FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ___________________
For Quarter Ended June 30, 2000 Commission File Number 1-2394
WHX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3768097
(State of Incorporation) (I.R.S. Employer
Identification No.)
110 East 59th Street
New York, New York 10022
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 212-355-5200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
The number of shares of Common Stock issued and outstanding as of July 31, 2000
was 14,548,798 which includes redeemable common shares.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended June 30, Six Months Ended June 30,
------------------------- ---------------------------
2000 1999* 2000 1999*
(In thousands except per share)
Net Sales $472,312 $413,783 $926,082 810,708
Operating Costs
Cost of goods sold 389,512 335,625 761,394 684,762
Depreciation and amortization 28,721 25,899 55,987 52,675
Selling, administrative and general expense 36,616 36,717 76,375 72,843
--------- --------- --------- ---------
454,849 398,241 893,756 810,280
--------- --------- --------- ---------
Operating Income 17,463 15,542 32,326 428
Interest expense on debt 21,754 21,644 44,200 42,979
Other income (expense) (1,054) 30,049 (7,723) 12,773
--------- --------- --------- ---------
Income (Loss) Before Taxes and Extraordinary Item (5,345) 23,947 (19,595) (29,778)
Tax provision (benefit) (41,607) 8,515 (49,159) (8,718)
--------- --------- --------- ---------
Income (Loss) Before Extraordinary Item 36,262 15,432 29,564 (21,060)
Extraordinary income-net of tax -- -- -- 896
--------- --------- --------- ---------
Net Income (Loss) 36,262 15,432 29,564 (20,164)
Dividend requirement for Preferred Stock 5,151 5,152 10,303 10,304
--------- --------- --------- ---------
Net Income (Loss) Applicable to Common Stock $ 31,111 $ 10,280 $ 19,261 $ (30,468)
========= ========= ========= =========
Basic income (loss) per share of
Common Stock
Income (loss) before extraordinary item $ 2.19 $ 0.62 $ 1.35 $ (1.86)
Extraordinary item - net of tax -- -- -- 0.05
--------- --------- --------- ---------
Net income (loss) per share $ 2.19 $ 0.62 $ 1.35 $ (1.81)
========= ========= ========= =========
Income (loss) per share of
Common Stock-assuming dilution
Income (loss) before extraordinary item $ 1.17 $ 0.46 $ 0.95 $ (1.86)
Extraordinary item - net of tax -- -- -- 0.05
--------- --------- --------- ---------
Net income (loss) per share -
assuming dilution $ 1.17 $ 0.46 $ 0.95 $ (1.81)
========= ========= ========= =========
See notes to consolidated financial statements.
* Reclassified
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2000 1999
(Dollars and shares in thousands)
ASSETS (Unaudited) *
Current Assets:
Cash and cash equivalents $25,570 $10,775
Short term investments 244,760 659,356
Trade receivables - net 150,300 141,091
Inventories:
Finished and semi-finished products 249,209 218,350
Raw materials 83,223 81,210
Other materials and supplies 23,135 28,033
Precious metals 115,318 117,639
LIFO reserve (878) (3,363)
----------- -----------
470,007 441,869
Other current assets 12,591 14,622
--------- ----------
Total current assets 903,228 1,267,713
Property, plant and equipment at cost, less
accumulated depreciation and amortization 818,905 816,501
Deferred income taxes 150,273 123,033
Prepaid pension 39,029 40,336
Intangibles, net of amortization 277,054 280,766
Other non-current assets 139,699 145,217
----------- ----------
$ 2,328,188 $2,673,566
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $202,059 $171,229
Short-term borrowings 231,751 582,547
Deferred income taxes - current 67,452 67,793
Other current liabilities 134,506 133,158
Long-term debt due in one year 1,652 1,810
------------ ----------
Total current liabilities 637,420 956,537
Long-term debt 870,622 864,620
Other employee benefit liabilities 395,201 400,425
Other liabilities 32,378 71,181
------------- ----------
1,935,621 2,292,763
------------- ----------
Redeemable Common Stock - 270 shares
and 282 shares 3,139 3,332
------------- ----------
Stockholders' Equity:
Preferred Stock $.10 par value -
5,883 shares 589 589
Common Stock - $.01 par value -
14,273 shares and 14,145 shares 143 141
Accumulated other
comprehensive income (loss) (7,213) 945
Additional paid-in capital 554,714 553,861
Accumulated (deficit) earnings (158,805) (178,065)
------------- ----------
Total stockholders' equity 389,428 377,471
------------ ----------
$ 2,328,188 $2,673,566
============ ==========
See notes to consolidated financial statements.
