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EX-32 - EXHIBIT 32 - HANDY & HARMAN LTD.hnh9-30x2015ex32.htm
EX-31.1 - EXHIBIT 31.1 - HANDY & HARMAN LTD.hnh9-30x2015ex311.htm
EX-31.2 - EXHIBIT 31.2 - HANDY & HARMAN LTD.hnh9-30x2015ex312.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                 to                                

Commission File Number: 1-2394
HANDY & HARMAN LTD.
(Exact name of registrant as specified in its charter)
DELAWARE
13-3768097
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1133 Westchester Avenue, Suite N222
White Plains, New York
10604
(Address of principal executive offices)
(Zip Code)
914-461-1300
(Registrant's telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ý  No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes ý     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer x
 
 
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes o    No ý

The number of shares of Common Stock outstanding as of October 28, 2015 was 12,208,560.




TABLE OF CONTENTS
HANDY & HARMAN LTD.

PART I - FINANCIAL INFORMATION
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 4.
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 





Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements (unaudited)


1



HANDY & HARMAN LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30,
 
December 31,
(in thousands, except par value)
 
2015
 
2014
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
20,659

 
$
31,649

Trade and other receivables - net of allowance for doubtful accounts of $1,550 and $1,742, respectively
 
97,937

 
59,463

Inventories, net
 
90,943

 
63,929

Deferred income tax assets - current
 
20,287

 
26,719

Prepaid and other current assets
 
9,615

 
7,111

Assets of discontinued operations
 

 
69,673

Total current assets
 
239,441

 
258,544

Property, plant and equipment at cost, less accumulated depreciation
 
113,418

 
67,621

Goodwill
 
124,812

 
68,253

Other intangibles, net
 
44,938

 
33,338

Investment in associated company
 
22,948

 
23,936

Deferred income tax assets
 
86,204

 
71,710

Other non-current assets
 
17,901

 
15,357

Total assets
 
$
649,662

 
$
538,759

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current Liabilities:
 
 
 
 
Trade payables
 
$
42,999

 
$
30,805

Accrued liabilities
 
32,593

 
23,368

Accrued environmental liabilities
 
1,773

 
2,424

Short-term debt
 
606

 
602

Current portion of long-term debt
 
1,181

 
6,378

Deferred income tax liabilities - current
 
228

 
186

Liabilities of discontinued operations
 

 
13,698

Total current liabilities
 
79,380

 
77,461

Long-term debt
 
129,057

 
196,423

Accrued pension liability
 
231,441

 
208,388

Other post-retirement benefit obligations
 
2,701

 
2,914

Other liabilities
 
2,745

 
4,184

Total liabilities
 
445,324

 
489,370

Commitments and Contingencies
 


 


Stockholders' Equity:
 
 
 
 
Common stock - $.01 par value; authorized 180,000 shares; issued 13,579 and 13,580 shares, respectively
 
136

 
136

Accumulated other comprehensive loss
 
(235,448
)
 
(235,822
)
Additional paid-in capital
 
584,825

 
570,256

Treasury stock, at cost - 1,371 and 2,800 shares, respectively
 
(34,454
)
 
(70,375
)
Accumulated deficit
 
(110,721
)
 
(214,806
)
Total stockholders' equity
 
204,338

 
49,389

Total liabilities and stockholders' equity
 
$
649,662

 
$
538,759


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2



HANDY & HARMAN LTD.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(in thousands, except per share)
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
181,139

 
$
164,524

 
$
485,596

 
$
468,557

Cost of goods sold
 
134,034

 
119,001

 
351,937

 
338,256

Gross profit
 
47,105

 
45,523

 
133,659

 
130,301

Selling, general and administrative expenses
 
29,375

 
26,288

 
91,125

 
85,917

Pension expense
 
1,761

 
595

 
5,906

 
2,805

Operating income
 
15,969

 
18,640

 
36,628

 
41,579

Other:
 
 
 
 
 
 
 
 
Interest expense
 
1,208

 
2,450

 
3,483

 
5,599

Realized and unrealized gain on derivatives
 
(168
)
 
(1,320
)
 
(273
)
 
(854
)
Other expense (income)
 
113

 
(5
)
 
318

 
141

Income from continuing operations before tax and equity investment
 
14,816

 
17,515

 
33,100


36,693

Tax provision
 
6,351

 
6,703

 
13,862

 
15,158

Loss from associated company, net of tax
 
4,047

 
1,242

 
5,286

 
7,783

Income from continuing operations, net of tax
 
4,418

 
9,570

 
13,952

 
13,752

Discontinued operations:
 
 
 
 
 
 
 
 
Income from discontinued operations, net of tax
 

 
2,290

 
565

 
8,772

Gain on disposal of assets, net of tax
 
195

 

 
89,568

 
42

Net income from discontinued operations
 
195

 
2,290

 
90,133

 
8,814

Net income
 
$
4,613

 
$
11,860

 
$
104,085

 
$
22,566

Basic and diluted income per share of common stock
 
 
 
 
 
 
 
 
Income from continuing operations, net of tax, per share
 
$
0.37

 
$
0.77

 
$
1.26

 
$
1.07

Discontinued operations, net of tax, per share
 
0.02

 
0.18

 
8.12

 
0.69

Net income per share
 
$
0.39

 
$
0.95

 
$
9.38

 
$
1.76

Weighted-average number of common shares outstanding
 
11,729

 
12,469

 
11,101

 
12,858


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3



HANDY & HARMAN LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Net income
 
$
4,613

 
$
11,860

 
$
104,085

 
$
22,566

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Changes in pension liability and other post-retirement benefit obligations
 

 

 
2,022

 

Tax effect of changes in pension liability and other post-retirement benefit obligations
 

 

 
(395
)
 

Foreign currency translation adjustments
 
(421
)
 
(980
)
 
(1,472
)
 
(1,099
)
Tax effect of changes in foreign currency translation adjustments
 
219

 

 
219

 

Other comprehensive (loss) income
 
(202
)
 
(980
)
 
374

 
(1,099
)
 
 
 
 
 
 
 
 
 
Comprehensive income
 
$
4,411

 
$
10,880


$
104,459


$
21,467


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4


HANDY & HARMAN LTD.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Accumulated Other Comprehensive
 
Additional Paid-In
 
Treasury Stock,
 
Accumulated
 
Total Stockholders'
(in thousands)
 
Shares
 
Amount
 
Loss
 
Capital
 
at Cost
 
Deficit
 
Equity
Balance, December 31, 2014
 
13,580

 
$
136

 
$
(235,822
)
 
$
570,256

 
$
(70,375
)
 
$
(214,806
)
 
$
49,389

Amortization, issuance and forfeitures of restricted stock grants
 
(1
)
 

 

 
1,742

 

 

 
1,742

Changes in pension liability and post-retirement benefit obligations, net of tax
 

 

 
1,627

 

 

 

 
1,627

Foreign currency translation adjustments, net of tax
 

 

 
(1,253
)
 

 

 

 
(1,253
)
Treasury shares issued in JPS acquisition
 

 

 

 
12,827

 
35,921

 

 
48,748

Net income
 

 

 

 

 

 
104,085

 
104,085

Balance, September 30, 2015
 
13,579

 
$
136

 
$
(235,448
)
 
$
584,825

 
$
(34,454
)
 
$
(110,721
)
 
$
204,338


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5


HANDY & HARMAN LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
Nine Months Ended
 
 
September 30,
(in thousands)
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Net income
 
$
104,085

 
$
22,566

Net income from discontinued operations
 
(90,133
)
 
(8,814
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
12,547

 
9,724

Non-cash stock-based compensation
 
2,714

 
3,773

Non-cash loss from investment in associated company, net of tax
 
5,286

 
7,783

Amortization of debt issuance costs
 
820

 
1,215

Deferred income taxes
 
10,924

 
12,090

Gain from asset dispositions
 
(309
)
 
(87
)
Non-cash loss (gain) from derivatives
 
48

 
(674
)
Reclassification of net cash settlements on precious metal contracts to investing activities
 
(322
)
 
(180
)
Change in operating assets and liabilities, net of acquisitions:
 
 
 
 
Trade and other receivables
 
(17,620
)
 
(22,953
)
Inventories
 
1,516

 
(9,322
)
Prepaid and other current assets
 
1,842

 
485

Other current liabilities
 
(9,853
)
 
(7,182
)
Other items, net
 
270

 
289

Net cash provided by continuing operations
 
21,815

 
8,713

Net cash (used in) provided by discontinued operations
 
(2,266
)
 
14,439

Net cash provided by operating activities
 
19,549

 
23,152

Cash flows from investing activities:
 
 
 
 
Additions to property, plant and equipment
 
(10,871
)
 
(7,727
)
Net cash settlements on precious metal contracts
 
322

 
180

Acquisitions, net of cash acquired
 
(93,162
)
 

Proceeds from sale of assets
 
336

 
183

Investments in associated company
 
(7,607
)
 

Proceeds from sale of discontinued operations
 
155,517

 
3,732

Net cash used in investing activities of discontinued operations
 
(75
)
 
(2,046
)
Net cash provided by (used in) investing activities
 
44,460

 
(5,678
)

6


 
 
Nine Months Ended
 
 
September 30,
(in thousands)
 
2015
 
2014
Cash flows from financing activities:
 
 
 
 
Proceeds from term loans - domestic
 

 
40,000

Proceeds from WHX CS Loan
 

 
12,600

Repayment of WHX CS Loan
 

 
(12,600
)
Net revolver (repayments) borrowings
 
(73,709
)
 
180,050

Net borrowings on loans - foreign
 
79

 
342

Repayments of term loans - domestic
 
(264
)
 
(156,249
)
Deferred finance charges
 
(404
)
 
(3,230
)
Net change in overdrafts
 
(486
)
 
2,546

Purchases of treasury stock
 

 
(60,502
)
Other financing activities
 
36

 
54

Net cash (used in) provided by financing activities
 
(74,748
)
 
3,011

Net change for the period
 
(10,739
)
 
20,485

Effect of exchange rate changes on cash and cash equivalents
 
(251
)
 
(172
)
Cash and cash equivalents at beginning of period
 
31,649

 
10,300

Cash and cash equivalents at end of period
 
$
20,659

 
$
30,613

 
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
2,562

 
$
4,671

Taxes
 
$
3,987

 
$
4,246

 
 
 
 
 
Non-cash investing activities:
 
 
 
 
Exchange of treasury stock for shares of JPS Industries, Inc.
 
