SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended June 30, 1998
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)
(765) 473-6651 Registrant's telephone number, including area code:
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, PAR VALUE $10 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of the 91,042 shares of the registrant's
common stock held by non-affiliates on September 23, 1998 (based on the last
price at which the common stock was sold on July 20, 1998) was $7,283,360.00.
There were 191,284 shares of the registrant's common stock outstanding
on September 23, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the Part of
this report indicated: NONE.
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PART I
Item 1. Business
Bryan Steam Corporation ("Bryan" and, together with its direct and
indirect wholly-owned subsidiaries, the "Company"), Burnham Corporation, a New
York corporation ("Burnham") and Burnham Acquisition Corporation, a New Mexico
corporation and a wholly-owned subsidiary of Burnham ("Purchaser") entered into
an Agreement and Plan of Merger dated as of September 23, 1998 (the "Merger
Agreement"), among the Company, Burnham and Purchaser. The Merger Agreement
provides, among other things, for the making of an offer by Purchaser to
purchase all outstanding shares of the Common Stock, par value $10.00 per share
(the "Shares"), of the Company, at a purchase price of $152 per Share (the
"Offer Price"), net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in an Offer to Purchase and in the
related Letter of Transmittal (which, together with any supplements or
amendments thereto, collectively constitute the "Offer"). The Merger Agreement
further provides that, following the completion of the Offer and subject to the
satisfaction or waiver of certain conditions, Purchaser will be merged with and
into the Company (the "Merger"), with the Company surviving the Merger as a
wholly-owned subsidiary of Burnham with the name "Bryan Steam Corporation". As a
result of the Merger, each outstanding Share (other than Shares held by Burnham,
Purchaser or any subsidiary of Burnham, Purchaser or the Company, Shares held in
the treasury of the Company and Shares held by stockholders who have properly
exercised their rights to fair value appraisal rights under the New Mexico
Business Corporation Act) will be converted at the effective time of the Merger
into the right to receive in cash the price per Share paid in the Offer without
interest.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn at the expiration of the Offer at least sixty-six and
two-thirds percent (66-2/3%) plus one of the outstanding Shares on a fully
diluted basis on the date of purchase. The Offer is also subject to certain
other conditions.
Bryan was incorporated under the laws of New Mexico in 1916. The
Company has only one industry segment, the manufacture of boilers, tanks and
heat exchangers. 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 totaled 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
in 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 are 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, 1998. 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, 1998. No single customer accounts for any material part of
Wendland's sales. Sales of MEMCO's heat exchangers are made through 8
independent representatives. MEMCO sold products to 50 customers during its
fiscal year ended June 30, 1998.
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For the fiscal year ended June 30, 1998, fossil fuel hot water and
steam boilers contributed approximately $18,479,000, or 83%, of total
consolidated revenue. Fossil fuel hot water and steam boilers contributed
approximately $18,759,000, or 84%, and $16,639,000, or 84%, of total
consolidated revenue for the fiscal years ended June 30, 1997 and 1996,
respectively.
The dollar amount of Bryan's backlog of orders believed to be firm as
of the close of its fiscal year ended June 30, 1998, was approximately
$6,576,073. Bryan's backlog at the close of its preceding fiscal year ended June
30, 1997, was approximately $5,484,214. Wendland's backlog of orders believed to
be firm as of the close of its fiscal year ended June 30, 1998, was
approximately $498,812. Wendland's backlog at the close of its preceding fiscal
year ended June 30, 1997, was approximately $251,810. MEMCO's backlog of orders
believed to be firm as of the close of its fiscal year ended June 30, 1998, was
approximately $550,020. MEMCO's backlog at the close of its preceding fiscal
year ended June 30, 1997, was approximately $206,968.
Bryan's Canadian sales amounted to approximately $1,191,414 during its
fiscal year ended June 30, 1998. Canadian sales were approximately $555,239 and
$472,300 for its fiscal years ended June 30, 1997 and 1996, respectively. Its
other foreign sales were not material. Foreign sales by Wendland and MEMCO
during the year ended June 30, 1998 were not material.
The Company operates 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, 1998 and remains one
of the smallest manufacturer of heat exchangers in the industry.
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.
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 are available from several sources. MEMCO's
heat exchangers are manufactured from steel plate, pipe and various types of
metal tubing, substantially all of which are 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,
1998, and June 30, 1997, were approximately $135,760 and $141,923, 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.
To meet quick demand, Bryan stocks approximately 80 boilers that are
substantially complete. Bryan also stocks approximately 175 boiler frames to
facilitate delivery. Bryan allows extended payment terms to customer, permitting
customers, who are primarily contractors, to pay Bryan after receiving payment
from general contractors or owners.
Bryan employs approximately 217 persons, all of whom are full time
employees. Its production employees are represented by Local 357 of the
International Brotherhood of Boilermakers. Wendland employs approximately 40
employees, all of whom are full time employees, and none of whom are represented
by a union. MEMCO employs approximately 20 employees, all of whom are full time
employees, and none of whom are represented by a union.
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
-2-
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. The Company does not presently expect the outcome of any pending legal
proceedings to have a material adverse effect on its financial condition or
results of operations.
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, 1998.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There are approximately 1,065 record holders of the Company's shares of
common stock as of September 23, 1998. 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
Bloomberg L.P. 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, 1996 40 1/2 37
December 31, 1996 38 37
- ---------------------------------- ------------------- ---------------------
March 31, 1997 39 1/2 38
June 30, 1997 50 39 1/2
September 30, 1997 50 50
December 31, 1997 63 1/2 53
- ---------------------------------- ------------------- ---------------------
March 31, 1998 65 7/16 63 1/2
June 30, 1998 67 1/4 65 7/16
================================== =================== =====================
The Company has paid dividends for the last several years on an annual
basis. The annual dividends per share declared for its 1998 and 1997 fiscal
years and the dates of payment are:
$2.00 September 15, 1998
$2.00 September 15, 1997
$1.50 September 13, 1996
Item 6. Selected Financial Data.
BRYAN STEAM CORPORATION AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(All except per share amounts are in thousands)
BRYAN STEAM CORPORATION AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(All except per share amounts are in thousands)
Year end
1998 1997 1996 1995 1994
TOTAL ASSETS 18,562 17,366 16,217 15,091 13,247
LONG-TERM OBLIGATIONS
Notes payable -- -- -- 800 --
Capital lease obligations 40 45 -- -- --
Long-term debt 29 45 238 -- --
Deferred income taxes 457 424 380 323 296
Dividends payable 13 12 10 9 12
TOTAL LONG-TERM OBLIGATIONS 539 526 628 1,132 308
SALES 26,178 26,233 22,477 17,480 17,036
COST OF GOODS SOLD 21,241 20,212 17,887 13,914 13,708
GROSS PROFIT ON SALES 4,937 6,021 4,590 3,566 3,328
TOTAL EXPENSES 3,513 3,674 2,921 2,338 2,346
OPERATING PROFIT 1,424 2,347 1,669 1,228 982
OTHER INCOME 355 234 174 247 143
INCOME BEFORE INCOME TAXES 1,779 2,581 1,843 1,475 1,125
PROVISION FOR INCOME TAXES 682 972 694 548 410
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 1,097 1,609 1,149 927 715
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 109 -- -- -- (196)
NET INCOME 988 1,609 1,149 927 519
EARNINGS PER SHARE --
COMMON STOCK
(191,284 shares in 1998; 191,284
shares in 1997; 191,284 shares in
1996; 191,284 shares in 1995;
191,284 shares in 1994) 5.17 8.41 6.01 4.85 3.74
OPERATING PROFIT PER SHARE --
COMMON STOCK
(191,284 shares in 1998; 191,284
shares in 1997; 191,284 shares in
1996; 191,284 shares in 1995;
191,284 shares in 1994) 7.44 12.27 8.72 6.42 5.13
DIVIDENDS PER SHARE -- COMMON STOCK
(191,284 shares in 1998; 191,284
shares in 1997; 191,284 shares in
1996; 191,284 shares in 1995;
191,284 shares in 1994) 2.00 1.50 1.40 1.30 1.30
The accompanying notes to financial statements are an integral part of this
selected consolidated financial data.
