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 September 30, 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 September 30, 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 November 5,
2001 was 15,733,770.
WHX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net Sales $ 161,357 $ 459,889 $ 480,217 $ 1,414,411
Operating Costs
Cost of goods sold 129,935 401,616 389,661 1,193,294
Depreciation and amortization 7,132 27,669 22,001 83,656
Selling, administrative and general expenses 19,823 36,059 61,990 110,590
----------- ----------- ----------- -----------
156,890 465,344 473,652 1,387,540
----------- ----------- ----------- -----------
Operating Income (loss) 4,467 (5,455) 6,565 26,871
Interest expense 12,673 23,397 38,893 67,597
Other income (expense) 2,098 5,898 5,898 (1,825)
----------- ----------- ----------- -----------
Income (loss) before taxes and extraordinary item (6,108) (22,954) (26,430) (42,551)
Tax provision (benefit) (1,635) (1,839) (7,189) (50,998)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (4,473) (21,115) (19,241) 8,447
Extraordinary item-net of tax -- -- 12,357 --
----------- ----------- ----------- -----------
Net Income (loss) (4,473) (21,115) (6,884) 8,447
Dividend requirement for Preferred Stock 4,827 5,152 15,089 15,455
----------- ----------- ----------- -----------
Net Income (loss) applicable to Common Stock $ (9,300) $ (26,267) $ (21,973) $ (7,008)
=========== =========== =========== ===========
Basic and Diluted income (loss) per share of
Common Stock
Income (loss) before extraordinary item $ (0.61) $ (1.84) $ (2.31) $ (0.49)
Extraordinary item-net of tax -- -- 0.83 --
----------- ----------- ----------- -----------
Net (loss) per share $ (0.61) $ (1.84) $ (1.48) $ (0.49)
=========== =========== =========== ===========
See notes to consolidated financial statements.
WHX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
WHX CORPORATION
CONSOLIDATED BALANCE SHEET
September 30, December 31,
2001 2000
- -------------------------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands)
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 35,140 $ 4,837
Short term investments 8,973 69,319
Trade receivables - net 88,502 83,929
Inventories 116,072 150,269
Due from WPC 4,643 20,878
Other current assets 12,863 11,472
--------- ---------
Total current assets 266,193 340,704
Note Receivable - WPC 30,766 --
Restricted cash -- 33,000
Property, plant and equipment at cost, less
accumulated depreciation and amortization 173,282 173,790
Prepaid pension 34,148 37,755
Intangibles, net of amortization 276,400 282,821
Other non-current assets 39,401 45,446
--------- ---------
$ 820,190 $ 913,516
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 50,086 $ 46,477
Deferred income taxes - current 18,562 18,562
Other current liabilities 44,292 46,086
Due to WPC -- 31,952
Long-term debt due in one year 2,150 929
--------- ---------
Total current liabilities 115,090 144,006
Long-term debt 465,502 504,983
Loss in excess of investment - WPC 37,348 39,783
Deferred income taxes - non-current 19,094 21,289
Other liabilities 30,131 25,813
--------- ---------
667,165 735,874
--------- ---------
Redeemable Common Stock - 245 shares -- 2,646
--------- ---------
Stockholders' Equity:
Preferred Stock $.10 par value -
5,770 shares and 5,883 shares 577 589
Common Stock - $.01 par value -
15,453 shares and 14,590 shares 155 146
Accumulated other
comprehensive income (loss) (1,904) (1,501)
Additional paid-in capital 555,887 555,479
Accumulated earnings (deficit) (401,690) (379,717)
--------- ---------
Total stockholders' equity 153,025 174,996
--------- ---------
$ 820,190 $ 913,516
========= =========
See notes to consolidated financial statements.
2
WHX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income (loss) $(6,884) $ 8,447
Non cash income and expenses:
Depreciation and amortization 22,345 80,810
Extraordinary income (19,012) ---
Other post employment benefits 167 (6,838)
Deferred income taxes (2,195) (53,582)
(Gain) loss on sale of assets 198 (1,046)
Equity income in affiliated companies (2,836) (2,442)
Pension expense 3,607 1,936
Amortization of deferred financing fees 2,922 2,846
Minority interest --- 1,454
Decrease (increase) in working capital elements,
Trade receivables (1,862) (15,856)
Trade receivables sold --- 5,000
Inventories 35,541 (34,842)
Other current assets (6,034) 89
Trade payables 3,447 24,321
Other current liabilities 54 8,670
Short-term investments - net 60,346 390,738
Trading account borrowings --- (374,333)
Other items-net (178) 5,827
----------------- --------------------
Net cash provided by operating activities 89,626 41,199
----------------- --------------------
Cash flows from investing activities:
Release of restricted cash 33,000 ---
Note receivable - WPC (30,453) ---
Settlement Agreement-WPC (32,000) ---
Property additions and improvements (12,547) (97,936)
Investment in affiliates --- 131
Dividends from affiliates 1,285 4,649
Proceeds from sale of property 167 4,773
----------------- --------------------
Net cash (used) in investing activities (40,548) (88,383)
----------------- --------------------
Cash flows from financing activities:
Early retirement of long-term debt (15,906) ---
Net borrowings/(payments) of long-term debt (1,829) 21,504
Minority interest dividends --- (1,733)
Short term borrowings (1,000) 42,933
Preferred stock dividends paid --- (15,455)
Redemption of equity issues (18) (263)
----------------- --------------------
Net cash provided (used) by financing activities (18,753) 46,986
----------------- --------------------
Effect of exchange rate changes on net cash (22) ---
Increase/decrease in cash and
cash equivalents 30,303 (198)
Cash and cash equivalents
at beginning of period 4,837 10,775
----------------- --------------------
Cash and cash equivalents
at end of period $35,140 $10,577
================= ====================
See notes to consolidated financial statements.
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
- -------
The unaudited consolidated financial statements included herein
have been prepared by the Company. 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 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.
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 quarter
and nine months ended September 30, 2001 are not necessarily indicative
of the operating results for the full year.
The consolidated financial statements include the accounts of
all subsidiary companies except for Wheeling-Pittsburgh Corporation and
its subsidiaries. On November 16, 2000, Wheeling-Pittsburgh Corporation
("WPC"), a wholly owned subsidiary of WHX Corporation ("WHX"), 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. See Note 1. As a result of the Bankruptcy Filing the
Company has, as of November 16, 2000, deconsolidated the balance sheet
of its wholly owned subsidiary WPC. Accordingly, the accompanying
consolidated balance sheets at September 30, 2001 and December 31, 2000
do not include any of the assets or liabilities of WPC, and the
accompanying consolidated statement of operations and the consolidated
statement of cash flows for the quarter and nine months ended September
30, 2001 exclude the operating results of WPC.
