10-Q 1 sec10q601.txt SECOND QUARTER 2001 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2001 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission file number: 1-1212 DRIVER-HARRIS COMPANY (Exact name of registrant as specified in its charter) New Jersey 22-0870220 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 600 Essex Street Harrison, New Jersey 07029 (Address of principal executive offices) Registrant's telephone no., including area code (973) 483-4802 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.83 1/3 par value -- 1,474,346 shares as of August 15, 2001. DRIVER-HARRIS COMPANY I N D E X

PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets ~~March~~June 3130, 2001 and December 31, 2000 3 Unaudited Condensed Consolidated Statements of ~~Income~~Loss - Three and six Months ended ~~March~~June 3130, 2001 and ~~March~~June 3130, 2000 4 Unaudited Condensed Consolidated Statements of Cash Flows - ~~Three~~Six Months ended ~~March~~June 3130, 2001 and ~~March~~June 3130, 2000 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 9 Item 6. Exhibits and Reports on Form 8-K. (a) ~~Exhibits Exhibit 27 - Financial Data Schedule (b)~~ Reports on Form 8-K None filed in quarter SIGNATURES 910

DRIVER-HARRIS COMPANY AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)

~~March~~June 3130, December 31, 2001 2000 ----------- ------------ ~~ASSETS~~ (Unaudited) ASSETS Current assets: Cash $ ~~402~~233 $ 428 Accounts receivable - net 109,~~241~~736 9,657 Inventories: Materials ~~316~~550 353 Work in process ~~216~~279 188 Finished products 3,~~972~~443 4,032 ------- ------- 4,~~504~~272 4,573 Prepaid expenses ~~274~~188 468 ------- -------- Total current assets 1514,~~421~~429 15,126 Property, plant & equipment - net 3,~~564~~373 3,925 -------- -------- $ 1817,~~985~~802 $ 19,051 ====== ====== LIABILITIES Current Liabilities: Short-term borrowings $ 7,~~784~~869 $ 6,202 Current portion of long-term debt 160 395 Accounts payable 5,~~294~~210 5,727 Accrued expenses 21,~~045~~838 2,297 Loan payable to officer 4846 58 Income taxes payable - 23 -------- --------- Total current liabilities 15,~~331~~123 14,702 Long-term debt 1,~~584~~559 1,651 Deferred Grants ~~383~~362 421 Deferred foreign income taxes ~~138~~134 148 Postretirement benefit liabilities ~~549~~558 561 Sundry liabilities - 37 Stockholders' equity: Common stock 1,320 1,292 Additional paid-in capital 2,425 2,419 ~~Retained~~Accumulated ~~earnings~~deficit (~~428~~1,214) (125) Accumulated other comprehensive loss (2,~~317~~465) (2,055) --------- --------- Stockholders' equity ~~1,000~~66 1,531 --------- -------- $ 1817,~~985~~802 $ 19,051 ======= ====== See accompanying notes.

DRIVER-HARRIS COMPANY AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollar amounts in thousands, except per share data)

THREE MONTHS ENDED ~~March~~SIX 31MONTHS ENDED June 30 June 30 2001 2000 2001 2000 ------ ------ ------ ------ Net sales $ 8,~~688~~157 $11 10,~~081~~107 $16,845 $21,188 Other revenues 2015 2011 35 31 --------- --------- --------- --------- Total Revenues 8,~~708~~172 1110,~~101~~118 16,880 21,219 Cost of sales 7,~~801~~708 98,~~833~~841 15,509 18,674 ------- ------- --------- ~~Gross~~-------- ~~Profit~~464 ~~907~~1,277 1,~~268~~371 2,545 Selling, general and administrative expenses ~~999~~1,108 1,~~171~~204 2,107 2,375 ------ -------- -------- -------- (92644) 9773 (736) 170 Other charges (credits): Interest ~~222~~227 ~~158~~159 449 317 Foreign exchange (gain) loss 26(85) 29(7) (59) 22 -------- -------- -------- ------- Loss before income taxes (~~340~~786) (9079) (1,126) (169) Income taxes - 1 (37) 1 -------- -------- -------- ~~Net~~------- ~~Loss~~NET LOSS $ (~~303~~786) $ (9080) $ (1,089) (170) ===== ===== ===== ===== BASIC NET (LOSS) ~~INCOME~~ PER SHARE $(.53) $(.2105) $(.74) $(.0712) ==== ==== ==== ==== DILUTED NET (LOSS) ~~INCOME~~ PER SHARE $(.53) $(.2105) $(.74) $(.0712)* ==== ==== ==== ==== Basic earnings per share - weighted average shares 1,~~468~~471,~~740~~543 1,372,333 Diluted earnings per share - ~~adjusted~~ weighted average shares 1,~~468~~471,~~740~~543 1,~~391~~399,~~501~~522 * Adjusted weighted average shares not used since effect on earnings per share would be anti-dilutive. See accompanying notes.

