1
WHX Corporation Logo
- --------------------------------------------------------------------------------
ANNUAL REPORT
1999
2
WHX AT A GLANCE
- --------------------------------------------------------------------------------
WHX is a holding company structured to acquire and operate a diverse
group of businesses on a decentralized basis.
WHX'S primary business segments are:
STEEL AND STEEL RELATED
- WHEELING-PITTSBURGH CORPORATION
A vertically integrated manufacturer of value-added
flat rolled steel products.
- UNIMAST, INCORPORATED
A leading manufacturer of steel framing and related
accessories for commercial and residential building
construction.
HANDY & HARMAN
A diversified industrial manufacturing company
servicing the electronic materials, specialty wire and
tubing, specialty fasteners and fittings, and precious
metals fabrication markets.
- --------------------------------------------------------------------------------
CONTENTS:
WHX AT A GLANCE
FINANCIAL HIGHLIGHTS - I
LETTER TO STOCKHOLDERS - II
ANNUAL REPORT - 1
BOARD OF DIRECTORS AND CORPORATE OFFICERS - III
INVESTOR INFORMATION
3
----------------------------------------------------
WHX CORPORATION
----------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE YEAR %
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 CHANGE
- ----------------------------------------------------------------------------------------
Net sales $1,716,800 $1,645,498 +4.3%
- ----------------------------------------------------------------------------------------
Earnings
Operating Income (Loss) 39,167 51,216 -23.5%
Income/(Loss) before Extraordinary Items (15,834) 39,430
Extraordinary Items -- Net of Tax 896 2,241 -60.0%
Net Income (Loss) (14,938) 41,671
- ----------------------------------------------------------------------------------------
Diluted Income (Loss) Per Share of Common Stock:
Income before extraordinary items $ (2.30) $ .99
Extraordinary Items .06 .12
---------- ---------- ------
Net Income (Loss) $ (2.24) $ 1.11
- ----------------------------------------------------------------------------------------
Financial Position:
Cash, cash equivalents and short term investment
(net of short term borrowings) $ 174,590 $ 230,584 24.3%
Working capital 294,276 408,878 -28%
Property, plant and equipment -- net 816,501 819,077 -.3%
Plant additions 104,035 48,250 +115.6%
Total assets 2,673,566 2,712,084 -1.4%
- ----------------------------------------------------------------------------------------
Long-term debt $ 847,720 $ 893,356 -5.1%
Stockholder's equity 377,471 446,512 -15.5%
- ----------------------------------------------------------------------------------------
Employment
Employment costs $ 443,333 $ 394,701
Average number of employees 7,535 7,470
- --------------------------------------------------------------------------------
i
4
----------------------------------------------------
WHX CORPORATION
----------------------------------------------------
A MESSAGE TO OUR STOCKHOLDERS
WHX Corporation weathered a challenging year in 1999 in certain of its
business units and positioned itself for future profitable growth.
In 1999, WHX Corporation's Wheeling-Pittsburgh Corporation subsidiary
("WPC") performed well despite the well-documented onslaught of steel
imports that resulted in record low selling prices for many of its
products. WPC continues to reduce costs, enhance productivity and
increase shipments of value-added products. WPC has implemented plans to
expand its corrugating division, which will result in further increases
in shipments of value-added products.
Handy & Harman continued to grow profitably in 1999, its first full year
of operations as a wholly-owned subsidiary. Handy & Harman reduced its
debt, consolidated facilities, and streamlined operations and product
lines. As a result, revenues fell slightly from 1998 levels, but
operating income from Handy & Harman's five operating units -- precious
metals fabrication, electronic materials, specialty wire, specialty
tubing and engineered materials -- grew approximately 15% in 1999 over
1998 on a pro forma basis. Handy & Harman is solidly poised to grow its
high-margin, niche businesses both internally and through acquisitions
over the next several years.
WHX's Unimast, Incorporated subsidiary, which produces steel framing for
commercial and residential construction, had another record year of
sales and operating income in 1999. Revenues increased approximately 6%
and operating income increased 83% year over year. As with Handy &
Harman, WHX views Unimast as a growth platform, and intends to expand
Unimast's presence in value-added businesses.
In 1999, WHX continued to take advantage of opportunities to acquire its
own equity and debt securities in the open market in an effort to
enhance shareholder value. WHX purchased and retired approximately $20.5
million of its 10 1/2% Senior Notes for $19.1 million, and repurchased
3.6 million shares of WHX common stock for $30.6 million. The Company
may, from time to time, make additional purchases in an attempt to take
advantage of opportunities to improve its capital structure.
Management realizes that WHX shareholders expect higher returns than
those experienced in 1999. Management therefore has to be vigilant in
pursuing profitable growth opportunities in its current business units
and also in evaluating strategic alternatives, including acquisitions
and divestitures, in an effort to maximize value. We remain committed to
that strategy for the year 2000.
/s/ Ronald LaBow
Ronald LaBow
Chairman of the Board
WHX Corporation
ii
5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WHX CORPORATION
(EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3768097
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
110 EAST 59TH STREET 10022
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-355-5200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE SECURITIES EXCHANGE ACT
OF 1934:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SERIES A CONVERTIBLE PREFERRED STOCK, $.10 PAR NEW YORK STOCK EXCHANGE
VALUE
SERIES B CONVERTIBLE PREFERRED STOCK, $.10 PAR NEW YORK STOCK EXCHANGE
VALUE
Indicate by check mark whether the Company (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 Company
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report or any amendment to
this Annual Report. [X]
Aggregate market value of Common Stock held by non-affiliates of the
Company as of January 31, 2000 was $91,926,556, which value, solely for the
purposes of this calculation excludes shares held by the Company's officers,
directors, and their affiliates. Such exclusion should not be deemed a
determination by the Company that all such individuals are, in fact, affiliates
of the Company. The number of shares of Common Stock issued and outstanding as
of January 31, 2000 was 14,443,215, including 280,679 shares of redeemable
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive proxy statement to be filed pursuant to Regulation 14A in
connection with the 2000 annual meeting of stockholders Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6
BUSINESS
OVERVIEW
WHX Corporation
WHX Corporation ("WHX" or the "Company") is a holding company formed in
July 1994 to acquire and operate a diverse group of businesses on a
decentralized basis. The Company's steel related businesses are
Wheeling-Pittsburgh Corporation ("WPC"), the nation's ninth largest vertically
integrated manufacturer of value-added flat rolled steel products, and Unimast,
Incorporated ("Unimast"), a leading manufacturer of steel framing and other
products for commercial and residential construction. The Company's other
businesses include Handy & Harman ("H&H"), a diversified industrial
manufacturing company whose strategic business units encompass (a) manufacturing
and selling of non-precious metal wire, cable and tubing products, including
carbon steel, stainless steel and specialty alloys; (b) manufacturing and
selling of precious metals products and precision electroplated materials and
stamped parts; and (c) manufacturing and selling of other specialty products
supplied to roofing, construction, natural gas, electric and water industries.
STEEL AND RELATED BUSINESSES
Wheeling-Pittsburgh Corporation
WPC is a vertically integrated manufacturer of predominately value-added
flat rolled steel products. WPC sells a broad array of value-added products,
including cold rolled steel, tin and zinc-coated steels and fabricated steel
products. WPC's products are sold to the construction industry, steel service
centers, converters, processors, and the container, automotive and appliance
industries.
WPC believes that it is one of the lowest-cost domestic flat rolled steel
producers. WPC's low cost structure is the result of: (i) the restructuring of
its work rules and staffing requirements under its five-year labor agreement
which settled a ten-month strike in 1997; (ii) the strategic balance between its
basic steel operations and its finishing and fabricating facilities; and (iii)
its efficient production of low-cost, high-quality metallurgical coke.
WPC believes that its labor agreement reached in 1997 is one of the most
flexible in the industry. The new work rule package affords WPC substantially
greater flexibility in reducing its overall workforce and assigning and
scheduling work, thereby reducing costs and increasing efficiency. Furthermore,
WPC has achieved pre-strike steel production levels with approximately 850 fewer
employees (a reduction of approximately 20% of its hourly workforce).
Unimast
In March 1995, the Company acquired Unimast, a leading manufacturer of
steel framing and related accessories for commercial and residential building
construction. Unimast uses galvanized steel to manufacture steel framing
components for wall, floor and roofing systems, in addition to other roll formed
expanded metal construction accessories.
HANDY & HARMAN
WHX acquired H&H in April 1998. H&H's business groups are (a) manufacturing
and selling of non-precious metal wire, cable and tubing products, primarily
stainless steel and specialty alloy; (b) manufacturing and selling of precious
metals products and precision electroplated materials and stamped parts; and (c)
manufacturing and selling of other specialty products supplied to roofing,
construction, natural gas, electric, and water industries. H&H's products are
sold to industrial users in a wide range of applications which include the
electric, electronic, automotive original equipment, computer equipment, oil and
other energy related, refrigeration, utility, telecommunications and medical
industries.
BUSINESS STRATEGY
WHX's business strategy is to enhance the growth and profitability of each
of its businesses and to build upon the strengths of those businesses through
product line and other strategic acquisitions. Key elements of this strategy
have been the expansion of downstream operations, reorganization of acquired
businesses and facilities expansion.
WPC continues to improve its cost structure and enhance productivity
through job eliminations (850 positions were eliminated in 1997, approximately
20% of its pre-strike hourly workforce) and capital expenditures, upgrading and
modernizing its steelmaking facilities.
