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, 2002
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter Ended March 31, 2002 Commission File Number 1-2394
WHX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3768097
(State of Incorporation) (IRS 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 7, 2002
was 16,215,120.
WHX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2002 2001
---- ----
Net sales $ 147,985 $ 156,071
Cost of goods sold 124,892 133,902
--------- ---------
Gross profit 23,093 22,169
Selling, general and administrative expenses 19,114 21,613
--------- ---------
Income from operations 3,979 556
--------- ---------
Other deductions:
Interest expense 9,210 13,509
Other income (expense) 1,355 (3,430)
--------- ---------
Income (loss) before taxes, extraordinary item and
cumulative effect of an accounting change (3,876) (16,383)
Tax provision (benefit) (9,717) (6,189)
--------- ---------
Income (loss) before extraordinary item and
cumulative effect of an accounting change 5,841 (10,194)
Extraordinary item - net of tax (Note 7) 18,861 --
Cumulative effect of an accounting change (Note 2) (44,000) --
--------- --------
Net income (loss) (19,298) (10,194)
Dividend requirement for preferred stock 4,775 5,152
--------- ---------
Net income (loss) applicable to common stock $ (24,073) $ (15,346)
========= =========
Basic and Diluted per share of common stock
Income (loss) before extraordinary item and
cumulative effect of an accounting change $ 0.07 $ (1.05)
Extraordinary item - net of tax 1.19 --
Cumulative effect of an accounting change - net of tax (2.77) --
--------- ---------
Net income (loss) per share $ (1.51) $ (1.05)
========= =========
See notes to consolidated financial statements.
2
WHX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, December 31,
2002 2001
- --------------------------------------------------------------------------------
(Dollars and shares in thousands)
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 9,597 $ 7,875
Short term investments 276,618 244,883
Trade receivables - net 83,054 67,721
Inventories 113,111 114,835
Other current assets 18,800 9,042
--------- ---------
Total current assets 501,180 444,356
Advances to WPC 8,369 8,369
Note Receivable - WPC 31,236 31,005
Property, plant and equipment at cost, less
accumulated depreciation and amortization 164,874 171,024
Prepaid pension 31,394 33,294
Intangibles, net of amortization 230,836 274,131
Other non-current assets 19,045 22,844
--------- ---------
$ 986,934 $ 985,023
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 56,217 $ 47,042
Deferred income taxes - current 8,982 8,982
Other current liabilities 29,176 28,433
Short-term debt 209,964 110,946
Long-term debt due in one year -- 2,150
--------- ---------
Total current liabilities 304,339 197,553
Long-term debt 368,828 454,359
Loss in excess of investment - WPC 39,605 39,374
Deferred income taxes - non-current 3,435 3,435
Other liabilities 38,681 33,878
--------- ---------
754,888 728,599
Stockholders' Equity:
Preferred Stock $.10 par value -
5,547 shares and 5,571 shares 555 557
Common Stock - $.01 par value -
16,140 shares and 16,070 shares 161 161
Accumulated other
comprehensive loss (2,574) (2,268)
Additional paid-in capital 555,902 555,899
Accumulated earnings (deficit) (321,998) (297,925)
--------- ---------
Total stockholders' equity 232,046 256,424
--------- ---------
$ 986,934 $ 985,023
========= =========
See notes to consolidated financial statements.
3
WHX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
2002 2001
- ---------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $(19,298) $(10,194)
Non cash income and expenses:
Cumulative effect of an accounting change 44,000
Depreciation and amortization 5,240 7,533
Amortization of debt related costs 836 1,003
Extraordinary income (18,861) --
Other post employment benefits 48 55
Deferred income taxes (10,157) (6,189)
(Gain) loss on sale of assets (2) 12
Equity income in affiliated companies (121) (145)
Pension expense 1,900 --
Decrease (increase) in working capital elements,
Trade receivables (15,333) (1,712)
Inventories 1,724 7,930
Other current assets (6,969) (1,264)
Trade payables 9,175 3,265
Other current liabilities 533 2,769
Short-term investments - net (31,735) 4,757
Trading account borrowings 99,018 --
Other items-net (493) (1,483)
--------- -------
Net cash provided by operating activities 59,505 6,337
--------- -------
Cash flows from investing activities:
Capital expenditures (1,954) (4,917)
Proceeds from sale of property 2 2
--------- -------
Net cash used in investing activities (1,952) (4,915)
--------- -------
Cash flows from financing activities:
Early retirement of long-term debt (50,632) --
Net (payments)/borrowings of long-term debt (5,178) 2,435
Redemption of equity issues -- (18)
Common stock purchased -- 132
--------- -------
Net cash (used)/provided by financing activities (55,810) 2,549
--------- -------
Effect of exchange rate changes on net cash (21) (35)
--------- -------
Increase/decrease in cash and cash equivalents 1,722 3,936
Cash and cash equivalents at beginning of period 7,875 4,837
--------- -------
Cash and cash equivalents at end of period $ 9,597 $ 8,773
========= =======
See notes to consolidated financial statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
- -------
The unaudited condensed 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, 2001. The results of operations for the quarter
ended March 31, 2002 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 March 31, 2002 and December 31, 2001 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 ended March 31, 2002 and 2001
exclude the operating results of WPC.
Certain reclassifications have been made to prior period
balances to conform to current period presentation.
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; and Unimast Incorporated ("Unimast"), a
leading manufacturer of steel framing and other products for commercial
and residential construction. 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
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.
5
On November 17, 2000, the Bankruptcy Court granted the WPC
Group's motion to approve a $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. On January 2, 2002, the WPC Group
requested and received a reduction in the revolving loans, swing loans
and letter of credit to a maximum aggregate amount of up to $175
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 Facility at
March 31, 2002 include $34.6 million Term Loan, $114.6 million in
revolving credit borrowings and approximately $2.8 million of letters of
credit. WPC borrowings outstanding under the DIP Credit Facility for
revolving loans totaled $127.2 million at December 31, 2001. Term loans
under the DIP Credit Facility totaled $34.4 million at December 31,
2001. At March 31, 2002, availability under the DIP Credit Facility was
$4.6 million. The DIP Credit Facility expires on the earlier of November
17, 2002 or the completion of a Plan of Reorganization. WPC intends to
have completed a Plan of Reorganization by November 16, 2002. If a Plan
of Reorganization is not completed by then, WPC will pursue an extension
of or a replacement of the current DIP Credit Facility. There can be no
guarantee that this will occur.
