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 MARCH 31, 1999
--------------------------------------------
/ / 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, 1999 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 May 7, 1999
was 16,992,085 which includes redeemable common shares.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
QUARTER ENDED MARCH 31,
-----------------------
1999 1998
---- ----
(In thousands except per share)
NET SALES $396,925 $304,078
- ---------
OPERATING COSTS
Cost of goods sold 349,137 269,657
Depreciation and amortization 26,776 20,756
Selling, administrative and general expense 36,126 18,024
--------- ---------
412,039 308,437
--------- ---------
OPERATING (LOSS) (15,114) (4,359)
--------- ---------
Interest expense on debt 21,335 9,847
Other income (expense) (17,276) 15,783
--------- ---------
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM (53,725) 1,577
--------- ---------
Tax provision (benefit) (17,233) 489
--------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (36,492) 1,088
Extraordinary income-net of tax 896 --
--------- ---------
NET INCOME (LOSS) (35,596) 1,088
Dividend requirement for Preferred Stock 5,152 5,152
--------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (40,748) $ (4,064)
========= =========
BASIC AND DILUTED INCOME (LOSS) PER SHARE OF
COMMON STOCK
Income (loss) before extraordinary item $ (2.45) $ (0.21)
Extraordinary item - net of tax 0.05 --
--------- ---------
Net income (loss) per share $ (2.40) $ (0.21)
========= =========
See notes to consolidated financial statements.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
1999 1998
---- ----
(Dollars and shares in thousands)
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $13,576 $ 16,004
Short term investments 684,140 702,082
Trade receivables - net 132,252 97,552
Inventories:
Finished and semi-finished products 207,210 210,225
Raw materials 101,354 98,710
Other materials and supplies 20,722 33,373
Precious metals 138,153 122,653
Excess of LIFO over current cost 1,124 2,169
---------------------------------------------
468,563 467,130
Other current assets 10,854 11,136
---------------------------------------------
Total current assets 1,309,385 1,293,904
Property, plant and equipment at cost, less
accumulated depreciation and amortization 810,029 819,077
Deferred income taxes 128,368 110,935
Intangible asset - pensions 50,449 50,449
Intangibles, net of amortization 286,366 288,216
Other non-current assets 133,748 149,503
---------------------------------------------
$2,718,345 $2,712,084
=============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $163,257 $ 132,412
Short-term borrowings 587,601 559,501
Deferred income taxes - current 69,551 69,551
Other current liabilities 146,747 122,950
Long-term debt due in one year 1,612 612
---------------------------------------------
Total current liabilities 968,768 885,026
Long-term debt 865,516 893,356
Pension liability 7,470 5,952
Other employee benefit liabilities 421,845 423,225
Other liabilities 53,767 54,383
---------------------------------------------
2,317,366 2,261,942
---------------------------------------------
Redeemable Common Stock - 295 shares
and 298 shares 3,584 3,630
---------------------------------------------
Stockholders' Equity:
Preferred Stock $.10 par value -
5,883 shares 589 589
Common Stock - $.01 par value -
16,691 shares and 17,545 shares 167 175
Accumulated other
comprehensive income (loss) 4,475 5,472
Additional paid-in capital 575,431 582,795
Accumulated (deficit) earnings (183,267) (142,519)
---------------------------------------------
Total stockholders' equity 397,395 446,512
---------------------------------------------
$2,718,345 $2,712,084
=============================================
See notes to consolidated financial statements.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1999 1998*
---- -----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (35,596) $ 1,088
Non cash income and expenses:
Depreciation and amortization 26,776 20,756
Other post employment benefits 1,220 2,150
Income taxes (17,471) 322
(Gain) loss on sale of assets 2,480 (8,748)
Equity income in affiliated companies (1,828) (974)
Pension expense 1,518 5,556
Minority interest 296 --
Premium on early debt retirement (net of tax) (896) --
Decrease (increase) in working capital elements,
Trade receivables (34,700) (26,849)
Trade receivables sold -- 15,500
Inventories (1,433) 2,105
Other current assets 282 5,463
Trade payables 30,845 16,124
Other current liabilities 23,797 7,221
Short term investments (trading) - net 17,263 (232,727)
Trading account borrowings 48,102 267,432
Other items - net 1,349 (1,585)
-----------------------------------
Net cash provided by operating activities 62,004 72,834
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short term investments-available for sale -- 21,508
Plant additions and improvements (18,526) (7,478)
Investment in affiliates 1,031 --
Acquisition of Handy & Harman, net of cash -- (35,178)
Other Investments -- (8,335)
Dividends from affiliates 5,000 5,000
Proceeds from sale of property 8 --
----------------------------------
Net cash used in investing activities (12,487) (24,483)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (26,840) (66)
Minority interest (357) --
Short term borrowings (payments) (20,002) (34,856)
Common stock purchased (7,784) (10,050)
Letter of credit collateralization 8,229 415
Preferred stock dividends paid (5,152) (5,152)
Redemption of equity issues (39) 356
----------------------------------
Net cash used in financing activities (51,945) (49,353)
----------------------------------
DECREASE IN CASH AND
CASH EQUIVALENTS (2,428) (1,002)
Cash and cash equivalents
at beginning of period 16,004 1,002
----------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 13,576 $ --
==================================
See notes to consolidated financial statements.
