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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5881
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BNS Co.
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(Exact name of registrant as specified in its charter)
Delaware 050113140
-------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Frenchtown Road, Suite 2, North Kingstown, Rhode Island 02852
-----------------------------------------------------------------
(Address of principal executive offices and zip code)
(401) 886-7404
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date, 2,947,919 of Class A common
stock, 53,043 shares of Class B common stock, par value $0.01 per share,
outstanding as of September 30, 2002.
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS*
BNS Co.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per share data)
(Unaudited)
For the Quarter For the Nine Months Ended
Ended September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
Restated Restated
-------- --------
Rental income $ 626 $ 735 $ 1,878 $ 1,694
Gravel royalty revenue 304 252 781 698
-------------------------------------------------------------
Revenue 930 987 2,659 2,392
Selling, general and administrative costs 852 2,345 2,684 6,817
-------------------------------------------------------------
Operating income (loss) 78 (1,358) (25) (4,425)
Interest expense 95 137 313 2,819
Other income, net 25 159 188 271
-------------------------------------------------------------
Income (loss) from continuing operations before income taxes 8 (1,336) (150) (6,973)
Income tax expense 73 - 187 -
-------------------------------------------------------------
Loss from continuing operations (65) (1,336) (337) (6,973)
Discontinued operations:
Loss from operations, net of income taxes of $0, $0,
$0 and $1,240 (946) (1,279) (4,286) (10,813)
Gain (loss) on sale of business (473) - (1,382) 47,492
-------------------------------------------------------------
Income (loss) before extraordinary item (1,484) (2,615) (6,005) 29,706
Extraordinary item - extinguishment of debt - - - 6,566
-------------------------------------------------------------
Net income (loss) (1,484) (2,615) (6,005) 23,140
=============================================================
Income (loss) per share basic and diluted:
Continuing operations $ (0.02) $ (0.46) $ (0.12) $ (2.45)
Discontinued operations (0.49) (0.44) (1.94) 12.87
Extraordinary item - - - (2.30)
-------------------------------------------------------------
Net income (loss) per common share basic and diluted $ (0.51) $ (0.90) $ (2.06) $ 8.12
=============================================================
* The accompanying notes are an integral part of the financial statements.
2
Item 1. FINANCIAL STATEMENTS*
BNS Co.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
2002 2001
ASSETS (Unaudited) (Restated)
Current assets:
Cash $ 5,446 $ 8,656
Other receivables, net of $1,475 and $826 allowance at
September 30 and December 31, respectively 286 1,198
Assets held for sale 2,568 2,363
Assets related to discontinued operations 166 6,164
Prepaid expenses and other current assets 650 347
-------- --------
Total current assets 9,116 18,728
Property, plant and equipment
Land 438 415
Machinery & equipment 34 23
-------- --------
472 438
Less accumulated depreciation 13 9
-------- --------
459 429
Other assets 93 126
-------- --------
$ 9,668 $ 19,283
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,174 $ 6,732
Current portion of long-term debt 2,607 3,317
Liabilities assumed -- 794
-------- --------
Total current liabilities 6,781 10,843
Long-term liabilities 2,727 3,291
Commitments and contingencies
Shareowners' equity
Preferred stock; $1.00 par value; authorized 1,000,000
shares; none issued -- --
Common Stock:
Class A, par value, $.01; authorized 30,000,000 shares;
issued 2,947,919 shares in 2002 and 2,861,240 shares in 2001 29 29
Class B, par value, $.01; authorized 2,000,000 shares;
issued 53,043 shares in 2002 and 64,007 shares in 2001 1 1
Additional paid-in capital 86,981 85,950
Retained deficit (86,378) (80,373)
Unamortized value of restricted stock awards (129) --
Accumulated other comprehensive income (loss) 111 (3)
Treasury stock; 8,518 shares in 2002 and 2001, at cost (455) (455)
-------- --------
Total shareowners' equity 160 5,149
-------- --------
$ 9,668 $ 19,283
======== ========
* The accompanying notes are an integral part of the financial statements.
