FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
--------------------------------------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to______________________________
FOR QUARTER ENDED SEPTEMBER 30, 1997 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 October 15,
1997 was 20,771,322 which includes redeemable common shares.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
QUARTER ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands)
NET SALES $144,612 $391,925 $386,717 $1,065,233
- ---------
OPERATING COSTS
Cost of goods sold 172,926 330,328 459,594 902,657
Depreciation 9,570 19,887 32,352 58,560
Selling and administration expense 16,664 18,308 50,566 53,489
Profit sharing - 1685 - 2,990
Special charge 88,910 - 88,910 -
--------- ------------- ----------- ---------------
288,070 370,208 631,422 1,017,696
-------- -------- ---------- ---------
OPERATING INCOME (LOSS) (143,458) 21,717 (244,705) 47,537
- -----------------------
Interest expense 7,594 6,507 21,025 19,740
Other income 10,457 9,529 14,625 22,641
--------- ---------- ---------- ----------
INCOME BEFORE TAXES (140,595) 24,739 (251,105) 50,438
- -------------------
Tax provision (benefit) (49,208) 7,422 (87,887) 15,132
---------- ---------- ---------- ----------
NET INCOME (LOSS) (91,387) 17,317 (163,218) 35,306
- -----------------
Dividend requirement for preferred stock 5,152 5,601 15,505 16,922
---------- ---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (96,539) $ 11,716 $(178,723) $ 18,384
- -------------------------------------------- ========== ======== ========== =========
Income (loss) per share of common stock:
Primary: $(4.49) $.45 $(7.84) $.69
======= ==== ======= ====
Fully Diluted: $(4.49) $.39 $(7.84) $.68
======= ==== ======= ====
See notes to consolidated financial statements.
-2-
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(Dollars and shares in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,761 $ 35,020
Short term investments 552,307 447,562
Trade receivables - net 25,147 25,805
Inventories:
Finished and semi-finished products 143,392 126,678
Raw materials 133,213 80,147
Other materials and supplies 18,363 19,476
Excess of LIFO over current cost (10,899) (10,899)
------------ -----------
284,069 215,402
Other current assets 11,738 13,942
---------- -----------
Total current assets 875,022 737,731
Property, plant and equipment at cost, less
accumulated depreciation and amortization 739,800 755,412
Deferred income taxes 191,081 100,157
Intangible asset - pensions 77,180 -
Other non-current assets 121,134 125,479
----------- -----------
$2,004,217 $1,718,779
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 102,100 $ 59,477
Short Term Borrowings 356,120 70,223
Deferred income taxes - current 32,806 30,649
Other current liabilities 113,308 83,090
Long-term debt due in one year 461 2,336
------------ ----------
Total current liabilities 604,795 245,775
Long-term debt 267,874 268,198
Pension liability 156,446 -
Other employee benefit liabilities 414,619 435,502
Other liabilities 48,835 49,096
------------ -----------
1,492,569 998,571
---------- ----------
Redeemable Common Stock - 395 shares
and 411 shares 5,502 5,771
----------- -----------
Stockholders' Equity:
Preferred Stock $.10 par value - 5,883 shares
and 6,137 shares 589 614
Common Stock - $.01 par value - 20,385
shares and 24,328 shares 204 245
Unrealized gain on securities
available for sale 17,436 -
Additional paid-in capital 609,803 658,123
Accumulated earnings (121,886) 56,837
----------- ------------
506,146 715,819
Less treasury stock - 157 shares - (1,382)
Total stockholders equity 506,146 714,437
$2,004,217 $1,718,779
========== ==========
See notes to consolidated financial statements.
-3-
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
NINE MONTHS ENDED SEPT. 30,
1997 1996
---- ----
(Dollars in Thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ (163,218) $ 35,306
Non cash expenses:
Depreciation 32,599 58,808
Other postemployment benefits (1,390) 4,100
Income taxes (88,246) 7,300
Gain on sale of assets 835 (130)
Equity income in affiliated companies 1,191 (5,845)
Special charges, net of current portion 57,459 -
Other items not affecting cash 3,655 -
Decrease (increase) in working capital elements:
Trade receivables (2,842) (58,611)
Inventories (68,667) 15,109
Other current assets 2,204 7,976
Trade payables 42,623 (14,746)
Short term investments(trading) (54,878) (9,929)
Trade account borrowings 190,279 0
Other current liabilities 29,863 4,892
Other items - net (2,685) (866)
----------- -----------
Net cash (used in) provided from operating activities (21,218) 43,364
---------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Short term investments-available for sale (32,430) 7,920
Plant additions and improvements (19,323) (31,870)
Proceeds from asset sales 1,217 539
Dividends received from affiliated companies 2,500 2,500
Investment in/advances to joint ventures (5,450) (17,240)
---------- ---------
Net cash used in investing activities (53,486) (38,151)
--------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from warrants - 5,170
Proceeds from receivable securitization 3,500 (2,000)
Short term borrowings (repayments) 95,618 5,807
Long-term borrowings (repayments) (2,199) (4,822)
Repurchase of common stock (38,876) (18,303)
Preferred stock retirement (9,839) (10,147)
Preferred stock dividends (15,505) (16,926)
Letter of credit collateralization 8,999 (116)
Redemption of common stock (253) (441)
--------- ----------
Net cash (used in) provided from financing activities 41,445 (41,778)
-------- ---------
DECREASE IN CASH AND
CASH EQUIVALENTS (33,259) (36,565)
Cash and cash equivalents
at beginning of period 35,020 43,006
------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,761 $ 6,441
======= ========
See notes to consolidated financial statements.
