|
Consolidated
Statements of Cash Flows
|
Six months
ended
|
|
(in thousands and
data is unaudited (see Notes))
|
2013
|
|
2012
|
|
Net loss
|
$
(3,129)
|
|
$
(766)
|
|
Non-recurring expense
(3)
|
5,000
|
|
-
|
|
Depreciation and
amortization
|
2,343
|
|
2,338
|
|
Pension and
postretirement liabilities expense
|
828
|
|
611
|
|
Contributions to
pension trust (6)
|
(2,513)
|
|
(2,513)
|
|
Other net
adjustments
|
(61)
|
|
(784)
|
|
Changes in operating
assets and liabilities
|
(19,743)
|
|
(11,609)
|
|
NET CASH USED IN
OPERATING ACTIVITIES
|
(17,275)
|
|
(12,723)
|
|
Net cash used in the
purchase of assets
|
(1,574)
|
|
(734)
|
|
Proceeds from
borrowings
|
20,500
|
|
15,500
|
|
Proceeds from stock
option exercise and (purchase) of Treasury stock
|
227
|
|
229
|
|
Principal payments on
debt and lease obligations
|
(12)
|
|
(57)
|
|
Dividends
paid
|
(1,807)
|
|
(1,620)
|
|
INCREASE IN
CASH AND CASH EQUIVALENTS
|
59
|
|
595
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR
|
4,740
|
|
4,489
|
|
CASH AND CASH
EQUIVALENTS AT END OF YEAR
|
$
4,799
|
|
$
5,084
|
|
|
|
|
|
|
|
Notes To Financial
Statements:
|
|
|
|
|
(1)
|
Basic earnings per
share are based upon weighted average shares outstanding for the
period. Diluted earnings per share assume
the conversion of outstanding rights into common
stock.
|
|
|
|
(2)
|
Common stock
outstanding at June 30, 2013 includes 3,005,895 of Class A shares
and 1,493,415 of Class B shares.
|
|
|
|
(3)
|
On June 18, 2013 the Company incurred a non-recurring
expense of $5 million as a result of a new union agreement at
its subsidiary, Bryan Steam LLC in Peru,
Indiana (previously announced on June 19th). This one-time,
non-operational charge is a result of an
agreement to withdraw from a multi-employer pension plan which had
provided a defined benefit for
these union employees. This decision results in what's called a
"withdrawal liability expense" that accounting rules
require to be expensed immediately
regardless of benefit period covered or period over which the
liability is actually paid.
|
|
|
(4)
|
Mark-to-Market
adjustments are a result of changes (non-cash) in the fair value of
interest rate agreements. These agreements are used to exchange the interest rate
stream on variable rate debt for payments indexed to a fixed
interest rate. These
non-operational, non-cash charges reverse themselves over the term
of the agreements.
|
|
|
|
(5)
|
Accounting rules
require that the funded status of pension and other postretirement
benefits be recognized as a non-cash asset or liability, as the case may be, on the
balance sheet. For December 31, 2012 and 2011, projected
benefit obligations exceeded plan
assets. The resulting non-cash presentation on the balance
sheet is reflected in "Deferred income taxes, "Other postretirement liabilities", and
"Accumulated other comprehensive income (loss)", a non-cash
sub-section of "Stockholders' Equity"
(See Note 10 of the 2012 Annual Report for more
details).
|
|
|
|
(6)
|
In both 2013 and
2012, the Company made voluntary pre-tax contributions of $2.5
million to its defined benefit pension plan. These payments increased the trust assets
available for benefit payments (reducing "Other
postretirement liabilities") and
did not impact the Statement of Operations.
|
|
|
|
(7)
|
Interim periods,
forward looking statements, and certain significant estimates and
risks. This note has been expanded to include items discussed in detail within the
Annual Report.
|
|
|
|
|
|
|
|
Interim Periods
and Forward Looking Statements. The accompanying unaudited
financial statements contain all adjustments that are necessary for a fair
presentation of the interim results, and these adjustments are
applied consistently for the
periods covered. The results for any interim period are not
necessarily indicative of results for the full year. These consolidated financial
statements should be read in conjunction with the Annual Report for
the period ended December 31,
2012. Statements other than historical facts included or
referenced in this Report are forward-looking statements subject to certain risks, trends
and uncertainties that could cause actual results to differ
materially
from those
projected. We undertake no duty to update or revise these
forward-looking statements.
|
|
|
|
|
|
|
|
Certain
Significant Estimates and Risks. Certain estimates are
determined using historical information along with
assumptions about future events.
Changes in assumptions for such items as warranties, pension
assumptions, medical cost trends,
employment demographics and legal actions, as well as changes in
actual experience, could cause these estimates to change. Specific risks, such as
those included below, are discussed in the Company's Quarterly
and Annual Reports to provide
regular knowledge of relevant matters. Estimates and related
reserves are more fully explained
in the 2012 Annual Report.
|
|
|
|
Retirement
Plans: The Company maintains a non-contributory defined
benefit pension plan covering substantially all employees.
