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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, 2002 Commission file number 1-5881
BNS Co.
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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.)
200 Frenchtown Road, Suite 2, North Kingstown, RI 02852
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code 401-886-7404
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 (ss. 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. [_]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes___ No X
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The aggregate market value (as calculated under the rules) of the voting common
stock held by non-affiliates of the Registrant was approximately $8,282,655 as
of June 30, 2002.
There were 2,956,661 Shares of Class A Common Stock and 44,301 Shares of Class B
Common Stock, each having a par value of $.01 per share, outstanding as of March
13, 2003.
Page 1
BNS Co.
INDEX
Page
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PART I
Item 1 Business .................................................................................. 3
General ................................................................................... 3
Sale of the Metrology Business and of Xygent .............................................. 3
Real Estate Management Business and Sale of Property ...................................... 3-4
Competition ............................................................................... 4
Employees ................................................................................. 4
Item 2 Properties ................................................................................ 4
Item 3 Legal Proceedings ......................................................................... 5
Item 4 Submission of Matters to a Vote of Security Holders ....................................... 5
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters ...................... 6
Item 6 Selected Financial Data ................................................................... 7
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................................ 8-15
Item 7A Qualitative and Quantitative Disclosures About Market Risk ................................ 16
Item 8 Financial Statements and Supplementary Data ............................................... 17-38
Item 9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure ...................................................................... 39
PART III
Item 10 Directors and Executive Officers of the Registrant ........................................ 39-40
Item 11 Management Remuneration and Transactions .................................................. 41-44
Item 12 Security Ownership of Certain Beneficial Owners and Management ............................ 45-48
Item 13 Certain Relationships and Related Transactions ............................................ 48
Item 14 Controls and Procedures ................................................................... 48
PART IV
Item 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......................... 49
Signatures .......................................................................................... 50
Certifications ...................................................................................... 51-52
Exhibit Index ....................................................................................... 53-56
Page 2
PART I
ITEM 1 - BUSINESS
THE BUSINESS OF THE COMPANY
General
Prior to the sale of its Metrology Business in 2001 and the sale of its
interest in its development stage measuring software subsidiary, Xygent Inc. in
2002, the Company, which was founded in 1833, was previously engaged in the
Metrology Business and the design, manufacture and sale of precision measuring
tools and instruments and manual and computer controlled measuring machines.
BNS Co. is now a real estate management company deriving rental revenues
from an owned office and industrial building in North Kingstown, Rhode Island.
The Company also owns a gravel extraction and landfill property in the United
Kingdom, from which it derives royalty income, and holds vacant land adjacent to
its North Kingstown building.
It is the Company's intention to sell its remaining assets, pay or make
provisions for payment of all remaining claims against its assets and make one
or more liquidating distributions to stockholders. After such distributions, the
Company would cease all operations and activities.
Sale of Metrology Business and of Xygent
On November 16, 2000 the Company entered into an Acquisition Agreement with
Hexagon AB of Stockholm, Sweden ("Hexagon") for the sale of the Metrology
Business assets, including the assumption of most related liabilities, which
closed on April 27, 2001. On August 16, 2002, the Company entered into a
Securities Purchase Agreement with a subsidiary of Hexagon for the purchase of
the Company's 77% interest in Xygent Inc. ("Xygent"), a development stage
measuring software business unit.
Hexagon paid the Company $2,250,000 in cash on August 20, 2002, and was
obligated to pay the Company a deferred purchase price of up to $750,000 subject
to possible adjustment relating to an Xygent equity value calculation as of
August 16, 2002, as specified in the Agreement. Hexagon subsequently disputed
the equity value calculation. The dispute was submitted to arbitration, as
required by the Securities Purchase Agreement, and the arbitration determined a
deferred purchase price payment of $603,565, which was paid on January 22, 2003.
In connection with the sale of Xygent, the Company was released from its lease
in Warwick, Rhode Island and relocated its headquarters to the Company's North
Kingstown property.
Real Estate Management Business and Sale of Properties
The North Kingstown, Rhode Island property consists of an industrial and
office building of approximately 734,000 square feet, and approximately 133
acres of undeveloped commercially zoned land. All but approximately 136,000
square feet of the building is currently leased to four tenants, including
Hexagon. Rental income for 2002 was $2.5 million, compared with $2.4 million for
2001. Hexagon currently leases 200,329 square feet, but has the right to turn
back approximately 65,000 square feet, resulting in a minimum requirement of
135,000 leased square feet.
The Company plans to sell the North Kingstown property and has engaged the
services of CB Richard Ellis, a national commercial real estate broker and
advisor, to assist in both the leasing of space in the building and the sale of
the property. The Company is seeking tenants for the vacant space and has
received preliminary expressions of interest from potential purchasers. Any sale
of the North Kingstown property would require the approval of shareholders.
The United Kingdom property consists of approximately 85 acres of land
adjacent to the Heathrow airport. The property is currently operated as a gravel
extraction and landfill facility, for which the Company receives royalties. The
property is subject to zoning restrictions which limit its development
Page 3
potential. The gravel and landfill royalties are shared with the adjacent land
owner under the terms of a partnership agreement. The gravel extraction operator
is responsible for restoring the property after the gravel extraction and
landfill is complete. In the years 2002 and 2001 revenues from this property
were approximately $1.0 million and $.9 million, respectively.
Competition
Since the Company is presently engaged in the real estate management
business consisting of the North Kingstown, Rhode Island property and the United
Kingdom property and is seeking to sell these properties, the Company is not in
significant direct competition with any other specific business. However, the
Company may be deemed to be in competition generally with other businesses
seeking to provide leased industrial and office space in Rhode Island and
offering such real estate in Rhode Island for sale and companies seeking to
provide gravel extraction and land fill services in the United Kingdom.
Employees
At March 10, 2003 the Company had 5 employees located in its corporate
headquarters in North Kingstown, Rhode Island, plus its President, CEO and CFO,
who is a consultant to the Company, and an additional consultant who manages the
gravel extraction and land fill operations for the Company in the United
Kingdom. This compares with a total of 44 employees (5 BNS Co. employees and 39
Xygent employees) at December 31, 2001, when the Company was still engaged in
the measuring software business of its Xygent subsidiary.
Availability of Filings with the SEC
In order to reduce expenses, the Company has decided not to maintain a
web site. The Company's filings with the Securities and Exchange Commission may
be found on the SEC's web site, which is www.sec.gov.
ITEM 2 - PROPERTIES
The following table sets forth certain information concerning the Company's
facilities:
Owned/ Approximate
Location Leased Principal Use Area
-------- ----- ------------- ----
United States
N. Kingstown,
Rhode Island Owned Commercial Real Estate Rental 734,000 sq. ft. (1)
N. Kingstown,
Rhode Island Owned Undeveloped Land 133 Acres
United Kingdom
Heathrow Owned Gravel Extraction/Landfill 85 Acres
(1) Approximately 5,000 square feet are occupied by the Company's headquarters.
In Management's opinion, the Company's properties are in good condition and
adequate for the Company's business as presently conducted.
Page 4
ITEM 3 - LEGAL PROCEEDINGS
Environmental Matters
Prior to the sale of the Metrology Business to Hexagon in April 2001 (and
prior to sales of other divisions made in prior years), the Company conducted
manufacturing operations at the North Kingstown property. As a result of these
activities, the Company is from time to time 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 that the Company may face in the future.
A Phase II environmental study on the North Kingstown property, completed
in 2002, indicated certain environmental problems on the property. The results
of the study showed that certain contaminants in the soil under the property and
minor groundwater issues exceeded environmental standards set by the Rhode
Island Department of Environmental Management ("RIDEM"). After extensive
testing, the Company submitted a Remedial Action Work Plan ("RAWP") to RIDEM,
and on November 7, 2002, RIDEM issued a letter approving the RAWP.
The Company has awarded a contract for the remediation work and has engaged
an environmental engineering firm to supervise the remediation work and perform
ongoing monitoring of the affected areas. The Company expects the remediation
work to be completed in the next few months, and expects, based on the advice of
its consultants, the cost of the remediation work to be not more than the
$500,000 accrued by the Company as of December 31, 2002. The Company has secured
insurance against additional unknown liabilities at the North Kingstown site.
Litigation
The Company is a defendant in a variety of legal claims that arise in the
normal course of business. During the year 2002 the Company reached settlement
of an arbitration proceeding with two former executives as to the amounts due
them under their 1999 Change-In-Control contracts that were triggered by the
2001 Hexagon transaction and their subsequent termination of employment, and in
January 2003 made a payment to its former CEO and CFO settling a dispute as to
the amount due him to settle a compensation arrangement which had not been
finalized but was in the process of being finalized and to resolve a severance
dispute at the same time. The settlement of these claims did 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 5
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's 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, 2002, the Company had
approximately 1,479 shareholders of record of its Class A Common Stock and 596
shareholders 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, up through February 8, 2002 and then on the OTC Bulletin Board for the
remainder of 2002, adjusted for the one-for-five reverse stock split effective
May 10, 2001.
Calendar Year
High Low
2002
4th Quarter $ 2.85 $ 2.50
3rd Quarter 2.95 2.52
2nd Quarter 2.90 2.41
1st Quarter 2.45 2.09
2001
4th Quarter $ 2.55 $ 1.90
3rd Quarter 6.25 2.51
2nd Quarter 22.45 19.00
1st Quarter 28.15 24.00
In May of 2001 the Company made a cash distribution to shareholders following
the sale of the Metrology Business to Hexagon. No other dividends or
distributions have been paid by the Company since 1990. Currently, the Company
intends to sell its remaining assets (primarily its real estate properties) and
wind up its affairs, paying (or making provision for payment of) all claims and
making distributions to stockholders. 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 6
ITEM 6 - SELECTED FINANCIAL DATA
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
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands except per share information)
Statement of Operations Data
Revenue $ 3,500 $ 3,340 $ 2,060 $ 2,272 $ 2,069
Loss from continuing operations (726) (6,892) (13,673) (16,574) (17,352)
Net income (loss) $(5,919) $ 21,170 $ (57,309) $(42,874) $ 11,929
Net loss per common share,
Basic, from continuing operations $ (0.25) $ (2.41) $ (4.98) $ (6.15) $ (6.48)
Net income (loss) per common share,
Basic $ (2.03) $ 7.38 $ (20.88) $ (15.93) $ 4.45
Net loss per common share,
diluted, from continuing operations $ (0.25) $ (2.41) $ (4.98) $ (6.15) $ (6.48)
Net income (loss) per common share,
diluted $ (2.03) $ 7.38 $ (20.88) $ (15.93) $ 4.40
Average shares outstanding 2,920 2,867 2,745 2,691 2,677
Cash dividends per share -- $ 15.25 - - -
Balance Sheet Data
Total assets $ 9,263 $ 19,283 $ 250,645 $302,177 $ 317,778
Long-term debt including current maturity 2,360 3,317 65,176 69,030 74,705
(1) The 2002 net income includes a loss from the disposal of the Company's
interest in Xygent of $916 or $0.31 per share.