1
7
WPC will continue to expand production of value-added products, principally
through growth of fabricated products and its emphasis on joint ventures, such
as Wheeling-Nisshin and Ohio Coatings Company ("OCC").
H&H will continue to focus on high margin products and innovative
technology, while seeking growth through strategic acquisitions.
H&H's business strategy is to limit exposure to low margin, capital
intensive businesses and focus on high margin strategic businesses. In the mid
1990s, H&H exited its commodity automotive OEM and precious metal refining
businesses, and with its strong brand name and customer recognition, expanded in
specialty metals and materials product markets. H&H focuses on its materials
engineering expertise to expand production of higher value-added products.
H&H has pursued an acquisition strategy designed to: (i) enhance its
offerings of higher value-added products; (ii) leverage its technological
capabilities; and (iii) expand its customer base. In September 1994, H&H
acquired Sumco Inc., a precision electroplating company, which does
electroplating of electronic connector and connector stock for the automotive,
telecommunications, electronic and computer industries, and in June 1996, H&H
acquired ele Corporation, which provides a value-added reel-to-reel molding
capability appropriate for the semiconductor lead frame and sensors marketplace.
In February 1997, H&H completed the acquisition of Olympic Manufacturing Group,
Inc., the leading domestic manufacturer and supplier of fasteners for the
commercial roofing industry.
Unimast will continue to expand the breadth and depth of its product
offerings and the geographic markets it serves, both by internal growth and
acquisitions. In January 1998, Unimast expanded its business through the
acquisition of Clinch-On, a manufacturer of steel cornerbead and trims for both
the non-residential and residential construction markets. Unimast continued its
expansion with the July 1999 acquisition of Vinyl Corp., a manufacturer of vinyl
construction accessories.
PRODUCTS AND PRODUCT MIX
Steel and Related Businesses -- WPC and Unimast
The table below reflects the historical product mix of WPC's and Unimast's
shipments, expressed as a percentage of tons shipped. Increases in the
percentage of higher value-added products have been realized during the 1990s as
(i) fabricated products operations were expanded, (ii) Wheeling-Nisshin's second
coating line increased its requirements of cold-rolled coils from
Wheeling-Pittsburgh Steel Company ("WPSC"), a subsidiary of WPC, and (iii) the
Company acquired Unimast in March 1995. In addition, the OCC joint venture
should enable the Company to increase tin mill product shipments in 2000 up to
an additional 31,000 tons compared to 1999 levels.
HISTORICAL PRODUCT MIX
---------------------------------------------
YEAR ENDED DECEMBER 31
---------------------------------------------
1999 1998 1997(1) 1996(1) 1995
----- ----- ------- ------- -----
PRODUCT CATEGORY:
Higher Value-Added Products:
Cold Rolled Products -- Trade....................... 9.8% 9.9% 4.5% 7.6% 7.5%
Cold Rolled Products -- Wheeling-Nisshin............ 18.0 17.2 6.2 15.6 17.9
Coated Products(2).................................. 10.7 14.0 9.0 18.7 20.3
Tin Mill Products................................... 9.1 6.5 2.6 7.0 6.7
Fabricated Products................................. 14.3 14.1 31.3 16.6 14.1
Unimast(2).......................................... 11.3 11.2 20.7 8.4 5.2
----- ----- ----- ----- -----
Higher Value-Added Products as a percentage of total
shipments........................................... 73.2% 72.9% 74.3% 73.9% 71.7%
Hot Rolled Products................................... 26.8 26.8 16.0 26.1 28.3
Semi-Finished......................................... -- 0.3 9.7 -- --
----- ----- ----- ----- -----
Total....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
AVERAGE NET SALES PER TON............................. $479 $524 $606 $544 $543
- ---------------
(1) The allocation among product categories was affected by the strike.
(2) Reclassified for comparability.
2
8
WPC
Products produced by WPC are described below. These products are sold
directly to third-party customers and Unimast, and to Wheeling-Nisshin and OCC
pursuant to long-term supply agreements.
Cold-Rolled Products. Cold-rolled coils are manufactured from hot-rolled
coils by employing a variety of processing techniques, including pickling, cold
reduction, annealing and temper rolling. In recent years, WPC has increased its
cold-rolled production to support increased sales to Wheeling-Nisshin, which is
labeled as a separate product category above.
Coated Products. WPC manufactures a number of corrosion-resistant,
zinc-coated products including hot-dipped galvanized and electrogalvanized
sheets for resale to trade accounts. WPC's trade sales of galvanized products
are heavily oriented to unexposed applications, principally in the appliance,
construction, service center and automotive markets. WPC sells electrogalvanized
products for application in the appliance and construction markets.
Tin Mill Products. Tin mill products consist of blackplate and tinplate.
Blackplate is a cold-rolled substrate (uncoated), the thickness of which is less
than .0142 inches. While the majority of WPC's sales of these products are
concentrated in a variety of container markets, WPC also markets products for
automotive applications, such as oil filters and gaskets. WPC has phased out its
existing tin mill facilities and produces all of its tin-coated products through
OCC. OCC's $69 million tin coating mill, which commenced commercial operations
in 1997, has a nominal annual capacity of 250,000 net tons. WPC will supply up
to 230,000 tons of the substrate requirements of the joint venture, subject to
quality requirements and competitive pricing, and will act as a distributor of
the joint venture's products.
Hot-Rolled Products. Hot-rolled coils represent the least processed of
WPC's finished goods. Hot-rolled black or pickled (acid cleaned) coils are sold
to a variety of consumers such as converters/processors, steel service centers
and the appliance industries.
Fabricated Products. Fabricated products consist of cold-rolled or coated
products further processed mainly via roll forming and sold in the construction,
highway, and agricultural products industries.
Construction Products. Construction products consist of roll-formed
sheets, which are utilized in sectors of the non-residential building market
such as commercial, institutional and manufacturing. They are classified into
three basic categories: roof deck, form deck, and composite floor deck.
Agricultural Products. Agricultural products consist of roll-formed
corrugated sheets which are used as roofing and siding in the construction of
barns, farm machinery enclosures, light commercial buildings and certain
residential roofing applications.
Highway Products. Highway products consist of bridge form, which are
roll-formed corrugated sheets utilized as concrete support forms in the
construction of highway bridges.
UNIMAST
In March 1995, WHX acquired Unimast, a leading manufacturer of steel
framing and related accessories for residential and commercial building
construction with shipments of approximately 294,000 tons of steel products in
1999 and 276,000 tons in 1998. Unimast uses galvanized steel to manufacture
steel framing components for wall, floor and roofing systems, in addition to
other roll-formed expanded metal construction accessories. Unimast also uses
non-prime galvanized substrate for a material portion of its requirements,
providing the Company an additional outlet for some portion of its non-prime
products. Unimast has facilities in Franklin Park, Illinois; Warren, Ohio;
McDonough, Georgia; Baytown, Texas; Boonton, New Jersey; New Brighton,
Minnesota; Brooksville and Miami, Florida; Goodyear, Arizona and East Chicago,
Indiana.
WHEELING-NISSHIN
WPC owns a 35.7% equity interest in Wheeling-Nisshin, which is a joint
venture between WPC and Nisshin Holding, Incorporated, a wholly-owned subsidiary
of Nisshin Steel Co., Ltd. ("Nisshin"). Wheeling-Nisshin is a state-of-the-art
processing facility located in Follansbee, West Virginia which produces among
the lightest-gauge galvanized steel products available in the United States.
Wheeling-Nisshin products are marketed through trading companies, and its
shipments are not consolidated into WPC's shipments.
Wheeling-Nisshin began commercial operations in 1988 with an initial
capacity of 360,000 tons. In March 1993, Wheeling-Nisshin added a second
hot-dipped galvanizing line, which increased its capacity by approximately
3
9
94%, to over 700,000 annual tons and allows Wheeling-Nisshin to offer the
lightest-gauge galvanized steel products manufactured in the United States for
construction, heating, ventilation and air-conditioning and after-market
automotive applications.
WPC's amended and restated supply agreement with Wheeling-Nisshin expires
in 2013. Pursuant to the amended supply agreement, WPC will provide not less
than 75% of Wheeling-Nisshin's steel substrate requirements, up to an aggregate
maximum of 9,000 tons per week, subject to product quality requirements. WPC is
currently in arbitration with Wheeling-Nisshin concerning pricing of substrate
for the second half of 1999. Shipments of cold-rolled steel by WPC to
Wheeling-Nisshin were approximately 473,000 tons, or 19.4% of WPC's total tons
shipped in 1999 and approximately 428,000 tons, or 19.1% in 1998.
OHIO COATINGS COMPANY
WPC has a 50.0% equity interest in OCC, which is a joint venture between
WPC and Dong Yang, a leading South Korea-based tin plate producer. Nittetsu
Shoji America ("Nittetsu"), a U.S.-based tin plate importer, holds non-voting
preferred stock in OCC. OCC commenced commercial operations in January 1997. The
OCC tin-coating facility is the only domestic electro-tin plating facility
constructed in the past 30 years and is positioned to become a premier supplier
of tin plate to the container and automotive industries. WPC produces all of its
tin coated products through OCC. As part of the joint venture agreement, WPC has
the right to supply up to 230,000 tons of the substrate requirements of OCC
through the year 2012, subject to quality requirements and competitive pricing.
WPC will market all of OCC's products. Nittetsu markets the product as a sales
agent for the Company. In 1999 and 1998, OCC had an operating income of $2.1
million and $0.3 million, respectively.
