Burnham Holdings, Inc. Announces Year 2014 Financial Results And Announces A Dividend Increase

LANCASTER, Pa., Feb. 19, 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 year ended December 31, 2014.

Burnham Holdings, Inc. experienced a year of solid financial performance in 2014, including the following highlights:

• Net sales increased $10.2 million, or 5%, to $200.4 million from $190.2 million in 2013.
• Gross profit was $47.7 million, or 24% of net sales.  This matched last year's percent return on sales which was the highest in five years.
• Net income was $8.6 million, or $1.90 per basic share, the highest level in the past ten years.
• Dividends of $.84 per share were paid in 2014, a 5% increase from 2013 dividends of $.80 per share.  This was the third consecutive year of increased dividends per share.

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

Net sales in 2014 were $200.4 million, up over 5% from $190.2 million in 2013.  Demand for our residential products began slowly in 2014 due to challenging weather conditions in our core Northeastern markets.  As the year progressed, however, residential markets stabilized, with demand for our residential products being consistent with normal levels.  Improving economic conditions leading to increases in non-residential construction spending and higher capital expenditure spending lead to strengthening commercial product demand, continuing the trends that began in the latter half of 2013.

Actual cost of goods sold (which includes increased investment in engineering and product development costs) as a percent of sales was 76.2% in 2014 compared to 76.3% in 2013.  Our success in lowering our operating costs has allowed us to increase our spending on engineering resources for the fifth year in a row, as we continue to meet the ever changing demands of our customers  – without significantly impacting our gross margins.  Cost inflation with respect to commodity raw materials remained relatively modest in 2014 and did not have a significant impact on operating results.  Selling, general, and administrative expenses ("SG&A"), shown on the Consolidated Statements of Income, increased by $1.2 million vs. 2013, but declined as a percent of sales to 17.2% from 17.4% in 2013.  At 17.2% of sales, SG&A expenses in 2014 were the lowest in the past six years.

Other income (expense) as reflected on the Consolidated Statements of Income shows a decrease in expense of $4.0 million in 2014 compared to 2013 ($0.3 million of expense in 2014 vs. $4.3 million of expense in 2013). The majority of the change between years is due to the line items "Gain on Sale of Property"  and "Non-Recurring Pension Liability" that are explained in the notes to the financial statements.  The remaining increase in other expenses of approximately $0.3 million in 2014 was the result of lower earnings on investments in 2014.  Interest expense on debt was basically equal between 2014 and 2013 at $1.2 million.

The Company's balance sheet remains strong with adequate levels of working capital and one of the lowest debt levels in the past ten years.  Although cash flow provided by operations was lower than 2013, it was mainly due to the $4.5 million multiemployer pension withdrawal liability payment explained in Note 4.

At its meeting held on February 19, 2015, the Board of Directors of Burnham Holdings, Inc. declared a regular quarterly common stock dividend of $.22 per share payable March 10, 2015, with a record date of March 3, 2015.  This equates to an annual dividend rate of $.88 per share, an increase of 5% over 2014 and the fourth consecutive year of increased dividends.  The increased dividend rate reflects the solid financial strength and profitability of the Company.

