SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
___
|_X_| Annual report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002
___
|___| Transition report pursuant to Section 13 or 15(d) of
the Securities 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 of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Madison Avenue
Convent Station, New Jersey 07960
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 267-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common stock - par value $0.83 1/3 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates and the
total number of common shares outstanding as of April 30, 2003:
Market Value - $221,152 Common Stock - 1,474,346 Shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the annual proxy statement anticipated to be filed on or about
May 8,2003 are incorporated into Part III.
PART I
Item 1. Business
General Development of Business
The Company is engaged in the business of manufacturing and marketing non-
ferrous metal products, principally insulated electrical wire and cable through
its wholly owned subsidiary, Irish Driver-Harris Co. Ltd., located in Ireland
and in the U.K.
Financial Information About Industry Segments
Financial information about the Company's operating segments, manufacturing,
located in Ireland and distribution, located in England are presented in
Note 8 to the accompanying financial statements.
Narrative Description of Business
(a) The principal products manufactured by the Registrant and its subsidiaries
are insulated electrical wire and cable and all of its net sales arise from
these products. These products are sold principally to the construction,
appliance, and electrical equipment industries by the Company's sales staff
and through agents.
(b) The principal sources of raw material for insulated electrical wire and
cable products -- copper wire conductors and PVC insulating materials - are
wire drawing and chemical companies, respectively. During the past fiscal
year, availability of raw materials was satisfactory.
(c) The Company owns certain trademarks that are maintained internationally.
Other than these items, there are no patents, licenses, franchises or
concessions held that are material to the business of the Registrant or its
subsidiaries.
(d) The business of the Registrant is not of a seasonal nature.
(e) Following industry practice, the Registrant and its subsidiaries grant
payment terms to their customers ranging from 60 days to 90 days depending on
the countries where the companies do business.
(f) The following amounts represent the backlog of orders believed to be firm
as of the end of each year; all were expected to be filled within the following
year:
Irish Driver-Harris Co. Ltd.
December 31, 2002 $ 380,000
December 31, 2001 273,000
(g) No material portion of the business of the Registrant and its subsidiaries
is subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the U.S. government.
(h) The Registrant's insulated wire and cable products are marketed primarily
in Ireland, the U.K., the European continent the Middle East and Asia. Such
products are essentially similar to those of its competitors of which there
are many, some substantially larger than the Company. The principal methods
of competition are price, quality, and responsiveness to customers' orders.
Significant restructuring of this industry and the competitors within it has
occurred in the past three years.
(i) The Registrant believes that the cost of research and development
activities was not material during the past three fiscal years. No employees
were engaged in such activities on a full-time basis during that period. All
research and development projects are performed by engineering and production
personnel in conjunction with other functions without separate accounting
therefor. In the future, the registrant intends to allocate greater
resources to these efforts.
(j) The number of persons employed by the Registrant and its subsidiaries at
the end of the last fiscal year was 101.
Financial Information about Foreign and Domestic Operations and Export Sales
(a) Information regarding foreign and domestic operations is provided in
Notes 2 and 8 to the consolidated financial statements.
(b) The Registrant depends heavily on foreign operations for the generation
of earnings. The insulated wire and cable operations are located in Ireland
and the U.K. These countries are considered to have relatively stable
governments and minimum political risk; nonetheless there is exposure to
fluctuations in currency exchange rates and normal business risk.
Executive Officers of the Registrant
Name Age Position with the Company
Frank L. Driver 42 President and Chief Financial Officer
Lavinia Z. Emery 58 Secretary and Assistant Treasurer
Officers are elected annually by the Board of Directors for one-year terms
expiring in June.
Mr. Frank L. Driver joined the Company in 1989 as Assistant Controller; in
1991 he was elected Vice President-Marketing and in 1993 he became Vice
President-Finance. In September 1994, he was elected President. In December
2000, he took over the additional title of Chief Financial Officer. Prior to
joining the Company, he was a senior financial analyst with General Motors
Corp. Mr. Driver is the brother of Mr. Timothy S. Driver, Director of the
Company.
Ms. Lavinia Z. Emery joined the Company in 1982 in an administrative capacity.
In 1985 she was elected Assistant Secretary and Assistant Treasurer. In 1998
she was elected Secretary and Assistant Treasurer.
Item 2. Properties
The principal property of the Registrant and its subsidiaries is a plant in
Ireland, which was constructed in 1990 and is deemed adequate for the
enterprise. The company also owns a dormant plant in Ireland, which it is
offering for sale. Both plants are owned by the Irish subsidiary and
subject to liens by lender.
Item 3. Legal Proceedings
On May 22, 2001, the Company settled the lawsuit that had been filed by the
landlord of an affiliate that 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 attorney believe that the suit was without merit,
a 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 on October 1, 2001, with subsequent
payments due on the first business day of each subsequent quarter. The
Company failed to make the initial payment on October 1, 2001, therefore the
landlord has the right to recommence suit.
On February 12, 2003 DRH Investments, LLC and DRH Equity Investments, LLC
(collectively DRH LLC) jointly filed a Schedule 13D, notifying the Security
and Exchange Commission that it had purchased the Note from the PBGC and that
it had purchased 60,400 and 85,000 shares of the Company equal to 4.1% and
5.8% of the outstanding equity of the Company. The joint filers indicated
that they were considering a wide variety of possible courses of action with
respect to the Note and the Company. DRH LLC is not a related party to the
Company, its officers or directors.
On April 30, 2003, DRH Investments, LLC filed suit against the Company for
breach of the Note and money had and received. DRH seeks (i) payment of
US$1,484,150 plus interest from February 10, 2003, (ii) not less than
30,400 shares of Common Stock of the Company, (iii) penalties, costs and
expenses associated with registering the Company shares, (iv) fees and
costs incurred pursuant to the Note and other agreements, and (v) such
other and further relief as the Court may deem just and proper.
Item 4. Submission of Matters to a Vote of Security Holders
None in the fourth quarter of 2002.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) The Company's common stock is traded on the American Stock Exchange.
The high and low sales prices for the stock were as follows:
2002 2001
Quarter High Low High Low
First $0.80 $0.75 $2.375 $0.688
Second $0.80 $0.34 $1.400 $0.600
Third $0.33 $0.20 $1.400 $1.220
Fourth $0.35 $0.15 $1.220 $0.850
(b) The approximate number of common shareholders as of April 13, 2003 was
375. This figure represents the sum of the number of shareholders of
record, plus an estimate of the number of individual shareholders whose
shares are held collectively by stockbrokers.
(c) The Company did not pay cash dividend during the five years ended
December 31, 2002. The note payable to the Pension Benefit Guaranty
Corporation (PBGC) prohibits the payment of cash dividends without permission
of the PBGC (reference is made to Note 4 to the consolidated financial
statements).
Item 6. Selected Financial Data
2002 2001 2000 1999 1998
(Amounts in thousands, except per share data)
Net Sales and Other
Revenues $22,071 $30,933 $37,766 $36,782 $40,529
Net Loss (1,129) (3,251) (926) (149) (2,080)
Total Assets 12,470 13,563 19,051 19,002 20,564
Long-term Debt - 36 1,651 1,914 2,142
Per Common Share:
Basic Net Loss $ (.77) $ (2.21) $(.66) $(.11) $(1.55)
======== ======= ====== ======= ======
Diluted Net Loss $ (.77) $ (2.21) $(.66) $(.11) $(1.55)
======== ======= ====== ======= ======
Basic Earnings Per Share
Weighted Average Shares
Outstanding 1,474 1,473 1,402 1,361 1,344
===== ===== ===== ===== =====
Diluted Earnings Per Share
Weighted Average Shares
Outstanding 1,474 1,473 1,402 1,374* 1,355*
===== ===== ===== ===== =====
<FN>
* Adjusted weighted average shares outstanding was not used to calculate diluted
earnings per share since the effect on earnings per share would be antidilutive.
</FN>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview and Financial Condition:
The Company, directly and through its subsidiaries, is engaged in the business
of manufacturing insulated electrical wire and cable through its wholly owned
subsidiary, Irish Driver-Harris Co. Ltd., located in Ireland.
The Company has a note payable to the Pension Benefit Guaranty Corporation
("PBGC") for which the due date was extended on April 10, 2000 to April 16,
2001. On April 13, 2001, the Company re-negotiated the terms of the note
whereby all payments of such note were deferred for two years. The note will
be payable in ten equal annual payments beginning April 16, 2003 and ending
April 16, 2012. The Company is in dispute with the PBGC as to the terms of
this re-negotiated note. As a result of this dispute, the PBGC has notified
the Company that it considers it in default and pending the determination of
this issue the Company has considered it prudent to reclassify the note into
short-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.
On February 12, 2003 DRH Investments, LLC and DRH Equity Investments, LLC
LLC (collectively DRH LLC) jointly filed a Schedule 13D, notifying the
Security and Exchange Commission that it had purchased the Note from the
PBGC and that it had purchased 60,400 and 85,000 shares of the Company
equal to 4.1% and 5.8% of the outstanding equity of the Company. The joint
filers indicated that they were considering a wide variety of possible
courses of action with respect to the Note and the Company. DRH LLC is not
a related party to the Company, its officers or directors.
