SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-6839
BRENCO, INCORPORATED
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(Exact name of registrant as specified in its charter)
Virginia 54-0493835
- --------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Park West Circle
Midlothian, Virginia 23113
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (804) 794-1436
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- -------------------------
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par Value
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(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 [ ]
(CONTINUED)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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.
[ ]
As of February 23, 1996, there were 10,193,021 shares of common stock
outstanding and the aggregate market value of common stock of Brenco,
Incorporated held by nonaffiliates was approximately $93,046,000.
DOCUMENTS INCORPORATED BY REFERENCE
Information from the following documents has been incorporated by reference
in this report:
Annual Report to shareholders for year ended December 31, 1995 - Part II
Proxy Statement dated March 8, 1996 - Part III
PART I
Item 1. Business
General
Brenco, Incorporated was founded in 1949. Initially Brenco was
engaged in the manufacture and sale of bronze bearings for use on railroad
freight cars. In the early 1960s Brenco expanded into the manufacture and
sale of tapered roller bearings for use on railroad freight cars and in
recent years has begun the manufacture and sale of automotive forgings.
Brenco also services and repairs used railroad bearings, and manufactures
lubrication seals for use in railroad bearings and for sale to third
parties. In 1979 Brenco discontinued the manufacture of bronze friction
bearings.
The customer base for Brenco's products and services is made up of
major railroads, car builders and automobile manufacturers, of which there
are a limited number. During 1995, sales to Trinity Industries, Inc., CSX
and Progress Rail Services amounted to $14,293,000, $11,935,000 and
$9,804,000, or approximately 11.2%, 9.4% and 7.7% of 1995 net sales,
respectively. Accounts receivable at December 31, 1995, includes $548,000,
$1,086,000 and $510,000 for the above customers, respectively.
Regulations prescribed by the Association of American Railroads
require that principal component parts used by a railroad in the repair and
maintenance of railroad roller bearings be parts made by the original
bearing manufacturer. Thus if domestic sales of new railroad roller
bearings increase, it may be anticipated that the market for reconditioned
Brenco bearings and component parts for Brenco bearings will also increase.
2
In 1995, sales of automotive forgings represented 8.6% of Brenco's
business. Automotive forgings sales amounted to $10,949,000 in 1995,
$12,451,000 in 1994 and $11,637,000 in 1993. These products are sold
principally to original equipment manufacturers.
Export sales to India, Canada, Brazil, Mexico, Australia and to FAG
for their worldwide markets amounted to $22,814,000 in 1995, $17,491,000 in
1994 and $17,849,000 in 1993. Brenco has no foreign manufacturing
facilities and all products manufactured for export sales are manufactured
at Brenco's Petersburg, Virginia facilities. Payment for export sales to
India is made through the utilization of letters of credit. Sales to
Canada and sales through FAG are on open account. The Company believes the
profitability of its export business is approximately the same as its
domestic business.
Products
The roller bearing is an anti-friction bearing that contains steel
rollers that turn as the axle rotates. Basically, the tapered roller
bearing made by Brenco consists of four components: (1) the cone or inner
race, (2) the cup or outer race, (3) the tapered rollers which roll between
the cup and cone and (4) the cage which serves as a retainer and maintains
proper spacing between the rollers. The design of such bearings permits
the distribution of unit pressures over the full length of the roller.
This fact, coupled with its tapered design, high precision tolerances and
top quality material, provides a bearing with high load carrying capacity,
excellent friction-reducing qualities and a significantly longer life than
older friction-type bearings. The tapered principle of bearings permits
ready absorption of radial loads, imposed at right angles to the axis of
the bearing, and thrust loads which are exerted parallel to the axis of the
bearing. For this reason, they are particularly adapted to reducing
friction where shafts, gears or wheels are used.
Brenco has a separate plant for the manufacture of grease seals which
is a component part of the railroad roller bearing.
Brenco produces automotive forgings for automobile manufacturers.
These products are sold as both unmachined and machined forgings.
Sales of all Brenco's products are made through both a company sales
force and independent manufacturer's representatives.
Through its wholly-owned subsidiary, Rail Link, Inc., Brenco offers
third party switching. This service, currently offered in ten different
states, entails the switching of railcars between the railroad and the
ultimate customers.
Carolina Coastal Railway, Inc. and Commonwealth Railway, Inc., wholly
owned subsidiaries of Rail Link, Inc. operate short line railroads in North
Carolina and Virginia, respectively. In performing this service, railcars
are moved over the short line route from the railroad to the ultimate
customer. All short line operations are under 25 miles in length.
3
Competition
Brenco is principally in competition with one other domestic
manufacturer of railroad roller bearings, The Timken Company, and a number
of foreign bearing manufacturers.
Bearing specifications for railroad roller bearings are largely
determined by the Association of American Railroads. As a result, there
are no significant differences between manufacturers in terms of
bearing design. Consequently, the market for roller bearings, and railroad
roller bearings in particular, is extremely competitive in terms of product
performance and price. Brenco believes that its emphasis on service to its
customers, including the development of a number of service facilities at
various locations throughout the United States for the reconditioning of
used bearings, has been important to the development of its competitive
position.
There are numerous manufacturers of automotive forgings including the
original equipment manufacturers themselves. Brenco's primary competition
is currently these original equipment manufacturers. The market for
automotive forgings is extremely price competitive.
Backlog
Brenco's backlog of orders at December 31, 1995 was approximately
$24,499,000, compared to $51,494,000 and $9,000,000 at December 31, 1994
and 1993, respectively. The backlog at December 31, 1995, represented 2.3
months of sales based upon average monthly sales for 1995. This compares
to 5.2 months of sales for 1994.
As demand for tapered roller bearings for new railcars increased in
1994, lead times were extended. With extended lead times, it became
imperative that customers enter orders earlier and for longer periods of
time. 1995 was a record sales year for the Company. Demand for bearings
for the OEM market will be down in 1996. As a result, backlog figures
reflect a more conservative order pattern coupled with shortened lead
times.
Raw Materials and Energy Use
Raw materials used in Brenco's business consist principally of high
grade steel bars, sheet and strip, wire and tubing. Such products are
available from a number of major steel producers, both domestic and
foreign. To date Brenco has experienced no difficulty in obtaining
adequate supplies of these raw materials for production purposes. Brenco
does not have any long-term supply contracts.
Brenco is a significant user of electricity. Natural gas is also used
in one department. Brenco has had no difficulty in obtaining adequate gas
supplies to date, nor has Brenco received any indication that its supply of
electricity will be restricted or curtailed in the foreseeable future.
4
Capital Expenditures, Plant Expansion and Research
Brenco's capital expenditures were $6,413,000 in 1995.
Brenco's capital expenditure budget for 1996 is approximately
$10,152,000. Increased capacity and new business as well as maintaining
continuity of operations, are the major considerations.
In 1993, the Company licensed from Epilogics, Inc., an engineering
design firm in California, the exclusive manufacture rights to a one-way
clutch design for automotive transmissions for the North American
automotive market. The MD clutch has the potential for increasing the
future sales of our Powertrain Products division, but will require
substantial development and marketing efforts in order to gain acceptance
of the product by the major U.S. automobile manufacturers.
The amount spent on research and development during Brenco's three
most recent fiscal years is not material.
