certain events, the
Rights will not be exercisable or evidenced separately from the Class A
Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED AUGUST 23, 1996
PROSPECTUS
_________ ____, 1996
4,156,000 Shares
[Logo]
BROWN & SHARPE MANUFACTURING COMPANY
Class A Common Stock
Of the 4,156,000 shares of Class A Common Stock (the "Class A Common
Stock") of Brown & Sharpe Manufacturing Company (the "Company") being offered
hereby (the "Offering"), 4,000,000 shares are being sold by the Company and
156,000 shares are being sold by a stockholder of the Company (the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of Class A Common Stock by the Selling
Stockholder. The net proceeds to the Company from the Offering will be used to
repay outstanding indebtedness and for working capital and general corporate
purposes. See "Use of Proceeds."
The Class A Common Stock is traded on the New York Stock Exchange under the
symbol "BNS." On August 16, 1996, the reported last sale price of the Class A
Common Stock on the New York Stock Exchange was $10.25 per share. See "Market
for Class A Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH AN INVESTMENT IN
THE CLASS A COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
Underwriting
Price to the Discounts and Proceeds to the Proceeds to the
Public Commissions(1) Company(2) Selling Stockholder
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
Total(3).......... $ $ $ $
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting expenses of the Offering, estimated at _______, payable by
the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 623,400 additional shares of Class A Common Stock on the same terms set
forth above solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to the Public, Underwriting
Discounts and Commissions, Proceeds to the Company and Proceeds to the
Selling Stockholder will be $ ,$ , $ , and
$ , respectively. See"Underwriting."
The shares are being offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain prior conditions, including the right of the
Underwriters to reject any order in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about
___________, 1996.
DONALDSON, LUFKIN & JENRETTE CS FIRST BOSTON
SECURITIES CORPORATION
<PAGE>
The Company markets its products under the brand names of Brown & Sharpe(R),
DEA(R), Tesa(R), Etalon(R), Interapid(R), Standard Gage(R), Select Gauge(TM),
Mercer(TM) and Roch(R), which have been, or will be, registered by the Company
pursuant to applicable intellectual property laws and under the names Leitz(R)
and Mauser(R), in each case, pursuant to licensing arrangements.
[Photos of the Company's products measuring various manufactured components.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN
THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN SHARES OF CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM
RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
<PAGE>
________________________________________________________________________________
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. As used in this Prospectus, the
terms "Brown & Sharpe" and the "Company" refer to Brown & Sharpe Manufacturing
Company and its subsidiaries. Except as otherwise noted, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
See "Underwriting."
THE COMPANY
Brown & Sharpe, which was founded in 1833, is a leading designer,
manufacturer and marketer of metrology products worldwide under numerous
internationally recognized brand names. Metrology is the science of the
physical measurement of objects using various precision instruments and
equipment. The Company's high precision products measure physical dimensions
of, and inspect and verify conformance to specifications of, components and
products and are used in manufacturing, quality control and product development
operations. The Company's product line ranges from hand tools and instruments
to customized computer-controlled metrology systems which integrate hardware and
software and are augmented by service, training and aftermarket support. The
Company markets its metrology products and services in North America, Europe,
Asia, South America and the Middle East. Important end user markets for the
Company's products include the automotive, aerospace, industrial machinery,
electronics and computer industries, and the Company's customers include Ford
Motor Co., Daimler Benz, Toyota, Chrysler, BMW, Boeing Co., Eastman Kodak Co.
Inc., International Business Machines Corp., Hewlett-Packard Co., General
Electric Co., Caterpillar Inc., United Technologies Corp., Motorola Inc.,
Phillips, Samsung and Xerox Corp. For the twelve months ended June 30, 1996, the
Company recorded net sales of $335.8 million, approximately two-thirds of which
were sales to customers located outside of the United States.
Manufacturers depend upon metrology hardware and software products to
monitor consistent product conformance to their exacting specifications, thereby
improving the reliability, fit and finish of their products. In addition to
these quality and performance benefits, metrology products help manufacturers
lower costs by reducing errors, scrap, rework and warranty expense, improving
the manufacturing process, lowering throughput time, increasing capacity and
reducing work-in-progress inventories. In recent years, manufacturers have
accelerated the integration of quality control functions directly into the
production process by incorporating the use of metrology products on the factory
floor. In addition, manufacturers are demanding more precise, capable and
flexible metrology systems as their products become smaller, more complex and/or
must meet more stringent quality and safety standards. Their exacting product
specifications often require measurement to an accuracy of less than one micron
(one millionth of a meter or approximately 1/100th of the thickness of a human
hair) or, in some special cases, measurement of nanometers (one billionth of a
meter or the unit of measurement for the wavelength of light). Increasingly,
metrology systems must incorporate a mix of traditional contact and newer non-
contact technologies because of reduced part sizes and the great diversity of
new materials used in manufactured products. Metrology systems are purchased by
customers regardless of their need for additional production capacity because of
ever-increasing quality requirements and the need to reduce product costs. The
price points of metrology products range from $100 for a caliper to over $1.5
million for a sophisticated coordinate measuring machine ("CMM") system.
The Company's operations are conducted through three management units:
Measuring Systems, Precision Measuring Instruments and Custom Metrology. The
MEASURING SYSTEMS GROUP (the "MS Group"), which accounted for approximately 67%
of the Company's net sales in 1995, manufactures and markets a wide range of
manual and computer-controlled, high precision CMMs including "in-process"
measuring systems under the Brown & Sharpe, DEA and Leitz brand names. The
Company believes it is the worldwide market leader for CMMs as measured by net
sales and installed base. The Company believes it has an installed base of over
18,000 CMMs worldwide, creating a significant opportunity for aftermarket sales
and services. The PRECISION MEASURING INSTRUMENTS DIVISION (the "PMI
Division"), which accounted for approximately 30% of the Company's net sales in
1995, manufactures a wide range of mechanical and electronic measuring and
inspection tools (including height gauges, calipers, dial indicators,
micrometers and gauge blocks) which are marketed under the Brown & Sharpe, Tesa,
Etalon, Interapid, Standard
3
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
Gage, Select Gauge, Mauser, Mercer and Roch brand names through more than 450
distributors and catalog houses worldwide. The CUSTOM METROLOGY DIVISION (the
"CM Division") designs and engineers, under the Tesa brand name, specialty
products and systems that provide customized solutions for unique measurement or
inspection problems primarily utilizing non-contact technology. Technologies and
custom applications developed by the CM Division with customer funding have been
directly applied to the design of standard products or systems distributed by
the MS Group or the PMI Division.
REPOSITIONING INITIATIVES
Over the past several years, the Company has undertaken a series of
divestitures, acquisitions and other strategic initiatives which have
repositioned the Company from its historical origins as a machine tool
manufacturer into a leader in the field of metrology. These repositioning
initiatives included:
. Divestiture of Non-Core Operations. The divestiture of non-
strategic operations, including the machine tool, pump and
hydraulics businesses, which enabled the Company to focus on its
core metrology technologies and market distribution strengths.
. Strategic Metrology Acquisitions. Strategic acquisitions which
enabled the Company to increase greatly the breadth of its
metrology product offering and the strength of its distribution
system. These acquisitions included the 1994 acquisitions of DEA
S.p.A. ("DEA"), the Italy-based metrology business of
Finmeccanica S.p.A. ("Finmeccanica"), Ets. Pierre Roch S.A. and
its German affiliate, Mauser Prazisions-Messmittel GmbH
("Mauser") (together, "Roch") and certain intellectual property
assets of Metronic Engineering Limited ("Metronic Ltd.").
. Rationalization and Consolidation of Operations. Lowering the
Company's overhead cost structure by reducing duplicative
functions and associated headcount and by consolidating and
rationalizing the Company's manufacturing facilities and
operations, which enabled the Company to increase productivity
and efficiency.
As a result of these repositioning initiatives, the Company's net sales
increased from $162.5 million in fiscal 1992 to $328.0 million in fiscal 1995,
while its gross profit margin increased from 28.5% to 32.4% and selling, general
and administrative expenses, excluding foreign currency transaction gains or
losses, as a percentage of net sales decreased from 34.0% to 29.1% during the
same period. See "Selected Consolidated Financial Data."
NEW LEADERSHIP AND BUSINESS STRATEGY
Following completion of the Company's repositioning initiatives, the
Company sought to recruit new management leadership to enhance the Company's
leading market positions, improve its global competitiveness and continue to
improve its financial performance. To that end, the Company recruited Frank T.
Curtin as its new President and Chief Executive Officer in May 1995, who then
restructured the senior management team and recruited additional senior managers
for key management roles. The current nine-member senior management team has
over 265 years of combined experience in highly competitive industrial
businesses and global manufacturing organizations, is focused on enhancing the
financial performance of the Company, in part motivated by an equity-based
incentive compensation system, and has made significant progress in realigning
the structure and culture of the Company towards a more focused and integrated
metrology business. As a result of the repositioning of the Company and the
restructuring of management, the Company has achieved positive net income in
each of its fiscal quarters since Mr. Curtin joined the Company. In addition,
management believes that its focus on cost reduction during Mr. Curtin's tenure
has resulted in a decrease in selling, general and administrative expenses,
excluding foreign currency transaction gains or losses, as a percentage of net
sales from 30.7% in the first half of 1995 to 26.7% in the first half of 1996.
See "Selected Consolidated Financial Data."
4
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
The Company is implementing its strategy based on the following
elements:
. Continue Cost Improvements. The Company intends to continue to
implement measures designed to reduce its product costs through:
(i) standardizing product designs worldwide; (ii) increasing the
cost-effectiveness of product designs; (iii) outsourcing
components and products; (iv) increasing supplier partnering; and
(v) focusing on core manufacturing processes. The Company also
intends to streamline its sales, marketing and general and
administrative processes in an effort to reduce selling, general
and administrative expenses as a percentage of sales.
. Develop New Products and End User Markets. The Company's goal is
to increase net sales by expanding penetration of served
industrial end user markets and by capitalizing on high growth
end user markets such as the electronics, computer and medical
industries where metrology needs are growing rapidly. To expand
in these high growth industries, the Company intends to focus on
development of software and emerging non-contact metrology
technologies through continued internal development and through
strategic acquisitions and technical partnerships (such as the
acquisition of Metronic Ltd. and the 50% owned Automation
Software Incorporated joint venture). To expand its penetration
of served industrial end user markets, the Company expects to
continue the introduction of new metrology systems utilizing both
contact and non-contact technologies, and to develop sensors and
other sophisticated products that can be imbedded in a variety of
manufacturing processes. The Company plans to form technical and
commercial alliances with manufacturers of process equipment to
provide enhanced combined manufacturing systems utilizing the
Company's sensors and other products.
. Enhance Existing and Develop New Software. The Company intends to
emphasize research and development of software systems and
applications designed to meet the evolving metrology needs of its
end users. To that end, the Company intends to leverage off its
software development team of approximately 320 software and
applications engineers and technicians (including 50 engineers of
its 50% owned Automation Software Incorporated joint venture) in
the following four areas: (i) metrology software for inspection
and verification of piece-part integrity and conformance to
design specifications; (ii) process control software designed to
detect and correct drifts in part tolerances before the
manufacturing process produces scrap or improperly configured
components; (iii) enhanced management information systems that
report statistical and quality information from the manufacturing
process; and (iv) new software that will link the Company's CMMs
and, therefore, the manufacturing process with computer-aided
engineering and manufacturing systems that will provide the means
for real-time feedback, analysis and, ultimately, control of
manufacturing to design specifications. The Company believes that
its existing library of metrology software, together with newly
developed software, should enable it to respond to the growing
demand in manufacturing for on-line inspection and verification.
The Company also believes that its experience with CMM software
and manufacturing processes are critical to the successful
development of software that is linked with computer-aided
engineering systems.
. Leverage Worldwide Distribution Capability. Through the
acquisitions of DEA and Roch, Brown & Sharpe expanded its product
lines and strengthened its marketing and distribution
capabilities in Europe, South America, the Middle East, India and
China. The Company plans to continue to strengthen and expand its
worldwide distribution capability, principally by continuing to
rationalize its existing distribution network and by opening new
demonstration centers and adding direct sales capacity and
distributors where cost effective. The Company also intends to
capitalize on the strength of its global distribution network by
increasing the number of Company-designed and third-party sourced
products sold through its distribution channels in an effort to
increase gross profit without a corresponding increase in
selling, general and administrative expenses.
5
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
. Increase Aftermarket Sales and Services. The Company intends to
increase its focus on higher margin aftermarket sales and
services, including calibration and rebuilding of CMMs, software
upgrades and parts sales. The Company believes that the worldwide
installed base of CMMs, estimated at over 60,000 (including
18,000 of the Company's CMMs), creates a significant demand for
such aftermarket services. The Company believes that the level of
customer service it provides, as measured by third-party surveys
of its customers, is superior to that of its principal
competitors, and expects to further strengthen its customer
relationships through enhanced aftermarket support and increased
partnering efforts. The Company's net sales attributable to
aftermarket sales and service in 1995 were more than 25% of MS
Group net sales for the same period.
For a discussion of certain risk factors which the Company may face in
implementing this strategy, see "Risk Factors -- Achievement of Strategic Plan."
The Company was founded in 1833 and reincorporated in Delaware in
1969. The Company's principal executive offices are located at Precision Park,
200 Frenchtown Road, North Kingstown, Rhode Island, 02852, and its telephone
number is (401) 886-2000.
<TABLE>
<CAPTION>
THE OFFERING
<S>
Class A Common Stock offered(1): <C>
By the Company...................... 4,000,000 shares
By the Selling Stockholder.......... 156,000 shares
Common Stock outstanding after the Offering(2):
Class A Common Stock(3)............. 12,218,206 shares
Class B Common Stock(3)............. 520,219 shares
Total Common Stock.................. 12,738,425 shares
Use of proceeds............................ Approximately $35.1 million of
the net proceeds to the Company
from the Offering will be used
to repay $31.9 million of
outstanding shor term
indebtedness and $3.2 million
of the current portion of long-
term indebtedness. The
remaining net proceeds to the
Company of $2.9 million will be
used for working capital and
general corporate purposes. See
"Use of Proceeds."
New York Stock Exchange Symbol............. "BNS"
</TABLE>
__________________________
(1) Pursuant to the Rights Plan adopted in 1988, each purchaser of shares of
Class A Common Stock offered pursuant to the Offering will receive one
preferred stock purchase right (the "Rights") for each share of Class A
Common Stock purchased. No additional consideration will be payable with
respect to the Rights and, prior to the occurrence of specified events,
the Rights will not be exercisable or evidenced separately from the Class
A Common Stock. See "Description of Capital Stock -- Rights Plan."
(2) Excludes 880,383 shares of Class A Common Stock reserved for issuance
under the 1989 Equity Incentive Plan, the Amended 1973 Stock Option Plan
and the Employee Stock Ownership and Profit Participation Plan. See
"Management --Executive Compensation."
(3) Assumes no conversions of Class B Common Stock into Class A Common Stock
after June 30, 1996.
6
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
During the periods presented below, the Company has undertaken a
number of divestitures and acquisitions, including the 1994 acquisitions of DEA
and Roch. Consequently, the summary consolidated financial information set
forth in the table below may not be comparable for all periods presented. The
following data should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER (1) JUNE 30,
--------------------------------------------------------------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $159,518 $209,369 $328,031 $158,349 $166,113
Cost of sales.......................... 110,841 142,776 221,729 108,174 113,693
Selling, general and
administrative expense(2)............ 48,073 68,473 94,902 46,580 45,104
Restructuring charges(3)............... -- 4,169 336 247 --
---------- ---------- ---------- ----------- -----------
Operating profit (loss)................ 604 (6,049) 11,064 3,348 7,316
Interest expense....................... 5,100 6,575 9,129 3,948 4,553
Other income, net...................... 2,880 689 688 390 169
---------- ---------- ---------- ----------- -----------
Income (loss) before taxes............. (1,616) (11,935) 2,623 (210) 2,932
Income tax provision................... 800 2,400 697 200 528
---------- ---------- ---------- ----------- -----------
Net income (loss)...................... $ (2,416) $ (14,335) $ 1,926 $ (410) $ 2,404
========== ========== ========== =========== ===========
Net income (loss) per share............ $ (0.49) $ (2.37) $ 0.22 $ (0.05) $ 0.27
========== ========== ========== ======== =======
Weighted average number of
shares outstanding and common stock
equivalents.......................... 4,969,543 6,057,090 8,772,748 8,691,487 8,884,156
OTHER DATA:
Gross profit margin(4)................. 30.5% 31.8% 32.4% 31.7% 31.6%
Selling, general, and administrative
expense, excluding foreign currency
transaction gains or losses, as a percent
of net sales.......................... 30.2% 33.2% 29.1% 30.7% 26.7%
Net sales per employee(5).............. $ 104 $ 114 $ 138 -- --
PRO FORMA FINANCIAL DATA(6):
Interest expense....................... $ 5,733 $2,875 $2,768
Net income............................. 5,294 759 3,741
Net income per share................... $ 0.41 $0.06 $0.29
Weighted average number of
shares outstanding and common stock
equivalents.......................... 12,773,000 12,692,000 12,884,000
</TABLE>
7
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
--------------------------
AS
ACTUAL ADJUSTED (7)
------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $4,226 $7,126
Working capital.................................. 97,845 135,845
Total assets..................................... 302,652 305,552
Total debt....................................... 106,512 71,412
Total stockholders' equity....................... 84,870 122,870
</TABLE>
______________________________________
(1) Fiscal years presented ended December 31, except the Company's 1993 fiscal
year which ended on December 25.
(2) During fiscal 1994, selling, general and administrative expenses included
duplicative costs associated with the DEA and Roch operations which were
consolidated during 1994 and 1995. Includes foreign currency transaction
gains of $0.2 million, $1.1 million, $0.6 million and $2.0 million in 1993,
1994, 1995 and the first half of 1995, respectively, and $0.7 million of
transaction losses in the first half of 1996.
(3) Restructuring charges are principally attributable to the payment of
employee severance and the closing of sales offices associated with
integrating the Company's existing operations with those of DEA and Roch.
(4) Half year comparisons of gross profit margin data are difficult to make as
a result of seasonal factors and the frequent impact of product mix
variations quarter to quarter.
(5) During fiscal 1994, DEA employees have been accounted for by annualizing
the number of employees for the period.
(6) Pro forma to reflect the sale of the shares of Class A Common Stock offered
by the Company hereby, at an assumed public offering price of $10.25 per
share, and repayment of all short-term indebtedness and current portions of
long-term debt outstanding during the pro forma periods, not exceeding
$31.9 million and $3.2 million, respectively, as if such transactions had
occurred on the first day of the relevant period. The unaudited pro forma
financial information does not purport to be indicative of the financial
position or operating results which would have been achieved had the
Offering taken place at the dates indicated and should not be construed as
representative of the Company's financial position or results of operations
for any future period or date. See "Use of Proceeds."
(7) Adjusted to reflect the sale of the Class A Common Stock offered by the
Company hereby, at an assumed public offering price of $10.25 per share,
and the application of the net proceeds to the Company therefrom the repay
approximately $31.9 million principal amount of outstanding short-term
indebtedness and $3.2 million of the current portion of long-term
indebtedness, as if such transactions had occurred on June 30, 1996.
8
________________________________________________________________________________
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Class A Common Stock offered hereby.
HISTORICAL LOSSES
Although the Company has generated net income in each of its quarters
subsequent to March 31, 1995, the Company 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. There can be no assurance
that the Company will achieve net income in future periods. See "Achievement of
Strategic Plan."
COMPETITION
The Company's MS Group currently has four principal direct domestic and
foreign competitors, some of which are owned by entities that have greater
financial and other resources than the Company. The MS Group also faces
indirect competition from other types of metrology firms such as manufacturers
of fixed gauging systems. The primary industries to which the MS Group sells
its products are characterized by a relatively small number of large
participants with significant purchasing power. In addition, the MS Group
generally sells its products through a competitive bid process in which at least
one and frequently several of the Company's competitors submit competing bids.
As a result, the Company experiences significant pricing competition in
connection with sales by its MS Group which can have an adverse impact on the
Company's net sales and margins. During periods when the metrology industry
suffers from overcapacity, downward pricing pressure experienced by the MS Group
is likely to be more intense and the Company's margins may be more severely
impacted. In addition, certain of the Company's competitors that have access to
greater financial resources may be able to withstand such pricing pressure more
effectively than the Company and, accordingly, there can be no assurance that
the MS Group will be able to continue to compete effectively against existing
competitors or new competitors, especially during periods of overcapacity.
The market for the PMI Division's products is fragmented and the PMI
Division competes with a large number of competitors, including the market
leader in this area, primarily on the basis of the strength of its third party
distribution network, price and product innovation. New competitors from
emerging industrialized countries with lower cost production than the Company's
represent a significant competitive challenge to the Company. As a result, the
PMI Division's continued success and profitability will be dependent on its
ability to continue to develop cost-effective sourcing and innovative products.
CYCLICALITY OF END USER MARKETS
The primary end user markets for the Company's MS Group products include
the aerospace, heavy transport and automotive (including automotive suppliers)
industries, which accounted for approximately 8%, 9% and 23%, respectively, of
the Company's net sales in fiscal 1995. Each of these industries experiences
cyclicality in connection with recessionary periods. In addition, the Company
believes that a significant portion of the net sales of the PMI Division and the
CM Division are made to end user markets which exhibit patterns of cyclicality
in purchases.
Net sales by the MS Group accounted for approximately 67% of the Company's
net sales in fiscal 1995. Because a large proportion of these products are sold
by the Company to end users in cyclical markets, the price of and margins for
such products have been and are likely to continue to be adversely impacted by
decreases in capital spending by such end user markets during recessionary
periods. In addition, because the PMI Division sells primarily through
distributors to ultimate end user markets that experience cyclicality, the PMI
Division is likely to experience significant declines in sales volumes during
recessionary periods because catalog houses and distributors typically reduce
purchases of the Company's PMI Division products at the onset of such
recessionary periods even more than the decline in their end user markets'
demands would dictate, in order to reduce their inventories. There can be no
assurance that the Company will be able to operate profitably during any
recessionary downturn.
9
<PAGE>
ACHIEVEMENT OF STRATEGIC PLAN
The Company believes it has successfully integrated its recently acquired
businesses with its existing operations which has resulted in considerable cost
and expense reductions. The Company's strategy, however, calls for continued
cost and expense reductions and other actions which require management to
achieve increased coordination and rationalization of the Company's research and
development activities, production facilities and direct selling and
distribution functions. There can be no assurance that the Company's strategic
plan will be successfully implemented or that the Company will continue to
achieve financial results that are comparable to or better than those reported
since March 31, 1995.
FOREIGN OPERATIONS
As of December 31, 1995, approximately 74% (based on book values) of the
Company's assets, 65% of the Company's net sales (based on customer location)
and 74% of its employees were located outside the United States. 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 or deemed distributions to the Company or any U.S. subsidiary,
currency exchange rate fluctuations, inflation, maintenance of minimum capital
requirements, import and export controls, exchange controls and social (labor)
programs. Specifically, the Company's cost of sales for products manufactured
or assembled in certain foreign locations has been adversely impacted, as
compared with some of its competitors, by the appreciation of the respective
local currencies of such locations relative to the U.S. dollar. Also, because
of the wide-spread geographic locations of its facilities and operations, the
Company is subject to risks related to the ongoing coordination, rationalization
and oversight of foreign operations and employees that are geographically and
culturally diverse.
DEPENDENCE ON KEY SUPPLIER
The Company currently purchases the vast majority of its externally sourced
low to medium accuracy electronic touch trigger sensor probes and heads from a
publicly held United Kingdom company (the "Supplier") which is the dominant
supplier of such sensor probes to CMM manufacturers. No alternative supplier
for this class of electronic sensor probes, which are a key component of
substantially all of the Company's lower accuracy CMMs, is currently available
and developing an alternative source for the probes and heads could take more
than a year. Although adequate supplies of such probes and heads for at least
several months is potentially available from current inventories of the Company
and its customers, any reductions or interruptions in supply or material
increases in the price of electronic sensor probes purchased from the Supplier
could cause the Company to suffer disruptions in the operation of its business
or incur higher than expected costs, which could have a material adverse effect
on the Company.
TECHNOLOGY
As the size of some components measured by metrology products decreases and
the required speed and precision of such measurements increases, the Company's
products may become obsolete unless the Company develops more sophisticated
software and metrology systems. Although the Company's strategy is to focus
research and development in the area of software development and non-contact
technologies, there can be no assurance that the Company will be successful in
competing against new technologies or competitors, some of whom may not now
participate in the metrology industry.
INDEBTEDNESS
The Company has, and, upon completion of the Offering, will continue to
have, significant debt service obligations. As of June 30, 1996, on a pro forma
basis after giving effect to the Offering and the application of the net
proceeds to the Company to repay $31.9 million of short-term indebtedness and
$3.2 million of the current portion of long-term indebtedness as described under
"Use of Proceeds," the Company would have had total outstanding indebtedness and
total stockholders' equity of $71.4 million and $122.9 million, respectively.
10
<PAGE>
The degree to which the Company is leveraged could have important
consequences to the Company's stockholders, including the following: (i) the
Company may face difficulties in satisfying its obligations with respect to its
indebtedness; (ii) the Company may be placed at a competitive disadvantage to
its competitors; (iii) the Company's flexibility in planning for, or reacting
to, changes in its business and the industry may be limited; (iv) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or other general corporate purposes may be
impaired; (v) 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 and future business
opportunities; (vi) a portion of the Company's borrowings bear interest at
variable rates of interest which could result in higher interest expense in the
event of an increase in market interest rates; (vii) certain of the Company's
debt instruments contain 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 borrowing arrangements or otherwise have a
material adverse effect on the Company; (viii) the Company's $25.0 million
domestic secured revolving credit facility (the "Facility") prohibits the
payment of dividends by the Company; (ix) the Facility and $25.0 million of
additional term indebtedness of the Company (guaranteed by Finmeccanica, a
stockholder of the Company) mature in September 1997, requiring the Company to
seek refinancing of such debt at that time or before; and (x) as a result, the
Company may be more vulnerable to general economic and industry downturns .
The Company is currently negotiating to replace the Facility with a $40.0
million secured revolving credit facility (the "New Facility"). There can be no
assurance, however, that the New Facility will be obtained on terms acceptable
to the Company, if at all.
DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL
The success of the Company is dependent to a significant extent upon the
continuing services of Frank T. Curtin, its Chairman, President and CEO, and a
limited number of other key executives of the senior management team. Loss of
the services of one or more of these senior executives could have a material
adverse effect on the Company. See "Management."
LIMITED VOTING RIGHTS OF CLASS A COMMON STOCK
The Company's common stock is divided into two classes, the Class A Common
Stock and Class B Common Stock, $1.00 par value per share (the "Class B Common
Stock," and, collectively with the Class A Common Stock, the "Common Stock").
Shares of Class A Common Stock are entitled to one vote per share and shares of
Class B Common Stock are entitled to ten votes per share, except as otherwise
provided by law or in the Company's certificate of incorporation (the
"Certificate of Incorporation") or by-laws (the "By-laws"). The Class A Common
Stock and the Class B Common Stock vote together as a single class on all
matters, except as otherwise provided by law and except that the Class A Common
Stock, voting as a class with the holders of shares of any series of preferred
stock entitled to vote, elects one-third (rounded down, if necessary, to the
nearest whole number, but in any event at least one) of the directors elected
each year. The issuance of additional shares of Class B Common Stock would
dilute the voting power of the Class A Common Stock, including the Class A
Common Stock offered hereby.
