FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 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 July 30, 1999
was 16,670,225 which includes redeemable common shares.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended June 30, Six Months Ended June 30,
------------------------- -------------------------
1999 1998* 1999 1998*
(In thousands except per share)
Net Sales $ 413,783 $ 464,455 $ 810,708 $ 768,533
Operating Costs
Cost of goods sold 335,625 375,932 684,762 645,589
Depreciation and amortization 25,899 25,881 52,675 46,637
Selling, administrative and general expense 36,717 33,064 72,843 51,088
-------------------- ---------------------
398,241 434,877 810,280 743,314
-------------------- ---------------------
Operating Income 15,542 29,578 428 25,219
Interest expense on debt 21,644 21,480 42,979 31,327
Other income 30,049 13,595 12,773 29,378
-------------------- ---------------------
Income (Loss) Before Taxes and Extraordinary Item 23,947 21,693 (29,778) 23,270
Tax provision (benefit) 8,515 7,626 (8,718) 8,115
-------------------- --------- ---------
Income (Loss) Before Extraordinary Item 15,432 14,067 (21,060) 15,155
-------------------- ---------------------
Extraordinary income-net of tax -- -- 896 --
-------------------- ---------------------
Net Income (Loss) 15,432 14,067 (20,164) 15,155
-------------------- ---------------------
Dividend requirement for Preferred Stock 5,152 5,152 10,304 10,304
-------------------- ---------------------
Net Income (Loss) Applicable to Common Stock $ 10,280 $ 8,915 $ (30,468) $ 4,851
==================== =====================
Basic income (loss) per share of
Common Stock
Income (loss) before extraordinary item $ 0.62 $ 0.48 $ (1.86) $ 0.26
Extraordinary item - net of tax
- - 0.05 -
-------------------- ---------------------
Net income (loss) per share $ 0.62 $ 0.48 $ (1.81) $ 0.26
==================== =====================
Income (loss) per share of
Common Stock-assuming dilution
Income (loss) before extraordinary item $ 0.46 $ 0.39 $ (1.86) $ 0.25
Extraordinary item - net of tax - - 0.05 -
-------------------- ---------------------
Net income (loss) per share -
assuming dilution $ 0.46 $ 0.39 $ (1.81) $ 0.25
==================== =====================
See notes to consolidated financial statements.
* Reclassified
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1999 1998
---------------------
(Dollars and shares in thousands)
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 11,454 16,004
Short term investments 211,259 702,082
Trade receivables - net 125,934 97,552
Inventories:
Finished and semi-finished products 235,967 210,225
Raw materials 108,522 98,710
Other materials and supplies 22,206 33,373
Precious metals 130,742 122,653
Excess of LIFO over current cost 2,376 2,169
-----------------------------
499,813 467,130
Other current assets 21,617 11,136
-----------------------------
Total current assets 870,077 1,293,904
Property, plant and equipment at cost, less
accumulated depreciation and amortization 810,538 819,077
Deferred income taxes 123,463 110,935
Intangible asset - pensions 50,449 50,449
Intangibles, net of amortization 284,516 288,216
Other non-current assets 139,671 149,503
-----------------------------
$ 2,278,714 $2,712,084
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 174,654 $ 132,412
Short-term borrowings 146,996 559,501
Deferred income taxes - current 68,851 69,551
Other current liabilities 130,045 122,950
Long-term debt due in one year 1,638 612
-----------------------------
Total current liabilities 522,184 885,026
Long-term debt 869,279 893,356
Pension liability 8,988 5,952
Other employee benefit liabilities 413,121 423,225
Other liabilities 58,613 54,383
-----------------------------
1,872,185 2,261,942
-----------------------------
Redeemable Common Stock - 289 shares
and 298 shares 3,472 3,630
-----------------------------
Stockholders' Equity:
Preferred Stock $.10 par value -
5,883 shares 589 589
Common Stock - $.01 par value -
16,741 shares and 17,545 shares 167 175
Accumulated other
comprehensive income (loss) (611) 5,472
Additional paid-in capital 575,899 582,795
Accumulated (deficit) earnings (172,987) (142,519)
-----------------------------
Total stockholders' equity 403,057 446,512
-----------------------------
$ 2,278,714 $2,712,084
=============================
See notes to consolidated financial statements.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1999 1998*
---- -----
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss) $ (20,164) $ 15,155
Non cash income and expenses:
Depreciation and amortization 52,675 46,637
Other post employment benefits (1,467) (2,150)
Income taxes (9,988) 3,710
(Gain) loss on sale or disposition of assets 2,578 (3)
Equity income in affiliated companies (3,339) (3,136)
Pension expense 3,036 7,277
Minority interest 633 329
Premium on early debt retirement (net of tax) (896) --
Decrease (increase) in working capital elements:
