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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 COMMISSION FILE NUMBER 1-5881
31, 1995
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BROWN & SHARPE MANUFACTURING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 050113140
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.)
PRECISION PARK,
200 FRENCHTOWN ROAD,
NORTH KINGSTOWN, RHODE ISLAND 02852
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 401-886-2000
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 $1.00................ New York Stock Exchange
Preferred Stock Purchase Rights...................... New York Stock Exchange
9 1/4% Convertible Subordinated Debentures due New York Stock Exchange
December 15, 2005...................................
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS B COMMON STOCK--PAR VALUE $1.00
(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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value (as calculated under the rules) of the voting
common stock held by non-affiliates of the Registrant was approximately
$33,000,000 as of March 22, 1996.
There were 8,216,181 Shares of Class A Common Stock and 522,244 Shares of
Class B Common Stock, each having a par value of $1.00 per share, outstanding
as of March 22, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been incorporated by reference in the following
parts of the Form 10-K: (1) Definitive Proxy Statement for the May 2, 1996
Annual Meeting incorporated by reference (to the extent specified) in Part
III.
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BROWN & SHARPE MANUFACTURING COMPANY
INDEX
PAGE
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PART I
Item 1 Business........................................................ 3--11
General......................................................... 3
Dimensional Metrology Industry.................................. 3--4
Metrology Business Strategy..................................... 4--5
MS Group........................................................ 5--6
PMI Division.................................................... 6
CM Division..................................................... 6--7
Foreign Operations.............................................. 7
Engineering and Product Development............................. 7--8
Raw Materials and Sources of Supply............................. 8
Patents, Licenses, Trademarks, and Proprietary Information...... 8
Environmental Matters........................................... 8
Employees....................................................... 8--9
Competition..................................................... 9--10
Backlog......................................................... 10
Significant Customers........................................... 10
Working Capital................................................. 10
Segment Information............................................. 10--11
Item 2 Properties...................................................... 12
Item 3 Legal Proceedings............................................... 12
Item 4 Submission of Matters to a Vote of Security Holders............. 12
Item 4A Executive Officers of the Registrant........................... 13
PART II
Item 5 Market Price of the Registrant's Common Stock and Related
Security Holder Matters......................................... 14
Item 6 Selected Financial Data......................................... 14--15
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 15--22
Item 8 Financial Statements and Supplementary Data..................... 22--41
Item 9 Disagreements With Accountants on Accounting and Financial
Disclosure...................................................... 42
PART III
Item 10 Directors and Executive Officers of the Registrant............. 42
Item 11 Management Remuneration and Transactions....................... 42
Item 12 Security Ownership of Certain Beneficial Owners and
Management..................................................... 42
Item 13 Certain Relationships and Related Transactions................. 42
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K....................................................... 42--43
Signatures..................................................... 44--45
Directors...................................................... 46
Officers....................................................... 46
Investor Information........................................... 46
Financial Statement Schedules.................................. 47
Exhibit Index.................................................. 48--52
2
PART I
ITEM 1--BUSINESS
(DOLLARS IN THOUSANDS)
General
Brown & Sharpe Manufacturing Company, together with its domestic and foreign
subsidiaries, collectively referred to as "Brown & Sharpe" or the "Company",
is a leader in the design, manufacture, and marketing of dimensional metrology
products worldwide under several internationally recognized brand names. Brown
& Sharpe's products measure the physical dimensions of objects and are used by
a wide variety of industrial companies to monitor product conformance to
specifications. Manufacturers use Brown & Sharpe's products to monitor product
quality and are increasingly integrating quality control functions, and
therefore Brown & Shape's products, directly into the manufacturing process.
Brown & Sharpe markets its dimensional metrology products and services in
North America, Europe, Asia, South America, and the Middle East. Primary end
markets for Brown & Sharpe's products are the automotive, aerospace, and
industrial machinery industries.
Brown & Sharpe's operations are conducted through three units: Measuring
Systems, Precision Measuring Instruments, and Custom Metrology.
. THE MEASURING SYSTEMS GROUP (the "MS Group"), Brown & Sharpe's largest
unit, manufactures and markets a wide range of manual and computer-
controlled, high-precision CMMs. CMMs measure manufactured products and
their components within exacting dimensional tolerances, thereby
enabling manufacturers to minimize scrap and rework costs, reduce
warranty expense, and monitor product quality. The MS Group also sells a
wide variety of attachments, accessories, and related software and
provides aftermarket parts and services. Its products are sold under the
Brown & Sharpe(R), DEA(R), and Leitz(R), brand names. Brown & Sharpe
believes that it is the leader in the world market for CMM products as
measured by net sales.
. THE PRECISION MEASURING INSTRUMENTS DIVISION (the "PMI Division")
manufactures and markets a wide range of mechanical and electronic
measuring and inspection tools including micrometers, dial indicators,
calipers, gauge blocks, and height gauges. PMI Division products are
sold under the Brown & Sharpe(R), Tesa(R), Etalon(R), Interapid(R),
Standard Gage(R), Mauser(R), Select Gauge(TM), Mercer(TM), and Roch(R)
brand names.
. THE CUSTOM METROLOGY DIVISION (the "CM Division") designs and engineers
specialty products and systems to provide customized solutions for
unique measurement or inspection problems, such as applications
requiring several simultaneous measurements or inspection of an entire
object in a high volume production line. CM Division products are sold
under the Tesa(R) brand name.
Dimensional Metrology Industry
Dimensional metrology products measure, digitize, and inspect manufactured
parts and components for conformance to specifications. These products include
a wide range of measuring devices such as calipers, micrometers, dial
indicators, fixed gauges, height gauges, measuring microscopes, electronic
probes, customized semiautomatic and automatic measuring devices, optical and
laser measuring devices, robots, coordinate measuring machines, and related
software. Prices range from $20 for a caliper to over $3 million for a large
gantry CMM. A customer generally will choose between different dimensional
metrology technologies or products based upon the features, complexity,
variety and throughput of the items to be measured, degree of accuracy
required, and cost differences between the available metrology products. For
example, fixed gauges are more likely to meet a customer's metrology needs if
the items that a customer must measure are manufactured in high volume, are
all uniform in size and shape, such as automobile connecting rods, and results
are needed instantly. If, however, a customer needs to measure a large number
of items all having different features from one another, such as the parts of
a prototype automobile engine, a more flexible measuring device such as a CMM
would more likely meet the customer's metrology needs. As manufactured
products and components
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become more complex, the flexibility of CMMs should give them an advantage in
certain applications over less flexible dimensional metrology products such as
manual, semiautomatic, and fixed gauges, conversely, the ultimate in speed and
accuracy is generally achieved by dedicated fixed gauging.
Although the metrology industry is fragmented for lower-priced products,
Brown & Sharpe believes it is one of only five major worldwide competitors
that manufacture high precision CMMs. CMM products can be grouped into three
categories: small (which can be used to measure a product such as an
automobile carburetor), medium (which can be used to measure an item such as
an engine block), and large (which can be used to measure an item such as the
body of a truck or bus). CMMs were first introduced in the 1950s, but early
models were only capable of two-axis measurement. Over time, CMMs have evolved
into complex, computer assisted or computer driven, multi-axis systems, often
with attachments such as two-axis articulated probe holders, contact and non-
contact sensors of various types, electronic touch trigger probes, continuous
scanning analog probes, marking systems, laser probes, and rotary tables.
Today, CMMs are utilized to measure, digitize, and inspect finished products,
mechanical components, and families of parts in many basic industries,
including the automotive, aerospace, construction and farm equipment,
industrial machinery, defense, appliance, computer and electronics, medical
equipment, and semiconductor industries. CMM prices range from approximately
$10,000 to over $3 million depending upon accuracy, attachments, and size.
The increasing use of more sophisticated software has played an important
role in the evolution of the CMM. Improved software, CAD/CAM, and network
technologies enable CMMs to automatically compensate for the position of the
piece to be measured relative to the measuring axes of the machine,
eliminating the need for the time-consuming manual positioning necessary with
other dimensional metrology products. Although CMM-type software can be added
to on-machine gauging, vision systems of various types, and a small percentage
of fixed gauges, CMMs are easier to use, more flexible, and generally provide
more analytical information than most products using competing technologies.
Manufacturers of component parts, as well as manufacturers of finished
products, are purchasers of CMMs and other dimensional metrology products.
Manufacturers depend upon dimensional metrology products to improve the
reliability, fit, and finish of their products and to improve efficiency by
reducing errors, scrap, throughput time, and work-in-progress inventories.
Traditionally, customers used either fixed gauges, optical comparators or
calipers, or other hand or bench tools to inspect product conformance to
specifications on the factory floor, while CMMs were used in factory quality
control departments due to the necessity for a controlled environment for
optimum CMM operation. Improved hardware and software technologies have
allowed customers to move CMMs onto the factory floor to facilitate direct
integration of CMM measurement capabilities into the manufacturing process.
Because CMMs, fixed gauges, and certain other types of dimensional metrology
products can be configured to accommodate a wide variety of customer
specifications for accuracy, speed, set-up time, and physical characteristics
of the objects to be measured, Brown & Sharpe believes these products can
effectively meet the evolving quality control needs of manufacturers.
Despite growth in the dimensional metrology markets in China, India, and the
Pacific Rim countries, management believes that in the period 1991--1993 the
total world market for dimensional metrology products had declined
significantly in terms of dollar denominated sales. In the three major world
markets, the decline had been more significant in Europe and Japan than in the
United States. Brown & Sharpe believes that this overall market decline had
been primarily related to global economic conditions which had resulted in
reduced levels of capital expenditures by manufacturers in many market
segments. In addition, during this period, revenues from sales of CMMs and
other dimensional metrology products were impacted by vigorous price and
performance competition due to over capacity in the dimensional metrology
industry and reduced demand by the capital goods sector for dimensional
metrology products.
Metrology Business Strategy
Brown & Sharpe is implementing a strategy designed to improve its
competitiveness and position itself for improvement in its markets, including
the currently depressed European market. Key elements of this strategy
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are (i) expanding its market presence in the metrology industry, including
through acquisition and consolidation opportunities, (ii) reducing product
costs through more cost-effective product design, selective outsourcing, and
consolidation of manufacturing processes, (iii) providing "best in class"
customer service and strengthening its worldwide distribution network, and
(iv) focusing on technological innovations designed to improve product
performance, the development of new products, and the development of new
markets in the packaging and electronics industries.
. EXPANDED MARKET PRESENCE. Through the acquisition of Roch, Mauser, and
DEA, Brown & Sharpe has expanded its product lines and its marketing and
distribution capabilities in Europe, South America, the Middle East,
India, and China. Brown & Sharpe intends to continue to expand and
strengthen its market presence and broaden its product lines and may
pursue selected small acquisition and consolidation opportunities within
the dimensional metrology industry. Brown & Sharpe believes that the
dimensional metrology industry has continuing over capacity and that
competitors having complementary product lines and geographic market
coverage may continue to become available for acquisition.
. COMPETITIVE COSTS. Brown & Sharpe intends to continue to increase
production efficiency through more cost-effective product designs and
through other cost reductions. Brown & Sharpe intends to reduce costs by
using the "Design for Manufacturability and Assembly" (DFMA) engineering
principle, which strives to use the fewest parts and the lowest cost
assembly process by examining the production processes at each facility
in order to maximize efficiency, and by outsourcing components and
complete products in cases where it can achieve its high quality
standards at reduced costs.
. "BEST IN CLASS" CUSTOMER SERVICE AND WORLDWIDE DISTRIBUTION
CAPABILITY. Brown & Sharpe provides post-sale service and support to its
customers through its customer service departments and its regional and
international demonstration centers. Brown & Sharpe is committed to
providing "best in class" customer service and believes that the level
of customer service provided by Brown & Sharpe has improved in recent
years and is superior to the service provided by its principal
competitors. In order to continue to improve its customer service, Brown
& Sharpe has increased its emphasis on customer training by improving
user manuals and documentation relating to Brown & Sharpe's products and
directly supporting greater number of its customers by adding new
demonstration and service centers in previously unserved geographic
areas. In addition, Brown & Sharpe plans to continue to strengthen its
worldwide distribution capability, principally by continuing to
rationalize its existing distribution network and by opening new
demonstration centers and adding new direct sales capacity or
distributors where increased volume makes such distribution methods cost
effective.
. TECHNOLOGICAL INNOVATION. Brown & Sharpe intends to continue to enhance
and expand its offering of systems and products through sustained design
and manufacturing engineering at levels consistent with the past few
years. Brown & Sharpe performs some additional engineering development
activities through government grants in some countries and engages in
special projects that utilize customer funding.
MS Group
The MS Group, the largest of Brown & Sharpe's three units, accounted for
approximately 65% of Brown & Sharpe's revenues in 1995. The MS Group is
headquartered in North Kingstown, Rhode Island. Products sold under the Brown
& Sharpe(R) name are manufactured at the North Kingstown facility, products
sold under the DEA(R) name are manufactured in Turin, Italy, and products sold
under the Leitz(R) name are manufactured in Wetzlar, Germany. Brown & Sharpe
also manufactures some CMM products in the United Kingdom. The primary end
markets for the CMM products of the MS Group are the automotive, aerospace,
and industrial machinery industries.
MS Group products range from small, manually operated CMMs to large, high
speed, high precision automatic CMMs. In addition to these standard and
custom-configured CMMs, Brown & Sharpe also produces and sells high-speed
process control robots. The smallest machines can measure in a volume up to
16x14x12
5
inches and are priced at approximately $10,000, and the larger, high speed,
high accuracy CMMs with integrated software systems can cost over $3 million.
The MS Group also provides optically based measuring machinery from
microscopes to vision systems. In addition, the MS Group provides accessories,
parts, after-sales service, rebuilds, and computer hardware and software
upgrades for Brown & Sharpe's CMMs and competing machines.
The MS Group's "user-friendly" CMM application software is an important
component of its marketing strategy for its CMM products. Management believes
that the MS Group's uniquely functional CMM software packages give it a
competitive advantage in the marketplace for CMMs. These proprietary software
products provide the MS Group's customers with an easily understood, icon-
based inspection analysis capability, graphical user interfaces and outputs,
and networking capability with manufacturing systems. The MS Group also
provides its customers with special software and systems integration of the MS
Group's products with the customer's host computer.
The MS Group distributes its products primarily through its worldwide sales
force directly to customers, which is supplemented by a distribution network
of independent agents and distributors, especially in foreign markets. The
typical sales process involves lengthy, technical, one-on-one discussions
between the salesperson or the distributor/sales agent and the customer. As an
important part of its marketing and distribution strategy, Brown & Sharpe
provides in-depth training to the customer at its support and demonstration
centers. Brown & Sharpe currently operates demonstration centers in eleven
cities throughout the United States, eighteen centers throughout Europe, and
two in Asia, including four located at Brown & Sharpe's CMM manufacturing
facilities. Brown & Sharpe also operates contract inspection and measuring
services from these demonstration centers. Service revenue generated by the
demonstration centers offsets a portion of the cost of operating the centers.
In 1995, Brown & Sharpe closed three demonstration centers in Europe and one
in the United States as part of its planned consolidation.
PMI Division
The principal products of Brown & Sharpe's PMI Division are precision
measuring tools and related instruments such as micrometers, dial indicators,
calipers, electronic height gauges, and gauge blocks. These tools and
instruments have a broad application and lower unit list prices (with a range
of $20 to approximately $13,000) than the prices of the MS Group's products
(which range from approximately $10,000 to over $3 million). PMI products
account for approximately 30% of Brown & Sharpe's revenues in 1995 and
typically measure in one or two dimensions, and are often used in comparative
measuring where an unknown part or dimension is compared to a previously
measured part or dimension. PMI products also include systems and application
software for measuring and statistical process control. The primary end
markets for the products of Brown & Sharpe's PMI Division are the automotive,
aerospace, metal processing, and defense industries, although Brown & Sharpe's
PMI products are used in virtually all types of industrial settings. Brown &
Sharpe's PMI Division is headquartered in Renens, Switzerland, and its
products are manufactured at its plants in Rolle and Renens, Switzerland;
Poughkeepsie, New York; Leicester, St. Albans, and Plymouth, England; and in
Luneville, France.
The PMI Division generally distributes its products through international
import companies, regional distributors, and catalog houses throughout the
world. Brown & Sharpe sales offices located in key markets provide support to
the distributors and catalog houses. The PMI Division operates four sales
offices in the United States and eight in other countries, which are staffed
by approximately 74 PMI Division employees.
