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, 1995
-------------------------------------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from -------------------------- to ------------------
For Quarter Ended March 31, 1995 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 / /
Applicable only to registrants involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /X/ No / /
The number of shares of Common Stock issued and outstanding as of April 20, 1995
was 25,790,244 which includes redeemable common shares.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Quarter Ended March 31,
-----------------------
1995 1994
---- ----
(In thousands except per share)
NET SALES $324,187 $253,803
OPERATING COSTS
Cost of goods sold 261,062 218,089
Depreciation 17,683 14,168
Selling, administrative and general expense 16,782 14,333
Profit sharing 2,986 395
298,513 246,985
OPERATING INCOME 25,674 6,818
Interest expense on debt 6,106 7,134
Other income 9,697 13,509
B.& L.E. settlement -- 36,091
INCOME BEFORE TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 29,265 49,284
Tax provision 6,438 12,814
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 22,827 36,470
Cumulative effect on prior years of
adoption of SFAS 112 -- (9,984)
NET INCOME 22,827 26,486
Dividend requirement for Preferred Stock 5,719 2,438
NET INCOME APPLICABLE TO COMMON STOCK $ 17,108 $24,048
======== =======
Income (loss) per share of common stock:
Primary: Before cumulative effect
of accounting change $.61 $1.18
Cumulative effect of
accounting change -- (.35)
--- -----
Net $.61 $.83
==== ====
Fully Diluted: Before cumulative effect
of accounting change $.49 $.95
Cumulative effect of
accounting change -- (.26)
--- -----
Net $.49 $.69
==== ====
See notes to financial statements.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
1995 1994
---- ----
(Dollars and shares in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 11,397 $ 13,424
Short term investments 372,239 388,182
Trade receivables - net 126,026 110,330
Inventories:
Finished and semi-finished products 208,448 170,595
Raw materials 57,619 68,302
Other materials and supplies 26,152 25,376
Excess of LIFO over current cost (3,109) (3,109)
289,110 261,164
Other current assets 14,545 12,605
Total current assets 813,317 785,705
Property, plant and equipment at cost, less
accumulated depreciation and amortization 790,013 768,284
Deferred income taxes 73,139 62,339
Other non-current assets 116,550 113,580
$1,793,019 $1,729,908
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 119,463 $ 111,645
Deferred income taxes - current 36,699 36,189
Other current liabilities 117,472 109,567
Long-term debt due in one year 4,478 4,253
------ ------
Total current liabilities 278,112 261,654
Long-term debt 305,131 289,500
Employee benefit liabilities 430,449 429,221
Other liabilities 50,347 50,395
1,064,039 1,030,770
--------- ---------
Redeemable Common Stock - 462 shares
and 473 shares 6,690 6,884
Stockholders' Equity:
Preferred Stock $.10 par value
6,500 shares 650 650
Common Stock - $.01 par value - 27,312
shares and 27,229 shares 273 272
Unrealized gain on securities
available for sale 14,968 3,078
Additional paid-in capital 676,711 664,902
Accumulated earnings 40,457 23,352
733,059 692,254
Less treasury stock - 1,167 shares (10,769) -
Total shareholders equity 722,290 692,254
$1,793,019 $1,729,908
========== ==========
See notes to financial statements.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Quarter Ended March 31,
-----------------------
1995 1994
---- ----
(Dollars in Thousands)
Cash flow from operating activities:
Net income $ 22,827 $ 26,486
Non cash expenses:
Cumulative effect of adoption
of SFAS 112 - net of tax -- 9,984
Depreciation 17,683 14,168
Other postemployment benefits 2,300 3,600
Deferred income tax 1,027 9,892
Decrease (increase) in working capital elements:
Trade receivables (2,206) (3,009)
Inventories (4,575) (5,244)
Other current assets (1,506) (3,743)
Trade payables (4,170) (9,916)
Other current liabilities 5,936 12,043
Short term investments - trading 64,944 (220,178)
Trading account borrowings -- 189,361
Other items - net 4,367 (498)
Net cash flow from operating activities 106,627 22,946
Cash flow from investing activities:
Short term investments-available for sale (49,001) --
Plant additions and improvements (18,367) (11,057)
Ohio Coatings Co. investment (950) --
Unimast Incorporated acquisition (27,500) --
Proceeds from sale of property 1,985 --
------ ---
Net cash used by
investing activities (93,833) (11,057)
Cash flow from financing activities:
Payments on long-term borrowings (3,883) (34,509)
Treasury stock (10,769) --
Liability for early retirement of debt -- 29,437
Redemption of common stock (169) (89)
Net cash from financing activities (14,821) (5,161)
Increase (decrease) in cash and
cash equivalents (2,027) 6,728
Cash and cash equivalents
at beginning of period 13,424 5,996
Cash and cash equivalents
at end of period $ 11,397 $ 12,724
======== ========
See notes to financial statements.