3
Item 1. FINANCIAL STATEMENTS*
BNS Co.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
For the Nine Months Ended September 30
2002 2001
---- ----
(Restated)
Cash Used in Operations:
Net income (loss) $ (6,005) $ 23,140
Extraordinary item - extinguishment of debt -- 6,566
Adjustments to reconcile net income (loss) to net cash used in
operating activities from continuing operations:
Depreciation and amortization 123 29
Changes in operating assets and liabilities (2,476) (5,473)
Changes in assets and liabilities related to
discontinued operations and assets held for sale 2,123 7,872
Loss (gain) on sale of business 1,382 (47,492)
--------- ---------
Net Cash Used in Operations (4,853) (15,358)
Investment Activities:
Capital expenditures (11) (3)
Proceeds from sales of business, net of expenses 2,250 142,820
--------- ---------
Net Cash Provided by Investment Activities 2,239 142,817
Financing Transactions:
Payment of notes payable -- (27,400)
Payment of long-term senior notes -- (57,893)
Payment on Mortgage (710) (655)
Distribution to stockholders -- (44,480)
Equity contribution -- 3,156
--------- ---------
Net Cash Used in Financing Transactions (710) (127,272)
--------- ---------
Effect of Exchange Rate Changes on Cash 114 (36)
--------- ---------
Cash and Cash Equivalents:
Increase (decrease) during the period (3,210) 151
Beginning balance 8,656 8,882
--------- ---------
Ending balance 5,446 9,033
========= =========
Supplementary Cash Flow Information:
Interest Paid $ 284 $ 3,308
========= =========
Taxes Paid $ -- $ 230
========= =========
* The accompanying notes are an integral part of the financial statements.
4
Item 1. FINANCIAL STATEMENTS*
BNS Co.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(in thousands)
For the Nine Months Ended September 30, 2002
Unamortized Accumulated
Additional value of other Total
Common paid in Retained restricted comprehensive Treasury Shareowners'
Shares Stock capital deficit stock awards income (loss) stock Equity
----------------------------------------------------------------------------------------------------
Balance at January 1, 2002 2,925 $ 30 $ 85,950 $ (80,373) $ - $ (3) $ (455) $ 5,149
Net loss - - - (1,612) - - - (1,612)
Foreign currency
translation adjustment - - - - - (2) - (2)
----------------------------------------------------------------------------------------------------
Balance at March 31, 2002 2,925 30 85,950 (81,985) - (5) (455) 3,535
Net loss - - - (2,909) - - - (2,909)
Foreign currency adjustment - - - - - 104 - 104
Restricted stock awards 75 - 219 - (219) - - -
Amortization of restricted
stock awards - - - - 51 - - 51
Acquisition of subsidiary
minority interest - - 812 - - - - 812
----------------------------------------------------------------------------------------------------
Balance at June 30, 2002 3,000 $ 30 $ 86,981 $ (84,894) $ (168) $ 99 $ (455) $ 1,593
Net Loss - - - (1,484) - - - (1,484)
Foreign Currency
Adjustment - - - - - 12 - 12
Amortization of
restricted stock awards - - - - 39 - - 39
----------------------------------------------------------------------------------------------------
Balance at September 30, 2002 3,000 $ 30 $ 86,981 $ (86,378) $ (129) $ 111 $ (455) $ 160
====================================================================================================
* The accompanying notes are an integral part of the financial statements.
5
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands except per share data)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine months ended September 30, 2002 are not indicative of the results
that may be expected for the year ended December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 2001.
In April 2001, the stockholders of Brown & Sharpe Manufacturing Company
approved a number of transactions including: the sale of the Company's
Metrology Business to Hexagon AB of Sweden ("Hexagon"), the sale of the
Company's North Kingstown Facility to Precision Park Partners LLC,
("Precision Partners"), the change of the Company's name to BNS Co., and
various stock-related transactions including a reverse stock split.
Throughout this document, the "Company" refers to either Brown & Sharpe
Manufacturing Company or BNS Co., as applicable. Due to a failure to reach
mutual agreement on a number of issues, the Company did not complete the
sale of its North Kingstown Facility to Precision Partners.