Trade receivables (31,607) (43,806)
Trade receivables sold 3,225 25,000
Inventories (32,683) (2,021)
Other current assets (10,481) 22,558
Trade payables 42,242 296
Other current liabilities 6,395 13,209
Short term investments (trading) - net 482,533 73,490
Trading account borrowings (440,121) (23,557)
Other items - net (4,871) (489)
---------------------
Net cash provided by operating activities 37,700 132,499
---------------------
Cash flows from investing activities:
Short term investments-available for sale -- (22,418)
Plant additions and improvements (43,688) (22,779)
Investment in affiliates 2,181 --
Acquisition of Handy & Harman, net of cash -- (366,147)
Other Investments -- (8,335)
Dividends from affiliates 5,000 5,000
Proceeds from sale of property 654 148
---------------------
Net cash used in investing activities (35,853) (414,531)
---------------------
Cash flows from financing activities:
Long term debt proceeds, net of issuance cost -- 340,375
Payments on long-term borrowings (23,051) (2,232)
Minority interest (956) (103)
Short term borrowings (payments) 27,616 (36,233)
Common stock purchased (7,784) (10,050)
Letter of credit collateralization 8,229 820
Preferred stock dividends paid (10,304) (10,304)
Redemption of equity issues (147) 504
---------------------
Net cash provided by (used in) financing activities (6,397) 282,777
---------------------
Increase (decrease) in cash and
cash equivalents (4,550) 745
Cash and cash equivalents
at beginning of period 16,004 1,002
---------------------
Cash and cash equivalents
at end of period $11,454 $1,747
=====================
See notes to consolidated financial statements.
* Reclassified
WHX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
The consolidated balance sheet as of June 30, 1999, the
consolidated statement of operations for the three and six month periods
ended June 30, 1999 and 1998, and the consolidated statement of cash
flows for the six month periods ended June 30, 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 June 30, 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 June 30, 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, which together with its wholly-owned subsidiaries
Wheeling-Pittsburgh Steel Corporation, Pittsburgh-Canfield Corporation
and Wheeling Construction Products, Inc. (collectively WPC), is a
vertically integrated manufacturer of value-added flat rolled steel
products. The Company's other principal businesses include Handy &
Harman (H&H).a diversified 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 9.
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. At June 30, 1999 the
Company has $281.5 million aggregate principal amount outstanding.
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 six month period of 1999,
the conversion of preferred stock and redeemable common stock and
exercise of options would have had an anti-dilutive effect. In the
computation of diluted earnings per common share in the six month period
of 1998, the conversion of preferred stock would have had an
anti-dilutive effect. A reconciliation of the income and shares used in
the computation follows:
Reconciliation of Income and Shares in EPS Calculation
(in thousands except per share amounts)
For the Quarter Ended June 30, 1999 For the Six Months Ended June 30, 1999
----------------------------------- --------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Income before extraordinary item $15,432 $(21,060)
Less: Preferred stock dividends 5,152 10,304
------- --------
Basic EPS
Income available to
common stockholders 10,280 16,708 $0.62 (31,364) 16,854 (1.86)
Effect of Dilutive Securities
Options 6
Convertible preferred stock 5,152 16,506
Redeemable common stock 289
Diluted EPS
Income available to common ------- ------ ----- -------- ------ -------
stockholders+ assumed conversions $15,432 33,509 $0.46 $(31,364) 16,854 $(1.86)
===============================================================================
For the Quarter Ended June 30, 1999 For the Six Months Ended June 30, 1999
----------------------------------- --------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Income before extraordinary item $14,067 $15,155
Less: Preferred stock dividends 5,152 10,304
------- -------
Basic EPS
Income available to
common stockholders 8,915 18,452 $0.48 4,851 18,502 $0.26
Effect of Dilutive Securities
Options 875 761
Convertible preferred stock 5,152 16,506 -
Redeemable common stock 310 310
Diluted EPS
Income available to common ------- ------ ----- ------- ------ -----
stockholders+ assumed conversions $14,067 36,143 $0.39 $ 4,851 19,573 $0.25
=============================================================================
Outstanding stock options granted to officers, directors, key employees and
others totaled 5.2 million shares of Common Stock at June 30, 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 June 30, 1999 redeemable common stock outstanding
totaled 289,436 shares.
