Burnham Holdings, Inc. Announces First Half Results And Declares Dividend

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Jul 23, 2015, 02:12 ET

LANCASTER, Pa., July 23, 2015 /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 six months ended June 28, 2015, and announced a common stock dividend.

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

Net sales in the second quarter and YTD of $36.5 million and $75.0 million, respectively, compared to $38.1 million and $73.7 million in the same periods last year.
Gross profit as a % of sales was 21.6% in the first half of 2015 compared to 21.8% in last year's first half.
Pre-tax income of $62 thousand in the first half of 2015 compared to $126 thousand in the first half of 2014.
Spending on capital improvements increased by $1.37 million in the first six months of 2015 compared to the same period last year. This was due mainly to the construction of a new product development lab at our U.S. Boiler subsidiary – the complex is on target to be operational in the fourth quarter of 2015.

Sales in the second quarter declined by $1.61 million or 4.2% compared to the second quarter of 2014, as we experienced softness in sales of both residential and commercial products. Sales did finish the first half of 2015 ahead of last year's same period by $1.19 million or 1.6%. Net income in the second quarter declined by $239 thousand due to the lower sales levels and higher employee medical costs, causing net income for the first half of 2015 to be $41 thousand lower than in 2014. However, the first half of 2014 was favorably impacted by a $289 thousand after tax gain resulting from the settlement of a multiemployer pension withdrawal liability as explained in Note 3 of the attached financial statements. Excluding this favorable item from 2014 first half results, our net income in the first half of 2015 was better than last year by $248 thousand.

Cost of goods sold ("COGS") as a percentage of sales for the second quarter and YTD was 76.3% and 78.4%, respectively, compared to 75.9% and 78.2% for the same periods in 2014. Selling, general and administrative expenses were somewhat higher in the second quarter as a percent of sales (lower in dollar terms), but remain below last year in both dollar terms and as a percent of sales for the first half compared to 2014. Other income (expense) was expense of $(542) thousand compared to ($86) thousand in the first half of 2014 which was favorably influenced by the $451 thousand gain (pre-tax) from the multiemployer pension withdrawal liability noted above. Excluding this non-recurring item would result in a 2014 first half expense of $(537), essentially flat with the current year total. As we approach the upcoming heating season, we are scheduling our manufacturing facilities for the normal pattern of higher demand in the second half.

The Company's balance sheet has appropriate levels of working capital to adequately support our current level of business activity. Long-term debt was slightly higher this year at the end of the first half compared to last year ($29.9 million vs. $29.3 million), but remains at a very manageable percentage of total capital. Net cash used in operations was lower this year in the first half by $4.0 million mainly due to the approximately $4.5 million pension withdrawal payment detailed in Note 3 of the attached financial statements.

At its meeting on July 23, 2015, the Burnham Holdings, Inc. Board of Directors declared a regular quarterly common stock dividend of $.22 per share payable August 25, 2015, with a record date of August 18, 2015.

Consolidated Statements of Operations			Three Months Ended		Six Months Ended
(In thousands, except per share data)			June 28,	June 29,	June 28,	June 29,
(Data is unaudited (see Notes))			2015	2014	2015	2014
Net sales			$ 36,483	$ 38,094	$ 74,955	$ 73,762
Cost of goods sold			27,820	28,929	58,758	57,673
		Gross profit	8,663	9,165	16,197	16,089
Selling, general and administrative expenses			7,389	7,517	15,593	15,877
		Operating income	1,274	1,648	604	212

Other income (expense):
	Non-recurring expense (3)		-	-	-	451
	Mark-to-market (4)		-	-	-	-
	Interest income		12	15	25	28
	Interest expense		(306)	(308)	(567)	(565)
		Other income (expense)	(294)	(293)	(542)	(86)

Income before income taxes			980	1,355	62	126
Income tax expense			352	488	22	45
	NET INCOME		$ 628	$ 867	$ 40	$ 81
	BASIC & DILUTED INCOME (LOSS) PER SHARE		$ 0.14	$ 0.19	$ 0.01	$ 0.02
	DIVIDENDS PAID		$ 0.22	$ 0.21	$ 0.44	$ 0.42

