SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
|_X_| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
__
|__| Transition report pursuant to Section 13 or 15(d) of the Securities 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
incorporation or organization) Identification No.)
308 Middlesex Street, Harrison, NJ 07029
- --------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201)483-4802
-------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:
- -------------------- ---------------------
Common stock - par
value $0.83 1/3 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates and
the total number of common shares outstanding as of March 19, 1997:
Market Value - $13,047,167 Common Stock - 1,338,171 shares
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the annual proxy statement anticipated to be filed on or about
May 2, 1997 are incorporated into Part III.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
The Company, directly and through its subsidiaries and affiliate,
is engaged in the business of manufacturing and marketing non-ferrous
metal products, principally electrical resistance wire and insulated
electrical wire and cable.
In March 1994, the Company restructured its operations (the
"Restructure") because of its liquidity problems and to 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 conducts all of its operations in Harrison and Somerset, NJ and
Spartanburg, SC (see below for discussion of foreign alloy companies).
As part of this transaction, Harrison assumed certain obligations of the
Company and its then U.S. operating subsidiary, Driver-Harris Alloys
Inc. (Alloys) including 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
Driver-Harris, Harrison was required to make aggregate cash payments of
$300,000; it is also required to pay license fees and commissions
totaling $500,000 per year through 2003.
In September 1994, Alloys transferred substantially all of its
assets to Harrison in exchange for the assumption by Harrison of an
equivalent amount of liabilities (all assets and liabilities were taken
into account at net book value). This transaction was the result of the
exercise by Harrison of an option granted in 1987. The transferred
assets consisted principally of inventory and equipment located at the
Harrison and Somerset, NJ and Spartanburg, SC plants of Alloys as well
as the land and factory building in Somerset, NJ. These assets
constituted the U.S. portion of the Company's electrical resistance wire
manufacturing business; the foreign portion had been transferred to
Harrison in the aforementioned restructuring.
After the transactions described above, the Company, in addition
to its 50% ownership of Harrison, continues to own Irish Driver-Harris
Co. Ltd., a producer of insulated electrical wire and cable, located in
Ireland and the U.K., and 50% of Quality Heat Treatment Pty. Ltd., a
company in the furnace manufacturing and heat treating business, located
in Australia.
In February 1996, Harrison sold its foreign operations to Kanthal
AB, a Swedish company, and used a portion of the proceeds to repay a
bank loan ($2,529,000) which the Company had guaranteed.
<PAGE>
Item 1. Business (continued)
(b) Financial Information About Industry Segments
For the three years ended December 31, 1996, the Registrant
operated in a single industry segment, metal products.
(c) Narrative Description of Business
(i) After giving effect to the 1994 transactions described in
item 1(a), the principal products manufactured by the Registrant and its
subsidiaries are insulated electrical wire and cable. These products
are sold principally to the construction, appliance, and electrical
equipment industries by the Company's sales staff and through agents.
The Registrant also owns 50% of Harrison, which manufactures electrical
resistance wire products.
The following represents a breakdown of the Registrant's
total net sales for the last three fiscal years (in thousands):
<TABLE>
Electrical
Resistance Wire(a)
Insulated ------------------------
Electrical Foreign
Wire & Cable Alloys Subsidiaries Other
------------ ------ ------------ -----
<S> <C> <C> <C> <C>
1994 $25,413 $23,196 $8,250 $2,688
1995 32,745 - - 2,598
1996 37,376 - - 3,321
</TABLE>
(a) These companies were divested in 1994 - see 1(a).
(ii) No significant new products were introduced during the past
fiscal year.
(iii) The principal sources of raw material for insulated
electrical wire and cable products - copper wire conductor and PVC
insulating materials - are refining and chemical companies,
respectively. During the past fiscal year, availability of raw materials
was satisfactory, although copper prices rose in the first half of the
year, dropped sharply in June then fluctuated during the remainder of
the year.
(iv) The Company owns certain trademarks which are maintained
internationally. As part of the 1994 restructuring described in item
1(a), the Company granted Harrison an exclusive license to use certain
trademarks in consideration for specified license fees.
Except as mentioned above, there are no patents, licenses,
franchises or concessions held that are material to the business of the
Registrant or its subsidiaries.
<PAGE>
(v) The business of the Registrant is not of a seasonal nature.
Item 1. Business (Continued)
(vi) Following industry practice, the Registrant and its
subsidiaries grant payment terms to their customers ranging from 60 days
to 150 days depending on the countries where the companies do business.
Inventory turn of insulated electrical wire and cable products is
relatively rapid because of the Company's ability to respond quickly to
customers' orders.
(vii) The Registrant and its subsidiaries have one customer which
represents 9.4% of consolidated receivables and 12.1% of consolidated
revenues for 1996.
(viii) The following amounts represent the backlog of orders
believed to be firm as of the end of each year; all were expected to be
filled within the following year:
<TABLE>
Irish Driver-Harris Co. Ltd.,
and Quality Heat Treatment Pty. Ltd.
-----------------------------------
<S> <C>
December 31, 1995 $ 922,000
December 31, 1996 943,000
</TABLE>
(ix) No material portion of the business of the Registrant and
its subsidiaries is subject to renegotiation of profits or termination
of contracts or subcontracts at the election of the U.S. government.
(x) The Registrant's insulated wire and cable products are
marketed primarily in Ireland, the U.K., the European continent, and the
Mid and Far East. Such products are essentially similar to those of its
competitors of which there are many, some substantially larger than the
Company. The principal methods of competition are price, quality, and
fast response to customers' orders.
(xi) The Registrant believes that the cost of research and
development activities was not material during the past three fiscal
years. No employees were engaged in such activities on a full-time
basis during that period. All research and development projects are
performed by engineering and production personnel in conjunction with
other functions without separate accounting therefor.
(xii) Pursuant to the agreement with Harrison described in item
1(a), Harrison has assumed all environmental obligations with respect to
the Company's former U.S. plant facilities.
(xiii) The number of persons employed by the Registrant and its
subsidiaries at the end of the last fiscal year was 157.
<PAGE>
Item 1. Business (continued)
(d) Financial Information about Foreign and Domestic Operations
and Export Sales
(1) Information regarding foreign and domestic operations is
provided in Notes 4 and 10 to the consolidated financial statements.
(2) The Registrant depends heavily on foreign operations for the
generation of earnings. The insulated wire and cable operations are
located in Ireland and the U.K. These countries are considered to have
relatively stable governments and minimum political risk; nonetheless
there is exposure to fluctuations in currency exchange rates and normal
business risk.
(e) Executive Officers of the Registrant
Name Age Position
Frank L. Driver IV 36 President, Chief
Executive Officer
Lavinia Z. Emery 52 Secretary and Assistant
Treasurer
Thomas J. Carey 60 Chief Financial Officer
Officers are elected annually by the Board of Directors for
one-year terms expiring in June.
Mr. Frank L. Driver IV joined the Company in 1989 as
Assistant Controller; in 1991 he was elected Vice President-Marketing
and in 1993 he also became Vice President-Finance. In September 1994,
he was elected President. Prior to joining the Company, he was a senior
financial analyst with General Motors Corp. Mr. Driver is the nephew of
Mr. David A. Driver, Chairman of the Company.
Mrs. Lavinia Z. Emery joined the Company in 1982 in an
administrative capacity. In 1985 she was elected Assistant Secretary
and Assistant Treasurer. In 1988 she was elected Secretary and
Assistant Treasurer.
