FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
--------------------------------------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- -----------------------------
FOR QUARTER ENDED MARCH 31, 2001 COMMISSION FILE NUMBER 1-2394
WHX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3768097
(State of Incorporation) (I.R.S. Employer
Identification No.)
110 EAST 59TH STREET
NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 212-355-5200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The number of shares of Common Stock issued and outstanding as of May 10, 2001
was 15,312,272 which includes redeemable common shares.
1
WHX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2001 2000
(In thousands, except per share data)
Net Sales $ 156,071 $ 467,743
Operating Costs
Cost of goods sold 129,317 386,754
Depreciation and amortization 7,380 27,266
Selling, administrative and general expenses 18,818 38,860
--------- ---------
155,515 452,880
--------- ---------
Operating Income 556 14,863
Interest expense on debt 13,509 22,446
Other (expense) (3,430) (6,668)
--------- ---------
(Loss) Before Taxes (16,383) (14,251)
Tax (benefit) (6,189) (7,552)
--------- ---------
Net (Loss) (10,194) (6,699)
Dividend requirement for Preferred Stock 5,152 5,152
--------- ---------
Net (Loss) Applicable to Common Stock $ (15,346) $ (11,851)
========= =========
BASIC AND DILUTED (LOSS) PER SHARE OF
COMMON STOCK
Net (loss) per share $ (1.05) $ (0.84)
========= =========
See notes to consolidated financial statements.
2
WHX CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
2001 2000
- -------------------------------------------------------------------------------------------------
(Dollars and shares in thousands)
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 8,773 $ 4,837
Short term investments 64,562 69,319
Trade receivables - net 85,641 83,929
Inventories:
Finished and semi-finished products 51,680 53,821
Raw materials 34,225 36,453
Precious metals 56,434 61,671
LIFO reserve 0 (1,676)
----------- ----------
142,339 150,269
Due from WPC 20,878 20,878
Other current assets 12,736 11,472
------------ ----------
Total current assets 334,929 340,704
Restricted cash 33,000 33,000
Property, plant and equipment at cost, less
accumulated depreciation and amortization 172,301 173,790
Prepaid pension 37,106 37,755
Intangibles, net of amortization 280,704 282,821
Other non-current assets 44,758 45,446
------------ ----------
$ 902,798 $ 913,516
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 49,742 $ 46,477
Deferred income taxes - current 18,562 18,562
Other current liabilities 51,157 46,086
Due to WPC 33,333 31,952
Long-term debt due in one year 2,150 929
------------ ----------
Total current liabilities 154,944 144,006
Long-term debt 505,196 504,983
Loss in excess of investment - WPC 39,783 39,783
Deferred income taxes - non-current 13,634 21,289
Other liabilities 28,327 25,813
------------ ----------
741,884 735,874
------------ ----------
Redeemable Common Stock - 243 shares
and 245 shares 2,627 2,646
------------ ----------
Stockholders' Equity:
Preferred Stock $.10 par value -
5,883 shares 589 589
Common Stock - $.01 par value -
14,920 shares and 14,590 shares 146 146
Accumulated other
comprehensive (loss) (2,998) (1,501)
Additional paid-in capital 555,613 555,479
Accumulated (deficit) (395,063) (379,717)
------------ ----------
Total stockholders' equity 158,287 174,996
------------ ----------
$ 902,798 $ 913,516
============ ==========
See notes to consolidated financial statements.
3
WHX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2001 2000
- -----------------------------------------------------------------------------------------------------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(10,194) $ (6,699)
Non cash income and expenses:
Depreciation and amortization 7,380 27,266
Other post employment benefits 55 (437)
Income taxes (6,189) (8,503)
(Gain) loss on sale of assets 12 (1,844)
Equity income in affiliated companies (145) (2,456)
Pension expense 0 1,212
Minority interest 0 451
Decrease (increase) in working capital elements,
Trade receivables (1,712) (25,804)
Inventories 7,930 (24,376)
Other current assets (1,264) (2,972)
Trade payables 3,265 30,982
Other current liabilities 2,769 18,034
Short-term investments - net 4,757 (22,090)
Trading account borrowings 0 39,615
Other items - net (327) 2,548
-------- ----------
Net cash provided by operating activities 6,337 24,927
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short term investments available-for-sale 0 (4,630)
Property additions and improvements (4,917) (35,470)
Investment in affiliates 0 (1,369)
Dividends from affiliates 0 3,750
Proceeds from sale of property 2 4,612
-------- ----------
Net cash (used) in investing activities (4,915) (33,107)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on long-term debt 2,435 3,840
Minority interest dividends 0 (1,417)
Short term borrowings 0 10,685
Common stock purchased 132 0
Preferred stock dividends paid 0 (5,152)
Redemption of equity issues (18) 0
-------- ----------
Net cash provided by financing activities 2,549 7,956
-------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON NET CASH (35) (40)
-------- ----------
INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 3,936 (264)
Cash and cash equivalents
at beginning of period 4,837 10,775
-------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 8,773 $ 10,511
======= ==========
See notes to consolidated financial statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
The consolidated balance sheet as of March 31, 2001, the
consolidated statement of operations for the three month periods ended
March 31, 2001 and 2000, and the consolidated statement of cash flows
for the three month periods ended March 31, 2001 and 2000, have been
prepared by the Company without audit. In the opinion of management,
all normal and recurring adjustments necessary to present fairly the
consolidated financial position at March 31, 2001 and the results of
operations and changes in cash flows for the periods presented have
been made.