Nature of Operations
- --------------------
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 three segments; precious metal, wire & tubing,
and engineered materials; 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 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 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
4
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 granted the WPC Group's motion to approve
a new $290 million Debtor in Possession Credit Agreement ("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. made term loan
advances to the WPC Group up to a maximum aggregate principal amount of
$35 million. In addition, the DIP Lenders 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 had guaranteed
$30 million of the term loan portion of the DIP Credit Agreement (the
"Term Loan") and deposited in a pledged asset account $33 million of
funds in support of such guaranty. Effective as of June 1, 2001, WHX
purchased a participation interest comprising an undivided interest in
the Term Loan in the amount of $30 million, plus interest accrued but
not paid on such amount of the Term Loan through June 1, 2001.
Concurrently with such transaction, WHX's guaranty of $30 million of the
Term Loan described above was terminated and the $33 million of funds
previously deposited in a pledged asset account in support of such
guaranty were released to WHX. WHX paid to Citibank $30.5 million of
such deposited funds to purchase WHX's participation interest in the
Term Loan. WPC borrowings outstanding under the DIP Credit Agreement at
September 30, 2001 include $34.3 million Term Loan, $149.0 million in
revolving credit borrowings and approximately $2.9 million of letters of
credit.
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 currently has the exclusive right to file a
Plan of Reorganization. The exclusive filing period has been extended
most recently until December 24, 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.
During the period January 1, 2001 through September 30, 2001,
the WPC Group incurred a net loss of $142.7 million which is not
reflected in the Company's September 30, 2001 consolidated results of
operations.
At January 1, 2000, $136.8 million of the Company's net equity
represented its investment in the WPC Group. In addition to this
investment, WHX, on November 16, 2000, guaranteed $30 million of the WPC
Group's debtor-in-possession term loan. Such guaranty was terminated
effective as of June 1, 2001 concurrently with WHX's purchase of a
participation interest in the Term Loan as discussed above. The
recognition of the WPC Group's net loss of $176.6, in the year 2000, has
eliminated the investment's carrying value of $136.8 million. In
November of 2000, WHX recorded a liability of $39.8 million representing
the excess of the WPC Group's loss over the carrying amount of the
investment.
A Settlement and Release Agreement ("Settlement Agreement") by
and among WPSC, WPC, WHX, and certain affiliates of WPSC, WPC and WHX,
received approval of the United States Bankruptcy Court for the Northern
District of Ohio on May 24, 2001, was entered into on May 25, 2001, and
became effective on May 29, 2001. Pursuant to the Settlement Agreement
certain outstanding claims among the parties thereto were resolved,
including without limitation, all inter-company receivables and payables
between the WHX Group and the WPC Group.
The Settlement Agreement provided, in part, that the Settlement
Agreement shall be effective upon the occurrence of each of the
following transactions, (i) the payment by WHX to WPC of $17 million;
(ii) the exchange of releases between the WPC Group and the WHX Group;
(iii) WHX or its designee would enter into a binding agreement to
purchase certain assets of Pittsburgh-Canfield Corporation ("PCC") for
$15 million, plus the assumption of
5
certain trade payables, subject to bidding procedures as may be
established by the bankruptcy court, and certain other terms and
conditions; (iv) the termination of the Tax Sharing Agreements between
WHX and WPC; (v) WHX would deliver an agreement to the WPC Group whereby
it agreed not to charge or allocate any pension obligations, expenses or
charges to the WPC Group with respect to the WHX Pension Plan, subject
to certain limitations as provided therein, through and including the
earlier of the effective date of a plan or plans of reorganization and
December 31, 2002; (vi) the DIP Credit Agreement shall have been amended
as provided in the Settlement Agreement; (vii) WPC Land Corporation
shall execute such instruments as may be necessary to effect the
transfer of title, to WPSC, of certain properties specified in the
Settlement Agreement; and (viii) the lenders party to the DIP Credit
Agreement shall have consented to the transaction described in the
Settlement Agreement. Such transactions, other than the acquisition of
certain assets of Pittsburgh-Canfield Corporation, all occurred
effective May 29, 2001. The sale of certain assets of
Pittsburgh-Canfield Corporation closed on June 29, 2001. The PCC
agreement includes a one year repurchase option for the seller. The
repurchase price is $15 million plus the sum of environmental
expenditures and capital expenditures made by the Company. In addition,
the repurchase price will be adjusted for any changes in working
capital.
As a result of the total cash payments of $32 million to the
WPC Group by WHX, all intercompany receivables and liabilities (except
for commercial trade transactions), including the liability for
redeemable common stock, were settled. In addition, WHX recorded the
fair value of the net assets of PCC of $5.4 million.
On October 22, 2001, the Bankruptcy Court entered an order (the
"October Order"), approving several transactions intended, among other
things, to provide the WPC Group with additional liquidity. As part of
the October Order, the Bankruptcy Court approved a Memorandum of
Understanding by and among the Company, Wheeling-Pittsburgh Corporation
("WPC"), Wheeling-Pittsburgh Steel Corporation ("WPSC") and the United
Steelworkers of America, AFL-CIO-CLC ("USWA"), pursuant to which the
Company agreed to provide to WPSC (1) up to $5 million of secured loans
and $5 million of secured financing terms during the period from the
Order through January 31, 2002, (2) if certain conditions are met, an
additional $2 million of secured loans (for an aggregate of $7 million)
and the maintenance of the $5 million of secured financing terms
referred to above, during the period from February 1, 2002 through March
31, 2002, and (3) a $25 million contribution to a new WPSC defined
benefit pension plan contingent upon a confirmed WPSC Chapter 11 plan of
reorganization. On November 2, 2001 WHX advanced $3.0 million of the
secured loans.
The October Order also approved a Supplemental Agreement among
the members of the WPC Group and the Company, under which all of the
extensions of credit referred to in the preceding paragraph are granted
superpriority claim status in WPSC's Chapter 11 case and are secured by
a lien on substantially all of the assets of WPSC, junior to the liens,
security interests and superpriority claims of the lenders to WPSC under
the DIP Credit Agreement. The Supplemental Agreement also provides,
among other things, that the Company may sell, transfer or dispose of
the stock of WPC free from the automatic stay imposed under the
Bankruptcy Code, and under specified circumstances requires WPC to
support certain changes to the Company's pension plan.
