<PAGE> 1
UNITED STATES
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 period ended March 31, 1997
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number: 1-5365
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HANDY & HARMAN
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(Exact name of registrant as specified in its charter)
STATE OF NEW YORK 13-5129420
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Park Avenue, New York, New York 10177
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(Address of principal executive offices) (Zip code)
(212) 661-2400
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
year.)
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
---- ----
The number of shares of issuer's Common Stock, par value $1.00 per share
outstanding as of May 13, 1997 was 11,934,544.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited-thousands of dollars except per share)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
March 31, 1997 March 31, 1996
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<S> <C> <C>
Sales $ 104,932 $ 108,340
Cost of sales 83,345 86,991
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Gross profit 21,587 21,349
Selling, general and
administrative expenses 11,814 11,424
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9,773 9,925
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Other deductions (income):
Interest expense-net 2,784 2,054
Other-net (118) 203
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2,666 2,257
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Income from continuing operations
before income taxes 7,107 7,668
Income tax provision 3,020 3,305
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Income from continuing operations 4,087 4,363
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Discontinued Operations:
Loss from operations, net of
tax benefit of $1,026 -- (1,354)
Loss on disposal, net of tax
benefit of $4,550 -- (8,300)
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-- (9,654)
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Net Income (loss) $ 4,087 ($ 5,291)
================================================================================
Earnings (loss) per share:
Continuing operations $ .34 $ .31
Discontinued operations -- (.69)
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Net income (loss) $ .34 ($ .38)
================================================================================
Dividends per share $ .06 $ .06
================================================================================
Average shares outstanding 11,994,000 14,019,000
================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-1-
<PAGE> 3
HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(thousands of dollars)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(unaudited)
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,840 $ 9,701
Accounts receivable, less allowance for doubtful accounts
of $1,751 in 1997 and $1,686 in 1996 66,165 51,572
Inventories 75,914 70,357
Prepaid expenses, deposits and other current assets 4,874 7,044
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Total current assets 150,793 138,674
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Investment in affiliates, at equity 3,505 3,122
Property, plant and equipment - at cost 204,916 195,623
Less accumulated depreciation and amortization 114,707 112,418
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90,209 83,205
Prepaid retirement costs (net) 55,754 54,566
Intangibles, net of amortization 65,723 24,818
Other assets 12,696 12,079
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$ 378,680 $ 316,464
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings -- $ 15,000
Accounts payable $ 37,625 30,163
Futures payable 11,966 9,246
Federal and Foreign taxes on income 1,058 792
Other current liabilities 17,260 21,637
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Total current liabilities 67,909 76,838
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Long-term debt, less current maturities 198,022 127,500
Minority interest 1,326 1,259
Deferred income taxes 13,371 15,261
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Shareholders' equity:
Common stock - par value $1; 60,000,000
shares authorized; 14,611,432 shares issued 14,611 14,611
Capital surplus 13,461 13,432
Retained earnings 115,767 112,399
Foreign currency translation adjustment (936) (61)
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142,903 140,381
Less: Treasury stock 2,618,088 shares - 1997
and 2,618,421 shares - 1996 at cost 44,443 44,308
Unearned compensation 408 467
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Total shareholders' equity 98,052 95,606
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$ 378,680 $ 316,464
=========================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE> 4
HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited-thousands of dollars)
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
Three Months Ended
------------------------------------
March 31, 1997 March 31, 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,087 ($ 5,291)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and amortization 3,228 3,315
Provision for doubtful accounts 283 232
(Gain) on disposal of property, plant
and equipment (9) (6)
Net prepaid retirement cost (1,188) (749)
Equity in earnings of affiliates (371) (60)
Minority interest in net income 67 --
Earned compensation - 1988 long-term incentive
and outside director stock option plans 137 148
Discontinued operations reserves -- 12,850
Changes in assets and liabilities:
Accounts receivable (11,109) (6,211)
Inventories (1,270) 1,104
Prepaid expenses 3,955 115
Deferred charges and other assets (757) (1,075)
Accounts payable and other current liabilities (3,525) (412)
Federal and foreign taxes on income 266 (6,729)
Deferred income taxes (1) (22)
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Net cash used by operating activities (6,207) (2,791)
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Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 13 85
Capital expenditures (4,488) (2,414)
Acquisition;net of cash acquired (52,548) --
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Net cash used by investing activities (57,023) (2,329)
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Cash flows from financing activities:
Increase/(decrease)in short-term borrowings (15,000) 10,000
Increase in long-term debt 110,522 --
Net (decrease) in long-term
revolving credit facilities (40,000) (5,000)
Net (increase) in futures receivable -- (1,628)
Net increase in futures payable 2,720 --
Dividends paid (720) (840)
Purchase of treasury stock (net) (130) (773)
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Net cash provided by financing activities 57,392 1,759
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Effect of exchange rate changes on net cash (23) (9)
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Net change in cash (5,861) (3,370)
Cash at beginning of year 9,701 6,637
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Cash at end of period $ 3,840 $ 3,267
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</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE> 5
HANDY & HARMAN AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a. 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 these
estimates.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments necessary to a fair
statement of the results for interim periods. These statements should be
read in conjunction with the summary of Significant Accounting Policies
and notes contained in the registrant's Annual Report (Form 10-K for the
year ending December 31, 1996). The results of operations for the
quarter ended March 31, 1997 are not necessarily indicative of the
results of the entire fiscal year.
