<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5881
------
BROWN & SHARPE MANUFACTURING COMPANY
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 050113140
-------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Precision Park, 200 Frenchtown Road, North Kingstown, Rhode Island 02852
-----------------------------------------------------------------------------
(Address of principal executive offices and zip code)
(401) 886-2000
--------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date; 12,745,737 shares of
Class A common stock, 514,603 shares of Class B common stock, par value $1 per
share, outstanding as of June 30, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS*
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,
------------------------------ ---------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 78,094 $ 89,835 $ 148,896 $ 166,113
Cost of sales 50,481 58,956 96,251 108,246
Research and development 2,905 3,061 6,018 5,447
Selling, general and
administrative expense 21,992 23,015 41,852 45,104
---------- --------- ---------- ---------
Operating profit 2,716 4,803 4,775 7,316
Interest expense 1,499 2,476 2,933 4,553
Other income (expense), net 294 (65) 616 169
---------- --------- ---------- ---------
Income before income taxes 1,511 2,262 2,458 2,932
Income tax provision 302 408 492 528
---------- --------- ---------- ---------
Net income $ 1,209 $ 1,854 $ 1,966 $ 2,404
========== ========= ========== =========
Net income
per common share:
Primary $ .09 $ .21 $ .15 $ .27
========== ========= ========== =========
Fully diluted $ .09 $ .21 $ .15 $ .27
========== ========= ========== =========
Weighted average shares for
primary for the six months
ended June 30, 1997 and
for the quarters 1997 and
1996, respectively and
for the six months ended
June 30, 1996 primary and
fully diluted were based
on the weighted average
shares and common stock
equivalents 13,493,754 8,889,803 13,473,367 8,884,156
========== ========= ========== =========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 16,525 $ 20,158
Accounts receivable, net
of allowances for
doubtful accounts of
$2,972 and $3,226 97,684 118,685
Inventories 82,973 77,572
Deferred income taxes 2,217 2,217
Prepaid expenses and other
current assets 3,545 5,585
-------- --------
Total current assets 202,944 224,217
Property, plant and equipment:
Land 6,688 7,094
Buildings and improvements 41,374 41,840
Machinery and equipment 85,347 90,337
-------- --------
133,409 139,271
Less-accumulated depreciation 81,926 84,865
-------- --------
51,483 54,406
Goodwill, net 10,488 10,806
Other assets 25,925 25,019
-------- --------
$290,840 $314,448
======== ========
LIABILITIES AND SHAREHOWNERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current
installments of long-term debt $ 31,741 $ 32,481
Accounts payable 44,325 45,507
Accrued expenses and income taxes 28,515 38,217
-------- --------
Total current liabilities 104,581 116,205
Long-term debt 33,664 36,725
Other long-term liabilities 3,694 4,700
Deferred income taxes 1,418 1,420
Unfunded accrued pension cost 5,305 5,801
Termination indemnities 8,789 9,197
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 12,788,329
shares in 1997 and 12,689,234
shares in 1996 12,788 12,689
Class B, par value $1;
authorized 2,000,000
shares; issued and outstanding
514,603 shares in 1997
and 517,604 shares in 1996 515 518
Additional paid in capital 111,587 110,737
Retained earnings (deficiency) 1,739 (227)
Cumulative foreign currency
translation adjustment 7,226 17,175
Treasury stock: 42,592 shares
in 1997 and in 1996 at cost (455) (455)
Unearned compensation (11) (37)
-------- --------
Total shareowners' equity 133,389 140,400
-------- --------
$290,840 $314,448
======== ========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six-Months Ended June 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATIONS:
Net income $ 1,966 $ 2,404
Adjustment for Noncash Items:
Depreciation and amortization 4,964 3,962
Unfunded pension 196 218
Deferred compensation 26 122
Termination indemnities 562 159
Changes in Working Capital:
(Increase) Decrease in accounts
receivable 13,871 (4,908)
Increase in inventories (12,556) (11,463)
Decrease (increase) in prepaid
expenses and other current assets 1,609 (486)
Increase (decrease) in accounts
payable and accrued expenses (5,115) 5,207
-------- --------
Net Cash (Used in) Provided by
Operations 5,523 (4,785)
-------- --------
INVESTMENT TRANSACTIONS:
Capital expenditures (4,803) (5,425)
Other investing activities (2,288) 405
-------- --------
Cash (Used in) Investment Transactions (7,091) (5,069)
-------- --------
FINANCING TRANSACTIONS:
Increase (decrease) in short-term debt (77) 4,444
Proceeds from issuance of long-term
debt - 2,963
Principal payments of long-term debt (1,744) (1,593)
Other financing activities (19) 428
-------- --------
Cash (Used in) Provided by
Financing Transactions (1,840) 6,242
-------- --------
Effect of Exchange Rate Changes on Cash (225) 1,576
-------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period (3,633) (2,036)
Beginning balance 20,158 6,262
-------- --------
Ending balance $ 16,525 $ 4,226
======== ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 2,379 $ 4,158
======== ========
Taxes paid $ 952 $ 262
======== ========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. The accompanying unaudited 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 ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Brown & Sharpe Manufacturing Company's
annual report on Form 10-K for the year ended December 31, 1996.