(2) 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.
(3) 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.
(4) 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.
(5) Effective, May 10, 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 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
BNS Co. (the "Company") is now a real estate management company
deriving rental revenues from an owned office and industrial building in North
Kingstown, Rhode Island. The Company also owns a gravel extraction and landfill
property in the United Kingdom, from which it derives royalty income, and holds
vacant land adjacent to its North Kingstown building.
It is the Company's intention to sell its remaining assets, pay or make
provisions for payment of all remaining claims against its assets and make one
or more liquidating distributions to stockholders. After such distributions, the
Company would cease all operations and activities.
On November 16, 2000 the Company entered into an Acquisition Agreement
with Hexagon AB of Stockholm, Sweden ("Hexagon") for the sale of the Metrology
Business assets, including the assumption of most related liabilities, which
closed on April 27, 2001. On August 16, 2002, the Company entered into a
Securities Purchase Agreement with a subsidiary of Hexagon for the sale of the
Company's interest in Xygent Inc. ("Xygent"), a development stage measuring
software business.
The accompanying financial statements present Xygent and the Metrology
Business as discontinued operations. The financial statements for prior periods
have been restated. The discussions below relate only to the continuing
operations of the Company, unless otherwise noted.
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 operations, proposed sales
of assets, retained liabilities, capital requirements, 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. 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 judgments 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 accounts receivable, 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 judgments 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 judgments and estimates used in the preparation of
the consolidated financial statements.
Page 8
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 were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.
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.
The Company is currently involved in certain legal disputes and
environmental proceedings. As discussed in Note 17 of the consolidated financial
statements, as of December 31, 2002, an estimate of the probable costs for the
resolution of these claims has been accrued. This estimate has been developed in
consultation with outside counsel and other experts and is based upon an
analysis of potential results, including a combination of litigation and
settlement strategies. It is believed that these proceedings will not have a
material adverse effect 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
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 Company adopted SFAS 144 during 2002 in
connection with the disposal of Xygent.
In July 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"), which addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The provisions of SFAS 146 are effective
for exit or disposal activities that are initiated after December 31, 2002, with
earlier application encouraged. The Company will adopt SFAS 146 for exit or
disposal activities that are initiated after December 31, 2002, and it does not
expect that the adoption of the Statement will have a significant impact on the
Company's financial position or results of operations.
Page 9
On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS 148"), which amends the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and APB Opinion No. 28, "Interim Financial Reporting"
("APB 28"). SFAS 148 requires expanded disclosures within the Company's Summary
of Significant Accounting Policies and within the Company's condensed
consolidated interim financial information filed on Form 10-Q. SFAS 148's annual
disclosure requirements are effective for the fiscal year ending December 31,
2002. SFAS 148's amendment of the disclosure requirements of APB 28 is effective
for financial reports containing condensed consolidated financial statements for
interim periods beginning after December 15, 2002. As required, the Company
adopted the disclosure provisions in 2002.
In November 2002, FASB Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued. This interpretation requires certain
guarantees to be recorded at fair value as opposed to the current practice of
recording a liability only when a loss is probably and reasonably estimable. It
also requires a guarantor to make enhanced disclosures concerning guarantees,
even when the likelihood of making any payments under the guarantee is remote.
The initial recognition and initial measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002,
while the enhanced disclosure requirements are effective after December 15,
2002. The Company does not expect the adoption of this interpretation will have
an impact on its consolidated financial position or results of operations.
In January 2003 FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities" was issued. This interpretation requires a company to
consolidate variable interest entities ("VIE") if the enterprise is a primary
beneficiary (holds a majority of the variable interest) of the VIE and the VIE
passes specific characteristics. It also requires additional disclosures for
parties involved with VIEs. The provisions of this interpretation are effective
in 2003. Accordingly, the Company will adopt FASB Interpretation No. 46
effective fiscal 2003 and does not expect the adoption of this interpretation
will have an impact on its consolidated financial position or results of
operations.
Results of Operations
2002 Compared to 2001
In 2002 and 2001 the Company recorded a net loss of $5.9 million and
net income of $21.2 million, respectively. The 2002 and 2001 results include the
following:
In Millions of Dollars
----------------------
2002 2001
---- ----
Loss from continuing operations $ (0.7) $ (6.9)
Income (loss) from discontinued operations (5.2) 34.6
Extraordinary item - (6.5)
------ ------
Net loss $ (5.9) $ 21.2
====== ======
The 2002 loss from continuing operations includes the Company's
corporate headquarters activities, along with the operations of the commercial
rental activity of the North Kingstown facility and royalties from the gravel
extraction and landfill property in the United Kingdom.
Rental income and gravel royalty income of $3.5 million in 2002 is
greater than the rental and gravel royalty income in 2001 by $.2 million. The
Company does not have any new tenants and the rental income for 2002 represents
twelve months of rental income from space occupied by Hexagon while the rental
income for 2001 represents eight months of rental income from Hexagon. Hexagon
has reduced the amount of space occupied in the North Kingstown facility during
2002. In late 2002 the Company relocated its headquarters back to the North
Kingstown facility.
Page 10
Due to the sale of Xygent in August 2002 and the Metrology Business in
April 2001, the Company has reduced the general and administrative ("G&A")
function of the Company, by eliminating certain corporate overhead expenses not
otherwise reclassified on a part of "discontinued operations". As a result of
the sale of Xygent, and conclusion in December 2002 of an arbitration proceeding
to determine the deferred purchase price from the sale of Xygent in August 2002,
the Company replaced the CEO on January 24, 2003 with a new CEO who has
significant real estate management experience. In connection with this change,
the Company made a payment of approximately $1.7 million (as described in detail
under Item 11) to the former chief executive officer to settle a compensation
arrangement which had not yet been finalized but was in the process of being
finalized and to resolve a severance dispute. The Company recorded additional
charges of $.5 million during 2002 to increase the accrual related to the amount
owed to the former CEO to an aggregate amount of $1.7 million at December 31,
2002.
Interest expense of $.4 million in 2002 has decreased from 2001 by $2.5
million. This is entirely due to the repayment of the majority of the Company's
debt in connection with the disposal of the Metrology Business in April 2001.
The only remaining debt of the Company is the mortgage on the North Kingstown
facility of which $2.4 million remains outstanding at December 31, 2002.
Other income of $.2 million in 2002 decreased by $1.0 million from 2001
primarily due to a reduction in interest income. This decrease in interest
income is the result of a decrease in invested cash and cash equivalents along
with a decrease in interest rates.
Results from continuing operations in 2002 included a $247 tax
provision. This tax provision relates to the taxable income generated by the
Company's subsidiary owning the United Kingdom property. In prior years this
asset was owned by the Company's subsidiary that had losses available to shelter
such income. As a result of the sale of the Metrology Business, this asset was
retained and transferred to a new subsidiary that had no such losses available.
2001 Compared to 2000
In 2001 and 2000 the Company recorded net income of $21.2 million and a
net loss of $57.3 million, respectively. The 2001 and 2000 results include the
following:
In Millions of Dollars
-----------------------------
2001 2000
---- ----
Loss from continuing operations $ (6.9) $ (13.7)
Income(loss) from discontinued
operations 34.6 (43.6)
Extraordinary item (6.5) -
-------------- -----------
Net income $ 21.2 $ (57.3)
============== ===========
The 2001 loss from continuing operations includes the Company's
corporate headquarters activities, along with the operations of the commercial
rental activity of the North Kingstown facility and the gravel extraction and
landfill property in the United Kingdom.
Due to the sale of the Metrology Business in April 2001, the Company
has reduced the general and administrative ("G&A") function of the Company in
2001. Although total G&A expense in 2001 only decreased by $.2 million from 2000
on an annual basis, the Company has actually reduced the recurring 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 had certain arrangements that were not yet finalized, relating to a
change in control contract with an executive officer who remained as the CEO.
While the details of the CEO's compensation arrangement had not been finalized
and a contract had not been executed, certain provisions of the arrangement had
been agreed upon which resulted in the Company recording a charge, included in
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.
Page 11
Interest expense of $2.9 million in 2001 decreased from 2000 by $4.8
million. This is entirely due to the repayment of the majority 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 item in the statement of operations for 2001.
Other income of $1.2 million in 2001 increased by $.6 million over 2000
due primarily to the increase in interest income arising from increased invested
cash and cash equivalents.
Results from continuing operations in 2001 included a $139 tax
provision. This tax provision relates to the taxable income generated by the
Company's subsidiary owning the gravel pit in the United Kingdom. In prior years
this asset was owned by the Company's subsidiary that had losses available to
shelter such income. As a result of the sale of the Metrology Business, this
asset was retained and transferred to a new subsidiary that had no such losses
available.
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 has no external debt other than a
mortgage on the North Kingstown Facility, which was retained by the Company
($2.4 million was outstanding on this mortgage at December 31, 2002).
The Company had cash and cash equivalents of approximately $4.4 million
at December 31, 2002 after reflecting the 2002 results of its real estate
management operation, receipt in August 2002 of $2.25 million in connection with
the sale of Xygent and after 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 cash outlay of $250,000 by the
Company). As noted under "Results of Operations", subsequent to December 31,
2002, the Company has paid (including some small amounts to be paid in the
future) its former CEO approximately $1.7 million relating to settlement of a
compensation and severance dispute.
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 be
less than anticipated, and that a liquidity problem may not arise as a result of
poor economic conditions, environmental problems or expenses of maintaining the
Company as a "public" reporting company (see Risk Factors: Liquidity Risk; There
may not be adequate resources for funding the operation of the Company). 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.
The Company's plan to continue as a going-concern relies on its ability
to achieve positive cash flow from its landlord operations of the North
Kingstown property and its gravel extraction and landfill operations on its
United Kingdom property. The Company's efforts to continue as a going-concern
would be negatively affected by a distribution to stockholders of the net
proceeds from a sale of its North Kingstown property.
Page 12
Cash Flow
Net cash used in operations in 2002 was $2.9 million compared with $9.5
million in 2001 and $12.0 million in 2000. In the calculation of net cash used
in operations for the year ended December 31, 2002, the net loss of $5.9 million
was increased by the loss on the sale of Xygent of $.9 million, by the loss from
the discontinued operations of $4.3 million and decreased by the payment of
pension obligations of $.7 million. In the calculation of net cash used in
operations for the year ended December 31, 2001, the net income of $21.2 million
was reduced by the gain on the sale of the Metrology Business of $47.1 million,
by the loss from the discontinued operations of $12.5 million, increased by the
extraordinary item related to the extinguishment of debt of $6.6 million and
decreased by the payment of pension obligations of $4.4 million. Cash flows from
working capital decreased in 2002 from 2001 by $1.9 million. This change was
predominately due to the settlement of the compensation dispute with former
employees as discussed in Footnote 17 of the financial statements.
Net cash provided by investment transactions was $2.0 million compared
with $141.3 million in 2001. This included proceeds from the disposal of Xygent
of $2.25 million in 2002 and from the disposal of the Metrology Business, $141.3
million in 2001. This difference is attributable to the different business
disposal transactions.
