-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LsBXRDwxyV1vKEErOqjWxRN5QTl9V0+S/FJbSKjJMn8blLAAZ71bgC6fuYpXJ3E1 XNQqQl4XxdwkTci9XiMtlQ== 0000927016-97-003127.txt : 19971117 0000927016-97-003127.hdr.sgml : 19971117 ACCESSION NUMBER: 0000927016-97-003127 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROWN & SHARPE MANUFACTURING CO /DE/ CENTRAL INDEX KEY: 0000014637 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 050113140 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05881 FILM NUMBER: 97718755 BUSINESS ADDRESS: STREET 1: PO BOX 456 STREET 2: PRECISION PK - 200 FRENCHTOWN RD CITY: NORTH KINGSTOWN STATE: RI ZIP: 02852 BUSINESS PHONE: 4018862000 10-Q 1 QUARTERLY REPORT 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 ------------------------------------------------------------------------- (Address of principal executive offices and zip code) (401) 886-2000 -------------- (Registrant's telephone number, including area code) --------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date; 12,778,702 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. Page 1 PART I. FINANCIAL INFORMATION --------------------- Item 1. FINANCIAL STATEMENTS* - ------ -------------------- BROWN & SHARPE MANUFACTURING COMPANY ------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (Dollars in Thousands Except Per Share Data) (Unaudited)
For the Quarter Ended Sept 30, For the Nine-Months Ended Sept 30, -------------------------------- ----------------------------------- 1997 1996 1997 1996 --------------- --------------- ----------------- ---------------- 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 ========== ========= ========== =========
* The accompanying notes are an integral part of the financial statements. Page 2 BROWN & SHARPE MANUFACTURING COMPANY ------------------------------------ CONSOLIDATED BALANCE SHEET -------------------------- (Dollars in Thousands)
Sept 30, 1997 December 31, 1996 -------------- ------------------ ASSETS (Unaudited) 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 ======== ========
* The accompanying notes are an integral part of the financial statements. Page 3 BROWN & SHARPE MANUFACTURING COMPANY ------------------------------------ CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (Dollars in Thousands) (Unaudited)
For the Nine-Months Ended Sept 30, ------------------------------------ 1997 1996 ----------------- ----------------- 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 ======= ========
* The accompanying notes are an integral part of the financial statements. Page 4 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 Page 5 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 Page 6 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. Page 7 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:
Quarters Ended Sept. 30 Nine-Months Ended Sept. 30 ------------------------- ---------------------------- 1997 1996 1997 1996 ------------ ----------- ------------- ------------- 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% ===== ===== ===== =====
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 Page 8 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. Page 9 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 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 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 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 EX-10.84 2 EMPLOYMENT AGREEMENT DATED MAY 29, 1997 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 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 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 EX-10.85 3 EMPLOYMENT AGREEMENT DATED AUGUST 18, 1997 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 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 EX-11 4 COMPUTATION OF PER SHARE EXHIBIT 11 ---------- BROWN & SHARPE MANUFACTURING COMPANY ------------------------------------ COMPUTATION OF PER SHARE DATA ----------------------------- (Amounts in Thousands Except Per Share Data)
Quarter Ended Sept. 30 Nine-Months Ended Sept. 30 ---------------------- -------------------------- 1997 1996 1997 1996 ---------- ---------- ------------ ------------ 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 ======= ====== ======= ======
* Conversion of the 9-1/4% convertible subordinated debentures is not assumed in the computation because its effect is anti-dilutive. Page 19 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 DEC-31-1996 SEP-30-1997 16,513 0 100,438 (2,144) 79,027 202,944 135,924 84,263 289,274 107,586 12,000 0 0 13,335 114,598 289,274 227,451 227,451 149,198 149,198 70,572 7,681 4,286 2,820 564 2,256 0 0 0 2,256 .17 .17
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