Burnham Holdings, Inc. Announces Year 2018 Financial Results

LANCASTER, Pa., Feb. 14, 2019 /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 financial results for the year ended December 31, 2018.

The following are several key highlights of 2018 financial results:

    --  Net sales were $197.7 million, an increase of $21.9 million, or 12.5%,
        compared to 2017 as overall demand for residential and commercial
        heating equipment and higher sales of our newly introduced,
        high-efficiency residential and commercial condensing boilers combined
        to improve 2018.
    --  Gross profit was $41.6 million, an increase of $5.8 million, or 16.3%,
        versus 2017.
    --  Operating profit, excluding the impact of non-cash goodwill impairment
        charges explained below, was $7.9 million, up $2.0 million, or 34.4%,
        compared to 2017.   This pro-forma presentation of operating income is a
        better indicator of our financial results as net income reflects
        non-cash impairment charges in 2018 and 2017 and tax changes that
        impacted 2017 reported results.
    --  Year-end debt, net of cash, was essentially flat with 2017, up only $200
        thousand despite higher sales and material input prices.

Further details of the results mentioned in this press release will be discussed in the Company's 2018 Annual Report and audited financial statements, which will be available on or around March 20, 2019.

Net sales of $ 197.7 million, reflect an increase of 12.5% compared to 2017. Sales of residential heating products increased by 15.2%, while commercial product sales increased by 4.9% compared to the prior year. The improvement was driven by favorable seasonal winter weather in our key geographic markets, an expanding U.S. economy, and significantly higher sales of condensing boiler products. Sales of commercial boiler products also increased versus 2017.

Gross profit (profit after deducting cost of goods sold (COGS) from net sales) was $ 41.6 million, an increase of 16.3% compared to 2017. Gross profit as a percentage of sales also rose to 21.1% in 2018, versus 20.4% in 2017. Positive impacts to gross profit resulted from higher sales volume and a more profitable mix of products sold in 2018. A significant negative impact to gross profit in 2018 was higher raw material prices incurred due to U.S. import tariffs on steel, aluminum and other imported components. Selling, general, and administrative expenses (SG&A) increased by $3.8 million in 2018, but were essentially flat as a percentage of sales, at 17.1% in 2018 compared to 17.0% in 2017.

Net income results in 2017 and 2018 were negatively impacted by non-cash goodwill impairment charges related to the commercial reporting unit. Although our commercial sales, particularly sales of our high-efficiency commercial condensing boilers, increased in 2018, changing market demand for large commercial boilers and continued cost impacts (including significant steel price inflation due to U.S. import tariffs) caused us to further adjust the future outlook for sales of large, non-condensing commercial boilers. This resulted in our taking a $6.78 million non-cash goodwill impairment charge in 2018, in addition to the $6.0 impairment charge taken in 2017. The goodwill written down in both years pertains to acquisitions made over 20 years ago, and represents all remaining goodwill related to the commercial unit. Also in 2017, a one-time income tax benefit of $2.2 million ($0.48/share) was recorded due to the revaluation of net deferred tax liabilities resulting from lower U.S. corporate tax rates enacted in late 2017 as part of the Tax Cuts and Jobs Act. The combined impact of these charges resulted in a net loss in 2018 of ($0.55) million, or ($0.12) per basic share, compared to net income of $0.97 million or $0.21 per basic share in 2017. Excluding the impacts of the non-cash, non-deductible goodwill impairment charges in 2018 and 2017, and tax rate changes from 2017 results; net income in 2018 would have been $6.2 million ($1.37/share) versus $4.8 million ($1.06/share) in 2017, up $1.4 million ($0.31/share), or 30%.

The Company's Board of Directors has scheduled the 2019 Annual Meeting of Shareholders for Monday, April 29th with a shareholder record date of March 1, 2019. The meeting will be held at the Eden Resort and Suites in Lancaster starting at 11:30 AM.



