Burnham Holdings, Inc. Announces Third Quarter And Nine Months Results

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LANCASTER, Pa., Oct. 16, 2019 /PRNewswire/ -- Burnham Holdings, Inc. (Pink Sheets: BURCA), the parent company of multiple 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 third quarter and nine months ended September 29, 2019.

Highlights of our third quarter and year-to-date (YTD) operating performance include the following:

  • Net sales in 2019 were higher versus last year, with third quarter sales up $4.6 million (9.8%) and YTD sales up $11.7 million (9.2%).
  • Residential product sales were higher by 4.5% in the third quarter and 6.9% YTD, while sales of commercial products were higher by 22.8% in the third quarter and 14.9% YTD.
  • YTD sales of residential and commercial high efficiency products combined were higher by nearly 15% in 2019 versus last year.
  • Higher working capital required to support higher sales resulted in long-term debt (including current portions) being $4.4 million higher at the end of the third quarter versus last year.
  • Net profit YTD of $2.23 million was up $1.89 million compared to 2018.

Net sales in the third quarter and YTD were $52.1 million and $139.5 million, respectively, compared to $47.5 million and $127.8 million last year. Sales of residential products on a YTD basis were higher by 6.9%, with results being influenced by favorable seasonal weather in our key market locations, continued growth in the U.S. economy, increased sales of high efficiency condensing boilers, and higher sales of warm air furnace products. Commercial product sales continued to be strong with sales up 22.8% in the third quarter and 14.9% YTD. Order backlogs in our commercial businesses were significantly higher than last year heading into the fourth quarter of 2019.

Cost of goods sold ("COGS") as a percentage of sales YTD in 2019 was 80.4% compared to 81.2% in 2018. The decrease in COGS (as a percentage of sales) on a YTD basis in 2019 was the result of higher sales volumes, appropriate product pricing actions, higher operating levels at most of our subsidiaries, and a more profitable mix of commercial product sales. Selling, general and administrative expenses were higher YTD in terms of total dollars spent as would be expected with the nearly 10% increase in YTD sales, however, they were lower than last year on a percentage of sales basis (17.3% compared to 18.5%).

Net profit in the third quarter was $797 thousand compared to $703 thousand in the third quarter of 2018, up 13%. On a YTD basis, 2019 results reflect a net profit of $2.23 million, $1.89 million higher than 2018 net profit of $331 thousand. Earnings per share results for 2019 YTD were $0.49 per share compared to $0.07 per share in 2018.

The Company's balance sheet has appropriate levels of working capital to properly support the anticipated level of business activity in the fourth quarter. Long-term debt (including current portions) was higher at the end of the third quarter compared to last year ($36.3 million vs. $31.9 million). The increased borrowing level was mainly the result of higher working capital requirements needed to support the increased sales experienced through three quarters of 2019.