Environmental Matters
During 1994, the Company completed an environmental remediation
project at the Company's original manufacturing site at Puddledock Road in
Petersburg, Virginia. The total cost of the remediation project was
approximately $7,000,000 which has been charged to income in various
amounts each year since 1989.
The effect of these special charges in 1994 was to reduce net income
by $915,000 or $.09 per share. The charges in 1993 decreased net income by
$1,414,000 or $.14 per share.
The Company believes the remediation project to be complete.
Employees
Brenco had 1,052 employees at December 31, 1995. Though union
organization campaigns have been conducted at its Petersburg, Virginia
plant on several occasions in prior years, Brenco is not a party to any
collective bargaining agreement. Brenco believes its employee labor
relations are good.
Item 2. Properties
At December 31, 1995 Brenco operated a total of four manufacturing
plants located on approximately 150 acres of land in Petersburg, Virginia.
The four plants and surrounding facilities adjacent to its headquarters
occupy approximately 60 of the 150 acre tract. The plants in Virginia are
on land owned by Brenco. Brenco's production facilities at its Petersburg,
Virginia plant occupy approximately 400,000 square feet of production area.
5
In general, the buildings are in good condition, are considered to be
adequate for the uses to which they are being put and are in regular use.
At December 31, 1995 Brenco was operating at approximately 90% of capacity
at its Petersburg manufacturing facility.
Reconditioning plants are operated by Brenco affiliates at three
locations in various states. Two of these facilities are leased and one is
owned by Quality Bearing Service of Missouri, Inc. These plants are not
considered material.
The Company leases approximately 14,000 square feet of a three story
concrete and steel building in good condition in Midlothian, Virginia.
Approximately 40 people are located at this location including
Administration, Finance and Marketing personnel.
The Company owns the machinery and equipment which is necessary to
conduct its operations.
Item 3. Legal Proceedings
In the fourth quarter of 1995, a settlement was reached, on terms
favorable to the Company, in the previously disclosed litigation pending
since February 4, 1991, which had been brought by GE against the Company in
the Federal District Court of Connecticut alleging defects in the roller
bearings sold to GE for use on certain railroad passenger cars. (General
Electric Company v. Brenco, Incorporated; Case No. 3: 91V000073 (WWE).)
On June 16, 1994, the Company and four of its subsidiaries filed an
action in the United States District Court for the Eastern District of
Virginia against Roller Bearing Industries, Inc. ("RBI"). The Company and
its subsidiaries asserted claims under the federal Lanham Act as well as
common law fraud and unfair competition. RBI filed a counterclaim against
the Company for violation of federal and state antitrust laws, defamation
and tortious interference with contract. After a trial on January 17-19,
1995, a jury found for RBI on its defamation claim and awarded compensatory
damages in the amount of $374,000. The jury returned a verdict for the
Company on the remainder of RBI's claims and returned a verdict for RBI on
the Company's claims. The Court, on March 7, 1995, denied RBI's motion for
award of attorney fees, but awarded RBI $25,000 for certain expenses. The
Company has filed a notice of appeal to the United States Court of Appeals
for the Fourth Circuit.
Except as set forth above, neither Brenco nor its subsidiaries is a
party to any material pending legal proceeding before any court,
administrative agency or other tribunal (See also Item 1, Environmental
Matters, page 5).
Item 4. Submission of Matters to a Vote of Security Holders
None.
6
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Brenco are elected by the board of directors
of the Company to serve one year terms. Following is information about the
executive officers of Brenco as of the most recent practicable date:
Needham B. Whitfield, age 59 has served as Chief Executive Officer and
Chairman of the Board of Directors of the Corporation since 1985. Mr.
Whitfield is the brother-in-law of John C. Kenny, a director.
J. Craig Rice, age 48, has served as President, Chief Operating
Officer and Director of the Corporation since 1985 and is responsible for
overall corporate policy.
Jacob M. Feichtner, age 58, has served as Executive Vice President,
Secretary and Director of the Corporation since 1985.
Robert V. Lawrence, age 58, has served as Vice President of
Engineering since 1984.
Howard J. Bush, age 42, has served as Vice President of Marketing and
Sales since 1989.
Evan J. Roberts, age 40, has served as Vice President of Operations
since 1994. Mr. Roberts previously served as Vice President, Harsco
Corporation, a manufacturer of heavy duty trucks and school buses, from
1990-1994.
S. Bruce Saunders, II, age 35, has served as Treasurer since 1994.
Mr. Saunders previously held various positions with the Company from 1991-
1994, including Financial Projects Manager and Director of Strategic
Planning & Capital Management.
Donald E. Fitzsimmons, age 54, has served as Vice President of
Railroad Sales since 1994. Prior to 1994, Mr. Fitzsimmons held the
following positions with the Company: Regional Sales Manager, Assistant
Vice President - Sales and Vice President - Railroad Sales.
PART II
Item 5. Market for Brenco, Incorporated Common Stock and Related
Shareholder Matters
The principal market in which the Common Stock of Brenco, Incorporated
is traded is the NASDAQ Over-the-Counter-National Market System. The high
and low sales prices for the Common Stock on the NASDAQ Over-the-Counter-
National Market System and the dividends paid per Common Share for each
quarter in the last two fiscal years are incorporated by reference to page
1 of the 1995 Annual Report. For information on restrictions on payment of
dividends, see Note 5 of Notes to Consolidated Financial Statements under
item 8 of this Report.
7
The approximate number of shareholders of record on February 23, 1996
was 2,021 (including brokers, dealers, banks and other nominees
participating in The Depository Trust Company).
Item 6. Selected Financial Data
Information required by this item is incorporated by reference to the
Brenco Annual Report to shareholders, page 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Information required by this item is incorporated by reference to the
Brenco Annual Report to shareholders, pages 14 and 15.
Item 8. Financial Statements and Supplementary Data
Information required by this item is incorporated by reference to the
Brenco Annual Report to shareholders as follows:
Financial Statements and Independent Auditor's Report - pages 4
through 13.
Supplementary data - page 1, the information under "Selected Quarterly
Data".
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this item concerning directors of the
registrant is incorporated by reference to the Brenco Proxy Statement dated
March 8, 1996, pages 4 and 5 under "Election of Directors". Information on
the executive officers of the registrant is included in Part I under the
caption "Executive Officers of the Registrant".
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the
Brenco Proxy Statement dated March 8, 1996, pages 6 through 10 under
"Executive Compensation".
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to the
Brenco Proxy Statement dated March 8, 1996, pages 1 through 3 under
"Security Ownership of Certain Beneficial Owners and Management".
8
Item 13. Certain Relationships and Related Transactions
Information required by this item concerning certain relationships is
incorporated by reference to the Brenco Proxy Statement dated March 8,
1996, page 5, footnote (1) through (3), under "Election of Directors."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:
(a) 1. Financial Statements:
The following statements are incorporated in Part II, Item 8 by
reference to the Brenco Annual Report to Shareholders (page references are
to page numbers in the Brenco Annual Report):
Page Number
-----------
Independent Auditor's Report 13
Consolidated Balance Sheets as of
December 31, 1995 and 1994 6
Consolidated Statements of Income for
the three years ended December 31, 1995,
1994 and 1993 4
Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 1995,
1994 and 1993 5
Consolidated Statements of Cash Flows for the
three years ended December 31, 1995, 1994
and 1993 7
Notes to Consolidated Financial Statements 8 - 12
(a) 2. Financial Statement Schedules:
Financial statement schedules are omitted because of the absence of
conditions under which they are required or because the required
information is given in the financial statements or notes thereto.