* Reclassified
WHX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
The consolidated balance sheet as of March 31, 1999, the
consolidated statement of operations for the three month periods ended
March 31, 1999 and 1998, and the consolidated statement of cash flows
for the three month periods ended March 31, 1999 and 1998, 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 March 31, 1999 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, 1998. The results of operations for the period ended March 31, 1999
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
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 11.
NOTE 1 - HANDY & HARMAN ACQUISITION
On April 13, 1998, the Company completed the acquisition of H&H
and merged it with a wholly-owned subsidiary of the Company (the
"Merger"). The acquisition was accounted for as a purchase business
combination in accordance with APB 16. Accordingly, the assets and
liabilities of H&H have been adjusted to reflect their relative fair
values at the date of acquisition. The excess of the purchase price over
the fair value of the net assets acquired is being amortized over a
period of 40 years. The Company financed the transaction through cash on
hand and a private placement of debt securities.
NOTE 2 - 10 1/2% SENIOR NOTES
On April 7, 1998, the Company closed a definitive purchase
agreement for the sale of $350.0 million principal amount of 10 1/2%
Senior NoteS due 2005 in a Rule 144A Private Placement to qualified
institutional buyers. The net proceeds of $340.4 million from the
offering were used to finance a portion of the acquisition of H&H and
related transaction expenses. The 10 1/2% Senior Notes were exchanged
for identical notes which were issued pursuant to an exchange offer
registered under the Securities Act of 1933, as amended. During the
first quarter of 1999, the Company purchased and retired $20.5 million
aggregate principal amount of 10 1/2% Senior Notes in the open market
resulting in a $0.9 million gain, net of tax.
NOTE 3 - EARNINGS PER SHARE
The computation of basic earnings per common share is based
upon the average shares of Common Stock outstanding. In the computation
of diluted earnings per common share in the first quarter of 1999 and
1998, the conversion of preferred stock and redeemable common stock and
exercise of options would have had an anti-dilutive effect. A
reconciliation of the income and shares used in the computation follows:
RECONCILIATION OF INCOME AND SHARES IN EPS CALCULATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For the Quarter Ended March 31, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Income before extraordinary item (36,492)
Less: Preferred stock dividends 5,152
BASIC AND DILUTED EPS
Income (loss) available to --------- ------ ------
common stockholders $(41,644) 17,001 $(2.45)
For the Quarter Ended March 31, 1998
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income 1,088
Less: Preferred stock dividends 5,152
BASIC AND DILUTED EPS
Income (loss) available to
-------- ------ -------
common stockholders $(4,064) 18,942 $(0.21)
======== ====== =======
Outstanding stock options granted to officers, directors, key
employees and others totaled 5.1 million shares of Common Stock at March
31, 1999.
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 March 31, 1999 redeemable common stock outstanding
totaled 295,394 shares.
NOTE 4 - 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 first quarter 1999 comprehensive
loss of $36.6 million consists of a net loss of $35.6 million and other
comprehensive loss of $1.0 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 1998 of
$1.7 million consists of net income of $1.1 million and other
comprehensive loss of $2.8 million, net of tax related to an unrealized
loss on available-for-sale securities.