Mr. Thomas J. Carey was hired by the Company as a Consultant
and Chief Financial Officer in 1995. In 1992 through 1994, he was Chief
Financial Officer of the Home News Company, New Brunswick, NJ and prior
to that a partner of Deloitte & Touche.
Item 2. Properties
After the 1994 divestitures described in item 1(a), the
principal properties of the Registrant and its subsidiaries are a wire
insulating plant and distribution center in Ireland. The plant was
constructed in 1990 and is deemed adequate for the enterprise. It is
owned by the Irish subsidiary and is subject to liens by a lender.
<PAGE>
Item 3. Legal Proceedings
None of material nature.
Item 4. Submission of Matters to a Vote of Security Holders.
None in the fourth quarter of 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) The Company's common stock is traded on the American Stock
Exchange. The high and low sales prices for the stock were as follows:
<TABLE>
1996 1995
Quarter High Low High Low
<S> <C> <C> <C> <C>
First 6 1/2 5 1/2 5 5/8 5
Second 8 7/8 6 1/2 5 3/8 4 7/8
Third 8 1/4 5 1/2 5 5/8 4 3/4
Fourth 8 7/8 7 1/8 6 1/2 5 1/4
</TABLE>
(b) The approximate number of common shareholders as of March 7,
1997 was 350. This figure represents the sum of the number of
shareholders of record, plus an estimate of the number of individual
shareholders whose shares are held collectively by stockbrokers.
(c) The Company has not paid cash dividends during 1995 and
1996. The note payable to the Pension Benefit Guaranty Corporation
(PBGC) prohibits the payment of cash dividends without permission of the
PBGC (reference is made to Note 6 to the consolidated financial
statements).
Item 6. Selected Financial Data
<TABLE>
Y e a r E n d e d D e c e m b e r 3 1
Pro Forma
(Unaudited)
1996 1995 1994 1994 1993 1992
(Amounts in thousands, except per share data)
Net Sales and other
<S> <C> <C> <C> <C> <C> <C>
revenues $41,724 $36,719 $29,060 $60,558 $83,997 $87,702
Net Income (Loss) 2,452 1,332 (490) (976) (1,992) (4,490)
Total assets 21,178 16,255 - 15,893 38,609 42,676
Long-term debt 2,023 1,907 - 2,734 4,098 3,664
Per Common Share:
Net Income (Loss) $1.85 $1.03 $(.38) $(.75) $(1.54) $(3.50)
==== ==== === === ==== ====
Weighted average shares
outstanding 1,324 1,297 1,294 1,294 1,294 1,284
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
Item 6. Selected Financial Data (continued)
In 1996, the Company's fifty percent owned company, Harrison, sold
its foreign operations to Kanthal AB a Swedish company. (See Note 1 of
the financial statements.) This transaction increased net income by
$895,000 ($.68 per share).
In 1994, the Company restructured its foreign electrical
resistance wire operations and divested its U.S. operating company. See
the accompanying financial statements (and pro forma amounts above)
which give effect to the restructure on March 18, 1994 and Alloys
divestiture as if both transactions occurred on January 1, 1994.
In 1993, the Company adopted SFAS 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions". This change increased the
1993 net loss by $180,000 ($.14 per share).
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview and Financial Condition:
The Company, directly and through its subsidiaries and affiliate,
is engaged in the business of manufacturing and marketing non-ferrous
metal products, principally electrical resistance wire and insulated
electrical wire and cable.
In March 1994, the Company restructured its operations by combining
its overseas resistance wire operations with Harrison Alloys Inc.
(Harrison). The latter is referred to herein as "related company".
Effective September 1994, the Company transferred substantially all the
assets of its U.S. operating subsidiary, Driver-Harris Alloys (Alloys),
to Harrison in exchange for the assumption by Harrison of an equivalent
amount of liabilities. Harrison is required to pay to the Company
license fees and commissions totalling $500,000 per year from 1994 to
2003, which is recorded in other income.
As part of the Alloys divestiture, all agreements between
Harrison, Alloys, and the Company, relating to the manufacture,
financing, and distribution of products in the U.S., were terminated
effective September 30, 1994.
Under the New Jersey Industrial Site Recovery Act certain clean-up
procedures must be completed with respect to the New Jersey locations.
Harrison has assumed all of the obligations and liabilities of the
Registrant and Alloys under any federal and state environmental laws
pursuant to the March 1994 restructuring.
The Company, in addition to its 50% ownership of Harrison, owns
Irish Driver-Harris Co. Ltd., a producer of insulated electrical wire
and cable, located in Ireland and the U.K., and 50% of Quality Heat
Treatment Pty. Ltd., a company in the furnace manufacturing and heat
treating business, located in Australia.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The Company has a note payable to the Pension Benefit Guarantee
Corporation ("PBGC") which is due September 2000. The PBGC has the right
to convert the entire unpaid principal and accrued interest into common
stock of the Company. Until the note is paid in full, the Company may
not pay cash dividends on its capital stock without permission from the
PBGC. See further discussion in Note 6 to the consolidated financial
statements.
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 Harrison, (ii) repaid domestic
bank debt and, (iii) was relieved 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 cashflow. 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 event the amounts due under the license
agreement become uncollectible.
In November 1996, the Company purchased the assets of a
distribution company in the U.K. for $1,342,000. The Company believes
the pro forma effects are immaterial to the statement of operations. See
Note 1 to the consolidated financial statements.
Capital expenditures during the year totaled $1,576,000, including
approximately $1,296,000 in additions to property, plant and equipment
for the Company's Irish subsidiary. Cash flow from short-term debt was
sufficient to fund the capital expenditures at the Company's Irish
subsidiary. At December 31, 1996, the Company's subsidiaries had
approximately $5,320,000 of available bank lines of credit.
Additionally, the Company had $402,000 in cash and cash equivalents on
hand at December 31, 1996.
The ratio of current assets to current liabilities was 1.47 at the
end of 1996, compared with 1.43 at the end of 1995. Current assets
continue to increase, reflected principally by the inventory acquired
from the purchase of assets from the distribution company in the U.K.
and increased accounts receivable from improved sales.
The Company believes it has adequate cash flow to meet its
ongoing obligations which include debt repayments and capital
commitments of its subsidiaries.
Results of Operations
Year ended December 31, 1996 compared to year ended December 31, 1995
Net sales to customers increased by 15.1% for the year and 12.2%
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
for the fourth quarter compared to 1995. This was primarily due to an
increase in units shipped for the year. The gross profit percentage
improved to 16.9% for 1996 compared to 14.4% in 1995. The gross profit
percentage had decreased in early 1995 because of the higher cost of raw
materials, principally copper and PVC. Selling prices were subsequently
increased as a result of these higher raw material costs, and the gross
profit percentage for the last quarter of 1995 was 17%. Selling, general
and administrative expenses rose as a percentage of net sales to 13.1%
in 1996 compared to 12.3% in 1995 due primarily to start-up expenses at
the new distribution company (see above). Interest expense decreased
slightly due to lower average borrowings in 1996 compared to 1995.
1996 includes an $895,000 gain in connection with the sale of
Harrison's foreign operations. This gain consists of the elimination of
a $1,561,000 negative investment in Harrison and a related $968,000
deferred credit, (these amounts equaled the balance of the bank debt of
Harrison guaranteed by the Company) less the balance of the accumulated
translation adjustment of $1,634,000 (relating to the Harrison overseas
subsidiaries transferred in 1994). The income was recognized in the
first quarter of 1996 when Harrison paid off the bank loan which the
Company had guaranteed with the proceeds of the sale of its overseas
operations in February, 1996. The Company will not recognize any income
from its investment in Harrison until Harrison's income exceeds
Harrison's losses not recognized by the Company as the Company
previously had recorded losses from their investment in Harrison to the
extent of the Harrison bank debt guarantee which as noted above is no
longer in effect.