NON-STEEL BUSINESSES
Handy & Harman
H&H, through several subsidiaries, manufactures a wide variety of
non-precious metal wire and tubing products. Small-diameter precision-drawn
tubing fabricated from stainless steel, nickel alloy and carbon and alloy steel
is produced in many sizes and shapes to critical specifications for use in the
semiconductor, aircraft, petrochemical, automotive, appliance, refrigeration and
instrumentation industries. Additionally, tubular product is manufactured for
the medical industry for use as implants, surgical devices and instrumentation.
Nickel alloy, galvanized carbon steel and stainless steel wire products redrawn
from rods are produced for such diverse applications as bearings, cable lashing,
hose reinforcement, nails, knitted mesh, wire rope, cloth, air bags and antennas
in the aerospace, automotive, chemical, communications, marine, medical,
petrochemical, welding and other industries.
H&H's precious metals activities include the fabrication of precious metals
and their alloys into wire and rolled products, powders and grain and the
utilization of precious metals in precision electroplating. H&H's profits from
precious metal products are derived from the "value added" of processing and
fabricating and not from the purchase and resale of precious metals. In
accordance with general practice in the industry, prices to customers are a
composite of two factors: namely (1) the value of the precious metal content of
the product plus (2) the "fabrication value", which includes the cost of base
metals, labor, overhead, financing and profit. Fabricated precious metals are
used in many applications including brazing, arts and contact materials for a
wide variety of industries including aerospace, electronics, appliance, nuclear,
automotive, jewelry, electrical, medical and silversmithing.
H&H produces precision-stamped, electroplated and molded materials and
stamped parts (often using gold, silver, palladium and various base metals on
such materials and stamped parts) for use in the semiconductor,
telecommunications, automotive, electronics and computer industries. It also
participates in the injection-molded medical plastics market.
H&H, through other subsidiaries, manufactures fasteners, fastening systems,
plastic and steel fittings and connectors, and non-ferrous thermite welding
powders for the roofing, construction, do-it-yourself, natural gas, electric and
water distribution industries.
WHX Entertainment
In October 1994, WHX Entertainment, a wholly owned subsidiary of WHX,
purchased a 50.0% interest in the operations of Wheeling-Downs Racing
Association ("Wheeling-Downs") from Sportsystems Corporation for $12.5 million.
Wheeling-Downs operates a racetrack and video lottery facility located in
Wheeling, West Virginia.
4
10
CUSTOMERS
Steel and Related Businesses
WPC and Unimast market an extensive mix of products to a wide range of
manufacturers, converters and processors. The Company's 10 largest customers
(including Wheeling-Nisshin) accounted for approximately 25.9% of its net sales
in 1997, 27.2% in 1998, and 27.5% in 1999. No single customer accounted for more
than 10% of net sales in 1997 or 1998. Wheeling-Nisshin accounted for 10.2% of
net sales in 1999. Geographically, the majority of WPC's customers are located
within a 350-mile radius of the Ohio Valley. However, WPC has taken advantage of
its river-oriented production facilities to market via barge into more distant
locations such as the Houston, Texas and St. Louis, Missouri areas. The
acquisition of Unimast in March 1995 increased the Company's shipments to the
construction industry and its ability to market its products to broad geographic
areas.
Shipments historically have been concentrated within seven major market
segments: construction industry, steel service centers, converters/processors,
agriculture, container, automotive, and appliances. The overall participation in
the construction and the converters/processors markets substantially exceeds the
industry average and its reliance on automotive shipments as a percentage of
total shipments is substantially less than the industry average.
PERCENT OF TOTAL NET TONS SHIPPED
YEAR ENDED DECEMBER 31,
------------------------------------------
MAJOR CUSTOMER CATEGORY: 1999 1998 1997(1) 1996(1) 1995
- ------------------------ ---- ---- ------- ------- ----
Construction.............................................. 25% 27% 44% 28% 22%
Steel Service Centers..................................... 28 27 26 24 27
Converters/Processors..................................... 25 29 13 23 26
Agriculture............................................... 5 5 11 7 6
Containers................................................ 10 7 2 6 6
Automotive................................................ 1 -- 2 5 5
Appliances................................................ 2 2 1 4 4
Exports................................................... 1 1 -- -- 1
Other..................................................... 3 2 1 3 3
--- --- --- --- ---
Total........................................... 100% 100% 100% 100% 100%
=== === === === ===
- ---------------
(1) The allocation among customer categories was affected by the strike.
Construction. The shipments to the construction industry are heavily
influenced by the sales of Wheeling Corrugating and Unimast. Wheeling
Corrugating services the non-residential and agricultural building and highway
industries, principally through shipments of hot dipped galvanized and painted
cold rolled products. With its acquisitions during the 1980s and early 1990s of
regional facilities, Wheeling Corrugating has doubled its shipments and has been
able to market its products into broad geographical areas. Unimast is a leading
manufacturer of steel framing and related accessories for residential and
commercial building construction.
Steel Service Centers. The shipments to steel service centers are heavily
concentrated in the areas of hot rolled and hot dipped galvanized coils. Due to
increased in-house costs to steel companies during the 1980s for processing
services such as slitting, shearing and blanking, steel service centers have
become a major factor in the distribution of hot rolled products to ultimate end
users. In addition, steel service centers have become a significant factor in
the sale of hot dipped galvanized products to a variety of small consumers such
as mechanical contractors, who desire not to be burdened with large steel
inventories.
Converters/Processors. The growth of shipments to the
converters/processors market is principally attributable to the increase in
shipments of cold-rolled products to Wheeling-Nisshin, which uses cold-rolled
coils as a substrate to manufacture a variety of coated products, including
hot-dipped galvanized and aluminized coils for the automotive, appliance and
construction markets. As a result of the second line expansion, WPC's shipments
to Wheeling-Nisshin increased significantly beginning in 1993. The
converters/processors industry also represents a major outlet for their hot
rolled products, which are converted into finished commodities such as pipe,
tubing and cold rolled strip.
Agriculture. The shipments to the agricultural market are principally
sales of roll-formed, corrugated sheets which are used as roofing and siding in
the construction of barns, farm machinery enclosures and light commercial
buildings.
5
11
Containers. The vast majority of shipments to the container market are
concentrated in tin mill products, which are utilized extensively in the
manufacture of food, aerosol, beverage and general line cans. The container
industry has represented a stable market. The balance of shipments to this
market consists of cold-rolled products for pails and drums. As a result of the
OCC joint venture, WPC phased out its existing tin mill production facilities in
1996, and has begun to sell substrate to, and to distribute products produced
by, OCC.
Automotive. Unlike the majority of its competitors, WPC is not heavily
dependent on shipments to the automotive industry. However, WPC has established
higher value-added niches in this market, particularly in the area of hot-dipped
galvanized products for deep drawn automotive underbody parts. In addition, WPC
has been a supplier of tin mill products for automotive applications, such as
oil filters and gaskets.
Appliances. The shipments to the appliance market are concentrated in
hot-dipped galvanized, electrogalvanized and hot-rolled coils. These products
are furnished directly to appliance manufacturers as well as to blanking,
drawing and stamping companies that supply OEMs. WPC has concentrated on niche
product applications primarily used in washer/dryer, refrigerator/freezer and
range appliances.
Handy & Harman
Handy & Harman is diversified across both industrial markets and customers.
H&H sells to the electronics, telecommunications, semi-conductor, computer,
aerospace, home appliance OEM, automotive, construction, utility, medical,
silversmith, and general manufacturing industries. In 1999, no customer
accounted for more than 3.5% of H&H's sales.
RAW MATERIALS
Steel and Related Businesses
WPC has a 12.5% ownership interest in Empire Iron Mining Partnership
("Empire") which operates a mine located in Palmer, Michigan. WPC is obligated
to purchase approximately 12.5% or 1.0 million gross tons per year (at current
production levels) of the mine's annual ore output. Interest in related ore
reserves as of December 31, 1999, is estimated to be 19.6 million gross tons.
WPC generally consumes approximately 2.5 million gross tons of iron ore pellets
in its blast furnaces. The Company's pro rata cash operating cost of Empire
currently approximates the market price of ore. WPC obtains approximately one
half of its iron ore from spot and medium-term purchase agreements at prevailing
world market prices. It has commitments for the majority of its blast furnace
iron ore pellet needs through 2002 from world-class suppliers.
WPC has a long-term supply agreement with a third party to provide WPC with
a substantial portion of WPC's metallurgical coal requirements at competitive
prices. WPC's coking operations require a substantial amount of metallurgical
coal.
WPC currently produces coke in excess of its requirements and typically
consumes generally all of the resultant by-product coke oven gas. In 1999,
approximately 1.6 million tons of coking coal were consumed in the production of
blast furnace coke by WPC. WPC sells its excess coke and coke oven by-products
to third-party trade customers.
WPC's operations require material amounts of other raw materials, including
limestone, oxygen, natural gas and electricity. These raw materials are readily
available and are purchased on the open market. WPC is presently dependent on
external steel scrap for approximately 8.75% of its steel melt. The cost of
these materials has been susceptible in the past to price fluctuations, but
worldwide competition in the steel industry has frequently limited the ability
of steel producers to raise finished product prices to recover higher material
costs. Certain of WPC's raw material supply contracts provide for price
adjustments in the event of increased commodity or energy prices.