       
              Consolidated Statements of Income



       (In thousands, except per share data)                                                                                     
          Years Ended December



       (Data is unaudited (see Notes))                                                                                                  2018                    2017

    ---


       Net sales                                                                                                $197,707                $175,778



       Cost of goods sold                                                                                                            156,058                 139,976

    ---

                                                        
     Gross profit                                                                    41,649                  35,802



       Selling, general and administrative expenses                                                                                   33,746                  29,922



       Goodwill impairment loss (Note 3)                                                                                               6,780                   6,000

    ---

                                                        
     Operating income                                                                 1,123                   (120)



       Other income (expense):


                                                        
     Loss on sale of property                                                                                 (50)


                                                        
     Non-service related pension credit                                                 650                   1,141


                                                        
     Interest and investment income                                                     293                     414


                                                        
     Interest expense                                                               (1,057)                (1,020)



                                                        
     Other income (expense)                                                           (114)                    485




       Income before income taxes                                                                                                      1,009                     365



       Income tax (benefit) expense                                                                                                    1,554                   (605)

    ---

                                                        
     NET (LOSS) INCOME                                                               $(545)                   $970



                                                          BASIC (LOSS) EARNINGS PER SHARE (Note 1)                                       $(0.12)                  $0.21


                                                          DILUTED (LOSS) EARNINGS PER SHARE (Note 1)                       $(0.12)                     $0.21


                                                        
     COMMON STOCK DIVIDENDS PAID                                                      $0.88                   $0.88


                                                        
     BOOK VALUE PER COMMON SHARE                                                     $17.40                  $19.02





       
              Consolidated Balance Sheets



       (in thousands and data is unaudited (see Notes))                                                                            
           December


                                                                                          
            
          ASSETS                            2018                    2017




       CURRENT ASSETS


                                                          Cash, cash equivalents and restricted cash                                      $8,399                  $5,515


                                                          Trade accounts receivable, less allowances                                      23,567                  22,461


                                                        
     Inventories                                                                     45,817                  42,834


                                                          Prepaid expenses and other current assets                                        1,656                   1,338



                                                        
     TOTAL CURRENT ASSETS                                                            79,439                  72,148



       PROPERTY, PLANT AND EQUIPMENT, net                                                                                             49,997                  49,532



       OTHER ASSETS, net                                                                                                               9,930                  16,725

    ---

                                                        
     TOTAL ASSETS                                                                  $139,366                $138,405



                                                        
     
              LIABILITIES AND STOCKHOLDERS' EQUITY                                   2018                    2017




       CURRENT LIABILITIES


                                                          Accounts and taxes payable & accrued expenses                                  $25,577                 $22,149


                                                          Current portion of long-term liabilities                                         4,136                     134


                                                        
     TOTAL CURRENT LIABILITIES                                                       29,713                  22,283



       LONG-TERM DEBT                                                                                                                 14,423                  15,342



       OTHER POSTRETIREMENT LIABILITIES (Notes 5 and 6)                                                                               11,502                  10,221



       DEFERRED INCOME TAXES (Note 5)                                                                                                  4,196                   3,830



       STOCKHOLDERS' EQUITY


                                                        
     Preferred Stock                                                                    530                     530


                                                        
     Class A Common Stock                                                             3,518                   3,500


                                                        
     Class B Convertible Common Stock                                                 1,426                   1,444


                                                        
     Additional paid-in capital                                                      15,911                  15,798


                                                        
     Retained earnings                                                              109,610                 109,019


                                                          Accumulated other comprehensive income (loss)
                                                           (Note 5)                                                       (33,481)                  (25,572)


                                                        
     Treasury stock, at cost                                                       (17,982)               (17,990)



                                                        
     TOTAL STOCKHOLDERS' EQUITY                                                      79,532                  86,729



                                                          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $139,366                   $138,405



       
                Consolidated Statements of Cash Flows                         Years Ended December 31,



       (in thousands and data is unaudited (see Notes))                       2018                       2017

    ---

                                                                             $(545)                      $970


            Net (loss) income


                                                                                                           50


            Loss on sale of property


                                                                              3,933                      3,942


            Depreciation and amortization


                                                                              6,780                      6,000


            Goodwill impairment loss (Note 3)


                                                                                225                      (329)


            Pension and postretirement liabilities expense


                                                                            (2,630)                   (1,300)


            Contributions to pension trust (Note 6)


                                                                              4,276                    (1,794)


            Other net adjustments



            Changes in operating assets and liabilities                    (4,225)                     2,010

    ---


       NET CASH PROVIDED BY OPERATING ACTIVITIES                             7,814                      9,549


                                                                            (4,385)                   (8,291)


            Net cash used in the purchase of assets


                                                                                                          532


            Proceeds from sale of property, net


                                                                              3,374                         72


            Proceeds from borrowings


                                                                                121                        122


            Proceeds from stock option exercise and Treasury activity, net



            Dividends paid                                                 (4,040)                   (4,032)

    ---


       INCREASE (DECREASE)IN CASH, CASH  EQUIVALENTS AND RESTRICTED CASH     2,884                    (2,048)



       CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR       5,515                      7,563

    ---


       CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR            $8,399                     $5,515

    ---


          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 December
                31, 2018 includes 3,126,230 of Class
                A shares and 1,426,270 of Class B
                shares.