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 May 28, 2002 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, 2002 through March 31, 2002, the
WPC Group incurred a net loss of $41.0 million, which is not reflected
in the Company's March 31, 2002 consolidated results of operations. (See
Note 10)
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 17, 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 million, in the year
2000, 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.
6
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.
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 liquidity support (part of which consisted 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 liquidity support referred to above, during the period
from February 1, 2002 through March 31, 2002, (the conditions were not
met, accordingly the additional $2.0 million in secured loans were not
made), and (3) a $25 million contribution to a new WPSC defined benefit
pension plan contingent upon a confirmed WPSC Chapter 11 Plan of
Reorganization. Through March 31, 2002, WHX had advanced $5.0 million of
the secured loans and up to $5.5 million of secured financing. At March
31, 2002, the outstanding balance of these secured advances was $5.0
million and $3.4 million, respectively.
The October Order also approved a Supplemental Agreement among
the members of the WPC Group and WHX, under which all of the extensions
of credit referred to in the preceding paragraph are granted
super-priority 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 super-priority 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 WHX's Pension Plan.
Additionally, the October Order approved the terms of the
Modified Labor Agreement ("MLA") by and among WPC, WPSC and the USWA.
WHX 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
7
arrangement that also involves concessions from WPSC salaried employees,
WPSC's vendors and other constituencies in the Chapter 11 proceedings.
In January 2002, WPSC finalized a financial support plan which
included a $5.0 million loan from the State of West Virginia, a $7.0
million loan and a $0.2 million grant from the State of Ohio, a
$10.0 million in advance by the Unimast segment for future steel
purchases, $4.1 million of which was delivered before March 31, 2002,
and additional wage and salary deferrals from WPSC union and salaried
employees. At March 31, 2002, the balance outstanding with the State of
West Virginia was $5.0 million, $7.0 million with the State of Ohio and
$5.9 million ($2.5 million at April 30, 2002) with Unimast.
Management of the Company cannot at this time determine with
certainty the ultimate outcome of the Chapter 11 proceedings; however it
is 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.
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 (other than the $25 million pension
contribution referred to above). It is also possible that none of the
above outcomes would occur and the WPC Group may shut down a number of
their operations. According to WHX'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
WHX's analysis of the current funded status of the pension plan, if a
partial shutdown were to occur after April 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 WHX. WHX'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.
In connection with past collective bargaining agreements by
and between the WPC Group and the United Steelworkers of America,
AFL-CIO-CLC ("USWA"), the WPC Group is obligated to provide certain
medical insurance, life insurance, disability and surviving spouse
retirement benefits to retired employees and their dependents ("OPEB
Obligations"). WHX is not a signatory to any of these agreements.
However, WHX has separately agreed to be contingently liable for a
portion of the OPEB Obligations. WHX's contingent obligation would be
triggered in the event that the WPC Group were to fail to satisfy its
OPEB Obligations. WHX's contingent obligation is limited to 25% of the
Accumulated Post-Retirement Benefit Obligation with respect to the WPC
Group's employees and retirees represented by the USWA. The total OPEB
Obligation disclosed in WPSC's March 31, 2002 Consolidated Financial
Statements amounted to $307.1 million. WHX has estimated that
approximately 85% of employees and retirees entitled to such OPEB
Obligations are represented by the USWA.
WHX's contingency for OPEB Obligations exists only so long as
(1) a majority of the directors of WPSC or WPC are affiliated with WHX;
(2) WHX controls the Board of Directors of WPSC or WPC through
8
appointment or election of a majority of such directors; or (3) WHX,
through other means, exercises a level of control normally associated
with (1) or (2) above.
Note 2 - New Accounting Standards
- ---------------------------------
In July 2001, 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 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., post-acquisition accounting). The provisions of SFAS
142 is effective for fiscal years beginning after December 15, 2001 and 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 be will 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
(40) years.
The Company has adopted 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 for existing goodwill during the year ending
December 31, 2002. The Company recorded amortization expense of $2.2 million on
this goodwill for the three months ended March 31, 2001. Any intangible assets
acquired or goodwill arising from transactions after June 30, 2001 will be
subject to the amortization and non-amortization provisions of SFAS 141 and SFAS
142. The Company has recorded a $44.0 million non-cash goodwill impairment
charge related to the H&H Wire Group in the first quarter of 2002. This
charge is shown as a cumulative effect of an accounting change. The Company
recorded this charge because the present value of current estimated cash flow
projections will not be sufficient to recover this Group's recorded goodwill.
The Company is still committed to this business and expects improved performance
from this Group in future periods as a result of management changes, cost
reductions, and improving economic conditions.
The following table provides comparative earnings per share had the
non-amortization provisions of SFAS 142 been adopted for all periods presented:
(in thousands)
Three Months Ended March 31,
2002 2001
----------- ----------------
Reported income (loss) before extraordianry item and
cumulative effect of an accounting change $ 5,841 $ (10,194)
Goodwill amortization -- 2,249
--------- ----------
Adjusted income (loss) before extraordianry item and
cumulative effect of an accounting change $ 5,841 $ (7,945)
========= ==========
Basic and Diluted per share of common stock:
Reported income (loss) before extraordianry item and
cumulative effect of an accounting change $ 0.07 $ (1.05)
Goodwill amortization -- 0.15
--------- ----------
Adjusted income (loss) before extraordianry item and
cumulative effect of an accounting change $ 0.07 $ (0.90)
========= ==========
9
The changes in the carrying amount of goodwill for the quarter ended March
31, 2002 were as follows:
(in thousands)
H&H H&H H&H
Precious Wire & Engineered
Metals Tubing Materials Unimast Total
-------------------------------------------------------------
Balance as of January 1, 2002 $ 106,971 $ 104,918 $ 43,977 $ 17,300 $ 273,166
Impairment loss -- (44,000) -- -- (44,000)
----------------------------------------------------------
Balance at March 31, 2002 $ 106,971 $ 60,918 $ 43,977 $ 17,300 $ 229,166
==========================================================
As of March 31, 2002, the Company had $1.7 million of other
intangible assets, which will continue to be amortized over their remaining
useful lives ranging from 3 to 17 years.