DRIVER-HARRIS COMPANY AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Amounts in thousands)

~~THREE~~SIX MONTHS ENDED ~~March~~June 3130 -------------------- 2001 2000 ------ ------ OPERATING ACTIVITIES Net income (loss) $ (~~303~~1,089) $ (90170) Adjustments to reconcile net ~~income~~loss to net cash provided by operating activities: Depreciation and amortization 94185 ~~115~~237 Receivables (1,~~277~~028) (1,~~482~~051) Inventories (~~235~~116) (~~167~~479) Prepaid expenses ~~155~~241 (~~156~~117) Accounts payable and accrued expenses (~~215~~244) 21,~~050~~292 Sundry 2434 (3123) --------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES (12,~~757~~017) ~~239~~(311) INVESTING ACTIVITIES Capital expenditures (632) (81195) Sundry -9 5 ------- ------- NET CASH USED IN INVESTING ACTIVITIES (623) (76190) FINANCING ACTIVITIES Change in short-term debt 12,~~859~~133 ~~(65)~~779 Issuance of long-term debt 3572 21- Reduction of long-term debt (82128) (4067) Sundry (1012) (1020) ------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 12,~~802~~065 ~~(94)~~692 Effect of exchange rate changes on cash (65220) ~~(89)~~2 -------- ------- Net change in cash (26195) ~~(20)~~193 Cash at beginning of year 428 201 ------- ------- CASH AT END OF PERIOD $ ~~402~~233 $ ~~181~~394 ====== ===== See accompanying notes.

NOTES TO FINANCIAL STATEMENTS 1 - Basis of Presentation These financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information, disclosures, and notes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Reference should be made to the financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. These financial statements include all adjustments which are, in the opinion of management, necessary to a fair presentation of the results for the interim period. 2 - Investments in Related Company and Other Subsidiaries The Company owns Irish Driver-Harris Co. Ltd.,("IDH"), located in Ireland and the U.K. 3 - Comprehensive Income The components of comprehensive loss as presented under Financial Accounting Standard 130, "Reporting Comprehensive Income", for the three and six months ended June 30, 2001 and 2000 are as follows:

Three Months Six Months 2001 2000 2001 2000 Net ~~income~~loss $ (~~loss~~786) $ (~~303~~80) $ (901,089) $ (170) Foreign currency translation adjustment (~~262~~148) 77 (~~329~~410) (252) -------- ------- ------- ------- Comprehensive loss $(~~565~~934) $(~~419~~3) $ (1,499) $ (422) ===== ===== ===== =====

4. - Industry Segments and Geographic Areas The Company classifies its revenues based upon the location of the facility and its function (i.e. manufacture or purchase for resale-distribution). Such revenues are regularly reviewed by the Directors and management and decisions are made on such basis. The operating expenses and resultant net profit (loss) and the assets are similarly reviewed and decisions made based upon whether they relate to manufacturing or purchase for resale (i.e. distribution). 5. - Long-Term Debt In April 2001, the Company re-negotiated the terms of the note payable to the Pension Benefit Guarantee Corporation (PBGC) whereby payment of such note was deferred for two years. The note will be payable in ten equal annual payments beginning April 16, 2003 and ending April 16, 2012. As a result of the re-negotiation, the PBGC is included in long-term debt in the Company's consolidated balance sheet. Until the note is paid in full, the Company may not pay cash dividends on its capital stock without the permission from the PBGC. 6. - Settlement of Law Suit On May 22, 2001, the Company settled the law suit which had been filed by the landlord of an affiliate which claimed that the Company was guarantor of a lease signed by the affiliate and was therefore liable for unpaid back rent. Although the Company and its attorneys believe the suit was without merit, the settlement was made in order to minimize the resources required to prepare and mount a legal defense. The settlement calls for payments of $10,000 per quarter for twelve quarters, beginning October 1, 2001, with subsequent payments due on the first business day of each subsequent quarter. Should the Company fail to make the initial payment on October 1, 2001, the landlord has the right to recommence suit. Reporting Segments Parent Co. Manufacturing Distribution Total (U.S.) (Ireland) (U.K.) Six months ended June 30, 2001: Revenues External revenues $ 15,026 $ 1,819 $16,845 Inter-segment revenues 514 514 Other revenues $ 9 26 35 Elimination of inter- segment revenues (514) (514) Consolidated revenues 9 15,052 1,819 16,880 Net Loss (170) (892) (27) (1,089) Assets Total assets 1,504 17,665 2,102 21,271 Elimination of investment (623) (623) Elimination of inter- company receivables (829) (1,401) (2,230) Elimination of inter- company inventory (616) (616) ------- --------- -------- --------- Total assets 52 15,648 2,202 17,802 Other Significant Items Depreciation expense 192 11 203 Interest expense 73 350 26 449 Expenditures for assets 32 32 Six months ended June 30, 2000: Revenues External revenues $ 18,854 $ 2,334 $21,188 Inter-segment revenues $ 182 670 852 Other revenues 20 11 31 Elimination of inter- segment revenues (182) (670) (852) Consolidated revenues 18,874 2,345 21,219 Net Loss (139) (8) (23) (170) Assets Total assets 1,477 18,189 2,143 21,809 Elimination of investment (623) (623) Elimination of inter- company receivables (829) (168) (13) (1,010) Elimination of inter- company inventory (401) (401) ------- -------- -------- -------- Total assets 25 18,021 1,729 19,775 Other Significant Items Depreciation expense 223 14 237 Interest expense 44 238 35 317 Expenditures for assets 189 6 195