The provision for income taxes for 1996 was $225,000, or 8.4% of
pretax income. The provision for income taxes for 1995 was $98,000 or
6.9% of pretax income. The difference between the effective tax rate and
statutory rate is primarily due to taxes of foreign subsidiaries at
rates different than the U.S. statutory rates and the benefit of net
operating carryforwards available to offset future U.S. taxable income.
The utilization of tax loss carryforwards provided tax benefits of
$42,000 in the 1995 period. The Company has tax loss carryforwards of
approximately $6,400,000 available to offset future U.S. taxable income.
Such carryforwards expire in various years between 1999 and 2010. A
valuation allowance of $2,440,000 and $2,470,000 has been provided at
December 31, 1996 and 1995 respectively. These valuation allowances
were established since it is not certain that the deferred tax assets,
primarily the net operating loss carryforwards, will be realized. See
further discussion in Notes 1 and 8 to the consolidated financial
statements.
Year ended December 31, 1995 compared to year ended December 31, 1994
(Pro forma)
The accompanying consolidated statements of operations for 1994,
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
include the operations of subsidiaries which were divested during the
year, to the approximate dates of their disposal. These are March 31,
1994 for the overseas resistance wire manufacturing companies and
September 30, 1994 for Alloys. The pro-forma consolidated data for 1994
gives effect to the aforementioned restructuring and the divestiture of
the assets of Alloys, as if both transactions had occurred on January 1,
1994. The following comparisons relate to the year ended December 31,
1995 and pro-forma consolidated data for 1994.
Net sales to customers increased by more than 25% for the year and
more than 17% for the last quarter compared to 1994. This was
principally due to increased sales prices and the impact of higher
exchange rates. The increases in sales prices were caused by the higher
cost of raw materials, primarily copper and PVC. Since increases in
sales prices generally lag higher costs, the gross profit percentage
dropped from 16.2% for the year 1994 to 14.4% for 1995 although it
increased to 17% for the last quarter of 1995. Selling, general and
administrative expense in 1995 remained relatively constant and
therefore decreased as a percentage of net sales from 15.2% in 1994 to
12.3% in 1995. Higher average borrowings through 1995 resulted in
increased interest expenses.
In 1994, the Company recorded a charge of $1,097,000 representing
its equity in the net loss of Harrison. In 1995, the Company recorded
income of $140,000 from its equity in this investment. The recognition
of past losses has reduced the carrying amount of the Company's
investment in Harrison to a negative balance (liability), which combined
with a deferred credit resulting from the March 1994 restructuring
equaled the balance of a bank loan of Harrison which the Company has
guaranteed. Losses from the Company's investment in Harrison are
recognized only to the extent of the bank loan guaranty. Subsequent to
December 31, 1995 this bank loan was paid in full in connection with the
sale of Harrison's overseas operations and accordingly a gain was
recognized in 1996.
During 1995, Harrison made aggregate principal payments of
$438,000 under the bank loan. Accordingly, Driver-Harris recorded
income from its equity in Harrison of $140,000 and amortization of the
deferred credit of $298,000 (which is included in other income).
The low income tax provision in 1995 is primarily because the
proceeds of officer's life insurance included in other revenues is not
taxable income to the Company and due to the benefits of operating loss
carryovers used in the United States. The tax valuation allowance
decreased by $103,000 from December 31, 1994 to December 31, 1995 which
is primarily due to the use of net operating loss carryforwards. In
1995 and 1994, no tax benefits were available for foreign subsidiaries
experiencing losses. The utilization of tax loss carryforwards provided
tax benefits of $42,000 and $14,000 in the 1995 and 1994 periods,
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
respectively.
The foregoing discussion contains certain forward-looking
statements which involve risks and uncertainties. The Company's actual
results could differ materially from the results anticipated in such
forward-looking statements.
Item 8. Financial Statements and Supplementary Data
This information is submitted in a separate section of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The table listing this information with respect to directors of
the Company, and the statement of compliance with Sec. 16(a) of the
Exchange Act, included in the proxy statement anticipated to be filed on
or about May 2, 1997, is herein incorporated by reference. The
information with respect to executive officers is included in Part I of
this Form 10-K.
Item 11. Executive Compensation
The information with respect to officers and directors of the
Company, included in the proxy statement anticipated to be filed on or
about May 2, 1997, is herein incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item, included in the proxy
statement anticipated to be filed on or about May 2, 1997, is herein
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item, included in the proxy
statement anticipated to be filed on or about May 2, 1997, is herein
incorporated by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a)(1) and (2) - This portion of Item 14 is submitted in a
separate section of this report.
(3) Listing of Exhibits
Exhibit 3. Certificate of Incorporation and By-Laws
Exhibit 10. Material contracts
Exhibit 21. Subsidiaries of the Registrant
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K.
None filed in the fourth quarter of 1996.
(c) Exhibits Incorporated
by Reference
to SEC Form
Exhibit 3. Articles of Incorporation 8-K dated
and By-Laws November 1, 1982
Amendments thereto 8-K dated
June 17, 1987
Exhibit 10. Material Contracts:
Third Amended and Restated Loan
Agreement with several banks, dated
November 12, 1992; loan agreement
with Textron Financial Corporation
dated October 29, 1992, and related
Mortgage and Promissory Note dated 10-Q dated
November 12, 1992 September 30,1992
Settlement Agreement with Pension 8-K dated
Benefit Guaranty Corporation dated December 22, 1993
December 22, 1993
Amended and Restated Agreement between
Harrison Alloys Inc., Driver-Harris
Company, HAI Industries Inc., and
HAI Holding Company Inc., dated 8-K dated
March 18, 1994 April 7, 1994
Letter agreement amending the Third
Amended and Restated Loan Agreement
with several banks, dated as of 8-K dated
March 18, 1994 April 7, 1994
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K (continued)
Incorporated
by Reference
to SEC Form
Note Modification Agreement, Loan and
Security Agreement Modification
Agreement, and Release of Guaranty
between Driver-Harris Alloys Inc.,
Harrison Alloys Inc., and Textron
Financial Corporation, all dated 8-K dated
February 25, 1994 April 7, 1994
Exhibit 21. Subsidiaries of the Registrant as of December 31, 1996
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
Driver-Harris Alloys Inc. New Jersey (Inactive corporation)
Irish Driver-Harris Co. Ltd. Ireland
Kingston Cable Distributors Ltd. United Kingdom
(subsidiary of Irish Driver-
Harris Co. Ltd.)
Kestrel Cables Distribution Ltd. United Kingdom
(subsidiary of Irish Driver-
Harris Co. Ltd.)