WHX CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
The consolidated balance sheet as of March 31,1995, the
consolidated statement of income and the consolidated statement of cash
flow for the three month periods ended March 31, 1995 and 1994, have been
prepared by the Company without audit. In the opinion of management, all
adjustments necessary to present fairly the consolidated financial
position at March 31, 1995 and the results of operations and changes in
cash flow 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,
1994. The results of operations for the period ended March 31, 1995 are
not necessarily indicative of the operating results for the full year.
NOTE 1 - EARNINGS PER SHARE
The computation of primary earnings per share of common stock is
based upon the average shares of common stock and common stock equivalents
outstanding. Common stock equivalents represent the dilutive effect of
assuming the exercise of outstanding stock options and warrants. Five-year
warrants issued pursuant to the Company's 1991 Plan of Reorganization
totaled 1.5 million at March 31, 1995. Outstanding stock options granted
to officers, directors and key employees totaled 2.4 million at March 31,
1995. The dilutive effect of common stock equivalents arising from the
warrants and stock options on the computation of net income per share is
approximately $.03 per share. The computation of fully diluted earnings
per share further assumes the sale of all redeemable common stock into the
public market and conversion of all convertible preferred stock.
The shares used in the computations were as follows:
Quarter Ended March 31,
1995 1994
---- ----
Primary 27,893,000 28,822,000
Fully diluted 46,439,000 38,561,000
The Company intends to retain any future earnings for working
capital needs and to finance capital improvements and presently does not
intend to pay cash dividends on its common stock for the foreseeable
future. In addition, the terms of the Company's long term debt place
certain limitations on the Company's ability to pay cash dividends.
REDEEMABLE COMMON STOCK
Holders 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.
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Holders can sell any or all of their redeemable common stock into the
public market, provided, however, that stock sales on any day cannot be
more than 20% of the number of shares publicly traded during the previous
day. As of March 31, 1995, redeemable common stock outstanding totaled
462,346 shares.
NOTE 2 - POSTEMPLOYMENT BENEFITS
The Company adopted Statement of Financial Accounting Standard No.
112, "Accounting for Postemployment Benefits" ("SFAS 112") as of January
1, 1994. This statement establishes accounting standards for employers who
provide benefits to former or inactive employees after employment but
before retirement. Those benefits include, among others, disability,
severance and workers' compensation. The Company recorded a charge of
$12.2 million ($10.0 million net of tax) in the 1994 first quarter as a
result of the cumulative effect on prior years of adoption of SFAS 112.
NOTE 3 - SHORT TERM INVESTMENTS
Effective January 1, 1994 the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). This statement
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. The Company recorded an unrealized gain of
$4.2 million in other income in the 1994 first quarter related to
investments in trading securities. The cumulative effect on prior years
was immaterial.
The Company recognized gains and losses based on specific
identification of the securities which comprise the investment balance. At
March 31, 1995 unrealized holding gains on available-for-sale securities
of $15.0 million ($11.9 million in the current period) have been reported
as a separate component of stockholder's equity. Net unrealized holding
losses on trading securities included in the current period earnings are
$1.9 million.
NOTE 4 - ACCOUNTS RECEIVABLE
On August 17, 1994, Wheeling-Pittsburgh Funding, Inc. a special
purpose wholly-owned subsidiary ("Funding") of Wheeling-Pittsburgh Steel
Corporation ("WPSC"), entered into an agreement to sell (up to $75 million
on a revolving basis) an undivided percentage ownership in a designated
pool of accounts receivable generated by WPSC, Wheeling Construction
Products, Inc. and Pittsburgh Canfield Corporation. The agreement expires
in August 1999. Accounts receivable at March 31, 1995 exclude $45 million,
representing uncollected accounts receivable sold with recourse limited to
the extent of uncollectible balances. Fees paid by the Company under this
agreement are based upon a fixed rate of 7.42% of the outstanding amount
of receivables sold. Based on the Company's collection history, the
Company believes that credit risk associated with the above arrangement is
immaterial.
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NOTE 5 - CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company, as well as other steel companies, is subject to
demanding environmental standards imposed by federal, state and local
environmental laws and regulations. For the quarter ended March 31, 1995
and years 1994 and 1993 aggregate capital expenditures for environmental
control projects totaled approximately $.7 million, $8.7 million and $8.0
million, respectively.
