<PAGE>
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 March 31, 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 -- 1,366,083 shares as of May 3, 1999.
<PAGE>
DRIVER-HARRIS COMPANY
I N D E X
PART I FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998. . . . . . . . . .3
Condensed Consolidated Statements of
Income - Three Months ended March 31,
1999 and March 31, 1998. . . . . . . . . . . . . . . .4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 1999 and
March 31, 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
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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
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<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
March 31, December 31,
1999 1998
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ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash $ 198 $ 362
Accounts receivable - net 10,268 9,966
Inventories:
Materials 384 585
Work in process 212 152
Finished products 2,658 3,223
----- ------
3,254 3,960
Prepaid expenses 717 1,054
------ ------
Total current assets 14,437 15,342
Property, plant & equipment - net 4,749 5,222
----- -----
$ 19,186 $ 20,564
======= ======
LIABILITIES
Current Liabilities:
Short-term borrowings $ 3,914 $ 4,677
Current portion of long-term debt 528 599
Accounts payable 6,233 5,974
Accrued expenses 1,357 1,777
Income taxes payable 115 77
------- ------
Total current liabilities 12,147 13,104
Long-term debt 2,083 2,142
Deferred Grants 707 781
Deferred foreign income taxes 170 184
Postretirement benefit liabilities 532 573
Sundry liabilities 102 111
Stockholders' equity:
Common stock 1,233 1,233
Additional paid-in capital 2,282 2,282
Retained earnings 1,058 950
Accumulated other comprehensive loss (1,128) (796)
------ -------
Stockholders' equity 3,445 3,669
------ -------
$ 19,186 $ 20,564
======= ======
</TABLE>
See accompanying notes.
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
<TABLE>
THREE MONTHS ENDED
March 31
1999 1998
---- ----
<S> <C> <C>
Net sales $10,119 $ 9,409
Other revenues 28 49
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Total Revenues 10,147 9,458
Cost of sales 8,563 8,429
----- ------
Gross Profit 1,584 1,029
Selling, general and administrative
expenses 1,183 1,271
----- ------
401 (242)
Other charges (credits):
Interest 149 146
Foreign exchange loss (gain) 118 (15)
----- ------
Income (Loss) before income taxes 134 (373)
Income taxes 26 -
----- ------
Net Income (Loss) $ 108 $ (373)
===== ======
BASIC NET INCOME (LOSS) PER SHARE $ .08 $ (.28)
DILUTED NET INCOME (LOSS) PER SHARE $ .08 $ (.28)*
Basic earnings per share - weighted
average shares 1,352,833 1,340,421
Diluted earnings per share - adjusted
weighted average shares 1,352,833 1,354,319
</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>
THREE MONTHS ENDED
March 31
----------------
1999 1998
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OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 108 $ (373)
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization 124 137
Receivables (984) 444
Inventories 450 (63)
Prepaid expenses 265 (252)
Accounts payable and accrued expenses 491 1,440
Sundry (109) (126)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 345 1,207
INVESTING ACTIVITIES
Capital expenditures (70) (50)
Sundry - 18
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NET CASH USED IN INVESTING ACTIVITIES (70) (32)
FINANCING ACTIVITIES
Change in short-term debt (412) (1,005)
Proceeds from issuance of long-term debt 111 23
Reduction of long-term debt (131) (111)
Sundry 1 8
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NET CASH (USED IN) FINANCING ACTIVITIES (431) (1,085)
Effect of exchange rate changes on cash (8) 6
------ -----
Net change in cash (164) 96
Cash at beginning of year 362 848
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CASH AT END OF PERIOD $ 198 $ 944
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</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1 - Basis of Presentation
These financial statements have been prepared in accordance with
the instructions to Form 10-Q and therefore do not include all
information, disclosures, and notes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity
with generally accepted accounting principles. Reference should be made
to the financial statements contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998. These financial
statements include all adjustments which are, in the opinion of
management, necessary to a fair presentation of the results for the
interim period.
2 - 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 March 31, 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 three month periods ended March 31, 1999 and 1998 are as follows:
<TABLE>
1999 1998
<S> <C> <C>
Net income (loss) $ 108 $(373)
Foreign currency translation adjustment (332) (267)
---- ----
Comprehensive loss $(224) $(640)
==== ====
</TABLE>
4 - 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.