In August 2002, pursuant to a Securities Purchase Agreement dated August
16, 2002 (the "Purchase Agreement") Hexagon Holdings, Inc. ("Hexagon"), a
subsidiary of Hexagon AB, purchased on August 20, 2002 all of BNS Co.'s
(the "Company") interests in Xygent Inc. ("Xygent"), the Company's
development stage measuring software business unit. Pursuant to the terms
of the Purchase Agreement, Hexagon paid the Company $2,250 in cash at the
closing, which occurred on August 20, 2002, and is obligated to pay the
Company a Deferred Purchase Price of $750, subject to possible adjustment
relating to the Xygent Equity Value as specified in the Agreement. Such
Xygent Equity Value provision provides that Xygent's Equity Value must
equal $2,993 on August 16, 2002 in order for the full $750 to be paid, and
in the event any adjustment to Xygent Equity Value as set forth on the
Xygent August 16, 2002 Balance Sheet furnished by the Company reduces
Xygent's Equity Value below $2,993, then the $750 Deferred Purchase Price
will be reduced dollar for dollar. The Purchase Agreement requires that the
Company indemnify Hexagon for certain matters, including matters concerning
the Company's representations and warranties concerning Xygent. Prior to
the sale of the Company's interests to Hexagon, Hexagon held 23% of the
issued and outstanding shares of Xygent and the Company held 77% of the
issued and outstanding shares of Xygent. In addition to the ownership
interest, the Company had advanced Xygent $3,500. The purchase price was
determined by arm's-length negotiation between representatives of the
Company and Hexagon.
Hexagon is currently disputing the Xygent Equity Value as of August 16,
2002. Accordingly, the $750 in dispute has not been considered in
determining the loss on the sale of the business.
The Company continues to plan to sell its North Kingstown facility and
adjacent, largely vacant, acreage and to sell its real estate (a gravel
pit) adjacent to the Heathrow Airport in the United Kingdom at later dates.
The Company plans to make additional cash distributions to its shareholders
as these properties are 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 contingent and other
retained liabilities.
6
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands except per share data)
2. Discontinued Operations - As mentioned above, the Company disposed of its
Metrology Business effective April 27, 2001 and its controlling interest in
Xygent effective August 20, 2002. The financial statements for prior
periods have been restated to reflect the operations related to these
business units as discontinued operations.
3. For the nine months ended September 30, 2002, the Company has recorded an
income tax provision of $187. This represents an income tax provision
associated with the gravel royalty income earned in the United Kingdom. No
other income tax provision has been recorded in this period.
4. The following table sets forth the computation of basic and diluted loss
per share:
For the For the
Quarter Ended Nine Months Ended
September 30 September 30
------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
Numerator:
Loss from continuing operations $ (65) $ (1,336) $ (337) $ (6,973)
Income (loss) from discontinued operations (1,419) (1,279) (5,668) 36,679
Extraordinary item - - - (6,566)
--------------------------------------------------------
Net income (loss) $ (1,484) $ (2,615) $ (6,005) $ 23,140
========================================================
Denominator for basic earnings per Share:
Weighted-average shares 2,922 2,917 2,919 2,850
Effect of dilutive securities:
Employee stock options and restricted stock - - - -
--------------------------------------------------------
Denominator for diluted earnings per share 2,922 2,917 2,919 2,850
Basic and diluted income (loss) per share from:
Continuing operations $ (0.02) $ (0.46) $ (0.12) $ (2.45)
Discontinued operations (0.49) (0.44) (1.94) 12.87
Extraordinary item - - - (2.30)
--------------------------------------------------------
Basic and diluted income (loss) per share $ (0.51) $ (0.90) $ (2.06) $ 8.12
========================================================
Diluted loss per share is the same as basic loss per share in 2002 and 2001
because the computation of diluted earnings per share would have an
antidilutive effect on loss per share calculations, and all options
exercisable prior to the sale of the Metrology Business were exercised and
are included in the basic calculation. Unvested restricted shares have an
antidilutive effect and are not included in the calculation.
5. Comprehensive loss for the quarter ended September 30, 2002 and 2001
amounted to $1,472 and $2,651, respectively. Comprehensive income (loss)
for the nine months ended September 30, 2002 and 2001 amounted to $(5,891)
and $23,104, respectively. Accumulated other comprehensive income (loss) at
September 30, 2002 and December 31, 2001 is comprised of foreign currency
translation adjustments of $111 and $(3), respectively.
6. Litigation - In July 2002, the Company and two former executives of the
Company reached a final agreement and settled the compensation disputes
between themselves. The terms of settlement included payment of a
negotiated amount plus reasonable and properly documented legal and
accounting fees and disbursements incurred by the former executives, in
accordance with the provisions of the 1999 Change-in-Control Agreements
between the Company and these two former executives. As stated above, in
October 2002, Hexagon has disputed Xygent Equity Value and has not paid the
Deferred Purchase Price. The dispute is pending.