$
48,748

 
$


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 and Kasco Blades and Route Repair Services ("Kasco"). The Performance Materials segment is currently comprised solely of the operations of JPS Industries, Inc. ("JPS"), which was acquired on July 2, 2015 as discussed in Note 3 - "Acquisitions." All references herein to "we," "our" or the "Company" refer to HNH together with all of its subsidiaries.

Note 2 – Basis of Presentation

The consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted in accordance with those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. This quarterly report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements on Form 10-K for the year ended December 31, 2014. Certain amounts for the prior year have been reclassified to conform to the current year presentation.

In the opinion of management, the interim financial statements reflect all normal and recurring adjustments necessary to present fairly the consolidated financial position and the results of operations and changes in cash flows for the interim periods. The preparation of consolidated financial statements in conformity with 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. 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. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full year.

New 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 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 evaluating the potential impact of this new guidance, but does not currently anticipate that the application of ASU No. 2014-09 will have a significant effect on its financial condition, results of operations or its cash flows. We have not yet determined the method by which we will adopt the standard.

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 last-in, first-out ("LIFO") cost method. The Company is currently evaluating the potential impact of this new guidance, which is effective for the Company's 2017 fiscal year.

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 income

8



statement or disclosed in the notes. This new guidance is 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 with earlier application permitted for financial statements that have not been issued.

Note 3 – 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 include net working capital of inventories and accrued liabilities; property, plant and equipment; and intangible assets, primarily unpatented 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 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 major U.S. manufacturer of mechanically formed glass 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 primarily by H&H Group and also by 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 on a preliminary basis (in thousands):


9



Cash and cash equivalents
$
22

Trade and other receivables
21,201

Inventories
27,070

Prepaid and other current assets
4,924

Property, plant and equipment
45,181

Goodwill
35,314

Other intangibles
9,921

Deferred income tax assets
17,605

Other non-current assets
3,280

Total assets acquired
164,518

Trade payables
(10,674
)
Accrued liabilities
(5,535
)
Long-term debt
(1,500
)
Accrued pension liability
(32,167
)
Other liabilities
(149
)
Net assets acquired
$
114,493


The preliminary purchase price allocation is subject to finalization of valuations of certain acquired assets and liabilities. The goodwill of $35.3 million arising from the acquisition consists largely of the synergies expected from combining the operations of HNH and JPS. All of the goodwill is assigned to the Company's Performance Materials segment and is not expected to be deductible for income tax purposes. Other intangibles consist primarily of acquired trade names of $4.4 million, customer relationships of $3.7 million, and patented and unpatented technology of $1.8 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 patented and unpatented 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 patented and unpatented 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 income statement for both the three and nine months ended September 30, 2015 were approximately $28.1 million and $(2.3) million, respectively, which include $3.3 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. Unaudited pro forma net sales and income from continuing operations, net of tax, of the combined entity had the acquisition date been January 1, 2014 are as follows:
 
 
Nine Months Ended
 
 
September 30,
(in thousands, except per share)
 
2015
 
2014
Net sales
 
$
568,695

 
$
594,163

Income from continuing operations, net of tax
 
$
17,283

 
$
12,658

Income from continuing operations, net of tax, per share
 
$
1.42

 
$
0.89

Weighted-average number of common shares outstanding
 
12,211

 
14,287


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 acquisition taken place on January 1, 2014. The information for the nine months ended September 30, 2015 and 2014 is based on historical financial information with respect to the acquisition and does not include operational or other changes which might have been effected by the Company. Both the 2015 and 2014 periods reflect incremental depreciation and amortization expense based on the fair value adjustments for the acquired property, plant and equipment and intangibles assets. The 2015 supplemental unaudited pro forma earnings reflect adjustments to exclude a total of $7.4 million of acquisition-related costs incurred by both the Company and JPS during the nine months of 2015

10



and $3.3 million of nonrecurring expense related to the fair value adjustment to acquisition-date inventories. The 2014 supplemental unaudited pro forma earnings were adjusted to include the fair value adjustment to acquisition-date inventories.

Note 4 – Discontinued Operations

On December 18, 2014, H&H Group and Bairnco entered into a stock purchase agreement to sell all of 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 statement 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 assets and liabilities of discontinued operations were segregated on the consolidated balance sheet as of December 31, 2014. No balances from discontinued operations remain at September 30, 2015.
 
 
December 31,
(in thousands)
 
2014
Assets of Discontinued Operations:
 
 
Trade and other receivables, net
 
$
16,044

Inventories, net
 
8,294

Prepaid and other current assets
 
811

Property, plant and equipment, net
 
24,754

Goodwill
 
9,298

Other intangibles, net
 
10,472

Total assets of discontinued operations
 
$
69,673

 
 
 
Liabilities of Discontinued Operations:
 
 
Trade payables
 
$
6,252

Accrued liabilities
 
3,986

Accrued pension liability
 
1,794

Other liabilities
 
1,666

Total liabilities of discontinued operations
 
$
13,698


The net income from discontinued operations includes the following:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Net sales
 
$

 
$
24,177

 
$
5,952

 
$
77,483

Operating income
 

 
3,553

 
920

 
13,561

Interest expense and other income
 

 
13

 
(10
)
 
3

Tax provision
 

 
1,250

 
365

 
4,786

Income from discontinued operations, net of tax
 

 
2,290

 
565

 
8,772

Gain on disposal of assets
 
316

 

 
93,732

 
71

Tax provision
 
121

 

 
4,164

 
29

Gain on disposal of assets, net of tax
 
195

 

 
89,568

 
42

Net income from discontinued operations
 
$
195

 
$
2,290

 
$
90,133

 
$
8,814


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 was 4.4%.


11



Note 5 – Inventories

Inventories, net at September 30, 2015 and December 31, 2014 were comprised of:
 
 
September 30,
 
December 31,
(in thousands)
 
2015
 
2014
Finished products
 
$
32,193

 
$
24,424

In-process
 
21,760

 
10,310

Raw materials
 
20,436

 
12,346

Fine and fabricated precious metals in various stages of completion
 
16,743

 
17,094

 
 
91,132

 
64,174

LIFO reserve
 
(189
)
 
(245
)
Total
 
$
90,943

 
$
63,929


Inventories, net at September 30, 2015 include $27.5 million from the acquisition of JPS discussed in Note 3 - "Acquisitions."

In order to produce certain of its products, H&H purchases, maintains and utilizes precious metal inventory. H&H 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 H&H choose to do business on a "pool" basis and furnish precious metal to H&H for return in fabricated form or for purchase from or return to the supplier. When the customer 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 sheet. To the extent H&H is able to utilize customer precious metal in its production processes, such customer metal replaces the need for H&H to purchase its own inventory. As of September 30, 2015, customer metal in H&H's custody consisted of 160,520 ounces of silver, 531 ounces of gold and 1,462 ounces of palladium.
Supplemental inventory information:
 
September 30,
 
December 31,
(in thousands, except per ounce)
 
2015
 
2014
Precious metals stated at LIFO cost
 
$
4,671

 
$
4,684

Precious metals stated under non-LIFO cost methods, primarily at fair value
 
$
11,882

 
$
12,165

Market value per ounce:
 
 
 
 
Silver
 
$
15.13

 
$
15.75

Gold
 
$
1,146.65

 
$
1,199.25

Palladium
 
$
672.00

 
$
798.00


Note 6 – Goodwill and Other Intangibles

The changes in the net carrying amount of goodwill by reportable segment for the nine months ended September 30, 2015 were as follows (in thousands):
Segment
 
Balance at January 1, 2015
 
Foreign Currency Translation Adjustments
 
Additions
 
Adjustments
 
Balance at
September 30, 2015
 
Accumulated
Impairment Losses
Joining Materials
 
$
16,238

 
$
(23
)
 
$

 
$

 
$
16,215

 
$

Tubing
 
1,895

 

 

 

 
1,895

 

Building Materials
 
50,120

 