CM Division
The CM Division is an engineering division which is headquartered in
Telford, England, and designs and engineers specialty products and systems to
provide customized solutions for unique measurement or inspection problems.
For example, the CM Division recently designed and implemented a system for
measuring the thickness of the metal top of a soda can and the thickness of
the groove scored around the can's pop-up tab, so that the manufacturer could
determine the ease with which the can could be opened by the end user while
6
insuring that the can would not rupture. The CM Division's products include
factory networks, contact and optical measuring machines, and fixtures aimed
at specific niche markets. Laser interferometers manufactured by the Division
set National Metrology Standards in 16 countries. CM Division products also
include components such as measuring sensors used in its custom gauges and
fixtures as well as those manufactured by other companies. Prices for CM
Division products range from approximately $20,000 to $1 million for systems.
Often, the CM Division is able to produce a superior customized product
while at the same time gaining the expertise necessary to convert such
customer-funded research into new, standard Company products. For example, the
CM Division has recently developed a family of standard optical measuring
systems, with list prices of approximately $50,000 to $500,000.
The primary end markets for the custom-designed products of the CM Division
currently are automotive, aerospace, defense, package and can manufacturing,
oil drilling, and standards laboratories. Sales of these products typically
involve a close, highly technical relationship with the customer. This direct
relationship with the customer is reinforced by strong and continuing efforts
to provide superior customer service through ongoing customer training and
technical support.
Foreign Operations
Brown & Sharpe manufactures and sells substantial amounts of its dimensional
metrology products in foreign countries. For fiscal 1995, approximately 65% of
Brown & Sharpe's net sales were to customers located outside the United
States. Manufacturing operations take place in Italy, Switzerland, Germany,
Lithuania, England, and France, as well as in the United States, and Brown &
Sharpe's products are sold in over 60 countries worldwide. As of December 31,
1995, approximately 74% of Brown & Sharpe's assets were located outside the
United States (based on book values). Accordingly, margins and the ability to
export competitively from the Company's manufacturing locations are affected
by fluctuations in foreign currency exchange rates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Brown & Sharpe" in Item 7 of this Report. For additional financial information
concerning the foreign operations of Brown & Sharpe for 1993, 1994, and 1995,
see "Segment Information" below in this Item 1.
Engineering and Product Development
Brown & Sharpe's commercial success is dependent upon its ability to develop
products, enhancements, and applications that meet changing customer metrology
needs and anticipate and respond to technological changes. Brown & Sharpe
designs, develops, and refines its products internally through engineering
departments within its product groups and divisions. Brown & Sharpe employs
approximately 119 engineers and technicians, the majority of whom hold
engineering or other university degrees, in its design engineering activities.
When it is more cost-effective to do so, Brown & Sharpe purchases product
designs or portions of product designs from engineering subcontractors or
acquires such designs through licensing arrangements. Brown & Sharpe also
benefits from research and development efforts which are subsidized by
customer funds and, in certain countries, by government research grants. Brown
& Sharpe research, development, and manufacturing engineering activities are
conducted in the United States, Italy, France, Switzerland, Germany, the
United Kingdom, and Lithuania.
Brown & Sharpe derived substantial net sales in 1995 from the sale of
products that were introduced into the market since 1993. Brown & Sharpe has
been successful in bringing to market new, high-quality products and has
introduced at least one major new product every year since 1987. The current
objectives of Brown & Sharpe's design and manufacturing engineering activities
are the continued integration of the DEA and Roch technologies with Brown &
Sharpe's previously existing technologies and the introduction of new MS and
PMI products. In 1995, Brown & Sharpe invested $15.8 million in product design
and manufacturing engineering, or about 4.9% of its 1995 net sales. In 1993
and 1994, Brown & Sharpe expended $8.7 million and $9.2 million, respectively,
for product design, development, refinement, and manufacturing engineering.
The increase from $9.2 million is due to the inclusion of DEA for all of 1995.
In addition, Brown & Sharpe performs engineering
7
development activities funded by government grants in some countries and
engages in special projects that utilize customer funding and are not included
in the numbers above.
Raw Materials and Sources of Supply
Brown & Sharpe purchases certain products, raw materials, supplies, and
other components from a variety of suppliers, and considers its source of
supply to be adequate. Brown & Sharpe does, at times, depend upon various sole
sources of supply for various procurement requirements (generally of items
designed by Brown & Sharpe), but has not experienced any significant
difficulty in meeting delivery obligations because of its reliance on such a
supplier. The loss of any one of these various sole suppliers would not have a
material adverse effect on Brown & Sharpe. Brown & Sharpe depends, as do other
leading CMM manufacturers, on a sole source of supply for certain of the
electronic probes used on CMM machines and, in the event of unavailability of
such source, would be adversely affected, as would its competitors. Brown &
Sharpe continues to explore means of lowering production costs through
selective outsourcing in situations where Brown & Sharpe can achieve its high
quality standards via subcontractors.
Patents, Licenses, Trademarks, and Proprietary Information
Brown & Sharpe's business is not significantly affected by or dependent upon
the procurement or maintenance of patents covering Brown & Sharpe's products.
Nevertheless, Brown & Sharpe pursues, where appropriate, patent protection for
inventions, developments, and improvements relating to its products both in
the United States and abroad. Brown & Sharpe owns, or has the right to use, a
number of trademarks which it believes are valuable in promoting the sale of
certain of its principal products, and it has registered the trademarks that
it owns in the United States and in some foreign countries. The
internationally recognized brand names under which Brown & Sharpe sells its
products are the subject of trademarks owned or licensed by Brown & Sharpe and
are important to Brown & Sharpe's marketing strategy, as brand name
recognition is a significant factor in the dimensional metrology market.
One of Brown & Sharpe's CMM products, a horizontal arm-type CMM, has been
manufactured and sold in North America under an exclusive license from an
independent German company which has recently been modified to a non-exclusive
license agreement. Brown & Sharpe entered into an exclusive arrangement in
1994 with another German CMM manufacturer to market and sell its horizontal
CMM on an exclusive basis in North America and on a non-exclusive basis in the
rest of the world. In addition, through December 31, 1995, DEA marketed and
sold its horizontal arm CMM under a non-exclusive license granted by a German
company. In addition, Brown & Sharpe uses the Leitz(R) and Mauser(R) brand
names under royalty-free license agreements entered into in connection with
Brown & Sharpe's acquisition of these product lines. These licenses expire in
1997 and 1999, respectively. Brown & Sharpe believes it will be able to
negotiate satisfactory extensions prior to expiration and/or that the failure
to renew these licenses would not have a material adverse effect on Brown &
Sharpe.
Environmental Matters
The Company is not significantly affected by compliance with rules and
regulations promulgated under environmental laws since its manufacturing
processes do not produce, as a by-product, material amounts of waste, water
discharges or air emissions deemed hazardous under such laws. However, the
Company is subject from time to time to environmental claims. See Note 8,
"Contingencies" of Notes to Consolidated Financial Statements in Item 8 of
this Annual Report.
Employees
At December 31, 1995, Brown & Sharpe had 2,373 employees, (as compared with
2,370 at December 31, 1994), including approximately 1,757 employees located
outside the United States. Brown & Sharpe considers
8
its relations with its employees to be good, although there can be no
assurance that Brown & Sharpe's cost-cutting efforts or other factors will not
cause a deterioration in these relations.
Approximately 939 of Brown & Sharpe's employees located at sites in the
United States, Italy, Switzerland, England, Germany, and France are covered by
collective bargaining agreements which expire at various times between
December 31, 1996 and June 30, 1998. Brown & Sharpe expects that these
collective bargaining agreements will be renegotiated successfully prior to
their expiration. However, there can be no assurance that successor collective
bargaining agreements will be successfully negotiated, that negotiations will
not result in work stoppages, or that a work stoppage would not materially
interfere with Brown & Sharpe's ability to produce the products manufactured
at the affected location.
In addition to the collective bargaining agreements that cover workers at
certain of Brown & Sharpe's foreign subsidiaries, it is customary for these
employees to be represented by various works or shop councils. These councils
are governed by applicable labor laws and are comprised of members who are
elected or appointed by the work force. Except for the top level of
management, these councils represent the entire work force at their location
in its dealings with senior management on matters affecting the work force or
arising under the relevant labor contracts in effect at the location.
A collective bargaining agreement with the International Association of
Machinists and Aerospace Workers (the "IAM") relating to certain manufacturing
employees in North Kingstown, Rhode Island expired in October 1981. Brown &
Sharpe and the IAM failed to reach agreement on the terms of a successor
collective bargaining agreement, resulting in a strike by the IAM. See Item 3
"Legal Proceedings" in this Report. No successor collective bargaining
agreement was entered into, although the IAM remains the representative of the
bargaining unit. Brown & Sharpe continues to satisfy its obligation to bargain
with respect to, proposed changes to the terms and conditions of employment,
although no collective bargaining has occurred in recent years, and although
the manufacturing employees represented by the IAM remain technically on
strike, no work stoppage or picket activity has occurred since 1985 and
management does not anticipate that any such activities will occur in the
future. Following the strike in 1981, and the impasse reached in negotiations,
Brown & Sharpe hired new employees to replace striking employees. Since that
time, many of the striking employees have been rehired by Brown & Sharpe, but
such employees are not working under an IAM contract. The continuing strike by
the IAM does not have a material adverse effect on the operations of Brown &
Sharpe.
The following table sets forth the location of Brown & Sharpe's employees as
of December 31, 1995:
COUNTRY EMPLOYEES(1)
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France........................................................ 237
Germany....................................................... 269
Italy......................................................... 463
Japan......................................................... 26
Spain......................................................... 16
Switzerland................................................... 332
United Kingdom................................................ 414
United States................................................. 616
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TOTAL....................................................... 2,373
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(1) Other part-time employees are included on a full-time equivalent basis.
Competition
Brown & Sharpe's business is subject to intense direct and indirect
competition from a considerable number of domestic and foreign firms, a number
of which, in certain markets, are larger in overall size than Brown & Sharpe.
9
Most of these firms, however, do not compete with Brown & Sharpe in all
product lines. The principal factors affecting competition include reliability
and quality of product, technological proficiency, price, ease of system
configuration and use, application expertise, engineering support, local
presence, distribution networks, and delivery times. Price competition has
been intense for dimensional metrology products, due to the recent period of
decreased demand for these products that has resulted in excess capacity
within the industry. Brown & Sharpe believes that competition in the
dimensional metrology field will continue to be intense in the future as a
result of advances in technology, continuing excess capacity in the
dimensional metrology industry, and consolidations and/or strategic alliances
among competitors. In addition to direct competition from companies that
market similar types of products, Brown & Sharpe is also subject to indirect
but effective competition from firms that market other dimensional metrology
products, such as fixed gauging and vision-based systems, which utilize
alternative technology or methodologies to perform functions similar to those
of the CMMs and other products manufactured or sold by Brown & Sharpe.
Brown & Sharpe's single largest global competitor is Mitutoyo/MTI Corp., a
subsidiary of Mitutoyo Solsakusho Co. Ltd., a Japan-based company, which is
the largest supplier of metrology equipment and products worldwide. In
addition to Mitutoyo, the MS Group's main competitors are Carl Zeiss, Inc., a
subsidiary of Carl Zeiss-Stiftung AG, the Sheffield Measurement Division of
Giddings & Lewis, Inc., and LK Tool Co. Ltd., a subsidiary of TransTech Ltd.
The primary competitors faced by the PMI Division are Mitutoyo, L.S. Starrett
Co. and Federal Products Co. (Inc.), a subsidiary of Esterline Technologies
Corporation. Marposs S.p.A., an Italian company, is a major competitor of the
CM Division for custom metrology sales in all major markets.
Backlog
The Company's backlog of product orders was $59,000 at year-end 1995,
compared to $61,000 and $26,000 at year-end 1994 and 1993, respectively.
Backlog at year-end 1995 and 1994 includes $32,000 and $26,000, respectively,
attributable to DEA.
All of the orders included in the Company's year-end 1995 backlog were
requested to be filled and completed within one year and are, subject to
possible customer cancellation, expected to be completed in 1996.
Significant Customers
The Company has no single customer which accounts for 10% or more of its
consolidated net sales; however, several well recognized major automotive
manufacturers (excluding their suppliers) account for a significant portion of
the Company's net sales. The loss of a few of these major manufacturers would
have a substantial effect upon the Company.
Working Capital
A substantial amount of working capital investment in inventory and accounts
receivable is required to operate the Company's businesses. Working capital
was $87,569 at year-end 1995 compared to $102,883 at year-end 1994. See the
discussion of working capital in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 of this Annual
Report.
Segment Information
The Company operates exclusively in the Metrology Business. See Note 1 for a
further description of the Company's business. Sales to unaffiliated customers
from Europe are defined as sales of products that are primarily assembled in a
foreign country.
10
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
GEOGRAPHIC AREA:
Sales to Unaffiliated Customers From:
United States.................................... $124,673 $ 90,040 $ 78,819
Europe........................................... 196,226 114,960 78,216
-------- -------- --------
$320,899 $205,000 $157,035
======== ======== ========
Transfers Between Geographic Areas:
United States.................................... $ 3,870 $ 3,144 $ 4,040
Europe........................................... 33,713 19,288 12,365
-------- -------- --------
$ 37,583 $ 22,432 $ 16,405
======== ======== ========
Operating Profit (Loss):
United States.................................... $ 492 $ 1,303 $ 5,151
Europe........................................... 11,125 (7,976) (4,431)
-------- -------- --------
$ 11,617 $ (5,609) $ 877
======== ======== ========
Identifiable Assets:
United States.................................... $ 77,726 $ 74,252 $ 39,521
Europe........................................... 211,412 191,346 118,178
Corporate........................................ 6,262 6,676 8,172
-------- -------- --------
$295,400 $272,274 $165,871
======== ======== ========
11
ITEM 2--PROPERTIES
The following table sets forth certain information concerning Brown &
Sharpe's major operating facilities:
OWNED/ APPROXIMATE
LOCATION LEASED PRINCIPAL USE SQUARE FOOTAGE
-------- ------ ------------- --------------
UNITED STATES
N. Kingstown, Rhode Island.... Owned Manufacturing,
Engineering, Sales, and
Administration 343,000(1)
Poughkeepsie, New York........ Owned Manufacturing 58,000
Farmington Hills, Michigan.... Leased Sales and Administration 31,207
ITALY
Moncalieri.................... Leased Engineering, Sales, and
Administration 260,000
Grugliasco.................... Leased Assembly 105,000
Moncalieri.................... Leased Manufacturing 70,000
SWITZERLAND
Renens........................ Owned Manufacturing,
Engineering, Sales, and
Administration 139,000
Rolle......................... Owned Manufacturing 51,000
GERMANY
Wetzlar....................... Owned Manufacturing,
Engineering, Sales, and
Administration 280,000
Ludwigsburg................... Leased Sales 15,000
UNITED KINGDOM
St. Albans.................... Owned Manufacturing and Sales 36,000
Telford....................... Leased Manufacturing,
Engineering, Sales, and
Administration 32,000
Leicester..................... Owned Manufacturing 14,000
Swindon....................... Leased Sales 5,200
Plymouth...................... Leased Manufacturing, Sales,
and Administration 5,000
FRANCE
Luneville..................... Leased Manufacturing,
Engineering, and Sales 77,100
Villebon...................... Leased Sales 18,000
SPAIN
Barcelona..................... Leased Sales 16,000
- --------
(1) Excludes approximately 417,000 square feet leased to unrelated parties.
In addition, Brown & Sharpe leases smaller sales offices located in the
United States, Europe, and Asia. In the opinion of management, Brown &
Sharpe's properties are in good condition and adequate for Brown & Sharpe's
business as presently conducted.
ITEM 3--LEGAL PROCEEDINGS
Litigation
Refer to Note 8 "Contingencies" of Notes to Consolidated Financial
Statements in Item 8 of this Annual Report.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
quarter ended December 31, 1995.
