6309810Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-12362
Berger Holdings, Ltd.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2160077
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
805 Pennsylvania Boulevard, Feasterville,PA 19053
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 355-1200
Indicate by check mark whether the Registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or for such
shorter period that the Registrant was required to
file such reports, and (2) has been subject to such
filing requirements for the past ninety days.
YES X NO _____
Indicate by check mark whether the Registrant
has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
YES X NO _____
As of July 31, 1998, the Registrant had
outstanding 5,370,113 shares of its common stock, par
value $0.01 per share (the "Common Stock").
<PAGE>
BERGER HOLDINGS, LTD.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated
Balance Sheets at June 30, 1998
and December 31, 1997 3
Condensed Consolidated Statement of
Operations for the three month periods
ended June 30, 1998 and 1997 5
Condensed Consolidated Statement of
Operations for the six month periods
ended June 30, 1998 and 1997 6
Condensed Consolidated Statements
of Cash Flows for the six month periods
ended June 30, 1998 and 1997 7
Notes to Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a
Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Current Assets
Cash $ 174,009 $ 4,411,347
Trade accounts receivable, net of
allowance for doubtful accounts
of $30,000 in 1998 &
$43,000 in 1997 4,421,237 1,655,327
Inventories (Note 2) 4,403,182 2,652,466
Prepaid and other assets 455,799 372,721
Deferred income taxes 800,000 800,000
----------- -----------
Total current assets 10,254,227 9,891,861
----------- -----------
Other Assets
Property and equipment, net (Note 3) 9,663,453 6,110,128
Deferred income taxes 700,000 700,000
Construction in progress, equipment
deposits and other assets 187,092 918,304
Other assets 3,291,690 608,271
Goodwill, net of accumulated
amortization 6,423,442 1,522,649
----------- -----------
Total other assets 20,265,677 9,859,352
----------- -----------
$30,519,904 $19,751,213
=========== ===========
</TABLE>
-3-
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------- -------------
<S> <C> <C>
Current Liabilities
Current maturities of long term debt
and demand notes payable $ 1,169,766 $ 522,679
Accounts payable 1,576,243 251,093
Accrued expenses 1,369,344 462,023
------------ ------------
Total current liabilities 4,115,353 1,235,795
Long term debt, net of current
maturities 11,618,492 6,022,147
------------ ------------
Total liabilities 15,733,845 7,257,942
------------ ------------
Shareholders' Equity
Series A convertible
Preferred stock, $.01 par value
$4,000,000 liquidation value in 1998
$2,500,000 liquidation value in 1997
Authorized 5,000,000 shares
Issued and outstanding 40,000 shares in 1998
25,000 shares in 1997
400 250
Common stock $.01 par value
Authorized 20,000,000 shares
Issued and outstanding 5,370,113 shares in 1998
5,228,973 shares in 1997 53,7017 52,289
Additional paid-in-capital 21,529,076 19,562,462
Deficit (6,314,202) (6,613,814)
------------ ------------
15,268,975 13,001,187
Less common stock subscribed (482,916) (507,916)
------------ ------------
Total shareholders' equity 14,786,059 12,493,271
------------ ------------
$ 30,519,904 $ 19,751,213
============ ============
</TABLE>
-4-
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
June 30
1998 1997
----------- -----------
<S> <C> <C>
Net Sales $ 9,739,325 $ 5,514,006
Cost of sales 7,781,199 4,172,650
----------- -----------
Gross profit 1,958,126 1,341,356
Operating expenses
Selling, administrative and general
expenses 1,085,288 755,966
----------- -----------
Income from operations 872,838 585,390
----------- -----------
Other (expenses) income
Interest expense (321,051) (147,455)
Interest income 1,336 3,397
----------- -----------
(319,715) (144,058)
----------- -----------
Income from continuing operations 553,123 441,332
before income tax benefit
Income tax benefit -0- 200,000
----------- -----------
Net income 553,123 641,332
----------- -----------
Dividends on preferred stock 100,000 -0-
----------- -----------
Net income attributable to common shares 453,123 641,332
=========== ===========
Basic earnings per share $ 0.08 $ 0.13
=========== ===========
Weighted average common shares outstanding 5,368,454 5,019,044
=========== ===========
Diluted earnings per share $ 0.07 $ 0.10
=========== ===========
Weighted average common shares outstanding 5,368,454 5,019,044
Add: effect of vested and non-vested
dilutive securities 1,396,992 1,542,712
Add: effect of convertible preferred shares 941,177 -0-
----------- -----------
Diluted weighted average common shares outstanding 7,706,623 6,561,756
=========== ===========
</TABLE>
-5-
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Ended
June 30
1998 1997
------------ ------------
<S> <C> <C>
Net Sales $ 16,753,779 $ 10,013,329
Cost of sales 13,570,278 7,715,173
------------ ------------
Gross profit 3,183,501 2,298,156
Operating expenses
Selling, administrative and general
expenses 2,175,369 1,416,686
------------ ------------
Income from operations 1,008,132 881,470
