BURNHAM HOLDINGS, INC. ANNOUNCES YEAR 2021 FINANCIAL RESULTS AND EXECUTIVE LEADERSHIP RETIREMENT

Consolidated Statements of Income

(In thousands, except per share data)

Years Ended December

2021

2020

Net sales 

$       218,508

$       187,461

Cost of goods sold

183,486

148,985

Gross profit

35,022

38,476

Selling, general and administrative expenses

33,891

30,477

Operating income

1,131

7,999

Other income (expense):

Non-service related pension credit

574

684

Interest and investment income

596

719

Interest expense

(1,049)

(930)

121

473

Income before income taxes

1,252

8,472

Income tax (benefit) expense

229

1,925

NET (LOSS) INCOME

$           1,023

$           6,547

BASIC (LOSS) EARNINGS PER SHARE (Note 1)

$             0.22

$             1.43

DILUTED (LOSS) EARNINGS PER SHARE (Note 1)

$             0.22

$             1.43

COMMON STOCK DIVIDENDS PAID

$             0.88

$             0.88

BOOK VALUE PER COMMON SHARE

$           20.68

$           19.89

Consolidated Balance Sheets

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

December

ASSETS

2021

2020

CURRENT ASSETS

Cash, cash equivalents and restricted cash

$           5,654

$           5,759

Trade accounts receivable, less allowances

24,920

28,654

Inventories

51,066

49,203

Prepaid expenses and other current assets

4,717

2,154

TOTAL CURRENT ASSETS

86,357

85,770

PROPERTY, PLANT AND EQUIPMENT, net

57,496

52,494

OPERATING LEASE RIGHT OF USE ASSETS (Note 7)

2,065

4,022

OTHER ASSETS, net 

21,551

12,089

TOTAL ASSETS

$       167,469

$       154,375

LIABILITIES AND STOCKHOLDERS' EQUITY

2021

2020

CURRENT LIABILITIES

Accounts and taxes payable & accrued expenses

$         33,429

$         27,382

Current portion of long-term liabilities

152

147

Current portion of operating lease liabilities (Note 7)

765

1,020

34,346

28,549

LONG-TERM DEBT

21,843

19,292

LONG-TERM OPERATING LEASE LIABILITIES (Note 7)

1,300

3,002

OTHER POSTRETIREMENT LIABILITIES (Notes 5 and 6)

6,062

5,742

DEFERRED INCOME TAXES (Note 5)

8,753

6,575

STOCKHOLDERS' EQUITY

Preferred Stock

530

530

Class A Common Stock 

3,615

3,560

Class B Convertible Common Stock

1,329

1,384

Additional paid-in capital

16,317

16,115

Retained earnings

113,582

116,633

Accumulated other comprehensive income (loss) (Note 5)

(22,260)

(29,043)

Treasury stock, at cost 

(17,948)

(17,964)

TOTAL STOCKHOLDERS' EQUITY

95,165

91,215

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$       167,469

$       154,375

Consolidated Statements of Cash Flows

Years Ended December 31,

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

2021

2020

Net income

$    1,023

$    6,547

Depreciation and amortization

4,543

4,336

Pension and postretirement liabilities expense

93

91

Contributions to pension trust (Note 6)

(500)

(960)

Other net adjustments

10,454

1,407

Changes in operating assets and liabilities

(5,085)

(6,681)

NET CASH PROVIDED BY OPERATING ACTIVITIES

10,528

4,740

Net cash used in the purchase of assets

(10,338)

(4,607)

Proceeds from borrowings

3,561

3,840

Proceeds from stock option exercise and Treasury activity, net

218

90

Dividends paid

(4,074)

(4,053)

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

(105)

10

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR

5,759

5,749

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR 

$    5,654

Consolidated Statements of Stockholders' Equity

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

Year ended December 31, 2021

Class B

Accumulated

Class A

Convertible

Additional

Other

Treasury

Preferred

Common

Common

Paid-in

Retained

Comprehensive

Stock,

Stockholders'

Stock

Stock

Stock

Capital

Earnings

Income (Loss)

at Cost

Equity

Balance at January 1, 2021

$        530

$      3,560

$      1,384

$    16,115

$  116,633

$           (29,043)

$   (17,964)

$         91,215

Exercise of stock options

-

-

-

202

-

-

16

218

Conversion of common stock

-

55

(55)

-

-

-

-

-

Cash dividends declared:

Preferred stock - 6%

-

-

-

-

(18)

-

-

(18)

Common stock - ($0.88 per share)

(4,056)

(4,056)

Net income for the period

-

-

-

-

1,023

-

-

1,023

Other comprehensive income (loss),

     net of $ (2,026) of tax

-

-

-

-

-

6,783

-

6,783

Balance at December 31, 2021

$        530

$      3,615

$      1,329

$    16,317

$  113,582

$           (22,260)

$   (17,948)

$         95,165

Year ended December 31, 2020

Class B

Accumulated

Class A

Convertible

Additional

Other

Treasury

Preferred

Common

Common

Paid-in

Retained

Comprehensive

Stock,

Stockholders'

Stock

Stock

Stock

Capital

Earnings

Income (Loss)

at Cost

Equity

Balance at January 1, 2020

$        530

$      3,536

$      1,408

$    16,034

$  114,139

$           (30,738)

$   (17,973)

$         86,936

Exercise of stock options

-

-

-

81

-

-

9

90

Conversion of common stock

-

24

(24)

-

-

-

-

-

Cash dividends declared:

Preferred stock - 6%

-

-

-

-

(18)

-

-

(18)

Common stock - ($0.88 per share)

-

-

-

-

(4,035)

-

-

(4,035)

Net income for the period

-

-

-

-

6,547

-

-

6,547

Other comprehensive income (loss),

     net of $(507) of tax

-

-

-

-

-

1,695

-

1,695

Balance at December 31, 2020

$        530

$      3,560

$      1,384

$    16,115

$  116,633

$           (29,043)

$   (17,964)

$         91,215

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, 2021 includes 3,257,971 of Class A shares and 1,329,298 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.  The resulting non-cash presentation on the balance sheet is reflected in "Deferred income taxes", "Other assets", "Other postretirement liabilities", and "Accumulated other comprehensive income (loss)", a non-cash sub-section of "Stockholders' equity" (See Note 10 of the 2021 Annual Report for more details).

(5)

For the years 2021 and 2020, the Company made voluntary pre-tax contributions of $0.50 million and $0.96 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 Statement of Income.  

(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 2021 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, 2021.  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 2021 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.                         

The Company balance sheet at December 31, 2021 and December 31, 2020 includes total right-of-use asset values of $2,065 and $4,022, respectively; current liabilities of $(765) and $(1,020), respectively; and long-term liabilities of $(1,300) and $(3,002), respectively, 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 years ended December 31, 2021 and December 31, 2020, total lease expenses of $1,463 and $1,544, respectively, were included in the calculation of operating income.  Lease accounting details are explained in greater detail in the 2021 Annual Report.

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 receive a fixed dollar amount based on years of employee service to assist them in covering medical costs.  These obligations are accounted for within the financial statements.

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 2021 charges for all uninsured litigation of every kind, were $1,227 thousand.  Expenses for legal counsel, consultants, etc., in defending these various actions and claims for the year were approximately $115 thousand.  Prior year's settlements and expenses, including amounts for self-insured asbestos cases, are disclosed in the 2021 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 2021 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.