CONCENTRATION OF STOCK OWNERSHIP
Immediately following the Offering, Finmeccanica will hold 3,450,000 shares
of Class A Common Stock, representing 28.2% of the outstanding Common Stock of
the Company and approximately 19.8% of the combined voting power of the
Company's outstanding Common Stock, and 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), will hold approximately 5.1% of the outstanding Common
Stock of the Company and approximately 12.0% of the combined voting power of the
Company's outstanding Common Stock. In addition, the Company's Employee Stock
Ownership and Profit Participation Plan (the "ESOP") will hold 303,283 shares of
Class A Common Stock and 166,063 shares of Class B Common Stock, all of which
11
<PAGE>
shares are allocated to participant accounts in such plans, representing
approximately 3.7% of the outstanding Common Stock of the Company and
approximately 11.3% of the combined voting power of the Company's outstanding
Common Stock. Under the ESOP, Mr. Curtin and two other executive officers of
the Company act as trustees and may vote any unallocated shares and any shares
as to which instructions have not been received from the beneficiaries, in each
case in the same proportion as the number of shares for which instructions were
actually received.
Pursuant to the terms of a Shareholder's Agreement dated as of September
28, 1994 between Finmeccanica and the Company (the "Shareholders Agreement"),
Finmeccanica presently has the right to designate three nominees for election to
the Company's Board of Directors and, under the letter agreement dated September
28, 1994 between Henry D. Sharpe, Jr. and Finmeccanica, Mr. Sharpe has agreed to
vote all shares of Common Stock as to which he has sole voting control (308,570
shares of Class A Common Stock and 102,856 shares of Class B Common Stock) in
favor of the Finmeccanica nominees standing for election to the Board of
Directors. Pursuant to the terms of the Shareholders Agreement, when Henry D.
Sharpe, Jr. ceases to be a Director of the Company, Finmeccanica will thereafter
be entitled to designate two nominees to the Company's Board of Directors, and a
third nominee, who may not be an employee of Finmeccanica but must be an
experienced executive or advisor to industrial businesses, subject to approval
(not to be unreasonably withheld) by the Company's Board of Directors.
Finmeccanica is obligated under the Shareholder's Agreement to vote all its
shares of Class A Common Stock in favor of the election as directors of all
nominees selected by the Board of Directors.
Although together Finmeccanica and Mr. Sharpe cannot guarantee the election
of specified individuals to the Board of Directors, they have significant
influence over the management of the Company and, assuming each of them and the
employees for whose benefit shares are held in the ESOP and other employee
benefit plans of the Company vote for the same individuals as directors, such
persons will be able to control the management of the Company and its business.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS
The Certificate of Incorporation and By-laws and the 1988 Rights Agreement
between the Company and the First National Bank of Boston (the "Rights Plan")
contain certain provisions that could make more difficult the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise. These
provisions establish staggered terms for members of the Company's Board of
Directors, include advance notice procedures for stockholders to designate
nominees for election as directors of the Company and for stockholders to submit
proposals for consideration at stockholders' meetings and require the vote of
80% of the stockholders entitled to vote to effect certain mergers or
acquisition transactions. The Rights Plan provides that holders of Common Stock
are entitled to one preferred stock purchase right (subject to adjustment) (a
"Right") for each outstanding share of Common Stock held by them. Each Right
entitles the holder thereof to purchase from the Company one one-hundredth of a
share of Series A Participating Preferred Stock (subject to adjustment), at an
exercise price of $55 (subject to adjustment), ten business days after a party
acquires 20% of the Company's Common Stock, or the commencement of a tender or
exchange offer (excluding, for these purposes, Finmeccanica so long as
Finmeccanica does not beneficially own shares of Common Stock other than the
3,450,000 shares of Class A Common Stock currently held by Finmeccanica and such
additional shares as Finmeccanica may purchase in accordance with its pre-
emptive rights under the Shareholders Agreement). The Rights may be redeemed by
the Company at a price of $.03 per Right; if not, the holder is entitled to
purchase, at the exercise price of the Right, an equity interest in the
acquiring party having a market value of two times the exercise price. In
addition, the Company is subject to Section 203 of the Delaware General
Corporation Law ("DGCL") which limits transactions between a publicly held
company and "interested stockholders" (generally, those stockholders who,
together with their affiliates and associates, own 15% or more of a company's
outstanding capital stock). The restriction of Section 203 does not apply to
those who were "interested stockholders" prior to 1974. The Certificate of
Incorporation also provides for 1,000,000 authorized but unissued shares of
preferred stock, the rights, preferences, qualifications, limitations and
restrictions of which may be fixed by the Board of Directors without any further
action by stockholders, which may dilute the voting power of the holders of the
Common Stock. One hundred seventy thousand shares of such preferred stock have
been designated as Series A Participating Preferred Stock issuable upon exercise
of the Rights. In addition, because the Certificate of Incorporation provides
that the Class B Common Stock is entitled to ten votes per share, the issuance
of additional shares of Class B
12
<PAGE>
Common Stock would dilute the voting power of the holders of Class A Common
Stock, including the shares of Class A Common Stock offered by this Prospectus.
All of the foregoing and the concentration of stock ownership of the Company may
have the effect of deterring certain potential acquisitions of the Company or
making more difficult a change in control of the Company or the removal of
incumbent management or the Board of Directors of the Company. See "Description
of Capital Stock."
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market historically has experienced volatility which has affected
the market price of securities of many companies and which has sometimes been
unrelated to the operating performance of such companies. In addition, factors
such as announcements of new products or strategic alliances by the Company or
its competitors, as well as market conditions in the metrology industry, may
have a significant impact on the market price of the Class A Common Stock. See
"Market for Class A Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Class A Common Stock (including Class B Common Stock converted
into Class A Common Stock upon a sale) in the public market after the Offering
could adversely affect the market price of the Class A Common Stock. In
addition to the 4,156,000 shares offered hereby (assuming no exercise of the
Underwriters' over-allotment option or exercise of outstanding stock options)
and taking into account the contractual restrictions imposed by lock-up
agreements (the "Lock-up Agreements") that will be executed by certain of the
Company's stockholders, directors and officers in connection with the Offering,
approximately 4,287,011 outstanding shares of Class A Common Stock will become
eligible for sale in the open market pursuant to Rule 144 beginning 180 days
following the closing date of the Offering.
In addition, as of the date of this Prospectus, options to purchase 665,997
shares of Class A Common Stock were outstanding and 505,923 shares of Class A
Common Stock and 218,807 shares of Class B Common Stock were held by the ESOP
and the Company's Savings and Retirement Plan (the "SARP") for distribution to
employees of the Company upon their termination of employment in accordance with
the terms thereof. Holders of outstanding options to acquire 129,332 shares of
Common Stock will be subject to restrictions on resale for 180 days following
the date of this Prospectus pursuant to the Lock-up Agreements. In addition,
certain executive officers of the Company to whom 7,551 shares of Common Stock
currently held pursuant to the ESOP and the SARP may be distributed upon
termination of employment, will enter into Lock-up Agreements restricting
resales of any such shares of Common Stock for 180 days following the date of
this Prospectus. The Company has filed registration statements on Form S-8
pursuant to which shares issued upon the exercise of all outstanding options to
purchase Common Stock and shares issued as awards of restricted stock are freely
tradeable (subject to compliance with Rule 144 for affiliates), and shares
distributable to employees from the ESOP and the SARP upon their termination of
employment are also freely tradeable (subject to compliance with Rule 144 for
affiliates).
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Class A Common Stock offered by the Company hereby (at an assumed public
offering price of $10.25 per share and net of underwriting discounts and
commissions and estimated offering expenses) are estimated to be approximately
$38.0 million ($43.8 million if the Underwriters' over-allotment option is
exercised in full). Approximately $35.1 million of the net proceeds to the
Company will be used to repay $31.9 million of outstanding short-term
indebtedness and $3.2 million of the current portion of long-term indebtedness
of the Company under its loan agreements and lines of credit. The remainder of
the net proceeds to the Company of $2.9 million will be used for working capital
and general corporate purposes. At August 8, 1996, the indebtedness to be
repaid bore interest at a weighted average interest rate of 8.04% per annum.
Approximately $15.1 million of such indebtedness matures on September 1997 and
the remainder is repayable on demand. The Company will incur no prepayment
penalties or fees in connection with the repayment of such debt. Proceeds from
all such short-term indebtedness incurred within the last twelve months were
used primarily for working capital, although certain amounts were used to
purchase capital equipment. Pending the uses described above, the Company
intends to invest the net proceeds primarily in short and intermediate term
interest-bearing debt obligations of investment grade. The Company will not
receive any proceeds from the sale of Class A Common Stock by the Selling
Stockholder.
MARKET FOR CLASS A COMMON STOCK
The Class A Common Stock is listed on the New York Stock Exchange under the
symbol "BNS." The Class B Common Stock is generally non-transferable, and there
is no trading market for the Class B Common Stock; however, the Class B Common
Stock is freely convertible into Class A Common Stock on a share-for-share
basis, and transferable thereafter. At June 30, 1996, the Company had
approximately 1,203 holders of record of its Class A Common Stock and 958
holders of record of its Class B Common Stock. The quarterly high and low sales
prices of the Class A Common Stock on the New York Stock Exchange for the
periods indicated are set forth below. The reported last sale price of the
Class A Common Stock on the NYSE on August 16, 1996 was $10 1/4.
<TABLE>
<CAPTION>
Price Range of Class A Common Stock
-------------------------------------
High Low
----- ---
<S> <C> <C>
Year ended December 31, 1994:
1st Quarter................................. $ 7 3/4 $ 6 3/8
2nd Quarter................................. 6 3/4 5 3/4
3rd Quarter................................. 7 1/2 6
4th Quarter................................. 7 1/4 5 1/4
Year ended December 31, 1995:
1st Quarter................................. $ 7 1/2 $ 5 5/8
2nd Quarter................................. 7 3/8 6 1/8
3rd Quarter................................. 10 5/8 6 1/2
4th Quarter................................. 11 7/8 9 1/4
Year ended December 31, 1996:
1st Quarter................................. $10 1/8 $ 8 5/8
2nd Quarter................................. 10 5/8 9 1/2
3rd Quarter (through August 16, 1996)....... 10 1/2 9 1/4
</TABLE>
14
<PAGE>
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since 1990 and
currently intends to retain any earnings for the expansion of its business.
Accordingly, the Company does not anticipate that it will pay dividends in the
foreseeable future. In addition, the Facility currently prohibits the Company
from paying dividends on the Common Stock and it is likely that future
indebtedness of the Company will also prohibit such dividends. The payment of
dividends is within the discretion of the Company's Board of Directors and will
depend upon the Company's earnings, financial condition, capital requirements,
contractual restrictions and such other factors as the Company's Board of
Directors may consider or deem appropriate at the time.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of June 30, 1996, and as adjusted to give effect to the sale of
the shares of Class A Common Stock offered by the Company at an assumed public
offering price of $10.25 per share, and the application of the net proceeds to
the Company to repay $31.9 million principal amount of short-term indebtedness
and $3.2 million of the current portion of long-term indebtedness, as described
under "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
---------------------------------
ACTUAL AS ADJUSTED
------ -----------
(dollars in thousands)
<S> <C> <C>
Cash and cash equivalents(1)................................ $ 4,226 $ 7,126
======== ========
Short-term debt............................................. 31,900 --
======== ========
Long-term debt, including current portion................... 74,612 71,412
Stockholders' equity(2):
Preferred Stock(3), $1.00 par value;
authorized 1,000,000 shares; none issued at June 30
and as adjusted.......................................... -- --
Class A Common Stock; par value $1.00;
authorized 15,000,000 shares;
issued 8,241,798 shares at June 30 and
12,241,798 shares as adjusted............................ 8,242 12,242
Class B Common Stock; par value $1.00;
authorized 2,000,000 shares;
issued 520,219 shares at June 30 and
as adjusted.............................................. 520 520
Additional paid in capital.................................... 67,248 101,248
Earnings employed in the business............................. (5,628) (5,628)
Cumulative foreign currency translation adjustment 14,985 14,985
Treasury stock: 23,592 shares at June 30 and as adjusted.. (270) (270)
Unearned compensation (227) (227)
-------- --------
Total stockholders' equity 84,870 122,870
-------- --------
Total capitalization...................................... $159,482 $194,282
======== ========
</TABLE>
________________________
15
<PAGE>
(1) Includes approximately $700,000 of restricted cash.
(2) Excludes outstanding options to purchase 665,997 shares of Common Stock and
214,386 additional shares of Common Stock reserved for future issuance
under the Company's stock plans. See "Management -- Executive
Compensation." Assumes no conversions of Class B Common Stock into Class A
Common Stock after June 30, 1996.
(3) The Company has designated 170,000 shares of such preferred stock as Series
A Participating Preferred Stock. See "Description of Capital Stock --
Rights Plan."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data as of and for the period
ended December 31, 1995 have been derived from the Company's consolidated
financial statements, which have been audited by Ernst & Young LLP, independent
auditors. The following selected historical financial data as of and for the
four years in the period ended December 31, 1994 have been derived from the
Company's consolidated financial statements, which have been audited by Coopers
& Lybrand L.L.P., independent accountants. The selected consolidated financial
information for the six months ended June 30, 1996 and June 30, 1995 have been
derived from the Company's unaudited consolidated financial statements included
elsewhere in this Prospectus and include all adjustments, consisting only of
normal recurring adjustments, which management considers necessary for a fair
presentation of the results of such periods. The results for the six months
ended June 30, 1996 are not necessarily indicative of results to be expected for
the full year. During the periods presented below, the Company has undertaken a
number of divestitures and acquisitions, including the 1994 acquisitions of DEA
and Roch. Consequently, the selected consolidated financial information set
forth below may not be comparable for all periods presented.
The following data should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER (1)
-------------------------------------------------
1991 1992 1993 1994
---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 177,053 $ 162,524 $ 159,518 $ 209,369
Cost of sales.................................. 119,481 116,283 110,841 142,776
Selling, general and
administrative expense(2)..................... 57,614 54,773 48,073 68,473A
Restructuring charges(3)....................... -- -- -- 4,169
---------- ---------- ---------- ----------
Operating profit (loss)........................ (42) (8,532) 604 (6,049)
Interest expense............................... 4,219 5,272 5,100 6,575
Other income, net.............................. 560 2,570 2,880 689
---------- ---------- ---------- ----------
Income (loss) before taxes..................... (3,701) (11,234) (1,616) (11,935)
Income tax provision........................... (800) (3,250) 800 2,400
---------- ---------- ---------- ----------
Income (loss) from continuing
operations.................................... (2,901) (7,984) (2,416) (14,335)
Loss from discontinued operations.............. (1,180) -- -- --
---------- ---------- ---------- ----------
Net income (loss).............................. $ (4,081) $ (7,984) $ (2,416) $ (14,335)
========== ========== ========== ==========
Net income (loss) per share.................... $ (0.88) $ (1.63) $ (0.49) $ (2.37)
========== ========== ========== ==========
Weighted average number of
shares outstanding and common stock
equivalents................................... 4,639,594 4,898,536 4,969,543 6,057,090
OTHER DATA:
Gross profit margin(4)......................... 32.5% 28.5% 30.5% 31.8%
Selling, general, and administrative expense,
excluding foreign currency transaction
gains or losses, as a percent of net sales... 32.8% 34.0% 30.2% 33.2%
Net sales per employee(5)...................... $ 89 $ 92 $ 104 $ 114
PRO FORMA FINANCIAL DATA(6):
Interest expense...............................
Net income.....................................
Net income per share...........................
Weighted average number of
shares outstanding and common stock
equivalents...................................
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1995 1995 1996
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 328,031 $ 158,349 $ 166,113
Cost of sales.................................. 221,729 108,174 113,693
Selling, general and
administrative expense(2)..................... 94,902 46,580 45,104
Restructuring charges(3)....................... 336 247 --
---------- ----------- -----------
Operating profit (loss)........................ 11,064 3,348 7,316
Interest expense............................... 9,129 3,948 4,553
Other income, net.............................. 688 390 169
---------- ----------- -----------
Income (loss) before taxes..................... 2,623 (210) 2,932
Income tax provision........................... 697 200 528
---------- ----------- -----------
Income (loss) from continuing
operations.................................... 1,926 (410) 2,404
Loss from discontinued operations.............. -- -- --
---------- ----------- -----------
Net income (loss).............................. $ 1,926 $ (410) $ 2,404
========== =========== ===========
Net income (loss) per share.................... $ 0.22 $ (0.05) $ 0.27
========== =========== ===========
Weighted average number of
shares outstanding and common stock
equivalents................................... 8,772,748 8,691,487 8,884,156
OTHER DATA:
Gross profit margin(4)......................... 32.4% 31.7% 31.6%
Selling, general, and administrative expense,
excluding foreign currency transaction
gains or losses, as a percent of net sales... 29.1% 30.7% 26.7%
Net sales per employee(5)...................... $ 138 -- --
PRO FORMA FINANCIAL DATA(6):
Interest expense............................... $ 5,733 $ 2,875 $ 2,768
Net income..................................... 5,294 759 3,741
Net income per share........................... $ 0.41 $ 0.06 $ 0.29
Weighted average number of
shares outstanding and common stock
equivalents................................... 12,773,000 12,692,000 12,884,000
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER(1) AS OF JUNE 30,
----------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 8,347 $ 4,640 $ 2,094 $ 6,676 $ 6,262 $ 6,571 $ 4,226
Working capital....................... 68,644 48,036 46,025 102,883 87,569 89,897 97,845
Total assets.......................... 183,805 166,086 165,871 272,274 295,400 281,953 302,652
Total debt............................ 61,369 60,700 64,500 92,613 102,068 101,409 106,512
Total stockholders' equity............ 80,325 66,674 63,520 78,925 85,857 79,705 84,870
</TABLE>
_______________
(1) The Company's fiscal year ended on December 28, 26 and 25 in 1991, 1992 and
1993, respectively. For all other periods presented, the Company's fiscal
year ended on December 31.
(2) During fiscal 1994, selling, general and administrative expenses included
duplicative costs associated with the DEA and Roch operations which were
consolidated during 1994 and 1995. Includes foreign currency transaction
gains of $0.2 million, $1.1 million, $0.6 million and $2.0 million in 1993,
1994, 1995 and the first half of 1995, respectively, and $0.7 million of
transaction losses in the first half of 1996.
(3) Restructuring charges are principally attributable to the payment of
employee severance and the closing of sales offices associated with
integrating the Company's existing operations with those of DEA and Roch.
(4) Half year comparisons of gross profit margin data are difficult to make as
a result of seasonal factors and the frequent impact of product mix
variations quarter to quarter.
(5) During fiscal 1994, DEA employees have been accounted for by annualizing
the number of employees for the period.
(6) Pro forma to reflect the sale of the shares of Class A Common Stock offered
by the Company hereby, at an assumed public offering price of $10.25 per
share, and repayment of all short-term indebtedness and current portions of
long-term debt outstanding during the pro forma periods, not exceeding
$31.9 million and $3.2 million, respectively, as if such transactions had
occurred on the first day of the relevant period. The unaudited pro forma
financial information does not purport to be indicative of the financial
position or operating results which would have been achieved had the
Offering taken place at the dates indicated and should not be construed as
representative of the Company's financial positions or results of
operations for any future period or date. See "Use of Proceeds."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
During the periods discussed below, the Company undertook a number of
divestitures and acquisitions in its continuing effort to reposition itself from
its historical origins as a machine tool manufacturer to a leader in the field
of metrology. These initiatives included the disposition in March and April 1993
of the remainder of the Company's machine tool business, the acquisition in
March 1994 of Roch, the acquisition in September 1994 of DEA, the acquisition in
December 1994 of certain intellectual property and assets of Metronic Ltd. and
the consolidation in 1994 and 1995 of the operations of DEA and Roch with the MS
Group and the PMI Division, respectively. As a result, the financial results
discussed below may not be comparable for the periods presented, and, in
addition to the discussion of its historical results of operations, the Company
has for 1995 and 1994 included, where appropriate, a discussion of its results
of operations excluding the effects of significant acquisitions.
Subsequent to the repositioning initiatives described above, the Company
commenced the realignment of its structure and culture towards a more focused
and integrated metrology business, with an emphasis on cost reduction and
profitability. Since recruiting its current President and Chief Executive
Officer in May 1995, the Company has recorded net income in each of its fiscal
quarters. The Company's ongoing operating strategy is intended to further
reduce product costs and, as part of this strategy, the Company intends to
continue to standardize product designs worldwide, undertake more cost-effective
product designs, outsource components and products, increase supplier partnering
and focus on core manufacturing processes. The Company also intends to
streamline its sales, marketing and general and administrative processes in an
effort to further reduce selling, general and administrative expenses as a
percentage of net sales.
The Company currently operates entirely in the metrology industry through
three management units -- the MS Group, which manufactures and markets manual
and computer-controlled, high precision CMMs and accounted for approximately 67%
of the Company's net sales in 1995; the PMI Division, which manufactures
mechanical and electronic measuring and inspection tools and accounted for
approximately 30% of the Company's net sales in 1995; and the CM Division, which
designs and engineers specialty metrology products and systems primarily
utilizing non-contact technologies and accounted for less than 3% of the
Company's net sales in 1995. MS Group net sales include revenue from
aftermarket sales and service for CMMs which, during 1995, comprised more than
25% of total MS Group net sales. Approximately 65% of the Company's net sales
(based on customer location) in 1995 were located outside the United States.
This "Management Discussion and Analysis of Financial Condition and Results
of Operations" contains forward looking statements concerning the Company's
operations, economic performance and financial condition. Such statements are
subject to various risks and uncertainties and actual performance could differ
materially from that currently anticipated by the Company. In addition, this
"Management Discussion and Analysis of Financial Condition and Results of
Operations" should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
Set forth below are certain results of operations of the Company,
calculated as a percentage of net sales:
19
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER(1) JUNE 30,
--------------------------------- ----------------
RESULTS OF OPERATIONS: 1993 1994 1995 1995 1996
----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 69.5 68.2 67.6 68.3 68.4
---- ---- ---- ---- ----
Gross profit margin.......................... 30.5 31.8 32.4 31.7 31.6
Selling, general and administrative expense.. 30.1 32.7 28.9 29.4 27.2
Restructuring charges........................ -- 2.0 0.1 0.2 --
---- ---- ---- ---- ----
Operating profit (loss)...................... 0.4 (2.9) 3.4 2.1 4.4
Interest expense............................. 3.2 3.1 2.8 2.5 2.7
Other income, net............................ 1.8 0.3 0.2 0.2 0.1
---- ----- ---- ---- ----
Income (loss) before income taxes............ (1.0) (5.7) 0.8 (0.2) 1.8
Income tax provision (benefit)............... 0.5 1.1 0.2 0.1 0.3
---- ---- ---- ---- ----
Net income (loss)............................ (1.5)% (6.8)% 0.6% (0.3)% 1.5%
==== ===== ==== ====== =====
</TABLE>
__________________
(1) The Company's fiscal year ended on December 25, 1993. For all other
periods presented, the Company's fiscal year ended on December 31.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
NET SALES. Net sales increased 4.9%, or $7.8 million, from $158.3 million
in the first half of 1995 to $166.1 million in the first half of 1996. Foreign
currency exchange rate fluctuations caused a decrease in net sales of $2.1
million in the first half of 1996 as compared to a $9.3 million increase in net
sales in the first half of 1995. Excluding these foreign currency effects, net
sales for the first half of 1996 increased $9.9 million as compared to the first
half of 1995. The MS Group was responsible for $9.3 million of the increase and
the PMI and CM Divisions were responsible for the remaining $0.6 million
increase. The increase in MS Group net sales was due primarily to increased
sales of smaller CMMs manufactured in the United States, as well as increased
sales of more fully configured CMMs with higher sales prices and increased sales
to new customers. The increase in PMI Division net sales was primarily due to
increased unit volume in the United States and price increases worldwide.
GROSS PROFIT. Gross profit increased 4.5%, or $2.2 million, from $50.2
million in the first half of 1995 to $52.4 million in the first half of 1996. As
a percentage of net sales, gross profit margin remained relatively constant,
with MS Group gross profit margin increasing and the PMI Division gross profit
margin decreasing. The MS Group's gross profit margin increased due to improved
product mix, in part resulting from increased sales of more fully configured
machines with higher sales prices. In addition, increased revenue from
aftermarket services contributed to the improvement in gross profit margin.
Decreased gross profit margin at the PMI Division resulted primarily from a
planned reduction of inventory levels which resulted in reduced production
levels and consequently less fixed overhead cost absorption and lower gross
profit margin in the second quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense ("SG&A") decreased 3.3%, or $1.5 million, from $46.6
million in the first half of 1995 to $45.1 million in the first half of 1996,
and decreased as a percentage of net sales from 29.4% to 27.2%. Excluding
foreign currency transaction gains or losses, which amounted to a $0.7 million
loss in the first half of 1996 and a $2.0 million gain in the first half of
1995, SG&A decreased as a percentage of net sales from 30.7% to 26.7%. The
decrease in SG&A as a percentage of net sales was primarily attributable to the
success of cost reduction efforts, primarily in the areas of advertising,
administrative and travel expenses.
OPERATING PROFIT. As a result of the foregoing, operating profit increased
118.5%, or $4.0 million, from $3.3 million in the first half of 1995 to $7.3
million in the first half of 1996.
20
<PAGE>
INTEREST EXPENSE. Interest expense increased 15.3%, or $0.6 million, from
$3.9 million in the first half of 1995 to $4.6 million in the first half of
1996. This increase reflects both a $7.1 million increase in average borrowings
over the comparable period in 1995, which resulted from additional working
capital requirements and financing for the CM Division's new facility in
Telford, England, and an increase in average interest rates due to an increased
level of borrowing in Italy and the United States where applicable interest
rates are higher than the Company average.
INCOME TAX EXPENSE. Income taxes include provisions for federal, foreign
and state income taxes and are based on the Company's estimate of the effective
income tax rates for the full year. The Company has estimated its 1996 effective
tax rate at 18.0%, which compares with the effective tax rate of 26.6% for the
year ended December 31, 1995. The reduction in the estimated effective tax rate
in 1996 from the actual effective tax rate for the year ended December 31, 1995
is attributable to income earned in foreign tax jurisdictions in which net
operating loss carryforwards will be recognized in 1996. See Note 4 to the
Consolidated Financial Statements for information on foreign operating loss and
capital loss carryforwards and deferred tax assets.
NET INCOME. As a result of the preceding factors, net income increased
from a net loss of $0.4 million, $0.05 per share, in the first half of 1995 to
$2.4 million, $0.27 per share, in the first half of 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased 56.7%, or $118.6 million, from $209.4
million in 1994, to $328.0 million in 1995. Foreign currency exchange rate
fluctuations caused an increase in net sales of $12.1 million during 1995 as
compared to an increase of $3.3 million in 1994. Excluding these foreign
currency effects, net sales for 1995 increased $106.5 million over 1994. The MS
Group was responsible for approximately $95.4 million of the $106.5 million
increase and the PMI and CM Divisions were responsible for the remaining $11.3
million of the increase. The increase in MS Group net sales was primarily
attributable to the DEA acquisition ($69.5 million), increased sales of more
fully configured CMMs with higher sales prices and an increase in unit volumes
of lower priced CMMS. The increase in PMI Division net sales was attributable to
the Roch acquisition and the introduction of new products and new customers.
