NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – The Company and Nature of Operations
Handy & Harman Ltd. ("HNH") is a diversified manufacturer of engineered niche industrial products. HNH's diverse product offerings are marketed throughout the United States and internationally. HNH owns Handy & Harman Group Ltd. ("H&H Group"), which owns Handy & Harman ("H&H") and Bairnco, LLC ("Bairnco"), formerly Bairnco Corporation. HNH manages its group of businesses on a decentralized basis with operations principally in North America. HNH's business units encompass the following segments: Joining Materials, Tubing, Building Materials, Performance Materials, Electrical Products, and Kasco Blades and Route Repair Services ("Kasco"). The Electrical Products segment is currently comprised of the operations of SL Industries, Inc. ("SLI") and the Electromagnetic Enterprise division ("EME") of Hamilton Sundstrand Corporation ("Hamilton"), which were acquired on June 1, 2016 and September 30, 2016, respectively, as discussed in Note 4 - "Acquisitions." All references herein to "we," "our" or the "Company" refer to HNH together with all its subsidiaries.
Note 2 – Summary of Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of HNH and its subsidiaries. All material intercompany transactions and balances have been eliminated.
Discontinued Operations
The results of operations for businesses that have been disposed of or classified as held-for-sale are segregated from the results of the Company's continuing operations and classified as discontinued operations for each period presented in the Company's consolidated statements of operations. Similarly, the assets and liabilities of such businesses are reclassified from continuing operations and presented as discontinued operations for each period presented on the Company's consolidated balance sheets.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, inventories, long-lived assets, intangibles, accrued liabilities, income taxes, pension and other post-retirement benefit obligations, and contingencies and litigation. Estimates are based on historical experience, expected future cash flows and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Revenue Recognition
Revenues are recognized when title and risk of loss has passed to the customer. This condition is normally met when product has been shipped or the service performed. An allowance is provided for estimated returns and discounts based on experience. Cash received by the Company from customers prior to shipment of goods, or otherwise not yet earned, is recorded as deferred revenue. Rental revenues are derived from the rental of certain equipment to the food industry where customers prepay for the rental period, usually
three
to
six
month periods. For prepaid rental contracts, sales revenue is recognized on a straight-line basis over the term of the contract. Service revenues consist of repair and maintenance work performed on equipment used at mass merchants, supermarkets and restaurants.
The Company experiences a certain degree of sales returns that varies over time, but is able to make a reasonable estimation of expected sales returns based upon history. The Company records all shipping and handling fees billed to customers as revenue, and related costs are charged principally to cost of goods sold when incurred. The Company has also entered into agreements with certain customers under which the Company has agreed to pay rebates to such customers. These programs are typically structured to incentivize the customers to increase their annual purchases from the Company. The rebates are usually calculated as a percentage of the purchase amount, and such percentages may increase as the customer's level of purchases rise. Rebates are recorded as a reduction of net sales in the consolidated statements of operations and are accounted for on an accrual basis. As of
December 31, 2016
and
2015
, accrued rebates payable totaled
$7.4 million
and
$7.6 million
, respectively, and are included in accrued liabilities on the consolidated balance sheets. In limited circumstances, the Company is required to collect and remit sales tax on certain of
its sales. The Company accounts for sales taxes on a net basis, and such sales taxes are not included in net sales in the consolidated statements of operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit and highly liquid debt instruments with original maturities of
three
months or less. As of
December 31, 2016
and
2015
, the Company had cash held in foreign banks of
$10.9 million
and
$4.5 million
, respectively. The Company's credit risk arising from cash deposits held in U.S. banks in excess of insured amounts is reduced given that cash balances in U.S. banks are generally utilized to pay down the Company's revolving credit loans (see Note 11 - "Credit Facilities"). At
December 31, 2016
, the Company held cash and cash equivalents which exceeded federally-insured limits by approximately
$17.6 million
.
Trade Receivables and Allowance for Doubtful Accounts
The Company extends credit to customers based on its evaluation of the customer's financial condition. The Company does not typically require that any collateral be provided by its customers. The Company has established an allowance for accounts that are expected to be uncollectible in the future. This estimated allowance is based primarily on management's evaluation of the financial condition of the customer and historical experience. The Company monitors its trade receivables and charges to expense an amount equal to its estimate of expected credit losses. Accounts that are outstanding longer than contractual payment terms are considered past due. The Company considers a number of factors in determining its estimates, including the length of time its trade receivables are past due, the Company's previous loss history and the customer's current ability to pay its obligation. Trade receivable balances are charged off against the allowance when it is determined that the receivables will not be recovered, and payments subsequently received on such receivables are credited to recovery of accounts written-off. The Company does not typically charge interest on past due receivables.
The Company believes that the credit risk with respect to trade receivables is limited due to the Company's credit evaluation process, the allowance for doubtful accounts that has been established and the diversified nature of its customer base. There were no customers which accounted for more than
10%
of consolidated net sales in
2016
,
2015
or
2014
. In
2016
,
2015
and
2014
, the
15
largest customers accounted for approximately
29%
,
33%
and
31%
of consolidated net sales, respectively.
Inventories
Inventories are generally stated at the lower of cost (determined by the first-in, first-out method or average cost method) or market. Cost is determined by the last-in, first-out ("LIFO") method for certain precious metal inventory held in the U.S., and remaining precious metal inventory is primarily carried at fair value. For precious metal inventory, no segregation among raw materials, work in process and finished products is practicable.
Non-precious metal inventories are evaluated for estimated excess and obsolescence based upon assumptions about future demand and market conditions, and are adjusted accordingly. If actual market conditions are less favorable than those projected, future write-downs may be required.
Derivatives and Risks
Precious Metal and Commodity Risk
HNH's precious metal and commodity inventories are subject to market price fluctuations. HNH enters into commodity futures and forward contracts to mitigate the impact of price fluctuations on its precious and certain non-precious metal inventories that are not subject to fixed price contracts. The Company's hedging strategy is designed to protect it against normal volatility; therefore, abnormal price changes in these commodities or markets could negatively impact HNH's earnings. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. HNH accounts for these contracts as either fair value hedges or economic hedges under the guidance in Accounting Standards Codification ("ASC") 815,
Derivatives and Hedging
.
Fair Value Hedges.
The fair values of these derivatives are recognized as derivative assets and liabilities on the consolidated balance sheets. The net change in fair value of the derivative assets and liabilities, and the change in the fair value of the underlying hedged inventory, are recognized in the consolidated statements of operations, and such amounts principally offset each other due to the effectiveness of the hedges. The fair value hedges are associated primarily with the Company's precious metal inventory carried at fair value.
Economic Hedges.
As these derivatives are not designated as accounting hedges under ASC 815, they are accounted for as derivatives with no hedge designation. The derivatives are marked to market, and both realized and unrealized gains and losses are recorded in current period earnings in the consolidated statements of operations. The economic hedges are associated primarily with the Company's precious metal inventory valued using the LIFO method.
Interest Rate Risk
HNH has entered into interest rate swap agreements in the past in order to economically hedge a portion of its debt, which was subject to variable interest rates. As these derivatives were not designated as accounting hedges under U.S. GAAP, they were accounted for as derivatives with no hedge designation. The Company recorded the gains and losses both from the mark-to-market adjustments and net settlements in interest expense in the consolidated statements of operations as the hedges were intended to offset interest rate movements.
Foreign Currency Exchange Rate Risk
The Company is subject to the risk of price fluctuations related to anticipated revenues and operating costs, firm commitments for capital expenditures and existing assets and liabilities denominated in currencies other than the U.S. dollar. The Company has not generally used derivative instruments to manage this risk.
Property, Plant and Equipment
Property, plant and equipment is recorded at historical cost. Depreciation of property, plant and equipment is provided principally on the straight line method over the estimated useful lives of the assets, which range as follows: machinery and equipment
3
–
15
years and buildings and improvements
10
–
30
years. Interest cost is capitalized for qualifying assets during the asset's acquisition period. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized. Gain or loss on dispositions is recorded in operating income.
Goodwill, Other Intangibles and Long-Lived Assets
Goodwill represents the difference between the purchase price and the fair value of net assets acquired in a business combination. Goodwill is reviewed annually for impairment in accordance with U.S. GAAP as of the end of the fourth quarter. The Company uses judgment in assessing whether assets may have become impaired between annual impairment tests. Circumstances that could trigger an interim impairment test include, but are not limited to: the occurrence of a significant change in circumstances, such as continuing adverse business conditions or legal factors; an adverse action or assessment by a regulator; unanticipated competition; loss of key personnel; the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed; or results of testing for recoverability of a significant asset group within a reporting unit.
The testing of goodwill for impairment is performed at a level referred to as a reporting unit. Goodwill is allocated to each reporting unit based on the goodwill valued in connection with each business combination consummated within each reporting unit.
Five
reporting units of the Company have goodwill assigned to them.
Goodwill impairment testing consists of a two-step process. Step 1 of the goodwill impairment test involves comparing the fair values of the applicable reporting units with their carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, Step 2 of the goodwill impairment test is performed to determine the amount of impairment loss. Step 2 of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill against the carrying value of that goodwill.
An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the two-step quantitative impairment test discussed above; otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test. The Company utilized a qualitative approach to assess its goodwill as of its most recent assessment date, except for the Performance Materials segment, for which the Company performed a Step 1 and a Step 2 process.
Intangible assets with finite lives are amortized over their estimated useful lives. The Company also reviews long-lived assets for impairment whenever events, or changes in circumstances, indicate the carrying amount of such assets may not be
recoverable. Long-lived assets consisting of land and buildings used in previously operating businesses are carried at the lower of cost or fair value less cost to sell and are included primarily in other non-current assets on the consolidated balance sheets. A reduction in the carrying value of such long-lived assets used in previously operating businesses is recorded as an asset impairment charge in the consolidated statements of operations.
Investment In Associated Company
The Company accounts for its investment in ModusLink Global Solutions, Inc. ("ModusLink") using the equity method of accounting because the Company has the ability to exercise significant influence over the investee's operating and financial policies.
Stock-Based Compensation
The Company accounts for stock options and restricted stock granted to employees, directors and service providers as compensation expense, which is recognized in exchange for the services received. The compensation expense is based on the fair value of the equity instruments on the grant-date and is recognized as an expense over the service period of the recipients.
Income Taxes
Income taxes currently payable or tax refunds receivable are recorded on a net basis and included in accrued liabilities on the consolidated balance sheets. Deferred income taxes reflect the tax effect of net operating loss carryforwards ("NOLs"), capital loss or tax credit carryforwards, and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established if, based on the weight of available evidence, it is more likely than not that some portion or the entire deferred income tax asset will not be realized. The financial effect of changes in tax laws or rates is accounted for in the period of enactment.
Earnings Per Share
Basic earnings per share is calculated based on the weighted-average number of shares of common stock outstanding during each year. Diluted earnings per share gives effect to dilutive potential common shares outstanding during each year.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at current exchange rates and related revenues and expenses are translated at average rates of exchange in effect during the year. Resulting cumulative translation adjustments are recorded as a separate component of other comprehensive income (loss).
Legal Contingencies
The Company provides for legal contingencies when the liability is probable and the amount of the associated costs is reasonably estimable. The Company regularly monitors the progress of legal contingencies and revises the amounts recorded in the period in which a change in estimate occurs.
Environmental Liabilities
The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable.
Note 3 – New or Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five step process to achieve this core principle. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of ASU No. 2014-09 by one year. The ASU, as amended, is effective for the Company's 2018 fiscal year and may be applied either (i) retrospectively
to each prior reporting period presented with an election for certain specified practical expedients, or (ii) retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application, with additional disclosure requirements. The Company is continuing to evaluate the impact of this guidance and the transition alternatives on its consolidated financial statements and, therefore, cannot reasonably estimate the impact that adoption will have on its financial condition, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
, which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments do not apply to inventory that is measured using the LIFO method. On January 1, 2017, the Company began applying the inventory measurement provisions of the new ASU and such provisions did not have and are not expected to have a material impact on the Company's consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period
Adjustments
, which eliminates the requirement to restate prior-period financial statements for measurement-period adjustments following a business combination. The new guidance requires that the cumulative impact of a measurement-period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The prior-period impact of the adjustment should either be presented separately on the face of the statement of operations or disclosed in the notes. This new guidance was effective for the Company's 2016 fiscal year. The amendments in this ASU will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. The adoption of ASU No. 2015-16 did not have any impact on the Company's 2016 financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. A modified retrospective transition approach is required for capital and operating leases existing at the date of adoption, with certain practical expedients available. The Company is currently evaluating the potential impact of this new guidance, which is effective for the Company's 2019 fiscal year.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
This new standard simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows, among other things. The new standard is effective for the Company's 2017 fiscal year, and the Company has adopted its provisions as of January 1, 2017. The impacts of certain amendments in ASU No. 2016-09, such as those related to the treatment of tax windfalls from stock based compensation that are included in NOLs and elections made for accounting for forfeitures, are required to be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. However, since the Company has utilized the majority of its NOLs at December 31, 2016 (see Note 16 - "Income Taxes"), and has elected to continue to estimate forfeitures under its current policy, there were no modified retrospective adjustments recorded upon adoption. The other provisions of ASU No. 2016-09, such as classification of certain items in the statement of cash flows, will be applied in 2017, with reclassification of prior period amounts where applicable.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The new standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will recognize estimated credit losses to be incurred over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. The new standard is effective for the Company's 2020 fiscal year with early adoption permitted for all entities in fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of this new guidance.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
This new standard provides guidance to help decrease diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. The amendments in ASU No. 2016-15 provide guidance on eight specific cash flow issues. The new standard is effective for the Company's 2018 fiscal year. The Company is currently evaluating the potential impact of this new guidance.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash.
This new standard provides guidance on the classification of restricted cash in the statement of cash flows. The amendments in ASU No.
2016-18 are effective for the Company's 2018 fiscal year. The Company is currently evaluating the potential impact of this new guidance.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business.
This new standard provides guidance to help determine more clearly what is a business acquisition, as opposed to an asset acquisition.
The amendments provide a screen to help determine when a set of components is a business, by reducing the number of transactions in an acquisition that need to be evaluated. The new standard states that to classify the acquisition of assets as a business, there must be an input and a substantive process that jointly contribute to the ability to create outputs, with outputs being defined as the key elements of the business. If all of the fair value of the assets acquired are concentrated in a single asset group, this would not qualify as a business. The amendments in ASU No. 2017-01
are effective for the Company's 2018 fiscal year. The Company is currently evaluating the potential impact of this new guidance.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. This new standard simplifies subsequent measurements of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, entities will perform their interim or annual goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge based on the amount that the carrying amount exceeds the reporting unit's fair value. The loss recognized should not exceed the total goodwill allocated to the reporting unit. The amendments in ASU No. 2017-04 are effective for the Company's 2020 fiscal year. The Company is currently evaluating the potential impact of this new guidance.
Note 4 – Acquisitions
ITW
On March 31, 2015, the Company, through its indirect subsidiary, OMG, Inc. ("OMG"), acquired certain assets and assumed certain liabilities of ITW Polymers Sealants North America Inc. ("ITW"), which are used in the business of manufacturing two-component polyurethane adhesive for the roofing industry, for a cash purchase price of
$27.4 million
, reflecting a final working capital adjustment of
$0.4 million
. The assets acquired and liabilities assumed primarily included net working capital of inventories and accrued liabilities; property, plant and equipment; and intangible assets, primarily developed technology, valued at
$1.7 million
,
$0.1 million
and
$4.4 million
, respectively. ITW was the exclusive supplier of certain adhesive products to OMG, and this acquisition will provide OMG with greater control of its supply chain and allow OMG to expand its product development initiatives. The results of operations of the acquired business are reported within the Company's Building Materials segment. In connection with the ITW acquisition, the Company has recorded goodwill totaling approximately
$21.3 million
, which is expected to be deductible for income tax purposes.
JPS
Effective July 2, 2015, H&H Group completed the acquisition of JPS Industries, Inc. ("JPS") pursuant to an agreement and plan of merger, dated as of May 31, 2015, by and among the Company, H&H Group, HNH Group Acquisition LLC, a Delaware limited liability company and a subsidiary of H&H Group ("H&H Acquisition Sub"), HNH Group Acquisition Sub LLC, a Delaware limited liability company and a wholly owned subsidiary of H&H Acquisition Sub ("Sub"), and JPS. JPS is a manufacturer of mechanically formed glass, quartz and aramid substrate materials for specialty applications in a wide expanse of markets requiring highly engineered components. At the effective time of the Merger (as defined below), Sub was merged with and into JPS ("Merger"), with JPS being the surviving corporation in the Merger, and each outstanding share of JPS common stock (other than shares held by the Company and its affiliates, including SPH Group Holdings LLC ("SPH Group Holdings"), a subsidiary of Steel Partners Holdings L.P. ("SPLP"), the parent company of the Company, and a significant stockholder of JPS), was converted into the right to receive
$11.00
in cash. The aggregate merger consideration of
$70.3 million
was funded by H&H Group and SPH Group Holdings. H&H Group's funding of the aggregate merger consideration totaled approximately
$65.7 million
, which was financed through additional borrowings under the Company's senior secured revolving credit facility.
