1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 1995
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or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 1-5365
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HANDY & HARMAN
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(Exact name of registrant as specified in its charter)
STATE OF NEW YORK 13-5129420
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Park Avenue, New York, New York 10177
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(Address of principal executive offices) (Zip code)
(212) 661-2400
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last year.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of shares of issuer's Common Stock, par value $1.00 per
share outstanding as of November 6, 1995 was 14,104,432.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited-thousands of dollars except per share)
Three Months Ended Nine Months Ended
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Sept 30, 1995 Sept 30, 1994 Sept 30, 1995 Sept 30, 1994
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Sales and service revenues $166,395 $194,743 $560,678 $583,206
Cost of sales and service 144,668 169,183 478,829 503,220
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Gross profit 21,727 25,560 81,849 79,986
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Selling, general and
administrative expenses 13,761 15,528 47,688 45,792
Restructuring charge -- -- 6,003 --
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Income from operations 7,966 10,032 28,158 34,194
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Other deductions (income):
Interest expense-net 4,849 3,815 15,792 11,624
Other (net) 115 240 1,032 269
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4,964 4,055 16,824 11,893
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Income before income taxes 3,002 5,977 11,334 22,301
Income tax provision 1,294 2,500 5,559 9,300
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Net Income $ 1,708 $ 3,477 $ 5,775 $ 13,001
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Earnings per share $ .12 $ .25 $ .41 $ .93
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Dividends per share $ -- $ -- $ .18 $ .15
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Average shares outstanding 14,103,000 14,063,000 14,097,000 14,043,000
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See Accompanying Notes to Consolidated Financial Statements.
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HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(thousands of dollars)
Sept 30, 1995 December 31, 1994
(unaudited)
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ASSETS
Current Assets:
Cash $ 3,808 $ 2,559
Accounts receivable, less allowance for doubtful
accounts of $3,955 in 1995 and $3,597 in 1994 81,995 82,733
Inventories - at cost (Note b) 89,412 89,939
Prepaid expenses, deposits and
other current assets 11,836 12,105
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Total current assets 187,051 187,336
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Investment in affiliates, at equity 2,835 2,207
Property, plant and equipment - at cost 279,195 273,018
Less accumulated depreciation and amortization 159,056 155,818
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120,139 117,200
Prepaid retirement costs (net) 49,396 47,459
Intangibles, net of amortization 22,435 22,991
Deferred charges 2,427 2,745
Other assets 1,802 2,185
Noncurrent assets of discontinued operations -- 22,895
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$ 386,085 $ 405,018
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 60,500 $ 34,750
Current maturities of long-term debt 3,500 7,000
Accounts payable 43,044 45,044
Futures payable 19,730 37,772
Advances from smelter -- 4,118
Other current liabilities 28,229 24,909
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Total current liabilities 155,003 153,593
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Long-term debt, less current maturities 107,000 131,750
Deferred income taxes 14,071 13,551
Shareholders' equity:
Common stock - par value $1; 60,000,000
shares authorized; 14,611,432 shares issued 14,611 14,611
Capital surplus 12,029 11,830
Retained earnings 87,351 84,114
Foreign currency translation adjustment (553) (720)
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113,438 109,835
Less: Treasury stock 507,000 shares - 1995
and 532,652 shares - 1994 at cost 3,362 3,491
Unearned compensation 65 220
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Total shareholders' equity 110,011 106,124
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$ 386,085 $ 405,018
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See Accompanying Notes to Consolidated Financial Statements.