-4-
WHX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
The consolidated balance sheet as of September 30, 1997, the
consolidated statement of income for the three and nine month periods
ended September 30, 1997 and 1996, and the consolidated statement of cash
flow for the nine month periods ended September 30, 1997 and 1996 have
been prepared by the Company without audit. In the opinion of management,
all adjustments necessary to present fairly the consolidated financial
position at September 30, 1997 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,
1996. The results of operations for the period ended September 30, 1997
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 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, 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 - COLLECTIVE BARGAINING AGREEMENT
The Company's labor agreement with the USWA expired on October 1,
1996. On August 1, 1997 the Company and the USWA announced that they had
reached a tentative agreement on the terms of a new collective bargaining
agreement. The tentative agreement was ratified on August 12, 1997 by
USWA-represented employees. The new collective bargaining agreement
provides for a defined benefit pension plan, a retirement enhancement
program, short-term bonuses and special assistance payments for employees
not immediately recalled to work and $1.50 in hourly wage increases over
its term of not less than five years. It also provides for the reduction
of 850 jobs, mandatory multicrafting as well as modification of certain
work practices.
NOTE 2 - SPECIAL CHARGE
The Company recorded a special charge of $88.9 million in the third
quarter of 1997. The special charge is related to certain benefits
included in its new collective bargaining agreement described in Note 1
above.
The special charges included enhanced retirement benefits to be
paid under the defined benefit pension program which totaled $66.7 million
and were recorded under the provisions of
-2-
Statement of Financial Accounting Standard No.88, Employers' Accounting
For Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and various other charges which totaled $22.2
million. Of this special charge $12.4 million was paid in the third
quarter of 1997.
The Company also recorded an additional pension liability of $77.2
million under the provisions of Statement of Financial Accounting Standard
No. 87, Employers' Accounting for Pensions with an offsetting debit to an
intangible pension asset. The Company's unfunded accumulated pension
benefit obligation totaled $162.0 million as of September 30, 1997.
NOTE 3 - 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 2.3
million at September 30, 1997. 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, unless
their inclusion has an anti-dilutive effect. The inclusion of common stock
equivalents, sale of redeemable common stock and/or conversion of the
convertible preferred stock would have been anti-dilutive in the third
quarter of 1997 and for the nine-month period ended September 30, 1997.
The conversion of the convertible preferred stock would have been
anti-dilutive for the nine-month period of 1996.
The average shares used in the computations were as follows: (in thousands)
Quarter Ended Sept. 30, Nine Months Ended Sept. 30,
1997 1996 1997 1996
---- ---- ---- ----
Primary 21,513 25,887 22,792 26,710
Fully diluted 21,513 43,760 22,792 27,126
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 September 30, 1997, redeemable common stock outstanding totaled
395,287 shares.
NOTE 4 - SHORT TERM INVESTMENTS
The Company recognizes gains and losses based on specific
identification of the securities which comprise the investment balance. At
September 30, 1997 unrealized holding gains on available-for-sale
securities in the amount of $17.4 million were reported as a separate
component of stockholder's equity. There were no available-for-sale
securities at September 30, 1996. Net unrealized holding gains or losses
on trading securities included in net income for the third quarter of 1997
and 1996 were a gain of $4.7 million and a loss of $2.9 million,
respectively.