GROSS PROFIT. Gross profit increased 59.6%, or $39.7 million, from $66.6
million in 1994 to $106.3 million in 1995 primarily as a result of the full-year
sales effect during 1995 of the acquisitions of DEA and Roch and their continued
integration into the operations of the MS Group and the PMI Division,
respectively, as well as an improvement in the gross profit margin of the PMI
Division. Gross profit included an inventory writedown of $3.7 million in 1994
and a positive net inventory adjustment in 1995 of $0.3 million, both associated
with the discontinuance of certain product lines as a result of the
consolidation of DEA and Roch. As a percentage of net sales, gross profit
increased from 31.8% to 32.4% with the PMI Division's gross profit margin
increasing, offset partially by a slight decrease in the MS Group's gross profit
margin. Increased gross profit margin at the PMI Division resulted from better
product mix and the impact of improved absorption of fixed costs as a result of
increased PMI Division sales and production volume. The MS Group's gross profit
margin decreased slightly, primarily as a result of increased unit volumes of
lower priced CMMs offset partially by increased unit volumes of more fully
configured CMMs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. SG&A increased 38.5%, or
$26.4 million, from $68.5 million in 1994 to $94.9 million in 1995. As a
percentage of net sales, SG&A decreased from 32.7% to 28.9%. Exclusive of
foreign currency transaction gains or losses, which amounted to a $0.6 million
gain in 1995 and a $1.1 million gain in 1994, SG&A decreased as a percentage of
net sales from 33.2% to 29.1%. The decrease in SG&A as a percentage of net sales
was primarily attributable to consolidation savings that were planned and
achieved as a result of the consolidation of DEA sales and distribution
operations with those of the MS Group and the consolidation of Roch with the PMI
Division. Foreign currency transaction gains in 1995 include a gain of $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.
21
<PAGE>
RESTRUCTURING CHARGES. Restructuring charges amounting to $0.3 million in
1995 and $4.2 million in 1994. Restructuring charges in 1994 were due
principally to employee severance costs incurred in connection with sales office
closings associated with integrating Brown & Sharpe's existing operations with
those of DEA ($2.4 million), severance costs in connection with the
consolidation of Roch ($1.8 million) and a restructuring at Tesa-Brown & Sharpe
S.A. ("Tesa").
OPERATING PROFIT. As a result of the foregoing, operating profit increased
$17.1 million, from an operating loss of $6.0 million in 1994 to an operating
profit of $11.1 million in 1995. Excluding the effects of the inventory
writedown, inventory adjustment and restructuring charges discussed above, and a
$0.5 million adjustment in 1995 relating to 1994 preliminary purchase price
adjustments in connection with the DEA acquisition, operating profit increased
$9.2 million, from $3.8 million in 1994 to $13.0 million in 1995.
INTEREST EXPENSE. Interest expense increased 37.9%, or $2.5 million, from
$6.6 million in 1994 to $9.1 million in 1995. Average borrowings in 1995
increased to approximately $100.0 million compared with average borrowings of
$81.0 million in 1994, which resulted in increased interest expense in 1995.
The increase in average outstanding balances has 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 EXPENSE. 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 the Consolidated Financial
Statements.
NET INCOME. As a result of the preceding factors, net income increased
from a net loss of $14.3 million, $2.37 per share, in 1994 to $1.9 million,
$0.22 per share, in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 25, 1993
NET SALES. Net sales increased 31.3%, or $49.9 million, from $159.5 million
in 1993 to $209.4 million in 1994. The increase in net sales for 1994 resulted
primarily from the partial-year inclusion of sales of DEA products and services
($37.6 million), the partial-year inclusion of sales of Roch products ($7.8
million), and a favorable currency movement ($3.3 million). Approximately $1.9
million of net sales in 1993 were attributable to machine tool spare parts and
rebuild operations sold in early 1993. Excluding the effects of the DEA and Roch
acquisitions and the machine tool spare parts operations, net sales in 1994
increased 4.1%, or $6.4 million, over net sales in 1993. Excluding DEA, MS Group
net sales in 1994 decreased 2.9% from net sales in 1993, largely as a result of
entering 1993 with a larger backlog than at the beginning of 1994. PMI Division
and CM Division net sales for 1994 increased as a result of the resolution of
financial difficulties of a German distributor which had depressed net sales in
1993.
GROSS PROFIT. Gross profit increased 36.8%, or $17.9 million, from $48.7
million in 1993 to $66.6 million in 1994, primarily as a result of the partial-
year sales effect during 1994 of the acquisitions of DEA and Roch and the
benefits of the integration of the Roch operations into the PMI Division. The
gross profit also benefited from increased unit volumes at all of the Company's
divisions, and an improvement in gross profit margin at the CM Division. Gross
profit in 1994 included an inventory writedown of $3.7 million associated with
the discontinuance of certain product lines as a result of the consolidation of
DEA and Roch. Excluding DEA and such inventory writedowns, gross profit
increased 16.9%, or $8.3 million, from $49.0 million in 1993 to $57.3 million in
1994. As a percentage of net sales, gross profit margin increased from 30.5% to
31.8% in 1994 with gross profit margin increases at each of the MS Group, the
PMI Division and the CM Division. Excluding DEA, the gross profit margin, as a
percentage of net sales, of each of the PMI and CM Divisions increased and the
gross profit margin of the MS Group decreased.
22
<PAGE>
The MS Group's gross profit margin [increased/decreased], primarily as a result
of ______________. The CM Division's gross profit margin [increased/decreased],
primarily as a result of __________________. [TO BE COMPLETED.]
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. SG&A increased 42.4%, or
$20.4 million, from $48.1 million in 1993 to $68.5 in 1994, and increased as a
percentage of net sales from 30.1% to 32.7% in the same period. Exclusive of
foreign currency transaction gains or losses, which amounted to a $1.1 million
gain in 1994 and a $0.2 million gain in 1993, SG&A increased as a percentage of
net sales from 30.2% to 33.2%. This increase was primarily attributable to the
acquisitions of DEA and Roch in 1994 and to expenses of an extra week in fiscal
1994, as compared to 1993, of about $1.0 million, as well as the recording in
the second quarter of 1994 of a provision increasing the allowance for
uncollectible accounts receivable by approximately $0.6 million for collection
uncertainties related to a single customer. Excluding the effects of the DEA and
Roch acquisitions, SG&A was $55.3 million in 1994.
RESTRUCTURING CHARGES. Restructuring charges for 1994 amounted to $4.2
million ($1.0 million and $3.2 million in the third and fourth quarters,
respectively), composed principally of employee severance and sales office
closing costs. Of this amount, $2.4 million was associated with the DEA
acquisition and $1.8 million was associated with the Roch acquisition.
OPERATING PROFIT. As a result of the foregoing, operating profit decreased
$6.6 million, from operating profit of $0.6 million in 1993 to an operating
loss of $6.0 million in 1994. Excluding the effects of the inventory writedowns
and the restructuring charges discussed above, operating profit increased $1.1
million, from $1.2 million in 1993 to $2.3 million in 1994.
INTEREST EXPENSE. Interest expense increased 29.4%, or $1.5 million, from
$5.1 million in 1993 to $6.6 million in 1994. This increase in interest expense
reflects a $19.8 million increase in the average annual balance of borrowings,
primarily the $16.8 million of debt of DEA and Roch assumed in the acquisition
thereof, offset by a slight decrease in the average effective interest rate in
1994.
OTHER INCOME, NET. Other income decreased 76.1%, or $2.2 million, from
$2.9 million in 1993 to $0.7 million in 1994. This decrease occurred because
1993 other income included a one-time gain of $2.0 million resulting from the
sale of certain small business operations.
INCOME TAX EXPENSE. 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 the Consolidated Financial Statements.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited consolidated financial
data for the ten most recently ended fiscal quarters through June 30, 1996. This
data has been derived from unaudited consolidated financial statements of the
Company, that, in the opinion of management, include all adjustments necessary
for a fair presentation in accordance with generally accepted accounting
principles. The Company's results of operations for a particular quarter are not
necessarily indicative of the results of operations for any future period. As a
result of the 1994 acquisition of Roch and DEA, the information set forth below
may not be comparable for all periods presented. As a result of spending
variations in the end user markets that the Company serves, the Company has
typically recorded lower net sales and net income in the first and third
quarters than in the second or fourth quarters and higher net sales and net
income in the fourth quarter than in the rest of the year. In the fourth quarter
of 1994, the Company recorded a net loss due to a restructuring charge primarily
associated with the DEA acquisition. See Note 17 to the Consolidated Financial
Statements for information with respect to the previously reported unaudited
quarterly information.
23
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
1994 1995
---------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Net sales.................... $37,140 $43,717 $40,864 $87,648 $75,868 $82,481 $78,571 $91,111
Selling, general and adminis-
trative expense............. 12,830 14,288 14,311 27,044 24,609 21,971 21,781 26,541
Selling, general and adminis-
trative expense as a
percent of sales............ 34.5% 32.7% 35.0% 30.9% 32.4% 26.6% 27.7% 29.1%
Net income (loss)............ $(2,874) $(1,368) $(4,615) $(5,478) $(1,455) $1,045 $220 $2,116
Earnings (loss) per share.... $(0.57) $(0.26) $(0.86) $ (0.63) $(0.17) $0.12 $0.03 $0.24
<CAPTION>
-----------------------
1996
-----------------------
MAR. 31 JUNE 30
- ----------------------------- ------- -------
<S> <C> <C>
Net sales.................... $76,278 $89,835
Selling, general and adminis-
trative expense............. 22,089 23,015
Selling, general and adminis-
trative expense as a
percent of sales............ 29.0% 25.6%
Net income (loss)............ $550 $1,854
Earnings (loss) per share.... $0.06 $0.21
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Over the last several years, the Company has funded its working capital,
capital expenditure, research and development and other needs from operating
cash flows, sales proceeds from discontinued businesses, borrowings under short-
term credit facilities and an aggregate of $33.5 million of term and mortgage
indebtedness incurred in 1994. At June 30, 1996, the Company's outstanding
indebtedness was $106.5 million, including $74.6 million of long-term
indebtedness (including current portion) and $31.9 million of short-term
borrowings (including $15.1 million outstanding pursuant to the Facility), and
the Company's cash and cash equivalents were $4.2 million including restricted
cash of $0.7 million. During the first half of 1996, the Company refinanced
$12.2 million of outstanding Swiss mortgages. The Facility provides for maximum
aggregate borrowings of $25.0 million and the foreign credit facilities provide
for maximum aggregate borrowings of $47.4 million. The Facility is available
for working capital and general corporate purposes. Of the foreign credit
facilities, $24.4 million is available for working capital and general corporate
purposes to the Company's foreign subsidiary in the country where borrowed,
$17.4 million is available on presentment of eligible invoices for discounting
and $5.6 million is available to support letters of credit and performance and
bid bonds. Actual availability under the Facility is limited on the basis of
eligible United States accounts receivable and inventory. At June 30, 1996,
giving effect to such borrowing base limitations and outstanding borrowings, the
Company's maximum available additional borrowings under the Facility were $6.8
million and its maximum available additional borrowings and letters of credit
under its foreign credit facilities were $27.9 million.
The commitments under the Facility continue until September 1997 and
automatically renew thereafter for one year periods, subject to the termination
provisions contained in the Facility. The Facility is secured by substantially
all of the Company's domestic assets and 65% of the shares of certain foreign
subsidiaries and contains a number of covenants, including the obligations to
maintain certain financial ratios and a prohibition on the payment of dividends.
The Company's foreign credit facilities are generally due on demand and certain
of such facilities are secured by certain of the Company's foreign assets. On
March 30, 1996 and June 30, 1996, the Company breached the current ratio
covenant contained in the Facility. Such breaches were waived. There can be no
assurance that the Company will not breach this covenant in the future.
The Company's growth during 1995 and the first six months of 1996 has
increased its working capital requirements. In order to fund such increased
working capital requirements, during the first half of 1996, the Company
restricted planned capital expenditures and funding for certain other projects
planned to achieve cost reductions and sales growth. If the Offering were not
completed or other sources of financing were not arranged by the Company, it is
likely that the Company would need to continue such restrictions in the future.
Following the Offering, the Company expects to fund its working capital,
capital expenditures and other needs principally from cash on hand, operating
cash flows and borrowings under short-term credit facilities. At June 30, 1996,
on a pro forma basis, after giving effect to the Offering and the application of
a portion of the net proceeds therefrom to repay $31.9 million principal amount
of short-term indebtedness and $3.2 million of the current portion of long-term
24
<PAGE>
indebtedness, the Company would have had outstanding approximately $71.4 million
of long-term indebtedness and no short-term indebtedness, and the Company's cash
and cash equivalents would have been $7.1 million. In addition, at June 30,
1996, on such pro forma basis, the Company's maximum available borrowings under
the Facility would have been $21.9 million and the maximum available borrowings
and letters of credit under its foreign credit facilities would have been $44.7
million.
At June 30, 1996, and on the pro forma basis set forth above, the annual
maturities of the Company's long-term debt would be $3.2 million, $32.4 million,
$6.3 million and $9.9 million for 1996, 1997, 1998 and 1999, respectively.
Management believes that, upon consummation of the Offering and application
of net proceeds to the Company therefrom, available short- and long-term
borrowings, cash on hand and cash flow from operations will be sufficient to
meet foreseeable cash requirements of the Company for the next three to four
years. Significant acquisitions or strategic partnerings could, however,
increase the Company's capital requirements, and in such event the Company would
seek to raise additional debt or equity.
The Company is currently negotiating to replace the Facility with a $40.0
million New Facility. Based on its current discussions regarding the New
Facility, the Company believes that the New Facility will be secured by
substantially all of its domestic assets and 65% of the shares of some of its
foreign subsidiaries and that the borrowing base limitations contained therein
will be less restrictive than those contained in the Facility. There can be no
assurance, however, that the New Facility will be obtained on terms acceptable
to the Company, if at all.
CASH FLOW. Net cash used in operations in the first half of 1996 was $4.8
million, as compared to net cash provided by operations of $3.0 million in the
first half of 1995. For the first half of 1996, net income of $2.4 million
increased by depreciation and other non-cash items of $4.5 million was offset by
increases in working capital of $11.7 million. In the first half of 1995, net
loss of $0.4 million, decreased by an increase in working capital of $1.0
million, was offset by depreciation and other non-cash items of $4.5 million.
Net cash used in investment transactions in the first half of 1996 was $5.1
million as compared to net cash used in investment transactions in the first
half of 1995 of $3.3 million. In the first half of 1996, investment
transactions included capital expenditures of $5.4 million. In the first half
of 1995, investment transactions included capital expenditures of $3.9 million.
Cash provided by financing transactions was $6.2 million in the first half
of 1996 compared with $5.4 million in the first half of 1995. Financing
transactions during 1996 consisted of a $4.4 million increase in short-term
borrowings and $3.0 million of long-term debt to finance the new CM facility and
the repayment of $1.6 million of long-term debt. Financing transactions during
1995 included $6.2 million of short-term borrowings offset by $1.2 million of
long-term debt payments.
WORKING CAPITAL. Working capital was $97.8 million at the end of the first
half of 1996 compared to $87.6 million at the end of 1995. Inventories
increased to $97.0 million at June 30, 1996, an increase of $8.4 million from
the end of 1995, and accounts receivable increased $0.7 million from year end
1995. Also, total short- and long-term borrowing increased $4.4 million to a
total of $106.5 million at June 30, 1996 as compared to $102.1 million
outstanding at December 31, 1995 primarily due to working capital requirements.
CAPITAL EXPENDITURES. The Company's capital expenditures, net of disposal
proceeds, were approximately $5.4 million in the first half of 1996, of which
$3.2 million was for the new CM facility in Telford, England, compared to $12.1
million, $8.9 million and $4.4 million for the years 1995, 1994 and 1993,
respectively, and $3.9 million, $1.4 million and $2.0 million for the first half
of 1995, 1994 and 1993, respectively. Management estimates that capital
expenditures for the remainder of 1996 will amount to approximately $4.0
million, which includes expenditures of $0.8 million for completion of the new
CM facility in Telford. Amounts spent on capital expenditures have been less
than planned and may increase in the future if the Company has sufficient
liquidity available.
25
<PAGE>
PRODUCT DESIGN AND MANUFACTURING ENGINEERING. The Company invested $7.0
million, or 4.2% of net sales, in product design and manufacturing engineering
for the first half of 1996, compared to $7.6 million or 4.8% of net sales, in
the first half of 1995. In 1995, the Company invested $15.8 million, or 4.8% of
net sales. In 1993 and 1994, Brown & Sharpe expended $8.7 million and $9.2
million, respectively, for product design and manufacturing engineering.
26
<PAGE>
BUSINESS
GENERAL
The Company, which was founded in 1833, is a leading designer, manufacturer
and marketer of metrology products worldwide under numerous internationally
recognized brand names. Metrology is the science of the physical measurement of
objects using various precision instruments and equipment. The Company's high
precision products measure physical dimensions of, and inspect and verify
conformance to specifications of, components and products and are used in
manufacturing, quality control and product development operations. The
Company's product line ranges from hand tools and instruments to customized
computer-controlled metrology systems which integrate hardware and software and
are augmented by service, training and aftermarket support. The Company markets
its metrology products and services in North America, Europe, Asia, South
America and the Middle East. Important end user markets for the Company's
products include the automotive, aerospace, industrial machinery, electronics
and computer industries, and the Company's customers include Ford Motor Co.,
Daimler Benz, Toyota, Chrysler, BMW, Boeing Co., Eastman Kodak Co. Inc.,
International Business Machines Corp., Hewlett-Packard Co., General Electric
Co., Caterpillar Inc., United Technologies Corp., Motorola Inc., Phillips,
Samsung and Xerox Corp. For the twelve months ended June 30, 1996, the Company
recorded net sales of $335.8 million, approximately two-thirds of which were
sales to customers located outside of the United States.
Manufacturers depend upon metrology hardware and software products to
monitor consistent product conformance to their exacting specifications, thereby
improving the reliability, fit and finish of their products. In addition to
these quality and performance benefits, metrology products help manufacturers
lower costs by reducing errors, scrap, rework and warranty expense, improving
the manufacturing process, lowering throughput time, increasing capacity and
reducing work-in-progress inventories. In recent years, manufacturers have
accelerated the integration of quality control functions directly into the
production process by incorporating the use of metrology products on the factory
floor. In addition, manufacturers are demanding more precise, capable and
flexible metrology systems as their products become smaller, more complex and/or
must meet more stringent quality and safety standards. Their exacting product
specifications often require measurement to an accuracy of less than one micron
(one millionth of a meter or approximately 1/100th of the thickness of a human
hair) or, in some special cases, measurement of nanometers (one billionth of a
meter or the unit of measurement for the wavelength of light). Increasingly,
metrology systems must incorporate a mix of traditional contact and newer non-
contact technologies because of reduced part sizes and the great diversity of
new materials used in manufactured products. Metrology systems are purchased by
customers regardless of their need for additional production capacity because of
ever-increasing quality requirements and the need to reduce product costs. The
price points of metrology products range from $100 for a caliper to over $1.5
million for a sophisticated CMM system.
The Company's operations are conducted through three management units:
Measuring Systems, Precision Measuring Instruments and Custom Metrology.
. THE MEASURING SYSTEMS GROUP, which accounted for approximately 67% of
the Company's net sales in 1995, manufactures and markets a wide range
of manual and computer-controlled, high precision CMMs including "in-
process" measuring systems under the Brown & Sharpe, DEA, and Leitz,
brand names. The Company believes it is the worldwide market leader
for CMMs as measured by net sales and installed base. The Company
believes it has an installed base of over 18,000 CMMs worldwide,
creating a significant opportunity for aftermarket sales and services.
. THE PRECISION MEASURING INSTRUMENTS DIVISION, which accounted for
approximately 30% of the Company's net sales in 1995, manufactures a
wide range of mechanical and electronic measuring and inspection tools
(including height gauges, calipers, dial indicators, micrometers and
gauge blocks) which are marketed under the Brown & Sharpe, Tesa,
Etalon, Interapid, Standard Gage, Select Gauge,
27
<PAGE>
Mauser, Mercer and Roch brand names through more than 450 distributors
and catalog houses worldwide.
. THE CUSTOM METROLOGY DIVISION designs and engineers, under the Tesa
brand name, specialty products and systems that provide customized
solutions for unique measurement or inspection problems primarily
utilizing non-contact technology. Technologies and custom applications
developed by the CM Division with customer funding have been directly
applied to the design of standard products or systems distributed by
the MS Group or the PMI Division.
REPOSITIONING INITIATIVES
Over the past several years, the Company has undertaken a series of
divestitures, acquisitions and other strategic initiatives which have
repositioned the Company from its historical origins as a machine tool
manufacturer into a leader in the field of metrology. These repositioning
initiatives included:
. Divestiture of Non-Core Operations. The divestiture of non-strategic
operations, including the machine tool, pump and hydraulics
businesses, which enabled the Company to focus on its core metrology
technologies and market distribution strengths.
. Strategic Metrology Acquisitions. Strategic acquisitions which enabled
the Company to increase greatly the breadth of its metrology product
offering and the strength of its distribution system. These
acquisitions included the 1994 acquisitions of DEA, Roch and certain
intellectual property assets of Metronic Ltd.
. Rationalization and Consolidation of Operations. Lowering the
Company's overhead cost structure by reducing duplicative functions
and associated headcount and by consolidating and rationalizing the
Company's manufacturing facilities and operations, which enabled the
Company to increase productivity and efficiency.
As a result of these strategic repositioning initiatives, the Company's net
sales increased from $162.5 million in fiscal 1992 to $328.0 million in fiscal
1995, while its gross profit margin increased from 28.5% to 32.4% and selling,
general and administrative expenses, excluding foreign currency transaction
gains or losses, as a percentage of net sales decreased from 34.0% to 29.1%
during the same period. See "Selected Consolidated Financial Data."
NEW LEADERSHIP AND BUSINESS STRATEGY
Following completion of the Company's repositioning initiatives, the
Company sought to recruit new management leadership to enhance the Company's
leading market positions, improve its global competitiveness and continue to
improve its financial performance. To that end, the Company recruited Frank T.
Curtin as its new President and Chief Executive Officer in May 1995, who then
restructured the senior management team and recruited additional senior managers
for key management roles. The current nine-member senior management team has
over 265 years of combined experience in highly competitive industrial
businesses and global manufacturing organizations, is focused on enhancing the
financial performance of the Company, in part motivated by an equity-based
incentive compensation system, and has made significant progress in realigning
the structure and culture of the Company towards a more focused and integrated
metrology business. As a result of the repositioning of the Company and the
restructuring of management, the Company has achieved positive net income in
each of its fiscal quarters since Mr. Curtin joined the Company. In addition,
management believes that its focus on cost reduction during Mr. Curtin's tenure
has resulted in a decrease in selling, general and administrative expenses,
excluding foreign currency transaction gains or losses, as a percentage of net
sales from 30.7% in the first half of 1995 to 26.7% in the first half of 1996.
See "Selected Consolidated Financial Data."
The Company is implementing its strategy based on the following elements:
28
<PAGE>
. Continue Cost Improvements. The Company intends to continue to
implement measures designed to reduce its product costs through: (i)
standardizing product designs worldwide; (ii) increasing the cost-
effectiveness of product designs; (iii) outsourcing components and
products; (iv) increasing supplier partnering; and (v) focusing on
core manufacturing processes. The Company also intends to streamline
its sales, marketing and general and administrative processes in an
effort to reduce selling, general and administrative expenses as a
percentage of sales.
. Develop New Products and End User Markets. The Company's goal is to
increase net sales by expanding penetration of served industrial end
user markets and by capitalizing on high growth end user markets such
as the electronics, computer and medical industries where metrology
needs are growing rapidly. To expand in these high growth industries,
the Company intends to focus on development of software and emerging
non-contact metrology technologies through continued internal
development and through strategic acquisitions and technical
partnerships (such as the acquisition of Metronic Ltd. and the 50%
owned Automation Software Incorporated joint venture). To expand its
penetration of served industrial end user markets, the Company expects
to continue the introduction of new metrology systems utilizing both
contact and non-contact technologies, and to develop sensors and other
sophisticated products that can be imbedded in a variety of
manufacturing processes. The Company plans to form technical and
commercial alliances with manufacturers of process equipment to
provide enhanced combined manufacturing systems utilizing the
Company's sensors and other products.
. Enhance Existing and Develop New Software. The Company intends to
emphasize research and development of software systems and
applications designed to meet the evolving metrology needs of its end
users. To that end, the Company intends to leverage off its software
development team of approximately 320 software and applications
engineers and technicians (including 50 engineers of its 50% owned
Automation Software Incorporated joint venture) in the following four
areas: (i) metrology software for inspection and verification of
piece-part integrity and conformance to design specifications; (ii)
process control software designed to detect and correct drifts in part
tolerances before the manufacturing process produces scrap or
improperly configured components; (iii) enhanced management
information systems that report statistical and quality information
from the manufacturing process; and (iv) new software that will link
the Company's CMMs and, therefore, the manufacturing process with
computer-aided engineering and manufacturing systems that will provide
the means for real-time feedback, analysis and, ultimately, control of
manufacturing to design specifications. The Company believes that its
existing library of metrology software, together with newly developed
software, should enable it to respond to the growing demand in
manufacturing for on-line inspection and verification. The Company
also believes that its experience with CMM software and manufacturing
processes are critical to the successful development of software that
is linked with computer aided engineering systems.
. Leverage Worldwide Distribution Capability. Through the acquisitions
of DEA and Roch, Brown & Sharpe has expanded its product lines and
strengthened its marketing and distribution capabilities in Europe,
South America, the Middle East, India and China. The Company plans to
continue to strengthen and expand its worldwide distribution
capability, principally by continuing to rationalize its existing
distribution network and by opening new demonstration centers and
adding direct sales capacity and distributors where cost effective.
The Company also intends to capitalize on the strength of its global
distribution network by increasing the number of Company-designed and
third-party sourced products sold through its distribution channels in
an effort to increase gross profit without a corresponding increase in
selling, general and administrative expenses.
. Increase Aftermarket Sales and Services. The Company intends to
increase its focus on higher margin aftermarket sales and services,
including calibration and rebuilding of CMMs, software upgrades, and
parts sales. The Company believes that the worldwide installed base of
CMMs, estimated at over 60,000 (including 18,000 of the Company's
CMMs), creates a significant demand for such aftermarket services.
29
<PAGE>
The Company believes that the level of customer service it provides,
as measured by the third-party surveys of its customers, is superior
to that of its principal competitors, and expects to further
strengthen its customer relationships through enhanced aftermarket
support and increased partnering efforts. The Company's net sales
attributable to aftermarket sales and service in 1995 were more than
25% of MS Group net sales for the same period.
METROLOGY INDUSTRY
General
Metrology products and systems range from hand tools for simple measuring
tasks to complex integrated systems of hardware and software that can measure,
digitize, inspect and verify manufactured parts and components to within
exacting specifications. Manufacturers depend upon metrology hardware and
software products to monitor consistent product conformance to their exacting
specifications, thereby improving the reliability, fit and finish of their
products. In addition to these quality and performance benefits, metrology
products help manufacturers lower costs by reducing errors, scrap, rework and
warranty expense, improving the manufacturing process, lowering throughput time,
increasing capacity and reducing work-in-progress inventories. In recent years,
manufacturers have accelerated the integration of quality control functions
directly into the production process by incorporating the use of metrology
products on the factory floor. In addition, manufacturers are demanding more
precise, capable and flexible metrology systems as their products become
smaller, more complex and/or must meet more stringent quality and safety
standards. Their exacting product specifications often require measurement to
an accuracy of less than one micron (one millionth of a meter or approximately
1/100th of the thickness of a human hair) or, in some special cases, measurement
of nanometers (one billionth of a meter or the unit of measurement for the
wavelength of light). Increasingly, metrology systems must incorporate a mix of
traditional contact and newer non-contact technologies because of reduced part
sizes and the great diversity of new materials used in manufactured products.