* Reclassified
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
2000 1999
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss) $ 29,564 $ (20,164)
Non cash income and expenses:
Depreciation and amortization 55,987 52,675
Other post employment benefits (3,969) (1,467)
Income taxes (49,159) (9,988)
(Gain) loss on sale of assets (1,847) 2,578
Equity income in affiliated companies (1,692) (3,339)
Pension expense 1,305 3,036
Minority interest 964 633
Premium on early debt retirement (net of tax) -- (896)
Decrease (increase) in working capital elements,
Trade receivables (23,359) (31,607)
Trade receivables sold 14,150 3,225
Inventories (28,138) (32,683)
Other current assets 2,031 (10,481)
Trade payables 30,830 42,242
Other current liabilities 1,348 6,395
Short term investments - net 414,596 482,533
Trading account borrowings (367,696) (440,121)
Other items - net (6,553) (4,871)
--------- ---------
Net cash provided by operating activities 68,362 37,700
--------- ---------
Cash flows from investing activities:
Short term investments-available for sale (11,649) --
Property additions and improvements (61,040) (43,688)
Investment in affiliates 131 2,181
Dividends from affiliates 3,750 5,000
Proceeds from sale of property 4,742 654
--------- ---------
Net cash used in investing activities (64,066) (35,853)
--------- ---------
Cash flows from financing activities:
Net borrowings (payments) on long-term debt 8,748 (23,051)
Minority interest dividends (703) (956)
Short term borrowings 12,951 27,616
Common stock purchased -- (7,784)
Letter of credit collateralization -- 8,229
Preferred stock dividends paid (10,304) (10,304)
Redemption of equity issues (193) (147)
--------- ---------
Net cash provided (used) in financing activities 10,499 (6,397)
--------- ---------
Effect of exchange rate changes on net cash -- --
Increase in cash and
cash equivalents 14,795 (4,550)
Cash and cash equivalents
at beginning of period 10,775 16,004
--------- ---------
Cash and cash equivalents
at end of period $ 25,570 $ 11,454
========= =========
See notes to consolidated financial statements
WHX CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
The consolidated balance sheet as of June 30, 2000, the
consolidated statement of operations for the six month periods ended
June 30, 2000 and 1999, and the consolidated statement of cash flows for
the six month periods ended June 30, 2000 and 1999, have been prepared
by the Company without audit. In the opinion of management, all normal
and recurring adjustments necessary to present fairly the consolidated
financial position at June 30, 2000 and the results of operations and
changes in cash flows for the periods presented have been made.
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 for the year ended December
31, 1999. The results of operations for the period ended June 30, 2000
are not necessarily indicative of the operating results for the full
year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Business Segments
WHX Corporation and Subsidiary Companies ("the Company") is a
holding company that has been structured to acquire and operate a
diverse group of businesses on a decentralized basis, with a corporate
staff providing strategic direction and support. The Company's primary
business currently is Wheeling-Pittsburgh Corporation (WPC), a
vertically integrated manufacturer of value-added flat rolled steel
products. The Company's other principal businesses include Handy &
Harman (H&H), a diversified industrial manufacturing company whose
business units encompass (a) manufacturing and selling of metal wire,
cable and tubing products primarily stainless steel and specialty
alloys; (b) manufacturing and selling of precious metals products and
precision electroplated material and molded parts; and (c) manufacturing
and selling of other specialty products supplied to roofing,
construction, do-it-yourself, natural gas, electric and water
industries; and Unimast Incorporated (Unimast), a leading manufacturer
of steel framing and other products for commercial and residential
construction. See Segment disclosures in Note 6.
Note 1 - 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 six month period of 1999,
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 June 30, 2000 For the Six Months Ended June 30, 2000
- - -------------------------------------------------------------------------------- -------------------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------ --------------------------------------------
Income before extraordinary item $36,262 $29,564
Less: Preferred stock dividends 5,151 10,303
------- -------
Basic EPS
Income available to
common stockholders 31,111 14,228 $2.19 19,261 14,283 $1.35
Effect of Dilutive Securities
Options 1 9
Convertible preferred stock 5,151 16,506 10,303 16,506
Redeemable common stock 270 270
Diluted EPS
Income available to common ------- ------- ------ ------- ------- -----
stockholders+ assumed conversions $36,262 31,005 $1.17 $29,564 31,068 $0.95
======= ====== ====== ======= ======= ======
For the Quarter Ended June 30, 1999 For the Six Months Ended June 30, 1999
- - ----------------------------------------------------------------------------------- -------------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------- --------------------------------------------
Income before extraordinary item $15,432 $(21,060)
Less: Preferred stock dividends 5,152 10,304
------- --------
Basic EPS
Income available to
common stockholders 10,280 16,708 $0.62 (31,364) 16,854 $(1.86)
Effect of Dilutive Securities
Options 6
Convertible preferred stock 5,152 16,506
Redeemable common stock 289
Diluted EPS
Income available to common -------- ------- ------- -------- ------- -------
stockholders+ assumed conversions $ 15,432 33,509 $0.46 $(31,364) 16,854 $(1.86)
======== ======= ======= ======== ======= =======
Outstanding stock options granted to officers, directors, key
employees and others totaled 5.5 million shares of Common Stock at June 30,
2000.