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HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited-thousands of dollars)
Increase (Decrease) in Cash
Nine Months Ended
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Sept 30, 1995 Sept 30, 1994
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Cash flows from operating activities:
Net income $ 5,775 $ 13,001
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 13,491 11,376
Provision for doubtful accounts 313 587
(Gain) loss on disposal of property, plant
and equipment (187) 62
Net retirement cost (1,937) (2,438)
Equity in earnings of affiliates (468) (267)
Earned compensation - 1988 long-term incentive
and outside director stock option plans 203 185
Restructuring & non-recurring charges 9,549 --
Provision for disposal of business units 600 --
Changes in assets and liabilities:
Accounts receivable (126) (19,473)
Refundable income taxes -- 500
Inventories (3,780) 1,167
Prepaid expenses (458) (825)
Deferred financing costs -- (1,886)
Deferred charges and other assets (442) 39
Accounts payable and accrued liabilities (5,192) 10,022
Advances from smelter (4,118) --
Deferred income tax 520 23
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Net cash provided by operating activities 13,743 12,073
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Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 483 29
Capital expenditures (17,782) (12,170)
Acquisition, net of cash acquired -- (25,568)
Divestiture, net of cash sold 3,211 --
Net investing activities of discontinued operations 24,750 500
Investment in affiliates (100) --
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Net cash provided/(used) by investing activities 10,562 (37,209)
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Cash flows from financing activities:
Proceeds from short-term borrowings 25,750 (13,000)
Payment of other long-term debt (13,250) (6,911)
Net increase/(decrease) in long-term
revolving credit facilities (15,000) --
Net (increase)/decrease in futures receivable 48,851
Net increase/(decrease) in futures payable (18,042) --
Dividends paid (2,537) (2,107)
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Net cash provided/(used) by financing activities (23,079) 26,833
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Effect of exchange rate changes on net cash 23 (4)
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Net change in cash 1,249 1,693
Cash at beginning of year 2,559 3,320
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Cash at end of period $ 3,808 $ 5,013
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See Accompanying Notes to Consolidated Financial Statements.
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HANDY & HARMAN AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a. In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments necessary to a fair
statement of the results for the interim periods.
b. Inventories at September 30, 1995 and December 31, 1994 is comprised
as follows (in thousands):
Sept 30, 1995 December 31, 1994
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(Unaudited)
Precious metals:
Fine and fabricated metals in
various stages of completion $ 33,956 $ 37,825
Non-precious metals:
Base metals, factory supplies
and raw materials 27,048 25,175
Work in process 18,544 18,521
Finished goods 9,864 8,418
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$ 89,412 $ 89,939
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Lifo inventory - the excess of period end market value over Lifo cost
was $146,776,000 at September 30, 1995 and $139,068,000 at December
31, 1994.
c. These statements should be read in conjunction with the Summary of
Significant Accounting Policies and notes contained in the
registrant's Annual Report (Form 10-K for the year ending December 31,
1994).
d. In 1995 and 1994 the third quarter dividend was declared in the second
quarter to be paid in the third quarter.
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HANDY & HARMAN AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e. The following table presents certain selected financial data by
industry segment (expressed in thousands of dollars) for the three
months ended and nine months ended September 30, 1995 and 1994:
Three Months Ended Nine Months Ended
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Sept 30, 1995 Sept 30, 1994 Sept 30, 1995 Sept 30, 1994
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Sales and service revenues:
Precious metals $91,449 $110,278 $300,951 $321,276
Automotive (OEM) 29,791 41,906 118,461 136,255
Wire/Tubing 41,878 38,542 129,881 114,361
Other non-precious
metal businesses 3,277 4,017 11,385 11,314
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Total $166,395 $194,743 $560,678 $583,206
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Profit contribution before
unallocated expenses:
Precious metals $4,049 $3,589 $9,696* $10,403
Automotive (OEM) (346) 2,194 2,141 11,596
Wire/Tubing 4,162 3,863 15,148 11,808
Other non-precious
metal businesses 436 596 1,491 1,468
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Total 8,301 10,242 28,476 35,275
General corporate expenses (450) (450) (1,350) (1,350)
Interest expense (net) (4,849) (3,815) (15,792) (11,624)
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Income before taxes $3,002 $5,977 $11,334 $22,301
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* Includes a restructuring charge as of June 30, 1995 for $6,003,000 as
described in Note f below, and $3,546,000 of additional costs, primarily
asset write-downs, related to the Company's ongoing operation in
Fairfield, Connecticut.
f. On June 5, 1995, the Company announced a plan to exit the karat gold
fabricated product line located in its East Providence, Rhode Island
facility. A restructuring charge to exit the business was taken in the
second quarter of 1995 amounting to $6,003,000. The following table
outlines the components of the restructuring charge:
RESTRUCTURING RESERVE
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Employee separation $ 733,000
(155 Employees)
Asset write-downs 4,480,000
Other exit costs 790,000
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Total $6,003,000
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
The Company's precious metal inventories, consisting principally of gold
and silver, is readily convertible to cash. Furthermore, these precious metal
inventories which are stated in the Balance Sheet at LIFO cost have a market
value of $146,776,000 in excess of such cost as of September 30, 1995.