NOTE 5 - SHORT TERM INVESTMENTS
Net unrealized holding losses on trading securities included in
other income for the first quarter of 1999 and 1998 were a loss of $23.6
million and $7.4 million, respectively.
NOTE 6 - WPSC SALES OF RECEIVABLES
Accounts receivable at March 31, 1999 and 1998 exclude $95.0
million and $84.5 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 5.3875% to 6.125% 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. The agreement expires in August 1999 and a new agreement is
currently being renegotiated.
NOTE 7 - WPSC REVOLVING CREDIT FACILITY
On April 30, 1999 Wheeling-Pittsburgh Steel Corporation
("WPSC") entered into a Third Amended and Restated Revolving Credit
Facility ("WPSC Revolving Credit Facility") with Citibank, N.A. as
agent. The WPSC Revolving Credit Facility, as amended, provides for
borrowings for general corporate purposes up to $150 million and a $25
million sub-limit for Letters of Credit. The WPSC 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 prior WPSC Revolving
Credit Facility at March 31, 1999 totaled $50.0 million. Letters of
credit outstanding under the prior WPSC Revolving Credit Facility were
$2.5 million at March 31, 1999.
NOTE 8 - HANDY & HARMAN CREDIT FACILITIES
On July 30, 1998 H&H entered into a $300 million Senior
Secured Credit facility (the "Facilities") with Citibank, N.A. as agent.
The Facilities are comprised of (i) a $100 million 6-year Revolving
Credit Facility, (ii) a $25 million 6-year Delayed Draw Term Loan
Facility, (iii) a $50 million 6-year Term Loan A Facility, and (iv) a
$125 million 8-year Term Loan B Facility. Interest under the Facilities
is calculated at a rate determined either using (i) the Citibank prime
rate or (ii) the LIBOR Rate, plus the Applicable Margin in effect from
time to time. Applicable Margin means a percentage per annum determined
by reference to the Total Leverage Ratio of H&H. The rates in effect
until June 30, 1999 are (a) in the case of the Term A Facility, the
Delayed Draw Facility and the Revolving Credit Facility calculated at
LIBOR + 1.75% and (b) in the case of the Term B Facility, calculated at
LIBOR + 2.50%. Borrowings under the
Facilities are secured by the pledge of 100% of the capital stock of all
of H&H's active U.S. subsidiaries and 65% of the stock of H&H's non-U.S.
subsidiaries. In addition H&H has provided a perfected first priority
lien on and security interest in substantially all the assets of H&H and
its active subsidiaries. The Facilities have certain financial covenants
restricting indebtedness, liens and distributions. The Company has
entered into a cancelable interest-rate swap to convert $125 million of
its variable-rate debt to a fixed rate with Citibank, N.A. New York. The
fixed rate is 4.53 percent, effective January 4, 1999, with a
termination date of January 5, 2004; PROVIDED, HOWEVER, Citibank may
designate July 5, 2000 as the termination date. Borrowings outstanding
under the Facilities at March 31, 1999 totaled $239.7 million, including
$16.2 million of letters of credit outstanding.
NOTE 9 - UNIMAST REVOLVING CREDIT AGREEMENT
On November 24, 1998, Unimast entered into a Revolving Credit
Agreement (RCA) with The First National Bank of Chicago (First Chicago)
as lender and agent and Citicorp USA Inc. as lender and collateral
agent. The RCA is for general corporate purposes, including working
capital needs and capital expenditures up to $50 million with a $3
million sub-limit for letters of credit (LC).
The RCA expires on November 24, 2003. Interest rates are based
upon the Eurodollar rate plus 2.125% and/or First Chicago corporate base
rate plus the federal funds rate plus 1.125%, but the margin over the
Eurodollar rate and the corporate base rate and federal funds rate can
fluctuate based upon performance. A commitment fee between 0.25% and
0.5% is charged on the unused portion of the RCF. The letter of credit
fees are 1.0625% for a commercial LC and 2.125% for a standby LC. The
commitment fees and the LC fees are all performance based.
Borrowings are secured primarily by 100% of the eligible
inventory and fixed assets of Unimast, and its subsidiaries. Following
the expiration of the sale of receivables (See Note 6), borrowings will
be additionally secured by accounts receivable. The terms of the RCA
contain various restrictive covenants limiting dividend payments, major
acquisitions or other distribution of assets, as defined in the RCA.
