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 September 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 September 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 November 4,
1999 was 14,391,386 which includes redeemable common shares.
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended September 30, Nine months Ended September 30,
1999 1998* 1999 1998*
---------------------------- -----------------------------
(In thousands except per share)
Net Sales $ 447,607 $ 459,563 $ 1,258,315 $ 1,228,096
- ---------
Operating Costs
- ---------------
Cost of goods sold 368,391 380,250 1,053,153 1,025,839
Depreciation and amortization 26,622 26,008 79,297 72,645
Selling, administrative and general expense 34,982 34,820 107,826 85,908
---------------------------- -----------------------------
429,995 441,078 1,240,276 1,184,392
---------------------------- -----------------------------
Operating Income 17,612 18,485 18,039 43,704
- ----------------
Interest expense on debt 22,349 23,415 65,328 54,742
Other income 21,191 42,492 33,965 71,870
---------------------------- -----------------------------
Income (Loss) Before Taxes and Extraordinary Item 16,454 37,562 (13,324) 60,832
- -------------------------------------------------
Tax provision (benefit) 5,345 15,779 (3,373) 23,895
---------------------------- -----------------------------
Income (Loss) Before Extraordinary Item 11,109 21,783 (9,951) 36,937
- ---------------------------------------
Extraordinary income-net of tax -- 2,240 896 2,240
---------------------------- -----------------------------
Net Income (Loss) 11,109 24,023 (9,055) 39,177
- -----------------
Dividend requirement for Preferred Stock 5,152 5,152 15,456 15,456
---------------------------- -----------------------------
Net Income (Loss) Applicable to Common Stock $ 5,957 $ 18,871 $ (24,511) $ 23,721
- -------------------------------------------- ============================ =============================
Basic income (loss) per share of
Common Stock
Income (loss) before extraordinary item $ 0.38 $ 0.91 $ (1.55) $ 1.17
Extraordinary item - net of tax -- 0.12 0.06 0.12
---------------------------- -----------------------------
Net income (loss) per share $ 0.38 $ 1.03 $ (1.49) $ 1.29
============================ =============================
Income (loss) per share of
Common Stock-assuming dilution
Income (loss) before extraordinary item $ 0.34 $ 0.61 $ (1.55) $ 1.03
Extraordinary item - net of tax -- 0.07 0.06 0.06
---------------------------- -----------------------------
Net income (loss) per share -
assuming dilution $ 0.34 $ 0.68 $ (1.49) $ 1.09
============================ =============================
See notes to consolidated financial statements.
* Reclassified
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1999 1998
(Dollars and shares in thousands)
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 14,566 $ 16,004
Short term investments 182,007 702,082
Trade receivables - net 150,337 97,552
Inventories:
Finished and semi-finished products 242,578 210,225
Raw materials 98,550 98,710
Other materials and supplies 20,947 33,373
Precious metals 125,710 122,653
Excess of LIFO over current cost (2,906) 2,169
-----------------------------------
484,879 467,130
Other current assets 24,201 11,136
-----------------------------------
Total current assets 855,990 1,293,904
Property, plant and equipment at cost, less
accumulated depreciation and amortization 805,971 819,077
Deferred income taxes 122,334 110,935
Intangible asset - pensions 50,449 50,449
Intangibles, net of amortization 282,650 288,216
Other non-current assets 146,541 149,503
-----------------------------------
$ 2,263,935 $ 2,712,084
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 160,230 $ 132,412
Short-term borrowings 142,551 559,501
Deferred income taxes - current 68,851 69,551
Other current liabilities 154,916 122,950
Long-term debt due in one year 1,596 612
-----------------------------------
Total current liabilities 528,144 885,026
Long-term debt 864,408 893,356
Pension liability 10,506 5,952
Other employee benefit liabilities 409,184 423,225
Other liabilities 58,899 54,383
----------- -----------
1,871,141 2,261,942
-----------------------------------
Redeemable Common Stock - 284 shares
and 298 shares 3,371 3,630
-----------------------------------
Stockholders' Equity:
Preferred Stock $.10 par value -
5,883 shares 589 589
Common Stock - $.01 par value -
14,678 shares and 17,545 shares 146 175
Accumulated other
comprehensive income (loss) (682) 5,472
Additional paid-in capital 558,657 582,795
Treasury stock (224 shares and 0 shares) (2,257) ----------
Accumulated (deficit) earnings (167,030) (142,519)
-----------------------------------
Total stockholders' equity 389,423 446,512
-----------------------------------
$ 2,263,935 $ 2,712,084
=======================================================================================================================
See notes to consolidated financial statements
WHX CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months Ended September 30,
1999 1998*
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss) $ (9,055) $ 39,177
