<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, 2000
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; 13,284,470 shares of Class A
common stock, 503,415 shares of Class B common stock, par value $1 per share,
outstanding as of June 30, 2000.
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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 June 30, For the Six Months Ended June 30,
-------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 70,632 $ 81,652 $ 143,105 $ 164,066
Cost of sales - Notes 3 and 4 48,702 56,940 98,023 118,183
Research and development 3,096 2,528 5,940 5,290
Selling, general and administrative
expenses 19,602 22,601 38,711 44,151
Provision for Impaired Assets - Note 4 7,635 - 7,635 -
Refinancing Fees 3,265 - 3,265 -
Restructuring (benefits) charges - 6,440 (472) 17,202
----------- ----------- ----------- -----------
Operating loss (11,668) (6,857) (9,997) (20,760)
Interest expense 2,263 1,625 4,414 3,036
Other income, net 370 199 739 549
----------- ----------- ----------- -----------
Loss before income taxes (13,561) (8,283) (13,672) (23,247)
Income tax provision 1,734 271 1,695 354
----------- ----------- ----------- -----------
Net loss $ (15,295) $ (8,554) $ (15,367) $ (23,601)
=========== =========== =========== ===========
Net loss per common share:
Basic and diluted $(1.11) $(0.63) $(1.13) $(1.75)
=========== =========== =========== ===========
Weighted average shares
outstanding 13,787,885 13,614,639 13,657,328 13,510,082
=========== =========== =========== ===========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
-------------- ------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 27,876 $ 36,643
Accounts receivable, net of allowances for
doubtful accounts of $4,174 and $4,759 78,780 88,300
Inventories 63,655 68,310
Prepaid expenses and other current assets 6,191 5,553
-------- --------
Total current assets 176,502 198,806
Property, plant and equipment:
Land 6,202 6,510
Buildings and improvements 33,977 35,465
Machinery and equipment 93,201 94,011
-------- --------
133,380 135,986
Less-accumulated depreciation 88,340 88,667
-------- --------
45,040 47,319
Goodwill, net 8,780 11,145
Other assets 40,044 44,907
-------- --------
$270,366 $302,177
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable to banks $ 39,904 $ 41,110
Accounts payable 40,052 41,916
Accrued expenses and income taxes 47,079 52,504
Notes payable and current
installments of long-term debt 53,729 53,585
-------- --------
Total current liabilities 180,764 189,115
Long-term debt 13,417 15,445
Long-term liabilities 26,180 26,083
Commitments and contingencies - -
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 13,327,062 shares
in 2000 and 13,010,623 shares in 1999 13,327 13,011
Class B, par value $1; authorized 2,000,000 shares;
issued and outstanding 503,415 shares in 2000
and 504,414 shares in 1999 503 504
Additional paid in capital 113,473 113,085
Retained earnings (deficit) (59,601) (44,234)
Other comprehensive (loss) income (17,242) (10,377)
Treasury stock: 42,592 shares in 2000 and
in 1999 at cost (455) (455)
-------- --------
Total shareowners' equity 50,005 71,534
-------- --------
$270,366 $302,177
======== ========
</TABLE>
Page 3
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six-Months Ended June 30,
--------------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATIONS:
Net (loss) income $(15,367) $(23,601)
Adjustment for Noncash Items:
Restructuring (benefits) charges (472) 15,301
Provision for impaired assets 7,635 -
Depreciation and amortization 5,623 6,785
Unfunded pension 789 1,017
Termination indemnities 297 201
Other non-cash 609 (92)
Changes in Working Capital:
Decrease (increase) in accounts receivable 6,794 (1,122)
Increase in inventories (1,045) (10,302)
Increase in prepaid expenses and
other current assets (785) (258)
(Decrease) increase in accounts payable and
accrued expenses (3,763) 20,431
-------- --------
Net Cash Provided by Operations 315 8,360
-------- --------
INVESTMENT TRANSACTIONS:
Capital expenditures (3,608) (5,790)
Acquisition, net of cash acquired - (5,439)
Decrease (investment) in other assets 476 (2,860)
-------- --------
Cash (Used in) Investment Transactions (3,132) (14,089)
-------- --------
FINANCING TRANSACTIONS:
(Decrease) increase in short-term debt (450) 10,998
Principal payments of long-term debt (1,607) (1,509)
-------- --------
Cash (Used in) Provided by Financing Transactions (2,057) 9,489
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,893) (5,100)
-------- --------
CASH AND CASH EQUIVALENTS:
Decrease during the period (8,767) (1,340)
Beginning balance 36,643 12,290
-------- --------
Ending balance $ 27,876 $ 10,950
======== ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 4,500 $ 2,589
======== ========
Taxes paid $ 519 $ 958
======== ========
</TABLE>
* The accompanying notes are an integral part of the financial statements.
Page 4
<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, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000. 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, 1999.
2. In 1999, the Company incurred a net loss amounting to $42.9 million, which
included restructuring charges amounting to $36.8 million. In addition to
the operating loss, the Company also incurred a loss amounting to $15.9
million arising from the translation of the balance sheets of its foreign
subsidiaries, which are denominated in foreign currencies. This loss was
recorded as Other Comprehensive Loss and classified in shareowners' equity.
The Company's net loss for the six months of 2000 was $15.4 million and it
incurred an additional $6.9 million loss arising from foreign exchange
translation which also was recorded as Other Comprehensive Loss, reduced
shareholders' equity at June 30, 2000 to $50 million.