12
ITEM 4A--EXECUTIVE OFFICERS OF THE REGISTRANT
The following table summarizes information regarding Executive Officers of
the Company as of March 22, 1996:
NAME AGE POSITIONS HELD DURING THE LAST FIVE YEARS
---- --- -----------------------------------------
Frank T. Curtin..... 61 President & Chief Executive Officer and a Director of the
Company since May 2, 1995; from 1992 to May 1995, Vice
President, National Center for Manufacturing Sciences, a
research and development organization, Ann Arbor, MI; from
1989 to May 1995, President, Curtin & Associates, a
software development company, Santa Barbara, CA and Ann
Arbor, MI.
Charles A. Junkunc.. 53 Vice President & Chief Financial Officer since May 1, 1992;
previously self-employed consultant since November 1990;
previously Senior Vice President--Finance and Chief
Financial Officer of Data Products Corporation
(manufacturer of computer printers) since April 1987.
Antonio Aparicio.... 45 Vice President & General Manager--Precision Measuring
Instruments since September 1991; previously Marketing
Director--Precision Measuring Instruments.
John Cooke.......... 59 Vice President & General Manager--Custom Metrology since
September 1991; previously Managing Director of Tesa
Metrology Limited (a subsidiary).
Karl J. Lenz........ 50 Vice President since September 1991: General Manager--
Leitz--Brown & Sharpe Messtechnik GmbH since June 1990;
previously General Manager--Messtechnik Division of Leica
Industrieverwaltung.
Richard F. Paolino.. 51 Vice President & General Manager--Commercial Operations.
Robert D. Batting... 54 Vice President & General Manager--Measuring Systems U.S.A.
since October 1995; previously President, Clearing-Niagra
Inc. since October 1993; Business Consultant--self-employed
since September 1991; Group Vice President, Textron Inc.
prior to September 1991.
Alfred J. Corso..... 59 Controller and Principal Accounting Officer since June 1,
1995; previously Partner with Ernst & Young LLP since 1991.
To the best of the knowledge of the Registrant, none of the Executive
Officers has any family relationships with any of the others. 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.
13
PART II
ITEM 5--MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Class A Common Stock is listed on the New York Stock Exchange with a
symbol "BNS". At March 22, 1996, the Company had approximately 4,400
shareowners of record of its Class A Common Stock including 971 shareowners of
record of its Class B Common Stock. The quarterly high and low closing prices
of the Class A Common Stock on the New York Stock Exchange (the Class B Common
Stock is not traded and is subject to restrictions on transfer) were a high of
$10.13 and a low of $8.63 in 1996 through March 22 and were reported during
fiscal 1995 and 1994 as presented below.
FISCAL YEAR HIGH LOW
----------- ------ -----
1995
4th Quarter................................................... $11.88 $9.25
3rd Quarter................................................... 10.63 6.38
2nd Quarter................................................... 7.25 6.25
1st Quarter................................................... 7.50 5.63
1994
4th Quarter................................................... $ 7.25 $5.25
3rd Quarter................................................... 7.50 6.00
2nd Quarter................................................... 6.75 5.75
1st Quarter................................................... 8.00 6.25
No dividends have been paid by the Company since 1990. Dividend payments
have been suspended in order to conserve cash. Also, payment of dividends is
currently not permitted under an existing loan facility. See Note 5 "Short-
Term Borrowings" of Notes to Consolidated Financial Statements in Item 8 of
this Annual Report.
ITEM 6--SELECTED FINANCIAL DATA
The following selected consolidated financial 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.
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA,
NUMBER OF SHAREOWNERS, AND EMPLOYEES)
CONTINUING OPERATIONS FOR
THE YEAR:
Net sales................ $320,899 $205,000 $157,035 $160,695 $ 175,847
Operating profit (loss).. 11,617 (5,609) 877 (7,613) (42)
Percent................ 3.6% (2.7)% .6 % (4.7)% -- %
Net income (loss)........ 1,926 (14,335) (2,416 ) (7,984) (2,901)
Average shares
outstanding and common
stock equivalents
(thousands)............. 8,773 6,057 4,969 4,899 4,639
Per common share:
Net income (loss)...... .22 (2.37) (.49) (1.63) (.62)
14
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA,
NUMBER OF SHAREOWNERS, AND EMPLOYEES)
AT YEAR-END:
Backlog..................... 59,000 61,000 26,000 30,000 23,000
Assets...................... 295,400 272,274 165,871 166,086 183,748
Current ratio............... 1.68 1.95 1.73 1.81 2.17
Long-term debt.............. 56,839 70,215 32,696 34,626 35,310
Total notes payable and
long-term debt............. 102,068 92,613 64,500 60,700 61,369
Equity...................... 85,857 78,925 63,520 66,674 80,268
Per share................. 9.85 9.12 12.78 13.43 16.67
Debt ratio.................. .543 .540 .504 .477 .433
Number of shareowners....... 4,400 4,100 4,900 5,400 5,100
Employees................... 2,373 2,370 1,543 1,768 2,000
- --------
(1) In 1995, the Company changed its accounting period from a fiscal year
ending on the last Saturday in December to a calendar year ending on the
last day in December. All periods presented above contain 52 weeks, except
1993, which contains 53 weeks. See Note 1 to Consolidated Financial
Statements for more information.
(2) The consolidated financial data for 1995 and 1994 include the results of
operations and year-end data of DEA and Roch acquisitions discussed in
Note 2 to Consolidated Financial Statements.
(3) Net income for 1995 includes a $640 adjustment relating to a revaluation
of a 1994 foreign denominated liability recorded at an incorrect foreign
exchange rate. See Note 1 to Consolidated Financial Statements for further
information.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
As disclosed in the Footnotes to the Consolidated Financial Statements,
Brown & Sharpe made two significant acquisitions in 1994, DEA S.p.A. ("DEA")
and Ets. Pierre Roch S.A. and its affiliate, Mauser Prazisions-Messmittel GmbH
("Roch"). The operating results for these companies are included in the 1994
Results of Operations beginning with the date of the acquisition, which was
September 28, 1994 for DEA and March 24, 1994 for Roch. These acquisitions,
along with the disposition of the Company's machine tool spare parts and
rebuild operations in 1993, distort some year-to-year comparisons. In order to
make these comparisons more meaningful, the following discussion will provide
comparative information excluding the operating results of the acquired
companies in order to reflect the trend of the remaining portions of the
business. The following discussion of Brown & Sharpe's historical financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements of Brown & Sharpe and the notes thereto
included elsewhere in this Annual Report.
RESULTS OF OPERATIONS
YEAR ENDED
-----------------------------------------
DEC. 31, 1995 DEC. 31, 1994 DEC. 25, 1993
------------- ------------- -------------
Net sales........................... 100.0% 100.0 % 100.0 %
Cost of goods sold.................. 69.1 69.7 70.5
Selling, general, and administrative
expense............................ 27.2 31.0 28.9
Restructuring charges............... 0.1 2.0 --
----- ----- -----
Operating profit (loss)........... 3.6 (2.7) 0.6
Interest expense.................... 2.8 3.2 3.2
Other income, net................... -- 0.1 1.6
----- ----- -----
Income (Loss) before income taxes... 0.8 (5.8) (1.0)
Income tax provision (benefit)...... 0.2 1.2 0.5
----- ----- -----
Net income (loss)................... 0.6% (7.0)% (1.5)%
===== ===== =====
15
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Orders. Orders totaled $320.0 million in 1995 which was an increase of
$110.1 million, or 52.5%, from the prior year. Adjusted to exclude orders of
businesses acquired in 1994, orders in 1995 increased approximately $22.6
million or 13.1% compared to 1994. The remaining increase resulted primarily
from customer orders of DEA products of $111.7 million and $28.7 million for
1995 and 1994, respectively, and orders of Roch and MPM products of $12.9
million and $8.4 million for 1995 and 1994, respectively, and an effect of
increased orders of about $11.1 million as a result of strengthening of
certain European currencies against the U.S. dollar in 1994. PMI orders
increased in the United States and in Europe. Backlog at December 31, 1995
decreased slightly to $59.0 million as compared with $61.0 million at year end
1994.
Net Sales. Net sales in 1995 were $320.9 million, an increase of $115.9
million or 56.5% from the prior year. The increase resulted primarily from
sales of DEA products and services in 1995 and 1994 of $107.1 million and
$37.6 million, respectively, sales of Roch and MPM products in 1995 and 1994
of $12.7 million and $7.8 million, respectively, and an effect of increased
sales of about $12.1 million as a result of strengthening of certain European
currencies against the U.S. dollar in 1995. Excluding DEA, MS Group 1995 net
sales were 13.0% above 1994, due to increased European sales. Net sales of PMI
products increased from the prior year primarily due to the success of new
products being introduced in the marketplace during the last three years.
Gross Profit. Gross profit margin increased to 30.9% in 1995 compared with
30.3% in 1994. This increase is primarily due to improved margins of the PMI
Division offset by slightly reduced margins of the MS Group.
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") was $87.2 million or 27.2% of net sales
compared to $63.7 million or 31.1% of net sales in 1994. In 1995 and 1994,
exclusive of DEA, SG&A was 27.9% and 32.8% of sales. The reductions in SG&A as
a percentage of net sales is largely due to consolidation savings at both B&S
and DEA that were planned and achieved as a result of the merging of DEA into
the B&S coordinate measuring machine business (together the "MS Group"). SG&A
in 1995 decreased $0.9 million due to a revaluation of a 1994 foreign
denominated liability that was incorrectly recorded at historical, rather than
current, foreign exchange rate in the Company's previously issued consolidated
financial statements.
Restructuring Charges. Restructuring charges amounting to $0.3 million and
$4.2 million in 1995 and 1994, respectively, were due principally to Company
employee severance incurred both because of Brown & Sharpe sales offices
closings associated with integrating Brown & Sharpe's existing operations with
those of DEA and a restructuring at the Tesa subsidiary. In addition, $1.8
million of restructuring costs, principally severance, in 1994 arose from
consolidations upon the acquisition of Roch in France.
Operating Profit (Loss). Brown & Sharpe generated an operating income of
$11.6 million in 1995 compared to an operating loss of $5.6 million in 1994.
Excluding restructuring charges and inventory writedowns, 1994 operating
profit was $2.3 million. In the United States, operating profit for 1995
totaled $0.5 million compared to an operating profit of $1.3 million in 1994.
The lower operating profit in the U.S. in 1995 was substantially due to the
increased cost of European sourced PMI products resulting from unfavorable
foreign currency exchange rates. Foreign operations generated operating profit
of $11.1 million in 1995 compared to an operating loss of $8 million in 1994.
The improvement in operating earnings occurred because of the significantly
improved financial performance of the Company's Tesa subsidiary in
Switzerland, which is the headquarters of the PMI Division, the inclusion in
1995 of a full years' profitability of the DEA S.p.A. and Roch S.A.
subsidiaries where sales are concentrated in Europe, and the reduction in
restructuring charges incurred. In addition, as a result of the adjustments to
the preliminary 1994 DEA acquisition purchase price accounting estimates, net
income for 1995 increased approximately $350.
Interest Expense. Interest expense totaled $9.1 million in 1995 compared to
$6.6 million in 1994. Average borrowings in 1995 increased to approximately
$100 million compared with average borrowings of $81 million in 1994, which
resulted in increased interest expense in 1995. The increase in average
outstanding balances has
16
occurred since the addition of the DEA operations in September 1994 and is the
result of additional working capital requirements arising from increased sales
and the payment of costs associated with restructuring and achieving the
acquisition consolidation savings.
Income Tax Provision. The Company has recorded a deferred tax asset for
deductible temporary differences that exist related to its U.S. operations.
This deferred tax asset has been recorded based on the existence of sufficient
taxable income in the carryback period and the reversal of existing taxable
temporary differences. For further information concerning the provision for
income taxes, as well as information regarding differences between effective
tax rates and statutory rates, see Note 4 of the Notes to Consolidated
Financial Statements.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 25, 1993
Orders. Orders totaled $209.9 million in 1994, an increase of $54.0 million,
or 34.6%, from the prior year. Adjusted to exclude orders of businesses
acquired in 1994 and sold in 1993, orders in 1994 increased $15.8 million or
10.1% compared to 1993. The remaining increase of $28.7 million resulted
primarily from customer orders of DEA products since its acquisition on
September 28, 1994, $8.4 million for orders of Roch and MPM products since
their acquisition on March 24, 1994, and an effect of increased orders of
about $3.0 million as a result of strengthening of certain European currencies
against the U.S. dollar in 1994. Also, the machine tool spare parts and
rebuild operations, sold near the end of the first quarter of 1993,
represented $1.9 million of orders in 1993. CM equipment machine orders
increased in 1994 from the canning industry, and PMI orders increased,
primarily from its European distributors. MS orders were higher in 1994 than
in 1993. Backlog at December 31, 1994 increased to $61.0 million, including
$26.4 million from the purchase of DEA and $1.7 million from the purchase of
Roch and MPM, as compared with $26.1 million at year end 1993.
Net Sales. Net sales in 1994 were $205.0 million, an increase of $48.0
million or 30.6% from the prior year. The increase resulted primarily from
sales of DEA products and services since its acquisition of $37.6 million,
sales of Roch and MPM products of $7.8 million, and an effect of increased
sales of about $3.3 million as a result of strengthening of certain European
currencies against the U.S. dollar in 1994. Also, $1.9 million of sales in
1993 were attributable to machine tool spare parts and rebuild operations sold
in early 1993. Excluding the effect of these items, sales increased $1.2
million, or 0.8%, from 1993. Excluding DEA, MS 1994 net sales were 2.9% below
1993, largely as a result of entering 1993 with a larger backlog than at the
beginning of 1994. In 1994, increasing U.S. orders have been received for
larger value, larger size machines which are not generally included in sales
until subsequent quarters due to required lead times. Net sales of PMI and CM
products increased from the prior year primarily due to the resolution of the
financial difficulties of a German distributor, which had depressed net sales
in 1993.
Gross Profit. Gross profit margin increased to 30.3% in 1994 compared to
29.4% in 1993. Excluding DEA, gross profit declined to 29.1% in 1994. The
Company's gross profit includes benefits from the liquidation of LIFO
inventories of $0.6 million and $0.7 million in 1994 and 1993, respectively.
During 1994, the Company recorded inventory write-downs amounting to $3.7
million, almost totally at European operations, compared to $0.3 million
reduction of inventory reserves in 1993.
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") was $63.7 million or 31.1% of net sales
compared to $45.3 million or 28.9% of net sales in 1993. In 1994, exclusive of
DEA SG&A of $9.9 million, SG&A was 32.8% of sales. The increase in 1994 was
generally due to special items including an extra week of expenses in fiscal
1994 or about $1 million compared to 1993, the receipt of U.S. litigation
proceeds in 1993 of about $.5 million, the addition of Roch and MPM SG&A costs
since acquisition in late March 1994 of about $2.2 million, and the recording
in the second quarter of 1994 of a provision increasing the allowance for
uncollectible accounts receivable by about $.6 million for collection
uncertainties arising from one prior year sale to a single customer. SG&A also
increased during the fourth quarter of 1994 because of increased use of
consultants, relocation, and other costs arising as a result of the DEA and
17
Roch acquisitions. SG&A in 1994 and 1993 includes foreign exchange gains
amounting to $1.1 million and $0.2 million, respectively.
Restructuring Charges. Restructuring charges amounted to $4.2 million in
1994 ($1.0 million and $3.2 million in the third and fourth quarters,
respectively), principally Brown & Sharpe employee severance and Brown &
Sharpe sales offices closing costs of $2.4 million associated with integrating
Brown & Sharpe's existing operations with those of DEA, acquired on September
28, 1994, and $1.8 million of such costs arising from the acquisition of Roch
in France on March 24, 1994.
Operating Profit (Loss). Brown & Sharpe generated an operating loss of $5.6
million in 1994 compared to an operating profit of $0.9 million in 1993.
Excluding restructuring charges and inventory writedowns, 1994 operating
profit was $2.3 million. DEA generated an operating profit of $3.6 million in
the fourth quarter of 1994 subsequent to its acquisition. In the United
States, operating profit for 1994 totaled $1.3 million compared to an
operating profit of $5.2 million in 1993. The lower operating profit in the
U.S. in 1994 was substantially due to the increased cost of European purchased
goods resulting from unfavorable foreign currency exchange rates and the
additional week of selling, general and administrative expense in 1994, the
53rd week, as well as due to the other reasons discussed above. Brown & Sharpe
believes that its normal sales pattern would not generally result in
proportionate increases in net sales in a fifty three week year as compared to
a fifty two week year. Foreign operations generated a loss of $6.9 million in
1994 compared to an operating loss of $4.3 million in 1993. Excluding
restructuring charges and inventory writedowns, foreign operations generated a
loss of $0.7 million in 1994.