BRYAN STEAM CORPORATION AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA (CONT.)
(All except per share amounts are in thousands)
Year ended June 30,
1998 1997 1996
EARNINGS PER SHARE-COMMON STOCK
(191,284 shares in 1998; 191,284 shares
in 1997; 191,284 shares in 1996) $ 5.71 $ 8.41 $ 6.01
OPERATING PROFIT PER SHARE-
COMMON STOCK
(191,284 shares in 1998; 191,284 shares
in 1997; 191,284 shares in 1996) $ 7.44 $ 12.27 $ 8.72
DIVIDENDS PER SHARE-COMMON STOCK
(191,284 shares in 1998; 191,284 shares
in 1997; 191,284 shares in 1996) $ 2.00 $ 1.50 $ 1.40
For a discussion of business combinations and accounting changes
materially affecting the comparability of the information reflected in this Item
6, see Notes 19 and 21, respectively, to Consolidated Financial Statements filed
under Item 8 in Part II of this Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Results of Operations
The Company's consolidated net income before the cumulative effect of
the accounting change for the year ended June 30, 1998 was $1,097,359, compared
to $1,609,015 and $1,148,934 for the years ended June 30, 1997 and 1996,
respectively. The Company's consolidated earnings per share before the
cumulative effect of the accounting totaled $5.74 for the year ended June 30,
1998, compared to $8.41 and $6.01 for the years ended June 30, 1998 and 1996,
respectively. The Company's consolidated net income for the year ended June 30,
1998 was $987,651, compared to $1,609,015 and $1,148,934 for the year ended June
30, 1997 and 1996, respectively, The Company's consolidated earnings per share
totaled $5.17 for the year ended June 30, 1998, compared to $8.41 and $6.01 for
the years ended June 30, 1997 and 1996,
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respectively. The decrease in net income (before the effect of the net
accounting change) of $511,656, or 32%, was primarily attributable to the
cumulative effect of accounting change for vacation pay on years prior to July
1, 1997 of $109,708 and Bryan Boilers' operations, which generated a net income
of $970,393 for the year ended June 30, 1998, compared to a net income of
$1,614,268 for the year ended June 30, 1997. Wendland also generated net income
of $116,796 for the year ended June 30, 1998, as compared to net income $117,140
for the year ended June 30, 1997. MEMCO generated a loss of $79,542 for the year
ended June 30, 1998, compared to a loss of $121,905 for the year ended June 30,
1997. Operating profit totaled $1,423,828, or 5.44% of sales, in 1998 compared
to 2,346,494, or 8.94% of sales and $1,668,590, or 7.42% of sales, in 1997 and
1996, respectively. The sum of the income and losses of the three companies does
not equal the Company's consolidated after-tax profit because of tax
considerations from the losses at MEMCO.
The Company's combined revenues of $26,178,214 for the year ended June
30, 1998 represent a decrease of less than 1% over the revenues of $26,232,883
for the year ended June 30, 1997. Bryan Boilers' revenues for 1998 were down
$232,508. The revenues of MEMCO were down $126,110. However, Wendland's revenues
increased $303,949. The revenues of Bryan Boilers remained relatively at the
same amount as the prior year level despite a price increase of approximately 3%
that was placed in effect on September 1, 1997. The effect of the price increase
was offset by Bryan Boilers' inability to maintain the same shipping levels in
the final quarter of its current fiscal year as it achieved in the same quarter
of the previous fiscal year. Wendland's increase in revenues reflects the
results of management's effort to achieve its goal to reach the $3,000,000 sales
level. MEMCO's decrease in revenues is primarily attributable to the
difficulties encountered by the subsidiary as it attempts to increase is market
share and develop new products to supplement its existing product lines.
The Company's cost of goods sold for the year ended June 30, 1998 was
$21,241,354, compared to $21,212,160 and $17,887,043 for the years ended June
30, 1997 and 1996, respectively. The Company's cost of goods sold as a
percentage of sales was 81.14% in 1998, which increased when compared to 77.05%
in 1997. Management believes that this increase in cost of goods sold reflects
the increase in labor costs incurred during the year. This increase results from
increased wage rates and the inability to sustain the labor efficiency of the
prior year. Bryan Boilers negotiated a new collective bargaining agreement in
May, 1998, which runs through May, 2001. This collective bargaining agreement
provided for an increase in wages for Bryan Boilers' bargaining unit of 5% in
May, 1998 and 3% in each of the subsequent two years covered by the contract.
Total expenses for the year ended June 30, 1998 totaled $3,513,032
compared to $3,674,229 for the year ended June 30, 1997. Total expenses for the
year ended June 30, 1997. Total expenses for the year ended June 30, 1998 were
approximately 13% of sales, as compared to 14% for the year ended June 30, 1997.
Total other income (expense) totaled $355,221 in 1998 compared to
$234,474 and $173,960 in 1997 and 1996, respectively. The increase in other
income (expense) in 1998 over 1997 resulted from a decrease in interest expense,
an increase in freight income and an increase in other income. These were offset
somewhat by a decrease in interest and dividend income. Interest expense
decreased to $24,181 in 1998 from $88,281 in 1997. Freight income increased by
$32,907 over this same period in 1997. Other income increased to $118,676 in
1998 from $52,353 in 1997. Interest and dividend income decreased by $53,052
over the same period in 1997, and is approximately equal to 1996.
Financial Condition
The Company's total assets at June 30, 1998 were $18.6 million compared
to $17.4 million and $16.2 million at June 30, 1997 and 1996, respectively. The
increase in total assets resulted primarily from the approximately $1.3 million
increase in current assets. The majority of this increase is attributable to an
increase in accounts receivable, inventory and prepaid expenses as compared to
June 30, 1997. Total current liabilities at June 30, 1998 were approximately $3
million, which is an increase as compared to $2.4 million and $2.5 million at
June 30, 1997 and 1996, respectively. The Company's net worth at June 30, 1998
was $15 million, compared to $14.4 million and $13.1 at June 30, 1997 and 1996,
respectively.
