SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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/_X__/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994 or
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/____/ 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 1-1212
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Driver-Harris Company
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(Exact name of registrant as specified in its charter)
New Jersey 22-0870220
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
308 Middlesex Street, Harrison, New Jersey 07029
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code (201) 483-4802
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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 90 days.
Yes ____X____ No ________
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $0.83 1/3 par value -- 1,294,320 shares as of August
5, 1994
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DRIVER-HARRIS COMPANY
I N D E X
PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1994 and December 31, 1993. . . . . . . . . . 3
Condensed Consolidated Statements of
Operations - Three and Six Months ended
June 30, 1994 and June 30, 1993. . . . . . . . . . . . .4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1994 and June 30, 1993. . . . 5
Notes to Financial Statements. . . . . . . . . . . . . .6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . .8
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
Form 8-K dated April 7, 1994 - Item 2.
Restructuring of Resistance Wire Operations
Financial statements filed:
Harrison Alloys Inc. and Subsidiary -
Consolidated financial statements for the
year ended December 31, 1993
Pro-forma financial information filed:
Pro-forma condensed consolidated balance
sheet - December 31, 1993
Pro-forma condensed statement of operations
for the year ended December 31, 1993
Form 8-K dated June 14, 1994 - Item 5.
Exercise of option by Harrison Alloys Inc. to
acquire the tangible assets of Driver-Harris
Alloys Inc. a subsidiary of the registrant
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . .10
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<TABLE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
June 30, December 31,
1994 1993
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ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash $ 866 $ 600
Accounts receivable - net 6,999 13,938
Inventories:
Materials 1,483 2,705
Work in process 3,629 5,955
Finished products 1,984 4,216
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7,096 12,876
Due from related company 300
Prepaid expenses 330 533
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Total current assets 15,591 27,947
Other assets 173 421
Property, plant & equipment - net 6,440 10,241
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$22,204 $ 38,609
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LIABILITIES
Current Liabilities:
Short-term borrowings $ 1,899 $ 8,005
Current portion of long-term debt 964 1,581
Accounts payable 10,326 12,867
Accrued expenses 1,130 3,855
Due to related company 1,326
Income taxes payable 65 220
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Total current liabilities 14,384 27,854
Long-term debt 2,685 4,098
Deferred income taxes 130 385
Postretirement benefit liabilities 385 538
Investment in related company 1,003 1,459
Due to related company 963 1,200
Employee termination liability and sundry 278 1,854
Deferred credit - related company 1,415
Stockholders' equity:
Common stock 1,187 1,187
Additional paid-in capital 1,981 1,981
Retained earnings/(deficit) (43) 894
Equity adjustment from translation (2,164) (2,841)
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Stockholders' equity 961 1,221
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$22,204 $ 38,609
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See accompanying notes
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DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30
June 30 Historical Pro-Forma
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1994 1993 1994 1993 1994
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<S> <C> <C> <C> <C> <C>
Net sales - customers $ 6,793 $ 15,574 $ 21,020 $ 28,805 $12,770
- related company 8,775 7,803 16,312 14,590 16,312
Other revenues - net 230 174 431 299 453
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Total Revenues 15,798 23,551 37,763 43,694 29,535
Cost of sales - customers 5,731 12,890 17,384 23,848 10,768
- related company 8,775 7,803 16,312 14,590 16,312
----- ------ ------ ------ ------
1,292 2,858 4,067 5,256 2,455
Selling, general and
administrative expenses 1,078 2,859 3,837 5,436 1,998
------ ------ ------ ------ ------
214 (1) 230 (180) 457
Other charges (credits):
Interest expense 141 425 524 866 244
Foreign exchange loss, etc. 21 382 56 139 19
Equity in related company 361 (13) 426 132 758
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Loss before income taxes (309) (795) (776) (1,317) (564)
Income taxes 14 17 54 (36) 38
----- ----- ----- ----- -----
NET LOSS $ (323) $ (812) $ (830) $ (1,281) $ (602)
===== ===== ===== ===== =====
NET LOSS PER SHARE $ (.25) $ (.63) $ (.64) $ (.99) $ (.47)
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Average common shares outstanding 1,294,320 1,293,927
See notes to financial statements
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DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in thousands)
SIX MONTHS ENDED
June 30
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1994 1993
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OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (830) $ (1,281)
Adjustments to reconcile net loss to net
cash provided:
Depreciation and amortization 614 924
Equity in net loss of related company 426 132
Postretirement and termination benefits 123 300
Related company payments (1,074) (100)
Receivables (438) (379)
Inventories (1,732) (409)
Accounts payable and accrued expenses 2,217 2,195
Sundry (266) (36)
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CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (960) 1,346
INVESTING ACTIVITIES
Capital expenditures (719) (618)
Sundry 23 (219)
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CASH USED IN INVESTING ACTIVITIES (696) (837)
FINANCING ACTIVITIES
Change in short-term debt 402 (191)
Issuance of long-term debt 1,076 90
Reduction of long-term debt (989) (501)
Loans from related company 1,875*
Cash of companies included
in restructuring (503)
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CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 1,861 (602)
Effect of exchange rate changes on cash 61 (34)
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Net change in cash 266 (127)
Cash at beginning of year 600 676
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CASH AT END OF PERIOD $ 866 $ 549
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<FN>
* Loans of $1800 were extinguished as part of restructuring - see Note 2.
