Securities and Exchange Commission
Washington, DC 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 September 30, 1997 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 1-1212
Driver-Harris Company
(Exact name of registrant as specified in its charter)
New Jersey 22-0870220
(State or other jurisdiction of I.R.S. Employer Identification
incorporation or organization) No.)
308 Middlesex Street, Harrison, New Jersey 07029
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code (973) 483-4802
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 - 1,340,421 shares as of November 5, 1997.
<PAGE>
DRIVER-HARRIS COMPANY
I N D E X
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income -
Three and Nine Months ended September 30, 1997
and September 30, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows - Nine
Months ended September 30, 1997 and September 30, 1996. . . . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None filed in quarter
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
<TABLE>
September 30, December 31,
1997 1996
ASSETS
Current assets:
<S> <C> <C>
Cash $ 649 $ 402
Accounts receivable - net 8,910 9,275
Inventories:
Materials 1,026 624
Work in process 138 413
Finished products 4,215 3,925
5,379 4,962
Prepaid expenses 526 937
Total current assets $ 15,464 $ 15,576
Other assets 31 107
Property, plant & equipment - net 5,265 5,495
$ 20,760 $ 21,178
======= =======
LIABILITIES
Current Liabilities:
Short-term borrowings $ 2,579 $ 2,664
Current portion of
long-term debt 581 492
Accounts payable 6,444 5,594
Accrued expenses 1,659 1,572
Income taxes payable 77 263
Total current liabilities 11,340 10,585
Long-term debt 2,593 2,023
Deferred Grants 672 812
Deferred foreign income taxes 152 174
Postretirement benefit liabilities 512 279
Sundry liabilities 158 185
Stockholders' equity:
Common stock 1,223 1,221
Additional paid-in capital 2,228 2,200
Retained earnings 2,912 3,595
Equity adjustment from
translation (1,030) 104
Stockholders' equity 5,333 7,120
$ 20,760 $ 21,178
======= =======
</TABLE>
See accompanying notes.
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales - customers $ 9,522 $ 9,328 $31,035 $ 29,445
Other income - net 23 166 237 525
Total Revenues 9,545 9,494 31,272 29,970
Cost of sales - customers 8,571 7,862 26,769 24,715
------ ----- ------ ------
974 1,632 4,503 5,255
Selling, general and
administrative
expense 1,437 1,109 4,712 3,704
------ ----- ------ ------
(463) 523 (209) 1,551
Other charges (credits):
Interest expense 313 188 812 555
Foreign exchange loss (gain) 17 22 (231) 30
Gain on sale of interest
in Australian subsidiary (128) - (128) -
Gain in connection with sale of
foreign operations by related
company - - - (895)
---- ---- ---- -----
Income/(loss) before
income taxes (665) 313 (662) 1,861
Income taxes (credit) (60) 22 21 113
----- ---- ---- -----
NET (LOSS) INCOME $ (605)$ 291 $ (683) $ 1,748
==== ==== ==== =====
NET (LOSS) INCOME PER SHARE $ (.45)$ .22 $ (.51) $ 1.33
==== === ==== ======
Average common shares outstanding 1,350,696 1,314,462
</TABLE>
See accompanying notes.
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in thousands)
<TABLE>
Nine Months Ended
September 30
1997 1996
OPERATING ACTIVITIES
<S> 0 <C> <C>
Net (loss) income $ (683) $ 1,748
Adjustments to reconcile net income to
net cash provided:
Depreciation and amortization 441 370
Equity in related company (1,561)
Deferred credit (968)
Elimination of equity adjustment from
translations for foreign operations
sold by related company 1,634
Due from related company 250
Receivables (1,096) (455)
Inventories (1,196) (439)
Accounts payable and accrued expenses 2,531 119
Sundry 158 144
------ -----
CASH PROVIDED BY OPERATING ACTIVITES 155 842
INVESTING ACTIVITIES
Capital expenditures (1,287) (878)
Sundry 34 (13)
----- ----
CASH USED IN INVESTING ACTIVITIES (1,253) (891)
FINANCING ACTIVITIES
Change in deferred grants 140 40
Change in short-term debt 333 (156)
Issuance of long-term debt 1,039 307
Reduction of long-term debt (206) (487)
Issuance of Capital Stock 30 237
----- ------
CASH USED IN FINANCING ACTIVITIES 1,336 (59)
Effect of exchange rate changes on cash 9 (7)
----- ------
Net change in cash 247 (115)
Cash at beginning of year 402 479
------ ------
CASH AT END OF PERIOD $ 649 $ 364
======= =======
</TABLE>
See accompanying notes.