Certain financial covenants associated with leverage, net worth, capital
spending and interest coverage must be maintained. Borrowings
outstanding against the RCA at March 31, 1999 totaled $2.0 million. No
letters of credit were outstanding under the RCA.
NOTE 10 - 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 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, reclamation will be between $2.5 and $3.0
million. At several other sites the Company estimates costs of 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
$12.4 million, $9.5 million and $2.1 million for 1997, 1998 and the
three months ended March 31, 1999, respectively. The Company anticipates
spending approximately $21.7 million in the aggregate on major
environmental compliance projects through the year 2002, estimated to be
spent as follows: $5.5 million in 1999, $5.8 million in 2000, $6.0
million in 2001 and $4.4 million in 2002. 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 $12.5
million at March 31, 1999. 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 or results of operations of the Company. However, as further
information comes into the Company's possession, it will continue to
reassess such evaluations.
NOTE 11 - REPORTED SEGMENTS
The Company's reportable operating segments consists of WPC,
H&H and Unimast, 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 first quarters of 1999 and 1998.
FIRST QUARTER OF 1999
ALL SEGMENT CONSOLIDATED
WPC H&H UNIMAST OTHER TOTAL ADJUSTMENTS TOTAL
--- --- ------- ----- ----- ----------- -----
Revenue from external
customers $250,048 $109,540 $53,077 $ - $412,665 ($15,740) $396,925
Intersegment revenues 15,740 - - - 15,740 - 15,740
Segment net income (loss)
(20,267) 1,220 2,791 (19,340) (35,596) - (35,596)
FIRST QUARTER OF 1998
ALL SEGMENT CONSOLIDATED
WPC H&H* UNIMAST OTHER TOTAL ADJUSTMENTS TOTAL
--- --- ------- ----- ----- ----------- -----
Revenue from
external customers $259,122 - $48,559 $ - $307,681 ($3,603) $304,078
Intersegment revenues 3,603 - - - 3,603 - 3,603
Segment net income (loss)
(8,951) - 894 9,145 1,088 - 1,088
* Results prior to April 13, 1998 are not reported in WHX consolidations and
therefore have been omitted from this comparison.
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
In August 1997 WPC and the USWA entered into a new five-year
labor agreement which settled a ten-month strike. All of WPC's
production facilities resumed operations as of September 30, 1997. Raw
steel production achieved 90% of capacity in the fourth quarter of 1997.
By June 30, 1998, WPC was producing at its pre-strike production levels
and shipping at its historical mix of products. The new labor agreement
provides for a restructuring of work rules and manning requirements and
a reduction in the expense associated with retiree healthcare costs. The
improved
work rules allowed WPC to eliminate 850 hourly jobs (approximately 20%
of the work force) and materially reduced its labor costs. Partially
offsetting these savings are hourly wage increases and the costs of a
defined benefit pension plan, which include a retirement incentive.
On March 31, 1998, the Company announced that it had entered
into a definitive purchase agreement for the sale of $350.0 million
principal amount of 10 1/2% Senior Notes due 2005 in a Rule 144A private
placement to qualified institutional buyers. The closing on the privatE
placement of 10 1/2% Senior Notes occurred April 7, 1998. The net
proceeds of $340.4 million from the offering were used to finance a
portion of thE acquisition of H&H ("H&H") and related transaction
expenses. The 10 1/2% Senior Notes were exchanged for identical notes
which were issued pursuanT to an exchange offer registered under the
Securities Act of 1933, as amended (the "Securities Act").
On April 13, 1998 the Company completed the acquisition of H&H
and merged it with a wholly-owned subsidiary of the Company. The
transaction has a total value of approximately $651.4 million, including
the assumption of approximately $229.6 million in debt. The Company
financed the transaction through cash on hand and the private placement
of its 10 1/2% Senior Notes.
In May, 1998 WHX completed the merger of its pension plan with
the pension plan of H&H. Under the terms of the merged WHX Pension Plan,
there are a series of benefit structures, that essentially continue the
various pension plans for employees of both plans as they existed before
the merger.
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 first quarter of 1999 were $396.9 million as
compared to $304.1 million in the first quarter of 1998. Sales increased
primarily due to the acquisition of H&H. Sales declined by $9.1 million
at the Company's WPC operations in the face of increased volume offset
by continued weakness in steel prices.
