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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 Commission file number 1-5881
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
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(Exact name of Registrant as specified in its charter)
DELAWARE 050113140
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
275 West Natick Road, Warwick, RI 02886
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code 401-244-4500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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CLASS A COMMON STOCK-PAR VALUE $.01 BOSTON STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS BOSTON STOCK EXCHANGE
Securities registered pursuant to Section 12 (g) of the Act:
CLASS B COMMON STOCK - PAR VALUE $.01
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 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 ____.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ([sec] 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [__]
The aggregate market value (as calculated under the rules) of the voting common
stock held by non-affiliates of the Registrant was approximately $7,000,000 as
of March 12, 2002.
There were 2,852,812 Shares of Class A Common Stock and 63,917 Shares of Class B
Common Stock, each having a par value of $.01 per share, outstanding as of March
12, 2002.
Page 1
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
INDEX
PAGE
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PART I
Item 1 Business................................................................................... 3 - 8
General, 2001 Sale of the Metrology Business.................................................... 3
North Kingstown Facility........................................................................ 3-4
Heathrow, United Kingdom Property............................................................... 4
The Business of Xygent Inc...................................................................... 4-8
Background................................................................................... 4
Measuring Software Market ................................................................... 4
Potential End-User Customer.................................................................. 5
Measuring Software Market Trends............................................................. 5
Xygent Software Products..................................................................... 5
XactMeasure.............................................................................. 5
XactVision............................................................................... 5
XactCNC.................................................................................. 5
Sales and Distribution Strategy.............................................................. 5-6
Product Support.............................................................................. 6
Software Engineering and Product Development................................................. 6
Research and Development..................................................................... 6
Software Production.......................................................................... 6
Foreign Operations........................................................................... 6
Suppliers.................................................................................... 7
Patents, Licenses, Trademarks and Proprietary Information.................................... 7
Competition.................................................................................. 7
First Orders and Backlog..................................................................... 7
Funding of Xygent Operations................................................................. 8
2001 Stockholders' Agreement Between Xygent, the Company and Hexagon......................... 8
Employees and Management..................................................................... 8
Item 2 Properties................................................................................. 9
Item 3 Legal Proceedings.......................................................................... 10
Item 4 Submission of Matters to a Vote of Security Holders........................................ 10
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters....................... 11
Item 6 Selected Financial Data.................................................................... 12
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................. 13-23
Item 7A Qualitative and Quantitative Disclosures About Market Risk................................. 24
Item 8 Financial Statements and Supplementary Data................................................ 25-45
Item 9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure....................................................................... 46
PART III
Item 10 Directors and Executive Officers of the Registrant......................................... 46-47
Item 11 Management Remuneration and Transactions................................................... 48
Item 12 Security Ownership of Certain Beneficial Owners and Management............................. 48-50
Item 13 Certain Relationships and Related Transactions............................................. 50
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 51
Signatures........................................................................................... 52
Exhibit Index........................................................................................ 53-56
Page 2
PART I
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ITEM 1 - BUSINESS
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THE BUSINESS OF THE COMPANY
GENERAL, 2001 SALE OF THE METROLOGY BUSINESS
The Company, which was founded in 1833, was previously engaged in the
Metrology Business in the design, manufacture and sale of precision measuring
tools and instruments and manual and computer controlled measuring machines. At
a special meeting held on April 27, 2001, the stockholders of the Company
approved the sale of substantially all assets of the Company, including a) the
sale of its worldwide Metrology Business to Hexagon AB of Stockholm, Sweden,
("Hexagon") and b) the sale of its North Kingstown Facility to Precision Park
Partners LLC. At the same meeting, the stockholders also approved the change of
the Company's name to BNS Co., a reduction of the par value per share of the
Class A Common Stock and Class B Common Stock from $1.00 to $.01 and a
one-for-five reverse stock split of the Company's outstanding Class A Common
Stock and Class B Common Stock. The record date for the one-for-five reverse
stock split was May 10, 2001.
Following the conclusion of the Special Meeting of Stockholders, the
Company completed the closing of the sale of its worldwide Metrology Business to
Hexagon AB, effective April 27, 2001. The purchase price for the sale of the
Metrology Business was $170 million less a $12.8 million cash adjustment based
on the terms of the Acquisition Agreement. After the cash adjustment and payment
of all U.S. bank debt and long-term senior noteholder obligations, the Company
received net proceeds of approximately $70 million. Also in connection with the
sale to Hexagon, Hexagon invested $2.5 million in Xygent Inc., the Company's
software development subsidiary, in exchange for a 16.7% ownership interest in
such subsidiary.
On May 25, 2001, the Company paid a special cash distribution of $15.25
per share (post reverse stock split) on its outstanding shares of Class A Common
Stock and Class B Common Stock to stockholders of record at May 11, 2001. The
Company plans to sell its North Kingstown property and its real estate adjacent
to the Heathrow Airport in the United Kingdom at later dates as determined by
the Company's Board of Directors. The Company plans to make additional cash
distributions to its shareholders when the property sales have been completed.
However, the amount of such future cash distributions is subject to later
determination by the Company's Board of Directors, based on a number of factors
as earlier disclosed in the Company's Proxy Statement dated March 30, 2001 for
the Special Meeting of Stockholders held on April 27, 2001, legal requirements
applicable to dividends and other subsequent developments, including retained
liabilities. The Company presently plans to continue to operate its software
development business through its subsidiary, Xygent Inc., which could ultimately
lead to a sale or spin-off of that business.
NORTH KINGSTOWN FACILITY
The North Kingstown, Rhode Island Facility (the "Facility") is
comprised of a 734,000 square foot industrial building situated on 169 acres of
commercially zoned land. All but 70,000 square feet (the former headquarters
space) is currently under leases to four tenants, including Hexagon. Total gross
monthly rental income is currently $207,000. Hexagon leases 263,000 square feet,
with the right to put back space up to a minimum leased space of 135,000 square
feet for a period of five years.
The Agreement dated as of March 2, 2001, as extended by amendments as
of May 31, 2001 and as of September 28, 2001, for the proposed sale of the
Facility to Precision Park Partners LLC has lapsed, as the parties were not able
to complete the transaction on the terms and conditions contemplated by the
Agreement. The Company continues to plan to sell the Facility and has engaged
the
Page 3
services of CB Richard Ellis, a national commercial real estate broker and
advisor, to assist in the sale and leasing of the facility. The Company is in
the process of renting out the available office space. The Company also
continues to work with the Rhode Island Department of Environmental Management
to whom the Company has submitted the results of the Phase II environmental
study on the Facility. The results of the study showed some exceedances of
environmental standards for certain contaminants in the soil under the property
and minor groundwater issues. The Company has been advised by its technical
consultants that these exceedances are minor and do not create any hazard to
human health or the environment.
The Company believes, based on discussions with its real estate
consultant, that completion of the environmental remediation work and completion
of leasing the former headquarters space should result in increasing the fair
market value of the Facility for a future sale at a time to be determined by the
Company's Board of Directors.
HEATHROW, UNITED KINGDOM PROPERTY
The Heathrow, United Kingdom real estate consists of 85 acres of land
adjacent to the Heathrow airport, currently used as a gravel pit. The property
is subject to zoning restrictions which limit its development. The property is
also subject to agreements with an adjacent land owner and a gravel pit operator
for extraction of gravel and procuring acceptable material for land fill. The
royalty for gravel removal is currently $4 per ton and the estimate of remaining
gravel that can be extracted is one million tons. The royalty for landfill is
30% of the land fill revenue. The gravel and land fill royalties are shared
77%/23% between the Company and the adjacent land owner. The gravel pit operator
is responsible for restoring the property after extraction of gravel and
landfill is complete. In the year 2001 revenues from the property were
approximately $950,000. We have not commenced any selling efforts.
THE BUSINESS OF XYGENT
Xygent (formerly BSIS) was formed in December 1997 to develop next
generation metrology software applications for the Company's various business
units. As its secondary mission, Xygent was to establish and execute a
"measuring software" business strategy, which would ultimately lead to the
formulation of a software business that could spin off as an independent
business separate from the metrology equipment manufacturing businesses.
Accordingly, Xygent is now focused on the commercialization of its new
XactMeasure measuring software.
Background
"Metrology" is defined as "the science of measuring physical
attributes" such as the physical dimensions, like part size and feature position
of manufactured component parts, but also extends into the measurement of color,
weight, surface finish or any other physical attributes that are defined by a
design standard and can be inspected and compared to the designer's intended
specification. The metrology machine or instrument hardware, together with
metrology or measuring software forms a complete metrology system, which is used
by manufacturers of mechanical and electrical components for the purposes of
inspecting and verifying that the physical dimensions of the manufactured
components meet their required "dimensional design specifications".
Measuring Software Market
Xygent has defined three major measuring software market segments by
inspection device type: CMMs (Coordinate Measuring Machines), which include any
device that collects three dimensional coordinate data points from a component
part; Vision systems, which collect a video camera image of a manufactured part
of feature into a frame grabbing sub-system; and CNC (Computer Numerically
Controlled) machine tools, which cover CNC metal cutting or forming machine
tools equipped with measuring probes.
Page 4
Potential End-User Customer Profile
Xygent's potential end-user customers can be categorized as Large
Original Equipment Manufacturers ("OEMs") such as automotive, aerospace, and
heavy equipment manufacturers, typically with production facilities located
around the world; Medium (sized) production equipment manufacturers and assembly
subsystem suppliers to the Large OEMs, such as engine or transmission transfer
lines or vehicle subassemblies; and small component part specialized tooling and
fixture job shop manufacturers which supply to both the Medium and Large OEM
manufacturers.
Xygent's strategy is to become a leading independent provider of
metrology software by providing products based on an open-architecture
extensible framework.
Measuring Software Market Trends
A significant trend in the measuring software market is the desire of
many large-sized users of metrology equipment to standardize on one measuring
system software product throughout their organizations. There is a recognition
that the use of different software on measuring devices introduces uncertainty
in the production system due to the differences in CAD model access and
analysis. Standardization will enable the users to more easily transfer skilled
operators within the enterprise and facilitate movement of inspection and
measuring programs between production sites.
Another significant trend is the penetration of PC platforms, Microsoft
Windows NT and CE and the Internet/Intranet technologies onto the manufacturing
shop floor. These advanced technologies permit the transmission of data,
including design engineering and production data, throughout the manufacturing
enterprise and its supply network. The combination of these technologies with
the open architecture and other application features of Xygent measuring
software products enable operators of measuring systems and machine tools
located at diverse manufacturing sites to share manufacturing data to improve
productivity.
Xygent Software Products
XactMeasure
XactMeasure is a metrology software system designed to be used with
both Computer Controlled and Manual CMMs. Features include full CAD support,
Kinematic display of machine and parts, ASME compliant Geometric Dimensioning
and Tolerancing and HTML result reporting.
XactVision
XactVision is based on the same component core as XactMeasure but
substitutes functions designed to support non-contact vision systems that use
image analysis and laser-based systems as the primary means of part data
acquisition. XactVision is in final beta testing and is scheduled for commercial
release in the summer of 2002.
XactCNC
XactCNC supports in-process inspection on board machine tools utilizing
touch probes. The Xact Technology component core is augmented by functions to
support tuning of CNC machining processes as well as the conversion of these
machines into fully functional CMMs.
Sale and Distribution Strategy
Xygent has established arrangements for the distribution of its
products primarily through third party independent retrofit dealers. Dealers
have been established in North America, Europe and Australia. A relationship in
China is anticipated before the end of second quarter 2002. Distribution
agreements are being pursued with several major OEMs.
Page 5
The Xygent/Hexagon Stockholders Agreement includes license and royalty
arrangements between Xygent and Hexagon which provide that, for the period
ending April 27, 2006, Hexagon may purchase XactMeasure licenses from Xygent for
$1,500 per unit. Xygent will pay Hexagon a royalty of $5,000 per unit for any
XactMeasure licenses for CMM applications sold by Xygent through a distribution
channel other than Hexagon. The preferential pricing and royalty provision in
favor of Hexagon are applicable only to software products for use in CMM
applications.
Product Support
Software users in manufacturing industries require service and support
as a major criteria in their purchasing decision. Xygent offers hot-line service
support to the retrofit dealers and expects the authorized dealer to provide 24
hour-a-day, seven-days-a-week support to the actual end-user customer.
Software Engineering and Product Development
Xygent's commercial success is dependent on its ability to develop
quality products and enhancements in a timely fashion. Xygent has adopted the
Rational Unified Process (RUP) as a development methodology. The use of RUP
leads to shorter development cycles through a concurrent engineering approach.
Shorter interactive cycles are executed with highest risk R&D tasks being
scheduled first to minimize project slippage.
Research and Development
Xygent's product development activities take place in facilities
located in the United States, United Kingdom, France, Germany and Italy. Xygent
has connected the software development tools and infrastructures of each of
these facilities in order to provide a global software development process.
The American National Standards Institute (ANSI), American Society of
Mechanical Engineers (ASME), and the International Standards Organization (ISO)
all influence the evolution of standards directly related to Xygent's end users
and their businesses. Xygent actively participates in the GD&T standard, known
as ANSI/ASME Y14.5.1M; the NIST/ISO STEP AP219, which will define exchange of
metrology and feature/tolerance information between software systems; and the
B89 standard, which propagates best measurement practices throughout the
industry.
Software Production
All of Xygent's products include a commercial "soft key" licensing
mechanism whereby a unique code locks the product to a specific computer and
enables the purchased options to be executed by the customer. The generation of
these soft keys has been WEB Enabled by Xygent to allow any authorized
distributor, anywhere in the world, to distribute and activate Xygent products.
Xygent creates master CDs that contain a standard Microsoft
Installation Procedure (i.e. RUN:SETUP). The normal setup procedure is followed
by the user and the product installs itself on the selected hard drive.
Following installation the user enters the soft key license and the correct
options are enabled. Master CDs will be distributed to authorize high-volume
OEMs along with suitable artwork for packaging with permission to copy as
needed.
Foreign Operations
Xygent expects to develop and sell a significant portion of its
products in foreign countries. Technical sales support subsidiaries are in
Wetzlar, Germany; Torino, Italy and Teddington, England. Third party independent
retrofit dealers have been established in several foreign countries.
Page 6
Suppliers
Xygent incorporates several third party software components into its
products to both leverage domain expertise and reduce support workload. These
suppliers are all major market leaders in their respective fields. Cooperative
market activities are periodically undertaken in partnership with these
suppliers to enhance Xygent's image in the marketplace.
Patents, Licenses, Trademarks and Proprietary Information
As of December 31, 2001, Xygent has filed three patent applications,
two in the United States and one foreign application, covering methods and
apparatus embodied in its measuring software product (i) for simulating the
measurement of a part without using a physical measurement system and (ii) for
interacting with measuring devices by allowing users to extend the capabilities
of software for controlling measuring devices. Xygent has obtained rights to
XactMeasure(R) as a registered trademark. Xygent also owns the domain names
Xygentinc.com and XactMeasure.com.
At the April 27, 2001 closing with Hexagon, the Metrology Business CMM
legacy software (including Quindos, Tutor, Chorus and MM4) and legacy
derivatives, or proprietary software enhancements to basic software programs,
(including XactQuindos, Chorus X, MM4X and Tutor X) became an exclusive asset of
Hexagon. Xygent has no right to sell or license the legacy or legacy derivatives
software. Xygent's rights to use the legacy software and legacy derivatives in
connection with the development of XactMeasure are embodied in Software
Programming Services Agreements between Xygent and certain Hexagon subsidiaries.
