Handy & Harman Ltd. Reports Financial Results for the Second Quarter of 2011

WHITE PLAINS, N.Y., Aug. 10, 2011 /PRNewswire/ -- Handy & Harman Ltd. (NASDAQ: HNH); ("HNH" or the "Company") today reported financial results for the second quarter and six months  ended June 30, 2011.

HNH reported net income of $16.8 million on net sales of $191.2 million for the three months ended June 30, 2011, compared with net income of $6.3 million on net sales of $160.9 million for the three months ended June 30, 2010. Basic and diluted net income per common share was $1.32 for the three months ended June 30, 2011, compared with $0.52 per share in the same period of 2010. Net income for the 2011 quarter includes an unrealized non-cash $3.7 million gain on embedded derivatives related to the Company's subordinated notes and warrants.

For the six months ended June 30, 2011, HNH reported net income of $21.6 million on net sales of $348.2 million, compared with net income of $3.6 million on net sales of $289.8 million for the six months ended June 30, 2010.  Net income for the six months ended June 30, 2011 includes an unrealized non-cash $2.3 million gain on embedded derivatives related to the Company's subordinated notes and warrants, and a $6.4 million gain on disposal of assets, net of tax, from discontinued operations. Basic and diluted net income per common share was $1.73 for the six months ended June 30, 2011, compared with $0.29 per share in the same period of 2010.

"Our sales increase of $30.3 million for the second quarter of 2011 builds on the $28.2 million sales growth our businesses experienced in the first quarter of 2011. Most of the Company's segments had higher net sales in the second quarter of 2011 versus the same period in 2010, resulting in 18.8% quarter-over-prior year quarter sales growth, and 20.2% sales growth on a year-to-date basis versus 2010," said Glen Kassan, Vice Chairman of the Board and Chief Executive Officer of HNH. The Company also reported higher gross profit, and reduced selling, general and administrative expenses as a percentage of sales when compared to the second quarter of 2010 as well as for the year-to-date 2011 versus 2010.  

The Company generated Adjusted EBITDA of $24.1 million for the second quarter of 2011, as compared to $20.3 million for the same period in 2010, an increase of $3.8 million, or 18.5%. For the year-to-date period of 2011, Adjusted EBITDA was $39.5 million as compared to $31.0 million for the six month period of 2010, an increase of $8.5 million, or 27.5%.  See "Note Regarding Use of Non-GAAP Financial Measurements" below for the definition of Adjusted EBITDA.

Financial Highlights:

Demand for the Company's products and services increased in the second quarter of 2011.  The growth in net sales was due principally to strengthening in most of the markets served by the Company as well as higher silver prices during the second quarter of 2011 versus 2010. Four of the Company's five segments experienced improvements in income from continuing operations during the second quarter of 2011. Income from continuing operations increased $3.4 million to $16.8 million during the second quarter of 2011 compared to $13.4 million for the same period of 2010.  Improved income from continuing operations was primarily a result of $30.3 million higher second quarter sales and increased productivity.  On a segment basis, Precious Metal net sales rose by 60.0% in the second quarter of 2011 compared with the same period of 2010, while Arlon segment sales increased by 20.3%,  Engineered Materials segment sales were 9.6% higher, and Kasco segment sales increased by 11.2%.  A sales decline of 7.0%, or $1.8 million, was reported by the Tubing segment.

Income from continuing operations net of tax, for the second quarter of 2011 was $16.9 million, as compared to $5.5 million in the 2010 quarter, an increase of $11.4 million.  In addition to  the improvement in income from continuing operations generated by higher sales and productivity discussed above,  the Company also reported a non-cash unrealized gain of $3.7 million related to the embedded derivative features of the Company's subordinated notes and warrants, a realized gain on precious metal derivative contracts that exceeded the 2010 period by $1.4 million, and $3.5 million lower interest expense in 2011 due principally to lower interest rates as a result of the Company's debt refinancing during the fourth quarter of 2010.  Additionally, the 2010 quarter was negatively impacted by a non-cash asset impairment charge of $1.6 million.  These favorable factors were partially offset by non-cash restricted stock expense of $0.7 million in the 2011 quarter.