The 1999 operating results caused the Company to violate certain of its loan
covenants with several banks who had provided the Company with a $30 million,
three-year syndicated, multi-currency revolving credit facility, which had a
$27.4 million balance outstanding at June 30, 2000, and with its private
placement lenders who had provided $50 million of long-term financing in
1997. The 1999 operating loss caused the Company to violate the debt to
EBITDA ratio and debt to net worth ratio covenants, as well as certain other
covenants. In November 1999, the Company's lenders granted waivers curing the
financial covenant defaults incurred under its loan agreements through the
end of 1999. The lending agreements were also amended at that time to add
certain other covenants, including a requirement that the Company complete a
subordinated debt financing acceptable to the lenders by January 31, 2000.
The Company was unable to complete a refinancing by January 31, 2000 and is
in violation of this loan covenant. As of July 31, 2000, the Company has not
yet obtained a waiver for this violation.
Over the past several months, management has been investigating various
refinancing alternatives, including a possible sale of equity securities. The
Company's Board of Directors ("Board") established a Special Committee of
three independent directors to oversee, evaluate, and work with management
and the Company's advisors to pursue and complete, subject to approval by the
full Board, a financing transaction to remedy the Company's default situation
with respect to the loan covenants. On June 27, 2000, the Company announced
that the due diligence process with private equity investors had been
terminated and it had engaged an investment advisor to pursue various
strategic alternatives, including a possible sale or merger of the Company.
At July 31, 2000, the Company had $26.6 million of cash on hand, of which
$8.7 million is not available for loans or advances to the parent company,
and has been meeting its normal cash needs. In addition, management plans to
generate sufficient cash to meet its expected cash requirements in 2000 by
reducing accounts receivable and inventory levels, as well as by enforcing
strict cash management procedures. However, the refinancing of its capital
structure in 2000, the availability of adequate liquidity throughout the
year, the negotiation of
Page 5
<PAGE>
acceptable loan covenants with its existing lenders, as well as any possible
future lenders, and complying with the terms of its financing agreements are
essential for the Company to continue as a going concern. If the Company is
unable to refinance its debt with equity or subordinated debt and its
negotiations with both sets of its principal lenders are not successful in
resolving these issues, the Company plans to seek other alternatives including
a possible sale or merger of the Company. However, it is not possible to
predict whether any such alternative arrangements could be negotiated on
satisfactory terms.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The financial
statements do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going
concern.
3. During the first six months of 1999, the Company recorded a restructuring
charge of $25.2 million. An inventory adjustment of $8.0 million was
classified in the 1999 results in cost of goods sold. The remainder of the
restructuring expense was recorded as a separate component of the 1999
operating loss. In 2000, the Company recorded a $.5 million restructuring
benefit that resulted from a sublease of rental property that was vacated as
part of the restructuring that occurred in 1999. In addition, in the first
six months of 2000, the Company terminated 76 employees as a result of the
restructuring of one of the PMI divisions.
The following is an analysis of the activity of the restructuring reserves
from December 31, 1999 to June 30, 2000:
<TABLE>
<CAPTION>
Employee Fixed Asset
Termination and
Benefits Inventory Intangible Other Total
------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Balance
December 31, 1999 $ 6,760 $ 9,547 $ 2,282 $ 5,092 $23,681
Utilized (2,794) (2,518) (2,211) (1,529) (9,052)
Benefit - - - (472) (472)
Foreign exchange (151) (360) (71) (305) (887)
------- ------- ------- ------- -------
Balance June 30, 2000 $ 3,815 $ 6,669 $ - $ 2,786 $13,270
======= ======= ======= ======= =======
</TABLE>
Cash payments amounting to $4.3 million relating to restructuring reserves
were disbursed in the first six months of 2000, and further payments
amounting to approximately $5.3 million will be paid during the remainder of
2000. An additional $1.3 million will be paid in subsequent years.
4. The Board of Directors approved a plan to discontinue the operation of the
Electronics Division. As a result of the study to determine the future of
the Electronics Business, management concluded that the carrying value of the
Electronics Division exceeded the fair value of these assets and recorded a
$7.6 million charge in the second quarter of 2000 to adjust the carrying
value of the impaired assets to fair value. In the quarter ended June 30,
2000, management also adjusted inventory of the Electronics Division to net
realizable value and recorded a charge to cost of sales amounting to $.9
million.
Page 6
<PAGE>
5. The composition of inventory is as follows:
<TABLE>
<CAPTION>
June 30, 2000 Dec. 31, 1999
------------- -------------
<S> <C> <C>
Parts, raw materials, and supplies $26,100 $29,591
Work in process 15,144 14,274
Finished goods 22,411 24,445
------- -------
$63,655 $68,310
======= =======
</TABLE>
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.
7. The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
For the Quarter Ended June 30, For the Six Months Ended June 30,
-------------------------------- -----------------------------------
2000 1999 2000 1999
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net loss (15,295) (8,554) (15,367) (23,601)
Denominator:
Denominator for basic earnings
per share:
Weighted - average shares 13,788 13,615 13,657 13,510
Effect of dilutive securities:
Employee stock options - - - -
-------- ------- -------- --------
Denominator for diluted earnings
per share:
Weighted - average shares
and assumed conversions 13,788 13,615 13,657 13,510
======== ======= ======== ========
Basic Loss Per Share $ (1.11) $ (.63) $ (1.13) $ (1.75)
======== ======= ======== ========
Diluted Loss Per Share $ (1.11) $ (.63) $ (1.13) $ (1.75)
======== ======= ======== ========
</TABLE>
Page 7
<PAGE>
8. Components of comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
For the Quarter Ended June 30, For the Six Months Ended June 30,
-------------------------------- -----------------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $(15,295) $ (8,554) $(15,367) $(23,601)
Other comprehensive loss,
net of tax:
Foreign currency translation
adjustments (1,663) (6,449) (6,865) (16,160)
-------- -------- -------- --------
Comprehensive loss $(16,958) $(15,003) $(22,232) $(39,761)
======== ======== ======== ========
</TABLE>
Accumulated other comprehensive (loss) income, net of related tax, at
June 30, 2000 and December 31, 1999 is composed of foreign currency
translation adjustments amounting to a loss of $17.2 million and
$10.4 million, respectively.