Additionally, the October Order approved the terms of the
Modified Labor Agreement ("MLA") by and among WPC, WPSC and the USWA.
The Company is not a party to the MLA. The MLA modifies the current WPSC
collective bargaining agreement to provide for, among other things,
immediate reductions in wages and the cost of providing medical benefits
to active and retired employees in exchange for improvement in wages and
pension benefits for hourly employees upon a confirmed WPSC chapter 11
plan of reorganization. The MLA is part of a comprehensive support
arrangement that also involves concessions from WPSC salaried employees,
WPSC's vendors and other constituencies in the Chapter 11 proceedings.
Management of the Company cannot at this time 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 its creditors could
receive a portion of their claims in cash or in stock of
WPC or WPSC.
6
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 or
WPSC and continue to operate such 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. 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 after January
1, 2002, the cash funding obligations related to such partial shutdown
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.
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 three and nine month periods
ended September 30, 2001, 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 Three Months Ended September 30, 2001 For Nine Months Ended September 30, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------------
Loss before extraordinary item $(4,473) $(19,241)
Less: Preferred stock dividends 4,827 15,089
------------- ---------------
Basic and Diluted EPS
Loss before extraordinary item
available to common stockholders $(9,300) 15,139 $(0.61) $(34,330) 14,863 $(2.31)
======================================================================================
For Three Months Ended September 30, 2000 For Nine Months Ended September 30, 2000
- --------------------------------------------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------
Income(loss) before extraordinary item $(21,115) $8,447
Less: Preferred stock dividends 5,152 15,455
------------- --------------
Basic and Diluted EPS
Loss available to common
Stockholders $(26,267) 14,304 $(1.84) $(7,008) 14,239 $(0.49)
=====================================================================================
7
Outstanding stock options for common stock granted to officers, directors,
key employees and others totaled 6.6 million at September 30, 2001.
Preferred Stock
The Company has accrued $ 20.2 million representing dividends
in arrears at September 30, 2001 for preferred shares Series A and Series B.
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 a result of the Settlement Agreement, the liability for
redeemable common shares was assumed by WPC.
Note 3 - Comprehensive Income
- -----------------------------
Comprehensive income for the three month and nine month periods ended
September 30, 2001 and 2000 was as follows:
(in thousands)-
2001 2000 2001 2000
--------- --------- --------- ------
Net Income (loss) $ (4,473) $(21,115) $ (6,884) 8,447
Other comprehensive income (loss):
Foreign currency translation adjustments 399 (538) (403) (1,125)
Unrealized holding (losses) on available-for-sale securities
arising during the period, net of tax -- (1,045) -- (8,617)
Cumulative effect on Equity of SFAS No. 133 adoption, net
of tax $227 -- -- (423) --
Interest rate swap, net of tax of $333 and $227 619 -- 423 --
-------- -------- -------- --------
Comprehensive income (loss) $ (3,455) $ 22,698 $ (7,287) $ (1,295)
======== ======== ======== ========
8
Accumulated other comprehensive income balances as of September 30, 2001 and
December 31, 2000 were as follows:
(in thousands) Foreign currency Accumulated other
Unrealized gain translation comprehensive
(loss) on securities adjustments income (loss)
-------------------- ----------- -------------
September 30, 2001
Balance on January 1, 2001 $ -- $(1,501) $(1,501)
Period change -- (403) (403)
------- ------- -------
Balance on September 30,2001 $ -- $(1,904) $(1,904)
======= ======= =======
December 31, 2000
Balance on January 1, 2000 $ 1,450 $ (505) $ 945
Period change (1,450) (996) (2,446)
------- ------- -------
Balance on December 31, 2000 $ -- $(1,501) $(1,501)
======= ======= =======
Note 4 - Short Term Investments
- -------------------------------
Net realized and unrealized gains and losses on trading
securities included in other income for the third quarter of 2001 and
2000 were losses of $3.9 million and gains of $4.7 million,
respectively. Net realized and unrealized gains and losses on trading
securities included in other income for the nine months ended September
30, 2001 and 2000 were a loss of $12.2 million and $7.3 million,
respectively.
Note 5 - Inventory
- ------------------
Inventories at September 30, 2001 and December 31, 2000 are comprised as
follows (in thousands):
September 30,2001 December 31,2000
----------------- ----------------
Finished and semi-finished products $ 45,888 $ 53,821
Raw materials 33,833 36,453
Precious metals 36,908 61,671
LIFO Reserve (557) (1,676)
--------- ---------
$ 116,072 $ 150,269
========= =========
The operating income for the nine months ended September 30,
2001 includes a non cash charge resulting from lower of cost or market
adjustment to precious metal inventory. The effect of this adjustment
decreased operating income by $3.3 million for the nine months ended
September 30, 2001.
As a result of reduction in quantities of precious metals
inventories valued under the LIFO method of accounting, income for the
nine months ended September 30, 2001 decreased by $.5 million.
In the quarter and nine months ended September 30, 2000 income
increased $1.7 million and $.7 million due to reductions in quantities
of precious metals valued under the LIFO method.
9
Note 6 - Long-Term Debt
- -----------------------
The Company's long-term debt consists of the following debt
instruments:
September 30, December 31,
2001 2000
------------ ------------
(dollars in thousands)
WHX Senior Unsecured Notes due 2005, 10-1/2% $245,059 $281,490
Handy & Harman Senior Secured Credit Facility 186,248 192,793
Handy & Harman Industrial Revenue Bonds, due 2004 7,500 7,500
Unimast Revolving Credit Agreement, due 2003 25,000 21,000
Unimast Industrial Development Bond, due 2030 6,050 6,050
Other 2,795 3,079
--------------- -------------
472,652 511,912
Less portion due within one year (a) 7,150 6,929
--------------- -------------
Total Long-Term Debt $465,502 $504,983
=============== =============
(a) $5 million and $6 million of the Unimast Revolving Credit Agreement, due
in 2003, is included in other current liabilities.
Unimast, in connection with the Settlement Agreement discussed
in Note 1, borrowed $15 million under its Revolving Credit Agreement for
the purchase of PCC.
In the quarter ended June 30, 2001 the Company purchased and
retired $36.4 million aggregate principal amount of 10 1/2% Senior Notes
in the open market for $15.9 million. After the write off of $1.5
million of deferred debt related costs, the Company recognized an
extraordinary gain of $19.0 million ($12.4 million after tax).