In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligation", ("SFAS 143"). SFAS 143 requires that obligations
associated with the retirement of a tangible long-lived asset 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 the financial statement for fiscal years beginning after June 15,
2002. WHX would be required to adopt the provisions of SFAS 143 in fiscal 2003;
however, SFAS 143 is not expected to have a significant effect on WHX's
financial statements.
In October 2001, the FASB issued Statement No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The Statement also extends the reporting requirements to
report separately, as discontinued operations, components of an entity that have
either been disposed of or classified as held for sale. WHX has adopted the
provisions of SFAS 144 as of the beginning of fiscal 2002. In April 2002, WHX
announced that its wholly-owned subsidiary, Handy & Harman, had decided to
exit
10
certain of its precious metal activities. In accordance with SFAS 144, Handy &
Harman will incur increased depreciation expense of approximately $9.0 million
on equipment values during the remaining operating period of the affected
businesses, estimated to be six months.
Note 3 - 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 month period ended
March 31, 2002 and 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 the Quarter Ended March 31, 2002
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Income before extraordinary item and cumulative
effect of an accounting change $ 5,841
Less: Preferred stock dividends (4,775)
-----
Basic and Diluted EPS
Income available to common stockholders $ 1,066 15,872 $0.07
======= ======= =====
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)
======== ====== =======
11
Outstanding stock options for common stock granted to officers, directors,
key employees and others totaled 6.4 million at March 31, 2002.
Preferred Stock
The Company has accrued $ 29.3 million representing dividends in arrears
at March 31, 2002 for preferred shares Series A and Series B.
Redeemable Common Stock
At December 31, 2000 certain present and former employees of the WPC
Group held, through an Employee Stock Ownership Plan ("ESOP"), 244,507 shares of
common stock of WHX. These employees received such shares as part of the 1991
Chapter 11 Plan of Reorganization in exchange for Series C preferred shares of
Wheeling-Pittsburgh Steel Corporation (WPC's predecessor company prior to the
1990 bankruptcy). Beneficial owners of such shares who were active employees on
August 15, 1990 and who have either retired, died or become disabled, or who
reach 30 years of service, may sell their shares to the Company at a price of
$15 or, upon qualified retirement, $20 per share. These contingent obligations
are expected to extend over many years, as participants in the ESOP satisfy the
criteria for selling shares to the Company. In addition, each beneficiary can
direct the ESOP to sell any or all of its common stock into the public markets
at any time; provided, however, that the ESOP will not on any day sell in the
public markets more than 20% of the number of shares of Common Stock traded
during the previous day. Management had estimated the liability for future
redemptions to be approximately $2.6 million at December 31, 2001. As a result
of the Settlement Agreement discussed in Note 1, the liability for redeemable
common shares was assumed by WPC, accordingly participants will sell their
shares to WPC. Approximately 213,000 shares of Common Stock of WHX were held by
the ESOP at March 31, 2002.
Note 4 - Comprehensive Income
Comprehensive loss for the three month period ended March 31, 2002 and
2001 is as follows:
(in thousands)
Three Months Ended
March 31
2002 2001
--------- ---------
Net Loss $(19,298) $(10,194)
Other comprehensive loss:
Foreign currency translation adjustments (306) (649)
Cumulative effect on equity of SFAS No. 133 adoption - net of tax (a) -- (423)
Interest rate swap, net of tax (a) -- (425)
-------- --------
Comprehensive loss $(19,604) $(11,691)
======== ========
(a) Includes tax benefit of $454 for the three-month period
ended March 31, 2001.
12
Accumulated other comprehensive income (loss) balances as of March 31, 2002 and
December 31, 2001 consisted of foreign currency translation adjustments are as
follows:
(in thousands)
March 31, 2002
- ----------------------------------------
Balance on January 1, 2002 $ (2,268)
Period change (306)
--------
Balance on March 31, 2002 $ (2,574)
========
December 31, 2001
- ----------------------------------------------
Balance on January 1, 2001 $ (1,501)
Period change (767)
---------
Balance on December 31, 2001 $ (2,268)
=========
Note 5 - Short Term Investments
Net realized and unrealized gains and losses on trading securities
included in other income for the first quarter of 2002 and 2001 were losses of
$0.3 million and $8.3 million, respectively.
Note 6 - Inventory
Inventories at March 31, 2002 and December 31, 2001 are comprised as
follows:
13
(in thousands) March 31, December 31,
2002 2001
----------- ------------
Finished products $ 25,661 $ 27,327
In-process 18,937 19,457
Raw materials 33,418 33,011
Fine and fabricated precious metal in various stages of completion 36,207 36,027
--------- ---------
114,223 115,822
LIFO reserve (1,112) (987)
--------- ---------
$ 113,111 $ 114,835
========= =========
Note 7 - Long-Term Debt
The Company's long-term debt consists of the following debt instruments:
(in thousands) March 31, December 31,
2002 2001
--------- ------------
Senior Notes due 2005, 10 1/2% $162,556 $245,059
Handy & Harman Senior Secured Credit Facility 156,973 168,155
Unimast Revolving Credit Agreement 35,000 26,900
Other 14,299 16,395
-------- --------
368,828 456,509
Less portion due within one year -- 2,150
-------- --------
Total long-term debt $368,828 $454,359
======== ========
In the quarter ended March 31, 2002 the Company purchased and
retired $82.5 million aggregate principal amount of 10 1/2% Senior Notes
in the open market for $50.6 million. After the write off of $2.9
million of deferred debt related costs, the Company recognized an
extraordinary gain of $29.0 million ($18.9 million after tax).
Subsequent to March 31, 2002, WHX purchased and retired $27.0 million
aggregate principal amount of the 10 1/2% Senior Notes in the open
market for $17.5 million.