Liquidity and Capital Resources
Total cash and cash equivalents and investments at June 30, 1998 were
$1,561,657, compared to $1,835,565 and $1,921,293 at June 30, 1997 and 1996,
respectively. This decrease resulted primarily from the increase in inventory,
accounts receivables and prepaid expenses between 1998 and 1997, offset by an
increase in short-term borrowings between 1998 and 1997. The combined working
capital ratio of current assets to current liabilities was 4.23:1 at June 30,
1998, compared to 4.67:1 and 4.61:1 at June 30, 1997 and 1996, respectively.
Management estimates that capital expenditures
-5-
for fiscal year 1999 will total approximately $400,000, which includes $200,000
for a new machining center to facilitate the drilling of holes in pipes.
Management anticipates that internal sources of funds and available sources of
financing will be adequate to cover the planned capital expenditures and
maintain the Company's current level of operations.
Year 2000
Management and the Board of Directors recognize and understand Year
2000 ("Y2K") risk and do not believe that the consequences of Y2K issues would
have a material effect on the Company's business, results of operations, or
financial condition. Neither the products that the Company manufactures nor the
manufacturing equipment used by the Company have computer chip components
affected by the Y2K problem. Management is in the process of assessing whether
its suppliers or customers are Y2K compliant; however, the Company is not
dependent on any single supplier and generally believes that the components and
materials used in its products are available from multiple suppliers. Likewise,
no single customer accounts for a material portion of the Company's sales.
Management is aware of the need for some minor equipment or software
changes to achieve Y2K compliance with respect to its internal systems. Although
the full cost of modifications is not yet known, management does not anticipate
a need to invest heavily in system improvements to achieve Y2K compliance. At
this time, it is estimated that costs associated with Y2K issues will be less
than $5,000 for fiscal year 1999.
General
Management considers Bryan Boilers' performance for the last fiscal
year to be satisfactory, considering the competitive nature of this industry.
Management considers the performance of Wendland to be very satisfactory,
considering the regionality of its markets. Management considers the MEMCO
performance to be acceptable, considering that it is still a start-up company.
Management is concerned with continued losses shown by MEMCO and will continue
to assess the ability of MEMCO to compete in its market.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Long-term debt is the only type of market risk-sensitive instrument
held by the Company. Details regarding long-term debt instruments are described
in the Summary of Significant Accounting Policies, Long-Term Debt and Fair Value
of Financial Instruments Notes to Consolidated Financial Statements filed under
Item 8 in Part II of this Report. The Company believes its exposure to market
risk fluctuations for the aforementioned instruments is not material at June 30,
1998.
Item 8. Financial Statements and Supplementary Data.
CASSEN COMPANY LLC
Certified Public Accountants
3845 NORTH MERIDIAN STREET
INDIANAPOLIS, INDIANA 46208-4018
PHONE (317) 923-3324
FAX (317) 923-5247
DONALD L. TEKULVE, C.P.A. LOUIS J. BUERGLER, C.P.A.
DENNIS E. REEVES, C.P.A. EDGARD E. HOWARD, C.P.A.
ROBERT E. DAVIS, C.P.A. EDWIN L. STAGE, C.P.A.
FRANK L. MUZZILLO III, C.P.A.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders
of Bryan Steam Corporation
We have audited the accompanying consolidated balance sheets of Bryan Steam
Corporation (a New Mexico Corporation) and subsidiary as of June 30, 1998,
1997,and 1996, 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, 1998, 1997, and 1996, and the
results of their consolidated operations, consolidated retained earnings and
consolidated cash flows for the years then ended, in conformity with generally
accepted accounting principles.
As discussed in Note 21 to the financial statements, effective July 1, 1997, the
Bryan Steam Corporation (Bryan Boiler Division) changed its method of accounting
for vacation pay.
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
CASSEN COMPANY LLC
Indianapolis, Indiana
July 22, 1998
BRYAN STEAM CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
-------------------------------------
CURRENT ASSETS: 1998 1997 1996
----------- ----------- -----------
Cash & cash equivalents $ 864,411 $ 368,879 $ 304,739
Investment securities 697,246 1,466,686 1,616,554
Accounts receivable, net 5,104,987 4,814,745 4,793,663
Inventory 5,082,731 4,479,203 4,202,010
Prepaid federal income taxes 377,621 27,528 84,414
Deferred income taxes 90,751 6,547 5,208
Prepaid expenses 518,011 282,644 335,183
----------- ----------- -----------
TOTAL CURRENT ASSETS $12,735,758 $11,446,232 $11,341,771
----------- ----------- -----------
PROPERTY, PLANT & EQUIPMENT
(Cost, less accumulated depreciation) $ 5,478,722 $ 5,576,122 $ 4,568,220
----------- ----------- -----------
OTHER ASSETS
Intangible assets, net $ 135,522 $ 201,791 $ 268,058
Deferred income taxes 206,487 136,646 34,028
Deposits 5,171 5,171 5,171
----------- ----------- -----------
TOTAL OTHER ASSETS $ 347,180 $ 343,608 $ 307,257
----------- ----------- -----------
TOTAL ASSETS $18,561,660 $17,365,962 $16,217,248
=========== =========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 722,198 $ 851,512 $ 553,079
Capital lease obligations 12,786 8,632 -
Short-term debt 754,900 45,400 322,620
Accrued liabilities 1,372,652 1,427,492 1,168,974
Current portion of long-term debt 8,045 24,300 341,673
State income taxes payable - 4,837 -
Deferred income taxes 136,760 86,156 113,877
----------- ----------- -----------
TOTAL CURRENT LIABILITIES $ 3,007,341 $ 2,448,329 $ 2,500,223
----------- ----------- -----------
LONG-TERM LIABILITIES
Capital lease obligations $ 40,023 $ 45,272 $ -
Long-term debt 28,736 44,968 238,207
Deferred income taxes 457,134 423,728 379,661
Dividends payable 13,275 11,834 10,016
----------- ----------- -----------
TOTAL LONG-TERM LIABILITIES $ 539,168 $ 525,802 $ 627,884
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common capital stock, without par value,
200,000 shares - authorized & issued $ 810,272 $ 810,272 $ 810,272
Retained earnings 14,233,606 13,610,286 12,307,596
Treasury stock, at cost, 8,716 shares (28,727) (28,727) (28,727)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY $15,015,151 $14,391,831 $13,089,141
----------- ----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $18,561,660 $17,365,962 $16,217,248
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
consolidated balance sheets.