(a) 3. Exhibits
3.1 Articles of Incorporation, as amended.
(incorporated herein by reference to Form SE dated March 27,
1991).
9
3.2 Bylaws, as amended.
(incorporated herein by reference to Exhibit 3.2 included in the
Company's Report on Form 10-Q for the quarter ended June 30,
1995).
4.1 Note Agreements dated as of September 1, 1992, providing for the
issuance in the aggregate of $10,000,000 7.50% Senior Notes due
May 1, 2002 (incorporated herein by reference to Form SE dated
March 26, 1993).
10.1 Employment Agreement dated as of September 8, 1983, between the
Company and J. Craig Rice (incorporated herein by reference to
Form SE dated March 26, 1993).
10.2 Employment Agreement dated as of September 8, 1983, between the
Company and Jacob M. Feichtner (incorporated herein by reference
to Form SE dated March 26, 1993).
10.3 Employment Agreement dated as of September 8, 1983, between the
Company and Robert V. Lawrence (incorporated herein by reference
to Exhibit 10.3 included in the Company's Report on Form 10-K for
the year ended December 31, 1993, as amended on Form 10-K/A,
Amendment No. 1).
10.4 1987 Restricted Stock Plan of the Company, as amended.
10.5 1988 Stock Option Plan of the Company, as amended (incorporated
herein by reference to Exhibit 10.5 included in the Company's
Report on Form 10-K for the year ended December 31, 1993 as
amended on Form 10-K/A, Amendment No. 1).
10.6 Executive Incentive Retirement Plan (incorporated herein by
reference to Exhibit 10.6 included in the Company's Report on
Form 10-K for the year ended December 31, 1994).
13. Portions of the 1995 Annual Report to Shareholders which are
incorporated by reference into this Report on Form 10-K.
21. Subsidiaries of the registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedules.
Management Contracts and Compensatory Plans. Set forth below are the
management contracts or compensatory plans and arrangements required to be
filed as Exhibits to this Annual Report pursuant to Item 14(c) hereof,
including their location:
10
Employment Agreement dated as of September 8, 1983, between the
Company and J. Craig Rice - Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992 (filed under cover of Form
SE dated March 26, 1993).
Employment Agreement dated as of September 8, 1983, between the
Company and Jacob M. Feichtner - Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992 (filed under cover
of Form SE dated March 26, 1993).
Employment Agreement dated as of September 8, 1983, between the
Company and Robert V. Lawrence - Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993 (as amended on
Form 10-K/A, Amendment No. 1).
1987 Restricted Stock Plan of the Company, as amended - Exhibit 10.4
to the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
1988 Stock Option Plan of the Company, as amended April 15, 1993 -
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (as amended on Form 10-K/A, Amendment No. 1).
Executive Retirement Incentive Plan - Exhibit 10.6 to the Company
Annual Report on Form 10-K for the year ended December 31, 1994.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended December
31, 1995.
11
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.
BRENCO, INCORPORATED
March 22, 1996 BY: /s/ J. Craig Rice
--------------------------------------
J. Craig Rice
President
(Chief Operating Officer)
March 22, 1996 BY: /s/ Jacob M. Feichtner
--------------------------------------
Jacob M. Feichtner
Executive Vice President &
Secretary
(Chief Financial and
Accounting Officer)
12
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Chairman of the
/s/ Needham B. Whitfield Board and Chief Executive
- --------------------------------Officer and Director March 22, 1996
Needham B. Whitfield
President and Chief Operating
/s/ J. Craig Rice Officer of the Company
- --------------------------------and Director March 22, 1996
J. Craig Rice
Executive Vice President &
/s/ Jacob M. Feichtner Secretary of the Company
- --------------------------------and Director March 22, 1996
Jacob M. Feichtner
/s/ Steven M. Johnson Director March 22, 1996
- --------------------------------
Steven M. Johnson
/s/ John C. Kenny Director March 22, 1996
- --------------------------------
John C. Kenny
/s/ James M. Wells III Director March 22, 1996
- --------------------------------
James M. Wells III
/s/ Frederic W. Yocum, Jr. Director March 22, 1996
- --------------------------------
Frederic W. Yocum, Jr.
13
EXHIBIT 10.4
Section 1. Establishment, Purpose, and Effective Date of Plan
1.1 Establishment. Brenco, Incorporated hereby establishes a stock
incentive plan for key Employees, as described herein, which shall be known
as the Brenco, Incorporated 1987 Restricted Stock Plan (hereinafter called
the "Plan").
1.2 Purpose. The purpose of the Plan is to enable the Company to
attract, retain, and motivate key Employees who provide valuable services
to the Company, and to provide such Employees with a means of acquiring or
increasing a proprietary interest in the Company so that they will have an
increased incentive to work for the long-term success of the Company.
1.3 Shareholder Approval. The Plan shall become effective as of
April 16, 1987, subject to approval by the shareholders of the Company.
Section 2. Definitions
Whenever used herein, the following terms shall have the meanings set
forth below:
(a) "Board" means the Board of Directors of Brenco, Incorporated.
(b) "Committee" means a Committee of the Board consisting of three or
more members of the Board who are not, and who have not been at any time
within one year prior to appointment to the Committee, eligible to receive
Stock under the Plan, or Stock, stock options, or stock appreciation rights
under another company plan.
(c) "Company" means Brenco, Incorporated, a Virginia corporation, as
well as any subsidiary more than 50% of whose total combined voting stock
of all classes is owned by Brenco, Incorporated either directly or through
one or more of its subsidiaries.
(d) "Employee" means any key executive in charge of a principal
division, business unit, or department of the Company, and any other
individual who performs similar managerial and professional functions for
the Company.
(e) "Grantee" means an Employee who shall have received a grant of
restricted Stock under the Plan.
(f) "Period of Restriction" means the period during which the
transfer of shares of restricted Stock granted under the Plan is restricted
pursuant to Section 7 hereof.
(g) "Stock" means the Common Stock, par value of $1.00 per share, of
the Company.
14
Section 3. Eligibility and Participation
Grantees shall be limited to Employees as determined by the Committee.
Section 4. Administration
The Committee shall be responsible for the administration of the Plan.
The Committee, by majority action thereof, is authorized to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to
the Plan, provide for conditions and assurances deemed necessary or
advisable to protect the interests of the Company, and to make all other
determinations necessary or advisable for the administration of the Plan,
but only to the extent not contrary to the express provisions of the Plan.
Determinations, interpretations, or other actions made or taken by the
Committee pursuant to the provisions of the Plan shall be final and binding
and conclusive for all purposes and upon all persons whomsoever.
Section 5. Stock Subject to the Plan
5.1 Number. The total number of shares of Stock that may be issued
under the Plan may not exceed 200,000 subject to adjustment as provided in
Section 5.3. Those shares may consist, in whole or in part, of authorized
but unissued Stock or shares of Stock reacquired by the Company, including
shares purchased in the open market, not reserved for any other purpose.
5.2 Unused Stock. In the event any shares of Stock subject to grants
made under the Plan are reacquired by the Company pursuant to Section 8 of
the Plan, such reacquired shares again shall become available for issuance
under the Plan.