Note 8 - Contingencies
SEC Enforcement Action
On June 25, 1998, the Securities and Exchange Commission ("SEC")
instituted an administrative proceeding against the Company alleging
that it had violated certain SEC rules in connection with the tender
offer for Dynamics Corporation of America ("DCA") commenced on March 31,
1997 through the Company's wholly-owned subsidiary, SB Acquisition Corp.
("Offer"). The Company previously disclosed that the SEC intended to
institute this proceeding. Specifically, the Order Instituting
Proceedings (the "Order") alleges that, in its initial form, the Offer
violated the "All Holders Rule," Rule 14d-10(a)(1) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), based on the
Company's inclusion of a "record holder condition" in the Offer. No
shareholder had tendered any shares at the time the condition was
removed. The Order further alleges that the Company violated Rules
14d-4(c) and 14d-6(d) under the Exchange Act upon expiration of the
Offer, by allegedly waiving material conditions to the Offer without
prior notice to shareholders and purchasing the approximately 10.6% of
DCA's outstanding shares tendered pursuant to the offer. The SEC does
not claim that the Offer was intended to or in fact defrauded any
investor.
14
The Order institutes proceedings to determine whether the
SEC should enter an order requiring the Company (a) to cease and desist
from committing or causing any future violation of the rules alleged to
have been violated and (b) to pay approximately $1.3 million in
disgorgement of profits. The Company filed an answer denying any
violations and seeking dismissal of the proceeding. On October 6, 2000,
the initial decision of the Administrative Law Judge who heard the case
dismissed all charges against the Company, with the finding that the
Company had not violated the law. The Division of Enforcement has filed
a petition for the SEC to review the decision and a brief, but only as
to the All Holders Rule Claim. The Commission, however, has authority
to review any issues on its own accord. WHX has filed its opposition
brief.
The WHX Group General Litigation
The WHX Group is a party to various litigation matters
including general liability claims covered by insurance. In the opinion
of management, such claims are 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 adverse effect on
quarterly or annual operating results when they are resolved in future
periods.
The WPC Group General Litigation
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.
Environmental Matters
WPC has been identified as a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund") or similar state statutes at several waste
sites. The WPC Group 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, the WPC Group is unable to
reasonably estimate the ultimate cost of compliance with Superfund
Laws. The WPC Group 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 several other sites the WPC Group estimates costs
of approximately $0.5 million. The WPC Group is currently funding its
share of remediation costs.
The WPC Group, 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, the WPC Group has incurred capital
expenditures for environmental control projects aggregating $3.4
million, $0.8 million and $0.1 million for 2000, 2001, and the three
months ended March 31, 2002, respectively. WPC anticipates spending
approximately $19.5 million in the aggregate on major environmental
compliance projects through the year 2004, estimated to be spent as
follows: $9.7 million in 2002, $6.1 million in 2003, and $3.7 million
in 2004. However, due to the possibility of unanticipated factual or
regulatory developments and in light of limitations imposed by the
pending Chapter 11 cases, the amount and timing of future expenditures
may vary substantially from such estimates.
WPC's non-current accrued environmental liabilities
totaled $19.0 million at March 31, 2002. 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
15
the WPC Group on pending judicial and administrative proceedings, the
WPC Group does not expect its environmental compliance, 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 for payment of such
liabilities.
Note 9 - Reported Segments
The Company 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.
Management reviews operating income to evaluate segment
performance. Operating income for the reportable segments excludes
unallocated general corporate expenses and for the 2001 period,
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.
Goodwill amortization in 2001 is primarily related to
the H&H segments.
16
The following table presents information about reported segments for
the three month periods ending March 31, 2002 and 2001:
(in thousands)
2002 2001
--------- ----------
Revenue
H&H Precious Metal $ 34,872 $ 46,988
H&H Wire & Tubing 34,613 37,245
H&H Engineered Materials 16,432 15,421
Unimast 62,068 56,417
--------- ---------
--------- ---------
Consolidated revenue $ 147,985 $ 156,071
========= =========
Segment operating income
H&H Precious Metal $ 1,587 $ 992
H&H Wire & Tubing 1,843 1,939
H&H Engineered Materials 912 211
Unimast 4,280 2,499
--------- ---------
--------- ---------
8,622 5,641
--------- ---------
Unallocated corporate expenses 4,643 2,836
Goodwill amortization -- 2,249
--------- ---------
Operating income 3,979 556
Interest expense 9,210 13,509
Other income (expense) 1,355 (3,430)
--------- ---------
Income (loss) before taxes, extraordinary item and
cumulative effect of an accounting change (3,876) (16,383)
Income tax expense (benefit) (9,717) (6,189)
--------- ---------
Income (loss) before extraordinary item and
cumulative effect of an accounting change 5,841 (10,194)
Extraordinary item - net of tax 18,861 --
Cumulative effect of an accounting change - net of tax (44,000) --
--------- ---------
Net income (loss) $ (19,298) $ (10,194)
========= =========
17
Note 10 - Supplemental WPC Group Income Statement Data
During the three months ended March 31, 2002 and 2001, the WPC
Group incurred a net loss of $41.0 million and $60.0 million, respectively.
These results are not reflected in WHX's March 31, 2002 and 2001 consolidated
results of operations. (See Note 1) The WPC Group's summarized income statement
data for the three months ended March 31, 2002 and 2001 is as follows (in
thousands):
2002 2001
---- ----
(Unaudited)
Net sales $ 206,081 $ 202,706
Cost of goods sold, excluding depreciation 211,658 219,821
Depreciation 17,817 18,304
Selling, general and administrative expenses 11,840 13,504
Reorganization expenses 2,957 4,036
--------- ---------
Operating loss (38,191) (52,959)
Interest expense 3,805 4,386
Other income (expense) 977 (141)
--------- ---------
Pre-tax loss (41,019) (57,486)
Tax provision 6 2,500
--------- ---------
Net loss $ (41,025) $ (59,986)
========= =========
Note 11 - Subsequent Event
On April 26, 2002, WHX announced that Handy & Harman had decided to
exit certain of its precious metal activities. The affected product lines are
manufactured at Handy & Harman's Fairfield, CT and East Providence, RI
facilities. The decision to exit these operating activities will result in a
second quarter charge in the range of $14.5 million to $16.5 million.