2. 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.
3. The composition of inventory is as follows:
June 30, 1997 Dec. 31, 1996
------------- -------------
Parts, raw materials, and supplies $ 35,043 $ 35,897
Work in process 18,867 17,116
Finished goods 29,063 24,559
-------- --------
$ 82,973 $ 77,572
======== ========
4. Income taxes include provisions for federal, foreign and state income
taxes and are based on the Company's estimate of effective income tax rates
for the full year. The tax provision for the first half of 1997 and 1996 is
$492 and $528, respectively.
5. Primary and fully diluted earnings per share for the quarters ended June
30, 1997 and 1996 are based upon the weighted average number of common
shares outstanding. Primary and fully diluted earnings per share for the
half-year ended June 30, 1997 is based on the weighted average number of
common shares outstanding while for the half-year ended June 30, 1996,
primary and fully diluted earnings per share is based upon the weighted
average number of common shares outstanding and common stock equivalents.
Basic and diluted earnings per share, as calculated in relation to FAS 128,
"Earnings per Share", had no effect for the quarter and half-year ended June
30, 1997.
6. Labor Relations. The Company is involved in litigation which arose out
of a strike by production employees represented by the International
Association of Machinists and Aerospace Workers ("IAM") at the Company's
Rhode Island operations which began in October of 1981. After commencement
of the strike, the IAM filed unfair labor practice charges with the National
Labor Relations Board ("NLRB") alleging that the Company precipitated the
strike, which charges were after investigation dismissed. The charges were
reinstated in December of 1983; however, on August 28, 1990, an
Administrative Law Judge of the NLRB dismissed the reinstated 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
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 reinstated charges should be dismissed or a
trial on the merits should proceed. On August 16,
<PAGE>
1996, the NLRB issued a second supplemental decision and order finding in
favor of the Company and dismissed the IAM complaint. The IAM has, following
an unsuccessful request for a re-hearing and reconsideration of the NLRB's
ruling, again appealed the NLRB's decision to the U.S. Circuit Court of
Appeals. The Company will continue to defend this case vigorously, and
management continues to believe that the possibility of an adverse decision
in this matter is remote. If the case were ultimately decided against the
Company and the strike converted to an unfair labor practice, the Company
could be liable for back wages for those striking employees, subject to
mitigation for certain statutory offsets, whose strike action is determined
to be based on the 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
for contribution protection from claims of any third parties who may have
liability at the Site. A group of non-settling major PRPs at the Site
brought suit in the Federal District Court in Rhode Island in 1991 against
all of the settling parties, including the Company, Avet, Inc. et al v.
-------------------
Amtel, Inc. et al, 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 have appealed that ruling and
subsequently brought suit against the EPA seeking to have the settlements of
the de minimis settling parties set aside. The Company has been advised that
the plaintiffs in that case have reached a settlement which should result in
a withdrawal of the appeal of the summary judgment in favor of the Company
and finally conclude the matter.
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, New York. The State has alleged that the Company's former
subsidiary, Standard Gage Company, Poughkeepsie, New York, acquired in 1987
and merged with and into the Company in 1991, 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 efforts to settle this claim and estimates that any potential
loss it might incur as a result of any involvement or settlement of its
share of potential liability at this site would not be material.
Product Liability and Other Litigation Incidental to the Business. The
Company is involved in a number of product liability claims and lawsuits by
plaintiffs seeking monetary damages for personal injury which arose out of
and were incidental to the sale of products manufactured by the Company in
its discontinued metal cutting machine tool and hydraulic businesses and
certain other litigation and claims incidental to the conduct of its
business. The potential liability of the Company for these claims and suits
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.