------------ ------------
Other (expenses) income
Interest expense (629,146) (286,230)
Interest income 1,925 10,516
Proceeds from insurance recovery 118,701 -0-
------------ ------------
(508,520) (275,714)
------------ ------------
Income from continuing operations
before income tax benefit 499,612 605,756
Income tax benefit -0- 200,000
------------ ------------
Net income 499,612 805,756
------------ ------------
Dividends on preferred stock 200,000 -0-
------------ ------------
Net income attributable to common shares $ 299,612 $ 805,756
============ ============
Basic earnings per share $ 0.06 $ 0.16
============ ============
Weighted average common shares outstanding 5,362,540 4,981,017
============ ============
Diluted earnings per share $ 0.06 $ 0.12
============ ============
Weighted average common shares outstanding 5,362,540 4,981,017
Add: effect of vested and non-vested
dilutive securities 1,396,992 1,599,047
Add: effect of convertible preferred shares 941,177 -0-
------------ ------------
Diluted weighted average common shares outstanding 7,700,709 6,580,064
============ ============
</TABLE>
-6-
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 499,612 $ 805,756
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Deferred income tax -0- (200,000)
Depreciation and amortization 781,520 364,696
Decrease in accounts receivable allowance (13,000) -0-
(Increase) decrease in assets, net of the effects
of an acquisition
Accounts receivable (2,752,910) (1,078,851)
Inventories 641,433 (564,422)
Other current and long-term assets (132,562) (70,857)
(Decrease) increase in liabilities
Accounts payable and accrued expenses 2,232,471 218,701
------------ ------------
Total adjustments 756,952 (1,330,733)
------------ ------------
Net cash provided by (used in) operating activities 1,256,564 (524,977)
------------ ------------
Cash flows from investing activities
Acquisition of property and equipment (2,151,510) (426,158)
Payment for acquisitions (10,000,000) (900,618)
------------ ------------
Net cash used in investing activities (12,151,510) (1,326,776)
------------ ------------
</TABLE>
-7-
<PAGE>
<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from financing activities
Dividends paid ($ 200,000) $ -0-
Net Proceeds from working capital line 2,864,238 819,092
Net Proceeds from equipment term loan 550,668 -0-
Proceeds from long term debt 1,986,100 -0-
Repayments of long term debt (36,574) 37,850
Net proceeds from issuance of stock 1,468,176 21,926
Proceeds from stock subscribed 25,000 -0-
----------- ------------
Net cash provided by financing activities 6,657,608 878,868
----------- ------------
Net decrease in cash (4,237,338) (972,885)
Cash, beginning of period 4,411,347 1,236,709
----------- ------------
Cash, end of period $ 174,009 $ 263,824
=========== ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for
Interest $629,146 $286,230
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
The Company purchased Benjamin Obdyke, Inc.'s roof drainage division
for a combination of cash, common stock, and subordinated debt totaling
$11,379,000. In connection with the acquisition, the following assets
were acquired and liabilities incurred:
Inventory $ 2,392,149
Equipment and dies 1,401,815
Goodwill and other intangible assets 7,585,036
Cash paid for assets (10,000,000)
Value assigned to common stock (500,000)
------------
Liabilities incurred $ 879,000
============
-8-
<PAGE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) considered necessary for a fair
presentation have been included.
Note 2. Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method ("FIFO").
Components of inventories at June 30, 1998 and December 31, 1997
consist of the following:
June 30, 1998 December 31, 1997
---------------- ------------------
Raw materials $2,160,248 $1,422,501
Finished goods 2,145,242 1,215,959
Packaging materials
and supplies 143,692 60,006
Less provision for
Obsolescence (46,000) (46,000)
------------ -----------
$4,403,182 $2,652,466
============ ===========
All inventory is currently used in the business of the Company's
subsidiary, Berger Bros Company.
Note 3. Property, Plant and Equipment:
Property, plant and equipment is recorded at cost. Costs of major
additions and betterments are capitalized; maintenance and repair costs, which
do not improve or extend the life of the respective assets, are charged to
operations as incurred.
Leasehold improvements are amortized over the shorter of the lease term or
useful life.
-9-
<PAGE>
When an asset is sold, retired, or otherwise disposed of, the cost of
the property and the related accumulated depreciation is removed from the
respective accounts, and any resulting gains or losses are included in income.
For financial reporting purposes, depreciation is computed on the
straight-line method over the estimated useful lives of the assets. For income
tax purposes, depreciation is computed on accelerated methods.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Results of Operations
The financial statements include the accounts of the Company and its
wholly-owned subsidiary, Berger Financial Corporation ("Financial") and
Financial's wholly-owned subsidiary, Berger Bros Company. All intercompany
transactions and balances have been eliminated.