Consolidated Statements of Operations Three Months Ended Nine Months Ended
(In thousands, except per share data) Sep 29, Sep 30, Sep 29, Sep 30,
(Data is unaudited (see Notes)) 2019 2018 2019 2018
Net sales $ 52,097 $ 47,453 $139,480 $127,763
Cost of goods sold 42,665 38,607 112,173 103,696
Gross profit 9,432 8,846 27,307 24,067
Selling, general and administrative expenses 8,283 7,771 24,163 23,578
Operating income 1,149 1,075 3,144 489
Other income (expense):
Interest income 32 31 92 83
Non-service related pension credit 201 135 491 608
Interest expense (348) (328) (838) (750)
Other income (expense) (115) (162) (255) (59)
Income before income taxes 1,034 913 2,889 430
Income tax expense (benefit) 237 210 664 99
NET INCOME (LOSS) $ 797 $ 703 $ 2,225 $ 331
BASIC & DILUTED INCOME (LOSS) PER SHARE (Note 1) $ 0.18 $ 0.15 $ 0.49 $ 0.07
COMMON STOCK DIVIDENDS PAID (Note 1) $ 0.22 $ 0.22 $ 0.66 $ 0.66
Consolidated Balance Sheets
(in thousands and data is unaudited (see Notes)) Sep 29, Sep 30,
ASSETS 2019 2018
CURRENT ASSETS
Cash and cash equivalents $ 5,776 $ 5,771
Trade accounts receivable, less allowances 25,836 22,707
Inventories 58,259 53,087
Prepaid expenses and other current assets 1,619 1,406
TOTAL CURRENT ASSETS 91,490 82,971
PROPERTY, PLANT AND EQUIPMENT, net 52,151 49,352
OPERATING LEASE RIGHT OF USE ASSETS (Note 6) 3,981
OTHER ASSETS, net 9,760 16,650
TOTAL ASSETS $157,382 $148,973
LIABILITIES AND STOCKHOLDERS' EQUITY 2019 2018
CURRENT LIABILITIES
Accounts and taxes payable & accrued expenses $ 22,644 $ 20,652
Current portion of long-term liabilities 136 $ 134
Current portion of operating lease liabilities (Note 6) 1,006
Current portion of long-term debt 4,000
TOTAL CURRENT LIABILITIES 27,786 20,786
LONG-TERM DEBT 32,311 31,896
LONG-TERM OPERATING LEASE LIABILITIES (Note 6) 2,975
OTHER POSTRETIREMENT LIABILITIES (Notes 4 and 5) 11,517 7,840
DEFERRED INCOME TAXES (Note 4) 4,133 3,940
STOCKHOLDERS' EQUITY
Preferred Stock 530 530
Class A Common Stock 3,521 3,513
Class B Convertible Common Stock 1,422 1,431
Additional paid-in capital 16,034 15,912
Retained earnings 108,800 111,496
Accumulated other comprehensive income (loss) (Note 4) (33,674) (30,389)
Treasury stock, at cost (17,973) (17,982)
TOTAL STOCKHOLDERS' EQUITY 78,660 84,511
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $157,382 $148,973

Consolidated Statements of Operations Three Months Ended Nine Months Ended
(In thousands, except per share data) Sep 29, Sep 30, Sep 29, Sep 30, Consolidated Statements of Cash Flows Nine Months ended
(Data is unaudited (see Notes)) 2019 2018 2019 2018 (in thousands and data is unaudited (see Notes)) Sep 29, 2019 Sep 30, 2018
Net sales $ 52,097 $ 47,453 $139,480 $127,763 Net income (loss) $ 2,225 $ 331
Cost of goods sold 42,665 38,607 112,173 103,696 Depreciation and amortization 3,077 2,957