The parties have agreed to make such mutually agreed changes to the various
Software Programming Services Agreements as may be necessary to protect the
proprietary rights of Hexagon in the legacy software products.
Competition
The markets in which we sell our products include established
competitors that largely fit into one of two classes: 1) Those that produce
measuring software only, selling through one or more OEMs or retrofitters, of
which there are five principle competitors; and 2) CMM or Vision OEMs that
produce both hardware and software, of which there are eight major CMM
competitors and six major Vision system competitors.
The CMM measuring software market is shared by two classes of
participants: (1) those that produce measurement system hardware and software
including Hexagon, Zeiss, Mitutoyo, LK, Sheffield, Starrett, IMS and Wenzel; and
(2) those that produce software only including Metrologic, AAT, Tecnomatix,
Silma and Delmia.
The Vision measuring software market consists primarily of participants
that produce measurement system hardware and customized software to run their
hardware. Each of the major OEMs, including OGP and View Engineering (both now
held by QVII), Sony, Nikon, MicroVu, and J-Mar, all produce their own
non-contact system including software. In addition, Metronics markets
Quadra-Check(R) both as OEM and retrofit software in the lower end of the vision
measuring software segment. The principal competition in the CNC measuring
software market is Renishaw, which produces an inspection probe, controller card
and software macros to run an inspection cycle from within an NC-G code program
First Orders and Backlog
Xygent ships its software products upon receipt of customer orders. In
late 2001, after the completion of the development and quality assurance
processes, Xygent received its first customer orders for seven XactMeasure
licenses.
Page 7
Funding of Xygent Operations
The operating capital for Xygent is provided by (i) the $5.0 million of
Metrology Business sales proceeds the Company retained for use in funding Xygent
and (ii) by Hexagon's investments under the Acquisition Agreement. Hexagon
invested $2.5 million at the Closing on April 27, 2001, for a 16.7% ownership
stake and has committed to invest an additional $1.5 million annually in April
of 2002, 2003 and 2004. We expect Xygent will begin to generate revenue such
that said aggregate funding will be sufficient; however, there can be no
assurance that said aggregate funding will be sufficient to fund the
contemplated operations of Xygent or that, if needed and determined appropriate
by BNS Co. and Hexagon, the two stockholders of Xygent, additional funding could
be raised through the issuance and sale of shares which would further dilute the
current stockholders, or through any other method of financing. Moreover, the
Company may entertain offers for the purchase of Xygent as an alternative to the
proposed execution of the business plan described above.
2001 Stockholders' Agreement Between Xygent, the Company and Hexagon
The 2001 Stockholders' Agreement gives Hexagon the right to designate
two of the five members of the Board of Directors of Xygent, gives Xygent a
right of first refusal on any transfer of Xygent shares by Hexagon, gives
Hexagon a right of first refusal on any transfer of Xygent shares by the
Company, gives Hexagon pre-emptive rights on the issue of additional Xygent
shares, limits the number of options on Xygent shares that may be granted to
Xygent employees without further consent of Hexagon, affords Hexagon
registration rights on its Xygent shares under certain circumstances and
provides that Hexagon's consent is required for certain other matters, including
any amendment to Xygent's certificate of incorporation or by-laws (except as
required by additional investors or for increases in authorized stock) and any
sale of more than 51% of Xygent's assets or a merger or consolidation of Xygent.
Employees and Management
BNS Co., including Xygent, had 44 employees at December 31, 2001. Of
the total employees, 39 were employed by Xygent (21 in the U.S. and 18 in
Europe) in software development and quality assurance (22), marketing, sales and
sales support (14) and administration and information technology (3). Corporate
support, including facility management, is provided by the BNS Co. employees
(5). None of the employees are covered by a collective bargaining agreement.
Management believes that its relationship with its employees is good.
Page 8
ITEM 2 - PROPERTIES
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PROPERTIES
The following table sets forth certain information concerning the Company's
facilities:
Owned/ Approximate
Location Leased Principal Use Square Footage
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United States
N. Kingstown, Owned Commercial Real Estate Rental 734,000 sq. ft. /(1)/
Rhode Island
Warwick, Rhode Island Leased Headquarters Xygent Inc., Sales, 11,000 sq. ft. /(3)/
Software Development,
Administration
United Kingdom Owned Gravel Extraction/Landfill 85 Acres /(2)/
Heathrow
Teddington Leased Xygent Sales Support, Software 2,000 sq. ft. /(4)/
Development
Italy
Torino Leased Xygent Sales Support, Software 1,800 sq. ft. /(5)/
Development
Germany
Wetzlar Leased Xygent Sales Support, Software 3,000 sq ft. /(6)/
Development
In Management's opinion, the Company's properties are in good condition and
adequate for the Company's business as presently conducted.
/(1)/ see Item 1: North Kingstown
/(2)/ see Item 1: Heathrow, United Kingdom Property
/(3)/ the lease in Warwick, RI expires in 2006
/(4)/ the lease in Teddington, UK expires in 2002
/(5)/ the lease in Torino, Italy expires in 2004
/(6)/ the lease in Wetzlar, Germany expires in 2002
All of the above leases contain renewal options.
Page 9
ITEM 3 - LEGAL PROCEEDINGS
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ENVIRONMENTAL MATTERS
The nature of the Company's current software development operations are
not affected by environmental laws, rules and regulations. However, because the
Company and its subsidiaries and predecessors, prior to the sale to Hexagon on
April 27, 2001 (and prior to sales of other divisions made in prior years) have
conducted heavy manufacturing operations and often in locations at which or
adjacent to which, other industrial operations were conducted, from time to time
the Company is subject to environmental claims. As with any such operations that
involved the use, generation, and management of hazardous materials, it is
possible that prior practices, including practices that were deemed acceptable
by regulatory authorities in the past, may have created conditions which could
give rise to liability under current or future environmental laws. Because the
law in this area is developing rapidly, such environmental laws are subject to
amendment and widely varying degrees of enforcement, the Company may be subject
to, and cannot predict with any certainty the nature and amount of potential
environmental liability related to these operations or locations (including its
North Kingstown Facility and property on which the Facility is located where,
after the sale to Hexagon, the Company is now solely the landlord) that the
Company may face in the future.
A recently completed Phase II environmental study on the North
Kingstown Facility had indicated certain environmental problems on the property.
The results of the study show some exceedances of environmental standards for
certain contaminants in the soil under the property and minor groundwater
issues. The Company has been advised by its technical consultants that these
exceedances are minor and do not create any hazard to human health or the
environment. The Company submitted the results of the study to the Rhode Island
Department of Environmental Management ("RIDEM") on October 2, 2001, and has
stated to RIDEM that it will address these exceedances in a timely and
appropriate manner consistent with applicable law and regulation. As of March
25, 2002, the Company had not received the position of RIDEM on the submitted
study.
The Company believes, based on the preliminary advice of its
consultants, that the estimated costs for further investigation and remediation
of the identified exceedances, which have been accrued, approximate $500,000.
However, as noted above, the study has been furnished by the Company to the
Rhode Island Department of Environmental Management, and it is possible that the
risks and estimated costs of further investigation and remediation may be more
significant.
LITIGATION
The Company is a defendant in a variety of legal claims that arise in
the normal course of business, including compensation disputes with two former
executives as to the amounts due them under their change-in-control contracts
that were triggered by the 2001 Hexagon transaction. Based on the information
presently available to management, the Company believes that any additional
liability for these claims would not have a material effect on the Company's
consolidated results of operations or financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not Applicable
Page 10
PART II
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ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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COMMON STOCK MARKET PRICES AND DIVIDENDS
The Class A Common Stock is listed on the Boston Stock Exchange and is traded on
the NASD Over-the-Counter Bulletin Board, where market makers and other dealers
provide bid and ask quotations. In each case, the Class A Common Stock trades
under the symbol "BNSXA." Prior to its delisting on February 8, 2002 the Class A
Common Stock was listed on the New York Stock Exchange and traded under the
symbol "BNS". At December 31, 2001, the Company had approximately 1,626
shareowners of record of its Class A Common Stock and 622 shareowners of record
of its Class B Common Stock. Set forth below are the high and low closing prices
for the Class A Common Stock on the New York Stock Exchange, adjusted for the
one-for-five reverse stock split effective May 10, 2002.
Calendar Year High Low
2001
4th Quarter $ 2.55 $ 1.90
3rd Quarter 6.25 2.51
2nd Quarter 25.50 19.00
1st Quarter 28.15 24.00
2000
4th Quarter $ 25.65 $ 13.75
3rd Quarter 21.25 10.00
2nd Quarter 16.25 7.80
1st Quarter 16.25 7.80
In May of 2001, the Company made a cash distribution to shareholders following
the sale of the Metrology Business to Hexagon AB, a Swedish company. Previously,
no dividends or distributions had been paid by the Company since 1990. Future
distributions or dividends are not likely except as the Company may sell other
assets and then decide to pay a distribution or dividend of some or all of the
proceeds of the sale. See also "Liquidity and Capital Resources" section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of this Report.
Page 11
ITEM 6 - SELECTED FINANCIAL DATA
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The following selected data should be reviewed in conjunction with Part II, Item
7-"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto in Item
8 of this Annual Report.
Year ended December 31
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands except per share information)
Statement of Operations Data
Sales $91 $-- $-- $-- $--
Loss from continuing operations (12,422) (19,913) (19,635) (23,922) (14,749)
Net income (loss) $21,170 $(57,309) $(42,874) $ 11,929 $(9,164)
Net income (loss) per common share,
basic, from continuing operations $(4.33) $(7.26) $(7.30) $(8.94) $(5.56)
Net income (loss) per common share,
basic $7.38 $(20.88) $(15.93) $4.45 $(3.45)
Net income (loss) per common share,
diluted, from continuing operations $(4.33) $(7.26) $(7.30) $(8.94) $(5.56)
Net income (loss) per common share,
diluted $7.38 $(20.88) $(15.93) $4.40 $(3.45)
Average shares outstanding 2,867 2,745 2,691 2,677 2,651
Cash dividends per share $15.25 - - - -
Balance Sheet Data
Total assets $19,283 $250,645 $302,177 $317,778 $296,593
Long-term debt including current maturity 3,317 65,176 69,030 74,705 76,062
(1) The 2001 net income includes a gain from the disposal of the Metrology
Business to Hexagon AB in the amount of $47,113 or $16.43 per share.
(2) The 2001 net income includes an extraordinary item of $6,566, which
represents the payment of a prepayment penalty in connection with the repayment
of the long-term senior debt and the write-off of debt acquisition costs
previously capitalized.
(3) The 2000 loss includes a change in accounting principle as the Company
adopted SEC Staff Accounting Bulletin No. 101 ("SAB 101"). The effect of
applying this change in accounting principle was a charge for the cumulative
effect of the change amounting to $27,401 (net of an income tax benefit of $600)
or $9.98 per share.
(4) During 2001, the Company's shareholders approved a one-for-five reverse
stock split. Accordingly, all periods presented have been restated to reflect
this reverse stock split.
Page 12
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
-------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
At a special meeting held on April 27, 2001, the stockholders of BNS
Co. (formerly Brown & Sharpe Manufacturing Company) approved the sale of
substantially all assets of the Company, including a) the sale of its worldwide
Metrology Business to Hexagon AB of Stockholm, Sweden, ("Hexagon") and b) the
sale of its North Kingstown Facility to Precision Park Partners LLC. At the same
meeting, the stockholders also approved the change of the Company's name to BNS
Co., a reduction of the par value per share of the Class A Common Stock and
Class B Common Stock from $1.00 to $.01 and a one-for-five reverse stock split
of the Company's outstanding Class A Common Stock and Class B Common Stock. The
record date for the one-for-five reverse stock split was May 10, 2001.
Following the conclusion of the Special Meeting of Stockholders, the
Company completed the closing of the sale of its worldwide Metrology Business to
Hexagon AB, effective April 27, 2001. The purchase price for the sale of the
Metrology Business was $170 million less a $12.8 million cash adjustment based
on the terms of the Acquisition Agreement. After the cash adjustment and payment
of all U.S. bank debt and long-term senior noteholder obligations, the Company
received net proceeds of approximately $70 million. Also in connection with the
sale to Hexagon, Hexagon invested $2.5 million in Xygent Inc., the Company's
software development subsidiary, in exchange for a 16.7% ownership interest in
such subsidiary. The transfer to Hexagon of the Company's interests in the
Metrology Business Joint Ventures in China was completed on January 23, 2002 and
required a net outlay of cash by the Company of $0.3 million. There are no other
material post-closing matters pending with Hexagon.
On May 25, 2001, the Company paid a special cash distribution of $15.25
per share (post reverse stock split) on its outstanding shares of Class A Common
Stock and Class B Common Stock to stockholders of record at May 11, 2001.
Although the Purchase and Sale Agreement with Precision Park Partners LLC for
the sale of the North Kingstown property has lapsed, as the parties were not
able to complete the transaction on the terms and conditions contemplated by the
Agreement, the Company continues to plan to sell its North Kingstown property
and its real estate adjacent to the Heathrow Airport in the United Kingdom at
later dates as determined by the Company's Board of Directors. The Company plans
to make additional cash distributions to its shareholders after the properties
have been sold. However, the amount of such future cash distributions is subject
to later determination by the Company's Board of Directors, based on a number of
factors as earlier disclosed in the Company's Proxy Statement dated March 30,
2001 for the Special Meeting of Stockholders held on April 27, 2001, legal
requirements applicable to dividends and other subsequent developments including
retained liabilities. The Company will continue to operate its software
development business through its controlled subsidiary, Xygent Inc.
The accompanying financial statements present the Metrology Business
and the former Electronics Division as discontinued operations. The financial
statements for prior periods have been restated. The discussions below relate
only to our continuing operations, unless otherwise noted.
Page 13
FORWARD-LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as other portions of this Report contain
forward-looking statements concerning the Company's cash burn, retained
liabilities, capital requirements, operations, economic performance and
financial condition. In addition, forward-looking statements may be included in
various other Company documents to be issued in the future and various oral
statements by Company representatives to security analysts and investors from
time to time. Such statements are not guarantees of future performance and are
subject to various risks and uncertainties, including those set forth in "Risk
Factors," and actual performance could differ materially from that currently
anticipated by the Company. In addition, this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Report.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of financial condition and results
of operations are based upon the consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The accounting policies used in reporting the
financial results are reviewed on a regular basis. The preparation of these
financial statements requires the use of estimates and judgements that affect
the reported amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities. On an ongoing basis, estimates,
including those related to revenue recognition, accounts receivable, capitalized
software development costs, contingencies and litigation are evaluated. The
estimates are based on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgements about the carrying value of assets and
liabilities that are not readily apparent from other sources. Results may differ
from these estimates due to actual outcomes being different from those on which
we based our assumptions. These estimates are reviewed by management on an
on-going basis. The following critical accounting policies affect the more
significant judgements and estimates used in the preparation of the consolidated
financial statements.
REVENUE RECOGNITION
Software revenue is recognized in accordance with SOP 97-2, "Software
Revenue Recognition," as amended by SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." Under these
guidelines, revenue recognition is deferred on transactions where persuasive
evidence of an arrangement does not exist, title has not transferred, product
payment is contingent upon performance of installation or service obligations,
the price is not fixed or determinable or payment is not reasonably assured.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowances for doubtful accounts are maintained for estimated losses
resulting from the inability of customers to make required payments. If the
financial condition of customers or channel partners were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The policy on capitalized software costs determines the timing of the
recognition of certain development costs. In addition, this policy determines
whether the cost is classified as development expense or cost of license fees.