On April 30, 2003, DRH Investments, LLC filed suit against the Company for
breach of the Note and money had and received. DRH seeks (i) payment of
US$1,484,150 plus interest from February 10, 2003, (ii) not less than
30,400 shares of Common Stock of the Company, (iii) penalties, costs and
expenses associated with registering the Company shares, (iv) fees and
costs incurred pursuant to the Note and other agreements, and (v) such
other and further relief as the Court may deem just and proper.
Capital expenditures during the year totaled approximately $61,000, all of
which was at the Company's Irish subsidiary. Cash flow was used to fund these
capital expenditures. At December 31, 2001, the Company's subsidiaries had
approximately $5,720,000 of available bank lines of credit of which $5,137,000
was outstanding at year-end. The Company had $329,000 in cash on hand at
December 31, 2002.
The ratio of current assets to current liabilities was 0.63 at the end of
2002, compared with 0.71 at the end of 2001. The decrease is principally due
to the losses in the year.
The Company believes it has adequate cash flow to meet its ongoing operating
obligations including debt repayments and capital commitments in Ireland,
based on a plan of continuous cost reductions, increased margins and minimal
capital expenditure which will permit the Company to remain within the limits
of its receivables discounting facility. The Company believes the actions it
has taken will result in a return to stability and reduce its exposure to the
competitive pressures of the ongoing consolidation in its industry.
The Company has struggled to meet supplier payments in the past two years due
to the impact of cumulative losses and their impact on the net worth and
reduced borrowing capacity. Going forward, the Company is dependant upon good
collection of debtors, and maintaining inventories at low levels in order to
meet payments to creditors.
Critical accounting policies
The Company believes it follows conservative and prudent accounting policies
in all areas of its disclosed accounts. There is little subjectivity in the
application of GAAP and few areas where management has discretion over
accounting methods which could substantially alter the reported results.
Areas where discretion in accounting policies could notably impact the
results of the Company if implemented differently include:
Going Concern - The accounts have been prepared on the basis that the company
is a going concern. Due to continuing losses including the heavy losses in
2002 and the fact that the Company has a deficiency of net assets and negative
stockholders' equity, there are certain risks regarding the Company's ability
to continue to trade in a normal manner. In the event that the Company was
not a going concern, the asset values reflected in the balance sheet would
likely have to be revised or reclassified and additional liabilities could
arise and the classification of liabilities could be revised. Risks which
exist for the Company's status as a going concern include the fact that
lenders to the Irish operating subsidiary have severely limited the amount of
funds that can be repatriated to the US parent company for payment of US
operating expenses. Several of these expenses are critical to the viability
of the Company and should funds be unavailable, the Company's going concern
status could be threatened. In addition, certain creditors of the parent
Company have potential claims against the Company. While these claims are not
necessarily accepted by the Company and its attorneys, successful legal action
by any of these creditors would impose severe cash requirements on the Company
that could also place the Company's going concern status at risk. With regard
to the preceding the Company is presently in negotiations to refinance the PBGC
note. Further, the Company is dependent upon several key suppliers for raw
materials. Should an interruption in supply of raw materials occur with any
of these organizations, the Company would struggle to replace them with
alternate suppliers. Finally, due to the serious nature of the losses, the
lenders to the Company are constantly reviewing their ongoing level of support
to the Company. If any of the credit lines to the Company are substantially
reduced, the Company will face a liquidity shortfall. Management believes that
the PBGC note can be satisfactorily renegotiated and that based on budgeted
cash flows through December 31, 2003, it has adequate cash flow to meet its
ongoing operating obligations including debt repayments and capital
commitments in Ireland, based on a plan of continuous cost reductions,
increased margins and minimal capital expenditure which will permit the
Company to remain within the limits of its receivables discounting banking
facility.
Acccounts Receivable - The Company reviews its accounts receivable on a regular
basis and makes provision for amounts that are doubtful. During 2002,
significant reserves were taken to reflect concerns about several accounts
where collection is considered unlikely.
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, Euro and the British Pound Sterling. The
Company is periodically involved in hedging currency between the Euro
and the British Pound Sterling through the use of futures contracts that are
relatively short term in nature. The Company historically has experienced
minimal gains and losses on such foreign currency hedging and has not entered
into any such transactions in 2001 or 2002.
Debt Instruments
The Company's long-term debt of $2,042,000, including the current portion and
all of the PBGC balance now classified as current, is primarily fixed rate
debt of which $1,598,000 is U.S. denominated with the remaining balance
denominated in Euro. The Company's remaining debt of $5,137,000
is solely comprised of variable rate, short-term facilities denominated
primarily in Euro to cover banking overdrafts. The Company
estimates that a 1% increase in the interest rate on the borrowings would
increase annual interest expense by approximately $51,000.
Price Fluctuations and Availability of Raw Materials
Copper is the principal raw material purchased by the Company, and the
Company's sales may be affected by the market price of copper. The Company
generally does not hedge potential changes in copper prices.
The Company also purchases insulating compounds, such as PVC and low smoke
and fume polymer, from various suppliers. Although the Company has not
experienced any shortages of these compounds, the inability of suppliers to
supply such raw material could have a material adverse effect on the
Company's business until a replacement supplier is found or substitute
materials are approved for use. Although the Company has generally been able
to pass on increases in the price of copper and other raw materials to its
customers, there can be no assurance that the Company will be able to do so
in the future. Additionally, significant increases in the price of copper or
other raw materials could have a negative effect on demand for the Company's
products. Similarly, significant shortages of copper or other such raw
materials, over time could have a material adverse effect on the Company's
business.
Competition
The Company is subject to competition from a substantial number of
international competitors, some of which have greater financial, engineering,
manufacturing and other resources than the Company. The Company's
competitors can be expected to continue to aggressively pursue increases in
market share. Although the Company believes that it has certain advantages
over its competitors, realizing and maintaining such advantages will require
continued investment by the Company in engineering, marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining such advantages.
Results of Operations
Year ended December 31, 2002 compared to year ended December 31, 2001
Units shipped were down 23.7% for 2002 compared to 2001 within manufacturing
due to a scale back in productive capacity in the fourth quarter of 2001.
Overall, net sales to customers decreased by 28.5% for the year ended
December 31, 2002 compared to the prior year reflecting the Company
restructuring. However, the gross profit percentage increased to 10.8% from
5.5% in 2001 as lower capacity permitted the company to more selectively sell
higher margin products. Beginning in November of 2001, the profile of
customers and products began to shift to higher margin, lower revenue areas.
The result of this transformation of the business is to distort the year to
year comparisons. Selling, general and administrative expenses increased
as a percentage of net sales to 15.0% in 2002 compared to 14.3% in 2001.
This was attributable to the Company's reduced revenue resulting from its
scaled back production without a proportional reduction in overheads.
Interest expense decreased in 2002 by 30.0% due to a reduction in working
capital which resulted in reduced short term borrowings in combination with
retirement of long term debt funded by asset sales.
On April 17, 2002 the Company sold the goodwill, stocks and certain other
assets of its UK distribution subsidiary to a competitor. The subsidiary
retained receivables and accounts payable. As a condition of the transaction,
the buyer assisted in collection of receivables and payment of creditors.
The transaction did not have a significant impact on results for the current
year.
There was no charge in 2002 to income tax at the Company's Irish subsidiary
or at corporate level due to the losses incurred by both entities. The
Company has tax loss carry forwards of approximately $3,944,000 available to
offset future U.S. taxable income, which expire between 2003 and 2022 and
approximately $4,909,000 to offset Irish taxable income. A valuation
allowance of $1,615,000 and $1,830,000 has been provided at
December 31, 2002 and 2001, respectively. These valuation allowances were
established since it is considered more likely than not that the deferred tax
assets, primarily the net operating loss carry forwards, will not be realized.
See further discussion in Notes 1 and 6 to the consolidated financial
statements.
Year ended December 31, 2001 compared to year ended December 31, 2000
Due to ongoing losses, the company announced a restructuring on October 15,
2001 which involved the reduction of the total employment by one-third, from
141 to 99 employees. The Company also announced closure of its manufacturing
facility in Kilkenny with a relocation of this operation into the main factory
in New Ross, Ireland. In addition, the Company closed its Dublin warehousing
and distribution operations and relocated that activity to the main factory in
New Ross. The Dublin property was sold and the Kilkenny property is being sold
with the proceeds being used to reduce debt. In addition, the Company
announced that it was scaling back its UK distribution operation and reducing
employment there by one-third. The Company is projecting a reduced productive
capacity in its main plant and expects revenue to reduce by approximately
one-third. In its new structure, the Company will focus its activities on its
higher margin products and customers and will eliminate the lower margin
products from its range of cables produced. The results of the restructuring
have been to sharply reduce the assets employed to operate the business with a
concurrent reduction of debt and interest expense. The Company is in a
transition period where it is redefining its customer and product profiles to
focus on higher margin, specialized products.
Units shipped were down 17.4% for 2001 compared to 2000 within manufacturing
due to a scale back in productive capacity in the fourth quarter of 2001.
