Handy & Harman 10-Q 2012 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

or

o 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:  1-2394

HANDY & HARMAN LTD.

(Exact name of registrant as specified in its charter)

DELAWARE	13-3768097
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1133 Westchester Avenue, Suite N222 White Plains, New York	10604
(Address of principal executive offices)	(Zip Code)

914-461-1300

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 ý  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes ý     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

Yes o    No ý

The number of shares of Common Stock issued and outstanding as of August 7, 2012 was 13,149,404.

TABLE OF CONTENTS

HANDY & HARMAN LTD.

PART I — FINANCIAL INFORMATION		Page
Item 1.	Financial Statements	1
	Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011	1
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011	1
	Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	2
	Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011	3
	Consolidated Statement of Changes in Stockholders' Equity for the six months ended June 30, 2012	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 4.	Controls and Procedures	22
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 6.	Exhibits	23
SIGNATURES		24

Part I. Item 1: Financial Statements

HANDY & HARMAN LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands except per share)	2012			2011			2012			2011
Net sales	$	187,213		$	187,453		$	351,349		$	340,782
Cost of goods sold	132,439			139,578			252,616			253,881
Gross profit	54,774			47,875			98,733			86,901
Selling, general and administrative expenses	32,657			29,866			64,527			58,788
Pension expense	652			1,125			1,264			2,250
Asset impairment charge	—			10			—			700
Operating income	21,465			16,874			32,942			25,163
Other:
Interest expense	4,350			3,297			8,199			7,626
Realized and unrealized gain on derivatives	(1,612		)	(5,019		)	(2,510		)	(855		)
Other expense (income)	152			26			196			(5		)
Income from continuing operations before tax	18,575			18,570			27,057			18,397
Tax provision	7,623			1,529			11,009			2,535
Income from continuing operations, net of tax	10,952			17,041			16,048			15,862
Discontinued Operations:
Loss from discontinued operations, net of tax	—			(127		)	—			(709		)
Gain on disposal of assets, net of tax	—			(154		)	—			6,431
Net income (loss) from discontinued operations	—			(281		)	—			5,722
Net income	$	10,952		$	16,760		$	16,048		$	21,584
Basic and diluted per share of common stock
Income from continuing operations, net of tax, per share	$	0.83		$	1.35		$	1.24		$	1.27
Discontinued operations, net of tax, per share	—			(0.03		)	—			0.46
Net income per share	$	0.83		$	1.32		$	1.24		$	1.73
Weighted average number of common shares outstanding	13,144			12,651			12,918			12,468

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HANDY & HARMAN LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended						Six Months Ended
(in thousands)	June 30,						June 30,
	2012			2011			2012			2011
Net income	$	10,952		$	16,760		$	16,048		$	21,584
Other comprehensive income (loss), net of tax:
Change in market value of investments	(14,320		)	—			(14,415		)	—
Tax effect of change in market value of investments	5,829			—			5,867			—
Foreign currency translation adjustment	(844		)	(157		)	(938		)	600
Other comprehensive income (loss)	(9,335		)	(157		)	(9,486		)	600
Comprehensive income	$	1,617		$	16,603		$	6,562		$	22,184

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1

HANDY & HARMAN LTD.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
(Dollars and shares in thousands)	2012			2011
ASSETS
Current Assets:
Cash and cash equivalents	$	6,244		$	6,841
Trade and other receivables - net of allowance for doubtful accounts of $2,393 and $2,465, respectively	102,092			81,261
Inventories, net	54,203			50,385
Deferred income tax assets - current	19,816			19,693
Prepaid and other current assets	13,232			12,314
Total current assets	195,587			170,494
Property, plant and equipment at cost, less accumulated depreciation	78,782			77,476
Goodwill	65,658			65,667
Other intangibles, net	32,581			34,077
Investments in marketable securities	17,764			25,856
Deferred income tax asset	105,580			107,685
Other non-current assets	11,029			11,935
Total assets	$	506,981		$	493,190
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables	$	52,215		$	35,624
Accrued liabilities	32,134			28,312
Accrued environmental liability	5,476			6,524
Accrued interest - related party	621			609
Short-term debt	22,271			24,168
Current portion of long-term debt	4,452			4,452
Deferred income tax liabilities - current	1,096			736
Total current liabilities	118,265			100,425
Long-term debt	108,465			114,616
Long-term debt - related party	19,623			20,045
Accrued pension liability	180,684			186,211
Other employee benefit liabilities	5,298			5,299
Other liabilities	7,392			7,596
Total liabilities	439,727			434,192
Commitments and Contingencies
Stockholders' Equity:
Preferred stock- $.01 par value; authorized 5,000 shares; issued and outstanding -0- shares	—			—
Common stock -  $.01 par value; authorized 180,000 shares; issued and outstanding 13,149 and 12,646 shares, respectively	132			127
Accumulated other comprehensive loss	(197,875		)	(188,389		)
Additional paid-in capital	557,435			555,746
Accumulated deficit	(292,438		)	(308,486		)
Total stockholders' equity	67,254			58,998
Liabilities and stockholders' equity	$	506,981		$	493,190

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2

HANDY & HARMAN LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 30,
(in thousands)	2012			2011
Cash flows from operating activities:
Net income	$	16,048		$	21,584
Adjustments to reconcile net income to net cash provided by
(used in) operating activities, net of acquisitions:
Depreciation and amortization	7,643			7,875
Non-cash stock based compensation	1,941			1,729
Amortization of debt issuance costs	854			1,145
Loss (gain) on early retirement of debt	539			(603		)
Pay-in-kind interest on Subordinated Notes	1,110			1,433
Deferred income taxes	7,454			349
Gains from asset dispositions	(49		)	(44		)
Asset impairment charge	—			700
Non-cash gain from derivatives	(1,913		)	(2,383		)
Reclassification of net cash settlements on precious metal contracts to investing activities	(597		)	1,603
Net cash used in operating activities of discontinued operations, including non-cash gain on sale of assets	—			(11,002		)
Decrease (increase) in operating assets and liabilities:
Trade and other receivables	(21,473		)	(37,197		)
Inventories	(3,866		)	(11,298		)
Other current assets	(835		)	(190		)
Accrued interest expense-related party	621			—
Other current liabilities	3,838			2,994
Other items-net	(134		)	(1,038		)
Net cash provided by (used in) operating activities	11,181			(24,343		)
Cash flows from investing activities:
Additions to property, plant & equipment	(7,722		)	(5,712		)
Net cash settlements on precious metal contracts	597			(1,603		)
Acquisition	—			(8,761		)
Proceeds from sales of assets	465			74
Investment in available-for-sale securities	(6,321		)	—
Net cash provided by (used in) sale of assets of discontinued operations	—			26,532
Net cash provided by (used in) investing activities	$	(12,981	)	$	10,530

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	Six Months Ended
	June 30,
(in thousands)	2012			2011
Cash flows from financing activities:
Net revolver borrowings (repayments)	(2,042		)	19,465
Net borrowings on loans - foreign	1,400			746
Repayments of term loans	(2,226		)	(2,576		)
Repurchase of Subordinated Notes	—			(8,069		)
Deferred finance charges	—			(510		)
Net change in overdrafts	4,305			3,832
Other financing activities	(210		)	(55		)
Net cash provided by financing activities	1,227			12,833
Net change for the period	(573		)	(980		)
Effect of exchange rate changes on net cash	(24		)	228
Cash and cash equivalents at beginning of period	6,841			8,762
Cash and cash equivalents at end of period	$	6,244		$	8,010
Non-cash financing activities:
Obligation to repurchase Subordinated Notes	$	(5,492	)	$	—

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4

HANDY & HARMAN LTD.

CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars and shares in thousands)
	Common Stock			Accumulated Other Comprehensive			Accumulated			Capital in Excess of		Total Stockholders'
	Shares	Amount		Loss			Deficit			Par Value		Equity
Balance, December 31, 2011	12,646	$	127	$	(188,389	)	$	(308,486	)	$	555,746	$	58,998
Amortization, issuance, and forfeitures of restricted stock grants	503	5		—			—			1,689		1,694
Unrealized loss on available-for-sale investments, net of tax	—	—		(8,548		)	—			—		(8,548		)
Foreign currency translation adjustment	—	—		(938		)	—			—		(938		)
Net income	—	—		—			16,048			—		16,048
Balance, June 30, 2012	13,149	$	132	$	(197,875	)	$	(292,438	)	$	557,435	$	67,254

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – The Company and Nature of Operations

Handy & Harman Ltd. (formerly named WHX Corporation prior to January 3, 2011) (“HNH”) is a diversified manufacturer of engineered niche industrial products with leading market positions in many of the markets it serves. Through its operating subsidiaries, HNH focuses on high margin products and innovative technology and serves customers across a wide range of end markets. HNH’s diverse product offerings are marketed throughout the United States and internationally.  HNH owns Handy & Harman Group Ltd. (“H&H Group”), which owns Handy & Harman (“H&H”) and Bairnco Corporation (“Bairnco”). HNH manages its group of businesses on a decentralized basis with operations principally in North America. HNH’s business units encompass the following segments: Precious Metal, Tubing, Engineered Materials, Arlon Electronic Materials (“Arlon”) and Kasco Blades and Route Repair Services (“Kasco”).  All references herein to “we,” “our” or the “Company” refer to HNH together with all of its subsidiaries.

Note 2 – Management’s Plans and Liquidity

Liquidity

As of June 30, 2012, the Company's current assets totaled $195.6 million, its current liabilities totaled $118.3 million, and its working capital was $77.3 million, as compared to working capital of $70.1 million as of December 31, 2011.

HNH the parent company

The Company's debt is principally held by H&H Group, a wholly-owned subsidiary of HNH.

For HNH, the parent company, sources of cash flow consist of its cash on-hand, distributions from its principal subsidiary, H&H Group, and other discrete transactions. H&H Group's credit facilities restrict H&H Group's ability to transfer any cash or other assets to HNH, subject to the following exceptions: (i) unsecured loans for required payments to the WHX Corporation Pension Plan, a defined benefit pension plan sponsored by the Company (the “WHX Pension Plan”), (ii) payments by H&H Group to HNH for the payment of taxes by HNH that are attributable to H&H Group and its subsidiaries, and (iii) unsecured loans, dividends or other payments for other uses in the aggregate principal amount, together with the aggregate amount of all other such loans, dividends and payments, not to exceed $60.0 million in the aggregate (as of June 30, 2012, $56.3 million has been used). These exceptions are subject to the satisfaction of certain conditions, including the maintenance of minimum amounts of excess borrowing availability under the credit facilities. H&H Group's credit facilities are collateralized by first priority liens on substantially all of the assets of H&H Group and its subsidiaries.

HNH's ongoing operating cash flow requirements consist of arranging for the funding of the minimum requirements of the WHX Pension Plan and paying HNH's administrative costs. The Company expects to have required minimum contributions to the WHX Pension Plan of $7.8 million for the remainder of 2012, $10.8 million, $17.5 million, $18.0 million, $16.0 million, and $59.7 million in 2013, 2014, 2015, 2016, and thereafter, respectively. Such required contributions are determined based upon assumptions regarding such matters as discount rates on future obligations, assumed rates of return on plan assets and legislative changes. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described in the previous sentence, as well as other changes such as any plan termination.

As of June 30, 2012, HNH, the parent company, had cash of approximately $1.1 million and current liabilities of approximately $1.0 million. HNH held an equity investment in common stock of a public company with a cost of $24.3 million and a market value of $17.8 million as of June 30, 2012.

Handy & Harman Group Ltd.

The ability of H&H Group to draw on its U.S. revolving line of credit is limited by its borrowing base of accounts receivable and inventory. As of June 30, 2012, H&H Group's availability under its U.S. revolving credit facilities was $64.4 million, and as of July 31, 2012, was approximately $71.7 million.

There can be no assurances that H&H Group will continue to have access to its lines of credit if financial performance of its subsidiaries do not satisfy the relevant borrowing base criteria and financial covenants set forth in the applicable financing agreements. If H&H Group does not meet certain of its financial covenants or satisfy its borrowing base criteria, and if it is unable to secure necessary waivers or other amendments from the respective lenders on terms acceptable to management, its ability to access available lines of credit could be limited, its debt obligations could be accelerated by the respective lenders, and liquidity could be adversely affected.

Management is utilizing the following strategies to continue to enhance liquidity: (1) continuing to implement improvements, using the HNH Business System, throughout all of the Company's operations to increase sales and operating

6

efficiencies, (2) supporting profitable sales growth both internally and potentially through acquisitions, (3) evaluating from time to time and as appropriate, strategic alternatives with respect to its businesses and/or assets, and (4) seeking financing alternatives that may lower its cost of capital and/or enhance current cash flow. The Company continues to examine all of its options and strategies, including acquisitions, divestitures, and other corporate transactions, to increase cash flow and stockholder value.