 
21,268

 

 
71,388

 

Performance Materials
 

 

 
35,314

 

 
35,314

 

Total
 
$
68,253

 
$
(23
)
 
$
56,582

 
$

 
$
124,812

 
$



12



Other intangible assets as of September 30, 2015 and December 31, 2014 consisted of:
(in thousands)
September 30, 2015
 
December 31, 2014
 
Cost
Accumulated Amortization
Net
 
Cost
Accumulated Amortization
Net
Customer relationships
$
35,677

$
(10,115
)
$
25,562

 
$
31,977

$
(8,524
)
$
23,453

Trademarks, trade names and brand names
12,840

(2,447
)
10,393

 
8,419

(2,004
)
6,415

Patents and patent applications
5,522

(2,519
)
3,003

 
5,354

(2,229
)
3,125

Non-compete agreements
774

(702
)
72

 
709

(671
)
38

Other
7,448

(1,540
)
5,908

 
1,358

(1,051
)
307

Total
$
62,261

$
(17,323
)
$
44,938

 
$
47,817

$
(14,479
)
$
33,338


The $21.3 million and $35.3 million additions to goodwill within the Building Materials and Performance Materials segments, respectively, during the nine months ended September 30, 2015 were due to the Company's ITW and JPS acquisitions discussed in Note 3 - "Acquisitions." Other intangible assets at cost as of September 30, 2015 include $4.4 million in intangible assets, primarily unpatented technology, associated with the ITW acquisition and $9.9 million in intangible assets, primarily trades names, customer relationships, and patented and unpatented technology, associated with the JPS acquisition. The goodwill and intangible asset balances associated with the JPS acquisition are subject to adjustment during the finalization of the purchase price allocation.

Amortization expense totaled $1.2 million and $0.8 million for the three months ended September 30, 2015 and 2014, respectively, and $2.9 million and $2.4 million for the nine months ended September 30, 2015 and 2014, respectively. The increase in intangible assets and related amortization expense during 2015 was principally due to the Company's ITW and JPS acquisitions. Future amortization expense of the intangible assets acquired in these acquisitions is expected to total $0.4 million for the remainder of 2015, $1.5 million, $1.4 million, $1.4 million, $1.3 million, $7.8 million in 2016, 2017, 2018, 2019, and thereafter, respectively.

Note 7 – Investments

The Company holds an investment in the common stock of a public company, ModusLink Global Solutions, Inc. ("ModusLink"), which is classified as an investment in associated company on the consolidated balance sheet. The Company carries its ModusLink investment on the consolidated balance sheet 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 and 6,383,005 shares of the common stock of ModusLink at September 30, 2015 and December 31, 2014, respectively, and the value of this investment decreased from $23.9 million at December 31, 2014 to $22.9 million at September 30, 2015 due to a decrease in the share price of ModusLink's common stock, partially offset by the additional shares of ModusLink common stock purchased by the Company during 2015.

As of September 30, 2015, SPLP and its associated companies, which include the Company, owned a combined total of 16,476,730 ModusLink common shares, which represented 31.5% 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 for the quarter ended July 31, 2015, its most recently completed fiscal quarter, and the comparable prior periods are as follows:

13



 
 
July 31,
 
July 31,
 
 
 
 
(in thousands)
 
2015
 
2014
 
 
 
 
Current assets
 
$
413,642

 
$
405,768

 
 
 
 
Non-current assets
 
$
32,860

 
$
45,878

 
 
 
 
Current liabilities
 
$
211,353

 
$
198,594

 
 
 
 
Non-current liabilities
 
$
90,548

 
$
81,434

 
 
 
 
Stockholders' equity
 
$
144,601

 
$
171,618

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
July 31,
 
July 31,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Net revenue
 
$
119,685

 
$
164,700

 
$
374,229

 
$
531,985

Gross profit
 
$
10,041

 
$
14,451

 
$
35,647

 
$
52,730

Loss from continuing operations
 
$
(4,989
)
 
$
(8,485
)
 
$
(18,651
)
 
$
(16,900
)
Net loss
 
$
(4,989
)
 
$
(8,485
)
 
$
(18,651
)
 
$
(16,899
)

Note 8 – Debt

Debt at September 30, 2015 and December 31, 2014 was as follows:
 
 
September 30,
 
December 31,
(in thousands)
 
2015
 
2014
Short-term debt
 
 
 
 
Foreign
 
$
606

 
$
602

Long-term debt
 
 
 
 
Revolving facilities
 
121,166

 
193,375

Other H&H debt - domestic
 
7,750

 
8,014

Foreign loan facilities
 
1,322

 
1,412

Sub total
 
130,238

 
202,801

Less portion due within one year
 
1,181

 
6,378

Total long-term debt
 
129,057

 
196,423

Total debt
 
$
130,844

 
$
203,403


Senior Credit Facilities

On August 29, 2014, H&H Group entered into an amended and restated senior credit agreement ("Senior Credit Facility"), which provides 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. 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 (1.75% and 0.75%, respectively, for LIBOR and Base Rate borrowings at September 30, 2015), 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 1.99% at September 30, 2015. H&H Group's availability under the Senior Credit Facility was $161.7 million as of September 30, 2015.

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 HNH Group Acquisition LLC, a newly formed subsidiary of H&H Group, 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, HNH Group Acquisition LLC and HNH Acquisition LLC, another newly formed subsidiary of H&H Group, became guarantors under the Senior Credit Facility pursuant to the amendment. See further discussion regarding the JPS transaction in Note 3 - "Acquisitions."


14



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 and Canadian 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"). 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 September 30, 2015.

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 receives 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. The agreement expires in February 2016. 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 receives 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. The agreement expires in February 2016.

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

On October 5, 2015, a subsidiary of H&H refinanced an outstanding mortgage note, 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 five years, with a final principal payment of $3.6 million due at maturity of the loan in October 2020.

Note 9 – Derivative Instruments

Precious Metal and Commodity Inventories

H&H's precious metal and commodity inventories are subject to market price fluctuations. H&H 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.

As of September 30, 2015, the Company had the following outstanding forward contracts with settlement dates through December 2015. There were no futures contracts outstanding at September 30, 2015.

15



 
 
 
 
Notional Value
Commodity
 
Amount
 
($ in millions)
Silver
 
740,000

 
ounces
 
$
11.2

Gold
 
900

 
ounces
 
$
1.0

Copper
 
300,000

 
pounds
 
$
0.7

Tin
 
40

 
metric tons
 
$
0.6


H&H 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. Of the total forward contracts outstanding, 650,000 ounces of silver and substantially all of the copper contracts are designated and accounted for as fair value hedges under ASC 815. The fair values of these derivatives are recognized as derivative assets and liabilities on the consolidated balance sheet. 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 income statement, 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. The remaining outstanding forward contracts for silver, and all of the contracts for gold and tin, are accounted for as 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 income statement. The economic hedges are associated primarily with the Company's precious metal inventory valued using the LIFO method.

The forward contracts were made with a counter party 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 has entered into two interest rate swap agreements to reduce its exposure to interest rate fluctuations. See Note 8 - "Debt" for further discussion of the terms of these arrangements. These derivatives are not designated as accounting hedges under U.S. GAAP; they are accounted for as derivatives with no hedge designation. The Company records the gains or losses both from the mark-to-market adjustments and net settlements in interest expense in the consolidated income statement as the hedges are intended to offset interest rate movements.

Effect of Derivative Instruments in the Consolidated Income Statements - Income/(Expense)
(in thousands)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
 
September 30,
 
September 30,
Derivative
 
Income Statement Line
 
2015
 
2014
 
2015
 
2014
Commodity contracts
 
Cost of goods sold
 
$
585

 
$
2,337

 
$
564

 
$
1,428

 
 
Total derivatives designated as hedging instruments
 
585

 
2,337

 
564

 
1,428

Commodity contracts
 
Cost of goods sold
 
(69
)
 
52

 
209

 
25

Commodity contracts
 
Realized and unrealized gain on derivatives
 
168

 
1,320

 
273

 
854

Interest rate swap agreements
 
Interest expense
 
(16
)
 
9

 
(79
)
 
(116
)
 
 
Total derivatives not designated as hedging instruments
 
83

 
1,381

 
403

 
763

 
 
Total derivatives
 
$
668

 
$
3,718

 
$
967

 
$
2,191


Fair Value of Derivative Instruments on the Consolidated Balance Sheets - Asset/(Liability)

16



(in thousands)
 
 
 
September 30,
 
December 31,
Derivative
 
Balance Sheet Location
 
2015
 
2014
Commodity contracts
 
Prepaid and other current assets
 
$
37

 
$
667

 
 
Total derivatives designated as hedging instruments
 
37

 
667

Commodity contracts
 
Prepaid and other current assets
 
23

 
97

Interest rate swap agreements
 
Other liabilities
 
(72
)
 
(138
)
 
 
Total derivatives not designated as hedging instruments
 
(49
)
 
(41
)
 
 
Total derivatives
 
$
(12
)
 
$
626


Note 10 – Pension and Other Post-Retirement Benefits

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. In addition, JPS sponsors a defined benefit pension plan ("JPS Pension Plan"), which was assumed in connection with the acquisition of JPS on July 2, 2015. The following table presents the components of net periodic pension expense for the Company's pension plans for the three and nine months ended September 30, 2015 and 2014:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
9

 
$

 
$
9

 
$

Interest cost
 
5,057

 
4,893

 
14,577

 
15,388

Expected return on plan assets
 
(6,034
)
 
(6,017
)
 
(17,069
)
 
(18,117
)
Amortization of actuarial loss
 
2,729

 
1,719

 
8,389

 
5,534

Total
 
$
1,761

 
$
595

 
$
5,906

 
$
2,805


Under the JPS Pension Plan, substantially all of JPS's employees who were employed prior to April 1, 2005 have benefits. The defined benefit 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 defined benefit 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. Assets of the JPS Pension Plan are invested in a bond portfolio covering specific liabilities and in common and preferred stocks, government and corporate bonds, and various short-term investments. The net unfunded pension liability of the JPS Pension Plan was $31.3 million as of September 30, 2015, and is included in accrued pension liability on the consolidated balance sheet.