b. Inventories at March 31, 1997 and December 31, 1996 are comprised as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(unaudited)
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<S> <C> <C>
Precious metals:
Fine and fabricated metals in
various stages of completion $26,553 $26,569
Non-precious metals:
Base metals, factory supplies
and raw materials 23,220 20,993
Work in process 16,330 15,192
Finished goods 9,811 7,603
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$75,914 $70,357
================================================================================
</TABLE>
Lifo inventory - the excess of period end market value over Lifo cost was
$103,940,000 at March 31, 1997 and $97,996,000 at December 31, 1996.
c. On February 28, 1997 the Company acquired 100% of the outstanding shares
of Olympic Manufacturing Group, Inc. for approximately $53,000,000. The
acquisition has been accounted for as a purchase; accordingly, the
purchase price has been allocated to the underlying assets and
liabilities based on their respective estimated fair values at the date
of acquisition. The estimated fair value of assets acquired is
$17,000,000 and liabilities assumed is $5,000,000. The excess of the
purchase price over the fair value of the assets acquired and liabilities
assumed was $41,000,000 and is being amortized over a period of 40 years.
The excess purchase price has a tax deductible basis of approximately
$10,000,000. This business is not material to the revenues of the
Company.
d. Subsequent to March 31, 1997 the Company completed additional long-term
financing for $125,000,000 at a fixed rate of 7.31% due 2004. The
Company's long-term revolving credit facility along with this new
long-term financing gives the Company the ability to classify certain
short-term obligations amounting to $110,522,000 as long-term debt as of
March 31, 1997.
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<PAGE> 6
HANDY & HARMAN AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e. The following table presents certain selected financial data by industry
segment (expressed in thousands of dollars) for the three months ended
March 31, 1997 and 1996:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
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<S> <C> <C>
Sales:
Wire/Tubing $ 43,248 $ 47,025
Precious metals 54,444 57,286
Other non-precious
metal businesses 7,240 4,029
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Total $ 104,932 $ 108,340
================================================================================
Profit contribution before
unallocated expenses:
Wire/Tubing $ 4,452 $ 5,042
Precious metals 5,024 4,632
Other non-precious
metal businesses 865 498
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Total 10,341 10,172
General corporate expenses (450) (450)
Interest expense (net) (2,784) (2,054)
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Income from continuing
operations before taxes $ 7,107 $ 7,668
================================================================================
</TABLE>
f. Revenues and expenses for the first quarter of 1996 reflect the sale
(announced May 14, 1996 and completed in the third quarter of 1996) of
the Company's Refining Division business, exclusive of the Company's
satellite refining operations located in Singapore and Canada, accounted
for as a discontinued operation. A charge associated with exiting this
business of $12,850,000 ($8,300,000 after-tax or $.59 per share) was
recorded in the first quarter of 1996.
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<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
The Company's precious metal inventories, consisting principally of gold
and silver, is readily convertible to cash. Furthermore, these precious metal
inventories which are stated in the Balance Sheet at LIFO cost have a market
value of $103,940,000 in excess of such cost as of March 31, 1997.