Overall, net sales to customers decreased by 18% for the year ended December
31, 2001 compared to the prior year reflecting the Company restructuring.
However, the gross profit percentage decreased to 5.5% from 10.6% in 2000 as
selling prices for finished cable were continually depressed through intense
competition. Beginning in November of 2001, the profile of customers and
products began to shift to higher margin, lower revenue areas. The result of
this transformation of the business is to distort the year to year
comparisons. Selling, general and administrative expenses increased as a
percentage of net sales to 14.3% in 2001 compared to 11.8% in 2000. This was
attributable to the Company's reduced revenue resulting from its scaled back
production without a proportional reduction in overheads. Interest expense
increased in 2001 by 24% due to higher average borrowings in Ireland to meet
increased working capital needs driven by foreign exchange rates. The
Company's distribution operation experienced a sharp drop in margin in 2001,
compared to 2000, as a result of the specific strategy of exiting certain
lines of products and sharply reducing excess stocks, in some cases at a
discounted price, in order to retrieve the funds invested.
Item 8. Financial Statements and Supplementary Data
This information is submitted in a separate section of this report.
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table summarizes the principal occupations and business
experience during the past five years, as well as certain other information
as of March 31, 2003, for each nominated director:
Principal Occupation Company Common % of
During Last Five Stock Outstanding
Years and other Director Beneficially Common
Name Age Directorships Since Owned (1) Stock
Thomas J. Carey 66 Certified Public Accountant. 2001 6,850 *
Until 2000, Chief Financial
Officer, Driver-Harris Company
Kenneth J. Mathews 65 Owner and Founder, Cambridge 2001 - -
Capital Corporation
Frank L. Driver 42 Chairman of the Board 1993 127,925** 8.7
of Directors, President and
Chief Financial Officer
Timothy S. Driver 40 Chief Operating Officer, 2001 61,723*** 4.0
Fabricare Cleaners, Until
2001, Treasurer Driver-Harris
Company
<FN>
* Denotes less than 1% of outstanding Common Stock.
** Includes 3,000 shares granted in 1999, 20,000 shares granted in 2000 and 14,204
shares included in the Driver-Harris Staff 401-K Benefit account.
*** Includes 17,000 shares under options pursuant to the Driver-Harris Employee
Incentive Stock Option Plan, 2,000 shares granted in 1999, 15,000 shares granted
in 2000.
(1) On March 31, 2003 all directors of the Company as a group (4) owned
beneficially 263,160 shares or 17.9% of the outstanding common stock. This
amount includes 42,000 shares under currently exercisable stock options:
3,000 and 20,000 shares granted in 1999 and 2000 respectively to
Frank L. Driver; 2,000 and 15,000 shares granted in 1999 and 2000 respectively
to Timothy S. Driver; and 1,000 shares granted in 1999 to Thomas J. Carey
pursuant to the Driver-Harris Employee incentive Stock Option Plan. Also,
Frank L. Driver is an executor of the Estate of Frank L. Driver III, his
father, which owns 66,662 shares or 4.5% of the outstanding common stock.
</FN>
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Annual Securities Underlying All Other
Name and Principal Position Year Compensation Options/SARs Compensation (a)
($) (#) ($)
Frank L. Driver, President 2002 80,000 (b) 0 0 (d)
and Chief Executive 2001 80,000 (b) 0 0 (d)
Officer 2000 73,077 (c) 0 13,154 (e)
<FN>
(a) Amount represents the Company's portion of contributions to a 401(k) plan.
(b) All compensation has been accrued.
(c) A portion of compensation has been accrued.
(d) All compensation has been accrued.
(e) Compensation includes $9,000 from 1999.
</FN>
<TABLE
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Percent of
Number of Total Potential Realizable Value At
Securities Options/SARs Assumed Annual Rates of
Underlying Granted to Exercise of Stock Price Appreciation For
Options/SARs Employees Base Price Expiration Option Plan
Name Granted In Fiscal Year ($/sh) Date 5% 10%
Frank L. None
Driver
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUES
Number of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End($)
--------------- ---------------
Shares Acquired Exercisable (E) Exercisable (E)
Name On Exercise(#) Unexercisable (U) Unexerciseable (U)
Exercisable options:
Frank L. Driver none 23,000 (U) ----
PENSION PLANS
On November 21, 1986, the Company entered into a pension agreement with Frank
L. Driver III, under which Mr. Driver or his spouse would receive an annual
payment of $50,000 for a period of fifteen years after Mr. Driver's
retirement or death. On November 20, 1995, the Board of Directors approved
changing the period to twenty years and the addition of a contingent payment
to this agreement whereby in years where the profit of the Company exceeds
$500,000 before income taxes and before this payment, the $50,000 amount will
be supplemented by an amount based on a formula encompassing total retirement
payments, adjusted annually for the Consumer Price Index. This pension is
now payable to Corinne F. Driver, spouse of Frank L. Driver III, deceased.
In 2000, due to cash flow conditions, the Company initiated an interest
payment schedule to be spread out throughout 2000 of which $31,500 was paid
in cash, $1,500 was interest, the remainder $20,000, of which $7,500 is still
outstanding, was paid by common stock in the Company at the rate of one and
one-half (1 1/2) times the amount owed or 12,955 shares. In 2001, also due
to cash flow conditions, the Company was only able to pay $5,000 for this
pension. For 2002, no payments were made to Corinne F. Driver, however,
these amounts are being accrued.
COMPENSATION OF DIRECTORS
During 2002, each Director, with the exception of Frank L. Driver, was to
be paid 4,500 shares as a retainer and $600 per Board of Directors Meeting
and $600 per Audit or Compensation Committee Meeting, however, no payments
were made and these amounts have been accrued.
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Company has a Compensation Committee of its Board of Directors.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
The Board's Compensation Committee reviews the compensation of the executive
officers of the Company annually.
The Company's salary policy is to pay a "competitive salary" plus an
incentive bonus based on profit performance in relation to prior years and
in relation to annual budget profit targets. The Compensation Committee
may also take into consideration other factors including dedication to the
job, external factors beyond the control of management, etc. No incentive
bonus was paid in 2002 to any officer.
Compensation Committee
Kenneth J. Mathews Thomas J. Carey Timothy S. Driver
Item 12. Security ownership of Certain Beneficial Owners and Management
(a) Ownership of shares of the Company's Common Stock by certain beneficial
owners as of March 31, 2003
Name and Address Amount and Nature of Percent of
Of Beneficial Owner Beneficial Ownership Class
Estate of Frank L. Driver Jr. 64,172* 4.3
c/o David A. Driver, Executor
10 High Street
Bristol, RI 02809
Estate of Frank L. Driver III 66,662** 4.5
33 Birdseye Glen
Verona, NJ 07033
Frank L. Driver 127,925*** 8.7
PO Box 192
Jersey City, NJ 07303
David A. Driver 52,270 3.5
10 High Street
Bristol, RI 02809
DRH Investments, LLC 60,400 4.1
Post Office Box 49-455
Los Angeles, CA 90049
DRH Investments, LLC 85,000 5.8
Post Office Box 49-455
Los Angeles, CA 90049
<FN>
* All shares held of record and beneficially. As an executor of the Estate
of Frank L. Driver Jr., David A. Driver holds voting rights to such shares.
** All shares held of record. Does not include 37,109 shares held by Corinne
F. Driver, his surviving spouse and the mother of Frank L. Driver, who disclaims
any beneficial interest in these shares. As an executor of the Estate of Frank
L. Driver III, Frank L. Driver, holds voting rights to such shares.
*** Includeds 3,000 shares under option granted in 1999, 20,000 shares granted
in 2000 and 14,204 shares held in the Driver-Harris Staff 401-K Benefit account.
</FN>
(b) Security ownership of management as of March 31, 2003:
Amount and Nature of Percent of
Title of Class Beneficial Ownership Class
Driver-Harris Company
Common Stock 196,737* 13.3%
<FN>
* Includes 42,000 shares under options pursuant to the Driver-Harris Employee
Incentive Stock Option Plan and 14,204 shares held in the Driver-Harris Staff
401-K Benefit account.
</FN>
(c) Management is not aware of any arrangement which may result in a change
in control of the Company.
Item 13. Certain Relationships and Related Transactions
Frank L. Driver, Chairman and President, and Timothy S. Driver, a Director of
the Company, are brothers.
ITEM 14. CONTROLS AND PROCEDURES
The Company's President and Chief Financial Officer, Frank L. Driver, (the
Company's principal executive officer) has concluded, based on his evaluation
as of a date within 90 days prior to the filing date of this report, that the
Company's disclosure controls and procedures (as defined in U.S. Exchange Act
Rules 13a-14(c)) are effective to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and include controls and procedures designed
to ensure that information required to be disclosed by Driver-Harris Company
in such reports is accumulated and communicated to the Company's management,
including the Chief Executive Officer, as appropriate to allow timely
decisions regarding required disclosure. During the 90 days prior to the
filing date of this report, the Company relocated its primary finance and
accounting functions which introduced the delays in filing this report.
In spite of these changes, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of such evaluation.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) This portion of Item 15 is submitted in a separate
section of this report.