Redeemable Common Stock
Certain present and former employees of the Company have the
right to sell their redeemable common stock to the Company at prices of
$15 or $20 per share depending on years of service, age and retirement
date. Holders can sell any or all of their redeemable common stock into
the public market, provided, however, that stock sales on any day cannot
be more than 20% of the number of shares publicly traded during the
previous day. As of June 30, 2000 redeemable common stock outstanding
totaled 270 thousand shares.
Note 2 - Comprehensive Income
The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130),
effective January 1, 1998. This Statement establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. The Company's second quarter 2000 comprehensive
income of $31.3 million consists of a net income of $36.2 million and
other comprehensive loss of $4.9 million, net of tax related to an
unrealized loss on available-for-sale securities and foreign exchange
translation adjustment. The comprehensive income for the comparable
period in 1999 of $10.3 million consists of net income of $15.4 million
and other comprehensive loss of $5.1 million, net of tax related to an
unrealized loss on available-for-sale securities and foreign exchange
translation adjustment.
The Company's six month ended June 30, 2000 comprehensive income of
$21.9 million consists of a net income of $30.0 million and other
comprehensive loss of $8.1 million, net of tax related to an unrealized
loss on available-for-sale securities and foreign exchange translation
adjustment. The comprehensive loss for the comparable period in 1999 of
$26.2 million consists of a net loss of $20.1 million and other
comprehensive loss of $6.1 million, net of tax related to an unrealized
loss on available-for-sale securities and foreign exchange translation
adjustment.
Note 3 - Short Term Investments
Net unrealized holding gains/losses on trading securities held
at period end included in other income for the second quarter of 2000
and 1999 were a loss of $6.3 million and a gain of $25.6 million
respectively. Net unrealized holding gains/losses on trading securities
held at period end included in other income for the six month periods
ended June 30, 2000 and 1999 were a loss of $17.5 million and a gain of
$29.0 million, respectively.
Note 4 - WPC Sales of Receivables
On May 27, 1999, WPC renegotiated its $100 million Receivables
Facility agreement on similar terms and conditions to its previous
facility. On June 30, 2000 WPC amended the agreement to increase the
program limits from $100 million to $115 million. The agreement expires
in May 2003. Effective June 23, 1999, Unimast, a wholly-owned subsidiary
of the Company, withdrew from participation in the Receivables Facility,
pursuant to terms of it's Credit Facility established on November 24,
1998. Accounts receivable at June 30, 2000 and December 31, 1999 exclude
$114.2 million and $100 million respectively, representing uncollected
accounts receivable sold with recourse limited to the extent of
uncollectible balances. Fees paid by the Company under the Receivables
Facility range from approximately 5.91% to 6.33% of the outstanding
amount of receivables sold. Based on the Company's collection history,
the Company believes that the credit risk associated with the above
arrangement is immaterial.
Note 5 - Contingencies
Legal & Environmental Matters
On October 27, 1998, WPC filed a complaint in Belmont County,
Ohio against ten trading companies, two Japanese mills and three Russian
mills alleging that it had been irreparably harmed as a result of sales
of hot-rolled steel by the defendants at prices below the cost of
production. WPC asked the Court for injunctive relief to prohibit such
sales. On November 6, 1998, defendants removed the case from Belmont
County to the US District Court for the Southern District of Ohio. WPC
subsequently amended its complaint to allege violations of the 1916
Antidumping Act by nine trading companies. The amended complaint seeks
treble damages and injunctive relief. The Court dismissed WPC's state
law causes of action, but allowed it to proceed with its claims under
the 1916 Antidumping Act. In early June 1999, the U.S. District Court
issued an order holding that injunctive relief is not available as a
remedy under the 1916 Antidumping Act. WPC has appealed the Court's
decision to the Sixth Circuit Court of Appeals. WPC has reached
out-of-court settlements with six of the nine steel trading companies
named in this lawsuit.
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. (the "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.
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 has filed an answer denying any violations and
seeking dismissal of the proceeding. Although there can be no assurance
that an adverse decision will not be rendered, the Company intends to
vigorously defend against the SEC's charges.