Non cash income and expenses:
Depreciation and amortization 79,297 72,645
Other post employment benefits (4,824) (4,575)
Income taxes (8,859) 16,957
(Gain)/loss on sale or disposition of assets 2,695 (5)
Equity income in affiliated companies (3,991) (5,238)
Pension expense 4,554 8,157
Minority interest 866 730
Gain on early debt retirement (net of tax) (896) (2,240)
Decrease (increase) in working capital elements-
net of effect of acquisition:
Trade receivables (54,898) (40,226)
Trade receivables sold 3,225 26,000
Inventories (16,796) (30,167)
Other current assets (12,985) 29,378
Trade payables 27,338 (8,524)
Other current liabilities 31,079 24,038
Short term investments (trading) - net 511,785 66,160
Trading account borrowings (487,502) 9,555
Other items - net (3,787) (3,629)
--------- ---------
Net cash provided by operating activities 57,246 198,193
--------- ---------
Cash flows from investing activities:
Short term investments-available for sale -- (34,132)
Plant additions and improvements (62,000) (32,520)
Investment in affiliates (9,615) (8,335)
Acquisition of Handy & Harman, net of cash -- (366,147)
Dividends from affiliates 5,594 5,000
Proceeds from sale of property 930 163
----------------------------
Net cash used in investing activities (65,091) (435,971)
----------------------------
Cash flows from financing activities:
Long term debt proceeds, net of issuance cost -- 561,968
Discount on early debt retirement -- 4,779
Payments on long-term borrowings (27,964) (263,890)
Minority interest (1,103) (675)
Short term borrowings (payments) 70,552 (23,194)
Common stock purchased (27,606) (17,765)
Letter of credit collateralization 8,229 1,220
Preferred stock dividends paid (15,456) (15,456)
Redemption of equity issues (245) 354
----------------------------
Net cash provided by financing activities 6,407 247,341
----------------------------
Increase (decrease) in cash and
cash equivalents (1,438) 9,563
Cash and cash equivalents
at beginning of period 16,004 1,002
----------------------------
Cash and cash equivalents
at end of period $ 14,566 $ 10,565
============================
See notes to consolidated financial statements
* Reclassified
WHX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
- -------
The consolidated balance sheet as of September 30, 1999, the
consolidated statement of operations for the three and nine month
periods ended September 30, 1999 and 1998, and the consolidated
statement of cash flows for the nine month periods ended September 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 September 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 September 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 September 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 first nine month period of
1999, 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 September 30, 1999 For the Nine months Ended September 30, 1999
------------------------------------- ------------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Income before extraordinary item $ 11,109 $ (9,951)
Less: Preferred stock dividends 5,152 15,456
-------- --------
Basic EPS
Income (loss) available to
common stockholders 5,957 15,616 $ 0.38 (25,407) 16,437 $ (1.55)
Effect of Dilutive Securities
Options 8
Convertible preferred stock 5,152 16,506
Redeemable common stock 284
Diluted EPS
Income (loss) available to common -------- ------ -------- ------
stockholders+ assumed conversions $ 11,109 32,414 $ 0.34 $(25,407) 16,437 $ (1.55)
=======================================================================================
For the Quarter Ended September 30, 1998 For the Nine months Ended September 30, 1998
------------------------------------- ------------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Income before extraordinary item $ 21,783 $ 36,937
Less: Preferred stock dividends 5,152 15,456
-------- --------
Basic EPS
Income available to
common stockholders 16,631 18,236 $ 0.91 21,481 18,413 $ 1.17
Effect of Dilutive Securities
Options 453 559
Convertible preferred stock 5,152 16,506 15,456 16,506
Redeemable common stock 302 302
Diluted EPS
Income available to common -------- ------ -------- ------
stockholders+ assumed conversions $ 21,783 35,497 $ 0.61 $ 36,937 35,780 $ 1.03
=======================================================================================
Outstanding stock options granted to officers, directors, key employees
and others totaled 5.1 million shares of Common Stock at September 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 September 30, 1999 redeemable common stock
outstanding totaled 284,290 shares.
Note 4 - Comprehensive Income
- -----------------------------
The Company's third quarter 1999 comprehensive income of $11.0
million consists of net income of $11.1 million and other comprehensive
loss of $0.1 million, net of tax related to foreign exchange translation
adjustments. Comprehensive income for the comparable period in 1998 of
$24.6 million consists of net income of $24.0 million and other
comprehensive gain of $0.6 million, net of tax related to an unrealized
gain on available-for-sale securities and foreign exchange translation
loss.