NOTE 5 - SALES OF RECEIVABLES
In 1994 a special purpose wholly-owned subsidiary of
Wheeling-Pittsburgh Steel Corporation ("WPSC"), entered into an agreement
to sell (up to $75 million on a revolving basis) an undivided
-3-
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 September 30, 1997 and 1996 exclude $48.5
million and $65 million, respectively, representing uncollected accounts
receivable sold with recourse limited to the extent of uncollectible
balances. Fees paid by the Company under this agreement range from 7.42%
to 8.5% 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 6 - REVOLVING CREDIT FACILITY
In December 1995 Wheeling-Pittsburgh Steel Corporation entered into
a Second Amended and Restated Revolving Credit Facility ("RCF") with
Citibank, N.A. as agent. The RCF, as amended, provides for borrowings for
general corporate purposes up to $150 million and a $35 million sub-limit
for Letters of Credit.
The RCF expires on May 3, 1999. Interest rates are based on the
Citibank prime rate plus 1.0% and/or a Eurodollar rate plus 2.25%, but the
margin over the prime rate and the Eurodollar rate can fluctuate based
upon performance. The letter of credit fee is 2.25% and is also
performance based.
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. Borrowings
outstanding against the RCF at September 30, 1997 totaled $97.0 million.
No letters of credit were outstanding under the RCF.
In August 1994 WPSC entered into a separate facility for letters of
credit up to $50 million. At September 30, 1997 letters of credit totaling
$16.9 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 7 - CONTINGENCIES
ENVIRONMENTAL MATTERS
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 seven 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 $3 million and $4 million. At four other sites the costs
are estimated to aggregate up to $700,000. The Company lacks sufficient
information regarding the remaining sites to form an estimate. Non-current
accrued environmental liabilities totaled $7.4 million at September 30,
1997 and $7.5 million at September 30, 1996. These liabilities were
determined by the Company, based on all available information, including
information provided by
-4-
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 becomes available, the Company will reassess such
evaluations.
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 nine months ended September
30, 1997 and years 1996 and 1995 aggregate capital expenditures for
environmental control projects totaled approximately $1.8 million, $6.8
million and $5.9 million, respectively. 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
foreseeable future.
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.
NOTE 8 - SUBSEQUENT EVENT
$350 MILLION SENIOR NOTE OFFERING
On November 4, 1997, the Company announced that Wheeling-Pittsburgh
Corporation, a wholly owned subsidiary, intends to privately place with
institutional investors approximately $350 million of Senior Notes. The
net proceeds will be used primarily to defease its outstanding 9 3/8%
Senior Notes and to reduce borrowings under its RCF.
-5-
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
On August 12, 1997, the Company and the USWA entered into a new 5-year
collective bargaining agreement which settled a ten month strike. The strike
directly affected facilities accounting for approximately 80% of the Company's
steel shipments. The new labor agreement provides for the elimination of 850
hourly employees (approximately 20% of the Company's workforce), restructuring
of work rules and manning requirements and a reduction in the expense associated
with retiree healthcare costs. The improved work rules should allow the Company
to ship at pre-strike levels with 850 fewer hourly employees.
The Company is directing its selling efforts to attain pre-strike sales
and production levels. Market conditions for the products produced by the
Company have remained stable since the time of the Company's return to operation
after settlement of the strike. The orders booked by the Company to date have
been at prices comparable to those prevailing in the market. All of the
Company's production facilities have resumed operations as of September 30,
1997. Full primary steel operations are expected during the fourth quarter of
1997. The Company expects to be at full shipping levels, at competitive market
pricing, during the second quarter of 1998.
The Company believes that it has sufficient resources to fund the start-up
of its production facilities for re-entry to the marketplace. These resources,
which are in excess of $150 million, include the sale of coke produced and not
shipped during the strike, the sale of receivables under the receivables
securitization agreement and availability under the RCF.
THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996
As set forth below, the Company's third quarter results were impacted by
the strike which began on October 1, 1996 and continued to August 12, 1997. The
Company reported a $91.4 million net loss in the third quarter of 1997,
including a special charge totaling $88.9 million for benefits included in the
new collective bargaining agreement related to enhanced retirement benefits,
short-term bonuses and special assistance payments for those not returning to
work immediately.
Net sales for the third quarter of 1997 totaled $144.6 million on
shipments of .2 million tons of steel products. Net sales for the 1996 third
quarter totaled $391.9 million on shipments of .7 million tons of steel
products. The decrease in sales and tons shipped is primarily attributable to
the strike at eight plants located in Ohio, Pennsylvania and West Virginia. No
steel products were being produced or shipped at these facilities which
represent approximately 80% of the tons shipped by the Company on an annual
basis. Average sales prices per ton increased to $705 from $534 per ton in the
1996 third quarter. The increase in average price per ton is primarily
attributable to continued shipment of Wheeling Corrugating's higher value-added
product mix during the strike. Steel prices also increased 3.2%.