Unimast's raw material requirements consist primarily of galvanized steel
coils, which are readily available on the open market. Unimast purchases its
steel requirements from major domestic steel producers throughout the country,
including WPC. The price for steel coils tends to fluctuate during the year due
to changes in the domestic and international marketplaces. Unimast has not
experienced any problems in obtaining the necessary quantities of steel from its
suppliers, which totaled over 294,000 tons for the year ended December 31, 1999.
Handy & Harman
The raw materials used by H&H in its precious metal operations consist
principally of silver, gold, copper, cadmium, zinc, nickel, tin, and the
platinum group metals in various forms. Silver, gold and palladium constitute
the major portion of the value of the raw materials involved. The prices of
silver, gold, and palladium are subject to fluctuations and are expected to
continue to be affected by world market conditions. Nonetheless, H&H has not
6
12
experienced any problem in obtaining the necessary quantities of raw materials
and, in the normal course of business, receives precious metals from suppliers
and customers. These metals are returnable in fabricated or commercial bar form
under agreed-upon terms. Since precious metals are fungible, H&H does not
physically segregate supplier and customer metals from its own inventories.
Therefore, to the extent that supplier or customer metals are used by H&H, the
amount of inventory which H&H must own is reduced. All precious metal raw
materials are readily available from several sources. It is H&H's operating
policy to maintain its precious metal inventory levels under the last in, first
out ("LIFO") method of accounting. Precious metals are purchased at the same
prices and quantities as selling commitments to customers. From time-to-time,
management reviews the appropriate inventory levels and may elect to make
adjustments.
The raw materials used by H&H in its non-precious metal operations consist
principally of stainless, galvanized, and carbon steel, nickel alloys, a variety
of high-performance alloys, and various plastic compositions. H&H purchases all
such raw materials at open market prices from domestic and foreign suppliers.
H&H has not experienced any problem in obtaining the necessary quantities of raw
materials. Prices and availability, particularly of raw materials purchased from
foreign suppliers, will be affected by world market conditions and government
policies.
BACKLOG
WPC's order backlog was 375,883 net tons at December 31, 1999, compared to
365,622 net tons at December 31, 1998. All orders related to the backlog at
December 31, 1999 are expected to be shipped during the first half of 2000,
subject to delays at the customers' request. The order backlog represents orders
received but not yet completed or shipped. In times of strong demand, a higher
order backlog may allow the Company to increase production runs, thereby
enhancing production efficiencies.
CAPITAL INVESTMENTS
The Company believes that it must continuously strive to improve
productivity and product quality, and control manufacturing costs, in order to
remain competitive. Accordingly, the Company is committed to continuing to make
necessary capital investments with the objective of reducing manufacturing costs
per ton, improving the quality of steel produced and broadening the array of
products offered to the Company's served markets. The Company's capital
expenditures (including capitalized interest) for 1999 were approximately $104.0
million, including $7.7 million on environmental projects. From 1995 to 1999,
capital expenditures aggregated approximately $307.8 million. This level of
capital expenditures was needed to maintain productive capacity, improve
productivity and upgrade selected facilities to meet competitive requirements
and maintain compliance with environmental laws and regulations. The capital
expenditure program has included improvements to WPC's infrastructure, blast
furnaces, steel-making facilities, 80-inch hot-strip mill and finishing
operations, and has resulted in improved shape, gauge, surface and physical
characteristics for its products. Continuous and substantial capital and
maintenance expenditures will be required to maintain operating facilities,
modernize finishing facilities to remain competitive and to comply with
environmental control requirements. The Company anticipates funding its capital
expenditures in 2000 from cash on hand and funds generated by operations, sale
of receivables under the WPC Receivables Facility and funds available under the
revolving credit facilities at WPSC, H&H and Unimast. The Company anticipates
that capital expenditures will approximate depreciation, on average, over the
next few years.
ENERGY REQUIREMENTS
Many of the Company's major facilities that use natural gas have been
equipped to use alternative fuels. The Company continually monitors its
operations regarding potential equipment conversion and fuel substitution to
reduce energy costs.
EMPLOYMENT
Total active employment of the Company at December 31, 1999 aggregated
7,549 employees, of which 3,348 were represented by the United Steel Workers of
America ("USWA"), and 975 by other unions. The remainder consisted of 1,850
salaried employees and 1,376 non-union operating employees. At December 31,
1999, WPC had 4,436 employees, H&H had 2,366 employees and Unimast had 747
employees.
On August 12, 1997, WPSC and USWA entered into a five-year labor agreement.
7
13
COMPETITION
Steel and Related Businesses
The steel industry is cyclical in nature and has been marked historically
by overcapacity, resulting in intense competition.
WPC faces increasing competitive pressures from other domestic integrated
producers, minimills and processors. Processors compete with WPC in the areas of
slitting, cold rolling and coating. Minimills are generally smaller-volume steel
producers that use ferrous scrap metals as their basic raw material. Compared to
integrated producers, minimills, which rely on less capital-intensive steel
production methods, have certain advantages. Since minimills typically are not
unionized, they have more flexible work rules that have resulted in lower
employment costs per net ton shipped. Since 1989, significant flat-rolled
minimill capacity has been constructed and these minimills now compete with
integrated producers in product areas that traditionally have not faced
significant competition from minimills. In addition, there has been significant
additional flat-rolled minimill capacity constructed in recent years. These
minimills and processors compete with WPC primarily in the commodity flat-
rolled steel market. In the long term, such minimills and processors may also
compete with WPC in producing value-added products. In addition, the increased
competition in commodity product markets influence certain integrated producers
to increase product offerings to compete with WPC's custom products.
As the single largest steel consuming country in the western world, the
United States has long been a favorite market of steel producers in Europe and
Japan. In addition, steel producers from Korea, Taiwan, and Brazil, and
non-market economies such as Russia and China, have also recognized the United
States as a target market.
Total annual steel consumption in the United States has fluctuated between
88 million and slightly over 115 million tons since 1991. A number of steel
substitutes, including plastics, aluminum, composites and glass, have reduced
the growth of domestic steel consumption.
Steel imports of flat-rolled products as a percentage of domestic apparent
consumption, excluding semi-finished steel, have been approximately 20% in 1997,
27% in 1998 and 23% in 1999. Imports surged in 1998 due to severe economic
conditions in Southeast Asia, Latin America, Japan and Russia, among others.
World steel demand, world export prices, U.S. dollar exchange rates and the
international competitiveness of the domestic steel industry have all been
factors in these import levels.
Unimast is one of the leading manufacturers of steel construction building
products for the commercial and residential marketplace. While there are many
companies that compete directly with Unimast, there are few manufacturers that
carry a comparable variety of products. Unimast competes on a national basis and
is increasing its presence in the Western U.S. with its new manufacturing
facility in Goodyear, Arizona. Competitive factors most affecting Unimast
include service, price and quality, with price usually the leading
consideration.
Handy & Harman
H&H is one of the leading fabricators of precious metal products and
precision electroplating. Although there are no companies in the precious metals
field whose operations exactly parallel those of H&H in every area, there are a
number of competitors in each of the classes of precious metals products. Many
of these competitors also conduct activities in other product lines in which H&H
is not involved. Competition is based on quality, service and price, each of
which is of equal importance.
There are many companies, domestic and foreign, which manufacture
non-precious wire and tubing products, and other specialty products of the type
manufactured by H&H. Competition is based on quality, service, price and new
product introduction, each of which is of equal importance.
PROPERTIES
STEEL AND RELATED BUSINESSES
WPC And Unimast
WPC has one raw steel producing plant and various other finishing and
fabricating facilities. The Steubenville complex is an integrated steel
producing facility located at Steubenville and Mingo Junction, Ohio and
Follansbee, West Virginia. The Steubenville complex includes coke oven batteries
that produce all coke requirements, two operating blast furnaces, two basic
oxygen furnaces, a two-strand continuous slab caster with an annual slab
production capacity of approximately 2.4 million tons, an 80-inch hot strip mill
and pickling and coil finishing facilities. The Ohio and West Virginia
locations, which are separated by the Ohio River, are connected by a railroad
8
14
bridge owned by WPC. A pipeline is maintained for the transfer of coke oven gas
for use as fuel from the coke plant to several other portions of the
Steubenville complex. The Steubenville complex primarily produces hot-rolled
products, which are either sold to third parties or shipped to other of the
Company's facilities for further processing into value-added products.
The following table lists the other principal plants of WPC and the annual
capacity of the major products produced at each facility:
OTHER MAJOR FACILITIES
LOCATION AND OPERATIONS CAPACITY TONS/YEAR MAJOR PRODUCTS
- ----------------------- ------------------ ---------------------------------------
Allenport, Pennsylvania:
Continuous pickler, tandem mill, temper
mill and annealing lines.................. 950,000 Cold-rolled sheets
Beech Bottom, West Virginia:
Paint line................................ 120,000 Painted steel in coil form
Canfield, Ohio:
Electrogalvanizing line, paint line,
ribbon and oscillating rewind slitters.... 65,000 Electrolytic galvanized sheet and strip
Martins Ferry, Ohio:
Temper mill, zinc coating lines........... 750,000 Hot-dipped galvanized sheets and coils
Yorkville, Ohio:
Continuous pickler, tandem mill, temper
mills and annealing lines................. 660,000 Black plate and cold-rolled sheets
All of the above facilities currently owned by WPC are regularly maintained
in good operating condition. However, continuous and substantial capital and
maintenance expenditures are required to maintain the operating facilities, to
modernize finishing facilities in order to remain competitive and to meet
environmental control requirements.