Interest Expense. Interest expense totaled $6.6 million in 1994 compared to
$5.1 million in 1993. This increase reflects a $19.8 million increase in the
average annual balance of borrowings, primarily the $16.8 million of debt on
the balance sheets of the companies acquired in 1994, with a slight decrease
in the average effective interest rate in 1994.
Other Income, Net. 1994 other income decreased because 1993 other income
included a one-time gain of $2 million resulting from the sale of certain
small business operations.
Income Tax Provision. The Company has recorded a deferred tax asset for
deductible temporary differences that exist related to its U.S. operations.
This deferred tax asset has been recorded based on the existence of sufficient
taxable income in the carryback period and the reversal of existing taxable
temporary differences. For information concerning the provision for income
taxes, see Note 4 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, Brown & Sharpe has met its liquidity needs, including
capital expenditures, working capital needs, and the funding of operating
losses, through cash generated from operations, sale proceeds of discontinued
businesses, borrowings under secured and unsecured lines of credit and certain
"New Financing" that included two three year term loans toalling $25 million
"Term Loans", and $8.5 million U.S, mortgage, a renewable secured guaranteed
three-year revolving credit facility, "The Facility". The Facility was
provided by a commercial lender and entered into in June 1993 at $15 million
and increased in September 1994 to $25 million through September 1997 with
automatic annual renewal thereafter, subject to termination provisions in the
agreement.
Amounts outstanding under Brown & Sharpe's lines of credit excluding The
Facility are generally payable on demand, and certain of the lines extended to
Brown & Sharpe's foreign subsidiaries are secured by other assets. The
Facility provides for demand borrowings up to an amount based on a percentage
of eligible domestic accounts receivable and finished inventory, is secured by
substantially all domestic assets (including the stock of domestic
subsidiaries and 65% of the stock of certain foreign subsidiaries), and
requires maintenance of a minimum current ratio, a maximum ratio of debt to
adjusted net worth, minimum adjusted net worth and
18
minimum working capital, all as defined. At December 31, 1995, Brown & Sharpe
had total borrowings of $28.1 million under the lines of credit and The
Facility compared to total maximum availability at that date of $74.1 million
under the lines of credit and The Facility. Certain of the domestic and
foreign lines of credit provide availability of borrowing capacity and funds
only to the degree of availability of certain kinds of eligible receivables
and inventories (only in the case of the domestic lines of credit). At
December 31, 1995, $17.6 million of the total lines of credit were restricted
to foreign eligible receivables and also to certain foreign countries, of
which $16.5 million was available at that date.
Management believes that the availability of borrowings, under the financing
arrangements described above, and the two Swiss mortgages described below,
together with the current planned levels of cash flow from operations and cash
on hand, will be sufficient to meet operational cash requirements expenditures
during 1996. However, levels of growth during 1995, described above, which has
continued during early 1996, has increased working capital requirements and
therefore borrowing needs and had an adverse impact on liquidity. As a result,
management has temporarily restricted planned capital expenditures and funding
for other projects considered necessary for achieving planned cost reductions
and growth. In addition, $12.1 million of Swiss mortgages mature on June 30,
1996, and two three-year term loans, totaling $25 million, mature in September
1997. Commitments for $10 million have been received for the refinancing of
the Swiss mortgages, although negotiations are required with regard to half
that amount to make them acceptable to the Company. Although the ultimate
conclusion of these negotiations is uncertain, management is confident that
the refinancing of the remaining portion will be successful. While the
Company's current total credit lines remain adequate, those available in the
U.S. remain inadequate to cure a capital structure problem inherited in the
DEA acquisition which has adverse tax consequences. In order to alleviate the
current short term funding limitations, and to meet increased working capital
requirements, management has entered negotiations with a number of U.S. based
banks and financial institutions to secure $15 million "bridge financing".
Management is optimistic that the bridge financing will be successful.
However, there can be no assurance that the additional financing can be
obtained on acceptable terms. Management also has commenced preparations for
refinancing of the Company during late 1996 to achieve a more flexible capital
structure. The desired refinancing would include a new equity offering, new
term debt, and multi-currency bank revolving credit lines. However, there can
be no assurance that the desired elements of the refiancing can be obtained on
terms that are acceptable to the Company.
Cash Flow. Net income of $1.9 million in 1995, increased by depreciation and
other non-cash items of $13.3 million, provided cash of $15.2 million was
offset by the net increase in working capital of $15.3 million which together
resulted in operations using $75 thousand of cash.
In 1995, investment transactions used cash of $10.4 million, of which
capital expenditures, net of dispositions, were $10.0 million, as compared
with depreciation of $9.0 million in 1995.
Cash provided from financing transactions was $6.9 million in 1995 compared
to $15.8 million in 1994. This largely resulted from borrowing on The Facility
in the U.S.
Working Capital. Working capital was $87.6 million at the end of 1995
compared to $102.9 million at the end of 1994. This reduction resulted largely
from the increased borrowing on The Facility in the U.S. and two long term
mortgage in Switzerland becoming current in 1995. Inventories remained the
same at $88.6 million at December 31, 1995. Accounts receivable increased to
$113.6 million at December 31, 1995, an increase of $5.4 million from year end
1994. Also, total debt increased $9.5 million to a total of $102.1 million at
December 31, 1995 as compared to $92.6 million outstanding at December 31,
1994 primarily due to increased borrowing to fund working capital and capital
additions, and also due to the impact of foreign currency exchange rate
changes on the U.S. dollar value of foreign currency denominated debt.
Capital Expenditures. Brown & Sharpe's capital expenditures net of disposal
proceeds were approximately $10.0 million in 1995 compared to $5.5 million in
1994. Management estimates that annual on going capital expenditures of
approximately $10 million are required for appropriate levels of tooling new
products, improving product and service quality, expansion of the distribution
network, and support of the
19
operations of the combined Company. Planned capital expenditures in 1996 will
include an aggregate of approximately $3.8 million for the construction of a
new facility in Telford, England to both replace an existing facility for
which the lease expires and is non-renewable, and consolidate the operations
now conducted in three other facilities. Committments for mortgage plus term
financing for 100% of the amount of the expenditures for this facility are in
place.
PROSPECTIVE INFORMATION
This section, as well as other portions of this document and the Annual
Letter to the Shareholders from the Chairman and Chief Executive Officer,
include certain forward-looking statements about the Company's business and
new products, sales, expenditures and cost savings, effective tax rate and
operating and capital requirements and refinancings. In addition, forward-
looking statements may be included in various other Company documents to be
issued in the future and in various oral statements by Company representatives
to security analysts and investors from time to time. Any such statements are
subject to risks that could cause the actual results or needs to vary
materially. These risks are discussed below in "Risk Factors" in this
document.
RISK FACTORS
Risks Related to 1994 Strategic Acquisitions. The Company expects that its
profitability in the foreseeable future, and accordingly its ability to fund
necessary capital expenditures, increased working capital requirements, and
service its debt obligations as well as its ability at some time in the future
to resume dividend payments, will depend in large part on its success in
integrating the operations of DEA, Roch and Mauser with Brown & Sharpe's pre-
existing operations and realizing anticipated cost savings on a long-term
profitable basis. The combined net sales of DEA, Roch and Mauser prior to the
acquisition in 1994 were approximately 78% of Brown & Sharpe's 1993 net sales.
The Company's plan for integrating the operations of DEA into the MS Group
and Roch and Mauser into the PMI Division anticipated cost savings (before
one-time implementation cash costs) of $8.3 million to be realized within the
first twelve months of combined operations. These savings were substantially
achieved on time. The Company expects to realize total annualized savings of
nearly $14 million after 24 months of combined operations through various
actions, further reductions in selling and administrative expenses,
rationalization of European manufacturing facilities and reductions in
associated manufacturing overhead costs. The Company expects to have spent a
total of approximately $12.4 million from acquisition date through the
completion of the integration process for severance and other one-time cash
costs in eliminating duplicative operations and taking other planned measures
intended to produce these savings.
Due to the inherent risks in integrating the separate operations of the
Company, in particular operations located in different countries and that in
the aggregate are large in relation to Brown & Sharpe pre-existing operations,
there can be no assurance that the Company will realize the full amount of
anticipated cost savings or realize the savings on the contemplated timetable,
or that as a result of its decentralized management structure or other
factors, the Company will not experience unanticipated one- time or ongoing
costs or difficulties in implementing the integration of DEA, Roch and Mauser
into Brown & Sharpe. In addition, there can be no assurance that net sales
will not be adversely affected by planned cost cutting measures, possible
discontinuance of certain similar products, customers' desires to maintain
alternative sources of supply or for other reasons.
Risks Related to Liquidity. At December 31, 1995, Brown & Sharpe had
unrestricted cash (and cash equivalents) of $6.3 million, and unused
availability under its borrowing arrangements of $37.2 million, $16.5 million
of which is dependent on the availability, only partially satisfied at year-
end 1995, of certain kinds and amounts of eligible receivables. However,
because of issues regarding the potential tax impact of the DEA Group capital
structure resulting from the DEA acquisition, availability of adequate
borrowing capacity in the US to cure the DEA capital structure problem, and
the maturation of certain foreign mortgages in June 1996 and the $25 million
three year term loans in the US in September 1997, refinancing of the Company
during 1996 on a "bridge" basis and then more permanently in 1996 or 1997 must
be accomplished. Brown & Sharpe also will
20
require positive cash generated by operations and the realization of
additional anticipated cost savings from the further integration of DEA, Roch
and Mauser in order to meet its anticipated cash needs (including one-time
costs involved in integrating DEA, Roch and Mauser. As noted above, there can
be no assurance that the Company will be able to complete the refinancing of
the $12.1 million of Swiss mortgages, the U.S. $15 million "bridge" financing
or the entire refinancing of the Company's debt structure during the projected
lat 1996 time frame.
Risks Related to Indebtedness. The Company has significant debt service
obligations. As of December 31, 1995, Brown & Sharpe had total outstanding
indebtedness and total shareowners' equity of $102.1 million and $85.9
million, respectively.
The Company's indebtedness and debt to capital ratio could have important
consequences to stockholders, including the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or other corporate purposes may be
impaired, (ii) a substantial portion of the Company's cash flow from
operations will be used to pay principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations, future
business opportunities and resumption at some future date of payment of
dividends, (iii) the Company's borrowings under the rates of interest, which
could result in higher interest expense in the event of an increase in market
interest rates, (iv) the Facility contains financial and other restrictive
covenants which could limit the Company's operating and financial flexibility
and, if violated, would result in an event of default which, if not cured or
waived, could preclude the Company's access to credit under such facility or
otherwise have a material adverse effect on the Company, (v) the three-year
Term Loans, the Facility and certain Swiss mortgage loans expire by their
terms in 1996 and 1997, requiring the Company to seek refinancing of this debt
at that time or before and (vi) as a result, the Company may be more
vulnerable to general economic and industry downturns.
Risks Related to Historical Losses. Brown & Sharpe had losses from
continuing operations of approximately $2.9 million, $8.0 million, $2.4
million and $14.3 million in fiscal 1991, 1992, 1993, and 1994, respectively,
before the 1995 profit of $1.9 million. In addition, DEA had operating losses
of $10 million and $4.6 million in 1991 and 1992, respectively, an operating
profit of $5.5 million in 1993, and an operating loss of $1.2 million in the
first half of 1994.
In 1990, Brown & Sharpe acquired Leitz. In the year prior to the
acquisition, Leitz's net sales were approximately 21% of Brown & Sharpe's net
sales in that year. While Leitz has strategic value to Brown & Sharpe, Leitz
has produced operating losses in each year since its acquisition. Brown &
Sharpe believes that these losses have resulted from the severe, prolonged
recession in Europe that began a year after the acquisition and severe
competitive pricing pressure which together have resulted in gross margin
erosion for Leitz's products and revenues below expected levels, and from
unexpected difficulties and additional expenses in integrating Leitz with
Brown & Sharpe's other CMM operations. These difficulties were heightened by
the fact that the Leitz business acquired by Brown & Sharpe did not have a
complete freestanding operating and management structure or its own dedicated
facilities.
Risks Related to Foreign Operations. As of December 31, 1995, approximately
74% of Brown & Sharpe's assets were located outside the United States (based
on book values) as were the customers for 65% of its net sales. Foreign
operations are subject to special risks that can materially affect the sales,
profits, cash flows, and financial position of the Company, including taxes on
distributions and payments, currency exchange rate fluctuations, inflation,
minimum capital requirements, and exchange controls.
Risks Related to Cyclical Nature of the Metrology Industry. The market for
Brown & Sharpe's and DEA's products is subject to general economic conditions
and, more specifically, to the level of capital spending by industrial
companies, especially those in the primary end markets for Brown & Sharpe's
and DEA's products. Management believes that in recent years, the total world
market for dimensional metrology products declined. Although the recession has
subsided, the dimensional metrology industry continues to be impacted by
overcapacity in the industry and reduced demand by the capital goods sector
for dimensional metrology products.
21
Risks Related to Competition. Brown & Sharpe's and DEA's business is subject
to direct and indirect competition from a considerable number of both domestic
and foreign firms, a number of which are part of entities which are larger in
overall size than Brown & Sharpe and DEA. In addition, the dimensional
metrology market has suffered from overcapacity, which, together with reduced
demand for capital goods, has resulted in intense competitive pricing pressure
and performance competition that have reduced margins throughout the industry.
Risks Related to Control of the Company. The Company's common stock is
divided into two classes, the Class A Common Stock and the Class B Common
Stock. Shares of Class A Common Stock are entitled to one vote per share.
Shares of Class B Common Stock are entitled to ten votes per share, except as
otherwise provided by law or in Brown & Sharpe's certificate of incorporation
or by-laws. The Class A Common Stock and the Class B Common Stock vote
together as a single class on all matters, except that the Class A Common
Stock, voting alone, elects one director each year, and except as otherwise
required by law. No dividend may be declared on shares of Class B Common Stock
unless a dividend at least equal in amount is declared on shares of Class A
Common Stock. Various members of the Sharpe family, including Henry D. Sharpe,
Jr. and Henry D. Sharpe, III (each of whom is a director of the Company), hold
approximately 483,966 shares of Class A Common Stock and approximately 161,320
shares of Class B Common Stock, representing approximately 7.5% of the
outstanding aggregate equity in the Company and approximately 15.5% of the
combined voting power of the Company's outstanding common stock, and
Finmeccanica holds 3,450,000 shares of Class A Common Stock, representing
approximately 39.9% of the outstanding aggregate equity of the Company and
approximately 25.5% of the combined voting power of the Company's outstanding
common stock. Finmeccanica has the right to designate three nominees for
election to the Company's Board of Directors.