The components of net periodic pension expense (benefit) of the JPS Pension Plan since the date of acquisition are included in the table above and are based on a preliminary actuarial report completed as of the July 2, 2015 acquisition date, which indicated a projected benefit obligation of $119.5 million, as compared to plan assets of $87.3 million. The Company expects a net pension benefit of $0.5 million from the JPS Pension Plan from the acquisition date to December 31, 2015. Significant assumptions used in the valuation included the discount rate (4.10%) and the expected return on plan assets (7.00%). The discount rate is the rate at which the plan's obligations could be effectively settled and is based on high quality bond yields as of the measurement date. 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 actuarial loss reflected in the table above occurred principally because the historical investment returns on the assets of the WHX Pension Plan have been lower than the actuarial assumptions. The actuarial losses 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 Company expects to have required minimum contributions to the WHX Pension Plan of $3.0 million for the remainder of 2015, and $14.3 million, $15.3 million, $17.0 million, $18.3 million and $56.4 million in 2016, 2017, 2018, 2019, and for the five years thereafter, respectively. For the JPS Pension Plan, the Company expects to have no required minimum contributions for the remainder of 2015 or in 2016, and $5.6 million, $5.2 million and $3.7 million in 2017, 2018, and 2019, respectively.

17



Required future contributions are estimated based upon assumptions regarding such matters 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.

In addition to its pension plans, which are included in the table above, the Company also maintains several other post-retirement benefit plans covering certain of its employees and retirees. The approximate aggregate expense for these plans was $0.4 million and $0.4 million for the three months ended September 30, 2015 and 2014, respectively, and $1.4 million and $1.3 million for the nine months ended September 30, 2015 and 2014, respectively.

Note 11 – Stockholders' Equity

Accumulated Other Comprehensive Loss

Changes, net of tax, in accumulated other comprehensive loss and its components follow:
(in thousands)
 
Foreign Currency Translation Adjustments
 
Changes in Net Pension and Other Benefit Obligations
 
Total
Balance at December 31, 2014
 
$
(1,957
)
 
$
(233,865
)
 
$
(235,822
)
Current period (loss) income
 
(1,253
)
 
1,627

 
374

Balance at September 30, 2015
 
$
(3,210
)
 
$
(232,238
)
 
$
(235,448
)

The current period foreign currency translation adjustments include a $0.2 million increase in accumulated other comprehensive loss associated with the sale of Arlon, LLC. The changes in net pension and other benefit obligations of $1.6 million are also related to the sale of Arlon, LLC, which sponsored a defined benefit pension plan that had an accumulated other comprehensive loss. See Note 4 - "Discontinued Operations" for further discussion of the sale of Arlon, LLC.

Note 12 – Stock-Based Compensation

During the nine months ended September 30, 2015, the Compensation Committee of the Company's Board of Directors approved the grant of an aggregate of 52,714 shares of restricted stock under the 2007 Incentive Stock Plan, as amended ("2007 Plan"), to certain employees, members of the Board of Directors and service providers. 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 income statement on a straight-line basis over the requisite service period, which is the vesting period. The restricted stock grants made to employees and service providers in 2015 vest in approximately equal annual installments over a three year period from the grant date. The 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 under the 2007 Plan was as follows for the nine months ended September 30, 2015:


18



 
 
Employees
 
 
 
 
 
 
and Service
 
 
 
 
(shares)
 
Providers
 
Directors
 
Total
Balance, January 1, 2015
 
616,248

 
785,000

 
1,401,248

Granted
 
12,439

 
40,275

 
52,714

Forfeited
 
(8,466
)
 

 
(8,466
)
Reduced for income tax obligations
 
(44,546
)
 

 
(44,546
)
Balance, September 30, 2015
 
575,675

 
825,275

 
1,400,950

 
 
 
 
 
 
 
Vested
 
497,987

 
785,733

 
1,283,720

Non-vested
 
77,688

 
39,542

 
117,230


The Company recognized compensation expense related to restricted shares of $0.7 million and $1.4 million for the three months ended September 30, 2015 and 2014, respectively, and $2.7 million and $3.8 million for the nine months ended September 30, 2015 and 2014, respectively. Unearned compensation expense related to restricted shares at September 30, 2015 is $1.9 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.

As of December 31, 2014, 38,100 stock options to purchase HNH shares at an exercise price of $90.00 per share were outstanding under the 2007 Plan. During the nine months ended September 30, 2015, a total of 25,100 of these stock options were forfeited or expired unexercised.

Note 13 – Income Taxes

For the three months ended September 30, 2015 and 2014, tax provisions from continuing operations of $6.4 million and $6.7 million, respectively, were recorded. The effective tax rates in the three months ended September 30, 2015 and 2014 were 42.9% and 38.3%, respectively. For the nine months ended September 30, 2015 and 2014, tax provisions from continuing operations of $13.9 million and $15.2 million, respectively, were recorded. The effective tax rates in the nine months ended September 30, 2015 and 2014 were 41.9% and 41.3%, respectively. The provision for income taxes is based on the current estimate of the annual effective tax rate, adjusted for discrete items that occurred within the respective periods. Changes in the effective tax rate arise principally from differences in the mix of income between taxable jurisdictions, including the impact of foreign sourced income, as well as changes in estimates associated with our projected annual state tax expense.

Note 14 – Earnings Per Share

The computation of basic earnings per share of common stock is calculated by dividing net income by the weighted-average number of shares of the Company's common stock outstanding, as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except per share)
 
2015
 
2014
 
2015
 
2014
Income from continuing operations, net of tax
 
$
4,418

 
$
9,570

 
$
13,952

 
$
13,752

Weighted-average number of common shares outstanding
 
11,729

 
12,469

 
11,101

 
12,858

Income from continuing operations, net of tax, per share
 
$
0.37

 
$
0.77

 
$
1.26

 
$
1.07

Net income from discontinued operations
 
$
195

 
$
2,290

 
$
90,133

 
$
8,814

Weighted-average number of common shares outstanding
 
11,729

 
12,469

 
11,101

 
12,858

Discontinued operations, net of tax, per share
 
$
0.02

 
$
0.18

 
$
8.12

 
$
0.69

Net income
 
$
4,613

 
$
11,860

 
$
104,085

 
$
22,566

Weighted-average number of common shares outstanding
 
11,729

 
12,469

 
11,101

 
12,858

Net income per share
 
$
0.39

 
$
0.95

 
$
9.38

 
$
1.76


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, during the three and nine

19



months ended September 30, 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. As of September 30, 2015, stock options for an aggregate of 13,000 shares are excluded from the calculations above.

Note 15 – 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 9 - "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 are considered Level 2 measurements as the inputs are observable at commonly quoted intervals.

The following table summarizes the Company's assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:
 
 
Asset (Liability) as of September 30, 2015
(in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
Investment in associated company
 
$
22,948

 
$
22,948

 
$

 
$

Precious metal and commodity inventories recorded at fair value
 
$
12,642

 
$
12,642

 
$

 
$

Commodity contracts on precious metal and commodity inventories
 
$
60

 
$

 
$
60

 
$

Interest rate swap agreements
 
$
(72
)
 
$

 
$
(72
)
 
$



20



 
 
Asset (Liability) as of December 31, 2014
(in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
Investment in associated company
 
$
23,936

 
$
23,936

 
$

 
$

Precious metal and commodity inventories recorded at fair value
 
$
13,249

 
$
13,249

 
$

 
$

Commodity contracts on precious metal and commodity inventories
 
$
764

 
$
764

 
$

 
$

Interest rate swap agreements
 
$
(138
)
 
$

 
$
(138
)
 
$


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). Long-lived assets consisting of land and buildings used in previously operating businesses and currently unused, which total $8.7 million as of September 30, 2015, are carried at the lower of cost or fair value, and are included primarily in other non-current assets on the consolidated balance sheet. A reduction in the carrying value of such long-lived assets is recorded as an asset impairment charge in the consolidated income statement.

Note 16 – Commitments and Contingencies

Environmental Matters

Certain H&H Group subsidiaries have existing and contingent liabilities relating to environmental matters, including capital expenditures, costs of remediation, 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 had approximately $1.8 million accrued related to estimated environmental remediation costs as of September 30, 2015. The Company also has insurance coverage available for several of these matters and believes that excess insurance coverage may be available as well. For the nine months ended September 30, 2015, the Company recorded insurance reimbursements totaling $2.8 million for previously incurred remediation costs.