Sales for the three month period ended June 30, 1998 (the "Current
Quarter") were $9,739,325, an increase of 76.6%, or $4,225,319, as compared to
$5,514,006 for the three month period ended June 30, 1997 (the "Comparable
Quarter"). This increase was primarily due to the acquisition of Benjamin
Obdyke, Inc.'s roof drainage division (the "Obdyke Acquisition").
During the Current Quarter, the Company reported net income of $553,123
on net sales of $9,739,325, as compared to net income of $641,332 (which
included a $200,000 tax benefit) on net sales of $5,514,006 for the Comparable
Quarter. Reduced sales margins due to a change in product sales mix, along with
increased depreciation, amortization and interest expense, offset revenue gains.
Income from continuing operations in the Current Quarter was $553,123
versus $441,332 in the Comparable Quarter, an increase of 25.3%, which primarily
can be attributed to the accretive value of economies of scale from the Obdyke
Acquisition.
Cost of Sales were $7,781,199 in the Current Quarter as compared to
$4,172,650 in the Comparable Quarter. As a percentage of net sales, Cost of
Sales increased to 79.9% in the Current Quarter from 75.7% in the Comparable
Quarter. This increase is attributable to reduced sales margins due to a change
in product sales mix created by the Acquired Division (as defined below).
-10-
<PAGE>
Selling, general and administrative expenses were $1,085,288 in the
Current Quarter as compared to $755,966 in the Comparable Quarter. This increase
in expenses was primarily due to additional costs incurred in order to support
the business growth provided by the Obdyke Acquisition. As a percentage of net
sales, selling, general and administrative expenses decreased to 11.1% in the
Current Quarter, as compared to 13.7% in the Comparable Quarter, which reflects
the accretive value of economies of scale.
Sales for the six month period ended June 30, 1998 (the "Current
Half"), were $16,753,779, an increase of 67.3%, or $6,740,450, as compared to
$10,013,329 for the six month period ended June 30, 1997 (the "Comparable Half).
This increase was primarily due to the Obdyke Acquisition.
Net income for the Current Half was $499,612 as compared to
$805,756 in the Comparable Half. In 1997, the deferred tax asset valuation
account was reduced in excess of the current tax provision resulting in a
$200,000 net tax benefit (see below), in both the Quarter and the Half.
The following sets forth the provision for income taxes for
the six months ended June 30:
1998 1997
---- ----
Current, federal and state
at statutory rates $200,000 $240,000
Deferred, reduction of
valuation allowance (200,000) (440,000)
------------- -------------
Tax benefit $ -0- ($200,000)
============= =============
Selling, general and administrative expenses in the Current Half were
$2,175,369, or 12.9% of sales, as compared to $1,416,686, or 14.1% of sales, in
the Comparable Half. This reduction in percentage was due mainly to the
accretive value of economies of scale.
Liquidity and Capital Resources
On January 2, 1998, the Company consummated the acquisition of the Roof
Drainage Division (the "Acquired Division") of its major competitor, Benjamin
Obdyke, Inc. ("Obdyke"). Sales for the Acquired Division totaled $19,700,000 in
1997. The total cost of the Obdyke Acquisition was $11,379,000, of which
$10,000,000 was paid in cash at closing. The balance was satisfied by issuing
125,000 shares of the Common Stock and an $879,000 note which is repayable over
a two-year period. In addition, the Company issued to the seller a warrant to
purchase 50,000 shares of Common Stock. This warrant can be exercised over a
two-year period at a price of $4.4175 per share. The assets purchased from
Obdyke included $1,401,815 of equipment and dies and $2,392,149 of inventory.
The remaining $7,585,036 of the purchase price has been assigned to intangible
assets, which include non-compete agreements, customer lists and goodwill. The
Obdyke Acquisition was funded in part through the issuance of 40,000 shares of
the Company's Series A Convertible Preferred Stock at $100 per share
(convertible at $4.25), $2,500,000 of 12.25% five-year subordinated debentures,
with 300,000 warrants attached exercisable at $4.25, due quarterly and an
increase in the credit facility with Summit Bank (the "Working Capital Loan") by
$4,160,000. A portion of the proceeds from these financings was also used for
other corporate purposes.
-11-
<PAGE>
At June 30, 1998, working capital was $6,138,874, resulting in a ratio
of current assets to current liabilities of 2.49 to 1, as compared to working
capital of $8,656,066 (including $4.5 million in cash earmarked for the January
2, 1998 acquisition) and a ratio of 8.00 to 1 at December 31, 1997.