Pursuant to certain preemptive rights provided to Finmeccanica in connection
with the DEA acquisition in September 1994, so long as Finmeccanica owns at
least 862,500 shares of the Company's Class A Common Stock, with certain
exceptions, the Company may not issue any shares of its Class A Common Stock,
or equity securities exercisable, exchangeable or convertible into shares of
Class A Common Stock ("Derivative Securities") to any third party without
first offering to Finmeccanica the right to purchase that percentage of such
newly issued securities such that Finmeccanica's percentage ownership of the
Company's common stock on a fully diluted basis remains constant. After
receiving notice of the proposed issuance, Finmeccanica will have 30 days to
exercise its preemptive rights, and the closing under such exercise will occur
within 20 days of such 30-day period. The existing holders of Class A Common
Stock do not have any preemptive rights. If the Company issues Class A Common
Stock or Derivative Securities while Finmeccanica's preemptive rights are in
effect, Finmeccanica would, subject to certain exceptions, retain its
percentage ownership of Brown & Sharpe common stock, while the equity
interests of the Company's existing holders of Class A Common Stock would be
diluted.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS PAGE NUMBER
----------------------------- -----------
Report of Independent Auditors--Ernst & Young LLP.................. 23
Report of Independent Auditors--Coopers & Lybrand L.L.P............ 24
Consolidated Statements of Operations for the Years Ended December
31, 1995 and 1994 and December 25, 1993........................... 25
Consolidated Balance Sheets at December 31, 1995 and 1994.......... 26
Consolidated Statements of Cash Flows for the Years Ended December
31, 1995 and 1994 and December 25, 1993........................... 27
Consolidated Statements of Shareowners' Equity for the Years Ended
December 31, 1995 and 1994 and December 25, 1993.................. 28
Notes to Consolidated Financial Statements......................... 29-41
22
REPORT OF INDEPENDENT AUDITORS
To the Shareowners and Directors
of Brown & Sharpe Manufacturing Company:
We have audited the accompanying consolidated balance sheet of Brown &
Sharpe Manufacturing Company as of December 31, 1995, and the related
consolidated statements of operations, shareowners' equity, and cash flows for
the year then ended. Our audit also included the related financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Brown & Sharpe Manufacturing Company at December 31, 1995, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Providence, Rhode Island
February 14, 1996
23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners and Directors
of Brown & Sharpe Manufacturing Company:
We have audited the consolidated financial statements and the financial
statement schedule of Brown & Sharpe Manufacturing Company listed in Item 14
of this Form 10-K for the years ended December 31, 1994 and December 25, 1993.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 presents fairly,
in all material respects, the consolidated financial position of Brown &
Sharpe Manufacturing Company as of December 31, 1994 and December 25, 1993,
and the consolidated results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information required
to be included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 29, 1995
24
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND DECEMBER 25, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993
-------- -------- --------
Net sales........................................ $320,899 $205,000 $157,035
Cost of goods sold............................... 221,729 142,776 110,841
Selling, general and administrative expense...... 87,217 63,664 45,317
Restructuring expense............................ 336 4,169 --
-------- -------- --------
Operating profit (loss)........................ 11,617 (5,609) 877
Interest expense................................. 9,129 6,575 5,100
Other income, net................................ 135 249 2,607
-------- -------- --------
Income (loss) before income taxes.............. 2,623 (11,935) (1,616)
Income tax provision............................. 697 2,400 800
-------- -------- --------
Net income (loss)................................ $ 1,926 $(14,335) $ (2,416)
======== ======== ========
Primary and fully diluted income (loss) per com-
mon share....................................... $ .22 $ (2.37) $ (.49)
======== ======== ========
The accompanying notes are an integral part of the financial statements.
25
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 6,262 $ 6,676
Accounts receivable, net of allowances for doubtful
accounts of $3,030 and $3,103........................... 113,579 108,234
Inventories.............................................. 88,558 88,639
Deferred income taxes.................................... 3,322 2,000
Prepaid expenses and other current assets................ 5,436 5,981
-------- --------
Total current assets................................. 217,157 211,530
Property, plant and equipment:
Land..................................................... 7,141 6,858
Buildings and improvements............................... 37,447 33,124
Machinery and equipment.................................. 95,482 85,583
-------- --------
140,070 125,565
Less--accumulated depreciation........................... 87,183 80,210
-------- --------
52,887 45,355
Goodwill, net.............................................. 11,529 1,875
Other assets............................................... 13,827 13,514
-------- --------
$295,400 $272,274
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable and current installments of long-term
debt.................................................... $ 45,229 $ 22,398
Accounts payable......................................... 44,936 36,896
Accrued expenses and income taxes........................ 39,423 49,353
-------- --------
Total current liabilities............................ 129,588 108,647
Long-term debt............................................. 56,839 70,215
Other long-term liabilities................................ 6,310 --
Deferred income taxes...................................... 2,765 1,737
Unfunded accrued pension cost.............................. 5,823 5,035
Termination indemnities.................................... 8,218 7,715
Shareowners' Equity:
Preferred stock, $1 par value; authorized 1,000,000
shares; none issued..................................... -- --
Common stock:
Class A, par value $1; authorized 15,000,000 shares;
issued 8,195,795 in 1995 and 8,122,086 shares in
1994.................................................. 8,196 8,122
Class B, par value $1; authorized 2,000,000 shares;
issued 522,575 in 1995 and 534,821 shares in 1994..... 523 535
Additional paid in capital................................. 66,863 66,412
(Deficit) earnings employed in the business................ (8,032) (9,958)
Cumulative foreign currency translation adjustment......... 18,926 14,530
Treasury stock; 23,592 shares in 1995 and 7,492 shares in
1994, at cost............................................. (270) (151)
Unearned compensation...................................... (349) (565)
-------- --------
Total shareowners' equity............................ 85,857 78,925
-------- --------
$295,400 $272,274
======== ========
The accompanying notes are an integral part of the financial statements.
26
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND DECEMBER 25, 1993
(DOLLARS IN THOUSANDS)
1995 1994 1993
-------- -------- -------
Cash Provided by (Used in) Operations:
Net Income (Loss)............................... $ 1,926 $(14,335) $(2,416)
Adjustment for Noncash Items:
Depreciation and amortization................. 11,010 6,743 6,355
Pension credits and charges................... 1,369 212 269
Deferred income taxes......................... 376 (1,900) 500
Gain on sale of operations.................... -- -- (2,182)
Termination indemnities....................... 331 -- --
Deferred compensation......................... 216 213 55
Changes in Working Capital:
Accounts receivable........................... (4,324) (15,912) (8,204)
Inventories................................... (7,389) 7,103 957
Prepaid expenses and other current assets..... 1,208 1,001 323
Accounts payable and accrued expenses......... (4,798) 6,693 (1,455)
-------- -------- -------
Net Cash (Used in) Operations............... (75) (10,182) (5,798)
-------- -------- -------
Investment Transactions:
Capital expenditures............................ (12,054) (8,929) (4,399)
Proceeds from dispositions...................... 2,096 3,456 599
Proceeds from sale of operations................ -- -- 8,700
Cash equivalent pledged......................... -- 6,078 (6,078)
Other investing activities...................... (445) (1,988) (563)
-------- -------- -------
Net Cash (Used in) Investment Transactions.. (10,403) (1,383) (1,741)
-------- -------- -------
Financing Transactions:
Increase (decrease) in short-term debt.......... 10,915 (16,420) 5,810
Proceeds from issuance of long-term debt........ -- 33,500 --
Principal payments of long-term debt............ (3,444) (1,661) (1,000)
Other financing transactions.................... (600) 353 --
-------- -------- -------
Net Cash Provided by Financing Transac-
tions...................................... 6,871 15,772 4,810
-------- -------- -------
Effect of Exchange Rate Changes on Cash........... 3,193 375 183
-------- -------- -------
Cash and Cash Equivalents:
Increase (decrease) during the year............. (414) 4,582 (2,546)
Beginning balance............................... 6,676 2,094 4,640
-------- -------- -------
Ending balance.................................. $ 6,262 $ 6,676 $ 2,094
======== ======== =======
Supplementary Cash Flow Information:
Interest paid................................... $ 8,004 $ 6,223 $ 4,942
======== ======== =======
Taxes paid...................................... $ 2,598 $ 1,496 $ 1,158
======== ======== =======
The accompanying notes are an integral part of the financial statements.
27
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND DECEMBER 25, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(DEFICIT) CUMULATIVE
COMMON EARNINGS FOREIGN
STOCK ADDITIONAL EMPLOYED CURRENCY
$1 PAR PAID IN IN THE TRANSLATION TREASURY UNEARNED
VALUE CAPITAL BUSINESS ADJUSTMENT STOCK COMPENSATION
------ ---------- --------- ----------- -------- ------------
Balance--December 26,
1992................... $4,979 $45,710 $ 6,894 $10,260 $(336) $(833)
Net Loss................ -- -- (2,416) -- -- --
Treasury Stock Transac-
tions.................. -- -- (101) -- 12 --
Restricted Stock
Awards................. 1 -- -- -- 161 55
Foreign currency trans-
lation adjustment...... -- -- -- (866) -- --
------ ------- -------- ------- ----- -----
Balance--December 25,
1993................... 4,980 45,710 4,377 9,394 (163) (778)
------ ------- -------- ------- ----- -----
Net Loss................ -- -- (14,335) -- -- --
Acquisitions............ 3,625 20,413 -- -- -- --
Treasury Stock Transac-
tions.................. -- -- -- -- 12 --
Restricted Stock
Awards................. 10 (8) -- -- -- 213
ESOP Contribution....... 42 297 -- -- -- --
Foreign currency trans-
lation adjustment...... -- -- -- 5,136 -- --
------ ------- -------- ------- ----- -----
Balance--December 31,
1994................... 8,657 66,412 (9,958) 14,530 (151) (565)
------ ------- -------- ------- ----- -----
Net Income.............. -- -- 1,926 -- -- --
Treasury Stock Transac-
tions.................. -- -- -- -- (119) --
Restricted Stock
Awards................. -- 153 -- -- -- 216
ESOP Contribution....... 62 298 -- -- -- --
Foreign currency trans-
lation adjustment...... -- -- -- 4,396 -- --
------ ------- -------- ------- ----- -----
Balance--December 31,
1995................... $8,719 $66,863 $ (8,032) $18,926 $(270) $(349)
====== ======= ======== ======= ===== =====
The accompanying notes are an integral part of the financial statements.
28
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
Business
Brown & Sharpe Manufacturing Company is a multinational manufacturer of
dimensional metrology products, which include manual and computer-controlled,
high precision machines; mechanical and electronic measuring and inspection
tools; and specialty products and systems. The principal markets for its
products are North America, Europe, Asia, South America, and the Middle East.
The primary end markets for its products are the automotive, aerospace, and
industrial machinery industries.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and all subsidiaries. Intercompany transactions have been eliminated from the
consolidated financial statements. Investments in 20% to 50% part-owned
affiliates are accounted for on the equity method.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles 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. The Company's fiscal year ended on the last day of the calendar
year in 1995 and 1994 and the last Saturday in December for 1993. Results for
1995 and 1993 include 52 weeks, while 1994 had 53 weeks.
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost is determined on
a last-in, first-out (LIFO) basis for all domestic inventories in 1995 (40% of
cost in 1994) and principally on a first-in, first-out (FIFO) basis for
inventories outside the United States. Provision is made to reduce slow-moving
and obsolete inventories to net realizable values. Current FIFO cost exceeds
the LIFO value of inventories by approximately $12,293 and $12,473 at December
31, 1995 and 1994, respectively. Year-end inventories valued under the LIFO
method were $16,081 in 1995 and $7,231 in 1994. During 1994 and 1993,
quantities for certain segments of the LIFO inventories were reduced. The
reductions resulted in liquidation of LIFO quantities carried at lower costs
prevailing in prior years compared with the cost of current purchases, the
effect of which decreased net loss by $631 ($.10 per share) and $749 ($.15 per
share) in 1994 and 1993, respectively.
The composition of inventory at year-end was as follows:
1995 1994
------- -------
Parts, raw materials and supplies......................... $39,857 $42,665
Work in progress.......................................... 15,906 17,069
Finished goods............................................ 32,795 28,905
------- -------
$88,558 $88,639
======= =======
Property, Plant and Equipment
Property, plant, and equipment are carried at cost and are being depreciated
principally on a straight-line basis over the estimated useful lives of the
assets which generally range from 20 to 40 years for buildings and
improvements and from 3 to 12 years for machinery and equipment. Depreciation
expense was $8,980, $6,442,
29
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and $5,862 in 1995, 1994, and 1993, respectively. Repair and maintenance costs
are charged against income while renewals and betterments are capitalized as
additions to the related assets. Retirements, sales, and disposals of assets
are recorded by removing the cost and accumulated depreciation from the asset
and accumulated depreciation accounts with any resulting gain or loss
reflected in income. At December 31, 1995, land and buildings with a book
value of $19,973 were pledged as collateral for mortgage loans of $26,800.
Goodwill
Goodwill, which is net of accumulated amortization of $771 in 1995 and $154
in 1994, is being amortized on a straight-line basis over periods ranging from
7 to 20 years.
Other Assets
Other assets consisted of the following:
1995 1994
------- -------
Prepaid pension............................................ $ 4,673 $ 5,106
Equity investments......................................... 2,492 1,956
Other...................................................... 6,662 6,452
------- -------
$13,827 $13,514
======= =======
Revenue Recognition
The Company records revenue upon shipment other than for long-term
contracts, upon rendering of service for installation and training, and
ratably over the contract period for service contracts. Sales under long-term
contracts are recorded using the percentage of completion method, wherein
costs and estimated gross margin are recorded as sales during the period the
work is being performed. Estimated gross margin is based on the total contract
sales value and the most recent estimate of total costs. When the current
contract estimate indicates a loss, a provision is made for the total
anticipated loss.
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 "Cumulative foreign currency translation
adjustment."
There were no forward exchange contracts outstanding at December 31, 1995
and 1994. Transaction gains were recorded in 1995, 1994, and 1993 of $601,
$1,064, and $157, respectively. Transaction gains in 1995 includes an
adjustment, which increased the gain, amounting to $640 ($.07 per share),
after taxes, relating to a revaluation of a 1994 foreign denominated liability
that was incorrectly recorded at historical, rather than current, foreign
exchange rate in the Company's consolidated financial statements issued in
prior years. Prior year financial statements were not restated due to the
immaterial effect on the previously-issued financial statements.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company places its temporary cash
investments with high credit quality financial institutions and, by policy,
limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited
due to the
30
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's large number of customers and their dispersion across many different
industries and countries worldwide. At December 31, 1995, the Company had no
significant concentrations of credit risk.
Stock Incentive Plans
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees", and intends
to continue to do so.
Postretirement and Postemployment Benefits
The Company does not provide postretirement or postemployment benefits as
contemplated by SFAS 106 and SFAS 112, respectively, and accordingly these
statements have no impact upon the Company's financial position or results of
operations.
Income Taxes
The Company provides for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes". SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to reflect the tax
consequences on future years of temporary differences of revenue and expense
items for financial statement and income tax purposes. Valuation allowances
are provided against assets which are not likely to be realized. Federal
income taxes are not provided on the unremitted earnings of foreign
subsidiaries since it has been the practice and is the intention of the
Company to continue to reinvest these earnings in the business outside the
United States.
Net Income (Loss) Per Share
Net income per share is computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding during each
year, while net loss per share is based only on the weighted average number of
shares of common stock. Common stock equivalents are additional shares which
may be issued upon the exercise of dilutive stock options using the average
market price of the Company's common stock during the year for primary
earnings per share and market price at the end of the year for fully diluted
earnings per share. Conversion of the convertible subordinated debentures (see
Note 6) was not assumed in the 1995 computation of fully diluted net income
(loss) per share because such conversion was antidilutive. Shares used to
compute net income (loss) per share were 8,772,748 in 1995, 6,057,090 in 1994,
and 4,969,543 in 1993.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash on hand, deposits in banks,
and short-term marketable securities with a maturity at acquisition of three
months or less.
Recently Issued Accounting Pronouncements
The Company has not yet adopted Statement of Financial Accounting Standards
(FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which is effective for the Company's
1996 fiscal year. The Company does not anticipate that the Statement will have
a material effect on the statement of operations or financial position upon
adoption.
Reclassifications
Certain amounts reported in 1994 and 1993 have been reclassified to conform
with the 1995 presentation.
31
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS
DEA
Brown & Sharpe Manufacturing Company, together with its subsidiary Brown &
Sharpe International Capital Corporation, acquired on September 28, 1994, the
stock of DEA S.p.A., an Italian corporation, and its related metrology
business from Finmeccanica S.p.A., an Italian corporation, for 3,450,000
shares of Class A common stock with a market value amounting to $22,856. In
addition, the Company incurred professional accounting, legal, and other costs
of $2,301 in conjunction with the acquisition which have been accounted for as
part of the purchase price. The acquisition has been accounted for as a
purchase. Accordingly, the Company's consolidated balance sheet at October 1,
1994 included the assets and liabilities of DEA S.p.A. and its subsidiaries.
The Company's consolidated statements of operations and cash flows includes
the results of operation of DEA S.p.A. and its subsidiaries commencing October
2, 1994.
The DEA purchase agreement provided for a post-closing adjustment to the
purchase price based upon the final valuation of the acquired assets and
assumed liabilities which occurred in 1995. No such adjustment was made.
However, differences in final valuation calculations resulted in a settlement
whereby Finmeccanica S.p.A. waived lease payments of approximately $1,000 for
a DEA facility leased from Finmeccanica. (See Note 12.)