In addition, 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, however, 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.

Among the sites where certain H&H Group subsidiaries may have more substantial environmental liabilities are 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 with the Sold Parcel comprises the site of a former H&H manufacturing facility. Remediation of all soil conditions on the Sold Parcel was completed on April 6, 2007. On September 11, 2008, the CTDEEP advised H&H that it had approved H&H's December 28, 2007 Soil Remediation Action Report, as amended, thereby concluding the active remediation of the Sold Parcel. 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, will be submitted to the CTDEEP for their review and approval. 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.

21




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. Thereafter, in 1998, HHEM and H&H settled a case brought by the local municipality in regard to this site and also settled with certain of its insurance carriers. HHEM is actively remediating the property and continuing to investigate effective methods for achieving compliance with the ACO. A remedial investigation report was filed with the NJDEP in December 2007. By letter dated December 12, 2008, the NJDEP issued its approval with respect to additional investigation and remediation activities discussed in the December 2007 remedial investigation report. 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 (with separate guaranties by the two joint venture partners of the former owner/operator for 37.5% each) and 25% jointly to HHEM and H&H after the first $1.0 million. The $1.0 million was paid solely by the former owner/operator. As of September 30, 2015, over and above the $1.0 million, total investigation and remediation costs of approximately $4.8 million and $1.6 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 is continuing to comply with a 1987 consent order 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 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. On June 20, 2013, HHEM received the MADEP's Notice of Audit Findings and Notice of Noncompliance ("Notice"). HHEM and its consultant held meetings with the MADEP to resolve differences identified in the Notice. As a result of those meetings and subsequent discussions, HHEM initiated additional sampling, testing and well installations. The additional work was completed in the second quarter of 2015, and we expect to submit a follow-up response report to the MADEP in the fourth quarter of 2015. The cost of this additional work is estimated at $0.1 million. Additional costs could result from these testing activities and final acceptance of the remediation plan by the MADEP, which cannot be reasonably estimated at this time.

Other Litigation

In the ordinary course of our business, we are subject to 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 17 – Related Party Transactions

As of September 30, 2015, SPLP owned directly or indirectly through its subsidiaries 8,560,592 shares of the Company's common stock, representing approximately 70.1% of outstanding shares. 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 Howard, as Vice Chairman and Principal Executive Officer, James F. McCabe, Jr., as Chief Financial Officer and Leonard J. McGill, as Chief Legal Officer.

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 3 - "Acquisitions."

The Company has 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

22



Agreement, SP Corporate provides 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 further provided that the Company pay SP Corporate a fixed annual fee of approximately $8.89 million, consisting of (a) $1.74 million in consideration of the executive services provided by SP Corporate under the Management Services Agreement and (b) $7.15 million in consideration of the corporate services provided by SP Corporate under the Management Services Agreement. 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 corporate services to be provided pursuant to the Management Services Agreement and to adjust the fee for corporate services provided under the Management Services Agreement from $7.15 million to $8.81 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 will assume the cost of compensating those employees and providing applicable benefits.

During the three months ended September 30, 2015 and 2014, the Company reimbursed SP Corporate and its affiliates approximately $0.2 million and $0.1 million, respectively, for business expenses incurred on its behalf pursuant to the Management Services Agreement. Such reimbursements totaled approximately $0.4 million and $0.3 million, respectively, during the nine months ended September 30, 2015 and 2014.

The fees payable under the Management Services Agreement are subject to an annual review and such adjustments as may be agreed upon by SP Corporate and the Company. The Management Services Agreement has a term of one year and automatically renews for successive one-year periods unless and until terminated in accordance with the terms set forth therein, which include, under certain circumstances, the payment by the Company of a termination fee to SP Corporate.

Note 18 – Reportable Segments

HNH is a diversified holding company whose strategic business units encompass the following segments: Joining Materials, Tubing, Building Materials, Performance Materials and Kasco. For a more complete description of the Company's segments, see "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - The Company."

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 to evaluate segment performance. Operating income 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 table presents information about the Company's reportable segments for the three and nine months ended September 30, 2015 and 2014:

23



Income Statement Data
 
Three Months Ended
 
Nine Months Ended
(in thousands)
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales:
 
 
 
 
 
 
 
 
Joining Materials
 
$
45,360

 
$
54,621

 
$
144,094

 
$
162,796

Tubing
 
19,382

 
19,768

 
61,330

 
61,834

Building Materials
 
73,475

 
75,734

 
207,841

 
200,568

Performance Materials
 
28,065

 

 
28,065

 

Kasco
 
14,857

 
14,401

 
44,266

 
43,359

Total net sales
 
$
181,139

 
$
164,524

 
$
485,596

 
$
468,557

Segment operating income (loss):
 
 
 
 
 
 
 
 
Joining Materials
 
$
4,336

 
$
6,147

 
$
16,177

 
$
18,046

Tubing
 
3,799

 
3,224

 
10,226

 
10,098

Building Materials
 
13,685

 
10,998

 
28,943

 
25,924

Performance Materials
 
(2,400
)
 

 
(2,400
)
 

Kasco
 
1,364

 
1,082

 
3,062

 
2,468

Total segment operating income
 
20,784

 
21,451

 
56,008

 
56,536

Unallocated corporate expenses and non-operating units
 
(3,222
)
 
(2,254
)
 
(13,783
)
 
(12,239
)
Unallocated pension expense
 
(1,761
)
 
(595
)
 
(5,906
)
 
(2,805
)
Gain from asset dispositions
 
168

 
38

 
309

 
87

Operating income
 
15,969

 
18,640

 
36,628

 
41,579

Interest expense
 
(1,208
)
 
(2,450
)
 
(3,483
)
 
(5,599
)
Realized and unrealized gain on derivatives
 
168

 
1,320

 
273

 
854

Other (expense) income
 
(113
)
 
5

 
(318
)
 
(141
)
Income from continuing operations before tax and equity investment
 
$
14,816

 
$
17,515

 
$
33,100

 
$
36,693




24



Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company

Handy & Harman Ltd. ("HNH") is a diversified manufacturer of engineered niche industrial products with leading market positions in many of the markets it serves. Through its wholly-owned operating subsidiaries, HNH focuses on high margin products and innovative technology and serves customers across a wide range of end markets. 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, 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, and Kasco Blades and Route Repair Services ("Kasco"). All references herein to "we," "our" or the "Company" refer to HNH together with all of its subsidiaries.

Joining Materials segment primarily fabricates precious metals and their alloys into brazing alloys. Brazing alloys are used to join similar and dissimilar metals, as well as specialty metals and some ceramics, with strong, hermetic joints. Joining Materials segment offers these metal joining products in a wide variety of alloys, including gold, silver, palladium, copper, nickel, aluminum and tin. These brazing alloys are fabricated into a variety of engineered forms and are used in many industries, including electrical, appliance, transportation, construction and general industrial, where dissimilar material and metal joining applications are required. Operating income from precious metal products is principally derived from the "value added" of processing and fabricating and not from the direct purchase and resale of precious metals. Joining Materials segment 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. We believe that the business unit that comprises our Joining Materials segment is the North American market leader in many of the markets that it serves.

Tubing segment manufactures a wide variety of steel tubing products. We believe that the Tubing segment manufactures the world's longest continuous seamless stainless steel tubing coils, in excess of 5,000 feet, serving the petrochemical infrastructure and shipbuilding markets. In addition, we believe it is the number one supplier of small diameter (less than 3 mm) coil tubing to industry leading specifications serving the aerospace, defense and semiconductor fabrication markets. This segment also manufactures welded carbon steel tubing in coiled and straight lengths with a primary focus on products for the transportation, appliance and heating, and oil and gas industries. In addition to producing bulk tubing, it produces value added fabrications for several of these industries.

Building Materials segment manufactures and supplies products primarily to the commercial construction and building industries. It manufactures fasteners and fastening systems for the U.S. commercial low slope roofing industry, which are sold to building and roofing material wholesalers, roofing contractors and private label roofing system manufacturers, and a line of engineered specialty fasteners for the building products industry for fastening applications in the remodeling and construction of homes, decking and landscaping. We believe that our primary business unit in the Building Materials segment is the market leader in fasteners and accessories for commercial low-slope roofing applications and that the majority of the net sales for the segment are for the commercial construction repair and replacement market. On March 31, 2015, the Company 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. ITW was the exclusive supplier of certain adhesive products to the Company. The results of the Building Materials segment include the operations of ITW from the acquisition date.

Performance Materials segment manufactures sheet and mechanically formed glass and aramid materials for specialty applications in a wide expanse of markets requiring highly engineered components. Its products are used in a wide range of advanced composite applications, such as civilian and military aerospace components, printed electronic circuit boards, filtration and insulation products, specialty commercial construction substrates, automotive and industrial components, and soft body armor for civilian and military applications. The Performance Materials segment is currently comprised solely of the operations of JPS Industries, Inc. ("JPS"), which was acquired on July 2, 2015.