Cash used in financing activities in 2002 was $.1 million. Financing
transactions during 2002 consisted of $.9 million repayment on the mortgage
offset by the April 2002 purchase of a net minority interest in Xygent by
Hexagon of $1.0 million. 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 used by the discontinued operations amounted to $3.3 million and
$5.8 million in 2002 and 2001, respectively and discontinued operations provided
cash of $10.0 million in 2000.
Working Capital
The North Kingstown property and the related mortgage have been
classified as current at December 31, 2002 as a result of the Company's
expressed intention to sell the property and management's expectations that the
property will be sold in 2003. While the Company has decided to sell the U.K.
property as well, management believes it is unlikely that the sale of the U.K.
property will occur within the next year. Accordingly, the carrying value of the
U.K. property is classified as Land on the Company's Consolidated Balance
Sheets. The net assets of the Company's discontinued operations have been
reclassified as current in 2002. Excluding these assets the Company had working
capital related to the continuing operations of $2.0 million at December 31,
2002 and $3.5 million at December 31, 2001. This decrease in working capital is
primarily the result of the use of working capital to make payments on the
mortgage and the pension liability to a previous CEO.
Page 13
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 management business and is holding its
Rhode Island and United Kingdom real estate for sale.
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.
Risk of not Receiving Acceptable Offers for the Purchase of its Properties Held
for Sale
The principal risk facing the Company overall is the risk that
continuing poor economic conditions (perhaps aggravated by international
conditions) or, possibly, environmental problems, as outlined in more detail
below, may prevent the Company from obtaining prices for its real estate
properties (or for the entire Company) that reflect management's expected fair
market value for the North Kingstown facility, for the largely vacant acreage
adjoining the North Kingstown facility (which may be sold separately) and for
the Company's United Kingdom property.
The Company believes that, based on discussions with its real estate
consultants, securing a tenant for the vacant space at the North Kingstown
property and completion of the Remedial Action Work Plan ("RAWP") should result
in a higher fair market value for the North Kingstown property and improve the
chances for the sale of the property. However, 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
property will prove to be the case. (See "Environmental Risks" 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 relating to these businesses. 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) conducted
manufacturing operations 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 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 North Kingstown facility is located) that the Company may
face in the future.
A Phase II environmental investigation on the North Kingstown property,
completed in June, 2002, indicated certain environmental problems on the
property. The results of the study showed that certain contaminants in the soil
under the property and minor groundwater issues exceeded
Page 14
environmental standards set by the Rhode Island Department of Environmental
Management ("RIDEM"). After extensive testing, the Company submitted a RAWP to
RIDEM, and on November 7, 2002, RIDEM issued a letter approving the RAWP.
The Company has awarded a contract for the remediation work and has
engaged an environmental engineering firm to supervise the remediation work and
perform ongoing monitoring of the affected areas. The Company expects the
remediation work to be completed in the next few months, and expects the cost of
the remediation work to be not more than $500,000 accrued by the Company as of
December 31, 2002. The Company has obtained insurance against additional unknown
environmental liabilities at the North Kingstown site. However, there is no
assurance that the Company will be able to complete the RAWP for the accrued
costs, and that ongoing monitoring of contaminants will not indicate further
environmental problems.
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 in late 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, as a result of
the Company's possible 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, 2002, 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.
Liquidity Risk; There may not be Adequate Resources for Funding the Operations
of the Company
There is no assurance that the future expenses of the Company
(including the expenses of maintaining the Company as a "pubic" reporting
Company under SEC regulations) will not be greater than anticipated, or that the
expected cash flow from its real estate management operations 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 property,
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, liquidation and dissolution and other subsequent developments,
including contingent and other retained liabilities (and including present and
future contingent liabilities related to tort 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).
Page 15
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 16
ITEM 8--FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
Page Number
-----------
Report of Independent Auditors - Ernst & Young LLP 18
Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000 19
Consolidated Balance Sheets at December 31, 2002 and 2001 20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000 21
Consolidated Statements of Shareowners' Equity for the Years Ended
December 31, 2002, 2001 and 2000 22
Notes to Consolidated Financial Statements 23-38
Page 17
Report of Independent Auditors
To the Shareholders and Directors
of BNS Co.
We have audited the accompanying consolidated balance sheets of BNS Co. as of
December 31, 2002 and 2001, and the related consolidated statements of
operations, shareowners' equity, and cash flows for each of the three years in
the period ended December 31, 2002. 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. at
December 31, 2002 and 2001, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2002, 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 7, 2003
Page 18
BNS Co.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002, 2001 and 2000
(dollars in thousands, except per share data)
2002 2001 2000
------------------ ------------------- ------------------
Rental income $ 2,482 $ 2,391 $ 1,334
Gravel royalty revenue 1,018 949 726
------------------ ------------------- ------------------
Revenue 3,500 3,340 2,060
General and administrative 3,812 8,402 8,571
------------------ ------------------- ------------------
Operating loss (312) (5,062) (6,511)
Interest expense 394 2,909 7,726
Other income, net 227 1,218 564
------------------ ------------------- ------------------
Loss from continuing operations before income taxes and (479) (6,753) (13,673)
extraordinary item
Income tax provision 247 139 -
------------------ ------------------- ------------------
Loss from continuing operations before extraordinary item (726) (6,892) (13,673)
Discontinued operations:
Loss from operations (4,277) (12,485) (37,399)
Gain (loss) from disposal (916) 47,113 (6,237)
------------------ ------------------- ------------------
Income (loss) before extraordinary item (5,919) 27,736 (57,309)
Extraordinary item -- (6,566) --
------------------ ------------------- ------------------
Net income (loss) $ (5,919) $ 21,170 $ (57,309)
================== =================== ==================
Income (loss) per share, basic and diluted,
from continuing operations $ (0.25) $ (2.41) $ (4.98)
Discontinued operations (1.78) 12.08 (15.90)
Extraordinary item - (2.29) -
------------------ ------------------- ------------------
Net income (loss) per common share, basic and diluted $ (2.03) $ 7.38 $ (20.88)
================== =================== ==================
The accompanying notes are an integral part of the financial statements
Page 19
BNS Co.
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(dollars in thousands, except share data)
2002 2001
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 4,416 $ 8,656
Other receivables, net of $87 and $826 allowance in 2002 and 2001, respectively 1,037 1,198
Assets held for sale 2,514 2,363
Assets related to discontinued operations 139 6,164
Available for sale investments 93 -
Prepaid expenses and other current assets 512 347
-------- --------
Total current assets 8,711 18,728
Property, machinery and equipment
Land 445 415
Machinery and equipment 37 23
-------- --------
482 438
Less accumulated depreciation 14 9
-------- --------
468 429
Other assets 84 126
-------- --------
$ 9,263 $ 19,283
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 4,048 $ 6,732
Current portion of long-term debt 2,360 3,317
Liabilities related to discontinued operations - 794
-------- --------
Total current liabilities 6,408 10,843
Long-term liabilities 2,527 3,291
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
2,947,987 in 2002 and 2,861,240 in 2001 29 29
Class B, par value, $.01; authorized 2,000,000 shares; issued shares
52,975 in 2002 and 64,007 in 2001 1 1
Additional paid-in capital 86,981 85,950
Retained deficit (86,292) (80,373)
Unamortized value of restricted stock awards (88) --
Accumulated other comprehensive income (loss) 152 (3)
Treasury stock; 8,518 shares in 2002 and 2001, at cost (455) (455)
-------- --------
Total shareowners' equity 328 5,149
-------- --------
$ 9,263 $ 19,283
======== ========
The accompanying notes are an integral part of the financial statements
Page 20
BNS Co.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2001 and 2000
(dollars in thousands)
2002 2001 2000
---- ---- ----
Cash Used in Operations:
Net income (loss) $ (5,919) $ 21,170 $ (57,309)
Adjustment to reconcile net income (loss) to net cash used in
operating activities from continuing operations:
Loss from discontinued operations 4,277 12,485 37,399
(Gain) loss from disposal of business 916 (47,113) 6,237
Extraordinary item-extinguishment of debt - 6,566 -
Amortization of intangible asset - 572 -
Environmental reserve on asset held for sale - 500 -
Investment shares received (93) - -
Depreciation and amortization 175 48 33
Unfunded pension (752) (4,380) (1,313)
Change in long-term liabilities - 216 788
Changes in Working Capital:
(Increase) decrease in other receivables 161 40 (11)
Decrease (increase) in prepaid expenses
and other current assets (165) 1,398 236
(Decrease) increase in accounts payable
and accrued expenses (1,496) (991) 1,901
Increase in other assets 3 - -
--------- --------- ---------
Net Cash Used In Operations (2,893) (9,489) (12,039)
--------- --------- ---------
Investment Transactions:
Capital expenditures (14) (23) -
Proceeds from sale of metrology business, net of expenses 925 141,285 -
Payments related to sale of metrology business (1,200) - -
Proceeds from sale of Xygent, net of expenses 2,250 - -
--------- --------- ---------
Cash Provided by Investment Transactions 1,961 141,262 -
--------- --------- ---------
Financing Transactions:
Payment of notes payable - (27,400) -
Payment of long-term senior notes payable - (56,566) -
Payment on mortgage (957) (883) (683)
Distribution to shareholders - (44,480) -
Equity contributions - 1,772 704
Purchase of minority interest (688) (1,116) -
Contribution from minority interest 1,500 2,500 -
--------- --------- ---------
Cash Provided (Used in) by Financing Transactions (145) (126,173) 21
--------- --------- ---------
Cash Provided by (Used in) Discontinued Operations (3,288) (5,771) 10,015
Effect of Exchange Rate Changes on Cash 125 (55) -
--------- --------- ---------
Cash and Cash Equivalents:
Decrease during the period (4,240) (226) (2,003)
Beginning balance 8,656 8,882 10,885
--------- --------- ---------
Ending balance $ 4,416 $ 8,656 $ 8,882
========= ========= =========
Supplementary Cash Flow Information:
Interest Paid $ 361 $ 3,378 $ 7,546
========= ========= =========
Taxes Paid $ 290 $ 230 $ 2,300
========= ========= =========
The accompanying notes are an integral part of the financial statements
Page 21
BNS Co.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Unamortized
value of Accumulated
Additional restricted other
Shares Common paid in Retained stock comprehensive Treasury Total
* Stock capital deficit awards income(loss) stock Equity
--------------------------------------------------------------------------------------------------------------
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
Net loss - - - (5,919) - - - (5,919)
Foreign currency
translation
adjustment - - - - - 155 - 155
---------
Comprehensive
loss (5,764)
Restricted stock
awards 76 - 219 - (219) - - -
Amortization of
restricted stock
awards - - - - 131 - - 131
Acquisition of
subsidiary
minority interest - - 812 - - - - 812
----------------------------------------------------------------------------------------------------------
Balance Dec. 31,
2002 3,001 $ 30 $ 86,981 $ (86,292) $ (88) $ 152 $ (455) $ 328
==========================================================================================================
* 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 22
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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
continued the business of developing and producing measuring software through
its controlled subsidiary, Xygent, Inc., formerly BSIS ("Xygent"). In August
2002, pursuant to a Securities Purchase Agreement dated August 16, 2002, Hexagon
Holdings Inc., a subsidiary of Hexagon AB, acquired all of BNS Co.'s interest in
Xygent. The remaining business of the Company is the ownership of the real
estate property in North Kingstown, Rhode Island (from which it derives rental
revenue) and the operation of a gravel extraction and land fill property in the
U.K. (from which it derives royalties).
