SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number: 1-1212
DRIVER-HARRIS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-0870220
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 Essex Street
Harrison, New Jersey 07029
(Address of principal executive offices)
Registrant's telephone no., including area code (973) 483-4802
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.83 1/3 par value -- 1,474,346 shares as of August 15, 2001.
DRIVER-HARRIS COMPANY
I N D E X
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
June 30, 2001 and December 31, 2000 3
Unaudited Condensed Consolidated Statements of
Loss - Three and six Months ended June 30,
2001 and June 30, 2000 4
Unaudited Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 2001 and
June 30, 2000 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K
None filed in quarter
SIGNATURES 10
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 233 $ 428
Accounts receivable - net 9,736 9,657
Inventories:
Materials 550 353
Work in process 279 188
Finished products 3,443 4,032
------- -------
4,272 4,573
Prepaid expenses 188 468
------- --------
Total current assets 14,429 15,126
Property, plant & equipment - net 3,373 3,925
-------- --------
$ 17,802 $ 19,051
====== ======
LIABILITIES
Current Liabilities:
Short-term borrowings $ 7,869 $ 6,202
Current portion of long-term debt 160 395
Accounts payable 5,210 5,727
Accrued expenses 1,838 2,297
Loan payable to officer 46 58
Income taxes payable - 23
-------- ---------
Total current liabilities 15,123 14,702
Long-term debt 1,559 1,651
Deferred Grants 362 421
Deferred foreign income taxes 134 148
Postretirement benefit liabilities 558 561
Sundry liabilities - 37
Stockholders' equity:
Common stock 1,320 1,292
Additional paid-in capital 2,425 2,419
Accumulated deficit (1,214) (125)
Accumulated other comprehensive loss (2,465) (2,055)
--------- ---------
Stockholders' equity 66 1,531
--------- --------
$ 17,802 $ 19,051
======= ======
<FN>
See accompanying notes.
</FN>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 June 30
2001 2000 2001 2000
------ ------ ------ ------
Net sales $8,157 $ 10,107 $16,845 $21,188
Other revenues 15 11 35 31
--------- --------- --------- ---------
Total Revenues 8,172 10,118 16,880 21,219
Cost of sales 7,708 8,841 15,509 18,674
------- ------- --------- --------
464 1,277 1,371 2,545
Selling, general and
administrative expenses 1,108 1,204 2,107 2,375
------ -------- -------- --------
(644) 73 (736) 170
Other charges (credits):
Interest 227 159 449 317
Foreign exchange (gain) loss (85) (7) (59) 22
-------- -------- -------- -------
Loss before income taxes (786) (79) (1,126) (169)
Income taxes - 1 (37) 1
-------- -------- -------- -------
NET LOSS $ (786) $ (80) $ (1,089) (170)
===== ===== ===== =====
BASIC NET LOSS PER SHARE $(.53) $(.05) $(.74) $(.12)
==== ==== ==== ====
DILUTED NET LOSS PER SHARE $(.53) $(.05) $(.74)
$(.12)*
==== ==== ==== ====
Basic earnings per share-weighted
average shares 1,471,543 1,372,333
Diluted earnings per share-weighted
average shares 1,471,543 1,399,522
<FN>
* Adjusted weighted average shares not used since effect on earnings
per share would be anti-dilutive.
See accompanying notes.
</FN>
DRIVER-HARRIS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in thousands)
SIX MONTHS ENDED
June 30
--------------------
2001 2000
------ ------
OPERATING ACTIVITIES
Net income (loss) $ (1,089) $ (170)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 185 237
Receivables (1,028) (1,051)
Inventories (116) (479)
Prepaid expenses 241 (117)
Accounts payable and accrued expenses (244) 1,292
Sundry 34 (23)
--------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES (2,017) (311)
INVESTING ACTIVITIES
Capital expenditures (32) (195)
Sundry 9 5
------- -------
NET CASH USED IN INVESTING ACTIVITIES (23) (190)
FINANCING ACTIVITIES
Change in short-term debt 2,133 779
Issuance of long-term debt 72 -
Reduction of long-term debt (128) (67)
Sundry (12) (20)
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 2,065 692
Effect of exchange rate changes on cash (220) 2
-------- -------
Net change in cash (195) 193
Cash at beginning of year 428 201
------- -------
CASH AT END OF PERIOD $ 233 $ 394
====== =====
<FN>
See accompanying notes.