Kasco provides meat-room blade products, repair services and resale products for the meat and deli departments of supermarkets, restaurants, meat and fish processing plants, and for distributors of electrical saws and cutting equipment, principally in North America and Europe. Kasco also provides wood cutting blade products for the pallet manufacturing, pallet recycler and portable saw mill industries in North America.

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 to evaluate segment performance. Operating income for the segments generally includes costs directly attributable to the segment and excludes other unallocated general corporate expenses. Interest expense,

25



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.

Discontinued Operations

The results of operations of Arlon, LLC have been reported as a discontinued operation in the Company's consolidated financial statements and are not reflected in the tables and discussion of the Company's continuing operations below.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2015 and 2014

The Company's consolidated operating results for the three and nine months ended September 30, 2015 and 2014 are summarized in the following table:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
181,139

 
$
164,524

 
$
485,596

 
$
468,557

Gross profit
 
47,105

 
45,523

 
133,659

 
130,301

Gross profit margin
 
26.0
%
 
27.7
%
 
27.5
%
 
27.8
%
Selling, general and administrative expenses
 
29,375

 
26,288

 
91,125

 
85,917

Pension expense
 
1,761

 
595

 
5,906

 
2,805

Operating income
 
15,969

 
18,640

 
36,628

 
41,579

Other:
 
 
 
 
 
 
 
 
Interest expense
 
1,208

 
2,450

 
3,483

 
5,599

Realized and unrealized gain on derivatives
 
(168
)
 
(1,320
)
 
(273
)
 
(854
)
Other expense (income)
 
113

 
(5
)
 
318

 
141

Income from continuing operations before tax and equity investment
 
14,816

 
17,515

 
33,100

 
36,693

Tax provision
 
6,351

 
6,703

 
13,862

 
15,158

Loss from associated company, net of tax
 
4,047

 
1,242

 
5,286

 
7,783

Income from continuing operations, net of tax
 
$
4,418

 
$
9,570

 
$
13,952

 
$
13,752


Net Sales

Net sales for the three months ended September 30, 2015 increased by $16.6 million, or 10.1%, to $181.1 million, as compared to $164.5 million for the same period in 2014. The change in net sales reflects approximately $28.1 million in incremental sales associated with our recent acquisition of JPS, which was partially offset by a net decrease from our core business of approximately $5.2 million and a reduction of approximately $6.2 million in net sales due to lower average silver prices. Excluding the impact of the JPS acquisition, our value added sales, defined as net sales less revenue from the direct purchase and resale of precious metals, decreased by approximately $5.2 million on lower volume, primarily from the Joining Materials and Building Materials segments. The average silver market price was approximately $14.96 per troy ounce in the third quarter of 2015, as compared to $19.79 per troy ounce in the same period in 2014.

Net sales for the nine months ended September 30, 2015 increased by $17.0 million, or 3.6%, to $485.6 million, as compared to $468.6 million for the same period in 2014. The change in net sales reflects approximately $28.1 million in incremental sales associated with our recent acquisition of JPS and a net increase from core growth of approximately $4.3 million, which was partially offset by a reduction of approximately $15.3 million in net sales due to lower average silver prices. Excluding the impact of the JPS acquisition, our value added sales increased by approximately $4.3 million on higher volume, primarily from the Building Materials segment. The average silver market price was approximately $16.03 per troy ounce during the nine month period of 2015, as compared to $19.85 per troy ounce in the same period in 2014.

Gross Profit

Gross profit for the three months ended September 30, 2015 increased to $47.1 million, as compared to $45.5 million

26



for the same period in 2014, and as a percentage of net sales, decreased to 26.0%, as compared to 27.7% in the third quarter last year. The change in gross profit reflects a net increase from core growth of approximately $2.7 million driven by higher gross profit margins from the Building Material and Kasco segments, which were partially offset by lower gross profit from the Joining Materials segment as a result of lower sales volume and a reduction of approximately $0.8 million in gross profit due to lower average silver prices. Gross profit for the three months ended September 30, 2015 also reflects $3.3 million of nonrecurring expense associated with the amortization of the fair value adjustment to acquisition-date inventories associated with the JPS acquisition.

Gross profit for the nine months ended September 30, 2015 increased to $133.7 million, as compared to $130.3 million for the same period in 2014, and as a percentage of net sales, decreased to 27.5%, as compared to 27.8% during the same period of last year. The change in gross profit reflects a net increase from core growth of approximately $5.6 million, which was partially offset by a reduction of approximately $1.9 million in gross profit due to lower average silver prices. Higher sales volume from the Building Materials segment led to the increase in gross profit from our core business. Gross profit in the 2015 period also reflects $3.3 million of nonrecurring expense associated with the amortization of the fair value adjustment to acquisition-date inventories associated with the JPS acquisition.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") for the three months ended September 30, 2015 were $29.4 million, as compared to $26.3 million for the same period a year ago. SG&A expenses from the Performance Materials segment were approximately $2.1 million during the 2015 period. Excluding the JPS acquisition impact, the higher SG&A in the third quarter of 2015 was primarily driven by higher benefit costs and business development expenses, primarily associated with the acquisition of JPS, which were partially offset by lower stock-based compensation charges.

SG&A for the nine months ended September 30, 2015 was $91.1 million, as compared to $85.9 million for the same period a year ago. SG&A expenses from the Performance Materials segment were approximately $2.1 million during the 2015 period. Excluding the JPS acquisition impact, the higher SG&A during the nine month period of 2015 was driven by higher personnel costs and higher business development expenses, primarily associated with the acquisition of JPS, which were partially offset by lower stock-based compensation charges.

Pension Expense

Non-cash pension expenses were $1.8 million and $5.9 million for the three and nine months ended September 30, 2015 respectively, which were $1.2 million and $3.1 million higher than the three and nine months ended September 30, 2014, respectively. We currently expect non-cash pension expense to be approximately $7.5 million in 2015, as compared to $3.7 million in 2014, due to a decline in discount rates based on changes in corporate bond yields, an increase in participant life expectancy reflected in revised mortality assumptions, and also due to the fact that the investment returns on the assets of the WHX Corporation Pension Plan ("WHX Pension Plan") were lower than actuarial assumptions during 2014, which are partially offset by expected income of $0.5 million from JPS' pension plan from the date of acquisition to December 31, 2015.

Interest Expense

Interest expense for the three and nine months ended September 30, 2015 was $1.2 million and $3.5 million, respectively, as compared to $2.5 million and $5.6 million for the three and nine months ended September 30, 2014, respectively. The lower interest expense for both three and nine months ended September 30, 2015 was primarily due to lower borrowing levels and lower average interest rates in 2015.

Realized and Unrealized Gain on Derivatives

H&H utilizes commodity forward and futures contracts to mitigate the impact of price fluctuations on its precious metal and certain non-precious metal inventories. The factors that affect the gain or loss on these derivative instruments are changes in the price of the associated metals and the amount of ounces hedged.

Tax Provision

For the three months ended September 30, 2015 and 2014, tax provisions from continuing operations of $6.4 million and $6.7 million, respectively, were recorded. The effective tax rates in the three months ended September 30, 2015 and 2014 were 42.9% and 38.3%, respectively. For the nine months ended September 30, 2015 and 2014, tax provisions from continuing operations of $13.9 million and $15.2 million, respectively, were recorded. The effective tax rates in the nine months ended September 30, 2015 and 2014 were 41.9% and 41.3%, respectively. The provision for income taxes is based on the current estimate of the annual

27



effective tax rate, adjusted for discrete items that occurred within the respective periods. Changes in the effective tax rate arise principally from differences in the mix of income between taxable jurisdictions, including the impact of foreign sourced income, as well as changes in estimates associated with our projected annual state tax expense.

Loss from Associated Company

The Company carries its investment in ModusLink Global Solutions, Inc. ("ModusLink") at fair value, calculated based on the closing market price for ModusLink common stock, and the losses recorded during the three and nine months ended September 30, 2015 and 2014 are due entirely to changes in the share price of ModusLink's common stock.

Segment Analysis

Segment net sales and operating income data for the three and nine months ended September 30, 2015 and 2014 are shown in the following table:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
 
 
%
 
 
 
%
(in thousands)
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
Joining Materials
 
$
45,360

 
$
54,621

 
(17.0
)%
 
$
144,094

 
$
162,796

 
(11.5
)%
Tubing
 
19,382

 
19,768

 
(2.0
)%
 
61,330

 
61,834

 
(0.8
)%
Building Materials
 
73,475

 
75,734

 
(3.0
)%
 
207,841

 
200,568

 
3.6
 %
Performance Materials
 
28,065

 

 
N/A

 
28,065

 

 
N/A

Kasco
 
14,857

 
14,401

 
3.2
 %
 
44,266

 
43,359

 
2.1
 %
Total net sales
 
$
181,139

 
$
164,524

 
10.1
 %
 
$
485,596

 
$
468,557

 
3.6
 %
Segment operating income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
Joining Materials
 
$
4,336

 
$
6,147

 
(29.5
)%
 
$
16,177

 
$
18,046

 
(10.4
)%
Tubing
 
3,799

 
3,224

 
17.8
 %
 
10,226

 
10,098

 
1.3
 %
Building Materials
 
13,685

 
10,998

 
24.4
 %
 
28,943

 
25,924

 
11.6
 %
Performance Materials
 
(2,400
)
 

 
N/A

 
(2,400
)
 

 
N/A

Kasco
 
1,364

 
1,082

 
26.1
 %
 
3,062

 
2,468

 
24.1
 %
Total segment operating income
 
$
20,784

 
$
21,451

 
(3.1
)%
 
$
56,008

 
$
56,536

 
(0.9
)%

Joining Materials

For the three months ended September 30, 2015, the Joining Materials segment net sales decreased by $9.3 million, or 17.0%, to $45.4 million, as compared to net sales of $54.6 million for the same period in 2014. The change in net sales is primarily due to lower precious metal prices, including a reduction of approximately $6.2 million in net sales due to a $4.83 per troy ounce decline in the average market price of silver, and lower value added sales volume primarily in North America due to reduced demand from the oil and gas markets.