In addition, the related company assumed $1,489 of long-term
debt of the Company's U.S. subsidiary.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1 - Basis of Presentation
These financial statements have been prepared in accordance
with the instructions to Form 10-Q and therefore do not include all
information, disclosures, and notes necessary for a fair
presentation of financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles.
Reference should be made to the financial statements contained in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993. These financial statements include all
adjustments which are, in the opinion of management, necessary to
a fair presentation of the results for the interim period.
2 - Restructuring of Resistance Wire Operations
The Company, directly and through its subsidiaries, has been
engaged in the business of manufacturing and marketing non-ferrous
metal products, principally electrical resistance wire and
insulated electrical wire and cable. The Company has incurred
significant losses since 1991 primarily as a result of losses
sustained by its Italian subsidiary.
Effective March 18, 1994, the Company restructured its
operations (the Restructure) in order to solve its liquidity
problems and strengthen its competitive position in the industry.
Pursuant to the Restructure, the Company combined its overseas
resistance wire operations with Harrison Alloys Inc. (Harrison) by
(i) forming a holding company, HAI Holding Company Inc. (Holding),
owned fifty percent by the company and fifty percent by a
corporation organized by the former common shareholders of
Harrison; (ii) contributing the Company's overseas resistance wire
manufacturing subsidiaries (subject to liens under certain bank
loans) and its approximately 24% shareholding in Harrison to
Holding; and (iii) causing Harrison to assume significant
obligations of the Company as explained below. In conjunction with
the Restructure, Harrison became a wholly-owned subsidiary of
Holding, which in turn transferred the Driver-Harris subsidiaries
to Harrison. As a result of the Restructure, Harrison will conduct
all of its operations located in Harrison and Somerset, New Jersey
and Spartanburg, South Carolina and the Company operations located
in Italy, France, the U.K., Spain and Australia. All of these
businesses manufacture wrought non-ferrous metal products. In
addition to its interest in Holding, the Company continues to own
Driver-Harris Alloys Inc. (Alloys), a U.S. manufacturer of wrought
non-ferrous metal products, all of whose output is sold by contract
to Harrison at cost (see Note 3 for exercise of option by Harrison
to acquire the tangible assets of Alloys). The Company also owns
Irish Driver-Harris Co. Ltd., a producer of insulated electrical
wire and cable, and Quality Heat Treatment Pty. Ltd., a company in
the furnace manufacturing and heat treating business. Harrison and
Holding are referred to as "related company" in the accompanying
financial statements.
As part of the foregoing transaction, Harrison assumed certain
obligations of the Company and Alloys, including approximately $1.8
million of debt incurred for investment in the Company's Italian
subsidiary, $1,489,000 of loans of Alloys, all potential
environmental obligations with respect to Alloys' U.S.
manufacturing facilities, and the Company's commitment to share
with Harrison the cost of health care and life insurance benefits
for certain retirees. As additional consideration to the Company,
Harrison is required to make aggregate cash payments of $300,000
during 1994; it is also required to pay license fees and
commissions totaling $500,000 per year from 1994 to 2003.