Because DEA was acquired late in 1994 and was a complex worldwide operation
that required a comprehensive review of asset values and liabilities and a
significant part of the study had to take into consideration the integration
of DEA into the Measuring Systems Group, the final assessment of asset values,
restructuring the manufacturing and marketing organization, and making other
necessary changes was not completed until the third quarter of 1995. The
determination of the final fair values resulted in adjustments consisting of
changes from initially determined values as of September 28, 1994 amounting to
an increase in goodwill; property, plant and equipment; deferred income taxes;
and other assets amounting to $10,360, $4,142, $1,800, and $1,044,
respectively, and a decrease in inventory and accounts receivable amounting to
$12,582 and $1,175, respectively. Adjustments to other balance sheet amounts
were individually not significant.
As a result of the adjustments to the preliminary 1994 estimates, net income
for 1995 increased approximately $350 ($.04 per share).
Roch
Brown & Sharpe Manufacturing Company through its subsidiary Brown & Sharpe
International Capital Corporation purchased, on March 24, 1994, the stock of
the French company Ets. Pierre Roch S.A. ("Roch") and its German affiliate,
Mauser Prazisions--Messmittel GmbH ("Mauser"). The business is headquartered
in Luneville, France which is its sole manufacturing site. The German
operation is a sales office. These operations were purchased from Diehl GmbH &
Co. of Nurnberg, Germany ("Diehl").
The purchase price was 175,000 shares of Brown & Sharpe Class A Common
Stock, subject to certain post closing adjustments and the right to receive an
additional 50,000 shares of such stock in the event the Company's Class A
Common Stock attains a market price of $15 or more per share for a total of 30
days or more during any twelve month period within the five years following
the purchase. The purchase price was determined through negotiation by the
parties subject to adjustment based on specified closing balance sheet
changes. The final purchase price adjustment has not yet been made.
Negotiations to finalize the amount of the adjustment are expected to be
complete by June of 1996.
The acquisition has been accounted for by the purchase method of accounting,
and accordingly, the purchase price has been allocated to assets acquired and
liabilities assumed based on an estimate of their fair values at the date of
acquisition.
32
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Proforma Combined (Unaudited)
The Company's unaudited Pro Forma combined results of operations for the
years ended December 31, 1994 and December 25, 1993 assuming the acquisition
of DEA and Roch occurred at the beginning of 1993, are as follows:
1994 1993
-------- --------
Net sales............................................... $272,847 $279,742
Net income (loss)....................................... $(11,441) $ 8,924
Primary and fully diluted net income (loss) per common
share.................................................. $ (1.89) $ 1.08
3. RESTRUCTURING CHARGES
Results of operations for 1995 include restructuring charges of $336 ($.03
per share) compared with 1994 which include charges of $4,169 ($.69 per
share). These charges consist principally of Brown & Sharpe employee severance
and Brown & Sharpe sales offices closing costs of $336 and $2,348 for 1995 and
1994, respectively, associated with integrating Brown & Sharpe's existing
operations with those of DEA mainly outside the U.S. Other cash costs of
integrating DEA were incurred but were accounted for as part of the purchase
price accounting of the acquisition. Also, costs of $1,821 were recorded for
1994 severance of 38 employees and property, plant, and equipment and
inventory write-offs due to a plant closing in Switzerland arising from the
acquisition of Roch, which is discussed in Note 2. Of these costs, $420 was
paid in 1994 and $3,202 in 1995. The balance $547 represents non-cash costs.
4. INCOME TAXES
Income (loss) before income taxes consisted of the following:
1995 1994 1993
------- -------- -------
Domestic......................................... $(4,850) $ (1,338) $ 1,394
Foreign.......................................... 7,473 (10,597) (3,010)
------- -------- -------
Income (loss) before income taxes................ $ 2,623 $(11,935) $(1,616)
======= ======== =======
The following table reconciles the income tax provision (benefit) at the
U.S. statutory rate to that in the financial statements:
1995 1994 1993
----- ------- -----
Taxes computed at 34%................................ $ 892 $(4,058) $(491)
Goodwill amortization................................ 158 -- --
Additional tax on foreign income..................... 113 1,459 --
Alternative minimum and state taxes.................. 31 250 200
Net operating losses and other losses................ (636) 4,749 1,091
Other (net).......................................... 139 -- --
----- ------- -----
Income tax provision................................. $ 697 $ 2,400 $ 800
===== ======= =====
33
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The income tax provision (benefit) consisted of the following:
1995 1994 1993
------ ------- ------
Current:
Federal........................................... $ (996) $ 3,250 $ 500
State............................................. 31 250 300
Foreign........................................... 1,286 800 500
------ ------- ------
321 4,300 1,300
Deferred:
Federal........................................... 996 (1,000) --
Foreign........................................... (620) (900) (500)
------ ------- ------
376 (1,900) (500)
------ ------- ------
Income tax provision................................ $ 697 $ 2,400 $ 800
====== ======= ======
Provision has not been made for U.S. taxes on $39,000 of cumulative
undistributed earnings of foreign subsidiaries as those earnings are intended
to be permanently reinvested.
The components of the Company's deferred tax assets and liabilities as of
December 31, 1995 and 1994 are as follows:
1995 1994
------- -------
Deferred tax assets:
Inventory reserves.......................................... $ 8,553 $ 2,429
Warranty expense............................................ 928 400
Provision for doubtful accounts............................. 226 300
Depreciation................................................ 1,722 3,044
Tax credit and loss carryforwards........................... 46,293 37,600
Other....................................................... 4,827 404
------- -------
Gross deferred assets..................................... 62,549 44,177
Less valuation allowance.................................... 53,590 38,100
------- -------
Deferred tax asset........................................ $ 8,959 $ 6,077
======= =======
Deferred tax liabilities:
Pension expense............................................. $ 1,542 $ 1,542
Inventory reserves.......................................... 1,665 1,196
Depreciation................................................ 2,288 2,752
Other....................................................... 2,907 324
------- -------
Deferred tax liability.................................... $ 8,402 $ 5,814
======= =======
A valuation allowance has been established due to the uncertainty of
realizing certain tax credit and loss carryforwards and a portion of the other
deferred tax assets. The valuation allowance has been increased by $15,490
during 1995. The recognition of any future tax benefits resulting from the
elimination of $21,300 of the valuation allowance will reduce any goodwill
remaining at the time of such elimination.
For income tax purposes, the Company has operating loss and capital loss
carryforwards of $2,000 and $3,500, respectively, in the U.K. and net
operating loss carryforwards of $26,700, $38,500, $5,000, and $22,700,
34
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
respectively in Switzerland, Germany, France, and Italy. The Swiss, French,
and Italian carryforwards expire between 1996 and 2001. There is no time limit
for the U.K. and German carryforwards.
The Company's domestic income tax return for the 1993 fiscal year is under
examination by the Internal Revenue Service. The Company believes it has made
adequate provision for assessments (if any) which may arise as a result of
this audit.
5. SHORT-TERM BORROWINGS
Outstanding short-term borrowings were $28,061 at December 31, 1995 and
$19,193 at December 31, 1994. Substantially all domestic assets of the Company
are pledged as collateral. Certain borrowing agreements contain covenants
which, among other things, require the Company to maintain certain financial
ratios and restricts the payment of dividends.
Amounts outstanding under Brown & Sharpe's lines of credit, excluding the
Facility, are generally payable on demand, and certain of the lines extended
to Brown & Sharpe's foreign subsidiaries are secured by other assets. The
Facility provides for demand borrowings based on a percentage of eligible
domestic accounts receivable and finished and certain other inventory and, is
secured by substantially all domestic assets. At December 31, 1995, Brown &
Sharpe had borrowings of $28.1 million under all short term lines of credit
compared to total availability at that date of $74.1 million under the lines
of credit. Certain of the domestic and foreign lines of credit provide
availability of borrowing capacity and funds only to the degree of
availability of certain kinds of eligible receivables. At December 31, 1995,
$17.6 million of the total lines of credit were restricted to foreign eligible
receivables and also to certain foreign countries, of which $16.5 million was
available for future use.
No compensating balances were required at December 31, 1995 and 1994. A
credit line of $3,261 in the U.K. is collateralized by the assets in that
country, and the Company has also guaranteed borrowings up to $776. The
weighted average interest rates on short-term borrowings were 7.7% and 7.3% in
1995 and 1994, respectively.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
1995 1994
------- -------
9-1/4% convertible subordinated debentures due December,
2005...................................................... $14,000 $15,000
Mortgages at rates ranging from 7.75% to 8.75%............. 26,800 27,619
Notes payable, due September 28, 1997 with quarterly inter-
est of Libor
plus .60%................................................. 25,000 25,000
Notes payable, due various dates with interest rates
ranging from 2.1% to 12.39%............................... 8,207 5,801
------- -------
74,007 73,420
Less: current installments................................. 17,168 3,205
------- -------
Total long-term debt....................................... $56,839 $70,215
======= =======
The 9-1/4% subordinated debentures are convertible, at the option of the
holders, into common shares at $26.25 per share subject to antidilution
provisions. The Company, through a sinking fund, is required to provide for
retirement of $1,000 in principal amount annually with the final $5,000
payable at maturity. At December 31, 1995, 533,333 shares of Class A Common
Stock were reserved for conversion of these debentures. Annual maturities of
long- term debt are as follows: 1996--$17,168, 1997--$30,888; 1998--$3,359;
1999--$8,493; 2000--$2,351; and $11,748 thereafter. Interest rates on long-
term debt average approximately 9% in 1995.
35
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The $25,000 notes payable are guaranteed by Finmeccanica in connection with
the acquisition of DEA. In return, the Company's reimbursement obligation is
secured by a guarantee by DEA pursuant to an agreement between DEA and
Finmeccanica.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company values the financial instruments as required by Statement of
Financial Accounting Standards No. 107. The carrying amounts of cash and cash
equivalents, short-term debt, and long-term variable-rate debt approximates
fair value. The fair value of the Company's 9 1/4% subordinated debentures
approximates $14,000 based on the quoted market prices.
8. CONTINGENCIES
On April 7, 1995, the U.S. Court of Appeals for the District of Columbia
Circuit rendered a decision on the second appeal by the International
Association of Machinists and Aerospace Workers (the "IAM") of a supplemental
decision and order of the National Labor Relations Board ("NLRB") reaffirming
an April 1986 decision of the NLRB dismissing reinstated unfair labor practice
charges brought against the Company by the IAM in September 1982. These
charges arose out of a strike which began at the Company's Rhode Island
operations in October 1981. Although the NLRB has previously upheld dismissal
of the reinstated unfair labor practice charges, the Appeals Court in its
latest decision has stated that the NLRB failed to articulate and apply a
judicially acceptable standard to determine whether certain evidence offered,
and characterized by the IAM as being newly discovered, was material and of
sufficient nature to justify tolling the statute of limitations so as to
permit the filing of the reinstated unfair labor practice charges. Based on
the foregoing, the Court vacated the judgment of the NLRB favorable to the
Company and has remanded the case back to the NLRB for further proceedings to
determine these evidentiary issues and their effect on the application of the
statute of limitations to the reinstated unfair labor practice charges. The
Court has directed that should the NLRB rule against the Company on the
evidentiary issues presented for consideration then it must proceed to
determine the merits of the reinstated unfair labor practice charges.
Management of the Company and its counsel believe the NLRB will not determine
that the case should proceed to a hearing on its merits and that a finding of
ultimate liability against the Company in this matter continues to be remote.
The Company is involved in a lawsuit which arose out of an environmental
proceeding in which the United States Environmental Protection Agency ("EPA")
identified Brown & Sharpe as a potentially responsible party ("PRP") at a
waste disposal site (the "Site") in Rhode Island listed on the EPA's National
Priority List for clean-up and future monitoring remedial action under the
Superfund legislation. While the Company's proportionate share of the total
waste contributed to the Site was minimal in volume and toxicity, the EPA
nevertheless issued an Administrative Order against the Company and other
PRP's to clean up the Site. Subsequently, the Company was permitted by the EPA
to settle its liability at such Site in exchange for releases from the EPA and
the State of Rhode Island and contribution protection from claims of any third
parties who may have liability at the Site. On January 2, 1991, a group of
non-settling major PRP's at the Site brought suit in the Federal District
Court in Rhode Island against all of the settling parties, including the
Company, to recover a portion of their past and anticipated future costs of
performing the clean-up remedy. The Court entered a summary judgment in favor
of the Company and other settling parties on October 30, 1992. The non-
settling group of major PRP's appealed that ruling and have subsequently
brought suit against the EPA seeking to have the settlements of the de minimis
settling parties set aside. The Company is vigorously defending this lawsuit
and believes that the release and contribution protection obtained from the
EPA in connection with settlement of its liability at the Site will ultimately
bar the cost-recovery claim.
On March 1, 1995, the Company received a notice from the State of New York
asserting a claim against it, along with a group of approximately ten other
companies, to recover costs incurred by the New York State
36
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Department of Environmental Conservation to clean up a waste disposal site in
Poughkeepsie, NY. The State has alleged that the Company's former subsidiary,
Standard Gage Company, Poughkeepsie, NY, which was merged with and into the
Company, contributed hazardous waste to the site for disposal and that the
Company is a potentially responsible party as the surviving corporation to the
merger. The total claim asserted by the State against all parties is
approximately $500, and it has expressed a willingness to settle its claim
with all PRP's receiving the notice. The Company is continuing to investigate
the basis for this claim and estimates that any potential loss it might incur
as a result of any involvement or settlement at this site would not be
material.
The Company is also involved in several product liability claims and
lawsuits which are incidental to the conduct of its business, the potential
liability for which is adequately covered by insurance or reserves established
for such contingencies. The Company is contesting or defending these claims
and suits and management believes that the ultimate liability, if any,
resulting from these matters will not have a material effect on the Company's
financial position.
9. INCENTIVE AND RETIREMENT PLANS
Stock Incentive Plans
Under the provisions of the Company's 1989 Equity Incentive Plan (the "`89
Plan"), as amended on May 3, 1995 to increase by 500,000 the number of shares
authorized for delivery in connection with awards, a variety of stock and
stock based incentive awards, including stock options and restricted and
unrestricted stock, are available to be granted to eligible key employees of
the Company and its subsidiaries. The `89 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. During 1995, there
were no awards of restricted stock, and during 1994, a total of 10,000 shares
of restricted Class A common stock utilizing newly issued shares were made
under the `89 Plan. Since the inception of the `89 Plan, 102,300 restricted
Class A shares have been awarded net of forfeitures. The awards of restricted
stock vest over a five year period with 25% of the award vesting at the end of
the 2nd and 3rd years and 50% at the end of the 5th year with the unvested
shares being subject to forfeiture if the recipient's employment is
terminated. Unearned compensation in the amount of $349 is being amortized to
expense over the forfeiture lapsing period for these awards of restricted
stock. In 1995 and 1994, options to purchase a total of 528,000 and 145,000
shares, respectively, during ten year periods of Class A common stock were
granted at exercise prices between $6.50 and $10.75 per share. The options
granted in 1995 become exerciseable either with respect to 50% of the award
after 2 years and 25% after 3 and 4 years from the date of the award or 50% of
the award after 2 years and 50% after 3 years from the date of the award. The
options granted in 1994 were exerciseable at any time after the date of the
awards. The exercise price for shares covered by options awarded under the `89
Plan is 100% of the market value on the date such options are granted. The
aggregate amount of shares of Class A common stock, including options, which
may be awarded under the `89 Plan is 875,000 shares and the amount of shares
of Class A common stock including forfeitures remaining available for issuance
under the `89 Plan in connection with future awards is 124,700 shares.
No further options or other awards may be granted under the Company's
Amended 1973 Stock Option Plan (the "`73 Plan"). The exercise price for
shares of Class A common stock covered by outstanding options under the `73
Plan is 100% of the market value on the dates such options were granted.