Metrology systems are purchased by customers regardless of their need for
additional production capacity because of ever-increasing quality requirements
and the need to reduce product costs.
Metrology products serve a broad range of measurement requirements. The
simplest metrology products include devices such as calipers, dial gauges,
micrometers, surface plates and height gauges. These are generally inexpensive
hand-held tools that generally measure in one dimension to within an accuracy of
between two (80 millionths of an inch) and 25 microns (1/1000th of an inch).
Fixed gauges are often more expensive devices that inspect and verify in one to
three dimensions to within an accuracy of between one and 25 microns and are
typically used where manufacturers need to measure a single, uniform product at
a high rate of speed. Fixed gauges tend to make simple, comparative
measurements of products in a manufacturing process. CMMs are more
sophisticated, complex machines that use a variety of technologies to measure in
three dimensions to an accuracy of between 0.5 and 100 microns. These
technologies range from advanced probes that physically "contact" the product
being measured to highly sophisticated non-contact vision, optical, laser and
scanning probes that collect precise data without touching the product being
measured. While some CMMs are manually operated, most are now controlled by
software systems that not only compare the product to a manufacturer's CAD/CAM
models, but also provide the manufacturer with dimensions of the product to be
converted into the CAD/CAM model. CMMs are highly flexible machines that can
measure different products for a manufacturer without re-tooling or other
significant changes as opposed to fixed gauges that may require expensive and
time-consuming retooling. The price points of metrology products range from
$100 for a caliper to over $1.5 million for a sophisticated CMM such as those
used to measure car and truck bodies.
Markets
Participants in the metrology industry generally compete in one or more of
six broad product areas: (i) simple and relatively inexpensive tools that
measure in one dimension, such as calipers, dial gauges, micrometers, surface
plates and transfer gauges; (ii) digital electronic height gauges of varying
accuracies and sizes; (iii) sophisticated special purpose metrology systems
including fixed gauging; (iv) general purpose and application-specific CMMs; (v)
alternative technologies such as vision tunnels or surface finish and geometry
measurement; and (vi) customized metrology solutions
30
<PAGE>
to specific metrology problems. The Company competes in all of the foregoing
product areas other than fixed gauges and most of the alternative technologies.
Sales of simple metrology products and less sophisticated height gauges are
driven by price, brand, product innovation, ease of purchase and effectiveness
of distribution. Products in this category are generally hand-held or relatively
small devices that permit a manufacturer to make measurements in one or
occasionally two dimensions. These products are generally inexpensive, providing
a cost-effective solution to simple metrology problems where the industrial
customer does not need the increased capabilities of fixed gauges, CMMs or
certain other sophisticated metrology systems. However, simple metrology
products are generally limited in terms of accuracy, flexibility and/or their
ability to collect data. Further, they are dependent upon skilled operators. The
market for simple metrology products is fragmented, with many regional
suppliers. End user markets for these products include most basic industries,
including the automotive, construction, industrial machinery, appliance and farm
equipment industries.
Sales of fixed gauges have traditionally been driven by manufacturers'
needs for one, two or three dimensional metrology on the factory floor.
Products in this category, typically more expensive than simple metrology
products, compete directly with CMMs regarding inspection and verification of
manufactured parts. Fixed gauge systems are frequently a more expensive
investment than comparable CMM systems, but for the specific purpose intended,
may be less expensive over the long run. Fixed gauges can range from simple one
dimensional tools to semi- and fully-automatic three dimensional factory floor
systems that quickly compare production parts to "master parts." However,
because these gauge systems are "fixed," they are inherently inflexible. The
fixed gauge must be reworked or a new gauge designed and built every time
manufacturers make dimensional changes in the part being measured. The trend of
the industry is away from fixed gauges and toward flexible gauges because of the
need to make costly changes to fixed gauges when the part they measure changes.
Sales of CMMs and more sophisticated height gauges are driven by
manufacturers' needs for high accuracy, flexibility, speed and information.
Products in this category, while typically more expensive than simple metrology
products and some fixed gauges, are generally more versatile machines that can
measure, digitize, inspect and verify diverse manufactured parts. The
accelerating use of more sophisticated software has played an important role in
the evolution of CMMs in response to the marketplace. Improved software and
linkage to CAD/CAM and network technologies enable CMMs both to compensate
automatically for the position of the piece to be measured, eliminating the need
for the time consuming manual positioning necessary with less advanced metrology
products, such as surface plate gauges, and also to relay information to the
manufacturer's CAD/CAM model to facilitate production process adjustments.
Although CMM-type software can be added to on-machine gauging 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. Presently, CMMs are installed at sites ranging from highly
controlled laboratory sites to hostile, factory floor industrial settings, and
can measure objects ranging in size from a semiconductor chip to an aircraft
exterior, and can provide accuracies with tolerances of 0.5 to 100 microns.
CMMs can achieve this through contact or non-contact probing methods, depending
upon the manufacturer's needs. The market for CMMs is dominated by five
competitors, including the Company.
Sales of customized metrology products are driven by specific needs in
specific industries and, in Brown & Sharpe's case, tend to focus on emerging
metrology technologies. Generally, custom metrology challenges arise where
existing metrology products and systems cannot adequately address a narrow yet
important manufacturing task. This product category requires research,
development and innovation and often includes the development of new
applications for optical, laser and scanning sensor probes.
MS GROUP
The MS Group, the largest of Brown & Sharpe's three units, accounted for
approximately 67% of Brown & Sharpe's net sales in 1995. The MS Group is
headquartered in North Kingstown, Rhode Island and manufactures and markets
CMMs. MS Group products sold under the Brown & Sharpe name are manufactured at
the Company's North
31
<PAGE>
Kingstown facility, MS Group products sold under the DEA name are manufactured
in Turin, Italy, and MS Group products sold under the Leitz name are
manufactured in Wetzlar, Germany. The primary end user markets for the Company's
CMM products include the automotive (including automotive suppliers), heavy
transport, aerospace, electronics, computer, industrial machinery and medical
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 systems. The smallest machines can measure in a volume up to 16x14x12
inches and are priced at approximately $10,000, while the larger, high speed,
high accuracy CMMs with integrated software systems can cost over $1.5 million.
The MS Group also provides laser scanning and optically based measuring
machinery from microscopes to vision systems.
The Company believes that its "user-friendly" CMM application software
gives it a competitive advantage in the marketplace for CMMs. These proprietary
software products provide the MS Group's customers with an understandable, icon-
based inspection analysis capability, graphical user interfaces and outputs, and
the capability to network with manufacturing systems. The MS Group also provides
its customers with special software and systems that integrate the MS Group's
products with the customer's host information and communications network. In
addition to sales of CMMs, the MS Group provides aftermarket sales and service,
including calibration and rebuilding of CMMs, software upgrades and parts sales,
for Brown & Sharpe CMMs and competing CMMs. The Company's net sales attributable
to aftermarket sales and services in 1995 were more than 25% of MS Group net
sales for the same period.
The MS Group distributes its products primarily through a 120-person
worldwide sales force directly to U.S. and European customers, and utilizes a
network of independent agents and distributors to cover the Pacific rim, South
American and African markets. The typical MS Group sales process involves
lengthy, technical, one-on-one discussions between the salesperson or the
distributor/sales agent and customer and is often part of a competitive bid
process. As an important part of its marketing and distribution strategy, Brown
& Sharpe provides in-depth training to its customers at 31 support and
demonstration centers located throughout the United States, Europe and Asia.
Brown & Sharpe also operates contract inspection and measuring services from
these demonstration centers which offsets a portion of the cost of operating the
centers. In 1994 and 1995, Brown & Sharpe closed five demonstration centers in
Europe and five in the United States as part of its consolidation of DEA.
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. PMI Division products
accounted for approximately 30% of Brown & Sharpe's net sales in 1995. The PMI
Division's products have broader applications and lower unit list prices (with a
range of $100 to approximately $13,000) than the prices of the MS Group's
products. These tools and instruments 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. Some PMI
Division products also include systems and application software for measuring
and statistical process control. The Company believes that the primary end user
markets for the products of Brown & Sharpe's PMI Division are the automotive,
aerospace, metal processing and defense industries, although Brown & Sharpe's
PMI Division 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
Luneville, France. The Company also purchases components and products from
third parties located in various countries.
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 employees.
32
<PAGE>
CM DIVISION
The CM Division is an engineering division headquartered in Telford,
England. The CM Division designs and engineers specialty products primarily
utilizing non-contact technologies and systems to provide customized solutions
for unique customer measurement or inspection problems generally with customer
funding. Recent examples of CM Division products include a system for measuring
the thickness and shape of the metal top of a beverage can and the depth and
contour of the groove scored around the can's pop-up tab, so that the
manufacturer could ensure the consistency with which the can could be opened by
the end user without rupture, and an automatic multi-sensor (laser scanning,
laser ranging, optical and tactile) system to measure, inspect and verify the
ceramic substrates on which semiconductors are placed. The CM Division also
manufactures laser interferometers, measuring sensors and factory networks,
contact and optical measuring machines, and fixtures aimed at specific niche
markets. Prices for CM Division products range from approximately $20,000 to
$1.0 million.
The primary end user markets for the custom-designed products of the CM
Division are package and can manufacturing, oil drilling, standards
laboratories, semiconductors, aerospace and defense. 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.
The Company believes that the CM Division provides it with cost-effective
access to emerging applications and technologies as the technologies and custom
applications developed by the CM Division with customer funding have been
directly applied to the design of standard products or systems distributed by
the MS Group or the PMI Division.
SALES AND DISTRIBUTION
The MS Group distributes its products primarily through a 120-person
worldwide sales force directly to U.S. and European customers, and utilizes a
network of independent agents and distributors to cover the Pacific Rim, South
American and African markets. The typical MS Group sales process involves
lengthy, technical, one-on-one discussions between the salesperson or the
distributor/sales agent and customer and is often part of a competitive bid
process. As an important part of its marketing and distribution strategy, Brown
& Sharpe provides in-depth training to its customers at 31 support and
demonstration centers located throughout the United States, Europe and Asia.
The Company's direct sales force also provides the Company with important
opportunities to cross-sell the products of its PMI and CM Divisions.
In contrast to the MS Group, the PMI Division generally distributes its
products through international import companies, regional distributors and
catalog houses throughout the world. As of June 30, 1996, the PMI Division
utilized in excess of 450 distributors located in over 60 countries to market
its products. The Company believes that the PMI Division's established
distribution network provides it with a competitive advantage and intends to
capitalize on this network to increase sales of internally developed and third-
party products.
The CM Division primarily designs and manufactures products and services in
response to specific customer inquiries. The CM Division maintains a staff of
approximately 15 sales/project engineers to respond to customer inquiries, and,
upon receipt of an order, to develop tailored solutions and manage projects to
completion. The CM Division typically targets sales to end user markets with a
small number of participants in which the Company has little or no competition.
As a result, the Company believes that the CM Division benefits from
comparatively lower selling expenses.
The Company has no single customer which accounts for 10% or more of its
consolidated net sales; however, several well recognized major automotive
manufacturers (without regard to 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.
33
<PAGE>
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 445 engineers and technicians in its design engineering
activities. Automation Software Incorporated, the Company's 50% owned joint
venture ("ASI") employs 50 software engineers. The development activities of
ASI are devoted to the creation and development of CMM-related metrology
software solutions. Together Brown & Sharpe and ASI employ 495 engineers and
technicians of which 320, or approximately 65%, are directly involved with
software, firmware, or applications development efforts that are core to Brown &
Sharpe's strategy. When it is more cost-effective to do so, Brown & Sharpe
purchases product designs or portions of product designs from engineering
subcontractors or acquires rights to 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 introducing new products and has introduced at least one major new product
every year since 1987. The Company's current design and engineering focus is the
continued integration of the DEA and Roch technologies with Brown & Sharpe's
previously existing technologies, software development and non-contact metrology
products. In 1995, Brown & Sharpe invested $15.8 million, or 4.9% of its net
sales, during that period in product design and manufacturing engineering. 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 in 1994 to $15.8 million in 1995 is
due to the inclusion of DEA for all of 1995.
FOREIGN OPERATIONS
Brown & Sharpe manufactures and sells substantial amounts of its metrology
products in foreign countries. As of December 31, 1995, approximately 74%
(based on book values) of the Company's assets, 65% of the Company's net sales
(based on customer location) and 74% of its employees were located outside the
United States. The Company's manufacturing operations are located in Italy,
Switzerland, Germany, England and France, as well as in the United States, and
Brown & Sharpe's products are sold in over 60 countries worldwide. The
Company's cost of sales for products manufactured and assembled in certain
foreign locations has been adversely impacted, as compared with some of its
competitors, by the appreciation of the respective local currencies of such
locations relative to the U.S. dollar. Nevertheless, the Company believes that
the geographic diversity of its end user markets mitigate the adverse effects of
the cyclicality of the metrology industry, as an economic downturn in any of the
Company's geographic end user markets may be offset by relatively healthy
conditions in others.
RAW MATERIALS AND SOURCES OF SUPPLY
Brown & Sharpe purchases raw materials, supplies and other components from
a variety of suppliers, and considers its sources of supply to be adequate. At
times, the Company depends upon various sole sources of supply for certain
components used by the Company (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. In addition, the Company
currently purchases substantially all of its externally sourced low to medium
accuracy electronic touch trigger sensor probes and heads from a publicly held
United Kingdom company which is the dominant supplier of such sensor probes to
CMM manufacturers. No alternative supplier for this class of electronic sensor
probes, which are a key component of substantially all of the Company's lower
accuracy CMMs, is currently available and developing an alternative source for
the probes and heads could take more than a year. 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
34
<PAGE>
subcontractors. The Company has established a corporate function to direct its
world-wide efforts to standardize product designs throughout its operations and
coordinate and direct its outsourcing efforts.
PATENTS, LICENSES, TRADEMARKS, AND PROPRIETARY INFORMATION
The Company's business is not significantly affected by or dependent upon
the procurement or maintenance of patents covering the Company's products.
Nevertheless, the Company pursues, where appropriate, patent protection for
inventions, developments and improvements relating to its products both in the
United States and abroad. In addition, the Company relies on a combination of
copyrights, trade secret law and contracts to protect its proprietary
information (principally related to its software and software development).
Despite these precautions, it may be possible to copy or otherwise obtain and
use the Company's proprietary information without authorization. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries.
Brown & Sharpe and its subsidiaries own, or have the right to use, a number
of trademarks which they believe are valuable in promoting the sale of certain
of their principal products. The Company and its subsidiaries have registered
the trademarks owned by them in the United States and in some foreign countries.
In addition, the Company uses the Leitz and Mauser brand names under royalty-
free license agreements entered into in connection with the Company's
acquisition of these product lines. These licenses expire in 1997 and 1999,
respectively. The Company believes it will be able to negotiate satisfactory
extensions of these licenses prior to their expiration and/or that the failure
to renew these licenses would not have a material adverse effect on the Company.
LITIGATION
Labor Relations. The Company is involved in litigation stemming from an
October 1981 strike by employees represented by the International Association of
Machinists and Aerospace Workers ("IAM") at the Company's Rhode Island
operations. Following the strike, the IAM filed charges with the National Labor
Relations Board ("NLRB") which alleged that the Company engaged in unfair labor
practices which precipitated the strike. On August 28, 1990, the NLRB dismissed
the IAM's charges. The IAM appealed this decision to the U.S. Court of Appeals
for the District of Columbia Circuit. On November 29, 1991, the Court accepted
the legal reasoning advanced by the NLRB and the Company in support of the
NLRB's 1990 decision, but ordered the NLRB to further clarify and support its
decision. The NLRB reaffirmed its original dismissal of the IAM's charges, and
the IAM has appealed that decision. The Court, on April 7, 1995, vacated the
NLRB's earlier decision favorable to the Company and remanded the case to the
NLRB for a decision on whether the charges should be dismissed or a trial on the
merits should proceed. The Company is continuing to defend this case vigorously
and, in the opinion of management, the possibility of an adverse decision in
this matter is remote. Nevertheless, if the matter is ultimately determined
adversely to the Company, the Company would be liable for back wages, subject to
mitigation for certain statutory offsets, for all union members whose strike is
based on such alleged unfair labor practices.
Environmental. The Company is involved in a lawsuit which arose out of an
environmental proceeding in which the United States Environmental Protection
Agency ("EPA") identified the Company 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. The Company's proportionate share of the total waste
contributed to the Site was minimal in volume and toxicity, and 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. A group of
non-settling major PRP's at the Site brought suit in the Federal District Court
in Rhode Island on January 2, 1991 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 PRPs appealed that ruling and 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
35
<PAGE>
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 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
PRP as the surviving corporation to the merger. The total claim asserted by the
State against all parties is approximately $500,000, and it has expressed a
willingness to settle its claim with all PRPs 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.
Product Liability. The Company is also involved in a number of product
liability claims and lawsuits seeking damages for personal injury which arose
out of and were incidental to the products manufactured by the Company in its
discontinued metal cutting machine tool and hydraulic businesses. The potential
liability for these claims 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.
OTHER ENVIRONMENTAL MATTERS
The Company's current operations are not significantly affected by
compliance with rules and regulations promulgated under environmental laws.
However, because the Company, its subsidiaries and predecessors have conducted
heavy manufacturing operations in the past, sometimes at facilities which have
been divested or sold, often in locations at which or adjacent to which, other
industrial operations were conducted, the Company is subject from time to time
to environmental claims. As with any such operations that involve the use,
generation, and management of hazardous materials, it is possible that
practices, including practices that were deemed acceptable by regulatory
authorities in the past, may have created conditions which could give rise to
liability under current or future environmental laws. Because the law in this
area is developing rapidly, particularly in many European countries, and all
such laws are subject to amendment and widely varying degrees of enforcement,
the Company may be subject to, and cannot predict with any certainty the nature
and amount of, potential environmental liability related to these operations or
locations that it may face in the future.
Environmental testing at Leitz's facility in Wetzlar, Germany, conducted at
the time of its acquisition in June, 1990, and at Roch's Luneville facility, at
the time Roch was acquired in March of 1994, has indicated that the soil and
groundwater at both factory sites are contaminated with certain toxic waters and
chemicals used in their manufacturing processes which exceed acceptable limits.
Although neither company is involved in any governmental claims or proceedings
relating to this contamination, the levels of contamination are such that clean-
up and future remediation of these sites could be required. In addition, the
contamination of the Leitz property stems from a waste disposal site adjacent to
the Leitz property previously operated and owned by the seller of the Leitz
businesses. The owner of that site is conducting soil remediation activity on
that parcel of land at the request of government authorities. Recent tests have
indicated that such existing remediation efforts may be inadequate and could
result in further contamination of the Leitz property. The seller of the Leitz
business has agreed to indemnify the Company against any liability incurred
because of governmental action imposed on the Company before June 29, 1997.
Under Roch's lease agreement for the Luneville facility, the seller of the Roch
business is also obligated to clean up the contamination. The Company believes
that these rights are enforceable against the sellers of the Leitz and the Roch
businesses. There can be no assurance, however, that the Company will be able
to collect any amounts to which it is entitled under such agreements or
otherwise or, in the case of Roch, force the seller to clean-up the site, or
that any amounts received by the Company in satisfaction of its indemnification
rights will be adequate to cover the Company's potential liabilities.
36
<PAGE>
EMPLOYEES
At December 31, 1995, Brown & Sharpe had 2,392 employees, including
approximately 1,773 employees located outside the United States. Brown & Sharpe
considers its relations with its employees to be good, although there can be no
assurance that Brown & Sharpe's continuing focus on cost reductions 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 will not materially
interfere with Brown & Sharpe's ability to manufacture and assemble its product
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 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.
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. 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. See
"Litigation."
The following table sets forth the location of Brown & Sharpe's employees
as of December 31, 1995:
<TABLE>
<CAPTION>
COUNTRY EMPLOYEES (1)
------- -------------
<S> <C>
France................................ 234
Germany............................... 283
Italy................................. 465
Japan................................. 25
Spain................................. 17
Switzerland........................... 325
United Kingdom........................ 417
United States......................... 619
Other................................. 7
-----
Total............................... 2,392
=====
</TABLE>
__________________________
(1) Part-time employees are included on a full-time equivalent basis.
37
<PAGE>
COMPETITION
The Company's MS Group currently has four principal direct domestic and
foreign competitors, some of which are owned by entities that have greater
financial and other resources than the Company. The MS Group also faces indirect
competition from other types of metrology firms such as manufacturers of fixed
gauging systems. The primary industries to which the MS Group sells its products
are characterized by a relatively small number of large participants with
significant purchasing power. In addition, the MS Group generally sells its
products through a competitive bid process in which at least one and frequently
several of the Company's competitors have submitted competing bids. As a result,
the Company experiences severe pricing competition in connection with sales by
its MS Group which can have an adverse impact on the Company's net sales and
margins. During periods when the metrology industry suffers from overcapacity,
downward pricing pressure experienced by the MS Group is likely to be more
intense and the Company's margins may be more severely impacted. In addition,
certain of the Company's competitors that have access to greater financial
resources may be able to withstand such pricing pressure more effectively than
the Company. The MS Group competes with 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 market for the PMI Division's products is fragmented and the PMI
Division competes with a large number of competitors, including the market
leader in this area, primarily on the basis of the strength of its third party
distribution network, price and product innovation. New competitors from
emerging industrialized countries with lower cost products than the Company's
represent a significant competitive challenge to the Company. As a result, the
PMI Division's continued success and profitability will be dependent on its
ability to continue to develop cost-effective and innovative products. The
primary competitors of the PMI Division are Mitutoyo, L.S. Starrett Co. and
Federal Products Co. (Inc.), a subsidiary of Esterline Technologies Corporation.
To date, the CM Division has sold its custom solutions to markets in which
there is little or no effective competition in custom metrology systems.
However, in certain niche markets where the Company does not generally sell,
Marposs S.p.A., an Italian company, provides custom metrology products.
BACKLOG
The Company's backlog of product orders was approximately $59.0 million at
the end of fiscal 1995, compared to $61.0 million and $26.0 million at the end
of fiscal 1994 and 1993, respectively. All of the orders included in the
Company's 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.
38
<PAGE>
PROPERTIES
The following table sets forth certain information concerning Brown & Sharpe's
major operating facilities. In addition, the Company leases smaller sales
offices located in the United States, Europe and Asia. In the opinion of
management, the Company's properties are in good condition and adequate for the
Company's business as presently conducted.
<TABLE>
<CAPTION>
OWNED/ APPROXIMATE
LOCATION LEASED PRINCIPAL USE SQUARE FOOTAGE
- -------- ------ ------------- --------------
<S> <C> <C> <C>
UNITED STATES
N. Kingstown, Rhode Island(1) Owned Manufacturing, Engineering, Sales, 343,000
and Administration
Poughkeepsie, New York Owned Manufacturing 58,000
Farmington Hills, Michigan(2) Leased Sales and Administration 31,207
ITALY
Moncalieri(3) Leased Engineering, Sales, 260,000
and Administration
Grugliasco(4) Leased Assembly 105,000
Moncalieri(4) Leased Manufacturing 70,000
SWITZERLAND
Renens Owned Manufacturing, Engineering, Sales, 139,000
and Administration
Rolle Owned Manufacturing 51,000
GERMANY
Wetzlar Owned Manufacturing, Engineering, Sales, 280,000
and Administration
Ludwigsburg (Stuttgart)(4) Leased Sales/Service 15,000
UNITED KINGDOM
St. Albans Owned Manufacturing and Sales 36,000
Telford Owned Manufacturing, Engineering, Sales, 52,000
and Administration
Leicester Owned Manufacturing 14,000
Swindon(4) Leased Sales/Service 5,200
Torpoint(4) Leased Manufacturing, Sales, 5,000
and Administration
FRANCE
Luneville(4) Leased Manufacturing, Engineering, 77,100
and Sales
Villebon (Paris)(4) Leased Sales/Service 18,000
SPAIN
Barcelona(4) Leased Sales/Service 16,000
- --------------------------
</TABLE>
(1) Excludes approximately 417,000 square feet leased to unrelated parties.
39
<PAGE>
(2) By February 1997, the Company expects to vacate these premises and to
occupy and lease a new 37,600 square foot building in Wixom, Michigan that
is currently under construction. The lease for the new premises is expected
to expire on November 30, 2011.
(3) The Company expects to vacate these premises in the first quarter of 1997
in connection with the consolidation of its Grugliasco and Moncalieri
operations, which will include approximately square feet of
additional leased space.
(4) The leases in Grugliasco, Moncalieri, Ludwigsburg, Swindon, Torpoint,
Luneville, Villebon and Barcelona expire on December 31, 2002, December 31,
1997, September 30, 2003, September 28, 1997, August 18, 2001, March 23,
2003, October 20, 2001, and January 4, 1998, respectively.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as
of August 20, 1996 are as follows:
NAME AGE POSITION
- ---- --- --------
Frank T. Curtin................. 61 President, Chief Executive Officer,
Chairman of the Board and Director
Charles A. Junkunc.............. 54 Vice President and Chief Financial
Officer
Richard F. Paolino.............. 51 Vice President - Customer
Development
Robert D. Batting............... 55 Vice President & General Manager -
Measuring Systems U.S.A.
Antonio Aparicio................ 45 Vice President & General Manager -
Precision Measuring Instruments
Edward J. LaGraize.............. 52 Vice President & General Manager -
Measuring Systems, Commercial
Operations
C. John Cooke................... 59 Vice President & General Manager -
Custom Metrology
Sergio Cappa.................... 49 Managing Director, DEA S.p.A.
James W. Cooper................. 50 Vice President Procurement
Karl J. Lenz.................... 49 Vice President
Alfred J. Corso................. 59 Controller
Enrico Albareto................. 66 Director
Russell A. Boss................. 57 Director
Vincenzo Cannatelli............. 43 Director
Alberto de Benedictis........... 44 Director
Howard K. Fuguet................ 59 Director
John M. Nelson.................. 64 Director
Henry D. Sharpe, Jr. ........... 73 Director
Henry D. Sharpe, III ........... 41 Director
Paul R. Tregurtha............... 60 Director
41
<PAGE>
Frank T. Curtin has served as a Director of the Company since 1995 and
as Chairman of the Board since May 1996. Mr. Curtin has also served as the
President and Chief Executive Officer of the Company since May 1995. From 1992
to May 1995, Mr. Curtin was Vice President of the National Center for
Manufacturing Sciences, a research and development organization. From 1989 to
May 1995, Mr. Curtin was President of Curtin & Associates, a software
development company.
Charles A. Junkunc has served as the Vice President and Chief
Financial Officer of the Company since May 1992. From November 1990 until May
1992, Mr. Junkunc was a self-employed consultant. From April 1987 until
November 1990, he served as Senior Vice President - Finance and Chief Financial
Officer of Data Products Corporation, a manufacturer of computer printers.
Richard F. Paolino has served as Vice President -- Customer
Development since August 1996. Mr. Paolino was the Vice President and General
Manager of Commercial Operations Measuring Systems of the Company since October
9, 1995. Previously he was Vice President - Measuring Systems Division.
Robert D. Batting has served as the Vice President and General Manager
of Measuring Systems U.S.A. of the Company since October 1995. From October
1993 until October 1995, Mr. Batting was the President of Clearing-Niagra Inc.
He was a self-employed business consultant from September 1991 to October 1993
and a Group Vice President of Textron, Inc. prior to September 1991.
Antonio Aparicio has served as the Vice President and General Manager
of the PMI Division of the Company since September 1991. Prior to that time,
Mr. Aparicio was Marketing Director of the PMI Division.