9. Contingencies
The Company is a defendant in a variety of legal claims that arise in the
normal course of business. Based upon the information presently available to
Management, the Company believes that any liability for these claims would
not have a material effect on the Company's results of operations or
financial condition.
10. Financial Information by Business Segment
Segment Information. The Company operates exclusively in the Metrology
Business and conducts its business through the Measuring Systems Group ("MS"),
Precision Measuring Instruments Division ("PMI"), and Custom Metrology
Division ("CM"), Brown & Sharpe Information Systems ("BSIS") and Electronics
Division ("ED").
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
----------------------------------------------------------
MS PMI CM BSIS ED TOTALS
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $49,815 $18,666 $2,144 $ - $ 7 $ 70,632
Intersegment revenues 1 24 1 1,500 - 1,526
Segment profit (loss) 575 1,533 (564) (2,338) (15,125) (15,919)
<CAPTION>
Three Months Ended June 30, 1999
----------------------------------------------------------
MS PMI CM BSIS ED TOTALS
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $58,902 $20,510 $2,240 $ - $ - $ 81,652
Intersegment revenues 3 101 103 - - 207
Restructuring provision 9,436 - 75 - - 9,511
Segment profit (loss) (6,092) 477 (668) (1,070) - (7,353)
</TABLE>
Page 8
<PAGE>
10. Financial Information by Business Segment (continued)
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
-------------------------------------------------------------
MS PMI CM BSIS ED TOTALS
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $101,228 $38,142 $ 3,712 $ - $ 23 $143,105
Intersegment revenues 4 33 6 3,000 - 3,043
Restructuring (benefit) (472) - - - - (472)
Segment profit (loss) 2,183 2,974 (1,339) (4,701) (16,532) (17,415)
<CAPTION>
Six Months Ended June 30, 1999
-------------------------------------------------------------
MS PMI CM BSIS ED TOTALS
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $116,792 $42,320 $ 4,954 $ - $ - $164,066
Intersegment revenues 6 219 111 - - 336
Restructuring provision 9,436 6,239 7,055 - - 22,730
Segment profit (loss) (3,424) (5,016) (9,028) (2,143) - (19,611)
</TABLE>
A reconciliation of combined segment revenues and operating profit to
consolidated profit or loss before income taxes is as follows for the MS, PMI,
CM, BSIS and ED segments:
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------
2000 1999
-------- --------
<S> <C> <C>
Total revenues for reportable segment $ 72,158 $ 81,859
Elimination of intersegment revenues (1,526) (207)
-------- --------
Total Consolidated Revenues $ 70,632 $ 81,652
======== ========
Total loss for reportable segments $(15,919) $ (7,353)
Unallocated amounts:
Interest income 315 45
Other income (expense) 2,043 (975)
-------- --------
Loss Before Income Taxes $(13,561) $ (8,283)
======== ========
<CAPTION>
Six Months Ended June 30,
-------------------------------------------
2000 1999
-------- --------
<S> <C> <C>
Total revenues for reportable segment $146,148 $164,402
Elimination of intersegment revenues (3,043) (336)
-------- --------
Total Consolidated Revenues $143,105 $164,066
======== ========
Total loss for reportable segments $(17,415) $(19,611)
Corporate restructuring charges (benefit) (472) (2,484)
Unallocated amounts:
Interest income 572 123
Other income (expense) 2,699 (1,275)
-------- --------
Loss Before Income Taxes $(13,672) $(23,247)
======== ========
</TABLE>
Page 9
<PAGE>
11. In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION IN
FINANCIAL STATEMENTS. SAB 101 provides guidance on applying generally
accepted accounting principles to revenue recognition issues in financial
statements. In June 2000, the SEC issued Staff Accounting Bulletin No. 101B
("SAB 101B"), SECOND AMENDMENT, REVENUE RECOGNITION IN FINANCIAL STATEMENTS.
SAB 101B delays the implementation date of SAB 101 for registrants with
fiscal years that begin between December 16, 1999 and March 15, 2000.
Management believes that it is possible that the implementation of SAB 101
could have a material impact on the cumulative effect adjustment arising
from the adoption of the new accounting guidance. However, management is
presently unable to make a precise calculation until further guidance is
issued that will interpret the requirements of SAB 101. The Company will
adopt SAB 101 pursuant to SAB 101B as required in the fourth quarter of 2000
after it has completed its review of the effect of the new pronouncement.
12. Certain amounts reported in 1999 have been reclassified to conform with the
2000 presentation.
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<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
(Quarter Ended June 30, 2000 compared to Quarter Ended June 30, 1999)
Sales
Sales for the second quarter of 2000 were $70.6 million compared with second
quarter sales in 1999 of $81.7 million, which is 13.6% below the 1999 level.