On or about April 3, 2000 a civil action was commenced under
Title 3 of the United States Code ss.3729 et seq. (False Claims Act)
entitled United States of America, ex rel. Patricia Keehle v. Handy &
Harman, Inc. (sic) and Strandflex, a Division of Maryland Specialty
Wire, Inc. ("Strandflex") (Civil Action No. 5:99-CV-103). The
substantive allegations in the complaint relate to the alleged improper
testing and certification of certain wire rope manufactured at the
Strandflex plant during the period 1992-1999 and sold as MILSPEC wire.
The United States Attorney's office is also conducting a criminal
investigation relating to this matter and Strandflex is a target of the
criminal investigation under title 18 of the United States Code ss.287
(Submitting False Claims) with the focus of the investigation appearing
to be whether wire rope sold to government agencies, either directly or
indirectly, was misrepresented by Strandflex as meeting MILSPEC
specifications. On March 7, 2000, the Company was informed by the U.S.
Attorney that absent a negotiated settlement, the government will seek a
criminal indictment and civil damages against the Company based on 161
sales of wire rope by Strandflex during the period June, 1995 to July
1998. The Company has entered into discussion with the United States
Attorney to seek a negotiated settlement of all criminal and civil
claims. Those discussions are ongoing.
Strandflex is cooperating in the investigation and has
produced various documents, including testing data, sales records and
internal Company correspondence. There are no known incidents of any
Strandflex wire failing and causing personal or property damages in any
application. The company intends to vigorously defend the civil action
and any potential criminal action and believes that this matter will not
have a material adverse effect on the Company's financial condition or
results of operations. Annual sales of this product were $209,185 in
1999.
The Company 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.
The Company has been identified as a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund") and/or similar state statutes at several
waste sites. The Company 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 Company is
unable to reasonably estimate the ultimate cost of compliance with
Superfund laws. The Company believes, based upon information currently
available, that the Company's liability for clean up and remediation
costs in connection
with one of these sites will be between $2.5 and $3.0 million. At
several other sites the Company estimates costs of an aggregate less
than $1.0 million. The Company is currently funding its share of
remediation costs.
The Company, 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 Company has incurred capital expenditures for
environmental control projects aggregating $9.5 million, $7.7 million
and $1.3 million for 1998, 1999 and the six months ended June 30, 2000,
respectively. The Company anticipates spending approximately $29.2
million in the aggregate on major environmental compliance projects
through the year 2003, estimated to be spent as follows: $5.8 million in
2000, $8.2 million in 2001, $6.2 million in 2002 and $9.0 million in
2003. Due to the possibility of unanticipated factual or regulatory
developments, the amount of future expenditures may vary substantially
from such estimates.
Non-current accrued environmental liabilities totaled $14.7
million at June 30, 2000. These accruals were initially determined by
the Company in January 1991, based on all then available information. As
new information becomes available, including information provided by
third parties, and changing laws and regulation the liabilities are
reviewed and the accruals adjusted quarterly. Management believes, based
on its best estimate, that the Company has adequately provided for
remediation costs that might be incurred or penalties that might be
imposed under present environmental laws and regulations.
Based upon information currently available, including the
Company's prior capital expenditures, anticipated capital expenditures,
consent agreements negotiated with Federal and state agencies and
information available to the Company on pending judicial and
administrative proceedings, the Company does not expect its
environmental compliance and liability costs, including the incurrence
of additional fines and penalties, if any, relating to the operation of
its facilities, to have a material adverse effect on the financial
condition of the Company. 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 Company's possession, it will
continue to reassess such evaluations.
Note 6 - Reported Segments
The Company's reportable operating segments consists of WPC,
H&H, Unimast and all other corporate entities, each providing their own
unique products and services. Each of these segments is independently
managed and requires different production technology and marketing and
distribution channels. The accounting policies of the segments are
consistent with those of the Company.
For the periods presented, intersegment sales and transfers
were conducted as if the sales or transfers were to third parties, that
is, at prevailing market prices. Income taxes are allocated to the
segments in accordance with the Company's tax sharing agreement, which
generally requires separate segment tax calculations. The benefit, if
any, of WPC NOL carryforwards are allocated to WPC.
The table below presents information about reported segments
and a reconciliation of total segment sales to total consolidated sales
for the second quarters of 2000 and 1999.
