SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year 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 No. 0-3366
BRYAN STEAM CORPORATION
(Exact name of registrant as specified in its charter)
NEW MEXICO 35-0202050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. BOX 27, PERU, INDIANA 46970
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 473-6651
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of
the Act:
BRYAN STEAM CORPORATION
CAPITAL STOCK, WITHOUT PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this Form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB [X].
The issuer's revenues for its most recent fiscal year. $22,477,000.
The aggregate market value of the 162,608 shares of the registrant's
common stock held by non-affiliates on September 20, 1996 (based on average of
bid and asked prices, not actual transactions) was $6,423,016.
There were 191,284 shares of the registrant's Common Stock outstanding
on September 20, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the Part of
this report indicated:
1. Annual Report to Shareholders for year ended June 30, 1996
(incorporated into Part II).
2. Proxy Statement for Annual Meeting to be held October 3, 1996
(incorporated into Part III).
<PAGE>
PART I
Item 1. Business
Bryan Steam Corporation ("Bryan" and, together with its direct and
indirect wholly-owned subsidiaries, the "Company") has only one industry
segment. All of the revenue, operating profit or loss, and identifiable assets
of the Company are attributable to that industry segment. See the Financial
Statements filed under Item 8 in Part II of this Report.
Bryan manufactures and sells oil, gas and electrically fired boilers,
commercial water heaters and swimming pool heaters. Bryan also manufactures and
sells a limited number of storage tanks and other equipment for use in
connection with boilers. Wendland Manufacturing Corp., Bryan's wholly-owned
subsidiary ("Wendland"), began manufacturing storage tanks effective July 3,
1995 upon the consummation of an asset purchase transaction pursuant to which
Wendland purchased substantially all of the operating assets of a tank
manufacturer in San Angelo, Texas (the "Wendland Transaction"). The assets
purchased by Wendland in the Wendland Transaction totalled approximately $1.1
million, and the Wendland Transaction was funded primarily through a $1.0
million loan. On December 6, 1995, Wendland also acquired substantially all of
the assets of a discontinued heat exchanger business in Monticello, Indiana for
$215,000. Wendland operated these assets and the heat exchanger business as a
division until March 15, 1996, at which time Wendland organized Monticello
Exchanger and Manufacturing Co. ("MEMCO") as a wholly-owned subsidiary and
transferred assets and liabilities relating to the heat exchanger business with
a net value of approximately $450,000 in exchange for all of MEMCO's issued and
outstanding capital stock. MEMCO has operated the heat exchanger business since
March 15, 1996.
Most boilers manufactured by Bryan are sold directly to contractors for
installation in new apartment, commercial, industrial and institutional
buildings; a limited number of boilers are sold for replacement purposes. Most
tanks manufactured by Wendland are sold directly to contractors for installation
for new commercial and industrial applications. A limited number of tanks are
sold for replacement purposes. Most heat exchangers manufactured by MEMCO are
sold directly to the end-users for installation in new industrial applications.
A limited number is also sold for replacement purposes.
Sales of Bryan's boilers are made through approximately 70 independent
manufacturers' representatives located throughout the United States and Canada.
Bryan sold boilers to approximately 500 different purchasers during its fiscal
year ended June 30, 1996. No single customer accounts for any material part of
Bryan's sales. Sales of Wendland's tanks are made through approximately 45
independent manufacturer's representatives located throughout the United States.
Wendland sold tanks to approximately 400 different purchasers during its fiscal
year ended June 30, 1996. No single customer accounts for any material part of
Wendland's sales. Sales of MEMCO's heat exchangers are made through 6
independent representatives. MEMCO sold products to 6 customers from the time of
its organization through June 30, 1996.
The dollar amount of Bryan's backlog of orders believed to be firm as
of the close of its fiscal year ended June 30, 1996, was approximately
$6,506,684. Bryan's backlog at the close of its preceding fiscal year ended June
30, 1995, was approximately $5,492,000. Wendland's backlog of orders believed to
be firm as of the close of its fiscal year ended June 30, 1996, was
approximately $325,000. MEMCO's backlog of orders believed to be firm as of the
close of its fiscal year ended June 30, 1996, was approximately $350,000.
Bryan's Canadian sales amounted to approximately $472,300 during its
fiscal year ended June 30, 1996. Canadian sales were approximately $676,496 and
$674,179 for its fiscal years ended June 30, 1995 and 1994, respectively. Its
other foreign sales were not material. Foreign sales by Wendland and MEMCO
during the year ended June 30, 1996 were not material.
The Company operates is in a highly competitive industry. Bryan is one
of the smaller boiler manufacturers, but holds a relatively significant share of
its market. Wendland holds a relatively insignificant share of its market.
Because MEMCO represents the start-up of a previously discontinued business,
MEMCO had not developed a core customer base as of June 30, 1996 and remains one
of the smallest manufacturer of heat exchangers in the industry.
1
<PAGE>
Bryan's boilers are manufactured from steel and copper tubing, steel
plate, sheet metal, finished components (including burners, controls, and
gauges) and insulation and refractory materials, substantially all of which are
available from several sources. Wendland's tanks are manufactured from carbon
steel and stainless steel, steel plate and insulation. Substantially all of the
materials used to manufacture tanks is available from several sources. MEMCO's
heat exchangers are manufactured from steel plate, pipe and various types of
metal tubing, substantially all of which is available from several sources.
The Company's expenditures for research and development of new products
and improvement of existing products during its fiscal years ended June 30,
1996, and June 30, 1995, were approximately $92,063 and $119,233, respectively,
all of which were incurred by Bryan. Bryan employs 4 persons on a full-time
basis for such activities. Neither Wendland nor MEMCO employ any full-time
employees solely for research and development purposes.
The Company has no patents, trademarks, licenses, franchises or
concessions that are material to its business.
Bryan employs approximately 200 persons full time. Its production
employees are represented by Local 357 of the International Brotherhood of
Boilermakers. Wendland employs approximately 32 employees full time, and none
are represented by a union. MEMCO employs approximately 18 employees full time,
and none are represented by a union.
The Company, to obtain sales in its industry, ordinarily must have a
competitive price. The Company believes competition in the industry has
intensified in recent years. In addition, reputation for quality, service
capabilities and local sales representation are all important factors in
securing sales.
Item 2. Properties
Bryan operates a manufacturing plant located in Peru, Indiana. The
plant and the 27-acre site upon which it is located are owned by Bryan. The
plant consists of several adjacent structures of brick, masonry and steel
construction varying in age, all of which are in satisfactory condition. Bryan's
Plant contains an aggregate of approximately 153,000 square feet on one level.
Bryan's executive and administrative offices are located in a separate masonry
building located on the same 27-acre site.
Wendland operates its tank manufacturing plant on a 4.225 acre tract of
land in San Angelo, Texas. The Wendland plant contains approximately 55,000
square feet on one level. Wendland is also currently leasing certain real
property located adjacent to the Wendland plant.
MEMCO operates its manufacturing plant on a 3.884 acre tract of land in
Monticello, Indiana. MEMCO's plant contains approximately 17,400 square feet on
one level.
Item 3. Legal Proceedings
The Company is a party to ordinary routine litigation incidental to its
business. It is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Securities Holders.
There were no items submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended June 30, 1996.
2
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information respecting the market for the Company's shares of Common
Stock and related matters appears on page 5 of the Company's Annual Report to
Shareholders for the year ended June 30, 1996, and is incorporated herein by
this reference.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Management's Discussion and Analysis of Financial Condition and
Results of Operations which appears on pages 2 and 3 of the Company's Annual
Report to Shareholders for the year ended June 30, 1996 is incorporated herein
by this reference.
Item 7. Financial Statements.
The Company's audited financial statements and notes thereto which
appear on pages 7 through 17 of the Company's Annual Report to Shareholders for
the year ended June 30, 1996 is incorporated herein by this reference.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
3
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act.
The information about the Company's Directors who are also Executive
Officers required by Items 401 and 405 of Regulation S-B, which appears in the
Company's Proxy Statement delivered in connection with its Annual Meeting of
Shareholders to be held October 3, 1996, is incorporated herein by this
reference. Additional information respecting certain of the Registrant's
Executive Officers who are not also Directors is set forth below.
