UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______to ______
Commission file number 0-6839
BRENCO, INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia #54-0493835
(State of incorporation) (IRS Employer Identification No.)
One Park West Circle, Midlothian, VA 23113
(Address of principal executive offices) (Zip Code)
(804) 794-1436
(Telephone number)
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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 [ ]
Common stock, par value $1.00 per share: 10,207,440 shares
outstanding as of June 30, 1996
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BRENCO, INCORPORATED AND SUBSIDIARIES
FORM 10-Q__June 30, 1996
INDEX
Part I Financial Information: Page No.
Item 1. Financial Statements.
Consolidated Statements of Income (Unaudited)
-Three Months and Six Months Ended
June 30, 1996 and 1995........................... 2
Consolidated Balance Sheets
-June 30, 1996 (Unaudited) and December 31, 1995... 3 & 4
Consolidated Statements of Cash Flows (Unaudited)
-Three Months and Six Months Ended
June 30, 1996 and 1995........................... 5
Notes to Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 7
Part II Other Information:
Item 4. Submission of Matters to a Vote of Security Holders. 8
Item 6. Exhibits and Reports on Form 8-K.................... 9
1
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<TABLE>
BRENCO, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES -------------------- $ 33,227 $ 32,642 $ 66,102 $ 67,874
Costs and expenses:
Cost of goods sold---------- 25,458 24,596 50,458 50,096
Administrative and selling
expenses------------------- 3,775 3,656 7,600 7,380
29,233 28,252 58,058 57,476
Operating income-------------- 3,994 4,390 8,044 10,398
Interest expense-------------- ( 163)( 168)( 341)( 373)
Gain (loss) on sale of
assets---------------------- ( 9)( 5)( 9)( 6)
Other income------------------ 166 226 417 403
Income before income taxes---- 3,988 4,443 8,111 10,422
Income taxes------------------ 1,509 1,737 3,061 4,076
NET INCOME-------------------- $ 2,479 $ 2,706 $ 5,050 $ 6,346
======== ======== ======== ========
Net income per share---------- $ .25 $ .27 $ .50 $ .63
Dividends declared per share-- $ .07 $ .07 $ .14 $ .13
Average number of shares
outstanding------------------ 10,206 10,130 10,197 10,117
<FN>
See accompanying notes to Consolidated Financial Statements.
2
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<TABLE>
BRENCO, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
(In thousands of dollars)
June 30 December 31
1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents------------- $13,624 $10,484
Accounts receivable------------------- 20,968 19,194
Inventories:
Finished goods---------------------- 5,119 4,922
Work in process--------------------- 8,416 9,779
Raw material------------------------ 2,945 2,981
16,480 17,682
Less: Lifo reserve----------------- 1,331 1,716
15,149 15,966
Prepaid expenses---------------------- 1,807 1,974
Deferred income taxes----------------- 1,966 875
Income taxes recoverable-------------- 115 1,026
TOTAL CURRENT ASSETS-------------- 53,629 49,519
Other Assets - Investments at Cost------ 673 671
Property and Equipment:
Land and improvements----------------- 4,087 4,094
Buildings----------------------------- 13,036 13,051
Machinery and equipment--------------- 76,850 76,464
93,973 93,609
Less: Accumulated depreciation 58,427 57,521
TOTAL PROPERTY AND
EQUIPMENT--------------------------- 35,546 36,088
TOTAL ASSETS------------------------ $89,848 $86,278
======= =======
<FN>
See accompanying notes to Consolidated Financial Statements.
3
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<TABLE>
BRENCO, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
(In thousands of dollars)
June 30 December 31
1996 1995
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt-- $ 1,355 $ 1,354
Accounts payable---------------------- 3,043 3,610
Dividends payable--------------------- 715 711
Compensated absences------------------ 729 719
Accrued liabilities------------------- 3,322 1,705
Income taxes payable------------------ -- 339
TOTAL CURRENT
LIABILITIES--------------------- 9,164 8,438
Pension--------------------------------- 1,721 2,412
Deferred Income Taxes------------------- 4,151 3,217
Long-Term Debt-------------------------- 6,908 8,212
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
10,207,440 shares (1995 - 10,166,666
shares)----------------------------- 10,207 10,167
Additional paid in capital------------ 2,464 2,220
Retained earnings--------------------- 55,233 51,612
TOTAL SHAREHOLDERS'
EQUITY-------------------------- 67,904 63,999
TOTAL LIABILITIES AND
EQUITY-------------------------- $89,848 $86,278
======= =======
<FN>
See accompanying notes to Consolidated Financial Statements.
