<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 September 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
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(Address of principal executive offices and zip code)
(401) 886-2000
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(Registrant's telephone number, including area code)
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(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; 12,778,702 shares of Class A
common stock, 513,638 shares of Class B common stock, par value $1 per share,
outstanding as of September 30, 1997.
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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 Sept 30, For the Nine-Months Ended Sept 30,
-------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net sales $78,555 $83,791 $227,451 $249,904
Cost of sales 52,947 55,239 149,198 163,485
Research and development 2,872 2,520 8,890 7,967
Selling, general and
administrative expense 19,830 22,971 61,682 68,075
------- ------- -------- --------
Operating profit 2,906 3,061 7,681 10,377
Interest expense 1,353 2,031 4,286 6,584
(Loss) on disposal of subsidiary (1,346) - (1,346) -
Other income, net 155 151 771 320
------- ------- -------- --------
Income before income taxes 362 1,181 2,820 4,113
Income tax provision (benefit) 72 (76) 564 452
------- ------- -------- --------
Net income $ 290 $ 1,257 $ 2,256 $ 3,661
======= ======= ======== ========
Net income
per common share:
Primary $.02 $.14 $.17 $.41
==== ==== ==== ====
Fully diluted $.02 $.14 $.17 $.41
==== ==== ==== ====
Weighted average shares
outstanding and common stock
equivalents during the period 13,522,795 8,885,696 13,489,843 8,884,669
========== ========= ========== =========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
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BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Sept 30, 1997 December 31, 1996
-------------- ------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,513 $ 20,158
Accounts receivable, net of allowances for
doubtful accounts of $2,144 and $3,226 100,438 118,685
Inventories 79,027 77,572
Deferred income taxes 2,531 2,217
Prepaid expenses and other current assets 3,831 5,585
-------- --------
Total current assets 202,340 224,217
Property, plant and equipment:
Land 6,597 7,094
Buildings and improvements 41,716 41,840
Machinery and equipment 87,611 90,337
-------- --------
135,924 139,271
Less-accumulated depreciation 84,263 84,865
-------- --------
51,661 54,406
Goodwill, net 10,328 10,806
Other assets 24,945 25,019
-------- --------
$289,274 $314,448
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable and current
installments of long-term debt $ 18,495 $ 32,481
Accounts payable 43,150 45,507
Accrued expenses and income taxes 34,261 38,217
-------- --------
Total current liabilities 95,906 116,205
Long-term debt 46,071 36,725
Other long-term liabilities 3,634 4,700
Deferred income taxes 1,555 1,420
Unfunded accrued pension cost 5,359 5,801
Termination indemnities 8,816 9,197
SHAREOWNERS' EQUITY:
Preferred stock, $1 par value;
authorized 1,000,000 shares -- --
Common stock:
Class A, par value $1; authorized 30,000,000
shares; issued and outstanding 12,821,294 shares
in 1997 and 12,689,234 shares in 1996 12,821 12,689
Class B, par value $1; authorized 2,000,000 shares;
issued and outstanding 513,638 shares in 1997
and 517,604 shares in 1996 514 518
Additional paid in capital 111,773 110,737
Retained earnings (deficiency) 2,029 (227)
Cumulative foreign currency translation adjustment 1,254 17,175
Treasury stock: 42,592 shares in 1997 and
in 1996 at cost (455) (455)
Unearned compensation (3) (37)
-------- --------
Total shareowners' equity 127,933 140,400
-------- --------
$289,274 $314,448
======== ========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
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BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine-Months Ended Sept 30,
------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATIONS:
Net income $ 2,256 $ 3,661
Adjustment for Noncash Items:
Depreciation and amortization 7,367 5,934
Unfunded pension 291 327
Deferred compensation 34 189
Termination indemnities 706 287
Changes in Working Capital:
(Increase) Decrease in accounts receivable 12,628 (11,313)
Increase in inventories (8,625) (8,817)
Decrease (increase) in prepaid expenses
and other current assets 1,162 (143)
Increase (decrease) in accounts payable and accrued expenses (2,299) 3,820
------- --------
Net Cash (Used in) Provided by Operations 13,520 (6,055)
------- --------
INVESTMENT TRANSACTIONS:
Acquisition of equity investee, net of cash acquired (3,000) -
Capital expenditures (6,096) (7,675)