(3) Listing of Exhibits
Exhibit 3. Certificate of Incorporation and By-Laws
Exhibit 10. Material contracts
Exhibit 21. Subsidiaries of the Registrant
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None filed in the fourth quarter of 2002.
(c ) Exhibits
Exhibit 3. Articles of Incorporation and By-Laws 8-K dated
November 1, 1982
Amendments thereto 8-K dated
June 17, 1987
Exhibit 10. Material Contracts:
Settlement Agreement with Pension 8-K dated
Benefit Guaranty Corporation dated December 22, 1993
December 22, 1993
Exhibit 21. Subsidiaries of the Registrant as of December 31, 2002
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
Driver-Harris Systems Inc. New Jersey (Inactive Corporation)
Irish Driver-Harris Co. Ltd. Ireland
Kingston Cable Distributors Ltd. United Kingdom
(Subsidiary of Irish Driver-Harris Co. Ltd.)
Exhibit 27. Financial Statement Schedules
This portion of Item 15 is submitted in a separate section
of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
May 8,2003 /s/ Frank L. Driver
- -------------- ---------------------
Date Frank L. Driver
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Thomas J. Carey /s/ Kenneth J. Mathews
- ---------------------- ----------------------
Thomas J. Carey Kenneth J. Mathews
Director Director
Date: May 8,2003 Date: May 8,2003
/s/ Timothy S. Driver /s/ Frank L. Driver
- ---------------------- ----------------------
Timothy S. Driver Frank L. Driver
Director Director, President and Chief
Date: May 8,2003 Executive and Financial
Officer
Date: May 8,2003
CERTIFICATION
I, Frank L. Driver, certify that:
1. I have reviewed this annual report on 10K of Driver-Harris Company and
Subsidiaries;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8,2003
/s/ Frank L. Driver
Frank L. Driver
Director, President and Chief Executive and Financial Officer
Annual Report on Form 10-K Item 8,
Item 15(a) (1) and (2), (c) and (d)
List of Financial Statements and
Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Driver-Harris Company and Subsidiaries
December 31, 2002
Driver-Harris Company and Subsidiaries
Form 10-K Item 15(a) (1) and (2)
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Driver-Harris Company and
Subsidiaries are included in Item 8:
Consolidated Balance Sheets - December 31, 2002 and 2001 Page 16
Consolidated Statements of Operations - Years ended December 31,
2002, 2001 and 2000 Page 17
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) - Years ended December 31, 2002, 2001 and 2000 Page 18
Consolidated Statements of Cash Flows - Years ended December 31,
2002, 2001 and 2000 Page 19
Notes to Consolidated Financial Statements Page 20
The following consolidated financial statement schedules of Driver-Harris Company and
Subsidiaries are included in Item 15(d):
Schedule I - Condensed Financial Information of Registrant Page 35
Schedule II - Valuation and Qualifying Accounts Page 39
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
Report of Independent Auditors
To The Board of Directors And Shareholders of Driver-Harris Company
We have audited the accompanying consolidated balance sheets of Driver-Harris
Company and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency) and cash flows for each of the three years in the period ended
December 31, 2002. Our audits also included the financial statement
schedules listed at Item 15(a). These financial statements and financial
statement schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We did not audit the financial statements of Kingston
Cables Distributors Limited, a consolidated subsidiary which statements
reflect total assets constituting 1% in 2002 and 7% in 2001, and total
revenues constituting 4% in 2002, 11% in 2001 and 11% in 2000 of the
related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar
as it relates to data included for such subsidiary, is based solely on the
report of the other auditor.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based upon our audits and the report of other auditor, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Driver-Harris
Company and subsidiaries at December 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
The accompanying financial statements have been prepared assuming that
Driver-Harris Company will continue as a going concern. As more fully
described in Note 4(a), the Company has failed to make payments due on the Note
given to the Pension Benefit Guaranty Corporation (PBGC). On 30 April 2003,
an investment LLC which had purchased the note filed suit against the Company
seeking repayment of the note, interest thereon and not less than 30,400
shares of the Company's common stock. Also, the Company has a net working
capital deficit of $5.3 million, a net capital deficiency of $2.9 million as
of December 31, 2002, and has incurred recurring losses. Moreover,
the loans and operating credit lines of the Company's Irish subsidiary are
jointly collateralized by all of its assets and the related agreements
contain restrictions, which currently prohibit the payment of dividends or
management fees by the subsidiary to the Company. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 4(a).
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.
Dublin, Ireland
May 7, 2003 /s/ ERNST & YOUNG
REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS
of
KINGSTON CABLE DISTRIUBTORS LIMITED
We have audited the accompanying balance sheets of Kingston Cable Distributors
Limited as of 31 December 2002 and 31 December 2001 and the related statements
of profit and loss, stockholder's equity and cash flows for each of the three
years in the period ended 31 December 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit
Basis of Opinion
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material mis-statement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kingston Cable Distributors
Limited as of 31 December 2002 and 31 December 2001, and the results of its
operations and cash flows for each of the three years in the period ended 31
December 2002 in conformity with generally accepted accounting principles of
the United States.
Date: 4 May, 2003 /s/ James, Stanley & Co.
Registered Auditors
Chartered Accountants
1733 Coventry Road
South Yardley
Birmingham
B26 1DT
United Kingdom
Driver-Harris Company and Subsidiaries
Consolidated Balance Sheets
(Dollar Amounts in Thousands)
December 31
Assets 2002 2001
Current Assets:
Cash $ 329 $ 250
Receivables, less allowances of $591
and $231 5,945 6,780
Assets held for sale - 234
Inventories:
Materials 425 206
In process 364 246
Finished 1,675 2,314
------- --------
2,464 2,766
Prepaid expenses 315 251
------- --------
Total current assets 9,053 10,281
Assets held for sale 145 127
Property, plant and equipment, at cost:
Land and buildings 2,746 2,354
Machinery and equipment 3,283 3,410
Office equipment 204 425
------- -------
6,233 6,189
Less accumulated depreciation and
Amortization 2,961 3,034
------- -------
3,272 3,155
------- -------
Total assets $12,470 $13,563
======= =======
<FN>
See accompanying notes.
</FN>
Driver-Harris Company and Subsidiaries
Consolidated Balance Sheets (continued)
(Dollar Amounts in Thousands)
December 31
Liabilities and stockholders' equity 2002 2001
Current liabilities:
Short-term borrowing $ 5,137 $ 5,785
Current portion of long-term debt 444 474
Note Payable to PBGC 1,598 1,434
Accounts payable 4,757 4,905
Accrued expenses 2,292 1,912
Loan payable to officer 100 41
Income taxes payable 11 -
-------- --------
Total current liabilities 14,339 14,551
Long-term debt - 36
Deferred Grants 381 361
Postretirement benefit liabilities and
other Liabilities 607 570
-------- --------
Total Liabilities 15,327 15,518
Stockholders' Equity (Net Capital Deficiency):
Common stock -- par value $0.83 1/3 per share:
Authorized 3,000,000 shares; issued
1,513,941 shares at December 31,
2002 and 2001(including 39,595
treasury shares at December 31,
2002 and 2001) 1,320 1,320
Additional paid-in capital 2,425 2,425
Retained loss (4,505) (3,376)
Accumulated other comprehensive loss (2,097) (2,324)
-------- --------
Total stockholders' equity (net capital
deficiency) (2,857) (1,955)
-------- --------
Total Liabilities and Stockholders Equity $12,470 $13,563
======== ========
<FN>
See accompanying notes.
</FN>
Driver-Harris Company and Subsidiaries
Consolidated Statements of Operations
(Dollar Amounts in Thousands, Except per Share Data)
Years ended December 31
2002 2001 2000
Revenues:
Net sales $22,071 $30,868 $37,689
Other - 65 77
-------- -------- --------
Total Revenues 22,071 30,933 37,766
Costs and expenses:
Cost of sales 19,679 29,172 33,709
Selling, general and administrative 3,300 4,418 4,446
-------- -------- --------
Operating Loss (908) (2,657) (389)
Gains on sale of assets held for sale 221 - -
Interest expense (565) (802) (647)
Foreign exchange gain and sundry 123 22 85
-------- -------- --------
Loss before income taxes (1,129) (3,437) (951)
Benefits for income taxes - (186) (25)
-------- -------- --------
Net loss $ (1,129) $(3,251) $(926)
======== ======== ========
Basic net loss per share $ (.77) $(2.21) $(.66)
Diluted net loss per share $ (.77) $(2.21) $(.66)
<FN>
See accompanying notes.
</FN>
Driver-Harris Company and Subsidiaries
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency)
And Accumulated Other Comprehensive Income/(Loss)
For the three years ended December 31, 2002
(Dollar Amounts in Thousands)
Accumu.