Basis of Presentation
The consolidated financial statements of BNS Co. (the "Company") include the
accounts of BNS Co. and its wholly owned subsidiary, BNS Co. (PH) Ltd. All
inter-company 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.
In connection with the change of the Company to a real estate management
company, rental income and gravel royalty revenue has been reclassified to
Revenue from Other income, net. Additionally, certain account balances for the
prior years have been reclassified to conform to the current year financial
statement presentation.
Machinery and Equipment
Machinery 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 3 to 12 years for machinery and equipment. Depreciation
expense was $5, $9, and $0 in 2002, 2001 and 2000, respectively.
Other Assets
Other assets include capitalized debt fees, which are being amortized on a
straight-line basis over 5 years. Amortization expense for these assets was $39,
$39, and $33, in 2002, 2001, and 2000, 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 income (loss).
There were no forward exchange contracts outstanding at December 31, 2002 and
2001.
Page 23
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
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 (loss). For the Company, such items
consist of foreign currency translation gains and losses. Accumulated other
comprehensive income (loss) at December 31, 2002 and 2001 are comprised of
currency translation adjustments of $152 and $(3), 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 10
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. The Company has
decided not to reinvest foreign funds and will repatriate available funds to the
U.S. No deferred tax liability has been recorded related to the unremitted funds
as such repatriation will not generate additional U.S. taxation.
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.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, equity securities, receivables and trade payables. Fair value
estimates have been determined by the Company, using available market
information and appropriate valuation methodologies. The carrying value of cash
and cash equivalents, equity securities, receivables and trade payables is
considered to be representative of their respective fair value, due to the short
term nature of these instruments.
Investments
The company classifies its investments held as available for sale and accounts
for them at fair value with unrealized gains and losses, net of taxes, excluded
from earnings and reported as other comprehensive income. The Company classifies
available-for-sale securities as current if the Company expects to sell the
securities within one year or if the Company intends to utilize the securities
for current operations. All other available-for-sale securities are classified
as non-current. Gain or loss on sale of investments is based upon the specific
identification method.
Receivables
Receivables are carried at original invoice amount less an estimate made for
doubtful receivables resulting from the inability of customers to make required
payment. This amount of the reserve is based on an analysis of the receivable
outstanding. If the financial condition of the customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be
Page 24
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
required which would result in an additional expense in the period such
determination was made. Receivables are written off when deemed uncollectible.
Recoveries of receivables previously written off are recorded when received. No
interest is recorded on receivables.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. See Note 10 for further
information on stock-based compensation. The following table summarizes the
effect on net income (loss) and net income (loss) per common share if the
Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation for the respective years.
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:
2001 2000
---- ----
Net income (loss) as reported $ 21,170 $(57,309)
Deduct: Total stock-based employee compensation
determined under fair value based method for all
awards, net of related tax effects 644 456
-------- --------
Pro forma net income (loss) $ 20,526 $(57,765)
Net income (loss) per share: basic and diluted as
reported $ 7.38 $ (20.88)
Pro forma net income (loss) per share: Basic and
diluted $ 7.07 $ (21.04)
Recently Issued Accounting Pronouncements
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 Company adopted SFAS 144 in connection with the disposal of Xygent.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146"), which addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The provisions of SFAS 146 are effective for exit or disposal
activities that are initiated after December 31, 2002, with earlier application
encouraged. The Company will adopt SFAS 146 for exit or disposal activities that
are initiated after December 31, 2002, and it does not expect that the adoption
of the Statement will have a significant impact on the Company's financial
position or results of operations.
On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS 148"), which amends the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and APB Opinion No. 28, "Interim Financial Reporting"
("APB 28").
Page 25
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
SFAS 148 requires expanded disclosures within the Company's Summary of
Significant Accounting Policies and within the Company's condensed consolidated
interim financial information filed on Form 10-Q. SFAS 148's annual disclosure
requirements are effective for the fiscal year ending December 31, 2002. SFAS
148's amendment of the disclosure requirements of APB 28 is effective for
financial reports containing condensed consolidated financial statements for
interim periods beginning after December 15, 2002. As required, the Company
adopted the disclosure provisions in 2002.
In November 2002, FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued. This interpretation requires certain
guarantees to be recorded at fair value as opposed to the current practice of
recording a liability only when a loss is probably and reasonably estimable. It
also requires a guarantor to make enhanced disclosures concerning guarantees,
even when the likelihood of making any payments under the guarantee is remote.
The initial recognition and initial measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002,
while the enhanced disclosure requirements are effective after December 15,
2002. The Company does not expect the adoption of this interpretation will have
an impact on its consolidated financial position or results of operations.
In January 2003 FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" was issued. This interpretation requires a company to consolidate
variable interest entities ("VIE") if the enterprise is a primary beneficiary
(holds a majority of the variable interest) of the VIE and the VIE passes
specific characteristics. It also requires additional disclosures for parties
involved with VIEs. The provisions of this interpretation are effective in 2003.
Accordingly, the Company will adopt FASB Interpretation No. 46 effective fiscal
2003 and does not expect the adoption of this interpretation will have an impact
on its consolidated financial position or results of operations.
2. GOING CONCERN
Although losses for periods prior to the Company's sale of its 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 for all quarters of 2001 subsequent to the sale of the Metrology
Business and three of the four quarters in 2002. 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 the cash flow from its property rental operations on
the North Kingstown property and the royalty income from the UK property. In
addition, the Company's efforts to continue as a going-concern will be
negatively affected by any sale of its North Kingstown property (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).
There can be no assurance that such sale can be completed.
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
On March 5, 2001, the Company entered into an Asset Purchase Agreement to sell
the assets of its Israeli electronics business to Orbotech, Ltd. On April 27,
2001, pursuant to an acquisition agreement dated November 16, 2000 with Hexagon,
the Company completed the sale of the remaining Metrology Business assets,
including the assumption of most related liabilities.
Page 26
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
On August 16, 2002, the Company entered into a Securities Purchase Agreement
with a subsidiary of Hexagon for the purchase of the Company's interest in
Xygent, a development stage measuring software business unit. Hexagon paid the
Company $2,250 in cash on August 20, 2002, and was obligated to pay the Company
a deferred purchase price of up to $750 subject to possible adjustment relating
to an Xygent equity value calculation as of August 16, 2002, as specified in the
Agreement. Hexagon subsequently disputed the equity value calculation. The
dispute was submitted to arbitration, as required by the Securities Purchase
Agreement, which resulted in a deferred purchase price payment of $604, which
was paid on January 22, 2003. In connection with the sale of Xygent, the Company
was released from its lease in Warwick, Rhode Island and relocated its
headquarters to the Company's North Kingstown property.
The Securities 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. The
purchase price was determined by arms-length negotiation between representatives
of the Company and Hexagon.
The purchase price for the sale of the Metrology Business was $170,000 less a
$12,800 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
note-holder obligations, the Company received net proceeds of approximately
$70,000. The assets and liabilities related to the Metrology Business and Xygent
for all periods presented have been reclassified to assets and liabilities of
discontinued operations.
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:
2002 2001 2000
---- ---- ----
Sales $ 26 $ 89,872 $ 280,392
Loss from operations, net of income taxes (4,277) (12,485) (9,998)
Gain (loss) on disposal (916) 47,113 (6,237)
Cumulative effect of change in accounting
related to the Metrology Business -- -- (27,401)
----------------------------------
Net income (loss) from discontinued operations $(5,193) $ 34,628 $ (43,636)
==================================
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 recognized
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 recognized revenue
for machines sold to customers once the performance of machines is accepted by
the customers.
4. ASSETS HELD FOR SALE
The Company holds its North Kingstown property for sale, and has received
preliminary expressions of interest from potential purchasers. Although a
definitive agreement has not been reached as of the date of this report, the
Company continues to pursue sale opportunities and management believes a sale is
likely within the next year. Accordingly, the carrying value of the North
Kingstown property is classified as Assets Held For Sale on the Company's
Consolidated Balance Sheets.
Page 27
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
The Company has received a preliminary expression of interest for the purchase
of the U.K. property. However, the Company has not yet actively marketed the
property and no definitive agreement has been reached as of the date of this
report. Management believes it is unlikely that the sale of the U.K. property
will occur within the next year. Accordingly, the carrying value of the U.K.
property is classified as Land on the Company's Consolidated Balance Sheets.
Currently, the North Kingstown facility is leased to various tenants under
operating lease agreements. These leases expire within five years. The future
minimum rentals related to the property are $2,263 in 2003, $2,170 in 2004,
$2,214 in 2005, $870 in 2006 and $452 in 2007.
5. AVAILABLE FOR SALE INVESTMENTS
During 2002 the Company received common shares of an insurance company as a
result of the demutualization of that company. The receipt of these shares has
been recorded in other income on the statement of operations. The fair market
value of these shares are recorded in available for sale investments on the
balance sheet. No unrealized gain or loss was recorded in comprehensive income
related to this investment as the fair value of the investment approximates the
Company's carrying value.
6. INCOME TAXES
Income (loss) from continuing operations before income taxes consisted of the
following:
2002 2001 2000
---- ---- ----
Domestic $ (1,296) $ (7,234) $(14,058)
Foreign 817 481 385
-------- -------- --------
Loss from continuing operations before
income taxes $ (479) $ (6,753) $(13,673)
======== ======== ========
The following table reconciles the income tax provision (benefit) at the U.S.
statutory rate to that in the financial statements:
2002 2001 2000
---- ---- ----
Taxes Computed at 34% $ (163) $ (2,296) $ (4,649)
Foreign Taxes 247 139 -
Net operating losses not benefited 163 2,296 4,649
-------- -------- --------
Income tax provision $ 247 $ 139 $ 0
======== ======== ========
The income tax provision (benefit) from continuing operations before
discontinued operations and extraordinary items consisted of the following:
2002 2001 2000
---- ---- ----
Current:
Federal $ -- $ -- $ --
State -- -- --
Foreign 230 133 --
------ ------- -------
$ 230 $ 133 $ --
Deferred:
Federal -- -- --
Foreign 17 6 --
------ ------- -------
17 6 --
------ ------- -------
Income tax provision $ 247 $ 139 $ --
====== ======= =======
Page 28
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
The Company has reclassified the income taxes related to the Metrology Business
and Xygent to the loss from discontinued operations. The Company has recorded an
income tax provision related to discontinued operations of $0, $751, and $2,800
for the years ended December 31, 2002, 2001, and 2000, respectively.