The Company has explored and will continue to explore from time to time refinancing for its existing credit facilities, as well as potential alternative or additional sources of financing. The relative attractiveness of any such financing or refinancing to the Company is subject to prevailing conditions in the credit markets. The Company expects to refinance its senior debt prior to its maturity date of July 1, 2013.

Note 3 – Basis of Presentation

The consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and the unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted in accordance with those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.  This quarterly report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements contained in Form 10-K for the year ended December 31, 2011.  Certain amounts for the prior year have been reclassified to conform to the current year presentation.  In particular, the income of certain discontinued operations (see Note 5-“Discontinued Operations”) has been reclassified into separate lines on the Consolidated Statement of Operations to segregate them from continuing operations.

In the opinion of management, the interim financial statements reflect all normal and recurring adjustments necessary to present fairly the consolidated financial position and the results of operations and changes in cash flows for the interim periods.  The preparation of financial statements in conformity with GAAP 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.  The results of operations for the six months ended June 30, 2012 are not necessarily indicative of the operating results for the full year.

Note 4 – Recently Adopted Accounting Pronouncements

Presentation of Comprehensive Income - In June 2011, the Financial Accounting Standards Board ("FASB") issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The Company adopted this guidance in the first quarter of 2012, which resulted in presentation changes only.

Testing Goodwill for Impairment - In September 2011, the FASB issued guidance relating to testing goodwill for impairment, to allow entities to use a qualitative approach to test goodwill for impairment. The new guidance permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this amendment in the third quarter of 2011. The adoption did not have a material impact on the Company's consolidated financial position and results of operations.

Note 5 – Discontinued Operations

Kasco-France

During the third quarter of 2011, the Company sold the stock of Eurokasco, S.A.S. (“Kasco-France”), a part of its Kasco segment, to Kasco-France’s former management team for one Euro plus 25% of any pretax earnings over the next three years. Additionally, Kasco-France signed a five year supply agreement to purchase certain products from Kasco.   Kasco-France has been included as a discontinued operation on a retrospective basis and had a loss of $0.1 million and $0.2 million for the three and six months ended June 30, 2011, respectively. 

Arlon CM

On February 4, 2011, Arlon LLC, an indirect wholly-owned subsidiary of HNH, sold substantially all of its assets and existing operations located primarily in the State of California related to its Adhesive Film Division for an aggregate sale price of $27.0 million.  Net proceeds of approximately $24.2 million from this sale were used to repay indebtedness under the Company’s revolving credit facility.  A pretax gain on the sale of these assets of $11.5 million was recorded in 2011.

On March 25, 2011, Arlon LLC and its subsidiaries sold substantially all of their assets and existing operations located primarily in the State of Texas related to Arlon LLC’s Engineered Coated Products Division and SignTech subsidiary for an aggregate sale price of $2.5 million.  In addition, Arlon LLC sold a coater machine to the same purchaser for a price of $0.5 million.  The Company recorded a pretax loss of $5.0 million on the sale of these assets in 2011.  The net proceeds from these asset sales were used to repay indebtedness under the Company’s revolving credit facility.

Amounts held in escrow in connection with the asset sales, totaling $3.0 million, were recorded in “Trade and other receivables” on the consolidated balance sheet as of December 31, 2011, and were received by the Company in the second quarter of 2012.

The total gain of $6.4 million, net of tax, as a result of the sales of the California and Texas operations of Arlon CM is reported in discontinued operations on the consolidated statement of operations for the six months ended June 30, 2011. The discontinued operations had an aggregate loss of $0.1 million and $0.7 million from their operations for the three and six months ended June 30, 2011, respectively.

The income (loss) from discontinued operations consists of the following:

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2012		2011			2012		2011
Net sales	$	—	$	3,769		$	—	$	15,796
Operating loss	$	—	$	(123	)	—		(672		)
Loss from discontinued operations, net	$	—	$	(127	)	—		(709		)
Gain on sale of assets, net of tax	$	—	$	(154	)	—		6,431

Note 6 – Acquisition

In the first quarter of 2011, a subsidiary of H&H acquired certain assets and assumed certain liabilities of Tiger Claw, Inc., a company that among other businesses, developed and manufactured hidden fastening systems for deck construction.  The initial purchase price of $8.8 million was subsequently adjusted by $0.3 million in the fourth quarter of 2011, resulting in a final purchase price of $8.5 million. The purchase price was paid in cash.  The assets acquired included, among other things, machinery, equipment, inventories of raw materials, work-in-process and finished products, certain contracts, accounts receivable and intellectual property rights, all as related to the acquired business and as provided in the Asset Purchase Agreement.  The results of operations of the acquired business are reported as a product line within the Company’s Engineered Materials segment.  HNH believes this acquisition enhances its product offerings of fastening systems for deck construction.

If the acquisition had taken place as of January 1, 2010 instead of during the first quarter of 2011, the unaudited proforma statement of operations for the Company would have been as follows:

	Three Months Ended	Six Months Ended
(in thousands except per share)	June 30, 2011	June 30, 2011
Net sales	$189,125	$	342,454
Income from continuing operations before tax	$18,494	$	18,321
Income from continuing operations, net of tax	$16,965	$	15,786
Income from continuing operations, net of tax, per share	$1.34	$	1.27

Note 7 – Accumulated Other Comprehensive Income (Loss)

7

Changes, net of tax, in accumulated other comprehensive income/(loss) and their components follow:

(in thousands)	Unrealized gain (loss) on available-for-sale securities			Cumulative translation adjustment			Change in net pension and other benefit obligations			Total
Balance at December 31, 2011	$	4,822		$	2,119		$	(195,330	)	$	(188,389	)
Current period other comprehensive loss	(8,548		)	(938		)	—			(9,486		)
Balance at June 30, 2012	$	(3,726	)	$	1,181		$	(195,330	)	$	(197,875	)

Note 8 – Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date.  Fair value measurements are broken down into three levels based on the reliability of inputs as follows:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.  An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.  The valuation under this approach does not entail a significant degree of judgment.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

Level 3 inputs are unobservable inputs for the asset or liability.  Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The fair value of the Company’s financial instruments, such as cash and cash equivalents, accounts receivable, and accounts payable approximate carrying value due to the short-term maturities of these assets and liabilities.  Carrying cost approximates fair value for the Company’s long term debt which has variable interest rates.

The derivative instruments that the Company purchases, specifically commodity futures and forwards contracts on precious metal, are valued at fair value.  The futures contracts are Level 1 measurements since they are traded on a commodity exchange.  The forward contracts are entered into with a counterparty, and are considered Level 2 measurements. The embedded derivative features of the Company’s Subordinated Notes and related warrants (See Note 15 - “Debt”) are valued at fair value on a recurring basis and are considered Level 3 measurements.

8

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis, the amounts on the consolidated balance sheet as of June 30, 2012, and the activity in those assets and liabilities that are valued using Level 3 measurements. 

	Asset (Liability) as of June 30, 2012
(in thousands)	Total			Level 1			Level 2			Level 3
Available-for-sale securities	$	17,764		$	17,764		$	—		$	—
Commodity contracts on precious metal	$	(74	)	$	(14	)	$	(60	)	$	—
Derivative features of Subordinated Notes	$	527		$	—		$	—		$	527

Activity	Six Months Ended June 30, 2012
(in thousands)
Balance at December 31, 2011	$	(1,314	)
Total net gains (losses) included in:
Net income	1,758
Other comprehensive income	—
Purchases	—
Issuances	—
Sales	—
Settlements	83
Net transfers into/ (out of) Level 3	—
Balance at June 30, 2012	$	527

The income of $1.8 million for the six months ended June 30, 2012 noted above is an unrealized gain that is attributable to the fair value of the embedded derivatives associated with the Company’s Subordinated Notes.

The valuation of the derivative features of the Subordinated Notes and Warrants utilizes a customized binomial model which values the embedded derivatives in such notes and the associated Warrants in a unified way, using a cash flow approach. Interest rates and the market price of HNH’s stock are significant inputs that influence the valuation of the derivative liability.

The Company's non-financial assets measured at fair value on a non-recurring basis include goodwill and intangible assets, any assets and liabilities acquired in a business combination, or its long-lived assets written down to fair value. To measure fair value for such assets, the Company uses techniques including an income approach, a market approach, and/or appraisals (Level 3 inputs). The income approach is based on a discounted cash flow analysis (“DCF”) and calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the DCF require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates, and the amount and timing of expected future cash flows. The discount rates, which are intended to reflect the risks inherent in future cash flow projections, used in the DCF are based on estimates of the weighted-average cost of capital (“WACC”) of a market participant.  Such estimates are derived from analysis of peer companies and consider the industry weighted average return on debt and equity from a market participant perspective.  A market approach values a business by considering the prices at which shares of capital stock of reasonably comparable companies are trading in the public market, or the transaction price at which similar companies have been acquired.  If comparable companies are not available, the market approach is not used.

Long-lived assets consisting of land and buildings used in previously operating businesses and currently unused, which total $7.3 million as of June 30, 2012, are carried at the lower of cost or fair value, and are included in Other Non-Current Assets in the consolidated balance sheets. A reduction in the carrying value of such long-lived assets is recorded as an asset impairment charge in the consolidated statement of operations. A non-cash asset impairment charge of $0.7 million was recorded for the six months ended ended June 30, 2011, related to unused land owned by the Company's Arlon segment located in Rancho Cucamonga, California. The Company reduced this property's carrying value by $0.7 million to reflect its lower fair market value.

Note 9 – Income (Loss) Per Share

The computation of basic income (loss) per common share is calculated by dividing the net income or loss by the weighted average number of shares of the Company’s common stock outstanding, as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012		2011
(in thousands, except per share)
Income from continuing operations, net of tax	$	10,952	$	17,041		$	16,048	$	15,862
Weighted average number of common shares outstanding	13,144		12,651			12,918		12,468
Income from continuing operations, net of tax  per common share	$	0.83	$	1.35		$	1.24	$	1.27
Discontinued operations	$	—	$	(281	)	$	—	$	5,722
Weighted average number of common  shares outstanding	13,144		12,651			12,918		12,468
Discontinued operations per common share	$	—	$	(0.03	)	$	—	$	0.46
Net income	$	10,952	$	16,760		$	16,048	$	21,584
Weighted average number of common shares outstanding	13,144		12,651			12,918		12,468
Net income per common share	$	0.83	$	1.32		$	1.24	$	1.73

Diluted earnings per share gives effect to dilutive potential common shares outstanding during the period.  The Company had potentially dilutive common share equivalents including stock options and other stock-based incentive compensation arrangements during the three and six month periods ended June 30, 2012 and 2011, although none were dilutive because the $90.00 per share exercise price of such equivalents exceeded the market value of the Company’s common stock during those periods. The market value of the Company’s common stock averaged $13.62 during the three month period ended June 30, 2012.  As of June 30, 2012, stock options for an aggregate of 51,500 shares are excluded from the calculation of net income per share.

Note 10 – Inventories

Inventories at June 30, 2012 and December 31, 2011 were comprised of:

(in thousands)	June 30,			December 31,
	2012			2011
Finished products	$	19,629		$	20,280
In - process	9,128			8,354
Raw materials	17,612			17,304
Fine and fabricated precious metal in various stages of completion	11,836			8,658
	58,205			54,596
LIFO reserve	(4,002		)	(4,211		)
	$	54,203		$	50,385

In order to produce certain of its products, H&H purchases, maintains and utilizes precious metal inventory.  H&H records its precious metal inventory at last-in, first-out (“LIFO”) cost, subject to lower of cost or market with any adjustments recorded through cost of goods sold.  The market value of the precious metal inventory exceeded LIFO cost by $4.0 million as of June 30, 2012 and $4.2 million as of December 31, 2011.

Certain customers and suppliers of H&H choose to do business on a “toll” basis, and furnish precious metal to H&H for return in fabricated form (“customer metal”) or for purchase from or return to the supplier. When the customer metal is returned in fabricated form, the customer is charged a fabrication charge. The value of this customer metal is not included in the Company’s balance sheet.  To the extent H&H is able to utilize customer precious metal in its production processes, such customer metal replaces the need for H&H to purchase its own inventory. As of June 30, 2012, H&H’s customer metal consisted of 250,111 ounces of silver, 567 ounces of gold, and 1,467 ounces of palladium.

Supplemental inventory information:	June 30,		December 31,
	2012		2011
	(in thousands, except per ounce)
Precious metals stated at LIFO cost	$	7,834	$	4,447
Market value per ounce:
Silver	$	27.64	$	27.95
Gold	$	1,604.00	$	1,565.80
Palladium	$	584.55	$	655.40

Note 11 – Derivative Instruments

H&H’s precious metal inventory is subject to market price fluctuations.  H&H enters into commodity futures and forwards contracts on its precious metal inventory that is not subject to fixed-price contracts with its customers in order to economically hedge against price fluctuations.  As of June 30, 2012, the Company had entered into forward and future contracts with a value of $2.2 million for gold and $2.7 million for silver.

