Burnham Holdings, Inc. Announces First Half Results, Subsequent Event, And Declares Dividend
July 26 2013 - 2:57PM
OTC Markets
Burnham Holdings, Inc. Announces First Half Results, Subsequent
Event, And Declares Dividend
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Burnham Holdings, Inc. Announces First Half Results, Subsequent
Event, And Declares Dividend
PR Newswire
LANCASTER, Pa., July 26, 2013
LANCASTER, Pa., July 26, 2013 /PRNewswire/ -- Burnham
Holdings, Inc., (Pink Sheets: BURCA), the parent company of
fourteen subsidiaries that are leading domestic manufacturers of
boilers, and related HVAC products and accessories (including
furnaces, radiators, and air conditioning systems), for
residential, commercial and industrial applications, today reported
its financial results for the period ended June 30, 2013, a subsequent event, and announced
a common stock dividend.
As announced in our June 19, 2013
press release, second quarter and year-to-date ("YTD") results
include a non-recurring charge of $5.0
million ($0.71 per share)
relating to a new union agreement at the Bryan Steam, LLC
subsidiary ("Pension Charge"). The Pension Charge is included
in the "Other income (expense)" section of the Statement of
Operations, and is explained further in the Notes to the Financial
Statements (Note 3 and Note 7). This one-time,
non-operational charge, while material to the current year results,
is not material to the balance sheet. The Pension Charge will
eliminate all future contributions to the underfunded,
multi-employer Boilermaker-Blacksmith National Pension Trust and
should position Bryan Steam, LLC to be more cost competitive in the
aggressive commercial market, while also lowering future risk to
the Burnham Holdings shareholders through the elimination of this
unknown, uncontrollable liability.
Second quarter and YTD sales were $36.1
million and $77.2 million,
respectively; as compared to 2012 second quarter and YTD sales of
$41.4 million and $78.0 million, respectively. We are
reporting a second quarter loss of $(3.8)
million or $(0.84) per share,
and a YTD loss of $(3.1) million or
$(0.70) per share. This is
compared to the 2012 second quarter gain of $181 thousand or $0.04 per share and a YTD loss of $(766) thousand or $(0.17) per share. The 2013 reported
results include the $5 million
adverse impact of the Pension Charge discussed above.
Excluding the impacts of the Pension Charge, YTD results would be a
gain of $71 thousand or $0.01 per share despite lower YTD sales versus a
loss for the same period in 2012. YTD cost of goods sold
("COGS") as a percentage of sales for 2013 was 78.7%, better than
last year's first half of 79.7%. This COGS percentage decline
reflects our efforts to continually and systematically match our
product pricing and our cost structure to remain competitive in the
market, while maintaining our gross profit margins, as well as a
favorable product mix. Selling, administrative, and general
expenses were favorably lower in both dollars and as a percentage
of sales from the prior year, 20.6% versus the prior year's
21.0%. Our interest expense for the quarter and YTD was lower
because of the lower borrowing levels.
Our residential businesses performed well during the first-half
as compared to 2012. As discussed in our 2012 Annual Report
and the first quarter release, first-half sales of residential
boilers were favorably influenced by carry-over demand resulting
from the October, 2012 Super Storm Sandy. While we believe this
recovery effort will continue throughout 2013, the level of demand
in the second quarter was lower than that experienced in late 2012
and early 2013. The commercial portion of our business has
been challenged in 2013 as certain sectors of this market have yet
to show signs of rebounding from their prior lows. With a firm
foundation based on our core principles and philosophy, Burnham
Holdings is financially and operationally strong. Existing
boilers will continue to be replaced over time due to age or
operating costs, and our powerful lineup of high-efficiency
residential and commercial products positions us well in the
market. We produce top-quality, high-value equipment for
virtually any application. As we approach the upcoming
heating season, we are scheduling our manufacturing facilities for
the normal pattern of higher demand in the second half.
The Company's balance sheet has appropriate levels of working
capital consistent with current business activity. Our
long-term debt of $27.5 million was
$4.2 million lower than last
year. The Statement of Cash Flows presents net cash used in
operations of $17.3 million compared
to prior year's cash use of $12.7
million. This increase in the use of funds for the half
results from the payment of higher income taxes (from the strong
2012 results) and other normal changes in working capital levels.
Inventory levels have increased from the prior year as we optimize
manufacturing schedules in light of the current market estimates,
which are regularly evaluated and adjusted as needed.
At its meeting on July 18, 2013,
Burnham Holdings, Inc.'s Board of Directors declared a quarterly
common stock dividend of $0.20 per
share payable August 27, 2013, with a
record date of August 20,
2013.