Second quarter sales for 2000 would have been $3.7 million higher than reported
in 2000, if foreign denominated sales had been translated at 1999 foreign
exchange rates. The reduced U.S. Dollar value of 2000 foreign sales, which
results from translating the 2000 foreign denominated sales using lower exchange
rates, is due to the continued strength of the U.S. dollar. When 2000 second
quarter sales are translated at the second quarter of 1999 exchange rates, 2000
sales amount to $74.3 million, a $7.4 million decrease over 1999. The $7.4
million sales decrease was caused by a $6.4 million and $1.0 million sales
decrease in the Measuring Systems ("MS") and the Precision Measuring Instruments
("PMI"), respectively.
The $6.4 million decrease in MS sales was primarily due to a decrease of $7
million of aftermarket revenues offset by a $.6 million increase of machine
sales in which sales of smaller CMM's increased slightly over 1999 levels whiles
sales of larger more-fully configured machines decreased slightly.
Sales for PMI were down $1.0 million primarily due to restructuring in the
United Kingdom and France offset, in part, by increased sales in the
Switzerland.
Restructuring
The following is an analysis of the restructuring reserves from December 31,
1999 to June 30, 2000:
<TABLE>
<CAPTION>
Employee Fixed Asset
Termination and
Benefits Inventory Intangible Other Total
------------ ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1999 $ 6,760 $ 9,547 $ 2,282 $ 5,092 $23,681
Utilized (2,794) (2,518) (2,211) (1,529) (9,052)
Benefit - - - (472) (472)
Foreign exchange (151) (360) (71) (305) (887)
------- ------- ------- ------- -------
Balance June 30, 2000 $ 3,815 $ 6,669 $ - $ 2,786 $13,270
======= ======= ======= ======= =======
</TABLE>
Cash payments, including payments to 76 employees whose services were terminated
in the first six months of 2000, amounting to $4.3 million relating to
restructuring reserves recognized in 1999 were disbursed in the first six months
of 2000. Further payments amounting to approximately $5.3 million will be paid
during the remainder of 2000, and an additional $1.3 million will be paid in
subsequent years.
Page 11
<PAGE>
Earnings.
The Company's net loss for the second quarter of 2000 was $15.3 million. The
second quarter net loss includes $11.8 million in charges relating to asset
write-offs, including a $.9 million writedown of inventory classified in cost of
sales, for its Electronics Division ("ED"), which will be disposed of later in
2000, as well as fees related to the due diligence process with certain private
equity investors that was terminated in the second quarter. Excluding the
effect of the write-offs, the second quarter loss would have been $3.5 million.
The Company's net loss for the second quarter of 1999 was $8.5 million which
included restructuring expenses of $9.2 million, net of taxes. Excluding the
effect of the restructuring expenses, the second quarter of 1999 would have
realized $0.7 million of net income.
The Company had an operating loss in the second quarter of 2000 of $11.7
million, which included the $11.8 million of nonrecurring expenses discussed
above. The Company had an operating loss of $6.9 million in the second quarter
of 1999, which included $9.5 million of restructuring expenses. Excluding the
effect of the nonrecurring expenses and restructuring charges in the respective
periods, operating profit in 2000 would have been $2.5 million lower than the
same period in 1999. The gross margin for the second quarter of 2000 was $21.9
million, which includes an inventory write-off of $.9 million for ED discussed
above. If the inventory adjustment was excluded from cost of goods sold, the
2000 gross margin would be $22.8 million or 32.3% of 2000 sales. The gross
margin for the second quarter of 1999 was $24.7 million, which included $3.1
million of the $9.5 million restructuring expenses. When the $3.1 million
inventory adjustment is excluded from cost of goods sold, the 1999 gross margin
is $27.8 million or 34.1%. The $5.0 million decrease in adjusted gross margin
is due to lower margins amounting to $5.7 million for MS, offset in part by an
increased margin of $.7 million in PMI. The reduced gross margin for MS is due
to lower sales volume and reduced margins in aftermarket services. The
increased margin for PMI is a result of benefits incurred from the restructuring
implemented in 1999.
Selling, general and administrative expenses ("SG&A") for the second quarter of
2000 were 27.8% of sales as compared to 27.7% for the comparable period in 1999.
SG&A expenses for the second quarter of 2000 are $3.0 million less than the
second quarter of 1999. SG&A expenses for the second quarter of 2000 translated
at the second quarter of 1999 exchange rates were $2.2 million less than the
second quarter of 1999. Second quarter 2000 SG&A expenses include approximately
$1.1 million of expenses incurred by the Electronics Division and Brown &
Sharpe/Qianshao which were acquired in 1999 and not included in the results for
the second quarter of 1999. Adjusting for the effect of foreign translation and
the two previously mentioned acquisitions, 2000 SG&A decreased approximately
$3.3 million. Approximately $1.2 million of the decrease relates to the
installation of information systems and software development costs incurred in
1999 that were not incurred in 2000. Another $.7 million of the decrease comes
from reduced payroll and payroll related costs, which is attributed to
restructuring activities implemented in 1999. The remainder of the decrease was
a result of $.5 million in reduced sales commissions and decreased spending of
$.9 million for miscellaneous items.
Results in the second quarter of 2000 included a $1.7 million tax provision as
compared to $.3 million in the second quarter of 1999. The higher tax provision
in 2000 results from expected higher taxable income in certain jurisdictions
that would not be offset by tax benefits in other jurisdictions.
(Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999)
Sales
Sales for the first six months of 2000 were $143.1 million compared with first
six month sales in 1999 of $164.1 million, which is 12.8% below the 1999 level.