Management is required to use professional judgment in determining whether
development costs meet the criteria for immediate expense or capitalization.The
impairment of capitalized software costs is assessed whenever events or changes
in circumstances indicate that the
Page 14
carrying value may not be recoverable. Some factors considered important which
could trigger an impairment review include the following: significant
underperformance relative to expected historical or projected future operating
results; significant changes in the manner of our use of the assets or the
strategy for our overall business; and significant negative industry or economic
trends.
When determining that the carrying value of capitalized software costs
may not be recoverable based upon the existence of one or more of the above
indicators of impairment, any impairment is measured based on our best estimate
of the fair value of the intangible as determined by management. Total
capitalized software costs represent 17.5% of total assets at December 31, 2001.
Based on management's best estimate, these costs are deemed to be recoverable.
CONTINGENCIES
The Company periodically records the estimated impacts of various
conditions, situations or circumstances involving uncertain outcomes. These
events are called "contingencies," and the Company's accounting for such events
is prescribed by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a
contingency as "an existing condition, situation, or set of circumstances
involving uncertainty as to possible gain or loss to an enterprise that will
ultimately be resolved when one or more future events occur or fail to occur."
SFAS 5 does not permit the accrual of gain contingencies under any
circumstances. For loss contingencies, the loss must be accrued if (1)
information is available that indicates it is probable that the loss has been
incurred, given the likelihood of the uncertain future events; and (2) that the
amount of the loss can be reasonably estimated.
The accrual of a contingency involves considerable judgment on the part
of management. The Company uses its internal expertise, and outside experts
(such as lawyers, tax specialists and engineers), as necessary, to help estimate
the probability that a loss has been incurred and the amount (or range) of the
loss.
As discussed in Note 16, the Company is currently involved in certain
legal disputes and environmental proceedings. It is not believed that these
proceedings will have a material adverse affect on our consolidated results of
operations or financial condition. It is possible, however, that future results
of operations for any particular quarterly or annual period could be materially
affected by changes in our assumptions, or the effectiveness of our strategies,
related to these proceedings.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 of the Notes to Consolidated Financial Statements for a
discussion of new accounting pronouncements and the potential impact to the
Company's consolidated results of operations and consolidated financial
position.
Page 15
RESULTS OF OPERATIONS
2001 COMPARED TO 2000
During the fourth quarter of 2001, Xygent recorded its initial revenue
from the sale of software licenses. As a result of these sales of licenses
Xygent was required to pay royalties related to sublicenses utilized in the
Company's products. These royalties have been recorded in cost of sales. The
royalty payments to Hexagon are reported under selling expenses. Due to the
initial recording of revenue in 2001, the Company began amortizing the
capitalized software costs recorded in Other assets. This amortization is
recorded in cost of sales.
In 2001 the Company recorded net income of $21.2 million. The 2001
results include the following:
In Millions of Dollars
Loss from continuing operations $(12.4)
Income from discontinued operations 40.2
Extraordinary item (6.6)
--------------
Net income $21.2
==============
The 2001 loss from continuing operations includes the Xygent software
business and the Company's corporate operations, along with the results from the
commercial rental activity of the North Kingstown facility and the gravel
extraction from the gravel pit in the United Kingdom.
Research and development expenses related to the Company's software
development decreased from $4.7 million in 2000 to $3.8 million in 2001. This
was primarily due to the completion of the Company's primary software product
during 2001 and the redirection of some of the development manpower to
supporting the sales function.
Due to the sale of the Metrology Business the Company has reduced the
selling, general and administrative ("S,G,&A") function of the Company. Although
total S,G,&A expense in 2001 increased by $.5 million from 2000 on an annual
basis, the Company has actually reduced the recurring S,G,&A expense in 2001
from 2000 as a result of the Company no longer owning the Metrology Business. As
a result of the April 2001 closing of the transaction with Hexagon, the Company
has certain arrangements, as yet not finalized, relating to a change in control
contract with an employee who has remained as the CEO. While all the details of
the CEO's compensation arrangement have not been finalized and a contract has
not, as yet, been executed, certain provisions of the arrangement have been
agreed upon which resulted in the Company recording a charge, included in
S,G,&A, of $1.2 million during the year 2001. Additionally, in 2001 the Company
recorded a charge of $.5 million for further environmental investigation and
remediation costs related to the North Kingstown facility.
Interest expense in 2001 has decreased from 2000 by $4.8 million. This
is entirely due to the repayment of all of the Company's debt (as discussed
above), with the exception of the mortgage on the North Kingstown facility. As a
result of such repayment the Company had to pay a prepayment penalty and related
costs of $6.6 million. This amount is reflected as an extraordinary loss in the
statement of operations for 2001.
Other income in 2001 increased by $2.7 million over 2000 due primarily
to the increase in rental income from the North Kingstown Facility. The decision
to sell the North Kingstown facility has allowed the Company to cease recording
depreciation, which would have been approximately $.3 million if the facility
were held for use rather than for sale. As discussed above, the Company
continues to lease the North Kingstown facility to its tenants and has leased
that portion of the facility previously occupied by the Metrology Business to
Hexagon. The former headquarters space is available for rent. Additionally, the
Company has maintained a cash balance which has earned interest income during
the year 2001.
Page 16
Results from continuing operations in 2001 included a $0.1 million tax
provision. This tax provision relates to the taxable income generated by the
subsidiary owning the gravel pit in the United Kingdom. In prior years this
asset was owned by a subsidiary that had losses available to shelter such
income. As a result of the sale of the Metrology Business, this asset was
transferred to a subsidiary that had no such losses available.
2000 COMPARED TO 1999
The Company incurred a net loss in 2000 amounting to $57.3 million. The 2000
results include the following:
In Millions of Dollars
Loss from continuing operations $(19.9)
Loss from discontinued operations related to
the Electronics Division (11.1)
Loss from discontinued operations related to
the Metrology Business (26.3)
----------------
$(57.3)
================
The 2000 loss from continuing operations includes the Xygent software
business and the Company's corporate operations, along with the results from the
commercial rental activity of the North Kingstown facility and the gravel
extraction from the gravel pit in the United Kingdom.
Research and development expenses related to the Company's software
development increased by approximately $2.6 million from 1999 to 2000. This
increase is attributable to the termination of the capitalization of software
development expenses. When the development activities reached the technological
feasibility stage, the Company began to capitalize its software production costs
incurred to code and test its software product. Due to the extended testing
period, the Company ceased capitalizing the software development costs in 2000
because of the uncertainty of the recoverability of the additional costs at
December 31, 2000. The Company concluded that the carrying value at December 31,
2000 was recoverable based upon expected revenues that would result from the
future sales of the software product.
S,G, & A expense decreased from 1999 to 2000 by $4.1 million. This was
attributable to pension expense recorded in 1999 that was not required in 2000
for certain key employees who were participants in the Company's Senior
Executive Supplemental Umbrella Pension Plan, who became fully vested in 1999
and eligible to receive these benefits at that time.
Interest expense in 2000 was $1.6 million higher than in 1999 due to
increased average borrowings and higher interest rates in 2000 resulting from
the Company's adverse financial position.
LIQUIDITY AND CAPITAL RESOURCES
Until the sale of the Company's Metrology Business on April 27, 2001,
the Company was obligated under a $50 million private placement of senior notes
with principal payments due from November 2001 to November 2007 as well as other
long-term debt amounting to $11.0 million. The Company also had, until April 27,
2001, a $30 million three-year syndicated multi-currency revolving Credit
Agreement with four banks.
As a result of the sale of the Metrology Business to Hexagon on April
27, 2001, the Company paid all of the $50 million private placement notes,
including accumulated interest and prepayment penalties totaling $8 million, and
the balance of the $30 million Revolving Credit Agreement. In addition, all of
the foreign short-term and long-term debt was assumed by Hexagon. After the sale
of the Metrology Business, the Company is debt-free, except for a $3.3 million
mortgage on the North Kingstown Facility, which was retained by the Company.
Page 17
The Company had cash of approximately $10.1 million at December 31,
2001 after operating its business remaining after the sale to Hexagon (such
remaining business consisting of the Xygent software development business, the
Company's ownership and status as the landlord of the North Kingstown Facility,
in which Hexagon is one of the tenants, and ownership of a gravel pit near
Heathrow Airport in the United Kingdom) and after collecting a net $1.3 million
related to the sale of the Electronics Division. There are retained liabilities
remaining to be settled (including the completion of arrangements to transfer to
Hexagon the Company's interest in the Metrology Business Joint Venture in China,
which required on January 23, 2002 a net outlay of cash of $0.3 million by the
Company). As noted under "Results of Operations", the Company and its CEO are
structuring an alternative arrangement to the CEO's August 1999 change in
control agreement, which, when triggered, would have paid the CEO approximately
$1.2 million. The alternative arrangement may be payable in cash or equity.
There is no assurance that the future expenses and cash burn rate of
the Company on a consolidated basis (including Xygent's software operations)
will not be greater than anticipated and that a liquidity problem may not arise
(see Risk Factors: Liquidity Risk). Since the Purchase and Sale Agreement with
Precision Park Partners LLC for sale of the North Kingstown Facility lapsed in
2001, the Company continues to own and rent out the Facility (which generates
both cash and income).
Management's plan to continue as a going-concern rely on its ability
to achieve sales, customer acceptance and profitability in its Xygent software
operations prior to running out of available cash (including the remaining $4.5
million that has been committed by Hexagon over the three year period ending
April 27, 2004) plus cash flow from its landlord operations on the North
Kingstown facility and royalty income from the UK property, plus any additional
cash which may be raised to further finance the operations of Xygent (and there
can be no assurance that any such additional cash can be raised). In addition,
the Company's efforts to continue as a going-concern will be negatively affected
by any sale of its North Kingstown facility (and any related distribution of all
or a portion of the net sales proceeds, after providing for retained liabilities
and satisfaction of legal requirements, to stockholders), as to which there can
be no assurance that such sale can be completed. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
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.
CASH FLOW
Net cash used in operations in 2001 was $15.9 million compared with
$18.8 million in 2000. In the calculation of net cash used in operations for the
year ended December 31, 2001, the net income of $21.2 million was decreased by
the gain on the sale of the Metrology Business of $47.1 million and the payment
of pension obligations of $4.4 million, and increased by the loss from the
discontinued operations of $7.0 million, the extinguishment of debt charge of
$6.6 million and other non-cash items including depreciation and amortization of
$.7 million, write off of debt acquisition costs of $.6 million, an
environmental charge related to the North Kingstown facility of $.5 million, and
other non-cash items of $.8 million. Cash flows from working capital decreased
from 2000 by $3.1 million. In the calculation of cash used in operations for the
year ended December 31, 2000, the net loss of $57.3 was decreased by
depreciation and amortization of $.5 million, and other non-cash items of $37.9
million, including $37.4 million related to discontinued operations and $.5
million related to long-term liabilities; and decreased by $1.3 million for
pension expense. Cash flows from working capital increased from 1999 by $5.5
million.
Net cash provided by investment transactions was $140.6 million in
2001. This included proceeds from the disposal of businesses of $141.3 million.
Capital expenditures in 2001 and 2000 amounted to $.7 million and $.3 million,
respectively. The increase from 2000 to 2001 was mostly attributable to the
Company moving out of the North Kingstown facility to its new location in
Warwick, RI.
Cash used in financing activities in 2001 was $126.2 million. Financing
transactions during 2001 consisted of repayment of the $27.4 million principal
balance due under the Company's $30 million Revolving Credit Facility and the
repayment of the long-term senior notes (including prepayment penalties) of
$56.6 million; payment on the mortgage of $.9 million; distribution to the
stockholders of $44.5 million; and equity contributions related to the exercise
of stock options of $1.8 million; offset by proceeds from the purchase of a net
minority interest in Xygent by Hexagon of $1.4 million.
Cash provided by the discontinued operations amounted to $2.8 million
and $17.0 million in 2001 and 2000, respectively.
Page 18
WORKING CAPITAL
As stated above the North Kingstown facility and the related mortgage
have been classified as current at December 31, 2001 as a result of the facility
being held for sale. The net assets of the Company's discontinued operations
have been reclassified as current in 2000. Excluding these assets the Company
had working capital related to the continuing operations of $4.6 million at
December 31, 2001 and $3.2 million at December 31, 2000.
RISK FACTORS
BNS Co., formerly known as Brown & Sharpe Manufacturing Company, (the
"Company") sold its Metrology Business to Hexagon AB of Stockholm, Sweden
("Hexagon") on April 27, 2001. Certain post-closing transactions have also been
completed, as previously disclosed. After the sale, the Company has continued
the business of developing measuring software through its controlled subsidiary,
Xygent (formerly named BSIS). Xygent is the only active operation of the
Company, which holds its North Kingstown Facility (in which it is solely a
landlord) and its U.K. real property for sale at the appropriate times in the
future.
XYGENT MEASURING SOFTWARE PRODUCTS ARE STILL IN THE INTRODUCTORY STAGE.
At this point Xygent has released for sale its measuring software
products for use with CMM machines and for use with CNC (Computer Numerically
Controlled) machine tools and it is still developing its software product for
use with Vision (non-contact) measuring machines. Sales of $91,000 were recorded
in late 2001. If Xygent fails to complete its Vision measuring software or fails
to continue to develop its software products or its products fail to obtain
market acceptance at price levels that are satisfactory to Xygent, Xygent will
not generate sufficient revenue to be successful. There can be no assurance that
Xygent will be able to develop other software products that are accepted by
consumers on a basis which is profitable to Xygent. Market acceptance of
Xygent's current products and any new software products is dependent in part on
Xygent's ability to demonstrate the cost effectiveness, ease of use and
technological advantages of its products over competing products.
XYGENT HAD ONLY MINIMAL SALES IN LATE 2001.
Since Xygent has only completed development of two of its planned
products for sale to customers and has recognized only minimal sales in 2001,
its operating results to date (losses) do not form any basis for conclusion that
Xygent will become profitable. Xygent's expense burn rate is approximately
$500,000 per month. There can be no assurances that Xygent will achieve a
break-even month or quarter in 2002.
THE COMPANY MAY NOT HAVE ADEQUATE RESOURCES FOR FUNDING THE OPERATIONS OF
XYGENT; LIQUIDITY RISK
There is no assurance that the future months' expenses and the future
cash burn rate of the Company on a consolidated basis (including Xygent) will
not be greater than presently anticipated and that a liquidity problem may not
arise (see "Liquidity and Capital Resources" in the Management's Discussion and
Analysis) set forth in this Item 7. On the other hand, at the present time the
Company's Agreement with Precision Park Partners LLC for their purchase of the
North Kingstown Facility has lapsed and the Company has not sold the North
Kingstown Facility (which generates cash on a net basis) and has, therefore, not
declared any dividend or distribution in any amount with respect to all or a
portion of the anticipated net proceeds of such sale after provisions for the
Company's retained liabilities. Xygent will have substantially more limited
financial and other resources than all, or most, of its software competitors and
potential software competitors and we may be unable to compete significantly
against
Page 19
them. Hexagon has invested $2.5 million in Xygent at the Closing on April 27,
2001 and committed, subject to certain conditions, to invest an additional $4.5
million over the next three years consisting of $1.5 million on each of April
27, 2002, 2003 and 2004. Given its limited resources and its general intentions
with respect to payment of distributions to its shareholders out of all or a
portion of the net proceeds of sales of assets, after satisfying legal
requirements applicable to dividends and after provisions for retained
liabilities, the Company has limited funds available for investment in Xygent,
and there can be no assurance that Xygent, or the Company, will be able to raise
additional funds for Xygent operations.