Outside financing for this transaction was derived essentially
from two sources: (i) an increase of $1,100,000 in an asset-based
revolving credit facility of Harrison; and (ii) an addition of
$640,000 to a mortgage loan under which Harrison and Alloys are
jointly and severally liable. As collateral for these loans,
Alloys granted to the lenders liens on its inventories and
machinery and equipment with varying priorities; furthermore, two
officer/directors of the Company pledged their personal holdings of
the Company's capital stock.
The aggregate mortgage loan, as amended for the additional
borrowing, requires monthly interest and principal payments of
$85,000 compared with $50,000 theretofore, a principal prepayment
of approximately $155,000 on August 31, 1994 and a final payment of
approximately $1,107,000 on January 1, 1995 (versus $954,000
previously). Furthermore, a U.S. bank loan, which is guaranteed by
the Company, was amended to require annual additional payments of
$50,000, starting in 1995.
The foregoing transaction did not result in recognition of any
immediate gain or loss. For financial reporting purposes, the
restructuring was effected as of March 31, 1994. Deferred credits
aggregating $1,489,000 arising from the restructure will be
amortized over 5 years. Accordingly, $74,000 has been credited to
operations for the quarter and six months ended June 30, 1994.
The accompanying statement of operations includes unaudited
pro-forma consolidated data for the six months ended June 30, 1994,
after giving effect to the foregoing transaction as it if had
occurred on January 1, 1994; such data do not include any provision
for potential restructuring costs should Harrison decide to
rationalize certain manufacturing facilities.
3 - Option Exercise on Tangible Assets of Driver-Harris Alloys Inc.
On June 14, 1994, Harrison (see Note 2) exercised its rights
under an option agreement entered into in 1987, to acquire the
tangible assets of Alloys (see Note 2). In consideration for the
acquisition, Harrison will assume an equivalent amount of
liabilities of Alloys. All assets and liabilities are to be valued
at book value. Hence there will be no gain or loss. The transfer
is subject to, and contingent on, the approval of a clean-up plan
under the New Jersey Industrial Site Recovery Act; therefore no
accounting recognition has been given thereto. Harrison has
assumed all of the obligations and liabilities of the Company and
Alloys under any federal and state environmental laws pursuant to
the March 1994 restructuring described in Note 2. Since Alloys
contractually functions at a break-even level, the asset transfer
is not expected to have an effect on future operating results.
4 - Change of Subsidiary's Fiscal Year
During 1994, Irish Driver-Harris Co. Ltd. changed from a
fiscal year ending November 30, to the calendar year. The net loss
for the month of December 1993 ($107,000), was charged directly to
retained earnings.
5 - Waiver of Non-Compliance with Loan Covenant
The U.S. banks have waived non-compliance with a loan covenant
until January 1, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
The Company has incurred significant losses since 1991
primarily as a result of losses sustained by its Italian
subsidiary. Effective March 18, 1994, the Company restructured its
operations (the "Restructure") in order to solve its liquidity
problems and strengthen its competitive position in the industry.
Pursuant to the Restructure, the Company combined its overseas
resistance wire operations with Harrison Alloys Inc. (Harrison) by
(i) forming a holding company, HAI Holding Company Inc. (Holding),
owned fifty percent by the Company and fifty percent by a
corporation organized by the former common shareholders of
Harrison; (ii) contributing the Company's overseas resistance wire
manufacturing subsidiaries (subject to liens under existing bank
loans) and its approximately 24% shareholding in Harrison to
Holding; and (iii) causing Harrison to assume significant
obligations of the Company as explained below. In conjunction with
the Restructure, Harrison became a wholly owned subsidiary of
Holding, which in turn transferred the Driver-Harris subsidiaries
to Harrison. As a result of the Restructure, Harrison will conduct
all of its operations located in Harrison and Somerset, New Jersey
and Spartanburg, South Carolina and the Driver-Harris operations
located in Italy, France, the U.K., Spain and Australia. All of
these businesses manufacture wrought non-ferrous metal products.
In addition to its interest in Holding, the Company continues to
own Driver-Harris Alloys Inc. (Alloys), a U.S. manufacturer of
wrought non-ferrous metal products, all of whose output is sold by
contract to Harrison at cost (see Note 3 for exercise of option by
Harrison to acquire the tangible assets of Alloys). The Company
also owns Irish Driver-Harris Co. Ltd., a producer of insulated
electrical wire and cable, and Quality Heat Treatment Pty. Ltd., a
company in the furnace manufacturing and heat treating business.