Additionally, in accordance with SFAS 144, Handy & Harman will incur increased
depreciation expense of approximately $9.0 million on equipment values during
the remaining operating period of the affected businesses, estimated to be six
months.
18
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Risk Factors and Cautionary Statements
This Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of
1934, as amended ("Exchange Act"), including, in particular,
forward-looking statements under the headings "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data."
These statements appear in a number of places in this Report and include
statements regarding WHX's intent, belief or current expectations with
respect to (i) its financing plans, (ii) trends affecting its financial
condition or results of operations, (iii) the impact of competition and
(iv) the impact and effect of the Bankruptcy Filing by the WPC Group.
The words "expect," "anticipate," "intend," "plan," "believe," "seek,"
"estimate," and similar expressions are intended to identify such
forward-looking statements; however, this Report also contains other
forward-looking statements in addition to historical information.
Any forward-looking statements made by WHX are not guarantees of
future performance and there are various important factors that could
cause actual results to differ materially from those indicated in the
forward-looking statements. This means that indicated results may not be
realized.
Factors that could cause the actual results of the WHX Group in
future periods to differ materially include, but are not limited to, the
following:
o The WHX Group's businesses operate in highly
competitive markets and are subject to significant competition from
other businesses;
o A decline in the general economic and business
conditions and industry trends and the other factors detailed from time
to time in the Company's filings with the Securities and Exchange
Commission could continue to adversely affect the Company's results of
operations;
o WHX's senior management may be required to expend a
substantial amount of time and effort dealing with issues arising from
the WPC Group's Bankruptcy Filing, which could have a disruptive impact
on management's ability to focus on the operation of its businesses;
o In connection with the Bankruptcy Filing, WHX
purchased $30.5 million of the senior secured term loan portion of the
DIP Credit Agreement provided to the WPC Group. In addition, at March
31, 2002, WHX had balances due from WPSC totaling $8.4 million in the
form of secured advances and liquidity support. Unimast had $5.9 million
in advance steel purchases due from WPSC ($2.5 million at April 30,
2002). There can be no assurance that the WPC Group will be able to
repay these loans and advances in full.
o Due to the Bankruptcy Filing, the operations of the
WPC Group are subject to the jurisdiction of the Bankruptcy Court and,
as a result, WHX's access to the cash flows of the WPC Group is
restricted. Accordingly, the WHX Group will have to fund its operations
and debt service obligations without access to the cash flow of the WPC
Group beyond 2002;
o The WPC Group has a large net operating loss
carryforward due to prior losses and continues to incur losses. WPC is
part of the Company's consolidated tax group. In accordance with federal
tax laws and regulations, WPC's tax attributes have been utilized by the
Company's consolidated group to reduce its consolidated federal tax
obligations. Depending on the final outcome of the WPC Group's
Bankruptcy Filing, the WPC Group's tax attributes may no longer be
available to the WHX Group;
19
o Various subsidiaries of the WPC Group participate in
the pension plan sponsored by the Company. While such pension plan is
fully funded at December 31, 2001, there can be no assurance that the
plan will remain fully funded. Various developments could adversely
affect the funded status of the plan. Such developments include (but are
not limited to): (a) a material reduction
in the value of the pension assets; (b) a change in actuarial
assumptions relating to asset accumulation and liability discount rates;
and (c) events triggering early retirement obligations such as plant
shutdowns and/or large scale hourly workforce reductions resulting from
the Bankruptcy Filing or otherwise. WHX has also agreed to be
contingently liable for a portion of the OPEB Obligations (as defined
below), subject to certain conditions. Funding obligations, if they
arise, may have an adverse impact on the WHX Group's liquidity. WPC
Group's ability to maintain its current operating configurations and
levels of permanent employment are dependent upon its ability to
maintain adequate liquidity. There can be no assurances that the WPC
Group will be able to maintain adequate resources;
o Various members of the WPC Group have existing and
contingent liabilities relating to environmental matters, including
environmental capital expenditures, costs of remediation and potential
fines and penalties relating to possible violations of national and
state environmental laws. In the event the WPC Group is unable to fund
these liabilities, claims may be made against WHX for payment of such
liabilities;
o WHX, H&H and Unimast each have a significant amount of
outstanding indebtedness, and their ability to access capital markets in
the future to refinance such indebtedness may be limited; and
o 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.
Bankruptcy Filing of the WPC Group
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 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 their customers.
On November 17, 2000, the Bankruptcy Court granted the
WPC Group's motion to approve a $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. On January 2, 2002, the WPC Group
requested and received a reduction in the revolving loans, swing loans
and letter of credit to a maximum aggregate amount of up to $175
million. In connection with the Bankruptcy Filing, WHX had guaranteed
$30 million of the term loan portion of the DIP Credit Agreement ("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 Facility
at March 31, 2002 include $34.6 million Term Loan, $114.6 million in
20
revolving credit borrowings and approximately $2.8 million of letters of
credit. WPC borrowings outstanding under the DIP Credit Facility for
revolving loans totaled $127.2 million at December 31, 2001. Term loans
under the DIP Credit Facility totaled $34.4 million at December 31,
2001. At March 31, 2002, availability under the DIP Credit Facility was
$4.6 million. The DIP Credit Facility expires on the earlier of November
17, 2002 or the completion of a Plan of Reorganization. WPC intends to
have completed a Plan of Reorganization by November 16, 2002. If a Plan
of Reorganization is not completed by then, WPC will pursue an extension
of or a replacement of the current DIP Credit Facility. There can be no
guarantee that this will occur.
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 May 28, 2002 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, 2002 through March 31,
2002, the WPC Group incurred a net loss of $41.0 million, which is not
reflected in the Company's March 31, 2002 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 17, 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 million, 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 terms of
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.
As a result of the total cash payments of $32 million to
the WPC Group by WHX, all intercompany receivables and liabilities
21
(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 ("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 liquidity support (part of which consisted 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 liquidity support referred to above, during the period
from February 1, 2002 through March 31, 2002, (the conditions were not
met, accordingly the additional $2.0 million in secured loans were not
made), and (3) a $25 million contribution to a new WPSC defined benefit
pension plan contingent upon a confirmed WPSC Chapter 11 plan of
reorganization. Through December 31, 2001 WHX had advanced $5.0 million
of the secured loans and up to $5.5 million of secured financing. At
March 31, 2002 the outstanding balance of these secured advances was
$5.0 million and $3.4 million, respectively.