It is the Company's policy to obtain funds necessary to finance
inventories and receivables from various banks under commercial credit
facilities. Fluctuations in the market prices of gold and silver have a direct
effect on the dollar volume of sales and the corresponding amount of customer
receivables resulting from sale of precious metal products. In addition,
receivables resulting from the sale of precious metal bullion for future
delivery are also financed by bank borrowings. The Company adjusts the level
of its credit facilities from time to time in accordance with its borrowing
needs for receivables and inventories and maintains bank credit facilities well
in excess of anticipated requirements.
Consistent with other precious metal refining and fabricating companies,
some of the Company's gold and silver requirements are furnished by customers
and suppliers on a consignment basis. Title to the consigned gold and silver
remains with the Consignor. The value of consigned gold and silver held by the
Company is not included in the Company's Balance Sheet. The Company's gold and
silver requirements are provided from a combination of owned inventories,
precious metals which have been purchased and sold for future delivery, and
gold and silver received from suppliers and customers on a consignment basis.
During the third quarter of 1994, the Company finalized $215,000,000 of
Revolving Credit Facilities with twenty banks which replaced the existing
Credit Facilities dated March 16, 1992. These Credit Facilities provided
$161,250,000 for a three year period and $53,750,000 for 364 days. As of
September 30, 1995, $35,000,000 was borrowed under the long-term agreement and
$5,500,000 was borrowed under the short-term agreement.
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In addition to the Revolving Credit Facilities, the banks also provided
$250,750,000 of Gold and Silver Fee Consignment Facilities. The Fee
Consignment Facility of $125,375,000 is for a three-year period and the
short-term Fee Consignment Facility of $125,375,000 is for 364 days. All gold
and silver consigned to the Company pursuant to these Consignment Agreements
are located at the Company's plants in Fairfield, Connecticut and East
Providence, Rhode Island. As of September 30, 1995, 14,000 ounces of gold and
13,745,000 ounces of silver were leased under this fee consignment facility.
As a result of this fee consignment facility the Company was able to realize
$53,087,000 of futures receivables on sales of precious metals for future
delivery and increase futures payable for purchases of precious metals for
future receipt by $19,730,000. This enabled the Company to reduce its bank
borrowings.
On June 5, 1995 the Company announced a plan to exit the karat gold
fabricated product line located in its East Providence, Rhode Island facility.
A restructuring charge of $6,003,000 to exit the business was taken in the
second quarter of 1995. The components of this restructuring charge were as
follows:
Separation of 155 Employees $ 733,000
Asset write-downs 4,480,000
Other exit costs 790,000
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$6,003,000
==========
In addition to this restructuring charge the Company recorded other
nonrecurring charges, primarily asset write-downs, pertaining to the continuing
operation in its Fairfield, Connecticut facility amounting to $3,546,000 and
also for the sale of the Company's two automotive cable business units
amounting to $600,000. Future cash proceeds from these actions is estimated to
be $23 million.
On September 29, 1995 the Company received approximately $25 million in
cash for its 50% joint venture interest in GO/DAN Industries.
As we complete our exit from the gold fabrication business, a portion of
the Company's gold inventory will be liquidated in order to match levels of
ownership with current requirements. This action, along with the above
transactions, will be used to fund the common stock buy back plan (up to 1.5
million shares) announced on November 6, 1995, reduce debt and provide funds
for internal and external growth.