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.
Handy & Harman
On or about April 3, 2000 a civil action was commenced under
Title 3 of the United States Code ss.3729 ET SEQ. (False Claims Act)
entitled United States of America, EX REL. Patricia Keehle v. Handy &
Harman, Inc. (sic) and Strandflex, a Division of Maryland Specialty
Wire, Inc. ("Strandflex") (Civil Action No. 5:99-CV-103). The
substantive allegations in the complaint related to the alleged improper
testing and certification of certain wire rope manufactured at the
Strandflex plant during the period 1992-1999 and sold as MIL-SPEC wire.
A companion criminal investigation of Strandflex was initiated by the
United States Attorney for the Northern District of New York under Title
18 of the United States Code ss.287 (Submitting False Claims). On March
7, 2000, Handy & Harman was informed by the U.S. Attorney for the
Northern District of New York that absent a negotiated settlement, the
government would seek a criminal indictment and unspecified civil
damages against Handy & Harman based on the then-alleged 161 sales of
wire rope by Strandflex during the period June, 1995 to July 1998. Handy
& Harman entered into discussion with the United States Attorney to seek
a negotiated settlement of all criminal and civil claims. Those
discussions resulted in a settlement agreement dated May 24, 2001,
pursuant to which all civil and criminal claims were resolved as
follows:
Maryland Specialty Wire, Inc., Strandflex Division, made a
total civil payment of $1 million which amount represented civil damages
as payment for remediation and compensation and included $100,000 as
restitution pursuant to the Plea Agreement which related to 35 wire rope
sales which took place between 1994 and 1998;
Maryland Specialty Wire, Inc., Strandflex Division, paid a
criminal fine of $500,000 and $100,000 as restitution pursuant to the
Plea Agreement.
There are no known incidents of any Strandflex wire rope
failing and causing personal or property damage in any application.
10
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.
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 approximately $.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 $1.4 million
for 1999, 2000 and the nine months ended September 30, 2001,
respectively. WPC anticipates spending approximately $19.8 million in
the aggregate on major environmental compliance projects through the
year 2003, estimated to be spent as follows: $3.8 million in 2001, $12.4
million in 2002, and $3.6 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
$18.8 million at September 30, 2001. These accruals were initially
determined by WPC, based on all 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.
The Bankruptcy Code may distinguish between environmental
liabilities that represent pre-petition liabilities and those that
represent ongoing post-petition liabilities. 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 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 results of operations of the WPC Group or on the WPC Group's ability
to reorganize. 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.
11
Note 8 - Reported Segments
- --------------------------
In the second quarter of 2001 the Company increased its number
of reportable segments by dividing Handy & Harman into three segments.
As a result of the bankruptcy filing and deconsolidation of the WPC
Group, as discussed in Note 1, the H&H business segments have become
more significant to the operations of the Company. The Company now has
four reportable segments: (1) H&H Precious Metal. This segment
manufactures and sells precious metal products and electroplated
material, containing silver, gold, and palladium in combination with
base metals for use in a wide variety of industrial applications; (2)
H&H Wire & Tubing. This segment manufactures and sells metal wire, cable
and tubing products and fabrications primarily from stainless steel,
carbon steel and specialty alloys, for use in a wide variety of
industrial applications; (3) H&H Engineered Materials. This segment
manufactures specialty roofing and construction fasteners and products
for gas, electricity and water distribution using steel and plastic
which are sold to the construction, and natural gas and water
distribution industries; (4) Unimast, a manufacturer of steel framing
and other products for commercial and residential construction. The
results of operations of Pittsburgh-Canfield are included in the Unimast
segment beginning July 1, 2001. Operating results for the WPC Group are
included in the year 2000 figures for the periods before deconsolidation
effective November 16, 2000. The WPC Group is a vertically integrated
manufacturer of value-added and flat rolled steel products.
Management reviews operating income to evaluate segment
performance. Operating income for the reportable segments excludes
unallocated general corporate expenses (including pension expense in the
2001 periods) and goodwill amortization. Other income and expense,
interest expense, and income taxes are not presented by segment since
they are excluded from the measure of segment profitability reviewed by
the Company's management.
For the periods presented, intersegment sales and transfers
were conducted at arm's length. Goodwill amortization is primarily
related to the H&H segments.
12
The following tables presents information about reported
segments for the three and nine month periods ending September 30, 2001
and 2000:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Segment revenue
H&H Precious Metal $ 38,173 $ 57,425 $ 130,919 $ 182,406
H&H Wire & Tubing 33,416 39,242 104,791 121,908
H&H Engineered Materials 22,102 21,355 58,676 58,124
Unimast 67,666 62,354 185,831 184,982
----------- ----------- ----------- -----------
Sub total 161,357 180,376 480,217 547,420
WPC Group -- 281,917 -- 876,915
----------- ----------- ----------- -----------
Total segment revenue 161,357 462,293 480,217 1,424,335
Intersegment revenue -- (2,404) -- (9,924)
----------- ----------- ----------- -----------
Consolidated revenue $ 161,357 $ 459,889 $ 480,217 $ 1,414,411
=========== =========== =========== ===========
Segment operating income
H&H Precious Metal $ 2,206 $ 8,225 $ 6,253 $ 20,444
H&H Wire & Tubing 854 3,672 3,870 13,266
H&H Engineered Materials 2,824 2,646 5,515 6,684
Unimast 4,428 2,804 11,110 12,270
----------- ----------- ----------- -----------
Sub total 10,312 17,347 26,748 52,664
WPC Group -- (19,095) -- (16,446)
----------- ----------- ----------- -----------
10,312 (1,748) 26,748 36,218
Unallocated corporate expenses 3,656 1,514 13,668 2,728
Goodwill amortization 2,189 2,193 6,515 6,619
----------- ----------- ----------- -----------
Operating income(loss) 4,467 (5,455) 6,565 26,871
Interest expense 12,673 23,397 38,893 67,597
Other income (expense) 2,098 5,898 5,898 (1,825)
----------- ----------- ----------- -----------
Income (loss) before taxes and
extraordinary items (6,108) (22,954) (26,430) (42,551)
Income tax expense (benefit) (1,635) (1,839) (7,189) (50,998)
----------- ----------- ----------- -----------
Income (loss) before (4,473) (21,115) (19,241) 8,447
extraordinary item
Extraordinary item-net of tax -- -- 12,357 --
----------- ----------- ----------- -----------
Net income (loss) $ (4,473) $ (21,115) $ (6,884) $ 8,447
=========== =========== =========== ===========
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
13
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 change in fair value of interest swap
- net of tax 423
-----
Balance at September 30, 2001 $ 0
======
The above interest swap expired as of September 30, 2001. All charges
have been reclassified to earnings over the nine month period ending
September 30, 2001.