<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, 1996. 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 - Investment in Related Company and other subsidiaries
Harrison Alloys Inc. ("Harrison"), a fifty percent owned company, is recorded
on the equity method of accounting. The recognition of past losses reduced
the carrying amount of the Company's investment in Harrison to a negative
balance (liability) of $1,561,000 at December 31, 1995. This amount,
combined with a deferred credit of $968,000 which originated from a
restructuring in 1994, equaled the balance of a bank loan of Harrison
($2,529,000) which the Company guaranteed. In February 1996, Harrison sold
its foreign operations and repaid the bank loan. Accordingly, Driver-Harris
Company recorded income from its negative investment in Harrison of
$1,561,000 and amortization of the deferred credit of $968,000, less the
accumulated translation adjustment related to the foreign operations sold by
Harrison carried on the balance sheet of $1,634,000 (included in other
credits).
The Company owns Irish Driver-Harris Co. Ltd., a producer of insulated
electrical wire and cable, located in Ireland and the U.K. In September
1997, the Company sold its 50% interest in Quality Heat Treatment Pty. Ltd.,
a company in the furnace manufacturing and heat treating business, located in
Australia for a net profit of $128,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
In connection with the sale by Harrison of its foreign subsidiaries in
February 1996 and repayment by Harrison of bank debt guaranteed by the
Company, with a portion of the proceeds, the Company (i) collected certain
receivables from Harrision, (ii) repaid domestic bank debt, (ii) was relived
of the Harrison debt guarantee obligation. The Company expects to continue
to be dependent upon the license agreement with Harrison for its U.S.
operating cash flow. Since Harrison has experienced losses in recent years,
its cash flow is uncertain, however, the Company believes it has adequate
cash and other options available in the foreseeable future in the event the
amounts due under the license agreement are not collected.
To assist Harrison in obtaining financing and to strengthen this 50% owned
affiliate in its restructuring efforts, the Company revised its licensing
and commission fee schedule to defer payments until the last quarter of 1997.
These fees will not be recorded in income until such amounts are collected.
Results of Operations
Net sales to customers increased by 5.4% during the first nine months of 1997
compared to the same period in 1996. However, although units shipped
increased by 10.5% over the same period in 1996, the gross profit percentage
decreased to 13.8% from 16.1% because of lower selling prices resulting from
aggressive price cutting within the cable industry and the impact of
significant changes in the relative values of UK Sterling, Irish Punt and
U.S. Dollar as well as a one-time write down of inventory values at the UK
distribution company. Overall, manufacturing operations declined in
profitability while distribution operations performed marginally. Other
revenues decreased due to the deferral of license and commission fees from
Harrison as mentioned in the previous paragraph. Selling, general and
administrative expenses increased to 15.2% of net sales from 12.6% in 1996,
due to start-up costs at a new production facility in Ireland as well as
restructuring costs incurred in the U.K. distribution operations. Interest
expense increased due to higher average borrowings in 1997 compared to the
same period in 1996 due to increased capital spending in Ireland. The
Company disposed of its 50% interest in Quality Heat Treatment Pty. ltd.,
Australia, in September 1997, recording a net gain of $128,000 on the
transaction. The Company retained certain distribution rights to QHT's
technology and products in the United States as part of this disposition.
As a result of the U.K. Pound Sterling strengthening against the Irish
Pound, the Company's Irish subsidiary recorded a foreign exchange gain of
$232,000 in the first nine months of 1997. The Irish subsidiary transacts
75% of its business in Sterling.
Income taxes for 1997 result from foreign taxable income at the Company's
Irish subsidiary. The disproportionate income tax provision in 1996 is
primarily because the equity in related company (Harrison) is not taxable
income to the Company and because of the benefits of operation loss carry-
overs in the United States. The Company has tax loss carryforwards of
approximately $6,400,000 available to offset future U.S. taxable income,
which expire between 1999 and 2010.
Effects of Change in Accounting Principles
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", which is required to be adopted for the
Comany's year ending, December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact of the adoption is not expected to have a material
impact on the earnings per share calculation.
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: November 13, 1997 By: Thomas J. Carey
Chief Finacial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Company's Condensed Consolidated Balance Sheet at Sept. 30, 1997 and the
Company's Condensed Consolidated Statement of Operations for the three
and nine months ended Sept. 30, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 649
<SECURITIES> 0
<RECEIVABLES> 9388
<ALLOWANCES> 478
<INVENTORY> 5379
<CURRENT-ASSETS> 15464
<PP&E> 7220
<DEPRECIATION> (1955)
<TOTAL-ASSETS> 20760
<CURRENT-LIABILITIES> 11340
<BONDS> 2593
0
0
<COMMON> 1223
<OTHER-SE> 4110
<TOTAL-LIABILITY-AND-EQUITY> 20760
<SALES> 31035
<TOTAL-REVENUES> 31272
<CGS> 26769
<TOTAL-COSTS> 26769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 812
<INCOME-PRETAX> (662)
<INCOME-TAX> 21
<INCOME-CONTINUING> (683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (683)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
