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, 1994
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
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(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:
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Name of Each Exchange on
Title of Each Class Which Registered
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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)
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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 24, 1995, there were 10,108,116 shares of common stock
outstanding and the aggregate market value of common stock of Brenco,
Incorporated held by nonaffiliates was approximately $89,000,000.
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, 1994 - Part II
Proxy Statement dated March 10, 1995 - 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 1994, sales to Trinity Industries, Inc., CSX and Ford
Motor Company amounted to $12,850,000, $9,704,000 and $8,926,000, or
approximately 10.9%, 8.2% and 7.6% of 1994 net sales, respectively. Accounts
receivable at December 31, 1994, includes $596,000, $1,332,000 and $963,000 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 as 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.
In 1994, sales of automotive forgings represented 10.6% of Brenco's
business. Automotive forgings sales amounted to $12,451,000 in 1994,
$11,637,000 in 1993 and $10,942,000 in 1992. These products are sold
principally to original equipment manufacturers.
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Export sales to India, Canada, Brazil, Mexico, Australia and to FAG
for their worldwide markets amounted to $17,491,000 in 1994, $17,849,000 in 1993
and $11,094,000 in 1992. 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, other than Canadian, FAG and
Australian sales, is made through the utilization of letters of credit. 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. 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.
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
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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, 1994 was approximately
$51,494,000, compared to $9,000,000 and $19,900,000 at December 31, 1993 and
1992, respectively. The backlog at December 31, 1994, represented 5.2 months of
sales based upon average monthly sales for 1994. This compares to 1.2 months of
sales for 1993.
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. Many of our
customers have placed orders with us through the first quarter of 1996. We are
virtually sold out for 1995 and the backlog reflects this situation.
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. However, lead times for steel have been
extended, dictating the need for good forecasting and advance ordering in
anticipation of shipping at record levels. 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.
Capital Expenditures, Plant Expansion and Research
Brenco's capital expenditures were $5,871,000 in 1994.
Brenco's capital expenditure budget for 1995 is approximately
$13,696,000, the major project being a new reconditioning facility in Little
Rock, Arkansas, increased capacity and new business as well as maintaining
continuity of operations.
In 1993, the Company purchased from Epilogics, Inc., an engineering
design firm in California, the rights to a one-way clutch design for automotive
transmissions. The MD clutch has the potential for substantially 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.
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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 915 employees at December 31, 1994. 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, 1994 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.
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, 1994 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 1984 the Connecticut Department of Transportation ("CDOT") and the
Metropolitan Transportation Authority ("MTA") filed companion lawsuits in the
Superior Court of Connecticut against General Electric Company ("GE") alleging
certain defects and failures with respect to 244 high speed railroad passenger
cars supplied to CDOT and MTA by GE. In
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performing its contracts to supply the railroad cars, GE had purchased certain
journal bearings from the Company. GE initially chose not to bring a third-
party action against the Company; however, in order to preserve GE's ability to
do so at a later date, GE and the Company entered into an agreement tolling the
statute of limitations, terminable by either party upon 30 days' notice.
In January, 1991, the Company was advised by GE that CDOT, MTA and GE
had reached a settlement agreement in 1990 concerning the lawsuits on terms not
disclosed by GE. On February 4, 1991 GE filed companion lawsuits against the
Company and another major domestic bearing manufacturer in the Federal District
Court of Connecticut alleging defects in the roller bearings sold to GE for use
on the railroad passenger cars involved in the lawsuits previously settled with
CDOT and MTA. In the present suits, GE is attempting to recover from the
Company and the other bearing manufacturer the settlement cost and defense
expenses it incurred in settling the earlier lawsuits. In September 1992,
discovery and counter-discovery proceedings were initiated by the parties. The
suits have been pending approximately 4 years. The Company believes it has
meritorious defenses to the claims alleged against it by GE. The Company has
primary liability insurance coverage applicable to claims such as these and
excess coverage in an amount the Company believes to be more than sufficient to
cover this exposure. The primary insurance carrier has indicated to the Company
that no substantial issues appear to exist regarding the applicability of the
Company's primary insurance coverage to the transactions at issue in this
litigation.
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.
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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 58, has served as Chief Executive Officer and
Chairman of the Board of Directors of the Corporation since 1985. Mr. Whitfield
was a principal in the firm of Harper and Whitfield, P. C., Certified Public
Accountants, until August 1989. Mr. Whitfield is the brother-in-law of John C.
Kenny, a director.
J. Craig Rice, age 47, 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 57, has served as Executive Vice President,
Secretary and Director of the Corporation since 1985.
Robert V. Lawrence, age 57, has served as Vice President of Engineering
since 1984.
Howard J. Bush, age 41, has served as Vice President of Marketing and
Sales since 1989.
