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 September 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.
Class Outstanding at November 1, 1999
Common Stock, $0.83 1/3 Par Value 1,372,333
<PAGE>
DRIVER-HARRIS COMPANY
INDEX TO FORM 10-Q
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998. . . . . . . . 3
Condensed Consolidated Statements of
Income - Three and Nine Months ended September 30,
1999 and September 30, 1998 . . . . . . . . . . . . . . .4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended September 30, 1999 and
September 30, 1998. . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . 8
PART II OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None filed in quarter
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 10
- ----------
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in thousands)
<TABLE>
September 30, December 31,
1999 1998
-------- ------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash $ 94 $ 362
Accounts receivable - net 9,827 9,966
Inventories:
Materials 749 585
Work in process 198 152
Finished products 2,173 3,223
----- ------
3,120 3,960
Prepaid expenses 642 1,054
----- ------
Total current assets 13,683 15,342
Property, plant & equipment - net 4,557 5,222
------ ------
$18,240 $ 20,564
====== ======
LIABILITIES
Current Liabilities:
Short-term borrowings $ 3,701 $ 4,677
Current portion of long-term debt 459 599
Accounts payable 5,723 5,974
Accrued expenses 1,781 1,777
Income taxes payable 48 77
------ ------
Total current liabilities 11,712 13,104
Long-term debt 2,012 2,142
Deferred Grants 679 781
Deferred foreign income taxes 168 184
Postretirement benefit liabilities 548 573
Sundry liabilities 84 111
Stockholders' equity:
Common stock 1,235 1,233
Additional paid-in capital 2,333 2,282
Retained earnings 867 950
Accumulated other comprehensive loss (1,398) (796)
------ -----
Stockholders' equity 3,037 3,669
----- -----
$18,240 $ 20,564
====== ======
See accompanying notes.
</TABLE>
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Dollar amounts in thousands, except per share data)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $8,981 $10,972 $27,377 $30,082
Other revenues 26 37 94 134
----- ----- ----- ------
Total Revenues 9,007 11,009 27,471 30,216
Cost of sales 7,802 9,720 23,701 27,003
----- ------ ------ ------
1,205 1,289 3,770 3,213
Selling, general and
administrative expenses 1,035 1,491 3,377 4,186
----- ------ ------ ------
170 (202) 393 (973)
Other charges (credits):
Interest 171 178 493 541
Foreign exchange (gain) (63) (12) (38) (41)
----- ----- ----- -----
Income/(Loss) before
income taxes 62 (368) (62) (1,473)
Income taxes 12 - 21 -
---- ----- ----- -----
NET INCOME/(LOSS) $ 50 $ (368) $ (83) $(1,473)
==== ===== ===== =====
BASIC NET INCOME/(LOSS)
PER SHARE $ .04 $(.28) $(.06) $(1.10)
==== ==== ==== ====
DILUTED NET INCOME/(LOSS)
PER SHARE $ .04* $(.28)* $(.06)* $(1.10)*
=== ==== ==== ====
Basic earnings per share-weighted
average shares 1,361,021 1,342,046
Diluted earnings per share-weighted
average shares 1,365,786 1,355,220
* Adjusted weighted average shares not used since effect on earnings
per share would be anti-dilutive.
See accompanying notes.
</TABLE>
<PAGE>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollar Amounts in thousands)
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30
----------------
1999 1998
---- ----
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (83) $(1,473)
Adjustments to reconcile net loss
to net cash provided:
Depreciation and amortization 407 411
Receivables (539) (224)
Inventories 557 895
Prepaid expenses 298 (142)
Accounts payable and accrued expenses 422 1,198
Sundry 72 114
------- ------
CASH PROVIDED BY(USED IN)OPERATING ACTIVITIES 1,134 779
INVESTING ACTIVITIES
Capital expenditures (173) (208)
Sundry 35 16
------- ------
CASH USED IN INVESTING ACTIVITIES (138) (192)
FINANCING ACTIVITIES
Change in short-term debt (604) (1,128)
Proceeds from issuance of long-term debt 157 31
Reduction of long-term debt (348) (326)
Sundry - 34
------ ------
NET CASH (USED IN) FINANCING ACTIVITIES (795) (1,389)
Effect of exchange rate changes on cash (469) 216
------ ------
Net change in cash (268) (586)
Cash at beginning of year 362 848
------ ------
CASH AT END OF PERIOD $ 94 $ 262
====== ======
See accompanying notes.
</TABLE>
<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 nine month periods ended September 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 September 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. On
October 25, 1999, Harrison filed for the protection of the Courts
to execute a reorganization under Chapter 11 of the Federal
Bankruptcy Code.
3 - Comprehensive Income
The components of comprehensive income as presented under
Financial Accounting Standard 130, "Reporting Comprehensive
Income", for the three and nine months ended September 30, 1999
and 1998 are as follows:
<TABLE>
Three Months Nine Months
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income (loss) $ 50 $(368) $ (83) $(1,473)
Foreign currency translation
adjustment (3) 236 (602) 300
----- ----- ---- -----
Comprehensive income (loss) $ 47 $(132) $(685) $(1,173)
==== ===== ===== =====
</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. On September 13, 1999, a
total of 17,000 options were awarded to Directors, Officers and
key employees.