BRYAN STEAM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
June 30,
-----------------------------------------------------
1998 1997 1996
----------- ----------- -----------
SALES $26,178,214 $26,232,883 $22,476,628
----------- ----------- -----------
COST OF GOODS SOLD
Inventory - beginning $ 4,479,203 $ 4,202,010 $ 4,181,513
Purchases and freight 11,982,391 11,530,216 10,178,216
Labor 5,969,390 5,436,966 4,581,203
Other costs 3,893,101 3,522,171 3,148,121
----------- ----------- -----------
TOTAL $26,324,085 $24,691,363 $22,089,053
Less: Inventory - ending 5,082,731 4,479,203 4,202,010
----------- ----------- -----------
COST OF GOODS SOLD $21,241,354 $20,212,160 $17,887,043
----------- ----------- -----------
GROSS PROFIT $ 4,936,860 $ 6,020,723 $ 4,589,585
----------- ----------- -----------
EXPENSES
Salaries and wages - officers $ 174,842 $ 244,015 $ 278,261
Salaries and wages - other 1,038,044 910,276 772,170
Depreciation expense 210,036 207,935 119,184
Pension plan 134,933 268,658 115,523
Taxes - payroll & local 139,719 166,422 117,387
Provision for bad debts 15,938 77 15,207
Repairs & maintenance 84,879 130,564 78,141
General & administrative 1,714,641 1,746,282 1,425,122
----------- ----------- -----------
TOTAL EXPENSES $ 3,513,032 $ 3,674,229 $ 2,920,995
----------- ----------- -----------
OPERATING INCOME $ 1,423,828 $ 2,346,494 $ 1,668,590
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest and dividend income $ 105,623 $ 158,675 $ 103,984
Interest expense (24,181) (88,281) (82,830)
Net gain (loss) on investment securities 6,597 (3,872) (1,589)
Freight income 148,506 115,599 86,613
Other income & expense 118,676 52,353 67,782
----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) $ 355,221 $ 234,474 $ 173,960
----------- ----------- -----------
INCOME BEFORE INCOME TAXES $ 1,779,049 $ 2,580,968 $ 1,842,550
PROVISION FOR INCOME TAXES 681,690 971,953 693,616
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 1,097,359 $ 1,609,015 $ 1,148,934
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR VACATION PAY ON YEARS
PRIOR TO JULY 1, 1997 (NET OF INCOME
TAX BENEFIT OF $78,794) (109,708) - -
----------- ----------- -----------
INCOME $ 987,651 $ 1,609,015 $ 1,148,934
=========== =========== ===========
EARNINGS PER SHARE
Income before cumulative effect of accounting change $ 5.74 $ 8.41 6.01
Cumulative effect of accounting change (0.57) - -
----------- ----------- -----------
INCOME $ 5.17 $ 8.41 $ 6.01
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
consolidated statements of income.
BRYAN STEAM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
June 30,
--------------------------------------
1998 1997 1996
----------- ----------- -----------
BALANCE AT BEGINNING OF YEAR $13,610,286 $12,307,596 $11,426,422
Net income 987,651 1,609,015 1,148,934
Unrealized gain on available-for-sale
securities 18,187 - -
Dividends paid (382,518) (286,885) (267,760)
Adjustment to prior year
income tax expense - (19,440) -
----------- ----------- -----------
BALANCE AT END OF YEAR $14,233,606 $13,610,286 $12,307,596
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
consolidated statements of retained earnings.
BRYAN STEAM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30,
-------------------------------------------------------
1998 1997 1996
------------ ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 26,149,110 $ 26,392,669 $ 20,876,838
Cash paid to suppliers and employees (25,344,684) (22,990,668) (20,083,591)
Interest and dividends received 108,472 158,675 129,783
Interest paid (28,962) (90,437) (80,674)
Income taxes paid (1,040,924) (1,017,281) (850,672)
------------ ------------ -------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES $ (156,988) $ 2,452,958 $ (8,316)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment $ (460,875) $ (1,466,181) $ (1,493,997)
Proceeds from sale of plant & equipment 11,263 5,346 -
Purchases of investment securities (320,520) (222,916) (520,008)
Proceeds from sale of investment securities 1,127,807 368,912 817,019
Deposits with utilities - - (5,171)
Purchase of non-compete agreements - - (300,000)
Purchase of goodwill - - (13,627)
------------ ------------ -------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES $ 357,675 $ (1,314,839) $ (1,515,784)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $ 726,398 $ - $ 322,620
Principal payments on short-term borrowings (17,983) (277,220) -
Principal payments on capital lease obligations (8,493) (1,080) -
Principal payments on long-term debt (24,000) (566,612) (464,484)
Proceeds from long-term debt - 56,000 44,364
Dividends paid (381,077) (285,067) (266,607)
------------ ------------ -------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES $ 294,845 $ (1,073,979) $ (364,107)
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS $ 495,532 $ 64,140 $ (1,888,207)
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR $ 368,879 $ 304,739 $ 2,192,946
------------ ------------ -------------
CASH AND EQUIVALENTS AT END
OF YEAR $ 864,411 $ 368,879 $ 304,739
============ ============ =============
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, and the
recording of capital lease obligations.
Fair value of used equipment given $ - $ - $ 14,150
============ ============ =============
Capital lease obligations recorded $ - $ 54,984 $ -
============ ============ =============
The accompanying notes to financial statements are an integral part of these
consolidated statements of cash flows.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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 its
plant in Monticello, Indiana. The Corporation sells its products
through independent sales representatives. North America is the
principal market for the Corporation's products.
Bryan Steam's sales were 83.5% of total consolidated sales, while
Wendland's and Monticello's sales were 11.4% and 5.1% of the total,
respectively.
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.
1b. INVESTMENT SECURITIES
Management determines the appropriate classification of its
investments in debt and equity securities at the time of
purchase and reevaluates such determinations at each balance
sheet date. Debt securities are classified as held to maturity
when the Corporation has the positive intent and ability to
hold the securities to maturity. Held to maturity securities
are stated at amortized cost. Debt securities for which the
Corporation does not have the intent or ability to hold to
maturity are classified as available for sale, along with any
investments in equity securities. Securities available for
sale are carried at fair value, with the unrealized gains and
losses, net of income taxes, reported as a separate component
of Stockholders' Equity. The Corporation had had no
investments that qualify as trading.
The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to
maturity or, in the case of asset-backed securities, over the
estimated life of the security. Such amortization and interest
are included in Other Income (Expense), in the Statement of
Income. The cost of securities sold is based on the specific
identification method.
The Corporation's investments in debt and equity securities
are diversified among high credit quality securities in
accordance with the Corporation's investment policy.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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, 1998, 1997, and 1996 were
$135,760, $141,923, and $92,063, 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, 1998, 1997 and 1996. Advertising costs are expensed as
incurred.
1g. INCOME TAXES
The Corporation adopted Statement of Financial Accounting
Standards (SFAS) 109- "Accounting for Income Taxes", July 1,
1993. This Statement supercedes 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.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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, 1998 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 disclosures 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:
1998 1997 1996
---------- ---------- ----------
Finished goods & work in process $1,611,174 $1,165,334 $1,136,608
Raw materials 3,471,557 3,313,869 3,065,402
---------- ---------- ----------
TOTALS $5,082,731 $4,479,203 $4,202,010
========== ========== ==========
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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.