Operating costs for the first quarter of 1999 increased to
$412.0 million from $308.4 million. The increase in operating costs
reflects the increased volume of shipments at WPC's operations and the
inclusion of H&H operations in the first quarter.
Depreciation and amortization expense increased $6.0 million
to $26.8 million in the first quarter of 1999 from $20.8 million in the
comparable period in 1998, due to asset acquisitions during the period
at WPC and the inclusion of H&H in 1999. Amortization increased $2.0
reflecting the goodwill acquired in the H&H acquisition.
Selling, administrative and general expense for the first
quarter of 1999 increased $18.1 million to $36.1 million from $18.0
million in the comparable period in 1998 due primarily to the
acquisition of H&H in the second quarter 1998.
Interest expense for the first quarter 1999 increased $11.5
million to $21.3 million from the comparable period in 1998 reflecting
the acquisition debt issued in connection with the purchase of H&H as
well as the assumption and refinancing of H&H outstanding indebtedness.
Other income (expense) was a $17.3 million loss in the first
quarter of 1999 as compared to $15.8 million of income in 1998's first
quarter. The change in other income (expense) is due primarily to
unrealized losses on short-term investments in fixed income securities.
The 1999 first quarter tax provision reflects an estimated
annual effective tax rate of 32%, as compared to 37% annual effective
rate in 1998.
Net loss for the 1999 first quarter totaled $35.6 million, or
a loss of $2.40 per share of common stock after deduction of preferred
dividends. The 1998 first quarter net income was $1.1 million, or a loss
of $0.21 per share of common stock after deduction of preferred
dividends.
FINANCIAL POSITION
Net cash flow provided by operating activities for the first
quarter of 1999 totaled $62.0 million. Short term trading investments
and related short-term borrowings are reported as cash flow from
operating activities and provided a net $65.4 million of funds in the
1999 first quarter. Working capital accounts (excluding cash, short-term
investments, short-term borrowings and current maturities of long term
debt) provided $18.8 million of funds. Accounts receivable increased by
$34.7 million, trade payables increased $30.8 million, and other current
liabilities increased $23.8 million. Inventories, valued principally by
the LIFO method for financial reporting purposes, totaled $468.6 million
at March 31, 1999, an increase of $1.4 million from December 31, 1998.
The increase in accounts receivable is due to increased shipments at
WPC.
In the first quarter period of 1999, $18.5 million was spent
on capital improvements including $2.1 million on environmental control
projects. Continuous and substantial capital and maintenance
expenditures will be required 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.
On November 24, 1998, Unimast entered into a Revolving Credit
Agreement (RCA) with The First National Bank of Chicago (First Chicago)
as lender and agent and Citicorp USA Inc. as lender and collateral
agent. The RCA is for general corporate purposes, including working
capital needs and capital expenditures up to $50 million with a $3
million sub-limit for letters of credit (LC).
The RCA expires on November 24, 2003. Interest rates are based
upon the Eurodollar rate plus 2.125% and/or First Chicago corporate base
rate plus the federal funds rate plus 1.125%, but the margin over the
Eurodollar rate and the corporate base rate and federal funds rate can
fluctuate based upon performance. A commitment fee between 0.25% and
0.5% is charged on the unused portion of the RCF. The letter of credit
fees are 1.0625% for a commercial LC and 2.125% for a standby LC. The
commitment fees and the LC fees are all performance based.
Borrowings are secured primarily by 100% of the eligible
inventory and fixed assets of Unimast, and its subsidiaries. Following
the expiration of the sale of receivables (See Note 6), borrowings will
be additionally secured by accounts receivable. The terms of the RCA
contain various restrictive covenants limiting dividend payments, major
acquisitions or other distribution of assets, as defined in the RCA.
Certain financial covenants associated with leverage, net worth, capital
spending and interest coverage must be maintained. Borrowings
outstanding against the RCA at March 31, 1999 totaled 2.0 million. No
letters of credit were outstanding under the RCA.