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. As a result of adopting EITF
00-10, the Company has reclassified amounts in the Consolidated
Statements of Operations for the three and nine month periods ended
September 30, 2000 as follows:
Three months Nine months
ended ended
September September
30,2000 30, 2000
------- --------
(dollars in thousands)
Increased Sales $12,893 $41,333
Increased Cost of Sales 14,033 44,317
Decreased SG&A 1,140 2,984
In July 2001, the FASB issued SFAS 141 and 142, "Business
Combinations"("SFAS 141") and "Goodwill and Other Intangible Assets"
("SFAS 142"), respectively. SFAS 141 supercedes Accounting Principles
Board Opinion No. 16 (APB 16), BUSINESS COMBINATIONS. The most
significant changes made by SFAS 141 are: (1) requiring that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001, (2) establishing specific criteria for
the recognition of intangible assets separately from goodwill, and (3)
requiring unallocated negative goodwill to be written off immediately as
an extraordinary gain (instead of being deferred and amortized).
SFAS 142 supercedes APB 17, INTANGIBLE ASSETS. SFAS 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition (i.e., the post-acquisition accounting).
The provisions of SFAS 142 will be effective for fiscal years beginning
after December 15, 2001. However, early adoption of SFAS 142 will be
permitted for companies with a fiscal year beginning after March 15,
2001, provided their first quarter financial statements have not been
previously issued. In all cases, SFAS 142 must be adopted at the
beginning of a fiscal year. the most significant changes made by SFAS
142 are: (1) goodwill and indefinite lived intangible assets will no
longer be amortized, (2) goodwill will be tested for impairment at least
annually at the reporting unit level, (3) intangible assets deemed to
have an indefinite life will be tested for impairment at least annually,
and (4) the amortization period of intangible assets with finite lives
will no longer be limited to forty years.
The Company will adopt the provisions of SFAS 142 effective
January 1, 2002. As a result of the adoption of SFAS 142, the Company
will not record amortization expense of approximately $8.7 million for
existing goodwill for the year ending December 31, 2002. The Company
will record amortization expense on this goodwill through December 31,
2001. However, any intangible assets acquired or goodwill arising from
transactions after June 30, 2001 will be subject to the amortization and
nonamortization provisions of SFAS 141 and SFAS 142. During 2002 the
Company will evaluate their goodwill and other intangible assets for
impairment, as of January 1, 2002 under the criteria set forth in SFAS
142.
14
In August 2001 the FASB issued Statement No. 143, ACCOUNTING
FOR ASSET RETIREMENT OBLIGATIONS (SFAS 143). This pronouncement requires
that obligations associated with the retirement of a tangible long-lived
asset to be recorded as a liability when those obligations are incurred,
with the amount of the liability initially measured at fair value. Upon
initially recognizing a liability for an asset-retirement obligation
(ARO), an entity must capitalize the cost by recognizing an increase in
the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon
settlement. SFAS 143 will be effective for financial statements for
fiscal years beginning after June 15, 2002.
In October 2001 the FASB issued Statement 144 (SFAS 144),
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS 144
provides guidance on the accounting for the impairment or disposal of
long-lived assets.
SFAS 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and, generally, its
provisions are to be applied prospectively.
The Company is evaluating the potential impact of implementing
SFAS 143 and SFAS 144. It is not expected that there will be a material
effect on the financial statements.
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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.
A Settlement and Release Agreement (the "Settlement Agreement")
by and among Wheeling-Pittsburgh Steel Corporation ("WPSC"),
Wheeling-Pittsburgh Corporation ("WPC"), WHX Corporation ("WHX"), and
certain affiliates of WPSC, WPC and WHX as specified on the signature
pages thereto, received approval of the United States Bankruptcy Court
for the Northern District of Ohio on May 24, 2001, was entered into on
May 25, 2001, and became
15
effective on May 29, 2001. Pursuant to the Settlement Agreement certain
outstanding claims among the parties thereto were resolved, including
without limitation, all inter-company receivables and payables between
the WHX Group and the WPC Group.
The Settlement Agreement provided, in part, that the Settlement
Agreement shall be effective upon the occurrence of each of the
following transactions, (i) the payment by WHX to WPC of $17 million;
(ii) the exchange of releases between the WPC Group and the WHX Group;
(iii) WHX or its designee would enter into a binding agreement to
purchase certain assets of Pittsburgh-Canfield Corporation ("PCC") for
$15 million, plus the assumption of certain trade payables, subject to
bidding procedures as may be established by the bankruptcy court, and
certain other terms and conditions; (iv) the termination of the Tax
Sharing Agreements between WHX and WPC; (v) WHX would deliver an
agreement to the WPC Group whereby it agreed not to charge or allocate
any pension obligations, expenses or charges to the WPC Group with
respect to the WHX Pension Plan, subject to certain limitations as
provided therein, through and including the earlier of the effective
date of a plan or plans of reorganization and December 31, 2002; (vi)
the DIP Credit Agreement shall have been amended as provided in the
Settlement Agreement; (vii) WPC Land Corporation shall execute such
instruments as may be necessary to effect the transfer of title, to
WPSC, of certain properties specified in the Settlement Agreement; and
(viii) the lenders party to the DIP Credit Agreement shall have
consented to the transaction described in the Settlement Agreement. Such
transactions, other than the acquisition of certain assets of
Pittsburgh-Canfield Corporation, all occurred effective May 29, 2001.
The sale of certain assets of Pittsburgh-Canfield Corporation closed on
June 29, 2001. The PCC agreement includes a one year repurchase option
for the seller. The repurchase price is $15 million plus the sum of
environmental expenditures and capital expenditures made by the Company.
In addition, the repurchase price will be adjusted for any changes in
working capital.