Name, Principal Occu- Shares Percentage of
pation, and Prior Beneficially Outstanding Shares
Business Experience Owned Beneficially Owned Age
- ------------------------- ------------ ------------------- ----
Kurt Krauskopf, 25 (1) Less than 1 percent 42
Secretary of the Company
since January, 1991;
Treasurer of the Company
between October, 1988
and December, 1992.
Paul D. Donaldson, 0 0 33
Treasurer of the Company
since December, 1992;
prior thereto Credit
Manager of the Company
since March 1, 1989;
Loan Officer, Grissom
Federal Credit Union,
Grissom Air Force Base,
since prior to October,
1988.
-------------
(1) Held by Mr. Krauskopf's spouse.
Item 10. Executive Compensation.
The information about the Company's executive compensation and
transactions which appears in the Company's Proxy Statement delivered in
connection with its Annual Meeting of Shareholders to be held October 3, 1996 is
incorporated herein by this reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information concerning the number and percentage of shares of Common
Stock owned beneficially on August 30, 1996 by 5% beneficial shareholders, owned
individually by each director, and owned collectively by all directors and
officers of the Company, which information appears in the Company's Proxy
Statement delivered in connection with its Annual Meeting of Shareholders to be
held on October 3, 1996, is incorporated herein by this reference. The Company
knows of no arrangements which may result in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions.
The Company paid approximately $554,000 in fiscal year 1996 to cover
premiums for various property and casualty insurance policies on which an
insurance agency owned by G. N. Summers, a Director of Bryan, received
commission. There are no other reportable relationships or related transactions
between the Company and its Directors, Executive Officers, 5% beneficial
shareholders, or immediate family members of the foregoing persons.
4
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) (1) and (2): The following financial statements are filed as
a part of this report:
Consolidated Balance Sheets (June 30, 1996, 1995, and 1994) Consolidated
Statement of Income (Years Ended June 30, 1996, 1995 and 1994)
Consolidated Statement of Retained Earnings (Years Ended
June 30, 1996, 1995 and 1994)
Consolidated Statements of Cash Flows
(Years Ended June 30, 1996, 1995 and 1994)
Notes to Financial Statements (June 30, 1996)
Selected Consolidated Financial Data
(a) (3): The following exhibits are filed as a part of this report:
3(a). The Registrant's Articles of Incorporation were filed
as Exhibit 3 to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1981, which is
incorporated herein by this reference.
3(b). The Registrant's Code of By-Laws was filed as Exhibit
19(i) to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1986, which was sent
to the Commission on February 4, 1987, and which is
incorporated herein by this reference.
13. The Company's Annual Report to Shareholders for the
year ended June 30, 1996.
21. The Registrant has one wholly-owned subsidiary
incorporated under the laws of the State of Indiana,
Wendland Manufacturing Corp. ("Wendland"). Wendland
has one wholly-owned subsidiary incorporated under
the laws of the State of Indiana, Monticello
Exchanger and Manufacturing Co.
27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the fourth quarter of
fiscal 1996.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant, in the capacities and on the dates indicated.
Signature Title Date
(1) Principal Executive Officer ) September 27, 1996
)
/s/ Albert J. Bishop Chief Executive )
- ------------------------------------- Officer )
Albert J. Bishop )
)
)
(2) Principal Financial Officer )
)
/s/ Kurt J. Krauskopf Controller )
- ------------------------------------- )
Kurt J. Krauskopf )
)
)
(3) A majority of the )
Board of Directors ) September 27, 1996
)
/s/ Harold V. Koch Director )
- ------------------------------------- )
Harold V. Koch )
)
/s/ Albert J. Bishop Director )
- ------------------------------------- )
Albert J. Bishop )
)
/s/ Bryan D. Herd Director )
- ------------------------------------- )
Bryan D. Herd )
)
/s/ H. Jesse McVay Director )
- ------------------------------------- )
H. Jesse McVay )
)
/s/ G.N. Summers Director )
- ------------------------------------- )
G.N. Summers )
)
/s/ Jack B. Jackson Director )
- ------------------------------------- )
Jack B. Jackson )
)
/s/ James R. Lockhart, Jr. Director )
- ------------------------------------- )
James R. Lockhart, Jr. )
6
[GRAPHIC OMITTED DOWN SIDE COLUMN]
Bryan Steam
Corporation
A N N U A L R E P O R T
Year Ended June 30, 1996
<PAGE>
To Our Shareholders:
There were many changes in Bryan Steam Corporation ("Bryan" and, together with
Wendland and MEMCO [each as defined below], the "Company") in the last year. On
July 3, 1995, the Bryan's wholly-owned subsidiary, Wendland Manufacturing
Corporation ("Wendland"), acquired substantially all of the assets of a tank
manufacturer in San Angelo, Texas. The Company's acquisition of this tank
manufacturing operation through Wendland has enabled the Company to add the
tanks now manufactured by Wendland to its line of boiler room products. As
discussed below, this acquisition also had a favorable impact on the Company's
profitability.
On December 7, 1995, Wendland acquired certain assets related to and associated
with a discontinued tank and pressure vessel manufacturing operation in
Monticello, Indiana. In March, 1996, Wendland formed a wholly-owned subsidiary,
Monticello Exchanger & Manufacturing Co. ("MEMCO"), and transferred all of the
assets related to the Monticello operations to MEMCO. Since MEMCO's operations
represented the start-up phase of a previously discontinued business, the
Company did not expect MEMCO to be a profit-making opportunity for at least the
first six months. However, sales from MEMCO's Monticello operations have met or
exceeded the Company's expectations, and the loss from those operations through
June 30, 1996 was minimal.
June 30, 1996 was the last day of Mr. Harold Koch's term as Chairman of the
Board of Directors of Bryan. Mr. Koch has been with Bryan for fifty years and
will remain on Bryan's Board of Directors. June 30th was also the last day of
Mr. Albert Bishop's term as President of Bryan. Effective July 1, 1996, Mr.
Bishop assumed the duties of Chairman of the Board of Directors of Bryan. Mr.
Bishop is succeeded as President of the Company by Mr. H. Jesse McVay. So as you
can see, in addition to the positive financial news discussed below, this has
been a very busy, dynamic, dramatic and eventful year for the Company.
The following annual report shows the consolidated financial condition of the
Company as of June 30, 1996 and the consolidated results of operations for the
three most recent fiscal years. Although it is difficult to compare this year
with the last two due to the Company's acquisitions, we believe everyone will
agree that fiscal year 1996 was a success. Bryan's boiler operations in Peru had
a sales increase of thirteen percent (13%) to almost $20 million. With the
addition of Wendland and MEMCO, combined sales of the Company significantly
exceeded sales in prior years.
Our directors have declared a dividend of $1.50 per share, which is $0.10 per
share higher than that paid in 1995. This dividend is payable on September 13,
1996 to shareholders of record August 30, 1996. Your check is enclosed. Attached
is a notice of the Annual Meeting of Shareholders to be held on October 3, 1996
together with a proxy and a proxy statement.
If you cannot be present at the shareholders' meeting, we would appreciate your
signing and returning the proxy immediately.
H. Jesse McVay
President
Enc. Notice of Annual Meeting of Shareholders
Proxy Form
Proxy Statement
Dividend Check
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward
Due to the acquisitions involving Wendland's and MEMCO's operations
since July 1, 1995, a direct comparison of the results of operations and the
financial condition for this year and last year is somewhat distorted.
Therefore, the following discussion will, where instructive, give both the
Company's consolidated results and the results for Bryan only.