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|
|
|
|
|
Consolidated Statements of
Operations
|
|
|
|
|
|
|
(In thousands, except per share
data)
|
Three Months Ended
|
|
Six Months Ended
|
(Data is unaudited (see
Notes))
|
June 30,
|
|
July 1,
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|
June 30,
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|
July 1,
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|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net sales
|
$ 36,087
|
|
$ 41,386
|
|
$ 77,220
|
|
$ 77,983
|
Cost of goods sold
|
29,306
|
|
32,608
|
|
60,749
|
|
62,139
|
|
|
Gross profit
|
6,781
|
|
8,778
|
|
16,471
|
|
15,844
|
|
|
|
|
|
|
|
|
|
|
Selling, administrative and general
expenses
|
7,350
|
|
8,149
|
|
15,881
|
|
16,392
|
|
|
Operating income (loss)
|
(569)
|
|
629
|
|
590
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|
(548)
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|
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Other income (expense):
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|
|
|
|
|
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Non-recurring expense (3)
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(5,000)
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-
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(5,000)
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|
-
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|
Mark-to-market (4)
|
17
|
|
35
|
|
38
|
|
63
|
|
Interest income
|
12
|
|
7
|
|
62
|
|
22
|
|
Interest expense
|
(322)
|
|
(388)
|
|
(579)
|
|
(733)
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|
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Other income (expense)
|
(5,293)
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|
(346)
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|
(5,479)
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|
(648)
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|
|
|
|
|
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(Loss) income before income
taxes
|
(5,862)
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|
283
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|
(4,889)
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|
(1,196)
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Income tax (benefit)
expense
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(2,110)
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|
102
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|
(1,760)
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(430)
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NET (LOSS) INCOME
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$ (3,752)
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$ 181
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$ (3,129)
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$
(766)
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BASIC & DILUTED (LOSS) INCOME PER
SHARE
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$
(0.84)
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$ 0.04
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$
(0.70)
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$ (0.17)
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DIVIDENDS PAID
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$
0.20
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$ 0.18
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$
0.40
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$ 0.36
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Consolidated Balance
Sheets
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(in thousands and data is unaudited (see
Notes))
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June 30,
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July 1,
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ASSETS
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2013
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2012
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CURRENT ASSETS
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Cash and cash equivalents
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$
4,799
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$ 5,084
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Trade accounts receivable, less
allowances
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20,008
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20,600
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Inventories
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54,370
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52,266
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Prepaid expenses and other current
assets
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4,225
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|
3,416
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TOTAL CURRENT ASSETS
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83,402
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81,366
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PROPERTY, PLANT AND EQUIPMENT,
net
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47,028
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48,541
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DEFERRED INCOME TAXES (5)
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3,497
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3,300
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OTHER ASSETS, net
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|
21,688
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|
22,353
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TOTAL ASSETS
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$155,615
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$155,560
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LIABILITIES AND STOCKHOLDERS'
EQUITY
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2013
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|
2012
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CURRENT LIABILITIES
|
|
|
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Accounts and taxes payable & accrued
expenses
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|
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$ 27,679
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|
$ 24,521
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Current portion of long-term
liabilities
|
|
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|
287
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|
357
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|
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TOTAL CURRENT LIABILITIES
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|
|
|
|
27,966
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|
24,878
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LONG-TERM DEBT
|
|
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27,547
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31,681
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OTHER POSTRETIREMENT LIABILITIES
(5)(6)
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|
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35,631
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36,826
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STOCKHOLDERS' EQUITY
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Preferred Stock
|
|
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|
530
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|
530
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Class A Common Stock
|
|
|
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3,451
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3,418
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Class B Convertible Common
Stock
|
|
|
|
|
1,493
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|
1,523
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Additional paid-in capital
|
|
|
|
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14,941
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|
14,722
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Retained earnings
|
|
|
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|
96,350
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93,917
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Accumulated other comprehensive income
(loss) (5)
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|
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(34,345)
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(33,977)
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Treasury stock, at
cost
|
|
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(17,949)
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(17,958)
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TOTAL STOCKHOLDERS' EQUITY
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|
|
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|
64,471
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|
62,175
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
$155,615
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$155,560
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Consolidated Statements of Cash
Flows
|
Six months ended
|
(in thousands and data is unaudited (see
Notes))
|
2013
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2012
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Net loss
|
$
(3,129)
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$
(766)
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Non-recurring expense (3)
|
5,000
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-
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Depreciation and
amortization
|
2,343
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|
2,338
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Pension and postretirement liabilities
expense
|
828
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|
611
|
|
Contributions to pension trust
(6)
|
(2,513)
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(2,513)
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Other net adjustments
|
(61)
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|
(784)
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Changes in operating assets and
liabilities
|
(19,743)
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(11,609)
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NET CASH USED IN OPERATING
ACTIVITIES
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(17,275)
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(12,723)
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Net cash used in the purchase of
assets
|
(1,574)
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(734)
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Proceeds from borrowings
|
20,500
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|
15,500
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|
Proceeds from stock option exercise and
(purchase) of Treasury stock
|
227
|
|
229
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|
Principal payments on debt and lease
obligations
|
(12)
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|
(57)
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|
Dividends paid
|
(1,807)
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|
(1,620)
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INCREASE IN CASH AND
CASH EQUIVALENTS
|
59
|
|
595
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CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR
|
4,740
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|
4,489
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CASH AND CASH EQUIVALENTS AT END OF
YEAR
|
$
4,799
|
|
$
5,084
|
|
|
|
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|
Notes To Financial
Statements:
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(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.
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(2)
|
Common stock outstanding at June 30, 2013
includes 3,005,895 of Class A shares and 1,493,415 of Class B
shares.
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(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.
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(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.
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(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).
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(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.
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(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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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SOURCE Burnham Holdings, Inc.
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