Gross profit 9,432 8,846 27,307 24,067 Pension and postretirement liabilities expense 196 281
Selling, general and administrative expenses 8,283 7,771 24,163 23,578 Contributions to pension trust (Note 5) - (2,630)
Operating income 1,149 1,075 3,144 489 Other net adjustments 10 582
Changes in operating assets and liabilities (17,444) (12,711)
Other income (expense): NET CASH USED IN OPERATING ACTIVITIES (11,936) (11,190)
Interest income 32 31 92 83 Net cash used in the purchase of assets (5,222) (2,769)
Non-service related pension credit 201 135 491 608 Proceeds from borrowings 17,439 17,123
Interest expense (348) (328) (838) (750) Proceeds from stock option exercise and Treasury activity, net 131 122
Other income (expense) (115) (162) (255) (59) Principal payments on debt and lease obligations - -
Dividends paid (3,035) (3,030)
Income before income taxes 1,034 913 2,889 430 DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (2,623) 256
Income tax expense (benefit) 237 210 664 99 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR 8,399 5,515
NET INCOME (LOSS) $ 797 $ 703 $ 2,225 $ 331 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF QUARTER $ 5,776 $ 5,771
BASIC & DILUTED INCOME (LOSS) PER SHARE (Note 1) $ 0.18 $ 0.15 $ 0.49 $ 0.07
COMMON STOCK DIVIDENDS PAID (Note 1) $ 0.22 $ 0.22 $ 0.66 $ 0.66
Consolidated Balance Sheets
(in thousands and data is unaudited (see Notes)) Sep 29, Sep 30,
ASSETS 2019 2018
CURRENT ASSETS
Cash and cash equivalents $ 5,776 $ 5,771
Trade accounts receivable, less allowances 25,836 22,707
Inventories 58,259 53,087
Prepaid expenses and other current assets 1,619 1,406
TOTAL CURRENT ASSETS 91,490 82,971
PROPERTY, PLANT AND EQUIPMENT, net 52,151 49,352
OPERATING LEASE RIGHT OF USE ASSETS (Note 6) 3,981
OTHER ASSETS, net 9,760 16,650
TOTAL ASSETS $157,382 $148,973
LIABILITIES AND STOCKHOLDERS' EQUITY 2019 2018
CURRENT LIABILITIES
Accounts and taxes payable & accrued expenses $ 22,644 $ 20,652
Current portion of long-term liabilities 136 $ 134
Current portion of operating lease liabilities (Note 6) 1,006
Current portion of long-term debt 4,000
TOTAL CURRENT LIABILITIES 27,786 20,786
LONG-TERM DEBT 32,311 31,896
LONG-TERM OPERATING LEASE LIABILITIES (Note 6) 2,975
OTHER POSTRETIREMENT LIABILITIES (Notes 4 and 5) 11,517 7,840
DEFERRED INCOME TAXES (Note 4) 4,133 3,940
STOCKHOLDERS' EQUITY
Preferred Stock 530 530
Class A Common Stock 3,521 3,513
Class B Convertible Common Stock 1,422 1,431
Additional paid-in capital 16,034 15,912
Retained earnings 108,800 111,496
Accumulated other comprehensive income (loss) (Note 4) (33,674) (30,389)
Treasury stock, at cost (17,973) (17,982)
TOTAL STOCKHOLDERS' EQUITY 78,660 84,511
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $157,382 $148,973

