Oct 18, 2017 SOURCE: PR NewsWire
Burnham Holdings, Inc. Announces Third Quarter And Nine Months Results
LANCASTER, Pa., Oct. 18, 2017 /PRNewswire/ -- Burnham Holdings, Inc., (OTC-Pink: 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 period ended October 1, 2017.
Highlights of our third quarter and year-to-date (YTD) operations include the following:
-- Net sales in the third quarter and YTD in 2017 were $43.6 million and
$113.4 million, respectively, compared to $42.1 million and $109.9
million in the same periods last year. This represented a year-over-year
increase of 3.6% in the third quarter and 3.2% on a YTD basis.
-- Long term debt (including current maturities) was $31.5 million, a
reduction of $1.9 million compared to 2016. Interest expense on a YTD
basis was flat compared to last year.
-- Cash flow used in operations was lower by $5.7 million through the first
nine months of 2017, mainly due to planned inventory reductions, lower
accounts receivable levels, and lower pension contributions.
-- Pre-tax profit in the third quarter was $848 thousand compared to $719
thousand in the third quarter of 2016, an improvement of 18%.
Residential product sales continued to show improvement in the third quarter, as sales were up 10.0% compared to the third quarter of 2016. On a YTD basis, residential product sales were higher by 6.1% compared to 2016, mainly due to growth in sales of cast iron boilers and residential furnace products. Commercial product sales were down 3.1% on a YTD basis, however, sales of our new high efficiency condensing commercial products were up over 10% compared to last year. Shipment backlogs entering the fourth quarter with respect to both residential and commercial products were significantly higher than at the same time in 2016.
Cost of goods sold ("COGS") as a percentage of sales for the third quarter and YTD in 2017 was 81.2% and 81.3%, respectively, compared to 81.1% and 79.5% for the same periods in 2016. The increase in COGS was mainly the result of the mix of products sold, higher prices for certain purchased raw materials, and negative cost impacts due to lower operating levels in certain manufacturing operations. The reduced operating levels were scheduled in order to reduce manufactured inventory levels to be in line with expected customer demand. Although the deliberate inventory reduction has caused a negative impact on pre-tax profits, we were successful in reducing inventory levels by $5.3 million on a year-over-year basis. Also, product pricing actions taken in the first half of the year were realized in the third quarter, resulting in a favorable impact on profit results. Selling, general and administrative expenses were lower as a percentage of sales both in the third quarter (16.2% vs. 16.6%) and on a YTD basis (19.0% vs. 19.8%). On a YTD basis, 2017 results reflect a net loss of ($701) thousand compared to a 2016 net profit of $23 thousand.
The Company's balance sheet has adequate levels of working capital based on our expected level of business activity as we move into the fourth quarter of the year. Long-term debt (including current maturities) was lower by $1.9 million compared to last year ($31.5 million vs. $33.4 million), and represents a manageable level when measured as a percentage of total capital.
Consolidated Statements of Operations Three Months Ended Nine Months Ended
(In thousands, except per share data) Oct 1, Sep 25, Oct 1, Sep 25,
(Data is unaudited (see Notes)) 2017 2016 2017 2016
------------------------------ ---- ---- ---- ----
Net sales $43,616 $42,114 $113,386 $109,859
Cost of goods sold 35,425 34,154 92,178 87,332
------------------ ------ ------ ------ ------
Gross profit 8,191 7,960 21,208 22,527
Selling, general and administrative expenses 7,058 6,977 21,569 21,801
-------------------------------------------- ----- ----- ------ ------
Operating income 1,133 983 (361) 726
Other income (expense):
(Loss) on sale of property (50)
Interest income 24 16 56 47
Interest expense (309) (280) (740) (736)
---------------- ---- ---- ---- ----
Other income (expense) (285) (264) (734) (689)
--------------------- ---- ---- ---- ----
Income before income taxes 848 719 (1,095) 37
Income tax expense (benefit) 305 260 (394) 14
--------------------------- --- --- ---- ---
NET INCOME $543 $459 $(701) $23
---------- ---- ---- ----- ---
BASIC & DILUTED INCOME (LOSS) PER SHARE $0.12 $0.10 $(0.16) $ -
DIVIDENDS PAID $0.22 $0.22 $0.66 $0.66
Consolidated Balance Sheets
(in thousands and data is unaudited (see Notes)) Oct 1, Sep 25,