First six months sales for 2000 would have been $8.5 million higher than
reported in 2000, if foreign denominated sales had been translated at 1999
foreign exchange rates. The reduced U.S. dollar value of 2000 foreign sales,
which results from translating the 2000 foreign denominator sales using lower
exchange rates, is due to the continued strength of the U.S. dollar. When 2000
first six-month sales are translated at the first six months of 1999 exchange
rates, 2000 sales amount to $151.7 million, a $12.4 million decrease over 1999.
The $12.4 million sales decrease was caused by a $9.6 million, $1.6 million and
a $1.2 million sales decrease in MS, PMI and CM, respectively.
Page 12
<PAGE>
The $9.6 million decrease in MS sales was primarily due to a decrease of $6.6
million of aftermarket revenues, as well as a $3 million decrease in machine
sales in which a $6.8 million decrease in sales of larger more-fully configured
CMM's was offset by a $3.8 million increase in sales of smaller CMM's.
Sales for PMI were down $1.6 million primarily due to restructuring in the
United Kingdom and France offset, in part, by increased sales in Switzerland.
Sales for CM were down $1.2 million because CM discontinued the sales of can
gauging and special machines when it reorganized its business in 1999.
Earnings
The Company's net loss for the first six months of 2000 were $15.4 million. The
net loss includes nonrecurring charges of $11.8 million relating to asset write-
offs including a $.9 million writedown of inventory classified in cost of sales,
for its ED, which will be disposed of later in 2000, as well as fees related to
the due diligence process with certain private equity investors that was
terminated in the second quarter. Excluding the effect of the write-offs, the
first six-months of 2000 loss would have been $3.6 million.
The Company's net loss for the first six months of 1999 was $23.6 million. The
first six months net loss includes restructuring expenses of $24.8 million, net
of taxes. Excluding the effect of the restructuring expenses, the first six
months of 1999 would have realized $1.2 million of net income.
The Company had an operating loss of $10.0 million in the first six months of
2000. The operating loss includes $11.8 million of nonrecurring charges
discussed above. Excluding the effect of the nonrecurring charge, first six
months 2000 operating profit would have been $1.8 million. The Company had an
operating loss of $20.8 million in the first six months of 1999, which included
$25.2 million of restructuring expenses. Excluding the effect of the
restructuring charge, first six months operating profit would have been $4.4
million. The gross margin for the first six months of 2000 was $45.1 million,
which included $.9 million of the ED nonrecurring charges discussed above.
Excluding the effect of this charge in cost of goods sold, the 2000 gross margin
would be $46.0 million, which is 32.1% of 2000 sales. The gross margin for the
first six months of 1999 was $45.9 million, which included $8.0 million of the
$25.2 million restructuring expenses. When the $8.0 million inventory
adjustment is excluded from cost of goods sold, the 1999 gross margin is $53.9
million which is 32.8% of 1999 sales. The $8.0 decrease in gross margin is due
to lower margins in MS of $8.8 million, offset, in part, by increased margins in
PMI of $.8 million. The decreased gross profit in MS is due to lower sales
volume, unfavorable absorption and reduced margins in aftermarket services while
PMI gross margin is up due to the restructuring done in 1999.
Selling, general and administrative expenses ("SG&A") were 27.1% of sales as
compared to 26.9% for the comparable period in 1999. SG&A expenses for the first
six months of 2000 are $5.4 million lower than the first six months of 1999. If
1999 foreign exchange rates had been used to translate SG&A expenses for the
first six months of 2000, 2000 SG&A expenses would have been $3.6 million lower
than the same period for 1999. The first six months of 2000 include
approximately $2.2 million of expenses incurred by the Electronics Division and
Brown & Sharpe/Qianshao, which were acquired in 1999 and not included in the
first six months of 1999 results. Adjusting for the effect of foreign
translation and the two previously mentioned acquisitions, 2000 SG&A decreased
approximately $5.8 million. $3.8 million of the decrease comes from reduced
payroll and payroll related costs, which is attributed to restructuring
activities implemented in 1999. Another $1.8 million of the decrease relates to
consulting fees relating to the installation of information systems and software
developing costs in 1999 that were not incurred in 2000.
Results for the first six months of 2000 include a tax provision of $1.7 million
as compared to $.4 million in the comparable period of 1999. The higher tax
provision in 2000 results from higher taxable income in certain jurisdictions
that could not be offset by tax benefits in other jurisdictions.
Page 13
<PAGE>
Liquidity and Capital Resources
The Company is obligated under a $50 million private placement of senior notes
with principal payments due from November 2001 to November 2007 (now classified
as short-term because the Company has been in default since the summer of 1999
with respect to certain financial ratio covenants in the senior note agreement),
as well as under other long-term debt amounting to $18.2 million. The Company
also has a $30 million three year syndicated multi-currency revolving Credit
Agreement with four banks, which expires in November 2000. At July 31, 2000,
only $27.4 million is available of the $30 million. 65% of the shares of
certain of the Company's foreign subsidiaries are pledged as security for the
lenders under the $50 million private placement and the $30 million line of
credit (the "Senior Lenders"). In addition to the $30 million revolving Credit
Agreement, the Company has $17.1 million in lines of credit with various banks
located outside of the United States. At June 30, 2000, the Company had
borrowed $27.4 million and $12.5 million under the revolving Credit Agreement
and foreign lines of credit, respectively. During 1999, the Company breached
certain financial covenants relating to the debt to EBITDA ratio, debt to net
worth and the interest coverage ratios. The Company's Senior Lenders granted
waivers curing the financial covenant defaults incurred under the Company's note
and revolving credit agreements through the end of 1999. In addition, in
November 1999, borrowing rates under these lending senior agreements with its
principal lenders were increased, and these lending agreements were amended to
add covenants requiring the Company to grant the Senior Lenders a security
interest in its U.S. assets and to complete a refinancing acceptable to the
lenders by January 31, 2000; as of July 31, 2000, this refinancing had not
occurred. Since June 23, 2000, the Company has engaged Chase Securities Inc. to
pursue various strategic alternatives, including a possible sale or merger of
the Company. This decision was made by the Board of Directors following the
termination of the due diligence process that the Company has recently been
engaged in with private equity investors that had been considering making a
substantial equity investment in the Company. In addition, the Company is
considering internal restructuring on its own, including the sale of one or more
units or selling a minority (or majority) interest in certain non-core units
that would increase the Company's cash position and improve liquidity. However,
there is no guarantee that a strategic transaction will be completed or that any
of the other transactions described above will be completed and will be
sufficient to meet the Company's financial needs.