Results of Operations
The Company's consolidated net income for the year ended June 30, 1996
was $1,148,934, compared to $927,141 and $519,442 for the years ended June 30,
1995 and 1994, respectively. The Company's earnings per share totaled $6.01 for
the year ended June 30, 1996, compared to $4.85 and $2.72 for the years ended
June 30, 1995 and 1994, respectively. The increase in net income of $221,793, or
23.9%, was primarily attributable to Bryan's operations, which had net income of
$1,155,636 for the year ended June 30, 1996. Wendland also generated net income
of approximately $18,560 for the year ended June 30, 1996, which included a
$52,049 loss attributable to the operations in Monticello, Indiana prior to the
formation of MEMCO. Subsequent to its formation in March, 1996, MEMCO generated
a loss of $47,482 through June 30, 1996. Operating profit totaled $1,668,590, or
7.4% of sales, in 1996 compared to $1,228,360, or 7.0% of sales, and $981,831,
or 5.8% of sales, in 1995 and 1994, respectively. Please note that the addition
of the income and losses of the three companies does not necessarily add up to
the Company's consolidated after-tax profit because of tax considerations from
the losses at MEMCO.
The Company's combined sales income of $22,476,628 for the year ended
June 30, 1996 represents an increase of approximately 29% over the sales income
of $17,480,290 for the year ended June 30, 1995. The increase in sales for 1996
as compared to 1995 is primarily attributable to two factors: (I) the addition
of approximately $3,000,000 in sales by Wendland and MEMCO in 1996, and (ii)
increased sales by Bryan in 1996 of approximately $2,000,000 over its sales in
1995. The increased sales by Bryan was primarily due to the acceptance by the
industry of Bryan's large water tube boilers. Although competition in Bryan's
small water tube boiler market remains very intense, one of its two major
competitors appears to have lost some of its competitive edge due to financial
difficulties. During the year ended June 30, 1996, Bryan was forced to continue
to give larger discounts than management would normally expect, but management
anticipates that the pressure to give larger discounts will decrease in the
future. Bryan effected an approximately 3.5% price increase effective May 1,
1996, which was Bryan's first price increase since September, 1994.
The Company's cost of goods sold for the year ended June 30, 1996 was
$17,887,043, compared to $13,913,906 and $13,707,958 for the years ended June
30, 1995 and 1994, respectively. The Company's cost of goods sold as a
percentage of sales was 79.6% in 1996, which remained constant when compared to
79.6% in 1995. Management believes that the stable cost of goods sold reflects
management's efforts to control materials costs and to sustain labor efficiency,
efforts which management will continue in the following year. As reported last
year, Bryan negotiated a new collective bargaining agreement in May, 1995, which
runs through May, 1998. This collective bargaining agreement provides for an
increase in wages for Bryan's bargaining unit of 3.5% in each of the years
covered by the contract.
Total expenses for the year ended June 30, 1996 totaled $2,920,995, an
increase of approximately $580,000, or 24.9%, compared to $2,338,024 for the
year ended June 30, 1995. Total salaries and wages totaled $1,050,431 in 1996
compared to $728,425 in 1995. The increase of approximately $320,000, or 44.2%,
resulted primarily from the addition of management and support staff's at
Wendland's and MEMCO's facilities. The increase also reflects normal merit
increases in wages for Bryan's employees. Repairs and maintenance expenses
totaled $78,141 in 1996, compared to $41,461 and $43,726, in 1995 and 1994,
respectively. The increase in repairs and maintenance expenses in 1996 over 1995
was primarily attributable to increased maintenance and repair costs at Bryan's
facility, and secondarily to the addition of expenses from Wendland's and
MEMCO's operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses totaled $1,425,122 in 1996 compared to
$1,250,282 and $1,272,406 in 1995 and 1994, respectively. The increase in
general and administrative expenses in 1996 over 1995 resulted primarily from
the addition of expenses from Wendland's and MEMCO's operations.
Total other income totaled $173,960 in 1996 compared to $247,271 and
$143,245 in 1995 and 1994, respectively. The decrease in other income in 1996
over 1995 resulted primarily from (I) a decrease of approximately $54,000 in
interest and dividend income as a result of the liquidation of certain
investments to fund the acquisition of MEMCO's assets, (ii) the payment of
approximately $83,000 in interest expense on debt incurred in connection with
the acquisitions and (iii) a negative change in the net loss or gain on
investment securities sold of approximately $13,500, offset by $86,613 in
freight income in 1996.
Financial Condition
The Company's total assets at June 30, 1996 were $16.2 million compared
to $15.1 million and $13.2 million at June 30, 1995 and 1994, respectively. The
increase in total assets resulted primarily from the approximately $1.7 million
increase in accounts receivable, approximately 60% of which is attributable to
Bryan, and secondarily, from the acquisitions involving the assets now operated
by Wendland and MEMCO. Total current liabilities at June 30, 1996 was
approximately $2.5 million compared to $1.8 million and $1.4 million at June 30,
1995 and 1994, respectively. The increase in current liabilities of
approximately $700,000 in 1996 over 1995 resulted primarily from (I) an
approximately $230,000 increase in trade payables, (ii) the addition of
approximately $320,000 in short-term notes payable for operating capital and
(iii) an increase of approximately $140,000 in the current portion of the
Company's long-term debt. Total long-term liabilities totaled approximately
$628,000 at June 30, 1996, compared to $1.1 million and 300,000 at June 30, 1995
and 1994, respectively. The decrease in long-term liabilities in 1996 when
compared to 1995 resulted primarily from the reduction of amounts payable under
a note the proceeds from which were used to fund the acquisition of the assets
by Wendland. The Company's net worth at June 30, 1996 totaled $13.1 million,
compared to $12.2 million and $11.5 million at June 30, 1995 and 1994,
respectively.
Liquidity and Capital Resources
Total cash and cash equivalents and investments at June 30, 1996 were
$1,921,293, compared to $4,121,350 and $2,993,324 at June 30, 1995 and 1994,
respectively. The decrease in the Company's liquid assets in 1996 resulted
primarily from the use of such assets to fund the acquisitions during the year.
The combined working capital ratio of current assets to current liabilities was
4.61:1 at June 30, 1996, compared to 6.59:1 and 7.05:1 at June 30, 1995 and
1994, respectively. Management estimates that capital expenditures for fiscal
1997 will total approximately $1 million. The majority of this amount, or
approximately $800,000, will be for an expansion of Bryan's plant in Peru,
Indiana. Management anticipates that internal sources of funds will be adequate
to cover the planned capital expenditures.
General
Management considers the Company's performance for the last fiscal year
to be very satisfactory considering the economic conditions, the competitive
nature of the industry, and the fact that the Company acquired and began the
development of the operations at Wendland and MEMCO. Bryan continues to perform
extremely well as can be seen by its increase in sales and profitability.
Bryan's backlog at June 30, 1996 was very good, and management expects continued
improvement in the sales of large water tube boilers. Wendland has a reasonably
good backlog of business and several new customers are expected during the first
part of Fiscal 1997. MEMCO is attempting to develop a reputation for delivery of
quality products in a manner that emphasizes customer service. Management
believes that by emphasizing quality and customer service, MEMCO will develop a
core business within two to three years.
Although the Company may in the future consider possible acquisitions,
it is not currently pursuing any acquisitions. Management intends to pursue
continued growth and profitability in the coming year by continuing to emphasize
quality, customer service and instituting additional internal cost containment
measures where possible.
<PAGE>
OFFICERS AND DIRECTORS
Present Positions
and Offices with the Principal Occupation
Name Company or Employments
- ------------------- ---------------------- --------------------------
Albert J. Bishop Chairman of the Board, Chairman of the Board
Director and member
of the Executive
Committee
H. Jesse McVay President, President of the Company
General Manager,
Director
Kurt J. Krauskopf Corporate Secretary Secretary of the Company
Paul D. Donaldson Treasurer Treasurer of the Company
Harold V. Koch Director Retired Chairman of
the Board
G. N. Summers Director Owner of Saine-Summers
Insurance Agency
Jack B. Jackson Director Retired community bank
Chairman, Peru office, First
of America Bank - Indiana
James R. Lockhart, Jr. Director Vice President of Sales,
Firestone Building
Products Co.
Bryan D. Herd Director Design consultant,
Partridge Home Furnishings
<PAGE>
ADDITIONAL INFORMATION
There are approximately 997 record holders of the Company's shares of
common stock. There is no established trading market for the Company's shares
and the Company is not normally informed of the terms of transactions in its
shares.