7
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands except per share data)
7. At September 30, 2002, the Company was a defendant in several legal claims
that arose in the normal course of business. Based upon the information
presently available to management, the Company believes that any liability
for these claims would not have a material effect on the Company's results
of operations or financial condition.
8. Segment Information - Subsequent to the sale of the Metrology Business and
before the sale of the controlling interest in Xygent mentioned above, the
Company has disposed of its previous segments. The Company now collects
rental income from the operations of the North Kingstown facility and
gravel royalty revenue from the land in the United Kingdom. Consequently
the Company is continuing business in real estate management.
9. Executive Compensation - During the third quarter of 2002, the Company
recorded an additional charge of $60 in SG&A in connection with a
compensation arrangement, not yet finalized, with its CEO, who has a
Change-In-Control Agreement (where a change in control occurred upon the
April, 2001 sale of assets to Hexagon). This increased the earlier
charge recorded in connection with such arrangement to approximately $1,400
as of September 30, 2002.
10. In April 2002, the Company granted restricted stock awards covering an
aggregate of 75,715 shares of common stock to directors of the Company as a
means of paying retainer fees for the period April 1, 2001 through the end
of 2002, thereby rewarding them for long-term performance, increasing their
ownership in the Company and saving cash. These restricted shares were
awarded under the 1999 Equity Incentive Plan and entitle the shareholders
to all rights of common stock ownership except the shares may not be sold,
transferred, pledged, assigned, or otherwise encumbered or disposed of
during the restriction period. The shares granted vest on July 18, 2003,
except for 5,715 shares to one director which became fully vested in June
2002. The shares were recorded at the fair market value on the date of
issuance as deferred compensation and the related amount is being amortized
to operations over the vesting period. Compensation expense for the nine
months ended September 30, 2002, related to these shares of restricted
stock was $90.
11. Subsequent Event - The Company and the CEO continue to negotiate a
compensation arrangement as described in Note 9 above. The Company is
considering issuing restricted shares of Class A Common Stock to the CEO in
connection with this compensation arrangement. This restricted share
issuance will relieve the Company of its obligation as described in Note 9
above. The terms and number of shares have not yet been agreed upon. In
connection with shareholder approval of this negotiation, the Company has
filed a preliminary proxy statement with the SEC. Alternatively, the
Company may settle this obligation with cash.
12. Reclassification - Certain 2001 balances have been reclassified to conform
with 2002 presentations.
8
BNS Co.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
After completing the sale of its Metrology Business to Hexagon A.B. of
Stockholm, Sweden, ("Hexagon") on April 27, 2001 and after completing the sale
on August 20, 2002 to Hexagon Holdings, Inc. ("Hexagon") of its interest in its
Xygent development stage measuring software business, the Company is no longer
engaged in the active conduct of these businesses. The Company now conducts
operations in the real estate business.
In August 2002, pursuant to a Securities Purchase Agreement dated
August 16, 2002 (the "Purchase Agreement"), Hexagon Holdings, Inc., a subsidiary
of Hexagon AB, purchased on August 20, 2002 all of BNS Co.'s (the "Company")
interests in Xygent Inc. ("Xygent"), the Company's development stage measuring
software business unit. Pursuant to the terms of the Purchase Agreement, Hexagon
paid the Company $2,250 in cash at the Closing, which occurred on August 20,
2002, and is obligated to pay the Company a Deferred Purchase Price of $750,
subject to possible adjustment relating to the Xygent Equity Value as specified
in the Agreement. Such Xygent Equity Value provision provides that Xygent's
Equity Value must equal $2,993 on August 16, 2002 in order for the full $750 to
be paid, and in the event any adjustment to Xygent Equity Value as set forth on
the Xygent August 16, 2002 Balance Sheet furnished by the Company reduces Equity
Value below $2,993, then the $750 Deferred Purchase Price will be reduced dollar
for dollar. The Purchase Agreement requires that the Company indemnify Hexagon
for certain matters, including matters concerning the Company's representations
and warranties concerning Xygent. Prior to the sale of the Company's interests
to Hexagon, Hexagon held 23% of the issued and outstanding shares of Xygent and
the Company held 77% of the issued and outstanding shares of Xygent and had
advanced Xygent $3,500.
Hexagon is currently disputing the Xygent Equity Value as of August
16, 2002. Accordingly, the $750 in dispute has not been considered in
determining the loss on the sale of the business.