At July 31, 2000, the Company had $26.6 million of cash on hand and has been
meeting its normal cash needs. Included in the $26.6 million of cash at July
31, 2000, is $3.3 million of cash of its 60% owned subsidiary, Qingdao Brown &
Sharpe Qianshao Technology Company Limited, PRC, and 75% owned subsidiary,
Quingdao Brown & Sharpe Qianshao Trading Company Limited, PRC, which are located
in the People's Republic of China. Cash balances in China are subject to
currency exchange controls which limit the China's subsidiaries' ability to make
loans and advances to the Company. In addition, two of the Company's wholly-
owned European subsidiaries with cash balances amounting to $5.4 million at July
31, 2000, have borrowings with local banks which restrict payments of loans or
advances to the Company by the subsidiaries. In addition, as a practical
matter, the business realities of the Company's operations through subsidiaries
in foreign countries, with credit lines of such subsidiaries from foreign banks,
restrict the ability of the Company to make long-term transfers of cash in
foreign countries into the United States. The Company is, as a result of recent
amendments to its loan agreements, prohibited from further borrowing by the
Company or its subsidiaries under its foreign credit lines. Until the financial
covenants have been reset and the defaults cured or waived, the Company has
classified the $50 million Senior Note obligation as a current liability.
During this period of discussion with its lenders, the Company is instituting
additional cash management procedures. If the Company's negotiations with the
party or parties who might provide either additional capital or other sources of
financing (as to which no such transactions are pending as of July 31, 2000) or
who might purchase one or more units of the Company for cash or enter into a
larger sale or merger transaction are not successful, and if parallel
negotiations with its present set of lenders under the senior Note Agreement and
lenders under the revolving Credit Agreement are not successful with respect to
the timely issuance of the new financing and resetting the financial covenants
under the various applicable loan documents, the Company ,must seek other
strategic alternatives, including sale or merger of the Company. However it is
not possible to predict whether any such strategic alternatives could be
negotiated on satisfactory terms and what would resolve the Company's present
cash and liquidity problems.
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<PAGE>
Cash Flow
Net cash provided by operations in the first six months of 2000 and 1999, are
$300 thousand and $8.4 million, respectively. For the six months ended June 30,
2000, the net loss of $15.4 million was decreased by depreciation and other non-
cash items of $14.5 million, including a $7.6 million for impaired assets from
restructuring benefits of $.5 million. Cash flows in 2000 were further
increased $1.2 million by a reduction in working capital. For the six months
ended June 30, 1999, net loss of $23.6 million was decreased by depreciation and
other non-cash items of $23.2 million, including restructuring charges amounting
to $15.3 million, and was increased in working capital of $8.8 million.
Net cash used in investment transactions was $3.1 million and $14.1 million in
2000 and 1999, respectively. Capital expenditures in 2000 and 1999 amounted to
$3.6 million and $5.8 million, respectively, as the Company curtailed spending
and investment in the first six months of 2000. In 1999, the Company invested
in an acquisition of $5.4 million and increased its investment in an equity
investee $0.5 million in capitalized internally developed software costs.
Cash used in financing transactions was $2.1 million during the six months of
2000 compared to cash provided by financing transactions of $9.5 million in the
same period in 1999. Financing transactions during 2000 consisted of principal
payments of long-term debt and short-term debt $1.6 million. Financing
transactions during the same period in 1999 consisted of an increase of $11.0
million in short-term borrowings offset by $1.5 million of principal payments of
long-term debt.
Working Capital
Working capital decreased from $9.7 million at December 31, 1999 to a negative
working capital of $4.3 million at June 30, 2000. When December 31, 1999 foreign
exchange rates are used to translate the June 30, 2000 balance sheet, working
capital decreased to a negative $1.3 million. After using the December 31, 1999
foreign exchange rates to translate the June 30, 2000 balance sheet, cash and
accounts receivable decreased $7.9 million and $7 million, respectively, and
accounts payable and accrued expenses decreased $4.7 million, which accounts for
the most significant part of the adjusted working capital decrease of $11
million. In addition, $2.5 million of inventory at December 31, 1999, that was
acquired as a result of the purchase of the Electronics Division, was adjusted
to reflect the fair value of the inventory at the acquisition date and was
offset by various other changes in working capital.
Product Design and Manufacturing Engineering
The Company invested $7.9 million, or 5.5% of sales, and $7.1 million, or 4.3%
of sales, respectively, for product design and manufacturing engineering for the
first six months of 2000 and 1999.