Note 5 - Short Term Investments
- -------------------------------
Net unrealized holding gains or losses on trading securities
included in other income for the third quarter of 1999 and 1998 were
gains of $13.3 million and $14.0 million, respectively. Net unrealized
holding gains on trading securities held at period end included in other
income for the nine month periods ended September 30, 1999 and 1998 were
gains of $23.0 million and $11.4 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
September 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 September 30, 1999 totaled $112.2 million.
Letters of credit outstanding under the WPC Revolving Credit Facility
were $0.1 million at September 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 $5.7 million for 1997, 1998 and the nine months ended September 30,
1999, respectively. The Company anticipates spending approximately $18.7
million in the aggregate on major environmental compliance projects
through the year 2002, estimated to be spent as follows: $6.2 million in
1999, $2.7 million in 2000, $4.7 million in 2001 and $5.1 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 $15.1
million at September 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 third quarters and nine months ended September 30, 1999 and
1998.
Quarter Ended September 30, 1999
- --------------------------------
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollar in thousands)
Revenue from external
Customers $ 282,358 $ 116,365 $ 57,528 $- $ 456,251 ($ 8,644) $ 447,607
Intersegment revenues 8,644 -- -- -- 8,644 8,644 --
Segment net income
(loss) ($ 4,009) $ 3,404 $ 2,143 $ 9,571 $ 11,109 -- $ 11,109
Quarter Ended September 30, 1998
- --------------------------------
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollar in thousands)
Revenue from external
Customers $ 297,717 $ 112,216 $ 54,708 $ -- $ 464,641 ($ 5,078) $ 459,563
Intersegment revenues 5,078 -- -- -- 5,078 5,078 --
Segment net income
(loss) $ 1,959 $ 180 $ 1,517 $ 20,367 $ 24,023 -- $ 24,023
Nine Months Ended September 30, 1999
- ------------------------------------
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollar in thousands)
Revenue from external
Customers $ 788,205 $ 344,818 $ 163,400 -- $ 1,296,423 ($ 38,108) $ 1,258,315
Intersegment revenues 38,108 -- -- -- 38,108 38,108 --
Segment net income
(loss) $ (29,726) $ 6,637 $ 8,039 $ 5,995 ($ 9,055) -- ($ 9,055)
Nine Months Ended September 30,1998
- -----------------------------------
All Segment Consolidated
WPC H&H Unimast Other Total Adjustments Total
--- --- ------- ----- ----- ----------- -----
(Dollar in thousands)
Revenue from external
Customers $ 845,605 $ 240,929 $ 154,074 -- $1,240,608 ($ 12,512) $1,228,096
Intersegment revenues 12,512 -- -- -- 12,512 12,512 --
Segment net income
(loss) ($ 900) $ 4,558 $ 3,622 $ 31,897 $ 39,177 -- $ 39,177
* 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 third quarter of 1999 were $447.6 million as
compared to $459.6 million in the third quarter of 1998, a decline of
$12.0 million. Sales declined by $15.4 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 third quarter of 1999 as
compared to the third quarter of 1998, which included selling excess
coke produced during it's ten-month strike which ended August 1997.
Sales increased by $4.1 million at H&H principally due to improved
shipments in its electronic materials operations serving the automotive
market and engineered materials serving the commercial roofing market.
Sales increased $2.8 million at Unimast, reflecting record steel
shipments of over 77,000 tons in the third quarter of 1999.
Operating costs for the third quarter of 1999 decreased to
$430.0 million from $441.1 million in the third quarter of 1998.
Operating costs decreased by $8.3 million at the Company's WPC
operations reflecting lower raw material costs and the absence of coke
sales as compared to the third quarter of 1998. Included in the 1998
third quarter costs are unfavorable physical inventory adjustments of
$4.5 million. H&H's operating costs in the third quarter decreased by
$0.5 million compared to the third quarter 1998 reflecting reduced
selling, administrative and general expenses. Unimast's operating costs
in the third quarter increased by $1.6 million compared to the third
quarter 1998 reflecting the general increase in the level of operating
activity.
Selling, administrative and general expense for the third
quarter of 1999 remained stable increasing slightly by $0.2 million to
$35.0 million from $34.8 million in the comparable period in 1998.
Other income decreased $21.3 million to $21.2 million in the
third quarter of 1999 as compared to $42.5 million in 1998's third
quarter. The decrease is due primarily to the difference in realized
gains on short term investments in the third quarter of 1999 compared to
the third quarter of 1998.