Note 4 - Comprehensive Income
The Company's second quarter 1999 comprehensive income of $10.3
million consists of net income of $15.4 million and other comprehensive
loss of $5.1 million, net of tax related to a reclassification
adjustment for equity securities transferred from available-for-sale to
the trading category during the period and foreign exchange translation
adjustments. Comprehensive income for the comparable period in 1998 of
$5.7 million consists of net income of $14.1 million and other
comprehensive loss of $8.4 million, net of tax related to an unrealized
loss on available-for-sale securities and foreign exchange translation
loss.
Note 5 - Short Term Investments
Net unrealized holding gains on trading securities held at
period end included in other income for the second quarter of 1999 and
1998 were gains of $25.6 million and $11.4 million, respectively. In the
second quarter of 1999, the Company reclassified $26.2 million of
available-for-sale investments to the trading category and recorded an
unrealized gain upon transfer of $11.3 million. Net unrealized holding
gains on trading securities held at period end included in other income
for the six month periods ended June 30, 1999 and 1998 were gains of
$29.0 million and $12.1 million, respectively.
Note 6 - WPC Sales of Receivables
On May 27, 1999, WPC renegotiated its Receivables Facility to
sell up to $100 million on similar terms and conditions to its previous
facility. The agreement expires in May 2003. Effective June 23, 1999,
Unimast, a wholly-owned subsidiary of the Company, withdrew from
participation in the Receivables Facility, pursuant to terms of it's
Credit Facility established on November 24, 1998. Accounts receivable at
June 30, 1999 and December 31, 1998 exclude $98.2 million and $95.0
million, respectively, representing uncollected accounts receivable sold
with recourse limited to the extent of uncollectible balances. Fees paid
by the Company under the Receivables Facility range from approximately
4.9% to 7.42% of the outstanding amount of receivables sold. Based on
the Company's collection history, the Company believes that the credit
risk associated with the above arrangement is immaterial.
Note 7 - WPC Revolving Credit Facility
On April 30, 1999 WPC entered into a Third Amended and Restated
Revolving Credit Facility ("WPC Revolving Credit Facility") with
Citibank, N.A. as agent. The WPC Revolving Credit Facility, as amended,
provides for borrowings for general corporate purposes up to $150
million including a $25 million sub-limit for Letters of Credit. The WPC
Revolving Credit Facility expires May 2, 2003. Interest rates are based
on the Citibank Prime Rate Plus 1.25% and/or a Eurodollar rate plus
2.25%.
The margin over the prime rate and the Eurodollar rate can fluctuate
based upon performance. Borrowings outstanding against the WPC Revolving
Credit Facility at June 30, 1999 totaled $94.6 million. Letters of
credit outstanding under the WPC Revolving Credit Facility were $0.1
million at June 30, 1999.
Note 8 - 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 will be between $2.5 and $3.0 million. At
several other sites the Company estimates costs in the aggregate of 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 $4.2 million for 1997, 1998 and the six months ended June 30, 1999,
respectively. The Company anticipates spending approximately $22.7
million in the aggregate on major environmental compliance projects
through the year 2002, estimated to be spent as follows: $6.9 million in
1999, $3.5 million in 2000, $6.7 million in 2001 and $5.6 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 $15.3
million at June 30, 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 regulations, 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 annual results of operations of the Company. However, as
new information comes into the Company's possession, it will continue to
reassess such evaluations.
Note 9 - 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 agreements, which
generally requires separate segment tax calculations.
The table below presents information about reported segments
and a reconciliation of total segment sales to total consolidated sales
for the second quarters and six months ended June 30, 1999 and 1998.