As a result of the closing of the Merger, JPS was indirectly owned by both H&H Group and SPH Group Holdings. Following the expiration of the 20-day period provided in Section 262(d)(2) of the Delaware General Corporation Law for JPS stockholders to exercise appraisal rights in connection with the Merger, and in accordance with an exchange agreement, dated as of May 31, 2015, by and between H&H Group and SPH Group Holdings, on July 31, 2015, the Company issued ("Issuance") to H&H Group
1,429,407
shares of the Company's common stock with a value of
$48.7 million
and, following the Issuance, H&H Group exchanged ("Exchange") those shares of Company common stock for all shares of JPS common stock held by SPH Group Holdings. As a result of the Exchange, H&H Group owned
100%
of JPS and merged JPS with and into its wholly-owned subsidiary, HNH Acquisition LLC, a Delaware limited liability company, which was the surviving entity in the merger and was renamed JPS Industries Holdings LLC.
The following table summarizes the amounts of the assets acquired and liabilities assumed at the acquisition date (in thousands):
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
22
|
|
|
Trade and other receivables
|
21,201
|
|
|
Inventories
|
27,126
|
|
|
Prepaid and other current assets
|
4,961
|
|
|
Property, plant and equipment
|
45,384
|
|
|
Goodwill
|
32,162
|
|
|
Other intangibles
|
9,120
|
|
|
Deferred income tax assets
|
19,788
|
|
|
Other non-current assets
|
3,112
|
|
|
Total assets acquired
|
162,876
|
|
|
Trade payables
|
(10,674
|
)
|
|
Accrued liabilities
|
(5,838
|
)
|
|
Long-term debt
|
(1,500
|
)
|
|
Accrued pension liabilities
|
(30,367
|
)
|
|
Other non-current liabilities
|
(4
|
)
|
|
Net assets acquired
|
$
|
114,493
|
|
The goodwill of
$32.2 million
arising from the acquisition was assigned to the Company's Performance Materials segment, of which
$24.1 million
was not expected to be deductible for income tax purposes. Other intangibles consist primarily of acquired trade names of
$4.3 million
, customer relationships of
$3.1 million
and developed technology of
$1.7 million
. These intangible assets have been assigned useful lives ranging from
10
to
15
years based on the long operating history, broad market recognition and continued demand for the associated brands, and the limited turnover and long-standing relationships JPS has with its existing customer base. The valuations of acquired trade names and developed technology were performed utilizing a relief from royalty method, and significant assumptions used in the valuation included the royalty rate assumed and the expected level of future sales, as well as the rate of technical obsolescence for the developed technology. The acquired customer relationships were valued using an excess earnings approach, and significant assumptions used in the valuation included the customer attrition rate assumed and the expected level of future sales.
The amount of net sales and operating loss of the acquired business included in the consolidated statement of operations for the year ended
December 31, 2016
were approximately
$101.6 million
and
$32.1 million
, respectively. The operating loss reflects a goodwill impairment charge of
$24.3 million
(see Note 9 - "Goodwill and Other Intangibles"). The amount of net sales and operating loss of the acquired business included in the consolidated statement of operations for the year ended
December 31, 2015
were approximately
$59.5 million
and
$2.2 million
, which included
$3.4 million
of nonrecurring expense related to the fair value adjustment to acquisition-date inventories. The results of operations of the acquired business are reported within the Company's Performance Materials segment, which is currently comprised solely of the operations of JPS.
SLI
On April 6, 2016, the Company entered into a definitive merger agreement with SLI, pursuant to which it commenced a cash tender offer to purchase all the outstanding shares of SLI's common stock, at a purchase price of
$40.00
per share in cash ("Offer"). SLI designs, manufactures and markets power electronics, motion control, power protection, power quality electromagnetic equipment, and custom gears and gearboxes used in a variety of medical, commercial and military aerospace, computer, datacom, industrial, architectural and entertainment lighting, and telecom applications. Consummation of the Offer was subject to certain conditions, including the tender of a number of shares that constituted at least (1) a majority of SLI's outstanding shares and (2)
60%
of SLI's outstanding shares not owned by HNH or any of its affiliates, as well as other customary conditions. SPLP beneficially owned approximately
25.1%
of SLI's outstanding shares at the time of the Offer.
On June 1, 2016, the conditions noted above, as well as all other conditions to the Offer were satisfied, and the Company successfully completed its tender offer through a wholly owned subsidiary. Pursuant to the terms of the merger agreement, the wholly-owned subsidiary merged with and into SLI, with SLI being the surviving corporation ("SLI Merger"). Upon completion of the SLI Merger, SLI became a wholly owned subsidiary of the Company.
The aggregate consideration paid by the Company in the Offer and SLI Merger was approximately
$162.0 million
, excluding related transaction fees and expenses. The funds necessary to consummate the Offer, the Merger and to pay related fees and expenses were financed with additional borrowings under the Company's senior secured revolving credit facility.
The following table summarizes the amounts of the assets acquired and liabilities assumed at the acquisition date on a preliminary basis (in thousands):
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
4,985
|
|
|
Trade and other receivables
|
32,680
|
|
|
Inventories
|
24,088
|
|
|
Prepaid and other current assets
|
8,254
|
|
|
Property, plant and equipment
|
23,950
|
|
|
Goodwill
|
54,150
|
|
|
Other intangibles
|
92,326
|
|
|
Other non-current assets
|
257
|
|
|
Total assets acquired
|
240,690
|
|
|
Trade payables
|
(18,433
|
)
|
|
Accrued liabilities
|
(18,521
|
)
|
|
Long-term debt
|
(9,500
|
)
|
|
Deferred income tax liabilities
|
(26,469
|
)
|
|
Other non-current liabilities
|
(5,782
|
)
|
|
Net assets acquired
|
$
|
161,985
|
|
The preliminary purchase price allocation is subject to finalization of valuations of certain acquired assets and liabilities. The goodwill of
$54.2 million
arising from the acquisition consists largely of the synergies expected from combining the operations of HNH and SLI. The goodwill is assigned to the Company's Electrical Products segment and is not expected to be deductible for income tax purposes. Other intangibles consist primarily of acquired trade names of
$14.7 million
, customer relationships of
$59.9 million
, developed technology and patents of
$10.7 million
, and customer order backlog of
$6.9 million
. The customer order backlog is being amortized based on the expected period over which the orders will be fulfilled, ranging from
two
to
eight
months. The remaining intangible assets have been assigned useful lives ranging from
10
to
15
years based on the long operating history, broad market recognition and continued demand for the associated brands, and the limited turnover and long-standing relationships SLI has with its existing customer base. The valuations of acquired trade names, developed technology and patents were performed utilizing a relief from royalty method, and significant assumptions used in the valuation included the royalty rate assumed and the expected level of future sales, as well as the rate of technical obsolescence for the developed technology and patents. The acquired customer relationships were valued using an excess earnings approach, and significant assumptions used in the valuation included the customer attrition rate assumed and the expected level of future sales. Included in accrued liabilities and other non-current liabilities above is a total of
$8.1 million
for existing and contingent liabilities relating to SLI's environmental matters, which are further discussed in Note 19 - "Commitments and Contingencies."
The amount of net sales and operating loss of the acquired business included in the consolidated statement of operations for the year ended
December 31, 2016
were approximately
$112.7 million
and
$1.8 million
, respectively, which includes
$1.9 million
of expenses associated with the amortization of the fair value adjustment to acquisition-date inventories and also
$1.9 million
of expenses associated with the acceleration of SLI's previously outstanding stock-based compensation awards, which became fully vested on the date of acquisition pursuant to the terms of the merger agreement, and which are included in selling, general and administrative expenses in the 2016 consolidated statement of operations. SLI's results of operations are reported within the Company's Electrical Products segment.
EME
On September 30, 2016, SL Montevideo Technology, Inc. ("SMTI"), a subsidiary of SLI, entered into an asset purchase agreement ("Purchase Agreement") with Hamilton. Pursuant to the Purchase Agreement, SMTI acquired from Hamilton certain assets of EME used or useful in the design, development, manufacture, marketing, service, distribution, repair and sale of electric motors, starters and generators for certain commercial applications, including for use in commercial hybrid electric vehicles and refrigeration and in the aerospace and defense sectors. The acquisition of EME expands SLI's product portfolio and diversifies its
customer base. SMTI purchased the acquired net assets for
$62.6 million
in cash and assumption of certain ordinary-course business liabilities, subject to adjustments related to working capital at closing and quality of earnings of the acquired business for the period of January 1, 2016 to June 30, 2016, each as provided in the Purchase Agreement. The Purchase Agreement includes a guarantee by Hamilton of a minimum level of product purchases from SMTI by an affiliate of Hamilton for calendar years 2017, 2018 and 2019, in exchange for compliance by SMTI with certain operating covenants. The transaction was financed with additional borrowings under the Company's senior secured revolving credit facility.
The following table summarizes the amounts of the assets acquired and liabilities assumed at the acquisition date on a preliminary basis (in thousands):
|
|
|
|
|
|
|
|
Trade and other receivables
|
$
|
4,249
|
|
|
Inventories
|
3,047
|
|
|
Prepaid and other current assets
|
265
|
|
|
Property, plant and equipment
|
2,321
|
|
|
Goodwill
|
30,645
|
|
|
Other intangibles
|
28,370
|
|
|
Total assets acquired
|
68,897
|
|
|
Trade payables
|
(3,440
|
)
|
|
Accrued liabilities
|
(2,882
|
)
|
|
Net assets acquired
|
$
|
62,575
|
|
The preliminary purchase price allocation is subject to finalization of valuations of certain acquired assets and liabilities. The goodwill of
$30.6 million
arising from the acquisition consists largely of the synergies expected from combining the operations of SLI and EME. The goodwill is assigned to the Company's Electrical Products segment and is expected to be deductible for income tax purposes. Other intangibles consist of customer relationships of
$27.2 million
and customer order backlog of
$1.2 million
. The customer order backlog is being amortized based on the expected period over which the orders will be fulfilled of four months. The customer relationships have been assigned a useful life of
15
years based on the limited turnover and long-standing relationships EME has with its existing customer base. The acquired customer relationships were valued using an excess earnings approach, and significant assumptions used in the valuation included the customer attrition rate assumed and the expected level of future sales. The amount of net sales and operating loss of the acquired business included in the consolidated statement of operations for the year ended
December 31, 2016
were approximately
$15.9 million
and
$0.1 million
, respectively. EME's results of operations are reported within the Company's Electrical Products segment.
Pro Forma Disclosures
Unaudited pro forma net sales and income from continuing operations, net of tax, of the combined entities is presented below as if JPS had been acquired January 1, 2014, and SLI and EME had both been acquired January 1, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
(in thousands, except per share)
|
|
2016
|
|
2015
|
|
2014
|
|
Net sales
|
|
$
|
961,644
|
|
|
$
|
987,105
|
|
|
$
|
759,578
|
|
|
(Loss) income from continuing operations, net of tax
|
|
$
|
(4,226
|
)
|
|
$
|
19,998
|
|
|
$
|
13,228
|
|
|
(Loss) income from continuing operations, net of tax, per share
|
|
$
|
(0.35
|
)
|
|
$
|
1.64
|
|
|
$
|
0.96
|
|
|
Weighted-average number of common shares outstanding
|
|
12,242
|
|
|
12,214
|
|
|
13,763
|
|
This unaudited pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the JPS acquisition taken place on January 1, 2014 and both the SLI and EME acquisitions taken place on January 1, 2015. The information for the years ended
December 31, 2016
,
2015
and
2014
is based on historical financial information with respect to the acquisitions and does not include operational or other changes which might have been effected by the Company. The unaudited pro forma earnings for all periods reflect incremental depreciation and amortization expense based on the fair value adjustments for the acquired property, plant and equipment and intangible assets, which are amortized using the double-declining balance method for customer relationships and the straight line method for other intangibles, over periods principally ranging from
10
to
15
years, except for the customer order backlog, which
is amortized over periods ranging from two to eight months. The unaudited pro forma earnings were also adjusted to reflect incremental interest expense on the borrowings made to finance the acquisitions.
The 2016 unaudited pro forma earnings exclude a total of
$9.2 million
of acquisition-related costs incurred by both the Company and the acquired entities during the year ended
December 31, 2016
. Of these costs that were excluded from 2016 pro forma expenses, an expense of
$1.9 million
from the amortization of the fair value adjustment to acquisition-date inventories and an expense of
$1.9 million
associated with the acceleration of SLI's previously outstanding stock-based compensation awards were reflected in 2015 and reduced the 2015 unaudited pro forma earnings.
The 2015 unaudited pro forma earnings also reflect adjustments to exclude a total of
$7.5 million
of acquisition-related costs incurred by both the Company and the acquired entities during the year ended
December 31, 2015
and
$3.4 million
of nonrecurring expense related to JPS's amortization of the fair value adjustment to acquisition-date inventories. The 2014 unaudited pro forma earnings were adjusted to include the fair value adjustment to acquisition-date inventories for JPS.
Note 5 – Divestitures
On December 18, 2014, H&H Group and Bairnco entered into a stock purchase agreement to sell all the issued and outstanding equity interests of Arlon, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Bairnco, and its subsidiaries (other than Arlon India (Pvt) Limited) for
$157.0 million
in cash, less transaction fees, subject to a final working capital adjustment and certain potential reductions as provided in the stock purchase agreement, which are reflected in proceeds from sale of discontinued operations in the consolidated statements of cash flows. The closing of the sale occurred in January 2015. The operations of Arlon, LLC comprised substantially all of the Company's former Arlon Electronic Materials segment, which manufactured high performance materials for the printed circuit board industry and silicone rubber-based materials.
The net income from discontinued operations includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2015
|
|
2014
|
|
Net sales
|
|
$
|
5,952
|
|
|
$
|
103,392
|
|
|
Operating income
|
|
920
|
|
|
16,423
|
|
|
Interest expense and other income (expense)
|
|
10
|
|
|
(9
|
)
|
|
Tax provision
|
|
(365
|
)
|
|
(6,479
|
)
|
|
Income from discontinued operations, net of tax
|
|
565
|
|
|
9,935
|
|
|
Gain on disposal of assets
|
|
93,859
|
|
|
71
|
|
|
Tax provision
|
|
(5,052
|
)
|
|
(29
|
)
|
|
Gain on disposal of assets, net of tax
|
|
88,807
|
|
|
42
|
|
|
Net income from discontinued operations
|
|
$
|
89,372
|
|
|
$
|
9,977
|
|
Based on a tax reorganization completed in anticipation of the sale of Arlon, LLC, as well as the release of Arlon, LLC's net deferred tax liabilities totaling
$7.6 million
, the effective tax rate on the gain on disposal of Arlon, LLC in 2015 was
5.4%
.
In October 2016, JPS sold the equipment and certain customer information, as well as related inventories, of its Slater, South Carolina facility for
$3.5 million
. The operations of this facility were not significant to the consolidated financial statements of the Company.
Note 6 – Asset Impairment Charges
In connection with its continued integration of JPS, the Company approved the closure of JPS' Slater, South Carolina operating facility during the second quarter of 2016 and recorded asset impairment charges totaling
$7.9 million
associated with the planned closure, including write-downs of
$6.6 million
to property, plant and equipment, and
$0.4 million
to intangible assets, as well as a
$0.9 million
inventory write-down, which was recorded in cost of goods sold in the consolidated statements of operations.
In the Joining Materials segment, due to improved operational productivity and available capacity at other Lucas-Milhaupt facilities, the Company approved the closure of its Lucas-Milhaupt Gliwice, Poland operating facility as part of its continual focus to optimize infrastructure costs. During the third quarter of 2016, the Company recorded asset impairment charges totaling
$2.5
million
, primarily due to write-downs of
$1.5 million
to property, plant and equipment, and
$0.5 million
to inventories, associated with the planned closure. The inventory write-down was recorded in cost of goods sold in the consolidated statements of operations.
In the fourth quarter of 2015, a non-cash asset impairment charge of
$1.4 million
was recorded related to certain unused, real property located in Norristown, Pennsylvania to reflect its current market value.
In the fourth quarter of 2014, a non-cash asset impairment charge of
$0.6 million
was recorded related to certain equipment owned by the Company's Joining Materials segment located in Toronto, Canada to be sold or scrapped as part of the Company's integration activities associated with a 2013 acquisition. In addition, the Company recorded a
$0.6 million
non-cash asset impairment charge associated with certain unused, real property owned by the Company's Kasco segment located in Atlanta, Georgia in the fourth quarter of 2014.
Note 7 – Inventories
Inventories, net at
December 31, 2016
and
2015
were comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
Finished products
|
|
$
|
32,339
|
|
|
$
|
31,355
|
|
|
In-process
|
|
18,482
|
|
|
19,873
|
|
|
Raw materials
|
|
34,318
|
|
|
18,451
|
|
|
Fine and fabricated precious metals in various stages of completion
|
|
15,019
|
|
|
13,155
|
|
|
|
|
100,158
|
|
|
82,834
|
|
|
LIFO reserve
|
|
(703
|
)
|
|
(30
|
)
|
|
Total
|
|
$
|
99,455
|
|
|
$
|
82,804
|
|
In order to produce certain of its products, HNH purchases, maintains and utilizes precious metal inventory. HNH records certain of its precious metal inventory at the lower of LIFO cost or market, with any adjustments recorded through cost of goods sold. Remaining precious metal inventory is accounted for primarily at fair value.