</FN>
NOTES TO FINANCIAL STATEMENTS
1 - Basis of Presentation
These financial statements have been prepared in accordance with
the instructions to Form 10-Q and therefore do not include all
information, disclosures, and notes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity
with generally accepted accounting principles. Reference should be made
to the financial statements contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000. These financial
statements include all adjustments which are, in the opinion of
management, necessary to a fair presentation of the results for the
interim period.
2 - Investments in Related Company and Other Subsidiaries
The Company owns Irish Driver-Harris Co. Ltd.,("IDH"), located in
Ireland and the U.K.
3 - Comprehensive Income
The components of comprehensive loss as presented under Financial
Accounting Standard 130, "Reporting Comprehensive Income", for the three
and six months ended June 30, 2001 and 2000 are as follows:
Three Months Six Months
2001 2000 2001 2000
Net loss $ (786) $ (80) $ (1,089) $ (170)
Foreign currency translation adjustment (148) 77 (410) (252)
-------- ------- ------- -------
Comprehensive loss $(934) $(3) $ (1,499) $ (422)
===== ===== ===== =====
4. - Industry Segments and Geographic Areas
The Company classifies its revenues based upon the location of the facility
and its function (i.e. manufacture or purchase for resale-distribution). Such
revenues are regularly reviewed by the Directors and management and decisions
are made on such basis.
The operating expenses and resultant net profit (loss) and the assets are
similarly reviewed and decisions made based upon whether they relate to
manufacturing or purchase for resale (i.e. distribution).
5. - Long-Term Debt
In April 2001, the Company re-negotiated the terms of the note payable to the
Pension Benefit Guarantee Corporation (PBGC) whereby payment of such note was
deferred for two years. The note will be payable in ten equal annual payments
beginning April 16, 2003 and ending April 16, 2012. As a result of the
re-negotiation, the PBGC is included in long-term debt in the Company's
consolidated balance sheet. Until the note is paid in full, the Company may
not pay cash dividends on its capital stock without the permission from the
PBGC.
6. - Settlement of Law Suit
On May 22, 2001, the Company settled the law suit which had been filed by the
landlord of an affiliate which claimed that the Company was guarantor of a
lease signed by the affiliate and was therefore liable for unpaid back rent.
Although the Company and its attorneys believe the suit was without merit, the
settlement was made in order to minimize the resources required to
prepare and mount a legal defense. The settlement calls for payments of
$10,000 per quarter for twelve quarters, beginning October 1, 2001, with
subsequent payments due on the first business day of each subsequent quarter.
Should the Company fail to make the initial payment on October 1, 2001, the
landlord has the right to recommence suit.
Reporting Segments
Parent Co. Manufacturing Distribution Total
(U.S.) (Ireland) (U.K.)
Six months ended June 30, 2001:
Revenues
External revenues $ 15,026 $ 1,819 $16,845
Inter-segment revenues 514 514
Other revenues $ 9 26 35
Elimination of inter-
segment revenues (514) (514)
Consolidated revenues 9 15,052 1,819 16,880
Net Loss (170) (892) (27) (1,089)
Assets
Total assets 1,504 17,665 2,102 21,271
Elimination of investment (623) (623)
Elimination of inter-
company receivables (829) (1,401) (2,230)
Elimination of inter-
company inventory (616) (616)
------- --------- -------- ---------
Total assets 52 15,648 2,202 17,802
Other Significant Items
Depreciation expense 192 11 203
Interest expense 73 350 26 449
Expenditures for assets 32 32
Six months ended June 30, 2000:
Revenues
External revenues $ 18,854 $ 2,334 $21,188
Inter-segment revenues $ 182 670 852
Other revenues 20 11 31
Elimination of inter-
segment revenues (182) (670) (852)
Consolidated revenues 18,874 2,345 21,219
Net Loss (139) (8) (23) (170)
Assets
Total assets 1,477 18,189 2,143 21,809
Elimination of investment (623) (623)
Elimination of inter-
company receivables (829) (168) (13) (1,010)
Elimination of inter-
company inventory (401) (401)
------- -------- -------- --------
Total assets 25 18,021 1,729 19,775
Other Significant Items
Depreciation expense 223 14 237
Interest expense 44 238 35 317
Expenditures for assets 189 6 195
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
The ratio of current assets to current liabilities was 0.95 at June 30, 2001,
compared to 1.03 at December 31, 2000.