The consolidated financial statements include the accounts of
all non-bankrupt subsidiary companies. As a result of the Bankruptcy
Filing (see Note 1) the Company has, as of November 16, 2000,
deconsolidated the balance sheet of its wholly owned subsidiary,
Wheeling-Pittsburgh Corporation ("WPC"). As a result of such
deconsolidation, the accompanying consolidated balance sheets at March
31, 2001 and December 31, 2000 do not include any of the assets or
liabilities of WPC, and the accompanying March 31, 2001 consolidated
statement of operations and the consolidated statement of cash flows
excludes the operating results of WPC. Since November 16, 2000, the
Company has accounted for its investment in WPC on the cost method.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. This quarterly
report on Form 10-Q should be read in conjunction with the Company's
audited consolidated financial statements contained in Form 10K for the
year ended December 31, 2000. The results of operations for the period
ended March 31, 2001 are not necessarily indicative of the operating
results for the full year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Wheeling-Pittsburgh Corporation and six of its subsidiaries
("the WPC Group") filed a petition seeking reorganization under Chapter
11 of Title 11 of the United States Bankruptcy Code on November 16,
2000, See Note 1.
BUSINESS SEGMENTS
WHX Corporation ("WHX") is a holding company that has been
structured to invest in and/or acquire a diverse group of businesses on
a decentralized basis. WHX's primary businesses currently are: Handy &
Harman ("H&H"), a diversified manufacturing company whose strategic
business units encompass, among others, specialty wire, tubing, and
fasteners, and precious metals plating and fabrication; Unimast
Incorporated ("Unimast"), a leading manufacturer of steel framing and
other products for commercial and residential construction; and WHX
Entertainment Corp., a co-owner of a racetrack and video lottery
facility located in Wheeling, West Virginia. WHX's other business
consists of Wheeling-Pittsburgh Corporation ("WPC") and its
subsidiaries including Wheeling-Pittsburgh Steel Corporation ("WPSC"
and together with WPC and its other subsidiaries, the "WPC Group"), a
vertically integrated
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
manufacturer of value-added and flat rolled steel products (see Note
1). WHX, together with all of its subsidiaries shall be referred to
herein as the "Company," and the Company and its subsidiaries other
than the WPC Group shall be referred to herein as the "WHX Group."
NOTE 1 - WPC GROUP BANKRUPTCY
On November 16, 2000, the WPC Group filed petitions for relief
under Chapter 11 of the Bankruptcy Code. The Bankruptcy Filing was made
in the United States Bankruptcy Court for the Northern District of
Ohio. As a result, subsequent to the commencement of the Bankruptcy
Filing, the WPC Group sought and obtained several orders from the
Bankruptcy Court that were intended to enable the WPC Group to continue
business operations as debtors-in-possession. Since the Petition Date,
the WPC Group's management has been in the process of stabilizing their
businesses and evaluating their operations, while continuing to provide
uninterrupted services to its customers.
The Bankruptcy Court has granted the WPC Group's motion to
approve a new $290 million DIP Credit Agreement provided by Citibank,
N.A., as initial issuing bank, Citicorp U.S.A., Inc., as administrative
agent, and the DIP Lenders. Pursuant to the DIP Credit Agreement,
Citibank, N.A. has made term loan advances to the WPC Group up to a
maximum aggregate principal amount of $35 million. In addition the DIP
Lenders have agreed, subject to certain conditions, to provide the WPC
Group with revolving loans, swing loans and letter of credit
accommodations in an aggregate amount of up to $255 million. In
connection with the Bankruptcy Filing, WHX has guaranteed $30 million
of the term loan portion of the DIP Credit Agreement and has deposited
in a pledged asset account $33 million of funds in support of such
guarantee. A portion of the earnings on the pledged asset account
accrue and are paid to WHX . If WHX is called upon to fund all or a
portion of its $30 million guaranty, there is little likelihood that
the WPC Group would be able to repay WHX its guaranty payments under
such term loan. The term loans and revolving loans are collateralized
by first priority liens on the WPC Group's assets, subject to valid
liens existing on November 16, 2000, and have been granted
superpriority administrative status, subject to certain carve-outs for
fees payable to the United States Trustee and professional fees. The
DIP Credit Agreement contains negative, affirmative and financial
covenants, including a limitation on capital expenditures through
December 31, 2001 of $42.5 million and $60 million in fiscal 2002, and
a requirement that the WPC Group have $15 million of excess
availability at all times. The terms of the DIP Credit Agreement also
include cross default and other customary provisions.
The DIP Credit Agreement expires November 16, 2002. Revolving
credit interest rates are based on the Citibank Base Rate plus 2%
and/or Eurodollar rate plus 3%. The margin over the prime rate and the
Eurodollar rate fluctuate based upon excess availability. The Term Loan
interest rates are 13% cash pay plus 3% deferred. Borrowings
outstanding under the DIP Credit Agreement at March 31, 2001 included
the $35 million term loan, $150.2 million in revolving credit
borrowings and approximately $5.0 million of letters of credit.