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,
----------------------------------
1998 1997 1996
-------- ---------- --------
Current taxes:
Federal $544,571 $ 847,472 $483,412
State 141,422 212,093 127,663
-------- ---------- --------
Total $685,993 $1,059,565 $611,075
-------- ---------- --------
Deferred taxes:
Federal $ (1,740) $ (69,359) $ 67,105
State (2,563) (18,253) 15,436
-------- ---------- --------
Total $ (4,303) $ (87,612) $ 82,541
-------- ---------- --------
Provision (benefit) for
income taxes $681,690 $ 971,953 $693,616
======== ========== ========
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,
--------------------------------
1998 1997 1996
-------- -------- --------
Expected tax provision $743,642 $990,165 $606,802
Nondeductible expenses/
(nontaxable income) (61,952) (15,760) 86,814
Other - (2,452) -
-------- -------- --------
Total Provision for
Income Tax $681,690 $971,953 $693,616
======== ======== ========
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
3. INCOME TAXES (CONT.)
The sources of the temporary differences for deferred income taxes as
of June 30, are summarized as follows:
1998 1997 1996
---------- ---------- ----------
Depreciation $1,105,854 $1,021,060 $ 908,281
Pension 295,925 206,118 272,434
Net operating loss (494,615) (327,321) -
Other (186,563) (17,372) (12,460)
---------- ---------- ----------
$ 720,601 $ 882,485 $1,168,255
========== ========== ==========
Deferred Income
Tax Liabilities $ 296,656 $ 366,691 $ 454,302
========== ========== ==========
Deferred tax liabilities (assets) are comprised of the following:
For the years ended June 30,
----------------------------------
1998 1997 1996
--------- --------- --------
Depreciation $ 457,134 $ 423,728 $379,661
Pension 123,697 86,156 113,877
Other 13,063 - -
--------- --------- --------
Gross deferred tax liability $ 593,894 $ 509,884 $493,538
--------- --------- --------
Allowance for bad debts $ (5,121) $ (6,547) $ (5,208)
Net operating loss carryforward,
expires June 30, 2011 and 2012 (206,487) (136,646) (34,028)
Vacation pay (85,630) - -
--------- --------- --------
Gross deferred tax assets $(297,238) $(143,193) $(39,236)
--------- --------- --------
Deferred tax assets
valuation allowance $ - $ - $ -
--------- --------- --------
Deferred tax liabilities (assets) $ 296,656 $ 366,691 $454,302
========= ========= ========
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:
1998 1997 1996
--------- --------- ---------
Service cost-benefits earned during the year $ 223,599 $ 226,998 $ 175,553
Interest cost on projected benefit obligation 286,822 266,026 278,403
Actual return on assets (493,079) (151,097) (346,036)
Net of other components 131,139 (62,339) (42,720)
--------- --------- ---------
Net periodic pension cost $ 148,481 $ 279,588 $ 65,200
========= ========= =========
The reconciliation of the funded status
of the plans is as follows:
Year Ended 6/30/98 6/30/97 6/30/96
--------- --------- ---------
Measurement Date 3/31/98 3/31/97 3/31/96
--------- --------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligation $(3,498,505) $(2,798,339) $(3,490,452)
----------- ----------- -----------
Accumulated benefit obligation $(3,911,156) $(3,102,787) $(3,826,817)
----------- ----------- -----------
Projected benefit obligation $(4,970,451) $(3,878,041) $(4,627,297)
Plan assets at fair value 4,727,838 4,100,016 4,637,004
----------- ----------- -----------
Plan assets greater (less) than projected
benefit obligation $ (242,613) $ 221,975 $ 9,707
Unrecognized net (gain) loss 705,092 177,968 536,257
Prior service cost not yet recognized in net
periodic pension cost 27,205 29,369 31,533
Unrecognized transition obligation (assets) (193,759) (223,197) (305,063)
----------- ----------- -----------
Prepaid (accrued) pension expense $ 295,925 $ 206,115 $ 272,434
=========== =========== ===========
The assumptions used in determining pension
expense and funded status information
shown above were as follows:
6/30/98 6/30/97 6/30/96
----------- ----------- -----------
Discount rate 6.75% 7.50% 7.00%
Rate of salary progression 4.00% 4.00% 4.00%
Long-term rate of return on assets 7.00-8.50% 7.00-8.50% 7.00%
The discount rates for June 30, 1998, and 1997 are based upon the
Moody's AA Corporate Bond Index.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
4. PENSION PLANS (CONT.)
Contributions to a union sponsored defined contribution pension plan
for years ended June 30, 1998, 1997 and 1996 were $279,355, $224,750
and $171,238, 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 years ended June 30, 1998 and 1997, the Corporation incurred
expenses of $22,419 and $20,230, respectively, for this retirement
plan, all of which was charged to operations.
5. PLANT, PROPERTY & EQUIPMENT
June 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Land $ 197,326 $ 197,326 $ 183,526
Buildings 4,030,168 3,809,322 2,883,870
Machinery & equipment 3,659,707 3,488,412 3,131,250
Equipment under capital lease 50,145 54,984 -
Patterns - Hoppes 30,000 30,000 30,000
Furniture & fixtures 1,090,832 1,020,343 958,293
Vehicles 352,155 376,247 311,718
----------- ----------- -----------
$ 9,410,333 $ 8,976,634 $ 7,498,657
Less: Accumulated depreciation (3,931,611) (3,400,512) (2,930,437)
----------- ----------- -----------
TOTALS $ 5,478,722 $ 5,576,122 $ 4,568,220
=========== =========== ===========
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 $792,315 in the fiscal year 1998,
and $613,253 in the fiscal year ended 1997 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. 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.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
7. RELATED PARTY TRANSACTIONS (CONT.)
The Corporation paid freight charges totalling $12,800 to Western
Express through January 31, 1997, at which time Wendland Manufacturing
Corp. (Wendland) purchased all of the business assets of Western
Express. Prior to February 1, 1997, an officer of Wendland had an
ownership interest in Western Express.
8. INTANGIBLES
Amortization is recorded under the "straight line method." Goodwill and
non-compete 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, 1998, 1997 and 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, 1998 and 1997, the Corporation
had no other significant concentrations of credit risk.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
10. COMPARATIVE STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
June 30,
--------------------------------------
1998 1997 1996
--------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 987,651 $1,609,015 $ 1,148,934
Non-cash items included in net income:
Adjustment to prior year tax expense - (19,440) -
Amortization 63,725 66,267 79,517
Depreciation 555,388 495,001 447,072
(Gain) loss on disposal of equipment (5,832) 12,916 3,121
(Gain) loss on sale of securities (6,597) 3,872 1,589
Cumulative effect of accounting change 109,708 - -
Deferred income taxes (4,304) (87,612) 82,541
Changes in:
Accounts receivable (218,068) (21,082) (1,741,809)
Inventory (603,528) (277,193) (20,497)
Prepaid income taxes (354,930) 56,886 (84,414)
Prepaid expense (235,367) 52,539 (144,344)
Other assets (72,067) - -
Accounts payable - trade (129,425) 298,434 233,007
Accrued expenses (238,505) 258,518 142,150
Accrued income taxes (4,837) 4,837 (155,183)
--------- ---------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $(156,988) $2,452,958 $ (8,316)
========= ========== ===========
11. OPERATING LEASES
The Corporation has entered into noncancelable operating leases for two
vehicles, a computer, a software license and office equipment expiring
in various years through 2002. Remaining minimum lease payments, by
year, are as follows:
Year Ended June 30,
1999 $ 42,070
2000 42,570
2001 34,644
2002 22,867
2003 -
--------
TOTAL $142,151
Rental expense totalled $30,710 during the fiscal year ended June 30,
1998.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
12. CAPITAL LEASES
The Corporation is a lessee of a phone system, automobile and hydraulic
shear under capital leases, both expiring in 2002. The assets and
liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the
asset. The assets are amortized over the estimated productive life of
the asset. Amortization of the assets under capital leases is included
in depreciation expense for the current year.