At June 30, 2001, the Company's subsidiaries had approximately $8.2 million
in available bank credit lines of which $8.0 million was in use.
The Company believes it has adequate cash flow from operations to
meet its ongoing obligations including debt repayments and capital
commitments. On April 13, 2001, the Company re-negotiated the terms of
the note payable to the Pension Benefit Guarantee Corporation (PBGC)
whereby payment of such note was deferred for two years. The note is payable
in ten equal annual payments beginning April 16, 2003 and ending
April 16, 2012. As a result of the re-negotiation, the PBGC note is included
in long-term debt in the Company's consolidated balance sheet. Until the note
is paid in full, the Company may not pay cash dividends on its capital stock
without permission from the PBGC.
Market Risks
Foreign Currency Fluctuations
With operations in three different countries, the Company's operating results
may be adversely affected by significant fluctuations in the relative values
among the U.S. dollar, Irish Pound and the British Pound Sterling. The Company
is periodically involved in hedging currency between the Irish Pound and the
British Pound Sterling through the use of futures contracts which are
relatively short term in nature. The Company historically has experienced
minimal gains and losses on such foreign currency hedging.
Debt Instruments
The Company's long term debt of $1,719,000 including the current portion, is
primarily fixed rate debt of which $1,340,000 is U.S. denominated with the
remaining balance denominated in Irish Pound. The Company's remaining debt of
$7,869,000 is solely comprised of variable rate, short-term facilities
denominated primarily in Irish Pound to cover banking overdraft that does not
subject the Company to significant interest rate risk. The Company does not
believe any reasonable interest rate change in the ensuing year would have a
material impact on the Company's Statement of Operations.
Results of Operations
Six Months of 2001 Compared to 2000:
Net sales to customers decreased by 22.2% during the first six
months of 2001 compared to 2000. The decrease is attributable
to lower shipments to customers, particularly in the first quarter and a weaker
Irish Punt compared to U.S. Dollar. Quantities shipped in the first six months
of 2001 decreased by 17.7% compared to the first six months of 2000.
The gross profit percentage decreased to 8.1% in 2001 compared to
11.9% in 2000, due primarily to change in product mix, higher raw material
usage and higher material costs. Selling, general and administrative expenses
increased to 12.5% of net sales from 11.2% in the preceding year due to a one
time charge of $120,000 related to settlement of a lawsuit and because sales
decreased without a corresponding decrease in administrative costs.
Second Quarter of 2001 Compared to 2000:
Net sales to customers decreased by 19.3% during the second
quarter of 2001 compared to the same period in 2000. This decrease is
primarily due to lower shipments to customers and a weaker Irish Pound compared
to the U.S. Dollar. Quantities shipped in the second quarter of 2001 decreased
by 16.2% compared to the second quarter of 2000.
The gross profit percentage decreased to 5.7% in 2001 compared to
12.5% in 2000 as a result of lower margins due to change in product mix,
higher raw material usage and higher material costs. Selling, general and
administrative expenses increased to 13.6% of net sales compared to 11.9% in
2000 due to a one time charge of $120,000 related to settlement of a lawsuit
and since sales decreased without a corresponding decrease in administrative
costs.
The Company has tax loss carry forwards of approximately $3,620,000 available
to offset future U.S. taxable income and approximately $1,065,000 to offset
U.K. taxable income. Such carry forwards expire between 2001 and 2020 and the
U.K. carry forwards are indefinite.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a. The Annual Meeting of Stockholders was held on June 20, 2001 at
the New Jersey Historical Society, Newark, New Jersey.
b. The following Directors were reelected to serve for the ensuing
year: Thomas J. Carey, Kenneth J. Mathews, Frank L. Driver, Timothy S. Driver.
Ralph T. Bartlett, H. Lewis Biggerstaff and David A. Driver have assume the
role of Director Emeritus.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DRIVER-HARRIS COMPANY
Date: August 15, 2001 By: Frank L. Driver
- --------------------- -----------------------
Chief Financial Officer