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of Brown & Sharpe
represented by the components of income and expense for the quarters and half
years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Quarters Ended June 30 Half-Years Ended June 30
---------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 64.6 65.6 64.6 65.2
Research and development
expense 3.7 3.4 4.0 3.3
Selling, general and
administrative expense 28.2 25.6 28.1 27.2
----- ----- ----- -----
Operating profit 3.5 5.4 3.3 4.3
Interest expense 1.9 2.8 2.0 2.7
Other income (expense),
net 0.4 (0.1) 0.4 0.1
----- ----- ----- -----
Income (loss) before
income taxes 2.0 2.5 1.7 1.7
Income tax provision 0.4 0.4 0.3 0.3
----- ----- ----- -----
Net income (loss) 1.6% 2.1% 1.4% 1.4%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
(Quarter Ended June 30, 1997 compared to Quarter Ended June 30, 1996)
NET SALES. Net sales in the second quarter of 1997 were $78.1 million,
compared to $89.8 million in the second quarter of 1996. Foreign currency
exchange rate changes from the rates used in the comparable quarter of 1996
caused a translation decrease in net sales in the second quarter of 1997 of
$4.1 million as compared with the second quarter of 1996. Excluding the effect
of this item, second quarter 1997 net sales decreased approximately $7.6
million or 8.5% from second quarter 1996 sales. $7.3 million of the $7.6
million decrease occurred in MSD and $0.3 million from the other divisions.
Although MSD's orders in the second quarter of 1997 were above those in the
comparable 1996 quarter by $8.5 million before the currency translation impact
and $3.3 after such impact, MSD's sales in 1997 were below 1996 sales due to
the late receipt of orders in the quarter for longer lead-time type products,
the mix of orders received for "standard" product versus what had been planned
and available for shipment, and the delay in release of two new products. This
contributed to an increased backlog of $16.6 million at June 30, 1997 over the
backlog at March 31, 1997.
GROSS PROFIT. Gross profit margin increased to 35.4% of sales in the second
quarter of 1997 from 34.4% in the second quarter of 1996. MSD's margins were
approximately the same in 1997 while PMI's margin increased. The PMI increase
resulted from increased fixed overhead cost absorption due to higher production
levels.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
decreased $0.2 million from the $3.1 million in the second quarter of 1996.
Foreign currency exchange rate fluctuations was the cause of most of the
decrease.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense in the second quarter of 1997 was $22.0 million or 28.2%
of net sales, representing a decrease from $23.0 million or 25.6% of net sales
in the comparable period in 1996. Foreign currency exchange rate changes for
the comparable 1996 quarter were the cause of nearly all of the decrease.
Excluding the effect of foreign currency, SG&A was approximately the same
amount for each period, and therefore a higher percentage of net sales in the
second quarter of 1997.
<PAGE>
INTEREST EXPENSE. Interest expense totaled $1.5 million in the second
quarter of 1997 compared to $2.5 million in the second quarter of 1996. This
decrease reflects a $38.9 million decrease in average borrowings in the second
quarter of 1997, compared with the average borrowings in the second quarter of
1996. The reduced borrowings in 1997 result primarily from the payment of
approximately $34.1 million of short-term debt which occurred in the fourth
quarter of 1996 using $35.6 million of proceeds obtained in the Company's $48
million stock offering in October 1996.
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 1997 effective tax rate amounted to
20% which compared with the effective tax rate of 11% for the year ended
December 31, 1996. The increase in the effective tax rate in 1997 from the
effective rate for year ended December 31, 1996 is attributable to higher
income earned in a taxable jurisdiction in 1997.
RESULTS OF OPERATIONS
(Half-Year Ended June 30, 1997 compared to Half-Year Ended June 30, 1996)
NET SALES. Net sales in the first half of 1997 decreased 10.4% or $17.2
million over the first half of 1996, from $166.1 million to $148.9 million.
Foreign currency exchange rate changes from the rates used in the comparable
half of 1996 caused a translation decrease in net sales of $6.9 million in the
first half of 1997 as compared to the first half of 1996. Sales decreased,
excluding foreign currency effects, $10.3 million over the first half of 1996.
MSD was responsible for $8.8 million of the $10.3 million decrease, and the
remainder occurred at the other divisions. Although MSD's orders in the second
quarter of 1997 were above those in the comparable 1996 quarter, MSD's sales in
1997 were below 1996 sales due to manufacturing difficulties in coordinating
production of specific types of products with the timing of receipt and product
mix of the orders. This contributed to an increased backlog of $16.6 million
at June 30, 1997 over the backlog at March 31, 1997.