As part of the foregoing transaction, Harrison assumed certain
obligations of the Company and Alloys, including approximately $1.8
million of debt incurred for investment in the Company's Italian
subsidiary, $1,489,000 of loans of Alloys, all potential
environmental obligations with respect to Alloys' U.S.
manufacturing facilities, and the Company's commitment to share
with Harrison the cost of health care and life insurance benefits
for certain retirees. As additional consideration to the Company,
Harrison is required to make aggregate cash payments of $300,000
during 1994; it is also required to pay license fees and
commissions totaling $500,000 per year from 1994 to 2003.
For further details of this transaction reference is made to
Note 2 to the financial statements.
In consummating the Restructure, Driver-Harris and Harrison
expect the unified organization to benefit from economies and
efficiencies in marketing, production, and product design available
through a combination of the two businesses and from a potentially
greater worldwide market share derived from a stronger market
presence. However, these benefits are accompanied by certain
risks, which are concentrated primarily on the highly leveraged
debt structure of Harrison, a substantial portion of which the
Company and its subsidiaries are directly or contingently liable
for. Harrison may also be exposed to major expenditures if it
decides to rationalize certain manufacturing operations.
Additionally, the Company will be dependent on Harrison for the
major portion of its U.S. cash flow and the discharge of the
aforementioned U.S. obligations or potential obligations.
Results of Operations
The accompanying consolidated statements of operations for
1994 represent the operations of the Company before the
restructuring with Harrison though March 31, 1994 and the
operations after the restructuring for the remainder of the period.
Accordingly, the Company's consolidated net sales and costs and
expenses for the period after March 31, 1994 exclude the operations
transferred to Harrison. The pro-forma consolidated data for the
six months ended June 30, 1994, give effect to the restructuring as
if it had occurred on January 1, 1994; such data do not include any
provision for potential restructuring costs should Harrison decide
to rationalize certain manufacturing facilities.
Net sales to customers of operating units continuing as part
of the Company after the restructuring, increased 11.9% for the six
months ended June 30, 1994 and 5.2% for the latest quarter,
compared with the same periods in 1993. In each of the 1994
periods, unit volume increased substantially; however, lower
average sales prices (principally tracking lower raw material
costs) partially offset these gains.
Sales to related company are to Harrison a 50%-owned affiliate
since the March 18, 1994 transaction described under "Financial
Condition" above. Pursuant to an agreement with Alloys, as amended
in connection with the foregoing transaction, selling prices are
equal to the subsidiary's costs and expenses.
The Company's relationship with Harrison dates back to 1985
when Alloys was reorganized by transferring certain of its assets
to newly organized Harrison, in consideration for the assumption by
the latter of a large portion of Alloys' bank debt which the
Company guaranteed, and the issuance of certain non-voting Harrison
capital stock to Alloys. Since then Harrison has provided the
predominant share of debt service. While the combined Harrison and
Alloys bank borrowings have been significantly reduced since 1985,
the two companies and Driver-Harris Company have a common interest
in managing the operations of Harrison and Alloys to maximize the
cash flow available for debt service.
Lower sales prices depressed profit margins of the continuing
group for the six and three month periods through June 30, 1994
compared with the preceding year. Additionally, these operating
units had foreign exchange losses of $33,000 and $21,000,
respectively, in the periods in 1994, compared with exchange gains
of $122,000 and $11,000 in the same periods in 1993.
The Company's equity in the operations of Harrison was a
charge of $426,000 for the six months ended June 30, 1994 and
$361,000 for the second quarter of 1994. During the latter
quarter, Harrison emphasized the integration of the resistance wire
operations into a unified structure.
The disproportionate income tax provision in the 1994 and 1993
periods is principally a result of the fact that no tax benefits
are available or can be anticipated as to subsidiaries and
affiliated companies experiencing losses. The utilization of tax
loss carryforwards provided tax benefits of $41,000 and $52,000 in
the six month periods in 1994 and 1993, respectively.
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.
DRIVER-HARRIS COMPANY
Date: August 10, 1994 By Frank L. Driver IV
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Frank L. Driver IV
Vice President Finance and
Chief Financial Officer