The forward contracts, in the amount of $3.1 million, were made with a counter party rated A by Standard & Poors, and the futures are exchange traded contracts through a third party broker.  Accordingly, the Company has determined that there is minimal credit risk of default.  The Company estimates the fair value of its derivative contracts through the use of market quotes or broker valuations when market information is not available.

As these derivatives are not designated as accounting hedges under GAAP, they are accounted for as derivatives with no hedge designation.  The derivatives are marked to market and both realized and unrealized gains and losses are recorded in current period earnings in the Company's consolidated statement of operations.  The Company’s hedging strategy is designed to protect it against normal volatility; therefore, abnormal price increases in these commodities or markets could negatively impact H&H’s costs.  The three month periods ended June 30, 2012 and June 30, 2011 include gains of $0.5 million and $1.3 million, respectively, on precious metal contracts. The six month period ended June 30, 2012 includes a gain of $0.8 million and the six month period ended June 30, 2011 includes a loss of $1.4 million on precious metal contracts.

As of June 30, 2012, the Company had the following outstanding forward and future contracts with settlement dates ranging from August to September 2012. 

Commodity	Amount
Silver	100,000	ounces
Gold	1,400	ounces

The Company’s Subordinated Notes issued in October 2010 have call premiums as well as Warrants associated with them. The Company has treated the fair value of these features together as both a discount and a derivative liability at inception of the loan agreement. The discount is being amortized over the life of the notes as an adjustment to interest expense, and the derivative liability is marked to market at each balance sheet date. For the three month period ended June 30, 2012, a mark to market gain of $1.1 million was recognized in unrealized gain on derivatives compared to a gain of $3.7 million for the three month period ended June 30, 2011. For the six month period ended June 30, 2012, a mark to market gain of $1.8 million was recognized in unrealized gain on derivatives compared to a gain of $2.3 million for the six month period ended June 30, 2011. The embedded derivative features of the Subordinated Notes and related Warrants are considered Level 3 measurements of fair value.

Effect of Derivative Instruments on the Consolidated Statements of Operations

(in thousands)		Three Months Ended				Six Months Ended
		June 30,				June 30,
Derivative	Statement  of Operations Line	2012		2011		2012		2011
Commodity contracts	Realized and unrealized gain (loss) on derivatives	$	495	$	1,315	$	752	$	(1,418	)
Derivative features of Subordinated Notes	Realized and unrealized gain (loss) on derivatives	1,117		3,704		1,758		2,273
	Total derivatives not designated as hedging instruments	$	1,612	$	5,019	$	2,510	$	855
	Total derivatives	$	1,612	$	5,019	$	2,510	$	855

GAAP requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet.

Fair Value of Derivative Instruments in the Consolidated Balance Sheets

(in thousands)		June 30,			December 31,
Derivative	Balance Sheet Location	2012			2011
Commodity contracts	Other current assets (liabilities)	$	(74	)	$	(229	)
Derivative features of Subordinated Notes	Long-term debt & long term debt-related party	527			(1,314		)
	Total derivatives not designated as hedging instruments	$	453		$	(1,543	)
	Total derivatives	$	453		$	(1,543	)

Note 12 – Investments

On June 30, 2012 and December 31, 2011, the Company held an investment in the common stock of a single public company which is classified as an available-for-sale security in non-current assets. The unrealized gain or loss associated with such securities is included in Accumulated Other Comprehensive Loss, net of tax, on the consolidated Balance Sheet and also on the consolidated Statement of Changes in Stockholders' Equity. There have been no sales or realized gains or losses from marketable securities, and no impairments, whether other-than-temporary or not, have been recognized. The security has been in a continuous loss position for less than 12 months. Some of the factors considered by the Company when determining that the reduction in fair value below cost should not be recorded as an impairment in the Statement of Operations are that the security is listed on a national stock exchange (NASDAQ), the market price has generally exceeded the June 30, 2012 price since that time, and the Company has the intent and ability to retain the investment for a period of time sufficient to allow for the anticipated recovery in its market value.

(in thousands)	Cost		Gross Unrealized Gain (Loss)			Fair Value
June 30, 2012
Available-for-sale equity securities	$	24,343	$	(6,579	)	$	17,764
December 31, 2011
Available-for-sale equity securities	$	18,021	$	7,835		$	25,856

Note 13 - Goodwill and Other Intangibles

Goodwill is reviewed annually for impairment in accordance with generally accepted accounting principles. The Company uses judgment in assessing whether assets may have become impaired between annual impairment tests.  Circumstances that could trigger an interim impairment test include but are not limited to: the occurrence of a significant change in circumstances, such as continuing adverse business conditions or legal factors; an adverse action or assessment by a regulator; unanticipated competition; loss of key personnel; the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed; or results of testing for recoverability of a significant asset group within a reporting unit.  The testing of goodwill for impairment is performed at a level referred to as a reporting unit. Goodwill is allocated to each reporting unit based on the goodwill valued in connection with each business combination consummated within each reporting unit.

The changes in the net carrying amount of goodwill by reportable segment for the six month periods ended June 30, 2012 and 2011 were as follows:

(in thousands)
Segment	Balance at January 1, 2012		Acquisitions/ Other			Balance at June 30, 2012		Accumulated Impairment Losses
Precious Metal	$	1,489	$	(9	)	$	1,480	$	—
Tubing	1,895		—			1,895		—
Engineered Materials	52,985		—			52,985		—
Arlon	9,298		—			9,298		(1,140		)
	$	65,667	$	(9	)	$	65,658	$	(1,140	)
Segment	Balance at January 1, 2011		Acquisitions/ Other			Balance, June 30, 2011		Accumulated Impairment Losses
Precious Metal	$	1,492	$	32		$	1,524	$	—
Tubing	1,895		—			1,895		—
Engineered Materials	51,232		1,623			52,855		—
Arlon	9,298		—			9,298		(1,140		)
	$	63,917	$	1,655		$	65,572	$	(1,140	)

Other intangible assets as of June 30, 2012 and December 31, 2011 consisted of:

(in thousands)	June 30, 2012							December 31, 2011							Weighted Average Amortization Life (in Years)
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
Products and customer relationships	$	37,965	$	(11,945	)	$	26,020	$	37,965	$	(10,666	)	$	27,299	16.6
Trademarks & Brand names	4,398		(1,494		)	2,904		4,398		(1,354		)	3,044		17.5
Patents and patent applications	4,638		(1,357		)	3,281		4,466		(1,192		)	3,274		15
Non-compete agreements	906		(777		)	129		906		(754		)	152		6.5
Other	1,409		(1,162		)	247		1,409		(1,101		)	308		8
Total	$	49,316	$	(16,735	)	$	32,581	$	49,144	$	(15,067	)	$	34,077

Amortization expense totaled $0.8 million and $0.9 million for the three months ended June 30, 2012 and 2011, respectively. Amortization expense totaled $1.7 million and $1.6 million for the six months endedJune 30, 2012 and 2011, respectively. The estimated amortization expense for the remainder of 2012 and for the years thereafter is as follows:

(in thousands)	Products and Customer Relationships		Trademarks		Patents and Patent Applications		Non-Compete Agreements		Other		Total
Remainder of 2012	$	1,184	$	171	$	143	$	74	$	22	$	1,594
2013	2,463		311		310		55		81		3,220
2014	2,463		311		310		—		68		3,152
2015	2,463		311		310		—		58		3,142
2016	2,463		311		310		—		8		3,092
Thereafter	14,984		1,489		1,898		—		10		18,381
	$	26,020	$	2,904	$	3,281	$	129	$	247	$	32,581

Note 14 – Pensions and Other Post-retirement Benefits

The following table presents the components of net periodic pension cost for the Company’s pension plans for the three and six month periods ended June 30, 2012 and 2011.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2012			2011			2012			2011
Service cost	$	—		$	55		$	—		$	111
Interest cost	5,349			5,616			10,698			11,232
Expected return on plan assets	(6,727		)	(6,924		)	(13,494		)	(13,849		)
Amortization of prior service cost	10			16			20			31
Amortization of actuarial loss	2,020			$	2,362		4,040			4,725
	$	652		$	1,125		1,264			2,250

The actuarial loss occurred principally because the investment returns on the assets of the WHX Pension Plan have been lower than the actuarial assumptions. In 2011, the unrecognized actuarial gains or losses were amortized over the average future service years of active participants in the WHX Pension Plan, which was approximately 10 years. Beginning in 2012, the actuarial losses are being amortized over the average future lifetime of the participants, which is expected to be approximately 21 years, a longer period than previously used. The Company believes that the future lifetime of the participants is more appropriate because the WHX Pension Plan is now completely inactive.

During the second quarter of 2012, new U.S. legislation was enacted that significantly reduced the amount of minimum pension plan contributions that the Company expects to make to the WHX Pension Plan in the next several years. The Company now expects to have required minimum contributions to the WHX Pension Plan of $7.8 million for the remainder of 2012, $10.8 million, $17.5 million, $18.0 million, $16.0 million, and $59.7 million in 2013, 2014, 2015, 2016 and thereafter, respectively. Such required contributions are determined based upon assumptions regarding such matters as discount rates on future obligations, assumed rates of return on plan assets and legislative changes. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described in the previous sentence, as well as other changes such as any plan termination.

In addition to its pension plans which are included in the table above, the Company also maintains several other post-retirement benefit plans covering certain of its employees and retirees.  The approximate aggregate expense for these plans was $0.5 million and $0.6 million for the three month periods ended June 30, 2012 and 2011, respectively, and $1.0 million and $1.1 million for the six month periods ended June 30, 2012 and 2011, respectively.  

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Note 15 – Debt

Debt at June 30, 2012 and December 31, 2011 was as follows:

(in thousands)	June 30,		December 31,
	2012		2011
Short term debt
First Lien Revolver	$	21,807	$	23,850
Foreign	464		318
Total short-term debt	22,271		24,168
Long-term debt
First Lien Term Loan	14,000		16,100
Second Lien Term Loan	75,000		75,000
10% Subordinated Notes, net of unamortized discount	13,755		18,934
Other H&H debt-domestic	6,908		7,034
Foreign loan facilities	3,254		2,000
Sub total	112,917		119,068
Less portion due within one year	4,452		4,452
Long-term debt	108,465		114,616
Long-term debt - related party:
10% Subordinated Notes, net of unamortized discount	19,623		20,045
Total long-term debt	128,088		134,661
Total debt	$	154,811	$	163,281
Capital lease facility
Current portion of capital lease	$	417	$	417
Long-term portion of capital lease	624		796
Total capital lease facility	$	1,041	$	1,213

First Lien Term Loan

H&H Group, together with certain of its subsidiaries, entered into an Amended and Restated Loan and Security Agreement (the “Wells Fargo Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent for the lenders thereunder. Amounts outstanding under the Wells Fargo Facility bear interest at LIBOR plus applicable margins of between 2.25% and 3.50% (3.00% for the term loan and 2.25% for the revolver at June 30, 2012 ), or at the U.S. base rate (the prime rate) plus 0.25% to 1.50% (1.00% for the term loan and 0.25% for the revolver at June 30, 2012). The applicable margins for the First Lien Revolver and the First Lien Term Loan are dependent on H&H Group's Quarterly Average Excess Availability for the prior quarter, as that term is defined in the agreement. Principal payments of the First Lien Term Loan are due in equal monthly installments of approximately $0.35 million. All amounts outstanding under the Wells Fargo Facility are due and payable in full on July 1, 2013. Obligations under the Wells Fargo Facility ("First Lien Revolver" and "First Lien Term Loans") are collateralized by first priority security interests in and liens upon all present and future assets of H&H Group and substantially all of its subsidiaries.

Second Lien Term Loan

The Amended and Restated Loan and Security Agreement with Ableco L.L.C. (the "Ableco Facility") provides for three loans at a maximum value of $25.0 million per loan (the "Second Lien Term Loans"). Two of the three Second Lien Term Loans bear interest at the U.S. base rate (the prime rate) plus 4.50% or LIBOR (or, if greater, 1.50%) plus 6.00%. The third Second Lien Term Loan bears interest at the U.S. base rate (the prime rate) plus 7.50% or LIBOR (or, if greater, 1.75%) plus 9.00%. All amounts outstanding under the Ableco Facility are due and payable in full on July 1, 2013. Obligations under the Ableco Facility are collateralized by second priority security interests in and liens upon all present and future assets of H&H Group and substantially all of its subsidiaries.