Quarter ended June 30, 1999
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollars in thousands)
Revenue from external
Customers $ 255,799 $ 118,913 $ 52,795 $ -- $ 427,507 $ (13,724) $ 413,783
Intersegment revenues 13,724 -- -- -- 13,724 -- 13,724
Segment net income (loss)
$ (5,450) $ 2,013 $ 3,105 $ 15,764 $ 15,432 -- $ 15,432
Quarter ended June 30, 1998
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollars in thousands)
Revenue from
external customers $288,767 $128,713 $ 50,807 $ -- $468,287 $ (3,832) $464,455
Intersegment revenues 3,832 -- -- -- 3,832 -- 3,832
Segment net income (loss)
$ 6,092 $ 4,378 $ 1,210 $2,387 $ 14,067 -- $ 14,067
Six months ended June 30, 1999
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollars in thousands)
Revenue from external
Customers $ 505,847 $ 228,453 $ 105,872 $ -- $ 840,172 $ (29,464) $ 810,708
Intersegment revenues 29,464 -- -- -- 29,464 -- 29,464
Segment net income (loss)
$ (25,717) $ 3,233 $ 5,896 $ (3,576) $ (20,164) -- $ (20,164)
Six months ended June 30, 1998
All Segment Consolidated
WPC H&H* Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollars in thousands)
Revenue from
external customers $ 547,888 $ 128,713 $ 99,366 $ -- $ 775,967 $ (7,434) $ 768,533
Intersegment revenues 7,434 -- -- -- 7,434 -- 7,434
Segment net income (loss)
$ (2,859) $ 4,378 $ 2,104 $ 11,532 $ 15,155 -- $ 15,155
* 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
The Company continues to pursue strategic alternatives to
maximize the value of its portfolio of businesses. Some of these
alternatives have included, and will continue to include selective
acquisitions, divestitures and sales of certain assets. The Company has
provided, and may from time to time in the future, provide information
to interested parties regarding portions of its businesses for such
purposes.
Results of Operations
Net sales for the second quarter of 1999 were $413.8 million as
compared to $464.5 million in the second quarter of 1998, a decline of
$50.7 million. Sales declined by $33.0 million at the Company's WPC
operations as increased steel shipments were offset by a continued
weakness in steel prices. WPC's sales were also negatively impacted as a
result of reduced sales of coke during the second quarter of 1999 as
compared to the second quarter of 1998, which included selling excess
coke produced during it's ten-month strike which ended August 1997.
Sales declined by $9.8 million at H&H principally due to lower pass-thru
precious metal pricing (primarily silver), and lower stainless steel
pricing. Sales increased $2.0 million at Unimast.
Operating costs for the second quarter of 1999 decreased to
$398.2 million from $434.9 million in the second quarter of 1998.
Operating costs decreased by $18.0 million at the Company's WPC
operations reflecting lower raw material costs and the absence of coke
sales as compared to the second quarter of 1998. Included in WPC's 1999
second quarter operating costs is a $9.0 million settlement with certain
insurance carriers that releases and terminates all rights, obligations
and liabilities of the insurance companies with respect to the subject
insurance policies. In the second quarter of 1998, WPC recorded $9.8
million of income as a result of insurance recoveries related to various
environmental sites. H&H's operating costs in the second quarter
decreased by $8.0 compared to the second quarter 1998 reflecting lower
raw material costs, specifically pass-thru precious metals prices.
Selling, administrative and general expense for the second
quarter of 1999 increased $3.6 million to $36.7 million from $33.1
million in the comparable period in 1998 due primarily to increased
marketing efforts at all operating segments.
Other income increased $16.5 million to $30.1 million in the
second quarter of 1999 as compared to $13.6 million in 1998's second
quarter. The increase is due primarily to unrealized gains on equity
securities which included a transfer of certain securities from
available-for-sale into the trading category.
Net income for the 1999 second quarter totaled $15.4 million,
or $0.62 per share of common stock after deduction of preferred stock
dividends. The 1998 second quarter net income was $14.1 million, or
$0.48 per share of common stock after deduction of preferred stock
dividends. On a diluted basis, net income per common share was $0.46 in
second quarter 1999 compared to $0.39 per share in second quarter 1998.
Net sales for the first six months of 1999 totaled $810.7
million as compared to $768.5 million for the first six months of 1998.
The increase is due to the H&H acquisition in the 1998 second quarter,
offset by declining sales at the Company's WPC operations reflecting
continued weakness in steel prices.
Operating costs for the first six months of 1999 increased to
$810.3 million from $743.3 million in the 1998 first six months. The
increase in operating costs reflects the inclusion of H&H, offset by
lower raw material costs at all operating segments in the second quarter
of 1999.
Depreciation and amortization expense increased $6.1 million to
$52.7 million in the first six months of 1999 from $46.6 million in the
comparable period in 1998, principally due to the second quarter 1998
acquisition of H&H.
Selling, administrative and general expense for the first six
months of 1999 increased $21.7 million to $72.8 million from $51.1
million in the comparable period in 1998 due primarily to the
acquisition of H&H in the second quarter of 1998, as well as increased
marketing efforts at all of the Company's operating segments.