5.3 Adjustments in Capitalization. In the event of reorganization,
recapitalization, stock split, stock dividend, merger, consolidation,
combination or exchange of shares, rights, offering or any other change
affecting the Stock, the Committee may make, subject to approval of the
Board, appropriate changes in the aggregate number of shares issuable under
this Plan, and in the number of shares subject to restricted Stock grants
then outstanding under this Plan.
Section 6. Duration of the Plan
Subject to the Board's right to terminate the Plan pursuant to Section
10 hereof, the Plan shall remain in effect until all Stock acquired by
Grantees pursuant to the provisions of the Plan shall have been released
from restrictions pursuant to Section 7.4, Section 8, or Section 11 hereof.
Notwithstanding the foregoing, no awards of Stock may be granted under the
Plan after the tenth (10th) anniversary of the Plan's effective date.
15
Section 7. Restricted Stock
7.1 Grant of Restricted Stock. Subject to Section 3 and 5.1 hereof,
the Committee, at any time and from time to time, may grant shares of
restricted Stock under the Plan to such Employees and in such amounts as it
shall determine. Each grant of restricted Stock shall be in writing and
signed by a duly authorized officer of the Company. Certificates for the
Stock so granted shall be registered in the name of the Grantee and
deposited by him, together with a stock power endorsed in blank, with the
Company under such restrictions as the Committee shall determine pursuant
to the provisions of Section 7. Upon release or expiration of such
restrictions, the Company shall redeliver to the Grantee the Stock so
deposited by him.
7.2 Transferability. Except as contemplated by Sections 8, 9.2, and
11 hereof, the shares of restricted Stock granted hereunder may not be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated for the Period of Restriction determined by the Committee in
accordance with Section 7.3 which shall be specified in writing in the
restricted Stock grant.
7.3 Period of Restriction. The Period of Restriction for each
restricted Stock grant shall not exceed five years or such lesser period as
may be necessary to satisfy any performance goals which may be specified by
the Committee; provided, however, that except as otherwise provided in
Section 7.5, 8, and 11 hereof, the Period of Restriction shall not be less
than two years.
7.4 Removal of Restrictions. Except as otherwise provided in
Sections 7.5, 8, and 11 hereof, shares of restricted Stock covered by each
restricted Stock grant made under this Plan shall become freely
transferable by the Grantee after the last day of the Period of
Restriction.
7.5 Other Restrictions. The Committee shall impose such other
restrictions on any shares granted pursuant to the Plan as it may deem
advisable including, without limitation, restrictions under applicable
federal or state securities laws, and may legend the Stock certificate(s)
to give appropriate notice of such restrictions.
7.6 Certificate Legend. In addition to any legends placed on
certificates pursuant to Section 7.5 hereof, each certificate representing
shares of restricted Stock granted pursuant to this Plan shall bear the
following legend:
"The sale or other transfer of shares of Stock represented by
this certificate, whether voluntary, involuntary, or by operation of
law, is subject to certain restrictions on transfer set forth in the
1987 Brenco, Incorporated Restricted Stock Plan, rules of
administration adopted pursuant to such Plan, and a restricted
Stock grant dated . . . . A copy of the Plan, such rules, and such
restricted Stock grant may be obtained from the Secretary of the
Company."
16
Once the shares are released from the restrictions pursuant to Section 7.4
hereof, the Grantee shall be entitled to have the legend required by this
Section 7.6 removed from his Stock certificate(s).
7.7 Voting Rights. During the Period of Restriction, Grantees
holding shares of restricted Stock granted hereunder may exercise full
voting rights with respect to those shares.
7.8 Dividends and Other Distributions. During the Period of
Restriction, Grantees holding shares of restricted Stock granted hereunder
shall be entitled to receive currently all dividends and other
distributions paid with respect to those shares while they are so held. If
any such dividends or distributions are paid in shares, the shares shall be
registered in the name of the Grantee and deposited with the Company as
provided in Section 7.1 hereof and the shares shall be subject to the same
restrictions on transferability as the shares of restricted Stock with
respect to which they were paid.
Section 8. Termination of Employment
8.1 Termination of Employment Due to Death or Permanent and Total
Disability. In the event that the employment with the Company of a Grantee
is terminated because of death or permanent and total disability, any
remaining Period of Restriction applicable to the restricted Stock of such
Grantee pursuant to Section 7 hereof shall automatically terminate and,
except as otherwise provided in Section 7.5, the shares of Stock shall
thereby be free of restrictions and freely transferable.
8.2 Termination of Employment Due to Retirement. In the event the
employment with the Company of a Grantee is terminated because of
retirement as defined in the Company's Retirement Plan during the Period of
Restriction, the restrictions applicable to the shares of restricted Stock
of such Grantee pursuant to Section 7 hereof shall terminate, in the sole
discretion of the Committee, with respect to a number of shares (rounded to
the nearest whole number) up to the total number of restricted shares
granted to such Grantee, multiplied by the number of full months which have
elapsed since the date of grant divided by the maximum number of full
months of the Period of Restriction. All remaining shares shall be
forfeited and returned to the Company; provided, however, that the
Committee may, in its sole discretion, waive the restrictions remaining on
any or all such remaining shares.
8.3 Termination of Employment for Reasons Other Than Death,
Disability, or Retirement. In the event that the employment with the
Company of a Grantee is terminated for any reason other than those set
forth in Sections 8.1 and 8.2 hereof during the Period Of Restriction, then
any shares of restricted Stock of such Grantee still subject to
restrictions at the date of such termination shall automatically be
forfeited and returned to the Company; provided, however, that, in the
event of an involuntary termination of the employment of a Grantee by the
Company, the Committee may, in its sole discretion, waive the automatic
forfeiture of any or all such shares and/or may add such new restrictions
to such shares as it deems appropriate.
17
8.4 Termination of Employment after Change in Composition of
Directors or Stock Ownership. Notwithstanding the provisions of Sections
8.2 and 8.3, in the event the employment with the Company of a Grantee is
terminated for any reason after (i) the composition of a majority of the
Board of Directors is changed by reason of election of new Directors not
nominated by the Board of Directors or (ii) any person, corporation, or
other entity or group thereof has acquired the "beneficial ownership" (as
the term is used in Section 13(d)(1) of the Securities Exchange Act of 1934
and rules and regulations promulgated thereunder), directly or indirectly,
of twenty-eight percent (28%) or more of the outstanding shares of Stock,
any remaining Period of Restriction applicable to the restricted Stock of
such Grantee pursuant to Section 7 hereof shall automatically terminate
and, except as otherwise provided in Section 7.5, the shares of Stock shall
thereby be free of restrictions and freely transferable.
Section 9. Rights of Employees; Recipients of Grants
9.1 Employment. Nothing in this Plan or in any grant of restricted
Stock shall interfere with or limit in any way the right of the Company to
terminate any Employee's or Grantee's employment at any time, nor confer
upon any Employee or Grantee any right to continue in the employ of the
Company.
9.2 Nontransferability of Restricted Stock. No rights or shares of
restricted Stock granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, otherwise than by will or
by the laws of descent and distribution until the termination of the
applicable Period of Restriction. All rights granted to a Grantee under
the Plan shall be exercisable during his lifetime only by such Grantee.
Upon the death of a Grantee, his legal representative or beneficiary may
exercise his rights under the Plan.
Section 10. Amendment and Termination
The Board, upon recommendation of the Committee, at any time may
terminate, and at any time and from time to time and in any respect, may
amend or modify the Plan, provided, however, that no such action of the
Board, without approval of shareholders may:
(a) Increase the maximum number of shares of Stock that may be issued
under the Plan except as provided in Section 5.3 of the Plan.