On July 30, 1998 H&H entered into a $300 million Senior
Secured Credit facility (the "Facilities") with Citibank USA Inc. as
agent. The Facilities are comprised of (i) a $100 million 6-year
Revolving Credit Facility, (ii) a $25 million 6-year Delayed Draw Term
Loan Facility, (iii) a $50 million 6-year Term Loan A Facility, and (iv)
a $125 million 8-year Term Loan B Facility. Interest under the
Facilities is calculated at a rate determined either using (i) the
Citibank prime rate or (ii) LIBOR, plus the Applicable Margin in effect
from time to time. Applicable Margin means a percentage per annum
determined by reference to the total leverage ratio of H&H. The rates in
effect until June 30, 1999 are (a) in the case of the Term A Facility,
the Delayed Draw Facility and the Revolving Credit Facility, calculated
at LIBOR + 1.75% and (b) in the case of the Term B Facility, calculated
at LIBOR + 2.50%. Borrowings under the Facilities are secured by the
pledge of 100% of the capital stock of all H&H's active U.S.
subsidiaries and 65% of the stock of H&H's non-U.S. subsidiaries. In
addition, H&H provided a perfected first priority lien on and security
interest in substantially all the assets of H&H and its subsidiaries.
The Facilities have certain financial covenants restricting
indebtedness, liens and distributions. In addition, the Facilities
required H&H to procure an interest rate hedge agreement covering a
notional amount of not less than $125 million for a period of no less
than three years. H&H has entered into a cancelable interest-rate swap
to convert $125 million of its variable-rate debt to a fixed rate with
Citibank, N.A. New York. The fixed rate is 4.53 percent, effective
January 4, 1999, with a termination date of January 5, 2004; provided
however Citibank may designate July 5, 2000 as the termination date. The
Facilities replaced H&H's $125 million Senior Notes due 2004 and its
unsecured Revolving Credit Facility. Borrowings outstanding under the
Facilities at March 31, 1999 totaled $239.7 million. Letters of credit
outstanding under the Facilities totaled 16.2 at March 31, 1999.
On April 7, 1998, the Company closed a definitive purchase
agreement for the sale of $350.0 million principal amount of 10 1/2%
Senior NoteS due 2005 in a Rule 144A Private Placement to qualified
institutional buyers. The net proceeds of $340.4 million from the
offering were used to finance a portion of the acquisition of H&H and
related transaction expenses. The 10 1/2% Senior Notes were exchanged
for identical notes which werE issued pursuant to an exchange offer
registered under the Securities Act. During the first quarter of 1999,
the Company purchased $20.5 million aggregate principal amount of 10
1/2% Senior Notes in the open market for $19.1 million. Since issuance,
the Company has purchased $68.5 millioN aggregate principal amount of 10
1/2% Senior Notes in the open market, leaving the total amount of Senior
Notes outstanding at $281.5 million.
In November 1997, Wheeling-Pittsburgh Corporation, a wholly
owned subsidiary of the Company, ("WPC") issued $275.0 million principal
amount of 9 1/4% Senior Notes to qualified institutional buyers pursuant
to Rule 144A under the Securities Act. The 9 1/4% Senior Notes were
exchaNGEd for identical notes which were issued pursuant to an exchange
offer registered under the Securities Act. The proceeds from the 9 1/4%
Senior NoteS and the Term Loan Agreement were used to defease $266.2
million of 9?% Senior Notes due 2003 and to pay down borrowings under
the WPSC Revolving Credit Facility.
In November 1997 WPC also entered into a Term Loan Agreement
with DLJ Capital Funding, Inc., as syndication agent, pursuant to which
it borrowed $75.0 million. The Term Loan Agreement matures on November
15, 2006. Amounts outstanding under the Term Loan Agreement bear
interest at either (i) the Base Rate (as defined therein) plus 2.25% or
(ii) the LIBOR (as defined therein) plus 3.25%. WPC's obligations under
the Term Loan Agreement will be guaranteed by WPC's outstanding present
and future operating subsidiaries.
On April 30, 1999, WPSC entered into a Third Amended and
Restated Revolving Credit Facility ("WPSC Revolving Credit Facility")
with Citibank, N.A. as agent. The
WPSC Revolving Credit Facility, as amended, provides for borrowings for
general corporate purposes up to $150 million and a $25 million
sub-limit for letters of credit. The WPSC 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 prior WPSC Revolving Credit Facility
at March 31, 1999 totaled $50.0 million. Letters of credit outstanding
under the prior WPSC Revolving Credit Facility were $2.5 million at
March 31, 1999.