Evan J. Roberts, age 39, 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 34, 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. Prior to that he served as Manager, Banking & Cash,
Chesapeake Corporation, from November 1989 through March 1991.
Donald E. Fitzsimmons, age 53, 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 4 of the 1994 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.
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The approximate number of shareholders of record on February 24, 1995
was 2,118 (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 5 through
13.
Supplementary data - page 4, 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 10, 1995, 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 10, 1995, 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 10, 1995, pages 1 through 3 under "Security
Ownership of Certain Beneficial Owners and Management".
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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 10, 1995,
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
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Independent Auditor's Report 13
Consolidated Balance Sheets as of
December 31, 1994 and 1993 7
Consolidated Statements of Income for
the three years ended December 31, 1994,
1993 and 1992 5
Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 1994,
1993 and 1992 6
Consolidated Statements of Cash Flows for the
three years ended December 31, 1994, 1993
and 1992 8
Notes to Consolidated Financial Statements 9 - 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).
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3.2 Bylaws, as amended.
(incorporated herein by reference to Exhibit 3.2 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).
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 (incorporated
herein by reference to the Company's Proxy Statement for
the 1987 Annual Meeting of Stockholders dated March 13,
1987).
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.
13. Portions of the 1994 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:
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).
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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 - Exhibit A to the Company's
Proxy Statement for the 1987 Annual Meeting of Stockholders dated March 13,
1987.
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, 1994.
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 24, 1995 BY: /s/ J. Craig Rice
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J. Craig Rice
President
(Chief Operating Officer)
March 24, 1995 BY: /s/ Jacob M. Feichtner
--------------------------
Jacob M. Feichtner
Executive Vice President &
Secretary
(Chief Financial and
Accounting Officer)
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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 24, 1995
Needham B. Whitfield
President and Chief Operating
/s/ J. Craig Rice Officer of the Company
-------------------------------and Director March 24, 1995
J. Craig Rice
Executive Vice President &
/s/ Jacob M. Feichtner Secretary of the Company
-------------------------------and Director March 24, 1995
Jacob M. Feichtner
/s/ Steven M. Johnson Director March 24, 1995
-------------------------------
Steven M. Johnson
/s/ John C. Kenny Director March 24, 1995
-------------------------------
John C. Kenny
/s/ James M. Wells III Director March 24, 1995
-------------------------------
James M. Wells III
/s/ Frederic W. Yocum, Jr. Director March 24, 1995
-------------------------------------
Frederic W. Yocum, Jr.
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EXHIBIT 10.6
BRENCO, INCORPORATED
EXECUTIVE RETIREMENT INCENTIVE PLAN
January 1, 1995
Brenco, Incorporated (the "Company"), hereby adopts the Brenco,
Incorporated Executive Retirement Incentive Plan (the "Plan") for the benefit of
the eligible officers and executive employees of Brenco, Incorporated, effective
January 1, 1995.
1. Definitions.
A. "Actuarial Value" - means "Actuarial Value" as
defined in the Retirement Plan.
B. "Average Compensation" - means "Average
Compensation" as defined in the Retirement Plan
except that, for purposes of the Plan, Average
Compensation shall include 100% of any bonuses,
commissions or other cash incentives received by a
Participant instead of 75% as prescribed in the
Retirement Plan.
C. "Base Benefit" - means an amount equal to three
percent (3%) of a Participant's Average
Compensation multiplied by his Years of Benefit
Service, up to a maximum of 20 years, determined
at the time that benefit payments commence under
the Plan.
D. "Committee" - means the Compensation Committee of
the Board of Directors of the Employer.
E. "Employer" - means Brenco, Incorporated and any
of its affiliates.
F. "Offset Benefit" - means an amount equal to the
sum of(i) the single life annuity retirement
benefit which would be payable to the Participant
under the Retirement Plan, and (ii) the
Participant's Social Security Benefit, both of
which to be determined as of the time that benefit
payments commence under the Plan.
G. "Normal Retirement Age" - means age 62.
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H. "Participant" - means an employee designated by
the Committee as eligible to participate in the
Plan. The Committee may at any time terminate an
employee's designation as a Participant, in which
case such employee's "Base Benefit" will be
frozen, but his "Offset Benefit" may continue to
increase. A Participant shall cease being a
Participant in the event that his employment
terminates prior to his attaining age 55 other
than on account of his death or disability.
I. "Plan Year" - means the calendar year.
J. "Retirement Plan" - means the Brenco Retirement
Plan.
K. "Social Security Benefit" - means the projected
monthly retirement benefit which a Participant
would be entitled to receive under the Social
Security Act at age 62.
L. "Years of Vesting Service" - means "Plan Years of
Service" as determined under the Retirement Plan
for vesting purposes.