WPC has fabricated product facilities at Fort Payne, Alabama; Houston,
Texas; Lenexa, Kansas; Louisville, Kentucky; Minneapolis, Minnesota; Warren,
Ohio; Gary, Indiana; Emporia, Virginia; Grand Junction, Colorado; and Klamath
Falls and Brooks, Oregon.
WPC maintains regional sales offices in Atlanta, Chicago, Detroit,
Philadelphia, Pittsburgh and its corporate headquarters in Wheeling, West
Virginia.
Unimast has facilities located at Franklin Park, Illinois; Warren, Ohio;
McDonough, Georgia; Baytown, Texas; Boonton, New Jersey; New Brighton,
Minnesota; Brooksville and Miami, Florida; and East Chicago, Indiana.
Handy & Harman
H&H, acquired in April 1998, has 23 active operating plants in the United
States, Canada, England, Denmark and Singapore (50% owned) with a total area of
approximately 1,860,000 square feet, including warehouse, office and laboratory
space, but not including the plant used by the Singapore operation. H&H also
owns or leases sales, service and warehouse facilities at two other locations in
the United States (which, with H&H's general offices, have a total area of
approximately 53,000 square feet) and owns nine non-operating or discontinued
locations with a total area of approximately 416,000 square feet. H&H considers
its manufacturing plants and services facilities to be well maintained and
efficiently equipped, and therefore suitable for the work being done. The
productive capacity and extent of utilization of its facilities is dependent in
some cases on general business conditions and in other cases on the seasonality
of the utilization of its products. Capacity can be expanded readily to meet
additional demands. Manufacturing facilities of H&H are located in: Fort Smith,
Arkansas; Fontana, California; Toronto, Canada; Fairfield, Connecticut; Camden,
Delaware; Kolding, Denmark; Liversedge, England; Evansville and Indianapolis,
Indiana; Cockeysville, Maryland; Agawam, Westfield and North Attleboro,
Massachusetts; Middlesex and Willingboro, New Jersey; Canastota and Oriskany,
New York; Tulsa and Broken Arrow, Oklahoma; Norristown, Pennsylvania; East
Providence, Rhode Island; Cudahy, Wisconsin; and Singapore (50% owned).
All plants are owned in fee except for the Canastota, Fort Smith,
Middlesex, and Westfield plants, which are leased.
9
15
LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
WPC
WPC, 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, WPC has incurred
capital expenditures for environmental control projects aggregating $12.4
million, $9.5 million and $7.7 million for 1997, 1998 and 1999, respectively.
WPC anticipates spending approximately $13.6 million in the aggregate on major
environmental compliance projects through the year 2002, estimated to be spent
as follows: $6.7 million in 2000, $3.1 million in 2001, and $3.8 million in
2002. Due to the possibility of unanticipated factual or regulatory
developments, the amount and timing of future expenditures may vary
substantially from such estimates.
WPC has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or similar state statutes at several waste sites. WPC is subject to joint and
several liability imposed by CERCLA 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, WPC is unable to reasonably
estimate the ultimate cost of compliance with CERCLA laws. WPC believes, based
upon information currently available, that its liability for clean-up and
remediation costs in connection with the Buckeye Reclamation Landfill will be
between $1.5 million and $2.0 million. At five other sites (MIDC Glassport,
Tex-Tin, Breslube Penn, Four County Landfill and Beazer) WPC estimates the costs
to approximate $500,000. WPC is currently funding its share of remediation
costs.
The Clean Air Act Amendments of 1990 (the "Clean Air Act") directly affect
the operations of many of WPC's facilities, including coke ovens. WPC is
presently in compliance with the provisions of the Clean Air Act. However, under
the Clean Air Act, coke ovens generally will be required to comply with
progressively more stringent standards which will result in an increase in
environmental capital expenditures and costs for environmental compliance. The
forecasted environmental expenditures include amounts which will be spent on
projects relating to compliance with these standards.
In an action brought in 1985 in the U.S. District Court for the Northern
District of West Virginia, the EPA claimed violations of the Solid Waste
Disposal Act at a surface impoundment area at the Follansbee facility. WPC and
the EPA entered into a consent decree in October 1989 requiring certain soil and
groundwater testing and monitoring. The surface impoundment has been removed and
a final closure plan has been submitted to the EPA. WPC is waiting for approval
from the EPA to implement the plan. Until the EPA responds to WPC, the full
extent and cost of remediation cannot be ascertained.
In June 1995, the EPA informally requested corrective action affecting
other areas of the Follansbee facility. The EPA sought to require WPC to perform
a site investigation of the Follansbee plant. WPC actively contested the EPA's
jurisdiction to require a site investigation, but subsequently agreed to comply
with a final administrative order issued by the EPA in June 1998 to conduct a
Resource Conservation and Recovery Act ("RCRA") facility investigation to
determine the nature and extent of soil and groundwater contamination and
appropriate clean up methods. The Company anticipates spending up to $1 million
in year 2000 for sampling at the site.
WPC is currently operating in substantial compliance with three consent
decrees (two with the EPA and one with the Pennsylvania Department of
Environmental Resources) with respect to wastewater discharges at Allenport,
Pennsylvania, Mingo Junction, Steubenville, and Yorkville, Ohio. All of the
foregoing consent decrees are nearing expiration. A petition to terminate the
Allenport consent decree was filed in 1998.
In March 1993, the EPA notified WPC of Clean Air Act violations alleging
particulate matter and hydrogen sulfide emissions in excess of allowable
concentrations at WPC's Follansbee coke plant. In January 1996, the EPA and the
Company entered into a consent decree. Although the Company has paid the civil
penalties due pursuant to the terms of the consent decree, the Company continues
to accrue stipulated penalties to such consent decree. As of December 1999, the
Company has accrued stipulated penalties of approximately $2.7 million.
In June 1999, the Ohio Attorney General filed a lawsuit against WPC
alleging certain hazardous waste law violations at its Steubenville and
Yorkville, Ohio facilities and certain water pollution law violations at the
Company's Yorkville, Ohio facility relating primarily to the alleged unlawful
discharge of spent pickle liquor. The lawsuit contains forty-four separate
counts and seeks preliminary and permanent injunctive relief in addition to
civil penalties. Settlement negotiations with Ohio EPA are on-going and Ohio EPA
has demanded a civil penalty of $300,000.
10
16
In January 1998, the Ohio Attorney General notified WPC of a draft consent
order and initial civil penalties in the amount of $1 million for various air
violations at its Steubenville and Mingo Junction, Ohio facilities occurring
from 1992 through 1996. In November 1999, Ohio EPA and WPC entered into a
consent decree settling the civil penalties related to this matter for
approximately $250,000. The consent decree also obligates the Company to pay
certain stipulated penalties for future air violations.
WPC has experienced discharges of oil through NPDES permitted outfalls at
its Mingo Junction, Ohio and Allenport, Pennsylvania plants. WPC spent
approximately $0.8 million and $1.5 million in 1998 and 1999, respectively, to
investigate and clean up oil spills at its Mingo Junction, Ohio facility. WPC
anticipates spending approximately $1.4 million to install a slip lined pipe and
an automated oil recovery system at its Mingo Junction, Ohio facility. WPC has
not yet received any notices of violation from the regulatory agencies for such
oil spills.
The EPA conducted a multimedia inspection of WPC's Steubenville, Mingo
Junction, Yorkville, and Martins Ferry, Ohio facilities in March and June 1999.
The inspection covered all environmental regulations applicable to these plants.
WPC has received a Notice of Violation from EPA for alleged air violations, but
has not yet received notice of any violations of water or waste laws. The air
Notice of Violation does not specify the amount of penalties sought by EPA. WPC
is exploring settlement with EPA regarding such air violations.
WPC is aware of potential environmental liabilities resulting from
operations, including leaking underground and aboveground storage tanks, and the
disposal and storage of residuals on its property. Each of these situations is
being assessed and remediated in accordance with regulatory requirements.
Non-current accrued environmental liabilities totaled $12.7 million at
December 31, 1998 and $14.7 million at December 31, 1999. These accruals were
initially determined by WPC 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 WPC has adequately provided for its present
environmental obligations.
Based upon information currently available, including WPC's prior capital
expenditures, anticipated capital expenditures, consent agreements negotiated
with federal and state agencies, and information available to WPC on pending
judicial and administrative proceedings, WPC does not expect its environmental
compliance 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 of WPC. However, as further information comes
into WPC's possession, it will continue to reassess such evaluations.
Handy & Harman
In connection with the Montvale, New Jersey facility (which was closed in
1984), formerly operated by Handy & Harman Electronic Materials Corporation
("HHEM"), a subsidiary of H&H, a civil action lawsuit was filed in April 1993 by
the Borough of Park Ridge in the Superior Court of New Jersey, Law Division,
Bergen County, against HHEM, the Company, the prior owner of the facility and
other defendants, asserting that a chemical used at the facility in Montvale,
New Jersey, an adjoining municipality, had migrated and entered a drinking water
supply of Park Ridge. This action sought recovery of the alleged cost of
treatment and remediation of water wells of the Borough of Park Ridge as a
result of alleged contamination by the defendants.