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CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities amounted to $13,743,000 in 1995
and $12,073,000 in 1994. The cash provided by operating activities increased
$1,670,000 primarily due to an increase of $4,833,000 in net income after
adjustment for non cash income and expense items which was partially offset by
an increase in working capital requirements amounting to $3,163,000.
CASH PROVIDED/USED BY INVESTING ACTIVITIES
Net cash provided by investing activities amounted to $10,562,000 in 1995
and net cash used by investing activities amounted to $37,209,000 in 1994. The
net cash provided by investing activities in 1995 was due to the sales of the
Company's 50% joint venture (GO/DAN) for $24,750,000 and two automotive cable
companies for $3,211,000 offset by net expenditures amounting to $17,399,000
primarily for the new tubing facility in Denmark, the expansion of production
capacity in our precision electroplating companies and also our specialty wire
company in the United Kingdom. The net cash used by investing activities in
1994 was due to the purchase of Sumco Inc. for net $25,568,000 and expenditures
for machinery and equipment primarily in the wire and tubing segment.
CASH USED/PROVIDED BY FINANCING ACTIVITIES
Net cash used by financing activities amounted to $23,079,000 in 1995 and
provided by financing activities amounted to $26,833,000 in 1994. The net cash
used by financing activities in 1995 was due to an decrease in futures payable
(the purchase of precious metal inventory for future receipt) of $18,042,000,
the reduction of debt of $2,500,000 and the payment of dividends of $2,537,000.
The comparable period for 1994 was a net provider of cash due to a decrease in
futures receivable (the sale of precious metal inventory for future delivery)
of $48,851,000, partially offset by the payment of dividends of $2,107,000 and
debt of $19,911,000.
The Company's foreign operations consist of five wholly owned
subsidiaries, (one in Canada, three in the United Kingdom and one in Denmark),
and two equity investments, (one in Asia and one in Brazil). Substantially all
unremitted earnings of such entities are free from legal or contractual
restrictions.
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The Company's program to expand productive capacity through acquisition
of new businesses and expenditures for new property, plant and equipment will
continue to be financed with internally generated funds and long-term debt, if
necessary.
COMPARISON OF THIRD QUARTER OF 1995 VERSUS THIRD QUARTER OF 1994
Sales for the precious metal segment decreased $18,829,000 (17%). The
decrease in sales was primarily related to sales of refining outturn, primarily
in kilo bar and grain form, which decreased from $42,644,000 in 1994 to
$29,068,000 in 1995. This type of precious metal sales can fluctuate
significantly from period to period, however, the profit contribution effect
for such fluctuation is minor since the profit margin on these sales is
significantly less than the margins on other products in this segment. The
average price for gold in 1995 was $384.35 per ounce and 1994 was $385.39 per
ounce. The average price for silver in 1995 was $5.33 per ounce and 1994 was
$5.32 per ounce. The profit contribution (pre-tax income before deducting
interest and Corporate expenses) increased $460,000 primarily due to the
elimination of operating losses associated with the karat gold fabricated
product line located in East Providence, RI. Management continues to focus on
improving the profit contribution from this segment by the current expansion of
production capacity at its precision electroplating companies and by
rationalizing other facilities where necessary. Refinery earnings continue to
be subject to continuing competitive pressures as well as its ability to
generate foreign earnings.
The automotive (OEM) segment sales decreased $12,115,000 (29%) and the
profit contribution decreased $2,540,000 (116%) due to the sale of the cable
business, shutdowns at customer facilities and also ongoing new product
start-up costs. A positive contribution to earnings is expected from this
segment for this year's remaining quarter.
Sales for the wire/tubing segment increased $3,336,000 (9%) primarily due
to meeting the strong demand of the European economy for products supplied by
our U.K. wire company. The profit contribution increased $299,000 (8%) due to
the overall strong performance of this segment's wire companies offset
partially by the start-up costs of the new tubing facility in Denmark. A
comparable contribution to profits is anticipated in this year's remaining
quarter.
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In the other non-precious metal segment, sales decreased $740,000 (18%)
and profit contribution decreased by $160,000 (27%) due to general
consolidation of inventories by the Company's utility customers which reduced
sales levels during this period.