It is the Company's policy to obtain funds necessary to finance
inventories and receivables from various banks under commercial credit
facilities. Fluctuations in the market prices of gold and silver have a direct
effect on the dollar volume of sales and the corresponding amount of customer
receivables resulting from sale of precious metal products. The Company adjusts
the level of its credit facilities from time to time in accordance with its
borrowing needs for receivables and inventories and maintains bank credit
facilities well in excess of anticipated requirements.
Consistent with other precious metal fabricating companies, some of the
Company's gold and silver requirements are furnished by customers and suppliers
on a consignment basis. Title to the consigned gold and silver remains with the
Consignor. The value of consigned gold and silver held by the Company is not
included in the Company's Balance Sheet. The Company's gold and silver
requirements are provided from a combination of owned inventories, precious
metals which have been purchased/sold for future receipt/delivery, and gold and
silver received from suppliers and customers on a consignment basis.
The Company has a $200,000,000 Revolving Credit Facility which provides
$150,000,000 for a three year period and $50,000,000 for 364 days. As of March
31, 1997 there were only borrowings of $80,000,000 under the long-term facility.
In addition to the Revolving Credit Facilities, banks also provide $111,750,000
of Gold and Silver Fee Consignment Facilities. The Fee Consignment Facility of
$83,812,500 is for a three-year period and the short-term Fee Consignment
Facility of $27,937,500 is for 364 days. All gold and silver consigned to the
Company pursuant to these Consignment agreements is located at the Company's
plant in Fairfield, Connecticut. As of March 31, 1997 there were 9,970 ounces of
gold and 14,543,000 ounces of silver leased under these fee consignment
facilities. Subsequent to March 31, 1997 the Company completed additional
long-term financing for $125,000,000 at a fixed rate of 7.31% due 2004.
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<PAGE> 8
On May 14, 1996, Handy & Harman announced that it had decided to exit the
precious metals refining business, exclusive of the Company's minor satellite
refining operations located in Singapore and Canada. The Company completed the
sale of the Handy & Harman Refining Division in the third quarter of 1996.
Accordingly, operations for this major division have been classified as
discontinued operations. A charge associated with exiting this business of
$22,350,000 ($13,161,000 after-tax) was recorded in 1996. The sale of this
division released a significant portion of the Company's owned precious metal
inventory position, making this potential liquidity, along with the Company's
credit facilities, available for deployment to continuing operations,
acquisition of new businesses and repurchase of 1.8 million shares of the
Company's common stock via a "Dutch Auction", completed in December 1996. On
February 28, 1997 the Company acquired Olympic Manufacturing Group, Inc. for
approximately $53,000,000. Subsequent to March 31, 1997, a lifo gain of
approximately $4,700,000 was realized from the sale of gold inventories.
During 1997 the Financial Accounting Standards Board issued SFAS No.128
"Earnings per Share" effective for interim and annual periods ending after
December 31, 1997. The adoption of this standard has no effect on the Company's
earnings per share calculation since, under the prior method which had
considered common stock equivalents for primary earnings per share, there was no
dilutive effect for outstanding stock options.
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<PAGE> 9
Statements contained in Management's Discussion and Analysis are
forward-looking statements and are made pursuant to the safe harbor provision of
the private securities litigation reform act of 1995. Forward-looking statements
involve a number of risks and uncertainties including, but not limited to,
product demand, pricing, market acceptance, precious metal and other raw
materials price fluctuations, intellectual property rights and litigation, risks
in product and technology development and other risk factors detailed in the
Company's Securities and Exchange Commission filings.
OPERATING ACTIVITIES
Net cash used by operating activities amounted to $6,207,000 in 1997 and
$2,791,000 in 1996. The increase of $3,416,000 in cash used for 1997 over 1996
was primarily due to increased working capital requirements.
INVESTING ACTIVITIES
Net cash used by investing activities amounted to $57,023,000 in 1997 and
$2,329,000 in 1996. The net cash used in 1997 was primarily composed of
approximately $53,000,000 for the purchase of Olympic Manufacturing Group, Inc.
on February 28, 1997 and for capital expenditures amounting to $4,488,000 which
includes a major modernization program at our precious metal product facility in
Fairfield, Connecticut and the retrofitting of the former karat gold facility in
East Providence, Rhode Island by the Electronic Materials Group. Net cash used
in investing activities in 1996 was primarily composed of capital expenditures
for plant expansion at one of the Handy & Harman Electronic Materials Group
facilities and machinery and equipment for the wire and tubing segment.