THE COMPANY RECEIVED A REPORT FROM ITS INDEPENDENT AUDITORS FOR THE YEAR ENDED
DECEMBER 31, 2001, CONTAINING AN EXPLANATORY PARAGRAPH STATING THE COMPANY'S
OPERATING LOSSES RAISE SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE
AS A GOING CONCERN. THE COMPANY MAY CONTINUE TO RECEIVE A SIMILAR OPINION FROM
THE AUDITORS IN THE FUTURE.
Although losses for periods prior to the Company's sale of its former
Metrology Business to Hexagon on April 27, 2001 are not relevant to the
Company's current operations, the Company recorded losses with respect to its
continuing operations in 2001. Losses from continuing operations for the second,
third and fourth quarters in 2001 were $3.1 million, $2.6 million and $1.4
million, respectively. The Company received a report from its independent
auditors for the year ended December 31, 2001 containing an explanatory
paragraph stating that the Company's operating losses raised substantial doubt
about the Company's ability to continue as a going concern. While on April 27,
2001 the Company paid off all liabilities on all its loan agreements (excluding
the $3.3 million mortgage on the North Kingstown Facility), following the sale
to Hexagon, management's plan to continue as a going-concern after the sale to
Hexagon rely on its ability to achieve sales, customer acceptance and
profitability in its Xygent software operations prior to running out of
available cash (including the remaining $4.5 million that has been committed by
Hexagon over the three year period ending April 27, 2004) plus net cash flow
from its landlord operations of the North Kingstown Facility, (after
environmental remediation expenses) and from its Heathrow U.K. property plus any
additional cash which may be raised to further finance the operations of Xygent
(and there can be no assurance that any such additional cash can be raised). In
addition, the Company's efforts to continue as a going-concern will be
negatively affected by any sale in the future of its North Kingstown Facility
(and any related distribution out of all or a portion of the net sales proceeds
to stockholders), as to which there can be no assurance that such sale can be
completed (see below "Risk of not Having the Proposed Sale of the North
Kingstown Facility Under a Purchase and Sale Agreement").
OUR INDUSTRY IS VERY COMPETITIVE AND WE MAY NOT BE SUCCESSFUL IF WE FAIL TO
COMPETE EFFECTIVELY.
In addition to the significant competition for software products, with
many offerings in the marketplace, the software products to be developed by
Xygent are expected at the outset to compete with software used by the Metrology
Business sold to Hexagon which has been augmented by Hexagon's purchase of the
remaining interests in Wilcox Associates. Increased competition may result in
lower prices for our products and reduced opportunities for growth and
profitability.
ROYALTY OBLIGATIONS OF XYGENT TO THE METROLOGY BUSINESS SOLD TO HEXAGON MAY
PREVENT XYGENT FROM ACHIEVING PROFITABILITY.
For five years beginning April 27, 2001, Xygent is required to sell its
XactMeasure software products to Hexagon, on a non-exclusive basis, for use in
CMM applications at a price per unit of $1,500, which is expected to be
substantially below the price charged by Xygent to other customers for CMM
applications. In addition, Xygent is required for the five-year period to pay a
significant royalty to Hexagon of $5,000 per unit of software sold to persons
other than Hexagon for CMM market applications. The effect of these provisions
is necessarily adverse to the business of Xygent. Royalty obligations of Xygent
to Hexagon may limit the profitability of Xygent, depending significantly on the
extent to which Xygent is successful in introducing and selling software
products which are used in applications other than CMM applications--namely
Vision applications and CNC applications. The preferential pricing and royalty
provisions in favor of Hexagon are applicable only to software products for use
in CMM applications.
Page 20
COMPANY MANAGEMENT HAS LIMITED EXPERIENCE MANAGING A SOFTWARE COMPANY AND MAY
FAIL TO MANAGE EFFECTIVELY, LIMITING XYGENT'S POTENTIAL.
The Company has historically been a manufacturing company; since the
sale to Hexagon, it is a software company. While Xygent has significant
software business experience, there is no assurance the Company and Xygent will
be able to successfully manage a "software company" and the possible loss of
the services of any member of the management team may be materially adverse to
the business of Xygent. Company management may not have the skills to
introduce and market Xygent's software product, to manage future growth or
obtain funds to fund growth and/or operations and their inexperience in these
areas may detract from Xygent's business.
XYGENT HAS LIMITED EXPERIENCE IN DEVELOPING SOFTWARE PRODUCTS FOR APPLICATIONS
OTHER THAN CMM MARKETS.
The Xygent business plan contemplates the development of additional
software products for markets other than CMM applications, including primarily
Vision (non-contact) and CNC applications. There can be no assurance such
additional software products will be of interest to customers in fields beyond
those in which its former Metrology Business has been engaged in. Failure to
develop and successfully market such products may prevent Xygent from achieving
profitability.
XYGENT MAY NOT SUCCEED IF IT IS UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND
SKILLED EMPLOYEES.
In order to grow its business, Xygent will have to hire additional
employees. Xygent's future success, therefore, will depend, in part, on
attracting and retaining additional qualified management, marketing and
technical personnel. The Company does not know whether it will be successful in
hiring or retaining qualified personnel. Competition for qualified personnel
throughout the software industry is intense. The inability to hire additional
qualified employees or the loss of the services of some of the foreign
technical employees that are currently doing work for Xygent could have a
material adverse effect on the business of Xygent.
XYGENT MAY BE UNABLE TO FORM THE STRATEGIC ALLIANCES THAT ARE KEY TO ITS
STRATEGY.
The Xygent business plan calls for Xygent to establish marketing,
development and distribution relationships through strategic alliances, and
plans to enter into various agreements with other companies to achieve its
marketing, development and distribution goals. There can be no assurance that
Xygent will be able to establish any such agreements and, accordingly, there
can be no assurance that Xygent will be able to achieve its planned objectives
for the year 2002 or establish a software business that will grow and be
profitable. In addition, as noted above, Xygent is required for a five-year
period beginning April 27, 2001, to pay royalties to Hexagon for any unit of
software for CMM market applications sold to persons other than Hexagon and is
required to sell its XactMeasure software products to Hexagon for CMM
applications at a price per unit substantially below the price charged by
Xygent to other customers, with Hexagon making no purchase commitment.
XYGENT SOFTWARE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS,
WHICH COULD LIMIT XYGENT'S SALES.
If we become subject to intellectual property infringement claims, or
if we are unable to protect important intellectual property, we could incur
significant expenses and be prevented from offering specific products, and we
may lose prospective sales to competitors.
The success of Xygent may depend, in part, on its ability to obtain
and maintain patent protection for its computer software products, to protect
and preserve its proprietary information and trade secrets and to operate and
sell its products without infringing on the proprietary rights of others. It
has been Xygent's policy to seek, where appropriate, to protect its proprietary
positions by, among other methods, maintaining its product information as a
trade secret and filing United States and corresponding foreign
Page 21
patent applications covering its technology, inventions and improvement that
are important to the development of its business. As of September 20, 2001,
Xygent had filed three patent applications, two in the United States and one
foreign application, covering methods and apparatus (i) for simulating the
measurement of a part without using a physical measurement system and (ii) for
interacting with measuring devices by allowing users to extend the capabilities
of software for controlling measuring devices. These patent applications are
pending and there can be no assurance that any pending patents will be issued,
or that any pending applications will not be challenged, invalidated or
circumvented in the future. Further, there can be no assurance that
competitors, many of whom have substantially more resources than Xygent, will
not seek to apply for and obtain patents that will prevent, limit or interfere
with Xygent's ability to make, use or sell its products in the United States or
internationally.
Xygent, like many software companies, also relies upon trade secrets,
technical know-how and skill of its employees and continuing technical
creativity and innovation to develop and maintain its products and its
anticipated position in the software business market. It requires its
employees, consultants and advisors to execute confidentiality and disclosure
agreements and assignment of invention agreements in connection with their
employment, consulting or advisory relationships with the Company. There can be
no assurance, however, that these agreements will not be breached or that
Xygent will have or be able to obtain an adequate remedy for any breach.
Further, no assurance can be given that competitors will not independently
develop substantially equivalent proprietary information and technologies or
otherwise gain access to Xygent's proprietary technology, or that Xygent can
meaningfully protect its rights in unpatented proprietary technology. The
failure or inability of Xygent to adequately protect its intellectual property
rights could have a material adverse effect on its business, financial
condition, and future prospects and business plans.
RISKS PARTICULAR TO XYGENT'S INTERNATIONAL OPERATIONS AND POTENTIAL
INTERNATIONAL SALES COULD ADVERSELY AFFECT ITS RESULTS.
Xygent's financial condition and results of operations may be
adversely affected by international business risks, including currency exchange
rate fluctuation, inflation, import and export controls, exchange controls and
other business factors in foreign countries that may complicate Xygent
operations, including the fact that the protection of copyrights and other
intellectual property is difficult to achieve under the laws of certain foreign
countries.
RISK OF NOT HAVING THE PROPOSED SALE OF THE NORTH KINGSTOWN FACILITY UNDER A
PURCHASE AND SALE AGREEMENT.
The Agreement dated as of March 2, 2001, as extended by amendments as
of May 31, 2001 and as of September 28, 2001, for the proposed sale of the
Company's North Kingstown Facility to Precision Park Partners LLC has lapsed,
as the parties were not able to complete the transaction on the terms and
conditions contemplated by the Agreement. The Company is in the process of
renting out its former office headquarters space in the North Kingstown
Facility. The Company is also continuing to work with the Rhode Island
Department of Environmental Management to whom this Company had submitted the
results of the recently completed Phase II environmental study on the Facility
on October 2, 2001. The Company believes, based on discussions with its real
estate consultant, that completion of leasing the former headquarters space at
the North Kingstown Facility to a new tenant and completion of the
environmental remediation work that appears to be necessary at the Facility
should result in increasing the fair market value of the Facility for a future
sale of the property, although there can be no assurance that either of these
two matters will be completed successfully by the Company or that the Company's
expectation as to future increased market value of the Facility will prove to
be the case. (See "Environmental Risks" below.)
Page 22
THE MARKET PRICE OF THE COMPANY'S COMMON STOCK COULD DECLINE AS A RESULT OF
SALES OF SHARES BY THE COMPANY'S EXISTING STOCKHOLDERS.
The market price of the Company's Common Stock could decline as a
result of sales of shares by stockholders who had acquired shares during the
period prior to April 27, 2001 when the Metrology Business was the Company's
principal business, including option holders who became shareholders in
connection with the April 27, 2001 closing under the Acquisition Agreement with
Hexagon, sales by beneficiaries under the Company's Employee Stock Ownership
Plan, which terminated as a result of the closing, sales by beneficiaries of
the Company's 401(k) plan or beneficiaries of employee benefit plans of Hexagon
which have received shares of stock of the Company previously held in accounts
under the Company's employee benefit plans and sales of other shares by former
employees of the Company.
DELISTING OF THE COMPANY'S CLASS A COMMON STOCK FROM THE NEW YORK STOCK EXCHANGE
The Company's Class A Common Stock was delisted from the New York Stock
Exchange and commenced trading on the OTC Bulletin Board and the Boston Stock
Exchange under the symbol "BNSXA" on February 11, 2002. There is no assurance
that there will continue to be a sufficient number of securities firms prepared
to make an active trading market in our stock and the public perception of the
value of the Class A Common Stock could be materially adversely affected.
ENVIRONMENTAL RISKS
The nature of the Company's current software development operations
are not affected by environmental laws, rules and regulations. However, because
the Company and its subsidiaries and predecessors, prior to the sale to Hexagon
on April 27, 2001 (and prior to sales of other divisions made in prior years)
have conducted heavy manufacturing operations and often in locations at which,
or adjacent to which, other industrial operations were conducted, from time to
time the Company is subject to environmental claims. As with any such
operations that involved the use, generation, and management of hazardous
materials, it is possible that prior practices, including practices that were
deemed acceptable by regulatory authorities in the past, may have created
conditions which could give rise to liability under current or future
environmental laws. Because the law in this area is developing rapidly, such
environmental laws are subject to amendment and widely varying degrees of
enforcement, the Company may be subject to, and cannot predict with any
certainty the nature and amount of potential environmental liability related to
these operations or locations (including its North Kingstown Facility and
property on which the Facility is located, where, after the sale to Hexagon,
the Company is now solely the landlord) that the Company may face in the future.
A recently completed Phase II environmental study on the North
Kingstown Facility had indicated certain environmental problems on the
property. The results of the study show some exceedances of environmental
standards for certain contaminants in the soil under the property and minor
groundwater issues. The Company has been advised by its technical consultants
that these exceedances are minor and do not create any hazard to human health
or the environment. The Company submitted the results of the study to the Rhode
Island Department of Environmental Management ("RIDEM") on October 2, 2001, and
has stated to RIDEM that it will address these exceedances in a timely and
appropriate manner consistent with applicable law and regulation. As of March
25, 2002, the Company had not received the position of RIDEM on its submitted
study.
The Company believes, based on the preliminary advice of its
consultants, that the estimated costs for further investigation and remediation
of the identified exceedances, which have been accrued, approximate $500,000.
However, as noted above, the study has been furnished by the Company to the
Rhode Island Department of Environmental Management and it is possible that the
risks and estimated costs of further investigation and remediation may be more
significant.
Page 23
ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
The Company has no derivative financial instruments or derivative
commodity instruments. The Company's long-term debt (the mortgage on the North
Kingstown Facility) is a fixed rate U.S. dollar denominated obligation. An
increase in market interest rates would not increase the Company's interest
expense or result in a material change in the fair value of its debt obligation.
Page 24
ITEM 8--FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
- --------------------------------------------------
PAGE NUMBER
-----------
Report of Independent Auditors - Ernst & Young LLP 26
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999 27
Consolidated Balance Sheets at December 31, 2001 and 2000 28
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999 29
Consolidated Statements of Shareowners' Equity for the Years Ended
December 31, 2001, 2000 and 1999 30
Notes to Consolidated Financial Statements 31-45
Page 25
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors
of BNS Co. (formerly Brown & Sharpe Manufacturing Company)
We have audited the accompanying consolidated balance sheets of BNS Co.