Under Chapter 11, certain claims against the WPC Group in
existence prior to the filing of the petitions for relief under the
Federal bankruptcy laws ("pre-petition") are stayed while the WPC Group
continues business operations as debtors-in-possession. Claims secured
against the WPC Group's assets ("secured claims") are also stayed,
although the holders of such claims have the right to move the court
for relief from stay or adequate protection. Secured claims are secured
primarily by liens on the WPC Group's land, buildings and equipment.
May 16, 2001 was set by the Bankruptcy
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Court as the last date creditors could file proofs of claim under the
Bankruptcy Code. The Bankruptcy Filing is an event of default under
WPC's 9-1/4% Senior Notes. The Bankruptcy Filing is not an event of
default under any of the WHX Group's indentures or credit facilities.
Pursuant to the provisions of the Bankruptcy Code, all actions
to collect upon any of the WPC Group's liabilities as of the petition
date or to enforce pre-petition date contractual obligations were
automatically stayed. Absent approval from the Bankruptcy Court, the
WPC Group is prohibited from paying pre-petition obligations, including
principal and interest on WPC's 9-1/4% Senior Notes. However, the
Bankruptcy Court has approved payment of certain pre-petition
liabilities such as employee wages and benefits and certain other
pre-petition obligations. Additionally, the Bankruptcy Court has
approved the retention of legal and financial professionals. As
debtors-in-possession, the WPC Group has the right, subject to
Bankruptcy Court approval and certain other conditions, to assume or
reject any pre-petition executory contracts and unexpired leases.
Parties affected by such rejections may file pre-petition claims with
the Bankruptcy Court in accordance with bankruptcy procedures.
The WPC Group is currently developing a plan of reorganization
(the "Plan of Reorganization") through, among other things, discussions
with the official creditor committees appointed in the Chapter 11
cases.
Although the WPC Group expects to file a Plan of
Reorganization at an appropriate time in the future, there can be no
assurance at this time that a Plan of Reorganization will be proposed
by the WPC Group, approved or confirmed by the Bankruptcy Court, or
that such plan will be consummated. The WPC Group has the exclusive
right to file a Plan of Reorganization at any time during the 120-day
period following November 16, 2000. The exclusive filing period has
been extended until June 14, 2001 by the Bankruptcy Court at the WPC
Group's request, and while the WPC Group intends to request extensions
of the exclusivity period if necessary, there can be no assurance that
the Bankruptcy Court will grant future extensions. If the exclusivity
period were to expire or be terminated, other interested parties, such
as creditors of the WPC Group, would have the right to propose
alternative plans of reorganization.
After a plan of reorganization has been filed with the
Bankruptcy Court, the plan, along with a disclosure statement approved
by the Bankruptcy Court, will be sent to impaired creditors and equity
security holders who are entitled to vote. Following the solicitation
period, the Bankruptcy Court will consider whether to confirm the plan.
In order to confirm a plan of reorganization, the Bankruptcy Court,
among other things, is required to find that (i) with respect to each
impaired class of creditors and equity security holders, each holder in
such class will, pursuant to the plan, receive at least as much as such
holder would receive in a liquidation, (ii) each impaired class of
creditors and equity security holders has accepted the plan by the
requisite vote (except as provided in the following sentence), and
(iii) confirmation of the plan is not likely to be followed by the
liquidation of the WPC Group or a need for its further financial
reorganization or any successors to it unless the plan proposes such
liquidation or reorganization. If any impaired class of creditors or
equity security holders does not accept a plan and assuming that all of
the other requirements of the Bankruptcy Code are met, the proponent of
the plan may invoke the "cram down" provisions of the Bankruptcy Code.
Under these provisions, the Bankruptcy Court may confirm a plan
notwithstanding the non-acceptance of the plan by an impaired class of
creditors or equity security holders if certain requirements of the
Bankruptcy Code are met. These requirements may, among other things,
necessitate payment in full for senior classes of creditors before
payment to a junior class can be made. WHX, as the holder of the
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
capital stock of WPC, does not expect to receive any value in respect
of its equity interest in WPC.
In the Bankruptcy Filing, the WPC Group may, with Bankruptcy
Court approval, sell assets and settle liabilities, including for
amounts other than those reflected in the financial statements. The
administrative and reorganization expenses resulting from the
Bankruptcy Filing will unfavorably affect results of the WPC Group.
Moreover, future results may be adversely affected by other claims and
factors resulting from the Bankruptcy Filing.
During the period January 1, 2001 through March 31, 2001, the
WPC Group incurred a net loss of $58.5 million which is not reflected
in the Company's March 31, 2001 consolidated results of operations.
At January 1, 2000, $136.8 million of the Company's net equity
represented its investment in WPC. In addition to this investment, the
Company, on November 16, 2000, guaranteed $30 million of the WPC
Group's debtor-in-possession term loan. The recognition of the WPC
Group's net loss of $176.6 has eliminated the investment's carrying
value of $136.8 million, and WHX has recorded a liability of $39.8
million (representing the excess of the WPC Group's loss over the
carrying amount of the investment). This liability will remain on the
Company's accounts until the ultimate disposition of the Bankruptcy
Filing is determined.