4
</TABLE>
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<TABLE>
BRENCO, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Cash Flows from Operations:
Net Income-------------------- $ 2,479 $ 2,706 $ 5,050 $ 6,346
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operations:
Depreciation---------------- 1,208 1,101 2,393 2,167
(Gain) loss on sale of
assets-------------------- 9 5 9 6
Deferred income taxes------- 229 14 ( 157) ( 157)
Pension ( 948) 200 ( 691) 364
Changes in the following:
Current assets-------------- 3,240 ( 2,426) 349 ( 6,244)
Current liabilities--------- ( 2,800) ( 1,758) 721 3,005
Net cash provided by (used in)
operations------------------ 3,417 ( 158) 7,674 5,487
Cash Flows from Investing Activities:
Acquisition of property and
equipment------------------- ( 1,234) ( 2,225) ( 1,921) ( 4,268)
Proceeds from sale of property
and equipment--------------- 61 1 61 7
Other investments------------- ( 2) -- ( 2) --
Net cash used in
investing activities-------- ( 1,175) ( 2,224) ( 1,862) ( 4,261)
Cash Flows from Financing Activities:
Cash dividends paid--------- ( 714) ( 607) ( 1,426) ( 1,212)
Employee stock purchases---- 7 126 57 157
Long-term debt-------------- ( 1,277) ( 1,277) ( 1,303) ( 1,303)
Net cash provided by (used in)
financing activities-------- ( 1,984) ( 1,758) ( 2,672) ( 2,358)
Net increase (decrease) in cash
and cash equivalents-------- 258 ( 4,140) 3,140 ( 1,132)
Cash and cash equivalents at
beginning of quarter-year--- 13,366 9,658 10,484 6,650
Cash and cash equivalents at
end of quarter-------------- $13,624 $ 5,518 $13,624 $ 5,518
======= ======= ======= =======
<FN>
See accompanying notes to Consolidated Financial Statements.
5
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BRENCO, INCORPORATED AND SUBSIDIARIES
FORM 10-Q June 30, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of June 30, 1996, the consolidated
statements of income, and the consolidated statements of cash flows for the
three months and six months ended June 30, 1996 and June 30, 1995 have been
prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position at June 30, 1996 and the results of
operations and cash flows for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's December 31, 1995 annual report to shareholders. The results of
operations for the periods ended June 30, 1996 are not necessarily
indicative of the operating results for the full year.
2. Pursuant to an Acquisition Agreement dated as of June 15, 1996 (the
"Acquisition Agreement") among the Company, Varlen Corporation ("Varlen")
and BAS, Inc., a wholly-owned subsidiary of Varlen ("Purchaser"), Purchaser
commenced on June 20, 1996 a cash tender offer (the "Offer") for all the
outstanding shares of common stock, par value, $1.00 per share (the
"Shares"), of the Company at a price of $16.125 per Share, net to seller in
cash, without interest. The Offer expired at 12:00 midnight, New York city
time, on July 19, 1996. Following expiration of the Offer, Varlen
beneficially owned, indirectly through Purchaser and another wholly-owned
subsidiary, 9,798,734 Shares, or approximately 96% of the total number of
Shares outstanding.
Pursuant to the Acquisition Agreement, the Company has called a
Special Meeting of Shareholders to be held on August 23, 1996 for the
purpose of voting on the approval and adoption of a Plan of Merger dated as
of July 26, 1996, providing for the merger of the Purchaser with and into
the Company (the "Merger"). On July 29, 1996, the Company mailed to all
shareholders of record as of July 23, 1996 proxy materials in connection
with the Special Meeting. Under the Virginia Stock Corporation Act, Varlen
has sufficient voting power to cause the Plan of Merger to be adopted at
the Special Meeting without the vote of any other shareholder of the
Company. The Merger will be consummated as soon as practicable following
the Special Meeting on the terms and conditions set forth in the
Acquisition Agreement and the Plan of Merger. As a result, at the
effective time of the Merger (i) the Company will continue as the surviving
6
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corporation and will be a wholly-owned subsidiary of Varlen and (ii) each
Share issued and outstanding (other than Shares held by Varlen, Purchaser
or any direct or indirect subsidiary of Varlen or Purchaser or the Company)
will be converted into the right to receive $16.125 net per Share in cash,
without any interest.
The Shares are currently traded in the over-the-counter market and are
quoted in the National Association of Securities Dealers, Inc. ("NASD")
Automated Quotation System ("NASDAQ") National Market System ("NMS"). As a
result of the consummation of the Offer and the Merger, the registration of
the Shares under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the trading of the Shares on the NASDAQ NMS, will be
terminated as soon as practicable following the effective time of the
Merger. Upon termination of registration of the Shares under the Exchange
Act, the Company will no longer be required to file reports, proxy
statements or other information with the Securities and Exchange Commission
relating to its business, financial condition and other matters.
In connection with consummation of the Offer and Merger, the Company
will cancel, immediately prior to the effective time of the merger, all
options outstanding under its 1988 Stock Option Plan and, at the effective
time of the merger all shares of restricted stock outstanding under its
1987 Restricted Stock Plan, resulting in a payment, at the time of such
cancellation, of approximately $3,800,000.
