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 June 30, 1996
--------------------------------------------------
/ / 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, 1996 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 12, 1996
was 26,590,496 which includes redeemable common shares.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Quarter Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
(Dollars in Thousands)
NET SALES $357,815 $366,271 $673,308 $690,458
--------
OPERATING COSTS
Cost of goods sold 298,549 313,681 572,329 574,743
Depreciation 19,574 14,362 38,673 32,045
Selling and administration expense 17,787 16,341 35,181 33,123
Profit sharing 1,305 1,197 1,305 4,183
-------- -------- -------- --------
337,215 345,581 647,488 644,094
-------- -------- -------- --------
OPERATING INCOME 20,600 20,690 25,820 46,364
Interest expense 6,523 5,629 13,233 11,735
Other income 9,966 12,524 13,112 22,221
-------- -------- -------- --------
INCOME BEFORE TAXES 24,043 27,585 25,699 56,850
Tax provision 7,213 6,069 7,710 12,507
-------- -------- -------- --------
NET INCOME 16,830 21,516 17,989 44,343
Dividend requirement for Preferred Stock 5,601 5,719 11,320 11,438
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 11,229 $ 15,797 $ 6,669 $ 32,905
======== ======== ======== ========
Income (loss) per share of common stock:
Primary: $ .42 $ .60 $ .25 $ 1.23
======== ======== ======== ========
Fully Diluted: $ .37 $ .48 $ .24 $ .98
======== ======== ======== ========
See notes to consolidated financial statements.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1996 1995
---- ----
(Dollars and shares in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 6,170 $ 43,006
Short term investments 399,629 396,487
Trade receivables - net 69,123 54,093
Inventories:
Finished and semi-finished products 207,385 188,427
Raw materials 79,668 75,837
Other materials and supplies 23,480 29,823
Excess of LIFO over current cost (7,732) (8,216)
------- -------
302,801 285,871
Other current assets 15,484 18,192
------- -------
Total current assets 793,207 797,649
Property, plant and equipment at cost, less
accumulated depreciation and amortization 773,119 793,319
Deferred income taxes 99,985 103,098
Other non-current assets 113,555 102,401
---------- ----------
$1,779,866 $1,796,467
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 112,402 $ 110,182
Deferred income taxes - current 39,645 39,645
Other current liabilities 92,634 102,900
Long-term debt due in one year 4,025 3,877
--------- ---------
Total current liabilities 248,706 256,604
Long-term debt 276,249 285,676
Employee benefit liabilities 432,607 434,216
Other liabilities 45,196 45,178
---------- ---------
1,002,758 1,021,674
--------- ---------
Redeemable Common Stock - 423 shares
and 444 shares 5,995 6,388
---------- ----------
Stockholders' Equity:
Preferred Stock $.10 par value - 6,375 shares
and 6,500 shares 637 650
Common Stock - $.01 par value - 26,351
shares and 25,568 shares 263 256
Unrealized gain on securities
available for sale 74 1,130
Additional paid-in capital 716,046 710,471
Accumulated earnings 85,044 78,492
--------- ----------
802,064 790,999
Less treasury stock - 2,875 shares and 2,025 shares (30,951) (22,594)
---------- -------------
Total stockholders equity 771,113 768,405
---------- ----------
$1,779,866 $1,796,467
========== ==========
See notes to consolidated financial statements.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Six Months Ended June 30,
-------------------------
1996 1995 *
---- ----
(Dollars in Thousands)
Cash flow from operating activities:
Net income $ 17,989 $ 44,343
Non cash expenses:
Depreciation 38,838 32,045
Other postemployment benefits 3,600 3,300
Deferred income tax 3,277 2,388
Equity income in affiliated companies (3,529) (3,979)
Decrease (increase) in working capital elements:
Trade receivables (27,049) (6,842)
Inventories (16,930) (11,593)
Other current assets 2,727 (27,844)
Trade payables 2,220 16,664
Short term investments(trading) (11,957) 119,993
Other current liabilities (10,218) (16,633)
Other items - net (3,973) 7,294
--------- --------
Net cash flow from operating activities (5,005) 159,136
------- --------
Cash flow from investing activities:
Short term investments-available for sale 7,760 (34,033)
Plant additions and improvements (18,886) (59,671)
Unimast Incorporated investment -- (27,500)
Dividends from affiliates 2,500 2,500
Proceeds from sales of property 539 6,521
Investment in joint ventures (9,540) (6,053)
------- --------
Net cash used by
investing activities (17,627) (118,236)
-------- --------
Cash flow from financing activities:
Proceeds from receivable securitization 12,000 30,000
Short term borrowings (repayments) -- 31,490
Proceeds from warrants exercised 5,170 382
Long-term borrowings (repayments) (5,106) (22,851)
Preferred stock retirement (5,343) --
Treasury stock acquisition (8,365) (22,594)
Preferred stock dividends (11,320) (11,438)
Letter of credit collateralization (916) 2,597
Redemption of common stock (324) (299)
-------- ------
Net cash from financing activities (14,204) 7,287
-------- --------
Increase (decrease) in cash and
cash equivalents (36,836) 48,187
Cash and cash equivalents
at beginning of period 43,006 13,424
------- -------
Cash and cash equivalents
at end of period $ 6,170 $ 61,611
======= ========
* Reclassified for comparability.