Interest expense for the first six months of 1999 increased
$11.7 million to $43.0 million from the comparable period in 1998
reflecting the acquisition debt issued for the purchase of H&H as well
as the addition of H&H outstanding indebtedness.
Other income decreased $16.6 million to $12.8 million in the
first six months of 1999, compared to $29.4 million in the 1998 first
six months. The change in other income is due primarily to losses on
short term investments in fixed income securities, partially offset by
unrealized gains on equity securities which included a transfer of
certain securities from available-for-sale into the trading category.
The 1999 six month tax provision reflects an estimated annual
effective tax rate of 29% versus a 1998 six month rate of 35%. The
decrease in the 1999 effective tax rate reflects changes in estimated
annual pre-tax income.
Loss before extraordinary items in the first six months of
1999 totaled $21.1 million, or $1.86 per share of common stock after
deduction of preferred stock dividends. The extraordinary income of $1.4
million ($0.9 million net of tax) reflects the gain on early debt
retirement of $20.5 million of the 10 1/2% Senior Notes. The 1998 first
six month net income totaled $15.2 million, or $0.26 per share of common
stock after deduction of preferred stock dividends.
Financial Position
Net cash flow provided by operating activities for the first
half of 1999 totaled $37.7 million. Short term trading investments and
related short-term borrowings are reported as cash flow from operating
activities and provided a net $42.4 million of funds in the 1999 first
half. Working capital accounts (excluding cash, short-term investments,
short-term borrowings and current maturities of long term debt) used
$22.9 million of funds. Accounts receivable increased by $31.6 million
(excluding a $3.2 million sale of trade receivables under the WPC
Receivables Facility), trade payables increased $42.2 million, and other
current liabilities increased $6.4 million. Inventories, valued
principally by the LIFO method for financial reporting purposes, totaled
$499.8 million at June 30, 1999, an increase of $32.7 million from
December 31, 1998.
In the first half of 1999, $43.7 million was spent on capital
improvements including $4.2 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.
The Company's operating segments WPC, H&H and Unimast each
maintain separate and distinct credit facilities with various financial
institutions and are mutually exclusive of one another.
On May 27, 1999, WPC renegotiated its Receivables Facility to
sell up to $100 million on similar terms and conditions to its previous
facility. The Receivables Facility expires in May 2003. Effective June
23, 1999, Unimast, a wholly-owned subsidiary of the Company, withdrew
from participation in the Receivables Facility. Accounts receivable at
June 30, 1999 and December 31, 1998 exclude $98.2 million and $95.0
million, respectively, representing uncollected accounts receivable sold
with recourse limited to the extent of uncollectible balances. Fees paid
by the Company under such agreement range from approximately 4.9% to
7.42% of the outstanding amounts of receivables sold. Based on the
Company's collection history, the Company believes that the credit risk
associated with the above arrangement is immaterial.
On April 30, 1999, WPC entered into a Third Amended and
Restated Revolving Credit Facility ("WPC Revolving Credit Facility")
with Citibank, N.A. as agent. The WPC Revolving Credit Facility, as
amended, provides for borrowings for general corporate purposes up to
$150 million including a $25 million sub-limit for letters of credit.
The WPC Revolving Credit Facility expires May 2, 2003. Interest rates
are based on the Citibank Prime Rate Plus 1.25% and/or a Eurodollar
rate plus 2.25%. The margin over the prime rate and the Eurodollar rate
can fluctuate based upon performance.
Borrowings outstanding against the WPC Revolving Credit
Facility at June 30, 1999 totaled $94.6 million. Letters of credit
outstanding under the WPC Revolving Credit Facility were $0.1 million at
June 30, 1999.
Borrowings outstanding against the H&H Revolving Credit
Facility at June 30, 1999 totaled $52.1 million. Letters of credit
outstanding under the H&H Revolving Credit Facility were $14.6 million
at June 30, 1999.
Borrowings outstanding against the Unimast Revolving Credit
Facility at June 30, 1999 totaled $5.0 million. There are no letters of
credit outstanding at June 30, 1999.
During the first half of 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 in the open market
and retired 13.2 million shares of its Common Stock and 0.6 million
shares of its Preferred Stock for an aggregate purchase price of
approximately $158.6 million.
Liquidity
As of June 30, 1999, the Company had cash and short-term
investments, net of related investment borrowings, of $175.3 million.