GROSS PROFIT. Gross profit margin increased 0.6 percentage points to 35.4%
in the first half of 1997 from 34.8% in the first half of 1996, over which
period MSD's margins decreased slightly while the PMI and CM Divisions' margins
increased. The PMI increase is due to increased production levels and
consequently more fixed overhead cost absorption.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased $0.6 million from the $5.4 million reported in the first half of
1996. Foreign currency exchange rate fluctuations caused a decrease in R&D
expense of $0.6 million in the first half of 1997 compared to the first half of
1996. The $1.2 million increase is primarily due to investments in new
software and sensors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense ("SG&A") as a percentage of net sales increased to 28.1%
in the first half of 1997 from 27.2% in the first half of 1996. Exclusive of
foreign currency transaction gains or losses, which amounted to a $0.8 million
loss in 1997 and a $0.7 million loss in 1996, SG&A increased as a percentage of
net sales from 26.7% of sales in 1996 to 27.6% of sales in 1997. Excluding
foreign currency rate changes for the comparable 1996 half and outside agents
commissions SG&A decreased $0.8 million in 1997 compared to the first half of
1996 primarily due to a cost reduction program by the PMI Division in 1996 that
was fully reflected in the 1997 results.
INTEREST EXPENSE. Interest expense totaled $2.9 million, in the first half
of 1997 compared to $4.6 million in the first half of 1996. The decrease
effects a $37.8 million decrease in average borrowings for the first half of
1997 compared with the first half of 1996. The reduced borrowings in 1997
result primarily from the payment of approximately $34.1 million of short-term
debt, which occured in the fourth quarter of 1996 using $35.6 million of
proceeds obtained in the Company's $48 million stock offering in October 1996.
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 estimated
<PAGE>
1997 effective tax rate amounted to 20% which compared with the effective tax
rate of 11% for the year ended December 31, 1996. The increase in the effective
tax rate in 1997 from the year ended December 31, 1996 is attributable to
higher income earned in a taxable jurisdiction in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Over the last several years, prior to the 1996 equity offering, the Company
had funded its working capital, capital expenditure, research and development
and other cash needs from operating cash flows, sales proceeds from
discontinued businesses, borrowings under short-term credit facilities, an
aggregate of $33.5 million of term and mortgage indebtedness incurred in 1994.
In October 1996 a $48 million public equity offering of 4.4 million new shares
of common stock was completed. At June 30, 1997, the Company's outstanding
indebtedness was $65.4 million, including $64.8 million of long-term
indebtedness (including current portion) and $0.6 million of short-term
borrowings, and the Company's cash and cash equivalents were $16.5 million.
The Company has a domestic secured revolving credit facility ("the Facility")
which provides for maximum aggregate borrowings of $25.0 million and foreign
credit facilities which provide for maximum aggregate borrowings of $62.2
million. The Facility is available for working capital and general corporate
purposes. Of the foreign credit facilities, $18.2 million is available for
working capital and general corporate purposes to the Company's foreign
subsidiary in the country where borrowed, $6.2 million is available on
presentment of certain local and export related eligible invoices and $12.8
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, 1997,
giving effect to such borrowing base limitations and outstanding borrowings,
the Company had no outstanding borrowings under the Facility, and the Company's
maximum available additional borrowings under the Facility were $23.0 million
and its maximum available additional borrowings and letters of credit under its
foreign credit facilities were $34.3 million. 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.
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 obligation to
maintain certain financial ratios and a prohibition on the payment of
dividends. The Company has given notice to the financial institution providing
the Facility that it would not be renewed. The Company has received proposals
from several banks that would provide a new multi-year, multi-currency
revolving credit (the "New Facility") for at least $25 million, and is in
negotiations with a bank group to provide such New Facility on an unsecured
basis as of the termination of the Facility.
At December 31, 1996, the annual maturities of the Company's long-term debt
were $31.8 million, $4.7 million, $9.8 million, $4.7 million and $6.3 million
for 1997, 1998, 1999, 2000 and 2001, respectively. The 1997 maturities include
three-year term notes with two banks totaling $25 million maturing in September
1997. The Company is in the process of refinancing these notes along with
certain other of its long-term debt through a private placement of long-term
notes ("New LT Debt"). The timing of the private placement may require the
Company to rely on short-term bridge financing until it is complete. The
banking group mentioned above has indicated their willingness to provide such
bridge financing.