The Company has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability
Act ("Superfund") or similar state statues at seven 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 $1 million and $4 million. At four other sites the costs
are estimated to aggregate between $25,000 and $250,000. The Company lacks
sufficient information regarding the remaining sites to form an estimate.
The Company is currently funding its share of remediation costs. The
Company believes that these remediation costs are not significant and will
not be significant in the forseeable future. Non-current accrued
environmental liabilities totaled $7.3 million and $8.0 million at March
31, 1995 and March 31, 1994, respectively. These liabilities were
determined by the Company when the Company reorganized under the federal
bankruptcy laws in January 1991, based on all available information,
including information provided by third parties, and existing laws and
regulations then in effect, and are reviewed and adjusted quarterly as new
information becomes available. Since January 1991, no liabilities have
been assessed against the Company in excess of the potential environmental
reserves established by the Company in January 1991. Based upon all
available information, the Company does not anticipate that assessment and
remediation costs resulting from the Company being a potentially
responsible party will have a material adverse effect on the financial
condition or results of operations of the Company. However, as further
information comes into the Company's possession, it will continue to
reassess such evaluations.
Based upon 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 costs, including the incurrence of any additional fines and
penalties, relating to the operation of its facilities, to have a material
adverse effect on its consolidated financial condition or results of
operations.
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PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales for the first quarter of 1995 increased 27.7% to $324.2 million
on shipments of steel products totaling 610,813 tons, compared to net sales of
$253.8 million on shipments of steel products totaling 527,877 tons, in the
first quarter of the prior year. The increase in net sales is due to a 15.7%
increase in volume of steel products shipped, a 6.1% increase in steel sales
prices and shipment of a higher value-added product mix. The 1994 first quarter
operations and shipments were hampered by severe cold weather and a two day work
stoppage related to negotiation of a new labor agreement.
First quarter 1995 operating costs increased by 20.9% compared to the 1994
first quarter. The increase in operating costs reflects the 15.7% increase in
volume of steel products shipped, an increase in the consumption and price of
purchased steel slabs and a higher cost mix of products shipped. The Company
purchased semi finished steel to supplement its raw steel production to meet
customer commitments during a period of strong product demand and to more fully
utilize hot strip mill capacity. The first quarter 1995 operating rate (raw
steel production as a percentage of capacity) was 100.4% compared to 86.2% in
the 1994 first quarter. Steel production was 100% continuous cast.
Interest expense decreased $1.0 million to $6.1 million in the 1995 first
quarter, compared to the 1994 first quarter, due to lower principal amount of 9
3/8% Senior Notes outstanding.
In the 1995 first quarter other income decreased by $3.8 million compared
to the first quarter of 1994. The decrease is due to lower levels of invested
funds in trading securities. In the 1994 first quarter the Company also received
and recorded a $36.1 million ($26.7 million net of tax) legal settlement as a
result of a favorable decision in the antitrust litigation against the Bessemer
and Lake Erie Railroad.
The 1995 first quarter tax provision reflects the estimated annual
effective tax rate. The provision includes the effect of recognizing certain
deferred tax assets, but excludes the benefit of applying pre-reorganization tax
benefits. Pre-reorganization tax benefits are direct additions to paid-in
capital and totaled $11.3 million and $9.9 million in the first quarters of 1995
and 1994, respectively.
The Company adopted SFAS 112 as of January 1, 1994. SFAS 112 establishes
accounting standards for employers who provide benefits to former or inactive
employees after employment but before retirement. Those benefits include, among
others, disability, severance and workers' compensation. The Company recorded a
charge of $12.2 million ($10 million net of tax) in the 1994 first quarter as a
result of the cumulative effect on prior years of adoption of SFAS 112.
Effective January 1, 1994 the Company adopted SFAS 115, which specifies
the accounting and reporting required for investments in equity securities that
have readily
-5-
determinable fair values and for all investments in debt securities. The Company
recorded an unrealized loss of $1.9 million in the 1995 first quarter and an
unrealized gain of $4.1 million in the 1994 first quarter related to investments
in trading securities. Unrealized holding gains on available-for-sale securities
of $11.9 million have been reported as a separate component of stockholder's
equity in the 1995 first quarter.
Net income for the 1995 first quarter totaled $22.8 million, or 61 cents
per common share, compared to net income of $26.5 million or 83 cents per common
share, in the 1994 first quarter. Net income for the 1994 first quarter included
a legal settlement and charge for a cumulative change in accounting method
which, if excluded, would result in income of $9.8 million, or 25 cents per
common share.