The Company holds its North Kingstown Facility, where it acts as
landlord, and the adjoining largely vacant acreage (which may be able to be sold
separately) for sale and its Heathrow, U.K. real estate property (which it
operates as a gravel pit) for sale, each at the appropriate time, as determined
by the Company's Board of Directors. The North Kingstown Facility is presented
in Assets held for sale on the balance sheet. This is presented as such as the
result of the Company's actively marketing this property for sale and the fact
that the Company had a previous offer on such property. The land at Heathrow
continues to be presented as Land on the balance sheet. Although the Company
holds this property for sale, it has not had any offers on such land. As a
result of the disposition of Xygent, the rental of the North Kingstown Facility
and the royalties from the land at Heathrow are now the Company's business.
Therefore, the Company has reclassed the rental income and royalty revenue from
these properties from the Other income line to the Revenue line on the Statement
of Operations.
The accompanying financial statements for the third quarter ended
September 30, 2002 present the Metrology Business, Xygent operations and the
Company's former Electronics Division as discontinued operations. The financial
statements for prior periods have been restated. The discussions below relate
only to the Company's continuing operations that were continuing operations
through the end of the third quarter (i.e. rental of the North Kingstown
facility and the operation of the gravel pit in the U.K.).
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 Hexagon Transaction, the Company's
cash burn rate or cash flow, as the case may be, 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 Form 10-Q.
9
Results of Operations
(dollars in thousands)
(Three and Nine Months ended September 30, 2002 compared to September 30, 2001)
As stated above the Company reclassed Rental income and Royalty revenue
from Other income, net to the Revenue line in the Statement of Operations.
Rental income for the three months ended September 30, 2002 of $626 was $109
lower than rental income for the three months ended September 30, 2001. This
decrease is due to the fact that less space was under lease during 2002. Rental
income for the nine months ended September 30, 2002 of $1,878 was $184 greater
than rental income for the nine months ended September 30, 2001. This is due to
the fact that, in connection with the acquisition of the Metrology Business by
Hexagon on April 27, 2001, BNS Co. occupied a significant portion of the
building which is now under lease.
The Company reported operating income of $78 for the quarter ended
September 30, 2002 compared with an operating loss of $1,358 for the same
quarter in the prior year. The quarter ended September 30, 2001 included a
charge of $1,200 related to the CEO's compensation arrangement relating to the
CEO's 1999 Change-in-Control Agreement which was triggered by the sale of the
Metrology Business in April 2001 and subsequent diminution of benefit plans
applicable to the Company's officers and a charge of $500 related to
environmental risks associated with the North Kingstown Facility. For the nine
months ended September 30, 2002, the Company reported an operating loss of $25
which was $4,400 smaller than the prior year nine months ended September 30. In
addition to the above charges, the nine months ended September 30, 2001 included
a larger corporate staff prior to the disposal of the Metrology Business.
Interest expense for the quarter ended September 30, 2002 of $95 is
lower than the quarter ended September 30, 2001, due to the continued
amortization of the mortgage on the North Kingstown facility. For the nine
months ended September 30, 2002 interest expense was $2,506 lower than the
$2,819 for the corresponding period in 2001. Principally this reduction reflects
the reduced interest expense resulting from the repayment of the Company's U.S.
bank debt and long-term senior notes following the sale of the Metrology
Business. As stated above Other income, net now predominantly contains interest
income. For quarter ended September 30, 2002, Other income, net was $25 or $134
lower due to reduced cash balances. For the same reason, the nine months ended
September 30, 2002 Other income, net is lower by $83 as compared with the same
period last year Other income, net of $271.
Income tax expense represents United Kingdom taxes on the net royalty
income. These amounts are greater than last year due to the fact that the net
profit from the gravel pit in the prior year was offset by net operating losses
for which no tax benefit was previously provided.
Discontinued operations for the three months ended September 30, 2002
and nine months ended September 30, 2002 reflects the operation of Xygent
through August 20, 2002, the closing date on the sale of this subsidiary.
Discontinued operations for the three months and nine months ended September 30,
2001 reflect the loss from operations of the Metrology Business and the
Electronics Division in addition to the Xygent loss.
The extraordinary item in 2001 represents the prepayment penalty and
related cost incurred in connection with the repayment of the long-term private
placement senior notes following the sale of the Metrology Business.
Liquidity and Capital Resources
The Company had cash of approximately $5,446 at September 30, 2002. The
Company is debt free, except for a $2,607 mortgage on the North Kingstown
Facility.