On October 22, 2001, the Bankruptcy Court entered an order (the
"October Order"), approving several transactions intended, among other
things, to provide the WPC Group with additional liquidity. As part of
the October Order, the Bankruptcy Court approved a Memorandum of
Understanding by and among the Company, WPC, WPSC and the United
Steelworkers of America, AFL-CIO-CLC ("USWA"), pursuant to which the
Company agreed to provide to WPSC (1) up to $5 million of secured loans
and $5 million of secured financing terms during the period from the
Order through January 31, 2002, (2) if certain conditions are met, an
additional $2 million of secured loans (for an aggregate of $7 million)
and the maintenance of the $5 million of secured financing terms
referred to above, during the period from February 1, 2002 through March
31, 2002, and (3) a $25 million contribution to a new WPSC defined
benefit pension plan contingent upon a confirmed WPSC Chapter 11 plan of
reorganization.
The October Order also approved a Supplemental Agreement among
the members of the WPC Group and the Company, under which all of the
extensions of credit referred to in the preceding sentence are granted
superpriority claim status in WPSC's Chapter 11 case and are secured by
a lien on all of the asserts of WPSC, junior to the liens, security
interests and superpriority claims of the lenders to WPSC under the DIP
Credit Agreement. The Supplemental Agreement also provides, among other
things, that the Company may sell, transfer or dispose of the stock of
WPC free from the automatic stay imposed under the Bankruptcy Code, and
under specified circumstances requires WPC to support certain changes to
the Company's pension plan.
Additionally, the October Order approved the terms of the
Modified Labor Agreement ("MLA") by and among WPC, WPSC and the USWA.
The Company is not a party to the MLA. The MLA modifies the current WPSC
collective bargaining agreement to provide for, among other things,
immediate reductions in wages and the cost of providing medical benefits
to active and retired employees in exchange for improvement in wages and
pension benefits for hourly employees upon a confirmed WPSC chapter 11
plan of reorganization. The MLA is part of a comprehensive support
arrangement that also involves concessions from WPSC salaried employees,
WPSC's vendors and other constituencies in the Chapter 11 proceedings.
16
Results of Operations
- ---------------------
The Bankruptcy Filing and resultant deconsolidation of WPC as
of November 16, 2000 have affected comparisons between the 2001 and 2000
periods.
Comparison of the Third Quarter of 2001 with the Third Quarter of 2000
- ----------------------------------------------------------------------
Sales in the third quarter of 2001 were $161.4 million compared
with $459.9 million in the third quarter of 2000, which included WPC
Group sales of $279.5 million. Excluding the WPC sales, net sales for
the third quarter 2001 declined $19.0 million. Sales decreased by $19.3
million at the H&H Precious Metal Segment and $5.8 million at the H&H
Wire & Tubing Segment. Sales increased by $.7 million at the H&H
Engineered Materials Segment and $5.3 million at the Unimast segment.
Operating income for the third quarter of 2001 was $4.5 million
compared to a loss of $5.5 million in the third quarter of 2000.
Operating income in the third quarter of 2000 included $19.1 million in
losses from the WPC Group. Operating income at the H&H Segments declined
from $14.5 million in 2000 to $5.9 in 2001. Unimast operating income
increased $1.6 million from the year ago quarter. Unallocated Corporate
expenses increased from $1.5 million to $3.7 million. This increase is
primarily related to legal and professional fees related to the WPC
bankruptcy, and to costs and expenses no longer allocated to the WPC
segment including pension expense of $.9 million.
Interest expense for the third quarter of 2001 decreased $10.7
million to $12.7 million from $23.4 million in the comparable period in
2000. After excluding WPC Group interest of $10.1 million in the third
quarter 2000, interest expense decreased by $.6 million. This was the
result of lower borrowings partially offset by increased amortization of
consent fees.
Other income was $2.1 million for the third quarter 2001
compared to $5.9 million in the third quarter of 2000. The income in
2001 was primarily related to income from WHX Entertainment of $4.8
million offset by net investment losses of $1.8 million. The 2000 period
other income included net investment income of $5.8 million, minority
interest expense of $.5 million, and income from WHX Entertainment of
$1.8 million.
The third quarter 2001 tax provision is based on a Federal
benefit of 35%, offset by permanent differences and state and foreign
tax expense. The 2000 third quarter tax benefit reflects an estimated
annual effective rate of 30.5%. The increase in the 2000 effective rate
in the third quarter reflects changes in the estimated annual pretax
income and in permanent differences.
The comments that follow compare revenues and operating income
by operating segment for the third quarter of 2001 and 2000:
Handy & Harman Precious Metal
- -----------------------------
Sales for the Precious Metal Segment decreased $19.3 million to
$38.2 million. Approximately 21% of the decrease was attributable to the
decline in the market price of precious metals period to period, 23% was
due to the dissolution of a fully consolidated joint venture, as of
December 31, 2000, which had $4.5 million in sales in the comparative
period, and the balance of the decrease was primarily due to the
continuing slowdown experienced by automotive and electronic equipment
manufacturers, two primary markets this segment serves. Operating income
decreased $6.0 million to $2.2 million. The 2000 period includes a $.7
million LIFO gain on the sale of precious metal and the reversal of the
first half's assumed restoration loss of $1 million. Excluding the LIFO
gain and assumed restoration loss reversal, operating income decreased
$4.3 million due to the shortfall in revenue.
Handy & Harman Wire & Tubing
- ----------------------------
Sales for the Wire & Tubing Segment decreased $5.8 million to
$33.4 million and operating income, decreased $2.8 million to $ .9
million due to the continued weakness in the automotive and
telecommunications markets and startup costs on new refrigeration
programs. Tubing sales, although strong in the first quarter, declined
in the semi-conductor fabrication industry in the second and third
quarters.
17
Handy & Harman Engineered Materials
- -----------------------------------
Sales for the Engineered Materials Segment increased $ .7
million to $22.1 million primarily due to increases in its customer
base. Operating income increased by $.2 million to $2.8 million
primarily due to an inventory reserve recorded in the prior year.
Unimast
- -------
Sales for the third quarter 2001 increased to $67.7 million
from $62.4 in the same period 2000. Included in the third quarter 2001
were sales of $6.6 million for Pittsburgh Canfield ("PCC"). Excluding
the effect of PCC, sales decreased by $1.3 million. This reduction in
sales dollars reflects growth in sales volume offset by a significant
reduction in selling prices. Despite lower selling prices, the segment
was able to increase operating income to $4.4 million compared to $2.8
million in the same period of 2000. This resulted from increased sales
volume, manufacturing efficiencies, raw material cost reductions, and
$1.0 million in operating income from PCC, offset by an increase in
allowance for bad debts relating to the Chapter 11 bankruptcy filing of
a major customer.