7
<PAGE>
BRENCO, INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS:
Net sales were $66,102,000 for the first six months of 1996, compared
to $67,874,000 for the same period last year, a decrease of 2.6%. For the
second quarter, sales were $33,227,000, compared to $32,642,000, for the
same quarter in 1995, an increase of 1.8%. Sales for the first six months
of 1995 were the highest in the Company's history. The excellent results
for both the second quarter and six months of 1996 are the result of
increased export shipments as well as increased bearing reconditioning
services, as bearings for the OEM market were below 1995 levels as
forecasted due to decreased demand for new railcars in 1996.
Net income was $5,050,000 or $.50 per share for the first six months,
compared to $6,346,000 or $.63 per share for the comparable period in 1995,
a decrease of 20.4%. For the second quarter, net income was $2,479,000 or
$.25 per share, compared to $2,706,000 or $.27 per share for the same
quarter of 1995, a decrease of 8.4%. The reduced levels of new freight car
construction in the U.S. and Canada was offset by increased export
shipments and bearing reconditioning services from a sales standpoint.
However, margins on these businesses are less than margins on OEM sales,
resulting in reduced net income.
FINANCIAL CONDITION:
Cash and cash equivalents were up $258,000 for the quarter and
$3,140,000 since the beginning of the year. Working capital at the end of
the second quarter was $44,465,000, compared to $44,818,000 at the end of
the first quarter, a slight decrease of $353,000.
Management believes that its current cash and cash equivalents,
together with earnings, are sufficient to cover both capital and dividend
requirements for the balance of the year.
ACQUISITION OF THE COMPANY:
Following completion of a tender offer made pursuant to an Acquisition
Agreement dated June 15, 1996, among the Company, Varlen Corporation
("Varlen") and BAS, Inc., a wholly-owned subsidiary of Varlen, Varlen
beneficially owns indirectly approximately 96% of the Company's outstanding
shares of common stock. Varlen is expected to complete the acquisition of
the Company through a second step merger, presently anticipated to be
completed by the end of August, 1996. See Note (2) to the Notes to
Consolidated Financial Statements for further detail concerning the
acquisition.
8
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BRENCO, INCORPORATED AND SUBSIDIARIES
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) At the Annual Meeting of Shareholders of the Company held on
April 18, 1996, 9,141,537 of the Company's 10,193,021 outstanding shares
were present in person or by proxy and entitled to vote, which constituted
a quorum.
(b) At the Annual Meeting, the following nominees were elected to
serve until the 1997 Annual Meeting:
Jacob M. Feichtner
Steven M. Johnson
John C. Kenny
J. Craig Rice
James M. Wells III
Needham B. Whitfield
Frederic W. Yocum, Jr.
(c) At the Annual Meeting the following matters were voted upon and
received the vote set forth below:
(1) Election of Directors. Provided that a quorum is present,
the nominees receiving the greatest number of votes cast are elected as
directors and, as a result in tabulating the vote, votes withheld have no
effect upon the election of directors. Each nominee for director was
elected, having received the following vote:
FOR WITHHELD
Nominee
Jacob M. Feichtner 9,052,026 89,508
Steven M. Johnson 9,051,226 90,311
John C. Kenny 8,851,926 289,611
J. Craig Rice 9,052,006 89,531
James M. Wells III 8,850,926 290,611
Needham B. Whitfield 9,052,026 89,511
Frederic W. Yocum, Jr. 9,052,226 89,311
(2) Approval of designation of McGladrey & Pullen as independent
auditors for the current year. Provided that a quorum is present,
ratification of the auditors requires the affirmative vote of a majority of
the votes cast, and as a result, in tabulating the vote, abstentions do not
have the effect of working against ratification. Designation of the
auditors was approved, having received the following vote:
FOR: 9,090,248
AGAINST: 33,692
ABSTAIN: 17,596
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2. Acquisition Agreement, dated June 15, 1996, by and
among the Company, Varlen Corporation and BAS, Inc.,
incorporated herein by reference to Exhibit C to the
Company's Schedule 14D-9, dated June 20, 1996.
27. Financial Data Schedule
(b) Reports on Form 8-K - none
10
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SIGNATURES
Pursuant to the requirements 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
(Registrant)
DATED: August 14, 1996 BY: J. Craig Rice
-------------------------
J. Craig Rice
President
DATED: August 14, 1996 BY: Jacob M. Feichtner
-------------------------
Jacob M. Feichtner
Executive Vice President
& Secretary
11
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 13624
<SECURITIES> 0
<RECEIVABLES> 20968
<ALLOWANCES> 0
<INVENTORY> 15149
<CURRENT-ASSETS> 53629
<PP&E> 93973
<DEPRECIATION> 58427
<TOTAL-ASSETS> 89848
<CURRENT-LIABILITIES> 9164
<BONDS> 0
<COMMON> 10207
0
0
<OTHER-SE> 57697
<TOTAL-LIABILITY-AND-EQUITY> 89848
<SALES> 66102
<TOTAL-REVENUES> 66102
<CGS> 50458
<TOTAL-COSTS> 58058
<OTHER-EXPENSES> ( 417)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> 8111
<INCOME-TAX> 3061
<INCOME-CONTINUING> 5050
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5050
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