On May 23, 2012, H&H Group and the lenders agreed to amend the Wells Fargo Facility and the Ableco Facility to, among other things, increase from $23.0 million to $28.0 million, the maximum amount of capital expenditures allowed during the previous 12 months.

10

The Company expects to refinance its senior debt prior to the maturity date, July 1, 2013.

Subordinated Notes

Subordinated secured notes due 2017 (the “Subordinated Notes”) were issued by H&H Group pursuant to an Indenture by and among H&H Group, the guarantors party thereto, and Wells Fargo, as trustee. All obligations outstanding under the Subordinated Notes bear interest at a rate of 10% per annum, 6% of which is payable in cash and 4% of which is payable in-kind. The Subordinated Notes, together with any accrued and unpaid interest thereon, mature on October 15, 2017. All amounts owed under the Subordinated Notes are guaranteed by substantially all of H&H Group's subsidiaries and are secured by substantially all of their assets. The Subordinated Notes are contractually subordinated in right of payment to the Wells Fargo Facility and the Ableco Facility. The Subordinated Notes are redeemable until October 14, 2013, at H&H Group's option, upon payment of all of the principal amount of the Notes, plus all accrued and unpaid interest thereon and the applicable premium set forth in the Indenture (the “Applicable Redemption Price”). If H&H Group or its subsidiary guarantors undergo certain types of fundamental changes prior to the maturity date of the Subordinated Notes, holders thereof will, subject to certain exceptions, have the right, at their option, to require H&H Group to purchase for cash any or all of their Subordinated Notes at the Applicable Redemption Price.

During the second quarter of 2012, H&H Group agreed to repurchase $5.1 million face amount of Subordinated Notes, plus accrued interest. The cash settlement of the transaction is expected to take place in the third quarter of 2012 and a liability of $5.5 million in connection with the repurchase is included in Accrued Liabilities on the Consolidated Balance Sheet as of June 30, 2012.

Note 16 – Income Taxes

For the six months ended June 30, 2012 and 2011, tax provisions from continuing operations of $11.0 million and $2.5 million were recorded, respectively. The increase in the tax provision in the first half of 2012 as compared to the first half of 2011 was due to a higher federal tax provision resulting principally from the recording of the benefit of the Company's federal net operating loss carryforwards (“NOLs”) in the fourth quarter of 2011 as further described below.

HNH had NOLs of approximately $185 million as of December 31, 2010 and had established a full valuation allowance against its federal deferred tax assets. As earnings were recorded in the first half of 2011, HNH recognized the benefit from the utilization of its NOLs, thereby reducing tax expense. In the fourth quarter of 2011, the Company changed its judgment regarding the realizability of its deferred tax assets, and, as of December 31, 2011, reversed most of its remaining deferred tax valuation allowance, thus recording a tax benefit of the future NOLs at that time. As of December 31, 2011, HNH had federal NOLs of approximately $183 million and a related deferred tax asset of $64.1 million was recorded on the consolidated balance sheet as of December 31, 2011.

In the first half of 2012, there was no benefit from the utilization of NOLs recorded since the benefit had been recognized in the fourth quarter of 2011, and the non-cash federal tax expense resulting from first half 2012 earnings was recorded in the tax provision in the statement of operations. The effective tax rate in the first half of 2012 was 40.7%. 

Note 17 – Reportable Segments

HNH, the parent company, manages a group of businesses on a decentralized basis. HNH is a diversified holding company whose strategic business units encompass the following segments: Precious Metal, Tubing, Engineered Materials, Arlon Electronic Materials, and Kasco Blades and Route Repair Services. The business units principally operate in North America.

Precious Metal segment primarily fabricates precious metals and their alloys into brazing alloys. Brazing alloys are used to join similar and dissimilar metals as well as specialty metals and some ceramics with strong, hermetic joints. Precious Metal segment offers these metal joining products in a wide variety of alloys including gold, silver, palladium, copper, nickel, aluminum and tin. These brazing alloys are fabricated into a variety of engineered forms and are used in many industries including electrical, appliance, transportation, construction and general industrial, where dissimilar material and metal-joining applications are required. Operating income from precious metal products is principally derived from the ''value added'' of processing and fabricating and not from the purchase and resale of precious metal. Precious Metal segment has limited exposure to the prices of precious metals due to the Company's hedging and pricing models. We believe that the business unit that comprises our Precious Metal segment is the North American market leader in many of the markets that it serves.

Tubing segment manufactures a wide variety of steel tubing products. We believe that our Stainless Steel Tubing Group manufactures the world's longest continuous seamless stainless steel tubing coils in excess of 5,000 feet serving the petrochemical infrastructure and shipbuilding markets. We also believe it is the number one supplier of small diameter (<3mm) coil tubing to industry leading specifications serving the aerospace, defense and semiconductor fabrication markets. Our Specialty Tubing unit manufactures welded carbon steel tubing in coiled and straight lengths with a primary focus on products for the consumer and commercial refrigeration, automotive, heating, ventilation and cooling (HVAC) and oil and gas industries. In addition to producing bulk tubing, it produces value added fabrications for several of these industries.

Engineered Materials segment manufactures and supplies products primarily to the commercial construction and building industries. It manufactures fasteners and fastening systems for the U.S. commercial low slope roofing industry which are sold to building and roofing material wholesalers, roofing contractors and private label roofing system manufacturers; a line of engineered specialty fasteners for the building products industry for fastening applications in the remodeling and construction of homes, decking and landscaping; plastic and steel fittings and connectors for natural gas, propane and water distribution service lines along with exothermic welding products for electrical grounding, cathodic protection and lightning protection; and electro-galvanized and painted cold rolled sheet steel products primarily for the construction, entry door, container and appliance industries. We believe that our primary business unit in the Engineered Materials segment is the market leader in fasteners and accessories for commercial low-slope roofing applications, and that the majority of the net sales for the segment are for the commercial construction repair and replacement market.

Arlon provides high performance materials for the printed circuit board (''PCB'') industry and silicone rubber-based insulation materials used in a broad range of industrial, military/aerospace, consumer and commercial markets. It also supplies high technology circuit substrate laminate materials to the PCB industry. Arlon products are marketed principally to Original Equipment Manufacturers (''OEMs''), distributors and PCB manufacturers globally. Arlon also manufactures a line of market leading silicone rubber materials used in a broad range of military, consumer, industrial and commercial products.

Kasco provides meat-room blade products, repair services and resale products for the meat and deli departments of supermarkets, restaurants, meat and fish processing plants and for distributors of electrical saws and cutting equipment principally in North America and Europe. Kasco also provides wood cutting blade products for the pallet manufacturing, pallet recycler and portable saw mill industries in North America.

Management has determined that certain operating companies should be aggregated and presented within a single segment on the basis that such operating companies have similar economic characteristics and share other qualitative characteristics. Management reviews sales, gross profit, operating income, capital expenditures, working capital and free-cash flow to evaluate segment performance. Operating income for the segments includes the costs of shared corporate headquarters functions such as finance, auditing, treasury, legal, benefits administration and certain executive functions, but excludes other unallocated general corporate expenses. Other income and expense, interest expense, and income taxes are not presented by segment since they are excluded from the measure of segment profitability reviewed by the Company's management.

The following table presents information about reportable segments for the three and six months endedJune 30, 2012 and 2011.

Statement of operations data:	Three Months Ended						Six Months Ended
(in thousands)	June 30,						June 30,
	2012			2011			2012			2011
Net Sales:
Precious Metal	$	49,576		$	54,051		$	97,414		$	98,697
Tubing	25,905			24,474			51,697			48,873
Engineered Materials	77,014			74,168			134,127			123,562
Arlon	21,703			21,813			41,708			43,842
Kasco	13,015			12,947			26,403			25,808
Total net sales	$	187,213		$	187,453		$	351,349		$	340,782
Segment operating income:
Precious Metal	7,803			5,612			13,417			10,114
Tubing	4,574			3,292			8,119			7,573
Engineered Materials	10,413			10,050			14,945			12,188
Arlon  (a)	3,970			2,513			6,498			4,649
Kasco	852			961			2,009			2,070
Total segment operating income	27,612			22,428			44,988			36,594
Unallocated corporate expenses & non operating units (b)	(5,521		)	(4,473		)	(10,831		)	(9,225		)
Unallocated pension expense	(652		)	(1,125		)	(1,264		)	(2,250		)
Gain on disposal of assets	26			44			49			44
Operating income	21,465			16,874			32,942			25,163
Interest expense	(4,350		)	(3,297		)	(8,199		)	(7,626		)
Realized and unrealized gain on derivatives	1,612			5,019			2,510			855
Other (expenses) income	(152		)	(26		)	(196		)	5
Income from continuing operations before income taxes	$	18,575		$	18,570		$	27,057		$	18,397

a) The segment operating income of the Arlon segment for the six months ended June 30, 2011 includes an asset impairment charge of $0.7 million to write down unused land located in Rancho Cucamonga, California to fair value.

b) The segment operating income for the six months ended June 30, 2011 has been adjusted by $0.4 million of non-cash restricted stock expense to be comparable with the 2012 presentation. Such restricted stock expense is presented in both years as an unallocated corporate expense.

Note 18 – Stock-Based Compensation

In March, April and May of 2012, the Compensation Committee of the Company's Board of Directors approved the grant of an aggregate of 525,400 shares of restricted stock under the 2007 Incentive Stock Plan, as amended, to certain employees and members of the Board of Directors. The fair value of the restricted shares was determined based upon the NASDAQ closing price per share on the dates of grant.

The restricted stock grants made to the employees in 2012 vest in equal annual installments over a three year period from the grant date.  These grants were made in lieu of the Long Term Incentive Plan component of the Company's 2012 Bonus Plan for those individuals who received shares of restricted stock. The restricted stock grants to the Company's directors will vest upon the earlier of one year from the grant date, or the date the recipient ends his service as a director of the Company, subject to the terms thereof.

Compensation expense is measured based on the fair value of the stock-based awards on the grant date and recognized in the statement of operations on a straight-line basis over the requisite service period, which is the vesting period.

The Company allows employees to forego the issuance of shares to meet applicable federal and state income tax withholding due as a result of the vesting of restricted stock. Such shares are returned to the unissued shares of the Company's Common Stock. During the six month period ended June 30, 2012, 20,494 shares were foregone by employees in connection with income tax withholding obligations.

Restricted stock activity under the Company's 2007 Plan was as follows in the six months endedJune 30, 2012:

(shares)	Employees		Directors
Balance, January 1, 2012	261,934		206,000
Granted	273,400		252,000
Forfeited	(2,600	)	—
Reduced for income tax obligations	(20,494	)	—
Balance, June 30, 2012	512,240		458,000
Vested	142,850		209,000
Non-vested	369,390		249,000

The Company has recognized compensation expense related to restricted shares of $1.3 million and $0.7 million for the three months ended June 30, 2012 and 2011, respectively, and $1.9 million and $1.7 million for the six months endedJune 30, 2012 and 2011, respectively. Unearned compensation expense related to restricted shares at June 30, 2012 is $6.6 million, which is net of an estimated 5% forfeiture rate.  This amount will be recognized over the remaining vesting period of the restricted shares.

Note 19 – Contingencies

Legal Matters:

Arista Development LLC v. Handy & Harman Electronic Materials Corporation

In 2004, Handy & Harman Electronic Materials Corporation (“HHEM”), a subsidiary of H&H, entered into an agreement to sell a commercial/industrial property in Massachusetts (the “MA Property”). Disputes between the parties resulted in the purchaser (plaintiff) initiating litigation in Bristol Superior Court in Massachusetts. The plaintiff alleged that HHEM was liable for breach of contract relating to HHEM's alleged breach of the agreement, unfair and deceptive acts and practices, and certain consequential and treble damages as a result of HHEM's termination of the agreement in 2005, although HHEM subsequently revoked its notice of termination. HHEM has denied liability and has been vigorously defending the case. In November 2011, the parties agreed to dismiss the litigation without prejudice in order to focus their time, energies and resources on negotiating a settlement and not further litigating the matter unless and until they conclude that settlement is not reasonably possible. It is not possible at this time to reasonably estimate the probability or range of any potential liability of HHEM associated with this matter, and accordingly, there can be no assurance that the resolution of this matter will not be material to the financial position, results of operations and cash flow of the Company.

Severstal Wheeling, Inc. Retirement Committee et. al. v. WPN Corporation et. al.