See notes to consolidated financial statements.
WHX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
The consolidated balance sheet as of June 30, 1996, the
consolidated statement of income for the three and six month periods ended
June 30, 1996 and 1995, and the consolidated statement of cash flow for
the six month periods ended June 30, 1996 and 1995, have been prepared by
the Company without audit. In the opinion of management, all adjustments
necessary to present fairly the consolidated financial position at June
30, 1996 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,
1995. The results of operations for the period ended June 30, 1996 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 the use of management's
estimates. Due to uncertainty involved in estimating the costs, it is
reasonably possible that a change in estimates may occur in the near term
as more information becomes available.
BUSINESS SEGMENT
The Company is primarily engaged in one line of business and has
one industry segment, which is the making, processing and fabricating of
steel and steel products. The Company's products include hot rolled and
cold rolled sheet, and coated products such as galvanized, prepainted and
tin mill sheet. The Company also manufactures a variety of fabricated
steel products including roll formed corrugated roofing, roof deck, form
deck, floor deck, culvert, bridge form and other products used primarily
by the construction, highway and agricultural markets. It also
manufactures steel framing components for wall, floor and roofing systems
and other roll formed expanded metal construction accessories.
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. Outstanding stock
options granted to officers, directors and key employees totaled 2.4
million at June 30, 1996. 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 June 30,
1996 1995
---- ----
Primary 27,037,000 26,315,000
Fully diluted 45,544,000 44,978,000
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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. 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, 1996, redeemable common stock
outstanding totaled 423,000 shares.
NOTE 2 - SHORT TERM INVESTMENTS
The Company recognizes gains and losses based on specific
identification of the securities which comprise the investment balance. At
June 30, 1996 and 1995 unrealized holding gains on available-for-sale
securities of $74.0 thousand and $10.6 million, respectively, were
reported as a separate component of stockholder's equity. Net unrealized
holding gains or losses on trading securities included in net income for
the second quarter of 1996 and 1995 were a gain of $6.9 million and a loss
of $4.5 million, respectively.
NOTE 3 - SALES OF RECEIVABLES
In August 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. In July 1995 WPSC amended such agreement to sell an
additional $20 million on similar terms and conditions. In October 1995
WPSC entered into an agreement to include the receivables generated by
Unimast, in the pool of accounts receivable sold. Accounts receivable at
June 30, 1996 and 1995 exclude $79 million and $75 million, respectively,
representing uncollected accounts receivable sold with recourse limited to
the extent of uncollectible balances. Fees paid by the Company under this
agreement were based upon a fixed rate set on the date the initial $45
million of receivables were sold and variable rates on subsequent sales
that range from 6.219% to 9.0% 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.
NOTE 4 - REVOLVING CREDIT FACILITY
On December 28, 1995, Wheeling-Pittsburgh Steel Corporation entered
into a Second Amended and Restated Revolving Credit Facility ("RCF") with
Citibank, N.A. as agent. The RCF provides for borrowings for general
corporate purposes up to $125 million and a $35 million sub- limit for
Letters of Credit.
The RCF expires on May 3, 1999. Initial interest rates are based on
the Citibank prime rate plus .50% and/or a Eurodollar rate plus 1.75%, but
the margin over the prime rate and the Eurodollar rate can fluctuate up or
down based upon performance. The maximum prime rate margin is 1.00% and
the maximum Eurodollar margin is 2.25%. The initial letter of credit fee
is 1.75% and is also performance based with a maximum rate of 2.25%.