M. "Years of Benefit Service" - means "Years of
Benefit Service" as determined under the
Retirement Plan for benefit accrual purposes.
2. Purpose. The Plan is intended to advance the interests of
the Company by providing a financial incentive to certain
officers and other key executive employees to retire from
the Company at or before attaining the Normal Retirement
Age.
3. Administration of Plan. The Plan shall be administered by
the Committee. The Committee shall have the right to
interpret the Plan, and all decisions of the Committee with
respect to the Plan shall be binding on all Participants.
4. Eligibility and Participation. The Committee may from time
to time select those employees whom the Committee shall
recommend to the Board of Directors of the Company (the
"Board") for participation in the Plan. In selecting those
employees who shall be recommended at any time, the
Committee shall consider the position and responsibilities
of the eligible employees, the total cash compensation and
value of their services to the Company, and such other
factors as the Committee deems pertinent.
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As promptly as practicable after the Committee makes
recommendations to the Board, the Board shall approve the
recommendations of the Committee and each employee who is
designated as a Participant in the Plan shall be advised in
writing of such designation.
5. Eligibility for Retirement Incentive Benefit Payments and
Computation of Benefit Amount. In order for a Participant to
be eligible to receive the Retirement Incentive Benefit
described below, except as provided in Sections 7,8 and 9
below, he must (a) retire before the first day of the
calendar quarter next following the date on which he attains
the Normal Retirement Age, (b) have at least five (5) Years
of Vesting Service on the date that he retires, and (c) be
at least fifty five (55) years old on the date that he
retires.
The Retirement Incentive Benefit shall be an amount equal to
the excess, if any, of the Participant's Base Benefit over
the Participant's Offset Benefit.
6. Payments Following Retirement On or Before the Normal
Retirement Age. If the conditions set forth in Section 5 are
satisfied, the Retirement Incentive Benefit shall be payable
monthly for the Participant's life commencing on the first
day of the calendar quarter next following the date that the
Participant retires.
If Retirement Incentive Benefit payments commence before the
first day of the calendar quarter next following the date
that the Participant attains the Normal Retirement Age, the
Retirement Incentive Benefit payment shall be reduced in
accordance with the table set forth below:
Age When Payments Commence Percentage of Benefit Payable *
62 100%
61 95%
60 90%
59 85%
58 80%
57 75%
56 68.8%
55 63.2%
* adjusted on a monthly basis for payments which commence between
birthdates
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After taking into account the reduction described above, if
any, the Retirement Incentive Benefit shall be paid in such
form as the Participant elects among the forms of payment
available under the Retirement Plan; provided, however, that
such payments will be reduced, in accordance with
computations made by an actuary engaged by the Plan, in the
event that the benefit is paid in any form other than a
Single Life Annuity for the life of the Participant.
7. Payments Following a Participant's Disability. In the event
a Participant's employment terminates on account of his
disability, as defined in the Retirement Plan, before
benefit payments have commenced pursuant to Section 6 above,
Retirement Incentive Benefit Payments will commence on the
date that benefit payments are first made to the Participant
under the Retirement Plan.
8. Payments to a Spouse Following a Participant's Death. If a
Participant dies after benefit payments have commenced under
the Plan, his spouse or other beneficiary will be entitled
to receive benefit payments only if the form of benefit
payment originally selected by the Participant provides for
the continuation of benefit payments.
If a Participant who has been married to his spouse for at
least one year at the time of his death dies after attaining
age 55 with at least five (5) Years of Vesting Service
before benefit payments have commenced under the Plan, the
Participant's spouse will receive benefit payments under the
Plan commencing on the first day of the calendar month
immediately following the month in which the Participant
died. Such benefit shall be in the form of a single life
annuity payable monthly for the life of the Spouse. The
amount of such annuity shall equal the survivor annuity to
which the spouse would have been entitled under the Plan
determined as if benefit payments to the Participant had
commenced on the day preceding the day of his death under
the Joint and 50% Spouse Survivor Annuity form of payment.
If a Participant who has been married to his spouse for at
least one year at the time of his death dies prior to
attaining age 55 with at least five (5) Years of Vesting
Service, the Participant's spouse will receive benefit
payments under the Plan commencing on the first day of the
calendar month in which the Participant would have attained
age 55 had he survived. Such
16
<PAGE>
benefit shall be in the form of a single life annuity
payable monthly for the life of the spouse. The amount of
such annuity shall equal the survivor annuity to which the
spouse would have been entitled under the Plan determined as
if the Participant had died on the day following the day
that benefit payments to the Participant commenced after he
had attained age 55 under the Joint and 50% Spouse Survivor
Annuity form of payment.