In May, 1998 WHX completed the merger of its pension plan with
the pension plan of its wholly owned H&H subsidiary. Under the terms of
the merged WHX Pension Plan, there are a series of benefit structures,
which essentially continue the various pension plans for employees of
the WPSC and H&H plans as they existed before the merger.
At the time of the merger of the pension plans, the assets in
the H&H pension plans exceeded the plans' liabilities by approximately
$155 million. At that time, the liabilities of the WHX pension plan
exceeded their assets by approximately $150 million. The pension plan
merger thus eliminates both the underfunding in the WHX pension plan and
the Company's balance sheet liability at the merger date, and will
materially reduce the Company's net periodic pension expense in future
periods. Furthermore, based on the Company's current actuarial
assumptions, the merged pension plan is expected to be fully funded for
several years according to the Internal Revenue Code. The merger
therefore eliminates approximately $135 million of future cash funding
obligations of the Company over the next four years.
During the first quarter 1999, the Company repurchased and
retired 0.9 million shares of Common Stock for $7.8 million. The Company
may, from time to time, continue to purchase additional shares of Common
Stock and Preferred Stock. Since the initiation of the repurchase
program in October 1994, the Company has repurchased on the open market
and retired 12.3 million shares of its Common Stock and 0.6 million
shares of its Preferred Stock for an aggregate purchase price of
approximately $150.8 million.
LIQUIDITY
As of March 31, 1999, the Company had cash and short-term
investments, net of related investment borrowings, of $162.1 million.
During the first quarter of 1999, the Company purchased $20.5 million
aggregate principal amount of its 10 1/2% Senior Notes due 2005 in the
open market.
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 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 and
financial condition.
The Company announced on October 5, 1998 that it had purchased
approximately 2.2 million shares of stock, a 9.9 percent stake, in
Global Industrial Technologies Inc. ("Global") for $14.9 million. Global
is a Dallas-based industrial tool and special equipment products
company. On December 17, 1998, the Company commenced a tender offer for
any and all outstanding shares of Global that it does not
already own at $10.50 per share. The purpose of the offer is for the
Company to acquire control of, and ultimately the entire equity interest
in, Global. As of April 15, 1999, each of the Rights Condition, the
Supermajority Condition and the Business Combination Condition (each as
defined in the Offer to Purchase) has not been satisfied. The offer is
currently scheduled to expire on May 20, 1999, unless further extended.
YEAR 2000 PROJECT
WHX's company wide Year 2000 Project is proceeding on
schedule. The project addresses all aspects of computing in the Company
including mainframe systems, external data interfaces to customers,
suppliers, banks and government, mainframe controlling software, voice
and data systems, internal networks and personal computers, plant
process control systems, building controls, and in addition surveying
major suppliers and customers to assure their readiness.
Mainframe business systems are 100% Year 2000 compliant;
external data interfaces, mainframe software, voice and data systems and
internal networks and personal computers are anticipated to be Year 2000
compliant by June 30, 1999; 85% of the process control systems are
currently Year 2000 compliant. Building controls are substantially Year
2000 compliant at this time. Supplier and customer survey's are
substantially complete.
The total costs associated with the required modifications to
become Year 2000 compliant is not expected to be material to the
Company's financial condition or results of operations. The estimated
total cost of the Year 2000 Project is $4.0 million. The total amount
expended on the project through March 31, 1999 is $2.75 million. Funds
are being provided to the project through departmental expenses budgeted
for at the beginning of this project.
Failure to correct a Year 2000 problem could result in an
interruption of certain normal business activities or operations. The
Year 2000 project is expected to eliminate any issues that would cause
such an interruption. The Company believes that the implementation of
the Year 2000 project changes will minimize any interruptions. The
Company is currently in the process of developing contingency plans
regarding component failure of any Year 2000 non-compliant segment of
the business.
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, 1999. 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.
*******
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, the impact of the acquisition of H&H and the
Company and industry shipment levels and the effect of Year 2000 on the
Company, its customers and suppliers. 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.
The case has been set for trial on August 16, 1999. WPC has
reached out-of-court settlements with four 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.
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 6.(a) EXHIBITS
27 Financial Data Schedule
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)
May 13, 1999