Quality Heat Treatment Pty. Ltd. Australia
(d) Financial Statement Schedules -- This portion of Item 14 is
submitted in a separate section of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 26, 1997 Thomas J. Carey
- -------------------------- ------------------------------
Date Thomas J. Carey
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Ralph T. Bartlett David A. Driver
- -------------------------------- ----------------------------------
Ralph T. Bartlett David A. Driver
Director Chairman
Date: March 26,1997 Date: March 26, 1997
H. L. Biggerstaff Frank L. Driver IV
- -------------------------------- ----------------------------------
H. L. Biggerstaff Frank L. Driver IV
Director Director, President and
Date: March 26, 1997 Chief Executive Officer
Date: March 26, 1997
<PAGE>
Annual Report on Form 10-K Item 8,
Item 14(a)(1) and (2), (c) and (d)
List of Financial Statements and
Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Driver-Harris Company and Subsidiaries
December 31, 1996
<PAGE>
Driver-Harris Company and Subsidiaries
Form 10-K-Item 14(a)(1) and (2)
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Driver-Harris Company
and subsidiaries are included in Item 8:
Consolidated Balance Sheets-December 31, 1996 and 1995 Page 21
Consolidated Statements of Operations-Years ended December
31, 1996, 1995 and 1994 Page 23
Consolidated Statements of Stockholders' Equity-Years ended
December 31, 1996, 1995 and 1994 Page 24
Consolidated Statements of Cash Flows-Years ended December
31, 1996, 1995 and 1994 Page 25
Notes to Consolidated Financial Statements Page 26
The following consolidated financial statement schedules of Driver-
Harris Company and subsidiaries are included in Item 14(d):
Schedule I-Condensed Financial Information of Registrant Page 37
Schedule II-Valuation and Qualifying Accounts Page 41
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
<PAGE>
Report of Independent Auditors
Board of Directors
Driver-Harris Company
We have audited the accompanying consolidated balance sheets of Driver-
Harris Company and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the financial statement schedules
listed at Item 14(a). These financial statements and financial
statement schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements and schedules based on our audits. We did not audit the
financial statements of certain foreign consolidated subsidiaries which
statements reflect total assets constituting 29% in 1996 and 25% in
1995, and total revenues constituting 21% in 1996, 9% in 1995, and 7% in
1994 of the related consolidated totals. Those statements were audited
by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for such subsidiaries,
is based solely on the reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe
that our audits and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Driver-
Harris Company and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in
all material respects, the information set forth herein.
MetroPark, New Jersey
March 20, 1997 /s/ ERNST & YOUNG LLP
<PAGE>
AUDITORS' REPORT TO THE MEMBERS
OF
KINGSTON CABLE DISTRIBUTORS LIMITED
We have audited the accompanying balance sheets of Kingston Cable
Distributors Limited as of 31 December 1996 and 31 December 1995 and the
related statements of profit and loss and cash flows for the three years
ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material mis-statement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kingston
Cable Distributors Limited as of 31 December 1996 and 31 December 1995,
and the results of its operations and its cash flows for the three years
ended December 31, 1996 in conformity with generally accepted accounting
principles of the United States.
20 March, 1997 Signed: James, Stanley & Co.
-----------------------------
Registered Auditor
Chartered Accountants
1733 Coventry Road
South Yardley
Birmingham
B26 1DT
<PAGE>
AUDITORS' REPORT TO THE MEMBERS
OF
QUALITY HEAT TREATMENT PTY. LTD.
I have audited the accompanying balance sheet of Quality Heat Treatment
Pty. Ltd. as of 31st December, 1996 and 1995, and the related statements
of profit and losses for the years then ended. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements
based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards of the United States. These standards require that I plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Quality Heat
Treatment Pty. Ltd. as of 31st December, 1996 and 1995, and the results
of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles of the United
States.
March 20, 1997 Signed: G. D. Trott
---------------------
Registered Company Auditor
150 Williams Road
East Prahran, 3181, Australia
<PAGE>
AUDITORS' REPORT TO THE MEMBERS
OF
KESTREL CABLE DISTRIBUTION LIMITED
We have audited the accompanying balance sheet of Kestrel Cables
Distribution Limited as of 31 December 1996 and the related statement of
profit and loss and cash flows for the two months then ended. These
financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kestrel
Cables Distribution Limited as of 31 December 1996, and the results of
its operations and its cash flows for the two months then ended in
conformity with generally accepted accounting principles of the United
States.
March 20, 1997 Signed: James, Stanley & Co.
-----------------------------
Registered Auditor
Chartered Accountants
1733 Coventry Road
South Yardley
Birmingham
B26 1DT
<PAGE>
Driver-Harris Company and Subsidiaries
Consolidated Balance Sheets
Dollar Amounts in Thousands
<TABLE>
December 31
1996 1995
------------------
Assets
Current assets:
<S> <C> <C>
Cash $ 402 $ 479
Receivables,less allowances of $408
and $278 9,275 7,816
Inventories:
Materials 624 598
In process 413 204
Finished 3,925 2,328
------ ------
4,962 3,130
Prepaid expenses 937 386
------ ------
Total current assets 15,576 11,811
Other assets 107 65
Property, plant and equipment, at cost:
Land and buildings 3,278 2,869
Machinery and equipment 4,229 2,967
Office equipment 361 412
------ ------
7,868 6,248
Less accumulated depreciation and
amortization 2,373 1,869
------ ------
5,495 4,379
------ ------
$21,178 $16,255
====== ======
Driver-Harris Company and Subsidiaries
Consolidated Balance Sheets (continued)
Dollar Amounts in Thousands
December 31
1996 1995
------------------
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings $ 2,664 $ 704
Current portion of long-term debt 492 522
Accounts payable 5,594 5,888
Accrued expenses 1,572 1,059
Income taxes payable 263 106
------ ------
Total current liabilities 10,585 8,279
Long-term debt 2,023 1,907
Deferred Grants 812 512
Deferred foreign income taxes 174 157
Postretirement benefit liabilities 279 205
Investment in related company 1,561
Deferred credit-related company 968
Sundry liabilities 185 222
Stockholders' equity:
Common stock--par value $0.83 1/3 per share:
Authorized 3,000,000 shares; issued 1,424,928
shares and 1,624,928 shares at December 31,
1996 and December 31, 1995(including
87,757 and 127,539 treasury shares at
December 31, 1996 and 1995 and 200,000
pledged shares at December 31, 1995) 1,221 1,187
Additional paid-in capital 2,200 1,997
Retained earnings 3,595 1,143
Equity adjustment from translation 104 (1,883)
----- -----
7,120 2,444
Commitments and contingencies
------- ------
$21,178 $16,255
======= ======
</TABLE>
See accompanying notes.
<PAGE>
Driver-Harris Company and Subsidiaries
Consolidated Statements of Operations
Dollar Amounts in Thousands, Except per Share Data
<TABLE>
Year ended December 31 Pro Forma
1996 1995 1994 1994
---- ---- ---- ----
(Unaudited
Revenues: Note 3)
Net sales:
<S> <C> <C> <C> <C>
Customers $40,697 $35,343 $36,351 $28,101
Related company 23,196
Other revenues 1,027 1,376 1,011 959
------ ------ ------ ------
41,724 36,719 60,558 29,060
Costs and expenses:
Cost of sales:
Customers 33,804 30,258 30,156 23,540
Related company 23,196
Selling, general and
administrative 5,343 4,362 6,102 4,263
------ ------ ------ -------
Income from Operations 2,577 2,099 1,104 1,257
Interest expense 816 829 855 575
Foreign exchange (gain) loss and
sundry (21) (20) 52 15
Equity in net (gain) loss of
related company (140) 1,097 1,097
Gain in connection with sale of
foreign operations by
related company (895)
----- ------ ------ ------
Income (loss) before income taxes 2,677 1,430 (900) (430)
Provision for income taxes 225 98 76 60
------ ------ ------ ------
Net income (loss) $ 2,452 $ 1,332 $ (976) $ (490)
====== ====== ====== ======
Net income (loss) per share $ 1.85 $ 1.03 $ (.75) $(.38)
</TABLE>
See accompanying notes.