The components of the Company's deferred tax assets and liabilities as of
December 31, 2002 and 2001 are as follows:
2002 2001
------- -------
Deferred tax assets:
Other receivable reserve $ 43 $ 313
Depreciation 154 303
Loss carryforwards 22,027 22,296
Accrued expenses 794 2,852
Other 118 131
------- -------
Gross deferred assets 23,136 25,895
Less valuation allowance 23,079 25,697
------- -------
Deferred tax asset $ 57 $ 198
======= =======
Deferred tax liabilities:
Asset basis differences $ 57 $ --
Other 44 209
------- -------
Deferred tax liability $ 101 $ 209
======= =======
A valuation allowance has been established due to the uncertainty of realizing
certain tax credit and loss carry-forwards and a portion of the other deferred
tax assets. The Company recorded a $2,618 decrease in the valuation allowance to
reflect the elimination of deferred tax assets associated with the disposal of
Xygent.
For income tax purposes, the Company has a U.S. operating loss and capital loss
carry-forwards of $61,871 and $3,800, respectively. The U.S. net operating loss
carry-forward expires between 2018 and 2022.
The Inland Revenue Service in the United Kingdom is currently examining the U.K.
income tax returns for 2000 and 2001. The Company believes the results of the
examination will not have a material effect on the financial statements.
7. RELATED PARTY TRANSACTIONS
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, 2002 and 2001 was
$1,083 and $1,003, respectively. Future minimum rentals are $841 annually for
years 2003 through 2005 and $280 for the year 2006.
The net balance of accounts receivable due from Hexagon as of December 31, 2002
and 2001 is $746 and $973, respectively which includes $604 on December 31, 2002
related to the acquisition of Xygent and $925 on December 31, 2001 related to
the acquisition of the Metrology Business Joint Ventures in China by Hexagon.
The $604 accounts receivable due from Hexagon as of December 31, 2002 related to
the acquisition of Xygent was paid subsequent to year end.
Page 29
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
The net balance of accounts payable and accrued expenses due to Hexagon as of
December 31, 2002 and 2001 is $69 and $143, respectively.
A Director of the Company is a partner of a law firm that provides legal
services to the Company. Total fees incurred to this law firm during 2002 and
2001 were $1,081 and $1,343, respectively.
8. OTHER INCOME AND EXPENSE
Other income (expense), net from continuing operations includes:
2002 2001 2000
------- ------- -------
Interest income $ 102 $ 1,231 $ 591
Exchange losses -- (7) --
Income from insurance company investment 93 -- --
Other income (expense) 32 (6) (10)
Loss on sale of fixed assets -- -- (17)
------- ------- -------
Other income $ 227 $ 1,218 $ 564
======= ======= =======
9. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the Company's allowance for doubtful accounts is as follows:
Amount
Charged, net (1)
Balance at of Recoveries Foreign Balance at
Beginning of to Costs and (2) Currency End of
Period Expenses Deductions Translation Period
-------------------------------------------------------------------------
2002 $ 826 $ (30) $ 709 $ -- $ 87
2001 4,461 826 4,461 -- 826
2000 (3) 4,759 1,088 1,072 (314) 4,461
(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 30
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
10. 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 `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 or 2002. 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.
Option activity is summarized as follows:
2001 2000
-----------------------------------------------------------------------
Options Weighted-Average Options Weighted-Average
(000) Exercise Price (000) Exercise Price
------------------------------------------------------------------------
Outstanding--beginning of
year 378 $29.15 402 $35.80
Granted - - 47 9.55
Exercised (160) 11.20 - -
Forfeited or canceled (218) 42.00 (71) 39.25
------------ ---------
Outstanding--end of year 0 - 378 $29.15
============ =========
Exercisable at end of
Year 0 - 191 $48.85
Weighted average fair
value of options
granted during the
year $ 8.25
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.
Page 31
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
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:
risk-free interest rates of 5.0%, volatility factors of the expected market
price of the Company's common stock of 128%, 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.
On April 19, 2002 the Board of Directors approved the award of an aggregate of
75,715 shares of restricted Class A common stock to members of the Board as
payment of their Retainer for May through December 2001 and 2002. The vesting
date for removal of the restriction, with one exception, is July 18, 2003 or the
sale of the North Kingstown, Rhode Island facility, whichever comes first. The
vesting date for restriction of one director was June 7, 2002 as he retired from
the Board effective that date. In June 2002, 5,715 shares became fully vested.
The entire award was recorded at 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 related to these restricted shares
amounted to $131 during 2002. 124,645 shares of Class A Common Stock or Class B
Common Stock remain available for issuance under the `99 Plan.
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, $0, and $1,659 were made for 2002, 2001, and 2000, respectively, based on
performance objectives for the respective year.
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, $0, and $(149) for 2002, 2001, and 2000, respectively, have been reflected
in discontinued operations.
Savings Plans
The Company has a 401(k) plan 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, 2002 was $0, $192, and $2,052, respectively.
Page 32
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
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
effective April 27, 2001. All funds under this plan were distributed to
participants during 2001. The Company received in May 2002 the final termination
determination from the Internal Revenue Service. ESOP expense was $0 in 2002,
2001, and 2000. 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 beginning in 1998, a Senior Executive Supplemental Umbrella
Pension Plan covering certain key employees in the United States. In connection
with the disposition 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, 2002
was $0, $452, and $1,089, respectively.
11. NET INCOME (LOSS) PER SHARE
Basic income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
income (loss) per share is the same as basic income (loss) per share in 2002,
2001, and 2000 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 income (loss) per share is as follows:
2002 2001 2000
---- ---- ----
Numerator:
Loss from continuing operations
before extraordinary item $ (726) $ (6,892) $(13,673)
Income (loss) from discontinued
operations (5,193) 34,628 (43,636)
Extraordinary item - (6,566) -
---------- ---------- ---------
Net income (loss) $ (5,919) $ 21,170 $(57,309)
========== ========== =========
Denominator for basic and diluted
income (loss) per share 2,920 2,867 2,745
========== ========== =========
Net income (loss) per share - basic
and diluted:
Loss from continuing operations $ (0.25) $ (2.41) $ (4.98)
Income (loss) from discontinued
operations (1.78) 12.08 (15.90)
Extraordinary item - (2.29) -
---------- ---------- ---------
Basic and diluted income (loss) per
share $ (2.03) $ 7.38 $ (20.88)
========== ========== =========
Page 33
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
12. OTHER ASSETS
2002 2001
---- ----
Capitalized Debt Costs $ 194 $ 194
Other 1 4
---------- -----------
195 198
Accumulated amortization 111 72
---------- -----------
$ 84 $ 126
========== ===========
13. DEBT
The Company has a mortgage payable on the North Kingstown facility with an
original principal amount of $4,900. 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 $2,360 and $3,317 at December 31, 2002,
and 2001, respectively. Future maturities of the mortgage are $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. 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 $30,000 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.
14. LONG-TERM LIABILITIES
Long-term liabilities consisted of the following:
2002 2001
---- ----
Unfunded accrued pension cost $1,127 $1,891
Taxes payable 1,400 1,400
-------- --------
$2,527 $3,291
======== ========
15. 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.
Page 34
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
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 the shareowner.
During 2002 and 2001, 11,032, shares and 36,334 shares respectively, were
converted from Class B Common Stock to Class A Common Stock.
16. 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. On October 10, 2002 the Board approved an amendment to the
Rights Plan to increase the percentage threshold which would trigger
distribution of the Rights and reduce the exercise price of each Right under the
Plan.
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 $12.00 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 45% 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 45% 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 $12.00; 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.
17. CONTINGENCIES
The Company is a defendant in a variety of legal claims that arise in the normal
course of business.
In January 2003 the Company reached a settlement and made a payment of
approximately $1,700 to its former CEO and CFO to settle a dispute as to the
amount due him to settle a compensation arrangement which had not been finalized
but was in the process of being finalized. This entire amount has been accrued
as of December 31, 2002.
During 2002, the Company settled a dispute with two former executives as to the
amounts due them under their Change-In-Control contracts that were triggered by
the 2001 Hexagon transaction. The terms of the settlement of an arbitration
proceeding included payment of a negotiated amount plus reasonable and properly
documented legal and accounting fees and disbursements incurred by the former
employees. The Company had adequately provided for this liability.
Page 35
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share and per share data)
A Phase II environmental study on the North Kingstown Facility completed in 2002
indicated certain environmental problems on the property. The results of the
study showed that certain contaminants in the soil under the property and minor
groundwater issues exceeded environmental standards set by the Rhode Island
Department of Environmental Management (RIDEM). After extensive testing, the
Company submitted a RAWP to RIDEM, and on November 7, 2002, RIDEM issued a
letter approving the RAWP.
The Company believes, based on the advice of consultants and on contractor bids
received, that the estimated costs for further investigation and remediation of
the identified problems are approximately $500. A reserve in the amount of $500
has been recorded related to these potential costs as a reduction of assets held
for sale.
Page 36
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. QUARTERLY DATA (UNAUDITED)
Previously Previously
---------- ----------
Reported Restated Reported Restated
-------- -------- ------- --------
Mar 31 Mar 31 June 30 June 30
---------------- ------------- --------------- --------------
2002
- ----
Sales $ 11 $ - $ 15 $ -
Gross profit (297) - (292) -
Rental income - 625 - 627
Gravel royalty revenue - 225 - 252
---------------- ------------- --------------- --------------
Revenue - 850 - 879
Income (loss) from continuing operations (1,566) 38 (2,909) (310)
Income (loss) from discontinued
operations, net of income taxes (46) (1,650) - (2,599)
Extraordinary item-extinguishment of debt - - - -
---------------- ------------- --------------- --------------
Net income (loss) $ (1,612) $ (1,612) $ (2,909) $ (2,909)
================ ============= =============== ==============
Net income (loss) per share, basic and
diluted, from continuing operations $ (0.54) $ 0.01 $ (1.00) $ (0.11)
Discontinued operations (0.02) (0.57) - (0.89)
Extraordinary item - - - -
---------------- ------------- --------------- --------------
Net income (loss) per common share-basic
and diluted $ (0.56) $ (0.56) $ (1.00) $ (1.00)
================ ============= =============== ==============
Sept 30 Dec 31
--------------- -------------
2002
- ----
Sales $ - $ -
Gross profit - -
Rental income 626 604
Gravel royalty revenue 304 237
--------------- -------------
Revenue 930 841
Loss from continuing operations (65) (389)
Income (loss) from discontinued
operations, net of income taxes (1,419) 475
Extraordinary item-extinguishment of debt - -
--------------- -------------
Net income (loss) $ (1,484) $ 86
=============== =============
Net income (loss) per share, basic and
diluted, from continuing operations $ (0.02) $ (0.13)
Discontinued operations (0.49) 0.17
Extraordinary item - -
--------------- -------------
Net income (loss) per common share-basic
and diluted $ (0.51) $ 0.04
=============== =============
On August 16, 2002, the Company sold its ownership in Xygent to Hexagon. As a
result of this transaction, all activity related to Xygent is required to be
presented as discontinued operations for all periods presented. The previously
reported results included in the Company's Form 10-Q for the three months ending
March 31, 2002 and June 30, 2002 are restated here to reflect the classification
of Xygent as discontinued operations.