Comparison of the Nine Months of 2001 with the Nine Months of 2000
- ------------------------------------------------------------------
Net sales for the nine months of 2001 were $480.2 million as
compared to $1,414.4 million in the nine months of 2000, a decrease of
$934.2 million. WPC Group sales included in the first nine months of
2000 were $867.0 million.
Operating income for the nine months of 2001 was $6.5 million
compared to $26.9 million in the comparable 2000 period. WPC Group
operating income in the nine months of 2000 amounted to a loss of $16.4
million. Operating income at the remaining four reportable segments
declined from $52.7 million in 2000 to $26.7 in 2001. Unallocated
Corporate expenses increased from $2.7 million to $13.7 million. This
increase is primarily related to legal and professional fees related to
the WPC bankruptcy, and to costs and expenses no longer allocated to the
WPC segment including pension expense of $3.6 million.
Interest expense for the nine months 2001 decreased by $28.7
million to $38.9 million from $67.6 million in the comparable period in
2000. After excluding WPC Group interest of $29.3 million in the 2000
period, interest expense increased by $.6 million. This was the result
of increased amortization of consent fees, offset by lower borrowings.
Other income was $5.9 million for the nine month period ended
September 30, 2001 compared to $1.8 million of expense for the
comparable 2000 period. The income in 2001 was primarily related to a
favorable settlement of an H&H lawsuit of $3.2 million, income from WHX
Entertainment of $12.0 million, net investment loss of $9.2 million, and
other expenses of $.1 million. The 2000 period loss included net
investment losses of $3.7 million, minority interest expense of $1.5
million, and income from WHX Entertainment of $5.6 million.
The tax provision reflects an effective rate of 27% based on a
Federal benefit of 35%, offset by permanent differences and state and
foreign tax expense. The 2000 nine month tax benefit reflects an
estimated annual effective rate of 30.5% and includes a non-cash benefit
of approximately $38 million relating to the reversal of prior year
provisions for taxes no longer required.
The extraordinary item of $19.0 million ($12.4 million after
tax) in the six month period of 2001 reflects the gain on the early
retirement of $36.4 million of 10 1/2% Senior Notes.
The comments that follow compare revenues and operating income
by operating segment for the nine months of 2001 and 2000:
18
Handy & Harman Precious Metal
- -----------------------------
Sales for the Precious Metal Segment decreased $51.5 million to
$130.9 million. Approximately 22% of the sales decrease was attributable
to the decline in the market price of precious metal period to period,
27% was due to the dissolution of a fully consolidated joint venture, as
of December 31, 2000, which had $14.0 million in sales in the
comparative period and the balance of the decrease was primarily due to
the slowdown in the economy. Operating income decreased $14.2 million to
$6.2 million. Included in the 2001 period were a $3.3 million precious
metal lower of cost or market reserve established in the first quarter
and a $.5 million LIFO loss on the sale of silver in the second quarter,
partially offset by favorable precious metal gains of $1.2 million. The
2000 period includes a bad debt reserve of $1.0 million and a LIFO gain
of $.7 million on the sale of precious metal. Excluding these charges,
the LIFO loss and gain, and the favorable precious metal gains,
operating income decreased $11.9 million due to the shortfall in
revenue.
Handy & Harman Wire & Tubing
- ----------------------------
Sales for the Wire & Tubing Segment decreased $17.1 million to
$104.8 million and operating income, inclusive of a $ .8 million
inventory reserve, decreased $9.4 million to $3.9 million for reasons
outlined in the previously discussed third quarter analysis
Handy & Harman Engineered Materials
- -----------------------------------
Sales for the Engineered Materials Segment increased $.6
million to $58.7 million and operating income decreased $1.2 million to
$5.5 million due to lower sales in the first quarter of approximately
$1.8 million, obsolete and slow moving inventory charges, and additional
selling and administrative costs associated with sales gains in the
second and third quarter
Unimast
- -------
Sales for the nine months ended September 30, 2001 increased by
$.8 million to $185.8 million. This increase includes $6.6 million in
sales from PCC. Excluding the PCC sales, sales decreased $5.8 million
reflecting steady demand offset by a significant reduction in selling
prices. After excluding operating income of PCC of $1.0 million,
operating income decreased $1.8 million as a result of pricing pressures
and a $1.4 million increase in allowance for bad debts.
Financial Position
- ------------------
Net cash flow provided by operating activities for the nine
months ended September 30, 2001 totaled $89.6 million. Working capital
accounts provided $91.5 million of funds. Short term trading investments
are reported as cash flow from operating activities and provided a net
$60.3 million of funds in the first nine months of 2001. Accounts
receivable increased by $1.9 million, trade payables increased $3.4
million, and other current assets increased $6.0 million. Inventories,
valued principally by the LIFO method for financial reporting purposes,
totaled $116.1 million at September 30, 2001, a decrease of $35.5
million from December 31, 2000.
In the nine months of 2001, $12.6 million was spent on capital
improvements.
The Company's two major subsidiaries, 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 September 30, 2001 totaled $186.2 million. Letters of credit
outstanding under the H&H Revolving Credit Facility were $14.7 million
at September 30, 2001.
19
Borrowings outstanding against the Unimast Revolving Credit
Facility at September 30, 2001 totaled $25 million. $15.0 million of
this outstanding balance was used to fund the purchase of PCC. Letters
of credit outstanding under the Unimast Revolving Credit facility were
$6.1 million at September 30, 2001.
Unimast has entered into interest rate swap agreements for
certain of its variable-rate debt. The swap agreements cover a notional
amount of $15 million and converts $15 million of its variable-rate debt
to a fixed rate with Bank One, N.A., Chicago, IL. The weighted average
fixed rate is 4.93%, effective March 27, 2001 with a termination date of
November 23, 2003.
In connection with the Bankruptcy Filing of the WPC Group, WHX
had guaranteed $30 million of the term loan portion of the DIP Credit
Agreement (the "Term Loan") and deposited in a pledged asset account $33
million of funds in support of such guaranty. Effective as of June 1,
2001, WHX purchased a participation interest comprising an undivided
interest in the Term Loan in the amount of $30 million, plus interest
accrued but not paid on such amount of the Term Loan through June 1,
2001. WHX paid to Citibank $30.5 of such deposited funds to purchase
WHX's participation interest in the Term Loan. Concurrently with such
transaction, WHX's guaranty of $30 million of the Term Loan described
above was terminated and the $33 million of funds previously deposited
in a pledged asset account in support of such guaranty was released to
WHX.