RISK FACTORS
Indebtedness and Liquidity
As set forth in "Management's Discussion & Analysis - Liquidity and Capital
Resources," during 1999 and continuing in 2000, the Company breached certain
financial ratio covenants. The Company received waivers curing the defaults
through the end of 1999; however, due to its inability to complete a financing
transaction, including the sale of equity (or possibly subordinated debt with
warrants) the Company, as of July 31, 2000, continues to be in violation of
financial ratio covenants in its note and loan agreements with its Senior
Lenders. There can be no assurance the Company will be able to complete a
financing transaction which will remedy the present default situation and the
Company's existing indebtedness and liquidity problem, acceptable to the Senior
Lenders or will be able to negotiate amendments on satisfactory terms to the
Note Agreement with its private placement lenders and to the Credit Agreement
with its revolving credit lenders. The Company expects that the terms of any
such financing transaction will call for issuance of equity securities in a
private placement (more likely) or possibly subordinated debt with warrants to
purchase shares of common stock of the Company. If the Company is unable to
complete such a financing transaction in a satisfactory amount (and no such
transaction is now under consideration) and if its parallel negotiations with
both sets of its present Senior Lenders are not successful in resolving these
issues under the Note Agreement and the Revolving Credit Agreement, the
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<PAGE>
Company must seek some form of strategic transaction alternative. However, it
is also not possible to predict whether any such strategic alternative
arrangements could be negotiated on satisfactory terms sufficient to resolve the
Company's present indebtedness and liquidity problem. For additional details,
see "Management's Discussion & Analysis - Liquidity and Capital Resources" and
Note 2 of the Financial Statements for the six-month period ended June 30, 2000,
and Risk Factors - Recent History of Losses.
RECENT HISTORY OF LOSSES
The Company reported a 13.6% decrease in revenue for the second quarter of
2000 as compared to the second quarter of 1999. Net losses for the second
quarter of 2000 and 1999, respectively, were $15.3 million and $8.6 million,
representing a 78% increase year over year. For the first six months of 2000,
the Company reported a 12.8% decrease in revenue as compared to the first six
months of 1999. The net loss for the first six months of 2000 was $15.4 million
as compared with a net loss of $23.6 million for the first six months of 1999.
The Company's revenue decreased 4.6% during fiscal year 1999 as compared to
fiscal year 1998. The net loss in 1999 was $42.9 million. Continued losses could
adversely impact the Company's relationships with customers, vendors and
employees, as well as its liquidity, its ability to return to compliance with
respect to the financial ratio covenants in its Senior Note and Revolving Credit
Agreement and its continued listing on the NYSE. The Company received a report
from its independent auditors for the year ended December 31, 1999, containing
an explanatory paragraph stating that the Company's operating loss and non-
compliance with certain covenants of loan agreements (see "Risk Factors--
Indebtedness and Liquidity") raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans to continue as a going
concern relies heavily on its ability to raise additional equity financing or,
alternatively, on its ability to sell one or more operating units (with
retention of some of the net proceeds of such sale or sales), or, subsequent to
the Board's decision on June 27, 2000 to hire Chase Securities, Inc. to explore
all strategic alternatives for the Company to consummate a larger sales
transaction, possibly involving merger or sale of the entire Company. However,
there can be no guarantee that any of such refinancing transactions or such
strategic transactions will occur, or if they occur that the financial benefits
from such transaction will be sufficient in scope to meet the Company's
liquidity and other financial needs.
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. The Company experiences
significant pricing competition in connection with sales by its MS Group which
can have an adverse impact on the Company's sales and margins. During periods
when the metrology industry suffers from over capacity, 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 have access to greater financial resources and may be able
to withstand such pricing pressure more effectively than the Company.
Competitive pressures on pricing have intensified and the competition for orders
has increased, which is in part responsible for the recent lack of growth in
orders and shipments of the MS Group. 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 over
capacity.
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<PAGE>
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 production costs 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 products, which include the
aerospace, heavy transport and automotive (including automotive suppliers)
industries, experience cyclicality in connection with recessionary periods
affecting these industries in the various geographic areas.
As a consequence, the prices of and margins for the Company's 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, 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 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.
FOREIGN OPERATIONS
As of June 30, 2000, approximately 67% (based on book values) of the Company's
assets, 55% of the Company's sales (based on customer location) and 65% 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 other business factors in
foreign countries that may restrict the Company's ability to transfer cash from
one foreign country to another or the United States and social (labor) programs.
In addition, the wide-spread geographic locations of the Company's facilities
and operations make it more difficult for the Company to coordinate its
financial and operating reporting and oversee its operations and employees. In
response to these difficulties, the Company has taken various personnel and
procedural actions to improve its reporting and operating procedures. While the
Company believes that these actions have resulted in satisfactory financial and
operational reporting and oversight for its present business, additional system
revisions may be needed if the Company should experience a further increase in
the number of foreign facilities.
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.
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<PAGE>
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.
DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL
On April 28, 2000, Kenneth Kermes, than a newly-elected director, became
President and CEO, replacing Frank Curtin, who retired. The success of the
Company is dependent to a significant extent upon the continuing services of a
limited number of 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's operations and its financial condition.