Cost of goods sold for the third quarter of 1997 totaled $172.9 million,
compared to $330.3 million for the 1996 third quarter. The decrease in costs of
goods sold reflects the effects of the strike on volume of steel products
shipped. Cost of goods sold per ton increased to $843 per ton from $450 per ton.
The increase in costs per ton shipped reflects higher fixed cost absorption due
to lower volumes shipped, increased purchases of steel for use by Wheeling
Corrugating and Pittsburgh-Canfield Corporation
-6-
operations, and a higher-cost mix of products shipped. Raw steel production in
the third quarter of 1997 totaled .1 million tons, compared to .6 million tons
in the 1996 third quarter.
Depreciation decreased to $9.6 million in the third quarter of 1997 from
$19.9 million in the 1996 third quarter. The decrease is due to the effects of
the strike on production and the units of production depreciation method.
Selling, administration and general expense decreased to $16.7 million in
the third quarter of 1997 from $18.3 million in the 1996 third quarter. The
decrease is due to a reduced salaried workforce, lower property and liability
insurance premiums, and lower computer time sharing expense.
The third quarter of 1997 includes a special charge for benefits included
in the new collective bargaining agreement totaling $88.9 million described
above.
Interest expense for the third quarter of 1997 increased to $7.6 million
from $6.5 million in the 1996 third quarter. The increase is due to increased
short-term borrowings.
Other income increased to $10.5 million in the third quarter of 1997 from
$9.5 million in the 1996 third quarter. The increase reflects a higher return on
mark-to-market short-term investments partially offset by equity losses for
start-up of the Ohio Coatings Company joint venture.
The tax benefit of $49.2 million for the third quarter of 1997 and tax
provision of $7.4 million for the 1996 third quarter reflect estimated annual
effective tax rates of 35% and 30%, respectively. The 1996 rate is lower than
the statutory rate of 35% due to the effect of permanent tax differences on a
relatively low pre-tax income.
Net loss for the third quarter of 1997 totals $91.4 million, or $4.49 per
share of common stock. Excluding the special charge, the loss would have been
$33.6 millions or $1.80 per share of common stock. Net income for the third
quarter of 1996 totaled $17.3 million, or $.45 per share of common stock.
NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996
Net sales for the first nine months of 1997 totaled $386.7 million on
shipments of .5 million tons of steel products. Net sales for the same period of
the prior year totaled $1,065.2 million on shipments of 2.0 million tons. The
decrease in sales and tons shipped is primarily attributable to the work
stoppage at eight plants located in Ohio, Pennsylvania and West Virginia. No
steel products were being produced or shipped at these facilities which
represent approximately 80% of the tons shipped by the Company on an annual
basis. Average sales prices increased to $737 per ton from $529 per ton in the
1996 nine month period. The increase in average price per ton is primarily
attributable to a higher value-added product mix, steel prices also increased
2.9%
Cost of goods sold for the 1997 nine months totaled $459.6 million,
compared to $902.7 million for the 1996 nine month period. The decrease in cost
of goods sold reflects the effects of the strike on the volume of steel products
shipped. Cost of goods sold per ton increased to $876 per ton from $448 per ton.
The increase in cost per ton shipped reflects higher fixed cost absorption due
to lower volumes shipped, increased purchases of steel for use by Wheeling
Corrugating and Pittsburgh-Canfield operations, and a higher-cost mix of
products shipped. Raw steel production in the 1997 nine month period totaled .1
million tons, compared to 1.8 million tons in nine months of 1996.
Depreciation decreased to $32.4 million for nine months of 1997 from $58.6
million for nine months of 1996. The decrease in depreciation is due to the
effects of the strike on production and the units of production depreciation
method.
-7-
No profit sharing was earned in the first nine months of 1997 as a result
of the strike and its impact on pre-tax income. Profit sharing totaled $3.0
million in the corresponding 1996 nine month period.
Selling, administrative and general expense decreased to $50.6 million for
1997 nine months from $53.5 million in the 1996 nine month period due to a
reduced salaried workforce, lower property and liability insurance premiums, and
lower computer time sharing.
The third quarter loss includes a special charge for benefits included in
the new collective bargaining agreement totaling $88.9 million ($57.8 million
after tax), related to enhanced retirement benefits, bonuses for hourly and
salaried employees and special assistance payments for those not returning to
work immediately.
Interest expense for the nine months of 1997 totaled $21.0 million, an
increase of $1.3 million over 1996, due to increased short term borrowings and
lower amounts of capitalized interest.
Other income for the nine months of 1997 totaled $14.6 million, compared
to other income of $22.6 million for nine months of 1996. The decrease is due
primarily to equity losses for start-up of the Ohio Coatings Company joint
venture.