The Company's shares are traded sporadically over-the-counter. Set
forth below are the range of high and low bid quotations as reported on
Tradeline for each quarter during the last two fiscal years. These quotations
may reflect inter-dealer transactions, without retail mark-up, mark-down, or
commission. They do not necessarily represent actual transactions and management
does not have knowledge of the volume of trading, if any, at any of such bid
prices.
QUARTER ENDED HIGH ASK LOW BID
================================== =================== =====================
September 30, 1994 60 44 1/4
December 31, 1994 60 44 1/2
March 31, 1995 49 1/2 44 1/2
June 30, 1995 49 1/2 42 1/2
September 30, 1995 49 1/2 42 1/4
December 31, 1995 49 1/4 42 1/4
March 31, 1996 45 33
June 30, 1996 47 35
================================== =================== =====================
The Company has paid dividends for the last several years on an annual
basis. The annual dividends per share paid during its 1996 and 1995 fiscal years
and the dates of payment are:
$1.40 September 15, 1995
$1.30 September 15, 1994
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH SHAREHOLDER, ON THE
WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-KSB, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, REQUIRED
TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13a-1
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, FOR THE COMPANY'S MOST
RECENT FISCAL YEAR. THE WRITTEN REQUEST SHOULD BE DIRECTED TO: KURT J.
KRAUSKOPF, SECRETARY, BRYAN STEAM CORPORATION, P. O. BOX 27, PERU, INDIANA
46970.
<PAGE>
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<PAGE>
[CASSEN COMPANY LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders
Bryan Steam Corporation
State Route 19, North
Peru, Indiana 46970
Gentlemen:
We have audited the accompanying consolidated balance sheets of Bryan Steam
Corporation (a New Mexico Corporation) and subsidiary as of June 30, 1996, 1995,
and 1994, and the related consolidated statements of income, retained earnings
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial position of Bryan
Steam Corporation and subsidiary as of June 30, 1996, 1995, and 1994, and the
results of its consolidated operations and its consolidated cash flows for the
years then ended, in conformity with generally accepted accounting principles.
As discussed in Note 1g to the financial statements, the Corporation changed its
method of accounting for income taxes during the fiscal year ended June 30,
1994.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Selected Consolidated Financial Data
is presented for the purposes of additional analysis and is not a required part
of the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Cassen Company, LLC
Indianapolis, Indiana
July 24, 1996
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
SALES................................................ $ 22,476,628 $ 17,480,290 $17,036,069
------------ ------------- ------------
COST OF GOODS SOLD
Inventory - Beginning............................. $ 4,181,513 $ 3,881,151 $ 3,997,814
Purchases & Freight............................... 10,178,216 8,173,090 7,923,792
Labor............................................. 4,581,203 3,535,022 3,207,008
Other Costs....................................... 3,148,121 2,506,156 2,460,495
------------ ------------- ------------
TOTAL........................................ $ 22,089,053 $ 18,095,419 $17,589,109
Less: Inventory - Ending.......................... 4,202,010 4,181,513 3,881,151
------------ ------------- ------------
COST OF GOODS SOLD.............................. $ 17,887,043 $ 13,913,906 $13,707,958
------------ ------------- ------------
GROSS PROFIT ON SALES................................ $ 4,589,585 $ 3,566,384 $ 3,328,111
------------ ------------- ------------
EXPENSES
Salaries & Wages - Officers....................... $ 278,261 $ 174,280 $ 97,088
Salaries & Wages - Other.......................... 772,170 554,145 577,422
Depreciation Expense.............................. 119,184 105,375 98,302
Pension Plan...................................... 115,523 119,204 178,778
Taxes - Payroll & Local........................... 117,387 72,713 78,928
Provision for Bad Debts........................... 15,207 20,564 (370)
Repairs & Maintenance............................. 78,141 41,461 43,726
General & Administrative.......................... 1,425,122 1,250,282 1,272,406
------------ ------------- ------------
TOTAL EXPENSES.................................. $ 2,920,995 $ 2,338,024 $ 2,346,280
------------ ------------- ------------
OPERATING PROFIT..................................... $ 1,668,590 $ 1,228,360 $ 981,831
------------ ------------- ------------
OTHER INCOME (LOSS)
Interest and Dividend Income...................... $ 103,984 $ 157,871 $ 132,195
Interest Expense.................................. (82,830) -- --
Net gain (loss) on investment securities.......... (1,589) 11,928 (1,551)
Frieght Income.................................... 86,613 -- --
Other Income...................................... 67,782 77,472 12,601
------------ ------------- ------------
TOTAL OTHER INCOME.............................. $ 173,960 $ 247,271 $ 143,245
------------ ------------- ------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE............................ $ 1,842,550 $ 1,475,631 $ 1,125,076
PROVISION FOR INCOME TAXES........................... 693,616 548,490 409,651
------------ ------------- ------------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE.................... $ 1,148,934 $ 927,141 $ 715,425
CUMULATIVE EFFECT ON PRIOR YEARS
(TO JUNE 30, 1993) OF A CHANGE IN
ACCOUNTING PRINICIPLE (Note 1g)................. -- -- (195,983)
------------ ------------- ------------
NET INCOME........................................... $ 1,148,934 $ 927,141 $ 519,442
============ ============= ============
EARNINGS PER SHARE BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE....................................... $ 6.01 $ 4.85 $ 3.74
CUMULATIVE EFFECT OF PRIOR YEARS
(TO JUNE 30, 1993) OF A CHANGE IN
ACCOUNTING PRINCIPLE............................ -- -- (1.02)
------------ ------------- ------------
NET EARNINGS PER SHARE............................... $ 6.01 $ 4.85 $ 2.72
============ ============= ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Income.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
ASSETS 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash & Cash Equivalents ................ $ 304,739 $ 2,192,946 $ 360,213
Investment Securities .................. 1,616,554 1,928,404 2,633,111
Accounts Receivable, Net ............... 4,793,663 3,051,854 2,780,021
Inventory .............................. 4,202,010 4,181,513 3,881,151
Prepaid Income Taxes ................... 84,414 -- 170,014
Prepaid Expenses ....................... 335,183 190,839 103,683
------------ ------------ ------------
TOTAL CURRENT ASSETS ................. $ 11,336,563 $ 11,545,556 $ 9,928,193
------------ ------------ ------------
PROPERTY, PLANT & EQUIPMENT
(Cost, less accumulated depreciation) .. $ 4,568,220 $ 3,524,417 $ 3,293,443
------------ ------------ ------------
OTHER ASSETS
Intangible Assets, Net ................. $ 268,058 $ 20,698 $ 25,740
Deposits ............................... 5,171 -- --
------------ ------------ ------------
TOTAL OTHER ASSETS ................... $ 273,229 $ 20,698 $ 25,740
------------ ------------ ------------
TOTAL ASSETS .............................. $ 16,178,012 $ 15,090,671 $ 13,247,376
============ ============ ============
LIABILITIES & NET WORTH
CURRENT LIABILITIES
Accounts Payable - Trade ............... $ 553,079 $ 320,072 $ 406,867
Notes Payable .......................... 322,620 -- --
Accrued Liabilities .................... 1,168,974 1,026,825 950,598
Current Portion of Long-term Debt ...... 341,673 200,000 --
State Income Taxes Payable ............. -- 36,453 29,055
Federal Income Taxes Payable ........... -- 118,730 --
Deferred Federal Income Tax ............ 60,678 39,915 17,896
Deferred State Income Tax .............. 13,963 9,157 4,105
------------ ------------ ------------
TOTAL CURRENT LIABILITIES ............ $ 2,460,987 $ 1,751,152 $ 1,408,521
------------ ------------ ------------
LONG-TERM LIABILITIES
Notes Payable .......................... $ 238,207 $ 800,000 $ --
Deferred Federal Income Tax ............ 308,816 262,474 241,101
Deferred State Income Tax .............. 70,845 60,215 55,311
Dividends Payable ...................... 10,016 8,863 11,629
------------ ------------ ------------
TOTAL LONG-TERM LIABILITIES .......... $ 627,884 $ 1,131,552 $ 308,041
------------ ------------ ------------
NET WORTH
Common Capital Stock, Without Par Value,
200,000 Shares - Authorized & Issued . $ 810,272 $ 810,272 $ 810,272
Retained Earnings ...................... 12,307,596 11,426,422 10,749,269
Treasury Stock, at cost, 8,716 Shares .. (28,727) (28,727) (28,727)
------------ ------------ ------------
TOTAL NET WORTH ...................... $ 13,089,141 $ 12,207,967 $ 11,530,814
------------ ------------ ------------
TOTAL LIABILITIES AND NET WORTH ........... $ 16,178,012 $ 15,090,671 $ 13,247,376
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
Consolidated Balance Sheets.