Other
Additional Retained Compre-
Common Paid-In Earnings hensive
Stock Capital /(Deficit) Loss Total
-------- -------- -------- ------- --------
Balance at January 1, 2000 $ 1,235 $ 2,333 $ 801 $ (1,761) $ 2,608
Net loss (926) (926)
Adjustment from exchange
rate changes (294) (294)
-------
Comprehensive Loss (1,220)
-------
Directors', Officers' and
employees compensation 19 29 48
13,000 shares issued as
fee to Pension Benefit
Guaranty Corporation 11 15 26
32,579 shares purchased by
Officers 27 42 69
---------------------------------------------------
Balance at December 31, 2000 $1,292 $ 2,419 $ (125) $ (2,055) $ 1,531
Net loss (3,251) (3,251)
Adjustments from exchange
rate changes (269) (269)
-------
Comprehensive loss (3,520)
-------
12,955 shares issued to settle
liabilities 11 2 13
Directors' and Officers'
compensation 17 4 21
---------------------------------------------------
Balance at December 31, 2001 $ 1,320 $ 2,425 $ (3,376) $ (2,324) $ (1,955)
Net loss (1,129) (1,129)
Adjustments from exchange
rate changes 227 227
-------
Comprehensive loss (902)
---------------------------------------------------
Balance at December 31, 2002$ 1,320 $ 2,425 $ (4,505) $ (2,097) $ (2,857)
==================================================
<FN>
See accompanying notes.
</FN>
Driver-Harris Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
Years ended December 31
2002 2001 2000
Operating activities
Net loss $ (1,129) $ (3,251) $(926)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization of
deferred grants 408 402 424
Provision for doubtful accounts 262 (37) (64)
Gain on sale of fixed assets and
assets held for sale (267) (10) (6)
Non-cash fee to Pension Benefit
Guaranty Corporation - - 26
Non-cash compensation and
settlement of liabilities - 34 48
Receivables 1,569 2,585 363
Inventories 698 1,589 (1,336)
Prepaid expenses 20 109 (132)
Accounts payable, accrued expenses
and other liabilities (611) (1,194) 537
----------------------------
Net cash provided by (used in)
operating activities 950 227 (1,066)
Investing activities
Capital expenditures (60) (221) (382)
Proceeds from sale of fixed assets 575 17 6
----------------------------
Net cash provided by (used in)
investing activities 515 (204) (376)
Financing activities
Change in short-term debt (1,376) 112 1,907
Proceeds from issuance of long-term debt - - 103
Reduction of long-term debt (35) (292) (434)
Issuance of capital stock - - 69
----------------------------
Net cash (used in) provided by
financing activities (1,411) (180) 1,645
Effect of exchange rate changes on cash 25 (21) 24
----------------------------
Net change in cash 79 (178) 227
Cash at beginning of year 250 428 201
----------------------------
Cash at end of year $ 329 $ 250 $ 428
============================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 401 $ 671 $ 519
Income taxes - - 25
Supplemental schedule of non-cash investing and financing activities
Capital lease obligations incurred for machinery
and equipment $ - $ 23 $ -
<FN>
See accompanying notes.
</FN>
Driver-Harris Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
1. Summary of Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Driver-Harris
Company (the "Company") and its wholly-owned subsidiaries, Irish Driver-Harris
Co. Ltd., ("IDH"), and Kingston Cables Distributors Limited located in Ireland
and the United Kingdom, respectively. Inter-company accounts, transactions
and profits have been eliminated on consolidation.
The Company, directly and through its subsidiaries, is engaged in the
business of manufacturing and marketing insulated electrical wire and cable.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method for all inventories.
Property, Plant and Equipment
Depreciation has been provided principally by the straight-line method based
upon estimated useful lives of the depreciable assets. Depreciable lives
range from four to forty years.
Deferred Grants
Deferred grants represent foreign government grants received by the Company's
Irish subsidiary. The grants received with respect to capital expenditures
are treated as a deferred credit and are amortized to income over the
expected useful life of the related asset.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense or benefit is the tax payable
or refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Revenue Recognition
Sales revenues are recognized at the time that persuasive evidence of an
arrangement exists, delivery has occurred, the related fee is fixed or
determinable and collectibility is reasonably assured.
Earnings per Common Share
Basic and diluted earnings per share are calculated in accordance with SFASB
128, "Earnings Per Share" as follows (in thousands, except per share data):
2002 2001 2000
Numerator:
Net Loss $ (1,129) $(3,251) $(926)
Denominator:
Basic earnings per share -
weighted average shares 1,474,346 1,472,964 1,401,675
Effect of dilutive shares -
stock options - - -
---------- ---------- ----------
Diluted earnings per share -
adjusted weighted average
shares* 1,474,346 1,472,964 1,401,675
---------- ---------- ----------
Basic loss per share $ (.77) $ (2.21) $ (.66)
---------- ---------- ----------
Diluted loss per share $ (.77) $ (2.21) $ (.66)
---------- ---------- ----------
<FN>
*Adjusted weighted average shares not used since effect on earnings per share
would be antidilutive.
</FN>
Options to purchase approximately 61,250 (2001:78,000; 2000:78,000) shares of
common stock on a weighted average basis were outstanding during the year but
were not included in the computation of diluted earnings per share either
because the options' exercise price was greater than the average market price
of the common stock or because the Company incurred a loss for the year and
therefore, the effect would be antidilutive.
Employee Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market value of the Company's shares at the date of the grant over the
amount an employee must pay to acquire the shares. This cost is deferred and
charged to expense rateably over the vesting period (generally five years).
Where shares are granted to employees at less than fair market value, the
excess of the fair market value over the amount the employee must pay to
acquire the shares is charged to expense as stock compensation and credited
to additional paid-in capital in the period of transfer.
In December 2002, the Financial Accounting Standards Board issued Statement
No. 148, "Accounting for Stock- Based Compensation- Transition and Disclosure"
("SFAS 148"). SFAS 148 amends FASB Statement No.123, Accounting for
Stock-Based Compensation, ("SFAS 123") to provide alternate methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. While the statement does not amend
SFAS 123 to require companies to account for employee stock options using the
fair value method, the disclosure requirements of SFAS 148 in annual and
interim financial statements are applicable to all companies with stock based
compensation, regardless of whether they account for that compensation using
the fair value method of SFAS 123 or the intrinsic value method of APB 25.
SFAS 148 is effective for fiscal years ending after December 15, 2002.
Pro forma information regarding net loss and loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
stock options under the fair value method of SFAS 123. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 2001 and 2000,
respectively (there were no grants in 2002): risk-free interest rates of 4% and
4.6%; dividend yields of 0%; volatility factors of the expected market price of
the Company's Ordinary Shares of 3.915, and .696; and a weighted-average
expected life of the options of five years.
The following table illustrates the effect on net loss and loss per share if
the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation (in thousands, except per share data):
2002 2001 2000
Net loss, as reported $ (1,129) $ (3,251) $ (926)
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method of
awards, net of related
tax effects (20) (20) (13)
------ ------ -----
Pro forma net loss $ (1,149) $(3,271) $(939)
------- ------- -----
Loss per share:
Basic and diluted - as reported $ (.77) $(2.21) $(.66)
Basic and diluted - pro forma $ (.77) $(2.22) $(.67)
<FN>
These amounts may not necessarily be indicative of the pro-forma effect of
SFAS No. 123 for future periods in which options may be granted.
</FN>
During 2002, 2001 and 2000, the Company issued nil, 20,639 and 22,800
shares of stock respectively to non-executive Directors, officers and
employees as compensation and bonus. Total compensation expense recorded
in conjunction with the issuance of these shares was nil in 2002, $21,000
in 2001 and $48,000 in 2000.
Concentrations of Risk
A predominant number of the Company's customers are engaged in the
construction, appliance and electrical equipment industries in Ireland and
the U.K. The Company grants credit to its customers on open account. One
customer's outstanding balances represent 20.0% of consolidated receivables
at December 31, 2002 compared to two customers which represented 19.3% of
consolidated receivables at December 31, 2001. The majority of the 2002
accounts receivable balances, including those of this customer, are insured
against loss. The two customers each represented over 5.0% of consolidated
revenues in 2002, 2001 and 2000 and combined represent 25.3% of consolidated
revenues in 2002, 19.4% in 2001 and 23.2% in 2000.
The Company is dependent upon several key suppliers for raw materials.
Should an interruption in supply of raw materials occur with any of these
organizations, the Company would struggle to replace them with alternate
suppliers. The Company's payment arrangements with these customers is
subject to regular review and any significant reduction in the terms
available could have a material adverse effect on the operations of the
business.
The Company has struggled to meet supplier payments in the past two years
due to the impact of cumulative losses and their impact on the net worth
and reduced borrowing capacity. Going forward, the Company is dependant
upon good collection of debtors, and maintaining inventories at low levels
in order to meet payments to creditors.
Foreign Currency Translation
Assets and liabilities of foreign operations with a functional currency other
than the U.S. dollar are translated into U.S. dollars at year-end exchange
rates. Revenues and expenses are translated at the average exchange rates in
effect during the year. Translation adjustments are recorded as a separate
component of equity, accumulated other comprehensive income (loss).
Foreign Currency Options
To hedge against exposures to changes in foreign currency exchange rates on
certain sales commitments and anticipated, but not yet committed sales, the
Company occasionally enters into forward foreign currency option contracts.