ASSETS 2017 2016
------ ---- ----
CURRENT ASSETS
Cash and cash equivalents $5,841 $5,698
Trade accounts receivable, less allowances 20,234 23,744
Inventories 51,647 56,962
Prepaid expenses and other current assets 1,369 1,439
----------------------------------------- ----- -----
TOTAL CURRENT ASSETS 79,091 87,843
PROPERTY, PLANT AND EQUIPMENT, net 49,579 46,838
DEFERRED INCOME TAXES (4)
OTHER ASSETS, net 22,184 22,142
----------------- ------ ------
TOTAL ASSETS $150,854 $156,823
------------ -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY 2017 2016
------------------------------------ ---- ----
CURRENT LIABILITIES
Accounts and taxes payable & accrued expenses $17,522 $21,674
Current portion of long-term liabilities 157 1,264
---------------------------------------- --- -----
TOTAL CURRENT LIABILITIES 17,679 22,938
LONG-TERM DEBT 31,521 32,184
OTHER POSTRETIREMENT LIABILITIES (4)(5) 16,575 23,076
DEFERRED INCOME TAXES 3,341 495
STOCKHOLDERS' EQUITY
Preferred Stock 530 530
Class A Common Stock 3,487 3,484
Class B Convertible Common Stock 1,457 1,461
Additional paid-in capital 15,798 15,684
Retained earnings 108,357 108,474
Accumulated other comprehensive income (loss)
(4) (29,901) (33,505)
Treasury stock, at cost (17,990) (17,998)
----------------------- ------- -------
TOTAL STOCKHOLDERS' EQUITY 81,738 78,130
-------------------------- ------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $150,854 $156,823
------------------------------------------ -------- --------
Consolidated Statements of Cash Flows Nine Months ended
(in thousands and data is unaudited (see Notes)) Oct 1, 2017 Sep 25, 2016
----------------------------------------------- ----------- ------------
$(701) $23
Net income
50
Loss on sale of property
2,987 3,234
Depreciation and amortization
(311) (53)
Pension and postretirement liabilities expense
(1,300) (3,750)
Contributions to pension trust (Note 5)
49 (84)
Other net adjustments
Changes in operating assets and liabilities (8,784) (13,060)
------------------------------------------- ------ -------
NET CASH USED IN OPERATING ACTIVITIES (8,010) (13,690)
(7,388) (2,095)
Net cash used in the purchase of assets
532 -
Proceeds from sale of property, net
16,045 19,448
Proceeds from borrowings
122 141
Proceeds from stock option exercise and Treasury activity, net
Dividends paid (3,023) (3,018)
-------------- ------ ------
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (1,722) 786
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR 7,563 4,912
--------------------------------------------------------------- ----- -----
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF QUARTER $5,841 $5,698
------------------------------------------------------------ ------ ------
Notes To Financial Statements:
(1) Basic earnings per share are based upon weighted average shares outstanding for the period. Diluted earnings per share
assume the conversion of outstanding rights into common stock.
(2) Common stock outstanding at October 1, 2017 includes 3,097,790 of Class A shares and 1,446,504 of Class B shares.
(3) Mark-to-Market adjustments are a result of changes (non-cash) in the fair value of interest rate agreements. These
agreements are used to exchange the interest rate stream on variable rate debt for payments indexed to a fixed interest
rate. These non-operational, non-cash charges reverse themselves over the term of the agreements.
(4) Accounting rules require that the funded status of pension and other postretirement benefits be recognized as a non-cash
asset or liability, as the case may be, on the balance sheet. For December 31, 2016 and 2015, projected benefit
obligations exceeded plan assets. The resulting non-cash presentation on the balance sheet is reflected in
"Deferred
income taxes", "Other postretirement liabilities", and "Accumulated other comprehensive income (loss)", a non-cash
sub-section of "Stockholders' Equity" (See Note 10 of the 2016 Annual Report for more details).
(5) In the first nine months of 2017 and 2016, the Company made voluntary pre-tax contributions of $1.30 million and $3.75
million, respectively to its defined benefit pension plan. These payments increased the trust assets available for
benefit
payments (reducing "Other postretirement liabilities"), and did not impact the Statements of Income.
(6) Unaudited results, forward looking statements, and certain significant estimates and risks. This note has been
expanded to include items discussed in detail within the Annual Report.