Quarter ended June 30, 2000
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollars in thousands)
Revenue from external
Customers $293,745 $122,584 $58,561 $ - $474,890 $(2,578) $472,312
Intersegment revenues 2,578 - - - 2,578 - 2,578
Segment net income (loss)
$ 33,949 $ 3,669 $ 2,019 $(3,375) $ 36,262 - $ 36,262
Quarter ended June 30, 1999
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollars in thousands)
Revenue from
external customers $255,799 $118,913 $52,795 $ - $427,507 $(13,724) $413,783
Intersegment revenues 13,724 - - - 13,724 - 13,724
Segment net income (loss)
$ (5,450) $ 2,013 $ 3,105 $15,764 $ 15,432 - $ 15,432
Six months ended June 30, 2000
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollars in thousands)
Revenue from external
Customers $573,338 $243,442 $116,822 $ - $933,602 $(7,520) $926,082
Intersegment revenues 7,520 - - - 7,520 - 7,520
Segment net income (loss)
$ 28,821 $ 5,884 $ 4,836 $(9,977) $ 29,564 - $ 29,564
Six months ended June 30, 1999
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollars in thousands)
Revenue from
external customers $505,847 $228,453 $105,872 $ - $840,172 $(29,464) $810,708
Intersegment revenues 29,464 - - - 29,464 - 29,464
Segment net income (loss) $(25,717) $ 3,233 $ 5,896 $(3,576) $(20,164) - $ (20,164)
PART I
Item 2. Management's Discussion and Analysis
Overview
The Company continues to pursue strategic alternatives to
maximize the value of its portfolio of businesses. Some of these
alternatives have included, and will continue to include selective
acquisitions, divestitures and sales of certain assets. The Company has
provided, and may from time to time in the future, provide information
to interested parties regarding portions of its businesses for such
purposes.
Results of Operations
Net sales for the second quarter of 2000 were $472.3 million
as compared to $413.8 million in the second quarter of 1999, an increase
of $58.5 million. Sales increased by $37.9 million at the Company's WPC
operation reflecting higher shipments, slightly higher prices and a
better mix of products in the second quarter 2000. Sales increased by
$3.7 million at H&H primarily from stronger sales to the electronics and
specialty tubing markets. Sales increased by $5.8 million at Unimast,
reflecting continued demand in the non-residential construction market,
as well as its acquisition of Vinyl Corporation in July 1999.
Operating costs for the second quarter of 2000 increased to
$454.8 million from $398.2 million. Operating costs increased by $37.9
million at the Company's WPC operations. WPC's second quarter 1999
operating costs include a non-recurring credit of $9.0 million from a
settlement with certain insurance carriers that releases and terminates
all rights, obligations, and liabilities of the insurance companies with
respect to the subject insurance policies. The increase in operating
costs reflects higher raw material and fuel costs and increased coke
sales during the second quarter of 2000. Operating costs were higher at
both H&H and Unimast, reflecting the increased volume of business and
higher raw material costs in the second quarter of 2000 compared to the
second quarter of 1999.
Selling, administrative and general expense for the second
quarter of 2000 decreased slightly by $.1 million to $36.6 million from
$36.7 million in the comparable period in 1999. Selling, administrative
and general expense at the Company's WPC operations for the second
quarter of 2000 increased $0.9 million to $17.5 million from $16.6
million in the comparable period in 1999 due to an increased marketing
effort and expansion of the fabricated products business. Selling,
administrative and general expense at H&H and Unimast were up slightly
reflecting the general increase in the level of operating activity and
were offset with a second quarter 2000 decline in corporate overhead
compared to second quarter 1999.
Interest expense for the second quarter 2000 increased $0.1
million to $21.8 million from the comparable period in 1999, reflecting
the general rise in interest rates and higher revolver balances at the
Company's WPC and Unimast operations.
Other income (expense) was a $1.1 million expense in the
second quarter of 2000 as compared to $30.1 million income in 1999's
second quarter. The change in other income (expense) is due primarily to
the difference between realized and unrealized losses on short-term
investments in fixed income securities and marketable equity securities.
The 2000 second quarter tax benefit reflects an estimated
annual effective rate of 54.3% and includes a non-cash benefit of
approximately $38 million relating to the reversal of prior year
provisions for taxes no longer required. The 1999 second quarter tax
benefit reflects an estimated annual effective tax rate of 29%. The
increase in the 2000 effective tax rate during the second quarter
reflects changes in estimated annual pretax income and in permanent tax
differences.
Net income for the 2000 second quarter totaled $36.3 million,
or income of $2.19 per share of common stock after deduction of
preferred dividends. Net income was favorably impacted by the
aforementioned income tax benefit of $38 million or $2.67 per share. The
1999 second quarter net income was $15.4 million, or $0.62 per share of
common stock after deduction of preferred dividends.
Net sales for the first six months of 2000 totaled $926.1
million as compared to $810.7 million in the first six months of 1999.
The increase is primarily attributable to the Company's WPC steel
operations where net sales for the first six months of 2000 totaled
$573.3 million on shipments of steel products totaling 1,219,590 tons.