(b) Extend the period during which shares of Stock may be granted
under the Plan.
(c) Modify the requirements as to eligibility for participation under
the Plan.
(d) Increase materially the benefits accruing to Grantees under the
Plan.
18
(e) Increase materially the cost of the Plan.
(f) Withdraw the administration of the Plan from the Committee.
(g) Change the provision in the Plan as to the qualification for
membership on the Committee.
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any Stock theretofore granted under the Plan without the
consent of the Grantee.
Section 11. Reorganization, Merger, Consolidation, Acquisition or
Dissolution
In the event of (i) the dissolution of the Company, (ii) a
reorganization, merger, consolidation, or acquisition in which the Company
is not the surviving corporation, or (iii) a transfer of substantially all
the assets or a majority of the outstanding Stock of the Company to another
corporation not controlled by the Company's shareholders, all restrictions
shall lapse on shares of restricted Stock granted under the Plan and
thereafter such shares shall be freely transferable by the Grantee, subject
to applicable federal or state securities laws.
Section 12. Tax Withholding
The Company, as appropriate, shall have the right to withhold any
Federal, State, or local taxes required by law to be withheld with respect
to any awards under the Plan; the Grantee or other person receiving such
restricted Stock may be required to pay to the Company, as appropriate, the
amount of any such taxes which the Company is required to withhold with
respect to such restricted Stock.
Section 13. Indemnification
Each person who is or shall have been a member of the Committee or of
the Board shall be indemnified and held harmless by the Company from any
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him in connection with any claim, action, suit, or proceeding
to which he may be a party by reason or any action taken or failure to act
under the Plan. The foregoing right of indemnification shall not be
exclusive of any rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or By-Laws, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
Section 14. Governing Law
The Plan, and all grants and other documents delivered hereunder,
shall be construed in accordance with and governed by the laws of Virginia.
19
Section 15. Expenses of Plan
The expenses of administering the Plan shall be borne by the Company.
20
EXHIBIT 13
Selected Quarterly Data
(In thousands, except per share amounts)
1995 Quarters
1st 2nd 3rd 4th
Net sales $35,232 $32,642 $29,793 $29,472
Gross profit 9,732 8,046 7,801 6,520
Net income 3,640 2,706 2,440 1,874
Net income per share .36 .27 .24 .18
1994 Quarters
1st 2nd 3rd 4th
Net sales $28,124 $29,741 $29,042 $30,990
Gross profit 6,631 7,400 7,005 8,547
Net income 1,864 2,357 2,218 2,363
Net income per share .19 .23 .22 .23
Stock Prices (Wall Street Journal) 1995 1994
High Low High Low
1st Quarter 13 10 5/8 12 1/2 8 1/4
2nd Quarter 14 1/2 12 13 1/4 9 1/8
3rd Quarter 12 5/8 9 13/16 14 11 1/2
4th Quarter 12 10 1/8 13 1/4 11 1/4
Dividends Declared 1995 1994
1st Quarter $ .06 $ .05
2nd Quarter .07 .05
3rd Quarter .07 .06
4th Quarter .07 .06
<FN>
We have paid a cash quarterly dividend since 1952.
The amount of future dividends is dependent on
future earnings, capital requirements and the general
condition of the company.
21
Consolidated Statements Of Income
Years Ended December 31
1995 1994 1993
NET SALES $127,139,364 $117,897,044 $ 98,723,878
- ---------------------------------------------------------------------------
Costs and Expenses:
Cost of goods sold 95,040,017 88,313,611 77,250,896
Administrative and selling
expenses 15,136,712 14,413,648 12,161,980
- ---------------------------------------------------------------------------
110,176,729 102,727,259 89,412,876
- ---------------------------------------------------------------------------
Operating Income 16,962,635 15,169,785 9,311,002
Interest Expense ( 723,485) ( 798,671) ( 740,844)
Gain (Loss) on Sale of
Assets ( 453,168) 972,519 ( 11,835)
Special Charge for
Environmental
Expenditures (Note 8) -- ( 1,490,000) ( 2,300,000)
Other Income 1,122,671 701,329 634,243
- ---------------------------------------------------------------------------
Income before Income Taxes 16,908,653 14,554,962 6,892,566
Income Taxes (Note 3) 6,248,816 5,753,272 2,651,600
- ---------------------------------------------------------------------------
NET INCOME $ 10,659,837 $ 8,801,690 $ 4,240,966
===========================================================================
Net Income per Share $ 1.05 $ .88 $ .43
===========================================================================
Weighted Average Number of
Shares Outstanding 10,135,257 10,050,454 9,941,909
===========================================================================
<FN>
See Notes to Consolidated Financial Statements.
22
Consolidated Statements Of Shareholders' Equity
Additional
Common Stock, Issued Paid-In Retained
Shares Par Value Capital Earnings
Balance, December 31, 1992 9,860,364 $9,860,364 $379,038 $34,852,378
Net income 4,240,966
Issuance under stock option
and stock participation
plans 145,148 145,148 637,752 --
Reacquired shares ( 167)( 167)( 1,815) --
Tax benefit from disqualifying
disposition of option shares 166,524 --
Dividends declared ($.20 per
share) ( 1,991,080)
- ---------------------------------------------------------------------------
Balance, December 31, 1993 10,005,345 10,005,345 1,181,499 37,102,264
Net income 8,801,690
Issuance under stock option
and stock participation
plans 80,255 80,255 510,237 --
Tax benefit from disqualifying
disposition of option shares 29,871 --
Dividends declared ($.22 per
share) ( 2,212,980)
- ---------------------------------------------------------------------------
Balance, December 31, 1994 10,085,600 10,085,600 1,721,607 43,690,974
Net income 10,659,837
Issuance under stock option
and stock participation
plans 81,115 81,115 407,715 --
Reacquired shares ( 49)( 49)( 521) --
Tax benefit from disqualifying
disposition of option shares 91,703 --
Dividends declared ($.27 per
share) ( 2,738,872)
- ---------------------------------------------------------------------------
Balance, December 31,
1995 10,166,666 $10,166,666 $2,220,504 $51,611,939
===========================================================================
<FN>
See Notes to Consolidated Financial Statements.
23
Consolidated Balance Sheets
December 31
1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 10,483,908 $ 6,650,133
Accounts receivable-net of allowance
for doubtful accounts of $286,773
(1994-$279,469) 19,194,342 18,303,819
Inventories:
Finished goods 4,921,929 3,060,172
Work in process 9,779,330 9,616,104
Raw material 2,980,968 2,893,182
- ---------------------------------------------------------------------------
17,682,227 15,569,458
Less: Lifo reserve 1,716,200 1,466,351
- ---------------------------------------------------------------------------
15,966,027 14,103,107
- ---------------------------------------------------------------------------
Prepaid expenses 1,974,029 1,489,722
Deferred income taxes (Note 3) 875,291 908,091
Income taxes recoverable 1,026,097 513,003
- ---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 49,519,694 41,967,875
- ---------------------------------------------------------------------------
Other Assets 670,845 55,504
- ---------------------------------------------------------------------------
Property and Equipment:
Land and improvements 4,094,216 4,056,137
Buildings 13,051,103 11,499,555
Machinery and equipment 76,463,983 77,042,859
- ---------------------------------------------------------------------------
93,609,302 92,598,551
Less: Accumulated depreciation 57,521,545 58,053,298
- ---------------------------------------------------------------------------
36,087,757 34,545,253
- ---------------------------------------------------------------------------
$ 86,278,296 $ 76,568,632
===========================================================================
<FN>
See Notes to Consolidated Financial Statements.