On November 15, 2010, the Severstal Wheeling, Inc. Retirement Committee (“Severstal”) filed a second amended complaint that added HNH as a defendant to litigation that Severstal had commenced in February 2010 in the United States District Court for the Southern District of New York.  Severstal's second amended complaint alleged that HNH breached fiduciary duties under the Employee Retirement Income Security Act (“ERISA”) in connection with (i) the transfer in November 2008 of the pension plan assets of Severstal Wheeling, Inc (“SWI”) from the WHX Pension Plan Trust to SWI's pension trust and (ii) the subsequent management of SWI's pension plan assets after their transfer.  In its second amended complaint, Severstal sought damages in an amount to be proved at trial as well as declaratory relief. The Company filed a Motion to Dismiss on January 14, 2011, which was fully submitted to the District Court on February 14, 2011.  On September 1, 2011, the District Court granted the Company's Motion to Dismiss in its entirety. On September 15, 2011, Severstal filed a motion for leave to amend the second amended complaint. The proposed amendments sought to add the WHX Pension Investment Committee, along with two of its members in their individual capacities. On October 3, 2011, the Company filed its opposition to Severstal's motion for leave to amend. On May 11, 2012, the magistrate judge assigned to the case denied Severstal's motion to amend. On May 25, 2012, Severstal filed an objection to the magistrate judge's decision with the district court. That objection is pending. The Company believes that Severstal's allegations are without merit and intends to continue to defend itself vigorously. The Company's liability, if any, cannot be reasonably estimated at this time, and accordingly, there can be no assurance that the resolution of this matter will not be material to the financial position, results of operations and cash flow of the Company.

 Environmental Matters

H&H has been working with the Connecticut Department of Environmental Protection (“CTDEP”) with respect to its obligations under a 1989 consent order that applies to a property in Connecticut that H&H sold in 2003 (“Sold Parcel”) and an adjacent parcel (“Adjacent Parcel”) that together with the Sold Parcel comprises the site of a former H&H manufacturing facility.  Remediation of all soil conditions on the Sold Parcel was completed on April 6, 2007. H&H performed limited additional work on that site, solely in furtherance of now concluded settlement discussions between H&H and the purchaser of the Sold Parcel.  Although no groundwater remediation is currently required, quarterly groundwater monitoring is required for up to two years to prove no groundwater impact to the Sold Parcel.  On September 11, 2008, the CTDEP advised H&H that it had approved H&H's December 28, 2007 Soil Remediation Action Report, as amended, thereby concluding the active remediation of the Sold Parcel. Approximately $29.0 million was expended through December 31, 2009, and the remaining remediation and monitoring costs for the Sold Parcel are expected to approximate $0.2 million.  H&H previously received reimbursement of $2.0 million from an insurance company under a cost-cap insurance policy and in January 2010, H&H received $1.034 million, net of attorney's fees, as the final settlement of H&H's claim for additional insurance coverage relating to the Sold Parcel.  H&H also has been conducting an environmental investigation of the Adjacent Parcel, and will be initiating a more comprehensive field study with subsequent evaluation of various options for remediation of the Adjacent Parcel. Since the total remediation costs for the Adjacent Parcel cannot be reasonably estimated at this time, accordingly, there can be no assurance that the resolution of this matter will not be material to the financial position, results of operations and cash flow of H&H or the Company.

In 1986, HHEM entered into an administrative consent order (the “ACO”) with the New Jersey Department of Environmental Protection (“NJDEP”) with regard to certain property that it purchased in 1984 in New Jersey.  The ACO involves investigation and remediation activities to be performed with regard to soil and groundwater contamination.  Thereafter, in 1998, HHEM and H&H settled a case brought by the local municipality in regard to this site and also settled with certain of its insurance carriers.  HHEM is actively remediating the property and continuing to investigate effective methods for achieving compliance with the ACO.  A remedial investigation report was filed with the NJDEP in December 2007.  By letter dated December 12, 2008, NJDEP issued its approval with respect to additional investigation and remediation activities discussed in the December 2007 remedial investigation report.  HHEM anticipates entering into discussions with NJDEP to address that agency's potential natural resource damage claims, the ultimate scope and cost of which cannot be estimated at this time.    Pursuant to a settlement agreement with the former owner/operator of the site, the responsibility for site investigation and remediation costs, as well as any other costs, as defined in the settlement agreement, related to or arising from environmental contamination on the property (collectively, “Costs”) are contractually allocated 75% to the former owner/operator (with separate guaranties by the two joint venture partners of the former owner/operator for 37.5% each) and 25% jointly to HHEM and H&H after the first $1.0 million.  The $1.0 million was paid solely by the former owner/operator.  As of June 30, 2012, over and above the $1.0 million, total investigation and remediation costs of approximately $2.3 million and $0.9 million have been expended by the former owner/operator and HHEM, respectively, in accordance with the settlement agreement.   Additionally, HHEM is currently being reimbursed indirectly through insurance coverage for a portion of the Costs for which HHEM is responsible.  HHEM believes that there is additional excess insurance coverage, which it intends to pursue as necessary. HHEM anticipates that there will be additional remediation expenses to be incurred once a final remediation plan is agreed upon. There is no assurance that the former owner/operator or guarantors will continue to timely reimburse HHEM for expenditures and/or will be financially capable of fulfilling their obligations under the settlement agreement and the guaranties.  The additional Costs cannot be reasonably estimated at this time, and accordingly, there can be no assurance that the resolution of this matter will not be material to the financial position, results of operations and cash flow of HHEM or the Company.

Certain subsidiaries of H&H Group have been identified as potentially responsible parties (“PRPs”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or similar state statutes at sites and are parties to administrative consent orders in connection with certain properties.  Those subsidiaries may be subject to joint and several liabilities imposed by CERCLA on PRPs.  Due to the technical and regulatory complexity of remedial activities and the difficulties attendant in identifying PRPs and allocating or determining liability among them, the subsidiaries are unable to reasonably estimate the ultimate cost of compliance with such laws.

In August 2006, H&H received a notice letter from the United States Environmental Protection Agency (“EPA”) formally naming H&H as a PRP at a superfund site in Massachusetts (the “Superfund site”).  H&H is part of a group of thirteen (13) other PRPs (the “PRP Group”) that work cooperatively regarding remediation of the Superfund site.  On June 13, 2008, H&H executed a participation agreement, consent decree and settlement trust that all of the other PRP's have signed as well.  In December 2008, the EPA lodged the consent decree with the United States District Court for the District of Massachusetts and the consent decree was entered on January 27, 2009, after no comments were received during the thirty-day comment period.  With the entry and filing of the consent decree, H&H was required to make two payments in 2009: one payment of $0.2 million relating to the “true-up” of monies previously expended for remediation and a payment of $0.3 million for H&H's share of the early action items for the remediation project. In addition, on March 11, 2009, HNH executed a financial guaranty of H&H's obligations in connection with the Superfund site. The PRP Group has both chemical and radiological PRPs.  H&H is a chemical PRP; not a radiological PRP.  The remediation of radiological contamination at the Superfund site, under the direction of the Department of Energy (“DOE”), has been completed with the exception of the Final Status Survey. Until the Final Status Survey is approved by the EPA, DOE will not turn over and allow access to the Superfund site to the PRPs. It is currently anticipated that the DOE will turn over the Superfund site towards the end of 2012 or the first quarter of 2013, allowing for mobilization in early 2013.  Additional financial contributions will be required by the PRP Group when it obtains access to the Superfund site, as noted above.   H&H has recorded a significant liability in connection with this matter.  There can be no assurance that the resolution of this matter will not be material to the financial position, results of operations and cash flow of H&H or the Company.

HHEM is continuing to comply with a 1987 consent order from the Massachusetts Department of Environmental Protection (“MADEP”) to investigate and remediate the soil and groundwater conditions at the MA Property that is the subject of the Arista Development litigation discussed above.  On January 20, 2009, HHEM filed with MADEP a partial Class A-3 Response Action Outcome Statement (“RAO-P”) and an Activity & Use Limitation (“AUL”) for the MA Property.  By letter dated March 24, 2009, MADEP advised HHEM that the RAO-P did not require a comprehensive audit.  By letter dated April 16, 2009, the MADEP advised HHEM that a MADEP AUL Audit Inspection conducted on March 18, 2009 did not identify any violations of the requirements applicable to the AUL.  Together, the March 24 and April 16 MADEP letters, combined with HHEM's Licensed Site Professional's partial RAO opinion constitute confirmation of the adequacy of the RAO-P and associated AUL.   On March 31, 2010, the Massachusetts Attorney General executed a covenant not to sue (“CNTS”) to cover the MA Property.  Following the execution of the CNTS, HHEM filed a Remedy Operation Status on April 1, 2010.  On June 30, 2010, HHEM filed a Class A-3 RAO to close the site since HHEM's Licensed Site Professional concluded that groundwater monitoring demonstrated that the groundwater conditions have stabilized or continue to improve at the site. HHEM received notice on April 13, 2011 that the MADEP initiated a routine audit of the Class A-3 RAO. MADEP subsequently requested clarification of several items and HHEM's Licensed Site Professional provided a response letter on July 11, 2011. HHEM anticipates resolution of the audit process before the end of 2012.  In addition, HHEM has concluded settlement discussions with abutters of the MA Property and entered into settlement agreements with each of them.  Therefore, HHEM does not expect that any claims from any additional abutters will be asserted, but there can be no such assurances.

As discussed above, certain subsidiaries of H&H Group have existing and contingent liabilities relating to environmental matters, including capital expenditures, costs of remediation and potential fines and penalties relating to possible violations of national and state environmental laws.  Those subsidiaries have substantial remediation expenses on an ongoing basis, although such costs are continually being readjusted based upon the emergence of new techniques and alternative methods.  The Company had approximately $5.5 million accrued related to estimated environmental remediation costs as of June 30, 2012.  In addition, the Company has insurance coverage available for several of these matters and believes that excess insurance coverage may be available as well. 

Based upon information currently available, the H&H Group subsidiaries do not expect their respective environmental costs, including the incurrence of additional fines and penalties, if any, will have a material adverse effect on them or that the resolution of these environmental matters will have a material adverse effect on the financial position, results of operations and cash flows of such subsidiaries or the Company, but there can be no such assurances.  The Company anticipates that the H&H Group subsidiaries will pay any such amounts out of their respective working capital, although there is no assurance that they will have sufficient funds to pay them.  In the event that the H&H Group subsidiaries are unable to fund their liabilities, claims could be made against their respective parent companies, including H&H Group and/or HNH, for payment of such liabilities.

Other Litigation

Certain of the Company's subsidiaries were defendants (“Subsidiary Defendants”) in numerous cases pending in a variety of jurisdictions relating to welding fumes.  Generally, the factual underpinning of the plaintiffs' claims was that the use of welding products for their ordinary and intended purposes in the welding process caused emissions of fumes that contain manganese, which is toxic to the human central nervous system.  In June 2012, the steering committees for the parties in the welding fume multi-district litigation pending in the United States District Court for the Northern District of Ohio reached a global settlement resolving nearly all welding fume cases pending in state or federal court. None of the Subsidiary Defendants were required to contribute to the settlement fund under the global settlement. As a result of the global settlement, all but one of the cases against the Subsidiary Defendants have been dismissed. The remaining case is not expected to have a material effect on the Company.

In addition to the foregoing case, there are a number of other claims against the Company or certain of its subsidiaries in connection with a variety of products sold by such subsidiaries over several years, as well as litigation related to employment matters, contract matters, sales and purchase transactions and general liability claims, many of which arise in the ordinary course of business. It is not possible at this time to reasonably estimate the probability, range or share of any potential liability of the Company or its subsidiaries in any of these matters.

There is insurance coverage available for many of the foregoing actions, which are being litigated in a variety of jurisdictions.  To date, HNH and its subsidiaries have not incurred and do not believe they will incur any significant liability with respect to these claims, which they are contesting vigorously.  However, it is possible that the ultimate resolution of such litigation and claims could have a material adverse effect on the Company's results of operations, financial position and cash flows when they are resolved in future periods.

Note 20 - Related Party Transactions

In January 2012, the Company restructured its management services arrangements with SP Corporate Services LLC (“SP Corporate”).  On January 1, 2012, the Company entered into a Management Services Agreement (the “Management Services Agreement”) with SP Corporate.  Pursuant to the Management Services Agreement, SP Corporate agreed to provide the Company with the continued services of Glen M. Kassan, as the Company's Chief Executive Officer, and James F. McCabe, Jr., as the Company's Chief Financial Officer, and certain other employees and corporate services.  The Management Services Agreement further provides that the Company will pay SP Corporate a fixed annual fee of approximately $10.98 million consisting of (a) $1.74 million in consideration of executive services provided by SP Corporate under the Management Services Agreement, and (b) $9.24 million in consideration of the corporate services provided by SP Corporate under the Management Services Agreement, including, without limitation, legal, tax, accounting, treasury, consulting, auditing, administrative, compliance, environmental health and safety, human resources, marketing, investor relations and other similar services rendered for the Company or its subsidiaries. The corporate services fee is based on the 2012 budgeted cost of the transferred employees, their benefits and related office space.  The fees payable under the Management Services Agreement are subject to an annual review and such adjustments as may be agreed upon by SP Corporate and the Company.  The Management Services Agreement has a term of one year, which will automatically renew for successive one-year periods unless and until terminated in accordance with the terms set forth therein, which include, under certain circumstances, the payment by the Company of a termination fee to SP Corporate. 