<PAGE>
Driver-Harris Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the three years ended December 31, 1996
Dollar Amounts in Thousands
<TABLE>
Equity
Additional Retained Adjustment
Common Paid-In Earnings from Trans-
Stock Capital (Deficit) lation Total
------ -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $1,187 $1,981 $ 894 $(2,841) $ 1,221
Sale of 219 treasury shares 1 1
Net loss (976) (976)
Loss for December 1993 of
subsidiary which changed
its fiscal year (107) (107)
Adjustments from exchange
rate changes) 769 769
-----------------------------------------------
Balance at December 31, 1994 1,187 1,982 (189) (2,072) 908
Sale of 2,850 treasury shares 15 15
Net income 1,332 1,332
Adjustments from exchange
rate changes 189 189
-----------------------------------------------
Balance at December 31, 1995 1,187 1,997 1,143 (1,883) 2,444
Sale of 782 treasury shares 1 5 6
Directors' compensation 2 11 13
Exercise of 37,500 option
shares 31 187 218
Net income 2,452 2,452
Adjustments from exchange
rate changes 293 293
Adjustment in connection with
sale of foreign operations
by related company 1,694 1,694
-----------------------------------------------
Balance at December 31, 1996 $1,221 $2,200 $ 3,595 $ 104 $7,120
===============================================
</TABLE>
See accompanying notes.
<PAGE>
Driver-Harris Company and Subsidiaries
Consolidated Statements of Cash Flows
Dollar Amounts in Thousands
<TABLE>
Year ended December 31
1996 1995 1994
------------------------
Operating activities
<S> <C> <C> <C>
Net income (loss) $ 2,452 $ 1,332 $ (976)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 676 471 966
Provision for doubtful accounts 111 (113) 225
Gain on sale of fixed assets (172)
Equity in related company (1,561) (140) 1,097
Deferred credit (968) (298) (249)
Elimination of equity adjustment from
translation for foreign operations
sold by related company 1,634
Account with related company 253 (50) (308)
Receivables (1,558) 219 (1,084)
Inventories (235) (32) (2,487)
Prepaid Expenses (498) (156) (207)
Accounts payable and accrued expenses (3) 689 2,623
Sundry (57) (8) 107
---------------------------
Net cash provided by (used in) operating
activities 74 1,914 (293)
Investing activities
Capital expenditures (1,576) (441) (1,301)
Sundry 48 34 (37)
Proceeds from sale of fixed assets 234
Assets purchased through acquisition (1,164)
---------------------------
Net cash used in investing activities (2,458) (407) (1,338)
Financing activities
Change in deferred grants 300 (7) 19
Change in short-term debt 1,847 (1,083) 260
Proceeds from issuance of long-term debt 313 239 1,323
Reduction of long-term debt (391) (662) (1,458)
Cash of companies included in
restructuring (503)
Loans from related company 1,800
Issuance of Capital Stock 234
Sundry 15 2
--------------------------
Net cash provided by (used in)
financing activities 2,303 (1,498) 1,443
Effect of exchange rate changes on cash 4 9 49
---------------------------
Net change in cash (77) 18 (139)
Cash at beginning of year 479 461 600
--------------------------
Cash at end of year $ 402 $ 479 $ 461
==========================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 727 $ 744 $ 743
Income taxes 41 8 17
Supplemental schedule of non-cash investing activities
Receivables offset against purchase
price of acquisition $ 178
</TABLE>
See accompanying notes.
<PAGE>
Driver-Harris Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
1. Summary of Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Driver-
Harris Company (the "Company") and its majority controlled subsidiaries.
The Company owns Irish Driver-Harris Co. Ltd.("IDH"), located in Ireland
and the U.K. and 50% of Quality Heat Treatment Pty. Ltd., located in
Australia. Intercompany accounts, transactions and profits have been
eliminated in consolidation.
Effective November 1, 1996 the Company, through a holding company,
wholly owned by its Irish subsidiary, purchased the assets, substantial
inventory of a distributor in the U.K. for approximately $1,342,000 of
which $178,000 was netted against amounts owed to IDH from the seller.
The acquisition was accounted for as a purchase and no goodwill resulted
from the transaction. The new company will distribute cable products
and insulated wire products in the U.K. and Europe. Two months of
operations of this distributorship have been included in the Company's
consolidated financial statements for 1996. The Company believes the
pro forma effects are immaterial to the statement of operations.
The Company, directly and through its subsidiaries, is engaged in the
business of manufacturing and marketing non-ferrous metal products,
principally electrical resistance wire and insulated electrical wire and
cable, and is also engaged in the furnace manufacturing and heat
treating business.
Harrison Alloys Inc. ("Harrison"),(referred to herein as a "related
company") a fifty percent owned company, is recorded on the equity
method of accounting. The recognition of 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 the first quarter of 1996, Harrison
sold its foreign alloy companies and repaid the debt guaranteed by the
Company with a portion of the proceeds. Accordingly, the Company
recorded income from its negative investment in Harrison of $1,561,000
and the elimination 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. 200,000
pledged shares of the Company and the capital stock of the Irish
subsidiary held as collateral for the guaranty were also returned to the
Company. The Company will not recognize any income from its investment
in Harrison until Harrison's income exceeds Harrison's losses not
recognized by the Company as the Company previously had recorded losses
from their investment in Harrison to the extent of the Harrison bank
debt guarantee which as noted above is no longer in effect.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method for all inventories.
<PAGE>
1. Summary of Accounting Policies (continued)
Property, Plant and Equipment
Depreciation has been provided principally by the straight-line method
based upon estimated useful lives of the depreciable assets.
Deferred Grants
Deferred grants represent foreign government grants received by a
foreign subsidiary of the Company. The grants received with respect to
capital expenditures are treated as a deferred credit and are amortized
to income over the expected useful life of the related asset.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Revenue Recognition
Sales revenues are recognized at the time products are shipped.
Earnings per Common Share
Earnings per share of common stock are based on the average number of
common shares and common share equivalents outstanding during each year
(1,324,170 in 1996, 1,297,003 in 1995 and 1,294,430 in 1994). Common
stock options are considered common share equivalents.
Employee Stock Options
As permitted under FASB Statement 123 "Accounting for Stock-Based
Compensation" (FASB 123), the Company elected to follow Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting for its
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals or is greater than the market
price of the underlining stock on the date of grant, no compensation
expense is recognized. Since there were no stock options granted in
1996 and 1995, no disclosures required under FASB 123 were necessary.
Financial Instruments
The predominant portion of the Company's customers are engaged in the
construction, appliance and electrical equipment industries in Ireland
and Great Britain. The Company grants credit to its customers on open
account. One customer's outstanding balance represents 9.4% of
consolidated receivables. The same customer represents 12.1%
($5,059,000) of consolidated revenues for 1996.
<PAGE>
1. Summary of Accounting Policies (continued)
Foreign Currency Translation
Assets and liabilities of foreign operations with a functional currency
other than the U.S. dollar are translated into U.S. dollars at year-end
exchange rates. Revenues and expenses are translated at the average
exchange rates in effect during the year. Translation adjustments are
recorded as a separate component of equity. Changes in the equity
account during 1996 and 1995 primarily resulted from such translation
adjustments and the write-off of the amounts related to the foreign
operations sold by Harrison.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Impairment of long-lived assets
In 1996, the Company adopted SFAS No.121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (FASB
121), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. The adoption of FASB 121 had
no effect on the financial statements.
Reclassification
Certain prior period amounts have been reclassified to conform with the
current year presentation.