The October Order also approved a Supplemental Agreement
among the members of the WPC Group and WHX under which all of the
extensions of credit referred to in the preceding paragraph are granted
super-priority 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 super-priority claims of the lenders to WPSC
under the DIP Credit Agreement. The Supplemental Agreement also
provides, among other things, that WHX 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 WHX Pension Plan.
Additionally, the October Order approved the terms of
the Modified Labor Agreement ("MLA") by and among WPC, WPSC and the
USWA. WHX 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.
In January 2002, WPSC finalized a financial support plan
which included a $5.0 million loan from the State of West Virginia, a
$7.0 loan and a $0.2 grant from the State of Ohio, $10 million in
advance by the Unimast segment for future steel purchases, $4.1 million
was delivered before March 31, 2002, and additional wage and salary
deferrals from WPSC union and salaried employees. At March 31, 2002, the
balance outstanding with the State of West Virginia was $5.0 million,
$7.0 million with the State of Ohio and $5.9 million with Unimast.
Management of the Company cannot at this time determine
with certainty the ultimate outcome of the Chapter 11 proceedings;
however it is 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.
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
22
the WHX Group future cash obligations to or on behalf of the WPC Group
would be minimal to none (other than the $25.0 million pension
contribution referred to above). It is also possible that none of the
above outcomes would occur and the WPC Group may shut down a number of
their operations. According to WHX'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 WHX'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 WHX. WHX's funding
obligation and the impact on its 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.
In connection with past collective bargaining agreements by
and between the WPC Group and the United Steelworkers of America,
AFL-CIO-CLC ("USWA"), the WPC Group is obligated to provide certain
medical insurance, life insurance, disability and surviving spouse
retirement benefits to retired employees and their dependents ("OPEB
Obligations"). WHX is not a signatory to any of these agreements.
However, WHX has separately agreed to be contingently liable for a
portion of the OPEB obligations. WHX's contingent obligation would be
triggered in the event that the WPC Group were to fail to satisfy its
OPEB Obligations. WHX's contingent obligation is limited to 25% of the
Accumulated Post-Retirement Benefit Obligation with respect to the WPC
Group's employees and retirees represented by the USWA. The total OPEB
Obligation disclosed in the Wheeling Pittsburgh Steel Corporation's
March 31, 2002 Consolidated Financial Statements amounted to $307.1
million. WHX has estimated that approximately 85% of employees and
retirees entitled to such OPEB obligations are represented by the USWA.
WHX's contingency for OPEB Obligations exist only so long as
(1) a majority of the directors of WPSC or WPC are affiliated with WHX;
(2) WHX controls the Board of Directors of WPSC or WPC through
appointment or election of a majority of such directors; or (3) WHX,
through other means, exercises a level of control normally associated
with (1) or (2) above.
Overview
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: H&H, a diversified
manufacturing company whose strategic business segments encompass,
precious metal plating and fabrication, specialty wire and tubing, and
engineered materials; and Unimast, a leading manufacturer of steel
framing and other products for commercial and residential construction;
WHX's other business consists of WPC and its subsidiaries including
WPSC, a vertically integrated manufacturer of value-added and flat
rolled steel products which sought bankruptcy protection in November
2000.
WHX 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. WHX 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
Comparison of the First Quarter of 2002 with the First Quarter of 2001
Net sales for the first quarter 2002 were $148.0 million
compared to $156.1 million in the first quarter of 2001. Sales
decreased
23
by $12.1 million at the H&H Precious Metal Segment and
$2.6 million at the H&H Wire & Tubing Segment. Sales for the
H&H Engineered Materials Segment increased $1.0 million. Sales for
the Unimast Segment increased $5.7 million.
Operating income for the first quarter of 2002 was $4.0
million compared to $0.6 million for the first quarter of 2001, an
increase of $3.4 million. Operating income at the H&H Segments was
$4.3 million at March 31, 2002 and $3.1 million at March 31, 2001, an
increase of $1.2 million. Unimast operating income was $4.3 million at
March 31, 2002 and $2.5 million at March 31, 2001, an increase of $1.8
million.
Unallocated corporate expenses increased by $1.8 million from
$2.8 at March 31, 2001 to $4.6 million at March 31, 2002. This increase
is primarily related to costs and expenses no longer allocated to WPC,
including pension expense of $1.9 million.
Interest expense for the first quarter of 2002 decreased $4.3
million to $9.2 million from $13.5 million in the first quarter of
2001. This decrease was due to lower borrowings, primarily from the
retirement of $118.9 million of 10 1/2% Senior Notes, lower interest
rates and reduced amortization of deferred financing and consent fees.
Other income was $1.4 million in the first quarter of 2002.
Other expense for the first quarter of 2001 was $3.4 million. The
income for 2002 and the loss for 2001 was primarily net investment
activity. The expense for 2001 was primarily net investment losses
partially offset by income from WHX Entertainment of $3.3 million. In
December 2001, WHX Entertainment sold its 50% interest in Wheeling
Downs Racing Association, Inc.
In the quarter ended March 31, 2002 the Company purchased and
retired $82.5 million aggregate principal amount of 10 1/2% Senior
Notes in the open market for $50.6 million. After the write off of $2.9
million of deferred debt related costs, the Company recognized an
extraordinary gain of $29.0 million ($18.9 million after tax).
The Company has adopted 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 for existing goodwill during the
year ending December 31, 2002. The Company recorded amortization
expense of $2.2 million on this goodwill for the three months ended
March 31, 2001. Any intangible assets acquired or goodwill arising from
transactions after June 30, 2001 will be subject to the amortization
and non-amortization provisions of SFAS 141 and SFAS 142. The Company
has recorded a $44.0 million non-cash goodwill impairment charge
related to the H&H Wire Group in the first quarter of 2002. This
charge is shown as a cumulative effect of an accounting change. The
Company recorded this charge because the present value of current
estimated cash flow projections will not be sufficient to recover this
Group's recorded goodwill. The Company is still committed to this
business and expects improved performance from this Group in future
periods as a result of management changes, cost reductions, and
improving economic conditions.