The 1997 tax benefit and 1996 tax provision for the nine month periods
reflect estimated annual effective tax rates of 35% and 30%, respectively. The
1996 rate is lower than the statutory rate of 35% due to the effect of permanent
tax differences on a relatively low pre-tax income.
Net loss for the 1997 nine months totaled $163.2 million, or $7.84 per
share of common stock. Excluding the special charge, the loss would be $105.4
million, or $5.31 per share of common stock. Net income for nine months 1996
totaled $35.3 million, or $.69 per share of common stock.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had cash and short-term investments of
$554.1 million and short term borrowings of $356.1 million.
Net cash flow used in operating activities for the first nine months of
1997 totaled $21.2 million. Inventories, valued principally by the LIFO method
for financial reporting purposes, totaled $284.1 million at September 30, 1997,
an increase of 68.7 million from December 31, 1996. The increase in inventories
is due primarily to increases in furnace coke and equity iron ore pellets. Net
cash flow used in investing activities for the first nine months of 1997 totaled
$53.5 million, including capital expenditures of $19.3 million. It is
anticipated that necessary capital expenditures, including required
environmental expenditures in future years, will approximate depreciation
expense and will represent a material use of operating funds. The Company
anticipates funding its capital expenditures from cash on hand, investments and
funds generated from operations. Net cash flow provided from financial
activities totaled $41.4 million, including borrowings under the RCF of $97.0
million, offsetting funds used to repurchase common and preferred stock of $48.7
million, and funds used to pay preferred dividends of $15.5 million.
In August 1994 the Company 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 and two of its affiliates,
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. Account receivable at September 30,
1997, exclude $48.5 million representing accounts receivable sold with recourse
limited to the extent of uncollectible balances. Fees under this agreement range
from
-8-
7.42% to 8.50% 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.
On December 28, 1995, WPSC entered into a new RCF with Citibank, N.A. as
agent. The RCF, as amended, provides for borrowing for general corporate
purposes of up to $150 million, and a $35 million sub-limit for letters of
credit. The RCF expires May 3, 1999. Interest is calculated at a Citibank prime
rate plus 1.0% and or a Eurodollar rate plus 2.25%. Borrowings under the
Revolving Credit Facility 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 financial covenants restricting indebtedness, liens
and distributions. As of September 30, 1997, borrowings in the amount of $97.0
million were outstanding under the RCF. No letters of credit were outstanding
under the RCF.
On November 4, 1997, the Company announced that Wheeling-Pittsburgh
Corporation, a wholly owned subsidiary, intends to privately place to
institutional investors approximately $350 million of Senior Notes. The net
proceeds will be used primarily to defease its outstanding 9 3/8% Senior Notes
and to reduce borrowings under the RCF.
In August 1994 WPSC entered into a separate facility for letters of credit
up to $50 million. At September 30, 1997, letters of credit totaling $16.9
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 other non-current assets.
As of September 30, 1997, the Company had repurchased on the open market
and retired 9.1 million shares of its Common Stock for an aggregate purchase
price of approximately $89.0 million, including 2.1 million shares of Common
Stock purchased in the third quarter of 1997 for approximately $23.2 million,
and 4.2 million shares of Common Stock and .3 million shares of Preferred Stock
for the nine month period for approximately $48.7 million. The Board of
Directors had previously authorized the Company to repurchase up to 10.1 million
shares of its outstanding Common Stock, and up to .3 million of its outstanding
Series A and up to .7 million of its Series B Convertible Preferred Stocks. The
Company may, from time to time, continue to purchase additional shares of Common
Stock and Preferred Stock.
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.
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 ten
month strike and the effects and length of the start-up period following the
labor settlement, and its impact on the Company's business and liquidity.
-9-
The Company will adopt SFAS No. 128 in the fourth quarter of 1997.
Management believes that adoption of the new standard will not have a material
effect on previously reported EPS amounts for prior quarters of 1997 and 1996.
-10-
PART II OTHER INFORMATION
Item 6.(a) EXHIBITS
10.1 Agreement by and between the Company and P.J. Mooney
effective as of October 17, 1997.
27 Financial Data Schedule
6.(b) REPORT ON FORM 8-K
On September 30, 1997 the Company filed a report on Form 8-K.
The report included a press release by the Company that
disclosed an anticipated third quarter special charge of
approximately $90 million related to a retirement enhancement
program and various short-term bonus/unemployment payments
stipulated in the Company's new collective bargaining agreement
ratified on August 12, 1997.
-11-
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/ J. R. SCHEESSELE
-----------------------------
J. R. Scheessele
President
Acting Chief Accounting Officer
November 12, 1997