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
June 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR ....... $ 11,426,422 $ 10,749,269 $ 10,472,915
Net Income ...................... 1,148,934 927,141 519,442
Dividends Paid .................. (267,760) (249,988) (242,793)
Payment of additional FYE 6/30/93
Federal Income Tax ............ -- -- (295)
------------ ------------ ------------
BALANCE AT END OF YEAR ............. $ 12,307,596 $ 11,426,422 $ 10,749,269
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Retained Earnings.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
June 30,
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Cash received from customers ................................................ $ 20,876,838 $ 17,310,182 $ 17,107,398
Cash paid to suppliers and employees ........................................ (20,083,591) (16,254,730) (15,348,842)
Interest and dividends received ............................................. 129,783 155,422 137,717
Interest paid ............................................................... (80,674) (3,819) (325)
Income taxes paid ........................................................... (850,672) (199,000) (805,706)
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ................................................. $ (8,316) $ 1,008,055 $ 1,090,242
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment ............................................ $ (1,493,997) $ (615,347) $ (667,987)
Proceeds from sale of plant & equipment ..................................... -- -- --
Purchases of investment securities .......................................... (520,008) (894,308) (1,297,738)
Proceeds from sale of investment securities ................................. 817,019 1,587,087 737,499
Deposits with Utilities ..................................................... (5,171) -- --
Purchase of Noncompete Agreements ........................................... (300,000) -- --
Purchase of Goodwill ........................................................ (13,627) -- --
------------ ------------ ------------
NET CASH (USED) BY
INVESTING ACTIVITIES ................................................. $ (1,515,784) $ 77,432 $ (1,228,226)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term notes .............................................. $ 322,620 $ -- $ --
Payments on long-term debt .................................................. (464,484) 1,000,000 --
Proceeds from long-term debt ................................................ 44,364 -- --
Dividends paid .............................................................. (266,607) (252,754) (253,431)
------------ ------------ ------------
NET CASH (USED) BY
FINANCING ACTIVITIES ................................................. $ (364,107) $ 747,246 $ (253,431)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS ............................................................. (1,888,207) $ 1,832,733 $ (391,415)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ...................................... $ 2,192,946 $ 360,213 $ 751,628
------------ ------------ ------------
CASH AND EQUIVALENTS AT END OF YEAR ............................................ $ 304,739 $ 2,192,946 $ 360,213
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Non-cash investing transactions included trading used equipment having a fair
market value for new equipment, in addition to boot given ...................
Fair value of used equipment given .......................................... $ 14,150 $ 20,579 $ 4,573
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Cash Flows.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(All except per share amounts are in thousands)
<TABLE>
<CAPTION>
June 30,
---------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
TOTAL ASSETS ...................................... $ 16,178 $ 15,091 $ 13,247
========= ========= =========
LONG-TERM OBLIGATIONS
Notes Payable ................................. $ 238 $ 800 $ --
Deferred income taxes ......................... 380 323 296
Dividends payable ............................. 10 9 12
--------- --------- --------
TOTAL LONG-TERM OBLIGATIONS ............... $ 628 $ 1,132 $ 308
========= ========= =========
SALES - NET ....................................... $ 22,477 $ 17,480 $ 17,036
COST OF GOODS SOLD ................................ 17,887 13,914 13,708
--------- --------- --------
GROSS PROFIT ON SALES ............................. $ 4,590 $ 3,566 $ 3,328
TOTAL EXPENSES .................................... 2,921 2,338 2,346
--------- --------- --------
OPERATING PROFIT .................................. $ 1,669 $ 1,228 $ 982
OTHER INCOME ...................................... 174 247 143
--------- --------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE ........... $ 1,843 $ 1,475 $ 1,125
PROVISION FOR INCOME TAXES ........................ 694 548 410
--------- --------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE .............. $ 1,149 $ 927 $ 715
CUMULATIVE EFFECT ON PRIOR YEARS (TO JUNE 30, 1993)
OF A CHANGE IN ACCOUNTING PRINCIPLE
(NOTE 1g) ................................. -- -- (196)
--------- --------- --------
NET INCOME ........................................ $ 1,149 $ 927 $ 519
EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE ........... $ 6.01 $ 4.85 $ 3.74
--------- --------- --------
CUMULATIVE EFFECT ON PRIOR YEARS (TO JUNE 30, 1993)
OF A CHANGE IN ACCOUNTING PRINCIPLE ........... -- -- (1.02)
EARNINGS PER SHARE - COMMON STOCK (191,284 shares
in 1996; 191,284 shares in 1995; 191,284 shares
in 1994) ..................................... $ 6.01 $ 4.85 $ 2.72
========= ========= =========
OPERATING PROFIT PER SHARE - COMMON STOCK
(191,284 shares in 1996; 191,284 shares in
1995; 191,284 shares in 1994) ................ $ 8.72 $ 6.42 $ 5.13
========= ========= =========
DIVIDENDS PER SHARE - COMMON STOCK
(191,284 shares in 1996;
191,284 shares in 1995;
191,284 in 1994) ............................. $ 1.40 $ 1.30 $ 1.30
========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of this
Selected Consolidated Financial Data.
<PAGE>
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Corporation manufactures boilers and boiler accessories at its Bryan
Steam Corporation (Bryan Steam) plant in Peru, Indiana. Bryan Steam's
wholly-owned subsidiary, Wendland Manufacturing Corp. (Wendland), operates a
tank manufacturing facility in San Angelo, Texas. Wendland's wholly- owned
subsidiary, Monticello Exchanger and Manufacturing Co. (Monticello),
manufactures heat exchangers at is plant in Monticello, Indiana. The
Corporation sells its products through independent sales representatives.
North America is the principal market for the Corporation's products.
1a. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents include cash on
hand, deposits in banks, certificates of deposit, money funds and all highly
liquid debt instruments with original maturities of three months or less. The
fair value of cash and cash equivalents, based on current market prices, is
$304,739.
1b. INVESTMENT SECURITIES
Investment securities are valued at cost which approximates the market value.
Based on current market prices, the fair value of investment securities is
$1,599,622. Current gross unrealized gains and (losses) totaled $21,231 and
$(38,163), respectively.
1c. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of buildings,
equipment, fixtures and vehicles is computed using the straight-line method
over estimated useful lives.
Estimated useful lives are:
Years
-------
Buildings & improvements 10 - 40
Machinery & equipment 10
Furniture & fixtures 5 - 10
Vehicles 4 - 10
Expenditures for equipment repair and maintenance and for replacements and
renewals of portions of structures which are not considered as lengthening
the life of the structures are expensed as incurred. Additions, replacements
and renewals of equipment are capitalized.
When property or equipment is retired, sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and
gains and losses resulting from such transactions are reflected in income.
1d. RESEARCH & DEVELOPMENT
Research and development costs are charged to operations when incurred and
are included in operating expenses. The amounts charged for the years ended
June 30, 1996, 1995, and 1994 were $92,063, $119,233, $113,956, respectively.
1e. INVENTORY
The Corporation's inventory of raw materials is valued at lower of cost,
using the FIFO method, or market. The Corporation's inventories of
work-in-process and finished goods are valued at cost per unit.
1f. SUPPLEMENTAL INCOME INFORMATION
The amounts of depreciation and maintenance are set forth in the statement of
income. There were no management or service contract fees or royalties paid
during the years ended June 30, 1996, 1995, and 1994. Advertising costs are
expensed as incurred.