Other investing activities (519) (271)
------- --------
Cash (Used in) Investment Transactions (9,615) (7,946)
------- --------
FINANCING TRANSACTIONS:
Increase in short-term debt 24,420 7,915
Proceeds from issuance of long-term debt - 2,979
Principal payments of long-term debt (27,001) (2,855)
Other financing activities 148 250
------- --------
Cash (Used in) Provided by Financing Transactions (2,433) 8,289
------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,117) 4,837
------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period (3,645) (875)
Beginning balance 20,158 6,262
------- --------
Ending balance $16,513 $ 5,387
======= ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 3,453 $ 5,339
======= ========
Taxes paid $ 1,298 $ 685
======= ========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
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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 and nine-month period ended September 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:
Sept 30, 1997 Dec. 31, 1996
------------- -------------
Parts, raw materials, and supplies $34,714 $35,897
Work in process 19,877 17,116
Finished goods 24,436 24,559
------- -------
$79,027 $77,572
======= =======
4. In July 1997, the Company purchased for $3 million the remaining interest
of its 50% owned joint venture, Automation Software, Incorporated ("ASI").
Prior to Brown & Sharpe's purchase of the remaining interest of ASI, the
Company accounted for its investment in ASI using the equity method of
accounting. As of August 1, 1997, ASI's financial position and results of
operations have been included in the Company's consolidated financial
statements. Pro forma results of operations for 1997 and 1996 as though
the companies had combined at the beginning of the period have not been
presented due to the immaterial effect on the Company's consolidated
results of operations.
5. On September 30, 1997, the Company sold its wholly-owned subsidiary,
Technicomp, Inc., for receivables amounting to $625,000. The sale
resulted in a loss amounting to $1,007,000, amounting to $.08 a share,
after an applicable income tax benefit of $269,000.
6. 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 nine months of 1997 and
1996 is $564 and $452, respectively.
7. Primary and fully diluted earnings per share for the nine months and
quarters ended September 30, 1997 and 1996 are based upon the weighted
average number of common shares outstanding. Basic and diluted earnings
per share, as calculated in relation to FAS 128, "Earnings per Share", had
no effect for the quarter and nine months ended September 30, 1997.
8. Labor Relations. The Company is involved in litigation which arose out of
a strike in October of 1981 by production employees represented by the
International Association of Machinists and Aerospace Workers ("IAM") at
the Company's Rhode Island operations. 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
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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 dismissal 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, 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 is continuing to vigorously defend this case, 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 PRP
plaintiffs appealed that ruling and subsequently brought suit against the
EPA seeking to have the settlements of the de minimis settling parties,
including the Company's, set aside. The plaintiffs in that case reached a
settlement with the EPA and as a result, the appeal of the summary judgment
in favor of the Company and other settling PRPs has been dismissed.
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
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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. Subsequent Events. On November 10, 1997, the Company completed two finance
facilities: (1) a $50 million Private Placement ("Private Placement") for
ten years at 7.29% with a three year principal holiday; and (2) a $30
million three year syndicated multicurrency revolving credit facility with
four banks. Proceeds from the Private Placement were used to pay $11.7
million of a $25 million bridge loan that was outstanding at September 30,
1997. The bridge loan had been used to pay $25 million of current
maturities of long-term debt. The remaining proceeds from the Private
Placement will be used to pay $13.2 million of the 9.25% Convertible
Debentures due December 15, 2005. The balance of the Private Placement will
be available for general corporate purposes. As a result of the refinancing
described above, $11.7 million of the $25 million bridge loan outstanding
at September 30, 1997 was reclassified as long-term debt.