Net sales for the first six months of 1999 totaled $505.8 million on
shipments of steel products totaling 1,166,515 tons. Average sale prices
increased from $434 per ton shipped to $470 per ton shipped due to a
8.3% increase in steel prices, reflecting partial recovery from the
import-impacted prices of 1999, as well as a higher value-added mix of
products sold, and increased sales of coke during the six months of 2000
as compared to the six month period of 1999.
H&H sales for the first six months of 2000 totaled $243.4
million compared to $228.4 million for the first six months of 1999. The
rise is due to increased sales of electroplated materials serving the
electronics and automotive markets and to increased demand for H&H's
specialty tubing products serving the semi-conductor manufacturing, oil
drilling and refrigeration appliance markets.
Unimast sales for the first six months of 2000 totaled $116.8
million compared to $105.9 million for the first six months of 1999. The
rise is due to continued demand in the commercial construction market
and the acquisition of Vinyl Corporation in July of 1999.
Operating costs for the first six months of 2000 increased to
$893.8 million from $810.3 million in the first six months of 1999. The
increase is led by the Company's WPC steel operations where operating
costs for the first six months of 2000 increased to $570.7 million or
$468 per ton from $528.8 million or $453 per ton in the 1999 first six
months. WPC's 2000 operating costs include a non-recurring credit of
$7.4 million from insurance recoveries resulting from a temper mill
fire. The increase in operating costs is due to the higher sales of coke
during the six months of 2000 and higher raw material and fuel costs as
compared to the same period of 1999. Included in the 1999 six months
operating costs is $9.0 million of income reflecting a favorable
settlement with certain insurance carriers that releases and terminates
all rights, obligations and liabilities of the insurance companies with
respect to the subject insurance policies. In the first six months of
2000, WPC produced 1,260,138 tons of raw steel as compared to production
of 1,207,967 tons of raw steel in the 1999 first six months.
Operating costs were higher at both H&H and Unimast,
reflecting the increase in volume of business and higher raw material
costs for the first six months of 2000 compared to the first six months
of 1999.
Depreciation and amortization expense increased $3.3 million
to $56.0 million in the first six months of 2000 from $52.7 million in
the comparable period in 1999, principally due to WPC's higher level of
raw steel production in 2000 and its effect on the units of production
depreciation method.
Selling, administrative and general expense for the first six
months of 2000 increased $3.6 million to $76.4 million from $72.8
million in the comparable period in 1999. The increase relates primarily
to increased selling, administrative and general expense at the
Company's WPC operation. For the first six months of 2000 WPC's selling,
administrative and general expense increased $3.0 million to $35.6
million from $32.6 million in the comparable period in 1999 due
primarily to an increased marketing effort in 2000 and expansion of the
fabricated products business during 2000.
Interest expense for the first six months of 2000 increased
$1.2 million to $44.2 million from the comparable period in 1999
reflecting the general rise in interest rates and higher revolver
balances at the Company's WPC and Unimast operations.
Other income decreased $20.5 million, creating $7.7 million of
other expense in the first six months of 2000, compared to $12.8 million
of other income in the 1999 first six months. The change in the other
income expense in the first six months of 2000 compared to the first six
months of 1999 is due primarily to the difference in realized and
unrealized gains and losses on the Company's investment portfolio of
fixed income securities and marketable equity securities.
The 2000 six month tax benefit reflects an estimated annual
effective rate of 54.3% and includes a non-cash benefit of approximately
$38 million relating to the reversal of prior year provisions for taxes
no longer required. The 1999 six month tax benefit reflects an estimated
annual effective tax rate of 29%. The increase in the 2000 effective tax
rate during the six month reflects changes in estimated annual pretax
income and in permanent tax differences.
Net income in the first six months of 2000 totaled $29.6
million, or $1.35 per share of common stock after deduction of preferred
stock dividends. Net income was favorably impacted by the aforementioned
income tax benefit of $38 million or $2.66 per share. Loss before
extraordinary items in the first six months of 1999 totaled $21.1
million, or $1.86 per share of common stock after deduction of preferred
stock dividends. The extraordinary income of $1.4 million ($0.9 million
net of tax) reflects the gain on early debt retirement of $20.5 million
of the 10 1/2% Senior Notes.
Financial Position
Net cash flow provided by operating activities for the first
half of 2000 totaled $68.4 million. Short term trading investments and
related short-term borrowings are reported as cash flow from operating
activities and provided a net $46.9 million of funds in the first half
of 2000. Working capital accounts (excluding cash, short-term
investments, short-term borrowings and current maturities of long term
debt) used $3.9 million of funds. Accounts receivable increased by $9.2
million, trade payables increased $30.8 million, and other current
liabilities increased $1.3 million. Inventories, valued principally by
the LIFO method for financial reporting purposes, totaled $470.0 million
at June 30, 2000, an increase of $28.1 million from December 31, 1999.