Certain customers and suppliers of HNH choose to do business on a "pool" basis and furnish precious metal to HNH for return in fabricated form or for purchase from or return to the supplier. When the customer's precious metal is returned in fabricated form, the customer is charged a fabrication charge. The value of this customer metal is not included on the Company's consolidated balance sheets. To the extent HNH is able to utilize customer precious metal in its production processes, such customer metal replaces the need for HNH to purchase its own inventory. As of
December 31, 2016
, customer metal in HNH's custody consisted of
126,427
ounces of silver,
520
ounces of gold and
1,391
ounces of palladium.
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental inventory information:
|
|
December 31,
|
|
December 31,
|
|
(in thousands, except per ounce)
|
|
2016
|
|
2015
|
|
Precious metals stated at LIFO cost
|
|
$
|
4,977
|
|
|
$
|
3,506
|
|
|
Precious metals stated under non-LIFO cost methods, primarily at fair value
|
|
$
|
9,339
|
|
|
$
|
9,619
|
|
|
Market value per ounce:
|
|
|
|
|
|
Silver
|
|
$
|
16.05
|
|
|
$
|
13.86
|
|
|
Gold
|
|
$
|
1,159.10
|
|
|
$
|
1,062.25
|
|
|
Palladium
|
|
$
|
676.00
|
|
|
$
|
547.00
|
|
Note 8 – Property, Plant and Equipment
Property, plant and equipment, net at
December 31, 2016
and
2015
was comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
Land
|
|
$
|
9,990
|
|
|
$
|
7,841
|
|
|
Buildings, machinery and equipment
|
|
201,690
|
|
|
180,519
|
|
|
Construction in progress
|
|
20,836
|
|
|
10,273
|
|
|
|
|
232,516
|
|
|
198,633
|
|
|
Accumulated depreciation
|
|
100,888
|
|
|
85,947
|
|
|
Total
|
|
$
|
131,628
|
|
|
$
|
112,686
|
|
Depreciation expense for the years ended
2016
,
2015
and
2014
was
$21.2 million
,
$14.4 million
and
$9.9 million
, respectively.
Note 9 – Goodwill and Other Intangibles
The changes in the net carrying amount of goodwill by reportable segment for the years ended
December 31, 2016
and
2015
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Balance at January 1, 2016
|
|
Adjustments
|
|
Additions
|
|
Impairments
|
|
Balance at
December 31, 2016
|
|
Accumulated
Impairment Losses
|
|
Joining Materials
|
|
$
|
16,210
|
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,199
|
|
|
$
|
—
|
|
|
Tubing
|
|
1,895
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,895
|
|
|
—
|
|
|
Building Materials
|
|
71,388
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71,388
|
|
|
—
|
|
|
Performance Materials
|
|
32,336
|
|
|
(174
|
)
|
|
—
|
|
|
(24,254
|
)
|
|
7,908
|
|
|
24,254
|
|
|
Electrical Products
|
|
—
|
|
|
—
|
|
|
84,795
|
|
|
—
|
|
|
84,795
|
|
|
—
|
|
|
Total
|
|
$
|
121,829
|
|
|
$
|
(185
|
)
|
|
$
|
84,795
|
|
|
$
|
(24,254
|
)
|
|
$
|
182,185
|
|
|
$
|
24,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Balance at January 1, 2015
|
|
Adjustments
|
|
Additions
|
|
Impairments
|
|
Balance at December 31, 2015
|
|
Accumulated Impairment Losses
|
|
Joining Materials
|
|
$
|
16,238
|
|
|
$
|
(28
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,210
|
|
|
$
|
—
|
|
|
Tubing
|
|
1,895
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,895
|
|
|
—
|
|
|
Building Materials
|
|
50,120
|
|
|
—
|
|
|
21,268
|
|
|
—
|
|
|
71,388
|
|
|
—
|
|
|
Performance Materials
|
|
—
|
|
|
—
|
|
|
32,336
|
|
|
|
|
32,336
|
|
|
—
|
|
|
Total
|
|
$
|
68,253
|
|
|
$
|
(28
|
)
|
|
$
|
53,604
|
|
|
$
|
—
|
|
|
$
|
121,829
|
|
|
$
|
—
|
|
The
$84.8 million
addition to goodwill within the Electrical Products segment during the year ended
December 31, 2016
was due to the Company's SLI and EME acquisitions discussed in Note 4 - "Acquisitions." Other intangible assets at cost as of
December 31, 2016
include
$120.7 million
in intangible assets, primarily trade names, customer relationships, developed technology, patents and customer order backlog, associated with the SLI and EME acquisitions. The goodwill and intangible asset balances associated with the SLI and EME acquisitions are subject to adjustment during the finalization of the purchase price allocations for these acquisitions.
In the fourth quarter of 2016, the Company recorded a goodwill impairment charge of
$24.3 million
in its Performance Materials segment, resulting from a decline in market conditions and lower demand for certain of JPS' product lines. The fair value of the Performance Materials segment used in determining the goodwill impairment charge was based on valuations using a combination of the income and market approaches. See Note 18 - "Fair Value Measurements" for further discussion of these valuation methodologies.
Other intangible assets as of
December 31, 2016
and
2015
consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
|
December 31, 2015
|
|
Weighted-Average Amortization Life (in Years)
|
|
|
Cost
|
Accumulated Amortization
|
Net
|
|
Cost
|
Accumulated Amortization
|
Net
|
|
|
Customer relationships
|
$
|
121,820
|
|
$
|
(18,554
|
)
|
$
|
103,266
|
|
|
$
|
35,077
|
|
$
|
(10,702
|
)
|
$
|
24,375
|
|
|
16.2
|
|
Trademarks, trade names and brand names
|
27,439
|
|
(4,184
|
)
|
23,255
|
|
|
12,739
|
|
(2,649
|
)
|
10,090
|
|
|
15.4
|
|
Developed technology, patents and patent applications
|
16,527
|
|
(3,518
|
)
|
13,009
|
|
|
5,591
|
|
(2,591
|
)
|
3,000
|
|
|
14.8
|
|
Non-compete agreements
|
774
|
|
(737
|
)
|
37
|
|
|
774
|
|
(714
|
)
|
60
|
|
|
8.3
|
|
Customer order backlog
|
8,130
|
|
(7,529
|
)
|
601
|
|
|
—
|
|
—
|
|
—
|
|
|
0.3
|
|
Other
|
7,391
|
|
(2,580
|
)
|
4,811
|
|
|
7,331
|
|
(1,739
|
)
|
5,592
|
|
|
7.6
|
|
Total
|
$
|
182,081
|
|
$
|
(37,102
|
)
|
$
|
144,979
|
|
|
$
|
61,512
|
|
$
|
(18,395
|
)
|
$
|
43,117
|
|
|
|
Amortization expense totaled
$18.9 million
,
$4.0 million
and
$3.2 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. The increase in amortization expense during 2016 was principally due to the Company's recent acquisitions. The estimated amortization expense for each of the five succeeding years and thereafter is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Customer Relationships
|
|
Trademarks, Trade Names and Brand Names
|
|
Technology, Patents and Patent Applications
|
|
Non-Compete Agreements
|
|
Customer Order Backlog
|
|
Other
|
|
Total
|
|
2017
|
|
$
|
13,121
|
|
|
$
|
1,840
|
|
|
$
|
911
|
|
|
$
|
16
|
|
|
$
|
601
|
|
|
$
|
842
|
|
|
$
|
17,331
|
|
|
2018
|
|
11,598
|
|
|
1,807
|
|
|
1,082
|
|
|
16
|
|
|
—
|
|
|
730
|
|
|
15,233
|
|
|
2019
|
|
10,309
|
|
|
1,641
|
|
|
1,082
|
|
|
5
|
|
|
—
|
|
|
719
|
|
|
13,756
|
|
|
2020
|
|
9,193
|
|
|
1,641
|
|
|
1,082
|
|
|
—
|
|
|
—
|
|
|
719
|
|
|
12,635
|
|
|
2021
|
|
7,945
|
|
|
1,641
|
|
|
1,082
|
|
|
—
|
|
|
—
|
|
|
719
|
|
|
11,387
|
|
|
Thereafter
|
|
51,100
|
|
|
14,685
|
|
|
7,770
|
|
|
—
|
|
|
—
|
|
|
1,082
|
|
|
74,637
|
|
|
Total
|
|
$
|
103,266
|
|
|
$
|
23,255
|
|
|
$
|
13,009
|
|
|
$
|
37
|
|
|
$
|
601
|
|
|
$
|
4,811
|
|
|
$
|
144,979
|
|
Note 10 – Investment
The Company holds an investment in the common stock of a public company, ModusLink, which is classified as an investment in associated company on the consolidated balance sheets. The Company carries its ModusLink investment on the consolidated balance sheets at fair value, calculated based on the closing market price for ModusLink common stock, with unrealized gains and losses on the investment reported in net income or loss. HNH owned
8,436,715
shares of common stock of ModusLink at both
December 31, 2016
and
December 31, 2015
, and the value of this investment
decreased
from
$20.9 million
at
December 31, 2015
to
$12.3 million
at
December 31, 2016
entirely due to a decrease in the share price of ModusLink's common stock.
As of
December 31, 2016
, SPLP and its associated companies, which include the Company, owned a combined total of
18,182,705
ModusLink common shares, which represented approximately
32.9%
of ModusLink's outstanding shares. SPLP is a majority shareholder of HNH, owning directly or indirectly through its subsidiaries in excess of
50%
of HNH's common shares. The power to vote and dispose of the securities held by SPLP is controlled by Steel Partners Holdings GP Inc. ("SPH GP"). SPLP also holds warrants to purchase
2,000,000
additional shares of ModusLink common stock at an exercise price of
$5.00
per share. These warrants will expire in March 2018.
ModusLink's fiscal year ends on July 31. Summarized unaudited information as to assets, liabilities and results of operations of ModusLink appears in the table below. This information is presented for the quarter ended October 31, 2016, ModusLink's most recently completed fiscal quarter, as compared to the same quarter of 2015, as well as for the twelve-month periods ended October 31, 2016, 2015 and 2014, the nearest practicable twelve-month periods corresponding to the Company's fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
July 31,
|
|
|
|
|
|
|
|
(in thousands)
|
2016
|
|
2016
|
|
|
|
|
|
|
|
Current assets
|
$
|
317,014
|
|
|
$
|
319,891
|
|
|
|
|
|
|
|
|
Non-current assets
|
$
|
28,169
|
|
|
$
|
28,041
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
200,966
|
|
|
$
|
194,766
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
$
|
67,483
|
|
|
$
|
67,226
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
$
|
76,734
|
|
|
$
|
85,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Year Ended
|
|
|
October 31,
|
|
October 31,
|
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2014
|
|
Net revenue
|
$
|
121,327
|
|
|
$
|
141,089
|
|
|
$
|
439,261
|
|
|
$
|
515,318
|
|
|
$
|
719,429
|
|
|
Gross profit
|
$
|
9,333
|
|
|
$
|
12,452
|
|
|
$
|
21,639
|
|
|
$
|
48,099
|
|
|
$
|
71,568
|
|
|
Loss from continuing operations
|
$
|
(8,543
|
)
|
|
$
|
(14,773
|
)
|
|
$
|
(55,051
|
)
|
|
$
|
(33,424
|
)
|
|
$
|
(16,678
|
)
|
|
Net loss
|
$
|
(8,543
|
)
|
|
$
|
(14,773
|
)
|
|
$
|
(55,051
|
)
|
|
$
|
(33,424
|
)
|
|
$
|
(16,677
|
)
|
Note 11 – Credit Facilities
Debt at
December 31, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
Short-term debt
|
|
|
|
|
|
Foreign
|
|
$
|
553
|
|
|
$
|
742
|
|
|
Long-term debt
|
|
|
|
|
|
Revolving facilities
|
|
267,224
|
|
|
90,613
|
|
|
Other debt - domestic
|
|
6,493
|
|
|
6,936
|
|
|
Foreign loan facilities
|
|
1,019
|
|
|
1,277
|
|
|
Subtotal
|
|
274,736
|
|
|
98,826
|
|
|
Less portion due within one year
|
|
2,937
|
|
|
1,720
|
|
|
Total long-term debt
|
|
271,799
|
|
|
97,106
|
|
|
Total debt
|
|
$
|
275,289
|
|
|
$
|
99,568
|
|
Long-term debt at
December 31, 2016
matures in each of the next five years as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Total
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Long-term debt (a)
|
$
|
274,736
|
|
|
$
|
2,937
|
|
|
$
|
357
|
|
|
$
|
267,582
|
|
|
$
|
3,860
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
(a)
|
Assumes repayment of the Company's senior secured revolving credit facility on its contractual maturity date.
|
Senior Credit Facilities
On August 29, 2014, H&H Group entered into an amended and restated senior credit agreement ("Senior Credit Facility"), which provided for an up to
$365.0 million
senior secured revolving credit facility, including a
$20.0 million
sublimit for the issuance of letters of credit and a
$20.0 million
sublimit for the issuance of swing loans. On January 22, 2015, H&H Group, and certain subsidiaries of H&H Group, entered into an amendment to its Senior Credit Facility to, among other things, provide for the consent of the administrative agent and the lenders, subject to compliance with certain conditions, for the tender offer by H&H Acquisition Sub for the shares of JPS, including the use of up to
$71.0 million
under the Senior Credit Facility to purchase such shares, and certain transactions related thereto. In addition, H&H Acquisition Sub and HNH Acquisition LLC became guarantors under the Senior Credit Facility pursuant to the amendment. See further discussion regarding the JPS transaction in Note 4 - "Acquisitions." On March 23, 2016, H&H Group entered into an amendment to its Senior Credit Facility to increase the size of
the credit facility by
$35.0 million
to an aggregate amount of
$400.0 million
. On December 21, 2016, H&H Group, and certain subsidiaries of H&H Group, entered into an additional amendment to its Senior Credit Facility to, among other things, allow Lucas Milhaupt, Inc., a wholly-owned subsidiary of H&H Group, to enter into a precious metal consignment arrangement with Bank of Nova Scotia, as consignor, and permit the loan parties under the Senior Credit Facility to enter into certain additional factoring arrangements on the same conditions upon which such arrangements are already permitted under the Senior Credit Facility. On February 24, 2017, H&H Group entered into an amendment to its Senior Credit Facility, which permits H&H Group to fund the minimum annual pension requirements of the WHX Pension Plan II.
Borrowings under the Senior Credit Facility bear interest, at H&H Group's option, at either
LIBOR
or the
Base Rate
, as defined, plus an applicable margin as set forth in the loan agreement (
2.50%
and
1.50%
, respectively, for LIBOR and Base Rate borrowings at
December 31, 2016
), and the revolving facility provides for a commitment fee to be paid on unused borrowings. The weighted-average interest rate on the revolving facility was
3.24%
at
December 31, 2016
. At
December 31, 2016
, letters of credit totaling
$6.7 million
had been issued under the Senior Credit Facility, including
$3.2 million
of the letters of credit guaranteeing various insurance activities, and
$3.5 million
for environmental and other matters. H&H Group's availability under the Senior Credit Facility was
$70.1 million
as of
December 31, 2016
.
The Senior Credit Facility will expire, with all amounts outstanding due and payable, on August 29, 2019. The Senior Credit Facility is guaranteed by substantially all existing and thereafter acquired or created domestic wholly-owned subsidiaries and certain foreign wholly-owned subsidiaries of H&H Group, and obligations under the Senior Credit Facility are collateralized by first priority security interests in and liens upon all present and future assets of H&H Group and these subsidiaries. The Senior Credit Facility restricts H&H Group's ability to transfer cash or other assets to HNH, subject to certain exceptions, including required pension payments to the WHX Corporation Pension Plan ("WHX Pension Plan") and the WHX Pension Plan II. The Senior Credit Facility is subject to certain mandatory prepayment provisions and restrictive and financial covenants, which include a maximum ratio limit on Total Leverage and a minimum ratio limit on Fixed Charge Coverage, as defined, as well as a minimum liquidity level. The Company was in compliance with all debt covenants at
December 31, 2016
.
The increase in the amount outstanding under the Senior Credit Facility during the year ended
December 31, 2016
was principally attributable to the SLI and EME acquisitions discussed in Note 4 - "Acquisitions."
The Company's prior senior credit facility, as amended, consisted of a revolving credit facility in an aggregate principal amount not to exceed
$110.0 million
and a senior term loan. On August 5, 2014, this agreement was further amended to, among other things, permit a new
$40.0 million
term loan and permit H&H Group to make a distribution to HNH of up to
$80.0 million
. The revolving facility provided for a commitment fee to be paid on unused borrowings. Borrowings under the prior senior credit facility bore interest, at H&H Group's option, at a rate based on
LIBOR
or the
Base Rate
, as defined, plus an applicable margin as set forth in the loan agreement. On August 29, 2014, all amounts outstanding under this agreement were repaid.
Interest Rate Swap Agreements
H&H Group entered into an interest rate swap agreement in February 2013 to reduce its exposure to interest rate fluctuations. Under the interest rate swap, the Company received one-month LIBOR in exchange for a fixed interest rate of
0.569%
over the life of the agreement on an initial
$56.4 million
notional amount of debt, with the notional amount decreasing by
$1.1 million
,
$1.8 million
and
$2.2 million
per quarter in 2013, 2014 and 2015, respectively. H&H Group entered into a second interest rate swap agreement in June 2013, also to reduce its exposure to interest rate fluctuations. Under the interest rate swap, the Company received one-month LIBOR in exchange for a fixed interest rate of
0.598%
over the life of the agreement on an initial
$5.0 million
notional amount of debt, with the notional amount decreasing by
$0.1 million
,
$0.2 million
and
$0.2 million
per quarter in 2013, 2014 and 2015, respectively. Both agreements expired in
February 2016
.