Options granted under the `73 Plan became exerciseable one year after the date
of grant and expire at the end of ten years. On December 31, 1995, options for
17,997 shares of Class A common stock were outstanding and exerciseable at
prices between $12.94 and $17.86. Option activity under both the `89 Plan and
`73 Plan during the past three years is summarized as follows:
37
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SHARES PRICE RANGE
------- ----------------
Outstanding December 26, 1992..................... 145,192 $10.25 to $17.86
Forfeited or canceled........................... (21,666) $10.78 to $12.13
-------
Outstanding December 25, 1993..................... 123,526 $10.25 to $17.86
Granted......................................... 145,000 $ 6.50
Forfeited or canceled........................... (50,529) $12.47 to $13.10
-------
Outstanding December 31, 1994..................... 217,997 $ 6.50 to $17.86
Granted......................................... 528,000 $ 6.75 to $10.75
Forfeited or canceled........................... (80,000) $ 6.50 to $16.38
-------
Outstanding December 31, 1995..................... 665,997 $ 6.50 to $17.86
=======
Profit Incentive Plan
Under the provisions of the Company's Amended Profit Incentive Plan as
originally approved in 1979, awards of cash and supplemental awards of
restricted shares of restricted common stock valued at 100% of market on the
date of grant vesting ratably over a five year period and subject to
forfeiture conditions, could be made as bonuses to certain management
employees. Following an amendment of the Plan in 1994, the Plan feature
providing for awards of stock was eliminated resulting in the Plan being a
cash only bonus Plan. Plan awards provisions under the Plan in the amounts of
$1,157, $310, and $601 were made in 1995, 1994, and 1993, respectively, and
there were no awards of stock made in 1995, 1994 or 1993.
Long-Term Deferred Cash Incentive Plan
In February 1996, the Board of Directors approved "The Brown & Sharpe Key
Employee Long-Term Deferred (unfunded) Cash Incentive Plan" (the "LTIP"),
which was effective for 1995. The LTIP provides for deferred cash payments
upon retirement or termination of employment, subject to vesting three years
after the end of the year for which it is earned. Annual total plan awards are
calculated at 6% of adjusted pretax income and shared by the plan participants
(currently eight key executives of the Company) pro rata based on annual
salary paid. The 1995 consolidated financial statements contain a provision
amounting to $200 thousand.
Savings Plans
Company has 401(K) stock bonus and thrift savings plans for U.S. employees,
which include retirement income features consisting of employer contributions
and employee tax deferred contributions. Contributions under all plans are
invested in professionally managed portfolios and Company stock. The savings
plans' expense for 1995, 1994, and 1993 was $941, $793, and $705,
respectively.
Stock Ownership Plan
Under the provisions of the Company's Employee Stock Ownership Plan (ESOP),
the Company may make contributions of common stock or cash to purchase common
stock from the Company or otherwise, to be held in trust for employees meeting
certain eligibility requirements until the employees reach retirement age. The
ESOP may also borrow funds to purchase common shares, for which the Company
will contribute amounts as necessary to pay down the indebtedness. ESOP
expense was $433 in 1995, $360 in 1994, and $327 in 1993. At December 31,
1995, there were no unallocated shares of Class A and B stock held in the ESOP
as all shares were allocated to participants' accounts.
38
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Retirement Plans
The Company's subsidiaries have a defined contribution retirement plan
covering employees in Switzerland and two defined benefit retirement plans
covering employees in the U.K. and Germany, which includes substantially all
employees. Retirement plan expense net of pension income for 1995, 1994, and
1993 was $1,369, $1,593, and $1,223, respectively.
The defined benefit plans which cover employees in the U.K. and Germany,
respectively, provide benefits based on years of service and employee
compensation. Retirement costs under both plans are compiled based on the
projected unit credit actuarial method.
The U.K. plan's actuarial assumptions used settlement rates of 8.0% at the
end of 1995 and 9.0% at the end of 1994, a long-term return on assets of 9.0%
in 1995, 8.0% in 1994, and 10% in 1993, and annual wage increases of 7.0% at
the end of 1995 and 8.0% at the end of 1994. Retirement costs accrued are
funded.
The German plan's actuarial assumptions used a settlement rate of 7.0% and
7.5% at the end of 1995 and 1994 and an annual wage increase of 4.5% at the
end of 1995 and 1994. Retirement costs accrued are not funded.
The following items are the components of net periodic pension income for
the U.K. plan for the years ended December 31, 1995 and 1994 and December 25,
1993:
1995 1994 1993
------- ------- -------
Service cost-benefits earned........................ $ 823 $ 797 $ 664
Interest cost on projected benefit obligations...... 1,263 943 743
Return on plan assets, net.......................... (3,049) 1,007 (1,200)
Net amortization and deferral....................... 909 (2,948) (345)
------- ------- -------
Net periodic pension income......................... $ (54) $ (201) $ (138)
======= ======= =======
The plan has assets in excess of the accumulated benefit obligations. Plan
assets include investments in equity securities, corporate and government debt
securities, and cash equivalents. The following table presents a
reconciliation of the funded status of the plan at December 31, 1995 and 1994:
1995 1994
-------- --------
Vested and accumulated benefit obligation.................. $(12,012) $(16,311)
======== ========
Projected benefit obligation............................... (15,126) (18,420)
Plan assets at fair value.................................. 20,726 31,290
-------- --------
Funded status.............................................. 5,600 12,870
Unrecognized portion of net assets......................... (927) (7,764)
-------- --------
Prepaid pension............................................ $ 4,673 $ 5,106
======== ========
The following items are the components of net periodic pension cost for the
unfunded German plan for the years ended December 31, 1995 and 1994 and
December 25, 1993:
1995 1994 1993
------- ------- ----
Service cost-benefits earned............................ $ 107 $ 97 $112
Interest cost on projected benefit obligations.......... 372 316 295
------- ------- ----
Net periodic pension cost............................... $ 479 $ 413 $407
======= ======= ====
Vested and accumulated benefit obligation............... $(4,700) $(3,330)
======= =======
Projected benefit obligation............................ $(5,519) $(4,617)
Unrecognized net gain................................... (304) (418)
------- -------
Unfunded accrued pension cost........................... $(5,823) $(5,035)
======= =======
39
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense was $10,762, $5,694, and $4,855 in 1995,
1994, and 1993, respectively.
11. OTHER INCOME AND EXPENSE
Other income (expense), net includes:
1995 1994 1993
---- ---- ------
Interest income............................................. $540 $468 $ 266
Gain (loss) on sale of fixed assets......................... (90) (284) 44
Gain on sale of operations.................................. -- -- 2,182
Other income (expense)...................................... (315) 65 115
---- ---- ------
$135 $249 $2,607
==== ==== ======
12. RENTAL EXPENSE AND LEASE COMMITMENTS
At December 31, 1995, the Company was obligated under operating leases
expiring on various dates. Rental expense was $9,767, $4,157, and $3,845 in
1995, 1994, and 1993, respectively. Annual rental commitments under
noncancelable leases pertaining principally to buildings and equipment at
December 31, 1995 are $6,919, $3,706, $2,200, $1,028, and $858 for the years
1996 through 2000, and aggregate to $4,391 for all years subsequent to 2000.
In addition, DEA is the lessee under a lease agreement with the Elsag Bailey
Division of Finmeccanica with respect to its principal headquarters facility
located in Moncalieri, Italy. The lease expires on December 31, 1997, and the
annual rental amount under such lease is approximately $861. (See Note 2.)
Expenditures under this lease after DEA's scheduled vacating of the facility
in September 1996 has been waived by Finmeccanica as part of the purchase
price adjustment settlement.
13. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
Financial Information by Business Segment and Geographic Area as set forth
on page 11 in Item 1 of this Annual Report is an integral part of these
financial statements.
14. COMMON STOCK
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 law, the Class B common
stock has ten votes per share, and the Class B common stock is convertible
into Class A common stock on a one-for-one basis, and can be transferred in
Class B form only to specified transferees, generally members of a
shareowner's family and certain others affiliated with a shareowner. During
1995 and 1994, 12,246 shares and 12,783 shares, respectively, were converted
from Class B to Class A common stock.
During 1995, 16,100 shares were put into the treasury from a forfeiture of
restricted stock award. In 1994, 584 treasury shares were allocated for use as
restricted stock awards, and 584 treasury shares were issued under a
Directors' deferred compensation plan.
40
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
15. PREFERRED STOCK PURCHASE RIGHTS
On March 23, 1988, the Company distributed a dividend of one purchase right
for each outstanding share of common stock. Until the occurrence of specified
events, the rights are represented by the associated common stock
certificates. Following the distribution of the Class B common stock on June
10, 1988, and until the occurrence of specified events, each certificate
representing a share of Class A or Class B common stock also represents three-
quarters of a right. Each right entitles the shareowner to buy from the
Company one-hundredth of a share of Series A Participating Preferred Stock at
an exercise price of $55 per right. The rights become exerciseable ten days
after a party acquires 20% of the Company's common stock. The rights, which
are subject to adjustment, may be redeemed by the Company at a price of $.03
per right at any time prior to the fifteenth day after a person acquires 20%
of the Company's common stock. The rights expire on March 23, 1998.
In the event the Company is involved in certain business combination
transactions with a 20% shareowner, each right will entitle its holder (other
than a 20% shareowner) to purchase, at the right's then exercise price, an
equity interest in the acquiring person having a market value of two times the
exercise price. In the event a 20% shareholder engages in certain other
transactions with the Company or (pursuant to a February, 1989 amendment) any
person becomes a 20% shareowner, each right will entitle its holder (other
than a 20% shareowner) to purchase, at the right's then exercise price, shares
of Class A common stock having a market value of two times the exercise price.
Prior to the DEA acquisition and entering into the Shareholders Agreement
between the Company and Finmeccanica, the Company amended the Rights Agreement
between it and the First National Bank of Boston dated March 9, 1988 pursuant
to authority reserved in such agreement to exclude Finmeccanica from the
definition of an "Acquiring Person" under the Rights Agreement so long as it
does not own shares of Class A Stock other than those acquired in connection
with the DEA acquisition and as provided in the Shareholders Agreement.
16. COMMITMENT
At December 31, 1995, the Company had entered into a commitment to construct
a building in Telford, England. This building, which is to be completed in
1996, will increase the capacity of its Custom Metrology Division. The
building is estimated to cost approximately $3,800.
17. QUARTERLY DATA (UNAUDITED)
1995
--------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
Net sales.............................. $74,095 $80,967 $76,945 $ 88,892
Gross profit........................... 23,184 23,704 22,682 29,600
Net income (loss)...................... (1,455) 1,045 220 2,116
Earnings (loss) per common share....... $ (.17) $ .12 $ .03 $ .24
1994
--------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
Net sales.............................. $36,659 $43,152 $39,641 $ 85,548
Gross profit........................... 10,719 13,755 11,031 26,719
Net income (loss)...................... (2,874) (1,368) (4,615) (5,478)
Earnings (loss) per common share....... $ (.57) $ (.26) $ (.86) $ (.63)
The aggregate effect of 1995 year-end adjustments was to increase fourth
quarter net income by $940 ($.11 per share), after taxes, which, primarily,
resulted from an adjustment to inventory valuation allowances that were
necessary to record inventory at locations outside the United States at FIFO
cost. In addition, as discussed in greater detail in Note 1, the 1995 fourth
quarter also includes an adjustment amounting to $640 ($.07 per share), after
taxes, relating to a revaluation of 1994 foreign denominated liabilities.
41
BROWN & SHARPE MANUFACTURING COMPANY
ITEM 9--DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Refer to "INFORMATION WITH RESPECT TO NOMINEES AND OTHER DIRECTORS
CONTINUING IN OFFICE" in the Company's definitive Proxy Statement for the May
2, 1996 Annual Meeting which is incorporated herein by reference.
Executive Officers
Refer to Item 4A of this Annual Report on Form 10-K for information
regarding Executive Officers.
ITEM 11--MANAGEMENT REMUNERATION AND TRANSACTIONS
Refer to "EXECUTIVE COMPENSATION" in the Company's definitive Proxy
Statement for the May 2, 1996 Annual Meeting which is incorporated herein by
reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to "Principal Shareholders" and "STOCK OWNERSHIP OF DIRECTORS AND
OFFICERS" in the Company's definitive Proxy Statement for the May 2, 1996
Annual Meeting which are incorporated herein by reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to "CERTAIN RELATIONSHIPS" in the Company's definitive Proxy Statement
for the May 2, 1996 Annual Meeting which is incorporated herein by reference.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements filed in Item 8 of this Annual Report
Consolidated Statements of Operations for the Years Ended December 31, 1995
and 1994 and December 25, 1993
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995
and 1994 and December 25, 1993
Consolidated Statements of Shareowners' Equity for the Years Ended December
31, 1995 and 1994 and December 25, 1993
Notes to Consolidated Financial Statements
42
BROWN & SHARPE MANUFACTURING COMPANY
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
Statements and Schedules Omitted
Individual financial statements of the Registrant's subsidiaries are omitted
because the Registrant is primarily an operating Company and all subsidiaries
included in the consolidated financial statements are wholly-owned
subsidiaries.
Schedules other than those listed above are omitted because they are not
required, are not applicable, or the information is included in the financial
statements.
Exhibits
Exhibits have been filed separately with the Securities and Exchange
Commission in connection with this Annual Report on Form 10-K or have been
incorporated into the report by reference. A list briefly describing such
Exhibits has been enclosed in this Annual Report.
Reports on Form 8-K
On April 4, 1995, Brown & Sharpe filed a Current Report on Form 8-K under
Item 4 reporting the March 30, 1995 appointment of Ernst & Young LLP as the
Company's independent auditors.
43
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.
Brown & Sharpe Manufacturing Company
(Registrant)
/s/ Charles A. Junkunc
Date: March 26, 1996 By: _________________________________
CHARLES A. JUNKUNCVICE PRESIDENT
AND CHIEF FINANCIAL 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.
SIGNATURE TITLE DATE
/s/ Henry D. Sharpe, Jr. Chairman of the March 26, 1996
- ------------------------------------- Board and Director
HENRY D. SHARPE, JR.
/s/ Frank T. Curtin President, Chief March 26, 1996
- ------------------------------------- Executive Officer
FRANK T. CURTIN (Principal
Executive Officer)
and Director
/s/ Paul R. Tregurtha Director March 26, 1996
- -------------------------------------
PAUL R. TREGURTHA
/s/ Henry D. Sharpe, III Director March 26, 1996
- -------------------------------------
HENRY D. SHARPE, III
/s/ Vincenzo Cannatelli Director March 26, 1996
- -------------------------------------
VINCENZO CANNATELLI
/s/ Alfred J. Corso Controller March 26, 1996
- ------------------------------------- (Principal
ALFRED J. CORSO Accounting Officer)
44
SIGNATURE TITLE DATE
/s/ Howard K. Fuguet Director March 26, 1996
- -------------------------------------
HOWARD K. FUGUET
/s/ John M. Nelson Director March 26, 1996
- -------------------------------------
JOHN M. NELSON
/s/ Russell A. Boss Director March 26, 1996
- -------------------------------------
RUSSELL A. BOSS
/s/ Enrico Albareto Director March 26, 1996
- -------------------------------------
ENRICO ALBARETO
/s/ Alberto de Benedictis Director March 26, 1996
- -------------------------------------
ALBERTO DE BENEDICTIS
/s/ Charles A. Junkunc Vice President and March 26, 1996
- ------------------------------------- Chief Financial
CHARLES A. JUNKUNC Officer (Principal
Financial Officer)
45
DIRECTORS
Enrico Albareto, Chief Executive Officer, Elsag Bailey, Division of
Finmeccanica S.p.A.
Russell A. Boss, Director and President & Chief Executive Officer, A. T.
Cross Company
Vincenzo Cannatelli, Managing Director and Chief Executive Officer, Elsag
Bailey Process Automation N.V.
Alberto de Benedictis, Senior Vice President, Corporate Development,
Finmeccanica S.p.A.
Howard K. Fuguet, Partner, in the law firm of Ropes & Gray
John M. Nelson, Chairman & Chief Executive Officer, Wyman-Gordon Company
Henry D. Sharpe, Jr., Chairman of the Board, Brown & Sharpe Manufacturing
Company
Henry D. Sharpe, III, Co-founder & Technical Director, Design Lab, Inc.
Frank T. Curtin, President & Chief Executive Officer, Brown & Sharpe
Manufacturing Company
Paul R. Tregurtha, Chairman of the Board and Chief Executive Officer, Mormac
Marine Group, Inc.
OFFICERS
Henry D. Sharpe, Jr., Chairman of the Board
Frank T. Curtin, President & Chief Executive Officer
Charles A. Junkunc, Vice President & Chief Financial Officer
Antonio Aparicio, Vice President & General Manager--Precision Measuring
Instruments
Dr. John Cooke, Vice President & General Manager--Custom Metrology
Richard F. Paolino, Vice President & General Manager--Measuring Systems,
Commercial Operations
Richard D. Batting, Vice President & General Manager--Measuring Systems
U.S.A.