In connection with the Management Services Agreement, the Company also entered into an Asset Purchase Agreement, dated January 1, 2012 (the “Purchase Agreement”), pursuant to which the Company transferred to SP Corporate certain assets which had previously been used or held for use by the Company and its subsidiaries to provide corporate services to the Company and its affiliates.  In addition to certain fixed assets and contractual rights, approximately 37 employees of the Company and its subsidiaries were transferred to SP Corporate pursuant to the Purchase Agreement, including Mr. McCabe and certain other officers of the Company.  All of the Company's officers who were transferred to SP Corporate pursuant to the Purchase Agreement continue to serve as officers of the Company pursuant to the Management Services Agreement.  The Company's entry into the Management Services Agreement and the Purchase Agreement were also approved by a special committee of the Board, composed entirely of independent directors. 

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company

Handy & Harman Ltd. (formerly named WHX Corporation prior to January 3, 2011) (“HNH”), is a diversified manufacturer of engineered niche industrial products with leading market positions in many of the markets it serves. Through its operating subsidiaries, HNH focuses on high margin products and innovative technology and serves customers across a wide range of end markets. HNH’s diverse product offerings are marketed throughout the United States and internationally.  HNH owns Handy & Harman Group Ltd. (“H&H Group”), which owns Handy & Harman (“H&H”) and Bairnco Corporation (“Bairnco”). HNH manages its group of businesses on a decentralized basis with operations principally in North America. HNH’s business units

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encompass the following segments: Precious Metal, Tubing, Engineered Materials, Arlon Electronic Materials (“Arlon”) and Kasco Blades and Route Repair Services (“Kasco”).  All references herein to “we,” “our” or the “Company” refer to HNH together with all of its subsidiaries.

Precious Metal segment primarily fabricates precious metals and their alloys into brazing alloys. Brazing alloys are used to join similar and dissimilar metals as well as specialty metals and some ceramics with strong, hermetic joints. Precious Metal segment offers these metal joining products in a wide variety of alloys including gold, silver, palladium, copper, nickel, aluminum and tin. These brazing alloys are fabricated into a variety of engineered forms and are used in many industries including electrical, appliance, transportation, construction and general industrial, where dissimilar material and metal-joining applications are required. Operating income from precious metal products is principally derived from the ''value added'' of processing and fabricating and not from the purchase and resale of precious metal. Precious Metal segment has limited exposure to the prices of precious metals due to the Company's hedging and pricing models. We believe that the business unit that comprises our Precious Metal segment is the North American market leader in many of the markets that it serves.

Tubing segment manufactures a wide variety of steel tubing products. We believe that our Stainless Steel Tubing Group manufactures the world's longest continuous seamless stainless steel tubing coils in excess of 5,000 feet serving the petrochemical infrastructure and shipbuilding markets. We also believe it is the number one supplier of small diameter (<3mm) coil tubing to industry leading specifications serving the aerospace, defense and semiconductor fabrication markets. Our Specialty Tubing unit manufactures welded carbon steel tubing in coiled and straight lengths with a primary focus on products for the consumer and commercial refrigeration, automotive, heating, ventilation and cooling (HVAC) and oil and gas industries. In addition to producing bulk tubing, it produces value added fabrications for several of these industries.

Engineered Materials segment manufactures and supplies products primarily to the commercial construction and building industries. It manufactures fasteners and fastening systems for the U.S. commercial low slope roofing industry which are sold to building and roofing material wholesalers, roofing contractors and private label roofing system manufacturers; a line of engineered specialty fasteners for the building products industry for fastening applications in the remodeling and construction of homes, decking and landscaping; plastic and steel fittings and connectors for natural gas, propane and water distribution service lines along with exothermic welding products for electrical grounding, cathodic protection and lightning protection; and electro-galvanized and painted cold rolled sheet steel products primarily for the construction, entry door, container and appliance industries. We believe that our primary business unit in the Engineered Materials segment is the market leader in fasteners and accessories for commercial low-slope roofing applications, and that the majority of the net sales for the segment are for the commercial construction repair and replacement market.

Arlon provides high performance materials for the printed circuit board (''PCB'') industry and silicone rubber-based insulation materials used in a broad range of industrial, military/aerospace, consumer and commercial markets. It also supplies high technology circuit substrate laminate materials to the PCB industry. Arlon products are marketed principally to Original Equipment Manufacturers (''OEMs''), distributors and PCB manufacturers globally. Arlon also manufactures a line of market leading silicone rubber materials used in a broad range of military, consumer, industrial and commercial products.

Kasco provides meat-room blade products, repair services and resale products for the meat and deli departments of supermarkets, restaurants, meat and fish processing plants and for distributors of electrical saws and cutting equipment principally in North America and Europe. Kasco also provides wood cutting blade products for the pallet manufacturing, pallet recycler and portable saw mill industries in North America.

Management has determined that certain operating companies should be aggregated and presented within a single segment on the basis that such operating companies have similar economic characteristics and share other qualitative characteristics. Management reviews sales, gross profit, operating income, capital expenditures, working capital and free-cash flow to evaluate segment performance. Operating income for the segments includes the costs of shared corporate headquarters functions such as finance, auditing, treasury, legal, benefits administration and certain executive functions, but excludes other unallocated general corporate expenses. Other income and expense, interest expense, and income taxes are not presented by segment since they are excluded from the measure of segment profitability reviewed by the Company's management.

Results from Continuing Operations

The operating results for the three and six months ended June 30, 2012 and 2011 are summarized in the following table.

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	Three Months ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2012			2011			2012			2011
Net sales	$	187,213		$	187,453		$	351,349		$	340,782
Gross profit	54,774			47,875			98,733			86,901
Gross profit margin	29.3		%	25.5		%	28.1		%	25.5		%
Selling, general and administrative expenses	32,657			29,866			64,527			58,788
Pension expense	652			1,125			1,264			2,250
Asset impairment charge	—			10			—			700
Operating income	21,465			16,874			32,942			25,163
Other:
Interest expense	4,350			3,297			8,199			7,626
Realized and unrealized gain on derivatives	(1,612		)	(5,019		)	(2,510		)	(855		)
Other expense (income)	152			26			196			(5		)
Income from continuing operations before tax	18,575			18,570			27,057			18,397
Tax provision	7,623			1,529			11,009			2,535
Income from continuing operations, net of tax	$	10,952		$	17,041		$	16,048		$	15,862

Net Sales
(in thousands)	Three Months Ended			Six Months Ended
	June 30, 2012			June 30, 2012
Net sales, prior period	$	187,453		$	340,782
Components of change in sales:
Effect of silver prices	(7,492		)	(7,104		)
Organic sales change	7,252			17,671
Net sales, current period	$	187,213		$	351,349

Net sales for the three months ended June 30, 2012 of $187.2 million was relatively flat when compared to the same period in 2011.  Organic sales increased by $7.3 million on higher volume, offset by the impact of lower silver prices of $7.5 million. Average silver market price was approximately $29.40 per troy ounce in the second quarter of 2012 as compared to $38.57 per troy ounce during the same period of 2011.

Net sales for the six months ended June 30, 2012increased by $10.6 million, or 3.1%, to $351.3 million, as compared to $340.8 million for the six months ended June 30, 2011.  Organic sales for the six months ended June 30, 2012 increased $17.7 million driven by higher demand for our products. Lower silver prices had a negative effect of $7.1 million on net sales during the first half of 2012 as the average silver price was approximately $31.12 per troy ounce, compared to $35.24 per troy ounce during the same period of 2011.

Gross Profit Margin

Gross profit for the three months ended June 30, 2012increased to $54.8 million as compared to $47.9 million for the same quarter of 2011, and as a percentage of net sales, increased to 29.3% as compared to 25.5% in the second quarter last year. For the six months ended June 30, 2012, gross profit increased to $98.7 million as compared to $86.9 million for the same period of 2011, and as a percentage of sales, increased to 28.1% as compared to 25.5% for the same six month period of 2011. The gross margin improvements of 3.8% and 2.6%, respectively, in the three and six month periods ended June 30, 2012, were principally due to favorable product mix, effective cost control, and improved efficiency at the manufacturing plants across all segments. In addition, lower silver prices also contributed to the increase in gross margin by 1.2% and 0.6%, respectively, in the three and six month periods ended June 30, 2012. Since the Company's precious metal inventory is hedged and the cost of silver is passed-through to the customer principally at market, lower silver prices generally result in increases in the precious metal segment's

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gross profit margin as a percentage of net sales.

 Selling, General & Administrative Expenses

Selling, general & administrative (“SG&A”) expenses for the three months ended June 30, 2012 were $32.7 million or 17.4% of sales, compared to $29.9 million or 15.9% of sales for the same period a year ago. For the six months endedJune 30, 2012, SG&A was $64.5 million or 18.4% of sales, compared to $58.8 million or 17.3% of sales for the six months endedJune 30, 2011. The increases in SG&A as a percentage of net sales in both the three and six month periods of 2012 were primarily due to higher selling and promotion costs related to product sales of the Engineered Materials segment, higher 2012 restricted stock awards and higher self-insured employee medical claim costs compared to the same periods of 2011. Also, lower average silver prices had a negative impact on SG&A as a percentage of net sales as compared to the prior year.

Pension Expense

Non-cash pension expense was $0.7 million for the three months ended June 30, 2012, which was $0.5 millionlower than the three months ended June 30, 2011, and for the six months ended June 30, 2012 was $1.3 million , which was $1.0 millionlower than the six months ended June 30, 2011. The reduction in non-cash pension expense was partially due to a change in the amortization period for actuarial losses to reflect the average future lifetime of the participants, which is expected to be approximately 21 years, a longer period than the average future service years of active participants, which was previously used. The Company believes that the future lifetime of the participants is more appropriate because the WHX Pension Plan is now completely inactive. We currently expect non-cash pension expense to be approximately $2.5 million in 2012, as compared to $6.4 million in 2011.

Asset Impairment Charge

A non-cash asset impairment charge of $0.7 million was recorded for the six months ended June 30, 2011. The non-cash asset impairment charge was related to vacant land owned by the Company's Arlon segment located in Rancho Cucamonga, California. The Company reduced this property's carrying value by $0.7 million to reflect its lower fair market value.

Operating Income

Operating income for the three months ended June 30, 2012 was $21.5 million as compared to $16.9 million for the same period of 2011. The higher operating income in the 2012 quarter was principally driven by increased sales volume in most of the Company’s segments, improved gross profit margin in all segments, along with a lower non-cash pension expense.

Operating income for the six months ended June 30, 2012 was $32.9 million as compared to $25.2 million for the same period of 2011. The higher operating income in the 2012 six-month period was principally driven by increased sales volume in most of the Company’s segments, improved gross profit margin in all segments, along with a lower non-cash impairment charge and non-cash pension expense.

Interest Expense

Interest expense for the three months ended June 30, 2012 was $4.4 million, compared to $3.3 million for the same period of 2011 and for the six months ended June 30, 2012, was $8.2 million compared to $7.6 million for the same period of 2011. As a result of certain subordinated note repurchases during the second quarters of both 2012 and 2011, interest expense included a $0.5 million loss in the three and six months ended June 30, 2012, and a $0.6 million gain in the three and six months ended June 30, 2011.

Realized and Unrealized Gain on Derivatives

Realized and unrealized gains (losses) on derivatives for the three and six months ended June 30, 2012 and June 30, 2011 were as follows:

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(in thousands)	Three Months Ended				Six Months Ended
	June 30,				June 30,
Derivative	2012		2011		2012		2011
Commodity contracts	$	495	$	1,315	$	752	$	(1,418	)
Derivative features of Subordinated Notes	1,117		3,704		1,758		2,273
Total realized and unrealized gain on derivatives	$	1,612	$	5,019	$	2,510	$	855

H&H utilizes precious metal forward and future contracts as derivative financial instruments to economically hedge its precious metal inventory against price fluctuations. The factors that affect the gain or loss on this derivative instrument are the change in the prices of precious metal and the amount of ounces hedged. The lower gain in the three months ended June 30, 2012 was primarily driven by a reduction in the amount of ounces under contract in 2012 as compared to 2011. While decreasing the use of hedging contracts with brokers, the Company has entered into more fixed-price sales agreements with its customers; thereby hedging silver prices in that manner. If there is an increase in silver prices, it could reasonably be expected to cause a loss on H&H's silver derivatives contracts, as occurred in the six months endedJune 30, 2011, when silver prices increased significantly. The market price of silver on June 30, 2012 was $27.64 per troy ounce. In addition, the Company's Subordinated Notes have embedded call premiums and warrants associated with them. The Company has treated the fair value of these features together as both a discount on the debt and a derivative liability at inception of the loan agreement. The discount is being amortized over the 7-year life of the notes as an adjustment to interest expense, and the derivative liability is marked to market at each balance sheet date. The market price of HNH's stock is a significant factor that influences the valuation of the derivative liability.