Borrowings are secured primarily by 100% of the eligible inventory
of Wheeling-Pittsburgh Steel Corporation, Pittsburgh-Canfield Corporation,
Wheeling Construction Products, Inc. and Unimast, and the terms of the RCF
contain various restrictive covenants, limiting among other things
dividend payments or other distributions of assets, as defined in the RCF.
Certain financial covenants associated with leverage, net worth, capital
spending, cash flow and interest coverage must be maintained. There are no
borrowings or letters of credit outstanding against the RCF at June 30,
1996.
-3-
In August 1994 WPSC entered into a separate facility for letters of
credit up to $50 million. At June 30, 1996 letters of credit totaling
$26.8 million were outstanding under this facility. The letters of credit
are collateralized at 105% with 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.
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 six months ended June 30, 1996
and years 1995 and 1994 aggregate capital expenditures for environmental
control projects totaled approximately $2.9 million, $5.9 million and $8.7
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 statutes at six waste disposal 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 at June 30, 1996 and June
30, 1995. 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.
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.
-4-
COLLECTIVE BARGAINING AGREEMENT
The Company's current labor agreement with the USWA expires on
October 1, 1996. Approximately 70% of the Company workforce is covered by
the collective bargaining agreement. The Company currently provides
defined contribution pension programs for both hourly and salaried
employees. It is likely that the USWA will propose that the Company adopt
a defined benefit pension plan for the benefit of the Company's employees
represented by the USWA in the next labor agreement as well as potential
increases in wages and benefits. Neither the terms of any such proposal
regarding wages and benefits nor the cost of a defined benefit pension
plan proposal by the USWA is known at this time. The Company has not made
any proposals to the USWA regarding any of these issues.
-5-
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales for the second quarter of 1996 decreased 2.3% to $357.8 million
on shipments of steel products totaling 673,408 tons, compared to net sales of
$366.3 million on shipments of steel products totaling 659,361 tons in the
second quarter of 1995. The decrease is due to a 6.1% decrease in prices of
steel products, partially offset by a 2.1% increase in volume of steel products
shipped. Average product prices decreased to $531 per ton shipped from $555 per
ton in the 1995 second quarter.
Second quarter 1996 operating costs decreased 2.4% to $337.2 million
compared to $345.6 million in the 1995 second quarter. The decrease in operating
costs primarily reflects a decrease in the consumption and price of purchased
steel slabs and the production efficiencies of operating at 100% of productive
capacity. The Company operated at 74% of capacity in the 1995 second quarter
while relining a blast furnace. The decrease in operating costs was partially
offset by higher natural gas prices and higher depreciation and selling and
administrative expenses.
Depreciation expense increased $5.2 million to $19.6 million, from $14.4
million in the 1995 second quarter, due to significantly higher production
levels and to increased amounts of depreciable assets.
Selling and administrative expense increased $1.5 million to $17.8
million, from $16.3 million in the 1995 second quarter, primarily due to a
favorable franchise tax settlement recorded in the 1995 second quarter.
Interest expense increased $.9 million to $6.5 million in the 1996 second
quarter, compared to $5.6 million in the 1995 second quarter. The increase
reflects lower amounts of capitalized interest due to lower capital expenditures
in 1996.
Other income decreased $2.6 million to $10.0 million, compared to $12.5
million in the 1995 second quarter. The decrease is due to a $6.7 million gain
on the sale of all the Radio stations owned by its WP Radio subsidiary, which
was recorded in the 1995 second quarter, partially offset by higher income from
short term investments.
The 1996 second quarter tax provision reflects the estimated annual
effective tax rate of 30%, compared to the 1995 second quarter effective tax
rate of 22%. The 1995 effective tax rate included the effect of recognizing
certain deferred tax assets, net of pre-reorganization tax benefits recorded as
an addition to equity.
Net income for the 1996 second quarter totaled $16.8 million, or 42 cents
per share of common stock, compared to net income of $21.5 million, or 60 cents
per share, in the 1995 second quarter.
Net sales for the first half of 1996 totaled $673.3 million on shipments
of steel products of 1,280,414 tons, compared to net sales of $690.5 million on
shipments of steel products of 1,270,174 tons in the 1995 first half. The
decrease in net sales is due to a 6.4% decrease in steel sales prices, partially
offset by a higher valued product mix, the inclusion of Unimast, Inc. results
for only one quarter in the 1995 first half, and the increased volume of
products shipped.
