Burnham Holdings, Inc. Announces Third Quarter And Nine Months Results

Consolidated Statements of Operations

Three Months Ended

Nine Months Ended

(In thousands, except per share data)

Sep 29,

Sep 30,

Sep 29,

Sep 30,

2019

2018

2019

2018

Net sales

$ 52,097

$ 47,453

$139,480

$127,763

Cost of goods sold

42,665

38,607

112,173

103,696

Gross profit

9,432

8,846

27,307

24,067

Selling, general and administrative expenses

8,283

7,771

24,163

23,578

Operating income

1,149

1,075

3,144

489

Other income (expense):

Interest income

32

31

92

83

Non-service related pension credit

201

135

491

608

Interest expense

(348)

(328)

(838)

(750)

Other income (expense)

(115)

(162)

(255)

(59)

Income before income taxes

1,034

913

2,889

430

Income tax expense (benefit)

237

210

664

99

NET INCOME (LOSS)

$ 797

$ 703

$ 2,225

$ 331

BASIC & DILUTED INCOME (LOSS) PER SHARE (Note 1)

$ 0.18

$ 0.15

$ 0.49

$ 0.07

COMMON STOCK DIVIDENDS PAID (Note 1)

$ 0.22

$ 0.22

$ 0.66

$ 0.66

Consolidated Balance Sheets

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

Sep 29,

Sep 30,

ASSETS

2019

2018

CURRENT ASSETS

Cash and cash equivalents

$ 5,776

$ 5,771

Trade accounts receivable, less allowances

25,836

22,707

Inventories

58,259

53,087

Prepaid expenses and other current assets

1,619

1,406

TOTAL CURRENT ASSETS

91,490

82,971

PROPERTY, PLANT AND EQUIPMENT, net

52,151

49,352

OPERATING LEASE RIGHT OF USE ASSETS (Note 6)

3,981

OTHER ASSETS, net

9,760

16,650

TOTAL ASSETS

$157,382

$148,973

LIABILITIES AND STOCKHOLDERS' EQUITY

2019

2018

CURRENT LIABILITIES

Accounts and taxes payable & accrued expenses

$ 22,644

$ 20,652

Current portion of long-term liabilities

136

$ 134

Current portion of operating lease liabilities (Note 6)

1,006

Current portion of long-term debt

4,000

TOTAL CURRENT LIABILITIES

27,786

20,786

LONG-TERM DEBT

32,311

31,896

LONG-TERM OPERATING LEASE LIABILITIES (Note 6)

2,975

OTHER POSTRETIREMENT LIABILITIES (Notes 4 and 5)

11,517

7,840

DEFERRED INCOME TAXES (Note 4)

4,133

3,940

STOCKHOLDERS' EQUITY

Preferred Stock

530

530

Class A Common Stock

3,521

3,513

Class B Convertible Common Stock

1,422

1,431

Additional paid-in capital

16,034

15,912

Retained earnings

108,800

111,496

Accumulated other comprehensive income (loss) (Note 4)

(33,674)

(30,389)

Treasury stock, at cost

(17,973)

(17,982)

TOTAL STOCKHOLDERS' EQUITY

78,660

84,511

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$157,382

$148,973

Consolidated Statements of Cash Flows

Nine Months ended

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

Sep 29, 2019

Sep 30, 2018

Net income (loss)

$ 2,225

$ 331

Depreciation and amortization

3,077

2,957

Pension and postretirement liabilities expense

196

281

Contributions to pension trust (Note 5)

-

(2,630)

Other net adjustments

10

582

Changes in operating assets and liabilities

(17,444)

(12,711)

NET CASH USED IN OPERATING ACTIVITIES

(11,936)

(11,190)

Net cash used in the purchase of assets

(5,222)

(2,769)

Proceeds from borrowings

17,439

17,123

Proceeds from stock option exercise and Treasury activity, net

131

122

Principal payments on debt and lease obligations

-

-

Dividends paid

(3,035)

(3,030)

DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

(2,623)

256

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR

8,399

5,515

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF QUARTER

$ 5,776

$ 5,771

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 September 29, 2019 includes 3,138,757 of Class A shares and 1,422,822 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, 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).

(5)

In the first nine months of 2018, the Company made voluntary pre-tax contributions totalling $2.63 million to its defined benefit

pension plan. This payment increased the trust assets available for benefit payments (reducing "Other postretirement

liabilities"), and did not impact the Statement of Income. There were no contributions made in the first nine months of 2019.

(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 2018 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. 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

2018 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 Standard:

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 September 29, 2019 includes a total right-of-use asset value of $3,981, and current liabilities of $(1,006) and long-term liabilities of $(2,975) 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 nine months ended September 29, 2019, total lease expenses of $897 were included in the calculation of operating income.

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 nine month charges for all uninsured litigation of every kind, were $176 thousand. Expenses for legal counsel, consultants, etc., in defending these various actions and claims for the current nine months were approximately $51 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.