Edward J. LaGraize joined the Company on August 20, 1996 as Vice
President and General Manager - Measuring Systems, Commercial Operations. From
April 1994 until February 1996, Mr. LaGraize served as President of Linotype-
Hell, Co., the U.S. subsidiary of Linotype-Hell AG, a manufacturer of systems
for the commercial printing industry. From June 1991 until April 1994, he
served as executive Vice President of Gerber Scientific Inc., a manufacturer of
computer-aided design and manufacturing systems.
C. John Cooke has served as the Vice President and General Manager of
the CM Division of the Company since September 1991. Prior to that time, Mr.
Cooke was Managing Director of Tesa.
Sergio Cappa has served as Managing Director, DEA, since May 1995.
From 1992 Mr. Cappa was a general manager with the Hurth Group and from 1989 to
1992 he was a general manager with the SIV Group, both German industrial
companies.
James W. Cooper joined the Company as Vice President Procurement on
August 19, 1996. From March 1995 until April 1996 Mr. Cooper was Vice President
- - Purchasing of Delco Remy America, an automotive supplier, and from 1981 to
March 1995 Mr. Cooper was Vice President - Materials Management of Simpson
Industries, an automotive supplier.
Karl J. Lenz has served as a Vice President of the Company since
September 1991. From June 1990 until September 1991, Mr. Lenz was General
Manager of Leitz - Brown & Sharpe Messtechnik GmbH. Prior to that time, Mr.
Lenz was General Manager of Messtechnik Division of Leica Industrieverwaltung.
Alfred J. Corso has served as the Controller and Principal Accounting
Officer of the Company since June 1995. Previously, Mr. Corso was a Partner
with Ernst & Young LLP since 1991.
Enrico Albareto has served as a Director of the Company since 1994.
Over the past five years Mr. Albareto has served as the Chief Executive Officer
of the Elsag Bailey Division of Finmeccanica, a manufacturer of automated
process control systems and devices.
42
<PAGE>
Russell A. Boss has served as a Director of the Company since 1990.
Mr. Boss has been the President and Chief Executive Officer and a Director of A.
T. Cross Company, a manufacturer of fine writing instruments since 1994.
Previously he was a Director and President and Chief Operating Officer of the
same company.
Vincenzo Cannatelli has served as a Director of the Company since
1994. Since November 1993, Mr. Cannatelli has been the Managing Director and
Chief Executive Officer of Elsag Bailey Process Automation N.V., a Dutch company
and manufacturer of automated process control systems and devices. Also since
January 1996, Mr. Cannatelli has been Managing Director of Hartmann & Braunn A.
G., a German corporation and manufacturer of industrial process controls and
field instrumentation equipment. Prior to 1993, Mr. Cannatelli served as Group
Executive Vice President of Elsag Bailey Inc., an affiliate of Finmeccanica.
Alberto de Benedictis has served as a Director of the Company since
1994. Since February 1995, Mr. de Benedictis has served as the Senior Vice
President, Corporate Development of Finmeccanica. Mr. de Benedictis is also a
Director of Union Switch & Signal, Inc., a manufacturer of railway signaling
systems, Elsag Bailey Process Automation N.V., and Concentra Corp., a developer
of CAD software. Prior to February 1995, Mr. de Benedictis served as Vice
President, Corporate Development of Finmeccanica North America.
Howard K. Fuguet has served as a Director of the Company since 1990.
Mr. Fuguet has been a partner of the law firm of Ropes & Gray since 1971.
John Nelson has served as Director of the Company since 1975. Mr.
Nelson is currently Chairman of the Board of the Wyman-Gordon Company, a
manufacturer of forgings and castings. Mr. Nelson also serves as Chairman of
the Board of the TJX Companies, Inc., an off-price specialty apparel retailer.
Until October 1990, Mr. Nelson served as Chairman of the Board and Chief
Executive Officer of Norton Company, a manufacturer of abrasive and ceramic
products. Mr. Nelson also serves as Director of Cambridge Biotech Company, a
biotechnology firm, Commerce Holdings Inc., a holding company for a property and
casualty insurance company, and Stocker & Yale Manufacturing Company, a
specialty products company.
Henry D. Sharpe, Jr. has served as a Director of the Company since
1949. Until May 1996, Mr. Sharpe served as Chairman of the Board of Directors.
Henry D. Sharpe, III has served as a Director of the Company since
1992. Mr. Sharpe is also the co-founder and Vice President Engineering of Design
Lab, Inc., a multi-disciplinary product design firm specializing in research and
design of new products, re-design of existing products, and engineering
management services and has served in that position since 1990.
Paul R. Tregurtha has served as Director of the Company since 1984.
Mr. Tregurtha has been the Chairman of the Board and Chief Executive Officer of
Mormac Marine Group, Inc., a marine transportation company during the past five
years. He is also a Director of the Fleet Financial Group, Inc., a bank holding
company and FPL Group, Inc., a utility company. Mr. Tregurtha also serves as
Trustee of the Teachers Insurance and Annuity Assoc. He is Chairman of the Moran
Transportation Company, and Vice Chairman of the Interlake Steamship Company,
both marine transportation companies.
BOARD COMPOSITION AND COMMITTEES
The Company's By-Laws provide for a Board of Directors of not less
than six and not more than ten directors, and the number of directors is
currently fixed at ten. Under the terms of the Certificate of Incorporation, the
Board of Directors is composed of three classes of similar size, each elected in
a different year, so that only approximately one-third of the Board of Directors
is elected in any single year. Directors Curtin, de Benedictis and Tregurtha are
designated Class I directors and have been elected for a term expiring in 1997
or until their successors are elected and qualified; Directors Henry D. Sharpe,
Jr., Fuguet, Albareto and Henry D. Sharpe, III are designated Class II directors
elected for
43
<PAGE>
a term expiring in 1998 or until their successors are elected and qualified; and
Directors Nelson, Cannatelli and Boss are designated Class III directors elected
for a term expiring in 1999 or until their successors are elected and qualified.
The Board of Directors maintains a standing Executive Committee,
composed of Messrs. Curtin, Boss, Cannatelli, and Tregurtha, which has
substantially all of the powers and authority of the Board of Directors when the
full Board is not in session. The Board of Directors also maintains standing
committees on audit ("Audit Committee"), corporate development ("Corporate
Development Committee") and compensation ("Salary Committee"), each of which is
composed exclusively of non-employee Directors.
The Audit Committee, whose members are Messrs. Nelson, Fuguet, Sharpe
III and Cannatelli, recommends to the Board of Directors, for approval by the
stockholders, the appointment of independent certified public accountants to
audit the Company's financial statements. The Audit Committee also meets with
the independent accountants and the Company's Chief Financial Officer to review
the scope and results of the audit, the scope of audit and non-audit services,
the range of audit and non-audit fees, any proposed changes in accounting
policies, practices, or procedures, including those relating to the Company's
internal accounting controls, and the Company's financial statements to be
included in the Company's Annual Report to Stockholders and other related
matters.
The Corporate Development Committee, whose members are Messrs. Curtin,
Fuguet and Tregurtha, considers matters concerning the relationship between the
Company and its stockholders, including offers to purchase outstanding Company
stock, acquisition proposals, and other matters which could affect the existence
of the Company as an independent company or otherwise affect the control of the
Company.
The Salary Committee, whose members are Messrs. Boss, Tregurtha,
Nelson and de Benedictis, performs a periodic review of the appropriate salaries
and compensation plans for the executive officers and other key management
personnel of the Company and administers the Amended Profit Incentive Plan (the
"PIP"), the 1989 Equity Incentive Plan (the "EIP") and the Key Employees' Long-
Term Deferred Cash Incentive Plan (the "LTDCIP").
BOARD COMPENSATION
As compensation for services rendered during 1995, the Company paid
each non-employee Director an annual retainer of $10,000 (except the former
employee Chairman of the Board, who was paid $15,000), a fee of $800 for each
Board meeting attended, a fee of $400 for each teleconference meeting which
lasted more than one-half hour in duration, and a fee of $500 for each Committee
meeting attended ($200 if held on the same day as a Board meeting). Directors
who are members of the Audit Committee also receive an additional $1,000 in
their annual retainer fee.
Mr. Tregurtha has elected to defer 50% of his Director's fees under a
deferred stock equivalent unit contract with the Company dated September 3, 1987
pursuant to which all fees earned after that date are converted into deferred
stock equivalent units based on the market value of the Company's stock on each
fee payment date. Under such contract dividend equivalents in amount and timing
equal to any cash dividends paid on the Company's outstanding stock are
similarly converted into additional stock equivalent units. The Company has
not paid any cash dividends on its stock since 1990. Mr. Tregurtha's contract
matures on October 1, 2005 or the earlier date of death or other termination of
Mr. Tregurtha as a Director. The contract was amended in 1992 to provide that
fee amounts deferred after May 1, 1991 (including any dividend equivalent
amounts) shall be payable on maturity only in cash, with amounts deferred prior
to such date payable in cash or shares.
The law firm of Ropes & Gray, Boston, Massachusetts, of which Mr.
Fuguet is a partner, has provided legal services to the Company since 1957.
44
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
during each of the Company's last three fiscal years for Mr. Frank T. Curtin,
the Company's President and Chief Executive Officer, the four other highest-paid
Executive Officers (as such term is defined under rules promulgated under the
Securities and Exchange Act of 1934 (the "Exchange Act")) whose earned
compensation exceeded $100,000 in 1995 for each such person, and compensation
for Mr. Fred M. Stuber, who served as the Company's President and Chief
Executive Officer until May 2, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Number of Sec-
Annual Restricted urities Under- All Other
Name and Compen- Stock lying Options/ ompen-
Principal Position Year Salary Bonus sation Award(s)/(1)/ SARs sation
- ------------------ ---- ------ ----- ------ ------------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank T. Curtin/(2)/ 1995 $193,846 $75,000 $71,937 -- 200,000 44,886/A(3)(4)/
President and Chief 1994 -- -- -- -- -- --
Executive Officer 1993 -- -- -- -- -- --
(and Chairman since
May 2, 1996)
Charles A. Junkunc 1995 190,000 61,332 -- -- 40,000 43, 674A/(5)(3)(4)/
Vice President and 1994 190,000 19,000 -- $39,000 25,000 21,247A/(5)(3)/
Chief Financial Officer 1993 178,369 46,720 -- -- -- 7,719A/(5)/
Richard F. Paolino 1995 214,230 44,550 -- -- 30,000 49,257A/(5)(3)(4)/
Vice President - 1994 190,000 19,000 -- -- 25,000 20,854A/(5)(3)/
Commercial Operations 1993 178,369 42,473 -- -- -- 15,532A/(5)/
Antonio Aparicio/(6)/ 1995 251,256 75,636 -- -- 33,000 66,956A/(7)(4)/
Vice President - 1994 216,962 16,500 -- 26,000 25,000 18,904A/(7)/
Precision Measuring 1993 182,601 41,376 -- -- -- 15,209A/(7)/
Instruments
C. John Cooke/(6)/ 1995 123,232 24,955 -- -- 15,000 16,212A/(4)/
Vice President - 1994 119,592 8,250 -- -- 15,000 --
Custom Metrology 1993 110,903 22,134 -- -- -- --
Fred M. Stuber/(6)(8)/ 1995 155,653 -- -- -- -- 592,079A/(8)/
President and Chief 1994 320,742 19,000 -- -- 40,000 31,125A/(7)/
Executive Officer 1993 285,811 50,000 -- -- -- 28,009A/(7)/
</TABLE>
___________________________________
/(1)/ Represents the dollar value at the date of the award of restricted
stock. Unvested restricted stock awarded to and held by the Executive
Officers listed in the table above is as follows:
45
<PAGE>
<TABLE>
<CAPTION>
Total Number Restricted Aggregate Market Vaule of
Unvested Shares Held Restricted Unvested Shares
Name as of 1995 Fiscal Year-End* Held as at 1995 Fiscal
---- -------------------------- Year-End
---------
<S> <C> <C>
Charles A. Junkunc 14,000 $143,500
Richard F. Paolino 10,000 103,525
Antonio Aparicio 12,000 123,000
C. John Cooke 8,000 82,000
</TABLE>
* The awards to Messrs. Paolino and Cooke were made in 1992 and the
awards to Messrs. Junkunc and Aparicio were made in 1992 and 1994.
Restrictions lapse ratably over 5 years from the date of award with
25% of the shares awarded vesting two years and three years,
respectively, after such date and the remaining 50% of the shares
vesting 5 years after such date. The Company has not paid any
dividends on its Class A Common Stock since 1990; however, should it
be reinstated, dividends would be paid on the restricted stock
reported. At December 29, 1995 the closing market price of the
Company's shares of Class A Common Stock was $10.25 per share.
/(2)/ Mr. Curtin commenced his employment with the Company on May 2, 1995.
The salary shown in the table above was the amount paid to him from
May 2, 1995 through December 31, 1995. The bonus amount in the table
above was guaranteed, for the 1995 "short" year only, under his
Employment Agreement. Other annual compensation represents payment of
relocation and moving expenses.
/(3)/ Includes $6,937 and $6,629 for 1994 and $6,446 and $8,842, including
interest, for 1995 for Messrs. Junkunc and Paolino, respectively, and
$19,384 for Mr. Curtin, provided under his Employment Agreement,
representing retirement benefits provided in excess of limitations
imposed by the Internal Revenue Code on Company contributions to the
named SARP and ESOP retirement accounts, which are credited to an
unfunded deferred compensation retirement plan account under the
Supplemental Executive Retirement Plan (the "SERP"). See "Employment,
Severance and Other Arrangements."
/(4)/ Includes $25,502, $24,996, $28,183, $30,610 and $16,212 for Messrs.
Curtin, Junkunc, Paolino, Aparicio and Cooke representing amounts
credited to a long-term deferred cash incentive plan account
established for the executive as of the end of the 1995 fiscal year.
On February 23, 1996, the Board of Directors approved, on
recommendation of the Salary Committee, the LTDCIP with effect from
January 1, 1995. Under the LTDCIP, award credits are to be made
annually beginning with the 1995 year for LTDCIP participants based on
one year's financial performance out of an award pool of 6% of pre-tax
adjusted earnings with participants becoming vested in each accrued
annual award after three years subject to accelerated vesting upon a
change of control (as defined) and with payout of the credited vested
amounts plus interest accrued at a market rate deferred until
retirement at age 65, death or disability, or earlier upon termination
of employment for reasons other than cause.
/(5)/ Includes values of 1993, 1994 and 1995 year-end Company contributions
to the SARP (4% cash contribution) and ESOP (2% in shares of Class A
Common Stock) and, with respect to Mr. Junkunc for 1993, reflects
eligible wage participation for approximately six months, and for 1994
and 1995 also includes amounts contributed to a SERP account
maintained by the Company for Messrs. Junkunc and Paolino. See
footnote 3.
/(6)/ Amounts shown converted from the Swiss Franc equivalent with respect
to Messrs. Stuber and Aparicio for 1995, 1994 and 1993 at the average
U.S. dollar exchange rates of $.8461, $.7332, and $.6759,
respectively, and from the British pound equivalent with respect to
Mr. Cooke for 1995, 1994 and 1993 at the average U.S. dollar exchange
rates of $1.5799, $1.5332 and $1.4987, respectively.
46
<PAGE>
/(7)/ Represents contributions made to Tesa's retirement plans for Messrs.
Stuber and Aparicio; with respect to Mr. Aparicio for 1995, includes
Swiss Franc contributions to such Tesa retirement plans in the
equivalent amount of $36,346 .
/(8)/ Mr. Stuber resigned from the Company on May 31, 1995. The salary shown
in the table above was paid to him from January 1, 1995 through the
date of his resignation. All other compensation represents a severance
payment made to him and amounts contributed to the Tesa retirement
plan for his service during 1995. See "Employment, Severance and Other
Arrangements."
STOCK OPTION/SAR GRANTS
Under the provisions of the EIP, a variety of stock and stock-based
awards, performance cash awards and related benefits, including stock options
and stock appreciation rights ("SARs"), may be awarded to Executive Officers and
other key employees of the Company and its subsidiaries. The Company's
stockholders approved an amendment to the EIP at the 1995 Annual Meeting
increasing by 500,000 shares to 875,000 shares the aggregate number of shares of
Class A Common Stock which may be issued and delivered upon exercise of options,
restricted stock awards or other stock-based awards granted to employees under
such plan and to limit to 300,000 shares the number of shares that any recipient
can thereafter be awarded in any calendar year pursuant to options granted under
the EIP. Any options previously awarded and remaining outstanding under the
Company's Amended 1973 Stock Option Plan (the "73 Plan"), which terminated on
April 26, 1989, are subject to exercise by recipients and are included, if
applicable, in the amounts set forth in the appropriate table below. The
following table sets forth stock options granted to Executive Officers under the
EIP in 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term/(1)/
-------------------------------------------------------------------------------------
Percentage
Number of Total
of Securities Options/SARs Exercise
Underlying Granted to or Base Expira-
Options/SARs Employees in Price tion
Name Granted/(2)/ Fiscal Year per Share Date 5% 10%
- ---- ----------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Frank T. Curtin 200,000 37.8% $6.75 5-03-05 $849,000 $2,151,540
Charles A. Junkunc 40,000 7.5 7.00 7-27-05 176,092 446,248
Richard F. Paolino 30,000 5.7 7.00 7-27-05 132,069 334,686
Antonio Aparicio 33,000 6.2 7.00 7-27-05 145,275 368,154
C. John Cooke 15,000 2.8% $7.00 7-27-05 66,034 167,343
</TABLE>
- -------------------------------------------------
/(1)/ The potential realizable values represent future opportunity and have
not been reduced to present value in 1996 dollars. The dollar amounts
included in these columns are the result of calculations at assumed
rates set by the Securities and Exchange Commission (the "Commission")
for illustrative purposes, and these rates are not intended to be a
forecast of the Class A Common Stock price and are not necessarily
indicative of the values that may be realized by the named Executive
Officer. The potential realizable values are based on arbitrarily
assumed annualized rates of stock price appreciation of five and ten
percent over the full ten-year term of the options.
47
<PAGE>
/(2)/ There were no SARs granted in 1995 to any of the Executive Officers
named in the table.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table summarizes options and SARs exercised during 1995
and presents the value of unexercised options and SARs held by the named
Executive Officers at fiscal year-end:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired on Value Fiscal Year-End Fiscal Year-End
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank T. Curtin None -- -- 200,000 $ -- $700,000
Charles A. Junkunc None -- 25,000 40,000 $93,750 $130,000
Richard F. Paolino None -- 49,332 30,000 $93,750 $ 97,500
Antonio Aparicio None -- 25,000 33,000 $93,750 $107,250
C. John Cooke None -- 15,000 15,000 $56,250 $ 48,750
</TABLE>
FOREIGN RETIREMENT PLANS
Tesa maintains a defined contribution retirement plan required by
Swiss law, pursuant to which benefits accrue on behalf of Mr. Aparicio annually
in an amount equal to a percentage (based on the executive's age and on his
salary) of annual compensation and under which interest accrues on accrued
benefit amounts at a compound annual rate of 4%. Upon retirement, the executive
is entitled to receive an annual pension in an amount equal to 7.2% of the
executive's total accrued benefits, and the estimated annual pension payable
upon retirement at normal retirement age under such plan is an amount equivalent
to $99,416 for Mr. Aparicio. In addition, Tesa sponsors a separate defined
contribution plan pursuant to which Mr. Aparicio is eligible to receive a lump-
sum payment upon retirement. The estimated lump sum payable upon retirement
under this sponsored plan at normal retirement age is an amount equivalent to
$335,691 for Mr. Aparicio. Mr. Stuber, formerly Managing Director of Tesa and
who resigned from the Company May 31, 1995, was entitled to an accrued vested
amount equivalent to $258,940 under such plan, which amount was transferred by
Tesa to Mr. Stuber's retirement account with his new employer. Amounts were
converted at the rate of $.7332 per Swiss Franc.
Dr. C. John Cooke is a participant in the Brown & Sharpe Pension Plan
covering the Company's U.K. employees, pursuant to which employees contribute
4.5% of their salary. Dr. Cooke, who is designated a "Special Member" of the
plan which entitles him to the highest retirement benefit under such plan, is
eligible to retire and receive pension benefits under the plan at age 60 on
January 19, 1997 at the rate of 1/40 of pensionable salary for each year of
service. Based on an estimated total final average salary of (Pounds)90,000,
length of service and 14 3/4 years' participation in the plan, he would be
eligible to receive an estimated final annual pension benefit net of any
statutory governmental social benefit of (Pounds)33,188 equivalent to
approximately $52,433 at the average exchange rate of $1.5799 per British Pound.
EMPLOYMENT, SEVERANCE AND OTHER AGREEMENTS
Mr. Frank T. Curtin has an Employment Agreement with the Company for a
three-year term of employment commencing on May 2, 1995 in the capacity of
President and Chief Executive Officer. The Agreement provides for: (i) an
annual base salary of $300,000, subject to increases at the discretion of the
Board of Directors (which base salary was increased by the Board to $315,000 as
of January 1, 1996); (ii) a guaranteed cash incentive bonus for 1995 performance
of $75,000; (iii) future cash incentive bonuses for subsequent fiscal years in
an amount not to exceed
48
<PAGE>
the maximum amount permitted under the PIP with all or a portion thereof to be
"earned out" and subject to achievement of objectives determined by the Salary
Committee of the Board; and (iv) participation in other executive employee
benefits. Pursuant to the Agreement, Mr. Curtin also received an award of non-
incentive stock options disclosed under "Option/SAR Grants" above, and the
Company agreed to annually contribute an amount of 10% of his base salary to a
SERP account for his benefit. The Agreement provides that the Company may
terminate his employment for a reason other than death, disability or cause (as
defined in the Agreement) subject, however, to continuation of his base salary
and benefits for the unexpired term remaining under the Agreement, but in any
event not less than twelve months. In addition Mr. Curtin has the right under
the Agreement to terminate his employment following a Change of Control of the
Company (as defined in the Agreement) in the event his position or job
responsibilities change or the compensation and benefits reserved to him in the
Agreement are not provided. In such event the Company would be required to
continue to pay him the base salary and benefits in effect at the time of such
termination for the unexpired term of the Employment Agreement. No salary or
benefits are continued if Mr. Curtin's employment is terminated for cause or
upon death or disability. Mr. Curtin is subject to a covenant not to compete
with the Company for two years after the termination of his employment.
The Company has an Employee/Severance Agreement dated March 14, 1988
with Richard F. Paolino, Vice President-Commercial Operations, which provides
for a term of employment, commencing upon the date of a Change of Control (as
defined in the Agreement) of the Company. The term of employment commenced on
the occurrence of the acquisition by Finmeccanica of shares of Class A Common
Stock in connection with the acquisition on September 28, 1994 by the Company of
DEA and will terminate on September 28, 1997 unless the term is permitted to
extend by non-action on the Company's part. In general, the Agreement provides
for salary, bonus, participation in employee benefit plans and other fringe
benefits at rates at least equal to those in effect immediately prior to the
Change of Control. In the event his employment is terminated by the Company
before the term expires (except for cause, as defined), Mr. Paolino is entitled
to: (i) the same rates of salary, bonus, benefits and fringe benefits for the
lesser of 12 months or the number of months remaining in the term of employment,
which payments are subject to mitigation; and (ii) a lump sum equal to the sum
of his highest annual base salary during the three-year period immediately
preceding termination, the value of annual fringe benefits, and the highest cash
bonus received during the prior three-year period. Upon such termination, Mr.
Paolino is also entitled to limited continuation of certain employee welfare
plans and accelerated vesting of any stock options or restricted stock. For
purposes of the Agreement, Mr. Paolino's severance rights would also be
triggered by a deemed termination following the Change of Control, which would
include a reduction of employment compensation, benefits, position or
responsibilities or relocation of the Company's principal executive offices.
The payment and benefits will be reduced to the extent necessary to preserve
their deductibility to the Company for Federal income tax purposes and to avoid
imposition of any "excess parachute payments" taxes under the Internal Revenue
Code. The Agreement was amended on July 28, 1995 to provide that certain
provisions of the Agreement, including those pertaining to acceleration and
exercisability dates, would be inapplicable to the incentive stock options for
30,000 shares of Class A Common Stock awarded to Mr. Paolino on July 28, 1995.
Mr. Paolino is subject to a covenant not to compete with the Company during the
two-year term of such employment and for the lesser of one year or the balance
of the term of employment following any such termination. The Agreement also
obligates the Company to pay for any legal fees incurred by Mr. Paolino to
enforce his rights under the Agreement and provides for letter of credit
mechanics to carry this out.
The Company also has an agreement with Charles A. Junkunc, Vice
President and Chief Financial Officer, who joined the Company on May 4, 1992, to
pay a severance amount to him equal to his annual salary in effect at the time
of termination and to continue his basic employee benefits for a one-year period
in the event his employment with the Company is terminated for any reason.
Under the Agreement the Company will pay a bonus equal to the average of the
bonus payments received by him during the three years (or such lesser period)
prior to termination, pro rated according to the number of months of service
during the year in which any termination occurs. In addition, a minimum bonus
of $34,000 for 1993 was guaranteed pursuant to this Agreement. Upon any
termination Mr. Junkunc, if requested by the Company, is to provide consulting
services to the Company for one year, with offsets against the payments to be
made by the Company for any income received from other sources.
49
<PAGE>
The Company also has a severance agreement with Robert D. Batting providing
Mr. Batting with one year's salary on a salary continuation basis upon his
termination provided that he is not competing with the Company.
Fred M. Stuber was a Director and President and Chief Executive Officer of
the Company from January 1, 1991 to May 31, 1995. The Company entered into a
Severance Agreement with Mr. Stuber on the date of his termination, which
provided for a severance payment to him of 681,211 Swiss Francs equivalent to
$576,372 at an average annual exchange rate of $.8461 per Swiss Franc. One half
of the severance amount was paid to Mr. Stuber in a lump sum in cash on
termination, and the balance was paid in seven equal monthly installments with
the final payment being made on December 1, 1995. The Agreement also provided
for the forfeiture of 16,100 shares of unvested restricted Class A Common Stock
previously awarded to Mr. Stuber, that he would retain his rights to his accrued
retirement benefits in the Tesa retirement plans, and a covenant by Mr. Stuber
that he would not directly or indirectly compete with the business of the
Company for a period of two years following his resignation.
SALARY COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company has served as a director or member of
the compensation committee (or other committee serving an equivalent function)
of any other entity, whose executive officers served as a director of or member
of the Salary Committee of the Company. See "Certain Transactions."