Income Taxes

For the three months ended June 30, 2012 and 2011, tax provisions from continuing operations of $7.6 million and $1.5 million were recorded, respectively. For the six months ended June 30, 2012 and 2011, tax provisions from continuing operations of $11.0 million and $2.5 million were recorded, respectively. The increase in the tax provision in the three and six months ended June 30, 2012 as compared to the same periods of 2011 was due to a higher federal tax provision resulting principally from the recording of the benefit of the Company's federal net operating loss carryforwards (“NOLs”) in the fourth quarter of 2011 as further described below.

HNH had NOLs of approximately $185 million as of December 31, 2010 and had established a full valuation allowance against its federal deferred tax assets. As earnings were recorded in the first quarter of 2011, HNH recognized the benefit from the utilization of its NOLs, thereby reducing tax expense. In the fourth quarter of 2011, the Company changed its judgment regarding the realizability of its deferred tax assets, and, as of December 31, 2011, reversed most of its remaining deferred tax valuation allowance, thus recording a tax benefit of the future NOLs at that time. As of December 31, 2011, HNH had federal NOLs of approximately $183 million and a related deferred tax asset of $64.1 million was recorded on the consolidated balance sheet as of December 31, 2011.

In the first half of 2012, there was no benefit from the utilization of NOLs recorded since the benefit had been recognized in the fourth quarter of 2011, and the non-cash federal tax expense resulting from first half 2012 earnings was recorded in the tax provision in the statement of operations. The effective tax rate in the first half of 2012 was 40.7%, as compared to 13.8% in the first half of 2011. 

Discontinued Operations

For the six months endedJune 30, 2011, the Company recorded net income from discontinued operations of $5.7 million, or $0.46 per share. See segment discussion that follows for more specific information on the discontinued operations.

Net Income

Net income for the three months ended June 30, 2012 was $11.0 million, or $0.83 per share, compared to $16.8 million, or $1.32 per share, for the three months ended June 30, 2011. Net income for the six months endedJune 30, 2012 was $16.0 million, or $1.24 per share, compared to $21.6 million, or $1.73 per share, for the six months endedJune 30, 2011.

Segment Analysis

Segment sales and operating income data for the three and six months ended June 30, 2012 and 2011 are shown in the following table:

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	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)					%						%
	2012		2011		Change		2012		2011		Change
Net Sales:
Precious Metal	$	49,576	$	54,051	(8.3	)%	$	97,414	$	98,697	(1.3	)%
Tubing	25,905		24,474		5.8	%	51,697		48,873		5.8	%
Engineered Materials	77,014		74,168		3.8	%	134,127		123,562		8.6	%
Arlon	21,703		21,813		(0.5	)%	41,708		43,842		(4.9	)%
Kasco	13,015		12,947		0.5	%	26,403		25,808		2.3	%
Total net sales	$	187,213	$	187,453	(0.1	)%	$	351,349	$	340,782	3.1	%
Segment operating income:
Precious Metal	7,803		5,612		39.0	%	13,417		10,114		32.7	%
Tubing	4,574		3,292		38.9	%	8,119		7,573		7.2	%
Engineered Materials	10,413		10,050		3.6	%	14,945		12,188		22.6	%
Arlon	3,970		2,513		58.0	%	6,498		4,649		39.8	%
Kasco	852		961		(11.3	)%	2,009		2,070		(2.9	)%
Total segment operating income	$	27,612	$	22,428	23.1	%	$	44,988	$	36,594	22.9	%

The comments that follow compare revenues and operating income by segment for the three and six months endedJune 30, 2012 and 2011.

Precious Metal

For the three months ended June 30, 2012, the Precious Metal segment net sales decreased by $4.5 million, or 8.3%, to $49.6 million, as compared to net sales of $54.1 million for the same period of 2011.  The decrease in net sales was primarily driven by a decrease of approximately $9.17 per troy ounce in the average market price of silver during the second quarter of 2012 as compared to the same period of 2011. The effect of lower silver prices reduced net sales by $7.5 million on a quarter versus prior year's quarter basis. Increased sales volume of precious metal ounces and higher sales of non-precious metal products made from aluminum and copper for the three months ended June 30, 2012, partially offset the effect of lower silver prices as compared to the same period of 2011.

Segment operating income for the second quarter of 2012 increased by $2.2 million to $7.8 million, as compared to $5.6 million during the second quarter of 2011. The increased segment operating income was primarily driven by higher sales volume and a more favorable product mix.

For the six months endedJune 30, 2012, the Precious Metal segment's net sales decreased by $1.3 million, or 1%, to $97.4 million as compared to net sales of $98.7 million for the same period of 2011.  The decrease in net sales was primarily driven by a decrease of approximately $4.12 per troy ounce in the average market price of silver during the first half of 2012 as compared to the same period of 2011. The effect of lower silver prices reduced net sales by $7.1 million for the first half of 2012 as compared to the same period of 2011. Increased sales volume of precious metal ounces and higher sales of non-precious metal products made from aluminum and copper for the six months ended June 30, 2012, partially offset the effect of lower silver prices as compared to the same period of 2011.  

For the first half of 2012, segment operating income increased by $3.3 million to $13.4 million as compared to $10.1 million during the first half of 2011. The increased segment operating income was primarily driven by higher sales volume and a more favorable product mix.

Tubing

For the three months ended June 30, 2012, the Tubing segment net sales increased by $1.4 million, or 5.8%, to $25.9 million, as compared to $24.5 million in the second quarter of 2011.  The increase was attributable to higher sales to the ship building and heat trace markets served by the Stainless Steel Tubing Group and new markets served by the Specialty Tubing Group, which were partially offset by lower sales from the refrigeration market serviced by the Specialty Tubing Group.

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Segment operating income increased by $1.3 million to $4.6 million for the second quarter of 2012, as compared to $3.3 million for the same period of 2011. Higher operating income was principally driven by higher sales volume from the Stainless Steel Tubing Group and higher gross profit margin from both the Stainless Steel Tubing Group and Specialty Tubing Group due to favorable product mix.

For the six months endedJune 30, 2012, the Tubing segment net sales increased by $2.8 million, or 5.8%, to $51.7 million, as compared to $48.9 million in the first half of 2011.  The increase was attributable to higher sales from the markets served by the Stainless Steel Tubing Group and new markets of heat exchanger and oil & gas industries served by the Specialty Tubing Group, which was partially offset by lower refrigeration market sales serviced by the Specialty Tubing Group.

 For the six months endedJune 30, 2012, segment operating income increased by $0.5 million to $8.1 million, as compared to $7.6 million for the first half of 2011.  Higher operating income was principally driven by higher sales volume from the Stainless Steel Tubing Group and higher gross profit margin from the Specialty Tubing Group due to favorable product mix.

Engineered Materials

For the three months ended June 30, 2012, the Engineered Materials segment sales increased by $2.8 million, or 3.8% to $77.0 million, as compared to $74.2 million for the same period of 2011. The incremental sales were driven by higher volume of fasteners for the home-center market, gas connectors, partially offset by lower sales of commercial roofing products. Sales of commercial roofing products during the second quarter of 2012 slowed after strong demand was experienced in the first quarter of 2012. Additionally, the Company experienced a significant one-time customer order in the second quarter of 2011.

Segment operating income increased by $0.4 million to $10.4 million for the three months ended June 30, 2012, as compared to $10.1 million for the same period of 2011.  Gross profit margin for the three months ended June 30, 2012 was higher compared to the three months ended June 30, 2011 primarily due to increased sales of higher margin branded fasteners and gas connectors in 2012 as compared to the second quarter of 2011. However, this was partially offset by higher selling and promotional costs related to the commercial roofing business in the 2012 quarter.

For the six months endedJune 30, 2012, the Engineered Materials segment sales increased by $10.6 million, or 8.6% to $134.1 million, as compared to $123.6 million for the same period of 2011. The incremental sales were driven by higher volume of branded fasteners, commercial roofing products and gas connectors, partially offset by lower sales of electro-galvanized steel products as a result of a major customer changing from regular sales which include the cost of metal to toll processing sales in which the customer owns the metal. This change had no effect on gross profit as steel costs are excluded from both sales and cost of sales.

Segment operating income increased by $2.8 million to $14.9 million for the six months endedJune 30, 2012, as compared to $12.2 million for the same period of 2011.  The increase in operating income was principally the result of the higher sales volume.  Gross profit margin for the six months endedJune 30, 2012 was higher compared to the six months endedJune 30, 2011 primarily due to increased sales of higher-margin branded fastener and gas connector products in the first half of 2012 as compared to the first half of 2011 partially offset by higher selling and promotional costs.

Arlon

For the three months ended June 30, 2012, Arlon sales decreased by $0.1 million, or 0.5% to $21.7 million , as compared to $21.8 million for the second quarter of 2011.  Lower sales were driven by reduced demand for printed circuit board materials related to the telecommunications infrastructure in China partially offset by higher demand for thermoset products to the military defense industries.

Segment operating income increased by $1.5 million to $4.0 million for the three months ended June 30, 2012, as compared to $2.5 million for the same period of 2011.  Gross margin was 6.6% higher during the second quarter of 2012 as compared to 2011 primarily due to favorable product mix, effective cost control, and improved efficiencies from its China manufacturing facility.

For the six months endedJune 30, 2012, Arlon sales decreased by $2.1 million, or 4.9% to $41.7 million, as compared to $43.8 million for the first half of 2011.  Lower sales were driven by reduced demand for printed circuit board materials related to the telecommunications infrastructure in China and thermoset products to the military defense industries, as well as lower sales of flex heater products for the general industrial market.

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Segment operating income increased by $1.8 million to $6.5 million for the six months endedJune 30, 2012, as compared to $4.6 million for the same period of 2011.  Gross margin was 4.2% higher during the first half of 2012 as compared to 2011 primarily due to favorable product mix effective cost control, and improved efficiencies from its China manufacturing facility.  A non-cash asset impairment charge of $0.7 million was recorded for the six months endedJune 30, 2011. The non-cash asset impairment charge was related to vacant land owned by Arlon in Rancho Cucamonga, California. The Company reduced this property's carrying value by $0.7 million to reflect its lower fair market value.

Kasco

For the three months ended June 30, 2012, Kasco segment sales increased by $0.1 million, or 0.5%, to $13.0 million, as compared to $12.9 million for the second quarter of 2011. For the six months endedJune 30, 2012, Kasco segment sales increased by $0.6 million, or 2.3%, to $26.4 million, as compared to $25.8 million for the first half of 2011. The sales improvement was principally from its route business in the United States.

Operating income for the Kasco segment in 2012 was principally flat with the 2011 for both the three and six months ended June 30, 2012. Improved gross margins resulted from increased route business in addition to lower manufacturing costs from the production facility in Mexico, but were offset by higher SG&A costs from higher commission on route sales and additional selling headcount.

Discontinued Operations

On February 4, 2011, Arlon LLC, an indirect wholly-owned subsidiary of HNH, sold substantially all of its assets and existing operations located primarily in the State of California related to its Adhesive Film Division for an aggregate sale price of $27.0 million. Net proceeds of approximately $24.2 million from this sale were used to repay indebtedness under the Company's First Lien Revolver. A pretax gain on the sale of these assets of $11.8 million was recorded in the first quarter of 2011. Additional escrow funds of $2.5 million was received by the Company during the second quarter of 2012.

On March 25, 2011, Arlon LLC and its subsidiaries sold all of their assets and existing operations located primarily in the State of Texas related to Arlon LLC’s Engineered Coated Products Division and SignTech subsidiary for an aggregate sale price of $2.5 million.  In addition, Arlon LLC sold a coater machine to the same purchaser for a price of $0.5 million.  The Company recorded proceeds of $2.3 million and a pretax loss of $5.0 million on the sale of these assets in the first quarter of 2011. The net proceeds from these asset sales were used to repay indebtedness under the Company’s First Lien Revolver.  Additional escrow funds of $0.5 million was received by the Company during the second quarter of 2012.

During the third quarter of 2011, the Company sold the stock of EuroKasco, S.A.S. (“Kasco-France”), part of its Kasco segment, to Kasco-France’s former management team for one Euro plus 25% of any pretax earnings over the next three years.  Additionally, Kasco-France signed a five year supply agreement to purchase certain products from Kasco. Kasco-France has been included as a discontinued operation on a retrospective basis for the three and six months ended June 30, 2011.