There is no assurance that the future months' expenses of the Company
will not be greater than anticipated, or that its expected cash flow will not
thereafter be less than anticipated, and that a liquidity problem may not arise
as a result of poor economic conditions, environmental problems or maintaining
the Company as a "public" reporting company (see Risk Factors: There may not be
adequate resources for funding the operation of the Company; Liquidity Risk). In
addition, the Company has not sold the North Kingstown Facility, or adjoining
acreage, or the Heathrow, U.K. property and, therefore, has not declared any
dividend in any amount with respect to the anticipated proceeds from such sales.
10
Subsequent to the sale of Xygent, the Company's efforts to continue as
a going concern would be negatively affected by any sale of its North Kingstown
Facility and adjoining acreage (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 for the period
ending September 30, 2002 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 for the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Cash Flow and Working Capital
Net cash used in operations for the nine months ended September 30,
2002 was $4,853. During the quarter, the Company completed its cash commitment
to fund Xygent operations. Net cash provided by investing activities for the
nine months ended September 30, 2002 was $2,239. This includes $2,250 of
proceeds related to the sale of Xygent. This amount would have been greater by
$750 had Hexagon satisfied the Deferred Purchase Price. Net cash used in
financing activities for the nine months period ended September 30, 2002 was
$710. The Company continues to classify the North Kingstown Facility and the
related mortgage as current as the Facility continues to be held for sale.
Excluding this asset along with the related mortgage, assets and liabilities
associated with Xygent (restated as assets related to discontinued operations
and liabilities assumed in prior periods) and the Electronics Division assets
also held as related to discontinued operations, the Company had working capital
of $2,208 at September 30, 2002, as compared with $3,469 at December 31, 2001.
11
RISK FACTORS
After completing the sale of its Metrology Business to Hexagon AB of
Stockholm, Sweden ("Hexagon") on April 27, 2001, and after completing the sale
on August 20, 2002 to Hexagon Holdings, Inc. ("Hexagon") of its interest in its
Xygent development stage measuring software business, in which the Company had
then held a 77% equity interest (with Hexagon holding the balance), the Company
is no longer engaged in the active conduct of these businesses. The Company now
conducts operations in the real estate business.
The Company holds its North Kingstown Facility, where it acts solely as
the landlord for operations previously sold to Hexagon and for space leased to
other companies needing warehouse space, and the Facility's adjoining, largely
vacant, acreage in Rhode Island (which may be able to be sold separately) and
also holds it Heathrow, United Kingdom real estate property, which it operates
as a gravel pit. These properties are each held for sale at the appropriate time
or times as determined by the Company's Board of Directors, after which sales
the Company presently plans to liquidate.
Hexagon is currently disputing Xygent's Equity Value as of August 16,
2002 in accordance with the provisions of the Securities Purchase Agreement
dated as of August 16, 2002, and thus there is a risk of further delay in
payment and a risk that, after giving effect to the adjustment provisions in
that Agreement, not all of the $750 Deferred Purchase Price owing under that
Agreement will be paid to the Company.
In addition to the foregoing, the risks remaining with respect to the
Company's sale of its former Metrology Business and the Company's sale of the
former development stage Xygent measuring software business is that the Company
might have to make an indemnification payment to Hexagon with respect to the
Company's representations and warranties concerning the businesses respectively
sold or a payment to a third party with respect to a retained liability.
The principal risk facing the Company overall is the risk that
continuing poor economic conditions or, possibly, environmental problems, as
outlined in more detail below, may prevent the Company from obtaining prices for
its real estate properties (or a price for all the properties or the entire
Company) in the middle or higher end of the ranges of fair market value for the
Facility, for the largely vacant acreage adjoining the Facility (which may be
able to be sold separately) and for the Company's Heathrow, U.K. property. There
is also the risk that maintaining the Company as a "public" reporting company
under SEC regulations until such final sale(s) and liquidation may cost more
than anticipated and that, as a result of such costs, other costs and other
developments with respect to income from its real estate properties, a liquidity
risk may materialize.
These risks are discussed in more detail below.