<PAGE>
1g. INCOME TAXES
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
109-"Accounting for Income Taxes", July 1, 1994. This Statement supersedes
SFAS 96-"Accounting for Income Taxes". Deferred income taxes reflect the
future federal and state tax consequences of differences between the tax
basis of assets and liabilities and their financial reporting amounts at each
year-end.
1h. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Corporation and of its wholly owned subsidiary. Intercompany transactions
and balances have been eliminated in consolidation.
1i. INDUSTRY SEGMENT
During the year ended June 30, 1996, the Corporation operated exclusively in
one industry segment, the manufacture of boilers, tanks, and heat exchangers.
1j. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Accounting Standards No. 107 "Disclosures about Fair Value of
Financial Instruments," requires disclosure of fair value information about
financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Statement No. 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. For most of its covered financial instruments, the
Corporation's carrying value closely approximates the fair value of the
financial instruments to the Corporation.
1k. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from the estimates.
2. INVENTORY
Inventories are stated at the lower of cost or market. Cost approximates
market. Such cost includes raw materials, direct labor, other direct costs
and production overhead. The inventories are valued on the first-in,
first-out (FIFO) method.
Inventories at June 30 are as follows:
1996 1995 1994
--------- --------- ---------
Finished goods and
work-in-process .............. $1,136,608 $ 843,503 $ 953,843
Raw materials .................. 3,065,402 3,338,010 2,927,308
---------- ---------- ----------
TOTAL ........................ $4,202,010 $4,181,513 $3,881,151
========== ========== ==========
<PAGE>
3. INCOME TAXES
As discussed in Note 1g, on July 1, 1993, the Corporation adopted Statement
of Financial Accounting Standards No. 109-"Accounting for Income Taxes" (SFAS
109). SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Corporation's
financial statements or tax returns. In estimating future tax consequences,
SFAS 109 generally considers all expected future events other than enactments
of changes in the tax law or rates. Previously, the Corporation used the
Statement of Financial Accounting Standards No 96-"Accounting for Income
Taxes" (SFAS 96) asset and liability approach for federal income tax that
gave no recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts. Under SFAS 109, in the
year of adoption, previously reported results of operations for that year
should be restated to reflect the effects of applying SFAS 109, and the
cumulative effect of adoption on prior years' results of operations should be
shown in the income statement in the year of change. The cumulative effect as
of July 1, 1993 of the change was a deferred tax expense of $195,983, or
$1.02 per share.
This was a nonrecurring cumulative charge against current operations for
financial reporting only. The adoption of this statement in the current year
was mandatory under Generally Accepted Accounting Principles. The charge was
a non-cash transaction which did not affect the Corporation from an
operational standpoint.
The Corporation and its subsidiary file separate income tax returns.
The provision for income taxes consists of the following:
For the years ended June 30,
----------------------------------------
1996 1995 1994
--------- --------- ---------
Current taxes
Federal ........................ $ 483,412 $ 388,744 $ 329,986
State .......................... 127,663 106,398 94,052
--------- --------- ---------
Total ........................ $ 611,075 $ 495,142 $ 424,038
--------- --------- ---------
Deferred taxes
Federal ........................ $ 67,105 $ 43,388 $ (11,703)
State .......................... 15,436 9,960 (2,684)
--------- --------- ---------
Total ........................ $ 82,541 $ 53,348 $ (14,387)
--------- --------- ---------
Provision (benefit) for
income taxes ................... $ 693,616 $ 548,490 $ 409,651
========= ========= =========
Reconciliation of total provision for income tax with the expected provision
obtained by applying statutory rates to pretax income:
For the years ended June 30,
----------------------------------------
1996 1995 1994
--------- --------- ---------
Expected tax provision .......... $ 606,802 $ 616,814 $ 470,282
Nondeductible expenses/
(nontaxable income) ........... 86,814 (68,324) (60,631)
Tax benefit of graduated
rates used in the
calculation of the
deferred tax liability ........ -- -- --
--------- --------- ---------
Total Provision for
Income Tax .................. $ 693,616 $ 548,490 $ 409,651
========= ========= =========
The sources of the temporary differences for deferred income taxes as of June
30, are summarized as follows:
1996 1995 1994
----------- ----------- -----------
Depreciation ......... $ 908,281 $ 771,984 $ 709,120
Pension .................. 272,434 126,909 66,293
Other .................... (12,460) (9,511) (13,659)
----------- ----------- -----------
Total .................. $ 1,168,255 $ 889,382 $ 761,754
=========== =========== ===========
Deferred Income
Tax Liabilities ........ $ 454,302 $ 371,761 $ 318,413
=========== =========== ===========
<PAGE>
Deferred tax liabilities (assets) are comprised of the following:
For the years ended June 30,
----------------------------------------
1996 1995 1994
--------- --------- ---------
Depreciation ...................... $ 379,661 $ 322,689 $ 296,412
Pension ........................... 113,877 53,048 27,710
--------- --------- ---------
Gross deferred tax
liability ..................... $ 493,538 $ 375,737 $ 324,122
--------- --------- ---------
Allowance for bad debts$ .......... (5,208) $ (3,976) $ (2,667)
Net operating loss
carryforward .................... (34,028) -- --
Capital loss carryforward ......... -- -- (3,042)
--------- --------- ---------
Gross deferred tax assets ....... $ (39,236) $ (3,976) $ (5,709)
--------- --------- ---------
Deferred tax assets
valuation allowance$ ............ -- $ -- $ --
--------- --------- ---------
Deferred tax liabilities
(assets) ........................ $ 454,302 $ 371,761 $ 318,413
========= ========= =========
4. PENSION PLANS
The Corporation has non-contributory pension plans for substantially all
employees at its Peru, Indiana facility. The initial pension plan was
established on or about July 1, 1966. Plan assets consist of government and
corporate bonds, mutual funds, guaranteed investment contracts, and cash
equivalent investments. Pension benefits are based on taxable earnings and
years of service. The Corporation's policy is to fund at least the minimum
amounts required by Federal law and regulation.
Pension expense includes the following components:
1996 1995 1994
--------- --------- ---------
Service cost - benefits
earned during year .............. $ 175,553 $ 214,930 $ 265,096
Interest cost on projected
benefit obligation .............. 278,403 268,558 255,273
Actual return on assets ........... (346,036) (179,441) (154,902)
Net of other components ........... (42,720) (164,893) (129,419)
--------- --------- ---------
Net periodic
pension cost .................... $ 65,200 $ 139,154 $ 236,048
========= ========= =========
The reconciliation of the funded status of the plans is as follows:
<TABLE>
<CAPTION>
Year Ended 6/30/96 6/30/95 6/30/94
------- ------- -------
Measurement Date 3/31/96 3/31/95 3/31/94
------- ------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit
obligation ............................... $(3,490,452) $(2,605,779) $(2,747,764)
----------- ----------- -----------
Accumulated benefit
obligation ............................... $(3,826,817) $(2,858,294) $(3,050,184)
----------- ----------- -----------
Projected benefit
obligation ............................... $(4,627,297) $(3,427,845) $(3,769,341)
Plan assets at
fair value ............................... 4,637,004 4,178,854 3,902,388
----------- ----------- -----------
Plan assets greater
(less) than projected
benefit obligation ....................... $ 9,707 $ 751,009 $ 133,047
Unrecognized net
(gain) loss .............................. 536,257 (320,239) 267,438
Prior service cost not yet
recognized in net
periodic pension cost .................... 31,533 33,697 35,861
Unrecognized transition
obligation (assets) ...................... (305,063) (337,558) (370,053)
----------- ----------- -----------
Prepaid (accrued)
pension expense .......................... $ 272,434 $ 126,909 $ 66,293
=========== =========== ===========
</TABLE>
<PAGE>
4. PENSION PLANS (CONTINUED)
The assumptions used in determining pension expense and funded status
information shown above were as follows:
6/30/96 6/30/95 6/30/94
------- ------- -------
Discount rate ........................ 7.00% 8.25 % 7.25%
Rate of salary
progression ........................ 4.00% 4.00 % 4.00%
Long-term rate of return
on assets .......................... 7.00% 7.00 % 7.00%
The discount rate for June 30, 1996 is based upon the Moody's AA Corporate
Bond Index.