Segment Operating Results

Precious Metal

The Precious Metal segment net sales increased by $20.3 million, or 60.0%, to $54.1 million for the three months ended June 30, 2011, as compared to $33.8 million in 2010.  The increased sales were primarily driven by an increase in the average market price of silver of approximately $20.00 per troy ounce during the second quarter of 2011 as compared to the same period of 2010, and higher volume. The increase in silver prices accounted for $13.4 million in higher sales.

Segment operating income increased by $2.1 million from $3.5 million during the second quarter of 2010 to $5.6 million for the same period in 2011.  The increase was primarily driven by higher sales volume.  The Precious Metal segment gross profit margin was lower for the three months ended June 30, 2011 as compared to the same period of 2010 primarily due to significantly higher silver prices which were partially offset by the favorable effect of the increased volume on manufacturing overhead absorption and increased productivity.  Since the cost of the silver is passed-through to the customer principally at cost plus a value-added services fee, higher silver prices generally result in a moderation or, at times, a reduction in the segment's gross profit margin.

Tubing

For the three months ended June 30, 2011, the Tubing segment sales decreased by $1.8 million, or 7.0%, to $24.5 million, as compared to $26.3 million during the same period of 2010, resulting primarily from lower sales from the refrigeration market serviced by the Specialty Tubing Group, which was partially offset by higher sales from the markets served by the Stainless Steel Tubing Group.  

Segment operating income decreased by $0.6 million on the lower sales, to $3.3 million for the three months ended June 30, 2011, as compared to $3.9 million for the same period in 2010, impacted by weakness from the refrigeration market, partially offset by improved operating income from the Stainless Steel Tubing Group.  

Engineered Materials

The Engineered Materials segment sales for the three months ended June 30, 2011 increased by $6.5 million, or 9.6%, to $74.2 million, as compared to $67.7 million during the same period in 2010. The incremental sales were driven by higher volume of commercial roofing products and branded fasteners.  

Segment operating income increased by $1.1 million to $10.0 million for the three months ended June 30, 2011, as compared to $8.9 million for the same period of 2010.  The increase in operating income was principally the result of the higher sales volume.  Gross profit margin for the three months ended June 30, 2011 was steady compared to the three months ended June 30, 2010.

Arlon

Arlon sales increased by $3.7 million, or 20.3%, to $21.8 million, for the three months ended June 30, 2011, as compared to $18.1 million for the same period of 2010.   The sales increase was primarily due to increased sales of printed circuit board materials related to the telecommunications infrastructure in China, as well as increased sales of flex heater and coil insulation products for the general industrial market.

Segment operating income increased by $0.3 million to $2.5 million for the three months ended June 30, 2011, as compared to $2.2 million for the same period of 2010.  The increase in operating income was principally the result of the higher sales volume, which was partially offset by lower gross profit margin.  Arlon's gross profit margin was 2.3% lower during the second quarter of 2011 as compared to 2010 primarily due to capacity constraints at our China manufacturing facility.  In order to satisfy customer demand, production in the U.S. was increased at lower margins while Arlon is in the process of increasing its manufacturing capacity in China.

Kasco

Kasco segment sales improved by $1.7 million, or 11.2%, for the three months ended June 30, 2011 from $15.0 million during the second quarter of 2010 to $16.7 million during the same period of 2011. The sales improvements were primarily from its route business in the United States.

Operating income for the Kasco segment was $0.8 million for the second quarter of 2011, as compared to an operating loss of $1.3 million for the same period of 2010. Gross profit margin improved 3.3% during the second quarter of 2011 compared to the same period of 2010 primarily due to cost savings generated by relocating the remaining production facilities from Atlanta, Georgia to Mexico.  As a result of this restructuring plan, the Company performed a valuation of its land, building and houses located in Atlanta, and recorded an asset impairment charge of $1.6 million as of June 30, 2010.  The impairment represented the difference between the assets' book value and fair market value as a result of the declining real estate market in the area where the properties are located.

Liquidity

As of June 30, 2011, HNH's current assets totaled $197.1 million and its current liabilities totaled $178.5 million.  Therefore, its working capital was $18.5 million, as compared to working capital of $15.3 million as of December 31, 2010.  On August 5, 2011, Handy & Harman Group Ltd., a wholly-owned subsidiary of the Company, amended each of its credit facilities with Wells Fargo, National Association and Ableco, L.L.C. to, among other things, extend their maturity dates to June 28, 2013.