The increase in accounts receivable, inventory and accounts payable is
due to higher operating levels in the second quarter 2000 at all
operating subsidiaries.
In the first half of 2000, $61.0 million was spent on capital
improvements including $1.3 million on environmental control projects.
Continuous and substantial capital and maintenance expenditures will be
required at WPC to maintain, and where necessary, upgrade operating
facilities to remain competitive and to comply with environmental
control requirements. It is anticipated that necessary capital
expenditures, including required environmental expenditures in future
years, will approximate depreciation expense and represent a material
use of operating funds.
The Company's operating segments WPC, H&H and Unimast each
maintain separate and distinct credit facilities with various financial
institutions.
On June 1, 2000, Unimast entered into a loan agreement with
the Will-Kankakee Regional Development Authority to issue $6.1 million
of series 2000 Industrial Development Bonds (Bonds). The Bonds are
30-year variable rate bonds (set on a weekly basis) with the current
rate set at 4.0%. The Bonds have been issued to finance the cost of
capital projects for Unimast, specifically a 150,000 square foot
facility in Joliet, Illinois and related equipment. The Bonds are
tax-exempt for federal income tax purposes and are secured by a direct
pay letter of credit issued by Citibank, N.A.
On May 27, 1999, WPC renegotiated its $100 million Receivables
Facility agreement on similar terms and conditions to its previous
facility. On June 30, 2000 WPC amended the agreement to increase the
program limits from $100 million to $115 million. The Receivables
Facility expires in May 2003. Effective June 23, 1999, Unimast, a
wholly-owned subsidiary of the Company, withdrew from participation in
the Receivables Facility. Accounts receivable at June 30, 2000 and
December 31, 1999 exclude $114.2 million and $100.0 million,
respectively, representing uncollected accounts receivable sold with
recourse limited to the extent of uncollectible balances. Fees paid by
the Company under such agreement range from approximately 5.91% to
6.33% of the outstanding amounts of receivables sold. Based on the
Company's collection history, the Company believes that the credit risk
associated with the above arrangement is immaterial. The Company
anticipates that if steel prices and demand remain weak or deteriorate
further, WPC would need to renegotiate certain covenants in the WPC
Revolving Credit Facility. There can be no assurance that such
covenants can be renegotiated.
On April 30, 1999, WPC entered into a Third Amendment and
Restated Revolving Credit Facility ("WPC Revolving Credit Facility")
with Citibank, N.A. as agent. The WPC Revolving Credit Facility, as
amended, provides for borrowings for general corporate purposes up to
$150 million including a $25 million sub-limit for letters of credit.
The WPC Revolving Credit Facility expires May 2, 2003. Interest rates
are based on the Citibank Prime Rate Plus $1.25% and/or a Eurodollar
rate plus 2.25%. The margin over the prime rate and the Eurodollar rate
can fluctuate based upon performance.
Borrowings outstanding against the WPC Revolving Credit
Facility at June 30, 2000 totaled $86.5 million. Letters of credit
outstanding under the WPC Revolving Credit Facility were $2.0 million at
June 30, 2000.
Borrowings outstanding against the H&H Revolving Credit
Facility at June 30, 2000 totaled $43.9 million. Letters of credit
outstanding under the H&H Revolving Credit Facility were $14.6 million
at June 30, 2000.
Borrowings outstanding against the Unimast Revolving Credit
Facility at June 30, 2000 totaled $25.0 million. Letters of credit
outstanding under the Unimast Revolving Credit Facility were $6.2
million at June 30, 2000.
Liquidity
As of June 30, 2000, the Company had cash and short-term
investments, net of related investment borrowings, of $141.4 million.
The Company is required to record income tax expense at
statutory rates. However, it is able to use its significant income tax
loss carry forwards to minimize its actual income tax payments.
Short-term liquidity is dependent, in large part, on cash on
hand, investments, general economic conditions and their effect on
steel demand and prices. Long-term liquidity is dependent upon the
Company's ability to sustain profitable operations and control costs
during periods of low demand or pricing in order to sustain positive
cash flow. The Company satisfies its working capital requirements
through cash on hand, investments, the Receivables Facility, borrowing
availability under the Revolving Credit Facilities and funds generated
from operations. The Company believes that such sources can provide the
Company with the funds required to satisfy its working capital and
capital expenditure requirements. External factors, such as worldwide
steel pricing production and demand and currency exchange rates, could
materially affect the Company's or its various subsidiaries' liquidity
results of operations and financial condition.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS133). This
pronouncement requires all derivative instruments to be reported at fair
value on the balance sheet; depending on the nature of the derivative
instrument, changes in fair value will be recognized either in net
income or as an element of comprehensive income. SFAS 133 is effective
for fiscal years beginning after June 15, 2000. The Company has not
engaged in significant activity with respect to derivative instruments
or hedging activities in the past. Management of the Company has not yet
determined the impact, if any, of the adoption of SFAS 133 on the
Company's financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation - an
interpretation of APB Opinion No. 25", effective for all fiscal quarters
of all fiscal years beginning after July 1, 2000. The Company does not
expect the Interpretation to have a significant impact on the
consolidated results of operations or financial position and related
disclosure requirements.