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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 nine
months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Quarters Ended Sept. 30 Nine-Months Ended Sept. 30
------------------------- ----------------------------
1997 1996 1997 1996
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 67.4 65.9 65.6 65.4
Research and development expense 3.7 3.0 3.9 3.2
Selling, general and administrative expense 25.2 27.4 27.1 27.2
----- ----- ----- -----
Operating profit 3.7 3.7 3.4 4.2
Interest expense 1.7 2.4 1.9 2.6
Loss on disposal of subsidiary (1.7) - (0.6) -
Other income , net 0.2 0.2 0.3 0.1
----- ----- ----- -----
Income (loss) before income taxes 0.5 1.5 1.2 1.7
Income tax provision (benefit) 0.1 (0.1) 0.2 0.2
----- ----- ----- -----
Net income (loss) 0.4% 1.6% 1.0% 1.5%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
(Quarter Ended September 30, 1997 compared to Quarter Ended September 30, 1996)
NET SALES. Net sales in the third quarter of 1997 were $78.6 million, compared
to $83.8 million in the third 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 third quarter of 1997 of $5.5 million
as compared with the third quarter of 1996. Excluding the effect of this item,
third quarter 1997 net sales increased approximately $0.3 million from third
quarter 1996 sales. And on this basis, net sales increased $1.1 million in the
aggregate in MSD and PMI while CMD sales decreased $0.8 million. Although MSD's
orders in the third quarter of 1997 were above those in the comparable 1996
quarter by $2.5 million before the currency translation impact and $5.8 after
such impact, MSD's sales in 1997 were only $0.3 million above 1996 sales,
excluding currency translation impact, due primarily to the late receipt of
orders in the quarter for longer lead-time type products and the mix of orders
received for standard product compared with what had been planned and available
for shipment.
GROSS PROFIT. Gross profit margin decreased to 32.6% of sales in the third
quarter of 1997 from 34.1% in the third quarter of 1996. PMI's margins were
approximately the same in 1997 while MSD and CM's margins decreased. MSD's
reduced margins were due, in part, to unabsorbed fixed costs arising primarily
from reduced shipments.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased
$0.4 million from the $2.5 million in the third quarter of 1996. The increase is
in the MS and CM division's research and development expense while PMI decreased
slightly.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense in the third quarter of 1997 was $19.8 million or 25.2%
of net sales, representing a decrease from $23.0 million or 27.4% of net sales
in the comparable period in 1996. Agents commissions decreased $1.8 million
(2.3%) in 1997, which accounted for the major portion of the change from 1996 to
1997.
INTEREST EXPENSE. Interest expense totaled $1.4 million in the third quarter of
1997 compared to $2.0 million in the third quarter of 1996. This decrease
reflects a $45.2 million decrease in average borrowings in the third quarter of
1997, compared with the average borrowings in the third quarter of
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1996. The reduced borrowings in 1997 result primarily from the payment of
approximately $35.6 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.
OTHER INCOME AND EXPENSE. During the quarter, the Company disposed of its
Technicomp operations at a loss of $1.3 million. See Note 5 of the Consolidated
Financial Statements for additional information regarding the Technicomp
transaction.
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 foreign jurisdiction in 1997.
RESULTS OF OPERATIONS
(Nine-Months Ended September 30, 1997 compared to Nine-Months Ended September
30, 1996)
NET SALES. Net sales in the first nine-months of 1997 decreased 9.0% or $22.4
million over the first nine-months of 1996, from $249.9 million to $227.5
million. Foreign currency exchange rate changes from the rates used in the
comparable nine-months of 1996 caused a translation decrease in net sales of
$12.5 million in the first nine-months of 1997 as compared to the first nine-
months of 1996. Sales decreased, excluding foreign currency effects, $9.9
million over the first nine-months of 1996. And on this basis, MSD was
responsible for $8.3 million of the $9.9 million decrease. Although MSD's orders
in 1997 were above those in 1996, 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. Backlog was
$60.8 million at September 30, 1997 compared to $51.3 million at December 31,
1996.