The Net Periodic Pension Cost for the fiscal year ending June 30, 1994 has
been revised to reflect a correction to the Projected Benefit Obligation.
This correction, which decreased the Projected Benefit Obligation by $150,565
(from $3,919,906 to $3,769,341), reflects the plan's benefit formula being a
"career-average formula". SFAS 87 requires "career average" plans to use unit
credit as the last method.
Contributions to a union sponsored defined contribution pension plan for
years ended June 30, 1996, 1995, and 1994 were $171,238, $131,323, and
$98,477, respectively. This plan covers all bargaining unit employees. This
plan is not administered by the Corporation and contributions are determined
in accordance with provisions of a negotiated labor contract.
The Corporation maintains a defined contribution money-purchase plan for
qualified employees at its San Angelo, Texas facility. The Corporation's
contribution to this retirement plan is determined by the voluntary
contributions made by the employees. The Corporation matches employee
contributions up to 3% of the individual employee's earnings. During the year
ended June 30, 1996, the Corporation incurred expenses of $16,652 for this
retirement plan, all of which was charged to operations.
5. PLANT, PROPERTY & EQUIPMENT
June 30,
----------------------------------------
1996 1995 1994
---------- ----------- -----------
Land - Peru, Indiana ............. $ 183,526 $ 54,676 $ 54,676
Buildings ...................... 2,883,870 2,486,135 2,459,303
Machinery & Equipment .......... 3,131,250 2,432,653 1,965,170
Patterns - Hoppes .............. 30,000 30,000 30,000
Furniture & fixtures ........... 958,293 774,841 798,622
Vehicles ....................... 311,718 288,843 274,789
---------- ----------- -----------
$ 7,498,657 $ 6,067,148 $ 5,582,560
Less: Accumulated
Depreciation ................. (2,930,437) (2,542,731) (2,289,117)
---------- ----------- -----------
TOTAL........................... $4,568,220 $ 3,524,417 $ 3,293,443
========== =========== ===========
6. CONTINGENT LIABILITIES
The Corporation is involved in litigation arising from the normal course of
business. In the opinion of management, based on advice of legal counsel,
this litigation will not have any material adverse effect on the financial
position of the Corporation.
7. RELATED PARTY TRANSACTIONS
The Corporation paid approximately $553,956 in the fiscal year 1996 to cover
premiums for various property, casualty, and workers compensation insurance
policies on which an insurance agency owned by G. N. Summers, a director of
the Corporation, received commissions. A $26,067 refund was received by the
Corporation as a result of a periodic payroll audit to determine the correct
workers compensation premium, based on actual wages and salaries paid. There
are no other reportable related party transactions between the Corporation
and its directors, executive officers, 5% beneficial shareholders or
immediate family members of the foregoing persons.
The Corporation paid freight charges totaling $68,480 to Western Express, of
which the president of Wendland Manufacturing Corp. Is an officer and owner.
<PAGE>
8. INTANGIBLES
Amortization is recorded under the "straight line method." Goodwill and
noncompete agreements are being amortized over five years. Expenditures to
acquire a patent are capitalized and amortized over 17 years.
9. OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
In 1990, the Corporation adopted Statement of Financial Accounting Standard
No. 105 which requires disclosure of information about financial instruments
with off-balance sheet risk and about concentrations of credit risk for all
financial instruments.
OFF-BALANCE SHEET RISK
As of June 30, 1996, the Corporation had no significant off-balance sheet
risk.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Corporation to
significant concentrations of credit risk consist principally of temporary
cash investments and trade receivables.
The Corporation places its cash and temporary investments with various high
quality financial institutions. Cash accounts, on deposit at a local bank,
sometimes exceeded the $100,000 limit established by the Federal Deposit
Insurance Corporation. The Corporation maintains accounts with several stock
brokerage firms. The accounts contain cash and various securities. Cash
balances, which are generally not significant, are insured up to $100,000 by
the Securities Investor Protection Corporation (SIPC). Investment securities
balances, as reported in the balance sheet, are insured by SIPC up to various
limits, depending on the brokerage firm.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Corporation's customer
base, and their dispersion across many different industries and geographical
areas. No individual customer balance exceeded 10% of the Corporation's trade
receivables at the balance sheet date.
In management's opinion, as of June 30, 1996, the Corporation had no other
significant concentrations of credit risk.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and fair market values for the Corporation's financial
instruments are as follows:
June 30, 1996
----------------------
Carrying Fair
Value Value
--------- ---------
Cash and Cash Equivalents $ 304,739 304,739
Investment Securities... 1,616,554 1,599,622
Accounts Receivable..... 4,793,663 4,793,663
Noncompete Agreements... 240,000 240,000
Deposits with Utilities. 5,171 5,171
Accounts Payable........ 553,079 553,079
Accrued Expenses........ 1,168,974 1,168,974
Note Payable
First of America...... 550,304 513,372
Note Payable
Line of Credit....... 300,000 300,000
Note Payable
Laframboise........... 29,576 27,881
Notes Payable - Others.. 22,620 22,620
Dividends Payable....... 10,016 10,016
The fair value of investment securities is an estimate based on quoted market
prices. The fair value of long-term debt is based on current rates at which the
Corporation could borrow funds with similar remaining maturities.
<PAGE>
11. OPERATING LEASES
The Corporation has entered into noncancelable operating leases for a
vehicle and for items of office equipment. The Corporation makes monthly
payments of $347 for the vehicle and quarterly payments of $127 for office
equipment. Remaining minimum lease payments, by year, are as follows:
Year Ended June 30,
1997 $ 4,650
1998 3,634
1999 508
2000 381
-------
TOTAL $ 9,173
=======
12. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
June 30,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
Trade Receivables $4,774,684 $3,012,285 $2,738,272
Other Receivables 31,439 49,080 48,131
Allowance for
Doubtful Accts. (12,460) (9,511) (6,382)
---------- ---------- ----------
$4,793,663 $3,051,854 $2,780,021
========== ========== ==========
13. INTANGIBLE ASSETS
Intangible assets consist of the following:
June 30,
---------------------------------------
1996 1995 1994
--------- --------- ---------
Organization
Expense ........... $ 5,000 $ 5,000 $ --
Noncompetition
Agreements ........ 300,000 100,000 100,000
Patents .............. 9,214 9,214 9,214
Goodwill - Wendland... 13,627 -- --
Goodwill - Hoppes .... 10,000 10,000 10,000
--------- --------- ---------
$ 337,841 $ 124,214 $ 119,214
Less:
Accumulated
Amortization... 69,783 103,516 (93,474)
--------- --------- ---------
$ 268,058 $ 20,698 $ 25,740
========= ========= =========
14. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
June 30,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
Commissions ......... $ 621,882 $ 694,809 $ 629,359
County Property Taxes 224,006 226,651 218,117
Interest ............ 2,156 -- --
Payroll ............. 125,784 39,402 10,920
Pension & 401(k) .... 23,051 -- --
Payroll Taxes &
Withholdings ..... 129,351 65,963 92,202
Other ............... 861 -- --
Vacation & Sick Pay . 41,883 -- --
---------- ---------- ----------
$1,168,974 $1,026,825 $ 950,598
========== ========== ==========
<PAGE>
15. LONG-TERM DEBT
Long-term debt consists of the following:
Note payable to First of America Bank, in annual installments of $200,000.
Principal and interest are currently being made in monthly installments of
$30,000, at management's discretion. Interest is paid quarterly at the
prime rate determined by the highest base rate on corporate loans at large
banks as indicated in the Money Rate section of the Wall Street Journal.