2. Restructuring of the Resistance Wire Operations
In March 1994, the Company restructured its operations (the
"Restructure") in order to solve its liquidity problems and strengthen
its competitive position in the marketplace. Pursuant to this
restructuring the Company combined its overseas resistance wire
operations with 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 (see Note 1) and its approximately 24%
shareholding in Harrison to Holding; and (iii) causing Harrison to
assume significant obligations of the Company and its U.S. subsidiary,
Driver-Harris Alloys Inc. (Alloys) (see below), including approximately
$1.8 million of debt incurred for investment in the Company's Italian
subsidiary (see Note 1), $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 was required to make
aggregate cash payments of $300,000; it is also required to pay license
<PAGE>
2. Restructuring of the Resistance Wire Operations (continued)
fees and commissions totaling $500,000 per year through 2003. In
conjunction with the Restructure, Harrison became a wholly owned
subsidiary of Holding, which in turn transferred the Driver-Harris
subsidiaries to Harrison.
The 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 were being amortized over 5 years and, accordingly,
$298,000 and $223,000 was credited to other revenues for the years ended
December 31, 1995 and 1994, respectively. In 1996, the remaining
unamortized balance was recognized in revenue in connection with the
sale of the foreign alloy companies by Harrison(see Note 1).
Effective September 30, 1994, Alloys, a wholly-owned subsidiary of the
Company, transferred substantially all of its assets to Harrison
("Alloys divestiture"), a corporation in which the Company indirectly
owns a 50% interest (see above), in exchange for the assumption by
Harrison of an equivalent amount of liabilities (all assets were
transferred at net book value). This transaction was the result of the
exercise by Harrison on June 14, 1994 of an option granted in 1987.
These assets constituted the U.S. portion of the Company's resistance
wire manufacturing business. No gain or loss resulted from this
transaction.
3. Pro Forma Financial Information
The accompanying financial statements include a consolidated pro forma
statement of operations for the year ended December 31, 1994, which
gives effect to the Restructure in March 1994 (see Note 2) and the
Alloys divestiture (see Note 2) as if both transactions had occurred on
January 1, 1994.
4. Foreign Operations
Net assets which are located outside the United States and are included
in the consolidated balance sheets are as follows (in thousands):
<TABLE>
December 31
1996 1995
Assets
<S> <C> <C>
Receivables $ 9,275 $ 7,563
Inventories 4,962 3,130
Other current assets 934 810
Property, plant and equipment--net 5,492 4,379
Other assets 75 17
-----------------
20,738 15,899
Liabilities
Current liabilities 9,047 7,437
Long-term debt 1,044 997
Other long-term liabilities 812 569
Deferred income taxes 174 157
-----------------
11,077 9,160
-----------------
Net assets outside the United States $ 9,661 $ 6,739
=================
</TABLE>
<PAGE>
4. Foreign Operations (continued)
Net income (loss) of the Company's foreign subsidiaries included in the
accompanying financial statements amounted to approximately $1,538,000
in 1996, $614,000 in 1995, and ($144,000) in 1994.
Because the Company plans to continue to finance foreign expansion and
operating requirements by reinvesting a substantial portion of the
undistributed earnings of its foreign subsidiaries, United States income
taxes have not been provided on such earnings. Unremitted earnings of
foreign subsidiaries at December 31, 1996 amounted to approximately
$8,093,000.
5. Leases
Property, plant and equipment includes the following amounts related to
capital leases (in thousands):
<TABLE>
December 31
1996 1995
<S> <C> <C>
Machinery and equipment $ 1,087 $ 964
Less accumulated amortization 409 226
---------------
$ 678 $ 738
==============
</TABLE>
Amortization of the assets recorded under capital leases is included in
depreciation expense.
The future minimum rental commitments for all operating leases as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997 $381
1998 343
1999 298
2000 201
2001 168
Thereafter 1,444
----
$2,835
=====
</TABLE>
Total rent expense under operating leases for 1996, 1995 and 1994 was
$272,000, $249,000 and $483,000, respectively.
6. Long-Term Debt and Lines of Credit
Long-term debt is as follows(in thousands):
<TABLE>
December 31
1996 1995
---------------
<S> <C> <C>
U.S. bank loan $ $ 144
Note payable to Pension Benefit
Guaranty Corporation 979 913
Other mortgage loans 1,044 604
Capitalized lease obligations 400 501
Sundry 92 267
---------------
2,515 2,429
Less current portion 492 522
---------------
$2,023 $1,907
===============
</TABLE>
The Company's obligations approximate fair market value.
<PAGE>
6. Long-Term Debt and Lines of Credit (continued)
The note payable to the Pension Benefit Guaranty Corporation (PBGC) is
due September 30, 2000. Interest accrues at the rate of 7% per year
compounded quarterly and is payable at maturity. The note and accrued
interest may be prepaid at the Company's option. The PBGC has the right
to convert the entire unpaid principal and accrued interest into common
stock of the Company at a price of $7.875 per share, until maturity.
Until the note is paid in full, the Company may not pay cash dividends
on its capital stock without permission from the PBGC.
The Other Mortgage Loans, which are the liability of a subsidiary, bear
interest at 10% per year and are due in monthly installments through
2000. These loans and the subsidiary's $5,012,000 general credit line
are jointly collateralized by all of its assets with a net book value of
$18,545,000. Under the terms of the loans, there are certain
restrictions which limit the payment of dividends and management fees
paid by the subsidiary.
Maturities of long-term debt at December 31, 1996 are as follows (in
thousands):
<TABLE>
Capitalized
Leases Other
---------------------
<S> <C> <C>
1997 $ 161 $ 331
1998 148 423
1999 80 245
2000 9 1,112
2001 2 4
---------------------
$ 400 $2,115
=====================
</TABLE>
At December 31, 1996, the Company and its subsidiaries had available
short-term bank lines of credit in the aggregate amount of approximately
$5,808,000, (which includes the $5,012,000 general credit line) of which
$488,000 was in use and is recorded as short-term borrowings on the
balance sheet.
The weighted average interest rate on the short-term borrowings of the
Company and its subsidiaries was 10.4% and 11.0% at December 31, 1996
and 1995, respectively.
7. Postretirement Benefits - Pensions and Health Care
Pensions
The Company's only defined benefit pension plans are those of a foreign
subsidiary. These cover substantially all of the foreign subsidiary's
employees, who must contribute to the plan cost. Benefits are based on
employees' years of service and final compensation. The subsidiary
makes contributions to the plans in amounts that are intended to provide
for current service and to fund past service liability.
The actuarial assumptions used for the pension plans of the foreign
subsidiary for 1996 and 1995 were as follows:
<TABLE>
<S> <C>
Discount rate 8%
Annual rate of compensation increase 6%
Long-term rate of return on plan assets 8%
</TABLE>
<PAGE>
7. Postretirement Benefits - Pensions and Health Care (continued)
The funded status of the pension plans is as follows (in thousands):
<TABLE>
December 31
1996 1995
---- ----
Actuarial present value of accumulated benefit
<S> <C> <C>
obligation, all vested $1,223 $813
===== ====
Projected benefit obligation (PBO) $1,723 $1,314
Fair value of plan assets, invested in pooled
separate accounts of an insurance company 1,454 1,109
----- -----
Plan assets less than PBO (269) (205)
Unrecognized initial net gain (181) (193)
Unrecognized prior service cost (141) (208)
Unrecognized transition obligation 591 598
----- -----
Accrued net pension liability $ - $ 8
===== =====
</TABLE>
Net pension expense for the Company's defined benefit pension plans for
1996 and 1995 included the following components (in thousands):
<TABLE>
1996 1995
---- ----
Plans of continuing subsidiary:
Service cost for benefits earned during
<S> <C> <C>
the year $ 122 $ 102
Interest cost on projected benefit obligation 111 92
Actual net gains on plan assets (128) (120)
Net amortization 44 58
--- ---
149 132
Less employee contributions 37 32
--- ----
Net pension expense-continuing subsidiary 112 100
=== ===
</TABLE>
The Company also has a supplemental pension plan which provides benefits
to the estate of the former Chairman. The liability for such benefits
at December 31, 1996 was approximately $468,000. In connection with the
death of the former Chairman in 1995, the Company included the proceeds
due from the life insurance policy, $349,000, in other revenue. The
Company invested such proceeds to fund the supplemental pension
obligation and has offset the investment, with a remaining balance of
$306,000 at December 31, 1996, against the liability on the balance
sheet.