The Company's Board of Directors has scheduled the 2015 Annual Meeting of Shareholders for Monday, April 27^th with a shareholder record date of March 2, 2015.  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))				2014		2013
Net sales				$     200,360		$      190,181
Cost of goods sold				152,660		145,024
		Gross profit		47,700		45,157
Selling, general and administrative expenses				34,364		33,170
		Operating income		13,336		11,987
Other income (expense):
	Gain on sale of property (Note 3)			165		1,439
	Non-recurring pension withdrawal liability (Note 4)			451		(5,000)
	Mark-to-market (Note 5)			-		57
	Interest and investment income			268		459
	Interest expense			(1,233)		(1,244)
		Other income (expense)		(349)		(4,289)
Income before income taxes				12,987		7,698
Income tax expense				4,416		2,384
	NET INCOME			$         8,571		$          5,314
	BASIC EARNINGS PER SHARE (Note 1)			$           1.90		$            1.18
	DILUTED EARNINGS PER SHARE (Note 1)			$           1.89		$            1.18
	COMMON STOCK DIVIDENDS PAID			$           0.84		$            0.80
	BOOK VALUE PER COMMON SHARE			$         17.20		$          18.04
Consolidated Balance Sheets
(in thousands and data is unaudited (see Notes))				December
		ASSETS		2014		2013
CURRENT ASSETS
	Cash and cash equivalents			$         4,885		$          4,886
	Trade accounts receivable, less allowances			22,195		21,323
	Inventories			44,312		41,316
	Prepaid expenses and other current assets			2,435		4,427
		TOTAL CURRENT ASSETS		73,827		71,952
PROPERTY, PLANT AND EQUIPMENT, net				45,681		47,529
DEFERRED INCOME TAXES (Note 6)				156		-
OTHER ASSETS, net				22,778		22,319
		TOTAL ASSETS		$     142,442		$      141,800
		LIABILITIES AND STOCKHOLDERS' EQUITY		2014		2013
CURRENT LIABILITIES
	Accounts and taxes payable & accrued expenses			$       23,653		$        31,813
	Current portion of long-term liabilities			232		255
		TOTAL CURRENT LIABILITIES		23,885		32,068
LONG-TERM DEBT				10,514		6,865
OTHER POSTRETIREMENT LIABILITIES (Notes 6 and 7)				30,087		17,786
DEFERRED INCOME TAXES (Note 6)				-		3,482
STOCKHOLDERS' EQUITY
	Preferred Stock			530		530
	Class A Common Stock			3,466		3,459
	Class B Convertible Common Stock			1,478		1,485
	Additional paid-in capital			15,182		15,050
	Retained earnings			107,738		102,982
	Accumulated other comprehensive income (loss) (Note 6)			(32,503)		(23,966)
	Treasury stock, at cost			(17,935)		(17,941)
		TOTAL STOCKHOLDERS' EQUITY		77,956		81,599
		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$     142,442		$      141,800

 

 

Consolidated Statements of Cash Flows			Years Ended December 31,
(in thousands and data is unaudited (see Notes))			2014		2013
Net income			$    8,571		$     5,314
Gain on sale of property (Note 3)			(165)		(1,439)
Non-recurring expense (Note 4)			(451)		5,000
Depreciation and amortization			4,655		4,643
Pension and postretirement liabilities expense			380		1,458
Contributions to pension trust (Note 7)			(2,114)		(5,511)
Other net adjustments			2,484		426
Changes in operating assets and liabilities			(10,549)		(3,411)
NET CASH PROVIDED BY OPERATING ACTIVITIES			2,811		6,480
Net cash used in the purchase of assets			(3,135)		(4,350)
Proceeds from sale of property, net (Note 3)			-		1,302
Proceeds from borrowings			4,000		-
Proceeds from stock option exercise and Treasury activity, net			138		344
Principal payments on debt and lease obligations			-		(12)
Dividends paid			(3,815)		(3,618)
INCREASE IN CASH  AND  CASH  EQUIVALENTS			(1)		146
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR			4,886		4,740
CASH AND CASH EQUIVALENTS AT END OF YEAR			$     4,885		$     4,886

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, 2014 includes 3,036,167 of Class A shares and  1,478,127 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 2014 and 2013, $165 in each year, 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, 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).
(7)   For the years 2014 and 2013, the Company made voluntary pre-tax contributions of $2.1 million and  $5.5 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, 2014, which will be available on or about March 21, 2015. 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 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 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.

Warranty Litigation, Class Action:  In 2010, two of the Company's subsidiaries were served with a class action lawsuit related generally to boiler products manufactured and sold by a predecessor to one of the Company's subsidiaries more than 10 years ago. This matter has now been discontinued as a class action and the litigation has been resolved.

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, has filed and will file post-trial motions and appeals seeking to reduce and/or overturn the verdicts, and granting of new trials.  Most recently, on February 9, 2015, the trial court significantly reduced the subsidiary's liability from $42 million to less than $7 million.  The subsidiary will continue its appeal 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 2014 charges for all uninsured litigation of every kind, was $143 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   $140 thousand.  Prior year's settlements and expenses 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.

 

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SOURCE Burnham Holdings, Inc.

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