Master Lease Agreement
During the
year ended
December 31, 2016
, the Company entered into a master lease agreement with TD Equipment Finance, Inc. ("TD Equipment"), which establishes the general terms and conditions for a
$10.0 million
credit facility under which the Company may lease equipment and other property from TD Equipment pursuant to the terms of individual lease schedules. As of
December 31, 2016
,
no
leases had been entered into under the master lease agreement.
WHX CS Loan
On
June 3, 2014
, WHX CS Corp., a wholly-owned subsidiary of the Company, entered into a credit agreement ("WHX CS Loan"), which provided for a term loan facility with borrowing availability of up to a maximum aggregate principal amount
of
$15.0 million
. The amounts outstanding under the WHX CS Loan bore interest at
LIBOR
plus
1.25%
. On
August 29, 2014
, the WHX CS Loan was terminated and all outstanding amounts thereunder were repaid.
Other Debt
A subsidiary of H&H has
two
mortgage agreements, each collateralized by real property. On October 5, 2015, this subsidiary refinanced one of its outstanding mortgage notes, which had an original maturity in October 2015. Under the terms of the revised agreement, the subsidiary paid down
$0.7 million
of the original outstanding principal balance. The remaining outstanding principal balance of
$5.4 million
was refinanced and will be repaid in equal monthly installments totaling
$0.4 million
per year over the next
5
years, with a final principal payment of
$3.6 million
due at maturity of the loan in October 2020. The mortgage bears interest at
LIBOR
plus a margin of
2.00%
, or
2.65%
at
December 31, 2016
. The mortgage on the second facility was approximately
$1.5 million
and
$1.6 million
at
December 31, 2016
and
2015
, respectively. This mortgage bears interest at
LIBOR
plus a margin of
2.70%
, or
3.46%
at
December 31, 2016
, and matures in
2017
.
Note 12 – Derivative Instruments
Precious Metal and Commodity Inventories
As of
December 31, 2016
, the Company had the following outstanding forward contracts with settlement dates through January 2017. There were no futures contracts outstanding at
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Value
|
|
Commodity
|
|
Amount
|
|
($ in millions)
|
|
Silver
|
|
607,684
|
|
|
ounces
|
|
$
|
9.7
|
|
|
Gold
|
|
400
|
|
|
ounces
|
|
$
|
0.5
|
|
|
Copper
|
|
275,000
|
|
|
pounds
|
|
$
|
0.6
|
|
|
Tin
|
|
40
|
|
|
metric tons
|
|
$
|
0.8
|
|
Fair Value Hedges.
Of the total forward contracts outstanding,
452,684
ounces of silver and substantially all the copper contracts are designated and accounted for as fair value hedges.
Economic Hedges.
The remaining outstanding forward contracts for silver, and all the contracts for gold and tin, are accounted for as economic hedges.
The forward contracts were made with a counterparty rated A+ by Standard & Poors. Accordingly, the Company has determined that there is minimal credit risk of default. The Company estimates the fair value of its derivative contracts through the use of market quotes or with the assistance of brokers when market information is not available. The Company maintains collateral on account with the third-party broker. Such collateral consists of both cash that varies in amount depending on the value of open contracts, as well as ounces of precious metal held on account by the broker.
Debt Agreements
H&H Group entered into
two
interest rate swap agreements to reduce its exposure to interest rate fluctuations. Both agreements expired in February 2016. See Note 11 - "Credit Facilities" for further discussion of the terms of these arrangements.
Effect of Derivative Instruments in the Consolidated Statements of Operations - Income/(Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Year Ended
|
|
|
|
|
|
December 31,
|
|
Derivative
|
|
Statement of Operations Line
|
|
2016
|
|
2015
|
|
2014
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
(1,520
|
)
|
|
$
|
1,467
|
|
|
$
|
2,655
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
(1,520
|
)
|
|
1,467
|
|
|
2,655
|
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
(257
|
)
|
|
246
|
|
|
131
|
|
|
Commodity contracts
|
|
Realized and unrealized gain on derivatives
|
|
148
|
|
|
588
|
|
|
1,307
|
|
|
Interest rate swap agreements
|
|
Interest expense
|
|
—
|
|
|
(77
|
)
|
|
(156
|
)
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
(109
|
)
|
|
757
|
|
|
1,282
|
|
|
|
|
Total derivatives
|
|
$
|
(1,629
|
)
|
|
$
|
2,224
|
|
|
$
|
3,937
|
|
Fair Value of Derivative Instruments on the Consolidated Balance Sheets - Asset/(Liability)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
December 31,
|
|
December 31,
|
|
Derivative
|
|
Balance Sheet Location
|
|
2016
|
|
2015
|
|
Commodity contracts
|
|
(Accrued liabilities)/Prepaid and other current assets
|
|
$
|
(111
|
)
|
|
$
|
197
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
(111
|
)
|
|
197
|
|
|
Commodity contracts
|
|
Prepaid and other current assets
|
|
3
|
|
|
18
|
|
|
Interest rate swap agreements
|
|
Other non-current liabilities
|
|
—
|
|
|
(30
|
)
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
3
|
|
|
(12
|
)
|
|
|
|
Total derivatives
|
|
$
|
(108
|
)
|
|
$
|
185
|
|
Note 13 – Pension and Other Post-Retirement Benefits
The Company maintains several qualified and non-qualified pension and other post-retirement benefit plans. The Company's significant pension, post-retirement health care benefit and defined contribution plans are discussed below. The Company's other pension and post-retirement benefit plans are not significant individually or in the aggregate.
Qualified Plans
HNH sponsors a defined benefit pension plan, the WHX Pension Plan, covering many of H&H's employees and certain employees of H&H's former subsidiary, Wheeling-Pittsburgh Corporation ("WPC"). The WHX Pension Plan was established in May 1998 as a result of the merger of the former H&H plans, which covered substantially all H&H employees, and the WPC plan. The WPC plan, covering most United Steel Workers of America-represented employees of WPC, was created pursuant to a collective bargaining agreement ratified on August 12, 1997. Prior to that date, benefits were provided through a defined contribution plan, the Wheeling-Pittsburgh Steel Corporation Retirement Security Plan ("RSP Plan"). The assets of the RSP Plan were merged into the WPC plan as of December 1, 1997. Under the terms of the WHX Pension Plan, the benefit formula and provisions for the WPC and H&H participants continued as they were designed under each of the respective plans prior to the merger.
The qualified pension benefits under the WHX Pension Plan were frozen as of December 31, 2005 and April 30, 2006 for hourly and salaried non-bargaining participants, respectively, with the exception of a single operating unit. In 2011, the benefits were frozen for the remainder of the participants. WPC employees ceased to be active participants in the WHX Pension Plan effective July 31, 2003, and as a result, such employees no longer accrue benefits under the WHX Pension Plan.
JPS sponsors a defined benefit pension plan ("JPS Pension Plan"), which was assumed in connection with the JPS acquisition. Under the JPS Pension Plan, substantially all JPS employees who were employed prior to April 1, 2005 have benefits. The JPS Pension Plan was frozen effective December 31, 2005. Employees no longer earned additional benefits after that date. Benefits earned prior to December 31, 2005 will be paid out to eligible participants following retirement. The JPS Pension Plan was "unfrozen" for employees who were active employees on or after June 1, 2012. This new benefit, calculated based on years of service and a capped average salary, will be added to the amount of any pre-2005 benefit. The JPS Pension Plan was again frozen for all future accruals effective December 31, 2015, although unvested participants may still vest in accrued but unvested benefits.
Bairnco had several pension plans, which covered substantially all its employees. In 2006, Bairnco froze the Bairnco Corporation Retirement Plan and initiated employer contributions to its 401(k) plan. On June 2, 2008,
two
Bairnco plans (Salaried and Kasco) were merged into the WHX Pension Plan.
Some of the Company's foreign subsidiaries provide retirement benefits for their employees through defined contribution plans or otherwise provide retirement benefits for employees consistent with local practices. The foreign plans are not significant in the aggregate and, therefore, are not included in the following disclosures.
Pension benefits under the WHX Pension Plan are based on years of service and the amount of compensation earned during the participants' employment. However, as noted above, the qualified pension benefits have been frozen for all participants.
Pension benefits for the WPC bargained participants include both defined benefit and defined contribution features, since the plan includes the account balances from the RSP Plan. The gross benefit, before offsets, is calculated based on years of service and the benefit multiplier under the plan. The net defined benefit pension plan benefit is the gross amount offset for the benefits payable from the RSP Plan and benefits payable by the Pension Benefit Guaranty Corporation from previously terminated plans. Individual employee accounts established under the RSP Plan are maintained until retirement. Upon retirement, participants who are eligible for the WHX Pension Plan and maintain RSP Plan account balances will normally receive benefits from the WHX Pension Plan. When these participants become eligible for benefits under the WHX Pension Plan, their vested balances in the RSP Plan become assets of the WHX Pension Plan. Although these RSP Plan assets cannot be used to fund any of the net benefit that is the basis for determining the defined benefit plan's net benefit obligation at the end of the year, the Company has included the amount of the RSP Plan accounts of
$13.1 million
and
$13.3 million
on a gross-basis as both assets and liabilities of the plan as of
December 31, 2016
and
December 31, 2015
, respectively.
On December 30, 2016, the WHX Pension Plan was split into
two
plans by spinning off certain plan participants with smaller benefit obligations (which in the aggregate were equal to approximately
3.0%
of the assets of the WHX Pension Plan), and assets equal thereto, to a new separate plan, the WHX Pension Plan II. The benefits of participants under the WHX Pension Plan II are equal to their accrued benefits under the benefit formula that was applicable to each participant under the WHX Pension Plan at the time of the plan spin-off. The total benefit liabilities of the two plans after the spin-off were equal to the benefit liabilities of the WHX Pension Plan immediately before the spin-off, and under the applicable spin-off rules, the WHX Pension Plan II is considered fully funded.
Certain current and retired employees of H&H are covered by post-retirement medical benefit plans, which provide benefits for medical expenses and prescription drugs. Contributions from a majority of the participants are required, and for those retirees and spouses, the Company's payments are capped.
Actuarial losses for the WHX Pension Plan are being amortized over the average future lifetime of the participants, which is expected to be approximately
20
years. The Company believes that use of the future lifetime of the participants is appropriate because the WHX Pension Plan is completely inactive.
The components of pension expense and other post-retirement benefit (income) expense for the Company's benefit plans included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post-Retirement Benefits
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
|
18,507
|
|
|
21,286
|
|
|
20,518
|
|
|
35
|
|
|
46
|
|
|
49
|
|
|
Expected return on plan assets
|
|
(23,542
|
)
|
|
(25,046
|
)
|
|
(24,157
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(103
|
)
|
|
(103
|
)
|
|
(103
|
)
|
|
Amortization of actuarial loss
|
|
13,174
|
|
|
11,186
|
|
|
7,378
|
|
|
47
|
|
|
37
|
|
|
34
|
|
|
Total
|
|
$
|
8,139
|
|
|
$
|
7,480
|
|
|
$
|
3,739
|
|
|
$
|
(21
|
)
|
|
$
|
(20
|
)
|
|
$
|
(20
|
)
|
Actuarial assumptions used to develop the components of pension expense and other post-retirement benefit (income) expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post-Retirement Benefits
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Discount rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WHX Pension Plan
|
|
4.01
|
%
|
|
3.70
|
%
|
|
4.40
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
JPS Pension Plan
|
|
3.93
|
%
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Other post-retirement benefit plans
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
3.89
|
%
|
|
3.55
|
%
|
|
4.10
|
%
|
|
Expected return on assets
|
|
7.00
|
%
|
|
7.00
|
%
|
|
7.00
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Rate of compensation increase
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Health care cost trend rate - initial
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
6.50
|
%
|
|
6.75
|
%
|
|
7.00
|
%
|
|
Health care cost trend rate - ultimate
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
Year ultimate reached
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
2022
|
|
|
2022
|
|
|
2022
|
|
Pension expense in 2016 was favorably impacted by a change in the manner by which the interest cost component of net periodic pension expense was determined; specifically, by utilizing the "spot rate approach," which provides a more precise measurement of interest cost. The impact of this change was to reduce annual pension expense in 2016 by approximately
$4.8 million
.
The measurement date for plan obligations is December 31. The discount rate is the rate at which the plans' obligations could be effectively settled and is based on high quality bond yields as of the measurement date.
Summarized below is a reconciliation of the funded status for the Company's qualified defined benefit pension plans and other post-retirement benefit plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post-Retirement Benefits
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
613,394
|
|
|
$
|
531,824
|
|
|
$
|
1,213
|
|
|
$
|
1,356
|
|
|
JPS Pension Plan acquisition
|
|
—
|
|
|
117,688
|
|
|
—
|
|
|
—
|
|
|
Service cost
|
|
—
|
|
|
54
|
|
|
—
|
|
|
—
|
|
|
Interest cost
|
|
18,507
|
|
|
21,286
|
|
|
35
|
|
|
46
|
|
|
Actuarial loss (gain)
|
|
7,970
|
|
|
(19,814
|
)
|
|
(3
|
)
|
|
159
|
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
Benefits paid
|
|
(42,466
|
)
|
|
(37,644
|
)
|
|
(95
|
)
|
|
(349
|
)
|
|
Benefit obligation at December 31
|
|
$
|
597,405
|
|
|
$
|
613,394
|
|
|
$
|
1,152
|
|
|
$
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$
|
347,921
|
|
|
$
|
323,493
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
JPS Pension Plan acquisition
|
|
—
|
|
|
87,321
|
|
|
—
|
|
|
—
|
|
|
Actual returns on plan assets
|
|
9,903
|
|
|
(43,273
|
)
|
|
—
|
|
|
—
|
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
Benefits paid
|
|
(42,466
|
)
|
|
(37,644
|
)
|
|
(95
|
)
|
|
(349
|
)
|
|
Company contributions
|
|
16,514
|
|
|
18,024
|
|
|
93
|
|
|
348
|
|
|
Fair value of plan assets at December 31
|
|
331,872
|
|
|
347,921
|
|
|
—
|
|
|
—
|
|
|
Funded status
|
|
$
|
(265,533
|
)
|
|
$
|
(265,473
|
)
|
|
$
|
(1,152
|
)
|
|
$
|
(1,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation ("ABO") for qualified defined benefit plans:
|
|
|
|
|
|
|
|
|
|
ABO at January 1
|
|
$
|
613,394
|
|
|
$
|
531,824
|
|
|
$
|
1,213
|
|
|
$
|
1,356
|
|
|
ABO at December 31
|
|
$
|
597,405
|
|
|
$
|
613,394
|
|
|
$
|
1,152
|
|
|
$
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized on the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(107
|
)
|
|
$
|
(119
|
)
|
|
Non-current liability
|
|
(265,533
|
)
|
|
(265,473
|
)
|
|
(1,045
|
)
|
|
(1,094
|
)
|
|
Total
|
|
$
|
(265,533
|
)
|
|
$
|
(265,473
|
)
|
|
$
|
(1,152
|
)
|
|
$
|
(1,213
|
)
|
The weighted-average assumptions used in the valuations at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post-Retirement Benefits
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Discount rates:
|
|
|
|
|
|
|
|
|
|
WHX Pension Plan
|
|
3.84
|
%
|
|
4.01
|
%
|
|
N/A
|
|
|
N/A
|
|
|
WHX Pension Plan II
|
|
3.64
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
JPS Pension Plan
|
|
3.81
|
%
|
|
3.93
|
%
|
|
N/A
|
|
|
N/A
|
|
|
Other post-retirement benefit plans
|
|
N/A
|
|
|
N/A
|
|
|
3.74
|
%
|
|
3.89
|
%
|
|
Rate of compensation increase
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Health care cost trend rate - initial
|
|
N/A
|
|
|
N/A
|
|
|
6.25
|
%
|
|
6.50
|
%
|
|
Health care cost trend rate - ultimate
|
|
N/A
|
|
|
N/A
|
|
|
5.00
|
%
|
|
5.00
|
%
|
|
Year ultimate reached
|
|
N/A
|
|
|
N/A
|
|
|
2022
|
|
|
2022
|
|
The effect of a
1%
increase (decrease) in health care cost trend rates on benefit expense and on other post-retirement benefit obligations is not significant.
Pretax amounts included in accumulated other comprehensive loss (income) at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post-Retirement Benefits
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Prior service credit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,196
|
)
|
|
$
|
(1,299
|
)
|
|
Net actuarial loss
|
|
330,887
|
|
|
322,451
|
|
|
770
|
|
|
820
|
|
|
Accumulated other comprehensive loss (income)
|
|
$
|
330,887
|
|
|
$
|
322,451
|
|
|
$
|
(426
|
)
|
|
$
|
(479
|
)
|
The pretax amount of actuarial losses and prior service credit included in accumulated other comprehensive loss (income) at
December 31, 2016
that is expected to be recognized in net periodic benefit cost (income) in 2017 is
$13.7 million
and
$0.0 million
, respectively, for the defined benefit pension plans, and
$0.0 million
and
$(0.1) million
, respectively, for the other post-retirement benefit plan.