(formerly Brown & Sharpe Manufacturing Company) as of December 31, 2001 and
2000, and the related consolidated statements of operations, shareowners'
equity, and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BNS Co. (formerly
Brown & Sharpe Manufacturing Company) at December 31, 2001 and 2000, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that BNS Co.
will continue as a going concern. As more fully described in Note 2, the
Company has recurring operating losses from continuing operations. This
condition raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments to
reflect the possible future effects of the recoverability and classification of
assets or the amounts and classification of liabilities that may result from
the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Providence, Rhode Island
February 13, 2002
Page 26
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001, 2000, and 1999
(dollars in thousands, except per share data)
2001 2000 1999
------------------ ------------------- ------------------
Net sales $ 91 $ - $ -
Cost of sales 344 - -
Research and development expense 3,794 4,712 2,142
Selling, general and administrative 10,644 10,099 14,184
------------------ ------------------- ------------------
Operating loss (14,691) (14,811) (16,326)
Interest expense 2,909 7,726 6,051
Other income, net 5,317 2,624 2,742
------------------ ------------------- ------------------
Loss from continuing operations before income taxes and
extraordinary item (12,283) (19,913) (19,635)
Income tax provision 139 - -
------------------ ------------------- ------------------
Loss from continuing operations before extraordinary item (12,422) (19,913) (19,635)
Discontinued operations:
Loss from operations (6,955) (31,159) (23,239)
Gain (loss) from disposal 47,113 (6,237) -
------------------ ------------------- ------------------
Income (loss) before extraordinary item 27,736 (57,309) (42,874)
Extraordinary item (6,566) - -
------------------ ------------------- ------------------
Net income (loss) $ 21,170 $ (57,309) $ (42,874)
================== =================== ==================
Income (loss) per share, basic and diluted,
from continuing operations $ (4.33) $ (7.26) $ (7.30)
Discontinued operations 14.00 (13.62) (8.63)
Extraordinary item (2.29) - -
------------------ ------------------- ------------------
Net income (loss) per common share basic and diluted $ 7.38 $ (20.88) $ (15.93)
================== =================== ==================
The accompanying notes are an integral part of the financial statements
Page 27
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 2001
(dollars in thousands, except share data)
2001 2000
----- -----
ASSETS
Current assets
Cash and cash equivalents $ 10,095 $ 8,882
Other receivables, net of $826 allowance in 2001 1,272 313
Assets held for sale 2,363 2,863
Assets related to discontinued operations 274 231,367
Prepaid expenses and other current assets 385 1,919
--------------- ---------------
Total current assets 14,389 245,344
Property, plant and equipment
Land 415 415
Buildings and improvements 105 -
Machinery and equipment 1,244 672
--------------- ---------------
1,764 1,087
Less accumulated depreciation 420 255
--------------- ---------------
1,344 832
Other assets 3,550 4,469
--------------- ---------------
$ 19,283 $ 250,645
=============== ===============
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Notes payable to banks $ - $ 27,400
Accounts payable and accrued expenses 7,141 7,953
Current portion of long-term debt 3,317 54,200
Liabilities related to discontinued operations - 142,879
--------------- ---------------
Total current liabilities 10,458 232,432
Long-term liabilities 3,676 7,070
Commitments and contingencies - -
Shareowners' equity
Preferred stock; $1 par value; authorized 1,000,000 shares; none issued - -
Common stock
Class A, par value, $.01; authorized 30,000,000 shares; issued shares
2,861,240 in 2001 and 2,665,755 in 2000 29 27
Class B, par value, $.01; authorized 2,000,000 shares; issued shares
64,007 in 2001 and 100,341 in 2000 1 1
Additional paid-in capital 85,950 127,276
Retained deficit (80,373) (101,543)
Accumulated other comprehensive loss (3) (14,163)
Treasury stock; 8,518 shares in 2001 and 2000, at cost (455) (455)
--------------- ---------------
Total shareowners' equity 5,149 11,143
--------------- ---------------
$ 19,283 $ 250,645
=============== ===============
The accompanying notes are an integral part of the financial statements
Page 28
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000, and 1999
(dollars in thousands)
2001 2000 1999
---- ---- ----
Cash Used in Operations:
Net income (loss) $ 21,170 $ (57,309) $(42,874)
Adjustment to reconcile net income (loss) to net cash used in
operating activities from continuing operations:
Loss from discontinued operations 6,955 31,159 23,239
(Gain) loss from disposal of business (47,113) 6,237 -
Extraordinary item-extinguishment of debt 6,566 - -
Write-off of intangible asset 572 - -
Environmental reserve on asset held for sale 500 - -
Depreciation and amortization 657 467 422
Unfunded pension (4,380) (1,313) 7,585
Minority interest 385 - -
Change in long-term liabilities 457 538 (88)
Other non-cash (32) - -
Changes in Working Capital:
(Increase) decrease in other receivables (34) (11) 147
Decrease (increase) in prepaid expenses
and other current assets 1,534 74 (1,799)
(Decrease) increase in accounts payable
and accrued expenses (3,176) 1,363 1,112
Increase in other assets - - (3,559)
-------------- -------------- ------------
Net Cash Used In Operations (15,939) (18,795) (15,815)
-------------- -------------- ------------
Investment Transactions:
Capital expenditures (724) (259) (90)
Proceeds from sale of fixed assets 52 - -
Proceeds from sale of businesses, net of expenses 141,285 - -
-------------- -------------- ------------
Cash Provided by (Used in) Investment Transactions 140,613 (259) (90)
-------------- -------------- ------------
Financing Transactions:
Payment of notes payable (27,400) - -
Payment of long-term senior notes payable (56,566) - 21,308
Payment on mortgage (883) (683) -
Distribution to shareholders (44,480) - -
Equity contributions 1,772 704 658
Purchase of minority interest (1,116) - -
Contribution from minority interest 2,500 - -
-------------- -------------- ------------
Cash (used in) Provided by Financing Transactions (126,173) 21 21,966
-------------- -------------- ------------
Cash provided by discontinued operations 2,767 17,030 2,068
Effect of Exchange Rate Changes on Cash (55) - -
-------------- -------------- ------------
Cash and Cash Equivalents:
Increase (decrease) during the period 1,213 (2,003) 8,129
Beginning balance 8,882 10,885 2,756
-------------- -------------- ------------
Ending balance $ 10,095 $ 8,882 $ 10,885
============== ============== ============
Supplementary Cash Flow Information:
Interest Paid $ 3,378 $ 7,546 $ 6,703
============== ============== ============
Taxes Paid $ 230 $ 2,300 $ 2,386
============== ============== ============
Page 29
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
For the Years Ended December 31, 2001, 2000, and 1999
(dollars in thousands)
Accumulated
Additional other
Common paid in Retained comprehensive Treasury
Shares * Stock capital deficit income(loss) stock Total Equity
------------ ------------ ------------ --------------- ---------------- ---------- ---------------
Balance Dec. 31, 1998 2,687 $ 27 $ 125,915 $ (1,360) $ 5,528 $(455) $ 129,655
Net loss - - - (42,874) - - (42,874)
Foreign currency
translation adjustment - - - - (15,905) - (15,905)
---------------
Comprehensive loss (58,779)
ESOP Contribution 16 - 658 - - - 658
------------ ------------ ------------ --------------- ---------------- ---------- ---------------
Balance Dec. 31, 1999 2,703 27 126,573 (44,234) (10,377) (455) 71,534
Net loss - - - (57,309) - - (57,309)
Foreign currency
translation adjustment - - - - (3,786) - (3,786)
---------------
Comprehensive loss (61,095)
ESOP Contribution 63 1 703 - - - 704
------------ ------------ ------------ --------------- ---------------- ---------- ---------------
Balance Dec. 31, 2000 2,766 28 127,276 (101,543) (14,163) (455) 11,143
Net income - - - 21,170 - - 21,170
Foreign currency
translation adjustment - - - - 14,160 - 14,160
---------------
Comprehensive income 35,330
Dividend Paid ($15.25 per
share) - - (44,480) - - - (44,480)
Exercise of stock options 159 2 1,770 - - - 1,772
Acquisition of subsidiary
minority interest - - 1,384 - - - 1,384
------------ ------------ ------------ --------------- ---------------- ---------- ---------------
Balance Dec. 31, 2001 2,925 $ 30 $ 85,950 $ (80,373) $ (3) $(455) $ 5,149
============ ============ ============ =============== ================ ========== ===============
* Number of shares have been restated to reflect the effect of the one-for-five
reverse stock split in 2001.
The accompanying notes are an integral part of the financial statements
Page 30
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company completed the sale of its Metrology Business to Hexagon AB of
Stockholm, Sweden ("Hexagon") on April 27, 2001. After the sale, the Company has
continued the business of developing and producing measuring software through
its controlled subsidiary, Xygent Inc., formerly BSIS ("Xygent"). Xygent has
released software products for use with CMM (Coordinate Measuring Machines)
machines and for use with CNC (Computer Numerically Controlled) machine tools
and it is developing its software for use with Vision (non-contact) measuring
machines. The Company also owns real estate in North Kingstown, RI (in which it
is solely a landlord) and a gravel pit in the U.K. (from which it derives
royalties).
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of BNS Co., formerly
known as Brown & Sharpe Manufacturing Company, (the "Company") and all
subsidiaries. Intercompany transactions have been eliminated from the
consolidated financial statements.
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Certain account balances for the prior years have been reclassified to conform
to the current year financial statement presentation.
REVENUE RECOGNITION
Software revenue is recognized in accordance with SOP 97-2, "Software Revenue
Recognition", as amended by SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions". Under these
guidelines, revenue recognition is deferred on transactions where persuasive
evidence of an arrangement does not exist, title has not transferred, product
payment is contingent upon performance of installation or service obligations,
the price is not fixed or determinable or payment is not reasonably assured.
Revenue from technical support contracts are recognized ratably over the term of
the contract.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
Certain costs related to the preliminary activities associated with the
development of software have been deferred. These costs were determined by the
Company to have future economic benefits. These costs are amortized over a
period of 36 months beginning in the period in which the initial shipment of the
related product is made.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and is being depreciated principally
on a straight-line basis over the estimated useful lives of the assets, which
generally range from 20 to 40 years for buildings and improvements and from 3 to
12 years for machinery and equipment. Depreciation expense was $310, $434 and
$422 in 2001, 2000 and 1999, respectively.
Page 31
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
OTHER ASSETS
Other assets include software and software development costs, along with certain
intangible assets, which are being amortized on a straight-line basis over
periods ranging from 3 to 5 years. Amortization expense for these assets was
$347, $33, and $0, in 2001, 2000 and 1999, respectively.
FOREIGN CURRENCY
Assets and liabilities of those subsidiaries located outside the United States
whose cash flows are primarily in local currencies are translated at year-end
exchange rates, and income and expense items are translated at average monthly
rates. Translation gains and losses are accounted for in a separate shareowners'
equity account titled accumulated other comprehensive loss.
There were no forward exchange contracts outstanding at December 31, 2001 and
2000.
COMPREHENSIVE INCOME
Comprehensive income (loss) consists of net income (loss) and other gains and
losses affecting shareowners' equity that, under generally accepted accounting
principles, are excluded from net income. For the Company, such items consist
primarily of foreign currency translation gains and losses. Accumulated other
comprehensive loss at December 31, 2001 and 2000 are comprised of currency
translation adjustments of $3 and $14,163, respectively.
STOCK INCENTIVE PLANS
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, Accounting for Stock Issued to Employees (see Footnote 9
for further details).
INCOME TAXES
The Company provides for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. SFAS No.109 requires an asset and liability based
approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to reflect the tax
consequences on future years of temporary differences of revenue and expense
items for financial statement and income tax purposes. Valuation allowances are
provided against assets which are not likely to be realized. Federal income
taxes are not provided on the unremitted earnings of foreign subsidiaries since
it has been the practice and is the intention of the Company to continue to
reinvest these earnings in the business outside the United States.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of cash on hand and deposits in banks
with a maturity of three months or less. The carrying amount of cash and cash
equivalents approximates fair value.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and other
intangible assets with indefinite useful lives will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
Other intangible assets with finite lives will continue to be amortized over
their useful lives. The adoption of SFAS No. 141 and No. 142 are not expected to
have a material effect on the Company's results of operations.
Page 32
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of". SFAS 144 applies to all long-lived assets (including discontinued
operations) and consequently amends Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business". SFAS 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001, although early adoption is
allowed. The adoption of SFAS No. 144 is not expected to have a material effect
on the Company's results of operations.
2. GOING CONCERN
Although losses for periods prior to the Company's sale of its former Metrology
Business to Hexagon on April 27, 2001 are not relevant to the Company's
continuing operations, the Company recorded losses with respect to its
continuing operations for the last three quarters of 2001. Losses from
continuing operations for the second, third and fourth quarters of 2001 were
$3,055, $2,615 and $1,414, respectively. The Company paid off all liabilities on
its loan agreements (excluding the mortgage on the North Kingstown Facility)
following the sale to Hexagon. Management's plan to continue as a going-concern
rely on its ability to achieve sales, customer acceptance and profitability in
its Xygent software operations prior to running out of available cash (including
the remaining $4.5 million that has been committed by Hexagon over the three
year period ending April 27, 2004) plus cash flow from its landlord operations
on the North Kingstown facility and royalty income from the UK property, plus
any additional cash which may be raised to further finance the operations of
Xygent (and there can be no assurance that any such additional cash can be
raised). In addition, the Company's efforts to continue as a going-concern will
be negatively affected by any sale of its North Kingstown facility (and any
related distribution of all or a portion of the net sales proceeds, after
providing for retained liabilities and satisfaction of legal requirements, to
stockholders), as to which there can be no assurance that such sale can be
completed. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.
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. DISCONTINUED OPERATIONS
At a special meeting held on April 27, 2001, the stockholders of BNS Co.
approved the sale of substantially all assets of the Company, including a) the
sale of its worldwide Metrology Business to Hexagon AB of Stockholm, Sweden,
("Hexagon") and b) the sale of its North Kingstown Facility to Precision Park
Partners LLC.
The Company completed the sale of its worldwide Metrology Business to Hexagon
AB, effective April 27, 2001. The purchase price for the sale of the Metrology
Business was $170 million less a $12.8 million cash adjustment based on the
terms of the Acquisition Agreement. After the cash adjustment and payment of all
U.S. bank debt and long-term senior noteholder obligations, the Company received
net proceeds of approximately $70 million. The assets and liabilities related to
the Metrology Business for all periods presented have been reclassified to
assets and liabilities of discontinued operations. Also in connection with the
sale to Hexagon, Hexagon invested $2.5 million in Xygent Inc., the Company's
software development subsidiary, in exchange for a 16.7% ownership interest in
such subsidiary.
Page 33
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The results of the discontinued operations have been reported separately on the
consolidated statements of operations. Summarized results of the discontinued
operations are as follows:
2001 2000 1999
---- ---- ----
Sales $ 89,781 $ 280,392 $ 323,300
Loss from operations, net of income taxes (6,955) (3,758) (23,239)
Gain (loss) on disposal 47,113 (6,237) -
Cumulative effect of change in accounting
related to the Metrology Business - (27,401) -
------------ -------------- ------------
$ 40,158 $ (37,396) $ (23,239)
============ ============== ============
In 2000, the Company adopted SEC Staff Accounting Bulletin No. 101 (SAB 101).
The effects of this adoption have been reclassified to discontinued operations.
As a result of adopting SAB 101, the Company changed the way it recognizes
revenue for machines sold to customers. Prior to the adoption of SAB 101, the
Company recognized revenue when the machines were shipped and title passed to
the customer. Effective as of January 1, 2000, the Company recognizes revenue
for machines sold to customers once the performance of machines is accepted by
the customers.
4. ASSETS HELD FOR SALE
During 2000, the Company committed to a plan to sell the North Kingstown
Facility. Although a definitive agreement has not been reached as of the date of
this report, the Company continues to pursue sale opportunities. Accordingly,
the carrying value of the North Kingstown Facility is classified as assets held
for sale.
Currently, the North Kingstown facility is being leased to various tenants under
operating lease agreements. All of these leases are scheduled to expire within
five years. Rental income is presented in other income in the statements of
operations. The future minimum rentals related to the property are $2,499 in
2002, $2,379 in 2003, $2,020 in 2004, $2,020 in 2005 and $512 in 2006.