Segment operating income for the third quarter of 2015 decreased by $1.8 million, or 29.5%, to $4.3 million, as compared to $6.1 million for the same period in 2014. The effect of lower average silver prices reduced operating income by approximately $0.8 million on a quarter versus prior year's quarter basis. The lower operating income was also driven by unfavorable product mix and lower sales volume during the 2015 period, as compared to the same period of 2014.

For the nine months ended September 30, 2015, the Joining Materials segment net sales decreased by $18.7 million, or 11.5%, to $144.1 million, as compared to net sales of $162.8 million for the same period in 2014. The change in net sales reflects a reduction of approximately $15.3 million in net sales due to a $3.82 per troy ounce decline in the average market price of silver and lower value added sales volume primarily in North America due to reduced demand from the oil and gas markets.

Segment operating income for the nine months ended September 30, 2015 decreased by $1.9 million, or 10.4%, to $16.2 million, as compared to $18.0 million for the same period in 2014. Lower gross profit in the 2015 period was due principally to reduced sales volume, unfavorable product mix and lower silver prices, which were partially offset by lower SG&A due to higher

28



severance and recruitment costs incurred during the same period of 2014. The effect of lower average silver prices reduced operating income by approximately $1.9 million on a year to date versus prior year's year to date basis.

Tubing

For the three months ended September 30, 2015, the Tubing segment net sales decreased by $0.4 million, or 2.0%, to $19.4 million, as compared to $19.8 million in the third quarter of 2014. The decrease was primarily driven by lower sales volume of our welded carbon steel tubing products due to reduced demand in the transportation market and a decline in the appliance market, as several customers were realigning their inventories. These declines were partially offset by higher sales of our fabricated metal tubing in the medical segment.

Segment operating income for the third quarter of 2015 increased by $0.6 million, or 17.8%, to $3.8 million, as compared to $3.2 million for the third quarter of 2014. Higher operating income during the third quarter of 2015 was principally the result of higher gross margin driven by favorable product mix and lower overhead costs, as compared to the third quarter of 2014.

For the nine months ended September 30, 2015, the Tubing segment net sales were $61.3 million, as compared to $61.8 million in the same period in 2014. The decrease was primarily driven by reduced demand for our welded carbon steel products, particularly in the transportation market, combined with a de-emphasis in the heat exchanger market, which were partially offset by improved demand for stainless steel and fabricated tubing during the nine months ended September 30, 2015, as compared to the same period of 2014.

Segment operating income for the nine months ended September 30, 2015 increased by $0.1 million or 1.3%, to $10.2 million, as compared to $10.1 million for the same period of 2014. Higher operating income was primarily due to higher gross margin driven by favorable product mix and lower overhead costs, partially offset by higher SG&A, as a result of higher personnel costs, as compared to the same period of 2014.

Building Materials

For the three months ended September 30, 2015, the Building Materials segment net sales decreased by $2.3 million, or 3.0%, to $73.5 million, as compared to $75.7 million for the same period in 2014. Lower sales were driven by reduced demand from our private label roofing products, partially offset by increased demand from home centers for our FastenMaster products, as compared to the third quarter of 2014.

Segment operating income increased by $2.7 million, or 24.4%, to $13.7 million for the three months ended September 30, 2015, as compared to $11.0 million for the same period in 2014. Gross profit margin for the three months ended September 30, 2015 was higher, as compared to the three months ended September 30, 2014, primarily due to lower manufacturing costs as a result of the recent ITW acquisition, as well as favorable overhead absorption and lower freight costs.

For the nine months ended September 30, 2015, the Building Materials segment net sales increased by $7.3 million, or 3.6%, to $207.8 million, as compared to $200.6 million for the same period in 2014. Sales of both our roofing and FastenMaster products were higher, as compared to the nine months ended September 30, 2014, due to growth from our private label roofing products and strong demand from home centers and lumberyards for our FastenMaster products.

Segment operating income increased by $3.0 million, or 11.6%, to $28.9 million for the nine months ended September 30, 2015, as compared to $25.9 million for the same period in 2014, reflecting higher sales volume and lower manufacturing costs. Gross profit margin for the nine months ended September 30, 2015 was higher, as compared to the nine months ended September 30, 2014, primarily due to lower manufacturing costs as a result of the ITW acquisition and favorable overhead absorption, partially offset by higher freight costs, in part due to the West Coast port slowdown, as well as costs associated with the consolidation of our Midwest manufacturing and warehouse facilities into a single location. SG&A also increased, reflecting increased employee headcount, benefit costs and promotional expenses during the 2015 period.

Performance Materials

For the three months ended September 30, 2015, the Performance Materials segment net sales were $28.1 million, driven by fiberglass fabric sales serving the aerospace sector. The increase in demand from aerospace applications was partially offset by a reduction in demand from the U.S. military for ballistic vests and reduced demand for fiberglass fabrics used in a variety of electronic applications.


29



Segment operating loss was $2.4 million, for the three months ended September 30, 2015, primarily due to $3.3 million of nonrecurring expense recorded during the quarter associated with the amortization of the fair value adjustment to acquisition-date inventories.

Kasco

For the three months ended September 30, 2015, the Kasco segment net sales increased by $0.5 million, or 3.2%, to $14.9 million, as compared to $14.4 million for the same period in 2014, primarily due to higher sales from its domestic route business and European operations, partially offset by the unfavorable impact of foreign currency exchange rates from its Canadian and European operations.

Segment operating income increased by $0.3 million to $1.4 million for the three months ended September 30, 2015, as compared to $1.1 million for the same period in 2014, reflecting improved gross profit margin as a result of the higher sales, and lower fuel costs, which were partially offset by increased personnel costs to support the higher sales.

For the nine months ended September 30, 2015, the Kasco segment net sales increased by $0.9 million, or 2.1%, to $44.3 million, as compared to $43.4 million for the same period in 2014, due to higher sales from its domestic route business, partially offset by lower sales from its European operations primarily due to a negative impact from changes in foreign currency exchange rates.

Segment operating income increased by $0.6 million to $3.1 million for the nine months ended September 30, 2015, as compared to $2.5 million for the same period in 2014. Gross profit increased for the nine months ended September 30, 2015, primarily due to the higher net sales, as well as lower fuel costs, as compared with the same period of the prior year. These improvements were partially offset by increased personnel costs to support the higher sales.

Discussion of Consolidated Cash Flows

Comparison of the Nine Months Ended September 30, 2015 and 2014

The following table provides a summary of the Company's consolidated cash flows for the nine months ended September 30, 2015 and 2014:
 
 
Nine Months Ended
 
 
September 30,
(in thousands)
 
2015
 
2014
Net cash provided by operating activities
 
$
19,549

 
$
23,152

Net cash provided by (used in) investing activities
 
44,460

 
(5,678
)
Net cash (used in) provided by financing activities
 
(74,748
)
 
3,011

Net change for the period
 
$
(10,739
)
 
$
20,485


Operating Activities

Operating cash flows for the nine months ended September 30, 2015 were $3.6 million lower, as compared to the same period in 2014. Discontinued operations used $2.3 million during 2015, as compared to a cash inflow of $14.4 million in 2014. Inventories provided $1.5 million during the nine month period of 2015, as compared to cash usage of $9.3 million for the same period in 2014. The lower inventory usage during the 2015 period was primarily driven by lower silver prices, as compared to the same period of 2014, and effective inventory control in our Tubing and Building Materials segments. Trade and other receivables used $17.6 million, as compared to $23.0 million used during the same period of 2014, with the change driven by lower accounts receivable levels during the 2015 period due to lower silver prices.

Investing Activities

Investing activities provided $44.5 million of cash for the nine months ended September 30, 2015 and used $5.7 million during the same period of 2014. Investing activities for the nine months ended September 30, 2015 included net proceeds of $155.5 million from the sale of Arlon, LLC, partially offset by acquisition costs of $93.2 million related to the JPS and ITW acquisitions. Capital spending was $10.9 million in the 2015 period, as compared with $7.7 million in the 2014 period. The Company also

30



invested approximately $7.6 million, including brokerage commissions, in the common stock of ModusLink during the nine month period of 2015. Discontinued operations used $0.1 million in the 2015 period, as compared to $2.0 million during the 2014 period.