During the first half 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 other long term 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 on July 14, 1999 announced that in light of the
announced proposed merger between Global Industrial Technologies, Inc.
(GIX) and RHI AG it has decided to discontinue its tender offer for all
of the outstanding shares of Global stock. As of June 30, 1999 WHX owned
2,173,800 shares of GIX common stock. Pursuant to the merger agreement,
all Global shareholders are entitled to receive $13 per share in cash.
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 surveying major suppliers and customers
to assure their readiness.
Mainframe business systems, external data interfaces, mainframe
software, voice and data systems and internal networks and personal
computers are in all material respects Year 2000 compliant. 95% of the
process control and auxiliary systems are currently Year 2000 compliant
and it's anticipated they will be 100% compliant in the third quarter.
Building controls are substantially Year 2000 compliant at this time.
Supplier and customer surveys are substantially complete and critical
suppliers are expected to be 100% compliant by the end of the third
quarter.
The total cost 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 June 30, 1999 is $2.850 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 other comprehensive income. SFAS 133 is
effective for fiscal years beginning after June 15, 2000. The Company
has not engaged in significant activity with respect to derivative
instruments or hedging activities in the past. Management of the Company
has not yet determined the impact, if any, of the adoption of SFAS 133
on the Company's financial position or results of operations.
*******
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; 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. In early June 1999, the U.S. District Court
issued an order holding that injunctive relief is not available as a
remedy under the 1916 Antidumping Act. WPC has appealed the Court's
decision to the Sixth Circuit Court of Appeals. WPC has reached
out-of-court settlements with six of the nine steel trading companies
named in this lawsuit.
On June 25, 1998, the Securities and Exchange Commission
("SEC") instituted an administrative proceeding against the Company
alleging that it had violated certain SEC rules in connection with the
tender offer for Dynamics Corporation of America ("DCA") commenced on
March 31, 1997 through the Company's wholly-owned subsidiary, SB
Acquisition Corp. (the "Offer"). The Company previously disclosed that
the SEC intended to institute this proceeding. Specifically, the Order
Instituting Proceedings (the "Order") alleges that, in its initial form,
the Offer violated the "All Holders Rule," Rule 14d-10(a)(1) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), based
on the Company's inclusion of a "record holder condition" in the Offer.
No shareholder had tendered any shares at the time the condition was
removed. The Order further alleges that the Company violated Rules
14d-4(c) and 14d-6(d) under the Exchange Act upon expiration of the
Offer, by allegedly waiving material conditions to the Offer without
prior notice to shareholders and purchasing the approximately 10.6% of
DCA's outstanding shares tendered pursuant to the offer. The SEC does
not claim that the Offer was intended to or in fact defrauded any
investor.
The Order institutes proceedings to determine whether the SEC
should enter an order requiring the Company (a) to cease and desist from
committing or causing any future violation of the rules alleged to have
been violated and (b) to pay approximately $1.3 million in disgorgement
of profits. The Company has filed an Answer denying any violations and
seeking dismissal of the proceeding. Although there can be no
assurance that an adverse decision will not be rendered, the Company
intends to vigorously defend against the SEC's charges.
The Company is a party to various litigation matters including
general liability claims covered by insurance. In the opinion of
management, such claims are not expected to have a material adverse
effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1999 annual meeting of stockholders was held on April 14,
1999.
(b) All of the Company's nominees, as set forth below, were elected.
There was no solicitation in opposition to the Company's nominees.
The other members of the Company's Board of Directors are Paul W.
Bucha, Marvin L. Olshan, Raymond S. Troubh, William Goldsmith and
Robert D. LeBlanc.
(c) Matters voted on at the meeting and the number of votes cast.
Votes Against Broker
(1) Directors Voted For or Withheld Abstentions Non-Votes
--------- --------- -------------- ----------- ---------
Neil D. Arnold 15,176,990 181,867 - -
Robert A. Davidow 15,177,511 181,346 - -
Ronald LaBow 15,170,314 188,543 - -
(2) Ratification of 15,251,500 73,007 34,350 -
PricewaterhouseCoopers
LLP as the Company's
Independent Public
Accountants for the
fiscal year ending
December 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHX CORPORATION
/s/ Arnold Nance
---------------------------------------
Arnold Nance
Vice President-Finance
(Principal Accounting Officer)
August 11, 1999
Item 6.(a) Exhibits
27 Financial Data Schedule