Operating costs for the 1996 first half totaled $647.5 million, compared
to $644.1 million in the 1995 first half. The increase in operating costs is due
to higher volumes of shipments, a higher cost mix of products, increased natural
gas and other fuel costs, a higher cost blend of iron ore, and flood expenses,
partially offset by the inclusion of Unimast Inc. for only the second quarter in
1995 and the decrease in consumption and price of purchased steel slabs compared
to the 1995 first half. Raw steel production increased 13.8% compared to the
first half of 1995.
-6-
Depreciation increased 20.7% due to the higher production levels and
increased amounts of depreciable assets.
Selling and administrative expense increased 6.2% over the 1995 first half
due primarily to a favorable tax settlement recorded in 1995.
Profit sharing decreased 68.8% to $1.3 million in the 1996 first half due
to lower levels of qualified pre-tax income. Interest expense increased 12.8% to
$13.2 million in the 1996 first half due to lower amounts of capitalized
interest.
Other income decreased $9.1 million to $13.1 million, compared to the
first half of 1995, due to a $6.7 million gain on the sale of Radio company
assets recorded in 1995 and higher costs incurred on accounts receivable
securitization in 1996.
Net income for the 1996 first half totaled $18.0 million, or 25 cents per
common share, compared to net income of $44.3 million, or $1.23 per common
share, in the 1995 first half.
FINANCIAL POSITION
Net cash flow used in operating activities for the first half of 1996
totaled $5.0 million. Short term trading investments are reported as cash flow
from operating activities and used $12.0 million of funds in the 1996 first
half. Working capital accounts (excluding cash, short term investments and
current maturities of long term debt) used $49.3 million of funds. Accounts
receivable increased by $27.0 million, trade payables increased $2.2 million and
other current liabilities decreased $10.2 million. Inventories, valued
principally by the LIFO method for financial reporting purposes, totaled $302.8
million at June 30, 1996, an increase of $16.9 million from December 31, 1995.
The increase in accounts receivable is due to increased shipments. The increase
in inventories is due to a seasonal build-up of Wheeling Corrugating products
and increased scrap inventory.
In the first half of 1996, $18.9 million was spent on capital improvements
including $2.9 million on environmental control projects. 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 December 1995 WPSC entered into a second amended and restated Revolving
Credit Facility ("RCF") with Citibank, N.A. as agent. The RCF provides for
borrowings for general corporate purposes of up to $125 million and a $35
million sub-limit for letters of credit. Interest is calculated at a Citibank
prime rate plus .5% and/or a Eurodollar rate plus 1.75%. Borrowings under the
RCF are secured primarily by 100% of eligible inventory and requires that WPSC
maintain certain financial covenants. The RCF has certain restrictions on
indebtedness, liens and dividends. There were no borrowings under the RCF during
the first half of 1996. The RCF expires on May 3, 1999.
In August 1994, WPSC entered into a separate facility for letters of
credit up to $50 million. At June 30, 1996 letters of credit totaling $26.8
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 June 30, 1996, the Company repurchased on the open market 2,874,500
shares of its Common Stock for an aggregate purchase price of approximately
$31.0 million, including 849,500 shares purchased in the second quarter of 1996
for approximately $8.4 million. In the second quarter of 1996 the Company also
repurchased on the open market 125,200 shares of its Series B Convertible
Preferred Stock. The Board of Directors had previously authorized the Company to
repurchase up to
-7-
10% of the Company's outstanding Common Stock, and on June 5, 1996 announced
that it authorized the repurchase of up to an additional 10% of its outstanding
Common Stock and up to 10% of its outstanding Series A and Series B Convertible
Preferred Stocks. The Company may, from time to time, continue to purchase
additional shares of Common and Preferred Stocks.
LIQUIDITY
The collective bargaining agreement between the USWA and the Company
expires on October 1, 1996. If a new labor agreement is not negotiated before
the current contract expires, or if a strike were to occur, there is likely to
be a material adverse effect on the financial condition and results of
operations of the Company.
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 the Company's results of operations.
During the first half of 1996, the Company had minimal activity with respect to
futures contracts, and the impact of such activity was not material to the
financial condition or results of operations of the Company.
When used in the Management's Discussion and Analysis, the words
"anticipate", "estimate" and similar expressions are intended to identify
forward-looking statements. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, but are not limited to, the
following: the risk of lost business and other uncertainties relating to the
expiration of WPSC's collective bargaining agreement on October 1, 1996, the
effects of a potential work stoppage or the impact of a new labor contract.
-8-
PART II OTHER INFORMATION
Item 6.(a) EXHIBITS
27 Financial Data Schedule
6.(b) REPORT ON FORM 8-K
None
-9-
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
July 29, 1996