The accompanying March 31, 2001 consolidated balance sheet
includes a due from the WPC Group amounting to $20.9 million and a due
to the WPC Group of $33.3 million. These amounts are the result of
numerous transactions that transpired between companies in the WHX
Group and companies in the WPC Group since the date WHX acquired WPC.
Such transactions include cash advances between the affiliated
companies, payables and receivables arising from asset sales and
purchases, payments made to third parties on behalf of other affiliates
and billings resulting from the tax sharing agreement between WHX and
WPC.
For financial reporting purposes amounts owing to or due from
the WPC Group have been presented on a gross basis. The receivables and
liabilities remain those of the separate legal entities of the WHX
Group. As part of the Bankruptcy Filing proceedings offsetting or
netting of these amounts may not occur and certain receivables due from
the WPC Group of companies may be characterized as prepetition
liabilities of the WPC Group and as such the WHX Group due from the WPC
Group may not be fully recovered.
The Company has recorded the aforementioned amounts of inter-company
receivables and payables based upon its understanding and
interpretation and those of its legal counsel of the various agreements
between WHX and WPC. The amounts recorded in the inter-company accounts
represent the historical summarization of numerous transactions amongst
all of the WHX and WPC affiliated companies. WHX is disputing the
characterization, amount and legal entities charged for certain
transactions, the result of which may be more favorable to WHX. As a
result of the Bankruptcy Filing, WPC may dispute the net amount
recorded by the Company and it may make other assertions that may be
unfavorable to WHX. As WHX and WPC intend to investigate the disputed
items and seek to resolve such dispute through a negotiated settlement,
the ultimate resolution of this matter cannot presently be determined
and a settlement amount could be different from the amounts recorded in
the accompanying consolidated balance sheet.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
In February 2001, WHX submitted an invoice to WPC in the
amount of $29.4 million representing revised allocations of pension
costs for prior periods. The WPC Group has contested this inter-company
billing, and it is anticipated that this item will be included in the
negotiations with respect to all contested inter-company amounts and
items referred to above. The Company has not recognized any benefit
relating to this billing, and such amount is not included in the
aforementioned inter-company account balances.
The Company has no current intention to provide the WPC Group
with additional cash funding other than what may be required in the
settlement of the inter-company accounts, amounts that may be required
to be paid in future periods pursuant to the provisions of the tax
sharing agreement and any payment that may result under the Company's
guarantee of the term loan portion of the DIP Credit Agreement.
However, the Company may elect to provide additional financing to the
WPC Group should the need arise and if it is in the best interest of
the Company.
Management of the Company cannot determine with certainty the
ultimate outcome of the Chapter 11 proceedings; however it is
reasonably possible that the following outcomes could result:
o The WPC Group could reorganize, and their creditors could
receive all or a portion of their claims.
o The WPC Group could be sold in its entirety or segments could
be sold, and the proceeds from such sale(s) would be utilized
to satisfy creditor claims.
o The creditors could assume ownership of the WPC Group and
continue to operate the WPC Group businesses.
In each of the above possible outcomes, the WHX Group would
have little or no future ownership in or involvement with the WPC
Group, and the WHX Group future cash obligations to or on behalf of the
WPC Group would be minimal to none other than the possible payments
discussed above. It is also reasonably possible that none of the above
outcomes would occur and the WPC Group may shut down a number of their
operations. According to the Company's preliminary evaluation of
potential pension obligations, if a partial shutdown of the WPC Group's
operations were to occur in the immediate future WHX's liability for
early retirement pension benefits could range from approximately $80
million to $100 million. It is also possible that the WPC Group could
cease operations in their entirety and this liability would then be
significantly greater. However, management does not believe this
occurrence is likely. Under current pension law and regulations based
on the Company's analysis of the current funded status of the pension
plan, if a partial shutdown were to occur at the present time, the cash
funding obligations would likely not begin until 2003 and would extend
over several years. Such cash funding obligations would have a material
adverse impact on the liquidity, financial position and capital
resources of the Company. The Company's funding obligation and the
impact on the Company's liquidity, financial position and capital
resources could be substantially reduced or eliminated if (1) a partial
shutdown, if it occurs, were to occur at such a time that the fair
market value of the assets of the plan approximates or exceeds the
plan's liabilities (including the early retirement benefits), (2) a
shutdown were to occur gradually over several years or (3) the number
of the WPC Group's operations shut down were less than those assumed in
estimating the above-mentioned amounts.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
NOTE 2 - EARNINGS PER SHARE
The computation of basic earnings per common share is based
upon the average shares of Common Stock outstanding. In the computation
of diluted earnings per common share in the first quarter of 2001 and
2000, the conversion of preferred stock and redeemable common stock and
exercise of options would have had an anti-dilutive effect. A
reconciliation of the income and shares used in the computation
follows:
RECONCILIATION OF INCOME AND SHARES IN EPS CALCULATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For the Quarter Ended March 31, 2001
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net (Loss) $(10,194)
Less: Preferred stock dividends 5,152
BASIC AND DILUTED EPS
Net (Loss) available to -------- ----------- ---------
common stockholders $(15,346) 14,603 $(1.05)
======== =========== ==========
The assumed conversion of stock options, preferred stock and redeemable common
stock would have an antidilutive effect on earnings per share.