The results of the Arlon CM segment and Kasco-France, for 2011, are classified as discontinued operations on the consolidated income statements.  Discontinued operations generated aggregate net income of $5.7 million for the six months ended June 30, 2011, which included a gain, net of tax, of $6.4 million as a result of the sale of the California and Texas operations of Arlon CM, as well as an aggregate loss of $0.7 million from their operations for the six month period ending June 30, 2011.

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Discussion of Consolidated Statement of Cash Flows

Operating Activities

For the six months ended June 30, 2012, $11.2 million was provided from operating activities, $13.0 million was used in investing activities, and $1.2 million was provided by financing activities.  The following table provides supplemental information regarding the Company’s cash flows from operating activities for the six months ended June 30, 2012 and 2011:

	Six Months Ended
	June 30,
	2012			2011
	(in thousands)
Cash flows from operating activities:
Net income	$	16,048		$	21,584
Adjustments to reconcile net income to net cash
provided by (used in) operating activities, net of acquisitions:
Non-cash items:
Depreciation and amortization	7,643			7,875
Non-cash stock based compensation	1,941			1,729
Asset impairment charge	—			700
Pay-in-kind interest on Subordinated Notes	1,110			1,433
Non cash pension expense	1,264			2,250
Unrealized gains on derivatives	(1,913		)	(2,383		)
Deferred income taxes	7,454			349
Other	747			2,101
Net income after non-cash items	34,294			35,638
Discontinued operations	—			(11,002		)
Pension payments	(6,726		)	(4,811		)
Working capital:
Trade and other receivables	(21,473		)	(37,197		)
Precious metal inventory	(3,387		)	(4,884		)
Inventory other than precious metal	(479		)	(6,414		)
Other current assets	(835		)	(190		)
Other current liabilities	9,921			5,555
Total working capital effect	(16,253		)	(43,130		)
Other items-net	(134		)	(1,038		)
Net cash provided by (used in) operating activities	$	11,181		$	(24,343	)

The Company reported net income of $16.0 million for the six months ended June 30, 2012, which included $18.2 million of non-cash expense items such as depreciation and amortization of $7.6 million, non-cash stock-based compensation of $1.9 million, and non-cash pension expense of $1.3 million. Other non-cash items included deferred income tax change of $7.5 million, accrued interest not paid in cash of $1.1 million, and $0.9 million amortization of deferred debt issuance costs, which was partially offset by unrealized gains on derivatives of $1.9 million. Working capital used $16.3 million of cash during the six months ended June 30, 2012, and the Company made pension plan payments of $6.7 million.  As a result, net cash provided from operations was $11.2 million for the six months ended June 30, 2012.

The Company reported net income of $21.6 million for the six months ended June 30, 2011, which included $14.1million of non-cash expense items such as depreciation and amortization of $7.9 million, non-cash stock-based compensation of $1.7 million, non-cash pension expense of $2.3 million, an asset impairment charge of $0.7 million, partially offset by

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unrealized gains on derivatives of $2.4 million. Other non-cash items included a $1.6 million reclassification of net cash settlements on precious metal contracts to investing activities and $1.1 million amortization of deferred debt financing costs. Working capital used $43.1 million of cash during the six months ended June 30, 2011, and the Company made pension plan payments of $4.8 million. In addition, discontinued operations used $11.0 million cash during the first half of 2011 ($4.6 million in operations, plus $6.4 million relating to the gain on sales of assets). As a result, net cash used in operations was $24.3 million for the six months ended June 30, 2011.

Operating cash flow for the six months ended June 30, 2012 was $35.5 million higher compared to the same period of 2011.  The increase in cash flow from operations was principally attributable to a lower use of working capital during the six months ended June 30, 2012.  Accounts receivable used $21.5 million during the first half of 2012, compared to a use of $37.2 million for the same period of 2011.  Inventory used $3.9 million during the first half of 2012, compared to $11.3 million for the same period in 2011. Other current liabilities provided $9.9 million of cash for the six months ended June 30, 2012 as compared to $5.6 million during the same period of 2011. The fluctuation in silver prices caused part of the variance in working capital utilization for the comparable periods. In the first half of 2011, silver prices increased, causing a larger increase in accounts receivable for the Precious Metal segment in the 2011 period as compared to the increase in accounts receivable in the first half of 2012 as the silver price decreased during the first half of 2012. Inventory utilized less cash in the 2012 period due to improvements in inventory management.

Investing Activities

Investing activities used $13.0 million for the six months ended June 30, 2012 and provided $10.5 million during the same period of 2011.  The amount provided in 2011 was driven by discontinued operations, which had proceeds of $26.5 million from two sales of assets of the Arlon Coated Materials segment.  In 2011 the Company acquired a business that developed and manufactured hidden fastening systems for deck construction for $8.8 million.  Capital spending in the 2012 period was $7.7 million, as compared to $5.7 million in the 2011 period.  During the first half of 2012, the Company invested approximately $6.3 million, including brokerage commissions, in common stock of a public company, bringing its total investment at cost to $24.3 million.

Financing Activities

Financing activities provided $1.2 million of cash for the six months ended June 30, 2012, and $12.8 million for the same period of 2011. The decrease in 2012 was principally attributable to $21.5 million lower net borrowings under the Company's First Lien Revolver, partially offset by $8.1 million repurchase of Subordinated Notes in the 2011 period.  In 2011, the revolver balance was reduced by the proceeds from the asset sales of the Arlon Coated Materials segment, which were used to pay down its outstanding balance.

In the first half of 2012, financing activities provided $1.2 million of cash, including additional foreign term loans of $1.4 million during the six month period. The Company paid down $2.2 million on its domestic term loans and $2.0 million of its First Lien Revolver during the six months ended June 30, 2012. During the second quarter of 2012, H&H Group agreed to repurchase $5.1 million face amount of Subordinated Notes plus accrued interest. The cash settlement of the transaction will take place in the third quarter of 2012 and such transaction is presented as a non-cash financing activity in the second quarter Consolidated Statement of Cash Flows.

Financing activities provided $12.8 million of cash during the first half of 2011, including a net amount of $19.5 million of additional borrowing under the First Lien Revolver and additional foreign term loans of $0.7 million during the six month period. The Company paid down $2.6 million on its domestic term loans and repurchased Subordinated Notes totaling $8.1 million during the six months endedJune 30, 2011.

Off-Balance Sheet Arrangements

It is not the Company’s usual business practice to enter into off-balance sheet arrangements such as guarantees on loans and financial commitments, indemnification arrangements, and retained interests in assets transferred to an unconsolidated entity for securitization purposes. Certain customers and suppliers of the Precious Metal segment choose to do business on a “pool” basis.  Such customers or suppliers furnish precious metal to subsidiaries of H&H for return in fabricated form or for purchase from or return to the supplier.  When the customer’s precious metal is returned in fabricated form, the customer is charged a fabrication charge. The value of pooled precious metal is not included in the Company’s balance sheet.  As of June 30, 2012, H&H’s customer metal consisted of 250,111 ounces of silver, 567 ounces of gold, and 1,467 ounces of palladium.

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Liquidity and Capital Resources

As of June 30, 2012, the Company's current assets totaled $195.6 million, its current liabilities totaled $118.3 million; and its working capital was $77.3 million, as compared to working capital of $70.1 million as of December 31, 2011.

HNH the parent company

The Company's debt is principally held by H&H Group, a wholly-owned subsidiary of HNH.

For HNH, the parent company, sources of cash flow consist of its cash on-hand, distributions from its principal subsidiary, H&H Group, and other discrete transactions. H&H Group's credit facilities restrict H&H Group's ability to transfer any cash or other assets to HNH, subject to the following exceptions: (i) unsecured loans for required payments to the WHX Corporation Pension Plan, a defined benefit pension plan sponsored by the Company (the “WHX Pension Plan”), (ii) payments by H&H Group to HNH for the payment of taxes by HNH that are attributable to H&H Group and its subsidiaries, and (iii) unsecured loans, dividends or other payments for other uses in the aggregate principal amount, together with the aggregate amount of all other such loans, dividends and payments, not to exceed $60.0 million in the aggregate (a portion of which has been used). These exceptions are subject to the satisfaction of certain conditions, including the maintenance of minimum amounts of excess borrowing availability under the credit facilities. H&H Group's credit facilities are collateralized by first priority liens on substantially all of the assets of H&H Group and its subsidiaries.

HNH's ongoing operating cash flow requirements consist of arranging for the funding of the minimum requirements of the WHX Pension Plan and paying HNH's administrative costs. The Company expects to have required minimum contributions to the WHX Pension Plan of $7.8 million for the remainder of 2012, $10.8 million, $17.5 million, $18.0 million, $16.0 million, and $59.7 million in 2013, 2014, 2015, 2016, and thereafter. Such required contributions are determined based upon assumptions regarding such matters as discount rates on future obligations, assumed rates of return on plan assets and legislative changes. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described in the previous sentence, as well as other changes such as any plan termination.

As of June 30, 2012, HNH, the parent company, had cash of approximately $1.1 million and current liabilities of approximately $1.0 million. HNH, the parent company, held an equity investment in common stock of a public company with a cost of $24.3 million and a market value of $17.8 million as of June 30, 2012.

Handy & Harman Group Ltd.

The ability of H&H Group to draw on its U.S. revolving line of credit is limited by its borrowing base of accounts receivable and inventory. As of June 30, 2012, H&H Group's availability under its U.S. revolving credit facilities was $64.4 million and as of July 31, 2012, was approximately $71.7 million.

There can be no assurances that H&H Group will continue to have access to its lines of credit if financial performance of its subsidiaries do not satisfy the relevant borrowing base criteria and financial covenants set forth in the applicable financing agreements. If H&H Group does not meet certain of its financial covenants or satisfy its borrowing base criteria, and if it is unable to secure necessary waivers or other amendments from the respective lenders on terms acceptable to management, its ability to access available lines of credit could be limited, its debt obligations could be accelerated by the respective lenders, and liquidity could be adversely affected.

Management is utilizing the following strategies to continue to enhance liquidity: (1) continuing to implement improvements, using the HNH Business System, throughout all of the Company's operations to increase sales and operating efficiencies, (2) supporting profitable sales growth both internally and potentially through acquisitions, (3) evaluating from time to time and as appropriate, strategic alternatives with respect to its businesses and/or assets (4) seeking financing alternatives that may lower its cost of capital and/or enhance current cash flow. The Company continues to examine all of its options and strategies, including acquisitions, divestitures, and other corporate transactions, to increase cash flow and stockholder value.

The Company has explored and will continue to explore from time to time refinancing for its existing credit facilities, as well as potential alternative or additional sources of financing. The relative attractiveness of any such financing or refinancing to the Company is subject to prevailing conditions in the credit markets. The Company expects to refinance its senior debt prior to its maturity date of July 1, 2013.

*******

When used in Management's Discussion and Analysis of Financial Condition and Results of Operations, the words “anticipate”, “estimate” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby.  Investors are cautioned that all forward-looking statements involve

21

risks and uncertainty, including without limitation, general economic conditions, the ability of the Company to develop markets and sell its products, and the effects of competition and pricing.  Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate.

ITEM 4.      Controls and Procedures

Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, the Company conducted an evaluation under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as of June 30, 2012, the Company’s disclosure controls and procedures are effective in ensuring that all information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to Company management, including the Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2012 to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings

Information in this Item 1 is incorporated by reference to Part I, Notes to Consolidated Financial Statements (unaudited), Note 19 “Contingencies”, of this report.

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ITEM 6.   Exhibits

*	Exhibit 4.1 Amendment No. 4 dated May 23, 2012, to the Amended and Restated Loan and Security Agreement by and among H&H Group, certain of its subsidiaries, Wells Fargo Bank, National Association, in its capacity as agent acting for the financial institutions party thereto as lenders, and the financial institutions party thereto as lenders.
*	Exhibit 4.2 Amendment No. 1 dated May 23, 2012, to the Amended and Restated Loan and Security Agreement by and among H&H Group, certain of its subsidiaries, Ableco L.L.C., in its capacity as agent, and the financial institutions party thereto as lenders.
*	Exhibit 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*	Exhibit 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*	Exhibit 32  Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of Chapter 63 of Title 18 of United States Code.
*	Exhibit 101.INS     XBRL Instance Document
*	Exhibit 101.SCH     XBRL Taxonomy Extension Schema
*	Exhibit 101.CAL     XBRL Taxonomy Extension Calculation Linkbase
*	Exhibit 101.DEF      XBRL Taxonomy Extension Definition Linkbase
*	Exhibit 101.LAB       XBRL Taxonomy Extension Label Linkbase
*	Exhibit 101.PRE       XBRL Taxonomy Extension Presentation Linkbase
*	Filed herewith

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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.

HANDY & HARMAN Ltd.

/s/ James F. McCabe, Jr.

James F. McCabe, Jr.

Senior Vice President and Chief Financial Officer

(Principal Accounting Officer)

August 9, 2012

24