24
Consolidated Balance Sheets
December 31
1995 1994
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term
debt (Note 5) $ 1,354,000 $ 1,354,000
Accounts payable 3,609,947 2,665,377
Dividends payable 711,326 604,754
Compensated absences 719,488 721,509
Accrued liabilities 1,704,587 1,747,008
Income taxes payable 338,928 437,677
- ---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,438,276 7,530,325
- ---------------------------------------------------------------------------
Pension (Note 4) 2,411,683 921,203
Deferred Income Taxes (Note 3) 3,217,440 3,051,871
Long-Term Debt (Note 5) 8,211,788 9,567,052
- ---------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock, par value $1 per share,
authorized 1,000,000 shares; none issued
Common stock, par value $1 per share,
authorized 15,000,000 shares; issued
10,166,666 shares (1994-10,085,600
shares) 10,166,666 10,085,600
Additional paid-in capital 2,220,504 1,721,607
Retained earnings 51,611,939 43,690,974
- ---------------------------------------------------------------------------
63,999,109 55,498,181
- ---------------------------------------------------------------------------
$ 86,278,296 $ 76,568,632
===========================================================================
<FN>
See Notes to Consolidated Financial Statements.
25
Consolidated Statements Of Cash Flows
Years Ended December 31
1995 1994 1993
Cash Flows From Operations
Net Income $10,659,837 $8,801,690 $4,240,966
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 4,432,806 3,870,130 3,003,015
Reserve for environmental
expenditures -- 1,490,000 2,300,000
Deferred income taxes 198,369 1,299,850 315,464
(Gain) loss on sale of assets 453,168 ( 972,519) 11,835
Pension expense 851,166 466,467 334,533
Changes in the following:
Accounts receivable ( 890,523) ( 3,738,656) ( 1,710,758)
Inventories ( 1,862,920) 800,969 611,503
Prepaid expenses ( 270,095) 156,104 224,827
Accounts payable 944,570 ( 748,520) 1,038,020
Accrued liabilities ( 10,360) 1,064,054 ( 74,656)
Income taxes ( 520,140) 471,457 ( 154,274)
Environmental expenditures ( 34,082) ( 4,332,369) ( 2,611,866)
- ---------------------------------------------------------------------------
Net cash provided by operations 13,951,796 8,628,657 7,528,609
- ---------------------------------------------------------------------------
<FN>
See Notes to Consolidated Financial Statements.
26
Consolidated Statements Of Cash Flows
Years Ended December 31
1995 1994 1993
Cash Flows From Investing Activities
Acquisition of property and equipment ( 6,413,175)( 5,870,798) ( 8,814,699)
Proceeds from the sale of property
and equipment 8,685 1,105,500 9,888
Other ( 16)( 4,364) ( 51,139)
- ---------------------------------------------------------------------------
Net cash used in investing
activities ( 6,404,506)( 4,769,662) ( 8,855,950)
- ---------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from long-term borrowing -- 1,000,000 --
Principal payments on long-term debt ( 1,355,264)( 78,948) --
Cash dividends paid ( 2,632,300)( 2,108,408) ( 1,983,915)
Re-purchase of common stock ( 570) -- ( 1,982)
Proceeds from issuance of
common stock 274,619 396,769 676,900
- ---------------------------------------------------------------------------
Net cash used in
financing activities ( 3,713,515) ( 790,587) ( 1,308,997)
- ---------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 3,833,775 3,068,408 ( 2,636,338)
Cash and cash equivalents at beginning
of year 6,650,133 3,581,725 6,218,063
- ---------------------------------------------------------------------------
Cash and cash equivalents at
end of year $10,483,908 $ 6,650,133 $3,581,725
===========================================================================
Supplemental Disclosures Of Cash
Flow Information:
Cash payments for income taxes $ 6,662,291 $ 4,011,870 $2,418,024
Cash payments for interest $ 767,835 $ 798,671 $ 750,000
<FN>
See Notes to Consolidated Financial Statements.
27
[FN]
Notes To Consolidated Financial Statements
Note 1.
Nature Of Business And Significant Accounting Policies
The Company manufactures tapered roller bearings and component parts
for railroad cars. Tapered roller bearings are sold to most major
railroads and railroad car builders worldwide. Automotive forgings are sold
principally to domestic automobile manufacturers. Additionally, through
wholly owned subsidiaries, the Company reconditions and sells replacement
bearings and provides third-party contract switching services to large
industrial rail users. Significant accounting policies follow:
Principles Of Consolidation
The accompanying consolidated financial statements include the
accounts of all subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Accounting Estimates
The preparation of 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
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash And Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments with a purchased maturity of three months or less. The Company
places its temporary cash investments with high credit quality financial
institutions. At times such investments may be in excess of the FDIC
insurance limit.
Inventories
Inventories are valued at the lower of cost or market. Cost for
approximately one half of inventories is determined on the last-in, first-
out (LIFO) method and the remaining one half on the first-in, first-out
(FIFO) method.
Property And Equipment
Property and equipment are stated at cost and are depreciated over
their estimated useful lives of 20 to 45 years for buildings and 4 to 12
years for machinery and equipment. Depreciation is computed primarily on
the straight-line method.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
28
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred asset will not be realized. Deferred tax
assets and liabilities will be adjusted for the effects of changes in tax
laws and rates on the date of enactment.
Net Income Per Share
Net income per share is computed based upon the weighted average
number of common shares outstanding during the year. Issuance of the
shares upon exercise of all options outstanding would not have a material
effect upon net income per share.
Note 2.
Inventories
The FIFO cost of LIFO inventories would have been $1,716,000,
$1,466,000 and $1,225,000 higher at December 31, 1995, 1994 and 1993,
respectively, than at LIFO values. Inventories valued at LIFO increased in
1995. Reductions of inventory quantities in 1994 and 1993 resulted in a
liquidation of LIFO inventory quantities carried at costs prevailing in
prior years which were lower than current costs. The effect of these
reductions on net income did not exceed $.01 per share in 1994 or 1993.
Note 3.