50
<PAGE>
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1996, and as adjusted to reflect
the sale of the shares of Common Stock offered hereby (assuming no exercise of
the Underwriters' over-allotment option), by: (i) each person or entity known to
the Company to own beneficially more than 5% of any class of Common Stock; (ii)
each of the Company's directors; (iii) each of the named Executive Officers;
(iv) all directors and executive officers as a group; and (v) Diehl GmbH & Co.,
the Selling Stockholder. Except as indicated below, none of these entities has a
relationship with the Company or, to the knowledge of the Company, any
Underwriters of the Offering or their respective affiliates. The address for the
listed beneficial owners, unless stated otherwise, is c/o Brown & Sharpe
Manufacturing Company, 200 Frenchtown Road, Precision Park, North Kingstown, RI
02852-1700.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
-------------------- --------------------
PERCENTAGE
OF TOTAL
NAME AND ADDRESS OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF VOTING
BENEFICIAL OWNER SHARES CLASS SHARES CLASS POWER
- --------------------------- --------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Significant Stockholders
- ------------------------
Finmeccanica S.p.A./(1)/ 3,450,000 42.0% -- -- 25.7%
Viale Marescialo
Pilsudski 92
Rome 00197 Italy
Fiduciary Trust Company 476,766 5.8% 158,920 30.6% 15.4%
International(2)
Two World Trade Center
New York, NY 10048-0774
Henry D. Sharpe, Jr.(3) 483,966 5.9% 161,320 31.0% 15.6%
Frank T. Curtin(4) 303,283 3.7% 166,063 31.9% 14.6%
Charles A. Junkunc(4) 386,100 4.7% 194,794 37.4% 17.4%
Robert A. Batting(4) 303,283 3.7% 166,063 31.9% 14.6%
The Killen Group, Inc.(5) 427,576 5.2% -- -- 3.2%
Donald Smith & Co., Inc.(6) 419,600 5.1% -- -- 3.1%
Putnam Fiduciary Trust
Co.(7) 202,640 2.5% 52,744 10.1% 5.4%
Putnam Defined
Contribution Plans
859 Willard Street
Quincy, MA 02269-9110
Other Directors
- ---------------
Enrico Albareto(8) 3,450,000 42.0% -- -- 25.7%
Alberto de Benedictis 3,450,000 42.0% -- -- 25.7%
Russell A. Boss 1,000 * -- -- *
Vincenzo Cannatelli(8) 3,450,000 42.0% -- -- 25.7%
Howard K. Fuguet 1,000 * -- -- *
Henry D. Sharpe, III 55,145 * 18,381 3.5% 1.8%
John M. Nelson 1,453 * -- -- *
<CAPTION>
SHARES OF COMMON STOCK BENEFICIALLY OWNED AFTER OFFERING
--------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------- -----------------
PERCENTAGE
OF TOTAL
NUMBER OF PERCENT OF NUMBER OF PERCENT OF VOTING
SHARES CLASS SHARES CLASS POWER
--------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Significant Stockholders
- ------------------------
Finmeccanica S.p.A./(1)/ 3,450,000 28.2% -- -- 19.8%
Viale Marescialo
Pilsudski 92
Rome 00197 Italy
Fiduciary Trust Company 476,766 3.9% 158,920 30.6% 11.9%
International(2)
Two World Trade Center
New York, NY 10048-0774
Henry D. Sharpe, Jr.(3) 483,966 4.0% 161,320 31.0% 12.0%
Frank T. Curtin(4) 303,283 2.5% 166,063 31.9% 11.3%
Charles A. Junkunc(4) 386,100 3.2% 194,794 37.4% 13.4%
Robert A. Batting(4) 303,283 2.5% 166,063 31.9% 11.3%
The Killen Group, Inc.(5) 427,576 3.5% -- -- 2.5%
Donald Smith & Co., Inc.(6) 419,600 3.4% -- -- 2.4%
Putnam Fiduciary Trust
Co.(7) 202,640 1.7% 52,744 10.1% 4.2%
Putnam Defined
Contribution Plans
859 Willard Street
Quincy, MA 02269-9110
Other Directors
- ---------------
Enrico Albareto(8) 3,450,000 28.2% -- -- 19.8%
Alberto de Benedictis 3,450,000 28.2% -- -- 19.8%
Russell A. Boss 1,000 * -- -- *
Vincenzo Cannatelli(8) 3,450,000 28.2% -- -- 19.8%
Howard K. Fuguet 1,000 * -- -- *
Henry D. Sharpe, III 55,145 * 18,381 3.5% 1.4%
John M. Nelson 1,453 * -- -- *
</TABLE>
51
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Paul R. Tregurtha 705 * 151 -- * 705 * 151 -- *
Named Executive Officers
- ------------------------
Antonio Aparicio 37,000 * 13 -- * 37,000 * 13 -- *
C. John Cooke 31,000 * -- -- * 31,000 * -- -- *
Richard F. Paolino 73,603 * 2,432 * * 73,603 * 2,432 -- *
All executive officers 4,488,827 53.8% 358,710 69.0% 60.0% 4,488,827 36.4% 358,710 69.0% 46.0%
and directors as a group
(19 persons)(9)
Selling Stockholder
- -------------------
Diehl GmbH & Co. 156,000 1.9% -- -- 1.2% -- -- -- -- --
Stephanstrasse 49
90478 Nurnberg
Germany
</TABLE>
___________________________________
* Less than one percent (1%).
(1) Finmeccanica owns beneficially and of record and has the power to vote
or direct the vote and to dispose or direct the disposition of
3,450,000 shares of Class A Common Stock. The Class A Common Stock was
acquired in connection with the acquisition by the Company of the DEA
metrology business on September 28, 1994. Approximately 63% of
Finmeccanica's stock is owned by Istitutto per la Ricostruzione
Industriale S.p.A., a joint stock company ("IRI"), all of whose stock
is held by the Ministry of the Treasury of the Republic of Italy,
therefore, Finmeccanica and IRI are deemed to share the voting and
investment power with respect to the shares held by Finmeccanica. See
"Certain Transactions."
(2) Fiduciary Trust Company International, by virtue of various investment
management contracts and trust agreements with members of the Sharpe
family, shares voting and dispositive power with respect to the shares
of Class A Common Stock and Class B Common Stock referred to in
footnote (3) below.
(3) Various members of the Sharpe family, including Henry D. Sharpe, Jr.
and his son Henry D. Sharpe, III, beneficially own an aggregate of
483,966 shares of Class A Common Stock and 161,320 shares of Class B
Common Stock of the Company. The table includes: (a) 168,076 shares of
Class A Common Stock and 56,024 shares of Class B Common Stock held by
Henry D. Sharpe, Jr.'s wife and children (including Henry D. Sharpe
III referred to in the table) and by trusts, of which they are
beneficiaries and of which beneficial ownership is disclaimed; (b) 120
shares of Class A Common Stock and 40 shares of Class B Common Stock
held by the Sharpe Family Foundation, a charitable foundation, of
which beneficial ownership is disclaimed by Mr. Sharpe; (c) 7,200
shares of Class A Common Stock and 2,400 shares of Class B Common
Stock as to which Henry D. Sharpe, Jr. has neither voting nor
dispositive power but as to which he is a beneficiary under a trust
established under the will of Henry D. Sharpe, Sr.; (d) 308,570 shares
of Class A Common Stock and 102,856 shares of Class B Common Stock as
to which Henry D. Sharpe, Jr. has shared voting and dispositive power
with Fiduciary Trust Company International with respect to the shares
of Class A Common Stock and Class B Common Stock described in sub-
clause (a) above, and sole voting and dispositive power with respect
to the shares of Class A Common Stock and Class B Common Stock
described in subclause (b) above. Of the shares shown in the table,
the 7,200 shares of Class A Common Stock and 2,400 shares of Class B
Common Stock in subclause (c) are owned indirectly.
(4) Includes (i) 303,283 shares of Class A Common Stock and 166,063 shares
of Class B Common Stock, as to which Messrs. Curtin, Junkunc and
Batting, by virtue of being Trustees under the ESOP, have shared
voting power (subject to direction from plan participants) and limited
residual investment power as Trustees under the terms of the Trust
Agreement for the ESOP and as to all of which ESOP shares (except,
with respect to Mr. Junkunc, his vested shares of Class A Common Stock
and Class B Common Stock in such plan) they
52
<PAGE>
disclaim beneficial ownership; (ii) shares of Class A Common Stock
issuable upon exercise of stock options held by such Executive
Officers that are exercisable within 60 days of the date of this
Prospectus; and (iii) with respect to Mr. Junkunc, includes 36,167
shares of Class A Common Stock and 28,333 shares of Class B Common
Stock held by the Company's United Kingdom Pension Plan as to which
Mr. Junkunc has shared voting and investment power with respect to
which Mr. Junkunc disclaims beneficial ownership. After June 30, 1996
it is intended that 30,549 shares of Class A Common Stock held by the
UK pension plan will be sold and transferred to the SARP.
(5) The Killen Group, Inc., a registered investment advisor, owns
beneficially 426,442 shares of Class A Common Stock, of which it has
sole voting power over 173,713 shares and sole dispositive power with
respect to 422,610 shares. Robert E. Killen, President and sole
stockholder of the Killen Group, directly owns 3,832 shares of Class A
Common Stock, as to which he has sole voting and dispositive power. Of
the shares shown in the table, 3,832 shares of Class A Common Stock
are owned indirectly.
(6) Donald Smith & Co. an investment advisory firm has sole voting power
over 294,300 shares of Class A Common Stock and sole dispositive power
over 419,600 shares of Class A Common Stock.
(7) Putnam Fiduciary Trust Co. acts as Trustee of the SARP, the Brown &
Sharpe Savings and Retirement Plan for Management Employees and a
substantially similar tax qualified 401(k) savings plan covering U.S.
non-management employees, and in that capacity shares voting power
with respect to the shares of Class A Common Stock and Class B Common
Stock, subject to direction from participants in such plans. Putnam
Fiduciary Trust Co. disclaims beneficial ownership with respect to all
such shares of Class A Common Stock and Class B Common Stock.
(8) Messrs. Albareto, Cannatelli and de Benedictis, by virtue of their
positions as senior executives and employees of Finmeccanica or its
affiliates and Finmeccanica's authority to vote or direct the vote and
to dispose or direct the disposition of the Class A Common Stock, may
each be deemed to beneficially own the shares of Class A Common Stock
owned of record by Finmeccanica and as to all of which stock they
disclaim beneficial ownership. See footnote (1) above and "Certain
Transactions."
(9) Includes an aggregate of 129,332 shares of Class A Common Stock
subject to outstanding stock options which are exercisable within 60
days of the date of this Prospectus.
53
<PAGE>
CERTAIN TRANSACTIONS
DEA ACQUISITION
A substantial change in ownership of the Common Stock of the Company
occurred in connection with the acquisition by the Company and its wholly owned
subsidiary, Brown & Sharpe International Capital Corporation, on September 28,
1994 of all the stock of DEA and its related metrology business headquartered in
Turin, Italy, from Finmeccanica. DEA was purchased pursuant to the provisions of
the Acquisition Agreement dated as of June 10, 1994 between the Company and
Finmeccanica, as amended (the "DEA Acquisition Agreement"). The purchase price
for DEA was paid by the Company to Finmeccanica at the closing through the
issuance of 3,450,000 shares of Class A Common Stock.
Under the terms of the Shareholders Agreement, Finmeccanica was granted the
right to nominate for election to the Board following the acquisition of DEA
three out of ten members of the Company's Board of Directors and to have one of
such directors sit on the Executive Committee of the Company's Board of
Directors. Pursuant to the Shareholders Agreement, three Finmeccanica nominees,
Messrs. Albareto, de Benedictis and Cannatelli, were elected to the Company's
Board of Directors on October 28, 1994. Pursuant to the Shareholders Agreement,
when Henry D. Sharpe, Jr. ceases to be a Director of the Company, Finmeccanica
will thereafter be entitled to designate two nominees for election to the
Company's Board of Directors, and a third nominee, who may not be an employee of
Finmeccanica but must be an experienced executive or advisor to industrial
businesses, subject to approval (not to be unreasonably withheld) by the
Company's Board of Directors. In any event, Finmeccanica is entitled to two
nominees to the Company's Board of Directors for so long as it owns at least
1,250,000 shares of Class A Common Stock and one nominee to the Company's Board
of Directors for so long as it owns at least 375,000 shares of Class A Common
Stock.
Under the terms of a letter agreement dated as of September 28, 1994
between Henry D. Sharpe, Jr., Chairman of the Board, and Finmeccanica, Mr.
Sharpe has agreed to vote all shares of Common Stock as to which he has sole
voting power in favor of the Finmeccanica nominees standing for election to the
Board of Directors. The Shareholders Agreement provides that Finmeccanica will
vote its shares of Class A Common Stock in favor of the election as directors of
all nominees selected by the Board of Directors of the Company.
The Shareholders Agreement also provides Finmeccanica with certain rights
and obligations with respect to its ownership of shares of Class A Common Stock.
Finmeccanica is prohibited from acquiring any shares of Common Stock if such
acquisition would increase Finmeccanica's ownership above approximately 40% on a
fully diluted basis (as defined in the Shareholders Agreement) until December
31, 1998, or earlier upon the occurrence of certain specified events. The
Agreement also provides pre-emptive rights to Finmeccanica for so long as it
owns at least 862,500 shares of Class A Common Stock, such that the Company may
not issue any shares of Class A Common Stock or equity securities exercisable,
exchangeable or convertible into shares of Class A Common Stock ("Derivative
Securities") to any third party, other than certain specified exclusions,
without first offering to Finmeccanica the right to purchase that percentage of
the Company's equity securities such that Finmeccanica's percentage ownership of
the Company's Common Stock on a fully diluted basis (as defined in the
Shareholders Agreement) remains constant. Finmeccanica has waived such rights
with respect to the shares of Class A Common Stock to be issued in the Offering.
In addition, Finmeccanica is prohibited from selling any of the Company's
equity securities to any third party until September 24, 1996 and, thereafter,
Finmeccanica may sell securities to a third party only after offering the
Company the opportunity to purchase such shares (other than sales pursuant to a
registered public offering pursuant to Finmeccanica's registration rights and
sales pursuant to Rule 144 under the Securities Act of 1933 (the "Securities
Act")).
In addition, Finmeccanica has certain demand and "piggyback" registration
rights granted under the Shareholders Agreement. If, at any time after September
28, 1996, the holders of 25% of the shares covered by the Shareholders Agreement
demand registration, the Company will be required to file a registration
statement covering
54
<PAGE>
the resale of such shares. In addition, if the Company files a registration
statement, Finmeccanica may request that its shares be included in the
registration statement.
Prior to completion of the DEA acquisition and entering into the
Shareholders Agreement, the Company amended the Rights Plan pursuant to
authority reserved in the underlying agreement to exclude Finmeccanica from the
definition of an "Acquiring Person" under the Rights Plan for so long as it does
not own shares of Class A Common Stock other than those acquired in connection
with the DEA acquisition and as provided in the Shareholders Agreement. As a
result of the amendment, the exercisability of the Rights of the holders of
Class A Common Stock and Class B Common Stock created under the Rights Plan was
not triggered. See "Risk Factors -- Potential Effect of Anti-Takeover
Provisions."
In addition, on March 24, 1994, the Company acquired all of the stock of
Roch and Mauser from Diehl GmbH & Co. of Nurnberg, Germany ("Diehl") pursuant to
the terms of a Stock Purchase and Transfer Agreement dated March 24, 1994. The
purchase price for Roch was paid by the Company to Diehl at the closing through
the issuance of 175,000 shares of Class A Common Stock, subject to certain post
closing adjustments. As a result of those post closing adjustments, Diehl
surrendered 19,000 shares of Class A Common Stock to the Company in August 1996.
In addition, Diehl was granted certain demand and "piggyback" registration
rights with respect to its shares of Class A Common Stock. Diehl's demand
registration rights, exercisable during the period commencing March 24, 1996 and
ending March 24, 1997, permit it to demand that its shares be covered by a
registration statement provided that the demand is for at least 100,000 shares
and subject to the discretion of the Board of Directors. Diehl's "piggyback"
registration rights expired on March 24, 1996; however, Diehl is participating
in the Offering as a Selling Stockholder.
RELATED PARTY TRANSACTIONS AND AGREEMENTS
On September 28, 1994, in connection with the acquisition of DEA, the
Company entered into a Credit Support Agreement with Finmeccanica (the "Credit
Support Agreement"), pursuant to which Finmeccanica issued unconditional payment
guarantees to Banca Commerciale Italiana, New York Branch, and Istituto
Bancarios San Paolo di Torino, New York Branch, with respect to their extension
of two three-year term loans to the Company in the aggregate amount of $25.0
million bearing interest at a floating rate of LIBOR plus 0.60% with interest
payable quarterly and the entire principal amount of such loans due on September
28, 1997. The Company paid Finmeccanica a one-time fee of $800,000 upon
entering into the Credit Support Agreement. In the event Finmeccanica is
required to pay such banks any amounts under its guarantees, subject to the
prior repayment by the Company of any amounts due in respect of certain senior
indebtedness (as defined in the Credit Support Agreement), Finmeccanica will be
entitled to reimbursement from the Company of any such amounts paid by
Finmeccanica under its guarantees. That Agreement provides that as long as the
Finmeccanica guarantees remain outstanding, the Company will not, with certain
exceptions, create any liens on the accounts receivable or inventory of DEA or
its subsidiaries or permit DEA and its subsidiaries to have any debt to any
other financial institutions other than certain permitted indebtedness. In
connection with Finmeccanica's entering into the Credit Support Agreement, DEA
also furnished a payment guarantee to Finmeccanica, subordinated to the interest
of the lender under the Facility.
Following its acquisition by the Company, DEA continued to be a lessee
under a lease agreement with the Elsag Bailey Division of Finmeccanica with
respect to DEA's principal headquarters facility located in Moncalieri, Italy
and the DEA sales and support facility in Madrid, Spain. The lease of the
Italian property expires on December 31, 1997, and the minimum annual rent under
such lease is approximately Lire 1,400 million or approximately $840,000,
subject to adjustment as provided in the lease. The lease of the Spanish
property expires on January 4, 1998 at an annual rent of Pesetas 30,600 million
or approximately $200,000. The Company believes that the terms of such leases
have been and will be comparable to those which could be obtained from third
parties.
The DEA Acquisition Agreement provides that for a period of five years
after the closing date of the DEA acquisition, neither Finmeccanica nor any of
its affiliates will directly or indirectly acquire more than a 20% ownership
interest in any business, venture or activity which competes with the metrology
business relating to CMMs
55
<PAGE>
(including parts and accessories) being conducted or proposed to be conducted by
DEA at the closing date of the DEA acquisition or relating to metrology products
performing functions similar to those of the products manufactured and sold by
DEA. These non-competition provisions will terminate if Brown & Sharpe no longer
owns a greater than 50% ownership interest in DEA. Finmeccanica will not be in
breach of the non-competition provision of the DEA Acquisition Agreement if it
or any of its affiliates acquires or invests in any company which includes among
its business operations the manufacture and sale of metrology products
performing functions similar to those of the products manufactured and sold by
DEA to the extent that sales of such products constitute only an immaterial
portion of the total revenues of the acquired business. In the DEA Acquisition
Agreement, Finmeccanica represented to Brown & Sharpe that it has no present
intention of acquiring any such company.
The DEA Acquisition Agreement provides that Brown & Sharpe and Finmeccanica
will, for the periods specified in the DEA Acquisition Agreement, none of which
are shorter than 21 months after the closing of the DEA acquisition, indemnify
each other for up to $10.0 million (less the first $500,000) resulting from the
inaccuracy of representations and warranties covering matters relating to their
respective businesses, financial statements, material contracts, compliance with
law and other items customary in transactions of this type, breach of non-
fulfillment of any agreement or covenant contained in or required to be entered
into in connection with the DEA Acquisition Agreement and certain environmental
and tax claims, if any. Finmeccanica will also indemnify Brown & Sharpe for the
amount by which certain of the liabilities of DEA exceed limits provided for in
the purchase price provisions of the DEA Acquisition Agreement. The DEA
Acquisition Agreement also provided that, prior to the closing, Finmeccanica was
required to assume or discharge all indebtedness for borrowed money of DEA other
than an amount of indebtedness net of cash in excess of Lire 0.8 billion, to
remain outstanding on and after the closing, which amount was to be determined
as of July 31, 1994 pursuant to a formula in the DEA Acquisition Agreement.
The Company entered into an agreement with Finmeccanica on December 18,
1995 amending the DEA Acquisition Agreement to eliminate a post-closing Purchase
Price Adjustment provision and substituting an agreement of the parties that a
Purchase Price Adjustment shall be payable to the Company by Finmeccanica in the
amount of Lire 2,100 million without interest (approximately $1.38 million as of
December 18, 1995). The agreed amount is to be paid by Finmeccanica in the form
of a waiver of rent due Finmeccanica on the DEA Moncalieri, Italy facility
referenced above through December 31, 1997, the date of expiration of the lease,
and is subject to reduction if the premises are vacated after June 30, 1996 by
an amount equal to the per diem amount of rent due from July 1, 1996 to the date
the premises are vacated by DEA. The Company presently expects to vacate the
premises by December 31, 1996. Except for their relationship to Finmeccanica by
virtue of their executive positions with such company or its affiliates, none of
Messrs. Albareto, de Benedictis or Cannatelli, who are directors of the Company,
have any direct or indirect interest in any of the foregoing transactions.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 1,000,000 shares of
Preferred Stock, $1.00 par value, per share; 15,000,000 shares of Class A Common
Stock, $1.00 par value, per share, and 2,000,000 shares of Class B Common Stock,
$1.00 par value, per share. At June 30, 1996 there were issued and outstanding
8,218,206 shares of Class A Common Stock and 520,219 shares of Class B Common
Stock and no shares of Preferred Stock. In addition, 665,997 shares of Class A
Common Stock were reserved as of June 30, 1996 for issuance upon exercise of
outstanding options under the Company's stock plans and 214,386 additional
shares of Class A Common Stock were reserved for issuance upon the future grant
of options or other awards under the Company's stock plans. At June 30, 1996,
520,219 shares of Class A Common Stock were reserved for issuance upon the
conversion of the outstanding shares of Class B Common Stock and an aggregate of
533,333 shares of Class A Common Stock were reserved for issuance upon
conversion of the Company's 9 1/4% Convertible Subordinated Debentures Due 2005
at $26.25 per share, subject to antidilution provisions. The Class A Common
Stock is listed on the New York Stock Exchange. The following summary of certain
provisions of the Class A Common Stock and the Class B Common Stock and the
Preferred Stock of the Company does not purport to be complete and is subject
to, and qualified in its entirety by, the Certificate of Incorporation and By-
laws which are included as exhibits to the Registration Statement of which this
Prospectus forms a part and by the provisions of applicable law.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $1.00 par value, none of which has been issued. The Board of Directors
is empowered to provide from time to time for the issuance of one or more series
of Preferred Stock without further stockholder action and to designate various
terms and provisions with respect to each such series whether issued or not,
including without limitation, the dividend rate, redemption price, terms of any
sinking fund, conversion rights, if any, voting rights, if any, and rights of
the holders upon liquidation. The effect of the issuance of any shares of
Preferred Stock upon the rights of holders of the Common Stock may not be
determined until the Board of Directors specifies the rights of the holders of
such Preferred Stock. However, such effects may qualify or limit the rights of
holders of the Common Stock and might include, among other things, restricting
dividends on the Common Stock, diluting the voting power of the Common Stock,
impairment of the liquidation rights of the Common Stock and delaying or
preventing a change in control of the Company without further action by the
stockholders. The Company has no present plans to issue any shares of Preferred
Stock. In March 1988, in connection with the Rights Plan, the Company
designated a new series of Preferred Stock comprised of 170,000 shares of Series
A Participating Preferred Stock. No shares of Series A Participating Preferred
Stock have been issued. When issued, shares of Series A Participating Preferred
Stock will have 100 votes per share. No distributions can be made to holders of
shares of stock ranking junior, either as to dividends or upon liquidation or
winding up, to the Series A Participating Preferred Stock unless prior thereto
the holders of the Series A Participating Preferred Stock shall have received
$100 per share plus an amount equal to accrued and unpaid dividends to the date
of such payment. Following such payment, no additional distributions can be
made to the holders of such stock unless the holders of Common Stock shall have
received a per share "common adjustment" payment based on a formula adjustment.
COMMON STOCK
Shares of authorized but unissued Class A Common Stock and Class B Common
Stock may be issued from time to time by the Board of Directors without further
stockholder action except as required by applicable law, the Certificate of
Incorporation or the rules of the New York Stock Exchange. In that connection,
the rules of the New York Stock Exchange presently do not prohibit the issuance
of the previously authorized but unissued Class B Common Stock and such issuance
will generally be permitted subject to consultation with the Exchange.
Shares of Class A Common Stock are entitled to one vote per share on all
matters on which they are entitled to vote. Shares of Class B Common Stock are
entitled to ten votes per share on all matters on which they are entitled
57
<PAGE>
to vote, except as otherwise provided by law or the 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 as otherwise provided by law and except
that the Class A Common Stock, voting as a class with the holders of shares of
any series of Preferred Stock entitled to vote, elects one-third (rounded down,
if necessary, to the nearest whole number, but in any event at least one), of
the directors elected in each year, and except as otherwise required by law. The
Certificate of Incorporation also provides that the favorable vote of the
holders of at least 80% of the outstanding shares of capital stock of the
Company entitled to vote is required to effect certain mergers or acquisition
transactions with an interested person owning 10% or more of any class of the
Company's securities entitled to vote for the election of directors. The By-laws
provide for a classified Board of Directors, consisting of three classes of
directors, one class of which is elected each year for a three-year term. The
issuance of additional shares of Class B Common Stock would dilute further the
voting power of the Class A Common Stock, including the shares of Class A Common
Stock sold in the Offering.
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.
Dividends may be declared upon and paid to holders of Common Stock by the Board
of Directors out of funds legally available therefor.
Holders of Common Stock have no pre-emptive or other prescriptive rights or
conversion privileges (other than the conversion of Class B Common Stock into
Class A Common Stock on a share-for-share basis described below and except for
certain rights to acquire newly issued shares of Class A Common Stock or
Derivative Securities granted to Finmeccanica under the Shareholders Agreement)
and no redemption rights. All presently issued shares of Common Stock are fully
paid and nonassessable, and the shares of Class A Common Stock to be issued upon
completion of the Offering will be fully paid and nonassessable.
Shares of Class B Common Stock are not transferable except to permitted
transferees as defined in the Certificate of Incorporation; however, such shares
are convertible at all times into Class A Common Stock on a share-for-share
basis and are transferable thereafter. All shares of Class B Common Stock may be
converted into shares of Class A Common Stock by the Continuing Directors (as
defined in the Certificate of Incorporation) at any time.
In the event of any liquidation, dissolution, or winding up of the affairs
of the Company, the assets of the Company remaining after provision for payment
of creditors, and after provision for payment of any liquidation preference of
any preferred stock that may be issued and outstanding, shall be distributed pro
rata solely among the holders of the Common Stock.
The Common Stock does not have cumulative voting rights, which means that
the holders of the voting stock entitled to cast more than 50% of the votes cast
for the election of Directors can elect 100% of the Directors to be elected at
any meeting if they choose to do so, and, in such event, the holders of the
remaining stock entitled to cast less than 50% of the votes for the election of
Directors will not be able to elect any person or persons to the Board of
Directors.
RIGHTS PLAN
On March 23, 1988, the Company adopted a Rights Plan which provided that
holders of Common Stock would receive one Right to purchase Series A
Participating Preferred Stock. Each Right entitles the holder thereof to
purchase from the Company one one-hundredth of a share of Series A Participating
Preferred Stock (subject to adjustment), at an exercise price of $55 (subject to
adjustment), ten business days after a party acquires 20% of the Company's
Common Stock, or the commencement of a tender or exchange offer (excluding, for
these purposes, Finmeccanica so long as Finmeccanica does not beneficially own
shares of Common Stock other than the 3,450,000 shares of Class A Common Stock
currently held by Finmeccanica and such additional shares as Finmeccanica may
purchase in accordance with its pre-emptive rights under the Shareholders
Agreement). These Rights may be redeemed by the Company at a price of $0.03 per
Right; if not, the holder is entitled to purchase, at the exercise price of the
Right, an equity interest in the acquiring party having a market value of two
times the exercise price.