Interest expense increased $1,034,000 (27%) primarily due to higher
rates. Proceeds from the previously discussed restructuring, sale of two
automotive companies and sale of the Company's 50% joint venture interest in
GO/DAN Industries has reduced debt as of September 30, 1995. It is expected
that interest expense (based on current rates) will be somewhat lower for the
last quarter 1995.
The Company's income taxes are primarily composed of U.S. Federal and
state income taxes. The effective income tax rate for 1995 was 43.1% and 1994
was 41.8% The higher effective income tax rate for 1995 over 1994 is
attributable to goodwill amortization associated with the acquisition of Sumco
in September 1994.
COMPARISON OF NINE MONTHS OF 1995 VERSUS NINE MONTHS OF 1994
Sales for the precious metal segment decreased $20,325,000 (6%). The
decrease in sales was primarily related to sales of refining outturn, primarily
in kilo bar and grain form, which decreased from $116,189,000 in 1994 to
$88,841,000 in 1995 and also decreased sales of karat gold fabricated products
brought about by exiting the karat gold business. Sales of refining outturn
can fluctuate significantly from period to period, however, the profit
contribution effect for such fluctuation is minor since the profit margin on
these sales is significantly less than the margins on other products in this
segment. This decrease in sales was partially offset by sales of Sumco Inc.,
acquired in the third quarter of 1994. The average price for gold in 1995 was
$388.82 per ounce and in 1994 was $383.90 per ounce. The average price for
silver in 1995 was $5.17 per ounce and in 1994 was $5.33 per ounce. The profit
contribution decreased $707,000 (7%). Nonrecurring charges of $6,003,000 for
severance costs and asset write-downs related to the decision to exit the karat
gold fabricated product line in East Providence, Rhode Island and $3,546,000 of
additional costs, primarily asset write-downs, related to the Company's ongoing
operation in Fairfield, Connecticut were recorded as of June 30, 1995.
Excluding these nonrecurring charges the profit contribution increased
$8,842,000 (85%) primarily due to the acquisition of Sumco Inc. and increased
sales of Handy & Harman Electronic Materials.
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The Automotive (OEM) segment sales decreased $17,794,000 (13%) and the
profit contribution decreased $9,455,000 (82%) due to the first half's
additional expenses related to facility expansion, realignment to match
changing volume requirements, and the nonrecurring charge of $600,000 for the
sale of the Company's two automotive cable business units, and also shutdowns
at customer facilities and new product start-up costs experienced in the third
quarter.
Sales of the wire/tubing segment increased $15,520,000 (14%) and the
profit contribution increased $3,340,000 (28%) primarily due to strong sales,
reduced product costs stemming from improved manufacturing performance and
reduced raw material costs.
In the other non-precious metals segment sales increased $71,000 (1%) and
profit contribution increased $23,000 (2%).
Interest expense increased $4,168,000 (36%) primarily due to higher
interest rates on borrowings and leased metal.
The effective income tax rate for 1995 was 49% and 1994 was 41.7%. The
reason for the higher effective income tax rate for 1995 over 1994 is
attributable to goodwill amortization associated with the acquisition of Sumco
in September 1994 as well as only being able to recognize a minor state tax
benefit for the precious metal segment's nonrecurring charge taken in the
second quarter of 1995.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Company's Form 10-K Annual Report for the
year ended December 31, 1994, and to the proceedings described therein
under Part I, Item 3. Legal Proceedings and under Part II, Item I.
Legal Proceedings of the Company's Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995. Negotiations and discovery
procedures are continuing in this matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K:
None required.
(b) Reports on Form 8-K:
None filed during the quarter for which this report is submitted.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANDY & HARMAN
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(Registrant)
Date: November 6, 1995 J.M. McLoone /s/
---------------- ------------------------------
J.M. McLoone, Vice President -
Financial Services
Date: November 6, 1995 D.C. Kelly /s/
---------------- ------------------------------
D.C. Kelly - Controller
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EXHIBIT INDEX
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Exhibit No. 27 Financial Data Schedule