The 2002 first quarter tax provision, including taxes on
extraordinary items, assumes no liability for federal taxes. This
assumption is based on the utilization of current year losses generated
by a non-consolidated subsidiary (WPC) and the utilization of
previously unrecognized net operating loss carryforwards. The
cumulative effect of the accounting change has no tax consequence as it
relates to non-deductible goodwill. The 2001 first quarter tax
provision reflects an estimated annual effective tax rate of 38%.
The comments that follow compare revenues and operating income
by operating segment for the first quarter 2002 and 2001:
Handy & Harman Precious Metal
- -----------------------------
Sales for the H&H Precious Metal Segment decreased $12.1
million from $47.0 million in 2001 to $34.9 million in 2002.
Approximately 36% of this decrease was due to a fire at Sumco Inc.
which occurred on January 20, 2002. The balance of the decrease was
caused by reduced volume due to the slowdown in the economy. Operating
income increased by $0.6 million from $1.0 million in 2001 to $1.6
million in 2002. Included in the 2001 period was a $3.3 million
precious metals lower of cost or market adjustment, partially offset by
favorable precious metal gains of
24
$0.6 million. Excluding the precious metal reserve and favorable
precious metal gains, operating income decreased by $2.1 million,
primarily due to reduced revenue resulting from severe fire damage at
Sumco Inc. that caused the temporary closure of this facility. The
Company believes it has adequate insurance for both the physical
property damage and business interruption. Insurance progress payments
of $3.5 million have been received against cash expenses of $3.9
million as of March 31, 2002. Partial resumption of operations occurred
on February 11, 2002 and repairs to the building, its infrastructure
and replacement of machinery and equipment are continuing. Sumco Inc.
is gradually restoring operations to normal capacity and will resume
complete operations as soon as reasonably possible.
On April 26, 2002, WHX announced that Handy & Harman had
decided to exit certain of its precious metal activities. The affected
product lines are manufactured at Handy & Harman's Fairfield, CT
and East Providence, RI facilities. The decision to exit these
operating activities will result in a second quarter charge in the
range of $14.5 million to $16.5 million. Additionally, in accordance
with SFAS 144, Handy & Harman will incur increased depreciation
expense of approximately $9.0 million on equipment values during the
remaining operating period of the affected businesses, estimated to be
six months.
Handy & Harman Wire & Tubing
- ----------------------------
Sales for the Wire & Tubing Segment decreased $2.6 million
from $37.2 million in 2001 to $34.6 million in 2002 primarily due to
weakness in the semiconductor fabrication market. Partially offsetting
this reduction was increased sales at both domestic and foreign units
which primarily serve the refrigeration industry and increased sales of
tubing to the medical industry. Operating income decreased by $0.1
million from $1.9 million in 2001 to $1.8 million in 2002. Excluding an
inventory reserve of $0.3 million, which was recorded in the first
quarter of 2001 relating to the Wire Group, operating income decreased
$0.4 million due to the sales decrease noted above.
In the first quarter of 2002, the Company recorded a $44.0
million non-cash goodwill impairment charge related to the Wire Group.
This charge is shown as a cumulative effect of an accounting change.
The Company recorded this charge because the present value of current
estimated cash flow projections will not be sufficient to recover this
Group's recorded goodwill. The Company is still committed to this
business and expects improved performance from this Group in future
periods as a result of management changes, cost reductions, and
improving economic conditions.
Handy & Harman Engineered Materials
- -----------------------------------
Sales for the Engineered Materials Segment increased $1.0
million from $15.4 million in 2001 to $16.4 million in 2002 primarily
due to an increase in customer base and new products. Operating income
increased $0.7 million from $0.2 million in 2001 to $0.9 million 2002
due to the above mentioned sales increase and a $0.3 million inventory
reserve recorded in 2001.
Unimast
- -------
On June 29, 2001, WHX acquired certain assets of PCC from the
WPC Group. The results of operations of PCC are included in the Unimast
Segment beginning July 1, 2001. Sales for the Unimast Segment increased
$5.7 million from $56.4 million in 2001 to $62.1 million in 2002. This
increase includes $6.0 million in sales for PCC. Excluding PCC, sales
decreased $0.3 million due to a reduction in selling prices partially
offset by increased volume. Operating income increased $1.8 million
from $2.5 million in 2001 to $4.3 million in 2002. This increase
includes PCC operating income of $1.0 million. Excluding PCC, operating
income increased $0.8 million primarily related to the partial recovery
of a previously reserved account receivable amounting to $1.4 million
offset by lower unit selling prices.
Financial Position
- ------------------
Net cash flow provided by operating activities for the three
months ended March 31, 2002 totaled $59.5 million. Net income adjusted
for non-cash income and expense items provided $3.6 million. Working
capital accounts provided $56.4 million of funds, as follows:
Short-term
25
trading investments and related short-term borrowings are reported as
cash flow from operating activities and provided a net $67.2 million of
funds in the first three months of 2002. Accounts receivable used $15.3
million, trade payables provided $9.2 million, and net other current
items used $6.4 million. Inventories, valued principally by the LIFO
method for financial reporting purposes, totaled $113.1 million at March
31, 2002, and provided $1.7 million.
Other non-working capital items, included in operating
activities used $0.5 million.
In the three months of 2002, $2.0 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 March 31, 2002 totaled $157.0 million. Letters of
credit outstanding under the H&H Revolving Credit Facility were
$11.9 million at March 31, 2002.
Borrowings outstanding against the Unimast Revolving Credit
Facility at March 31, 2002 totaled $35.0 million. Letters of credit
outstanding under the Unimast Revolving Credit Facility were $6.1
million at March 31, 2002.
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 the quarter ended March 31, 2002 the Company purchased and
retired $82.5 million aggregate principal amount of 10 1/2% Senior
Notes in the open market for $50.6 million. After the write off of $2.9
million of deferred debt related costs, the Company recognized an
extraordinary gain of $29.0 million ($18.9 million after tax).
Other long-term debt was reduced $5.2 million from December
31, 2001 through March 31, 2002 due to scheduled principal payments and
working capital requirements.