Andrew Barclay, Vice President
Karl J. Lenz, Vice President
John L. Eppich, Treasurer
James W. Hayes, III, Secretary & Corporate Counsel
Alfred J. Corso, Controller
INVESTOR INFORMATION
ANNUAL MEETING: The Annual Meeting of Stockholders will be held May 2, 1996
at 10:00 a.m. at the Corporate Offices.
CORPORATE OFFICES: Precision Park, 200 Frenchtown Road, North Kingstown, RI
02852; Telephone (401) 886-2000.
FORM 10-K REPORT: A copy of the Company's Annual Report as filed with the
Securities and Exchange Commission is available upon request to the Secretary.
STOCK LISTING: New York Stock Exchange; Symbol BNS
TRUSTEE AND REGISTRAR FOR THE 9 1/4% CONVERTIBLE SUBORDINATED
DEBENTURES: First Trust New York, 100 Wall Street, Suite 1600, New York, NY
10015
TRANSFER AGENT AND REGISTRAR COMMON STOCK: Bank of Boston, c/o Boston
EquiServe, L.P., Mail-Stop 45-02-64, P.O. Box 644, Boston, MA 06114
46
BROWN & SHARPE MANUFACTURING COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
FOREIGN
BALANCE AT CHARGED TO CURRENCY BALANCE AT
BEGINNING COSTS AND DEDUCTIONS TRANSLATION END OF
YEAR ENDED OF PERIOD EXPENSES (2) (1) PERIOD
- ---------- ---------- ---------- ---------- ----------- ----------
DECEMBER 31, 1995
Allowance for doubtful
accounts............... $3,103 $2,124 $2,330 $133 $3,030
DECEMBER 31, 1994
Allowance for doubtful
accounts............... $1,320 $2,833 $1,117 $ 67 $3,103
DECEMBER 25, 1993
Allowance for doubtful
accounts............... $1,452 $ 264 $ 358 $(38) $1,320
- --------
(1) Adjustment resulting from translating allowance for doubtful accounts of
foreign subsidiaries at year-end exchange rates.
(2) Write-offs of uncollectible accounts.
47
NUMBER EXHIBIT INDEX
------ -------------
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 27, 1979, filed
as Exhibit 13 to Form 10-K for the period ending December 29, 1979, 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
27, 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.
4.1 Indenture dated October 1, 1980 (including form of debenture) between
the Company and Morgan Guaranty Trust Company of New York as Trustee
relating to 9 1/4% convertible subordinated debentures due December 15,
2005, filed as Exhibit 2 to Form 8-A dated October 8, 1980 and such is
hereby incorporated by reference.
The Registrant hereby agrees to furnish to the Commission upon request
copies of any long-term debt instruments not filed herewith because the
securities authorized under any such instrument do not exceed ten
percent of total assets of the Registrant and its Consolidated
Subsidiaries.
+10.1 (Intentionally omitted)
+10.2 Amended 1973 Stock Option Plan, as amended through March 9, 1988.
Exhibit 10.2 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.
+10.3 Amendment dated December 29, 1990 to the Brown & Sharpe Amended 1973
Stock Option Plan. Exhibit 10.3 was filed as Exhibit 10.3 to the Form
10-K for the year ended December 29, 1990 and such is herein
incorporated by reference.
+10.4 Amendment No. 4 of the Restated Brown & Sharpe Employee Stock Ownership
and Profit Participation Plan and Trust Agreement, as amended through
December 21, 1990. Exhibit 10.4 was filed as Exhibit 10.4 to the Form
10-K for the year ended December 29, 1990; and is hereby incorporated
herein by reference.
10.5 (Intentionally omitted)
10.6 (Intentionally omitted)
+10.7 Deferred Stock Equivalent Unit Contract dated December 31, 1982 between
Brown & Sharpe Manufacturing Company and Donald A. Gaudion. Exhibit 10.7
was filed as Exhibit 10.24 to Form 10-K for the period ended December
25, 1982, and such is hereby incorporated by reference.
48
NUMBER EXHIBIT INDEX
------ -------------
+10.8 (Intentionally omitted)
+10.9 The Brown & Sharpe Savings and Retirement Plan for Management Employees
dated October 7, 1987.
10.10 The Brown & Sharpe Savings and Retirement Plan dated October 7, 1987.
+10.11 Amendment and Restatement of the Brown & Sharpe Employee Stock
Ownership and Profit Participation Plan and Trust Agreement dated
October 7, 1987.
Exhibits 10.9 through 10.11 were filed as Exhibits 10.2 through 10.4
respectively, to Form 10-Q for the period ended September 26, 1987 and
such are hereby incorporated by reference.
10.12 Preferred Stock Rights Agreement dated as of March 9, 1988, between the
Company and The First National Bank of Boston, as Rights Agent. Exhibit
10.12 was filed as Exhibits 1-4 to the Registration Statement on Form
8-A filed on April 28, 1988, and is hereby incorporated herein by
reference.
10.13 Amendment No. 1, dated as of May 2, 1988, to Preferred Stock Rights
Agreement. Exhibit 10.13 was filed as Exhibit 5 to Amendment No. 1 on
Form 8, filed on March 6, 1989, to the Registration Statement on Form
8-A filed on April 28, 1988, and is hereby incorporated herein by
reference.
10.14 Amendment No. 2, dated as of February 24, 1989, to Preferred Stock
Rights Agreement. Exhibit 10.14 was filed as Exhibit 6 to Amendment No.
1 on Form 8, filed on March 6, 1989, to the Registration Statement on
Form 8-A filed on April 28, 1988, and is hereby incorporated herein by
reference.
+10.15 Amendment dated February 23, 1989 to The Brown & Sharpe Savings and
Retirement Plan for Management Employees.
+10.16 Amendment No. 2, dated October 19, 1988, to The Brown & Sharpe Savings
and Retirement Plan for Management Employees.
+10.17 Amendment No. 3, dated February 23, 1989, to The Brown & Sharpe Savings
and Retirement Plan for Management Employees.
10.18 Amendment dated February 23, 1989 to The Brown & Sharpe Savings and
Retirement Plan.
10.19 Amendment No. 2, dated October 19, 1988, to The Brown & Sharpe Savings
and Retirement Plan.
10.20 Amendment No. 3, dated February 23, 1989, to The Brown & Sharpe Savings
and Retirement Plan.
+10.21 Amendment dated February 23, 1989, to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement.
+10.22 Amendment No. 2, dated October 19, 1988 to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement.
+10.23 Amendment No. 3, dated February 23, 1989 to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement.
Exhibits 10.15 through 10.23 were filed as Exhibits 10.19 through
10.27, respectively, to the Form 10-K for the year ended December 31,
1988, and are hereby incorporated herein by reference.
+10.24 Amended 1989 Equity Incentive Plan as amended through February 21,
1992. Exhibit 10.24 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.
+10.25 Deferred Stock Equivalent Unit Contract dated September 3, 1987 between
Brown & Sharpe Manufacturing Company and Paul R. Tregurtha. Exhibit
10.25 was filed as Exhibit 10.24 to the Form 10-K for the year ended
December 30, 1989 and such is herein incorporated by reference.
+10.26 Form of amendment dated April 30, 1991 to Deferred Stock Equivalent
Unit Contract dated September 3, 1987 between Brown & Sharpe
Manufacturing Company and Paul R. Tregurtha. Exhibit 10.26 was filed as
Exhibit 10.26 to the Form 10-K for the year ended December 28, 1991 and
such is hereby incorporated by reference.
49
NUMBER EXHIBIT INDEX
------ -------------
+10.27 Deferred Stock Equivalent Unit Contract dated November 30, 1989 between
Brown & Sharpe Manufacturing Company and Herbert A. Beyer. Exhibit
10.27 was filed as Exhibit 10.25 to the Form 10-K for the year ended
December 30, 1989 and such is hereby incorporated by reference.
+10.28 Form of amendment dated April 30, 1991 to Deferred Stock Equivalent
Unit Contract Dated November 30, 1989 between Brown & Sharpe
Manufacturing Company and Herbert A. Beyer. Exhibit 10.28 was filed as
Exhibit 10.28 to the Form 10-K for the year ended December 28, 1991 and
such is hereby incorporated by reference.
+10.29 Amendment No. 4, dated October 20, 1989, to Brown & Sharpe Savings and
Retirement Plan for Management Employees. Exhibit 10.29 was filed as
Exhibit 10.26 to the Form 10-K for the year ended December 30, 1989 and
such is hereby incorporated by reference.
10.30 Amendment No. 4, dated October 30, 1989, to Brown & Sharpe Savings and
Retirement Plan. Exhibit 10.30 was filed as Exhibit 10.27 to the Form
10-K for the year ended December 30, 1989 and such is hereby
incorporated by reference.
10.31 Amendment No. 5, dated September 7, 1990, of the Brown & Sharpe Savings
and Retirement Plan. Exhibit 10.31 was filed as Exhibit 10.30 to the
Form 10-K for the year ended December 29, 1990 and such is hereby
incorporated by reference.
+10.32 Amendment No. 5, dated September 7, 1990, of the Brown & Sharpe Savings
and Retirement Plan for Management Employees. Exhibit 10.32 was filed
as Exhibit 10.31 to the Form 10-K for the year ended December 29, 1990
and such is hereby incorporated by reference.
10.33 The acquisition agreement pertaining to the acquisition of Wild Leitz
Messtechnik GmbH and The Marketing and Sales Assets of the IMT Division
of LEICA plc by Brown & Sharpe Manufacturing Company, dated June 29,
1990, was filed as Exhibit 10.1 to Form 10-Q for the period ended June
30, 1990 and is hereby incorporated herein by reference.
+10.34 (Intentionally omitted)
+10.35 (Intentionally omitted)
+10.36 Employment/severance agreement dated March 14, 1988 between Brown &
Sharpe Manufacturing Company and Richard F. Paolino.
+10.37 (Intentionally omitted)
Exhibits 10.34 through 10.37 were filed as Exhibits 10.34 through
10.37, respectively, to the Form 10-K for the year ended December 28,
1991, and are hereby incorporated by reference.
+10.38 The sales agreement pertaining to the sale of GageTalker Corporation to
P. Eric Berg by Brown & Sharpe Manufacturing Company dated January,
1992. Exhibit 10.38 was filed as Exhibit 10.38 to the Form 10-K for the
year ended December 28, 1991 and is hereby incorporated by reference.
+10.39 (Intentionally omitted)
+10.40 Amendment No. 5 of the Restated Brown & Sharpe Employee Stock Ownership
and Profit Participation Plan and Trust Agreement, as amended through
March 23, 1991.
+10.41 Employment/Severance Agreement dated April 23, 1992 between Brown &
Sharpe Manufacturing Company and Charles A. Junkunc.
+10.42 Amendment dated July 24, 1992 to Employment/Severance Agreement dated
April 23, 1992 between Brown & Sharpe Manufacturing Company and Charles
A. Junkunc.
+10.43 Amendment dated November 11, 1992 to 1989 Equity Incentive Plan as
amended through November 6, 1992.
Exhibits 10.38 through 10.43 were filed as Exhibits 10.38 through
10.43, respectively, to the Form 10-K for the year ended December 26,
1992, and are hereby incorporated by reference.
50
NUMBER EXHIBIT INDEX
------ -------------
10.44 The Share Purchase and Transfer agreement dated March 24, 1994 by and
between Diehl GmbH & Co. and Brown & Sharpe Manufacturing Company was
filed as Exhibit (c) to Form 8-K filed as of May 13, 1994, and is
hereby incorporated by reference.
10.45 The Acquisition Agreement pertaining to the acquisition of DEA dated as
of June 10, 1994 between Brown & Sharpe Manufacturing Company and
Finmeccanica S.p.A.
10.46 The Form of Shareholders Agreement to be entered into between Brown &
Sharpe Manufacturing Company and Finmeccanica, S.p.A.
10.47 Amendment No. 3, dated June 16, 1994, to Rights Agreement, dated March
9, 1988 between Brown & Sharpe Manufacturing Company and the First
National Bank of Boston, as Rights Agent.
Exhibits 10.45 through 10.47 were filed as Exhibits 1 through 3,
respectively, to the Form 8-K filed as of June 24, 1994, and are hereby
incorporated by reference.
10.48 Definitive acquisition Agreement providing for the combination of the
DEA metrology business of Finmeccanica (the "DEA Group") with the Brown
& Sharpe Measuring Systems Division dated as of June 10, 1994 between
Brown & Sharpe Manufacturing Company and Finmeccanica S.p.A., was filed
as Exhibit 1 to Form 8-K dated June 24, 1994, and is hereby
incorporated by reference.
10.49 Amendment No. 1 dated July 31, 1994, to Acquisition Agreement, amending
certain debt provisions of the agreement was filed as Exhibit 10.1.1 to
Form 10-Q/A for the quarter ended July 2, 1994 and is hereby
incorporated by reference.
10.50 Letter Agreement of Henry D. Sharpe, Jr. dated September 28, 1994
entered into pursuant to the DEA Acquisition Agreement (was filed as
Exhibit No. 3 to Report on Form 8-K as of September 28, 1994), filed
October 13, 1994 is hereby incorporated by reference.
10.51 Amendment No. 6, dated November 10, 1994, to Brown & Sharpe Savings and
Retirement Plan for Management Employees.
10.52 Amendment No. 6, dated November 10, 1994, to Brown & Sharpe Savings and
Retirement Plan.
10.53 Amended Profit Incentive Plan, as amended through February 14, 1994.
10.54 Restated Supplemental Executive Retirement Plan dated January 23, 1995,
filed as Exhibit 10.54 to Form 10-Q for the quarter ended March 31,
1995, and is hereby incorporated by reference.
10.55 Amendment to the Equity Incentive Plan as of February 15, 1995, filed
as Exhibit 10.55 to Form 10-Q for the quarter ended March 31, 1995, and
is hereby incorporated by reference.
10.56 Amendment No. 1 dated May 31, 1995 to the Brown & Sharpe Savings and
Retirement Plan for Management Employees. (1994 Restatement)
10.57 Amendment No. 2 dated May 31, 1995 to the Brown & Sharpe Savings and
Retirement Plan for Management Employees. (1994 Restatement)
10.58 Amendment No. 1 dated May 31, 1995 to the Brown & Sharpe Savings and
Retirement Plan. (1994 Restatement)
10.59 Severance termination agreement for Fred Stuber dated May 3, 1995.
10.60 Employment Agreement with Frank T. Curtin dated May 17, 1995.
Exhibits 10.56 through 10.60 were filed as Exhibits 10.56 through
10.60, respectively, to the Form 10-Q for the quarter ended June 30,
1995, and are hereby incorporated by reference.
10.61 Indemnity Agreement with Frank T. Curtin dated May 3, 1995.
10.62 Indemnity Agreement with Alfred J. Corso dated May 3, 1995.
10.63 Indemnity Agreement with Enrico Albareto dated October 28, 1994.
10.64 Indemnity Agreement with Alberto de Benedictis dated October 28, 1994.
51
NUMBER EXHIBIT INDEX
------ -------------
10.65 Indemnity Agreement with Vincenzo Cannatelli dated October 28, 1994.
Exhibits 10.61 through 10.65 were filed as Exhibits 10.61 through
10.65, respectively, to the Form 10-Q for the quarter ended September
30, 1995, and are hereby incorporated by reference.
*10.66 Indemnity Agreement with Robert D. Batting dated October 5, 1995.
*10.67 Letter Agreement with Finmeccanica dated December 18, 1995 concerning
Purchase Price Adjustment
*10.68 The Brown & Sharpe Key Employee Long-Term Deferred Cash Incentive Plans
dated February 23, 1996 effective January 1, 1995
*11. Computation of Per Share Data for the Three Years Ended December 31,
1995.
18. Letter of Coopers & Lybrand, independent accountants, regarding
preferability of change in accounting principles to conform worldwide
use of percent-of-completion basis accounting for long-term large
machinery construction contracts of the European operations, filed as
Exhibit 18 to Form 10-Q for the quarter ended April 2, 1994, and is
hereby incorporated by reference.
*22. Subsidiaries of the Registrant.
*24. Consent of Independent Auditors--Ernst & Young LLP.
*24. Consent of Independent Auditors--Coopers & Lybrand L.L.P.
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*These current year Exhibits are located in Exhibit number sequence.
+This identifies management contracts or compensatory plans.
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