For the Quarter Ended March 31, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net (Loss) $ (6,699)
Less: Preferred stock dividends 5,152
BASIC AND DILUTED EPS
Net (Loss) available to --------- ----------- --------
common stockholders $ (11,851) 14,167 $ (.84)
========== =========== =========
The assumed conversion of stock options, preferred stock and redeemable common
stock would have an antidilutive effect on earnings per share.
Outstanding stock options granted to officers, directors, key
employees and others totaled 5,409,502 million shares of Common Stock
at March 31, 2001.
REDEEMABLE COMMON STOCK
Certain present and former employees of the WPC Group have the
right to sell their redeemable common stock to the Company at prices of
$15 or $20 per share depending on years of service, age and retirement
date. Holders can sell any or all of their redeemable common stock into
the public market, provided, however, that stock sales on any day
cannot be more than 20% of the number of shares publicly traded during
the previous day. As of March 31, 2001 redeemable common stock
outstanding totaled 243,536 shares.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Comprehensive income for the three month period ended March
31, 2001 and 2000 was as follows:
(in thousands) Three Months Ended
March 31
2001 2000
---- ----
Net (loss) $(10,194) $(6,699)
Other comprehensive (loss):
Foreign currency translation adjustments (649) (236)
Unrealized (losses) on available-for-sale securities:
Unrealized holding (losses) arising during the period, net of tax (a)
0 (4,630)
Cumulative effect on Equity of SFAS No. 133 adoption, net of tax (a) (423) 0
Interest Rate Swap, net of tax (a) (425) 0
-------- ---------
Comprehensive (loss) $(11,691) $(11,565)
======== =========
(a) Includes tax (benefit) of $454 and $2,493 for the three-month period ended
March 31, 2001 and 2000.
Accumulated other comprehensive income balances as of March 31, 2001 and
December 31, 2000 were as follows:
Foreign currency Accumulated other
(in thousands) Cash Flow Unrealized gain translation comprehensive
Hedge (loss) on securities adjustments income (loss)
----- -------------------- ----------- -------------
March 31, 2001
Balance on January 1, 2001 $ 0 $0 $(1,501) $(1,501)
Period change (848) 0 (649) (1,497)
------ -------- ------- -------
Balance on March 31, 2001 $ (848) $0 $(2,150) $(2,998)
====== ======== ======= =======
December 31, 2000
Balance on January 1, 2000 $ 0 $ 1,450 $(505) $945
Period change 0 (1,450) (996) (2,446)
------ -------- ------- -------
Balance on December 31, 2000 $ 0 $0 $(1,501) $(1,501)
====== ======== ======= =======
NOTE 4 - SHORT TERM INVESTMENTS
Net unrealized holding losses on trading securities held at
period end and included in other income for the first quarter of 2001
and 2000 were a loss of $10.1 million and $7.8 million, respectively.
NOTE 5 - INVENTORY
The operating income for the quarter ended March 31, 2001
includes a charge resulting from a lower of cost or market adjustment
to precious metal inventory. The effect of this adjustment decreased
operating income by $3.3 million for the three months ended March 31,
2001.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
NOTE 6 - LONG-TERM DEBT
The Company's long-term debt consists of the following debt
instruments:
March 31, December 31,
2001 2000
(dollars in thousands)
WHX Senior Unsecured Notes due 2005, 10-1/2% $281,490 $281,490
Handy & Harman Senior Secured Credit Facility 195,156 192,793
Handy & Harman Industrial Revenue Bonds, due 2004 7,500 7,500
Unimast Revolving Credit Agreement, due 2003 22,000 21,000
Unimast Industrial Development Bond, due 2030 6,050 6,050
Other 2,150 3,079
--------- --------
514,346 511,912
--------- --------
Less portion due within one year 9,150(a) 6,929(a)
--------- --------
Total Long-Term Debt $ 505,196 $504,983
========= ========
(a) $7 million and $6 million of the Unimast revolving Credit Agreement,
due 2003 is included in other current liabilities.
NOTE 7 - CONTINGENCIES
Legal & Environmental Matters
Legal Matters
WPC Group
The WPC Group is a party to various litigation matters
including general liability claims covered by insurance. Claims that
are "pre-petition" claims for Chapter 11 purposes will ultimately be
handled in accordance with the terms of a confirmed Plan of
Reorganization in Chapter 11 cases. In the opinion of management,
litigation claims are not expected to have a material adverse effect on
the WPC Group's results of operations or its ability to reorganize.
For further discussion on the WPC Group contingencies, see
Note 1.