Liquidity
- ---------
As of September 30, 2001, the WHX Group had cash and short-term
investments, of $44.1 million. In addition, H&H and Unimast had a total
of $48 million of funds available under bank credit arrangements.
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. In the event that the Company requires
additional funds pursuant to the October Order previously discussed, the
Company has the ability to sell assets to satisfy these cash
requirements. 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.
Short-term liquidity is dependent, in large part, on cash on
hand, investments, precious metal values, and general economic
conditions and their effect on marketing demand. 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 world economic conditions, 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.
20
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 423
-----
Balance at September 30, 2001 $ 0
======
The above interest swap expired as of September 30,2001. All charges
have been reclassified to earnings over the nine month period ending
September 30, 2001.
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. As a result of adopting EITF
00-10, the Company has reclassified amounts in the Consolidated
Statements of Operations for the three and nine month periods ended
September 30, 2001 as follows:
Three months Nine months
ended ended
September September
30,2000 30, 2000
------- --------
(dollars in thousands)
Increased Sales $12,893 $41,333
Increased Cost of Sales 14,033 44,317
Decreased SG&A 1,140 2,984
In July 2001, the FASB issued SFAS 141 and 142, "Business
Combinations"("SFAS 141") and "Goodwill and Other Intangible Assets"
("SFAS 142"), respectively. SFAS 141 supercedes Accounting Principles
Board Opinion No. 16 (APB 16), BUSINESS COMBINATIONS. The most
significant changes made by SFAS 141 are: (1) requiring that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001, (2) establishing specific criteria for
the recognition of intangible assets separately from goodwill, and (3)
requiring unallocated negative goodwill to be written off immediately as
an extraordinary gain (instead of being deferred and amortized).
SFAS 142 supercedes APB 17, INTANGIBLE ASSETS. SFAS 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition (i.e., the post-acquisition accounting).
The provisions of SFAS 142 will be effective for fiscal years beginning
after December 15, 2001. However, early adoption of SFAS 142 will be
permitted for companies with a fiscal year beginning after March 15,
2001, provided their first quarter financial statements have not been
previously issued. In all cases, SFAS 142 must be adopted at the
beginning of a fiscal year. the most significant changes made by SFAS
142 are: (1) goodwill and indefinite lived intangible assets will no
longer be amortized, (2) goodwill will be tested for impairment at least
annually at the reporting unit level, (3)intangible assets deemed to
have an indefinite life will be tested for impairment at least annually,
and (4)the amortization period of intangible assets with finite lives
will no longer be limited to forty years.
The Company will adopt the provisions of SFAS 142 effective
January 1, 2002. As a result of the adoption of SFAS 142, the Company
will not record amortization expense of approximately $8.7 million for
existing goodwill for the year ending December 31, 2002. The Company
will record amortization expense on this goodwill through December 31,
2001. However, any intangible assets acquired or goodwill arising from
transactions after June 30, 2001 will be subject to the amortization and
nonamortization provisions of SFAS 141 and SFAS 142. During 2002 the
Company will evaluate their goodwill and other intangible assets for
impairment, as of January 1, 2002 under the criteria set forth in SFAS
142.
In August 2001 the FASB issued Statement No. 143, ACCOUNTING
FOR ASSET RETIREMENT OBLIGATIONS (SFAS 143). This pronouncement requires
that obligations associated with the retirement of a tangible long-lived
asset to be recorded as a liability when those obligations are incurred,
with the amount of the liability initially measured at fair value. Upon
initially
21
recognizing a liability for an asset-retirement obligation (ARO), an
entity must capitalize the cost by recognizing an increase in the
carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon
settlement. SFAS 143 will be effective for financial statements for
fiscal years beginning after June 15, 2002.
In October 2001 the FASB issued Statement 144 (SFAS 144),
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS 144
provides guidance on the accounting for the impairment or disposal of
long-lived assets.
SFAS 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and, generally, its
provisions are to be applied prospectively.
The Company is evaluating the potential impact of implementing
SFAS 143 and SFAS 144. It is not expected that there will be a material
effect on the financial statements.
*******
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, general economic conditions
and, 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no changes in financial market risk as originally
discussed in the Company's Annual Report on form 10-K for the year ended
December 31, 2000.
22
PART II Other Information
-----------------
ITEM 1. LEGAL PROCEEDINGS
Legal Matters
WPC Group
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.
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.
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.
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 $1.4 million
for 1999, 2000 and the nine months ended September 30, 2001,
respectively. WPC anticipates spending approximately $19.8 million in
the aggregate on major environmental compliance projects through the
year 2003, estimated to be spent as follows: $3.8 million in 2001, $12.4
million in 2002, and $3.6 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
$18.8 million at September 30, 2001. These accruals were initially
determined by WPC, based on all available information. As new
information becomes available, including information provided by third
parties, and changing laws and regulation the liabilities are reviewed
and the
23
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.
The Bankruptcy Code may distinguish between environmental
liabilities that represent pre-petition liabilities and those that
represent ongoing post-petition liabilities. 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 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 results of operations of the WPC Group or on the WPC Group's ability
to reorganize. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 2001 annual meeting of stockholders was held on July 9, 2001.
(b) All of the Company's nominees, as set forth below, were elected.
There was no solicitation in opposition to the Company's nominees.
The other members of the Company's Board of Directors as of the date
of the Company's annual meeting of stockholders were Ronald LaBow,
Neil D. Arnold, Robert A. Davidow, William Goldsmith and Robert D.
LeBlanc.
24
(c) Matters voted on at the meeting and the number of votes cast:
Voted For Withheld
--------- --------
(1) Election of Directors
Paul W. Bucha 11,560,043 2,274,664
Marvin L. Olshan 11,571,022 2,263,685
Raymond S. Troubh 11,577,521 2,257,186
Voted For Voted Against Abstentions Broker Non-
--------- ------------- ----------- Non
Votes
-----
(2) Adoption of the 2001
Stock Option Plan 7,741,612 2,496,099 300,020 3,296,976
(3) Amendment to 1991
Incentive and Non-
Qualified Stock
Option Plan 7,756,842 2,482,917 297,972 3,296,796
(4) Ratification of
Pricewaterhouse
Coopers LLP as the
Company's Independent
Public Accountants for
the fiscal year ending
December 31, 2001 12,275,217 1,423,288 136,202
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
25
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/ Robert K. Hynes
-------------------
Robert K. Hynes
Vice President-Finance
(Principal Accounting Officer)
November 13, 2001
26