Net income for the 1999 third quarter totaled $6.0 million, or
$0.38 per share of common stock after deduction of preferred stock
dividends. The 1998 third quarter net income was $18.9 million, or $1.03
per share of common stock after deduction of preferred stock dividends.
On a diluted basis, net income per common share was $0.34 in the third
quarter 1999 compared to $0.68 per share in the third quarter 1998.
Net sales for the first nine months of 1999 totaled $1,258.3
million as compared to $1,228.1 million for the first nine months of
1998. The increase is due to the H&H acquisition in the 1998 second
quarter, partially offset by declining sales at the Company's WPC
operations reflecting continued weakness in steel prices.
Operating costs for the first nine months of 1999 increased to
$1,240.3 million from $1,184.4 million for the first nine months of
1998. The increase in operating costs reflects the inclusion of H&H,
partially offset by lower raw material costs at all operating segments
through the third quarter of 1999.
Depreciation and amortization expense increased $6.7 million to
$79.3 million in the first nine months of 1999 from $72.6 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 nine
months of 1999 increased $21.9 million to $107.8 million from $85.9
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 nine months of 1999 increased
$10.6 million to $65.3 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 $37.9 million to $34.0 million in the
first nine months of 1999, compared to $71.9 million in the 1998 first
nine months. The change in other income is due primarily to losses on
short term investments in fixed income securities, partially offset by
realized and unrealized gains on equity securities which included a
transfer of certain securities from available-for-sale into the trading
category.
The 1999 nine month tax provision reflects an estimated annual
effective tax rate of 24.2% versus a 1998 nine month rate of 39%. The
decrease in the 1999 effective tax rate reflects changes in estimated
annual pre-tax income.
Loss before extraordinary items in the first nine months of
1999 totaled $9.9 million, or $1.55 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. Income before
extraordinary items for the first nine months of 1998 totaled $36.9
million, or $1.17 per share of common stock after deduction of preferred
stock dividends. The extraordinary income of $3.4 million ($2.2 million
net of tax) reflects the gain on early debt retirement of $48 million of
the 10 1/2 % Senior Notes.
Financial Position
- ------------------
Net cash flow provided by operating activities for the first
nine months of 1999 totaled $57.2 million. Short term trading
investments and related short-term borrowings are reported as cash flow
from operating activities and provided a net $24.3 million of funds in
the first nine months of 1999. Working capital accounts (excluding cash,
short-term investments, short-term borrowings and current maturities of
long term debt) used $23.0 million of funds. Accounts receivable
increased by $56.0 million (excluding a $3.2 million sale of trade
receivables under the WPC Receivables Facility), trade payables
increased $27.8 million, and other current liabilities increased $31.3
million. Inventories, valued principally by the LIFO method for
financial reporting purposes, totaled $484.9 million at September 30,
1999, an increase of $17.7 million from December 31, 1998.
In the first nine months of 1999, $62.0 million was spent on
capital improvements including $5.7 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
September 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 September 30, 1999 totaled $112.2 million. Letters of credit
outstanding under the WPC Revolving Credit Facility were $0.1 million at
September 30, 1999.
Borrowings outstanding against the H&H Revolving Credit
Facility at September 30, 1999 totaled $50.1 million. Letters of credit
outstanding under the H&H Revolving Credit Facility were $14.6 million
at September 30, 1999.
Borrowings outstanding against the Unimast Revolving Credit
Facility at September 30, 1999 totaled $29.0 million. There are no
letters of credit outstanding at September 30, 1999.
During the first nine months of 1999, the Company repurchased
3.3 million shares of Common Stock for $27.6 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
15.6 million shares of its Common Stock and 0.6 million shares of its
Preferred Stock for an aggregate purchase price of approximately $178.4
million.
Liquidity
- ---------
As of September 30, 1999, the Company had cash and short-term
investments, net of related investment borrowings, of $196.6 million.
During the first nine months 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 had decided to discontinue its tender offer for all
of the outstanding shares of Global stock. Pursuant to the merger
agreement, all Global shareholders are entitled to receive $13 per share
in cash.
Year 2000 Project
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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.
The Company believes mainframe business systems, external data
interfaces, mainframe software, voice and data systems and internal
networks and personal computers, as well as process control and
auxiliary systems are in all material respects, Year 2000 compliant.
Building controls are substantially Year 2000 compliant at this time.
Supplier and customer surveys are substantially complete and critical
suppliers have been monitored and alternatives for those representing to
be non-compliant have been selected.
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 $3.0 million. The total amount
expended on the project through September 30, 1999 is approximately $2.9
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 6.(a) Exhibits
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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)
November 5, 1999