Summary
The Company is a party to various litigation matters including
general liability claims covered by insurance. In the opinion of
management, the ultimate outcome of such litigation matters and claims
is not expected to have a material adverse effect on the financial
condition or results of operations of the Company. However, it is
possible that the ultimate resolution of such litigation matters and
claims could have a material effect on quarterly or annual operating
results when they are resolved in future periods.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Environmental Matters
WPC Group
WPC has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund") and/or similar state statutes at several
waste sites. WPC is subject to joint and several liability imposed by
Superfund on potentially responsible parties. Due to the technical and
regulatory complexity of remedial activities and the difficulties
attendant to identifying potentially responsible parties and allocating
or determining liability among them, WPC is unable to reasonably
estimate the ultimate cost of compliance with Superfund laws. WPC
believes, based upon information currently available, that its
liability for clean up and remediation costs in connection with the
Buckeye Reclamation Landfill will be between $1.5 and $2.0 million. At
WPC's other sites the Company estimates costs of an aggregate less than
$.5 million.
WPC, as are other industrial manufacturers, is subject to
increasingly stringent standards relating to the protection of the
environment. In order to facilitate compliance with these environmental
standards, WPC has incurred capital expenditures for environmental
control projects aggregating $7.7 million, $3.4 million and $.5 million
for 1999, 2000 and the three months ended March 31, 2001, respectively.
WPC anticipates spending approximately $22.8 million in the aggregate
on major environmental compliance projects through the year 2003,
estimated to be spent as follows: $7.6 million in 2001, $12.1 million
in 2002, $3.1 million in 2003. Due to the possibility of unanticipated
factual or regulatory developments, the amount of future expenditures
may vary substantially from such estimates.
WPC's non-current accrued environmental liabilities totaled
$17.1 million at March 31, 2001. These accruals were initially
determined by WPC in January 1991, based on all then available
information. As new information becomes available, including
information provided by third parties, and changing laws and regulation
the liabilities are reviewed and the accruals adjusted quarterly.
Management believes, based on its best estimate, that WPC has
adequately provided for remediation costs that might be incurred or
penalties that might be imposed under present environmental laws and
regulations.
Based on information currently available, including the WPC
Group's prior capital expenditures, anticipated capital expenditures,
consent agreements negotiated with Federal and state agencies and
information available to the WPC Group on pending judicial and
administrative proceedings, the WPC Group does not expect its
environmental compliance and liability costs, including the incurrence
of additional fines and penalties, if any, relating to the operation of
its facilities, to have a material adverse effect on the financial
condition of the WPC Group. However, it is possible that litigation and
environmental contingencies could have a material effect on quarterly
or annual operating results when they are resolved in future periods.
As further information comes into the WPC Group's possession, it will
continue to reassess such evaluations.
In the event the WPC Group is unable to fund these
liabilities, claims may be made against the WHX Group for payment of
such liabilities.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
NOTE 8 - REPORTED SEGMENTS
The Company's reportable operating segments consist of
H&H, Unimast and all other corporate entities, each providing their
own unique products and services. Each of these segments is
independently managed and requires different production technology and
marketing and distribution channels. The accounting policies of the
segments are consistent with those of the Company.
For the periods presented, intersegment sales and transfers
were conducted as if the sales or transfers were to third parties, that
is, at prevailing market prices. Income taxes are allocated to the
segments in accordance with the Company's tax sharing agreement, which
generally requires separate segment tax calculations. The benefit, if
any, of the WPC Group NOL carryforwards are allocated to the WPC Group.
The table below presents information about reported segments and a
reconciliation of total segment sales to total consolidated sales for
the first quarters of 2001 and 2000.
FIRST QUARTER OF 2001
(dollars in thousands) ALL SEGMENT CONSOLIDATED
WPC H&H UNIMAST OTHER TOTAL ADJUSTMENTS TOTAL
--- --- ------- ----- ----- ----------- -----
*
Revenue from
external customers --- 99,654 56,438 --- 156,092 (21) 156,071
Intersegment revenues
--- --- 21 --- 21 --- 21
Segment net income (loss)
--- (2,750) 664 (8,108) (10,194) --- (10,194)
FIRST QUARTER OF 2000
ALL SEGMENT CONSOLIDATED
WPC H&H UNIMAST OTHER TOTAL ADJUSTMENTS TOTAL
--- --- ------- ----- ----- ----------- -----
Revenue from external Customers 290,202 121,316 61,167 --- 472,685 (4,942) 467,743
Intersegment revenues 4,942 --- --- --- 4,942 --- 4,942
Segment net income (loss) (5,130) 2,215 2,816 (6,600) (6,699) --- (6,699)
*Effective November 16, 2000 WPC was deconsolidated for financial reporting
purposes.
NOTE 9 - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS133). This
pronouncement requires all derivative instruments to be reported at
fair value on the balance sheet; depending on the nature of the
derivative instrument, changes in fair value will be recognized either
in net income or as an element of comprehensive income. SFAS 133 is
effective for fiscal years beginning after June 15, 2000. The Company
has not engaged in significant activity with respect to derivative
instruments or hedging activities in the past.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
A reconciliation of current period charges, net of applicable
income taxes, included in the comprehensive income component of
stockholders' equity is as follows:
(Dollars in thousands)
Cumulative Effect on Equity of SFAS No. 133 adoption $(423)
Current period declines in fair value of interest
rate swap - net of tax (425)
-----
Balance at March 31, 2001 $(848)
======
The above amount is recorded in equity, net of a tax benefit
of $454, at March 31, 2001. This amount is expected to be
reclassified to earnings over the six month period ending
September 30, 2001.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements", as amended by SAB 101A and SAB
101B, which summarizes the SEC staff's interpretations of generally
accepted accounting principles related to revenue recognition and
classification. The interpretation did not have a significant impact on
the consolidated results of operations or financial position and
related disclosure.