Unaudited Results and Forward Looking Statements. The accompanying unaudited financial statements contain all
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
read in conjunction with the Annual Report for the period ended December 31, 2016. Statements other than historical
facts included or referenced in this Report are forward-looking statements subject to certain risks, trends, and
uncertainties that could cause actual results to differ materially from those projected. We undertake no duty to
update
or revise these forward-looking statements.
Certain Significant Estimates and Risks. Certain estimates are determined using historical information along with
assumptions about future events. Changes in assumptions for items such as warranties, pensions, medical cost trends,
employment demographics and legal actions, as well as changes in actual experience, could cause these estimates to
change. Specific risks, such as those included below, are discussed in the Company's Quarterly and Annual Reports
in order to provide regular knowledge of relevant matters. Estimates and related reserves are more fully explained in
the
2016 Annual Report.
Retirement Plans: The Company maintains a non-contributory defined benefit pension plan, covering both union and
non-union employees, that has been closed to new hires for a number of years. Benefit accrual ceased in 2009, or
earlier
depending on the employee group, with the exception of a limited, closed group of union production employees. While not
100% frozen, these actions were taken to protect benefits for retirees and eligible employees, and have materially
reduced
the growth of the pension liability. Lancaster Metal Manufacturing, a Company subsidiary, also contributes to a
separate
union-sponsored multiemployer defined benefit pension plan that covers its collective bargaining employees.
Variables
such as future market conditions, investment returns, and employee experience could affect results.
Medical Health Coverage: The Company and its subsidiaries are self-insured for most of the medical health insurance
provided for its employees, limiting maximum exposure per occurrence by purchasing third-party stop-loss coverage.
Retiree Health Benefits: The Company pays a fixed annual amount that assists a specific group of retirees in purchasing
medical and/or prescription drug coverage from providers. Additionally, certain employees electing early retirement
have the option of receiving access to an insured defined benefit plan at a yearly stipulated cost or receiving a fixed
dollar amount to assist them in covering medical costs.
Insurance: The Company and its subsidiaries maintain insurance to cover product liability, general liability, workers'
compensation, and property damage. Well-known and reputable insurance carriers provide current coverage. All policies
and corresponding deductible levels are reviewed on an annual basis. Third-party administrators, approved by the
Company and the insurance carriers, handle claims and attempt to resolve them to the benefit of both the Company and
its insurance carriers. The Company reviews claims periodically in conjunction with administrators and adjusts recorded
reserves as required.
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.
Litigation Expense, Settlements, and Defense: Charges in the first nine months of 2017 for all uninsured litigation of
every kind, was $152 thousand. Expenses for legal counsel, consultants, etc., in defending these various actions and
claims for the same period were approximately $83 thousand. Prior year's settlements and expenses, including amounts
for self-insured asbestos cases, are disclosed in the 2016 Annual Report.
Permitting Activities (excluding environmental): The Company's subsidiaries are engaged in various matters with respect
to obtaining, amending or renewing permits required under various laws and associated regulations in order to operate
each of its manufacturing facilities. Based on the information presently available, management believes it has all
necessary permits and expects that all permit applications currently pending will be routinely handled and approved.
Environmental Matters: The operations of the Company's subsidiaries are subject to a variety of Federal, State, and
local environmental laws. Among other things, these laws require the Company's subsidiaries to obtain and comply with
the terms of a number of Federal, State and local environmental regulations and permits, including permits governing
air emissions, wastewater discharges, and waste disposal. The Company's subsidiaries periodically need to apply for new
permits or to renew or amend existing permits in connection with ongoing or modified operations. In addition, the
Company generally tracks and tries to anticipate any changes in environmental laws that might relate to its ongoing
operations. The Company believes its subsidiaries are in material compliance with all environmental laws and permits.
As with all manufacturing operations in the United States, the Company's subsidiaries can potentially be responsible for
response actions at disposal areas containing waste materials from their operations. In the past five years, the
Company has not received any notice that it or its subsidiaries might be responsible for remedial clean-up actions
under government supervision. However, two pre-2008 issues covered by insurance policies remain open as of this date
and are fully disclosed in the year-end 2016 Annual Report. While it is not possible to be certain whether or how any
new or old matters will proceed, the Company does not presently have reason to anticipate incurring material costs in
connection with any matters.
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SOURCE Burnham Holdings, Inc.