GROSS PROFIT. Gross profit margin decreased 0.2 percentage points to 34.4% in
the first nine-months of 1997 from 34.6% in the first nine-months 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, while MSD's reduced margins
were due, in part, to unabsorbed overhead costs arising from reduced shipments.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased to
$8.9 million from the $8.0 million reported in the first nine-months of 1996.
Foreign currency exchange rate fluctuations caused a decrease in R&D expense of
$0.9 million in the first nine-months of 1997 compared to the first nine-months
of 1996. The $1.8 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 decreased to 27.1%
in the first nine-months of 1997 from 27.2% in the first nine-months of 1996.
Exclusive of foreign currency transaction gains or losses, which amounted to a
$1.0 million loss in 1997 and a $0.8 million loss in 1996, SG&A as a percentage
of net sales was 27.6% of sales in 1996 and 1997.
INTEREST EXPENSE. Interest expense totaled $4.3 million, in the first nine-
months of 1997 compared to $6.6 million in the first nine-months of 1996. The
decrease reflects a $41.1 million decrease in average borrowings for the first
nine-months of 1997 compared with the first nine-months of 1996. The reduced
borrowings in 1997 result primarily from the payment of approximately $35.6
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. The effective income tax rate for the nine months ended
September 10, 1997 was 20% due to the same reasons as described above for the
quarter ended September 30, 1997.
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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 September 30, 1997, the Company's outstanding indebtedness was
$64.6 million, including $51.2 million of long-term indebtedness (including
current portion) and $13.4 million of short-term borrowings, and the Company's
cash and cash equivalents were $16.5 million. At September 30, 1997, the Company
elected to terminate its $25 million domestic secured revolving credit facility
with an asset based lender, and entered into a 45 day bridge loan agreement with
The Chase Manhattan Bank in the amount of $25 million. On September 30, 1997,
the Company used the proceeds of the bridge loan to pay off three year term
notes with two banks totaling $25 million and maturing on this date. Subsequent
to the end of the quarter, the Company used surplus cash to reduce the
outstanding balance of the bridge loan to $11.7 million.
On November 10, 1997, the Company entered into two finance facilities: (1) a $50
million Private Placement of Senior Notes ("Private Placement") with a ten year
maturity at an interest rate of 7.29%, and with no principal payments for three
years, and (2) a $30 million three year syndicated multicurrency Revolving
Credit Facility with four banks (the "Revolving Credit Facility"). Approximately
$11.7 million of the proceeds of the Private Placement were used to pay off the
principal amount remaining outstanding under a $25 million bridge loan. (The
bridge loan had been entered into on September 30, 1997 to pay $25 million of
long-term debt that matured on that date, and the balance was reduced to $11.7
million by payments of surplus cash between September 30, 1997 and November 10,
1997.) Approximately $13.2 million of the Proceeds of the Private Placement are
being used to make the annual $1 million sinking fund payment on the 9.25%
Convertible Debentures (the "Debentures") on December 15, 1997 and then redeem
on December 16, 1997 the entire $12 million principal amount of the Debentures
then outstanding. The balance, less expenses, of the Private Placement proceeds
and the proceeds of any borrowings under the Revolving Credit Facility will be
available for general corporate purposes. As a result of the refinancing
described above, $11.7 million of the $25 million bridge loan outstanding at
September 30, 1997 was reclassified as long-term debt.
The Company also has foreign credit facilities which provide for a maximum
aggregate borrowings of $35.1 million. Of these foreign credit facilities, $16.3
million is available for working capital and general corporate purposes to the
Company's foreign subsidiary in the country where borrowed, $5.7 million is
available to support letters of credit and performance and bid bonds. As of
September 30, 1997, the Company's maximum additional available borrowings and
letters of credit under its foreign credit facilities were $31.8 million. At
November 10, 1997, the maximum additional available borrowings and letters of
credit under such facilities, after giving effect to the financial covenants
contained in the Private Placement and the Revolving Credit is $5.5 million. We
have approximately $38.3 million of cash of which $13.2 million will be used to
reduce the 9.25% debentures from above.