FINANCING ACTIVITIES
Net cash provided by financing activities amounted to $57,392,000 in 1997
compared to $1,759,000 in 1996. 1997's primary financing activity was the
purchase of Olympic Manufacturing Group, Inc. with long-term debt for
approximately $53,000,000.
The Company's foreign operations consist of four wholly owned
subsidiaries, (one in Canada, two in the United Kingdom and one in Denmark), and
one equity investment in Asia. Substantially all unremitted earnings of such
entities are free from legal or contractual restrictions.
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<PAGE> 10
The Company's program to expand productive capacity through acquisition
of new businesses and expenditures for new property, plant and equipment will
continue to be financed with internally generated funds and long-term debt, if
necessary.
COMPARISON OF FIRST QUARTER OF 1997 VERSUS FIRST QUARTER OF 1996
Sales for the wire and tubing segment decreased $3,777,000 (8%) primarily
due to decreased sales of stainless steel tubing caused by the continued
weakness in the semiconductor fabrication industry and the effects of the
strengthening British pound against other European currencies on our United
Kingdom subsidiary's export sales. The profit contribution (pre-tax income
before deducting interest and Corporate expenses) decreased $590,000 (12%) due
to the decreased sales noted above. Management has implemented cost cutting
measures to limit the effects of the above market conditions on profit
contribution. As market conditions improve, profit contribution from this
segment should return to expected levels.
Sales for the precious metal segment decreased $2,842,000 (5%). The
decrease in sales was primarily due to the exit from low margin business in
Canada and the effect of lower precious metal prices on the dollar volume of
sales, partially offset by sales of ele Corporation, acquired on June 27, 1996.
The average price of silver was $5.01 per ounce in 1997 and $5.54 per ounce in
1996. The average price of gold was $351.35 per ounce in 1997 and $400.10 per
ounce in 1996. The profit contribution increased $392,000 (8%) primarily due to
improved operating performance of the Precious Metals Fabrication Group of
companies. Capital projects in progress should enhance this segment's profit
contribution in 1997.
In the other nonprecious metal segment, sales increased $3,211,000 (80%)
and profit contribution increased by $367,000 (74%) primarily due to the
addition of Olympic Manufacturing Group, Inc. purchased on February 28, 1997.
Due to Olympic's business cycle, a significant increase in profit contribution
from this segment is expected in the second and third quarter.
Interest expense increased $730,000 (36%) due to increased borrowings as
a result of the purchase of Olympic Manufacturing Group, Inc. on February 28,
1997 and the purchase of 1.8 million shares of the Company's common stock via a
"Dutch Auction" completed in December 1996.
The Company's income taxes are primarily composed of U.S. Federal and
state income taxes.
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<PAGE> 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Company's Form 10-K Annual Report for the
year ended December 31, 1996, and to the proceedings described therein
under Part I, Item 3. Legal Proceedings. Negotiations and discovery
procedures are continuing in this matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K:
None required.
(b) Reports on Form 8-K:
On January 28, 1997 the Company filed a current report on Form 8-K
with respect to the acquisition by the Company of all the shares of
capital stock of Olympic Manufacturing Group, Inc.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANDY & HARMAN
--------------------------------
(Registrant)
Date: May 14, 1997 R.F. Burlinson /s/
--------------------------------
R.F. Burlinson, Vice President -
Treasurer
Date: May 14, 1997 D.C. Kelly /s/
--------------------------------
D.C. Kelly - Controller
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,840
<SECURITIES> 0
<RECEIVABLES> 67,916
<ALLOWANCES> 1,751
<INVENTORY> 75,914
<CURRENT-ASSETS> 150,793
<PP&E> 204,916
<DEPRECIATION> 114,707
<TOTAL-ASSETS> 378,680
<CURRENT-LIABILITIES> 67,909
<BONDS> 198,022
0
0
<COMMON> 14,611
<OTHER-SE> 83,441
<TOTAL-LIABILITY-AND-EQUITY> 378,680
<SALES> 104,932
<TOTAL-REVENUES> 104,932
<CGS> 83,345
<TOTAL-COSTS> 83,345
<OTHER-EXPENSES> (118)
<LOSS-PROVISION> 283
<INTEREST-EXPENSE> 2,784
<INCOME-PRETAX> 7,107
<INCOME-TAX> 3,020
<INCOME-CONTINUING> 4,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,087
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