Other changes in plan assets and benefit obligations recognized in comprehensive (loss) income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post-Retirement Benefits
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Current year actuarial (loss) gain
|
|
$
|
(21,517
|
)
|
|
$
|
(48,505
|
)
|
|
$
|
(90,106
|
)
|
|
$
|
3
|
|
|
$
|
(159
|
)
|
|
$
|
(293
|
)
|
|
Amortization of actuarial loss
|
|
13,174
|
|
|
11,186
|
|
|
7,378
|
|
|
47
|
|
|
37
|
|
|
34
|
|
|
Amortization of prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(103
|
)
|
|
(103
|
)
|
|
(103
|
)
|
|
Total recognized in comprehensive (loss) income
|
|
$
|
(8,343
|
)
|
|
$
|
(37,319
|
)
|
|
$
|
(82,728
|
)
|
|
$
|
(53
|
)
|
|
$
|
(225
|
)
|
|
$
|
(362
|
)
|
The actuarial loss in
2016
occurred principally because the investment returns on the assets of the WHX Pension Plan and the JPS Pension Plan were lower than actuarial assumptions.
Benefit obligations were in excess of plan assets for each of the pension plans and the other post-retirement benefit plan at both
December 31, 2016
and
2015
. Additional information for the plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post-Retirement Benefits
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Projected benefit obligation
|
|
$
|
597,405
|
|
|
$
|
613,394
|
|
|
$
|
1,152
|
|
|
$
|
1,213
|
|
|
Accumulated benefit obligation
|
|
$
|
597,405
|
|
|
$
|
613,394
|
|
|
$
|
1,152
|
|
|
$
|
1,213
|
|
|
Fair value of plan assets
|
|
$
|
331,872
|
|
|
$
|
347,921
|
|
|
$
|
—
|
|
|
$
|
—
|
|
In determining the expected long-term rate of return on plan assets, the Company evaluated input from various investment professionals. In addition, the Company considered its historical compound returns, as well as the Company's forward-looking expectations. The Company determines its actuarial assumptions for its pension and other post-retirement benefit plans on December 31 of each year to calculate liability information as of that date and pension and other post-retirement benefit expense or income for the following year. The discount rate assumption is derived from the rate of return on high-quality bonds as of December 31 of each year.
The Company's investment policy is to maximize the total rate of return with a view to long-term funding objectives of the pension plans to ensure that funds are available to meet benefit obligations when due. Pension plan assets are diversified to the extent necessary to minimize risk and to achieve an optimal balance between risk and return. There are no target allocations. The pension plans' assets are diversified as to type of assets, investment strategies employed and number of investment managers used. Investments may include equities, fixed income, cash equivalents, convertible securities and private investment funds. Derivatives may be used as part of the investment strategy. The Company may direct the transfer of assets between investment managers in order to rebalance the portfolio in accordance with asset allocation guidelines established by the Company.
The fair value of pension investments is defined by reference to one of three categories (Level 1, Level 2 or Level 3) based on the reliability of inputs, as such terms are defined in Note 18 - "Fair Value Measurements."
The pension plan assets at
December 31, 2016
and
2015
, by asset category, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016:
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
Asset Class
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
U.S. mid-cap blend
|
|
$
|
22,560
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,560
|
|
|
U.S. large-cap
|
|
34,256
|
|
|
—
|
|
|
—
|
|
|
34,256
|
|
|
Convertible promissory notes
|
|
—
|
|
|
—
|
|
|
3,500
|
|
|
3,500
|
|
|
Stock warrants
|
|
—
|
|
|
—
|
|
|
875
|
|
|
875
|
|
|
Subtotal
|
|
$
|
56,816
|
|
|
$
|
—
|
|
|
$
|
4,375
|
|
|
61,191
|
|
|
Pension assets measured at net asset value (1)
|
|
|
|
|
|
|
|
|
|
Hedge funds: (2)
|
|
|
|
|
|
|
|
|
|
Equity long/short
|
|
|
|
|
|
|
|
6,832
|
|
|
Event driven
|
|
|
|
|
|
|
|
47,771
|
|
|
Value driven
|
|
|
|
|
|
|
|
17,648
|
|
|
Fund of funds - long term capital growth (3)
|
|
|
|
|
|
|
|
8,325
|
|
|
Common trust funds: (2)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
78
|
|
|
Insurance separate account (4)
|
|
|
|
|
|
|
|
14,391
|
|
|
Total pension assets measured at net asset value
|
|
|
|
|
|
|
|
95,045
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
175,435
|
|
|
Net receivables
|
|
|
|
|
|
|
|
201
|
|
|
Total pension assets
|
|
|
|
|
|
|
|
$
|
331,872
|
|
|
Fair Value Measurements as of December 31, 2015:
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
Asset Class
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Fixed income security:
|
|
|
|
|
|
|
|
|
|
Credit contract
|
|
$
|
—
|
|
|
$
|
3,100
|
|
|
$
|
—
|
|
|
$
|
3,100
|
|
|
Subtotal
|
|
$
|
—
|
|
|
$
|
3,100
|
|
|
$
|
—
|
|
|
3,100
|
|
|
Pension assets measured at net asset value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity long/short
|
|
|
|
|
|
|
|
|
|
2,706
|
|
|
Event driven
|
|
|
|
|
|
|
|
|
45,660
|
|
|
Fund of funds - international large cap growth (5)
|
|
|
|
|
|
|
|
4,531
|
|
|
Common trust funds: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap equity
|
|
|
|
|
|
|
|
35,081
|
|
|
Mid-cap equity
|
|
|
|
|
|
|
|
|
|
9,040
|
|
|
Small-cap equity
|
|
|
|
|
|
|
|
5,158
|
|
|
International equity
|
|
|
|
|
|
|
|
4,664
|
|
|
Intermediate bond fund
|
|
|
|
|
|
|
|
6,492
|
|
|
Other
|
|
|
|
|
|
|
|
662
|
|
|
Insurance separate account (4)
|
|
|
|
|
|
|
|
15,013
|
|
|
Total pension assets measured at net asset value
|
|
|
|
|
|
|
|
129,007
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
166,503
|
|
|
Net receivables
|
|
|
|
|
|
|
|
49,311
|
|
|
Total pension assets
|
|
|
|
|
|
|
|
$
|
347,921
|
|
|
|
|
|
(1)
|
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
|
|
|
|
|
(2)
|
Hedge funds and common trust funds are comprised of shares or units in commingled funds that may not be publicly traded. The underlying assets in these funds are primarily publicly traded equity securities and fixed income securities.
|
|
|
|
|
(3)
|
The limited partnership operates as a fund of funds. The underlying assets in this fund are generally expected to be illiquid. The limited partnership's investment strategy is to seek above-average rates of return and long-term capital growth by investing in a broad range of investments, including, but not limited to, global distressed corporate securities, activist equities, value equities, post-reorganizational equities, municipal bonds, high yield bonds, leveraged loans, unsecured debt, collateralized debt obligations, mortgage-backed securities, commercial mortgage-backed securities, direct lending and sovereign debt.
|
|
|
|
|
(4)
|
The JPS Pension Plan holds a deposit administration group annuity contract with an immediate participation guarantee from Transamerica Life Insurance Company ("TFLIC"). The TFLIC contract unconditionally guarantees benefits to certain salaried JPS Pension Plan participants earned through June 30, 1984 in the plan of a predecessor employer. The assets deposited under the contract are held in a separate custodial account ("TFLIC Assets"). If the TFLIC Assets decrease to the level of the trigger point (as defined in the contract), which represents the guaranteed benefit obligation representing the accumulated plan benefits as of June 30, 1984, TFLIC has the right to cause annuities to be purchased for the individuals covered by these contract agreements. Since the TFLIC Assets have remained in excess of the trigger point, no annuities have been purchased for the individuals covered by these contract arrangements.
|
|
|
|
|
(5)
|
Fund of funds consist of fund-of-fund LLC or commingled fund structures. The underlying assets in these funds are primarily publicly traded equity securities, fixed income securities and commodity-related securities. The LLCs are valued based on net asset values calculated by the fund and are not publicly available.
|
There were no assets for which fair value was determined using significant unobservable inputs (Level 3) during 2015. During 2016 and 2014, changes in Level 3 assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Year Ended December 31, 2016
|
|
Convertible Promissory Notes
|
|
Stock Warrants
|
|
Total
|
|
Beginning balance as of January 1, 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Gains or losses included in changes in net assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchases, issuances, sales and settlements
|
|
|
|
|
|
|
|
Purchases
|
|
3,500
|
|
|
875
|
|
|
4,375
|
|
|
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlements
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Ending balance as of December 31, 2016
|
|
$
|
3,500
|
|
|
$
|
875
|
|
|
$
|
4,375
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Year Ended December 31, 2014
|
|
Corporate Bonds and Loans
|
|
Beginning balance as of January 1, 2014
|
|
$
|
500
|
|
|
Transfers into Level 3
|
|
—
|
|
|
Transfers out of Level 3
|
|
—
|
|
|
Gains or losses included in changes in net assets
|
|
73
|
|
|
Purchases, issuances, sales and settlements
|
|
|
|
Purchases
|
|
—
|
|
|
Issuances
|
|
—
|
|
|
Sales
|
|
(573
|
)
|
|
Settlements
|
|
—
|
|
|
Ending balance as of December 31, 2014
|
|
$
|
—
|
|
The Company's policy is to recognize transfers in and transfers out of Level 3 as of the date of the event or change in circumstances that caused the transfer.
The following tables present the category, fair value, unfunded commitments, redemption frequency and redemption notice period for those assets whose fair value was estimated using the net asset value per share (or its equivalents), as well as plan assets which have redemption notice periods, as of
December 31, 2016
and
December 31, 2015
(in thousands):
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class Name
|
|
Description
|
|
Fair Value December 31, 2016
|
|
Unfunded Commitments
|
|
Redemption Frequency
|
|
Redemption Notice Period
|
|
Hedge funds
|
|
Value driven hedge fund
|
|
$
|
17,648
|
|
|
$
|
—
|
|
|
(1)
|
|
6 months
|
|
Fund of funds
|
|
Long term capital growth
|
|
$
|
8,325
|
|
|
$
|
27,022
|
|
|
(2)
|
|
95 days
|
|
Hedge funds
|
|
Equity long/short hedge funds
|
|
$
|
6,832
|
|
|
$
|
6,250
|
|
|
(3)
|
|
60 days
|
|
Hedge funds
|
|
Event driven hedge funds
|
|
$
|
47,771
|
|
|
$
|
—
|
|
|
Monthly
|
|
90 days
|
|
Common trust funds
|
|
Collective equity investment funds
|
|
$
|
78
|
|
|
$
|
—
|
|
|
Daily
|
|
0-2 days
|
|
Insurance separate account
|
|
Insurance separate account
|
|
$
|
14,391
|
|
|
$
|
—
|
|
|
(4)
|
|
(4)
|
|
Private equity
|
|
Asset-based lending-maritime
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
(5)
|
|
(5)
|
|
Private equity
|
|
Value driven private equity
|
|
$
|
—
|
|
|
$
|
12,500
|
|
|
(6)
|
|
(6)
|
|
|
|
|
(1)
|
5
year staggered lockup period. One-third of the investment on each of December 31, 2020, 2021 and 2022.
|
|
|
|
|
(2)
|
Each capital commitment is subject to a commitment period of
three
years during which capital may be drawn-down, subject to
two
,
one
-year extensions. During the commitment period, no withdrawals are permitted. Once permitted, withdrawals of available liquidity in underlying investment vehicles is permitted quarterly. The fund-of-funds will not invest in any fund or investment vehicle that has an initial lock-up period of more than
five
years. Upon complete redemption, a holdback of up to
10%
is withheld and paid after the fund's financial statement audit.
|
|
|
|
|
(3)
|
Redeemable annually subject to
three
year rolling, staggered lock up period. Upon complete redemption, a holdback of up to
10%
is withheld and paid after the fund's financial statement audit.
|
|
|
|
|
(4)
|
Except for benefit payments to participants and beneficiaries and related expenses, withdrawals are restricted for substantially all of the assets in the account, as defined in the contract. However, a suspension or transfer can be requested with
30
days' notice. When funds are exhausted either by benefit payments, purchase of annuity contracts or transfer, the related contract terminates.
|
|
|
|
|
(5)
|
Entered into an agreement effective December 15, 2016 with a commitment of
$10.0 million
. Capital has not been called as of December 31, 2016. The agreement contains a commitment period of
three
years, subject to an extension of up to
one
additional year. Voluntary withdrawals are not permitted. Complete distributions will be made after
eight
years, subject to an extension of an additional
two
years.
|
|
|
|
|
(6)
|
Entered into an agreement effective September 8, 2016 with a commitment of
$12.5 million
. Capital has not been called as of December 31, 2016. Voluntary withdrawals are not permitted. Complete distributions will be made after
ten years
, subject to an extension of an additional
one
year.
|
In addition to those on the table above, the Company has an additional unfunded commitment at December 31, 2016 totaling
$20.0 million
for a separately managed investment account, which will have a U.S. mid/large-cap equity strategy.
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class Name
|
|
Description
|
|
Fair Value December 31, 2015
|
|
Redemption Frequency
|
|
Redemption Notice Period
|
|
Hedge funds
|
|
Event driven hedge funds
|
|
$
|
45,660
|
|
|
Monthly
|
|
90 days
|
|
Fund of funds
|
|
International large cap growth
|
|
$
|
4,531
|
|
|
(1)
|
|
(1)
|
|
Hedge funds
|
|
Equity long/short hedge funds
|
|
$
|
2,706
|
|
|
(1)
|
|
(1)
|
|
Common trust funds
|
|
Collective equity investment funds
|
|
$
|
61,097
|
|
|
Daily
|
|
0-2 days
|
|
Insurance separate account
|
|
Insurance separate account
|
|
$
|
15,013
|
|
|
(2)
|
|
(2)
|
|
|
|
|
(1)
|
Request for redemption had been submitted as of December 31, 2015. Investment was redeemed in 2016.
|
|
|
|
|
(2)
|
Except for benefit payments to participants and beneficiaries and related expenses, withdrawals are restricted for substantially all of the assets in the account, as defined in the contract. However, a suspension or transfer can be requested with 30 days' notice. When funds are exhausted either by benefit payments, purchase of annuity contracts or transfer, the related contract terminates.
|
Contributions
Employer contributions consist of funds paid from employer assets into a qualified pension trust account. The Company's funding policy is to contribute annually an amount that satisfies the minimum funding standards of the Employee Retirement Income Security Act.
The Company expects to have required minimum pension contributions for 2017, 2018, 2019, 2020, 2021 and for the five years thereafter of
$34.2 million
,
$31.1 million
,
$39.9 million
,
$36.0 million
,
$32.7 million
and
$80.6 million
, respectively. Required future pension contributions are estimated based upon assumptions such as discount rates on future obligations, assumed rates of return on plan assets and legislative changes. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described in the previous sentence, as well as other changes such as any plan termination or other acceleration events.
Benefit Payments
Estimated future benefit payments for the benefit plans over the next ten years are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Other Post-Retirement
|
|
Years
|
|
Benefits
|
|
Benefits
|
|
2017
|
|
$
|
43,910
|
|
|
$
|
107
|
|
|
2018
|
|
43,472
|
|
|
105
|
|
|
2019
|
|
42,987
|
|
|
106
|
|
|
2020
|
|
42,372
|
|
|
89
|
|
|
2021
|
|
41,672
|
|
|
82
|
|
|
2022-2026
|
|
195,366
|
|
|
373
|
|
401(k) Plans
Certain employees participate in a Company sponsored savings plan, which qualifies under Section 401(k) of the Internal Revenue Code. This savings plan allows eligible employees to contribute from
1%
to
75%
of their income on a pretax basis. The Company presently makes a contribution to match
50%
of the first
6%
of the employee's contribution. The charge to expense for the Company's matching contributions amounted to
$2.2 million
,
$1.9 million
and
$2.0 million
in
2016
,
2015
and
2014
, respectively.
Note 14 – Stockholders' Equity
The Company's authorized capital stock is a total of
185,000,000
shares, consisting of
180,000,000
shares of common stock and
5,000,000
shares of preferred stock. Of the authorized shares, no shares of preferred stock have been issued. As of
December 31, 2016
and
2015
,
12,240,735
and
12,208,016
shares of common stock were outstanding, respectively.
Although the Board of Directors of HNH is expressly authorized to fix the designations, preferences and rights, limitations or restrictions of the preferred stock by adoption of a Preferred Stock Designation resolution, the Board of Directors has not yet done so. The common stock of HNH has voting power, is entitled to receive dividends when and if declared by the Board of Directors and is subject to any preferential dividend rights of any then-outstanding preferred stock, and in liquidation, after distribution of the preferential amount, if any, due to preferred stockholders, the common stockholders are entitled to receive all the remaining assets of the corporation.
JPS Acquisition
As discussed in Note 4 - "Acquisitions," the Company issued
1,429,407
shares of common stock during the year ended
December 31, 2015
in connection with the JPS acquisition.
Common Stock Repurchase Programs
On March 24, 2014, the Company's Board of Directors approved the repurchase of up to an aggregate of
$10.0 million
of the Company's common stock. On June 6, 2014, the Board of Directors further approved the repurchase of up to an aggregate of
$3.0 million
of the Company's common stock, which was in addition to the previously approved repurchase of up to an aggregate of
$10.0 million
of common stock. Such repurchases were made from time to time on the open market at prevailing market prices or in negotiated transactions off the market, in compliance with applicable laws and regulations. The Company repurchased
242,383
shares for a total purchase price of approximately
$5.8 million
under the repurchase program, which concluded at the end of 2014.