Following is a summary of the property held under capital lease:
New Lucent Partner Phone System $ 4,839
Ford Escort Wagon 11,865
New Atlantic Hydraulic Shear 50,145
-------
$66,849
Less: Accumulated amortization (9,009)
-------
$57,840
-------
Amortization of assets under capital leases charged to expense in 1998
was $8,478.
Mimimum future lease payments under the capital leases as of June 30,
1998 for each of the next five years and in the aggregate are:
1999 $17,188
2000 17,188
2001 16,625
2002 11,573
2003 -
-------
Total minimum lease payments $62,574
Less: Amount representing interest (9,765)
-------
Present value of minimum lease payments $52,809
=======
13. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
June 30,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
Trade receivables $5,095,869 $4,822,885 $4,774,684
Other receivables 22,074 9,232 31,439
Allowance for doubtful accounts (12,956) (17,372) (12,460)
---------- ---------- ----------
$5,104,987 $4,814,745 $4,793,663
========== ========== ==========
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
14. INTANGIBLE ASSETS
Intangible assets consist of the following:
June 30,
-----------------------------------
1998 1997 1996
---------- --------- --------
Organization expense $ 5,000 $ 5,000 $ 5,000
Noncompetition agreements 300,000 300,000 300,000
Patents 9,214 9,214 9,214
Goodwill - Wendland 13,627 13,627 13,627
Goodwill - Hoppes 10,000 10,000 10,000
---------- --------- --------
$ 337,841 $ 337,841 $337,841
Less: accumulated amortization (202,319) (136,050) (69,783)
---------- --------- --------
$ 135,522 $ 201,791 $268,058
========== ========= ========
15. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
June 30,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
Commissions $ 709,548 $ 807,617 $ 621,882
County property taxes 290,656 254,251 224,006
Insurance 9,492 21,440 -
Interest 3,712 - 2,156
Payroll 29,320 165,239 125,784
Vacation pay 204,856 - -
Pension & 401(k) - - 23,051
Payroll taxes & withholdings 94,789 148,977 129,351
Other - 2,836 861
Vacation and sick pay 5,933 10,488 41,883
Sales taxes 12,543 3,463 -
Ad valorem taxes 11,803 13,181 -
---------- ---------- ----------
$1,372,652 $1,427,492 $1,168,974
========== ========== ==========
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
16. LONG-TERM DEBT
Long-term debt consists of the following:
Note payable to Norwest Bank for equipment, matures
June 30, 2002. Note is secured by same equipment.
Principal and interest are currently being made in monthly
installments. The interest rate is 10.22%. $36,781
-------
Total $ 6,781
=======
Maturities of long-term debt are as follows:
Year Ending
June 30, Amount
-------
1999 $ 8,045
2000 8,907
2001 9,862
2002 9,967
2003 -
-------
Total $36,781
=======
17. OTHER COMMITMENTS
The Corporation has $300,000 available on its $1,000,000 line of credit
from First of America Bank, N.A. Outstanding advances at June 30, 1998
totaled $700,000. The line of credit expires October 31, 1998. This
line of credit is unsecured and the interest rate is subject to change
based on "National Prime Rate." As of June 30, 1998, the rate was 8.5%
and the accrued interest was $2,492.
The Corporation is liable to Norwest Bank Indiana, N.A. in the amount
of $54,900 on a $100,000 revolving commercial loan. This obligation is
collateralized by a security interest in the Corporation's inventory,
equipment, accounts receivable and intangibles. Norwest Bank Indiana,
N.A. also holds an unsecured guaranty by Bryan Steam Corporation on
this obligation. The outstanding balance is due December 30, 1998 with
interest at a current rate of 9.50% due monthly.
Production employees at the Corporation's Peru, Indiana facility are
covered by a collective bargaining agreement which will expire in May,
2001.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
18. 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. Prior to July
1, 1997, the Corporation had considered its investment securities as
held to maturity. The Corporation has now reclassed its investment
securities as available-for-sale.
The following is a summary of investment securities classified as held
to maturity:
June 30, 1997
------------------------
Fair Amortized
Value Cost
---------- ----------
Equity securities $ 194,161 $ 184,461
U.S. government obligations - -
Obligations of individual states and
political subdivisions 1,095,081 1,100,725
Obligations of foreign governments - -
Corporate obligations 156,375 155,500
Mortgage-backed securities 25,250 26,000
Other - -
---------- ----------
$1,470,867 $1,466,686
========== ==========
The following is a summary of investment securities classified as
available-for-sale:
June 30, 1998
---------------------
Fair Amortized
Value Cost
-------- --------
Equity securities $154,742 $126,895
U.S. government obligations - -
Obligations of individual states and
political subdivisions 296,718 297,992
Obligations of foreign governments - -
Corporate obligations 220,661 215,109
Mortgage-backed securities 25,125 26,000
Other - -
-------- --------
$697,246 $665,996
======== ========
At June 30, 1997 investment in debt securities, classified as held to
maturity, mature as follows:
Fair
Cost Value
---------- ----------
Within 1 year $ 822,020 $ 818,900
1-5 years 215,350 214,533
5-10 years 10,955 10,914
After 10 years 207,900 207,109
---------- ----------
$1,256,225 $1,251,456
========== ==========
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
18. INVESTMENT SECURITIES ( CONT.)
At June 30, 1998 investment in debt securities, classified as
available-for-sale, mature as follows:
Fair
Cost Value
-------- --------
Within 1 year $204,394 $204,574
1-5 years 106,546 107,968
5-10 years 86,281 86,583
After 10 years 115,880 $118,254
-------- --------
$513,101 $517,379
======== ========
The following is a summary of gross unrealized holding gains and losses
for investment securities classified as held to maturity:
June 30, 1997
----------------------------------
Gross Gross
Unrealized Unrealized
Holding Gains Holding Losses
------------- --------------
Equity securities $ 9,876 $ 176
U. S. Government obligations - -
Obligations of individual states &
political subdivisions 13,115 18,759
Obligations of foreign governments - -
Corporate obligations 1,500 625
Mortgage-backed securities - 750
Other - -
------ ------
24,491 20,310
====== ======
The following is a summary of gross unrealized holding gains and losses
for investment securities classified as available for sale:
June 30, 1998
------------------------------
Gross Gross
Unrealized Unrealized
Holding Gains Holding Losses
------------- --------------
Equity securities $27,847 $ -
U. S. Government obligations - -
Obligations of individual states &
political subdivisions 9,990 11,264
Obligations of foreign governments - -
Corporate obligations 5,739 187
Mortgage-backed securities - 875
Other - -
------ ------
43,576 12,326
====== ======
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
18. INVESTMENT SECURITIES ( CONT.)
Realized gains and losses were determined on the basis of specific
identification during the years ended June 30, 1997. Gross proceeds and
gross realized gains and losses on securities classified as held to
maturity were as follows:
June 30,
1997
--------
Sale proceeds $308,912
========
Redemption proceeds $ 60,000
========
Amortized cost of sales & redemptions $372,784
========
Gross realized gains $ -
========
Gross realized losses $ 3,872
========
Realized gains and losses were determined on the basis of specific
identification during the years ended June 30, 1998. Gross proceeds and
gross realized gains and losses on securities classified as
available-for-sale were as follows:
June 30,
1998
----------
Sale proceeds $1,082,807
==========
Redemption proceeds $ 45,000
==========
Amortized cost of sales & redemptions $1,121,210
==========
Gross realized gains $ 13,149
==========
Gross realized losses $ 6,552
==========
The Corporation sold investment securities during the fiscal year ended
June 30, 1997, and used the proceeds to partially fund construction of
a new building in Peru, Indiana.