9. Payments to a Designated Beneficiary Following a
Participant's Death. In the event that a Participant who has
at least five (5) Years of Vesting Service dies before
benefit payments commence under the Plan, his designated
beneficiary may be entitled to receive a Supplemental Death
Benefit. The Supplemental Death Benefit is an amount,
payable in the form of sixty (60) guaranteed monthly
payments, equal to the Actuarial Value of the excess of:
(i) The Actuarial Value of the guaranteed ten-year
certain portion of the benefit payment to which
the Participant would have been entitled under the
Ten-Year Certain and Life Annuity form of payment
had he commenced receiving benefit payments under
the Plan on the first day of the calendar month
coinciding with or next following the later of:
(A) the date of his death, or
(B) the first date on which he could have retired and
received benefit payments under the Plan, over
(ii) The Actuarial Value of the benefit payable to the
Participant's spouse, if any, payable under
Section 8 of the Plan.
If the Participant dies after attaining age 55 the benefit
payable hereunder, if any, will commence on the first day of
the calendar month immediately following the month in which
the Participant died.
If the Participant dies prior to attaining age 55, the
benefit payable hereunder, if any, will commence on the
first day of the calendar month immediately following the
month in which the Participant would have attained age 55
had he survived.
17
<PAGE>
10. Cash-Out Provision. In the event that the present value of
any benefit payable under this Plan, as determined by an
actuary engaged by the Plan for this purpose, is $20,000 or
less, such present value shall be paid to the Participant,
his spouse and/or his designated beneficiary as the case may
be, in a single lump sum payment as soon as practicable
after such determination is made.
11. Non-Compete Provision. The continuation of benefit payments
under the Plan will cease, and the right to all future
payments under the Plan will be forfeited, if the
Participant, without the written consent of the Company,
directly or indirectly enters into or in any manner takes
part in any business, profession or other endeavor which
shall be in competition with the business of the Company,
either as an employee, agent, independent contractor, owner
or otherwise in any state or foreign country in which the
Company is conducting business.
12. Limitation on Benefits. No Participant, spouse or
beneficiary shall have any right to receive benefits under
the Plan prior to the termination of the Participant's
employment by the Company.
In the event that a Participant's employment terminates (i)
before he attains the age of fifty five (55) for any reason
other than his death or disability, or (ii) on or after the
first day of the calendar quarter next following the date
that he attains the Normal Retirement Age, or in the event
that a Participant breaches the non-compete provision in
paragraph 11, all rights of the Participant, his spouse
and/or his beneficiary shall be forfeited and all
obligations of the Company to make payments or further
payments under the Plan shall cease.
The Plan shall not give the Participant, his spouse, his
beneficiary or anyone else any right or claim to specific
assets of the Company, regardless of whether the Company
establishes a separate account or otherwise provides for
funding its liability hereunder.
The Plan may be modified or amended by the Company at any
time, provided however, the benefits payable to any
Participant under the Plan determined as of the time of such
modification or amendment shall not be reduced by such
modification or amendment unless such Participant consents
in writing to such reduction.
18
<PAGE>
13. Waiver of Vesting and Benefit Accrual Limitations. The
Committee may, in its sole discretion, waive, modify or
amend all or any portion of the provisions of the Plan that
have the effect of limiting the amount or the timing of
payments that are to be made under the Plan. Such action by
the Committee may be made on a case by case basis or may be
made with respect to all Participants.
14. Miscellaneous Provisions.
(a) The Plan shall be governed by the laws of Virginia.
(b) Each Participant shall designate a beneficiary, in
writing, in such form as the Company may
prescribe. The Company may rely on such
beneficiary designation until such time that it is
revoked, in writing, by the Participant. In the
event that a Participant fails to designate a
beneficiary, the Company shall make all payments
which would have been made to the Participant's
designated beneficiary to such Participant's
estate.
(c) No benefit payable under this Plan shall be
subject in any manner to alienation, sale,
transfer, assignment, pledge, attachment, or
encumbrance of any kind.
(d) Nothing contained in this Plan shall be construed
as a contract of employment between the Company
and any Participant, or as a right of any
Participant to be continued in employment by the
Company, or as a limitation on the right of the
Company to discharge any of its employees with or
without cause.
IN WITNESS WHEREOF, the Plan has been duly adopted as of the 1st day of
January, 1995.
