SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
[ ] 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
incorporation or organization) Identification No.)
308 Middlesex Street
Harrison, New Jersey 07029
(Address of principal executive offices)
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 -- 1,372,333 shares as of August 3,
1999.
<PAGE>
DRIVER-HARRIS COMPANY
I N D E X
PART I FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 . . . . . . . . . . 3
Condensed Consolidated Statements of
Income - Three and Six Months ended June 30,
1999 and June 30, 1998. . . . . . . . . . . . . . . . . .4
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 1999 and June 30, 1998 . . . . 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
- ---------------------------
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . . . 10
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 . . . . . . . . . . . . . . . . . . . . . . . . . 10
- ----------
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
June 30, December 31,
1999 1998
-------- ------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash $ 82 $ 362
Accounts receivable - net 8,839 9,966
Inventories:
Materials 482 585
Work in process 190 152
Finished products 2,815 3,223
----- ------
3,487 3,960
Prepaid expenses 683 1,054
----- ------
Total current assets 13,091 15,342
Property, plant & equipment - net 4,498 5,222
----- ------
$17,589 $ 20,564
====== ======
LIABILITIES
Current Liabilities:
Short-term borrowings $ 4,060 $ 4,677
Current portion of long-term debt 536 599
Accounts payable 4,699 5,974
Accrued expenses 1,849 1,777
Income taxes payable 37 77
------ ------
Total current liabilities 11,181 13,104
Long-term debt 1,978 2,142
Deferred Grants 668 781
Deferred foreign income taxes 163 184
Postretirement benefit liabilities 540 573
Sundry liabilities 93 111
Stockholders' equity:
Common stock 1,235 1,233
Additional paid-in capital 2,309 2,282
Retained earnings 817 950
Accumulated other comprehensive loss (1,395) (796)
------ -----
Stockholders' equity 2,966 3,669
----- -----
$17,589 $ 20,564
====== ======
</TABLE>
See accompanying notes.
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Dollar amounts in thousands, except per share data)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 8,277 $ 9,590 $18,396 $19,110
Other revenues 40 48 68 97
------ ----- ----- ------
Total Revenues 8,317 9,638 18,464 19,207
Cost of sales 7,336 8,854 15,899 17,283
------ ------ ------ ------
981 784 2,565 1,924
Selling, general and
administrative expenses 1,159 1,424 2,342 2,695
------ ------ ------ ------
(178) (640) 223 (771)
Other charges (credits):
Interest 173 106 322 363
Foreign exchange (gain) loss (93) (14) 25 (29)
----- ----- ----- -----
(Loss) Income before
income taxes (258) (732) (124) (1,105)
Income taxes (17) - 9 -
----- ----- ----- -----
NET LOSS $ (241) $ (732) $ (133) $(1,105)
===== ===== ===== =====
BASIC NET LOSS PER SHARE $(.18) $(.54) $(.10) $(.82)
==== ==== ==== ====
DILUTED NET LOSS PER SHARE $(.18)* $(.54)* $(.10)* $(.82)*
==== ==== ==== ====
Basic earnings per share-weighted
average shares 1,357,250 1,340,421
Diluted earnings per share-weighted
average shares 1,359,393 1,355,404
</TABLE>
* Adjusted weighted average shares not used since effect on earnings
per share would be anti-dilutive.
See accompanying notes.
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in thousands)
<TABLE>
SIX MONTHS ENDED
June 30
----------------
1999 1998
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (133) $(1,105)
Adjustments to reconcile net loss
to net cash provided:
Depreciation and amortization 260 268
Receivables 143 (521)
Inventories 80 (216)
Prepaid expenses 269 (111)
Accounts payable and accrued expenses (406) 2,272
Sundry 21 39
------- ------
CASH PROVIDED BY(USED IN) OPERATING ACTIVITIES 234 626
INVESTING ACTIVITIES
Capital expenditures (74) (137)
Sundry - 8
------- -----
CASH USED IN INVESTING ACTIVITIES (74) (129)
FINANCING ACTIVITIES
Change in short-term debt (104) (842)
Proceeds from issuance of long-term debt 127 35
Reduction of long-term debt (170) (203)
Sundry 37 32
------ -----
NET CASH (USED IN) FINANCING ACTIVITIES (110) (978)
Effect of exchange rate changes on cash (330) 2
------ -----
Net change in cash (280) (479)
Cash at beginning of year 362 848
------ -----
CASH AT END OF PERIOD $ 82 $ 369
====== =====
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1 - Basis of Presentation
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods
ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1998.
2 - Investments in Related Company and other subsidiaries
The Company owns Irish Driver-Harris Co. Ltd.,("IDH"),
located in Ireland and the U.K. The Company also owns 50% of
Harrison Alloys Inc. ("Harrison") which is recorded on the equity
method of accounting and carried at no value on the balance sheets
at June 30, 1999 and December 31, 1998. The company will not
recognize any income from its investment in Harrison until
Harrison's income exceeds Harrison's losses. Although Harrison is
required to pay to the Company license fees and commissions
totaling $500,000 per year to 2003, no payments have been received
since December 1996 and therefore no income has been recorded.