At September 30, 1997, and as adjusted to give effect to the refinancings
described above, the annual maturities of the Company's long term debt are
$14,699, $3,588, $8,596, $3,449, and $12,103, for 1997, 1998, 1999, 2000, and
2001, respectively.
Accordingly, management believes that, the 1996 public equity offering and the
additional borrowing capacity it allows along with the available short- and
long-term borrowings, including the two finance facilities completed on November
10, 1997 and described above, 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.
CASH FLOW. Net cash provided by operations in the first nine-months of 1997 was
$13.5 million, as compared to net cash used in operations of $6.1 million for
the same period in 1996. For the first nine-months of 1997, net income of $2.3
million was increased by depreciation and other non-cash items of $8.4 million
and increased by a decrease in working capital of $2.8 million. For the first
nine-months of 1996, net income of $3.7 million was increased by depreciation
and other non-cash items of $6.7 million and was offset by increases in working
capital of $16.5 million.
Net cash used in investment transactions in the first nine-months of 1997 was
$9.6 million as compared to net cash used in investment transactions during the
first nine-months of 1996 of $7.9 million. During the first nine-months of 1997
and 1996, investment transactions included capital expenditures of $6.1 million
and $7.7 million, respectively. $4.2 million of the 1996 expenditures of $7.7
million was for the new facility in Telford, England. In addition, in 1997 the
Company paid $3 million to acquire the remaining 50% interest of its 50% owned
equity investee, Automation Software, Inc.
Cash used in financing transactions was $2.4 million during the first nine-
months of 1997 compared with $8.3 million provided by financing transactions for
the same period in 1996. Financing transactions during the first nine-months of
1997 included $25 million of short-term borrowing and $0.6 million of short-term
debt payments along with $27
Page 10
<PAGE>
million of long-term debt payments. Financing transactions for the same period
in 1996 included $7.9 million of short-term borrowings and $3 million of long-
term debt to finance the new plant in Telford offset by $2.9 million of long-
term debt payments.
WORKING CAPITAL. Working capital was $106.4 million at September 30, 1997,
after reclassifying to long-term debt $11.7 million of the $25 million bridge
loan discussed above, compared to $108 million at December 31, 1996.
Inventories increased to $79 million at September 30, 1997, an increase of
$1.5 million from the end of 1996, and accounts receivable decreased $18.3
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 $4.6 million
to a total of $64.6 million at September 30, 1997 as compared to $69.2 million
at December 31, 1996.
PRODUCT DESIGN AND MANUFACTURING ENGINEERING. The Company invested $11.4
million, or 5.0% of net sales, and $10.2 million, or 4.1% of net sales for the
first nine-months 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 11
<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 September 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)
November 12, 1997
Page 12
<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.
10.84 Employment Agreement dated May 29, 1997 with Edward D. DiLuigi.
10.85 Employment Agreement dated August 18, 1997 with Philip James.
11. Computation of Per Share Data for the nine months ended September 30,
1997 and 1996.
27. Financial Data Schedule.
Page 13
<PAGE>
Exhibit 10.84
-------------
May 29, 1997
Mr. Edward D. DiLuigi
5 Ternberry Court
Turnersville, NJ 08012
Dear Ed:
This is an offer of employment with Brown & Sharpe Manufacturing company as
follows:
1. POSITION
Vice President and General Manager, Measuring Systems, USA, reporting to
me.
2. SALARY
Your annual base salary will be at the rate of $175,000 to be paid in bi-
weekly 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 make what
changes you feel are appropriate, including new hires. The primary
objective is to develop new products, grow revenues, decrease costs,
improve profitability, and assure on-time delivery of products that meet
specified quality standards. You will work closely with, and engage in
joint projects where appropriate, the General Managers of Commercial
Operations, Leitz and DEA. This is a team effort. You will work closely
with me on overall long-range planning and strategy for the Measuring
Systems business and the company.
As a corporate Vice President, you will be a member of the Planning and
Operating Committee, consisting of my direct reports.