Brenco, Incorporated
By
19
<PAGE>
<TABLE>
EXHIBIT 13
Selected Quarterly Data
<CAPTION>
(In thousands, except per share amounts) 1994 Quarters
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
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
1993 Quarters
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Net sales $25,613 $27,427 $22,914 $22,770
Gross profit 5,723 6,067 4,929 4,754
Net income (loss) 1,675 1,767 1,158 ( 359)
Net income (loss) per share .17 .18 .11 ( .04)
Stock Prices (Wall Street Journal) 1994 1993
High Low High Low
<S> <C> <C> <C> <C>
1st Quarter 12 1/2 8 1/4 8 3/4 6
2nd Quarter 13 1/4 9 1/8 12 3/8 7 7/8
3rd Quarter 14 11 1/2 15 11 5/8
4th Quarter 13 1/4 11 1/4 12 1/2 9 1/4
Dividends Declared 1994 1993
<S> <C> <C>
1st Quarter $ .05 $ .05
2nd Quarter .05 .05
3rd Quarter .06 .05
4th Quarter .06 .05
<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.
20
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
Years Ended December 31
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
NET SALES $117,897,044 $98,723,878 $83,652,308
Costs and Expenses:
Cost of goods sold 88,313,611 77,250,896 69,211,320
Administrative and selling
expenses 14,413,648 12,161,980 10,952,890
102,727,259 89,412,876 80,164,210
Operating Income 15,169,785 9,311,002 3,488,098
Interest Expense ( 798,671) ( 740,844) ( 218,000)
Gain (Loss) on Sale of Assets 972,519 ( 11,835) --
Special Charge for Environmental
Expenditures (Note 8) ( 1,490,000) ( 2,300,000) ( 300,000)
Other Income 701,329 634,243 244,496
Income before Income Taxes 14,554,962 6,892,566 3,214,594
Income Taxes (Note 3) 5,753,272 2,651,600 1,237,600
NET INCOME $ 8,801,690 $4,240,966 $ 1,976,994
============================================================================================
Net Income per Share $ .88 $ .43 $ .20
============================================================================================
Weighted Average Number of
Shares Outstanding 10,050,454 9,941,909 9,841,396
============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
21
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity
<CAPTION>
Additional
Common Stock, Issued Paid-In Retained
Shares Par Value Capital Earnings
<S> <C> <C> <C> <C>
Balance, December 31, 1991 9,799,752 $ 9,799,752 $ 99,911 $ 34,844,945
Net income 1,976,994
Issuance under stock option and
stock participation plans 63,000 63,000 293,764 --
Reacquired shares ( 2,388) ( 2,388) ( 14,637) --
Dividends declared
($.20 per share) (1,969,561)
Balance, December 31, 1992 9,860,364 9,860,364 379,038 34,852,378
Net income 4,240,966
Issuance under stock option and
stock participation plans 145,148 145,148 637,752 --
Reacquired shares ( 167) ( 167) ( 1,815) --
Tax benefit from disqualifying
disposition of option shares 166,524
Dividends declared
($.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
=============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
22
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION> December 31
Assets 1994 1993
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,650,133 $ 3,581,725
Accounts receivable-net of allowance for doubtful
accounts of $279,469 (1993-$258,597) 18,303,819 14,565,163
Inventories:
Finished goods 3,060,172 4,814,117
Work in process 9,616,104 9,436,818
Raw material 2,893,182 1,877,943
15,569,458 16,128,878
Less: Lifo reserve 1,466,351 1,224,802
14,103,107 14,904,076
Prepaid expenses 1,489,722 1,452,108
Deferred income taxes (Note 3) 908,091 1,729,585
Income taxes recoverable 513,003 667,549
TOTAL CURRENT ASSETS 41,967,875 36,900,206
Other Assets - Investments at Cost 55,504 51,139
Property and Equipment:
Land and improvements 4,056,137 2,770,098
Buildings 11,499,555 11,387,143
Machinery and equipment 77,042,859 83,466,123
92,598,551 97,623,364
Less: Accumulated depreciation 58,053,298 64,945,797
34,545,253 32,677,567
$ 76,568,632 $ 69,628,912
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt (Note 5) $ 1,354,000 $
Accounts payable 2,665,377 3,413,897
Dividends payable 604,754 500,183
Compensated absences 721,509 615,956
Accrued liabilities 1,705,643 747,142
Income taxes payable 437,677 150,641
Environmental expenditures (Note 8) 41,365 2,883,734
TOTAL CURRENT LIABILITIES 7,530,325 8,311,553
Pension 921,203 454,736
Deferred Income Taxes (Note 3) 3,051,871 2,573,515
Long-Term Debt (Note 5) 9,567,052 10,000,000
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 10,085,600 shares
(1993-10,005,345 shares) 10,085,600 10,005,345
Additional paid-in capital 1,721,607 1,181,499
Retained earnings 43,690,974 37,102,264
55,498,181 48,289,108
$ 76,568,632 $ 69,628,912
============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
23
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows
<CAPTION>
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Cash Flows From Operations:
Net Income $8,801,690 $4,240,966 $ 1,976,994
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 3,870,130 3,003,015 2,551,721
Reserve for environmental expenditures 1,490,000 2,300,000 295,600
Deferred income taxes 1,299,850 315,464 ( 21,223)
(Gain) loss on sale of property and