3 - Comprehensive Income
The components of comprehensive income as presented under
Financial Accounting Standard 130, "Reporting Comprehensive
Income", for the six months ended June 30, 1999 and 1998 are as
follows:
<TABLE>
1999 1998
<S> <C> <C>
Net loss $ (133) $(1,105)
Foreign currency translation adjustment (599) 64
----- -----
Comprehensive loss $ (732) $(1,041)
===== =====
</TABLE>
4. 1999 Stock Option Plan
At the annual meeting on May 26, 1999, the Company's
Shareholders approved the adoption of the 1999 Driver-Harris
Incentive Stock Option Plan. Two hundred thousand shares of stock
are reserved for issuance under the plan. To date, no shares have
been granted under the Plan.
5. Industry Segments and Geographic Areas
The Company classifies its revenues based upon the location
(i.e. manufacture or purchase for resale-distribution) of the
facility and its function. Such revenues are regularly reviewed
by the Directors and management and decisions are made on such
basis.
<PAGE>
The operating expenses and resultant net profit (loss) and
the assets are similarly reviewed and decisions made based upon
whether they relate to manufacturing or purchase for resale (i.e.
distribution).
<TABLE>
Reporting Segments
Parent Co. Manufacturing Distribution
(U.S.) (Ireland) (U.K.) Total
Six months ended June 30, 1999:
Revenues
<S> <C> <C> <C> <C>
External revenues $16,348 $ 2,048 $18,396
Inter-segment revenues $ 149 491 640
Other revenues 31 29 8 68
Elimination of inter-
segment revenues (149) (491) (640)
Consolidated revenues 31 16,377 2,056 18,464
Net Profit/(Loss) (321) 246 (58) (133)
Assets
Total assets 1,549 17,315 2,274 21,138
Elimination of investment (623) (623)
Elimination of inter-
company receivables (829) (1,918) (119) (2,866)
Elimination of inter-
company inventory (60) (60)
Total assets 97 15,397 2,095 17,589
Other Significant Items
Depreciation expense 250 10 260
Interest expense 40 253 29 322
Expenditures for assets 74 74
Six months ended June 30, 1998:
Revenues
External revenues 15,426 3,684 19,110
Inter-segment revenues 83 1,813 73 1,969
Other revenues 39 56 2 97
Elimination of inter-
segment revenues (83) (1,813) (73) (1,969)
Consolidated revenues 39 15,482 3,686 19,207
Net (Loss) (287) (343) (475) (1,105)
Other Significant Items
Depreciation expense 243 25 268
Interest expense 37 283 43 363
Expenditures for assets 122 15 137
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
The ratio of current assets to current liabilities was 1.17
at June 30, 1999, the same ratio as at December 31, 1998. With
the steps the Company has taken to strengthen its distribution
segment by closing one subsidiary, Kestrel, and transferring its
assets to a second distribution subsidiary, Kingston, and its
refocus on specialty customers with higher profit margins, the
Company believes it has stabilized this segment. Although
Harrison Alloys Inc. continues to restructure its operations, the
Company does not contemplate that amounts due under its license
agreement will be paid in the near future. No amounts were
received in 1998 or 1999.
At June 30, 1999, the Company's subsidiaries had
approximately $5.7 million in available bank credit lines of which
$4.7 million was in use.
The Company believes it has adequate cash flow from
operations to meet its ongoing obligations including debt
repayments and capital commitments for the next twelve months.
Market Risks
Foreign Currency Fluctuations
With operations in three different countries, the Company's
operating results may be adversely affected by significant
fluctuations in the relative values among the U.S. dollar, Irish
Punt and the British Pound Sterling. The Company is periodically
involved in hedging currency between the Irish Punt and the
British Pound Sterling through the use of futures contracts which
are relatively short term in nature. There were no foreign
exchange contracts outstanding at June 30, 1999.
Debt Instruments
The Company's long term debt of $2,514,000 is primarily
fixed rate debt of which $1,164,000 is U.S. denominated with the
remaining balance primarily denominated in Irish Punt. The
Company's remaining debt of $4,060,000 is solely comprised of
variable rate, short-term facilities denominated primarily in
Irish Punt which does not subject the Company to significant
interest rate risk as the borrowings are short term. The Company
does not believe any reasonable hypothetical interest rate change
in the ensuing year would have a material impact on the Company's
Statement of Operations.
Impact of Year 2000
Many computer systems currently record years in a two-digit
format. Such computer systems, if not modified, will be unable to
properly recognize dates beyond the year 1999. This inability to
recognize the year 2000 is commonly referred to as the "Year 2000
Issue".