In June 2000, the FASB issued statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133", effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company does not expect the
statement to have a significant impact on the consolidated results of
operations or financial position and related disclosure requirements.
In June 2000, the SEC staff issued SAB 101B "Second Amendment: Revenue
Recognition in Financial Statements" to provide registrants with
additional time to implement guidance contained in SAB 101, "Revenue
Recognition in Financial Statements". SAB 101, as amended is effective
no later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. Management of the Company has not yet determined the
impact, if any, of the adoption of SAB 101 on the Company's financial
position or results of operations.
*******
When used in the Management's Discussion and Analysis, the
words "anticipate", "estimate" and similar expressions are intended to
identify forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act, which are
intended to be covered by the safe harbors created thereby. Investors
are cautioned that all forward-looking statements involve risks and
uncertainty, including without limitation, the ability of the Company to
develop market and sell its products, the effects of competition and
pricing and industry shipment levels. 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.
PART II Other Information
ITEM 1. LEGAL PROCEEDINGS
On October 27, 1998, WPC filed a complaint in Belmont County,
Ohio against ten trading companies, two Japanese mills and three Russian
mills alleging that it had been irreparably harmed as a result of sales
of hot-rolled steel by the defendants at prices below the cost of
production. WPC asked the Court for injunctive relief to prohibit such
sales. On November 6, 1998, defendants removed the case from Belmont
County to the US District Court for the Southern District of Ohio. WPC
subsequently amended its complaint to allege violations of the 1916
Antidumping Act by nine trading companies. The amended complaint seeks
treble damages and injunctive relief. The Court dismissed WPC's state
law causes of action, but allowed it to proceed with its claims under
the 1916 Antidumping Act. In early June 1999, the U.S. District Court
issued an order holding that injunctive relief is not available as a
remedy under the 1916 Antidumping Act. WPC has appealed the Court's
decision to the Sixth Circuit Court of Appeals. WPC has reached
out-of-court settlements with six of the nine steel trading companies
named in this lawsuit.
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. (the "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.
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 has filed an answer denying any violations and
seeking dismissal of the proceeding. Although there can be no assurance
that an adverse decision will not be rendered, the Company intends to
vigorously defend against the SEC's charges.
On or about April 3, 2000 a civil action was commenced under
Title 3 of the United States Code ss.3729 et seq. (False Claims Act)
entitled United States of America, ex rel. Patricia Keehle v. Handy &
Harman, Inc. (sic) and Strandflex, a Division of Maryland Specialty
Wire, Inc. ("Strandflex") (Civil Action No. 5:99-CV-103). The
substantive allegations in the complaint relate to the alleged improper
testing and certification of certain wire rope manufactured at the
Strandflex plant during the period 1992-1999 and sold as MILSPEC wire.
The United States Attorney's office is also conducting a criminal
investigation relating to this matter and Strandflex is a target of the
criminal investigation under title 18 of the United States Code ss.287
(Submitting False Claims) with the focus of the investigation appearing
to be whether wire rope sold to government agencies, either directly or
indirectly, was misrepresented by Strandflex as meeting MILSPEC
specifications. On March 7, 2000, the Company was informed by the U.S.
Attorney that absent a negotiated settlement, the government will seek a
criminal indictment and civil damages against the Company based on 161
sales of wire
rope by Strandflex during the period June, 1995 to July 1998. The
Company has entered into discussion with the United States Attorney to
seek a negotiated settlement of all criminal and civil claims. Those
discussions are ongoing.
Strandflex is cooperating in the investigation and has
produced various documents, including testing data, sales records and
internal Company correspondence. There are no known incidents of any
Strandflex wire failing and causing personal or property damages in any
application. The company intends to vigorously defend the civil action
and any potential criminal action and believes that this matter will not
have a material adverse effect on the Company's financial condition or
results of operations. Annual sales of this product were $209,185 in
1999.
The Company 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Ex. 27 Financial Data Schedule
(b) Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHX CORPORATION
/s/ Arnold Nance
-----------------------------
Arnold Nance
Vice President-Finance
(Principal Accounting Officer)
August 14, 2000