Note is collateralized by accounts receivable. $550,304
Note payable to Robert Laframboise Mechanical
Limited in annual installments of $20,167 (Canadian),
without interest. This note is unsecured. 29,576
--------
Total $579,880
========
Maturities of long-term debt are as follows:
Year Ending
June 30 Amount
----------- --------
1997 $341,673
1998 238,207
1999 --
2000 --
2001 --
Thereafter --
--------
TOTAL $579,880
========
16. OTHER COMMITMENTS
The Corporation has $200,000 available on its $500,000 line of credit from
First of America Bank. Outstanding advances at June 30, 1996 totaled
$300,000. The line of credit expires October 31, 1996.
At June 30, 1996, the Monticello subsidiary was indebted to Weldstar for a
rental purchase agreement collateralized by a welder. The note bears
interest at 12% and is payable in monthly installments of $413 (including
principal and interest) through January 18, 1997.
At June 30, 1996, the Monticello subsidiary was indebted to Norwest Bank in
the amount of $20,000 on a $100,000 revolving commercial plan. This
obligation was collateralized by a security interest in the Monticello
subsidiary's inventory, equipment, accounts receivable and intangibles.
Norwest Bank also holds an unsecured guaranty by Bryan Steam Corporation on
this obligation. The outstanding balance is due December 31, 1996 with
interest at a current rate of 9.25% due monthly beginning July 30, 1996.
Production employees at the Corporation's Peru, Indiana facility are
covered by a collective bargaining agreement which will expire in May,
1998.
17. BUSINESS COMBINATIONS
On July 3, 1995, Wendland Manufacturing Corp. (Wendland), the Corporation's
wholly-owned subsidiary, acquired substantially all the tank manufacturing
business assets of a Texas corporation for $1,115,000. Results of
operations from July 3, 1995 through June 30, 1996 are included in this
report.
Wendland also acquired substantially all the heat exchanger manufacturing
business assets of an Indiana corporation on December 6, 1995 for $215,000.
Wendland operated this business as a division from acquisition through June
30, 1996.
On March 15, 1996, Wendland exchanged $447,952 of the net assets of the
heat exchanger manufacturing business for 100% of the outstanding common
stock of its wholly-owned subsidiary, Monticello Exchanger and
Manufacturing Co. (Monticello). Monticello's results of operations from
March 15 through June 30, 1996 are included in this report.
<PAGE>
18. COMPARATIVE STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
June 30,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Income .................. $ 1,148,934 $ 927,141 $ 519,442
Non-Cash Items
Included in Net Income:
Cumulative effect of
accounting change ..... -- -- 195,983
Amortization ............. 66,267 10,042 20,542
Depreciation ............. 447,072 366,388 342,580
Bond premium
amortization .......... 13,250 -- --
(Gain) loss on disposal
of equipment .......... 3,121 17,985 16,843
(Gain) loss on sale
of securities ......... 1,589 11,928 6,736
Deferred Income Taxes .... 82,541 53,348 (14,387)
Changes in:
Accounts Receivable ...... (1,741,809) (271,836) 46,848
Inventory ................ (20,497) (300,362) 116,663
Prepaid Income Taxes ..... (84,414) 170,014 (170,014)
Prepaid Expense .......... (144,344) (87,156) 114,116
Other Assets ............. -- (5,000) --
Accounts Payable -
Trade ................. 233,007 (86,795) 156,265
Accrued Expenses ......... 142,150 202,358 (261,375)
Accrued Income Taxes ..... (155,183) -- --
----------- ----------- -----------
NET CASH PROVIDED
(USED) BY OPERATING
ACTIVITIES ............ $ (8,316) $ 1,008,055 $ 1,090,242
=========== =========== ===========
19. INVESTMENT SECURITIES
On July 1, 1994, the Corporation adopted Statement of Financial Accounting
Standards No. 115 - "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). The Corporation's policy has been, historically, to
classify its investment securities as current assets, even though
management has set a precedent, evidencing its intent, by holding its
investment securities to maturity. The Corporation considers none of its
investment securities to be, or to have been, available-for-sale or trading
securities. Investment securities held to maturity, which do not have
either a single or defined maturity date, have been allocated to the
"maturing within one year" maturity grouping.
The following is a summary of investment securities classified as held to
maturity:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------------------- -------------------------
Fair Amortized Fair Amortized
Value Cost Value Cost
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equity Securities ................ $ 71,629 $ 68,176 $ -- $ --
U.S. Government obligations ...... -- -- -- --
Obligations of individual states
and political subdivisions ... 1,274,581 1,299,298 1,544,682 1,600,373
Obligations of foreign governments -- -- -- --
Corporate obligations ............ 73,500 75,000 -- --
Mortgage-backed securities ....... 25,000 26,000 -- --
Other ............................ 154,912 148,080 342,612 328,031
---------- ---------- ---------- ----------
$1,599,622 $1,616,554 $1,887,294 $1,928,404
========== ========== ========== ==========
</TABLE>
<PAGE>
19. INVESTMENT SECURITIES (CONTINUED)
At June 30, 1996, investment in debt securities, classified as held to
maturity, mature as follows:
<TABLE>
<CAPTION>
Maturity
-------------------------------------------------------
Within After
1 year 1-5 years 5-10 years 10 years
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Obligations of individual states
and political subdivisions 1,022,911 149,702 10,915 115,700
Corporate obligations -- -- -- 75,000
Other 148,080 -- -- --
---------- ---------- ---------- ----------
$1,170,991 $ 149,702 $ 10,915 $ 190,700
========== ========== ========== ==========
</TABLE>
The following is a summary of gross unrealized holding gains and losses for
investment securities classified as held to maturity:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
-------------------- ----------------------
Fair Amortized Fair Amortized
Value Cost Value Cost
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Equity Securities ................ $ 4,867 $1,414 $ -- $ --
U.S. Government obligations ...... -- -- -- --
Obligations of individual states
and political subdivisions ... 9,532 34,249 61,278 5,588
Obligations of foreign governments -- -- -- --
Corporate obligations ............ -- 1,500 -- --
Mortgage-backed securities ....... -- 1,000 -- --
Other ............................ 6,832 -- 1,294 15,874
------- ------- ------- -------
$21,231 $38,163 $62,572 $21,462
======= ======= ======= =======
</TABLE>
Realized gains and losses were determined on the basis of specific
identification during the years ended June 30, 1996 and 1995. Gross proceeds and
gross realized gains and losses on securities classified as held to maturity
were:
June 30,
-------------------------
1996 1995
---------- ----------
Sale proceeds $ 386,698 $1,224,458
========== ==========
Redemption proceeds $ 29,844 $ 13,000
========== ==========
Amortized cost of sales & redemptions $ 686,734 $1,342,530
========== ==========
Gross realized gains $ 7,245 $ 11,981
========== ==========
Gross realized losses $ 8,834 $ 53
========== ==========
The Corporation sold investment securities during the current fiscal year and
used the proceeds to purchase the business assets of Monticello Tank Company.
The Corporation sold investment securities during the fiscal year ended June 30,
1995 and purchased a U.S. Treasury Money Fund having a higher current yield.
Redemption proceeds from municipal bond maturities were subsequently invested in
similar municipal bonds.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Bryan Steam Corporation and its subsidiaries as of
June 30, 1996, and the related consolidated condensed income statement for the
year then ended, and is qualified in its entirety by reference to such audited
financial statements.
</LEGEND>
<CIK> 0000014971
<NAME> Bryan Steam Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 304,739
<SECURITIES> 1,616,554
<RECEIVABLES> 4,806,123
<ALLOWANCES> 12,460
<INVENTORY> 4,202,010
<CURRENT-ASSETS> 11,336,563
<PP&E> 7,498,657
<DEPRECIATION> 2,930,437
<TOTAL-ASSETS> 16,178,012
<CURRENT-LIABILITIES> 2,460,987
<BONDS> 238,207
<COMMON> 0
0
810,272
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,178,012
<SALES> 22,476,628
<TOTAL-REVENUES> 22,735,007
<CGS> 17,887,043
<TOTAL-COSTS> 2,920,995
<OTHER-EXPENSES> 1,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,830
<INCOME-PRETAX> 1,842,550
<INCOME-TAX> 693,616
<INCOME-CONTINUING> 1,148,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,148,934
<EPS-PRIMARY> 6.01
<EPS-DILUTED> 6.01
</TABLE>