These contracts permit, but do not require, the Company to sell specified
amounts of foreign currencies expected to be received from its export sales
for pre-established Irish Pound/Euro amounts at specified dates. The contracts
are denominated in the same foreign currencies in which export sales are
expected to be denominated. These contracts are designated and effective as
hedges of probable quarterly export sales transactions, which otherwise would
expose the Company, on the basis of its aggregate net cash flows in respective
currencies, to foreign currency risk. The continued effectiveness of these
contracts as hedges is assessed periodically by analyzing the correlation
between the actual export sales that occur and the degree of offset that the
contracts provide.
There were no such contracts outstanding at any time during 2002 or 2001.
For earlier periods, prior to SFAS 133 the effects of movements in currency
exchange rates on these instruments were recognized when the related sale was
recorded. Realized and unrealized gains and losses on contracts that were not
designated as hedges, that failed to be effective as hedges, or that related
to sales that were no longer probable of occurring were included in income as
foreign exchange gains or losses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Impairment of Long-Lived Assets
The Financial Accounting Standards Board issued Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"), in August 2001. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations"
for a disposal of a segment of a business. SFAS 144 was effective for
fiscal years beginning after December 15, 2001. The Company adopted
SFAS 144 as of January 1, 2002. Adoption of this standard did not have
a material impact on the consolidated financial statements of the Company.
The requirements of SFAS 121 had no effect on the Company's consolidated
financial statements in 2001 and 2000.
Restructuring
In the fourth quarter of 2002, the Company announced closure of its Dublin
administration office. The costs associated with the restructuring are
approximately $110,000 and have been included in selling, general and
administrative expenses in the statement of operations. In April 2002
the Company sold the goodwill, stock and certain assets of its UK
distribution subsidiary to a competitor. In the fourth quarter of 2001
the Company announced a reduction in its workforce from 141 to 99 employees
and the closure and relocation of one of its manufacturing facilities to
its main plant in New Ross Ireland. The costs associated with the
restructuring were approximately $100,000 and were booked to selling,
general and administrative expenses in the statement of operations. At
the year end approximately $117,000 (2001: $45,000) was accrued.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
in June 1998. SFAS 133, which requires all derivative instruments to be
recognized as either assets or liabilities on the balance sheet at their
fair value, provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. As
amended, this statement is effective for fiscal years beginning after
June 15, 2000 and therefore applied to the Company from the first quarter
of 2001. Application of SFAS 133 had no material impact on the consolidated
financial statements of the Company as it had no derivative or hedging
transactions in 2002 or 2001.
The Financial Accounting Standards Board issued Statement No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146") in July 2002. SFAS 146 provides guidance on the recognition
and measurement of liabilities associated with exit or disposal activities
and requires that such liabilities be recognized when incurred. In many
cases, those costs will be recognized as liabilities in periods following
a commitment to a plan, not at the date of commitment. SFAS 146 also
changes the recognition of one-time termination benefits, such as severance
pay or other termination indemnities, whenever the benefit arrangement
requires employees to render future service beyond a "minimum retention
period". SFAS 146 also addresses the accounting for other costs associated
with an exit or disposal activity, such as costs to consolidate or close
facilities and relocate employees. A liability for such costs has to be
recognized and measured at its fair value in the period in which it is
incurred. SFAS 146 is effective for exit or disposal activities that are
initiated after December 31, 2002 and does not impact the recognition of
costs under the Company's existing restructuring plans. Adoption of this
standard is expected to impact the timing of recognition of costs if any
further restructuring plans are initiated and implemented.
In November 2002, the FASB issued FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others", ("FIN 45").
FIN 45 requires a guarantor to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken by it in
issuing the guarantee. It also expands the disclosure requirements in
the financial statements of the guarantor with respect to its obligations
under certain guarantees that it has issued. The Company is required to
adopt the initial recognition and initial measurement accounting provisions
of this interpretation on a prospective basis to guarantees issued or
modified after December 31, 2002. The Company does not anticipate that the
adoption will have a material effect on the Company's financial position,
results of operations or cash flows. The disclosure requirements are
required to and have been adopted by the Company as of December 31, 2002.
2. Foreign Operations
Net assets that are located outside the United States and are included in the
consolidated balance sheets are as follows (in thousands):
December 31
2002 2001
Assets
Receivables $ 5,945 $6,780
Inventories 2,464 2,766
Other current assets 775 840
Property, plant and equipment - net 3,272 3,155
-------- --------
$ 12,456 $13,541
======== ========
December 31
2002 2001
Liabilities
Current Liabilities $ 11,934 $12,576
Long-term debt - 36
Other long-term liabilities 381 361
-------- --------
12,315 12,973
-------- --------
Net assets outside the United States $ 141 $ 568
======== ========
Net income (loss) of the Company's foreign subsidiaries included in the
accompanying financial statements amounted to approximately $(653) in 2002,
$(2,903) in 2001, and $(490)in 2000 (in thousands).
There were no unremitted earnings of foreign subsidiaries at December 31,
2002. Because the Company plans to continue to finance foreign expansion
and operating requirements by reinvesting a substantial portion of the
undistributed earnings of its foreign subsidiaries, United States income
taxes have not been provided on such earnings in prior years.
3. Leases
Property, plant and equipment includes the following amounts related to
capital leases (in thousands):
December 31
2002 2001
Machinery and equipment and motor vehicles $1,065 $ 1,092
Less accumulated amortization 784 760
----------------------
$ 281 $ 332
======================
Amortization of the assets recorded under capital leases is included in
depreciation expense.
The future minimum rental commitments for all operating leases as of December
31, 2002 are as follows (in thousands):
Year Obligation
2003 $ 9
2004 2
--------
$ 11
========
Total rent expense under operating leases for 2002, 2001, and 2000 was
$35,000, $48,000 and $78,000 respectively.
4. Long-term Debt, and Lines of Credit and Going Concern
a) Going Concern
On April 10, 2000 the Company re-negotiated the terms of the note
payable to the Pension Benefit Guaranty Corporation (PBGC) whereby
payment of such note was extended from September 30, 2000 to
April 16, 2001. In exchange for this extension, the Company paid a
fee by issuing 13,000 of its common shares to the PBGC and agreed
that the interest rate on the note would remain at 7% per year
compounded quarterly until October 1, 2000 at which time the interest
rate increased to 11% per year. Interest is payable at maturity. The
PBGC has the right to convert the entire unpaid principal and accrued
interest into common stock of the Company at a price of $7.875 per
share, until maturity. Until the note is paid in full, the Company
may not pay cash dividends on its capital stock without permission
from the PBGC.
On April 13, 2001 the Company re-negotiated the terms of the note
due to the PBGC on April 16, 2001, whereby all payments of such note
were deferred for two years. The note would be payable in ten equal
annual payments beginning April 16, 2003 and ending April 16, 2012.
The Company is in dispute with the PBGC as to the terms of the
re-negotiated note. As a result of this dispute, the PBGC has
notified the Company that it considers it in default and pending the
determination of this issue the Company has considered it prudent to
reclassify the note to short-term debt in the Company's consolidated
balance sheet.
On February 12, 2003 DRH Investments, LLC and DRH Equity Investments,
LLC (collectively DRH LLC) jointly filed a Schedule 13D, notifying
the Security and Exchange Commission that DRH Investments LLC had
purchased the Note from the PBGC and that they had respectively
purchased 60,400 and 85,000 shares of the Company equal to 4.1%
and 5.8% of the outstanding equity of the Company. The joint
filers indicated that they were considering a wide variety of
possible courses of action with respect to the Note and the Company.
Management is currently in negotiations to refinance the PBGC note.
The Company remains in dispute regarding the terms of the
re-negotiated PBGC note and has failed to make payments on the note.
On April 30, 2003, DRH Investments, LLC filed suit against the Company
seeking repayment of the note, interest thereon and not less than
30,400 shares of the Company's common stock.
The Company has a net working capital deficit of $5.3 million, a net
capital deficiency of $2.9 million as of December 31, 2002, and has
incurred recurring losses. Moreover, the loans and operating
credit lines of the Company's operating subsidiary are jointly
collateralized by all of its assets and the related agreements contain
restrictions, which currently prohibit the payment of dividends or
related management fees by the subsidiary of the Company.
Although these conditions raise doubt about the Company's ability to
continue as a going concern, Management believes that the PBGC note
can be satisfactorily renegotiated and that based on budgeted cash
flows through December 31, 2003, it has adequate cash flow to meet
its ongoing operating obligations including debt repayments and
capital commitments in Ireland, based on a plan of continuous cost
reductions, increased margins and minimal capital expenditure which
will permit the Company to remain within the limits of its receivables
discounting banking facility. Consequently, the financial statements
do not include any adjustments to reflect the possible future effects
on the recoverabilty and classification of assets or the amounts and
classifications of liabilities that may result from the outcome of
these uncertainties.
b) Long-term Debt and Lines of Credit
Long-term debt is as follows (in thousands):
December 31
2002 2001
Other mortgage loans $ 444 $ 368
Capitalized lease obligations - 142
----------------------
444 510
Less current portion 444 474
----------------------
$ - $ 36
======================
The Other mortgage loans, which are the liability of a subsidiary and are
denominated primarily in Euro, bear interest at 8% and NIL
respectively per year. These loans and the Irish subsidiary's operating
credit lines are jointly collateralized by all of its assets with a book
value of $11,662,000 at December 31, 2002. Under the terms of the loans,
there are certain restrictions that limit the payment of dividends and
management fees by the subsidiary to the Company.