The H&H defendants denied responsibility for the alleged contamination of
the Park Ridge wells and asserted that if any such contamination existed as a
result of operation of the Montvale facility, damages arising therefrom were the
responsibility of the owner or operator thereof prior to the purchase of the
facility by HHEM from Plessey Incorporated ("Plessey"). The H&H defendants
asserted substantial cross-claims against Plessey, GEC-Marconi Materials Corp.
and a vendor of the chemical involved. H&H also filed a separate action, since
consolidated with the above Park Ridge action, against Twin Cities Fire
Insurance Company and other carriers, claiming coverage under various liability
insurance policies and seeking indemnification and defense for all of Park
Ridge's claims.
The Company has settled its claims against its co-defendant, Plessey, Inc.,
and its claims against Twin City. As a result of those settlements, a resolution
of the Park Ridge lawsuit was reached on August 24, 1999 with no material effect
to the Company.
SHAREHOLDER LAWSUITS
Two purported class action lawsuits were commenced in connection with the
unsolicited tender offer commenced by WHX in December 1998 to acquire all of
H&H's shares for $30 per share in cash (the "Initial WHX Offer"). Both of these
purported class actions are not actively being pursued by the plaintiff at the
present time.
11
17
SEC ENFORCEMENT ACTION
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") that 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 instituted 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.
Last year, an administrative law judge of the SEC held an evidentiary hearing on
the merits, but a decision has not been rendered to date. Although there can be
no assurance that an adverse decision will not be rendered, the Company intends
to continue to vigorously defend against the SEC's charges.
GENERAL LITIGATION
On October 27, 1998, the Company 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. The Company
asked the Court for injunctive relief to prohibit such sales. On November 6,
1998, defendants removed the case from Belmont County to the U.S. District Court
for the Southern District of Ohio. The Company subsequently amended its
complaint to allege violations of the 1916 Antidumping Act by nine trading
companies. The amended complaint sought 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. The Company has appealed the Court's
decision to the Sixth Circuit Court of Appeals. The Company has reached
out-of-court settlements with six of the nine steel trading companies named in
this lawsuit. The Company's claims for treble damages, but not injunctive
relief, against the three remaining defendants were subsequently dismissed as a
result of settlement negotiations.
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.
12
18
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1999 special meeting of stockholders was held on November 8, 1999.
(b) Matters voted on at the meeting and the number of votes cast.
VOTES AGAINST
VOTED FOR OR WITHHELD ABSTENTIONS
--------- ------------- -----------
(1) Approval of amendment to the Certificate of 7,617,374 3,303,247 332,538
Incorporation and the By-Laws, until June 30, 2001, to
eliminate the right of stockholders to call a special
meeting of stockholders and to permit only the Chairman
of the Board or the Board of Directors to call special
meetings of stockholders.
(2) Approval of amendment to the Certificate of 7,620,307 3,293,195 339,657
Incorporation and the By-Laws, until June 30, 2001, to
eliminate stockholder action by written consent.
(3) Approval of amendment to the Certificate of 7,693,931 3,216,266 342,962
Incorporation to require, until June 30, 2001, an
affirmative vote of 66 2/3% of the voting stock in order
to (a) amend, repeal or adopt any provision inconsistent
with any of the adopted amendments to the Certificate of
Incorporation proposed and (b) for stockholders to amend
any provision of the By-Laws with respect to By-Law
amendments.
13
19
MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The number of shares of Common Stock issued and outstanding as of January
31, 2000 was 14,443,215, including 280,679 shares of Redeemable Common Stock. In
1998 and 1999, the Company purchased 1.8 million shares and 3.6 million shares,
respectively, of Common Stock in open market purchases. The repurchased shares
have been retired.
The prices set forth in the following table represent the high and low
sales prices for the Company's Common Stock:
COMMON STOCK
------------------
HIGH LOW
------- -------
1999
First Quarter............................................... $11.750 $ 7.625
Second Quarter.............................................. 9.000 6.375
Third Quarter............................................... 10.375 6.438
Fourth Quarter.............................................. 10.063 7.813
1998
First Quarter............................................... $17.375 $11.000
Second Quarter.............................................. 16.938 12.313
Third Quarter............................................... 13.938 10.000
Fourth Quarter.............................................. 12.875 9.500
As of January 31, 2000, there were approximately 11,645 holders of record
of WHX's Common Stock.
The Company intends to retain any future earnings for working capital needs
and to finance capital improvements, and presently does not intend to pay cash
dividends on its Common Stock for the foreseeable future.
14
20
SELECTED FINANCIAL DATA
Five-Year Statistical
(Thousands of Dollars)
1999 1998 1997* 1996* 1995
---------- ---------- ---------- ---------- ----------
PROFIT AND LOSS:
Net sales............................ $1,716,800 $1,645,498 $ 642,096 $1,232,695 $1,364,614
Cost of products sold (excluding
depreciation and amortization and
profit sharing).................... 1,430,389 1,376,431 720,722 1,096,228 1,147,899
Depreciation and amortization........ 104,856 96,870 49,445 68,956 67,700
Profit sharing....................... -- -- -- -- 6,718
Selling, administrative and general
expense............................ 142,388 120,981 68,190 70,971 66,531
Special charge....................... -- -- 92,701 -- --
---------- ---------- ---------- ---------- ----------
Operating income (loss).............. 39,167 51,216 (288,962) (3,460) 75,766
Interest expense on debt............. 87,851 78,096 29,047 25,963 22,830
Other income......................... 26,420 89,696 50,668 25,974 47,139
---------- ---------- ---------- ---------- ----------
Income (loss) before taxes........... (22,264) 62,816 (267,341) (3,449) 100,075
Tax provision (benefit).............. (6,430) 23,386 (93,569) (4,107) 19,014
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
items.............................. (15,834) 39,430 (173,772) 658 81,061
Extraordinary items -- net of tax.... 896 2,241 (25,990) -- (3,043)
---------- ---------- ---------- ---------- ----------
Net income (loss).................... (14,938) 41,671 (199,762) 658 78,018
Preferred stock dividends............ 20,608 20,608 20,657 22,313 22,875
---------- ---------- ---------- ---------- ----------
Net income (loss) available to common
stock.............................. $ (35,546) $ 21,063 $ (220,419) $ (21,655) $ 55,143
========== ========== ========== ========== ==========
BASIC INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary
items.............................. $ (2.30) $ 1.04 $ (8.83) $ (.83) $ 2.25
Extraordinary items -- net of tax.... .06 .12 (1.18) -- (.12)
---------- ---------- ---------- ---------- ----------
Net income (loss) per share.......... $ (2.24) $ 1.16 $ (10.01) $ (.83) $ 2.13
========== ========== ========== ========== ==========
Average number of common shares
outstanding (in thousands)......... 15,866 18,198 22,028 26,176 25,850
FINANCIAL POSITION:
Cash, cash equivalents and short term
investments, net of short term
borrowings......................... $ 174,590 $ 230,584 $ 305,934 $ 412,359 $ 439,493
Working capital...................... 294,276 408,878 329,372 491,956 541,045
Property, plant and
equipment -- net................... 816,501 819,077 738,660 755,412 793,319
Plant additions and improvements..... 104,035 48,250 36,779 35,436 83,282
Total assets......................... 2,673,566 2,712,084 2,061,920 1,718,779 1,796,467
Long-term debt....................... 847,720 893,356 350,453 268,198 285,676
Stockholders' equity................. 377,471 446,512 453,393 714,437 768,405
NUMBER OF STOCKHOLDERS OF RECORD:
Common............................... 11,666 11,915 12,273 12,697 13,408
Series A Convertible Preferred....... 32 31 42 42 28
Series B Convertible Preferred....... 74 69 79 62 48
EMPLOYMENT
Employment costs..................... $ 443,333 $ 394,701 $ 204,004 $ 321,347 $ 343,416
Average number of employees.......... 7,535 7,470 4,420 5,706 5,996
- ---------------
WHX CORPORATION
* The financial results of the Company for the fourth quarter of 1996 and all of
1997 were adversely affected by the strike.
15
21
NOTES TO FIVE-YEAR STATISTICAL SUMMARY
In 1995, the Company recorded an extraordinary charge of $3.0 million, net
of taxes, to reflect the coal retiree medical benefits for additional retirees
assigned to the Company by the Social Security Administration and the effect of
recording the liability at its net present value.
In 1996, the Company experienced a work stoppage which began October 1,
1996 and continued through August 12, 1997 at eight of its plants in Ohio,
Pennsylvania and West Virginia. No steel products were produced or shipped from
these facilities during the strike. These facilities account for approximately
80% of the tons shipped by the Company on an annual basis.
In 1997, the Company recorded a special charge of $92.7 million related to
a new labor agreement which ended the ten-month strike. The special charge
included $66.7 million for enhanced retirement benefits, $15.5 million for
signing and retention bonuses, $3.8 million for special assistance and other
employee benefits payments and $6.7 million for a grant of one million stock
options to WPN Corp.
In 1997, the Company also recorded an extraordinary charge of $26.0
million, net of tax, related to premium and interest charges required to defease
its 9 3/8% Senior Unsecured Notes of $24.3 million and coal miner retiree
medical benefits of $1.7 million.
During 1998, the Company purchased and retired $48.0 million aggregate
principal amount of 10 1/2% Senior Notes in the open market resulting in
extraordinary income of $2.2 million, net of tax.
In April 1998, the Company acquired H&H. The transaction had a total value
of $651.4 million, including the assumption of approximately $229.6 million in
debt.
During 1999, the Company purchased and retired $20.5 million aggregate
principal amount of 10 1/2% Senior Notes in the open market, resulting in an
extraordinary gain of $0.9 million, net of tax.