Financing Activities

For the nine months ended September 30, 2015, the Company's financing activities used $74.7 million of cash. Borrowings under the Company's revolving credit facility decreased by $73.7 million during the nine months ended September 30, 2015, primarily driven by cash proceeds from the sale of Arlon, LLC, partially offset by borrowings to fund the JPS and ITW acquisitions.

For the nine months ended September 30, 2014, the Company's financing activities provided $3.0 million of cash. Borrowings under the Company's revolving credit facilities increased by $180.1 million during the nine months ended September 30, 2014, due primarily to the repayment of $156.2 million in terms loans during this period, which included repayment of an additional $40.0 million term loan borrowing during the third quarter of 2014. The Company also initiated $12.6 million in borrowings on its WHX CS Loan facility during the nine months ended September 30, 2014, which were fully repaid during the third quarter of 2014. These changes in the Company's financing structure were primarily the result of the Company's entry into an amended and restated senior credit agreement on August 29, 2014. In addition, the Company used $60.5 million for the repurchase of its common stock during the nine months ended September 30, 2014.

Liquidity and Capital Resources

The Company's principal source of liquidity is its cash flows from operations. As of September 30, 2015, the Company's current assets totaled $239.4 million, its current liabilities totaled $79.4 million and its net working capital was $160.1 million, as compared to net working capital of $181.1 million as of December 31, 2014. The Company's debt is principally held by H&H Group, a wholly-owned subsidiary of HNH. HNH's subsidiaries borrow funds in order to finance capital expansion programs and for working capital needs. The terms of certain of those financing arrangements place restrictions on distributions of funds to HNH, the parent company, subject to certain exceptions including required pension payments to the WHX Pension Plan. The Company does not expect these restrictions to have an impact on its ability to meet its cash obligations. HNH's ongoing operating cash flow requirements consist primarily of arranging for the funding of the minimum requirements of the WHX Pension Plan and paying HNH's administrative costs. The Company expects to have required minimum contributions to the WHX Pension Plan of $3.0 million for the remainder of 2015, and $14.3 million, $15.3 million, $17.0 million, $18.3 million and $56.4 million in 2016, 2017, 2018, 2019, and for the five years thereafter, respectively. For JPS' pension plan, the Company expects to have no required minimum contributions for the remainder of 2015 or in 2016, and $5.6 million, $5.2 million and $3.7 million in 2017, 2018, and 2019, respectively. Required future contributions are estimated based upon assumptions regarding such matters 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.

The Company believes it has access to adequate resources to meet its needs for normal operating costs, capital expenditures, mandatory debt redemptions and working capital for its existing business. These resources include cash and cash equivalents, cash provided by operating activities and unused lines of credit. On August 29, 2014, H&H Group entered into an amended and restated senior credit agreement, which provides for an up to $365.0 million senior secured revolving credit facility. As of September 30, 2015, H&H Group's availability under its senior secured revolving credit facility was $161.7 million. On October 5, 2015, a subsidiary of H&H refinanced an outstanding mortgage note, 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 five years, with a final principal payment of $3.6 million due at maturity of the loan in October 2020. The Company's ability to satisfy its debt service obligations, to fund planned capital expenditures and required pension payments, and to make acquisitions will depend upon its future operating performance, which will be affected by prevailing economic conditions in the markets in which it operates, as well as financial, business and other factors, some of which are beyond its control. In addition, the Company's senior secured revolving credit facility is subject to certain mandatory prepayment provisions and restrictive and financial covenants. There can be no assurances that H&H Group will continue to have access to its lines of credit if its financial performance does not satisfy the financial covenants set forth in the financing agreements. If H&H Group does not meet certain of its financial covenants, and if it is unable to secure necessary waivers or other amendments from the respective lenders on terms acceptable to management, its ability to access available lines of credit could be limited, its debt obligations could be accelerated by the respective lenders and liquidity could be adversely affected.

Management is utilizing the following strategies to continue to enhance liquidity: (1) continuing to implement improvements, using the HNH Business System, throughout all of the Company's operations to increase sales and operating

31



efficiencies, (2) supporting profitable sales growth both internally and potentially through acquisitions and (3) evaluating from time to time and as appropriate, strategic alternatives with respect to its businesses and/or assets. The Company continues to examine all of its options and strategies, including acquisitions, divestitures and other corporate transactions, to increase cash flow and stockholder value.

Off-Balance Sheet Arrangements

It is not the Company's usual business practice to enter into off-balance sheet arrangements such as guarantees on loans and financial commitments, indemnification arrangements and retained interests in assets transferred to an unconsolidated entity for securitization purposes. Certain customers and suppliers of the Joining Materials segment choose to do business on a "pool" basis. Such customers or suppliers furnish precious metal to subsidiaries of H&H 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 pooled precious metal is not included on the Company's consolidated balance sheet. As of September 30, 2015, customer metal in H&H's custody consisted of 160,520 ounces of silver, 531 ounces of gold and 1,462 ounces of palladium.

Cautionary Statement Regarding Forward-Looking Statements

When used in Management's Discussion and Analysis of Financial Condition and Results of Operations, the words "anticipate," "estimate" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, general economic conditions, the ability of the Company to develop markets and sell its products and the effects of competition and pricing. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate.

Item 4. - Controls and Procedures

Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, the Company conducted an evaluation under the supervision and with the participation of its management, including the Principal Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Chief Financial Officer concluded that as of September 30, 2015, the Company's disclosure controls and procedures are effective in ensuring that all information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to company management, including the Principal Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

The Company completed the acquisition of JPS on July 2, 2015. Our management will exclude the operations of this business from our evaluation of, and conclusion on, the effectiveness of our internal control over financial reporting as of December 31, 2015. This business represents approximately 24.1% of our total assets as of September 30, 2015, and approximately 5.8% of net sales for the nine months then ended. Our management plans to fully integrate the operations of this business into its assessment of the effectiveness of our internal control over financial reporting in 2016.

Changes in Internal Control over Financial Reporting

No change in internal control over financial reporting occurred during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting, except for the changes in internal control over financial reporting associated with integrating the acquisition of JPS, which was completed on July 2, 2015.


32



PART II - OTHER INFORMATION

Item 1. - Legal Proceedings

Information in this Item 1 is incorporated by reference to Part I, Notes to Consolidated Financial Statements (unaudited), Note 16 - "Commitments and Contingencies," of this report.

Item 1A. - Risk Factors

In addition to the information set forth below and elsewhere in this Form 10-Q, you should carefully consider the factors discussed under "Cautionary Statement Regarding Forward-Looking Statements" above and under "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2014, and those risk factors set forth below. These risks could materially and adversely affect our business, financial condition and results of operations. These enumerated risks are not the only risks we face. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

Transfer restrictions contained in our charter and other factors could hinder the development of an active market for our common stock.

There can be no assurance as to the volume of shares of our common stock or the degree of price volatility for our common stock traded on the NASDAQ Capital Market. There are transfer restrictions contained in our charter to help preserve our net operating tax loss carryforwards that will generally prevent any person from acquiring amounts of our common stock such that such person would hold 5% or more of our common stock, for up to three years after July 29, 2015, as specifically provided in our charter. The transfer restrictions could hinder development of an active market for our common stock.

Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds

2(a) - Issuer Issuance of Equity Securities

On August 4, 2015, the Company filed a Current Report on Form 8-K reporting the issuance of 1,429,407 shares of the Company's common stock ("HNH Shares") to SPH Group Holdings LLC ("SPH Group Holdings") in exchange for SPH Group Holdings' shares of JPS. The HNH Shares were issued to SPH Group Holdings, an accredited investor, pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), provided by Section 4(2) under the Securities Act.

2(c) - Issuer Purchases of Equity Securities

During the three months ended September 30, 2015, 3,145 shares of common stock were foregone by certain employees and service providers, at their option, for income tax obligations attributable to the vesting of shares of restricted stock previously granted to such individuals.

The following table provides information on the shares foregone for income tax obligations attributable to the vesting of restricted stock during the three months ended September 30, 2015:

 
 
Total Number of Shares (or Units) Purchased
 
Average Price Paid per Share (or Unit)
 
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Period
 
(a)
 
(b)
 
(c)
 
(d)
July 1, 2015 to July 31, 2015
 

 
N/A
 
 

 
N/A
August 1, 2015 to August 31, 2015
 
3,145

 
$
28.97
 
 

 
N/A
September 1, 2015 to September 30, 2015
 

 
N/A
 
 

 
N/A
 
 
3,145

 
 
 

 
N/A


33




Item 6. - Exhibits
Exhibit 3.1 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Handy & Harman Ltd., as filed with Secretary of State of the State of Delaware on July 14, 2015 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed July 16, 2015)
 
 
Exhibit 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
 
 
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
 
 
Exhibit 32 Certification of Principal Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of Chapter 63 of Title 18 of United States Code. (1)
 
 
Exhibit 101.INS XBRL Instance Document (1)
 
 
Exhibit 101.SCH XBRL Taxonomy Extension Schema (1)
 
 
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase (1)
 
 
Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase (1)
 
 
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase (1)
 
 
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase (1)
 
 
 
 
(1)
Filed herewith.


34



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
HANDY & HARMAN LTD.
 
 
 
/s/ James F. McCabe, Jr.
 
James F. McCabe, Jr.
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)

October 29, 2015


35