Consolidated Statements of Operations Three Months Ended Nine Months Ended Notes To Financial Statements:
(In thousands, except per share data) Sep 29, Sep 30, Sep 29, Sep 30, Consolidated Statements of Cash Flows Nine Months ended (1) Basic earnings per share are based upon weighted average shares outstanding for the period. Diluted earnings per share
(Data is unaudited (see Notes)) 2019 2018 2019 2018 (in thousands and data is unaudited (see Notes)) Sep 29, 2019 Sep 30, 2018 assume the conversion of outstanding rights into common stock.
Net sales $ 52,097 $ 47,453 $139,480 $127,763 Net income (loss) $ 2,225 $ 331 (2) Common stock outstanding at September 29, 2019 includes 3,138,757 of Class A shares and 1,422,822 of Class B shares.
Cost of goods sold 42,665 38,607 112,173 103,696 Depreciation and amortization 3,077 2,957 (3) Mark-to-Market adjustments are a result of changes (non-cash) in the fair value of interest rate agreements. These
Gross profit 9,432 8,846 27,307 24,067 Pension and postretirement liabilities expense 196 281 agreements are used to exchange the interest rate stream on variable rate debt for payments indexed to a fixed interest
Selling, general and administrative expenses 8,283 7,771 24,163 23,578 Contributions to pension trust (Note 5) - (2,630) rate. These non-operational, non-cash charges reverse themselves over the term of the agreements.
Operating income 1,149 1,075 3,144 489 Other net adjustments 10 582 (4) Accounting rules require that the funded status of pension and other postretirement benefits be recognized as a non-cash
Changes in operating assets and liabilities (17,444) (12,711) asset or liability, as the case may be, on the balance sheet. For December 31, 2018 and 2017, projected benefit
Other income (expense): NET CASH USED IN OPERATING ACTIVITIES (11,936) (11,190) obligations exceeded plan assets. The resulting non-cash presentation on the balance sheet is reflected in "Deferred
Interest income 32 31 92 83 Net cash used in the purchase of assets (5,222) (2,769) income taxes", "Other postretirement liabilities", and "Accumulated other comprehensive income (loss)", a non-cash
Non-service related pension credit 201 135 491 608 Proceeds from borrowings 17,439 17,123 sub-section of "Stockholders' Equity" (See Note 10 of the 2018 Annual Report for more details).
Interest expense (348) (328) (838) (750) Proceeds from stock option exercise and Treasury activity, net 131 122 (5) In the first nine months of 2018, the Company made voluntary pre-tax contributions totalling $2.63 million to its defined benefit
Other income (expense) (115) (162) (255) (59) Principal payments on debt and lease obligations - - pension plan. This payment increased the trust assets available for benefit payments (reducing "Other postretirement
Dividends paid (3,035) (3,030) liabilities"), and did not impact the Statement of Income. There were no contributions made in the first nine months of 2019.
Income before income taxes 1,034 913 2,889 430 DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (2,623) 256 (6) Unaudited results, forward looking statements, and certain significant estimates and risks. This note has been
Income tax expense (benefit) 237 210 664 99 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR 8,399 5,515 expanded to include items discussed in detail within the 2018 Annual Report.
NET INCOME (LOSS) $ 797 $ 703 $ 2,225 $ 331 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF QUARTER $ 5,776 $ 5,771
BASIC & DILUTED INCOME (LOSS) PER SHARE (Note 1) $ 0.18 $ 0.15 $ 0.49 $ 0.07 Unaudited Results and Forward Looking Statements. The accompanying unaudited financial statements contain all
COMMON STOCK DIVIDENDS PAID (Note 1) $ 0.22 $ 0.22 $ 0.66 $ 0.66 adjustments that are necessary for a fair presentation of results for such periods and are consistent with policies and
procedures employed in the audited year-end financial statements. These consolidated financial statements should be
Consolidated Balance Sheets read in conjunction with the Annual Report for the period ended December 31, 2018. Statements other than historical
(in thousands and data is unaudited (see Notes)) Sep 29, Sep 30, facts included or referenced in this Report are forward-looking statements subject to certain risks, trends, and
ASSETS 2019 2018 uncertainties that could cause actual results to differ materially from those projected. We undertake no duty to update
CURRENT ASSETS or revise these forward-looking statements.
Cash and cash equivalents $ 5,776 $ 5,771
Trade accounts receivable, less allowances 25,836 22,707 Certain Significant Estimates and Risks. Certain estimates are determined using historical information along with
Inventories 58,259 53,087 assumptions about future events. Changes in assumptions for items such as warranties, pensions, medical cost trends,
Prepaid expenses and other current assets 1,619 1,406 employment demographics and legal actions, as well as changes in actual experience, could cause these estimates to
TOTAL CURRENT ASSETS 91,490 82,971 change. Specific risks, such as those included below, are discussed in the Company's Quarterly and Annual Reports
PROPERTY, PLANT AND EQUIPMENT, net 52,151 49,352 in order to provide regular knowledge of relevant matters. Estimates and related reserves are more fully explained in the
OPERATING LEASE RIGHT OF USE ASSETS (Note 6) 3,981 2018 Annual Report.
OTHER ASSETS, net 9,760 16,650
TOTAL ASSETS $157,382 $148,973 Retirement Plans: The Company maintains a non-contributory defined benefit pension plan, covering both union and
LIABILITIES AND STOCKHOLDERS' EQUITY 2019 2018 non-union employees, that has been closed to new hires for a number of years. Benefit accrual ceased in 2009, or earlier
CURRENT LIABILITIES depending on the employee group, with the exception of a limited, closed group of union production employees. While not
Accounts and taxes payable & accrued expenses $ 22,644 $ 20,652 100% frozen, these actions were taken to protect benefits for retirees and eligible employees, and have materially reduced
Current portion of long-term liabilities 136 $ 134 the growth of the pension liability. Lancaster Metal Manufacturing, a Company subsidiary, also contributes to a separate
Current portion of operating lease liabilities (Note 6) 1,006 union-sponsored multiemployer defined benefit pension plan that covers its collective bargaining employees. Variables