58
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless (i) the Board of Directors approves, prior to such date,
either the proposed business combination or the proposed acquisition of stock
which resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which results in the stockholder becoming an
interested stockholder, the interested stockholder acquires at least 85% of
those shares of the voting stock of the corporation which are not held by
directors, officers or certain employee stock plans or (iii) on or subsequent to
that date, the business combination with the interested stockholder is approved
by the Board of Directors and also approved at a stockholders' meeting by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of the corporation's voting stock other than shares held by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years owned, 15%
or more of the corporation's voting stock.
The By-laws provide for the division of the Board of Directors into three
classes as nearly equal in size as possible with staggered three-year terms. See
"Management." Under the DGCL, directors of a classified board may be removed
only for cause by the affirmative vote of the holders of a majority of the
shares of capital stock of the Company entitled to vote at an election of
directors. Under the By-laws, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
be filled by vote of a majority of the Directors then in office. The
classification of the Board of Directors and the limitations on the removal of
Directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Certificate of Incorporation provides that any action required or
permitted to be taken by the stockholders of the Company at an annual meeting or
special meeting of stockholders may not be taken by written action in lieu of a
meeting. The By-laws provide that special meetings of the stockholders may only
be called by the Chairman of the Board, the President of the Company or by a
majority of Directors then in office or by vote of the Board of Directors. The
foregoing provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of the Company. These provisions
may also discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders' meeting, and not by written consent.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless either the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. The Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the shares of capital stock of the Company issued
and outstanding and entitled to vote to amend or repeal the restriction therein
against the taking of action by written consent of the stockholders and the
provisions, described above, requiring the vote of the holders of 80% of the
shares of capital stock for certain mergers and acquisitions. The By-laws
require the affirmative vote of three-quarters of the Directors then in office
or holders of at least two-thirds of the shares of capital stock of the Company
issued and outstanding and entitled to vote to amend or repeal the By-laws.
The Certificate of Incorporation contains certain provisions permitted
under the DGCL relating to the liability of directors. The provisions eliminate
a director's liability for monetary damages for a breach of fiduciary duty,
except in certain circumstances involving wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. Further, the By-laws contain
provisions to indemnify the Company's Directors and officers to the fullest
extent permitted by the DGCL. The
59
<PAGE>
Company believes that these provisions assist the Company in attracting and
retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a total of
12,738,425 shares of Common Stock issued and outstanding, including 12,218,206
shares of Class A Common Stock and 520,219 shares of Class B Common Stock. Of
these shares, a total of 9,288,425 shares of Class A Common Stock (including the
4,156,000 shares offered hereby, assuming no exercise of the Underwriters' over-
allotment option, and the 520,219 shares issuable upon conversion of all
outstanding shares of Class B Common Stock) will be freely tradable without
restriction or registration under the Securities Act by persons other than
"affiliates" of the Company, as defined in the Securities Act (who would be
required to sell under Rule 144 under the Securities Act). The remaining
3,450,000 shares of Class A Common Stock outstanding upon completion of the
Offering will be "restricted securities" as that term is defined by Rule 144
(the "Restricted Shares"). The Restricted Shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years (including the holding period of any prior owner except
an affiliate), including persons who may be deemed "affiliates" of the Company,
would be entitled to sell within any three-month period a number of shares of
Class A Common Stock that does not exceed the greater of one percent of the
number of shares of Class A Common Stock then outstanding (approximately 122,182
shares upon completion of the Offering) or the average weekly trading volume of
the Class A Common Stock during the four calendar weeks preceding the filing of
a Form 144 with respect to such sales. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements, and to the
availability of current public information about the Company. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years
(including the holding period of any prior owner except an affiliate), would be
entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement. The Securities and Exchange Commission has proposed
an amendment to Rule 144 which wold reduce the holding period required for
shares subject to Rule 144 to become eligible for sale in the public market from
two years to one year, and from three years to two years in the case of Rule
144(k).
Certain officers, directors and stockholders of the Company who
beneficially own 4,287,011 shares of Class A Common Stock (including options to
acquire 129,332 shares of Common Stock, 7,551 shares of Common Stock held
pursuant to the ESOP and the SARP for distribution and 60,200 shares of Common
Stock held pursuant to the EIP), have agreed pursuant to the Lock-up Agreements
for a period of 180 days after the date of this Prospectus not to issue,
register for sale, offer, sell (or contract to sell) or otherwise dispose of any
shares of Class A Common Stock (or any security convertible into or exercisable
or exchangeable for any shares of Class A Common Stock) or grant any options or
warrants to purchase Class A Common Stock (other than (i) Class A Common Stock
sold in the Offering and (ii) Class A Common Stock issued upon exercise of
options to purchase Class A Common Stock that are issued and outstanding on the
date of this Prospectus) without the prior written consent of Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ"). DLJ may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to these Lock-up Agreements.
60
<PAGE>
As of the date of this Prospectus, options to purchase a total of 648,000
shares of Class A Common Stock pursuant to the EIP were outstanding with a
weighted average exercise price of $7.643 per share; an additional 124,700
shares of Class A Common Stock were available for future awards under the EIP.
As of the date of this Prospectus, options to purchase an additional 17,997
shares of Class A Common Stock under the 73 Plan were outstanding with a
weighted average exercise price of $12.588 per share. As of June 30, 1996,
505,923 shares of Class A Common Stock and 218,807 shares of Class B Common
Stock were held by the ESOP and the SARP for distribution to employees of the
Company upon their termination of employment in accordance with the terms
thereof. Holders of outstanding options to acquire 129,332 shares of Common
Stock will be subject to restrictions on resale for 180 days following the date
of this Prospectus pursuant to the Lock-up Agreements. In addition, certain
executive officers of the Company to whom 7,551 shares of Common Stock currently
held pursuant to the ESOP and the SARP may be distributed upon termination of
employment, will enter into Lock-up Agreements restricting resales of any such
shares of Common Stock for 180 days following the date of this Prospectus. The
Company has filed registration statements on Form S-8 pursuant to which shares
issued upon the exercise of all outstanding options to purchase Common Stock and
shares issued as awards of restricted stock are freely tradeable (subject to
compliance with Rule 144 for affiliates), and shares distributable to employees
from the ESOP and the SARP upon their termination of employment are also freely
tradeable (subject to compliance with Rule 144 for affiliates).
In addition, Finmeccanica has certain demand and "piggyback" registration
rights granted under the Shareholders Agreement. If, following September 28,
1996, the holders of 25% of the shares covered by the Shareholders Agreement
demand registration, the Company will be required to file a registration
statement covering the resale of such shares. In addition, if the Company files
a registration statement, Finmeccanica may request that its shares be included
in the registration statement.
Certain demand registration rights were granted to Diehl with respect to
the shares of Class A Common Stock acquired in connection with the purchase by
the Company of Roch from Diehl in March 1994. Pursuant to the terms of the Stock
Purchase and Transfer Agreement dated March 24, 1994, Diehl's demand
registration rights, exercisable during the period commencing March 24, 1996 and
ending March 24, 1997, permit it to demand that its shares be covered by a
registration statement, provided that the demand is for at least 100,000 shares
and subject to the discretion of the Board of Directors. See "Certain
Transactions."
No predictions can be made as to the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Class A Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could materially and adversely affect the market price of the Class
A Common Stock and could impair the Company's future ability to raise capital
through an offering of its equity securities. See "Risk Factors -- Shares
Eligible for Future Sale."
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, dated
the date of this Prospectus (the "Underwriting Agreement"), among the Company,
the Selling Stockholder and DLJ and CS First Boston Corporation, as
representatives (the "Representatives") of the several Underwriters
(collectively, the "Underwriters"), the Underwriters have severally agreed to
purchase from the Company and the Selling Stockholder, the respective number of
shares of Class A Common Stock set forth in the table below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.....
CS First Boston Corporation.............................
Total.............................................. 4,156,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all the shares of the Class A Common Stock offered hereby (other than the
shares of the Class A Common Stock covered by the over-allotment option
described below) if any are taken.
The Company and the Selling Stockholder have been advised by the
Representatives that the Underwriters propose to offer the Class A Common Stock
to the public initially at the price to the public set forth on the cover page
of this Prospectus and to certain dealers (who may include the Underwriters) at
such price less a concession not to exceed $______ per share. The Underwriters
may allow, and such dealers may reallow, a concession not to exceed $______ per
share to any other Underwriter and certain other dealers. After the initial
public offering of the Class A Common Stock, the offering price and other
selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 623,400 additional
shares of Class A Common Stock solely to cover over-allotments at the public
offering price set forth on the cover page of this Prospectus less underwriting
discounts and commissions. The Underwriters may exercise such option from time
to time solely for the purpose of covering over-allotments, if any, incurred in
connection with the sale of shares offered hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite such Underwriter's name in the
preceding table bears to the total number of shares offered in the Offering.
The Underwriting Agreement also provides that the Company and the Selling
Stockholder will indemnify the Underwriters and their controlling persons
against certain liabilities and expenses, including liabilities under the
Securities Act, or contribute to payments the Underwriters may be required to
make in respect thereof.
Certain officers, directors and stockholders of the Company who
beneficially own 4,287,011 shares of Class A Common Stock (including options to
acquire 129,332 shares of Common Stock, 7,551 shares of Common Stock held
pursuant to the ESOP and the SARP for distribution and 60,200 shares of Common
Stock held pursuant to the EIP), have agreed for a period of 180 days after the
date of this Prospectus not to issue, register for sale, offer, sell (or
contract to sell) or otherwise dispose of any shares of Class A Common Stock (or
any security convertible into or exercisable or exchangeable for any shares of
Class A Common Stock) or grant any options or warrants to purchase Class A
Common Stock (other than (i) Class A Common Stock sold in the Offering and (ii)
Class A Common Stock issued upon exercise of options to purchase Class A Common
Stock that are issued and outstanding on the date of this Prospectus) without
the prior written consent of DLJ.
62
<PAGE>
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered by the Company
hereby will be passed upon for the Company by Ropes & Gray, Boston,
Massachusetts. Howard K. Fuguet, who is a director of the Company, is a partner
of Ropes & Gray. Mr. Fuguet owns 1,000 shares of Class A Common Stock. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Latham & Watkins, New York, New York.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and for the year ended December 31, 1995 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of the Company at December 31, 1994
and December 25, 1993 and for the two years ended December 31, 1994 included in
this Prospectus have been audited by Coopers & Lybrand L.L.P., independent
accountants, as stated in their report appearing in this Prospectus, and have
been so included in reliance upon such reports of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission. The Company has furnished and intends to furnish reports to its
stockholders, which will include financial statements audited by its independent
accountants, and such other reports as it may determine to furnish or as
required by law, including Section 13(a) and 15(d) of the Exchange Act. Reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and the Commission's regional offices located
at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies
of such materials also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Class A Common Stock of the Company is listed on the New York Stock
Exchange. Reports and other information concerning the Company may be inspected
at the National Association of Securities System Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits, schedules and supplements thereto)
on Form S-1 under the Securities Act with respect to the Class A Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto, may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies
may be obtained at the prescribed rates from the Public Reference Section of the
Commission at Washington, D.C. In addition, the Company is required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering,
63
<PAGE>
Analysis and Retrieval (EDGAR) System. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission;
the address of such site is http://www.sec.gov.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ANNUAL FINANCIAL STATEMENTS OF THE COMPANY:
<S> <C>
Report of Ernst & Young LLP.................................................... F-2
Report of Coopers & Lybrand L.L.P. ............................................ F-3
Consolidated Statements of Operations -- Years ended December 25, 1993
and December 31, 1994 and 1995............................................. F-4
Consolidated Balance Sheets -- December 31, 1994 and 1995...................... F-5
Consolidated Statements of Cash Flows -- Years ended December 25, 1993
and December 31, 1994 and 1995............................................. F-6
Consolidated Statements of Shareowners' Equity -- Years ended December 25, 1993
and December 31, 1994 and 1995............................................. F-7
Notes to Consolidated Financial Statements..................................... F-8
UNAUDITED INTERIM FINANCIAL STATEMENTS OF THE COMPANY:
Consolidated Statements of Operations -- Quarters ended June 30, 1995
and 1996.................................................................... F-21
Consolidated Statements of Operations -- Six Months ended June 30, 1995
and 1996.................................................................... F-21
Consolidated Balance Sheets -- June 30, 1995 and 1996........................... F-22
Consolidated Statements of Cash Flows -- Six Months ended June 30, 1995
and 1996 F-23
Notes to Interim Consolidated Financial Statements.............................. F-24
</TABLE>
F-1
<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 Item 16(b) of this Registration Statement. 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
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1994 and the related consolidated
statements of operations, shareowner's equity, and cash flows for the years
ended December 25, 1993 and December 31, 1994. These financial statements 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 present fairly, in
all material respects, the consolidated financial position of Brown & Sharpe
Manufacturing Company as of December 31, 1994, and the consolidated results of
its operations and its cash flows for the years ended December 25, 1993 and
December 31, 1994, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 29, 1995
F-3
<PAGE>
Brown & Sharpe Manufacturing Company
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 25, 1993 and December 31, 1994 and 1995
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $159,518 $209,369 $328,031
Cost of goods sold 110,841 142,776 221,729
Selling, general and administrative expense 48,073 68,473 94,902
Restructuring expense - 4,169 336
-------- -------- --------
Operating profit (loss) 604 (6,049) 11,064
Interest expense 5,100 6,575 9,129
Other income, net 2,880 689 688
-------- -------- --------
Income (loss) before income taxes (1,616) (11,935) 2,623
Income tax provision 800 2,400 697
-------- -------- --------
Net income (loss) $ (2,416) $(14,335) $ 1,926
======== ======== ========
Primary and fully diluted income (loss) per
common share $(.49) $(2.37) $.22
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Brown & Sharpe Manufacturing Company
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1995
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1994 1995
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $6,676 $6,262
Accounts receivable, net of allowances for doubtful accounts of
$3,103 and $3,030 108,234 113,579
Inventories 88,639 88,558
Deferred income taxes 2,000 3,322
Prepaid expenses and other current assets 5,981 5,436
-------- --------
Total current assets 211,530 217,157
Property, plant and equipment:
Land 6,858 7,141
Buildings and improvements 33,124 37,44 7
Machinery and equipment 85,583 95,482
-------- --------
125,565 140,070
Less-accumulated depreciation 80,210 87,183
-------- --------
45,355 52,887
Goodwill, net 1,875 11,529
Other assets 13,514 13,827
-------- --------
$272,274 $295,400
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current installments of long-term debt $ 22,398 $ 45,229
Accounts payable 36,896 44,936
Accrued expenses and income taxes 49,353 39,423
-------- --------
Total current liabilities 108,647 129,588
Long-term debt 70,215 56,839
Other long-term liabilities - 6,310
Deferred income taxes 1,737 2,765
Unfunded accrued pension cost 5,035 5,823
Termination indemnities 7,715 8,218
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
8,122,086 shares in 1994 and 8,195,795 in 1995 8,122 8,196
Class B, par value $1; authorized 2,000,000 shares; issued
534,821 shares in 1994 and 522,575 in 1995 535 523
Additional paid-in capital 66,412 66,863
(Deficit) earnings employed in the business (9,958) (8,032)
Cumulative foreign currency translation adjustment 14,530 18,926
Treasury stock; 7,492 shares in 1994 and 23,592 shares in
1995, at cost (151) (270)
Unearned compensation (565) (349)
-------- --------
Total shareowners' equity 78,925 85,857
-------- --------
$272,274 $295,400
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
Brown & Sharpe Manufacturing Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 25, 1993 and December 31, 1994 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATIONS:
Net Income (Loss) $(2,416) $(14,335) $1,926
Adjustment for Noncash Items:
Depreciation and amortization 6,355 6,743 11,010
Pension credits and charges 269 212 1,369
Deferred income taxes 500 (1,900) 376
Gain on sale of operations (2,182) - -
Termination indemnities - - 331
Deferred compensation 55 213 216
Changes in Working Capital:
Accounts receivable (8,204) (15,912) (4,324)
Inventories 957 7,103 (7,389)
Prepaid expenses and other current assets 323 1,001 1,208
Accounts payable and accrued expenses (1,455) 6,693 (4,798)
------- -------- --------
Net Cash (Used in) Operations (5,798) (10,182) (75)
------- -------- --------
INVESTMENT TRANSACTIONS:
Capital expenditures (4,399) ( 8,929) (12,054)
Proceeds from dispositions 599 3,456 2,096
Proceeds from sale of operations 8,700 - -
Cash equivalent pledged (6,078) 6,078 -
Other investing activities (563) (1,988) (445)
------- -------- --------
Net Cash (Used in) Investment Transactions (1,741) (1,383) (10,403)
------- -------- --------
FINANCING TRANSACTIONS:
Increase (decrease) in short-term debt 5,810 (16,420) 10,915
Proceeds from issuance of long-term debt - 33,500 -
Principal payments of long-term debt (1,000) (1,661) (3,444)
Other financing transactions - 353 (600)
------- -------- --------
Net Cash Provided by Financing Transactions 4,810 15,772 6,871
------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 183 375 3,193
------- -------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year (2,546) 4,582 (414)
Beginning balance 4,640 2,094 6,676
------- -------- --------
Ending balance $ 2,094 $ 6,676 $ 6,262
======= ======== ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 4,942 $ 6,223 $ 8,004
======= ======== ========
Taxes paid $ 1,158 $ 1,496 $ 2,598
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
Brown & Sharpe Manufacturing Company
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
For the Years Ended December 25, 1993 and December 31, 1994 and 1995
(dollars in thousands)
<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 Transactions - - (101) - 12 -
Restricted Stock Awards 1 - - - 161 55
Foreign currency translation
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 Transactions - - - - 12 -
Restricted Stock Awards 10 (8) - - - 213
ESOP Contribution 42 297 - - - -
Foreign currency translation
adjustment - - - 5,136 - -
------ ------- -------- ------ ----- -----
Balance December 31, 1994 8,657 66,412 (9,958) 14,530 (151) (565)
------ ------- -------- ------ ----- -----
Net Income - - 1,926 - - -
Treasury Stock Transactions - - - - (119) -
Restricted Stock Awards - 153 - - - 216
ESOP Contribution 62 298 - - - -
Foreign currency translation
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.
F-7
<PAGE>
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
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
user markets for its products are the automotive, aerospace, industrial
machinery, electronics and computer 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 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 $12,473 and $12,293 at December
31, 1994 and 1995, respectively. Year-end inventories valued under the LIFO
method were $7,231 in 1994 and $16,081 in 1995. During 1993 and 1994,
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 $749 ($.15 per share) and $631 ($.10 per
share) in 1993 and 1994, respectively.
The composition of inventory at year-end was as follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Parts, raw materials and supplies $42,665 $39,857
Work in progress 17,069 15,906
Finished goods 28,905 32,795
------- -------
$88,639 $88,558
======= =======
</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
$5,862, $6,442, and $8,980 in 1993, 1994, and 1995, 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.
F-8
<PAGE>
GOODWILL
Goodwill, which is net of accumulated amortization of $154 in 1994 and $771 in
1995, is being amortized on a straight-line basis over periods ranging from 7 to
20 years.
OTHER ASSETS
<TABLE>
<CAPTION>
Other assets consisted of the following:
1994 1995
<S> <C> <C>
Prepaid pension $5,106 $4,673
Equity investments 1,956 2,492
Other 6,452 6,662
------ ------
$13,514 $13,827
======= =======
</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, 1994 and
1995. Transaction gains were recorded in 1993, 1994, and 1995 of $157, $1,064,
and $601, 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 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.
F-9
<PAGE>
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 4,969,543 in 1993, 6,057,090 in 1994, and 8,772,748 in
1995.
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
Prior to 1996, agents' commissions were netted against net sales. Effective
January 1, 1996, the Company elected to classify agents' commissions as selling,
general and administrative expense. As a result, net sales and selling, general
and administrative expense have been adjusted for prior periods. The effect of
such reclassification was to increase net sales and selling, general and
administrative expense by $2,756, $4,809, and $7,685 for the years ended
December 25, 1993 and December 31, 1994 and 1995, respectively. Also effective
January 1, 1996, miscellaneous income was reclassified from net sales to other
income. The effect of this reclassification was to decrease net sales and
increase other income by $273, $440 and $553 for the years ended December 25,
1993 and December 31, 1994 and 1995, respectively. Certain other amounts
reported in 1993 and 1994 have been reclassified to conform with the 1995
presentation.
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
F-10
<PAGE>
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.
PRO FORMA COMBINED (Unaudited)
The Company's unaudited Pro Forma combined results of operations for the years
ended December 25, 1993 and December 31, 1994 assuming the acquisition of DEA
and Roch occurred at the beginning of 1993, are as follows:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Net sales $282,225 $277,216
Net income (loss) $8,924 $(11,441)
Primary and fully diluted net income (loss)
per common share $1.08 $(1.89)
</TABLE>
F-11
<PAGE>
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 1994 and 1995,
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>
1993 1994 1995
<S> <C> <C> <C>
Domestic $ 1,394 $ (1,338) $(4,850)
Foreign (3,010) (10,597) 7,473
------- -------- -------
Income (loss) before income taxes $(1,616) $(11,935) $ 2,623
======= ======== =======
</TABLE>
The following table reconciles the income tax provision (benefit) at the U.S.
statutory rate to that in the financial statements:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Taxes computed at 34% $ (491) $(4,058) $ 892
Goodwill amortization - - 158
Additional tax on foreign income - 1,459 113
Alternative minimum and state taxes 200 250 31
Net operating losses and other losses 1,091 4,749 (636)
Other (net) - - 139
------ ------- ------
Income tax provision $ 800 $ 2,400 $ 697
====== ======= ======
</TABLE>
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Current:
Federal $ 500 $ 3,250 $ (996)
State 300 250 31
Foreign 500 800 1,286
------ ------- ------
1,300 4,300 321
Deferred:
Federal - (1,000) 996
Foreign (500) (900) (620)
------ ------- ------
(500) (1,900) 376
------ ------- ------
Income tax provision $ 800 $ 2,400 $ 697
====== ======= ======
</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.
F-12
<PAGE>
The components of the Company's deferred tax assets and liabilities as of
December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 2,429 $ 8,553
Warranty expense 400 928
Provision for doubtful accounts 300 226
Depreciation 3,044 1,722
Tax credit and loss carryforwards 37,600 46,293
Other 404 4,827
------- -------
Gross deferred assets 44,177 62,549
Less valuation allowance 38,100 53,590
------- -------
Deferred tax asset $ 6,077 $ 8,959
======= =======
Deferred tax liabilities:
Pension expense $ 1,542 $ 1,542
Inventory reserves 1,196 1,665
Depreciation 2,752 2,288
Other 324 2,907
------- -------
Deferred tax liability $ 5,814 $ 8,402
======= =======
</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, 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 $19,193 at December 31, 1994 and $28,061
at December 31, 1995. 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.
F-13
<PAGE>
No compensating balances were required at December 31, 1994 and 1995. 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 7.3% and 7.7% in 1994 and 1995,
respectively.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
9-1/4% convertible subordinated debentures due December, 2005 $15,000 $14,000
Mortgages at rates ranging from 7.75% to 8.75% 27,619 26,800
Notes payable, due September 28, 1997 with quarterly interest of
Libor plus .60% 25,000 25,000
Notes payable, due various dates with interest rates ranging from
2.1% to 12.39% 5,801 8,207
------- -------
73,420 74,007
Less: current installments 3,205 17,168
------- -------
Total long-term debt $70,215 $56,839
======= =======
</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 issuance upon 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.
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.
F-14
<PAGE>
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 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 "EIP"), 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 EIP 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 EIP. Since the
inception of the EIP, 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 1994 and 1995, options to purchase a total of
145,000 and 528,000 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 exercisable 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 exercisable at any time after the date of the
awards. The exercise price for shares covered by options awarded under the EIP
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 EIP is 875,000 shares and the amount of shares of Class A
common stock including forfeitures remaining available for issuance under the
EIP in connection with future awards is 124,700 shares.
F-15
<PAGE>
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 exercisable 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 exercisable at prices between $12.94 and
$17.86. Option activity under both the EIP and 73 Plan during the past three
years is summarized as follows:
<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 $601, $310 and $1,157 were made in
1993, 1994, and 1995, respectively, and there were no awards of stock made in
1993, 1994 or 1995.
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 "LTDCIP"),
which was effective for 1995. The LTDCIP 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
The 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 1993, 1994, and 1995 was $705, $793, and $941, 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
$327 in 1993, $360 in 1994, and $433 in 1995. 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.
F-16
<PAGE>
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 1993, 1994, and 1995 was
$1,223, $1,593, and $1,369, 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 9.0% at the end
of 1994 and 8.0% at the end of 1995, a long-term return on assets of 10% in
1993, 8.0% in 1994, and 9% in 1995, and annual wage increases of 8.0% at the end
of 1994 and 7.0% at the end of 1995. Retirement costs accrued are funded.
The German plan's actuarial assumptions used a settlement rate of 7.5% and 7.0%
at the end of 1994 and 1995 and an annual wage increase of 4.5% at the end of
1994 and 1995. 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 25, 1993 and December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Service cost-benefits earned $664 $797 $823
Interest cost on projected benefit obligations 743 943 1,263
Return on plan assets, net (1,200) 1,007 (3,049)
Net amortization and deferral (345) (2,948) 909
------- ------- -------
Net periodic pension income $(138) $(201) $(54)
===== ===== =====
</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, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Vested and accumulated benefit obligation $(16,311) ) $(12,012
======== ========
Projected benefit obligation $(18,420) ) $(15,126
Plan assets at fair value 31,290 20,726
-------- --------
Funded status 12,870 5,600
Unrecognized portion of net assets (7,764) ) (927
-------- --------
Prepaid pension $5,106 $4,673
====== ======
</TABLE>
F-17
<PAGE>
The following items are the components of net periodic pension cost for the
unfunded German plan for the years ended December 25, 1993 and December 31, 1994
and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Service cost-benefits earned $112 $97 $107
Interest cost on projected benefit obligations 295 316 372
----- ------ ------
Net periodic pension cost $407 $413 $479
===== ====== ======
Vested and accumulated benefit obligation $(3,33) $(4,700)
====== ======
Projected benefit obligation $(4,617) $(5,519)
Unrecognized net gain (418) (304)
------ ------
Unfunded accrued pension cost $(5,035) $(5,823)
====== ======
</TABLE>
10. RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense was $4,855, $5,694, and $10,762 in 1993, 1994,
and 1995, respectively.
11. OTHER INCOME AND EXPENSE
Other income (expense), net includes:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Interest income $266 $468 $540
Gain (loss) on sale of fixed assets 44 (284) (90)
Gain on sale of operations 2,182 - -
Other income 388 505 238
------ ----- -----
$2,880 $689 $688
====== ===== =====
</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 $3,845, $4,157, and $9,767, in 1993, 1994,
and 1995, 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
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.
F-18
<PAGE>
<TABLE>
<CAPTION>
1993 1994 1995
(dollars in thousands)
<S> <C> <C> <C>
GEOGRAPHIC AREA:
Sales to Unaffiliated
Customers From:
United States $ 80,857 $ 93,061 $128,482
Europe 78,661 116,308 199,549
-------- -------- --------
$159,518 $209,369 $328,031
======== ======== ========
Transfers Between
Geographic Areas:
United States $ 4,040 $ 3,144 $ 3,870
Europe 12,365 19,288 33,713
-------- -------- --------
$ 16,405 $ 22,432 $ 37,583
======== ======== ========
Operating Profit (Loss):
United States $ 5,151 $ 1,303 $ 492
Europe (4,547) (7,352) 10,572
-------- -------- --------
$ 604 $ (6,049) $ 11,064
======== ======== ========
Identifiable Assets:
United States $ 39,521 $ 74,252 $ 77,726
Europe 118,178 191,346 211,412
Corporate 8,172 6,676 6,262
-------- -------- --------
$165,871 $272,274 $295,400
======== ======== ========
</TABLE>
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 1994 and 1995, 12,783 shares and
12,246 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 issued to a former
director as a final payment under a Directors' deferred compensation plan.