Income Taxes
The components of income tax expense for the years ended December 31,
1995, 1994 and 1993 were as follows:
===========================================================================
1995 1994 1993
Current
Federal $5,005,597 $3,542,066 $1,797,064
State 1,044,850 911,356 539,072
Deferred
Federal 167,049 1,094,615 290,227
State 31,320 205,235 25,237
- ---------------------------------------------------------------------------
$6,248,816 $5,753,272 $2,651,600
===========================================================================
<FN>
The differences between the amounts of reported total income tax
expense and the amounts computed by multiplying income before income tax by
the applicable statutory federal income tax rate of 35% for the years ended
December 31, 1995, 1994 and 1993 were as follows:
29
===========================================================================
1995 1994 1993
Income tax computed at
statutory federal
income tax rates $5,918,028 $5,094,237 $2,412,398
Increase(decrease) in
taxes resulting from:
Tax benefit of
Foreign Sales
Corporation ( 191,787) -- --
State income
taxes, net of federal
income tax benefit 699,511 725,784 366,801
Other, net ( 176,936) ( 66,749) ( 127,599)
- ---------------------------------------------------------------------------
Income taxes $6,248,816 $5,753,272 $2,651,600
===========================================================================
Net deferred tax liabilities consist of the following components at
December 31, 1995 and 1994:
===========================================================================
1995 1994
Deferred tax assets:
Current:
Inventory capitalization
and allowances $ 191,215 $ 229,934
Vacation benefits 280,600 274,173
Other expenses not
deductible currently, net 403,476 403,984
Non Current:
Accrued pension benefits 691,224 350,057
Deferred tax liabilities:
Non Current:
Accelerated depreciation 3,908,664 3,401,928
- ---------------------------------------------------------------------------
Net deferred tax liabilities $2,342,149 $2,143,780
===========================================================================
<FN>
The components giving rise to the net deferred tax liabilities
described above have been included in the accompanying balance sheets at
December 31, 1995 and 1994 as follows:
===========================================================================
30
1995 1994
Current Assets $ 875,291 $ 908,091
Non Current Liabilities, net 3,217,440 3,051,871
- --------------------------------------------------------------------------
Net deferred tax liabilities $2,342,149 $2,143,780
===========================================================================
<FN>
Note 4.
Retirement Plans
The Company and its subsidiaries have a defined benefit retirement
plan covering substantially all employees. The Company accounts for the
plan in accordance with generally accepted accounting principles which
require, in general, that the cost of benefits be accrued during the period
of employee service. The Company's funding policy is to make the minimum
annual contribution, if required by applicable regulations, plus such
amounts as the Company may determine to be appropriate from time to time.
Net pension cost for the Company's defined benefit pension plan
consisted of the following components for the years ended December 31,
1995, 1994 and 1993:
===========================================================================
1995 1994 1993
Service cost (benefits earned) $ 660,905 $ 727,282 $ 603,316
Interest cost on projected
benefit obligation 941,597 787,875 734,383
Actual return on plan assets ( 1,753,553) ( 8,648) ( 1,021,585)
Net amortization and deferral 698,612 ( 1,040,042) 18,419
- ---------------------------------------------------------------------------
$ 547,561 $ 466,467 $ 334,533
===========================================================================
31
The following assumptions were used in actuarial calculations for the
Company's defined benefit pension plan for the years ended December 31,
1995, 1994 and 1993:
===========================================================================
1995 1994 1993
Weighted average discount rate 7.5% 8.5% 7.0%
Rate of increase in future compensation:
Salaried employees 5.0% 5.0% 5.0%
Hourly employees 5.0% 5.0% 4.0%
Expected long-term return on assets 8.5% 8.5% 8.5%
===========================================================================
1995 1994
Actuarial present value of
benefit obligations:
Vested benefits $10,642,165 $ 8,096,456
===========================================================================
Accumulated benefits $11,237,420 $ 8,556,971
===========================================================================
Projected benefits ($15,089,156) ($11,259,507)
Plan assets at fair value,
consisting primarily of cash
equivalents and common stocks 11,540,088 10,122,334
- ---------------------------------------------------------------------------
Plan assets under projected
benefit obligation ( 3,549,068) ( 1,137,173)
Unrecognized net loss 2,466,624 796,200
Unrecognized net obligation
from January 1, 1987 ( 386,320) ( 580,230)
- ---------------------------------------------------------------------------
Liability included on
balance sheet ($1,468,764) ($ 921,203)
===========================================================================
<FN>
The Company and its subsidiaries also have a defined contribution
plan. Expense incurred on behalf of this plan was $1,028,517, $998,000 and
$867,000 in 1995, 1994 and 1993, respectively.
In addition, the Company adopted an Executive Retirement Incentive
Plan effective January 1, 1995. The plan is a non-qualified unfunded plan
which provides supplemental retirement benefits to certain employees.
Pension expense consisted of the following components for the year
ended December 31, 1995:
Service Cost (benefits earned) $ 80,985
Interest cost on projected benefit
obligation 96,490
Net amortization 126,130
$303,605
========
32
The following table sets forth the amounts recognized in the
accompanying balance sheet as of December 31, 1995 related to these
retirement benefits, assuming a 7.5% discount rate:
===========================================================================
Actuarial present value of benefit
obligations:
Vested benefits $ 908,819
===========================================================================
Accumulated benefits $ 942,919
===========================================================================
Projected benefits ($1,512,202)
Unrecognized net loss 199,553
Unrecognized transition obligation 1,009,044
Adjustment required to recognize
minimum liability ( 639,314)(a)
Liability included on balance sheet ($ 942,919)
===========================================================================
<FN>
(a) The Company recognized an intangible asset (included in other
assets) in the same amount.
Note 5.
Long-Term Debt And Line Of Credit
Long-term debt consists of the following as of December 31, 1995 and
1994:
===========================================================================
1995 1994
7.5% senior unsecured notes due in annual
installments of $1,250,000 beginning in
1995 and payable through 2002 $ 8,750,000 $10,000,000
7.06% unsecured notes due in quarterly
installments of $26,000 through 2003 815,788 921,052
- ---------------------------------------------------------------------------
$ 9,565,788 $10,921,052
===========================================================================
Aggregate maturities required on long-term debt as of December 31,
1995 are due in future years as follows:
1996 $1,354,000
1997 1,354,000
1998 1,354,000
1999 1,354,000
2000 1,354,000
Later years 2,795,788
- ---------------------------------------------------------------------------
$9,565,788
===========================================================================
<FN>
Long-term debt carries rates which approximate market rates for
similar debt being issued. Therefore, the carrying value of long-term debt
is not significantly different than fair market value at December 31, 1995.
33
The outstanding senior unsecured notes contain various restrictive
covenants, including maintenance of minimum consolidated net worth which
restricts the amount of dividends. Approximately $12,400,000 of retained
earnings were available for dividends at December 31, 1995.
The Company also has available a $5,000,000 line of credit with a
bank. At December 31, 1995 and 1994 there were no outstanding borrowings
under the line, nor were there any borrowings under the line at any time
during 1995 and 1994.
Note 6.
Stock Participation Plans
The Company has options outstanding under key employee stock option
plans. Options outstanding as of December 31, 1993 and the 5,000 options
granted July 22, 1994 expire five years from the date of grant, are non-
transferable other than at death, and are exercisable 25% at the end of one
year, one and one-half years, two years, and three years after date of
grant. Options granted on October 28, 1994 and thereafter expire ten years
from the date of grant, are non-transferable other than at death, and are
exercisable one year after date of grant. The option price of the stock is
equal to its market value at the date of grant.
At December 31, 1995 there were 338,725 shares which were exercisable,
and 330,075 shares are reserved for future grants.
A summary of stock option transactions follows:
===========================================================================
Average
Number Price Per
of Shares Share
Outstanding
December 31, 1992 477,643 $ 6.08
Granted 89,100 10.75
Lapsed ( 5,500) 5.63
Exercised ( 166,018) 6.42
Outstanding
December 31, 1993 395,225 7.00
Granted 105,200 11.67
Lapsed ( 8,200) 9.39
Exercised ( 57,000) 6.88
Outstanding
December 31, 1994 435,225 8.10
Granted 103,200 11.63
Lapsed -- --
Exercised ( 71,375) 5.59
Outstanding
December 31, 1995 467,050 $ 6.69
===========================================================================
34
<FN>
For all other employees, the Company will give one share of Brenco
stock for each four shares purchased by the employee up to 10% of his or
her base compensation. Under this plan, shares were issued as follows:
2,327 in 1995, 1,392 in 1994 and 1,945 in 1993.