Current portion of long-term debt 4,000 such as future market conditions, investment returns, and employee experience could affect results.
TOTAL CURRENT LIABILITIES 27,786 20,786
LONG-TERM DEBT 32,311 31,896 New Accounting Standard:
LONG-TERM OPERATING LEASE LIABILITIES (Note 6) 2,975 During February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (ASC 842). ASC 842 requires lessees to recognize the assets and liabilities that arise from all leases that exceed twelve months in duration on the balance sheet, regardless if they are operating or financing type leases. A lessee shall recognize on the balance sheet a liability to make future lease payments (the lease liability) and a right-of-use asset representing the value of the right to use the asset for the remaining term of the lease agreement. ASC 842 is effective for annual periods beginning after December 15, 2018, including interim periods. The Company adopted ASC 842 effective January 1, 2019 using the optional transition method described in ASU No. 2018-11, 'Leases - Targeted Improvements', which was issued in July, 2018. Under the optional transition method, the Company recognized any cumulative impact of initially applying ASC 842 as an adjustment to the opening balance of retained earnings as of January 1, 2019.
OTHER POSTRETIREMENT LIABILITIES (Notes 4 and 5) 11,517 7,840 Based on the guidance provided in ASC 842, the Company balance sheet at September 29, 2019 includes a total right-of-use asset value of $3,981, and current liabilities of $(1,006) and long-term liabilities of $(2,975) related to future lease payments. Leases at all of the Company's subsidiaries have been classified as operating leases. Therefore, all lease payments made with respect to outstanding leases are reported as lease expense. For the nine months ended September 29, 2019, total lease expenses of $897 were included in the calculation of operating income.
DEFERRED INCOME TAXES (Note 4) 4,133 3,940
STOCKHOLDERS' EQUITY 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.
Preferred Stock 530 530
Class A Common Stock 3,521 3,513 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.
Class B Convertible Common Stock 1,422 1,431
Additional paid-in capital 16,034 15,912 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.
Retained earnings 108,800 111,496
Accumulated other comprehensive income (loss) (Note 4) (33,674) (30,389) 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 or removal of heating systems. The Company's subsidiaries, directly and/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 a potential reduction or reversal of verdict on appeal, any set-off rights, and/or a reduction of liability following allocation of liability among various defendants. For example, on July 23, 2013 and December 12, 2014, New York City State Court juries found numerous defendant companies, including a subsidiary of the Company, responsible for asbestos-related damages in cases involving multiple plaintiffs. The subsidiary, whose share of the verdicts amounted to $42 million and $6 million, respectively, before offsets, filed post-trial motions and appeals seeking to reduce and/or overturn the verdicts, and granting of new trials. On February 9, 2015, the trial court significantly reduced the 2013 verdicts, reducing the subsidiary's liability from $42 million to less than $7 million. Additionally, on May 15, 2015, the trial court reduced the subsidiary's liability in the 2014 verdict to less than $2 million. On October 30, 2015, the subsidiary settled these verdicts for significantly less than the trial courts' reduced verdicts, with all such settled amounts being covered by applicable insurance. The Company believes, based upon its understanding of its available insurance policies 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.
Treasury stock, at cost (17,973) (17,982)
TOTAL STOCKHOLDERS' EQUITY 78,660 84,511 Litigation Expense, Settlements, and Defense: The 2019 nine month charges for all uninsured litigation of every kind, were $176 thousand. Expenses for legal counsel, consultants, etc., in defending these various actions and claims for the current nine months were approximately $51 thousand. Prior year's settlements and expenses, including amounts for self-insured asbestos cases, are disclosed in the 2018 Annual Report.
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $157,382 $148,973
Permitting Activities (excluding environmental): The Company's subsidiaries are engaged in various matters with respect to obtaining, amending or renewing permits required under various laws and associated regulations in order to operate each of its manufacturing facilities. Based on the information presently available, management believes it has all necessary permits and expects that all permit applications currently pending will be routinely handled and approved.
Environmental Matters: The operations of the Company's subsidiaries are subject to a variety of Federal, State, and local environmental laws. Among other things, these laws require the Company's subsidiaries to obtain and comply with the terms of a number of Federal, State and local environmental regulations and permits, including permits governing air emissions, wastewater discharges, and waste disposal. The Company's subsidiaries periodically need to apply for new permits or to renew or amend existing permits in connection with ongoing or modified operations. In addition, the Company generally tracks and tries to anticipate any changes in environmental laws that might relate to its ongoing operations. The Company believes its subsidiaries are in material compliance with all environmental laws and permits.
As with all manufacturing operations in the United States, the Company's subsidiaries can potentially be responsible for response actions at disposal areas containing waste materials from their operations. In the past five years, the Company has not received any notice that it or its subsidiaries might be responsible for remedial clean-up actions under government supervision. However, one issue covered by insurance policies remains open as of this date and is fully disclosed in the 2018 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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