At the date of this Report, no commitment letters have been entered into for
the New Facility or for the New LT Debt, upon which the Company will be
dependent. Although the Company believes that these new financings should be
completed on a timely basis, circumstances could occur requiring higher cost,
short-term financing alternatives. Accordingly, management believes that, the
1996 public equity offering and the additional borrowing capacity it allows
along with the available existing and planned short- and long-term borrowings,
including the New Facility and the New LT Debt, cash on hand and future cash
flow from operations will be sufficient to meet foreseeable cash requirements
of the Company for the next three to four years. Also, significant
acquisitions or strategic partnerings could increase the Company's capital
requirements, and in such event the Company might seek to raise additional debt
or equity.
<PAGE>
CASH FLOW. Net cash provided by operations in the first half of 1997 was
$5.5 million, as compared to net cash used in operations of $4.8 million for
the same period in 1996. For the first half of 1997, net income of $2.0
million was increased by depreciation and other non-cash items of $5.7 million
and offset by an increase in working capital of $2.2 million. For the first
half of 1996, net income of $2.4 million was increased by depreciation and
other non-cash items of $4.5 million and was offset by increases in working
capital of $11.7 million.
Net cash used in investment transactions in the first half of 1997 was $7.1
million as compared to net cash used in investment transactions during the
first half of 1996 of $5.1 million. During the first half of 1997 and 1996,
investment transactions included capital expenditures of $4.8 million and $5.4
million, respectively, and in 1997, $1.7 million of expenditures for management
information systems and demonstration equipment. $3.2 million of the 1996
expenditures of $5.4 million was for the new facility in Telford, England.
Cash used in financing transactions was $1.8 million during the first half
of 1997 compared with $6.2 million provided by financing transactions for the
same period in 1996. Financing transactions during the first half of 1997
included $0.1 million of short-term debt payments along with $1.7 million of
long-term debt payments. Financing transactions for the same period in 1996
included $4.4 million of short-term borrowings and $3.0 million of long-term
debt to finance the new plant in Telford offset by $1.6 million of long-term
debt payments.
WORKING CAPITAL. Working capital was $98.4 million at June 30, 1997
compared to $108.0 million at December 31, 1996. Inventories increased to
$83.0 million at June 30, 1997, an increase of $5.4 million from the end of
1996, reflecting lower sales than received, and accounts receivable decreased
$21.0 million from December 31, 1996, reflecting the collection of seasonally
high year-end receivables and lower sales than in the second quarter of the
prior year. In addition, total short- and long-term borrowing decreased $3.8
million to a total of $65.4 million at June 30, 1997 as compared to $69.2
million at December 31, 1996. Subsequent to June 30, 1997, the Company
purchased the 50% interest in Automation Software, Incorporated of its joint
venture partner, Analysis & Technology, Inc. for $3 million.
PRODUCT DESIGN AND MANUFACTURING ENGINEERING. The Company invested $6.9
million, or 4.6% of net sales, and $7.0 million, or 4.2% of net sales for the
first half of 1997 and 1996, respectively, for product design and manufacturing
engineering.
PROSPECTIVE INFORMATION
This section includes certain forward-looking statements about the Company's
sales, expenditures and cost savings, operating and capital requirements and
refinancings. Any such statements are subject to risks that could cause the
actual results or needs to vary materially. These risks are discussed in "Risk
Factors" in the Company's Report on Form 10-K for the year 1996.
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1997 Annual Meeting of Stockholders was held on Friday, April
25, 1997. The stockholders voted to (1) fix the number of directors at nine
and to elect nominees to the Board of Directors to serve for the ensuing term;
(2) increase the authorized number of Class A Common Stock from 15,000,000
shares to 30,000,000 shares; (3) increase the aggregate number of shares of
stock authorized for issuance and delivery in connection with awards under the
Company's 1989 Equity Incentive Plan from 875,000 shares of Class A Common
Stock to 1,525,000 shares; and (4) ratify and approve the appointment by the
Board of Directors of Ernst & Young LLP as the Company's independent
accountants for the year 1997.
The following is a summary of the results of matters submitted to security
holders:
(1) The following persons were elected to serve as directors for three year
terms expiring in 2000 and received the votes listed. There were no
abstentions or broker non-votes applicable to the election of directors:
Name For Withheld
---- --- --------
Class A Common Stock
Frank T. Curtin 10,462,144 455,622
Paul R. Tregurtha 10,460,424 457,342
Harry A. Hammerly 10,462,394 455,372
Class B Common Stock
Frank T. Curtin 4,668,037 164,911
Paul R. Tregurtha 4,668,967 163,981
The following directors have terms of office which continued after the
meeting: Russell A. Boss, J. Robert Held, Henry D. Sharpe, III, Howard K.