During the third quarter 2000, the EITF issued EITF Consensus No.
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent",
which addresses whether certain cost items should be reported as a
reduction of revenue or as a component of cost of sales and EITF
Consensus No. 00-10, "Accounting for Shipping and Handling Fees and
Costs" ("EITF 00-10"), which addresses the classification of cost
incurred for shipping goods to customers. These new pronouncements are
effective no later than the fourth quarter of fiscal years beginning
after December 15, 1999. As a result of adopting EITF 00-10, the
Company has reclassified amounts in the Consolidated Statements of
Operations for the quarter ended March 31, 2000 as follows:
Quarter Ended
March 31, 2000
(Dollars in Thousands)
Increased Sales $13,972
Increased Cost of sales 14,872
Decreased SG&A $ 900
15
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company continues to pursue strategic alternatives to
maximize the value of its portfolio of businesses. Some of these
alternatives have included, and will continue to include selective
acquisitions, divestitures and sales of certain assets. The Company has
provided, and may from time to time in the future, provide information
to interested parties regarding portions of its businesses for such
purposes.
RESULTS OF OPERATIONS
The Bankruptcy Filing and resultant deconsolidation of WPC as
of November 16, 2000 have affected comparisons between the first quarter
2001 and first quarter 2000.
Net sales for the first quarter of 2001 were $156.1 million as
compared to $467.7 million in the first quarter of 2000, a decrease of
$311.6 million. WPC Group sales included in the first quarter of 2000
were $285.2 million. Sales decreased by $21.6 million at H&H
reflecting reduced demand across all product lines. Sales decreased by
$4.8 million at Unimast, reflecting steady demand in the
non-residential construction market, offset by continued weakness in
pricing.
Operating costs for the first quarter of 2001 decreased to
$155.5 million from $452.8 million. WPC Group operating costs included
in the first quarter 2000 were $284.5 million. Operating costs at
H&H were lower by $13.4 million in the first quarter 2001
reflecting reduced selling activity, offset by a $3.3 million non-cash
lower of cost or market charge to the precious metals inventory values
due to decreases in the market prices of both gold and silver since
year end 2000. Unimast operating costs were down $ 1.7 million in the
first quarter of 2001 versus the first quarter 2000 primarily due to
lower raw material costs.
Selling, administrative and general expense for the first
quarter of 2001 decreased $20 million to $18.9 million from $38.9
million in the comparable period in 2000. Selling, administrative and
general expense at the WPC Group operations for the first quarter of
2000 was $18.1 million. Selling, administrative and general expense at
H&H decreased by $2.9 million to $12.9 million in the first quarter
of 2001 compared to $15.8 million in the first quarter of 2000 which
contained a $1 million bad debt reserve related to an outside precious
metal refiner's bankruptcy. Selling, administrative and general expense
at Unimast was down $.2 million to $3.3 million in the first quarter
2001 from $3.5 million in the first quarter of 2000. The remaining $1.2
million in increased costs is due primarily to legal and professional
fees associated with the WPC bankruptcy.
Interest expense for the first quarter 2001 decreased $8.9
million to $13.5 million from $22.4 million in the comparable period in
2000.The WPC Group interest expense included in the first quarter 2000
was $9.8 million.
Other (expense) was a $3.4 million loss in the first quarter
of 2001 as compared to $6.7 million loss in the first quarter of 2000.
The change in other (expense) is due primarily to the difference between
realized and unrealized losses on short-term portfolio investments.
The 2001 first quarter tax provision reflects an estimated
annual effective tax provision rate of 38%, as compared to 53% annual
effective rate in 2000. The
16
change in estimated annual effective tax rates is due to changes in
estimated annual pre-tax income and changes in permanent tax
adjustments.
Net loss for the 2001 first quarter totaled $15.3 million, or
a loss of $1.05 per share of common stock after deduction of preferred
dividends. The 2000 first quarter net loss was $11.9 million, or a loss
of $0.84 per share of common stock after deduction of preferred
dividends.
FINANCIAL POSITION
Net cash flow provided by operating activities for the first
quarter of 2001 totaled $6.3 million. Short term trading investments and
related short-term borrowings are reported as cash flow from operating
activities and provided a net $4.8 million of funds in the first quarter
of 2001. Working capital accounts provided $15.4 million of funds.
Accounts receivable increased by $1.7 million, trade payables increased
$3.3 million, and other current liabilities increased $2.8 million.
Inventories, valued principally by the LIFO method for financial
reporting purposes, totaled $142.3 million at March 31, 2001, a decrease
of $7.9 million from December 31, 2000.
In the first quarter of 2001, $4.9 million was spent on
capital improvements.
The Company's reportable operating segments WPC, H&H and
Unimast each maintain separate and distinct credit facilities with
various financial institutions.