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.
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
Nine months ended September 30, 1999:
Revenues
<S> <C> <C> <C> <C>
External revenues $24,467 $ 2,910 $27,377
Inter-segment revenues $ 224 766 990
Other revenues 12 67 15 94
Elimination of inter-
segment revenues (224) (766) (990)
Consolidated revenues 12 24,534 2,925 27,471
Net Profit/(Loss) (428) 419 (74) (83)
Assets
Total assets 1,509 17,638 2,127 21,274
Elimination of investment (623) (623)
Elimination of inter-
company receivables (829) (1,406) (116) (2,351)
Elimination of inter-
company inventory (60) (60)
Total assets 57 16,232 1,951 18,240
Other Significant Items
Depreciation expense 378 29 407
Interest expense 61 388 44 493
Expenditures for assets 173 173
Nine months ended September 30, 1998:
Revenues
External revenues 24,035 6,047 30,082
Inter-segment revenues 165 2,549 81 2,795
Other revenues 34 100 - 134
Elimination of inter-
segment revenues (165) (2,549) (81) (2,795)
Consolidated revenues 34 24,135 6,047 30,216
Net (Loss) (401) (510) (562) (1,473)
Other Significant Items
Depreciation expense 361 50 411
Interest expense 56 423 62 541
Expenditures for assets - 15 208
</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 September 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. has filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code,
the Company does not believe this event will have any direct
impact on Driver-Harris since the investment is carried at no
value on the balance sheet and no monies have been received from
Harrison since 1996. The Company does not contemplate that
amounts due under its license agreement will be paid in the near
future.
At September 30, 1999, the Company's subsidiaries had
approximately $6.2 million in available bank credit lines of which
$5.8 million was utilized.
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. On September 29, 1999, the
Company entered into $927,000 of foreign currency exchange
contracts for the hedging between the Irish Punt and the British
Pound Sterling. These 30 day contracts were liquidated in
October, 1999.
Debt Instruments
The Company's long term debt of $2,471,000 is primarily
fixed rate debt of which $1,185,000 is U.S. denominated with the
remaining balance primarily denominated in Irish Punt. The
Company's remaining debt of $3,701,000 is comprised solely 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.
The Company's main operating subsidiary, located in Ireland
which performs the majority of 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 $100,000. The project is expected to be completed
in December 1999. As part of this process, a duplicate server
will be commissioned in November 1999 to serve as back up should
the main system fail. Stand-alone systems are currently being
configured to ensure continuity should the main computer system
fail.
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
Nine Months of 1999 Compared to 1998:
Net sales to customers decreased by 9.0% during the first
nine months of 1999 compared to 1998. Manufacturing revenues
increased by 1.8% but distribution revenues declined by 52% as a
result of refocusing the distribution segment and the closing of
one distribution subsidiary. Units shipped in manufacturing
increased by 7.8% while the foreign rate impact of the value of
the Irish Punt and the English Pound to the U.S. Dollar resulted
in a 3% decrease in translated sales for the first nine months of
1999 compared to the similar period of 1998. The gross profit
percentage increased to 13.5% in 1999 compared to 10.2% 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
12.3% of net sales from 13.9% 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.
Third Quarter of 1999 Compared to 1998:
Net sales to customers decreased by 18.1% during the third
quarter of 1999 compared to the same period in 1998.
Manufacturing revenues decreased by 5.7% and distribution revenues
declined by 63.3% as the distribution segment was refocused and
one distribution subsidiary was closed. Manufacturing units
shipped declined less than one percent and the foreign rate impact
of the value of the Irish Punt and the English Pound to the U.S.
Dollar resulted in a 6% decrease in translated sales. The gross
profit percentage increased to 13.2% compared to 11.4% in 1998,
due to the changes within distribution, and an improved product
sales mix. Selling, general and administrative expenses decreased
to 11.5% of net sales from 13.6% as a result of reduced
administrative costs related to distribution activity.
The Company's foreign exchange gain of $38,000 for the nine
months ended September 30, 1999 results 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.
Income taxes for 1999 are due to 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: November 15, 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 September 30, 1999 and the
Company's Consolidated Statement of Operations for the nine months ended
September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 94
<SECURITIES> 0
<RECEIVABLES> 10327
<ALLOWANCES> 500
<INVENTORY> 3120
<CURRENT-ASSETS> 13683
<PP&E> 7201
<DEPRECIATION> 2644
<TOTAL-ASSETS> 18240
<CURRENT-LIABILITIES> 11712
<BONDS> 2012
0
0
<COMMON> 1235
<OTHER-SE> 1802
<TOTAL-LIABILITY-AND-EQUITY> 18240
<SALES> 27377
<TOTAL-REVENUES> 27471
<CGS> 23701
<TOTAL-COSTS> 23701
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 493
<INCOME-PRETAX> (62)
<INCOME-TAX> 21
<INCOME-CONTINUING> (83)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
