Burnham Holdings, Inc. Announces Year 2015 Financial Results

17 Feb, 2016, 12:01 ET from Burnham Holdings, Inc.

LANCASTER, Pa., Feb. 17, 2016 /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 year ended December 31, 2015.

Burnham Holdings, Inc. experienced a year of solid financial performance in 2015, including the following highlights:

  • Net sales were $190.4 million, a decline of $10.0 million, or 5%, from 2014, as demand for our residential heating products was impacted unfavorably by unusually warm weather and low energy prices.
  • Gross profit in 2015 was $44.3 million, or 23% of sales.
  • Net income was $7.8 million, or $1.71 per basic share.
  • Dividends of $0.88 per share were paid in 2015, a 5% increase from 2014 dividends of $0.84 per share. This was the fourth consecutive year of increased dividends per share.
  • Our year-end debt level of $13.5 million continues to be well below the average of the last ten years, giving us the ability to continue to invest in new technologies and appropriate business opportunities.

Further details of the results mentioned in this press release are discussed in the Company's audited 2015 Annual Report, which will be available on or around March 21, 2016.

Net sales were $190.4 million, a decrease of 5.0% compared to 2014. Sales of residential products declined by 4.3%, while commercial product sales dropped by 6.7% compared to the prior year.  After a strong first half, low energy prices and unusually warm winter weather in our key market regions unfavorably impacted market demand for our residential products in the second half of the year.  Commercial product demand continues to be constrained by a lack of consistent demand in the non-residential construction sector.

In 2015, we continued to meet customer demands for higher efficiency, higher value products by our increased investment in new product development.  Our subsidiary companies introduced a wide array of new commercial and residential products, as well as enhancements and improvements to our broad portfolio of existing products.  In addition, our U.S. Boiler subsidiary completed a state-of-the-art Engineering and Technology Center, one of the most advanced in the industry.

Gross profit (profit after deducting cost of goods sold ("COGS") from net sales) in 2015 was $44.3 million, or 23.3% of net sales.  This compares to a gross profit percentage of 23.8% earned in 2014, a decline of 0.5% of net sales.  Gross profit margins were negatively impacted by additional spending in 2015 on engineering and product development expenses across several subsidiaries, as well as higher factory operating costs caused by lower production levels in our manufacturing operations which were adjusted to keep our mix of inventory in line with current customer demand and to adjust for lower sales. Selling, general and administrative expenses ("SG&A") totaled $31.8 million in 2015 compared to $34.4 million in 2014, a decrease of $2.6 million.  On a percentage of sales basis, SG&A expenses declined to 16.7% from 17.2% in 2014, representing the lowest level in the past ten years.

Other income (expense) as reflected on the Consolidated Statements of Income shows an increase in expense of $0.7 million in 2015 compared to 2014. The majority of the change between years ($0.5 million) is due to the line item "Non-Recurring Pension Liability" that is explained in Note 4 of the financial statement footnotes.  The remaining increase in other expenses of approximately $0.2 million in 2015 was the result of lower earnings on investments.  Interest expense on debt was essentially flat at $1.2 million in 2015 and 2014.

As a further note, the Board of Directors will evaluate the Company's financial performance at its regularly scheduled February 25th meeting for consideration of March dividends.

The Company's Board of Directors has scheduled the 2016 Annual Meeting of Shareholders for Monday, April 25th with a shareholder record date of March 1, 2016.  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))

2015

2014

Net sales 

$     190,449

$     200,360

Cost of goods sold

146,157

152,660

Gross profit

44,292

47,700

Selling, general and administrative expenses

31,880

34,364

Operating income

12,412

13,336

Other income (expense):

Gain on sale of property (Note 3)

115

165

Non-recurring pension withdrawal liability (Note 4)

-

451

Interest and investment income

31

268

Interest expense

(1,166)

(1,233)

Other income (expense)

(1,020)

(349)

Income before income taxes

11,392

12,987

Income tax expense

3,647

4,416

NET INCOME

$         7,745

$         8,571

BASIC EARNINGS PER SHARE (Note 1)

$           1.71

$           1.90

DILUTED EARNINGS PER SHARE (Note 1)

$           1.70

$           1.89

COMMON STOCK DIVIDENDS PAID

$           0.88

$           0.84

BOOK VALUE PER COMMON SHARE

$         17.87

$         17.20

Consolidated Balance Sheets

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

December

ASSETS

2015

2014

CURRENT ASSETS

Cash and cash equivalents

$         4,912

$         4,885

Trade accounts receivable, less allowances

20,561

22,195

Inventories

43,699

44,312

Prepaid expenses and other current assets

2,223

2,435

TOTAL CURRENT ASSETS

71,395

73,827

PROPERTY, PLANT AND EQUIPMENT, net

47,969

45,681

DEFERRED INCOME TAXES (Note 6)