Page 37
BNS Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
QUARTERLY DATA (UNAUDITED) (continued)
Previously Previously Previously
---------- ---------- ----------
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- --------
Mar 31 Mar 31 June 30 June 30 Sept 30 Dec 31 Dec 31
---------- -------- ---------- -------- --------- ---------- ----------
2001
- -----
Sales $ - $ - $ - $ - $ - $ 91 $ -
Gross profit - - - - - (253) -
Rental income - 303 - 656 735 - 697
Gravel royalty revenue - 144 - 302 252 - 251
-------- -------- -------- -------- -------- -------- ----------
Revenue - 447 - 958 987 - 948
Income (loss) from continuing
operations (5,338) (4,085) (3,055) (1,552) (1,336) (1,414) 81
Income (loss) from discontinued
operations, net of income taxes (3,411) (4,664) 44,125 42,622 (1,279) (556) (2,051)
Extraordinary item-extinguishment
of debt - - 6,566 6,566 - - -
-------- -------- -------- -------- -------- -------- ----------
Net income (loss) $ (8,749) $ (8,749) $ 34,504 $ 34,504 $ (2,615) $ (1,970) $ (1,970)
======== ======== ======== ======== ======== ======== ==========
Net income (loss) per share, basic
and diluted, from continuing
operations $ (1.93) $ (1.48) $ (1.06) $ (0.53) $ (0.46) $ (0.48) $ 0.03
Discontinued operations (1.24) (1.69) 15.34 14.81 (0.44) (0.19) (0.70)
Extraordinary item - - (2.28) (2.28) - - -
-------- -------- -------- -------- -------- -------- ----------
Net income (loss) per share,
basic and diluted $ (3.17) $ (3.17) $ 12.00 $ 12.00 $ (0.90) $ (0.67) $ (0.67)
======== ======== ======== ======== ======== ======== ==========
On August 16, 2002, the Company sold its ownership in Xygent to Hexagon. As a
result of this transaction, all activity related to Xygent is required to be
presented as discontinued operations for all periods presented. The previously
reported results included in the Company's Form 10-Q and Form 10-K for the three
months ended March 31, 2001, June 30, 2001 and December 31, 2001 are restated
here to reflect the classification of Xygent as discontinued operations.
Page 38
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 13, 2003:
Principal Occupation During
Last Five Years and
Directorships in Public
-----------------------
Name (Age) Year First Reporting and Other
(Board Committee Elected a -------------------
Membership) Director Companies
---------- -------- ---------
Terms Expiring in 2003
- ----------------------
Richard M. Donnelly (59) 1999 Currently a principal in the firm
(Executive, Compensation and of Donnelly Associates, a
Nominating) consulting firm to manufacturing
industries, and a Partner in
Ripplewood Holdings, private
equity investors; from 1995 to
1998, President of General Motors
Europe; Currently a Director of:
Powerway, Inc., Oshkosh Truck
Corp., and Capstone Turbine
Corporation (NASDAQ); and Chairman
of the Board of Niles Parts Co.
Ltd., Japan, a private company
majority owned by Ripplewood
Holdings.
Kenneth N. Kermes (67) 2000 Chairman of the Board of Directors
(Executive, Audit) of BNS Co. since May 2001; Since
April 2002, Vice President of
Planning and Service Development,
South County Hospital; from May
2001 to April 2002, Partner of
SeaView Capital, a private equity
firm; from 1999 to 2000, President
and Chief Executive Officer of BNS
Co.; from May 2000 to May 2001,
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; Currently, Director,
Careside, Inc., a diagnostic
equipment company.
Terms Expiring in 2004
- ----------------------
Henry D. Sharpe, III (48) 1992 April 1999 to present, Partner,
(Audit, Corporate Governance) Kondon & Associates LLC, a
start-up incubator; Co-founder and
Technical Director, Design Lab,
LLC, a multi-disciplinary product
design firm specializing in
development of new products; May
2001 to present, Director, Gamete
Technology, Inc., a start-up
cryopreservation business;
February 2003 to present,
Director, Q-Labs, Inc., a start-up
developing products in the dental
field.
Howard K. Fuguet (65) 1990 Partner of the law firm of Ropes &
(Audit, Corporate Governance) Gray, Boston, MA.
J. Robert Held (64) 1996 Currently a consultant to the
(Compensation and computer industry; from 1988 to
Nominating) 1995, President, Chief Executive
Officer, and a Director of Chipcom
Corporation, a computer
communications company; Currently
a Director of: e-studio, a web
casting business, ESI, a software
company, Art Technology Group, a
public (NASDAQ) CRM company, and
Azimuth Inc., a start-up in the
wireless market.
Page 39
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Terms Expiring in 2005
John M. Nelson (71) 1975 From September 2001 to October 2002,
(Audit, Executive, Corporate Chairman, Commonwealth National
Governance) Bank; from May 2000 to May 2001,
Chairman of the Board of 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, manufacturer
of forgings and castings; Director,
Eaton Vance Corp.; Director,
Commerce Holdings, Inc., a holding
company for property and casualty
insurance companies.
Roger E. Levien (67) 1996 From May 1997 to present, Managing
(Compensation and Partner, Levien Enterprises, a
Nominating, Corporate consulting business; July 1992 to
Governance) April 1997, Vice President, Strategy
and Innovation, Xerox Corporation,
Stamford, CT, manufacturer of
document and office technology
equipment.
The following table summarizes information regarding Executive Officers of the
Company as of March 10, 2003:
Name Age Positions Held During the Last Five Years
- ---- --- -----------------------------------------
Michael D. Warren 52 President and Chief Executive Officer since
January 2003; Vice President and Chief
Financial officer since December 2002;
President of Michael Warren Associates, Inc.
since October 2002; Director and Treasurer of
Aquidneck Island Land Trust, a non-profit
trust, since January 2003; from 2000 to 2002,
Consultant, Resources, Inc., a management
consulting firm; from July 1997 to March 2000,
Senior Vice President-Director of Finance,
U.S. Restaurant Properties, Inc., a real
estate investment trust; from June 1996 to
July 1997, Chief Financial Officer, Southeast
Fast Food Partners, Inc., a food services
operator.
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.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of Forms 3, 4 and 5 furnished to the Company since
January 1, 2002, the Company believes that all officers and directors required
to file Forms 3, 4 and 5 have filed on a timely basis with respect to
transactions reportable for the year 2002. In 2001 Mr. Nelson failed to file his
Form 4 with respect to his sale of 1,340 shares on August 10, 2001 and with
respect to his purchase of 10,000 shares on September 24, 2001 and 10,000 shares
on October 5, 2001. These transactions were all covered in a Form 5 which was
dated January 16, 2002 and filed with the Securities and Exchange Commission.
The Form 5 also stated "The undersigned director sold and purchased, within the
meaning of Section 16(b) under the Securities Exchange Act of 1934, a total of
1,340 shares within six months, constituting a violation of Section 16(b) of the
Securities Exchange Act of 1934 and has consequently paid to the Company the
16(b) "profits" in the amount of $2,144." Mr. Sharpe III failed to file a Form 4
in 2000 regarding 27,728 shares gifted to him. Mr. Sharpe filed a Form 5 with
the Securities and Exchange Commission on February 11, 2002 covering this gift.
Page 40
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
during each of the Company's last three fiscal years of Andrew C. Genor, who
served as President and Chief Executive Officer from May 1, 2001 to January 24,
2003. Mr. Genor was succeeded by Michael Warren as the Company's President and
Chief Executive Officer on January 24, 2003. Mr. Warren's compensation is
detailed under Employment, Severance and other Agreements. Any compensation
reported in one year is not reported as compensation for a subsequent year. In
particular, any compensation accrued with respect to one year is not reported a
second time in the year that such compensation is paid.
Summary Compensation Table
Long-Term Compensation Awards
-----------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted Securities
Compen- Stock Underlying All Other
Name and Salary Bonus sation Award(s) Options/ LTIP Compen-
Principal Position Year ($) ($) ($) ($) SARs (#) Payments ($) sation($)
- ------------------------------------------------------------------------------------------------------------------------------
Andrew C. Genor 2002 243,000 -- -- -- -- 513,488 --
Former President and 2001 243,000 -- -- -- -- 1,200,000 2,050,974
CEO(1)(2)(3)(4)(5) 2000 243,000 189,540 -- -- -- -- 52,642
(1) From May 1, 2001 to January 24, 2003, Mr. Genor was President and Chief
Executive Officer of the Company. He was also Vice President and Chief
Financial Officer from November 1998 to December 2002. For 1999 Mr. Genor
met the cash flow performance criteria objectives (but not the net income
criteria) under the Amended Profit Incentive Plan ("PIP") and was entitled
to a partial bonus in the amount of $43,740. The Board of Directors
determined that such amounts for certain eligible executive officers,
including Mr. Genor, would be earned and paid when the Company completed a
financing transaction that dealt satisfactorily with the Company's prior
default situation with its principal lenders and its
indebtedness/liquidity problem. These amounts were earned upon execution
of the Acquisition Agreement for the sale of the Metrology Business to
Hexagon on November 16, 2000 (which sale was completed on April 27, 2001).
The amount in Column (d) for Mr. Genor for 2000 represents a cash bonus
payment to him earned for performance in 2000 under the Company's PIP and
earning of the foregoing 1999 PIP award. The Board of Directors did not
approve any PIP payments for performance in 2001 or 2002.
(2) Column (i) includes: for 2000 and 2001 amounts of $16,577 and $13,784,
respectively, for the year-end contributions to Mr. Genor's SARP account
and the amounts referred to in Footnote 4. No year-end SARP contributions
were made for 2002 to any employees, including Mr. Genor. Column (i) also
includes amounts of $13,425 credited to the executive's SERP account for
2000; a payment in 2001 of $1,937,503 under the Umbrella SERP which was
paid as the result of the change in control of the Company; and a $95,487
payment triggered by a change in control of the Company. As a result of
the change in control of the Company, Mr. Genor received a payment of
$13,760 under the SERP, which amount is not included in Column (i) because
such amount was credited to Mr. Genor's account in a prior year.
(3) On February 23, 1996, the Board of Directors approved the Brown & Sharpe
Key Employees' Long-Term Deferred Cash Incentive Plan ("LTDCIP"). No award
credits under the LTDCIP were earned by Mr. Genor for 2000 or 2001. In
2001, Mr. Genor received a payment in the amounts of $4,246 based on the
award credits which had been accrued in previous years and were paid in
connection with the change in control of the Company. These payments are
not included in Column (i).
(4) Column (i) includes for 2001 and 2000 amounts of $4,200 and $22,640,
respectively, for Mr. Genor for payment of insurance premiums by the
Company for split-dollar term life insurance for the benefit of Mr. Genor,
who did not have any interest in either the cash surrender value of such
policy or refunded premium in the event of termination of such policy. The
insurance policy was subsequently cancelled in 2003, and a refund of
$5,401 on the surrender of this policy was issued to the Company.