equipment ( 972,519) 11,835
Pension expense 466,467 334,533 219,159
Other 72,218
Changes in the following:
Accounts receivable ( 3,738,656) ( 1,710,758) ( 3,643,142)
Inventories 800,969 611,503 312,676
Prepaid expenses 156,104 224,827 ( 116,648)
Accounts payable ( 748,520) 1,038,020 ( 36,052)
Accrued liabilities 1,064,054 ( 74,656) 667,701
Income taxes 471,457 ( 154,274) ( 211,663)
Environmental expenditures ( 4,332,369) ( 2,611,866)
Net cash provided by operations 8,628,657 7,528,609 2,067,341
Cash Flows From Investing Activities:
Acquisition of property and equipment ( 5,870,798) ( 8,814,699) ( 5,532,962)
Proceeds from the sale of property
and equipment 1,105,500 9,888 46,315
Other investments ( 4,364) ( 51,139)
Net cash used in investing activities ( 4,769,662) ( 8,855,950) ( 5,486,647)
Cash Flows From Financing Activities:
Proceeds from long-term borrowing 1,000,000 10,000,000
Principal payments on long-term debt ( 78,948)
Cash dividends paid ( 2,108,408) ( 1,983,915) ( 1,966,630)
Re-purchase of common stock ( 1,982) ( 17,025)
Proceeds from issuance of common stock 396,769 676,900 234,014
Net cash provided by (used in)
financing activities ( 790,587) ( 1,308,997) 8,250,359
Net increase (decrease) in cash and cash
equivalents 3,068,408 ( 2,636,338) 4,831,053
Cash and cash equivalents at beginning
of year 3,581,725 6,218,063 1,387,010
Cash and cash equivalents at end of year $ 6,650,133 $ 3,581,725 $6,218,063
========================================================================================
Supplemental Disclosures Of Cash Flow
Information:
Cash payments for income taxes $ 4,011,870 $ 2,418,024 $1,470,486
Cash payments for interest $ 798,671 $ 750,000 $ 95,608
<FN>
See Notes to Consolidated Financial Statements.
24
<PAGE>
<FN>
Notes to Consolidated Financial Statements
Note 1.
Significant Accounting Policies
The company's operations are primarily in the bearing and forging
industries. 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.
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 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 $1,466,000,
$1,225,000, and $1,430,000 higher at December 31, 1994, 1993 and 1992,
respectively, than at LIFO values. Reductions of inventory quantities in 1994,
1993 and 1992 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 any of the
years presented.
25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Note 3.
Income Taxes
The components of income tax expense for the years ended December 31,
1994, 1993 and 1992 were as follows:
============================================================================================
1994 1993 1992
<S> <C> <C> <C>
Current
Federal $3,542,066 $1,797,064 $1,010,085
State 911,356 539,072 248,738
Deferred
Federal 1,094,615 290,227 ( 15,975)
State 205,235 25,237 ( 5,248)
$5,753,272 $2,651,600 $1,237,600
============================================================================================
<FN>
The differences between the amounts of reported total income tax expense
and the amounts computed by multiplying income before income tax by applicable
statutory federal income tax rates for the years ended December 31, 1994, 1993
and 1992 were as follows:
=========================================================================================
1994 1993 1992
<S> <C> <C> <C>
Income tax
computed at
statutory
federal income
tax rates $4,948,687 $2,343,472 $1,092,962
Increase
(decrease) in
taxes resulting
from:
State income
taxes, net of
federal
income tax
benefit 736,950 372,444 160,703
Other net 67,635 ( 64,316) ( 16,065)
Income taxes $5,753,272 $2,651,600 $1,237,600
============================================================================================
26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net deferred tax liabilities consist of the following components at
December 31, 1994 and 1993:
============================================================================================
1994 1993
<S> <C> <C>
Deferred tax assets:
Current:
Reserve for
environmental expenditures $ 15,720 $1,095,817
Inventory capitalization
and allowances 229,934 213,029
Vacation benefits 274,173 234,063
Other expenses not
deductible currently, net 388,264 186,676
908,091 1,729,585
Non Current:
Accrued pension benefits 350,057 172,800
Deferred tax liabilities:
Non Current:
Accelerated depreciation 3,401,928 2,746,315
Net deferred tax
liabilities $2,143,780 $ 843,930
============================================================================================
<FN>
The components giving rise to the net deferred tax liabilities described
above have been included in the accompanying balance sheets at December 31, 1994
and 1993 as follows:
=============================================================================================
1994 1993
<S> <C> <C>
Current Assets $ 908,091 $1,729,585
Non Current Liabilities, net 3,051,871 2,573,515
Net Deferred Tax Liabilities $2,143,780 $ 843,930
============================================================================================
<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.
