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

LANCASTER, Pa., Oct. 17, 2018 /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 third quarter and nine months ended September 30, 2018.

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

• Net sales in the third quarter and YTD in 2018 were $47.5 million and $127.8 million, respectively, compared to $43.5 million and $112.7 million in the same periods in 2017. This was an increase of 9.2% in the third quarter and 13.3% on a YTD basis compared to last year.
• Residential product sales increased by 10.5% in the third quarter and by 14.4% YTD compared to last year, while sales of products for commercial applications increased by 6.1% and 10.7% for the same periods. Sales of high efficiency residential and commercial products reflect strong year-over-year growth on a YTD basis.
• Long-term debt was $31.9 million, $400 thousand higher than at the end of the third quarter of 2017. Interest expense for the third quarter was higher by approximately 6% as the result of higher interest rates.
• YTD net profit of $331 thousand was up $1.032 million versus 2017.

Residential product sales continued to show improvement in the third quarter, as sales were up 10.5% compared to the third quarter of 2017.  On a YTD basis, residential product sales were higher by 14.4% compared to 2017, as sales of high efficiency condensing products contributed strong year-over-year growth.  Sales of products for commercial applications also increased in the quarter, with sales up 6.1% compared to the prior year, as our new condensing boiler products continue to gain acceptance in the commercial marketplace.

Cost of goods sold ("COGS") as a percentage of sales for the third quarter and YTD in 2018 was 81.4% and 81.2%, respectively, compared to 81.9% and 82.2% for the same periods in 2017.  Favorable impacts to COGS included the higher overall sales volume, a more profitable mix of products sold and higher plant utilization compared to last year.  However, these benefits were offset by higher prices paid for steel, scrap metal and other component parts during 2018 as the result of threatened or imposed tariffs.  Product pricing actions were implemented in the first half of 2018 to address these factors.  We continue to monitor the tariff situation to assess the need for any additional pricing actions.  Selling, general and administrative expenses were higher YTD in terms of total dollars spent, however, they were lower than last year on a percentage of sales basis (18.5% compared to 19.0%).

Net profit in the third quarter was $703 thousand compared to $543 thousand in the third quarter of 2017, up 11%.  On a YTD basis, 2018 results reflect a net profit of $331 thousand compared to a 2017 net loss of ($701) thousand, an improvement of $1.032 million. 

The Company's balance sheet has appropriate levels of working capital to adequately support the expected level of business activity in the fourth quarter.  Long-term debt was higher at the end of the third quarter compared to last year ($31.9 million vs. $31.5 million).  Net cash used in operating activities was higher by $3.2 million, mainly due to higher voluntary pension contributions and higher inventory levels needed to support the increased sales volumes experienced in 2018.

New Accounting Standards: All of the following accounting standards were adopted in the first quarter of 2018:

Beginning on January 1, 2018, we adopted accounting standard ASC606, Revenue from Contracts with Customers, using the full retrospective adoption method. In the Consolidated Statements of Income for the nine month period ended October 1, 2017, the adoption of ASC606 caused a decrease in sales of $639 and a corresponding decrease of $639 in selling, general and administrative expenses compared to previously reported results.  There was no impact to income before taxes in the first nine months of 2017 and no changes to balance sheet accounts were required as the result of the adoption of ASC606.  On an ongoing basis, we expect the impact of the adoption of ASC606 to be immaterial to our reported net income.

Also effective January 1, 2018, we adopted ASU 2017-07 - Compensation - Retirement Benefits (Topic 715). In the Consolidated Statements of Income, the adoption of the standard had the following impacts on previously reported 2017 nine month results: increase to cost of goods sold of $487 thousand, increase to SG&A expenses of $506 thousand and increase to the line item titled "non-service related pension credit" in other income of $993 thousand.  The implementation of the standard had no net impact on income before taxes, just the line items where pension expense/credit was previously reported. 

We also adopted the requirements of ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income (AOCI). The Company has elected to adopt the policy of reclassifying stranded tax effects caused by the Tax Cut and Jobs Act from AOCI to retained earnings and also to include the full effect of the reclassification in 2018.  In the Consolidated Balance Sheets, adoption of the standard increased the balance of retained earnings and AOCI by $5.176 million in 2018 compared to the ending balances recorded at December 31, 2017. 

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 2018 first nine month charges for all uninsured litigation of every kind, were $100 thousand. Expenses for legal counsel, consultants, etc., in defending these various actions and claims for the current nine months were approximately $81 thousand.  Prior year's settlements and expenses, including amounts for self-insured asbestos cases, are disclosed in the 2017 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 2017 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.