Current liabilities at June 30, 1998 totaled $4,115,353, consisting
primarily of $2,945,587 in accounts payable and accrued expenses and $1,169,766
in current maturities of long-term debt. At December 31, 1997, total current
liabilities were $1,235,795, consisting primarily of $713,116 in accounts
payable and accrued expenses and $522,679 in current maturities of long-term
debt. The increase is primarily due to the seasonality of the business and the
expansion resulting from the Obdyke acquisition.
At June 30 1998, the Company had shareholders' equity of $14,786,059,
as compared to $12,493,271 at December 31, 1997. The increase is attributable to
the following:
Issuance of preferred stock $1,500,000
Issuance of common stock 524,985
Less cost of raising capital (56,809)
Less dividends paid on preferred stock (200,000)
Reduction of stock subscribed 25,000
Net income for current period 499,612
---------------
$2,292,788
===============
Cash provided by operating activities for the Current Half was
$1,256,564 as compared to $524,977 used in operating activities in the
Comparable Half. The difference between periods is primarily due to the
Company's net increases in sales, accounts receivable, inventory and accounts
payable occurring from the Obdyke Acquisition.
Net cash used in investing activities totaled $12,151,510 in the
Current Half, as compared to $1,326,776 used in the Comparable Half, primarily
due to the Obdyke Acquisition in 1998 and the acquisition of all of the common
stock of Real-Tool Inc.
in February, 1997.
Net cash provided by financing activities was $6,657,608 in the Current
Half, due to the Obdyke acquisition, as compared to $878,868 provided in the
Comparable Half. The unused credit line as of June 30, 1998 was approximately
$2,688,086.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities and Use of Proceeds.
None.
Item 3 - Defaults Upon Senior Securities.
None.
Item 4 - Submission of Matters to a Vote of Securities Holders.
The Company's 1998 Annual Meeting of Shareholders (the "Meeting") was
held on June 17, 1998 at the Company's headquarters in Feasterville,
Pennsylvania. At the Meeting, Paul L. Spiese, III and Larry Falcon were
re-elected as directors of the company, with terms to expire in the year 2001 or
until their successors in office have been duly elected and qualified. With
regard to Mr. Spiese, 4,696,707 votes were cast in favor of his election, zero
against and 45,387 abstained. With regard to Mr. Falcon, 4,416,773 votes were
cast in favor of his election, zero against and 325,321 abstained.
The following directors have terms of office that continued after
the Meeting: Joseph F. Weiderman, Jacob I. Haft, M.D., Theodore A. Schwartz,
Dr. Irving Kraut, John P. Kirwin, III and Jay Seid.
The proposal to amend the Company's 1996 Stock Incentive Plan (the
"Plan") was also approved. The amendments to the Plan included amendments to (i)
redesignate the Plan (which had previously been designated as the Berger
Holdings, Ltd. 1996 Non-Qualified Stock Incentive Plan) as the Berger Holdings,
Ltd. 1996 Stock Incentive Plan", (ii) expand the class of persons eligible to
participate in the Plan to include officers and directors of the Company and
certain consultants and advisors to the Company and its affiliates, (iii)
increase the number of shares of Common Stock available for grants of options
under the Plan from 75,000 shares to 1,000,000 shares, (iv) permit grants of
"incentive stock options" (as that term is defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"); (v) increase the maximum
number of shares issuable to one employee in one calendar year from 20,000 to
100,000; and (vi) permit grants of options under the terms of the Plan such that
income attributable to their exercise may be characterized as "performance-based
compensation" as that term is used for purposes of Code Section 162(m).
With regard to the proposal to amend the Plan, 4,297,060 votes were
cast in favor, 295,630 against and 37,245 abstained.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
None.
-13-
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERGER HOLDINGS, LTD.
By:/s/ JOSEPH F. WEIDERMAN
Joseph F. Weiderman
President and
Chief Operating Officer
By:/s/ FRANCIS E. WELLOCK, JR.
Francis E. Wellock, Jr.
Chief Financial Officer
Date: August 11, 1998
-14-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 174,009
<SECURITIES> 0
<RECEIVABLES> 4,451,237
<ALLOWANCES> 30,000
<INVENTORY> 4,403,182
<CURRENT-ASSETS> 10,254,227
<PP&E> 16,218,469
<DEPRECIATION> 6,555,016
<TOTAL-ASSETS> 30,519,904
<CURRENT-LIABILITIES> 4,115,353
<BONDS> 0
0
400
<COMMON> 53,701
<OTHER-SE> 14,731,958
<TOTAL-LIABILITY-AND-EQUITY> 30,519,904
<SALES> 16,753,779
<TOTAL-REVENUES> 16,753,779
<CGS> 13,570,278
<TOTAL-COSTS> 13,570,278
<OTHER-EXPENSES> 2,175,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 629,146
<INCOME-PRETAX> 499,612
<INCOME-TAX> 0
<INCOME-CONTINUING> 499,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 499,612
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