16
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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.
1999 Compared to 1998
Net sales for 1999 increased to $1.7 billion from $1.6 billion in 1998.
Sales declined by $29.9 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 1999
as compared to 1998, which included sales of excess coke produced during WPC's
ten-month strike which ended August 1997. Comparative sales increased by $115.8
million at H&H, reflecting 1999 as the first full reporting year having been
acquired on April 13, 1998. On a pro forma basis, H&H sales actually declined in
1999 compared to 1998 by $4.5 million, reflecting lower precious metal and
stainless steel pricing in 1999. Sales increased $12.0 million to $217.4 million
at Unimast compared to $205.4 million in 1998, reflecting record steel shipments
of over 294,000 tons in 1999.
Costs for 1999 increased to $1.43 billion from $1.38 billion in 1998.
Operating costs increased by $8.1 million at the Company's WPC operations,
reflecting the higher volume of shipments partially offset by lower raw material
costs and the absence of coke sales as compared to 1998. Included in the 1998
costs are unfavorable physical inventory adjustments of $4.5 million. H&H's
operating costs in 1999 increased by $77.1 million, reflecting a full reporting
year in 1999 compared to a partial year in 1998. On a pro forma basis, H&H
operating costs declined by $16.8 million, reflecting lower raw material costs
in 1999 versus 1998. Unimast's operating costs in 1999 increased by $1.6 million
compared to 1998 reflecting the general increase in the level of operating
activity.
Depreciation and amortization expense increased to $104.9 million in 1999
from $96.9 million in 1998. Increased depreciation is principally due to H&H
reporting a full year in 1999, compared to a partial year in 1998. Amortization
increased $1.4 million reflecting the full year goodwill amortization acquired
in the H&H acquisition.
Selling, administrative and general expense for 1999 increased by $21.4
million to $142.4 million in 1998. The increase is primarily due to H&H
reporting a full year in 1999 compared to a partial year in 1998.
Interest expense increased to $87.9 million in 1999 from $78.1 million in
1998. The increase is due to the outstanding 10 1/2% Senior Notes issued in
March 1998 for the purchase of H&H, as well as the assumption of H&H's
outstanding indebtedness.
Other income decreased $63.3 million to $26.4 million in 1999 as compared
to $89.7 million in 1998. The decrease is due primarily to the difference in
realized and unrealized gains on short-term investments in 1999 compared to
1998.
The tax benefit for 1999 and the provision for 1998 were $6.4 million and
$23.4 million, respectively, and are based on pre-tax income or loss before
extraordinary items. The Company pays taxes under the alternative minimum tax
system and records the effect of deferred tax assets and liabilities caused by
temporary tax adjustments.
Loss before extraordinary items in 1999 totaled $15.8 million or $2.30 per
diluted share of Common Stock compared to income before extraordinary items of
$39.4 million, or $.99 per diluted share of Common Stock in 1998. The 1999
extraordinary gain of $1.4 million ($.9 million net of tax) and the 1998
extraordinary gain of $3.4 million ($2.2 million net of tax) reflects the
discount on the purchase of $20.5 million and $48.0 million aggregate principal
amount of 10 1/2% Senior Notes, respectively, in the open market.
Net loss for 1999 totaled $14.9 million, or $2.24 per diluted share of
Common Stock after deduction of preferred stock dividends. The 1998 net income
was $41.7 million, or $1.11 per diluted share of Common Stock after deduction of
preferred stock dividends.
17
23
1998 Compared to 1997
Net sales for 1998 increased to $1.6 billion from $642.1 million in 1997.
Sales increased primarily due to (i) the return to pre-strike levels of sales
for WPC's operations of $1.1 billion compared to 1997 net sales of $489.7
million, which earlier period reflects the effect of the strike by the United
Steel Workers of America, (ii) the April 1998 acquisition of H&H,which provided
1998 sales of $350.3 million and (iii) Unimast's increased sales of $205.4
million in 1998 compared to $156.7 million in 1997.
Cost of products sold for 1998 increased to $1.4 billion from $720.7
million in 1997. The increase in cost of products sold reflects the increased
volume of raw steel production at WPC's operations, which were idled throughout
much of 1997 due to the strike, and the inclusion of H&H operations beginning in
April 1998. Costs include $4.5 million related principally to physical inventory
adjustments. Also, WPC experienced lower pension expense in 1998 as a result of
the merger of the H&H and WPC pension plans.
Depreciation and amortization expense increased to $96.9 million in 1998
from $49.4 million in 1997. Increased depreciation is principally due to the
higher levels of raw steel production depreciation methods, as well as $9.6
million of depreciation at H&H. Raw steel production increased by 269%.
Amortization increased $6.1 million, principally reflecting the goodwill
acquired in the H&H acquisition.
Selling, administrative and general expense increased $52.8 million to
$121.0 million in 1998 from $68.2 million in 1997. The increase is primarily due
to the acquisition of H&H in the second quarter, as well as increased activity
at WPC after the strike.
In 1997, the Company recorded a special charge of $92.7 million related to
the new labor agreement. The special charge included $66.7 million for enhanced
retirement benefits, $15.5 million for signing and retention bonuses, special
assistance payments and other employee benefits totaling $3.8 million and $6.7
million for a grant of 1.0 million stock options to WPN Corp.
Interest expense increased to $78.1 million in 1998 from $29.0 million in
1997, reflecting $350.0 million of 10 1/2% Senior Notes issued in March 1998 for
the purchase of H&H as well as $237.1 million of H&H outstanding indebtedness.
Other income increased to $89.7 million in 1998 from $50.7 million in 1997.
The increase reflects a $36.6 million increase in interest and realized and
unrealized investment gains and losses on short-term investments. Equity income
increased from a loss of $1.6 million in 1997 to income of $5.7 million in 1998
due to start-up losses in the OCC joint venture during 1997. Partially
offsetting the increases are additional securitization fees in 1998 due to a
higher level of accounts receivable securitization.
The tax provision for 1998 and benefit for 1997 were $23.4 million and
$93.6 million, respectively, and is based on pre-tax income or loss before
extraordinary items. The Company pays taxes under the alternative minimum tax
system and records the effect on deferred tax assets and liabilities caused by
temporary tax adjustments.
Income before extraordinary items in 1998 totaled $39.4 million, or $.99
per diluted share of Common Stock. The 1998 extraordinary gain of $3.4 million
($2.2 million net of tax) reflects the discount on the purchase of $48.0 million
aggregate principal amount of 10 1/2% Senior Notes in the open market. The 1997
extraordinary charge of $40.0 million ($26.0 million net of tax) reflects the
premium and interest of $37.4 million on the legal defeasance of long term debt,
and $2.6 million for coal miner retiree medical expense attributable to the
allocation of additional retirees to the Company by the Social Security
Administration.
Net income in 1998 totaled $41.7 million, or $1.11 per diluted share of
Common Stock after deduction of preferred stock dividends. Net loss in 1997
totaled $199.8 million, or a loss of $10.01 per diluted share of Common Stock
after deduction of preferred stock dividends.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities for 1999 totaled $163.9
million. Short term trading investments and related short-term borrowings are
reported as cash flow from operating activities. Working capital accounts
(excluding cash, short term investments, short term borrowings and current
maturities of long-term debt) provided $25.5 million of funds. Accounts
receivable increased $47.4 million (excluding a $5.0 million sale of trade
receivables under the Receivables Facility) due to increased sales. Inventories,
valued principally by the LIFO method for financial reporting purposes, totaled
$441.9 million at December 31, 1999, a decrease of $26.2 million from the prior
year end. Trade payables increased $38.8 million due to higher operating levels.
Net cash flow used in investing activities for 1999 totaled $111.8 million
including capital expenditures of $104.0 million. Net cash used in
18
24
financing activities totaled $57.3 million including repayments of long-term
debt of $44.4 million, as well as $30.6 million utilized for Common Stock
repurchases in the open market.
For the year ended December 31, 1999, the Company spent $104.0 million
(including capitalized interest) on capital improvements, including $7.7 million
on environmental control projects.
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) 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 for H&H. The rates in effect at December
31, 1999 were (a) in the case of the Term A Facility, the Delayed Draw Facility
and the Revolving Credit Facility, calculated at LIBOR + 1.5% and (b) in the
case of the Term B facility, calculated at LIBOR + 2.25%. 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.
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 third quarter of
1998, the Company purchased $48.0 million aggregate principal amount of 10 1/2%
Senior Notes in the open market for $43.2 million. 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 for $19.1 million.
In November 1997, WPC issued $275.0 million principal amount of 9 1/4%
Senior Unsecured Notes (the "9 1/4% Senior Notes") to qualified institutional
buyers pursuant to Rule 144A under The Securities Act of 1933. The 9 1/4% Senior
Notes were exchanged for identical notes which were issued pursuant to an
exchange offer registered under the Securities Act.
In November 1997, WPC also entered into a Term Loan Agreement with DLJ
Capital Funding, Inc., as syndication agent, pursuant to which the Company
borrowed $75 million. The Term Loan Agreement matures on November 15, 2006.
Amounts outstanding under the Term Loan Agreement bear interest at either (i)
the Alternate Base Rate (as defined therein) plus 2.25% or (ii) the LIBO Rate
(as defined therein) plus 3.25%, determined at the Company's option. WPC's
obligations under the Term Loan Agreement are guaranteed by the WPC's then
outstanding and future operating subsidiaries.