5. INCOME TAXES
Loss from continuing operations before income taxes consisted of the following:
2001 2000 1999
---- ---- ----
Domestic $(12,970) $(20,692) $(19,690)
Foreign 687 779 55
-------------- -------------- ---------------
Loss from continuing operations before
income taxes $(12,283) $(19,913) $(19,635)
============== ============== ===============
Page 34
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table reconciles the income tax provision (benefit) at the U.S.
statutory rate to that in the financial statements:
2001 2000 1999
---- ---- ----
Taxes Computed at 34% $(4,176) $(6,770) $(8,654)
Foreign Taxes 139 - -
Net operating losses not benefited 4,111 6,743 8,641
Other (net) 65 27 13
--------------- -------------- ---------------
Income tax provision $ 139 $ 0 $ 0
=============== ============== ===============
The income tax provision (benefit) from continuing operations before
discontinued operations and extraordinary items consisted of the following:
2001 2000 1999
---- ---- ----
Current:
Federal $ -- $ -- $ --
State -- -- --
Foreign 133 -- --
---------- ------------ ----------
$ 133 $ -- $ --
Deferred:
Federal -- -- --
Foreign 6 -- --
---------- ------------ ----------
6 -- --
---------- ------------ ----------
Income tax provision $ 139 $ -- $ --
========== ============ ==========
The Company has reclassified the income taxes related to the Metrology Business
to the loss from discontinued operations. The Company has recorded an income tax
provision related to discontinued operations of $751, $2,800 and $2,350 for the
years ended December 31, 2001, 2000 and 1999, respectively.
The components of the Company's deferred tax assets and liabilities as of
December 31, 2001 and 2000 are as follows:
2001 2000
---- ----
Deferred tax assets:
Other receivable reserve $ 313 --
Depreciation 285 232
Loss carryforwards 29,436 14,246
Accrued expenses 2,871 582
Asset basis differences 1,547 --
Other 131 31
------------ ----------
Gross deferred assets 34,583 15,091
Less valuation allowance 34,385 12,533
------------ ----------
Deferred tax asset $ 198 $ 2,558
============ ==========
Deferred tax liabilities:
Asset basis differences $ -- $ 2,554
Other 209 4
------------ ----------
Deferred tax liability $ 209 $ 2,558
============ ==========
Page 35
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A valuation allowance has been established due to the uncertainty of realizing
certain tax credit and loss carryforwards and a portion of the other deferred
tax assets. The Company recorded a $21,852 increase in the valuation allowance
to reflect management's uncertainty regarding the realization of previously
recognized tax loss carryforwards and certain other deferred tax assets.
For income tax purposes, the Company has a U.S. operating loss and capital loss
carryforwards of $81,030 and $3,700, respectively. The U.S. net operating loss
carryforward expires between 2018 and 2021.
The Internal Revenue Service completed the examination of the U.S. income tax
returns through 1998. The examination did not have a material effect on the
Company's financial statements.
6. RELATED PARTY TRANSACTIONS
The Company has a license and royalty arrangement with Hexagon and its
affiliates ("Hexagon") for a period of five years commencing on April 27, 2001.
As of December 31, 2001, Hexagon owns 16.7% of Xygent Inc., a subsidiary of the
Company. During 2001 the Company recorded $25 of royalty expense related to this
license and royalty arrangement.
The Company leases a portion of its North Kingstown Facility to Hexagon under a
non-cancelable lease agreement for a period of five years commencing in April
2001. In addition to the rental payment, the agreement provides that Hexagon
will bear the cost of other expenses associated with the rented space. Total
rental income from Hexagon received for the year ended December 31, 2001 was
$1,003. Future minimum rentals are $1,105 annually for years 2002 through 2005
and $368 for the year 2006.
The net balance of accounts receivable due from Hexagon as of December 31, 2001
is $973, which includes $925 related to the acquisition of the Metrology
Business Joint Ventures in China by Hexagon.
The net balance of accounts payable and accrued expenses due to Hexagon as of
December 31, 2001 is $143.
A Director of the Company is a partner of a law firm that provides legal
services to the Company. Total fees incurred during 2001 were $1,343.
7. OTHER INCOME AND EXPENSE
Other income (expense), net from continuing operations includes:
2001 2000 1999
----------- ----------- -----------
Rental income $ 2,391 $ 1,334 $ 1,513
Minority interest 730 - -
Gravel royalty 949 726 759
Interest income 1,303 591 338
Exchange losses (7) - -
Other income (expenses) (49) (10) 135
Loss on sale of fixed assets - (17) (3)
----------- ----------- -----------
$ 5,317 $ 2,624 $ 2,742
=========== =========== ===========
Page 36
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. LEASES
The Company leases corporate office space and certain office equipment under
operating lease agreements expiring at various times through 2006. Minimum
annual rental commitments under non-cancelable leases at December 31, 2001 are
$141, $124, $119, $102 and $26 for the years 2002 through 2006, respectively.
Rental expense for the years ended December 31, 2001, 2000 and 1999 were $152,
$194 and $129, respectively.
9. INCENTIVE AND RETIREMENT PLANS
The Company has for many years utilized stock options and other stock-based
awards as part of its overall management incentive compensation programs. The
grant of options under the 1989 Equity Incentive Plan (the '89 Plan), as
amended, expired February 24, 1999 and the plan terminated following the sale
of the Metrology Business. On February 12, 1999, the Company adopted the 1999
Equity Incentive Plan (the '99 Plan).
STOCK INCENTIVE PLANS
Under the provisions of the Company's 1999 Equity Incentive Plan (the '99
Plan), a variety of stock and stock-based incentive awards, including stock
options, are available to be granted to eligible key employees of the Company
and its subsidiaries. The Plan permits the granting of stock options which
qualify as incentive stock options under the Internal Revenue Code and
non-statutory options which do not so qualify. No options were granted in 2001
under the '99 Plan. The options previously granted under the '99 Plan were
exercisable for a seven-year term, of Class A Common Stock granted at exercise
prices between $1.875 and $2.375 per share. As a result of the sale of the
Metrology Business, all of the options previously granted under the '99 Plan
and the '89 Plan became exercisable upon the closing date of the transaction.
All options not exercised at that time have since expired. 200,360 shares of
Class A Common Stock or Class B Common Stock remain available for issuance
under the '99 Plan.
Option activity during the past three years is summarized as follows:
2001 2000 1999
-------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Options Average Options Average Options Average
Exercise Exercise Exercise
(000) Price (000) Price (000) Price
--------------------------------------------------------------------------------------
Outstanding--beginning of
year 378 29.15 402 35.80 249 50.25
Granted - - 47 9.55 161 12.55
Exercised (160) 11.20 - - - -
Forfeited or canceled (218) 42.00 (71) 39.25 (8) 60.20
---------- ------------ ------------
Outstanding--end of year 0 - 378 29.15 402 35.80
========== ============ ============
Exercisable at end of
year 0 - 191 48.85 152 47.85
Weighted average fair
value of options
granted during the
year 8.25 5.50
Page 37
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation (FAS 123), requires use of valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required by
FAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 2000
and 1999, respectively: risk-free interest rates of 5.0%, and 5.9%, volatility
factors of the expected market price of the Company's common stock of 128%, and
45%, and a weighted-average expected life of the option of 4.25 years. No
dividend yield was utilized due to the fact that the Company did not anticipate
that it would pay dividends from continuing operations in the foreseeable
future.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Since all options were
either exercised or forfeited as a result of the sale of the Metrology Business
to Hexagon, the remaining compensation expense has been recorded in 2001 for pro
forma purposes. The Company's pro forma information follows:
2001 2000 1999
---- ---- ----
Pro forma net (loss) $20,526 $(57,765) $(43,934)
income
Pro forma (loss) earnings per
share: Basic and $ 7.16 $ (21.04) $ (16.33)
diluted
PROFIT INCENTIVE PLAN
Under the provisions of the Company's Amended Profit Incentive Plan as
originally approved in 1979, awards of cash could be made as bonuses to certain
management employees. Plan awards provisions under the Plan in the amounts of
$0, $1,659, and $1,152 were made for 2001, 2000, and 1999, respectively, based
on performance objectives for the respective year.
Page 38
BNS CO.(FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
LONG-TERM DEFERRED CASH INCENTIVE PLAN
The Brown & Sharpe Key Employee's Long-Term Deferred Cash Incentive Plan (the
"LTDCIP") provides long-term deferred incentive compensation to key executive
employees of the Company with award credits being established, subject to
certain vesting requirements, in unfunded LTDCIP accounts for each LTDCIP
participant. The LTDCIP was amended in 1998 to provide that beginning in 1998
participant award opportunities are individually determined by the Compensation
and Nominating Committee of the Board of Directors administering the LTDCIP as
a percentage of adjusted annual pre-tax profit. As a result of the sale of the
Metrology Business, this plan was terminated and all amounts accrued under the
plan were distributed to the participants. The expenses related to this plan of
$0, $(149), and $231 for 2001, 2000, and 1999, respectively, have been
reflected in discontinued operations.
SAVINGS PLANS
The Company has 401(k) stock bonus and thrift savings plans for U.S. employees,
which include retirement income features consisting of employer contributions
and employee tax deferred contributions. Contributions under all plans are
invested in professionally managed portfolios. The savings plans' expense for
the three years ended December 31, 2001 was $192, $2,052, and $1,994,
respectively.
STOCK OWNERSHIP PLAN
Under the provisions of the Company's Employee Stock Ownership Plan ("ESOP"),
the Company may make contributions of common stock or cash to purchase common
stock from the Company or otherwise, to be held in trust for employees meeting
certain eligibility requirements until the employees reach retirement age. The
ESOP may also borrow funds to purchase common shares, in which event the Company
would contribute amounts as necessary to pay down the indebtedness. As a result
of the disposition of the Metrology Business, the Company terminated the ESOP.
All funds under this plan were distributed to participants during 2001. The
Company is awaiting final termination determination from the Internal Revenue
Service. ESOP expense was $0 in 2001, $0 in 2000, and $704 in 1999. In lieu of a
contribution to the ESOP, the Board of Directors approved an additional 2%
contribution to each participant of the Savings Plan during 2000.
RETIREMENT PLANS
The Company had a defined contribution retirement plan covering employees in
its Swiss subsidiary and defined benefit retirement plans covering
substantially all employees in its U.K. and German subsidiaries, as well as,
beginning in 1998, a Senior Executive Supplemental Umbrella Pension Plan
covering certain key employees of the parent company in the United States. In
connection with the disposition of the Metrology Business, the Swiss, U.K. and
German plans were assumed by the acquirer of the Metrology Business. The
benefits earned by certain key management under Senior Executive Supplemental
Umbrella Pension Plan were either distributed during the year or provisions
were made for such distribution, and the plan was terminated. The Defined
Contribution Plan expense recorded in discontinued operations for the three
years ended December 31, 2001 was $452, $1,089, and $1,148, respectively.
Page 39
BNS CO.(FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. NET INCOME (LOSS) PER SHARE
Basic income (loss) per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
income (loss) per share is the same as basic loss per share in 2001, 2000 and
1999 because the computation of diluted income (loss) per share would have an
anti-dilutive effect on income (loss) per share. The computation of basic and
diluted loss per share is as follows:
2001 2000 1999
---- ---- ----
Numerator:
Loss from continuing operations before
extraordinary item $ (12,422) $ (19,913) $ (19,635)
Income (loss) from discontinued
operations 40,158 (37,396) (23,239)
Extraordinary item (6,566) - -
-------------- -------------- ---------------
Net income (loss) $ 21,170 $ (57,309) $ (42,874)
============== ============== ===============
Denominator for basic and diluted
earnings per share 2,867 2,745 2,691
============== ============== ===============
Net income (loss) per share - basic
and diluted
Loss from continuing operations $ (4.33) $ (7.26) $ (7.30)
Income (loss) from discontinued
operations 14.00 (13.62) (8.63)
Extraordinary item (2.29) - -
-------------- -------------- ---------------
Basic and diluted earnings per share $ 7.38 $ (20.88) $ (15.93)
============== ============== ===============
11. OTHER ASSETS
2001 2000
---- ----
Capitalized software costs $ 3,693 $ 3,693
Capitalized acquisition cost 194 1,453
Others 43 32
-------------- ---------------
3,930 5,178
Accumulated amortization (380) (709)
-------------- ---------------
$ 3,550 $ 4,469
============== ===============
12. DEBT
Debt consisted of the following:
2001 2000
---- ----
Notes payable under Revolving
Credit Agreement $ - $ 27,400
8.79% term loan - 50,000
8.12% mortgage 3,317 4,200
---------------- ------------------
$ 3,317 $ 81,600
================ ==================
Page 40
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has a mortgage payable on the North Kingstown Facility with an
original principal amount of $4.9 million. The mortgage is payable in monthly
installments including interest computed at 8.12% per annum. The mortgage
matures in February 2005 and is secured by the North Kingstown Facility. The
outstanding balance on the mortgage was $3,317 and $4,200 at December 31, 2001
and 2000, respectively. Future maturities of the mortgage are $957 in 2002,
$1,038 in 2003, $1,125 in 2004 and $197 in 2005. This mortgage payable has been
classified as current in order to match the classification of the security for
this debt.
Until the sale of the Company's Metrology Business on April 27, 2001, the
Company was obligated under a $50,000 private placement of senior notes with
principal payments due from November 2001 to November 2007. During 1999, the
Company breached certain financial covenants in its senior note agreement, and
on February 7, 2001, the Company's lenders amended the maturity date of the
notes to be the earlier of the completion of the sale to Hexagon or April 30,
2001. As a result, the full amount of the related long-term debt was classified
as a current liability in the balance sheet as of December 31, 2000. Following
the consummation of the sale to Hexagon, all of the debt to its private
placement lenders was paid.
The repayment of the note obligation resulted in the payment of a prepayment
penalty. This penalty, together with the write-off of previously recorded debt
acquisition costs, has been recorded as an extraordinary loss in the statements
of operations in the amount of $6,566. No income taxes have been recorded
related to this item.
The Company had a $30 million three-year syndicated multi-currency revolving
credit arrangement with four banks. Following the consummation of sale to
Hexagon on April 27, 2001, the Company paid the outstanding balance of $27,400.
13. LONG-TERM LIABILITIES
Long-term liabilities consisted of the following:
2001 2000
---- ----
Unfunded accrued pension cost $1,891 $6,271
Taxes payable 1,400 --
Minority interest 385 --
Other long-term liabilities -- 799
----------------- --------------
$3,676 $7,070
================= ==============
14. COMMON STOCK
At a special meeting held on April 27, 2001, the stockholders of BNS Co.
approved the reduction of the par value per share of the Class A Common Stock
and Class B Common Stock from $1.00 to $.01 and a one-for-five reverse stock
split of the Company's outstanding Class A Common Stock and Class B Common
Stock. The record date for the one-for-five reverse stock split was May 10,
2001. All references to shares have been restated to reflect the stock split.
Both classes of common stock have equal rights upon liquidation. Class A Common
Stock may not receive less cash dividends per share than Class B Common Stock,
nor may such dividends be less frequent. The Class A Common Stock has one vote
per share. Except as otherwise provided by the Certificate of Incorporation and
By-Law, the Class B Common Stock has ten votes per share, and the Class B Common
Stock is convertible into Class A Common Stock on a one-for-one basis, and can
be transferred in Class B form only to specified transferees, generally members
of a shareowner's family and certain others affiliated with a shareowner. During
2000 and 1999, 108 and 136 shares, respectively, were converted from Class B
Common Stock to Class A Common Stock.
Page 41
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. PREFERRED STOCK PURCHASE RIGHTS
On February 13, 1998, the Board approved a new Rights Plan and declared a
dividend purchase right (a "Right") for every outstanding share of the Company's
Class A Common Stock and Class B Common Stock to be distributed on March 9, 1998
to stockholders of record as of the close of business on that date. The Rights
expire on February 13, 2008 or upon the earlier redemption of the Rights, and
they are not exercisable until a distribution date on the occurrence of certain
specified events.