On April 28, 2016, the Company's Board of Directors approved the repurchase of up to an aggregate of
500,000
shares of the Company's common stock. Any such repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market, in compliance with applicable laws and regulations. The repurchase program is expected to continue unless and until revoked by the Board of Directors. As of
December 31, 2016
, the Company has repurchased
15,019
shares for a total purchase price of approximately
$0.4 million
under the 2016 repurchase program.
Tender Offer
On August 7, 2014, the Company commenced a tender offer to purchase for cash up to
$60.0 million
in value of shares of its common stock. The tender offer expired on September 5, 2014, and a total of
2,099,843
shares were properly tendered and repurchased by the Company at a price of
$26.00
per share, for a total cost of approximately
$54.7 million
, including related fees and expenses.
Accumulated Other Comprehensive Loss
Changes, net of tax, in accumulated other comprehensive loss and its components follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Foreign Currency Translation Adjustments
|
|
Net Pension and Other Benefit Obligations
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
(3,577
|
)
|
|
$
|
(255,815
|
)
|
|
$
|
(259,392
|
)
|
|
Current period loss
|
|
(2,232
|
)
|
|
(5,383
|
)
|
|
(7,615
|
)
|
|
Balance at December 31, 2016
|
|
$
|
(5,809
|
)
|
|
$
|
(261,198
|
)
|
|
$
|
(267,007
|
)
|
Income tax benefits of
$3.0 million
,
$13.8 million
and
$31.9 million
were recorded in accumulated other comprehensive loss for
2016
,
2015
and
2014
, respectively.
Note 15 – Stock-Based Compensation
On May 26, 2016, the Company's stockholders approved the adoption of the Company's 2016 Equity Incentive Award Plan ("2016 Plan"). The 2016 Plan provides equity-based compensation through the grant of cash-based awards, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares,
performance units and other stock-based awards. The 2016 Plan replaces the Company's 2007 Incentive Stock Plan ("2007 Plan"), and no further awards will be granted under the 2007 Plan. The 2016 Plan allows for issuance of up to
1,626,855
shares of common stock. No shares have been issued under the 2016 Plan as of December 31, 2016.
Restricted Stock
Restricted stock grants made to employees are in lieu of a long-term incentive plan component in the Company's bonus plan for those individuals who receive shares of restricted stock. Compensation expense is measured based on the fair value of the stock-based awards on the grant date, as measured by the NASDAQ closing price for the Company's common stock. Compensation expense is recognized in the consolidated statements of operations on a straight-line basis over the requisite service period, which is the vesting period. Restricted stock grants made to employees and service providers vest in approximately equal annual installments over a
three
-year period from the grant date. Restricted stock grants to the Company's non-employee directors vest
one
year from the grant date. The Company allows certain grantees to forego the issuance of shares to meet applicable income tax withholding due as a result of the vesting of restricted stock. Such shares are returned to the unissued shares of the Company's common stock.
Restricted stock activity was as follows for the year end
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees and
|
|
|
|
|
|
(shares)
|
|
Service Providers
|
|
Directors
|
|
Total
|
|
Balance, January 1, 2016
|
|
575,131
|
|
|
825,275
|
|
|
1,400,406
|
|
|
Granted
|
|
60,670
|
|
|
12,272
|
|
|
72,942
|
|
|
Forfeited
|
|
(8,883
|
)
|
|
—
|
|
|
(8,883
|
)
|
|
Reduced for income tax obligations
|
|
(16,320
|
)
|
|
—
|
|
|
(16,320
|
)
|
|
Balance, December 31, 2016
|
|
610,598
|
|
|
837,547
|
|
|
1,448,145
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2016
|
|
533,874
|
|
|
825,275
|
|
|
1,359,149
|
|
|
Non-vested at December 31, 2016
|
|
76,724
|
|
|
12,272
|
|
|
88,996
|
|
The Company recognized compensation expense related to restricted shares of
$1.5 million
,
$3.4 million
and
$5.1 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. Unearned compensation expense related to restricted shares at
December 31, 2016
is
$1.0 million
, which is net of an estimated
5%
forfeiture rate for employees and service providers. This amount will be recognized over the remaining vesting period of the restricted shares.
Stock Options
In July 2007, stock options were granted to certain employees and directors under the 2007 Plan. The 2007 Plan permitted options to be granted up to a maximum contractual term of
10
years. The Company recorded no compensation expense related to its stock options in
2016
,
2015
or
2014
since the options were fully vested, and no options were exercised during those periods. As of December 31, 2015,
13,000
stock options to purchase HNH shares at an exercise price of
$90.00
per share were outstanding under the 2007 Plan.
No
stock options remain outstanding at
December 31, 2016
.
Note 16 – Income Taxes
Income from continuing operations before tax and equity investment for the three years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Domestic
|
|
$
|
8,045
|
|
|
$
|
40,258
|
|
|
$
|
39,154
|
|
|
Foreign
|
|
330
|
|
|
1,262
|
|
|
148
|
|
|
Total income from continuing operations before tax and equity investment
|
|
$
|
8,375
|
|
|
$
|
41,520
|
|
|
$
|
39,302
|
|
The provision for (benefit from) income taxes for the three years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,096
|
|
|
$
|
497
|
|
|
$
|
(413
|
)
|
|
|
|
State
|
|
2,776
|
|
|
2,179
|
|
|
2,164
|
|
|
|
|
Foreign
|
|
1,761
|
|
|
711
|
|
|
877
|
|
|
|
|
Total income taxes, current
|
|
5,633
|
|
|
3,387
|
|
|
2,628
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
8,247
|
|
|
12,993
|
|
|
14,110
|
|
|
|
|
State
|
|
488
|
|
|
1,729
|
|
|
495
|
|
|
|
|
Foreign
|
|
(475
|
)
|
|
(112
|
)
|
|
(225
|
)
|
|
|
|
Total income taxes, deferred
|
|
8,260
|
|
|
14,610
|
|
|
14,380
|
|
|
Total income tax provision
|
|
$
|
13,893
|
|
|
$
|
17,997
|
|
|
$
|
17,008
|
|
Deferred income taxes result from temporary differences in the financial basis and tax basis of assets and liabilities. The amounts shown on the following table represent the tax effect of temporary differences between the Company's consolidated tax return basis of assets and liabilities and the corresponding basis for financial reporting, as well as tax credit and net operating loss carryforwards.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31,
|
|
December 31,
|
|
Deferred Income Tax Sources
|
|
2016
|
|
2015
|
|
Inventories
|
|
$
|
4,140
|
|
|
$
|
330
|
|
|
Environmental costs
|
|
3,042
|
|
|
1,013
|
|
|
Accrued liabilities
|
|
7,012
|
|
|
4,927
|
|
|
Post-retirement and post-employment employee benefits
|
|
1,510
|
|
|
896
|
|
|
Net operating loss carryforwards
|
|
18,428
|
|
|
29,544
|
|
|
Pension liabilities
|
|
96,982
|
|
|
98,556
|
|
|
Impairments of long-lived assets
|
|
3,245
|
|
|
—
|
|
|
Minimum tax credit carryforwards
|
|
3,146
|
|
|
7,356
|
|
|
R&D state credit carryforwards
|
|
1,172
|
|
|
—
|
|
|
Miscellaneous other
|
|
9,137
|
|
|
7,009
|
|
|
Deferred income tax assets before valuation allowance
|
|
147,814
|
|
|
149,631
|
|
|
Valuation allowance
|
|
(5,815
|
)
|
|
(4,267
|
)
|
|
Deferred income tax assets
|
|
141,999
|
|
|
145,364
|
|
|
Property, plant and equipment
|
|
(14,717
|
)
|
|
(15,112
|
)
|
|
Intangible assets
|
|
(31,822
|
)
|
|
(9,847
|
)
|
|
Undistributed foreign earnings
|
|
(181
|
)
|
|
(256
|
)
|
|
Other items, net
|
|
(373
|
)
|
|
—
|
|
|
Deferred income tax liabilities
|
|
(47,093
|
)
|
|
(25,215
|
)
|
|
Net deferred income tax assets
|
|
$
|
94,906
|
|
|
$
|
120,149
|
|
|
|
|
|
|
|
|
Foreign:
|
|
|
|
|
|
Trade receivables
|
|
$
|
18
|
|
|
$
|
—
|
|
|
Inventories
|
|
35
|
|
|
—
|
|
|
Other items, net
|
|
25
|
|
|
—
|
|
|
Net operating loss carryforwards
|
|
2,591
|
|
|
1,340
|
|
|
Valuation allowance
|
|
(2,487
|
)
|
|
(1,340
|
)
|
|
Foreign deferred income tax assets
|
|
182
|
|
|
—
|
|
|
Foreign deferred tax liabilities. principally related to long-lived assets
|
|
(3,008
|
)
|
|
(402
|
)
|
|
Net foreign deferred income tax liabilities
|
|
$
|
(2,826
|
)
|
|
$
|
(402
|
)
|
The Company's
2016
tax provision reflects the utilization of approximately
$26.0 million
of U.S. federal NOLs. The Company's remaining U.S. federal NOLs as of December 31, 2016 total
$37.8 million
and expire between 2020 and 2031. Such amounts were acquired by the Company as a result of the JPS acquisition in 2015. The utilization of the JPS NOLs is subject to certain annual limitations under the ownership change rules of Section 382 of the Internal Revenue Code. Included in deferred income tax assets as of
December 31, 2016
is a
$13.2 million
tax effect of the Company's U.S. federal NOLs, as well as certain state NOLs.
The Company provides for income taxes on the undistributed earnings of non-U.S. corporate subsidiaries, except to the extent that such earnings are permanently invested outside the U.S. As of
December 31, 2016
,
$7.6 million
of accumulated undistributed earnings of non-U.S. corporate subsidiaries were permanently invested. At existing U.S. and state statutory income tax rates, additional taxes of approximately
$2.7 million
would need to be provided if such earnings were remitted.
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Income from continuing operations before tax and equity investment
|
|
$
|
8,375
|
|
|
$
|
41,520
|
|
|
$
|
39,302
|
|
|
Tax provision at statutory rate
|
|
$
|
2,931
|
|
|
$
|
14,532
|
|
|
$
|
13,755
|
|
|
Increase (decrease) in tax due to:
|
|
|
|
|
|
|
|
State income taxes, net of federal effect
|
|
2,607
|
|
|
3,134
|
|
|
1,991
|
|
|
Net increase in valuation allowance
|
|
883
|
|
|
366
|
|
|
487
|
|
|
Decrease in liability for uncertain tax positions
|
|
(319
|
)
|
|
(381
|
)
|
|
(70
|
)
|
|
Foreign tax differential
|
|
277
|
|
|
(209
|
)
|
|
101
|
|
|
Non-deductible goodwill impairment charges
|
|
6,371
|
|
|
—
|
|
|
—
|
|
|
Dividend income and gross ups
|
|
693
|
|
|
—
|
|
|
—
|
|
|
Foreign tax credits
|
|
(964
|
)
|
|
—
|
|
|
—
|
|
|
Other items, net
|
|
1,414
|
|
|
555
|
|
|
744
|
|
|
Tax provision
|
|
$
|
13,893
|
|
|
$
|
17,997
|
|
|
$
|
17,008
|
|
U.S. GAAP provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely than not of being sustained on audit, based on the technical merits of the position. At December 31,
2016
and
2015
, the Company had approximately
$2.6 million
and
$1.8 million
of unrecognized tax benefits recorded, respectively, all of which, net of federal benefit for state taxes, would affect the Company's effective tax rate if recognized. Of this amount, the Company has offset approximately
$0.3 million
and
$0.0 million
against certain related deferred tax assets in the same jurisdiction as of
December 31, 2016
and
December 31, 2015
, respectively. The changes in the amount of unrecognized tax benefits during
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
Beginning balance
|
|
$
|
1,786
|
|
|
$
|
1,274
|
|
|
Additions for tax positions related to current year
|
|
175
|
|
|
787
|
|
|
Additions for tax positions acquired
|
|
1,114
|
|
|
—
|
|
|
Additions due to interest accrued
|
|
148
|
|
|
85
|
|
|
Tax positions of prior years:
|
|
|
|
|
|
Payments
|
|
—
|
|
|
(57
|
)
|
|
Due to lapsed statutes of limitations
|
|
(642
|
)
|
|
(303
|
)
|
|
Ending balance
|
|
$
|
2,581
|
|
|
$
|
1,786
|
|
The Company recognizes interest and penalties related to uncertain tax positions in its income tax provision. At
December 31, 2016
and
2015
, approximately
$0.3 million
and
$0.1 million
of interest related to uncertain tax positions was accrued. No penalties were accrued. It is reasonably possible that the total amount of unrecognized tax benefits will decrease by as much as
$0.6 million
during the next year as a result of the lapse of the applicable statutes of limitations in certain taxing jurisdictions.
The Company is generally no longer subject to federal, state or local income tax examinations by tax authorities for any year prior to 2013, except as noted below. However, NOLs generated in prior years are subject to examination and potential adjustment by the Internal Revenue Service ("IRS") upon their utilization in future years' tax returns.
The Company is not currently under examination by the IRS, but has received a notice of examination for tax year 2014, which has not commenced.
The Company is currently under examination by the State of New York for 2012-2013, which is on-going. The Company has not been notified of any material adjustments to be made as a result of this examination. The Company underwent an examination by the State of New York for 2009 to 2011, which resulted in an assessment of
$0.1 million
paid in January 2016.
Note 17 – Earnings Per Share
The computation of basic earnings per share of common stock is calculated by dividing net (loss) income by the weighted-average number of shares of the Company's common stock outstanding, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands, except per share)
|
|
2016
|
|
2015
|
|
2014
|
|
(Loss) income from continuing operations, net of tax
|
|
$
|
(10,944
|
)
|
|
$
|
16,991
|
|
|
$
|
15,193
|
|
|
Weighted-average number of common shares outstanding
|
|
12,242
|
|
|
11,380
|
|
|
12,334
|
|
|
(Loss) income from continuing operations, net of tax, per share
|
|
$
|
(0.89
|
)
|
|
$
|
1.49
|
|
|
$
|
1.23
|
|
|
Net income from discontinued operations
|
|
$
|
—
|
|
|
$
|
89,372
|
|
|
$
|
9,977
|
|
|
Weighted-average number of common shares outstanding
|
|
12,242
|
|
|
11,380
|
|
|
12,334
|
|
|
Discontinued operations, net of tax, per share
|
|
$
|
—
|
|
|
$
|
7.86
|
|
|
$
|
0.81
|
|
|
Net (loss) income
|
|
$
|
(10,944
|
)
|
|
$
|
106,363
|
|
|
$
|
25,170
|
|
|
Weighted-average number of common shares outstanding
|
|
12,242
|
|
|
11,380
|
|
|
12,334
|
|
|
Net (loss) income per share
|
|
$
|
(0.89
|
)
|
|
$
|
9.35
|
|
|
$
|
2.04
|
|
Diluted earnings per share gives effect to dilutive potential common shares outstanding during the reporting period. The Company had potentially dilutive common share equivalents, in the form of outstanding stock options (see Note 15 - "Stock-Based Compensation"), during the years ended
December 31, 2016
,
2015
and
2014
, although none were dilutive because the exercise price of these equivalents exceeded the market value of the Company's common stock during those periods. During the year ended
December 31, 2016
, all remaining stock options expired unexercised.
Note 18 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date. Fair value measurements are broken down into three levels based on the reliability of inputs as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment ("Level 1").
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures ("Level 2").
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date ("Level 3").
The fair value of the Company's financial instruments, such as cash and cash equivalents, trade and other receivables, and trade payables, approximate carrying value due to the short-term maturities of these assets and liabilities. Carrying cost approximates fair value for the Company's long-term debt which has variable interest rates.
The fair value of the Company's investment in associated company is a Level 1 measurement because the underlying security is listed on a national securities exchange.
The precious metal and commodity inventories associated with the Company's fair value hedges (see Note 12 - "Derivative Instruments") are reported at fair value. Fair values of these inventories are based on quoted market prices on commodity exchanges and are considered Level 1 measurements. The derivative instruments that the Company purchases in connection with its precious metal and commodity inventories, specifically commodity futures and forward contracts, are also valued at fair value. The futures contracts are Level 1 measurements since they are traded on a commodity exchange. The forward contracts are entered into with a counterparty and are considered Level 2 measurements.
The Company's interest rate swap agreements were considered Level 2 measurements as the inputs were observable at commonly quoted intervals. These agreements expired in February 2016.