Consolidated Balance Sheets
(in thousands and data is unaudited (see Notes))					June 28,	June 29,
		ASSETS			2015	2014
CURRENT ASSETS
	Cash and cash equivalents				$ 5,101	$ 5,370
	Trade accounts receivable, less allowances				19,540	19,462
	Inventories				58,115	54,026
	Prepaid expenses and other current assets				2,926	4,765
		TOTAL CURRENT ASSETS			85,682	83,623
PROPERTY, PLANT AND EQUIPMENT, net					46,375	46,891
DEFERRED INCOME TAXES (5)					116	-
OTHER ASSETS, net					22,574	22,285
		TOTAL ASSETS			$154,747	$152,799
		LIABILITIES AND STOCKHOLDERS' EQUITY			2015	2014
CURRENT LIABILITIES
	Accounts and taxes payable & accrued expenses				$ 21,237	$ 23,289
	Current portion of long-term liabilities				232	255
		TOTAL CURRENT LIABILITIES			21,469	23,544
LONG-TERM DEBT					29,893	29,256
OTHER POSTRETIREMENT LIABILITIES (5)(6)					27,040	16,500
DEFERRED INCOME TAXES					-	3,540
STOCKHOLDERS' EQUITY
	Preferred Stock				530	530
	Class A Common Stock				3,466	3,463
	Class B Convertible Common Stock				1,478	1,481
	Additional paid-in capital				15,543	15,130
	Retained earnings				105,766	101,154
	Accumulated other comprehensive income (loss) (5)				(32,432)	(23,861)
	Treasury stock, at cost				(18,006)	(17,938)
		TOTAL STOCKHOLDERS' EQUITY			76,345	79,959
		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$154,747	$152,799

Consolidated Statements of Cash Flows	Six Months ended June
(in thousands and data is unaudited (see Notes))	2015	2014
Net income (loss)	$ 40	$ 81
Non-recurring income (3)	-	(451)
Depreciation and amortization	2,218	2,181
Pension and postretirement liabilities expense	90	329
Contributions to pension trust (6)	(2,925)	(1,589)
Other net adjustments	(490)	(630)
Changes in operating assets and liabilities	(13,586)	(18,572)
NET CASH USED IN OPERATING ACTIVITIES	(14,653)	(18,651)
Net cash used in the purchase of assets	(2,909)	(1,537)
Proceeds from borrowings	19,500	22,500
Proceeds from stock option exercise and Treasury activity, net	290	83
Principal payments on debt and lease obligations	-	-
Dividends paid	(2,012)	(1,911)
INCREASE IN CASH AND CASH EQUIVALENTS	216	484
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	4,885	4,886
CASH AND CASH EQUIVALENTS AT END OF QUARTER	$ 5,101	$ 5,370


	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 June 28, 2015 includes 3,052,332 of Class A shares and 1,475,701 of Class B shares.
(3)	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. 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.






(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, 2014 and 2013, 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 2014 Annual Report for more details).




(6)	In the first half of 2015 and 2014, the Company made voluntary pre-tax contributions of $2.93 million and $1.54 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, 2014. 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 2014 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 discussed in Note 3). 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 Court juries found numerous defendant companies, including a subsidiary of the Company, responsible for asbestos-related damages. The subsidiary, whose share of the verdicts amounted to $42 million and $6 million, respectively, before offsets, has filed and will continue to file post-trial motions and appeals seeking to reduce and/or overturn the verdicts, and the 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. The subsidiary will continue its appeals of both verdicts under the New York State Appellate Court System. 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 first half charges for all uninsured litigation of every kind, was $99 thousand. Expenses for legal counsel, consultants, etc., in defending these various actions and claims for the same period were approximately $59 thousand. Prior year's settlements and expenses, including amounts for self-insured asbestos cases, are disclosed in the 2014 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 2014 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.