At December 31, 2002, the Company and its subsidiaries had approved short-term
lines of credit in the aggregate amount of approximately $5,720,000 of which
$5,137,000 was in use and is recorded as short-term borrowings on the balance
sheet.
The weighted average interest rate on the short-term borrowings of the Company
and its subsidiaries was 7.9%, 8.2%, and 8.5% at December 31, 2002, 2001 and
2000 respectively.
Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments is as follows
(in thousands):
Year End December 31
2002 2001
Carrying Fair Carrying Fair
Amount Value Amount Value
Non Derivatives
Cash and cash equivalents $329 $329 $250 $250
Accounts receivable 5,945 5,945 6,780 6,780
Short-term debt 5,137 5,137 5,785 5,785
Accounts payable 4,757 4,757 4,905 4,905
Note payable to the PBGC 1,598 * 1,434 1,813
Current portion of long-term debt 444 444 474 474
Long-term debt - - 36 36
* It is not practicable to determine the market value of this obligation due
the Company's financial condition and the fact that the financial instrument
is dealt with in a principal-to-principal market only.
The carrying amounts in the table are included in the statements of financial
position under the indicated captions.
5. Savings Plan, Post-retirement Benefits - Pensions and Health Care
Savings Plan
The parent company has a 401k profit sharing plan for eligible employees in
the U.S. Each year the Company contributes 5% of each participant's annual
compensation and matches participant's contributions up to an additional 5%.
U.S. profit sharing expense for the years 2002, 2001 and 2000 was $ 0,$4,771
and $6,780, respectively.
Pension
The Company's only defined benefit pension plans are those of a foreign
subsidiary. These cover a majority of the foreign subsidiary's employees,
who must contribute to the plan cost. Benefits are based on employees' years
of service and final compensation. The subsidiary makes contributions to the
plans in amounts that are intended to provide for current service and to fund
past service liability.
The following tables provide a reconciliation of the changes in the pension
plans' benefit obligations and fair value of assets over the two year period
ended December 31, 2002 and a statement of the funded status as of
December 31 2002 and 2001 (in thousands).
Pension Benefits
December 31
2002 2001
Reconciliation of benefit obligation
Obligation at January 1 $ 1,428 $ 1,337
Service cost 121 116
Interest cost 121 101
Participants' contributions 46 31
Actuarial (gain) loss (112) 10
Benefit payments (35) (95)
Foreign currency exchange rate changes 266 (72)
------------------------
Obligation at December 31 1,835 1,428
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 1,751 1,721
Actual return on plan assets (22) 74
Employer contributions 142 114
Participants' contributions 46 31
Benefit payments (35) (95)
Foreign currency exchange rate changes 324 (94)
------------------------
Fair value of plan assets invested in
pooled separate account of an
insurance company at December 31 2,206 1,751
Reconciliation of Funded status
Funded status at December 31 371 323
Unrecognized actuarial gain (loss) 58 (38)
Unrecognized prior service cost (160) (161)
------------------------
Prepaid benefit cost $ 269 $ 124
========================
Prepaid benefit cost $ 269 $ 145
Accrued benefit liability - (21)
------------------------
Net asset recognized $ 269 $ 124
========================
Net pension expense for the Company's defined benefit pension plans for 2002,
2001 and 2000 included the following components (in thousands):
December 31
2002 2001 2000
Service cost for benefits earned during the year $121 $ 116 $ 128
Interest cost on projected benefit obligation 121 101 108
Actual return on plan assets 22 (74) (150)
Net amortization and other (175) (65) 105
---------------------------
89 78 191
Less employee contributions 46 31 39
---------------------------
Net pension expense $ 43 $ 47 $ 152
===========================
The assumptions used in computing the preceding information at December 31,
2002, 2001 and 2000 are: an assumed discount rate of 8%, an assumed rate of
compensation increase of 6% and an expected rate of return on plan assets
of 8%.
The Company's Irish subsidiary commenced to operate a defined contribution
plan in 2000. The amount charged to expense for this plan was $28,000
in 2002, $26,000 in 2001 and $11,000 in 2000.
The Company also has a supplemental pension plan which provides benefits to
the estate of the former Chairman. The net liability for such benefits at
December 31, 2002 was approximately $457,000 and is reflected in the balance
sheet in postretirement benefit liabilities.
Health Care and Life Insurance
Effective June 30, 1998, the Company terminated its postretirement health
care and life insurance benefits program for U.S. employees.
The Company will use the accrued amount of $150,000 to pay supplemental
medical insurance premiums to U.S. employees and surviving spouses who had
15 years or more service at June 30, 1998 when they reach the age of 65
until this accrued amount is exhausted.
6. Income Taxes
Income tax benefit is composed of the following (in thousands):
2002 2001 2000
Domestic $ - $ (37) $ -
Foreign:
Current - (9) (25)
Deferred - (140) -
-----------------------------
$ - $ (186) $ (25)
=============================
Pre-tax loss attributable to domestic and foreign operations is as
follows (in thousands):
2002 2001 2000
United States $ (476) $ (385) $ (436)
Foreign (653) (3,052) (515)
---------------------------------
$ (1,129) $(3,437) $ (951)
=================================
Following is a reconciliation of income tax expense (credit) to the amount
based on the U.S. statutory rate of 34% (2002, 2001 and 2000) (in thousands):
2002 2001 2000
Income taxes based on U.S. statutory rate $ (384) $ (1,169) $ (323)
Increase of valuation allowance 236 306 148
Taxes of foreign subsidiaries at rates
different than U.S. statutory rate 148 677 150
------------------------------
$ - $ (186) $ (25)
==============================
The components of deferred tax assets and liabilities at December 31, 2002
and 2001, were as follows (in thousands):
2002 2001
Assets Liabilities Assets Liabilities
Depreciation $ - $217 - $ 200
Tax loss carry forwards 1,789 - 1,990 -
Sundry 43 - 40 -
-----------------------------------------
1,832 217 2,030 200
Valuation allowance 1,615 - 1,830 -
-----------------------------------------
Total $ 217 $217 $200 $ 200
=========================================
At December 31, 2002, the Company had approximately $3,944,000 of loss carry
forwards available to offset future U.S. taxable income and approximately
$4,909,000 to offset Irish taxable income. The U.S. loss carry forwards
expire between 2003 and 2022 and Irish losses carry forward indefinitely.
A valuation allowance of $1,615,000 and $1,830,000 has been provided at
December 31, 2002 and 2001, respectively. These valuation allowances were
established since it is more likely than not that the deferred tax assets,
primarily the net operating loss carry forwards, will not be realized.
7. Employee Stock Options
The 1983 Driver-Harris Employee Incentive Stock Option Plan that expired in
1993 provided for the grant of stock options at 100% of market value on date
of grant that are intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code. Under this plan, nil
and 15,000 shares of stock were reserved for issuance at December 31, 2002
and 2001 respectively.
In May 1999, the Company adopted the 1999 Driver-Harris Incentive Stock Option
Plan for Directors, Officers and key employees. Two hundred thousand shares
of stock are reserved for issuance under the plan. During 2001 employees
were granted 1,750 options to acquire shares of common stock at an option
price of $1.000 per share that represented the fair value of the Company's
common stock at date of grant. During 2000 officers and employees were
granted 35,000 options to acquire shares of common stock at an option price
of $2.125 per share and 2,500 options to acquire shares of common stock at an
option price of $1.375 per share which represented the fair value of the
Company's common stock at date of grant. All of these option prices
represented the fair value of the Company's common stock on date of grant.
To date, no options have been exercised under this plan. Options for
non-employee Directors are exercisable over three years and options for
Officers and employees are exercisable over five years.
The following table summarises the Company's stock option activity and
related information:
Number Weighted Average
of Options Exercise Price
Outstanding January 1, 2000 59,250 $3.95
Granted 37,500 $2.08
Exercised (8,750) $4.00
--------
Outstanding December 31, 2000 88,000 $3.15
Granted 1,750 $1.00
Expired (15,000) $4.00
--------
Outstanding December 31, 2001 74,750 $2.93
Expired (15,000) $4.00
--------
Outstanding December 31, 2002 59,750 $2.66
========
Weighted-
Average
Options Exercise
Date Exercisable Price
December 31, 2002 29,450 $2.92
December 31, 2001 31,900 $3.51
December 31, 2000 34,700 $3.98
An analysis of options outstanding at December 31, 2002 is as follows:
Exercise Price Number of Weighted Options
Options average remaining currently
Outstanding contractual life exercisable
(in years)
$1.000 1,750 8.4 350
$1.375 2,500 7.9 1,000
$2.125 35,000 7.6 14,000
$3.500 3,500 6.9 2,100
$3.937 17,000 6.6 12,000
The weighted-average fair value of options granted during 2001 and 2000
respectively for options whose exercise price equals the market price of the
common stock on the date of grant was $1 and $1.27. No options were granted
during 2002.