Borrowings outstanding against the H&H Senior Secured
Credit Facility at March 31, 2001 totaled $195.1 million. Letters of
credit outstanding under the H&H Revolving Credit Facility were
$14.6 million at March 31, 2001.
Borrowings outstanding against the Unimast Revolving Credit
Facility at March 31, 2001 totaled $22.0 million. Letters of credit
outstanding under the Unimast Revolving Credit facility were $6.1
million at March 31, 2001.
H&H has entered into an interest rate swap for certain of
its variable-rate debt. The swap agreement covers a notional amount of
$125 million and converts $125 million of its variable-rate debt to a
fixed rate with Citibank, N.A., New York. The fixed rate is 6.75%,
effective September 22, 2000 with a termination date of September 20,
2001.
Unimast has also entered into an interest rate swap for
certain of its variable-rate debt. The swap agreement covers a notional
amount of $10 million and converts $10 million of its variable-rate
debt to a fixed rate with Bank One, N.A., Chicago, IL. The fixed rate
is 4.99%, effective March 27, 2001 with a termination date of November
23, 2003.
LIQUIDITY
As of March 31, 2001, the WHX Group had cash and short-term
investments, of $73.3 million.
The WHX Group has a significant amount of outstanding
indebtedness, and their ability to access capital markets in the future
may be limited. However, management believes that cash on hand and
future operating cash flow will enable the WHX Group to meet its cash
needs for the foreseeable future. The respective credit agreements of
H&H and Unimast have certain financial covenants that limit the amount
of cash distributions that can be paid to WHX.
17
Short-term liquidity is dependent, in large part, on cash on
hand, investments, general economic conditions and their effect on steel
demand and prices. Long-term liquidity is dependent upon the WHX Group's
ability to sustain profitable operations and control costs during
periods of low demand or pricing in order to sustain positive cash flow.
The WHX Group satisfies its working capital requirements through cash on
hand, investments, borrowing availability under the Revolving Credit
Facilities and funds generated from operations. The WHX Group believes
that such sources will provide the WHX Group for the next twelve months
with the funds required to satisfy working capital and capital
expenditure requirements. External factors, such as worldwide steel
production and demand and currency exchange rates, could materially
affect the WHX Group's results of operations and financial condition.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS133). This
pronouncement requires all derivative instruments to be reported at fair
value on the balance sheet; depending on the nature of the derivative
instrument, changes in fair value will be recognized either in net
income or as an element of comprehensive income. SFAS 133 is effective
for fiscal years beginning after June 15, 2000. The Company has not
engaged in significant activity with respect to derivative instruments
or hedging activities in the past.
A reconciliation of current period charges, net of applicable
income taxes, included in the comprehensive income component of
stockholders' equity is as follows: (Dollars in thousands)
Cumulative Effect on Equity of SFAS No. 133 adoption $(423)
Current period declines in fair value of interest
rate swap - net of tax (425)
-----
Balance at March 31, 2001 $(848)
======
The above amount is recorded in equity, net of a tax benefit
of $454, at March 31, 2001. This amount is expected to be
reclassified to earnings over the six month period ending
September 30, 2001.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition
in Financial Statements", as amended by SAB 101A and SAB 101B, which
summarizes the SEC staff's interpretations of generally accepted
accounting principles related to revenue recognition and classification.
The interpretation did not have a significant impact on the consolidated
results of operations or financial position and related disclosure.
During the third quarter 2000, the EITF issued EITF Consensus No. 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent", which
addresses whether certain cost items should be reported as a reduction
of revenue or as a component of cost of sales and EITF Consensus No.
00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF
00-10"), which addresses the classification of cost incurred for
shipping goods to customers. These new pronouncements are effective no
later than the fourth quarter of fiscal years beginning after December
15, 1999. As a result of adopting EITF 00-10, the Company has
reclassified amounts in the Consolidated Statements of Operations for
the quarter ended March 31, 2000 as follows:
Quarter Ended
March 31, 2000
(Dollars in Thousands)
Increased Sales $13,972
18
Increased Cost of sales 14,872
Decreased SG&A $ 900
*******
When used in the Management's Discussion and Analysis, 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 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, 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.
19
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 16, 2000, the WPC Group filed petitions for relief
under Chapter 11 of the Bankruptcy Code. The Bankruptcy Filing was made
in the United States Bankruptcy Court for the Northern District of Ohio.
As a result, subsequent to the commencement of the Bankruptcy Filing,
the WPC Group sought and obtained several orders from the Bankruptcy
Court that were intended to enable the WPC Group to continue business
operations as debtors-in-possession. Since the Petition Date, the WPC
Group's management has been in the process of stabilizing their
businesses and evaluating their operations, while continuing to provide
uninterrupted services to its customers. Reference is made to Note 1 of
the Consolidated Financial Statements included herewith and to the
Company's Annual Report Form 10-K for a more detailed description of the
matters referred to in this paragraph.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
20
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.
WHX CORPORATION
/s/ Arnold Nance
----------------------------------------
Arnold Nance
Vice President-Finance
(Principal Accounting Officer)
May 21, 2001
21