Health Care and Life Insurance
Postretirement health care and life insurance benefits are provided to
certain U.S. employees. These benefits are provided through an
insurance company whose premiums are based on benefits paid. Harrison
assumed the cost for the pre-1986 retirees, effective January 1, 1994.
Prior thereto, the cost was shared equally by the Company and Harrison.
The Company accounts for postretirement benefits in accordance with SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions". This standard requires companies to accrue for estimated
<PAGE>
7. Postretirement Benefits - Pension and Health Care (continued)
future postretirement benefit expenses during the years employees are
working and earning benefits for retirement. The Company elected to
amortize the estimated liability for postretirement benefits at January
1, 1993, over 15 years. For 1996, 1995 and 1994, the Company's portion
of postretirement benefit costs aggregated $34,000, $36,000 and $50,000,
respectively.
The following table sets forth the status of the plans, which are
unfunded, reconciled with the accrued postretirement benefit cost
included in the Company's consolidated balance sheet was as follows (in
thousands):
<TABLE>
December 31
1996 1995
---- ----
Accumulated postretirement benefit obligation:
<S> <C> <C>
Fully eligible plan participants $ - $138
Other active plan participants 244 85
--- ---
244 223
Unrecognized transition obligation 113 125
Unrecognized net loss from past experience
different from that assumed and from changes
in assumptions 14 15
---- ---
Accrued postretirement benefit cost $117 $ 83
==== ===
</TABLE>
Postretirement benefit costs for 1996, 1995 and 1994 included the
following components (in thousands):
<TABLE>
1996 1995 1994
---- ---- ----
Service cost for benefits earned during
<S> <C> <C> <C>
the year $ 5 $ 8 $ 23
Interest cost on accumulated postretirement
benefit obligation 16 15 14
Amortization of transition obligation 13 13 13
--- --- ---
$ 34 $ 36 $ 50
=== === ===
</TABLE>
The following assumptions were used at December 31, 1996 and 1995: a
discount rate of 7.25% and a 1996 assumed health care cost trend rate of
5%.
A one percentage point increase in the assumed health care cost trend
rate would have increased the accumulated postretirement benefit
obligation at December 31, 1996 by $14,000 and the aggregate service and
interest cost components of the postretirement benefit cost for 1996 by
$4,000.
<PAGE>
8. Income Taxes
Income tax expense (credit) is composed of the following (in thousands):
<TABLE>
1996 1995 1994
--------------------
Foreign:
<S> <C> <C> <C>
Current $215 $ 51 $102
Deferred 10 47 (21)
Benefits of operating loss carryovers - - (5)
----------------------
$225 $ 98 $ 76
======================
</TABLE>
Pre-tax income (loss) attributable to domestic and foreign operations is
as follows (in thousands):
<TABLE>
1996 1995 1994
---------------------
<S> <C> <C> <C>
United States $ 898 $ 718 $ (832)
Foreign 1,779 712 (68)
-----------------------
$2,677 $ 1,430 $ (900)
=======================
</TABLE>
Following is a reconciliation of income tax expense (credit) to the
amount based on the U.S. statutory rate of 35% (1996, 1995 and 1994):
<TABLE>
1996 1995 1994
--------------------
Income taxes based on U.S.
<S> <C> <C> <C>
statutory rate $ 937 $ 500 $ (315)
Non-taxable income:
Reduction of valuation allowances (30) (103)
Life insurance proceeds (122)
Gain in connection with sale of
foreign operations by related
company (339)
Increase resulting from losses which
provided no current tax benefit
(including equity in losses
in related company) 8 477
Taxes of foreign subsidiaries at rates
different than U.S. statutory rate (373) (161) (86)
Other (net) 30 (24)
----------------------
$ 225 $ 98 $ 76
=====================
</TABLE>
The components of deferred tax assets and liabilities at December 31,
1996 and 1995, were as follows (in thousands):
<PAGE>
8. Income Taxes (continued)
<TABLE>
1996 1995
-----------------------------------------
Assets Liabilities Assets Liabilities
------------------------------------------
<S> <C> <C> <C> <C>
Inventories $ 81 $ 51
Depreciation $ 262 $216
Investment in related
company 105
Accrued expenses 234 226
Tax loss carryforwards 2,244 2,118
Tax credits 68 136
Sundry 99 107
-----------------------------------------
2,627 361 2,636 323
Valuation allowance 2,440 2,470
-----------------------------------------
Total $ 187 $ 361 $ 166 $ 323
=========================================
</TABLE>
At December 31, 1996 the Company had approximately $6,400,000 of loss
carryforwards available to offset future U.S. taxable income. Such
carryforwards expire beginning in 1999. A valuation allowance of
$2,440,000 and $2,470,000 has been provided at December 31, 1996 and
1995 respectively. These valuation allowances were established since it
is not certain that the deferred tax assets, primarily the net operating
loss carryforwards, will be realized. The Company also has investment
tax credit carryforwards of approximately $126,000 expiring through
2000.
9. Employee Stock Options
The 1983 Driver-Harris Employee Incentive Stock Option Plan which
expired in 1993 provided for the grant of stock options at 100% of
market value on date of grant which are intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue
Code. Under this plan, 45,000 and 82,500 shares of stock are reserved
for issuance at December 31, 1996 and 1995. The following table
summarizes the activity in the Plan:
<TABLE>
Number
of Shares Price Per Share
------------------------------
Outstanding January 1, 1994
<S> <C> <C>
and December 31, 1995 82,500 4.00 to 8.50
Exercised in 1996 37,500 4.00 to 6.875
------
Outstanding December 31, 1996 45,000 5.25 to 8.50
======
</TABLE>
The outstanding options at December 31, 1996 which are all fully vested,
expire between 2000 and 2002.
10. Industry Segments and Geographic Areas
The Company and its subsidiaries operate in a single industry segment,
the manufacture and sale of wrought non-ferrous metal products,
principally insulated electrical wire and cable.