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).
<PAGE>
<TABLE>
Reporting Segments
Parent Co. Manufacturing Distribution
(U.S.) (Ireland) (U.K.) Total
Three months ended March 31, 1999:
Revenues
<S> <C> <C> <C> <C>
External revenues $ 9,019 $ 1,100 $10,119
Inter-segment revenues $ 69 281 350
Other revenues 18 2 8 28
Elimination of inter-
segment revenues (69) (281) (350)
Consolidated revenues 18 9,021 1,108 10,147
Net Profit/(Loss) (144) 270 (18) 108
Assets
Total assets 1,609 18,616 2,885 23,110
Elimination of investment (623) (623)
Elimination of inter-
company receivables (829) (2,076) (308) (3,213)
Elimination of inter-
company inventory (88) (88)
Total assets 157 16,540 2,489 19,186
Other Significant Items
Depreciation expense 114 10 124
Interest expense 20 115 14 149
Expenditures for assets 70 70
Three months ended March 31, 1998:
Revenues
External revenues 7,565 1,844 9,409
Inter-segment revenues 880 36 916
Other revenues 20 28 1 49
Elimination of inter-
segment revenues (880) (36) (916)
Consolidated revenues 20 7,593 1,845 9,458
Net (Loss) (62) (150) (161) (373)
Other Significant Items
Depreciation expense 122 15 137
Interest expense 18 105 23 146
Expenditures for assets 47 3 50
</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 1.19 at
March 31, 1999 compared to 1.17 at December 31, 1998. The increase is
attributable to the net income achieved in the first quarter of 1999.
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 the first quarter of 1999.
At March 31, 1999, the Company's subsidiaries had approximately
$6.2 million in available bank credit lines of which $5.4 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.
At March 31, 1999, the Company had gross deferred unrealized losses of
approximately $127,000 from hedging sales commitments.
Debt Instruments
The Company's long term debt of $2,611,000, is primarily fixed
rate debt of which $1,144,000 is U.S. denominated with the remaining
balance primarily denominated in Irish Punt. The Company's remaining
debt of $3,914,000 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 mid-1999. As part of this process, a
duplicate server will be placed into service 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 customers 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
Net sales to customers increased by 7.5% during the first quarter
of 1999 compared to the first quarter of 1998. This overall increase
was attributable to manufacturing while distribution sales declined by
67.6%. Units shipped in manufacturing increased by 25.8% while the
foreign rate impact of the value of the Irish Punt to the U.S. Dollar
resulted in a 2.2% increase in translated sales for the first three
months of 1999 compared to the similar period of 1998. The gross profit
percentage increased to 15.4% in 1999 compared to 10.4% in 1998. This
is primarily attributable to an improved product sales mix and
moderately lower copper prices. Selling, general and administrative
expenses decreased to 11.7% of net sales from 13.5% in the preceding
year due to ongoing efforts to reduce these costs and a reduction in the
group's administrative costs for its refocused distribution activity.
The Company had a foreign exchange loss of $118,000 for the three
months ended March 31, 1999 resulting in part from the effect of
entering into foreign exchange contracts in British Pound Sterling by
the Company's Irish subsidiary and from the translation of Sterling
denominated receivables and payables into Irish Punt.
Income taxes for 1999 resulted 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DRIVER-HARRIS COMPANY
Date: May 12, 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 March 31, 1999 and the Company's
Consolidated Statement of Operations for the three months ended March 31,
1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 198
<SECURITIES> 0
<RECEIVABLES> 10881
<ALLOWANCES> 613
<INVENTORY> 3254
<CURRENT-ASSETS> 14437
<PP&E> 7171
<DEPRECIATION> 2422
<TOTAL-ASSETS> 19186
<CURRENT-LIABILITIES> 12147
<BONDS> 2083
0
0
<COMMON> 1233
<OTHER-SE> 2212
<TOTAL-LIABILITY-AND-EQUITY> 19186
<SALES> 10119
<TOTAL-REVENUES> 10147
<CGS> 8563
<TOTAL-COSTS> 8563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> 134
<INCOME-TAX> 26
<INCOME-CONTINUING> 108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