4. BONUS
Participation in the Brown & Sharpe Annual Profit Incentive Plan
administered by the Salary Committee of the Board of Directors. You will
be eligible for a planned bonus of 30% of base salary each fiscal year.
Under exceptional performance conditions, this amount can reach 60% of base
salary. This bonus award will be based both on your attainment of personal
objectives as well as the company's performance against annual corporate
targets. You will receive a minimum pro rata bonus for seven months of
1997 at the planned rate of 30%.
5. STOCK OPTIONS
Upon your employment by the company, you will be granted options to
purchase 30,000 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.
Page 14
<PAGE>
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. This clause is subject to mitigation should you
accept another position within the twelve-month period.
7. BENEFITS
You will be entitled to our standard officer level benefits.
8. RETIREMENT PROGRAM
You will be included with a limited group of senior executives in the
"LTDICP" (Long Term Deferred Incentive Compensation Plan). We will explain
the characteristics of this plan to you.
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 (including storage
for up to six months). In addition, the company will cover reasonable
interim travel and appropriate living expenses for a point not to exceed
six months during the transition. Our understanding is that you will
relocate as quickly as possible.
The company will pay you a lump sum of $50,000 as reimbursement for all of
the costs associated with your move intended to cover items including but
not limited to broker's fees, closing costs, losses on house sale, tax
gross-up, etc., at either end.
The company will pay you $1,400 per month for up to six months as the cost
associated with a bridge loan equivalent to the equity in your current home
should you encounter the necessity to close on your new home prior to the
sale of your existing home.
10. SIGNIFICANT CHANGE IN OWNERSHIP
In the event of a significant change in ownership, the above conditions
shall be binding and all unvested options of company stock shall vest
immediately.
11. YOUR CURRENT STOCK OPTIONS
I understand you have 20,000 shares of options from your current employer,
which could vest in the September 1997 time frame, if the accelerated
vesting takes placed caused by the sale of your company. In order to
incent you to join B&S now rather than waiting until the above scenario
plays out, B&S will pay you a signing bonus of $75,000 effective on your
start date and an additional amount that together with the $75,000 signing
bonus equals the amount of gain on the 20,000 shares of options that you
would have received had you remained with the company through March 31,
1998 payable over six months beginning on the date of the "sale
transaction."
Ed, I believe you have the skills, experience, intellect and energy which
will make you a key contributor to the success of Brown & Sharpe. I have
thoroughly enjoyed our discussions and the chance to get to know you, and I am
confident we can work well together to build a world class operation.
Page 15
<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,
/s/ Frank T. Curtin
-------------------
Frank T. Curtin
FTC:kv
Accepted: /s/ Edward DiLuigi Date: May 29, 1997
------------------ ------------
Edward DiLuigi
I intend to start my employment with Brown & Sharpe on June 30, 1997.
-------------
Page 16
<PAGE>
Exhibit 10.85
-------------
August 18, 1997
Mr. Philip James
2610 Springcreek Road
Rockford, IL 61107
Dear Phil:
This is an offer of employment with Brown & Sharpe Manufacturing company as
follows:
1. POSITION
Group Vice President, Measuring Systems, reporting to me.
2. SALARY
Your annual base salary will be at the rate of $250,000 to be paid in bi-
weekly installments. Future adjustments will be based on an annual
performance review held at the close of each fiscal year.
3. PRIMARY RESPONSIBILITIES
You will have full responsibility for all activities of the Measuring
Systems Group. Once on board, you may wish to restructure the
organization, and I would expect you to make what changes you feel are
appropriate, including new hires. The primary objective is to develop new
products, 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.
As a corporate Vice President, you will be a member of the Planning and
Operating Committee, consisting of my direct reports.
4. BONUS
Participation in the Brown & Sharpe Annual Profit Incentive Plan
administered by the Salary Committee of the Board of Directors. You will
be eligible for a planned bonus of 30% of base salary each fiscal year.
Under exceptional performance conditions, this amount can reach 60% of base
salary. This bonus award will be based both on your attainment of personal
objectives as well as the company's performance against annual corporate
targets. You will receive a minimum pro rata bonus for four months of 1997
at the planned rate of 30%.