Note Regarding Use of Non-GAAP Financial Measurements:

The financial data contained in this press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission ("SEC"), including "Adjusted EBITDA".  The Company is presenting Adjusted EBITDA because it believes that it provides useful information to investors about HNH, its business and its financial condition. The Company defines Adjusted EBITDA as net income or loss from continuing operations (net of tax) before the effects of realized and unrealized gains or losses on derivatives, interest expense, taxes, depreciation and amortization, income from proceeds of insurance claims, net, LIFO liquidation gain, non-cash pension and other post-employment benefits ("OPEB") expense or credit, and other non-cash credits and charges. The Company believes Adjusted EBITDA is useful to investors because it is one of the measures used by the Company's Board of Directors and management to evaluate its business, including in internal management reporting, budgeting and forecasting processes, in comparing operating results across the business, as an internal profitability measure, as a component in evaluating the ability and the desirability of making capital expenditures and significant acquisitions, and as an element in determining executive compensation.

However, Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles in the United States of America ("GAAP"), and the items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Therefore, Adjusted EBITDA should not be considered a substitute for net income (loss) or cash flows from operating, investing, or financing activities. Because Adjusted EBITDA is calculated before recurring cash charges including realized and unrealized losses on derivatives, interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business. There are a number of material limitations to the use of Adjusted EBITDA as an analytical tool, including the following:

• Adjusted EBITDA does not reflect the Company's net realized and unrealized losses and gains on derivatives and any LIFO liquidations of its precious metal inventory;
• Adjusted EBITDA does not reflect the Company's interest expense;
• Adjusted EBITDA does not reflect the Company's tax expense or the cash requirements to pay its taxes;
• Although depreciation and amortization are non-cash expenses in the period recorded, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect the cash requirements for such replacement;
• Adjusted EBITDA does not include pension expense; and
• Adjusted EBITDA does not include discontinued operations.

The Company compensates for these limitations by relying primarily on its GAAP financial measures and by using Adjusted EBITDA only as supplemental information. The Company believes that consideration of Adjusted EBITDA, together with a careful review of its GAAP financial measures, is the most informed method of analyzing HNH.

The Company reconciles Adjusted EBITDA to net income from continuing operations, and that reconciliation is set forth below.  We caution investors that, because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Revenues and expenses are measured in accordance with the policies and procedures described in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

Our Company

Handy & Harman Ltd. is a diversified manufacturer of highly engineered niche industrial products with leading market positions in many of the markets it serves. Through its operating subsidiaries, HNH focuses on high margin products and innovative technology and serves over 13,000 active customers across a wide range of end markets. HNH's diverse product offerings are marketed through 29 locations located in seven countries.  

Our companies are organized into five businesses: Precious Metals, Tubing, Engineered Materials, Arlon, and Kasco.

We sell our products and services through direct sales forces, distributors and manufacturer's representatives. We serve a diverse customer base, including the construction, electronics, telecommunications, home appliance, transportation, utility, medical, semiconductor, aerospace, military electronics and automotive markets. Other markets served include blade products and repair services for the food industry.

We are based in White Plains, New York and our common stock is listed on the NASDAQ Capital Market under the symbol HNH. 

Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect HNH's current expectations and projections about its future results, performance, prospects and opportunities.  HNH has tried to identify these forward-looking statements by using words such as "may", "should," "expect," "hope," "anticipate," "believe," "intend," "plan," "estimate" and similar expressions.  These forward-looking statements are based on information currently available to the Company and are subject to a number of risks, uncertainties and other factors that could cause its actual results, performance, prospects or opportunities in 2011 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements.  These factors include, without limitation, HNH's need for additional financing and the terms and conditions of any financing that is consummated, customers' acceptance of its new and existing products, the risk that the Company will not be able to compete successfully, and the possible volatility of the Company's stock price and the potential fluctuation in its operating results.  Although HNH believes that the expectations reflected in these forward-looking statements are reasonable and achievable, such statements involve significant risks and uncertainties and no assurance can be given that the actual results will be consistent with these forward-looking statements.  Investors should read carefully the factors described in the "Risk Factors" section of the Company's filings with the SEC, including the Company's Form 10-K for the year ended December 31, 2010 for information regarding risk factors that could affect the Company's results.  Except as otherwise required by Federal securities laws, HNH undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

SOURCE Handy & Harman Ltd.