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition The ratio of current assets to current liabilities was 0.95 at June 30, 2001, compared to 1.03 at December 31, 2000. At June 30, 2001, the Company's subsidiaries had approximately $8.2 million in available bank credit lines of which $8.0 million was in use. The Company believes it has adequate cash flow from operations to meet its ongoing obligations including debt repayments and capital commitments. On April 13, 2001, the Company re-negotiated the terms of the note payable to the Pension Benefit Guarantee Corporation (PBGC) whereby payment of such note was deferred for two years. The note is payable in ten equal annual payments beginning April 16, 2003 and ending April 16, 2012. As a result of the re-negotiation, the PBGC note is included in long-term debt in the Company's consolidated balance sheet. Until the note is paid in full, the Company may not pay cash dividends on its capital stock without permission from the PBGC. Market Risks Foreign Currency Fluctuations With operations in three different countries, the Company's operating results may be adversely affected by significant fluctuations in the relative values among the U.S. dollar, Irish Pound and the British Pound Sterling. The Company is periodically involved in hedging currency between the Irish Pound and the British Pound Sterling through the use of futures contracts which are relatively short term in nature. The Company historically has experienced minimal gains and losses on such foreign currency hedging. Debt Instruments The Company's long term debt of $1,719,000 including the current portion, is primarily fixed rate debt of which $1,340,000 is U.S. denominated with the remaining balance denominated in Irish Pound. The Company's remaining debt of $7,869,000 is solely comprised of variable rate, short-term facilities denominated primarily in Irish Pound to cover banking overdraft that does not subject the Company to significant interest rate risk. The Company does not believe any reasonable interest rate change in the ensuing year would have a material impact on the Company's Statement of Operations. Results of Operations Six Months of 2001 Compared to 2000: Net sales to customers decreased by 22.2% during the first six months of 2001 compared to 2000. The decrease is attributable to lower shipments to customers, particularly in the first quarter and a weaker Irish Punt compared to U.S. Dollar. Quantities shipped in the first six months of 2001 decreased by 17.7% compared to the first six months of 2000. The gross profit percentage decreased to 8.1% in 2001 compared to 11.9% in 2000, due primarily to change in product mix, higher raw material usage and higher material costs. Selling, general and administrative expenses increased to 12.5% of net sales from 11.2% in the preceding year due to a one time charge of $120,000 related to settlement of a lawsuit and because sales decreased without a corresponding decrease in administrative costs. Second Quarter of 2001 Compared to 2000: Net sales to customers decreased by 19.3% during the second quarter of 2001 compared to the same period in 2000. This decrease is primarily due to lower shipments to customers and a weaker Irish Pound compared to the U.S. Dollar. Quantities shipped in the second quarter of 2001 decreased by 16.2% compared to the second quarter of 2000. The gross profit percentage decreased to 5.7% in 2001 compared to 12.5% in 2000 as a result of lower margins due to change in product mix, higher raw material usage and higher material costs. Selling, general and administrative expenses increased to 13.6% of net sales compared to 11.9% in 2000 due to a one time charge of $120,000 related to settlement of a lawsuit and since sales decreased without a corresponding decrease in administrative costs. The Company has tax loss carry forwards of approximately $3,620,000 available to offset future U.S. taxable income and approximately $1,065,000 to offset U.K. taxable income. Such carry forwards expire between 2001 and 2020 and the U.K. carry forwards are indefinite. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders a. The Annual Meeting of Stockholders was held on June 20, 2001 at the New Jersey Historical Society, Newark, New Jersey. b. The following Directors were reelected to serve for the ensuing year: Thomas J. Carey, Kenneth J. Mathews, Frank L. Driver, Timothy S. Driver. Ralph T. Bartlett, H. Lewis Biggerstaff and David A. Driver have assume the role of Director Emeritus. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DRIVER-HARRIS COMPANY Date: August 15, 2001 By: Frank L. Driver --------------------- ----------------------- Chief Financial Officer

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