FINANCIAL POSITION
Net cash flow from operating activities for the first quarter of 1995
totaled $106.6 million. Short term trading investments are reported as cash flow
from operating activities and provided $64.9 million of funds in the 1995 first
quarter. Working capital accounts (excluding cash, short term investments and
current maturities of long term debt) used $6.5 million of funds, excluding
$22.7 million of working capital requirements for Unimast, Inc., acquired on
March 31, 1995. Accounts receivable increased by $2.2 million, trade payables
decreased $4.2 million and other current liabilities increased $5.9 million.
Inventories, valued principally by the LIFO method for financial reporting
purposes, totaled $289.1 million at March 31, 1995, an increase of $4.6 million
from December 31, 1994 (excluding Unimast). The increase in other current
liabilities is due primarily to accrued payroll and interest expense.
In the first quarter of 1995, $18.4 million was spent on capital
improvements including $.7 million on environmental control projects. The
Company completed the acquisition of Unimast Inc. during the first quarter for
cash consideration of $27.5 million and the assumption of liabilities including
long term debt of $19.7 million. Continuous and substantial capital and
maintenance expenditures will be required to maintain operating facilities,
modernize finishing 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
continue to exceed depreciation expense and represent a material use of
operating funds.
In October 1994 WPSC entered into a new Revolving Credit Facility ("RCF")
with Citibank, N.A. as agent. The RCF provides for borrowings for general
corporate purposes of up to $50 million. Interest is calculated at a Citibank
prime rate plus .5% and/or a Eurodollar rate plus 2.0%. Borrowings under the RCF
are secured primarily by 100% of WPSC's eligible inventory and requires that
WPSC maintain a specified level of tangible net worth. The RCF has certain
restrictions on indebtedness, liens and dividends. There were no borrowings
under the RCF during the first quarter of 1995. The RCF expires in October 1995.
-6-
In August 1994, WPSC entered into a separate facility for letters of
credit up to $50 million. At March 31, 1995 letters of credit totaling $26.1
million were issued under this facility. No amounts have been drawn down
pursuant to these letters of credit. The letters of credit are collateralized by
U.S. government securities owned by the Company and are subject to an
administrative charge of .4% per annum on the amount of outstanding letters of
credit. The collateral is recorded as non-current other assets.
As of March 31, 1995, the Company repurchased on the open market
approximately 1,166,800 shares of its Common Stock for an aggregate purchase
price of approximately $10.8 million. The Board of Directors had previously
authorized the Company to repurchase up to 10% of the Company's outstanding
Common Stock, and the Company may, from time to time, continue to purchase
additional shares of Common Stock.
On February 24, 1995, Wheeling-Pittsburgh Corporation ("WPC"), a wholly
owned subsidiary of WHX, filed a registration statement relating to the sale by
it of 1,600,000 shares of its Common Stock and the sale by WHX of 5,100,000
shares of WPC's Common Stock. If the Company elects to proceed with the proposed
public offering, it is not anticipated that such offering will occur prior to
the third quarter of 1995 at the earliest.
WPC has outstanding approximately $271 million of its Senior Notes and
$9.5 million of its First Mortgage Notes. The indentures relating to both the
Senior Notes and the First Mortgage Notes contain covenants and restrictions
that limit the Company's operating flexibility. In addition, under such
indentures, the offering of WPC Common Stock would constitute an "asset sale,"
which, generally, requires either WHX or WPC to apply a portion of their net
proceeds therefrom to acquire property or assets in similar lines of business
within 360 days of the closing of such offering, failing which either WHX or WPC
would be required to offer to repurchase all outstanding Senior Notes and First
Mortgage Notes at 100% of the principal amount thereof, plus accrued and unpaid
interest.
WHX was successful in placing one of its nominees on the Teledyne, Inc.
board of directors at Teledyne's annual stockholders' meeting on April 26, 1995.
As stated in its March 31, 1995 Proxy Statement filed in connection with the
Teledyne annual meeting, the WHX nominee elected to the Teledyne board is
"committed to a sale of Teledyne to the highest bidder and will attempt to
influence the majority of the Teledyne board to effect such a sale rather than
remain independent."
LIQUIDITY
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, borrowing availability
under the RCF and funds generated from operations. The Company believes that
such sources will provide the Company for the next twelve months with the funds
required to satisfy working capital and capital expenditure requirements.
External factors, such as worldwide steel production and demand and currency
exchange rates, could materially affect
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the Company's results of operations. During the first quarter of 1995, the
Company had minimal activity with respect to futures contracts, and the impact
of such activity was not material on the financial condition or results of
operations of the Company.
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PART II OTHER INFORMATION
Item 6.(a) Exhibits
27 Financial Data Schedule
6.(b) Report on Form 8-K
None
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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/ F. G. Chbosky
-----------------------------------
F. G. Chbosky
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
May 15, 1995