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.
Page 17
<PAGE>
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. This clause is subject to mitigation should you
accept another position within the twelve-month period.
7. BENEFITS
You will be entitled to our standard officer level benefits.
8. RETIREMENT PROGRAM
You will be included with a limited group of senior executives in the
"LTDICP" (Long Term Deferred Incentive Compensation Plan). We will explain
the characteristics of this plan to you.
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 cover reasonable interim travel and appropriate living
expenses for a point not to exceed six months during the transition. Our
understanding is that you will relocate as quickly as possible.
10. SIGNIFICANT CHANGE IN OWNERSHIP
In the event of a significant change in ownership, the above conditions
shall be binding and all unvested options of company stock shall vest
immediately.
11. SIGNING BONUS
In compensation for forgone bonus from your current employer and for costs
associated with your move, including, but not limited to, broker's fees,
closing costs, losses on house sale, tax gross-up, etc., at either end, the
company will pay you a lump sum of $150,000.
Phil, I believe you have the skills, experience, intellect and energy which
will make you a key contributor to the success of Brown & Sharpe. I have
thoroughly enjoyed our discussions, and I am confident we can work well together
to build a world class operation.
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,
/s/ Frank T. Curtin
-------------------
Frank T. Curtin
FTC:kv
Accepted: /s/ Philip James Date: August 18, 1997
---------------- ---------------
Philip James
I intend to start my employment with Brown & Sharpe on
----------------------.
Page 18
<PAGE>
EXHIBIT 11
----------
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
COMPUTATION OF PER SHARE DATA
-----------------------------
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Sept. 30 Nine-Months Ended Sept. 30
---------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 13,274 8,729 13,242 8,735
Net effect of dilutive stock options
-- based on the treasury stock method
using average market price 249 157 248 149
------- ------ ------- ------
Totals 13,522 8,886 13,490 8,884
======= ====== ======= ======
Net income (loss) $ 290 $1,257 $ 2,256 $3,661
======= ====== ======= ======
Per share amount $ .02 $ .14 $ .17 $ .41
======= ====== ======= ======
Fully diluted:
Average shares outstanding 13,274 8,738 13,242 8,735
Net effect of dilutive stock options
-- based on the treasury stock
method using average market
price which is greater than
quarter-end market price - - - -
Net effect of dilutive stock options
-- based on the treasury stock
method using average market
price which is lower than
quarter-end market price 258 201 258 201
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 13,532 8,930 13,500 8,936
======= ====== ======= ======
Net income (loss) $ 290 $1,257 $ 2,256 $3,661
Add 9 1/4% convertible
subordinated debenture
interest, net of federal
income tax effect * * * *
------- ------ ------- ------
Totals $ 290 $1,257 $ 2,256 $3,661
======= ====== ======= ======
Per share amount $ .02 $ .14 $ .17 $ .41
======= ====== ======= ======
</TABLE>
* Conversion of the 9-1/4% convertible subordinated debentures is not assumed in
the computation because its effect is anti-dilutive.
Page 19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 16,513
<SECURITIES> 0
<RECEIVABLES> 100,438
<ALLOWANCES> (2,144)
<INVENTORY> 79,027
<CURRENT-ASSETS> 202,944
<PP&E> 135,924
<DEPRECIATION> 84,263
<TOTAL-ASSETS> 289,274
<CURRENT-LIABILITIES> 107,586
<BONDS> 12,000
0
0
<COMMON> 13,335
<OTHER-SE> 114,598
<TOTAL-LIABILITY-AND-EQUITY> 289,274
<SALES> 227,451
<TOTAL-REVENUES> 227,451
<CGS> 149,198
<TOTAL-COSTS> 149,198
<OTHER-EXPENSES> 70,572
<LOSS-PROVISION> 7,681
<INTEREST-EXPENSE> 4,286
<INCOME-PRETAX> 2,820
<INCOME-TAX> 564
<INCOME-CONTINUING> 2,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,256
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