Steps have been taken over the past years to protect benefits for
retirees and eligible employees. Lancaster Metal
Manufacturing, a Company subsidiary, also contributes to a separate
union-sponsored multiemployer-defined benefit pension plan that
covers its collective bargaining employees (Bryan Steam, LLC had a
similar plan but has withdrawn from the plan as noted in Note
3). Variables such as future market conditions, investment
returns, and employee experience could affect results.
|
|
|
|
Medical Health
Coverage: The Company and its subsidiaries are self-insured for
most of the medical health insurance provided for its employees,
limiting maximum exposure per occurrence by purchasing third-party
stop-loss coverage.
|
|
|
|
Retiree Health
Benefits: The Company pays a fixed annual amount that
assists a specific group of retirees in purchasing medical and/or
prescription drug coverage from providers. Additionally, certain
employees electing early retirement have the option of receiving
access to an insured defined benefit plan at a yearly stipulated
cost or receiving a fixed dollar amount to assist them in covering
medical costs.
|
|
|
|
Insurance: The
Company and its subsidiaries maintain insurance to cover product
liability, general liability, workers' compensation, and property
damage. Well-known and reputable insurance carriers provide current
coverage. All policies and corresponding deductible levels are
reviewed on an annual basis. Third-party administrators, approved
by the Company and the insurance carriers, handle claims and
attempt to resolve them to the benefit of both the Company and its
insurance carriers. The Company reviews claims periodically in
conjunction with administrators and adjusts recorded reserves as
required.
|
|
|
|
Warranty
Litigation, Class Action: In 2010, two of the Company's
subsidiaries were served with a class action lawsuit related
generally to boiler products manufactured and sold by a predecessor
to one of the Company's subsidiaries more than 10 years ago. This
matter has now been discontinued as a class action and the
litigation has been resolved.
|
|
|
|
General
Litigation, including Asbestos: In the normal course of
business, certain subsidiaries of the Company have been named, and
may in the future be named, as defendants in various legal actions
including claims related to property damage and/or personal injury
allegedly arising from products of the Company's subsidiaries or
their predecessors. A number of these claims allege personal injury
arising from exposure to asbestos-containing material allegedly
contained in certain boilers manufactured many years ago, or
through the installation of heating systems. The Company's
subsidiaries, directly or through insurance providers, are
vigorously defending all open asbestos cases, many of which involve
multiple claimants and many defendants, which may not be resolved
for several years. Asbestos litigation is a national issue with
thousands of companies defending claims. While the large majority
of claims have historically been resolved prior to the completion
of trial, from time to time some claims may be expected to proceed
to a potentially substantial verdict against subsidiaries of the
Company. Any such verdict would be subject to appeal, any
set-off rights and/or issues involving allocation of liability
among various defendants. The Company believes, based upon
its understanding of the insurance policies available and
discussions with legal counsel, that all pending legal actions and
claims, including asbestos, should ultimately be resolved (whether
through settlements or verdicts) within existing insurance limits
and reserves, or for amounts not material to the Company's
financial position or results of operations. However, the
resolution of litigation generally entails significant
uncertainties, and no assurance can be given as to the ultimate
outcome of litigation or its impact on the Company and its
subsidiaries. Furthermore, the Company cannot predict the extent to
which new claims will be filed in the future, although the Company
currently believes that the great preponderance of future asbestos
claims will be covered by existing insurance. There can be no
assurance that insurers will be financially able to satisfy all
pending and future claims in accordance with the applicable
insurance policies, or that any disputes regarding policy
provisions will be resolved in favor of the Company.
|
|
|
|
Subsequent
Event: On July 23, 2013, a New York City state court jury
found numerous defendant companies responsible for asbestos-related
damages in cases involving multiple plaintiffs. One of the
defendants was a subsidiary of the Company, whose share of the
verdicts amounts to $42 million before offsets. The products
alleged to have caused injury were manufactured decades
ago. The jury's verdicts will be subject to post-trial
motions to overturn the verdicts, to grant a new trial, or to
substantially reduce the damages. Based on the advice of legal
counsel, the Company believes the verdicts to be excessive under
New York appellate case law, and we are optimistic that post-trial
proceedings and the application of offsets will significantly
reduce the ultimate award. In any event, the Company
anticipates that any responsibility in connection with this
verdicts will be fully covered by insurance policies available to
the Company and/or its subsidiaries.
|
|
|
|
Litigation
Expense, Settlements, and Defense: The 2013 six-month charges
for all uninsured litigation of every kind, was $103
thousand. That amount included two asbestos claims,
while it is rare for an asbestos suit not to be covered by
insurance, a few such claims exist, depending on the alleged time
period of asbestos exposure. Expenses for legal counsel,
consultants, etc., in defending these various actions and claims
for the current six months were $117 thousand. Prior year's
settlements and expenses are disclosed in the 2012 Annual
Report.
|
|
|
|
Permitting
Activities (excluding environmental): The Company's
subsidiaries are engaged in various matters with respect to
obtaining, amending or renewing permits required under various laws
and associated regulations in order to operate each of its
manufacturing facilities. Based on the information presently
available, management believes it has all necessary permits and
expects that all permit applications currently pending will be
routinely handled and approved.
|
|
|
|
Environmental
Matters: The operations of the Company's subsidiaries are
subject to a variety of Federal, State, and local environmental
laws. Among other things, these laws require the Company's
subsidiaries to obtain and comply with the terms of a number of
Federal, State and local environmental regulations and permits,
including permits governing air emissions, wastewater discharges,
and waste disposal. The Company's subsidiaries periodically need to
apply for new permits or to renew or amend existing permits in
connection with ongoing or modified operations. In addition, the
Company generally tracks and tries to anticipate any changes in
environmental laws that might relate to its ongoing operations. The
Company believes its subsidiaries are in material compliance with
all environmental laws and permits.
|
|
|
|
As with all
manufacturing operations in the United States, the Company's
subsidiaries can potentially be responsible for response actions at
disposal areas containing waste materials from their operations. In
the past five years, the Company has not received any notice that
it or its subsidiaries might be responsible for remedial clean-up
actions under government supervision. However, two pre-2008 issues
covered by insurance policies remain open as of this date and are
fully disclosed in the year-end 2012 Annual Report. While it is not
possible to be certain whether or how any new or old matters will
proceed, the Company does not presently have reason to anticipate
incurring material costs in connection with any matters.
|