27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net pension cost for the company's defined benefit pension plan
consisted of the following components for the years ended December 31, 1994,
1993 and 1992:
============================================================================================
1994 1993 1992
<S> <C> <C> <C>
Service cost
(benefits
earned) $ 727,282 $ 603,316 $ 506,901
Interest cost on
projected benefit
obligation 787,875 734,383 689,659
Actual return on
plan assets ( 8,648) ( 1,021,585) ( 573,036)
Net amortization
and deferral ( 1,040,042) 18,419 ( 404,365)
$ 466,467 $ 334,533 $ 219,159
============================================================================================
The following assumptions were used in actuarial calculations for the
company's defined benefit pension plan for the years ended December 31, 1994,
1993 and 1992:
============================================================================================
1994 1993 1992
<S> <C> <C> <C>
Weighted average discount rate 8.5% 7% 8%
Rate of increase in future compensation:
Salaried employees 5% 5% 6%
Hourly employees 5% 4% 5%
Expected long-term return on assets 8.5% 8.5% 8.5%
============================================================================================
1994 1993
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits $8,096,456 $8,074,970
Accumulated benefits $8,556,971 $8,783,760
============================================================================================
Projected benefits ($11,259,507) ($11,584,117)
Plan assets at fair value,
consisting primarily of cash
equivalents, common stocks,
and insurance contracts 10,122,334 10,420,047
28
<PAGE>
1994 1993
<S> <C> <C>
Plan assets under projected
benefit obligation ( 1,137,173) ( 1,164,070)
Unrecognized net loss 796,200 1,482,974
Unrecognized net obligation
from January 1, 1987 ( 580,230) ( 773,640)
Liability included on
balance sheet ($ 921,203) ($ 454,736)
============================================================================================
<FN>
The company and its subsidiaries also have a defined contribution plan.
Expense incurred on behalf of this plan was $998,000, $867,000 and $791,000 in
1994, 1993 and 1992, respectively.
Note 5.
Long-Term Debt and Line of Credit
Long-term debt consists of the following as of December 31, 1994 and
1993:
=============================================================================================
1994 1993
<S> <C> <C>
7.5% senior unsecured notes due in annual installments
of $1,250,000 beginning in 1995 and payable through 2002 $10,000,000 $10,000,000
7.06% unsecured notes due in quarterly installments of
$26,000 through 2003 921,052
$10,921,052 $10,000,000
============================================================================================
Aggregate maturities required on long-term debt as of December 31, 1994
are due in future years as follows:
<S> <C> <C>
1995 $ 1,354,000
1996 1,354,000
1997 1,354,000
1998 1,354,000
1999 1,354,000
Later years 4,151,052
$10,921,052
============================================================================================
<FN>
The outstanding senior unsecured notes contain various restrictive
covenants, including maintenance of minimum consolidated net worth which
restricts the amount of dividends. Approximately $10,100,000 of retained
earnings were available for dividends at December 31, 1994.
The company also has available a $5,000,000 line of credit with a bank. At
December 31, 1994 and 1993 there were no outstanding borrowings under the line,
nor were there any borrowings under the line at any time during 1994 and 1993.
29
<PAGE>
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.
The 100,200 options granted October 28, 1994 and outstanding as of December 31,
1994 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, 1994 there were 237,125 shares which were exercisable,
and 433,275 shares are reserved for future issuance.
</TABLE>
<TABLE>
<CAPTION>
A summary of stock option transactions follows:
=============================================================================================
Number Average
of Price Per
Shares Share
<S> <C> <C>
Outstanding
December 31, 1991 403,875 $ 6.10
Granted 134,500 5.70
Lapsed ( 17,750) 6.55
Exercised ( 42,982) 4.87
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
============================================================================================
<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: 1,392 in 1994,
1,945 in 1993, and 3,268 in 1992.
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 22,460
shares granted under this plan for the year ended December 31, 1994, 16,000
granted in 1993, and 16,750 granted in 1992.
<PAGE> 30
Note 7.
Export Sales and Major Customers
Sales to foreign customers amounted to $17,491,000 in 1994, $17,849,000
in 1993, and $11,094,000 in 1992. Net sales for the year ended December 31,
1994 included $12,850,000 to one customer whose accounts receivable balance was
approximately $596,000 at December 31, 1994. No other customers accounted for
more than 10% of sales in 1994, 1993, or 1992.
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 since
1989.
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, and 1992
charges reduced net income by approximately $185,000, or $.02 per share.
The company believes the remediation project to be complete.