The following tables summarize the Company's assets and liabilities that are measured at fair value on a recurring basis as of
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability) as of December 31, 2016
|
|
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Investment in associated company
|
|
$
|
12,318
|
|
|
$
|
12,318
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Precious metal and commodity inventories recorded at fair value
|
|
$
|
10,143
|
|
|
$
|
10,143
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commodity contracts on precious metal and commodity inventories
|
|
$
|
(108
|
)
|
|
$
|
—
|
|
|
$
|
(108
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability) as of December 31, 2015
|
|
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Investment in associated company
|
|
$
|
20,923
|
|
|
$
|
20,923
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Precious metal and commodity inventories recorded at fair value
|
|
$
|
10,380
|
|
|
$
|
10,380
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commodity contracts on precious metal and commodity inventories
|
|
$
|
215
|
|
|
$
|
—
|
|
|
$
|
215
|
|
|
$
|
—
|
|
|
Interest rate swap agreements
|
|
$
|
(30
|
)
|
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
—
|
|
The Company's non-financial assets and liabilities measured at fair value on a non-recurring basis include goodwill and other intangible assets, any assets and liabilities acquired in a business combination, or its long-lived assets written down to fair value. To measure fair value for such assets and liabilities, the Company uses techniques including an income approach, a market approach and/or appraisals (Level 3 inputs). The income approach is based on a discounted cash flow analysis and calculates the fair value by estimating the after-tax cash flows attributable to an asset or liability and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the discounted cash flow analysis ("DCF") require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. The discount rates, which are intended to reflect the risks inherent in future cash flow projections, used in the DCF are based on estimates of the weighted-average cost of capital of a market participant. Such estimates are derived from analysis of peer companies and consider the industry weighted-average return on debt and equity from a market participant perspective. A market approach values a business by considering the prices at which shares of capital stock, or related underlying assets, of reasonably comparable companies are trading in the public market or the transaction price at which similar companies have been acquired. If comparable companies are not available, the market approach is not used. In 2016, the Company recorded a goodwill impairment charge of
$24.3 million
in the fourth quarter of 2016, related to the Performance Materials segment. The impairment resulted from a decline in market conditions and lower demand for certain of JPS' product lines.
Long-lived assets consisting of land and buildings used in previously operating businesses and currently unused, which total
$6.3 million
as of
December 31, 2016
, are carried at the lower of cost or fair value less cost to sell and are included in other non-current assets on the consolidated balance sheets. A reduction in the carrying value of such long-lived assets is recorded as an asset impairment charge in the consolidated statements of operations.
Note 19 – Commitments and Contingencies
Operating Lease Commitments
The Company leases certain facilities under non-cancelable operating lease arrangements. Rent expense for the Company in
2016
,
2015
and
2014
was
$5.7 million
,
$4.7 million
and
$4.4 million
, respectively. Future minimum operating lease and rental commitments under non-cancelable operating leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Year
|
|
Amount
|
|
2017
|
|
5,030
|
|
|
2018
|
|
3,052
|
|
|
2019
|
|
2,700
|
|
|
2020
|
|
1,191
|
|
|
2021
|
|
420
|
|
|
Thereafter
|
|
1,710
|
|
|
Total
|
|
$
|
14,103
|
|
Environmental Matters
Certain H&H Group subsidiaries, including its newly acquired subsidiary SLI, have existing and contingent liabilities relating to environmental matters, including costs of remediation, capital expenditures, and potential fines and penalties relating to possible violations of national and state environmental laws. Those subsidiaries have remediation expenses on an ongoing basis, although such costs are continually being readjusted based upon the emergence of new techniques and alternative methods. The Company recorded liabilities of approximately
$9.6 million
related to estimated environmental remediation costs as of December 31, 2016. The Company also has insurance coverage available for several of these matters and believes that excess insurance coverage may be available as well. During the years ended December 31, 2015 and 2014, the Company recorded insurance reimbursements totaling
$2.9 million
and
$3.1 million
, respectively, for previously incurred remediation costs.
No
similar reimbursements were recorded during the year ended December 31, 2016.
Included among these liabilities, certain H&H Group subsidiaries have been identified as potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state statutes at sites and are parties to administrative consent orders in connection with certain properties. Those subsidiaries may be subject to joint and several liabilities imposed by CERCLA on PRPs. Due to the technical and regulatory complexity of remedial activities and the difficulties attendant in identifying PRPs and allocating or determining liability among them, the subsidiaries are unable to reasonably estimate the ultimate cost of compliance with such laws.
Based upon information currently available, the H&H Group subsidiaries do not expect that their respective environmental costs, including the incurrence of additional fines and penalties, if any, will have a material adverse effect on them or that the resolution of these environmental matters will have a material adverse effect on the financial position, results of operations or cash flows of such subsidiaries or the Company, but there can be no such assurances. The Company anticipates that the H&H Group subsidiaries will pay any such amounts out of their respective working capital, although there is no assurance that they will have sufficient funds to pay them. In the event that the H&H Group subsidiaries are unable to fund their liabilities, claims could be made against their respective parent companies, including H&H Group and/or HNH, for payment of such liabilities.
The sites where certain H&H Group subsidiaries have environmental liabilities include the following:
H&H has been working with the Connecticut Department of Energy and Environmental Protection ("CTDEEP") with respect to its obligations under a 1989 consent order that applies to a property in Connecticut that H&H sold in 2003 ("Sold Parcel") and an adjacent parcel ("Adjacent Parcel") that together comprise the site of a former H&H manufacturing facility. The remaining remediation, monitoring and regulatory administrative costs for the Sold Parcel are expected to approximate
$0.1 million
. With respect to the Adjacent Parcel, an ecological risk assessment has been completed and the results, along with proposed clean up goals, were submitted in the second quarter of 2016 to the CTDEEP for their review and approval. The next phase will be a physical investigation of the upland portion of the parcel. A work plan was submitted in the third quarter of 2016 to the CTDEEP for review and approval. The CTDEEP has not completed their review and approval, but the work is expected to start in the first half of 2017 and is estimated to cost
$0.2 million
. Investigation of the wetlands portion is not expected to start until the later part of 2017, pending regulatory approvals and setting goals for the entire parcel. The total remediation costs for the Adjacent Parcel cannot be reasonably estimated at this time. Accordingly, there can be no assurance that the resolution of this matter will not be material to the financial position, results of operations or cash flows of H&H or the Company.
In 1986, Handy & Harman Electronic Materials Corporation ("HHEM"), a subsidiary of H&H, entered into an administrative consent order ("ACO") with the New Jersey Department of Environmental Protection ("NJDEP") with regard to certain property that it purchased in 1984 in New Jersey. The ACO involves investigation and remediation activities to be performed with regard to soil and groundwater contamination. HHEM is actively remediating the property and continuing to investigate effective methods for achieving compliance with the ACO. HHEM anticipates entering into discussions with the NJDEP to address that agency's potential natural resource damage claims, the ultimate scope and cost of which cannot be estimated at this time.
Pursuant to a settlement agreement with the former owner/operator of the site, the responsibility for site investigation and remediation costs, as well as any other costs, as defined in the settlement agreement, related to or arising from environmental contamination on the property (collectively, "Costs") are contractually allocated
75%
to the former owner/operator and
25%
jointly to HHEM and H&H, all after having the first
$1.0 million
paid by the former owner/operator. As of
December 31, 2016
, total investigation and remediation costs of approximately
$5.7 million
and
$1.8 million
have been expended by the former owner/operator and HHEM, respectively, in accordance with the settlement agreement. Additionally, HHEM is currently being reimbursed indirectly through insurance coverage for a portion of the Costs for which HHEM is responsible. HHEM believes that there is additional excess insurance coverage, which it intends to pursue as necessary. HHEM anticipates that there will be additional remediation expenses to be incurred once a final remediation plan is agreed upon. There is no assurance that the former owner/operator or guarantors will continue to timely reimburse HHEM for expenditures and/or will be financially capable of fulfilling their obligations under the settlement agreement and the guaranties. The final Costs cannot be reasonably estimated at this time, and accordingly, there can be no assurance that the resolution of this matter will not be material to the financial position, results of operations or cash flows of HHEM or the Company.
HHEM has been complying with a 1987 ACO from the Massachusetts Department of Environmental Protection ("MADEP") to investigate and remediate the soil and groundwater conditions at a commercial/industrial property in Massachusetts. On June 30, 2010, HHEM filed a Response Action Outcome ("RAO") report to close the site since HHEM's licensed site professional concluded that groundwater monitoring demonstrated that the groundwater conditions have stabilized or continue to improve at the site. In June 2013, the MADEP issued a Notice of Audit Findings and Notice of Noncompliance that the site had not been fully delineated. As a result of meetings and subsequent discussions with the MADEP, HHEM conducted additional work that was completed in 2015. Based on the additional work and regulatory changes, and pursuant to a new ACO issued in October 2016, HHEM issued a revised partial RAO report in December 2016. The partial RAO excluded
three
adjacent properties on which deed restrictions could not be resolved with the property owners, but it does demonstrate that the other portions of the site have met all regulatory requirements for "closure." The next phase is the submission of a "Temporary Solution Statement" in the first half of 2017, which will demonstrate that no active response actions are warranted for the three excluded properties. The cost of the next phase, well decommissioning and any additional costs that could result from the final review of the closure report by the MADEP are not anticipated to be material.
SLI may incur environmental costs in the future as a result of past activities of its former subsidiary, SurfTech, at sites located in Pennsauken, New Jersey ("Pennsauken Site") and in Camden, New Jersey ("Camden Site"). At the Pennsauken Site, SLI reached an agreement with both the U.S. Department of Justice and the Environmental Protection Agency ("EPA") related to its liability and entered into a Consent Decree which governs the agreement. SLI agreed to perform remediation, which is substantially complete, and to pay a fixed sum for the EPA's past costs. The fixed sum is to be paid in installments, and the final payment of
$2.1 million
is due to be made in the second quarter of 2017. In December 2012, the NJDEP served SLI with a settlement demand of
$1.8 million
for alleged past and future costs, as well as alleged natural resource damages related to the Pennsauken Site. Although SLI believes that it has meritorious defenses to any claim for costs and natural resource damages, to avoid the time and expense of litigating the matter, on February 13, 2013, SLI offered to pay the State of New Jersey
$0.3 million
to fully resolve the claim. On June 29, 2015, the State of New Jersey rejected SLI's counteroffer. No subsequent discussions have been had. The final scope and cost of this claim cannot be estimated at this time.
With respect to the Camden Site, SLI has reported soil contamination and a groundwater contamination plume emanating from the site. A Remedial Action Workplan ("RAWP") for soils is being developed and is expected to be submitted to the NJDEP in the first quarter of 2017, by the Licensed Site Remediation Professional ("LSRP") for the site. The RAWP for treatment of unsaturated soils is scheduled to be initiated during the first quarter of 2017 with post-remediation rebound testing and slab removal to be conducted in the fourth quarter of 2017. SLI's environmental consultants also implemented an interim remedial action pilot study to treat on-site contaminated groundwater, which consisted of injecting food-grade product into the groundwater at the down gradient property boundary to create a "bio-barrier." Post-injection groundwater monitoring to assess the bio-barrier's effectiveness was completed. Consistent decreases in target contaminants concentrations in groundwater were observed. In December 2014, a report was submitted to the NJDEP stating sufficient information was obtained from the pilot study to complete the full-scale groundwater remedy design. A full-scale groundwater bioremediation will be implemented during the fourth quarter of 2017 following the soil remediation mentioned above. A reserve of
$1.4 million
has been established for anticipated costs at this site, but there can be no assurance that there will not be potential additional costs associated with the site, which cannot be reasonably estimated at this time. Accordingly, there can be no assurance that the resolution of this matter will not be material to the financial position, results of operations or cash flows of SLI or the Company.
SLI is currently participating in environmental assessment and cleanup at a commercial facility located in Wayne, New Jersey. Contaminated soil and groundwater has undergone remediation with the NJDEP and LSRP oversight, but contaminants of concern ("COCs") in groundwater and surface water, which extend off-site, remain above applicable NJDEP remediation standards. A soil remedial action plan has been developed to remove the new soil source contamination that continues to impact groundwater.
SLI's LSRP completed a supplemental groundwater remedial action, pursuant to a RAWP filed with, and permit approved by, the NJDEP, and a report was filed with the NJDEP in March 2015. SLI's consultants have developed cost estimates for supplemental remedial injections, soil excavation, and additional tests and remedial activities. The LSRP has prepared a Remedial Investigation Report, which was sent to the NJDEP in May 2016. Off-site access to the adjacent property has been negotiated and monitoring wells have been installed. Results of the initial samples detected COCs above NJDEP standards. There can be no assurance that there will not be potential additional costs associated with the site, which cannot be reasonably estimated at this time. Accordingly, there can be no assurance that the resolution of this matter will not be material to the financial position, results of operations or cash flows of SLI or the Company.
Other Litigation
In the ordinary course of our business, we are subject to other periodic lawsuits, investigations, claims and proceedings, including, but not limited to, contractual disputes, employment, environmental, health and safety matters, as well as claims associated with our historical acquisitions and divestitures. There is insurance coverage available for many of the foregoing actions. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations, claims and proceedings asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows, results of operations or liquidity.
Note 20 – Related Party Transactions
As of
December 31, 2016
and 2015, SPLP owned directly or indirectly through its subsidiaries
8,560,592
shares of the Company's common stock, representing approximately
69.9%
and
70.1%
of outstanding shares, respectively. The power to vote and dispose of the securities held by SPLP is controlled by SPH GP. Warren G. Lichtenstein, our Chairman of the Board of Directors, is also the Executive Chairman of SPH GP. Certain other affiliates of SPH GP hold positions with the Company, including Jack L. Howard, as Vice Chairman and Principal Executive Officer, John H. McNamara, Jr., as Director, Douglas B. Woodworth, as Chief Financial Officer, Leonard J. McGill, as Chief Legal Officer, and William T. Fejes, Jr., as President and Chief Executive Officer of H&H Group.
The Company entered into a management services agreement, as amended ("Management Services Agreement"), with SP Corporate Services LLC ("SP Corporate"). SP Corporate is an affiliate of SPLP. Pursuant to the Management Services Agreement, SP Corporate provided the Company with certain executive and corporate services, including, without limitation, legal, tax, accounting, treasury, consulting, auditing, administrative, compliance, environmental health and safety, human resources, marketing, investor relations, and other similar services rendered for the Company or its subsidiaries. The Management Services Agreement provided that the Company pay SP Corporate a fixed annual fee of approximately
$8.9 million
. On May 3, 2015, the Company and SP Corporate entered into an amendment to the Management Services Agreement to add operating group management services to the scope of services to be provided pursuant to the Management Services Agreement and to adjust the fee for services provided under the Management Services Agreement from
$8.9 million
to
$10.6 million
. In connection with the amendment, the Company also entered into a transfer agreement, dated May 3, 2015, with Steel Partners LLC ("Steel Partners"), pursuant to which
three
employees of the Company and its subsidiaries were transferred to Steel Partners, which assumed the cost of compensating those employees and providing applicable benefits.
Effective February 23, 2016, SP Corporate assigned its rights and responsibilities under the Management Services Agreement to its parent company, Steel Services Ltd ("SPH Services"), and the Company and SPH Services entered into an Amended and Restated Management Services Agreement ("Amended and Restated Management Services Agreement") to have SPH Services furnish the services to be provided pursuant to the Management Services Agreement and to make certain other changes.
During the years ended
December 31, 2016
,
2015
and
2014
, the Company reimbursed SPH Services and its affiliates approximately
$1.6 million
,
$0.7 million
and
$0.4 million
, respectively, for business expenses incurred on its behalf pursuant to the management services agreements.
The fees payable under the Amended and Restated Management Services Agreement are subject to review and such adjustments as may be agreed upon by SPH Services and the Company. The Amended and Restated Management Services Agreement had a term through
December 31, 2016
and automatically renews for successive
one-year
periods unless and until terminated in accordance with the terms set forth therein. Upon any such termination, a reserve fund will be established by the Company for the payment of expenses incurred by or due to SPH Services that are attributable to the services provided to the Company.
In connection with its acquisition of JPS, on July 31, 2015, HNH issued to H&H Group
1,429,407
shares of HNH common stock, and H&H Group then exchanged those shares of HNH common stock for all shares of JPS common stock held by SPH Group Holdings, a subsidiary of SPLP. See Note 4 - "Acquisitions" for further discussion.
Mutual Securities, Inc. is the custodian for the majority of the Company's holdings in ModusLink common stock. Jack L. Howard is a registered principal of Mutual Securities, Inc.
Note 21 – Reportable Segments
HNH is a diversified holding company whose strategic business units encompass the following segments: Joining Materials, Tubing, Building Materials, Performance Materials, Electrical Products and Kasco. For a more complete description of the Company's segments, see "Item 1 - Business - Products and Product Mix."
Management has determined that certain operating companies should be aggregated and presented within a single segment on the basis that such segments have similar economic characteristics and share other qualitative characteristics. Management reviews net sales, gross profit and operating income (loss) to evaluate segment performance. Operating income (loss) for the segments generally includes costs directly attributable to the segment and excludes other unallocated general corporate expenses. Interest expense, other income and expense, and income taxes are not presented by segment since they are excluded from the measures of segment profitability reviewed by the Company's management.