<PAGE>
10. Industry Segments and Geographic Areas (continued)
Geographic Areas
<TABLE>
United Western Elimin- Consol-
States Europe Other ations idated
--------------------------------------------
1996 (In Thousands)
Sales to outside
<S> <C> <C> <C> <C>
customers $37,376 $3,321 $40,697
Other revenues $ 575 265 187 1,027
--------------------------------------------
Total revenues $ 575 $37,641 $3,508 $41,724
--------------------------------------------
Income before income taxes $ 898 $ 1,711 $ 68 $ 2,677
============================================
Identifiable assets $ 440 $19,412 $1,326 $21,178
====================== ======
1995
Sales to outside
customers $ $32,745 $2,598 $35,343
Other revenues 1,145 55 176 1,376
--------------------------------------------
Total revenues $ 1,145 $32,800 $2,774 $36,719
============================================
Income (loss) before
income taxes $ 718 $ 746 $ (34) $ 1,430
============================================
Identifiable assets $ 356 $14,411 $1,488 $16,255
====================== ======
1994
Sales to outside
customers $23,196 $32,499 $3,852 $59,547
Transfers between
geographic areas 504 10 $ (514) -
Other revenues 755 97 159 1,011
--------------------------------------------
Total revenues $23,951 $33,100 $4,021 $ (514) $60,558
============================================
Loss before income taxes $ (832)$ (30) $ (38) $ (900)
============================================
Identifiable assets $ 320 $14,182 $1,391 $15,893
====================== ======
</TABLE>
<PAGE>
Driver-Harris Company
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheets
Dollar Amounts in Thousands
<TABLE>
December 31
1996 1995
------------------
Assets
Current assets:
<S> <C> <C>
Cash $ 386 48
Accounts receivable from subsidiaries 932 $ 708
----- -----
Total current assets 1,318 756
Investments in subsidiaries 7,247 5,357
Due from related company 253
Other assets 22 7
------ ------
$ 8,587 $ 6,373
====== ======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 11 $ 21
Accrued expenses 198 261
---- ------
Total current liabilities 209 282
Long-term debt 979 913
Postretirement benefit liabilities 279 205
Investment in related company 1,561
Deferred credit-related company 968
------- -----
Total liabilities 1,467 3,929
Stockholders' equity
Common stock 1,221 1,187
Additional paid-in capital 2,200 1,997
Retained earnings (deficit) 3,595 1,143
Equity adjustment from translation 104 (1,883)
----- ------
7,120 2,444
Commitments (Note 1)
------ -----
$ 8,587 $6,373
====== =====
</TABLE>
<PAGE>
Driver-Harris Company
Schedule I - Condensed Financial Information of Registrant
Condensed Statements of Operations
Dollar Amounts in Thousands
<TABLE>
Year Ended December 31
1996 1995 1994
----------------------
<S> <C> <C> <C>
Fees from subsidiaries $ 220 $ 220 $ 238
Fees from related company 500 500 500
Other income 75 685 255
---------------------
795 1,405 993
Selling, general and administrative expenses 707 745 646
Interest and financing expenses 69 82 82
Equity in net (gain) loss of related
company (140) 1,097
Gain in connection with sale of foreign
operations by related company (895)
----------------------
Income (loss) before equity in net income
(loss) of subsidiaries and income taxes 914 718 (832)
Equity in net income (loss) of subsidiaries 1,538 614 (144)
-----------------------
Income (loss) before income taxes 2,452 1,332 (976)
Income taxes
----------------------
Net income (loss) $2,452 $1,332 $ (976)
======================
</TABLE>
<PAGE>
Driver-Harris Company
Schedule I-Condensed Financial Information of Registrant
Condensed Statements of Cash Flows
<TABLE>
Year Ended December 31
1996 1995 1994
----------------------
Operating activities
<S> <C> <C> <C>
Net income (loss) $2,452 $ 1,332 $ (976)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Undistributed net income (loss) of
subsidiaries (1,538) (614) 144
Provision for doubtful accounts 114
Increase (reduction)in retirement benefit
liability 74 (212)
Receivables from subsidiaries (338) (81) 446
Accounts payable and accrued expenses (73) (65) (421)
Deferred credit (968) (298) (249)
Equity in related company (1,561) (140) 1,097
Elimination of equity adjustment from
translation for foreign operations
sold by related company 1,634
Account with related company 253 (50) (194)
Sundry (14) 15 43
-------------------------
Net cash used in operating activities 35 (113) (110)
Investing activities
Investment in subsidiary (1,100)
Sundry 15 199
--------------------------
Net cash provided by (used in) investing
activities 15 (901)
Financing activities
Change in short-term debt (10) (695)
Increase in long-term debt 66 61
Loans from related company 1,800
Change in non-current liability to subsidiary
Issuance of Capital Stock 234
Sundry 3 1
----------------------
Net cash provided by financing activities 303 51 1,106
------------------------
Net change in cash 338 (47) 95
Cash at beginning of year 48 95 -
-------------------------
Cash at end of year $ 386 $ 48 $ 95
=========================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 4 $ 82 $ 82
==== ===== ===
</TABLE>
<PAGE>
Driver-Harris Company
Schedule I-Condensed Financial Information of Registrant
Notes to Condensed Financial Statements
1. Basis of Presentation
In the parent company-only (Driver-Harris Company - U.S. Corporate
Holding Company) financial statements, the Company's investment in
subsidiaries (Irish Driver-Harris Co. Ltd. and Quality Heat Treatment
Pty. Ltd.) is stated at cost plus equity in undistributed earnings of
such subsidiaries since the date of acquisition. The Company's share of
net income of its unconsolidated subsidiaries is included in
consolidated income using the equity method. The Driver-Harris Company -
U.S. Corporate Holding Company financial statements should be read in
conjunction with the Company's consolidated financial statements.
<PAGE>
Driver-Harris Company and Subsidiaries
Schedule II-Valuation and Qualifying Accounts
Dollar Amounts in Thousands
<TABLE>
Col.A Col.B Col.C Col.D Col.E
- ------------------------------------------------------------------------
Additions
---------
(1)
Balance at Charged to Balance
Beginning Costs and Deductions at End
Description of Period Expenses Describe of Period
- -----------------------------------------------------------------------
Year ended December 31, 1996:
Deducted from related asset:
<S> <C> <C> <C> <C>
Tax valuation allowance $ 2,470 - $ 30 (5) $ 2,440
Allowances for doubtful
trade accounts 278 $ 111 (19) (1) 408
=========================================
Year ended December 31, 1995:
Deducted from related asset:
Tax valuation allowance $ 2,573 - $ 103 (5) $ 2,470
Allowances for doubtful
trade accounts 376 $(113) 15 (1) 278
=========================================
Year ended December 31, 1994:
Deducted from related asset:
Tax valuation allowance $ 7,529 - $ 4,956 (4) $ 2,573
Allowances for doubtful 406 (2)
trade accounts 533 225 (24) (3) 376
========================================
</TABLE>
(1) - Accounts charged off during the year and adjustments due to
currency fluctuations.
(2) - Reserves of companies divested in March 1994 restructuring (see
Note 3).
(3) - Amount is net of currency gain of $34,000.
(4) - Amounts adjusted due to the companies divested in the March 1994
restructuring (see Note 2)
(5) - The change in valuation allowance is principally due to the change
in deferred tax assets.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at December 31, 1996 and the
Company's Consolidated Statement of Operations for the year ended
December 31, 1996, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 402
<SECURITIES> 0
<RECEIVABLES> 9683
<ALLOWANCES> 408
<INVENTORY> 4962
<CURRENT-ASSETS> 15576
<PP&E> 7868
<DEPRECIATION> 2373
<TOTAL-ASSETS> 21178
<CURRENT-LIABILITIES> 10585
<BONDS> 2023
0
0
<COMMON> 1221
<OTHER-SE> 5899
<TOTAL-LIABILITY-AND-EQUITY> 21178
<SALES> 40697
<TOTAL-REVENUES> 41724
<CGS> 33804
<TOTAL-COSTS> 33804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 111
<INTEREST-EXPENSE> 816
<INCOME-PRETAX> 2677
<INCOME-TAX> 225
<INCOME-CONTINUING> 2452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2452
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.85
</TABLE>