Page 41
(5) Column (h) represents for 2002 and 2001 amounts of $513,488 and $1.2
million, respectively, accrued for Mr. Genor with respect to a
compensation agreement which was in the process of being finalized. In
January 2003 Mr. Genor received a compensation/severance payment of $1.6
million and is entitled to approximately $.1 million of future payments
(as described in detail under Item 11). See "Employment, Severance, and
Other Agreements."
Stock Option/SAR Grants
Under provisions of the Company's 1989 Equity Incentive Plan, which
Plan terminated on February 24, 1999, with no further awards being able to be
made after such date, and the 1999 Equity Incentive Plan, which was approved by
the stockholders on April 30, 1999 (together the "EIP"), a variety of stock and
stock based awards, performance cash awards and related benefits, including
stock options, both qualified incentive and non-qualified options, and stock
appreciation rights ("SARs"), may be awarded to Executive Officers, other key
employees of the Company and its subsidiaries, and Directors. No SARs or options
were awarded to any person under the EIP in 2002. 75,715 shares of restricted
stock were awarded to Directors in April 2002 in payment of the retainer fee for
March 2001 through December 2002.
Aggregated Option Exercises and Fiscal Year-End Values
There are no outstanding options being held and no options were
exercised by the named Executive Officers at fiscal year end 2002. No SARs were
ever granted.
Retirement Plans
At March 13, 2003, the Company had no retirement plans or arrangements
calling for payments under employment agreements, severance agreements or
Change-In-Control payments other than Mr. Genor's Change-In-Control agreement
(described below), which was paid out and terminated in January 2003, the
Agreement with Mr. Warren dated as of January 24, 2003, as described below, and
employment agreement with persons that are not executive officers.
Employment, Severance, and Other Agreements
Michael Warren Agreement
From December 1 to December 20, 2002, Michael Warren, and his firm
Michael Warren Associates, Inc., was engaged as a management consultant to the
Company pursuant to the terms of his November 20, 2002 engagement letter. Mr.
Warren became Vice President and Chief Financial Officer effective December 20,
2002 and, in addition, was elected President and Chief Executive Officer
effective January 24, 2003. Under the Agreement, Mr. Warren provides general
management consulting services, serves as President, CEO and CFO and such duties
as may from time to time be agreed. Mr. Warren's compensation is based on the
terms of his Consultant Agreement, which was amended on January 24, 2003 (the
"Agreement"). The term of the Agreement is for one year from January 24, 2003.
Per the Agreement, Mr. Warren's compensation is based on a rate of $180 per
hour, for a minimum of twelve hours per week for the first twelve weeks, plus
reasonable out of pocket business expenses. Mr. Warren will also receive 1.5% of
the proceeds payable upon the completion of any of the following transactions,
should the transactions occur during the term of his engagement or within sixty
(60) days of the completion or termination of his engagement: sale of the
principal assets of the Company, including the North Kingstown, Rhode Island
facility and real estate in the United Kingdom or the issuance of debt or equity
financing. Upon the sale of the Company, during the term of his engagement or
within sixty (60) days of the completion or termination of his engagement, to
another person (whether by merger or otherwise, but excluding a transaction in
which stockholders owning an aggregate of more than 50% of the stock of the
Company continue to own more than 50%) and other than a sale of assets, Mr.
Warren will receive 1.5% of the fair market value of the consideration received
by the Company or the stockholders of the Company. These payments are to be made
upon closing of the above-mentioned transaction(s).
Page 42
In the event of Mr. Warren's termination for reasons other than for
"cause", whether or not after a Change-in-Control of the Company involving the
sale or transfer of more than 50% of the stock of the Company, Mr. Warren will
receive payment of an amount, to be paid in six monthly installments, equal to
the aggregate of his hourly billing for the lesser of (i) the billing in respect
of the six months preceding such termination or (ii) billing for 600 hours at
the then-current hourly rate provided that this payment provision shall not be
applicable if Mr. Warren previously has received or will receive any additional
incentive fees as described above. The Agreement is terminable immediately for
"cause", as defined in his agreement.
Change-in-Control Agreements
The Company had a Change-in-Control ("CIC") agreement, dated August 31,
1999, with Mr. Genor, which provided for certain payments and benefits to Mr.
Genor only upon a termination of his employment by the Company without cause or
termination by Mr. Genor for good reason (as defined), in the event either such
termination occurred after a change in control in the Company (as defined).
Under such agreement, Mr. Genor was entitled to a severance payment of an amount
equal to twice the sum of his base salary and specified bonus at the highest
levels during the five-year period then preceding a change in control or
termination, an additional severance payment equal to the annual levels in
effect prior to the change in control (or termination), of the contributions,
credits, and other benefits that Mr. Genor was receiving under the Company's
various retirement and long-term incentive plans and the continuation for a
two-year period of the Company's health and life insurance benefits at the
levels in effect immediately prior to the change in control or termination.
These payments and benefits would be reduced to the extent necessary to preserve
their deductibility to the Company for federal income tax purposes and to avoid
imposition of any "excess parachute payment" taxes under the Internal Revenue
Code. Termination by Mr. Genor for good reason after a change in control
included a reduction by the Company in Mr. Genor's base salary or the Company's
failure to continue the compensation, retirement, and benefit plans at the
levels at which Mr. Genor was participating immediately prior to the change in
control, the assignment of duties inconsistent with his status as a senior
executive officer, or other adverse alteration in the nature or status of his
responsibilities.
During May 2001 through December 2002, the Company had certain
arrangements with Mr. Genor which were not finalized, relating to payments under
his CIC Agreement as well as his compensation as Chief Executive Officer of the
Company and, since January 2002, also as Chief Executive Officer of its
controlled subsidiary Xygent. While all the details of these arrangements had
not been finalized, certain provisions of the arrangement have been agreed upon
which resulted in the Company recording a charge of $1.2 million in the third
quarter of 2001 and additional monthly charges aggregating $240,000 in 2002.
Pursuant to an Agreement and Release signed January 27, 2003 (which
settled a dispute over the amount due) and a payment (less withholdings)
pursuant thereto made to Mr. Genor and the provisions for insurance benefits and
consulting services described below, this CIC Agreement was terminated and all
of Mr. Genor's rights thereunder released. Substantially all of the amount paid
to Mr. Genor had been accrued on the Company's books at December 31, 2002 (See
Note 5 to the Summary Compensation Table). Mr. Genor is currently serving as a
consultant to the Company at the rate of $10,000 per month for up to six months,
and as generally contemplated by the CIC Agreement, the Company is obligated to
make payments to Mr. Genor specified in the Agreement and Release for medical,
dental and life insurance premiums for the Years 2003 and 2004. All amounts due
pursuant to this Agreement and Release were accrued on the Company's books at
December 31, 2002. The total accrual related to the above amount at December 31,
2002 amounted to $1.7 million.
Page 43
Director Compensation
As retainer compensation for services for the last three quarters of
year 2001 and for the year 2002, the Board of Directors voted on April 19, 2002
to issue 10,000 restricted shares of the Company's Class A Stock to each
director, except that the Board of Directors voted to issue Russell Boss 5,715
restricted shares of Class A Stock because his term in office as a director
would expire on June 7, 2002. Effective June 7, 2002, Mr. Boss is no longer a
member of the Board of Directors. No additional retainer was paid to directors
who are Chairpersons of a Committee. Pursuant to a vote of the Board of
Directors on April 19, 2002, for services after March 31, 2001, each Director
receives a fee of $750 for each Board meeting attended and $500 for each
Committee meeting attended as well as a fee of $375 for each teleconference
Board meeting, and $250 for each teleconference Committee meeting, which lasted
more than one-half hour in duration. As of March 13, 2003, an aggregate of
75,715 shares of Class A Stock had been issued to directors as retainer
compensation, of which 70,000 were still restricted shares.
Page 44
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 13, 2003 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.
Title of Class Amount and Nature Percent of
-------------- ----------------- ---------
of Common of Beneficial Percent Combined
--------- ------------- ------- --------
Stock Ownership of Class Voting
------
Power
-----
Name and Address
----------------
of Beneficial Owner Direct Indirect
------------------- ------ --------
Ingalls & Snyder LLC (1) Class A 560,060 -- 18.9 16.5
61 Broadway Class B -- -- -- --
New York, NY 10006
William Reed Simmons, Managing Director Class A 481,040 -- 16.3 14.1
of Ingalls & Snyder LLC (1) Class B -- -- -- --
61 Broadway
New York, NY 10006
Dimensional Fund Advisors Inc.(2) Class A 203,494 -- 6.9 6.0
1299 Ocean Avenue Class B -- -- -- --
11th Floor
Santa Monica, CA 90401
Hummingbird Management, LLC Class A 288,747 -- 9.8 8.5
(f/k/a Morningside Value Investors LLC) (3) Class B -- -- -- --
153 East 53rd Street
New York, NY 10022
Paul D. Sonkin, Managing Member of Class A 290,747 -- 9.8 8.6
Hummingbird Management, LLC (3) Class B -- -- -- --
153 East 53rd Street
New York, NY 10022
Gabelli Asset Management Inc. (4) Class A 477,647 -- 16.2 14.0
One Corporate Center Class B -- -- -- --
Rye, NY 10580-1434
Schroder Investment Management (5) Class A -- -- -- --
International Ltd. Class B 5,666 -- 12.8 1.7
31 Gresham Street
London EC2V 7QA, United Kingdom
Henry D. Sharpe, III (6) Class A 41,826 -- 1.4 1.2
471 Carpenter Lane Class B 10,608 -- 23.9 3.1
Saunderstown, RI 02874
Douglas Sharpe (6) Class A 19,451 -- * *
401 Silver Hill Road Class B 6,487 -- 14.6 1.9
Concord, MA 01742
Sarah Sharpe (6) Class A 19,460 -- * *
680 Sudbury Road Class B 6,491 -- 14.7 1.9
Concord, MA 01742
* less than 1%
Page 45
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(continued)
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (continued)
(1) Ingalls & Snyder LLC ("I&S"), a registered broker-dealer and investment
advisor, is deemed to have beneficial ownership over the aggregate 560,060
shares reported, which are comprised of 41,180 shares held in the accounts
of William Reed Simmons (who is a Managing Director of I&S) and certain
members of his immediate family and 518,880 shares held in the accounts of
I&S customers which I&S has discretionary authority. Mr. Simmons may be
deemed to be the beneficial owner of 481,040 shares, which are comprised of
the 41,180 shares mentioned above and 439,860 shares held in accounts of
I&S customers which he has discretionary authority over. I&S has sole
voting and dispositive power over 68,400 shares and has shared dispositive
power over 491,660 shares. Mr. Simmons has sole voting and dispositive
power over 41,180 shares and has shared dispositive power over 439,860
shares.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, has sole 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.