The following tables present information about the Company's reportable segments for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data
|
|
Year Ended
|
|
(in thousands)
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Net sales:
|
|
|
|
|
|
|
|
Joining Materials
|
|
$
|
175,477
|
|
|
$
|
182,702
|
|
|
$
|
207,320
|
|
|
Tubing
|
|
77,630
|
|
|
79,539
|
|
|
81,264
|
|
|
Building Materials
|
|
284,567
|
|
|
266,859
|
|
|
253,644
|
|
|
Performance Materials
|
|
101,567
|
|
|
59,535
|
|
|
—
|
|
|
Electrical Products
|
|
128,636
|
|
|
—
|
|
|
—
|
|
|
Kasco
|
|
60,466
|
|
|
60,833
|
|
|
58,240
|
|
|
Total net sales
|
|
$
|
828,343
|
|
|
$
|
649,468
|
|
|
$
|
600,468
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
Joining Materials (a)
|
|
$
|
14,348
|
|
|
$
|
19,906
|
|
|
$
|
19,428
|
|
|
Tubing
|
|
13,962
|
|
|
13,081
|
|
|
13,340
|
|
|
Building Materials
|
|
44,479
|
|
|
37,480
|
|
|
30,217
|
|
|
Performance Materials (b)
|
|
(32,078
|
)
|
|
(2,212
|
)
|
|
—
|
|
|
Electrical Products
|
|
(1,804
|
)
|
|
—
|
|
|
—
|
|
|
Kasco (c)
|
|
3,040
|
|
|
4,336
|
|
|
3,176
|
|
|
Total segment operating income
|
|
41,947
|
|
|
72,591
|
|
|
66,161
|
|
|
Unallocated corporate expenses and non-operating units (d)
|
|
(19,379
|
)
|
|
(19,259
|
)
|
|
(16,878
|
)
|
|
Unallocated pension expense
|
|
(8,139
|
)
|
|
(7,480
|
)
|
|
(3,739
|
)
|
|
Gain from asset dispositions
|
|
620
|
|
|
62
|
|
|
176
|
|
|
Operating income
|
|
15,049
|
|
|
45,914
|
|
|
45,720
|
|
|
Interest expense
|
|
(7,198
|
)
|
|
(4,598
|
)
|
|
(7,544
|
)
|
|
Realized and unrealized gain on derivatives
|
|
148
|
|
|
588
|
|
|
1,307
|
|
|
Other income (expense)
|
|
376
|
|
|
(384
|
)
|
|
(181
|
)
|
|
Income from continuing operations before tax and equity investment
|
|
$
|
8,375
|
|
|
$
|
41,520
|
|
|
$
|
39,302
|
|
|
|
|
|
(a)
|
The results of the Joining Materials segment in 2016 include non-cash asset impairment charges totaling
$2.5 million
, primarily due to write-downs of
$1.5 million
to property, plant and equipment, and
$0.5 million
to inventories, associated with the planned closure of its Lucas-Milhaupt Gliwice, Poland operating facility as part of its continual focus to optimize infrastructure costs. The results of the Joining Materials segment in 2014 include a non-cash asset impairment charge of
$0.6 million
related to certain equipment located in Toronto, Canada to be sold or scrapped as part of the Company's integration activities associated with a 2013 acquisition.
|
|
|
|
|
(b)
|
The results of the Performance Materials segment in 2016 include a non-cash goodwill impairment charge of
$24.3 million
, as well as non-cash asset impairment charges totaling
$7.9 million
associated with its Slater, South Carolina operating facility, including write-downs of
$6.6 million
to property, plant and equipment, and
$0.4 million
to intangible assets, as well as a
$0.9 million
inventory write-down.
|
|
|
|
|
(c)
|
The results of the Kasco segment in 2014 include a non-cash asset impairment charge of
$0.6 million
associated with certain unused, real property located in Atlanta, Georgia.
|
|
|
|
|
(d)
|
Unallocated corporate expenses and non-operating units in 2015 includes a non-cash asset impairment charge of
$1.4 million
related to certain unused, real property located in Norristown, Pennsylvania.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
Joining Materials
|
|
$
|
3,667
|
|
|
$
|
4,064
|
|
|
$
|
5,128
|
|
|
Tubing
|
|
4,325
|
|
|
3,997
|
|
|
2,835
|
|
|
Building Materials
|
|
11,399
|
|
|
4,570
|
|
|
2,661
|
|
|
Performance Materials
|
|
1,991
|
|
|
576
|
|
|
—
|
|
|
Electrical Products
|
|
2,327
|
|
|
—
|
|
|
—
|
|
|
Kasco
|
|
1,913
|
|
|
1,969
|
|
|
1,989
|
|
|
Corporate and other
|
|
—
|
|
|
49
|
|
|
45
|
|
|
Total
|
|
$
|
25,622
|
|
|
$
|
15,225
|
|
|
$
|
12,658
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
Joining Materials
|
|
$
|
4,030
|
|
|
$
|
3,026
|
|
|
$
|
3,204
|
|
|
Tubing
|
|
2,786
|
|
|
2,571
|
|
|
2,401
|
|
|
Building Materials
|
|
5,802
|
|
|
5,598
|
|
|
5,217
|
|
|
Performance Materials
|
|
9,089
|
|
|
4,885
|
|
|
—
|
|
|
Electrical Products
|
|
16,242
|
|
|
—
|
|
|
—
|
|
|
Kasco
|
|
1,991
|
|
|
2,147
|
|
|
2,162
|
|
|
Corporate and other
|
|
157
|
|
|
153
|
|
|
153
|
|
|
Total
|
|
$
|
40,097
|
|
|
$
|
18,380
|
|
|
$
|
13,137
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
Joining Materials
|
|
$
|
100,028
|
|
|
$
|
98,441
|
|
|
|
|
Tubing
|
|
36,573
|
|
|
35,544
|
|
|
|
|
Building Materials
|
|
177,393
|
|
|
166,923
|
|
|
|
|
Performance Materials
|
|
93,413
|
|
|
126,985
|
|
|
|
|
Electrical Products
|
|
294,901
|
|
|
—
|
|
|
|
|
Kasco
|
|
22,293
|
|
|
22,878
|
|
|
|
|
Corporate and other
|
|
111,919
|
|
|
173,902
|
|
|
|
|
Total
|
|
$
|
836,520
|
|
|
$
|
624,673
|
|
|
|
The following table presents revenue and long-lived asset information by geographic area as of and for the years ended December 31. Foreign revenue is based on the country in which the legal subsidiary generating the revenue is domiciled. Long-lived assets in
2016
and
2015
consist of property, plant and equipment, plus approximately
$6.3 million
and
$7.3 million
, respectively, of land and buildings from previously operating businesses and other non-operating assets that are carried at the lower of cost or fair value less cost to sell and are included in other non-current assets on the consolidated balance sheets. Neither net sales nor long-lived assets from any single foreign country was material to the consolidated financial statements of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information
|
|
|
|
|
|
|
|
Net Sales
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
United States
|
|
$
|
775,982
|
|
|
$
|
603,079
|
|
|
$
|
550,071
|
|
|
Foreign
|
|
52,361
|
|
|
46,389
|
|
|
50,397
|
|
|
Total
|
|
$
|
828,343
|
|
|
$
|
649,468
|
|
|
$
|
600,468
|
|
|
|
|
|
|
|
|
Long-Lived Assets
|
|
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
|
|
United States
|
|
$
|
130,448
|
|
|
$
|
111,884
|
|
|
|
|
Foreign
|
|
7,449
|
|
|
8,130
|
|
|
|
|
Total
|
|
$
|
137,897
|
|
|
$
|
120,014
|
|
|
|
Note 22 – Parent Company Condensed Financial Information
As discussed in Note 11 - "Credit Facilities," certain of the Company's subsidiaries have long-term debt outstanding which place restrictions on distributions of funds to HNH, subject to certain exceptions including required pension payments to the WHX Pension Plan and the WHX Pension Plan II. As these subsidiaries' restricted net assets, which totaled approximately
$684 million
at
December 31, 2016
, represent a significant portion of the Company's consolidated total assets, the Company is presenting the following parent company condensed financial information. The HNH parent company condensed financial information is prepared on the same basis of accounting as the HNH consolidated financial statements, except that the HNH subsidiaries are accounted for under the equity method of accounting. HNH is a holding company with minimal assets or operations, and all its subsidiaries are
100%
owned. We may offer debt securities in a registered offering in the future. If we do, and if we offer guarantees of these securities, then we expect the guarantees will be full and unconditional and joint and several. We expect that any subsidiaries of HNH that do not guarantee the securities would be minor.
HANDY & HARMAN LTD. (PARENT ONLY)
Balance Sheets
(in thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,459
|
|
|
$
|
16,059
|
|
|
Prepaid and other current assets
|
|
71
|
|
|
82
|
|
|
Total current assets
|
|
17,530
|
|
|
16,141
|
|
|
Notes receivable from Bairnco
|
|
4,627
|
|
|
4,627
|
|
|
Investment in associated company
|
|
3,645
|
|
|
6,191
|
|
|
Deferred income tax assets
|
|
108,600
|
|
|
101,820
|
|
|
Investments in and advances to subsidiaries, net
|
|
425,380
|
|
|
433,588
|
|
|
Total assets
|
|
$
|
559,782
|
|
|
$
|
562,367
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
187
|
|
|
$
|
176
|
|
|
Total current liabilities
|
|
187
|
|
|
176
|
|
|
Accrued interest - Handy & Harman
|
|
12,193
|
|
|
12,193
|
|
|
Notes payable - Handy & Harman
|
|
151,948
|
|
|
135,937
|
|
|
Accrued pension liabilities
|
|
228,347
|
|
|
228,998
|
|
|
Other non-current liabilities
|
|
512
|
|
|
523
|
|
|
Total liabilities
|
|
393,187
|
|
|
377,827
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
Common stock - $.01 par value; authorized 180,000 shares; issued 13,627 and 13,579 shares, respectively
|
|
136
|
|
|
136
|
|
|
Accumulated other comprehensive loss
|
|
(267,007
|
)
|
|
(259,392
|
)
|
|
Additional paid-in capital
|
|
587,705
|
|
|
586,693
|
|
|
Treasury stock, at cost - 1,386 and 1,371 shares, respectively
|
|
(34,852
|
)
|
|
(34,454
|
)
|
|
Accumulated deficit
|
|
(119,387
|
)
|
|
(108,443
|
)
|
|
Total stockholders' equity
|
|
166,595
|
|
|
184,540
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
559,782
|
|
|
$
|
562,367
|
|
HANDY & HARMAN LTD. (PARENT ONLY)
Statements of Operations and Comprehensive (Loss) Income
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Equity in (loss) income of subsidiaries, net of tax
|
|
$
|
(284
|
)
|
|
$
|
117,375
|
|
|
$
|
39,979
|
|
|
Selling, general and administrative expenses
|
|
(4,258
|
)
|
|
(6,483
|
)
|
|
(8,261
|
)
|
|
Pension expense
|
|
(10,175
|
)
|
|
(7,989
|
)
|
|
(3,739
|
)
|
|
(Loss) income before tax and equity investment
|
|
(14,717
|
)
|
|
102,903
|
|
|
27,979
|
|
|
Tax benefit
|
|
5,378
|
|
|
5,352
|
|
|
4,624
|
|
|
Loss from associated company, net of tax
|
|
(1,605
|
)
|
|
(1,892
|
)
|
|
(7,433
|
)
|
|
Net (loss) income
|
|
(10,944
|
)
|
|
106,363
|
|
|
25,170
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
Changes in pension liabilities and other post-retirement benefit obligations
|
|
(8,490
|
)
|
|
(35,521
|
)
|
|
(83,887
|
)
|
|
Tax effect of changes in pension liabilities and other post-retirement benefit obligations
|
|
3,107
|
|
|
13,571
|
|
|
31,924
|
|
|
Foreign currency translation adjustments
|
|
(2,119
|
)
|
|
(1,855
|
)
|
|
(1,928
|
)
|
|
Tax effect of changes in foreign currency translation adjustments
|
|
(113
|
)
|
|
235
|
|
|
—
|
|
|
Other comprehensive loss
|
|
(7,615
|
)
|
|
(23,570
|
)
|
|
(53,891
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(18,559
|
)
|
|
$
|
82,793
|
|
|
$
|
(28,721
|
)
|
HANDY & HARMAN LTD. (PARENT ONLY)
Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(10,944
|
)
|
|
$
|
106,363
|
|
|
$
|
25,170
|
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
|
|
|
|
|
|
|
Equity in loss (income) of subsidiaries, net of tax
|
|
284
|
|
|
(117,375
|
)
|
|
(39,979
|
)
|
|
Non-cash stock-based compensation
|
|
1,466
|
|
|
3,373
|
|
|
5,105
|
|
|
Non-cash loss from associated company, net of tax
|
|
1,605
|
|
|
1,892
|
|
|
7,433
|
|
|
Deferred income taxes
|
|
(5,378
|
)
|
|
(5,352
|
)
|
|
(4,624
|
)
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
Pension payments
|
|
(16,009
|
)
|
|
(17,209
|
)
|
|
(20,540
|
)
|
|
Pension expense
|
|
10,175
|
|
|
7,989
|
|
|
3,739
|
|
|
Other current assets and liabilities
|
|
(410
|
)
|
|
(330
|
)
|
|
487
|
|
|
Net cash used in operating activities
|
|
(19,211
|
)
|
|
(20,649
|
)
|
|
(23,209
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Investments in associated company
|
|
—
|
|
|
(7,607
|
)
|
|
(1,499
|
)
|
|
Dividends from subsidiaries
|
|
5,000
|
|
|
5,000
|
|
|
85,000
|
|
|
Net cash provided by (used in) investing activities
|
|
5,000
|
|
|
(2,607
|
)
|
|
83,501
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Notes payable - Handy & Harman
|
|
16,009
|
|
|
17,209
|
|
|
20,540
|
|
|
Purchases of treasury stock
|
|
(398
|
)
|
|
—
|
|
|
(60,579
|
)
|
|
Net cash provided by (used in) financing activities
|
|
15,611
|
|
|
17,209
|
|
|
(40,039
|
)
|
|
Net change for the year
|
|
1,400
|
|
|
(6,047
|
)
|
|
20,253
|
|
|
Cash and cash equivalents at beginning of year
|
|
16,059
|
|
|
22,106
|
|
|
1,853
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
17,459
|
|
|
$
|
16,059
|
|
|
$
|
22,106
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
Issuance of treasury stock in connection with JPS acquisition
|
|
$
|
—
|
|
|
$
|
48,748
|
|
|
$
|
—
|
|
Note 23 – Unaudited Quarterly Results
Unaudited quarterly financial results during the years ended
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016 Quarter Ended (Unaudited)
|
|
(in thousands, except per share amounts)
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
Net sales
|
|
$
|
160,797
|
|
|
$
|
200,880
|
|
|
$
|
230,760
|
|
|
$
|
235,906
|
|
|
Operating income (loss) (a)
|
|
$
|
10,282
|
|
|
$
|
4,498
|
|
|
$
|
15,183
|
|
|
$
|
(14,914
|
)
|
|
Income (loss) from continuing operations before tax and equity investment
|
|
$
|
8,944
|
|
|
$
|
2,638
|
|
|
$
|
13,016
|
|
|
$
|
(16,223
|
)
|
|
Net income (loss)
|
|
$
|
456
|
|
|
$
|
(734
|
)
|
|
$
|
8,035
|
|
|
$
|
(18,701
|
)
|
|
Comprehensive income (loss) (b)
|
|
$
|
585
|
|
|
$
|
(813
|
)
|
|
$
|
7,791
|
|
|
$
|
(26,122
|
)
|
|
Basic and diluted income (loss) per share of common stock
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
0.04
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.66
|
|
|
$
|
(1.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 Quarter Ended (Unaudited)
|
|
(in thousands, except per share amounts)
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
Net sales
|
|
$
|
137,982
|
|
|
$
|
166,475
|
|
|
$
|
181,139
|
|
|
$
|
163,872
|
|
|
Operating income
|
|
$
|
5,446
|
|
|
$
|
15,212
|
|
|
$
|
15,969
|
|
|
$
|
9,287
|
|
|
Income from continuing operations before tax and equity investment
|
|
$
|
3,979
|
|
|
$
|
14,304
|
|
|
$
|
14,816
|
|
|
$
|
8,421
|
|
|
Net income (loss) from discontinued operations
|
|
$
|
90,086
|
|
|
$
|
(147
|
)
|
|
$
|
195
|
|
|
$
|
(762
|
)
|
|
Net income
|
|
$
|
93,344
|
|
|
$
|
6,129
|
|
|
$
|
4,613
|
|
|
$
|
2,277
|
|
|
Comprehensive income (loss) (b)
|
|
$
|
93,574
|
|
|
$
|
6,476
|
|
|
$
|
4,411
|
|
|
$
|
(21,668
|
)
|
|
Basic and diluted income (loss) per share of common stock
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax, per share
|
|
$
|
0.30
|
|
|
$
|
0.58
|
|
|
$
|
0.37
|
|
|
$
|
0.25
|
|
|
Discontinued operations, net of tax, per share
|
|
$
|
8.36
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
Net income per share
|
|
$
|
8.66
|
|
|
$
|
0.57
|
|
|
$
|
0.39
|
|
|
$
|
0.19
|
|
|
|
|
|
(a)
|
A goodwill impairment charge of
$24.3 million
was recorded in the fourth quarter of 2016. See Note 9 - "Goodwill and Other Intangibles."
|
|
|
|
|
(b)
|
Other comprehensive loss of
$7.4 million
and
$23.9 million
, net of tax, were recorded in the fourth quarter of
2016
and
2015
, respectively, primarily from unrealized actuarial losses associated with the Company's defined benefit pension plans.
|
Note 24 – Subsequent Events
In January 2017, the Company sold its Micro-Tube Fabricators, Inc. business ("MTF") for approximately
$2.5 million
. MTF specialized in the production of precision fabricated tubular components produced for medical device, aerospace, aircraft, automotive and electronic applications. The operations of this business and expected gain on sale are not significant to the consolidated financial statements of the Company. MTF was part of the Tubing segment.