Environmental Risks
Subsequent to the sale of Xygent to Hexagon as discussed above, the
nature of the Company's 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. In addition, the Company
receives claims from time to time for toxic tort-type injuries related to the
use of certain material in pumps sold by its hydraulic pump operations, which
business was sold many years ago. Thus far the toxic claims have not resulted in
any material exposure, but there is no assurance that this will be the result of
all such future toxic claims. Because the law in this area is developing
rapidly, and because 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
12
located where, after the sale to Hexagon, the Company is now solely the
landlord) that the Company may face in the future.
A Phase II environmental investigation on the North Kingstown property,
completed in June, 2002, has revealed certain environmental problems on the
property. The results of the investigation 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 has submitted to the Rhode Island
Department of Environmental Management ("RIDEM") the results of its
investigations and has also submitted its Remedial Action Work Plans ("RAWPs")
setting forth proposed remedies to address such exceedances. The Company has
received approval by RIDEM of the RAWPs and the proposed remedies.
Based on the preliminary advice of its consultants, the Company
believes that the estimated cost of implementing the proposed remediation of the
identified exceedances should be approximately $500. However, it is possible
that the actual cost of such remediation could be higher. The Company is
investigating the prospects of obtaining environmental cost cap insurance to
limit its financial exposure to such remediation costs and has already obtained
insurance against additional unknown environmental liabilities at the North
Kingstown site.
Trading of the Company's Class A Common Stock on the OTC Bulletin Board
The Company's Class A Common Stock was delisted from the New York Stock
Exchange and commenced trading on the OTC Bulletin Board under the symbol
"BNSXA" and was listed on the Boston Stock Exchange on February 11, 2002. It is
expected that the OTC Bulletin Board will be replaced sometime in 2003 by a
proposed new exchange, the BBX (Bulletin Board Exchange), which will, among
other things, be able to deny listing or delist issuers who fail to meet the BBX
imposed listing standards. 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.
The market price of the Company's Common Stock could decline as a
result of sales of shares by the Company's existing stockholders, including
sales following the consummation of the August, 2002 Hexagon Transaction or as a
result of the Company's failure to meet the listing standards of the new BBX.
Auditor's Opinion
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 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.
There may not be adequate resources for funding the operations of the Company;
Liquidity Risk
There is no assurance that the future months' expenses of the Company
will not be greater than anticipated, or that the expected cash flow will not
thereafter be less than anticipated and that a liquidity problem may not arise,
(see "Liquidity and Capital Resources" in the Management's Discussion and
Analysis). In addition, the Company has not sold the North Kingstown Facility,
or adjoining largely vacant acreage (which may be able to be sold separately) or
the Heathrow, U.K property and, therefore, has not declared any dividend in any
amount with respect to all or a portion of the anticipated proceeds for such
asset sales, subject to later Board determination of the amounts based on a
number of factors as earlier disclosed, legal requirements applicable to
dividends and other subsequent developments, including contingent and other
retained liabilities (and including present and future contingent liabilities
related to tort-type claims arising out of sales of machine tools and hydraulic
pumps by the Company prior to its discontinuance of those businesses by the
early 1990's).
13
Item 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Form 10-Q, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, which consists of the
Company's President and Chief Executive Officer who is also the
Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the
Company's President and Chief Executive Officer (who is also the
Company's Chief Financial Officer) concluded that the Company's
disclosure controls and procedures are effective in timely alerting
him to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's
periodic Securities and Exchange Commission filings. There have been
no significant changes in the Company's internal controls or in other
factors which could significantly affect internal controls subsequent
to the date the Company carried out its evaluation.
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION.
Accompanying this Form 10-Q are the certificates of the Chief
Executive Officer and Chief Financial Officer required by Section
1350, Chapter 63 of Title 18, United States Code, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, copies of which are
furnished as exhibits to this report.
On November 4, 2002 the Company filed with the SEC on EDGAR
preliminary proxy material for a Special Meeting of Stockholders to be
held December 19, 2002.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.12 Amendment to Section 14 of the By-laws adopted August 8, 2002.
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Report on Form 8-K
A Report on Form 8-K relating to the Company's sale of its interests
in Xygent Inc. on August 20, 2002 was filed on September 3, 2002
BNS Co.
By: /s/ Andrew C. Genor
-----------------------------------
Andrew C. Genor
President and Chief Financial Officer
(Principal Financial Officer)
November 13, 2002
14
CERTIFICATIONS
I, Andrew C. Genor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BNS Co.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Andrew C. Genor
-------------------
President and Chief Executive Officer
I, Andrew C. Genor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BNS Co.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Andrew C. Genor
-------------------
Chief Financial Officer