(3) Hummingbird Management, LLC (f/k/a Morningside Value Investors, LLC)
("Hummingbird"), a Delaware limited liability company, acts as an
investment manager to The Hummingbird Value Fund, LP and The Hummingbird
Microcap Value Fund, LP, which together hold the aggregate shares reported
here. Hummingbird has sole investment discretion and voting authority with
respect to the investments owned of record by each of these funds and is
deemed to be the beneficial owner of the shares owned by them. Hummingbird
disclaims any beneficial ownership of the shares reported. Paul D. Sonkin
is managing member and control person of Hummingbird and as such may be
deemed the beneficial owner of the reported shares. Additionally Mr. Sonkin
is the record and beneficial owner of 2,000 shares held individually by him
and therefore may be deemed to be the beneficial owner of 290,747 shares of
Class A Stock. Mr. Sonkin disclaims any beneficial ownership of any shares
not individually held by him.
(4) Gabelli Asset Management, Inc. ("GAMI"), is the parent company of the
following companies, which, with the 3,687 shares owned by GAMI, in the
aggregate own 477,647 shares of Class A Stock: Gabelli Funds, LLC, a
registered investment advisor, which holds 84,000 shares; GAMCO Investors,
Inc., a registered investment advisor, which holds 216,100 shares; and
Gabelli Securities, Inc., a majority owned subsidiary of GAMI, which holds
173,860 shares. Each company has sole voting and dispositive control over
and is deemed to have beneficial ownership of the reported shares.
(5) 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.
(6) Various members of the family of Henry D. Sharpe, Jr. (father of Henry D.
Sharpe, III) beneficially own an aggregate of 104,331 shares of common
stock of the Company comprised of 80,741 shares of Class A Stock and 23,590
shares of Class B Stock of the Company. These holdings amount in the
aggregate to 2.7% and 53.2%, respectively, of each class of stock and
represent collectively 9.3% of the combined voting power of the Class A
Stock and Class B Stock. These shares are comprised of (a) 41,826 shares of
Class A Stock and 10,608 shares of Class B Stock beneficially owned by
Henry Sharpe, III; (b)19,451 shares of Class A Stock and 6,487 shares of
Class B Stock held by the Douglas Boyd Sharpe Revocable Trust; (c) 19,460
shares of Class A Stock and 6,491 shares of Class B Stock held by the Sarah
Sharpe Revocable Trust; (d) 2 shares of Class A Stock and 2 shares of Class
B Stock held in the Henry D. Sharpe, Jr. Revocable Trust; and (e) 2 shares
of Class A Stock and 2 shares of Class B Stock held in the Peggy Sharpe
Revocable Trust. 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 46
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 13, 2003 by the Directors, the Executive Officers and
all Directors and Executive Officers (including the Chief Executive Officer
during the year 2002) as a group.
Percent of
Amount and Nature ----------
Title of Class ----------------- Percent Combined
-------------- of Beneficial ------- --------
of Common ------------- of Class Voting
--------- Ownership -------- ------
Stock --------- Power
----- -----
Name
----
of Beneficial Owner Direct Indirect
------------------- ------ --------
Henry D. Sharpe, III (1) Class A 41,826 -- 1.4 1.2
Class B 10,608 -- 23.9 3.1
John M. Nelson Class A 40,800 -- 1.4 1.2
Class B -- -- -- --
Howard K. Fuguet Class A 11,000 -- * *
Class B -- -- -- --
J. Robert Held Class A 11,800 -- * *
Class B -- -- -- --
Roger E. Levien Class A 11,200 -- * *
Class B -- -- -- --
Richard A. Donnelly Class A 10,000 -- * *
Class B -- -- -- --
Kenneth N. Kermes Class A 40,000 -- 1.4 1.2
Class B -- -- -- --
Michael Warren Class A -- -- -- --
Class B -- -- -- --
Andrew C. Genor (2) Class A 113,000 -- 3.8 3.3
Class B -- -- -- --
All Directors and Executive
Officers (as a Group 9 persons) Class A 279,626 -- 9.5 8.2
Class B 10,608 -- 23.9 3.1
* Less than one percent (1%)
(1) See Footnote (6) I. Security Ownership of Certain Beneficial Owners.
(2) Effective January 24, 2003, Mr. Genor is no longer an officer of the
Company.
Page 47
The following table gives information about the Company's Common Stock that may
be issued upon the exercise of options, warrants and rights under the Company's
1999 Equity Incentive Plan as of December 31, 2002. The Company's 1999 Equity
Incentive Plan was approved by the Company's stockholders on April 30, 1999. See
"Director Compensation" above concerning grants of restricted stock to the
directors of the Company in April 2002. These grants are reflected in the table
below.
EQUITY COMPENSATION PLAN INFORMATION
Number of Securities
Remaining Available
Number of for Future Issuance
Securities to be Weighted-Average Under Equity
Issued Upon Exercise Price of Compensation Plans
Exercise of Outstanding Options, (Excluding Securities
Outstanding Warrants and Rights Reflected in
Plan Category Options, Warrants Column (a))
and Rights
(a) (b) (c)
Equity compensation plans approved
by security holders 0 0 124,645 (1)
Equity compensation plans not
approved by security holders 0 0 0
------------------- ---------------------- ------------------------------
Total 124,645
(1) 124,645 shares remain available for issuance under the Company's 1999 Equity
Incentive Plan as of December 31, 2002.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Howard K. Fuguet is a Director and also a Partner in the law firm of Ropes
& Gray, Boston, Massachusetts, which has provided legal services to the Company
since 1957.
The Company is party to an agreement with Michael Warren Associates, Inc.
concerning the compensation of Mr. Warren. See "Employment, Severance, and Other
Agreements: Michael Warren Agreement" above.
PART IV
ITEM 14 - CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Form 10-K, 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.
Page 48
ITEM 15 - 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,
2002, 2001 and 2000
Consolidated Balance Sheets at December 31, 2002 and 2001
Consolidated Statements of Cash Flows for the Years Ended December 31,
2002, 2001 and 2000
Consolidated Statements of Shareowners' Equity for the Years Ended December
31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements - December 31, 2002
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 15 is submitted as a separate section
of this report.
(b) A Form 8-K was filed on October 15, 2002 to report an amendment to the
Shareholders Rights Plan.
(c) Exhibits - The response to this portion of Item 15 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, 2002.
Page 49
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.
(Registrant)
Date: March 25, 2003 By: /s/ Michael D. Warren
--------------------- -------------------------------
Michael D. Warren
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 3/25/03 /s/ Howard K. Fuguet 3/25/03
- ------------------------------------------------- --------------------------------------------
Kenneth N. Kermes Date Howard K. Fuguet Date
Chairman of the Board and Director Director
/s/ John M. Nelson 3/25/03 /s/ Richard M. Donnelly 3/25/03
- ------------------------------------------------- --------------------------------------------
John M. Nelson Date Richard M. Donnelly Date
Director Director
/s/ J. Robert Held 3/25/03 /s/ Roger E. Levien 3/25/03
- ------------------------------------------------- --------------------------------------------
J. Robert Held Date Roger E. Levien Date
Director Director
/s/ Henry D. Sharpe, III 3/25/03 /s/ Michael D. Warren 3/25/03
- ------------------------------------------------- --------------------------------------------
Henry D. Sharpe, III Date Michael D. Warren Date
Director President and Chief Executive Officer
Vice President and Chief Financial Officer
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer)
Page 50
CERTIFICATIONS
I, Michael Warren, certify that:
1. I have reviewed this annual report on Form 10-K of BNS Co.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: March 25, 2003
/s/ Michael Warren
-------------------
President and Chief Executive Officer
Page 51
I, Michael Warren, certify that:
1. I have reviewed this annual report on Form 10-K of BNS Co.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: March 25, 2003
/s/ Michael Warren
-------------------
Chief Financial 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.
3.12 Amendment to Section 14 of the By-laws adopted August 8, 2002. This
exhibit was filed as Exhibit 3.12 to the Company's 10-Q for the
quarter ending September 30, 2002, and is 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 herein 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.
Page 53
+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.
+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 are hereby
incorporated by reference.
10.17 Brown & Sharpe Savings and Retirement Plan for Management Employees
dated December 23, 1998 and are hereby incorporated by reference.
Page 54
10.18 First Amendment to Brown & Sharpe Savings and Retirement Plan for
Management Employees dated as of April 30, 1999 and are hereby
incorporated by reference.
10.19 Second Amendment to Brown & Sharpe Savings and Retirement Plan for
Management Employees dated as of December 26, 2001 and are hereby
incorporated by reference.
10.20 Brown & Sharpe Savings and Retirement Plan and BNS Co. Savings and
Retirement Plan Instrument of Merger dated as of December 31, 2001 and
are hereby incorporated by reference.
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 and are hereby
incorporated by reference.
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.
10.29 Additional Amendment to Instrument of Termination and Amendment to
Brown & Sharpe Stock Ownership and Profit Participation Plan and Trust
Agreement dated as of February 12, 2002. This exhibit was previously
filed as Exhibit 10.29 to the Company's 10-Q for the quarter ending
March 31, 2002, and is hereby incorporated by reference.
10.30 Stock Purchase Agreement, dated April 8, 2002, between Xygent Inc. and
BNS Co. This exhibit was filed as Exhibit 10.31 to the Company's 10-Q
for the quarter ending June 30, 2002, and is hereby incorporated by
reference.
10.31 2002 Stock Purchase Agreement, dated as of April 8, 2002, between
Xygent Inc. and BNS Co. relating to the purchase of 13,206 shares of
Common Stock of Xygent in connection of retirement of $1.5 million in
intercompany debt. This exhibit was filed as Exhibit 10.31 to the
Company's 10-Q for the quarter ending June 30, 2002, and is hereby
incorporated by reference.
10.32 Omnibus Agreement, dated April 19, 2002, by and among Xygent Inc.,
Brown & Sharpe Inc., Hexagon Holdings, Inc. and Hexagon AB. This
exhibit was filed as Exhibit 10.32 to the Company's 10-Q for the
quarter ending June 30, 2002, and is hereby incorporated by reference.
10.33 Securities Purchase Agreement, dated as of August 16, 2002, by and
among the Company, Xygent Inc. and Hexagon Holdings, Inc. This exhibit
was filed as Exhibit 1 to the Company's 8-K filed on September 3,
2002, and is hereby incorporated by reference.
Page 55
10.34 Amendment No. 2, dated as of October 10, 2002, to the Rights Plan,
dated as of February 13, 1998, as amended, originally between the
Company and BankBoston N.A. This exhibit was filed as Exhibit 99.1 to
the Form 8-K filed on October 15, 2002, and is hereby incorporated by
reference.
+10.35 Agreement and Release, dated as of January 27, 2003, between the
Company and Andrew C. Genor and is filed herewith.
+10.36 Amended and Restated Engagement Letter, dated as of January 24,
2003, between Michael Warren Associates, Inc. and the Company and is
filed herewith.
10.37 First Amendment to the BNS Co. Savings and Retirement Plan dated as of
December 20, 2002 filed herewith.
+10.38 Form of Indemnity Agreement with Michael Warren dated December 20,
2002 filed herewith.
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors - Ernst & Young LLP.
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
+ This identifies management contracts or compensatory plans.
Page 56