-

156

OTHER ASSETS, net

22,522

22,778

TOTAL ASSETS

$     141,886

$     142,442

LIABILITIES AND STOCKHOLDERS' EQUITY

2015

2014

CURRENT LIABILITIES

Accounts and taxes payable & accrued expenses

$       19,091

$       23,653

Current portion of long-term liabilities

184

232

Current portion of long-term debt

1,264

-

TOTAL CURRENT LIABILITIES

20,539

23,885

LONG-TERM DEBT

12,208

10,514

OTHER POSTRETIREMENT LIABILITIES (Notes 6 and 7)

27,250

30,087

DEFERRED INCOME TAXES (Note 6)

645

-

STOCKHOLDERS' EQUITY

Preferred Stock

530

530

Class A Common Stock 

3,478

3,466

Class B Convertible Common Stock

1,466

1,478

Additional paid-in capital

15,551

15,182

Retained earnings

111,469

107,738

Accumulated other comprehensive income (loss) (Note 6)

(33,245)

(32,503)

Treasury stock, at cost 

(18,005)

(17,935)

TOTAL STOCKHOLDERS' EQUITY

81,244

77,956

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$     141,886

$     142,442

Consolidated Statements of Cash Flows

Years Ended December 31,

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

2015

2014

Net income

$      7,745

$      8,571

Gain on sale of property (Note 3)

(115)

(165)

Non-recurring expense (Note 4)

-

(451)

Depreciation and amortization

4,306

4,655

Pension and postretirement liabilities expense

215

380

Contributions to pension trust (Note 7)

(3,900)

(2,114)

Other net adjustments

1,013

2,484

Changes in operating assets and liabilities

(1,942)

(10,549)

NET CASH PROVIDED BY OPERATING ACTIVITIES

7,322

2,811

Net cash used in the purchase of assets

(6,580)

(3,135)

Proceeds from sale of property, net (Note 3)

-

-

Proceeds from borrowings

3,000

4,000

Proceeds from stock option exercise and Treasury activity, net

299

138

Principal payments on debt and lease obligations

-

-

Dividends paid

(4,014)

(3,815)

INCREASE IN CASH AND CASH EQUIVALENTS

27

(1)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

4,885

4,886

CASH AND CASH EQUIVALENTS AT END OF YEAR 

$      4,912

$      4,885

 

 

 

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, 2015 includes 3,062,099 of Class A shares and 1,466,157 of Class B shares.

(3)

On July 23, 2013, a Company subsidiary sold property located in Lancaster, PA. to the Lancaster County Solid Waste Authority for $1.35 million. The book value plus expenses of sale was $76 thousand, resulting in a book gain of $1.274 million. Additionally in 2015 and 2014, $115 and $165, respectively, was recognized as deferred gain from year 2010 transactions involving a sale and leaseback of property.

(4)

On June 18, 2013 the Company incurred a non-recurring expense of $5 million as a result of a new union agreement at its subsidiary, Bryan Steam LLC in Peru, Indiana (previously announced on June 19th).  This one-time, non-manufacturing charge is a result of an agreement to withdraw from a multi-employer pension plan which had provided a defined benefit for these union employees.  This decision resulted in what is called a "withdrawal liability expense" that accounting rules require to be expensed immediately regardless of benefit period covered or period over which the liability is actually paid. In 2014, the final lump-sum payment of the withdrawal liability expense recognized in 2013 was lower than estimated, resulting in a return to income of $451 thousand.

(5)

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.

(6)

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, 2015 and 2014, 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 2015 Annual Report for more details).

(7)

For the years 2015 and 2014, the Company made voluntary pre-tax contributions of $3.9 million and $2.1 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

(8)

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, 2015, which will be available on or about March 21, 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 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 2015 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 (Bryan Steam, LLC had a similar plan but has withdrawn from the plan as noted in Note 4).  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 of heating systems. The Company's subsidiaries, directly or through insurance providers, are vigorously defending all open asbestos cases, many of which involve multiple claimants and many defendants, which may not be resolved for several years. Asbestos litigation is a national issue with thousands of companies defending claims. While the large majority of claims have historically been resolved prior to the completion of trial, from time to time some claims may be expected to proceed to a potentially substantial verdict against subsidiaries of the Company.  Any such verdict would be subject to appeal, any set-off rights and/or issues involving allocation of liability among various defendants.  For example, on July 23, 2013 and December 12, 2014, New York City State 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 2015 charges for all uninsured litigation of every kind, was $254 thousand. That amount included two asbestos claims, while it is rare for an asbestos suit not to be covered by insurance, a few such claims exist, depending on the alleged time period of asbestos exposure.  Expenses for legal counsel, consultants, etc., in defending these various actions and claims for the year was   $150 thousand.  Prior year's settlements and expenses are disclosed in the 2015 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 2015 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.

 

 

SOURCE Burnham Holdings, Inc.



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