Each Right entitles the holder to purchase from the Company one one-hundredth of
a share of Series B Participating Preferred Stock, $1.00 par value per share, at
a price of $40.00 per one one-hundredth of a share, subject to adjustment. The
Rights will, on the distribution date, separate from the Common Stock and become
exercisable ten days after a person has acquired beneficial ownership of 20% or
more of the outstanding shares of Common Stock of the Company or commencement of
a tender or exchange offer that would result in any person owning 20% or more of
the Company's outstanding Common Stock.
Each holder of a Right will in such event have the right to receive shares of
the Company's Class A Common Stock having a market value of two times the
exercise price of the Right, which has been set at $40.00; and in the event that
the Company is acquired in a merger or other business combination, or if more
than 25% of its assets or earning power is sold, each holder of a Right would
have the right to receive common stock of the acquiring company with a market
value of two times the exercise price of the Right. Following the occurrence of
any of these events, any Rights that are beneficially owned by any acquiring
person will immediately become null and void. The Company, by a majority vote of
the Board, may redeem the Rights at a redemption price of $.01 per Right.
16. CONTINGENCIES
The Company is a defendant in a variety of legal claims that arise in the normal
course of business, including compensation disputes with two former executives
as to the amounts due them under their change-in-control contracts that were
triggered by the 2001 Hexagon transaction. Based upon the information presently
available to management, the Company believes that any additional liability for
these claims would not have a material effect on the Company's consolidated
results of operations or financial condition.
A recently completed Phase II environmental study on the North Kingstown
Facility had indicated certain environmental problems on the property. The
results of the study show some exceedances of environmental standards for
certain contaminants in the soil under the property and minor groundwater
issues. The Company has been advised by its technical consultants that these
exceedances are minor and do not create any hazard to human health or the
environment. The Company submitted the results of the study to the Rhode Island
Department of Environmental Management ("RIDEM") on October 2, 2001, and has
stated to RIDEM that it will address these exceedances in a timely and
appropriate manner consistent with applicable law and regulation. As of March
25, 2002, the Company had not received the position of RIDEM on its submitted
study.
The Company believes, based on the preliminary advice of its consultants, that
the estimated costs for further investigation and remediation of the identified
exceedances, which have been accrued, approximate $500,000. However, as noted
above, the study has been furnished by the Company to the Rhode Island
Department of Environmental Management and it is possible that the risks and
estimated costs of further investigation and remediation may be more
significant.
Page 42
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the Company's allowance for doubtful accounts is as
follows:
/(1)/
Balance at Charged to Foreign Balance at
Beginning of Costs and /(2)/ Currency End of
Period Expenses Deductions Translation Period
2001 $4,461 $ 826 $4,461 $ -- $ 826
2000 /(3)/ 4,759 1,088 1,072 (314) 4,461
1999 3,657 1,826 394 (330) 4,759
/(1)/ Adjustment resulting from translating allowance for doubtful accounts of
foreign subsidiaries at year-end exchange rates.
/(2)/ Write-offs of uncollectible accounts; in 2001 assets and related reserves
were sold.
/(3)/ Amounts are attributable to the Metrology Business and are presented in
Assets related to discontinued operations.
Page 43
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. QUARTERLY DATA (UNAUDITED)
Previously
----------
Reported Restated
-------- --------
Mar 31 Mar 31 June 30 Sept 30
----------------- ------------- -------------- ---------------
2001
- ----
Sales $ 70,109 $ - $ - $ -
Gross profit 19,134 - - -
Loss from continuing operations (7,920) (5,338) (3,055) (2,615)
Income (loss) from discontinued operations, net of
income taxes (829) (3,411) 44,125 -
Extraordinary item-extinguishment of debt - - (6,566) -
----------------- ------------- -------------- ---------------
Net income (loss) $ (8,749) $ (8,749) $ 34,504 $(2,615)
================= ============= ============== ===============
Net income (loss) from continuing operations per
share basic and diluted $ (2.87) $ (1.93) $ (1.06) $ (0.90)
Discontinued operations (0.30) (1.24) 15.34 -
Extraordinary item - - (2.28) -
----------------- ------------- -------------- ---------------
Net income (loss) per common share-basic and
diluted $ (3.17) $ (3.17) $ 12.00 $ (0.90)
================= ============= ============== ===============
Dec 31
-------------
2001
- ----
Sales $ 91
Gross profit (253)
Loss from continuing operations (1,414)
Income (loss) from discontinued operations, net of
income taxes (556)
Extraordinary item-extinguishment of debt -
-------------
Net income (loss) $(1,970)
=============
Net income (loss) from continuing operations per
share basic and diluted $ (0.48)
Discontinued operations (0.19)
Extraordinary item -
-------------
Net income (loss) per common share-basic and
diluted $ (0.67)
=============
On April 27, 2001, the Company sold its Metrology Business to Hexagon AB of
Sweden. As a result of this transaction, all activity related to the Metrology
Business is required to be presented as discontinued operations for all periods
presented. As a result, the previously reported results included in the
Company's Form 10-Q for the three months ending March 31, 2001 are restated here
to reflect the classification of the Metrology Business as discontinued
operations.
Page 44
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
QUARTERLY DATA (UNAUDITED) (continued)
Previously Previously
---------- ----------
Reported Restated Reported Restated
-------- -------- -------- --------
Mar 31 Mar 31 June 30 Sept 30 Dec 31 Dec 31
-------------- ------------- ------------ ----------- -------------- -----------
2000
- ----
Sales $ 73,124 $ - $ - $ - $70,469 $ -
Gross profit 24,156 - - - 22,133 -
Income (loss) from continuing
operations 1,649 (5,905) (5,805) (6,556) 5,091 (1,647)
Income (loss) from discontinued
operations, net of income taxes (28,443) (20,889) (16,732) (5,042) 415 5,267
-------------- ------------- ------------ ----------- ------------ -----------
Net income (loss) $ (26,794) $(26,794) $(22,537) $(11,598) $ 5,506 $ 3,620
============== ============= ============ =========== ============ ===========
Net income (loss) from continuing
operations per share
Basic $ 0.61 $ (2.18) $ (2.10) $ (2.38) $ 1.85 $ (0.60)
============== ============= ============ =========== ============ ===========
Diluted $ 0.61 $ (2.18) $ (2.10) $ (2.38) $ 1.80 $ (0.60)
============== ============= ============ =========== ============ ===========
Discontinued operations (10.51) (7.72) (6.07) (1.83) 0.15 1.91
Net income (loss)
Basic $ (9.90) $ (9.90) $ (8.17) $ (4.21) $ 2.00 $ 1.31
============== ============= ============ =========== ============ ===========
Diluted $ (9.90) $ (9.90) $ (8.17) $ (4.21) $ 1.95 $ 1.31
============== ============= ============ =========== ============ ===========
On April 27, 2001, the Company sold its Metrology Business to Hexagon AB of
Sweden. As a result of this transaction, all activity related to the Metrology
Business is required to be presented as discontinued operations for all periods
presented. As a result, the previously reported results included in the
Company's Form 10-Q for the three months ended March 31, 2000 and December 31,
2000 are restated here to reflect the classification of the Metrology Business
as discontinued operations.
Page 45
PART 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None
PART III
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The following table summarizes information regarding directors of the Company as
of March 1, 2002:
Name (Age) Year First
(Board Committee Elected a Principal Occupation During Last Five Years and
Membership) Director Directorships in Public Reporting and Other Companies
------------ -------- -----------------------------------------------------
Terms Expiring in 2002
John M. Nelson (70) 1975 From September 2001 to present, Chairman, Commonwealth
(Audit, Executive, Corporate National Bank; from May 2000 to May 2001, Chairman of the Board of
Governance) Directors of BNS Co.; from June 1999 to June 2001, Lead Director,
and from June 1995 to July 1999, Chairman of the Board, The TJX Companies,
Inc., an off price specialty apparel retailer. Chairman of the Board,
Wyman Gordon Company, Worcester, MA, manufacturer of forgings and castings,
from May 1994 to October 1997 and Chairman and Chief Executive Officer from
May 1991 to May 1994; Director, Eaton Vance Corp.; Director, Commerce
Holdings, Inc., a holding company for property and casualty insurance
companies.
Russell A. Boss (63) 1990 Director and Chairman of the Board of Directors, A.T. Cross Company,
(Executive, Compensation and Lincoln, RI, manufacturer of fine writing instruments.
Nominating)
Roger E. Levien (66) 1996 From May 1997 to present, Managing Partner, Levien Enterprises, a
(Compensation and Nominating, consulting business; July 1992 to April 1997, Vice President,
Corporate Governance) Strategy and Innovation, Xerox Corporation, Stamford, CT,
manufacturer of document and office technology equipment.
Terms Expiring in 2003
Richard M. Donnelly (58) 1999 Currently a principal in the firm of Donnelly Associates, a
(Executive, Compensation and consulting firm to manufacturing industries and a Partner in
Nominating) Ripplewood Holdings, private equity investors; from 1995 to 1998,
President of General Motors Europe; from 1992 to 1994, Vice President &
Group Executive for GM Powertrain Group; from 1983 to 1995, various
executive management positions with General Motors Corporation; Director,
Powerway, Inc.; Director, Oshkosh Truck Corp.; Director, Separation
Dynamics, Inc.
Page 46
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
- ------------------------------------------------------------------------
Kenneth N. Kermes (66) 2000 Chairman of the Board of Directors of BNS Co. since May 2001; from
(Executive, Audit) May 2001 to present, Partner of SeaView Capital, a private equity
firm; from April 2000 to May 2001, President and Chief Executive Officer
of BNS Co.; from 1999 to 2000, Partner of SeaView Capital, a private equity
firm; from 1998 to 1999, partner of Bay View Equity Partners, a private
equity firm; from 1994 to 1998, Vice President for Business and Finance
and Chief Financial and Administrative Officer, University of Rhode Island.
Terms Expiring in 2004
Howard K. Fuguet (64) 1990 Partner of the law firm of Ropes & Gray, Boston, MA.
(Audit, Corporate Governance)
Henry D. Sharpe, III (47) 1992 May 2001 to present, Director, Gamete Technology, Inc. a start-up
(Audit, Corporate Governance) cryopreservation business; Co-founder and Technical Director, Design
Lab, LCC, Providence, RI, a multi-disciplinary product design firm
specializing in research and design of new products, re-design of
existing products, and engineering management services; and Partner,
Konden & Associates LLC, a placement agent for independent product
design firms.
J. Robert Held (63) 1996 Currently a consultant to the computer industry; from 1988 to 1995
(Compensation and Nominating) President, Chief Executive Officer, and a Director of Chipcom
Corporation, Southborough, MA, a computer communications company; Director,
e-studio, a web casting business; and Director, ESI, a software company.
The following table summarizes information regarding Executive Officers of the Company as of March 1, 2002:
Name Age Positions Held During the Last Five Years
- ---- --- -----------------------------------------
Andrew C. Genor 59 President and Chief Executive Officer since May, 2001; President of Xygent Inc., subsidiary of
the Company, since January, 2002; from December 1, 1998 to May 2001, Vice President & Chief
Financial Officer; previously Chief Financial Officer, Safety First from May 1998 through
September 1998; previously Vice President, Chief Financial Officer & Treasurer, Wyman-Gordon
Company from November 1994 through March 1998.
Each Executive Officer holds office until the first meeting of the Board of
Directors following the next Annual Stockholders' meeting and until his
successor is elected or appointed and qualified, unless he dies, resigns, is
removed or replaced.
Page 47
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
Information with respect to this item is incorporated by reference herein to
information contained under the heading "Item 1 - Election of Directors",
subheadings "Nominees for Election", and "Section 16(a) Security Ownership of
Certain Beneficial Owners And Management" in the definitive 2002 Proxy
Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
I. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below, as of March 12, 2002 are the persons or groups known to
the Company who beneficially own, under the applicable rules and regulations of
the Securities and Exchange Commission, more than 5% of any class of the
Company's voting securities.
Name and Address Title of Class Amount and Nature of Percent Percent of Combined
of Beneficial Owner of Common Stock Beneficial Ownership of Class Voting Power
------------------- --------------- -------------------- -------- -------------------
Direct Indirect
------- ---------
Option Opportunities Co. /(1)/ Class A 152,895 -- 5.4 4.4
225 W. Washington Street, 3rd Floor Class B -- --
Chicago, IL 60606
Ingalls & Snyder LLC /(2)/ Class A 371,700 -- 13.0 10.6
61 Broadway Class B -- --
New York, NY 10006
Dimensional Fund Advisors Inc./(3)/ Class A 212,454 -- 7.4 6.1
1299 Ocean Avenue Class B -- --
11th Floor
Santa Monica, CA 90401
Morningside Value Investors LLC /(4)/ Class A 168,260 -- 5.9 4.8
153 East 53rd Street Class B -- --
New York, NY 10022
Paul D. Sonkin, Managing Member of Morningside Class A 170,260 -- 6.0 4.9
Value Investors LLC /(4)/ Class B -- --
153 East 53rd Street
New York, NY 10022
Gabelli Asset Management Inc. /(5)/ Class A 340,060 -- 11.9 9.7
One Corporate Center Class B -- --
Rye, NY 10580-1434
Schroder Investment Management /(6)/ Class A -- --
International Ltd. Class B 5,666 -- 8.9 1.6
31 Gresham Street
London EC2V 7QA, United Kingdom
Page 48
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
(continued)
- -----------
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (continued)
/(1)/ Options Opportunities Co., a registered broker, has sole voting and
dispositive power and is deemed to have beneficial ownership of the
reported shares.
/(2)/ Ingalls & Snyder LLC ("I&G"), a registered broker, has sole voting and
dispositive power over 3,400 of the shares reported and shares
dispositive power over 368,300 of the shares reported. I&G is deemed
to have beneficial ownership over the aggregate of 371,700 shares
reported.
/(3)/ Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, has voting and dispositive control over and is deemed to have
beneficial ownership of the reported shares, all of which shares are
held in portfolios of various registered investment companies and
trusts, all of which Dimensional Fund Advisors Inc. serves as
investment manager or advisor. Dimensional disclaims beneficial
ownership of all such shares.
/(4)/ Morningside Value Investors LLC ("Morningside"), a Delaware limited
liability company, acts as an investment manager to The Hummingbird
Value Fund ("Hummingbird"), which holds an aggregate of 168,260 shares
of Class A Stock, and over which Morningside has sole voting and
dispositive power. Paul D. Sonkin is managing member of Morningside,
managing member of Morningside Capital LLC, a Delaware limited
liability company, and managing member of Hummingbird. In his capacity
as managing member of Morningside, Mr. Sonkin directly exercises voting
and dispositive control over the shares reported by Morningside and, as
managing member and control person of Morningside, may be deemed the
beneficial owner of such shares. Morningside disclaims any beneficial
ownership of the shares reported. Additionally Mr. Sonkin is the
beneficial owner of 2,000 shares held individually by him and therefore
may be deemed to be the beneficial owner of 170,260 shares of Class A
Stock. Mr. Sonkin disclaims any beneficial ownership of any shares not
individually held by him.
/(5)/ Gabelli Asset Management, Inc. ("GAMI"), is the parent company of the
following companies, which in the aggregate own 340,060 shares of Class
A Stock: Gabelli Funds, LLC, a registered investment advisor, which
holds 80,600 shares; and GAMCO Investors, Inc., a registered investment
advisor, which holds 160,600 shares. Gabelli Associates Limited, a
British Virgin Islands corporation, which holds 98,860 shares, is
managed by Gabelli Securities, Inc., a majority owned subsidiary of
GAMI. Each company has sole voting and dispositive control over and is
deemed to have beneficial ownership of the reported shares.