Liquidity
- ---------
As of March 31, 2002 the WHX Group had cash of $9.6 million
and net short-term investments of $66.7 million (short-term investments
$276.6 million, short-term borrowings $209.9 million).
In December 2001, WHX Entertainment sold its 50% interest in
Wheeling-Downs Racing Association, Inc. for $105 million in cash,
resulting in an $88.5 million pre-tax gain. WHX received a management
fee from Wheeling-Downs Racing Association, Inc. of $3.6 million during
the three months ended March 31, 2001.
In the twelve months ended December 31, 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. During the
period January 1, 2002 through March 31, 2002, WHX used $50.6 million
of the proceeds from the sale of Wheeling Downs Racing Association,
Inc. to purchase $82.5 million aggregate principal amount of Senior
Notes in the open market. Subsequent to March 31, 2002, WHX purchased
an additional $27.0 million aggregate principal amount of Senior Notes
in the open market for $17.5 million. The cumulative result of these
purchases amounted to a reduction of principal of $145.9 million and
annual reduction in future cash interest expense of $15.3 million.
In 2001, in connection with the term loan portion of the WPC
Group's Debtor-In-Possession financing, WHX purchased a participation
interest comprising an undivided interest in the term loan in the
amount of $30.5 million. In addition, at March 31, 2002, WHX had
balances due from WPSC totaling $8.4 million in the form of secured
advances and liquidity support. Unimast had $5.9 million in advance
26
steel purchases due from WPSC ($2.5 million at April 30, 2002). There
can be no assurances that the WPC Group will be able to repay these
loans and advances in full.
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.
Short-term liquidity is dependent, in large part, on cash on
hand, investments, precious metal values, and general economic
conditions and their effect on market 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 July 2001, 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 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., post-acquisition accounting).
The provisions of SFAS 142 is effective for fiscal years beginning
after December 15, 2001 and 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 be will 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 (40) years.
The Company has adopted 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 for existing goodwill during the
year ending December 31, 2002. The Company recorded amortization
expense of $2.2 million on this goodwill for the three months ended
March 31, 2001. Any intangible assets acquired or goodwill arising from
transactions after June 30, 2001 will be subject to the amortization
and non-amortization provisions of SFAS 141 and SFAS 142. The Company
has recorded a $44.0 million non-cash goodwill impairment charge
related to the H&H Wire Group in the first quarter of 2002. This
charge is shown as a cumulative effect of an accounting change. The
Company recorded this charge because the present value of current
estimated cash flow projections will not be sufficient to recover this
Group's recorded goodwill. The Company is still committed to this
business and expects improved performance from this Group in future
periods as a result of management changes, cost reductions, and
improving economic conditions.
In August 2001, the FASB issued Statement No. 143, "Accounting
for Asset Retirement Obligation", ("SFAS 143"). SFAS 143 requires that
obligation associated with the retirement of a tangible long-lived
asset 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
27
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 the financial statement for
fiscal years beginning after June 15, 2002. WHX would be required to
adopt the provisions of SFAS 143 in fiscal 2003; however, SFAS 143 is
not expected to have a significant effect on WHX's financial statements.
In October 2001, the FASB issued Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets",
("SFAS 144"). SFAS 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. The Statement also
extends the reporting requirements to report separately, as
discontinued operations, components of an entity that have either been
disposed of or classified as held for sale. WHX has adopted the
provisions of SFAS 144 as of the beginning of fiscal 2002. In April
2002, WHX announced that its wholly-owned subsidiary, Handy &
Harman, has decided to exit certain of its precious metal activities.
In accordance with SFAS 144, Handy & Harman will incur increased
depreciation expense of approximately $9.0 million on equipment values
during the remaining operating period of the affected businesses,
estimated to be six months.
*******
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, 2001.
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.
Reference is hereby made to Item 3. Legal Proceedings of the
Company's Annual Report on Form 10-K for the year ended December 31,
2001 for information regarding additional matters.
ITEM 5. Other Matters
In March 2002, the Company was notified by the New York Stock
Exchange ("NYSE") that its share price had fallen below the NYSE's
continued listing criteria requiring an average closing price of not
less than $1.00 over a consecutive 30 trading-day period. Following
such notification by the NYSE, the Company has up to six months by
which time
28
its share price and average share price over a consecutive 30
trading-day period may not be less than $1.00. In the event these
requirements are not met by the end of the six-month period, the Company
would be subject to NYSE trading suspension and delisting and, in such
event, management believes that an alternative trading venue would be
available. Management is currently evaluating alternatives to bring its
average share price back into compliance with NYSE requirements,
including a reverse stock split which is one of the proposals to be
acted upon at the 2002 Annual Meeting of Stockholders to be held on June
18, 2002.
Although management is actively seeking to remedy its share
price to comply with the NYSE listing criteria, the Company may not be
able to resolve the problem in a timely fashion or at all. The
Company's failure to meet the NYSE's continued listing standards in a
timely fashion or at all could cause its common stock to be delisted.
Even if the Company was able to find an alternative trading market for
these shares, delisting from the NYSE could adversely effect the
liquidity of the Company's common stock, negatively impact the
Company's ability to raise future capital through a sale of the
Company's common stock and make it more difficult for investors to
obtain quotations or trade the Company's common stock.
The Company's 2002 Annual Meeting of Stockholders is scheduled
to be held on June 18, 2002 at the Dupont Hotel, 11th and Market
Streets, Wilmington, Delaware 19801 at 11:00a.m. Only common
stockholders of record at the close of business on May 7, 2002 will be
entitled to vote at the Annual Meeting.
The Company has also called a Special Meeting of Preferred
Stockholders which is scheduled to be held on June 27, 2002. The
location and time has not yet been determined. Only holders of record
of the Company's Series A Preferred Stock and Series B Preferred Stock
at the close of business on June 5, 2002 will be entitled to vote at
the Special Meeting.
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits
10.1 Employment Agreement dated as of July 1, 2001 by and between the
Company and Robert K. Hynes, filed herewith.
(b) Reports on Form 8-K
Form 8-K filed on January 11, 2002
Form 8-K filed on January 23, 2002
29
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)
May 14, 2002