31
</TABLE>
<PAGE>
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, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. 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, 1994, and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
McGladrey & Pullen, LLP
Richmond, Virginia
January 31, 1995
32
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
(In thousands, except per share amounts)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net sales $117,897 $98,724 $83,652 $78,600 $73,063
Net income 8,802 4,241 1,977 4,455 3,829
Net income per share 0.88 0.43 0.20 0.46 0.40
Total assets 76,569 69,629 65,074 51,783 49,330
Long-term debt 9,567 10,000 10,000
Cash dividends
declared per share .22 .20 .20 .20 .20
</TABLE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
(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 (QBS), our
reconditioning subsidiary, were up 30% as we continued to enjoy substantial
market share. The revenues of Rail Link, our rail switching subsidiary were up
8%, with the addition of three switching locations, while automotive forgings
were up 7%.
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. In
1994 a special charge to earnings was made in the amount of $1,490,000,
representing additional 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. During 1994, Brenco brought an action
against a bearing reconditioner for allegedly repairing Brenco raceway
components in violation of AAR rules. Brenco was unsuccessful in its action,
and the costs of its litigation resulted in a charge to income of $1,018,000,
most of which occurred in the fourth quarter. Net income for 1994 was
$8,802,000 or $.88 per share, compared to $4,241,000 or $.43 per share in 1993,
an increase of 108%.
(1993 compared with 1992)
Net sales in 1993 increased 18% over sales in 1992, to $98,724,000. Railroad
products and services were up 20%, to $79,859,000. Export sales of railroad
products were $17,849,000, an increase of 61% over the prior year, to an all-
time high. Revenues for Rail Link, our rail switching subsidiary were up 18%.
33
<PAGE>
Operating income rose 167% in 1993 to $9,311,000, compared to $3,488,000 in
1992. The increase in operating income in 1993 was primarily the result of
higher sales volumes and improved margins in our QBS subsidiary. In the fourth
quarter of 1993 a special charge to earnings was made in the amount of
$2,300,000, representing anticipated environmental remediation expenditures.
Net income for 1993 was $4,241,000 or $.43 per share, compared to $1,977,000 or
$.20 per share in 1992, an increase of 115%.
Liquidity and Capital Commitments
Cash and cash equivalents were $6,650,000 at December 31, 1994, compared to
$3,582,000 at the end of 1993.
Capital expenditures totaled $5,871,000 in 1994, compared to $8,815,000 in
1993 and $5,533,000 in 1992. Capital expenditures in 1995 are expected to
increase to approximately $13,696,000, which includes $2,766,000 of carryovers
from prior years plus $10,931,000 in new projects approved for 1995. Increased
capacity ($3,970,000) and new business ($1,058,000) account for 46% of the new
projects budget for 1995. The cleanup of the former Puddledock plant site was
completed in 1994.
During 1994, we completed the placement of a $1,000,000 term loan, to provide
financing for constructing a new reconditioning plant in Little Rock, Arkansas.
In 1994 our investment in accounts receivable increased by $3,739,000, to
$18,304,000, as the result of strong fourth quarter sales. Sales in the fourth
quarter of 1994 were $30,990,000, compared to $22,770,000 for the same quarter
of 1993, or an increase of $8,220,000.
The ratio of current assets to current liabilities was 5.57 at December 31,
1994, as compared to 4.44 at the end of 1993. The total amount of working
capital increased by $5,849,000 to $34,438,000 at the end of 1994. This
compares to $28,589,000 at the end of the prior year. The principal increase in
1994 over 1993 was in cash and accounts receivable, while current liabilities
remained approximately the same.
The Company has a $5,000,000 revolving line of credit. This line was not
used during 1994. Management believes that its cash balances and earnings
before depreciation charges in the coming year will be more than adequate to
cover its capital needs and dividend payments for 1995.
34
<PAGE>
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
35
<PAGE>
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 Kentucky, Inc.
Quality Bearing Service of Missouri, Inc.
Brenco Holdings, Inc.
Rail Link, Inc.
SealTech, Inc.
Full Steam Ahead Rebuilding, Inc.
The Company has the following wholly-owned subsidiary, incorporated in
California and included in the consolidated financial statements:
Q.B.S. of California, 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.
36
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
EXHIBIT 23
As independent auditors, we hereby consent to the incorporation of our
report, dated January 31, 1995, 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 24, 1995
37
<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 6650
<SECURITIES> 0
<RECEIVABLES> 18304
<ALLOWANCES> 0
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<CURRENT-ASSETS> 41968
<PP&E> 92599
<DEPRECIATION> 58053
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0
0
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<SALES> 117897
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<CGS> 88314
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<OTHER-EXPENSES> (701)
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<CHANGES> 0
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