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 exercisable 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 any person becomes a 20% shareowner, each right
will entitle its holder (other than a 20% shareowner) to purchase, at the
right's then
F-19
<PAGE>
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>
1994
----
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $37,140 $43,717 $40,864 $87,648
Gross profit 11,200 14,320 12,254 28,819
Net income (loss) (2,874) (1,368) (4,615) (5,478)
Earnings (loss) per common share $(.57) $(.26) $(.86) $(.63)
<CAPTION>
1995
----
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $75,868 $82,481 $78,571 $91,111
Gross profit 24,957 25,218 24,308 31,819
Net income (loss) (1,455) 1,045 220 2,116
Earnings (loss) per common share $(.17) $.12 $.03 $.24
</TABLE>
In 1994, the Company changed its method of accounting from the completed
contract method to the percentage-of-completion accounting method for its large
machinery construction contracts for its European operation. The effect of this
was that net income for the first quarter of 1994 was increased by $164 ($.03
per share), net income for the second quarter of 1994 was decreased by $573
($.11 per share) and net income in the third quarter of 1994 was increased by
$154 ($.03 per share).
In the second quarter of 1995, the Company increased its inventory valuation
reserves which decreased net income $1,300 ($.15 per share). In the third
quarter of 1995, the Company made adjustments to the preliminary 1994 estimates
of fair values of the assets and liabilities of DEA S.p.A. for the purpose of
purchase price accounting for the DEA acquisition. As a result of these
adjustments, net income for the third quarter of 1995 increased by $1,171 ($.13
per share). 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.
F-20
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Dollars in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE 30
----------------------------- --------------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $82,481 $89,835 $158,349 $166,113
Cost of sales 57,263 62,017 108,174 113,693
Selling, general and administrative 21,971 23,015 46,580 45,104
expense
Restructuring charges 117 - 247 -
---------- ---------- ---------- ----------
Operating profit 3,130 4 ,803 3,348 7,316
Interest expense 2,224 2,476 3,948 4,553
Other income (loss), net 139 (65) 390 169
---------- ---------- ---------- ----------
Income (loss) before income taxes 1,045 2 ,262 (210) 2,932
Income tax provision - 408 200 528
---------- ---------- ---------- ----------
Net income (loss) $1,045 $ 1,854 $(410) $2,404
===== ===== ===== ======
Primary and fully diluted income
(loss) per common share:
Net income (loss) per share $.12 $.21 $(.05) $.27
==== ==== ===== ====
Weighted average shares
outstanding and common stock
equivalents during the period 8,705,241 8,889,803 8,691,487 8,884,156
========= ========= ========== =========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1996
-------------- --------------
(Unaudited) (Unaudited)
--------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,571 $ 4,226
Accounts receivable, net of allowances for doubtful
accounts of $3,995 and $3,175 101,238 114,251
Inventories 98,950 96,983
Deferred income taxes, less $38,100 valuation allowance 2,000 3,996
Prepaid expenses and other current assets 8,615 5,313
--------- --------
Total current assets 217,374 224,769
Property, plant and equipment:
Land 7,293 6,892
Buildings and improvements 37,052 42,214
Machinery and equipment 96,296 91,440
--------- --------
1 40,641 140,546
Less-accumulated depreciation 91,063 86,946
--------- --------
49,578 53,600
-
Goodwill, net - 11,269
Other assets 15,001 13,014
--------- --------
$ 281,953 $302,652
========= ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current installments of long-term debt $ 41,677 $ 38,539
Accounts payable 43,552 49,543
Accrued expenses and income taxes 42,248 38,842
--------- --------
Total current liabilities 127,477 126,924
Long-term debt 59,732 67,973
Other long-term liabilities - 5,749
Deferred income taxes 1,355 2,765
Unfunded accrued pension cost 5,863 5,703
Termination indemnities 7,821 8,668
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 8,187,412 shares in 1995 and 8,241,798 shares 8,187 8,242
in 1996
Class B, par value $1; authorized 2,000,000 shares;
issued 530,958 shares in 1995 and 520,219 shares in 531
1996 520
Additional paid in capital 66,863 67,248
Earnings employed in the business (10,366) (5,628)
Cumulative foreign currency translation adjustment 15,217 14,985
Treasury stock: 23,592 shares in 1995 and 1996 at cost (270) (270)
Unearned compensation (457) (227)
--------- --------
Total shareowners' equity 79,705 84,870
--------- --------
$ 281,953 $302,652
========= ========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
-------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30
1995 1996
---- ----
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATIONS:
Net income (loss) $(410) $2,404
Adjustment for Noncash Items:
Depreciation and amortization 4,094 3,962
Deferred income taxes - -
Unfunded pension 208 218
Deferred compensation 108 122
Termination indemnities 46 159
Changes in Working Capital:
(Increase) Decrease in accounts receivable 9,699 (4,908)
Increase in inventories (4,431) (11,463)
Increase in prepaid expenses and other current assets (2,424) (486)
Increase (decrease) in accounts payable and accrued
expenses (3,866) 5,207
------- --------
Net Cash (Used in) Provided by Operations 3,024 (4,785)
------- --------
INVESTMENT TRANSACTIONS:
Capital expenditures (3,933) (5,425)
Other investing activities 646 356
------- --------
Cash (Used in) Investment Transactions (3,287) (5,069)
------- --------
FINANCING TRANSACTIONS:
Increase in short-term debt 6,200 4,444
Proceeds from issuance of long-term debt - 2,963
Principal payments of long-term debt (1,222) (1,593)
Other financing activities 395 428
------- --------
Cash Provided by Financing Transactions 5,373 6,242
------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,215) 1,576
------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period (105) (2,036)
Beginning balance 6,676 6,262
------- --------
Ending balance $6,571 $4,226
====== ======
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $3,811 $4,158
====== ======
Taxes paid $1,633 $262
====== ====
</TABLE>
* The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
NOTES TO INTERIM 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 quarter and half year period ended June 30, 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 of Brown & Sharpe included elsewhere in
this Prospectus.
2. Prior to 1996, agents' commissions were netted against net sales. Effective
January 1, 1996, the Company elected to classify agents' commissions as
selling, general and administrative expense. As a result, net sales and
selling, general and administrative expense have been adjusted for prior
periods. The effect of such reclassification was to increase net sales and
selling, general and administrative expense by $1,613 and $330 for the
quarters ended June 30, 1995 and 1996, respectively, and $3,490 and $657
for the six months ended June 30, 1995 and 1996, respectively.
3. The composition of inventory is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
Parts, raw materials, and supplies $42,790 $39,988
Work in process 20,644 20,116
Finished goods 35,516 36,879
------- -------
$98,950 $96,983
======= =======
</TABLE>
4. Income taxes include provisions for federal, foreign and state income taxes
and is based on the Company's estimate of effective income tax rates for
the full year. The current tax provision for the first half of 1995 and
1996 is $200 and $408, respectively.
5. Primary and fully diluted earnings per share for the quarter and half year
ended June 30, 1996 is based upon the weighted average number of common
shares outstanding and common stock equivalents. For the quarter and half
year ended June 30, 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.
6. 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
F-24
<PAGE>
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.
7. As discussed in Footnote 2 to the Consolidated Financial Statements for the
year ended December 31, 1995, the purchase agreement to acquire Ets. Pierre
Roch S.A. and Mauser Prazisions-Messmittel GmbH ("Roch") provided for
adjustments to the purchase price based on a post-closing final balance
sheet and other adjustments. On July 5, 1996, the Company concluded an
agreement on these adjustments with Diehl GmbH & Co. ("Diehl"), the seller
of Roch, in which Diehl returned 19,000 shares of Brown & Sharpe Class A
Common Stock.
F-25
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY, THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
_________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 14
Market for Class A Common Stock........................................... 14
Dividend Policy........................................................... 15
Capitalization............................................................ 15
Selected Consolidated Financial
Data.................................................................... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............................................... 19
Business.................................................................. 27
Management................................................................ 41
Principal and Selling Stockholders........................................ 51
Certain Transactions...................................................... 54
Description of Capital Stock.............................................. 57
Shares Eligible for Future Sale........................................... 60
Underwriting.............................................................. 62
Legal Matters............................................................. 63
Experts................................................................... 63
Additional Information.................................................... 63
Index to Consolidated Financial
Statements.............................................................. F-1
</TABLE>
================================================================================
================================================================================
4,156,000 SHARES
[LOGO]
BROWN & SHARPE
MANUFACTURING COMPANY
Class A Common Stock
________________________
PROSPECTUS
________________________
Donaldson, Lufkin & Jenrette
Securities Corporation
CS First Boston
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
-----------
<S> <C>
SEC Registration Fee................................ $ 16,893
NASD Filing Fee..................................... 4,600
New York Stock Exchange Listing Fee................. *
Blue Sky Fees and Expenses.......................... 1,525
Transfer Agent and Registrar Fees................... *
Accounting Fees and Expenses........................ *
Legal Fees and Expenses............................. *
Printing Expenses................................... *
Miscellaneous....................................... *
--------
Total............................................. $ *
========
</TABLE>
__________________
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that the
Registrant's Directors shall not be liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that the exculpation from liabilities is not permitted under the Delaware
General Corporation Law as in effect at the time such liability is determined.
The By-Laws provide that the Registrant shall indemnify its directors and
officers to the full extent permitted by the laws of the State of Delaware.
Supplementing the By-law provision on indemnification, the Company has
entered into indemnification agreements with each of its directors and certain
of its officers indemnifying them, to the extent permitted by Delaware law,
against expenses, settlements, judgments and fines incurred in connection with
any threatened, pending or completed action, suit, arbitration or proceeding,
where the individual's involvement is by reason of the fact that he or she is or
was a director of officer or served at the Company's request as a director of
another organization. An individual may not be indemnified if he is found not to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, except to the extent Delaware law
permits broader contractual indemnification. The indemnification agreements
provide procedures, presumptions and remedies which substantially strengthen the
indemnity rights beyond those provided by the Company's By-laws and by Delaware
law.
The Company has obtained insurance for the Company, its directors and
employees for losses incurred for any errors, misstatements, misleading
statements, acts, omissions, neglect or breach of duty committed, attempted or
allegedly committed or attempted based upon, arising from, or in consequence of
the purchase or sale of, or offer to purchase or sell, any securities issued by
the Company. The insurance policy covers losses incurred by a director or
employee to the extent that the director or employee is not indemnified by the
Company, and also covers losses
II-1
<PAGE>
incurred by the Company relating to indemnification payments made to directors
or employees and losses for which the Company becomes legally obligated to pay
on account of claims made against it for wrongful acts of its directors or
employees in connection with transactions involving the Company's securities.
Reference is made to the Underwriting Agreement filed as Exhibit 1
hereto which provides for indemnification to directors and certain officers
against certain liabilities under the Securities Act with respect to the
Offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration
Statement, the Registrant has issued the following securities which were not
registered under the Securities Act of 1933, as amended (the "Securities Act"):
The issuance of 3,450,000 shares of Class A Common Stock to
Finmeccanica S.p.A. ("Finmeccanica") in connection with the acquisition by the
Company and its wholly owned subsidiary Brown & Sharpe International Capital
Corporation on September 28, 1994 of all the stock of DEA S.p.A., an Italian
corporation, and its related metrology business headquartered in Turin, Italy,
from Finmeccanica.
The issuance of 175,000 shares of Class A Common Stock to Diehl GmbH &
Co. of Nurnberg, Germany in connection with the acquisition by the Company of
the business of Ets. Pierre Roch S.A. in France, and Roch's German affiliate,
Mauser Prazisions-Messmittel GmbH. As a result of certain post closing
adjustments, Diehl surrendered 19,000 shares of Class A Common Stock to the
Company in August 1996.
The shares described above were issued in reliance on the exemption
from registration under Section 4(2) of the Securities Act as a transaction not
involving a public offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of exhibits filed as a part of this
registration statement.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
*1 Form of Underwriting Agreement.
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 (Commission
File No. 1-5881).
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 (Commission File No. 1-5881).
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 (Commission File No. 1-5881).
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 (Commission File No.
1-5881).
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 (Commission File No. 1-5881).
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
(Commission File No. 1-5881).
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 (Commission File No.
1-5881).
3.8 By-laws of Brown & Sharpe Manufacturing Company, as
amended 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 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
(Commission File No. 1-5881).
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.
*5 Opinion of Ropes & Gray.
+10.1 (Intentionally omitted)
II-3
<PAGE>
+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
(Commission File No. 1-5881).
+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 hereby incorporated by
reference (Commission File No. 1-5881).
+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 such is hereby
incorporated by reference (Commission File No. 1-5881).
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 (Commission File No. 1-5881).
+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 (Commission File No. 1-5881).
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 (Commission File No. 1-5881).
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 (Commission File No. 1-5881).
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 (Commission File No. 1-5881).
+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 and Retirement Plan for Management Employees.
+10.17 Amendment No.3, dated February 23, 1989, to The Brown &
Sharpe Savings and 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.
II-4
<PAGE>
+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 (Commission File No.
1-5881).
+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 (Commission File No. 1-5881).
+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
(Commission File No. 1-5881).
+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 (Commission File No. 1-5881).
+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
(Commission File No. 1-5881).
+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 (Commission
File No. 1-5881).
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 (Commission File No. 1-5881).
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 (Commission File No. 1-5881).
+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 (Commission
File No. 1-5881).
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 (Commission File No. 1-5881).
+10.34 (Intentionally omitted)
+10.35 (Intentionally omitted)
II-5
<PAGE>
+10.36 Employment/Severance agreement dated March 14, 1988
between Brown & Sharpe Manufacturing Company and
Richard F. Paolino (Commission File No. 1-5881).
+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 (Commission File No. 1-5881).
+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- r 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 (Commission File No. 1-5881).
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 (Intentionally omitted)
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. Exhibits 10.51 through 10.53 were
filed as Exhibits 10.51 through 10.53, respectively, to
Form 10-K for the year ended December 31, 1994 and are
hereby incorporated by reference.
II-6
<PAGE>
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.
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. Exhibit 10.66 was filed as Exhibit
10.66 to Form 10-K for the year ended December 31,
1995.
10.67 Letter Agreement with Finmeccanica dated December 18,
1995 concerning Purchase Price Adjustment. Exhibit
10.67 was filed as Exhibit 10.67 to Form 10-K for the
year ended December 31, 1995.
*10.68 The Brown & Sharpe Key Employee Long-Term Deferred Cash
Incentive Plans dated February 23, 1996 effective
January 1, 1995.
10.69 Amendment dated July 28, 1995 to Employment/Severance
Agreement dated March 14, 1988 between Brown & Sharpe
Manufacturing Company and Richard F. Paolino.
10.71 Employment Agreement with Robert D. Batting dated
September 26, 1995.
11. Computation of Per Share Data for the Three Years Ended
December 31, 1995, filed as Exhibit 11 to Form 10-K for
the year ended December 31, 1995 and to Form 10-Q for
the quarter ended June 30, 1996, are hereby
incorporated by reference.
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, filed as Exhibit 22 to
Form 10-K for the year ended December 31, 1995 and is
hereby incorporated by reference.
23.1 Consent of Independent Auditors--Ernst & Young LLP.
23.2 Consent of Independent Accountants--Coopers & Lybrand
L.L.P.
24. Power of Attorney (included in the signature page of
this Registration Statement).
______________________________
* To be filed by amendment.
+This identifies management contracts or compensatory plans.
II-7
<PAGE>
(b) Financial Statement Schedules
Report of Independent Accountants
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under "Item 14 -
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the Offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of North
Kingstown, State of Rhode Island and Providence Plantations on August 21, 1996.
BROWN & SHARPE MANUFACTURING COMPANY
By: /s/ Charles A. Junkunc
---------------------------------
Name: Charles A. Junkunc
Title:Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Charles A. Junkunc and James W. Hayes, III, and each of them,
with full power to them, to execute in the name and on behalf of such person any
amendment (including any post-effective amendment) to this Registration
Statement (or any other registration statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act) and
to file the same, with exhibits thereto, and other documents in connection
therewith, making such changes in this Registration Statement as the person(s)
so acting deems appropriate, and appoints each of such persons, each with full
power of substitution, attorney-in-fact to sign any amendment (including any
post-effective amendment) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act) and to file the same, with
exhibits thereto, and other documents in connection therein.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank T. Curtin Chief Executive Officer, President, August 21, 1996
- --------------------------- Chairman of the Board and Director
Frank T. Curtin (Principal Executive Officer)
/s/ Charles A. Junkunc Vice President and Chief Financial August 21, 1996
- --------------------------- Officer (Principal Financial Officer)
Charles A. Junkunc
/s/ Alfred J. Corso Controller (Principal Accounting August 21, 1996
- --------------------------- Officer)
Alfred J. Corso
/s/ Henry D. Sharpe, Jr. Director August 21, 1996
- ---------------------------
Henry D. Sharpe, Jr.
/s/ Paul R. Tregurtha Director August 21, 1996
- ---------------------------
Paul R. Tregurtha
</TABLE>
II-9
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Henry D. Sharpe, III Director August 21, 1996
- ---------------------------
Henry D. Sharpe, III
/s/ Vincenzo Cannatelli Director August 21, 1996
- ---------------------------
Vincenzo Cannatelli
/s/ Howard K. Fuguet Director August 21, 1996
- ---------------------------
Howard K. Fuguet
/s/ John M. Nelson Director August 21, 1996
- ---------------------------
John M. Nelson
/s/ Russell A. Boss Director August 21, 1996
- ---------------------------
Russell A. Boss
/s/ Enrico Albareto Director August 21, 1996
- ---------------------------
Enrico Albareto
/s/ Alberto de Benedictis Director August 21, 1996
- ---------------------------
Alberto de Benedictis
</TABLE>
II-10
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
Schedule II - Valuation and Qualifying Accounts
-----------------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Foreign Balance at
Beginning Costs and Currency End of
Year Ended of Period Expenses Deductions Translation Period
- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
(2) (1)
DECEMBER 31, 1995
- -----------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS $3,103 $2,124 $2,330 $133 $3,030
December 31, 1994
- -----------------
$1,320 $2,833 $1,117 $ 67 $3,103
Allowance for doubtful accounts
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 susidiaries at year-end exchange rates.
(2) Write-offs of uncollectible accounts.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors
of Brown & Sharpe Manufacturing Company:
Our report on the consolidated financial statements of Brown & Sharpe
Manufacturing Company is included on page F-3 of this Registration Statement.
In connection with our audits of such financial statements, we have also audited
the related financial schedule for the years ended December 25, 1993 and
December 31, 1994, listed in Item 16(b) of this Registration Statement.
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
<PAGE>
Exhibit 10.69
AGREEMENT
Agreement dated as of July 28, 1995 between Richard F. Paolino (the
"Optionee") and Brown & Sharpe Manufacturing Company (the "Company").
In consideration of the grant to the undersigned Optionee of an Option for
30,000 shares on July 28, 1995, the undersigned Optionee agrees that the
provisions of a certain contract between the Company and the Optionee dated
March 14, 1988 shall have no applicability to this Option (including the
provisions of said contract pertaining to acceleration of exercisability dates)
and that the obtaining of this waiver and the grant of this Option shall be
deemed to be in full compliance with all of the obligations of the Company under
said contract.
Except as expressly amended hereby, the contract between the Company and
the Optionee dated March 14, 1988 shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned Optionee has duly executed this
Agreement as of the date set forth above.
___________________________
Richard F. Paolino
ACCEPTED:
BROWN & SHARPE
MANUFACTURING COMPANY
By: _________________________
<PAGE>
Exhibit 10.71
Brown & Sharpe Manufacturing Company
September 26, 1995
Mr. Robert D. Batting
87 Meadow Road
Orchard Park, NY 14127
Dear Bob:
This is an offer of employment with Brown & Sharpe Manufacturing Company as
follows:
1. POSITION
Vice President, Measuring Systems, USA, reporting to me.
2. SALARY
Your annual base salary will be at the rate of $175,000 to be paid in
twice-monthly installments. Future adjustments will be based on an annual
performance review held at the close of each fiscal year.
3. PRIMARY RESPONSIBILITIES
As your initial assignment, you will have full responsibility for all
activities of the U.S. Measuring Systems Division. Once on board, you may
wish to restructure the organization, and I would expect you to recommend
for my approval what changes you feel are appropriate, including possible
new hires. The primary objective is to grow revenues, decrease costs,
improve profitability, and assure on-time delivery of products that meet
specified quality standards. You will work closely with me on overall long-
range planning and strategy for the Measuring Systems business and the
company.
4. BONUS
Participation in the Brown & Sharpe Profit Incentive Plan administered by
the Salary Committee of the Board of Directors. You will be eligible for a
bonus of up to 40% of base salary each fiscal year. This bonus award will
be based both on your attainment of personal and division objectives, as
well as the company's performance against annual corporate targets.
<PAGE>
5. STOCK OPTIONS
Upon your employment by the company, you will be granted options to
purchase 50,000 shares of Brown & Sharpe stock under the company stock
option plan. Such options will be exercisable at the price equal to the
closing price of the common stock on the date on which the Salary Committee
of the Board of Directors approves the grant of the stock option to you.
Fifty percent of the options vest after two years, twenty-five percent
after three years, and twenty-five percent after four years.
6. SEVERANCE
It is understood that the employment relationship may be terminated with or
without cause by either party at any time. Should the company terminate
your employment without cause, the company will continue to pay you at your
then current base annual salary in monthly installments for one year
following the date of termination subject to your not competing with any
business of the company and its subsidiaries in any country the company is
then doing business.
7. RETIREMENT PROGRAM
You will be included in a limited group of senior executives program for a
"SERP" (Supplemental Executive Retirement Plan), now under definition. You
will also participate in any supplemental plan or plans the Directors
approve for key executives.
8. BENEFITS
You will be entitled to our standard management employee benefits.
9. RELOCATION
The company will reimburse you for all reasonable and necessary direct
expenses related to moving your household and personal belongings from your
current residence to a new home in the Providence area. In addition, the
company will pay you a lump sum of $50,000 as reimbursement for all of the
costs associated with your move, including, but not limited to, the
broker's fee for selling your present residence and closing costs incurred
with the purchase of a new one in this area.
10. SIGNIFICANT CHANGE IN OWNERSHIP
In the event of a significant change in ownership, all unvested options of
company stock shall vest immediately.
-2-
<PAGE>
This offer will expire one week from this date. Please countersign this
letter, confirming your start date, and return it to me as soon as possible. I
look forward to having you as a member of the management team at Brown & Sharpe.
Sincerely,
Frank T. Curtin
Accepted: ___________________ Date:_________________________
Robert D. Batting
I intend to start my employment with Brown & Sharpe on ___________________.
-3-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the captions "Consolidated
Selected Financial Data" and "Experts" and to the use of our report dated
February 14, 1996, in the Registration Statement (Form S-1 No. 333- )
and related Prospectus of Brown & Sharpe Manufacturing Company for the
registration of 4,779,400 shares of its common stock.
ERNST & YOUNG LLP
Providence, Rhode Island
August 22, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File No.
333- ) of our reports dated March 29, 1995, on our audits of the
financial statements and financial statement schedule of Brown & Sharpe
Manufacturing Company as of December 31, 1994 and for the periods ended December
25, 1993 and December 31, 1994. We also consent to the reference to our firm
under the captions "Selected Consolidated Financial Data" and "Experts."
Coopers and Lybrand L.L.P.
Boston, Massachusetts
August 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1993
<PERIOD-START> DEC-26-1992
<PERIOD-END> DEC-25-1993
<CASH> 2,904
<SECURITIES> 0
<RECEIVABLES> 45,225
<ALLOWANCES> (1,320)
<INVENTORY> 54,289
<CURRENT-ASSETS> 109,397
<PP&E> 115,766
<DEPRECIATION> 72,212
<TOTAL-ASSETS> 165,577
<CURRENT-LIABILITIES> 63,666
<BONDS> 16,000
0
0
<COMMON> 4,980
<OTHER-SE> 58,246
<TOTAL-LIABILITY-AND-EQUITY> 165,577
<SALES> 159,518
<TOTAL-REVENUES> 159,518
<CGS> 110,841
<TOTAL-COSTS> 110,841
<OTHER-EXPENSES> 48,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,100
<INCOME-PRETAX> (1,616)
<INCOME-TAX> 800
<INCOME-CONTINUING> (2,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,416)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> DEC-25-1993
<PERIOD-END> DEC-31-1994
<CASH> 6,676
<SECURITIES> 0
<RECEIVABLES> 111,337
<ALLOWANCES> (3,103)
<INVENTORY> 88,639
<CURRENT-ASSETS> 211,530
<PP&E> 125,565
<DEPRECIATION> 80,210
<TOTAL-ASSETS> 272,274
<CURRENT-LIABILITIES> 108,647
<BONDS> 15,000
0
0
<COMMON> 8,657
<OTHER-SE> 70,268
<TOTAL-LIABILITY-AND-EQUITY> 272,274
<SALES> 209,369
<TOTAL-REVENUES> 209,369
<CGS> 142,776
<TOTAL-COSTS> 142,776
<OTHER-EXPENSES> 72,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,575
<INCOME-PRETAX> (11,935)
<INCOME-TAX> 2,400
<INCOME-CONTINUING> (14,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,335)
<EPS-PRIMARY> (2.37)
<EPS-DILUTED> (2.37)
</TABLE>
<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> 14,000
0
0
<COMMON> 8,719
<OTHER-SE> 77,138
<TOTAL-LIABILITY-AND-EQUITY> 295,400
<SALES> 328,031
<TOTAL-REVENUES> 328,031
<CGS> 221,729
<TOTAL-COSTS> 221,729
<OTHER-EXPENSES> 95,238
<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> .22
<EPS-DILUTED> .22
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-30-1995
<CASH> 6,571
<SECURITIES> 0
<RECEIVABLES> 105,233
<ALLOWANCES> (3,995)
<INVENTORY> 98,950
<CURRENT-ASSETS> 217,374
<PP&E> 140,641
<DEPRECIATION> 91,063
<TOTAL-ASSETS> 281,953
<CURRENT-LIABILITIES> 127,477
<BONDS> 14,000
0
0
<COMMON> 8,718
<OTHER-SE> 70,987
<TOTAL-LIABILITY-AND-EQUITY> 281,953
<SALES> 158,349
<TOTAL-REVENUES> 158,349
<CGS> 108,174
<TOTAL-COSTS> 108,174
<OTHER-EXPENSES> 46,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,948
<INCOME-PRETAX> (210)
<INCOME-TAX> 200
<INCOME-CONTINUING> (410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (410)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JAN-30-1996
<CASH> 4,226
<SECURITIES> 0
<RECEIVABLES> 117,426
<ALLOWANCES> (3,175)
<INVENTORY> 96,983
<CURRENT-ASSETS> 224,769
<PP&E> 140,546
<DEPRECIATION> 86,946
<TOTAL-ASSETS> 302,652
<CURRENT-LIABILITIES> 126,924
<BONDS> 14,000
0
0
<COMMON> 8,762
<OTHER-SE> 76,108
<TOTAL-LIABILITY-AND-EQUITY> 302,652
<SALES> 166,113
<TOTAL-REVENUES> 166,113
<CGS> 113,693
<TOTAL-COSTS> 113,693
<OTHER-EXPENSES> 45,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,553
<INCOME-PRETAX> 2,932
<INCOME-TAX> 528
<INCOME-CONTINUING> 2,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,404
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