The holding company in the United States has no third party
issues and its internal systems are not complex and adequate
alternatives for preparation of external reports are available at
minimal cost and disruption.
<PAGE>
The Company's main operating subsidiary, located in Ireland
which performs all computer functions, is presently in the process
of implementing its upgraded computer systems which will be Year
2000 compliant. The purchase cost of the new software that will
be capitalized and other related Year 2000 costs to be expensed as
incurred are presently estimated to be approximately $140,000.
The project is expected to be completed in October 1999. As part
of this process, a duplicate server will be purchased in September
1999 to serve as back up should the main system fail. Single user
computers which are Year 2000 compliant will also be available to
enable the Company to function.
As to third parties, i.e., vendors, suppliers and customer
in Ireland, the United Kingdom and elsewhere, the subsidiaries'
assessment is in process. Based upon information available at
this time, third parties of critical importance to the Company are
in the process of becoming Year 2000 compliant and the Company
believes the issue will not have a material impact upon the
financial position of the subsidiary and ultimately the Company.
However, there can be no assurance that presently unforeseen
difficulties will not arise and actual results could differ
materially.
Results of Operations
Six Months of 1999 Compared to 1998:
Net sales to customers decreased by 3.7% during the first
six months of 1999 compared to the same period in 1998.
Manufacturing revenues increased by 6% but distribution revenues
declined by 44% as a result of refocusing the distribution segment
and the closing of one distribution subsidiary. Units shipped in
manufacturing increased by 12.6% while the foreign rate impact of
the value of the Irish Punt and the English Pound to the U.S.
Dollar resulted in a 1.7% decrease in translated sales for the
first six months of 1999 compared to the similar period of 1998.
The gross profit percentage increased to 13.6% in 1999 compared to
9.6% in 1998. This is primarily attributable to the changes
within distribution, and to an improved product sales mix and
moderately lower copper prices. Selling, general and
administrative expenses decreased to 12.7% of net sales from 14.1%
in the comparable period of the preceding year due to ongoing
efforts to reduce these costs and a reduction in the group's
administrative costs relating to its refocused distribution
activity.
Second Quarter of 1999 Compared to 1998:
Net sales to customers decreased by 13.7% during the second
quarter of 1999 compared to the same period in 1998.
Manufacturing revenues decreased by 7.4% and distribution revenues
declined by 48.5% as the distribution segment was refocused and
one distribution subsidiary was closed. Manufacturing units
shipped were flat and the foreign rate impact of the value of the
Irish Punt and the English Pound to the U.S. Dollar resulted in a
1.6% decrease in translated sales. The gross profit percentage
increased to 11.4% compared to 8.7% in 1998, due to the changes
within distribution, and an improved product sales mix and
moderately lower copper prices. Selling, general and
administrative expenses decreased to 14.0% of net sales from 14.7%
as a result of reduced distribution activity administrative costs.
The Company's foreign exchange loss of $25,000 for the six
months ended June 30, 1999 resulted in part from the effect of
entering into foreign exchange contracts for the purpose of
hedging exposure to the British Pound Sterling by the Company's
Irish subsidiary and from the translation of Sterling denominated
receivables and payables into Irish Punt. The first three months
of 1999 resulted in losses totaling $118,000 while the second
quarter had a gain of $93,000.
<PAGE>
Income taxes for 1999 result from foreign taxable income at
the Company's Irish subsidiary. The Company has tax loss
carryforwards of approximately $7,100,000 available to offset
future U.S. taxable income, which expire between 1999 and 2011.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a. The Annual Meeting of Stockholders was held on May 26,
1999 at the principal office of the Company in Harrison,
New Jersey.
b. The following Directors were reelected to serve for the
ensuing year: Ralph T. Bartlett, H. Lewis Biggerstaff,
David A. Driver and Frank L. Driver IV.
c. The 1999 Stock Option Plan was approved with 489,685
shares FOR, 167,900 AGAINST and 200 shares ABSTAIN.
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 16, 1999 By: Thomas J. Carey
- --------------------- ------------------------
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at June 30, 1999 and the Company's
Consolidated Statement of Operations for the six months ended June 30,
1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 82
<SECURITIES> 0
<RECEIVABLES> 9333
<ALLOWANCES> 494
<INVENTORY> 3487
<CURRENT-ASSETS> 13091
<PP&E> 6932
<DEPRECIATION> 2434
<TOTAL-ASSETS> 17589
<CURRENT-LIABILITIES> 11181
<BONDS> 1978
0
0
<COMMON> 1235
<OTHER-SE> 1731
<TOTAL-LIABILITY-AND-EQUITY> 17589
<SALES> 18396
<TOTAL-REVENUES> 18464
<CGS> 15899
<TOTAL-COSTS> 15899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 322
<INCOME-PRETAX> (124)
<INCOME-TAX> 9
<INCOME-CONTINUING> (133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (133)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
