Burnham Holdings, Inc. Announces Year 2019 Financial Results

Consolidated Statements of Income

(In thousands, except per share data)

Years Ended December

(Data is unaudited (see Notes))

2019

2018

Net sales 

$     212,257

$     197,707

Cost of goods sold

166,737

156,058

Gross profit

45,520

41,649

Selling, general and administrative expenses

34,355

33,746

Goodwill impairment loss (Note 3)

-

6,780

Operating income

11,165

1,123

Other income (expense):

Non-service related pension credit

720

650

Interest and investment income

822

293

Interest expense

(1,141)

(1,057)

Other income (expense)

401

(114)

Income before income taxes

11,566

1,009

Income tax (benefit) expense

2,828

1,554

NET (LOSS) INCOME

$         8,738

$           (545)

BASIC (LOSS) EARNINGS PER SHARE (Note 1)

$           1.91

$          (0.12)

DILUTED (LOSS) EARNINGS PER SHARE (Note 1)

$           1.91

$          (0.12)

COMMON STOCK DIVIDENDS PAID

$           0.88

$           0.88

BOOK VALUE PER COMMON SHARE

$         18.99

$         17.40

Consolidated Balance Sheets

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

December

2019

2018

CURRENT ASSETS

Cash, cash equivalents and restricted cash

$         5,749

$         8,399

Trade accounts receivable, less allowances

24,589

23,567

Inventories

47,234

45,817

Prepaid expenses and other current assets

1,661

1,656

TOTAL CURRENT ASSETS

79,233

79,439

PROPERTY, PLANT AND EQUIPMENT, net

52,461

49,997

OPERATING LEASE RIGHT OF USE ASSETS (Note 7)

4,431

OTHER ASSETS, net 

11,064

9,930

TOTAL ASSETS

$     147,189

$     139,366

LIABILITIES AND STOCKHOLDERS' EQUITY

2019

2018

CURRENT LIABILITIES

Accounts and taxes payable & accrued expenses

$       26,095

$       25,577

Current portion of long-term liabilities

152

4,136

Current portion of operating lease liabilities (Note 7)

979

Current portion of long-term debt

-

-

27,226

29,713

LONG-TERM DEBT

15,068

14,423

LONG-TERM OPERATING LEASE LIABILITIES (Note 7)

3,452

OTHER POSTRETIREMENT LIABILITIES (Notes 5 and 6)

8,488

11,502

DEFERRED INCOME TAXES (Note 5)

6,019

4,196

STOCKHOLDERS' EQUITY

Preferred Stock

530

530

Class A Common Stock 

3,536

3,518

Class B Convertible Common Stock

1,408

1,426

Additional paid-in capital

16,034

15,911

Retained earnings

114,139

109,610

Accumulated other comprehensive income (loss) (Note 5)

(30,738)

(33,481)

Treasury stock, at cost 

(17,973)

(17,982)

TOTAL STOCKHOLDERS' EQUITY

86,936

79,532

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$     147,189

$     139,366

Consolidated Statements of Cash Flows

Years Ended December 31,

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

2019

2018

     Net (loss) income

$     8,738

$       (545)

     Depreciation and amortization

4,127

3,933

     Goodwill impairment loss (Note 3)

-

6,780

     Pension and postretirement liabilities expense

104

225

     Contributions to pension trust (Note 6)

-

(2,630)

     Other net adjustments

1,342

2,283

     Changes in operating assets and liabilities

(2,286)

(2,232)

NET CASH PROVIDED BY OPERATING ACTIVITIES

12,025

7,814

     Net cash used in the purchase of assets

(7,078)

(4,385)

     Proceeds from borrowings

320

3,374

     Proceeds from stock option exercise and Treasury activity, net

131

121

     Principal payments on debt and lease obligations

(4,000)

-

     Dividends paid

(4,048)

(4,040)

INCREASE (DECREASE)IN CASH, CASH  EQUIVALENTS AND RESTRICTED CASH

(2,650)

2,884

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR

8,399

5,515

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR 

$     5,749

$      8,399

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, 2019 includes 3,153,757 of Class A shares and 1,407,822 of Class B shares.

(3)  During the annual impairment testing of goodwill in 2018, 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 for goodwill impairment.  (See Note 2 - Other Assets in the 2019

       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, 2019 and 2018, 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 2019 Annual Report for more details).

(6)  For the years 2019 and 2018, the Company made voluntary pre-tax contributions of $0 and $2.63 million, respectively, to

       its defined benefit pension plan.  The 2018 payment increased the trust assets available for benefit payments (reducing

       "Other postretirement liabilities"), and did not impact the Statement 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 2019 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, 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 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

2019 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.

New Accounting Standards:

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.                         

Based on the guidance provided in ASC 842, the Company balance sheet at December 31, 2019 includes a total right-of-use
asset value of $4,431, and current liabilities of $(979) and long-term liabilities of $(3,452) 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 year ended December 31, 2019, total lease expenses
of $1,394 were included in the calculation of operating income.

On January 1, 2019 the Company adopted ASU No. 2016-01, "Financial Instruments, Recognition and measurement of Financial
Assets and Liabilities", ASU 2018-03, "Technical Corrections and Improvements to Financial Instruments, Recognition and Measurement
of Financial Assets and Liabilities" and ASU 2018-13, "Fair Value Measurement, Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement".  The standards address the recognition, measurement, presentation and disclosure of
certain financial instruments.  The guidance requires equity investments to be measured at fair value with any changes recognized in net
income rather than in other comprehensive income.  Upon adoption on January 1, 2019, the Company recognized a decrease to the
beginning balance of accumulated comprehensive income (AOCI), net of tax of $161 and a corresponding decrease to the beginning
balance of retained earnings related to the cumulative unrealized losses on equity securities as of December 31, 2018.

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 2019 charges for all uninsured litigation of every kind, were $956 thousand.  Expenses
for legal counsel, consultants, etc., in defending these various actions and claims for the year were approximately $42 thousand.  Prior year's
settlements and expenses, including amounts for self-insured asbestos cases, are disclosed in the 2019 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 2019 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.