     (3)     During the annual impairment testing
                of goodwill in 2018 and 2017,  the
                Company determined that certain
                conditions had changed, causing it
                to adjust several assumptions
                regarding subsidiaries that service
                the commercial boiler market.  As a
                result, the Company recorded a $6.78
                million charge in 2018 and a $6.00
                million charge in 2018 for goodwill
                impairment. (See Note 2 -Other
                Assets in the 2018 Annual Report for
                more details).



     (4)     Mark-to-Market adjustments are a
                result of changes (non-cash) in the
                fair value of interest rate
                agreements. These agreements are
                used to exchange the interest rate
                stream on variable rate debt for
                payments indexed to a fixed interest
                rate.  These non-operational, non-
                cash charges reverse themselves over
                the term of the agreements.



     (5)     Accounting rules require that the
                funded status of pension and other
                postretirement benefits be
                recognized as a non-cash asset or
                liability, as the case may be, on
                the balance sheet.  For December 31,
                2018 and 2017, 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 2018 Annual
                Report for more details).



     (6)     For the years 2018 and 2017, the
                Company made voluntary pre-tax
                contributions of $2.63 million and
                $1.30 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.



     (7)     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,
                             2018, which will be available on or
                             about March 21, 2019.  Statements
                             other than historical facts included
                             or referenced in this Report are
                             forward-looking statements subject
                             to certain risks, trends and
                             uncertainties that could cause
                             actual results to differ materially
                             from those projected.  We undertake
                             no duty to update or revise these
                             forward-looking statements.




                           Certain Significant Estimates and
                             Risks.  Certain estimates are
                             determined using historical
                             information along with assumptions
                             about future events.  Changes in
                             assumptions for such items as
                             warranties, pension assumptions,
                             medical cost trends, employment
                             demographics and legal actions, as
                             well as changes in actual
                             experience, could cause these
                             estimates to change.  Specific
                             risks, such as those included below,
                             are discussed in the Company's
                             Quarterly and Annual Reports to
                             provide regular knowledge of
                             relevant matters.  Estimates and
                             related reserves are more fully
                             explained in the 2018 Annual Report.



     
                New Accounting Standards:  All of the following accounting standards were adopted in the first quarter of 2018:




      Beginning on January 1, 2018, we adopted accounting standard ASC606, Revenue from Contracts with Customers, using the full retrospective adoption method.  In the Consolidated Statements of Income for the year ended
       December 31, 2018, the adoption of ASC606 caused a decrease in sales of $882 thousand and a corresponding decrease of $882 thousand in selling, general and administrative expenses compared to previously reported
       results.  There was no impact to income before taxes in 2017 and no changes to balance sheet accounts were required as the result of the adoption of ASC606.  On an ongoing basis, we expect the impact of the adoption of
       ASC606 to be immaterial to our reported net income.




      Also effective January 1, 2018, we adopted ASU 2017-07 - Compensation - Retirement Benefits (Topic 715).  In the Consolidated Statements of Income, the adoption of the standard had the following impacts on previously
       reported 2017 results: increase to cost of goods sold of $680 thousand, increase to SG&A expenses of $461 thousand and increase to the line item titled "non-service related pension credit" in other income of $1.14
       million.  The implementation of the standard had no net impact on income before taxes, just the line items where pension expense/credit was previously reported.




      We also adopted the requirements of ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income (AOCI).  The Company has elected to adopt the policy of reclassifying stranded tax
       effects caused by the Tax Cut and Jobs Act from AOCI to retained earnings and also to include the full effect of the reclassification in 2018.  In the Consolidated Balance Sheets, adoption of the standard increased the
       balance of retained earnings and AOCI by $5.176 million in 2018 compared to the ending balances recorded at December 31, 2017.




                   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: The 2018 charges for all uninsured litigation of every kind, were $1.25 million.  Expenses for legal counsel, consultants, etc., in defending these various actions and claims
                    for the year were approximately $187 thousand.  Prior year's settlements and expenses, including amounts for self-insured asbestos cases, are disclosed in the 2018 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, 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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SOURCE Burnham Holdings, Inc.