The Company has a restricted stock plan which provides for the award
of shares of common stock to key employees. The Company has reserved
200,000 shares of unissued common stock for this plan. The period of
restriction ranges from 2 years to 4 years. During the period of
restriction the employee will have the right to vote such shares and to
receive dividends. There were 19,255 shares granted under this plan for the
year ended December 31, 1995, 22,460 granted in 1994 and 16,000 granted in
1993.
Note 7.
Export Sales And Major Customers
Sales to foreign customers amounted to $22,814,000 in 1995,
$17,491,000 in 1994 and $17,849,000 in 1993. Net sales included
$14,250,000 in 1995 and $12,850,000 in 1994 to one customer. This same
customer had outstanding accounts receivable of $548,000 in 1995 and
$596,000 in 1994. No other customers accounted for more than 10% of sales
in 1995, 1994, or 1993.
Note 8.
Environmental Remediation Project And Compliance
During 1994, the Company completed an environmental remediation
project at a former foundry site that has been inactive since 1979. The
remediation process actually began in 1992 upon approval from the
appropriate state regulatory agency. The total cost of the remediation
project was approximately $7,000,000, which has been charged to income in
various amounts each year from 1989 to 1994.
The effect of these special charges in 1994 for the remediation
expenditures was to reduce net income by $915,000 or $.09 per share. The
charges in 1993 decreased net income by $1,414,000 or $.14 per share.
Note 9.
Reclassification Of Certain Account Balances
Certain account balances on the consolidated balance sheet at December
31, 1994 have been reclassified, to be consistent with the classifications
adopted at December 31, 1995.
35
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Brenco, Incorporated
Midlothian, Virginia
We have audited the accompanying consolidated balance sheets of
Brenco, Incorporated and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Brenco, Incorporated and subsidiaries as of December 31, 1995, and 1994,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
Richmond, Virginia
January 30, 1996
36
Selected Financial Data
(In thousands, except per share amounts)
1995 1994 1993 1992 1991
Net sales $127,139 $117,897 $98,724 $83,652 $78,600
Net income 10,660 8,802 4,241 1,977 4,455
Net income per share 1.05 0.88 0.43 0.20 0.46
Total assets 86,278 76,569 69,629 65,074 51,783
Long-term debt 8,211 9,567 10,000 10,000 --
Cash dividends
declared per share .27 .22 .20 .20 .20
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
Results Of Operations
(1995 compared with 1994)
Net sales in 1995 increased 8% over sales in 1994, to $127,139,000, a
new record for the Company. Railroad products and services were up 10%, to
$107,213,000 which accounted for the majority of the increase. Export
sales of railroad products, which were at record levels, were $22,814,000,
an increase of 30% over 1994. Sales for Quality Bearing Service (QBS), our
reconditioning subsidiary, were up 14%. Revenues of Rail Link, our rail
switching subsidiary, increased 15% as two new switching locations were
added in 1995.
Operating income was up 12% in 1995 to $16,963,000, compared to
$15,170,000 in 1994. The increase in operating income in 1995 was the
result of higher sales volumes as well as some improved pricing for
railroad products and services. Cost of goods sold was 75% of net sales in
1995, the same as 1994, as price increases and efficiencies of volume
increases were offset by increased costs of materials and labor.
(1994 compared with 1993)
Net sales in 1994 increased 19% over sales in 1993, to $117,897,000.
Railroad products and services were up 22%, to $97,666,000 which accounted
for the major portion of the increase. Sales for Quality Bearing Service
were up 30% as we continued to enjoy substantial market share. The
revenues of Rail Link were up 8%, with the addition of three switching
locations.
Operating income was up 63% in 1994 to $15,170,000, compared to
$9,311,000 in 1993. The increase in operating income in 1994 was primarily
the result of higher sales volumes and improved margins in railroad
products and services as a consequence. In 1994 a special charge to
earnings was made in the amount of $1,490,000, representing anticipated
37
environmental remediation expenditures to complete the cleanup of a former
foundry site that has been inactive since 1979. In addition, during the
first quarter, there was a gain on the sale of surplus equipment in the
amount of $1,056,000. Net income for 1994 was $8,802,000 or $.88 per
share, an increase of 108% over 1993.
Liquidity And Capital Commitments
Cash and cash equivalents were $10,484,000 at December 31, 1995,
compared to $6,650,000 at the end of 1994, an increase of $3,834,000.
Capital expenditures totaled $6,413,000 in 1995, compared to
$5,871,000 in 1994 and $8,815,000 in 1993. Capital expenditures in 1996
are expected to increase to $10,152,000, which includes $474,000 of
carryovers from prior years plus $9,678,000 in new projects approved for
1996. Process improvements ($4,480,000) and new business ($1,698,000)
account for 61% of the new projects budgeted for 1996.
In 1995 our investment in inventories increased by $1,863,000, to
$15,966,000. Inventory turnover for 1995 was 5.8 as compared to 5.7 for
1994.
The ratio of current assets to current liabilities was 5.87 at
December 31, 1995, as compared to 5.57 at the end of 1994. The total
amount of working capital increased by $6,642,000 to $41,080,000 at the end
of 1995. This compares to $34,438,000 at the end of the prior year. Cash
and short-term investments account for 58% of the increase.
The Company has a $5,000,000 revolving line of credit. This line was
not used during 1995. Management believes that its cash balances and cash
flows from operations in the coming year will be adequate to cover its
capital needs and dividend payments for 1996.
Outlook
The Company expects that domestic railcar construction will be down by
approximately 25% in 1996. The Company believes that it should be able to
offset much of this anticipated decline in sales by increased export sales
and continued growth in its other lines of business, but expects somewhat
lower earnings in 1996 than in 1995 as a result of lower margins on export
sales and more competitive conditions in the domestic market.
38
Exhibits 3.1, 3.2, 4.1, 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 21 and 23
which are listed under Item 14(a)3 are not included herewith but may be
obtained for a fee of $2.00 by writing to:
Secretary
Brenco, Incorporated
One Park West Circle
Suite 204
Midlothian, Virginia 23113
39
BRENCO, INCORPORATED AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
The Company has the following wholly-owned subsidiaries,
incorporated in Virginia and included in the consolidated financial
statements:
Quality Bearing Service of Nevada, Inc.
Quality Bearing Service of Kentucky, Inc.
Quality Bearing Service of Missouri, Inc.
Brenco Holdings, Inc.
Rail Link, Inc.
SealTech, Inc.
Full Steam Ahead Rebuilding, Inc.
Rail Link, Inc. has the following wholly-owned subsidiaries,
incorporated in Virginia and included in the consolidated financial
statements:
Carolina Coastal Railway, Inc.
Commonwealth Railway, Inc.
40
CONSENT OF INDEPENDENT AUDITORS
EXHIBIT 23
As independent auditors, we hereby consent to the incorporation of
our report, dated January 30, 1996, incorporated by reference in this
annual report on Form 10-K, into the Company's previously filed Form S-8
Registration Statements: File No. 2-65364 (Post-Effective Amendment No.
2), 33-31361, 33-45650 and 33-55745.
McGLADREY & PULLEN, LLP
Richmond, Virginia
March 22, 1996
41