The Corporation sold investment securities during the fiscal year ended
June 30, 1996, and used the proceeds to purchase the business assets of
Monticello Tank Company.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
19. 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 date 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.
On January 31, 1997, Wendland purchased all the business assets of
Western Express Company, a Texas Corporation, which operates as a
common carrier for transporting goods in the United States. The
purchase price was $38,000. Results of operations from January 31,
through June 30, 1997 are included in this report.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and fair values for the Corporation's financial
instruments are as follows:
June 30, 1998
------------------------
Carrying Fair
Financial Instrument Value Value
-------------------- ----- -----
Cash and cash equivalents $ 864,411 $ 864,411
Investment securities
(available-for-sale) 697,246 697,246
Accounts receivable 5,104,987 5,104,987
Deposits with utilities 5,171 5,171
Accounts payable 722,198 722,198
Accrued expenses 1,372,652 1,372,652
Short-term debt 754,900 754,900
Capital lease obligations 52,809 52,809
Long-term debt 36,781 36,781
Dividends payable 13,275 13,275
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.
BRYAN STEAM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
21. ACCOUNTING CHANGE
Effective July 1, 1997, the Bryan Steam Corporaiton (Bryan Boiler
Division) changed its method of accounting for vacation pay from
expensing the payments in the year paid to accruing the liability in
the year earned by the employee. This accrual meets all the conditions
set forth in FAS-43 (1) The employee's right to receive the
compensation for future absences is attributable to services already
performed by the employee. (2) The employee's right to receive the
compensation for future absences is vested. (3) It is probable that the
compensation will be paid. and (4) The amount of compensation is
reasonably estimable. The cumulative effect of adopting this change was
a charge to income of $109.708 ($.57 per share), net of a tax benefit
of $78,794. The Corporation has omitted the information about the pro
forma retroactive effect of the change on net income and per share
amounts for all prior periods presented. In the Corporation's
judgement, the effect would not be material.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
-6-
PART III
Item 10. Directors and Executive Officers of the Registrant.
Shares
Beneficially
Owned as of
Principal Operation and Director September 23, Percent of
Name Age Prior Business Experience Since 1998 Class
- ---- --- ------------------------- ----- ---- -----
Albert J. Bishop 1,2 67 Retired in June 1996; theretofore, 1986 2,380 1.2%
President and General Manager of the
Company since prior to 1993
H. Jesse McVay 3 57 President of the Company since July 1994 328 Less than
1996; theretofore, Vice President of 1%
Operations of the Company since prior
to 1993
Harold V. Koch 1,4 76 Retired in June 1996; theretofore, 1954 5,168 2.7%
Chairman of the Board since prior to
1993
G. N. Summers 5 67 Owner of Insurance Agency since prior 1976 13 Less than
to 1993 1%
Jack B. Jackson 69 Retired in 1993; theretofore bank 1979 30 Less than
Chairman, Peru office, First of America 1%
Bank - Central Indiana since prior to
1993
James R. Lockhart, 44 Vice President of Incom Roofing 1985 3,085 1.6%
Jr. 6 Services, Inc.; theretofore Vice President
& General Manager of Residential
Business Development for GAF
Materials Corp.; theretofore, Vice
President of Sales, Firestone Building
Products Company since prior to 1993
Bryan D. Herd 3 55 Design consultant, Partridge Home 1991 17,706 9.3%
Furnishings since 1996; theretofore
owner and President of Furniture and
Decorating business since prior to 1993
Kurt J. Krauskopf 44 Secretary of the Company since prior to N/A 257 Less than
1993 1%
Paul D. Donaldson 35 Treasurer of the Company since prior to N/A 0 0%
1993
All Directors and Officers as a group (9 persons) 28,735 15.0%
- ------------------
1 Member of Executive Committee.
2 Includes 501 shares held directly by Mr. Bishop's spouse and 1,879
shares held jointly with his spouse.
3 Shares held jointly with spouse.
4 Includes 5 shares held directly by Mr. Koch's spouse and 5,163 shares
held jointly with his spouse. 5The Company paid approximately $792,315
in fiscal year 1998 to cover premiums for various property, casualty,
and workers' compensation insurance policies on which Mr. Summers'
insurance agency received commissions.
6 Includes 3,060 shares held by Mr. Lockhart's spouse.
7 Shares held by Mr. Krauskopf's spouse.
-7-
During the fiscal year ended June 30, 1998 all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
with respect to Section 16(a) of the 1934 Act were complied with.
Item 11. Executive Compensation.
Compensation
The following table shows the compensation paid by the Company for the
services of H. Jesse McVay, the Company's chief executive officer. Non-monetary
compensation of the chief executive officer did not exceed 10% of his aggregate
cash compensation for the year.
Name and Annual Compensation
Principal Position Year Salary Bonus
------------------ ---- ------ -----
H. Jesse McVay, 1998 $75,400 $48,428
President
1997 $66,325 $32,500
1996 $52,900 $12,200
Pension Plan
The Bryan Steam Corporation Non-Bargaining Unit Employees' Pension Plan
(the "Pension Plan") provides retirement benefits for employees of Bryan who are
not members of the collective bargaining unit. Benefits are based on length of
service and average monthly earnings and are[ subject to certain deductions for
social security benefits]. Contributions to the Pension Plan are computed on an
actuarial basis.
The average annual retirement benefits payable under the Pension Plan to
employees who retire at the normal retirement age of sixty-five (65) are shown
in the table below.
Average Annual
Compensation over Years of Service
Five-Year Period At Age 65
10 20 30 40
-- -- -- --
$ 50,000 $ 9,878 $19,756 $29,634 $ 39,512
$ 75,000 $15,078 $30,156 $45,234 $ 60,312
$100,000 $20,278 $40,556 $60,834 $ 81,112
$125,000 $25,478 $50,956 $76,434 $101,912
Compensation covered by the Pension Plan for a calendar year includes
total taxable wages or salary (including overtime or bonuses) for that year,
plus any contributions the employee makes under the Company's cafeteria plan or
401(k) plan during the calendar year.
Estimated credited years of service for H. Jesse McVay: 28 years
Director Remuneration
Each non-employee director is paid $500 for each meeting of the Board of
Directors, whether or not he attends.