/(6)/ Schroder Investment Management International Ltd., an investment advisor,
has sole voting and dispositive power and is deemed to have beneficial
ownership of the reported shares.
/(7)/ Various members of the family of Henry D. Sharpe, Jr. (father of Henry D.
Sharpe III, a Director) beneficially own an aggregate of 127,137 shares
of common stock of the Company comprised of 95,353 shares of Class A
Stock and 31,784 shares of Class B Stock of the Company. These holdings
amount in the aggregate to 3.3% and 49.7%, respectively, of each class
of stock and represent collectively 11.83% of the combined voting power
of the Class A Stock and Class B Stock. These shares are comprised of
(a) 31,827 shares of Class A Stock and 10,608 shares of Class B Stock
beneficially owned by Henry Sharpe, III; (b) 31,743 shares of Class A
Stock and 10,580 shares of Class B Stock held by the Douglas Boyd
Sharpe Trust; (c) 31,755 shares of Class A Stock and 10,584 shares of
Class B Stock held by the Sarah Sharpe Trust; (d) 2 shares of Class A
Stock and 2 shares of Class B Stock held in the Henry D. Sharpe, Jr.
Revocable Trust; (e) 2 shares of Class A Stock and 2 shares of Class B
Stock held in the Peggy Sharpe Revocable Trust; and (f) 24 shares of
Class A Stock and 8 shares of Class B Stock held by the Sharpe Family
Foundation, a charitable foundation, held by Northern Trust Company,
for which Mr. Sharpe, Jr. is Trustee and has voting power. The shares
held by the various individual family members or, in some cases, within
the various family trusts relating to a single family member are owned
by the respective individual family members or in trusts as to which
each such individual family member has sole voting power and
dispositive power.
Page 49
II. SECURITY OWNERSHIP OF MANAGEMENT
The following table and accompanying footnotes set forth certain
information about the beneficial ownership of the Company's Class A Stock and
Class B Stock as of March 12, 2002 by the Directors, the Executive Officers and
all Directors and Executive Officers as a group.
Name and Address Title of Class Amount and Nature of Percent Percent of Combined
of Beneficial Owner of Common Stock Beneficial Ownership of Class Voting Power
------------------- --------------- -------------------- -------- --------------------
Direct Indirect
------- ---------
Henry D. Sharpe, III /(1)/ Class A 31,826 -- 1.1 *
Class B 10,608 -- 16.6 3.0
John M. Nelson Class A 30,800 -- 1.1 *
Class B -- --
Howard K. Fuguet Class A 1,000 -- * *
Class B -- --
Russell A. Boss Class A 2,400 -- * *
Class B -- --
J. Robert Held Class A 1,800 -- * *
Class B -- --
Roger E. Levien Class A 1,200 -- * *
Class B -- --
Richard A. Donnelly Class A -- -- * *
Class B -- --
Kenneth N. Kermes Class A 30,000 -- 1.1 *
Class B -- --
Andrew C. Genor /(2)/ Class A 14,343 -- * *
Class B -- --
All Directors and Executive
Officers (as a Group 9 persons) Class A 113,369 -- 4.0 3.2
Class B 10,608 -- 16.6 3.0
* Less than one percent (1%)
/(1)/ See Footnote /(7)/I. Security Ownership of Certain Beneficial Owners.
/(2)/ Includes 1,343 shares of Class A common stock held by Mr. Genor in the
BNS Co. Savings and Retirement Plan.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information with respect to this item is incorporated by reference herein to
information contained in the Company's definitive 2002 Proxy Statement.
Page 50
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) (1) and (2) List of Financial Statements and Financial Statement Schedules
Financial Statements filed in Item 8 of this Annual Report:
- -----------------------------------------------------------
Consolidated Statements of Operations for the Years Ended December 31,
2001, 2000 and 1999
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999
Consolidated Statements of Shareowners' Equity for the Years Ended
December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements - December 31, 2001
Schedules Omitted.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are omitted because they
are not required, are not inapplicable, or the information is included in the
financial statements.
(a) The response to this portion of Item 14 is submitted as a separate
section of this report.
(b) No Form 8-K was filed in the fourth quarter of 2001.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules - No financial statement schedules were
filed for the year ended December 31, 2001.
Page 51
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY)
(Registrant)
Date: April 1, 2002 By: /s/ Andrew C. Genor
-------------------- -------------------------------------
Andrew C. Genor
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Kenneth N. Kermes 4/1/02 /s/ Howard K. Fuguet 4/1/02
- ------------------------------------------------- --------------------------------------------
Kenneth N. Kermes Date Howard K. Fuguet Date
Chairman of the Board and Director Director
/s/ John M. Nelson 4/1/02 /s/ Russell A. Boss 4/1/02
- ------------------------------------------------- --------------------------------------------
John M. Nelson Date Russell A. Boss Date
Director Director
/s/ J. Robert Held 4/1/02 /s/ Roger E. Levien 4/1/02
- ------------------------------------------------- --------------------------------------------
J. Robert Held Date Roger E. Levien Date
Director Director
/s/ Henry D. Sharpe, III 4/1/02 /s/ Richard M. Donnelly 4/1/02
- ------------------------------------------------- --------------------------------------------
Henry D. Sharpe, III Date Richard M. Donnelly Date
Director Director
/s/ Andrew C. Genor 4/1/02
- -------------------------------------------------
Andrew C. Genor Date
Vice President and Chief Financial Officer
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer)
Page 52
Exhibit Index
-------------
Number
------
3.1 Joint Agreement of Merger between Brown & Sharpe Manufacturing
Company, incorporated in Rhode Island, and Brown & Sharpe
Manufacturing Company, the surviving corporation incorporated in
Delaware, filed as the only Exhibit to Form 8-K for the month of
January, 1969, and such is hereby incorporated by reference.
3.2 Amendment to Certificate of Incorporation, dated April 26, 1989,
filed as Exhibit 13 to Form 10-K for the period ending December 29,
1989, and such is hereby incorporated by reference.
3.3 Amendment to Certificate of Incorporation, dated April 25, 1980,
filed as Exhibit 3.1 to Form 10-Q for the period ending June 28,
1980, and such is hereby incorporated by reference.
3.4 Amendment to Certificate of Incorporation dated April 24, 1987.
Exhibit 3.7 was filed as Exhibit 10.4 to Form 10-Q for the period
ended June 26, 1987, and such is hereby incorporated by reference.
3.5 Amendment to Certificate of Incorporation dated May 6, 1988 filed as
Exhibit 1 to Current Report on Form 8-K filed May 9, 1988 and such
is hereby incorporated by reference.
3.6 Certificate of Designation filed as Exhibit A to Exhibit 5 of
Amendment on Form 8 filed on March 6, 1989, and such is hereby
incorporated by reference.
3.7 Amendment to Certificate of Incorporation dated May 2, 1989.
Exhibit 3.7 was filed as Exhibit 3.7 to the Form 10-K for the year
ended December 30, 1989 and such is hereby incorporated by
reference.
3.8 By-laws of Brown & Sharpe Manufacturing Company, as amended
through July 29, 1994; previously filed as Exhibit 3.1 to the Form
10-Q for the quarter ended July 2, 1994 and such is hereby
incorporated by reference.
3.9 Amendments to By-laws of Brown & Sharpe Manufacturing Company, as
of September 28, 1994; previously filed as Exhibit 3 to the Form
10-Q for the quarter ended October 1, 1994 and such is hereby
incorporated by reference.
3.10 Amendment to Certificate of Incorporation dated April 27, 2001 filed
as Exhibit 99.2 to Report on Form 8-K filed May 10, 2001 and hereby
incorporated by reference.
3.11 Amendment to Certificate of Incorporation dated April 27, 2001 filed
as Exhibit 99.3 to Report on Form 8-K filed May 10, 2001 and hereby
incorporated by reference.
+10.1 Amended 1983 Stock Option Plan, as amended through March 9, 1988.
Exhibit 10.1 was filed as Exhibit 10.2 to the Form 10-K for the
year ended December 31, 1988, and is hereby incorporated by
reference.
+10.2 Amendment dated December 29, 1990 to the Brown & Sharpe Amended
1983 Stock Option Plan. Exhibit 10.2 was filed as Exhibit 10.3 to
the Form 10-K for the year ended December 29, 1990 and such is
herein incorporated by reference.
+10.3 Amended 1989 Equity Incentive Plan as amended through February 21,
1992. Exhibit 10.3 was filed as Exhibit 10.24 to the Form 10-K for
the year ended December 28, 1991 and such is hereby incorporated
by reference.
Page 53
+10.4 Amendment dated November 11, 1992 to 1989 Equity Incentive Plan as
amended through November 6, 1992. Exhibit 10.4 was filed as
Exhibit 10.43 to the Form 10-K for the year ended December 26,
1992, and is hereby incorporated by reference.
+10.5 Amended Profit Incentive Plan, as amended through February 14, 1994.
Exhibit 10.5 was filed as Exhibit 10.53 to the Form 10-K for the
year ended December 31, 1994, and is hereby incorporated by
reference.
+10.6 Form of Indemnity Agreement with Alfred J. Corso dated May 3,
1995. Exhibit 10.6 was filed as Exhibit 10.62 to the Form 10-Q for
the quarter ended September 30, 1995, and is hereby incorporated
by reference.
+10.7 Form of Indemnity Agreement with Harry A. Hammerly dated October 25,
1996.
+10.8 Form of Indemnity Agreement with John Robert Held dated October 25,
1996.
+10.9 Form of Indemnity Agreement with Roger E. Levien dated October 25,
1996. (Also Form of Indemnity Agreement between Company and other
Directors and Executive Officers)
Exhibits 10.7, 10.8 and 10.9 were filed as Exhibits 10.79, 10.80
and 10.81, respectively, to the Form 10-K for the year ended
December 31, 1996, and are hereby incorporated by reference.
10.10 Rights Agreement dated as of February 13, 1998 ("Rights
Agreement") between the Company and BankBoston N.A., as Rights
Agent, filed as Exhibit 1 to Report on Form 8-K dated March 5,
1998, which is hereby incorporated by reference.
10.11 Form of Certificate of Designation with respect to the Series B
Participating Preferred Stock, par value $1.00 per share, of the
Company (filed as Exhibit A to the Rights Agreement, filed as
Exhibit A to Report on Form 8-K dated March 5, 1998), which is
hereby incorporated by reference.
10.12 Amendment to Rights Agreement dated February 13, 1998 filed as
Exhibit 10.90.2 to Report on Form 10-Q for quarter ending
September 30, 2001, and incorporated herein by reference.
+10.13 Key Employee's Long-Term Deferred Cash Incentive Plan as amended
through February 23, 1998.
+10.14 Supplemental Executive Retirement Plan as amended February 13, 1998.
+10.15 Senior Executive Supplemental Umbrella Pension Plan dated February
13, 1998.
Exhibits 10.13 through 10.15 were filed as Exhibits 10.106, 10.107
and 10.108, respectively, to the Form 10-Q for the quarter ended
June 30, 1998, and are hereby incorporated by reference.
+10.16 Brown & Sharpe Manufacturing Company 1999 Equity Incentive Plan
dated February 12, 1999. Exhibit 10.16 was filed as Exhibit 10.109
to the Form 10-Q for the quarter ended June 30, 1999, and is
hereby incorporated by reference.
10.17 Brown & Sharpe Savings and Retirement Plan for Management Employees
dated December 23, 1998 (filed herewith).
10.18 First Amendment to Brown & Sharpe Savings and Retirement Plan for
Management Employees dated as of April 30, 1999 (filed herewith).
Page 54
10.19 Second Amendment to Brown & Sharpe Savings and Retirement Plan for
Management Employees dated as of December 26, 2001 (filed herewith).
10.20 Brown & Sharpe Savings and Retirement Plan and BNS Co. Savings and
Retirement Plan Instrument of Merger dated as of December 31, 2001
(filed herewith).
10.21 Brown & Sharpe Stock Ownership and Profit Participation Plan and
Trust Agreement (1998 restatement) dated December 23, 1998, filed
as Exhibit 10.1 to Registration Statement No. 333-666-22 on Form S-8
and hereby incorporated by reference.
10.22 First Amendment to Brown & Sharpe Stock Ownership and Profit
Participation Plan and Trust Agreement (1998 restatement) dated as
of April 30, 1999, filed as Exhibit 10.2 to Registration Statement
No. 333-666-22 on Form S-8 and hereby incorporated by reference.
10.23 Instrument of Termination and Amendment to Brown & Sharpe Stock
Ownership and Profit Participation Plan and Trust Agreement (as
amended) dated as of April 10, 2001, filed as Exhibit 10.3 to
Registration Statement No. 333-666-22 on Form S-8 and hereby
incorporated by reference.
10.24 First Amendment to Instrument of Termination and Amendment to
First Amendment to Brown & Sharpe Stock Ownership and Profit
Participation Plan and Trust Agreement dated as of November 14,
2001 (filed herewith).
10.25 Notice to Stockholders regarding Shareholder Rights Plan dated May
21, 2001 filed as Exhibit 99.1 to Report on Form 8-K filed May 21,
2001 and incorporated herein by reference.
+10.26 Change in Control Agreement between Brown & Sharpe Manufacturing
Company and Alfred J. Corso dated August 31, 1999, filed as
Exhibit 10.114 to Report on Form 10-Q for the quarter ended March
31, 2001 and hereby incorporated by reference.
+10.27 Change in Control Agreement between Brown & Sharpe Manufacturing
Company and Andrew C. Genor dated August 31, 1999, filed as
Exhibit 10.126 to Report on Form 10-Q for the quarter ended March
31, 2001 and hereby incorporated by reference.
+10.28 Change in Control Agreement between Brown & Sharpe Manufacturing
Company and James W. Hayes dated August 31, 1999, filed as Exhibit
10.117 to Report on Form 10-Q for the quarter ended March 31, 2001
and hereby incorporated by reference.
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors - Ernst & Young LLP.
To obtain a copy of the Exhibits in this Annual Report on Form 10-K refer to
Page 56.
+ This identifies management contracts or compensatory plans.
Page 55
Shareholders may obtain the following Exhibits filed with the 2001 Annual Report
on Form 10-K upon request. Charges will be made according to the following
schedule and payment should be made either by check or money order and should
accompany the request. The charge for all 2001 Exhibits is $6.41. Charges for
previously filed Exhibits incorporated by reference will be provided upon
request. Requests should be directed to: Secretary, BNS Co., 275 West Natick
Road, Warwick, RI 02886.
Exhibit Pages Postage Total
------- ----- ------- -----
10.17 Brown & Sharpe Savings and Retirement Plan for Management 52 $.34 $2.18
Employees dated December 23, 1998.
10.18 First Amendment to Brown & Sharpe Savings and Retirement Plan 1 $.34 $ .58
for Management Employees dated as of April 30, 1999
10.19 Second Amendment to Brown & Sharpe Savings and Retirement Plan 2 $.34 $ .83
for Management Employees dated as of December 26, 2001
10.20 Brown & Sharpe Savings and Retirement Plan and BNS Co. Savings 2 $.34 $ .83
and Retirement Plan Instrument of Merger dated as of December
31, 2001
10.24 First Amendment to Instrument of Termination and Amendment to 2 $.34 $ .83
First Amendment to Brown & Sharpe Stock Ownership and Profit
Participation Plan and Trust Agreement dated as of November 14,
2001.
21. Subsidiaries of the Registrant 1 $.34 $ .58
23. Consent of Independent Auditors 1 $.34 $ .58
Page 56