IMPLEMENTATION OF COMPANY STRATEGY
The 1999 restructuring initiatives focus on three areas: (i) eliminating
unprofitable products in the CMD operation and reducing their break-even point;
(ii) closing high cost or duplicate PMI factories and outsourcing manufacturing
where appropriate, and (iii) creating focused factories and eliminating
overlapping products in the MS Group. Key elements of the Company's business
strategy for 2000 include the start of realization of the planned benefit of the
1999 restructuring and completion of the development and market introduction of
new products, which leverage off of the Company's proprietary technology and
expertise and non-contact sensor technology products and focusing, through the
Company's subsidiary, Brown & Sharpe Information Systems Inc. ("BSIS"), on
software development to have a single metrology operating platform which will be
utilized on Brown & Sharpe equipment and on equipment of other metrology
manufacturers. There can be no assurances that the Company will be able to
achieve its planned objectives from the 1999 restructuring or the new products
under development. The foregoing Company strategy is subject, in some respects,
to the above-referenced Board decision on June 27, 2000 to hire Chase
Securities, Inc. to explore all strategic alternatives for the Company.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has no derivative financial instruments or derivative commodity
instruments but does have outstanding long-term debt. Substantially all of its
long-term debt is fixed rate obligations. An increase in interest rates would
not significantly increase interest expense or cash flows due to the fixed
nature of the debt obligations, and a 10% change in interest rates would not
result in a material change in the fair value of its debt obligations.
A portion of the Company's consolidated long-term debt consists of obligations
of certain of its foreign subsidiaries, which are denominated in the currencies
of the countries in which these subsidiaries are located. The Company does not
hedge these foreign denominated debt obligations, since all of the foreign debt
is payable in the functional currencies of these foreign subsidiaries. Since
there is no foreign currency exchange risk related to the debt obligations of
these foreign subsidiaries, net income and net cash flows are not affected by
changes in the foreign exchange rates of these obligations, and a 10% increase
in the foreign exchange rates of these debt obligations would not have a
material effect on the Company's financial position.
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FORWARD-LOOKING INFORMATION
This section and other portions of this report include certain forward-looking
statements about the Company's sales, expenditures, capital needs and various
risks and uncertainties, including those set forth in "Risk Factors." These
risks are discussed in "Risk Factors" in the Company's Report on Form
10-K for the year 1999, and, in addition, with respect to the Euro Conversion
issues which is discussed below. Such statements in the Report on Form 10-K and
in this report are subject to risks that could cause the actual results or needs
to vary materially from those anticipated by the Company.
EUROPEAN MONETARY UNION
Effective January 1, 1999, eleven of fifteen member countries of the European
Union ("EU") established fixed conversion rates between their existing sovereign
currencies and a common currency, the "Euro." During a transition period from
January 1, 1999 to June 30, 2002, non-cash transactions may be denominated in
either Euros or the existing currencies of the EU participants from January 1,
1999 to January 1, 2002. After January 1, 2002, all non-cash transactions must
be denominated in Euro. Euro currency will not be issued until January 1, 2002,
and on June 30, 2002, all national currencies of the EU participating countries
will become obsolete.
The Company has significant operations in several of the EU countries that
will convert, or that may convert, to the Euro. The introduction of the Euro
may present substantial risks to the Company for its operations located in the
EU participating countries. These risks include competitive implications of
conversion resulting from harmonization of pricing policies and practices in our
European operations; possible increased costs associated with the conversion;
and the ability to modify existing information systems on a timely basis, if at
all, as well as the ability to absorb the costs associated with the systems'
modifications, if required.
The Company has established various policies to be implemented during the
transition period. The Company has taken a position on pricing policy.
Essentially, Euro pricing will be provided if requested by customers; otherwise,
pricing will continue in legacy currencies. This pricing policy will apply to
both Euro and non-Euro countries. For accounting purposes, the Company will
treat the Euro as any other currency while maintaining its accounts records in
legacy currency. All affected locations have been contacted about their ability
to manage the required triangulation when converting from one legacy currency to
another. Although the present accounting systems do not handle triangulation,
the calculation is being done using commercial software. All of the Company's
banks are providing dual statements and can accept and make payments in both
legacy currency and Euro.
Some of the Company's current business operating software is not Euro
compliant. Two of the operations will acquire a software patch which will make
the software Euro compliant. Another operation is purchasing operating software
which is Euro compliant. The Company believes it will be completely Euro
compliant by the mandatory conversion date.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
The Company's 2000 Annual Meeting of Stockholders was held on Friday, April 28,
2000. At the meeting, the stockholders voted: (1) to fix the number of
directors at nine and to elect three nominees to the Board of Directors to serve
for the ensuing three-year term and (2) to ratify and approve the appointment by
the Board of Directors of Ernst & Young LLP as the Company's independent
accountants for the year 2000.
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 2002 and received the votes listed. There were no
abstentions or broker non-votes applicable to the election of directors:
<TABLE>
<CAPTION>
Name For Withheld
---------------------- ---------- --------
<S> <C> <C>
Class A Common Stock
----------------------
Frank T. Curtin 10,812,369 617,737
Richard M. Donnelly 10,812,369 617,737
Kenneth N. Kermes 10,812,369 617,737
Class B Common Stock
----------------------
Frank T. Curtin 1,367,613 945,925
Richard M. Donnelly 1,367,613 945,925
Kenneth N. Kermes 1,367,613 945,925
</TABLE>
The following directors have terms of office which continued after the meeting:
Russell A. Boss, Roger E. Levien, John M. Nelson, Howard K Fuguet, Henry D.
Sharpe, III, and J. Robert Held.
For Against Abstain No Vote
--- ------- ------- -------
(2) Appointment of Ernst & Young LLP
as the Company's independent
accountants. 12,786,535 634,458 313,652 0
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, 2000.
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/ Andrew C. Genor
-------------------
Andrew C. Genor
Chief Financial Officer
(Principal Financial Officer)
August 11, 2000
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BROWN & SHARPE MANUFACTURING COMPANY
------------------------------------
EXHIBIT INDEX
-------------
27. Financial Data Schedule.
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