Fuguet, John M. Nelson, and Roger E. Levien.
For Against Abstain No Vote
--- ------- ------- -------
(2) Increase the authorized
Class A Common Stock from
15,000,000 shares to
30,000,000 shares 14,776,776 938,205 35,733 -
(3) Increase the number of
shares in the Equity
Incentive Plan from
875,000 shares to
1,525,000 shares 11,835,525 2,141,109 106,517 1,667,837
(4) Appointment of Ernst & Young
L.L.P. as the Company's
independent accountants 15,607,398 52,953 90,363 -
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. See Exhibit Index annexed.
B. No Form 8-K was filed during the quarter ended June 30, 1997.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROWN & SHARPE MANUFACTURING COMPANY
By: /s/ Charles A. Junkunc
-------------------------------------------
Charles A. Junkunc
Vice President and Chief Financial Officer
(Principal Financial Officer)
August 6, 1997
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
EXHIBIT INDEX
4. Indenture dated as of October 1, 1980 (including form of debenture)
between the Company and Morgan Guaranty Trust Company of New York as trustee
relating to 9-1/4% convertible subordinated debentures due December 15,
2005, originally filed as Exhibit (b) (1) to Form S-16 Registration
Statement No. 2-69203 dated October 1, 1980 and incorporated herein by
reference.
The Registrant hereby agrees to furnish a copy to the Commission of other
instruments defining the rights of holders of long-term debt, as to which
the securities thereunder do not exceed ten percent of total assets on a
consolidated basis.
11. Computation of Per Share Data for the half years ended June 30, 1997
and 1996.
27. Financial Data Schedule.
<PAGE>
EXHIBIT 11
BROWN & SHARPE MANUFACTURING COMPANY
COMPUTATION OF PER SHARE DATA
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended June 30 Half-Year Ended June 30
--------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 13,251 8,738 13,227 8,738
Net effect of dilutive
stock options
-- based on the treasury
stock method using
average market price 243 151 246 146
------- ------ ------- ------
Totals 13,494 8,889 13,473 8,884
======= ====== ======= ======
Net income (loss) $ 1,209 $1,854 $ 1,966 $2,404
======= ====== ======= ======
Per share amount $ .09 $ .21 $ .15 $ .27
======= ====== ======= ======
Fully diluted:
Average shares outstanding 13,251 8,738 13,227 8,738
Net effect of dilutive stock
options
-- based on the treasury
stock method using
average market price
which is greater than
quarter-end market price - 151 - -
Net effect of dilutive stock
options
-- based on the treasury
stock method using
average market price
which is lower than
quarter-end market price 274 - 274 -
Net effect of dilutive stock
options
-- based on the treasury
stock method using
year-to-date weighted
average shares which is
greater than the
incremental shares based
on ending market price - - - 152
Assumed conversion of 9 1/4%
convertible subordinated
debentures * * * *
------- ------ ------- ------
Totals 13,525 8,889 13,501 8,890
======= ====== ======= ======
Net income (loss) $ 1,209 $1,854 $ 1,966 $2,404
Add 9 1/4% convertible
subordinated debenture
interest, net of federal
income tax effect * * * *
------- ------ ------- ------
Totals $ 1,209 $1,854 $ 1,966 $2,404
======= ====== ======= ======
Per share amount $ .09 $ .21 $ .15 $ .27
======= ====== ======= ======
</TABLE>
* Conversion of the 9-1/4% convertible subordinated debentures is not
assumed in the computation because its effect is anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 16,525
<SECURITIES> 0
<RECEIVABLES> 100,656
<ALLOWANCES> (2,972)
<INVENTORY> 82,973
<CURRENT-ASSETS> 202,944
<PP&E> 133,409
<DEPRECIATION> 81,926
<TOTAL-ASSETS> 290,840
<CURRENT-LIABILITIES> 104,581
<BONDS> 12,000
0
0
<COMMON> 13,303
<OTHER-SE> 120,086
<TOTAL-LIABILITY-AND-EQUITY> 290,840
<SALES> 148,896
<TOTAL-REVENUES> 148,896
<CGS> 96,251
<TOTAL-COSTS> 96,251
<OTHER-EXPENSES> 47,313
<LOSS-PROVISION> 4,775
<INTEREST-EXPENSE> 2,933
<INCOME-PRETAX> 2,458
<INCOME-TAX> 492
<INCOME-CONTINUING> 1,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,966
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
