Discontinued Operations

9 Months Ended

Sep. 30, 2011

Text Block Abstract

Disposal Groups Including Discontinued Operations Disclosure Text Block

Note 5 – Discontinued Operations

Kasco-France

During the third quarter of 2011, the Company sold the stock of Eurokasco, S.A.S. (“Kasco-France”), a part of its Kasco segment, to Kasco-France’s former management team for one Euro plus 25% of any pre-tax earnings over the next three years. Additionally, Kasco-France signed a five year supply agreement to purchase certain products from Kasco.  As a result of the sale, the Company recorded a loss, net of tax, of $0.6 million, which is included in the loss from sale of discontinued operations reported for the third quarter.  Kasco-France has been included as a discontinued operation on a retroactive basis for the year-to-date period of 2011, and for the comparable period of 2010.  In addition, the results of the Company’s former Arlon Coated Materials segment (“Arlon CM”) for 2011 and 2010, along with the Indiana Tube Denmark (“ITD”) and Sumco subsidiaries in 2010, are classified as discontinued operations on the consolidated income statements.

Arlon CM

 In 2010, the Company decided to explore exiting the business of manufacturing adhesive films, specialty graphic films and engineered coated products, and during the first quarter of 2011, the Company completed two separate asset sale transactions.  These two businesses formerly comprised the Arlon CM reporting segment.

On February 4, 2011, Arlon LLC, an indirect wholly-owned subsidiary of HNH, sold substantially all of its assets and existing operations located primarily in the State of California related to its Adhesive Film Division for an aggregate sale price of $27.0 million.  Net proceeds of approximately $24.2 million from this sale were used to repay indebtedness under the Company’s First Lien Revolver.  A gain on the sale of these assets of $11.5 million was recorded.

On March 25, 2011, Arlon LLC and its subsidiaries sold substantially all of their assets and existing operations located primarily in the State of Texas related to Arlon LLC’s Engineered Coated Products Division and SignTech subsidiary for an aggregate sale price of $2.5 million.  In addition, Arlon LLC sold a coater machine to the same purchaser for a price of $0.5 million.  The Company recorded a loss of $5.0 million on the sale of these assets in the first quarter of 2011.  The net proceeds from these asset sales were used to repay indebtedness under the Company’s First Lien Revolver.

Amounts held in escrow in connection with the asset sales, totaling $3.0 million, are recorded in “Trade and other receivables” on the consolidated balance sheet as of September 30, 2011, and are expected to be received by the Company in the second quarter of 2012.

The total gain of $6.0 million net of tax, as a result of the sales of the California and Texas operations of Arlon CM, and Kasco-France, is reported in discontinued operations on the consolidated statement of operations for the nine months ended September 30, 2011. The discontinued operations had an aggregate loss of $1.1 million from their operations for the nine months ended September 30, 2011 and aggregate income of $1.0 million for the nine months ended September 30, 2010.

Indiana Tube Denmark

In 2009, the Company completed the closure of its ITD subsidiary after deciding to exit the welded specialty tubing market in Europe. The decision to exit this market was made after evaluating economic conditions and ITD’s capabilities, served markets, and competitors.  ITD had been part of the Company’s Tubing segment.  ITD’s principal remaining asset is the ITD facility, which has been offered for sale.  The facility is included in “Other non-current assets” on the consolidated balance sheets as of September 30, 2011 and December 31, 2010.  ITD is included in the results of discontinued operations for the nine months ended September 30, 2010.

Sumco, Inc.

Sumco was engaged in the business of providing electroplating services primarily to the automotive market, and relied on the automotive market for over 90% of its sales.  In light of its ongoing operating losses and future prospects, the Company evaluated Sumco and decided to exit this business, which had been part of the Precious Metal segment.  In October 2010, the Company completed the sale of the remaining assets of Sumco.  Sumco is included in the results of discontinued operations for the three and nine months ended September 30, 2010.

The following assets and liabilities of discontinued operations have been segregated in the accompanying consolidated balance sheet as of December 31, 2010.  As of September 30, 2011, there were no assets or liabilities of discontinued operations due to the Arlon CM and Kasco-France sales described above.

(in thousands)	December 31, 2010
Current Assets:
Trade and other accounts receivable	$	12,351
Inventory		13,624
Other current assets		1,069
	$	27,044
Long-term Assets:
Property, plant & equipment, net		1,946
Other non-current assets		313
	$	2,259
Current Liabilities:	$	9,340
Non-current Liabilities
Deferred income taxes		229
Pension and other non-current liabilities		426
	$	655

The income (loss) from discontinued operations consists of the following:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands)	2011			2010		2011			2010
Net sales	$	1,984		$	22,929	$	17,780		$	65,921
Operating income (loss)		(393	)		632		(1,064	)		1,255
Income (loss) from discontinued operations, net		(395	)		639		(1,103	)		975
Gain (loss) on sale of assets, net of tax		(401	)		3		6,030			30