8. 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 a 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).
Reportable Segments
---------------------------------------------------
Parent Manufacturing Distribution
Co. (U.S.) (Ireland) (U.K.) Total
Year ended December 31, 2002
Revenues
External revenues $ 21,213 $ 858 $ 22,071
Inter-segment revenues 243 243
Elimination of inter
-segment revenue (243) (243)
---------------------------------------------------
Consolidated revenues $ 21,213 $ 858 $ 22,071
Net Loss $ (476) $ (539) $(114) $(1,129)
Assets
Total assets $ 1,466 $ 12,413 $ 43 $ 13,922
Elimination of investment (623) (623)
Elimination of inter-company
Receivables (829) (829)
---------------------------------------------------
Total Assets $ 14 $ 12,413 $ 43 $ 12,470
Other Significant items
Depreciation expense - $ 444 $ 4 $ 448
Interest expense $ 164 $ 401 $ - $ 565
Expenditures for assets - $ 60 - $ 60
Year ended December 31, 2001:
Revenues
External revenues $ 27,419 $ 3,449 $ 30,868
Inter-segment revenues 780 780
Other revenues $ 10 55 65
Elimination of inter-segment
Revenue (780) (780)
---------------------------------------------------
Consolidated revenues $ 10 $ 27,474 $ 3,449 $ 30,933
Net Loss $(348) $ (2,626) $ (277) $ (3,251)
Assets
Total assets $1,474 $13,655 $1,073 $16,202
Elimination of
Investment (623) (623)
Elimination of inter-
company receivables (829) (865) (1,694)
Elimination of inter-
company inventory (322) (322)
---------------------------------------------------
Total Assets $ 22 $ 12,468 $ 1,073 $13,563
Other Significant Items
Depreciation expenses $414 $26 $440
Interest expense $130 $628 $44 $802
Expenditures for assets $221 $ - $221
Year ended December 31, 2000:
Revenues
External revenues $33,662 $4,027 $37,689
Inter-segment revenues 1,404 1,404
Other revenues $ 1 $ 60 16 77
Elimination of inter-
segment revenue (1,404) (1,404)
---------------------------------------------------
Consolidated revenues $ 1 $33,722 $4,043 $37,766
Net Profit/(Loss) $(339) $ (562) $ (25) $(926)
Assets
Total assets $1,480 $18,674 $2,300 $22,454
Elimination of
Investment (623) (623)
Elimination of inter-
company receivables (829) (1,320) (39) (2,188)
Elimination of inter-
company inventory (592) (592)
---------------------------------------------------
Total Assets $ 28 $16,762 $2,261 $19,051
Other Significant Items
Depreciation expenses $434 $29 $463
Interest expenses $102 $498 $47 $647
Expenditures for assets $368 $14 $382
9. Commitments and Contingencies
On May 22, 2001, the Company settled the lawsuit that had been filed by the
landlord of an affiliate that 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 that 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 on October 1, 2001, with
subsequent payments due on the first business day of each subsequent quarter.
The company failed to make the initial payment on October 1, 2001 therefore
the landlord has the right to recommence suit. The Company has provided for
the full amount at each year end.
10. Quarterly Results of Operations (unaudited)
The following table sets forth certain unaudited statements of operations
results by quarter for 2001 and 2002.
Quarters Ended
(Dollars in thousands, except per share amount)
Mar.31 June 30 Sept.30 Dec.31 Mar.31 June 30 Sept.30 Dec.31
2001 2001 2001 2001 2002 2002 2002 2002
Net Sales $8,688 $8,157 $7,408 $6,615 $5,921 $4,749 $5,371 $6,030
Gross Profit/
(Loss) 907 464 506 (116) 661 424 513 794
Net Income/
(Loss) (303) (786) (756) (1,406) 34 (494) (556) (113)
Basic Net Income/
(Loss) Per Share(.21) (.53) (.51) (.95) .02 (.34) (.38) (.07)
Diluted Net Income/
(Loss)Per Share(.21) (.53) (.51) (.95) .02 (.34) (.38) (.07)
In the fourth quarter of 2002, the Company announced closure of its
Dublin administration office. The costs associated with the restructuring
are approximately $110,000 and have been included in selling, general and
administrative expenses in the statement of operations. In the fourth
quarter of 2001 the Company announced a reduction in its workforce from
141 to 99 employees and the closure and relocation of one of its
manufacturing facilities to its main plant in New Ross, Ireland. The
costs associated with the restructuring were approximately $100,000 and
were booked to selling, general and administrative expenses in the
statement of operations. At the year end approximately $117,000
(2001: $45,000) was accrued in respect of these costs.
Driver-Harris Company and Subsidiaries
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheets
(Dollar Amounts in Thousands)
December 31
2002 2001
Assets
Current assets:
Cash $ 5 $ 1
Accounts receivable from subsidiaries 829 829
-------- --------
Total current assets 834 830
Other assets 9 21
-------- --------
Total assets $ 843 $ 851
======== ========
Liabilities
Current liabilities:
Accounts payable $ 68 $ 53
Accrued expenses 639 447
Loan payable to officer 100 41
Investment in subsidiary 688 261
Current portion of long-term debt 1,598 1,434
-------- --------
Total current liabilities 3,093 2,236
Postretirement benefit liabilities 607 570
-------- --------
Total liabilities 3,700 2,806
Stockholders' equity
Common stock 1,320 1,320
Additional paid-in capital 2,425 2,425
Accumulated deficit (4,505) (3,376)
Accumulated other comprehensive loss (2,097) (2,324)
-------- --------
Total Stockholders' Deficit (2,857) (1,955)
Commitments (note 1)
-------- --------
Total Liabilities and Stockholders' equity $ 843 $ 851
======== ========
Driver-Harris Company and Subsidiaries
Schedule I - Condensed Financial Information of Registrant
Condensed Statements of Operation
(Dollar Amounts in Thousands)
Years Ended December 31
2002 2001 2000
Fees from subsidiaries $ - $ 157 $ 294
Other - 10 1
----------------------------
- 167 295
Selling, general and administrative expenses 312 422 629
Interest and financing expenses 164 130 102
Tax benefit - (37) -
----------------------------
Loss before equity in net loss
of subsidiaries (476) (348) (436)
Equity in net (loss) of subsidiaries (653) (2,903) (490)
----------------------------
Net loss $ (1,129) $(3,251) $(926)
============================
Driver-Harris Company and Subsidiaries
Schedule I - Condensed Financial Information of Registrant
Condensed Statements of Cash Flow
(Dollar Amounts in Thousands)
Years Ended December 31
2002 2001 2000
Operating activities
Net loss $ (1,129) $(3,251) $ (926)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Undistributed net (income) loss of
Subsidiaries 653 2,903 490
Non-cash compensation, fees and payments - 34 74
Increase in retirement benefit liabilities 37 7 4
Accounts payable and accrued expenses 207 192 142
Sundry 13 (6) (12)
------------------------------
Net cash used in operating activities (219) (121) (228)
Financing activities
Increase in debt 164 129 100
Issuance of capital stock - - 69
Loan from Officer 59 (17) 58
------------------------------
Net cash provided by financing activities 223 112 227
------------------------------
Net change in cash 4 (9) (1)
Cash at beginning of year 1 10 11
------------------------------
Cash at end of year $ 5 $ 1 $ 10
==============================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ - $ - $ 1
==============================
Driver-Harris Company and Subsidiaries
Schedule I - Condensed Financial Information of Registrant
Notes to Condensed Financial Statements
1. Basis of Presentation
In the parent company only (Driver-Harris Company - U.S. Corporate Holding
Company) financial statements, the Company's investment in subsidiary (Irish
Driver-Harris Co. Ltd.) is stated at cost plus equity in undistributed
earnings since the date of acquisition. The Driver-Harris Company - U.S.
Corporate Holding Company financial statements should be read in conjunction
with the Company's consolidated financial statements.
Driver-Harris Company and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(Dollar Amounts in Thousands)
<CAPTION
Col. A Col. B Col. C Col. D Col. E
Additions (1)
Balance at Charged to Balance
Beginning Costs and Deductions at End
Description of Period Expenses Describe of Period
Year ended December 31, 2002:
Deduction from
related asset:
Tax valuation
Allowance $ 1,830 $ 236(2) $(451)(2) $ 1,615
Allowances for
doubtful trade
accounts 231 262 98(1) 591
==========================================
Year ended December 31, 2001:
Deduction from
related asset:
Tax valuation
Allowance $ 1,550 $ 306(2) $ (26)(2) $ 1,830
Allowances for
doubtful trade
accounts 281 (37) (13)(1) 231
==========================================
Year ended December 31, 2000:
Deduction from
related asset:
Tax valuation
Allowance $ 2,715 $ 148(2) $(1,313)(2) $ 1,550
Allowances for
doubtful trade
accounts 459 (64) (114)(1) 281
==========================================
<FN>
(1) Accounts charged off during the year and adjustments due to currency
fluctuations.
(2) The change in valuation allowance is principally due to the change in
deferred tax assets and the deductions represent the elimination of the
allowance for losses which have expired unused and currency fluctuations.
</FN>