Employment Agreements
-8-
Bryan has an Employment Agreement, dated April 1, 1998, with H. Jesse
McVay. Such agreement provides for an initial term of three (3) years,
automatically extended for an additional year on each anniversary of the date of
such agreement unless either party gives written notice not to so extend within
ninety (90) days prior to an annual anniversary, in which case no further
extension shall occur and the term shall end two years subsequent to the annual
anniversary immediately following the anniversary prior to which the notice not
to extend for an additional year is given. Such agreement provides for an
initial annual salary of $77,200 which may be increased from time to time by
Bryan. Pursuant to such agreement, if Bryan terminates the employment of Mr.
McVay without cause, or if Mr. McVay terminates his employment by reason of a
material breach of any term, condition or covenant of Bryan under the Employment
Agreement, Bryan must pay to Mr. McVay a lump sum equal to one hundred percent
(100%) of his total salary and bonus (excluding the Transaction Bonus described
below) for the preceding calendar year, plus costs of engaging a placement firm
to find alternative employment, and for one year following termination Bryan
must maintain, for a period of one year after the date of termination, each
employee medical and life benefit plan in which Mr. McVay was entitled to
participate immediately prior to the date of termination, unless an essentially
equivalent benefit is provided by another source. Such agreement also provides
for the payment of a transaction bonus (the "Transaction Bonus") in the amount
of $30,000 in the event of a change of control (as defined in the agreement),
payable one half on the date of the change of control and one half on the date
six months after the change in control. The Merger Agreement provides that such
Transaction Bonus will be triggered by the Offer.
Compensation Committee Interlocks and Insider Participation
Compensation decisions for the fiscal year ended June 30, 1998, with
respect to the compensation of H. Jesse McVay were made and ratified by the
Board of Directors, without the participation of Mr. McVay.
-9-
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of September 23, 1998, the Company has outstanding 191,284 shares, all
of one class. No person to the knowledge of Management is the beneficial owner
of more than 5 percent of the outstanding voting stock of the Company, except as
shown in the following table.
Amount Percent
Name and Address of Beneficially of
Beneficial Owner Owned Class
---------------- ----- -----
Ina Mae Bryan Miller 12,199 6.4%
R. R. #2
Peru, IN 46970
Robert Miller 12,198 6.4%
R. R. #2
Peru, IN 46970
Bryan D. and Sharon L. Herd 1 17,706 9.3%
1208 Glenwick Drive
Logansport, IN 46947
Marilyn J. and Paul J. Malott 1 17,829 9.3%
1500 Liberty Street
Logansport, IN 46947
Victor L. and Kristine S. Herd 1 17,690 9.3%
4083 S.E. Honey Hill Lane
Stuart, FL 34997
Beverly Jo Bryan 2 11,591 6.1%
6299 Valley View Drive
Fishers, IN 46038
- ----------------
1 Shares held jointly with rights of survivorship.
2 Shares held jointly with children with rights of survivorship.
See Item 9 of this Report for information with respect to shares owned by
the directors and executive officers of the Company.
The Company, Burnham Corporation, a New York corporation ("Burnham") and
Burnham Acquisition Corporation, a New Mexico corporation and a wholly-owned
subsidiary of Burnham ("Purchaser") entered into an Agreement and Plan of Merger
dated as of September 23, 1998 (the "Merger Agreement"), among the Company,
Burnham and Purchaser. The Merger Agreement provides, among other things, for
the making of an offer by Purchaser to purchase all outstanding shares of the
Common Stock, par value $10.00 per share (the "Shares"), of the Company, at a
purchase price of $152 per Share (the "Offer Price"), net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set forth
in an Offer to Purchase and in the related Letter of Transmittal (which,
together with any supplements or amendments thereto, collectively constitute the
"Offer"). The Merger Agreement further provides that, following the completion
of the Offer and subject to the satisfaction or waiver of certain conditions,
Purchaser will be merged with and into the Company (the "Merger"), with the
Company surviving the Merger as a wholly-owned subsidiary of Burnham with the
name "Bryan Steam Corporation". As a result of the Merger, each outstanding
Share (other than Shares held by Burnham, Purchaser or any subsidiary of
Burnham, Purchaser or the Company, Shares held in the treasury of the Company
and Shares held by stockholders who have properly exercised their rights to fair
value appraisal rights under the New Mexico Business Corporation Act) will be
converted at the effective time of the Merger into the right to receive in cash
the price per Share paid in the Offer without interest.
-10-
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn at the expiration of the Offer at least sixty-six and
two-thirds percent (66-2/3%) plus one of the outstanding Shares on a fully
diluted basis on the date of purchase. The Offer is also subject to certain
other conditions.
Item 13. Certain Relationships and Related Transactions.
The Company paid approximately $792,315 in the fiscal year ended June 30,
1998, and $613,253 in the fiscal year ended June 30, 1997, 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 Bryan, received
commissions. 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.
-11-
PART IV
Item 14. Exhibits and Reports on Form 8-K.
(a) The following financial statements are filed as part of this
Report:
Comparative Balance Sheets (June 30, 1998, 1997 and 1996)
Comparative Statements of Income (Years ended June 30, 1998,
1997, and 1996)
Comparative Statements of Retained Earnings
(Years ended June 30, 1998, 1997, and 1996)
Comparative Statements of Cash Flows
(Years ended June 30, 1998, 1997, and 1996)
Notes to Financial Statements (June 30, 1998)
(b) The following exhibits are filed as a part of this Report:
2. Agreement and Plan of Merger, dated September 23,
1998, between the Company, Burnham Corporation and
Burnham Acquisition Corporation.
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.
10(a). Employment Agreement between Bryan and H. Jesse
McVay, dated April 1, 1998.
10(b). Employment Agreement between Bryan and Albert J.
Bishop, dated April 1, 1998.
10(c). Employment Agreement between Bryan and Kurt J.
Krauskopf, dated April 1, 1998.
10(d). Employment Agreement between Bryan and Sandra A.
Mitting, dated April 1, 1998.
10(e). Employment Agreement between Bryan and Michael D.
Sturch, dated April 1, 1998.
10(f). Employment Agreement between Bryan and Richard D.
Holmquist, dated April 1, 1998.
10(g). Employment Agreement between Bryan and Gregory A.
Minard, dated April 1, 1998.
10(h). Employment Agreement between Bryan and Terrence D.
Kubly, dated April 1, 1998.
10(i). Employment Agreement between Wendland and P. Wayne
McCune, dated April 1, 1998.
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.
99. Press Release dated September 23, 1998.
(c) A report on Form 8-K was filed on June 23, 1998 , reporting
that certain significant shareholders had expressed a desire
to liquidate their interests and that the directors had
solicited expressions of interest regarding a possible
purchase transaction.
-12-
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 28, 1998
)
/s/ H. Jesse McVay President )
- ------------------------------------ )
H. Jesse McVay )
)
)
(2) Principal Financial Officer )
)
/s/ Kurt J. Krauskopf Controller )
- ------------------------------------ )
Kurt J. Krauskopf )
(3) A majority of the Board of Directors ) September 28, 1998
)
Director )
- ------------------------------------ )
Harold V. Koch )
)
/s/ Albert J. Bishop Director )
- ------------------------------------ )
Albert J. Bishop )
)
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 )
)
Director )
- ------------------------------------ )
James R. Lockhart, Jr. )
-13-