The proceeds from the 9 1/4% Senior Notes and the Term Loan Agreement were
used to defease $266.2 million of 9 3/8% Senior Secured Notes due 2003 and to
pay down borrowings under the Revolving Credit Facility.
In 1994, a special purpose wholly-owned subsidiary of WPSC entered into an
agreement to sell (up to $75 million on a revolving basis) an undivided
percentage ownership in a designated pool of accounts receivable generated by
WPSC and two of the Company's subsidiaries: Wheeling Construction Products, Inc.
("WCPI") and Pittsburgh Canfield Company ("PCC") (the Receivables Facility). In
1995 WPSC entered into an agreement to include the receivables generated by
Unimast Incorporated ("Unimast"), a wholly-owned subsidiary of WHX, in the pool
of accounts receivable sold. In May 1999, the Receivables Facility was extended
through May 2003 and increased to $100 million on a revolving basis. Effective
June 1999, Unimast withdrew from participation in the facility. Accounts
receivable at December 31, 1999 exclude $100 million representing uncollected
accounts receivable sold with recourse limited to the extent of uncollectible
balances. Fees paid by WPSC under this Receivables Facility were based upon
variable rates that range from 4.94% to 7.42%. Based on the Company's collection
history, the Company believes that credit risk associated with the above
arrangement is immaterial.
19
25
On April 30, 1999, WPSC entered into a Third Amended and Restated Revolving
Credit Facility ("RCF") with Citibank, N.A. as agent. The RCF, as amended,
provides for borrowings for general corporate purposes up to $150 million
including a $25 million sub-limit for letters of credit. The RCF agreement
expires May 3, 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. A commitment fee of
0.5% is charged on the unused portion. The letter of credit fee is 2.25% and is
also performance based. Borrowings are secured primarily by 100% of the eligible
inventory of WPSC, PCC and WCPI and the terms of the RCF contain various
restrictive covenants, limiting among other things, dividend payments or other
distribution of assets, as defined in the RCF. WPSC, PCC and WCPI are
wholly-owned subsidiaries of WPC. Certain financial covenants associated with
leverage, capital spending, cash flow and interest coverage must be maintained.
WPC, PCC and WCPI have each guaranteed all of the obligations of WPSC under the
Revolving Credit Facility. Borrowings outstanding against the RCF at December
31, 1999 totaled $79.9 million. Letters of credit outstanding under the RCF were
$0.1 million at December 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.
In 1999, the Company repurchased approximately 3.6 million shares of Common
Stock for $30.6 million. The Company may, from time to time, continue to
purchase additional shares of Common Stock and Preferred Stock.
Short-term liquidity is dependent, in large part, on cash on hand,
investments, general economic conditions and their effect on steel demand and
prices. Long-term liquidity is dependent upon the Company's ability to sustain
profitable operations and control costs during periods of low demand or pricing
in order to sustain positive cash flow. The Company satisfies its working
capital requirements through cash on hand, investments, 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. During 1999 the Company
had minimal activity with respect to futures contracts, and the impact of such
activity was not material to the Company's financial condition or results of
operations.
As of December 31, 1999, the company had cash and short-term investments,
net of related investment borrowings, of $174.6 million. During 1999, the
Company purchased $20.5 million aggregate principal amount of its 10 1/2% Senior
Notes due 2005 in the open market.
WHX's company-wide Year 2000 Project was ready on schedule. The project
addressed all aspects of computing in the company, including mainframe systems,
external data interface to customers, suppliers, banks, 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, internal networks, personal computers and building
controls, as well as process control and auxiliary systems proved to be Year
2000 compliant during the January 1, 2000 date rollover. Critical suppliers and
customers are being monitored with no major problems identified to date.
The total costs associated with the Year 2000 project are not expected to
be material to the Company's financial condition or results of operations. The
total amount expended on the project through January 2000 is approximately $3.5
million. Funds were provided through departmental expenses budgeted at the
beginning of the project.
Failure to correct a Year 2000 problem could have resulted in an
interruption of certain normal business activities or operations. The Company
believes that the implementation of the Year 2000 project prevented any
interruptions. The Company will continue to monitor critical business systems
for possible Year 2000 systems issues.
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. The
Clean Air Act is expected to increase the Company's costs related to
environmental compliance; however, such an increase in cost is not reasonably
estimable, but is not anticipated to have a material adverse effect on the
consolidated financial condition of the Company. It is anticipated that
necessary capital expenditures including required environmental expenditures in
future years will approximate depreciation expense and represent a
20
26
material use of operating funds. The Company anticipates funding its capital
expenditures in 2000 from cash on hand and funds generated from operations.
Non-current accrued environmental liabilities totaled $12.7 million at
December 31, 1998 and $14.7 million at December 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 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.
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 and Company and industry shipment levels. 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.
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" ("SFAS 133"). 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 in
net income or as an element of 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Commodity Price Risk and Related Risks
In the normal course of business, the Company is exposed to market risk or
price fluctuation related to the purchase of natural gas, precious metals and
steel products. To a lesser extent, the Company is exposed to the risk of price
fluctuation on coal, coke, natural gas liquids, electricity and certain
nonferrous metals used as raw materials. The Company is also exposed to the
effects of price fluctuations on the value of its commodity inventories,
specifically, H&H's precious metals inventories.
The Company's market risk strategy has generally been to obtain competitive
prices for its products and services and allow operating results to reflect
market price movements dictated by supply and demand.
Foreign Currency Exchange Rate Risk
The Company is subject to the risk of price fluctuations related to
anticipated revenues and operating costs, firm commitments for capital
expenditures and existing assets or liabilities denominated in currencies other
than U.S. dollars. The Company has not generally used derivative instruments to
manage this risk.
Equity Price Risk
The Company is subject to equity price risk resulting from its investments
in certain marketable equity securities of unrelated parties. The Company
accounts for its investment in these securities in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS 115").
At December 31, 1999, the Company held $45.2 million in equity securities
classified as "trading" in accordance with SFAS 115. Each quarter the Company
adjusts the carrying amount of its trading securities to fair market value, with
any resulting adjustment being charged or credited to other income. At year-end
1999, a hypothetical 10% decrease in the value of the equity trading securities
would have resulted in a $4.5 million unfavorable impact on pretax income. Such
a decrease in value might also reduce the future cash flows generated from the
ultimate liquidation of the investment in trading securities.
21
27
At December 31, 1999, the Company held $17.2 million in equity securities
classified as "available for sale" in accordance with SFAS 115. Each quarter the
Company adjusts the carrying amount of its available for sale securities to fair
market value, with any resulting adjustment being charged or credited, net of
the related income tax effect, to other comprehensive income. The balance of
unrealized gain at December 31, 1999, associated with the Company's available
for sale securities totaled $1.5 million, net of tax. At year-end 1999, a
hypothetical 10% decrease in the value of the equity available for sale
securities would have resulted in a $1.1 million unfavorable impact, net of tax,
on other comprehensive income. Such a decrease in value might also reduce the
future cash flows generated from the ultimate liquidation of the investment in
trading securities.
See Note F to the consolidated financial statements for additional
information concerning the Company's short-term investments.
Interest Rate Risk
The Company is subject to the effects of interest rate fluctuation on
certain of its financial instruments. A sensitivity analysis of the projected
incremental effect of a hypothetical 10% change in 1999 year-end interest rates
on the fair value of WHX's financial instruments is provided in the following
table:
FAIR
CARRYING MARKET INCREMENTAL(1)
VALUE VALUE INCR./(DECR.)
-------- -------- --------------
(DOLLARS IN THOUSANDS)
Financial assets:
Investments in fixed income securities.................... $581,250 $581,250 $(25,938)
Financial liabilities:
Fixed-rate long-term debt (including amounts due within
one year).............................................. $555,665 $534,360 $ 34,025
- ---------------
(1) Reflects a 10% increase in interest rates for financial assets and a 10%
decrease in interest rates for financial liabilities.
Fair value of cash and cash equivalents, receivables, short-term
borrowings, accounts payable, accrued interest and variable-rate long-term debt
approximate their carrying values and are relatively insensitive to changes in
interest rates due to the short-term maturity of the instruments or the variable
nature of underlying interest rates. Accordingly, these items have been excluded
from the table above.
At December 31, 1999, the Company's investment portfolio included U.S.
government fixed income securities totaling $581.3 million. The fair value of
these instruments will increase or decrease as a result of changes in market
interest rates. The Company accounts for these investments as "trading
securities" as defined by SFAS 115. Accordingly, each quarter the Company
adjusts the balance of its portfolio to fair market value, with any resulting
adjustment being charged or credited to income as an unrealized loss or gain and
included in other income. Realized gains and losses resulting from the
disposition of such investments are recorded as income in the period during
which such disposition took place. During 1999, the Company recognized realized
and unrealized losses totaling $49.4 million in connection with its fixed-income
securities investment portfolio. The Company's exposure to increase in interest
rates that might result in a corresponding decrease in the fair value of its
fixed-income securities investment portfolio could have an unfavorable effect on
the Company's results of operations and cash flows. For additional information,
see Note F to the consolidated financial statements.
The Company attempts to maintain a reasonable balance between fixed and
floating-rate debt in an attempt to keep financing costs as low as possible. At
December 31, 1999, a majority of the Company's portfolio of long-term debt
consisted of fixed-rate instruments. Accordingly, the fair value of such
instruments may be relatively sensitive to effects of interest rate
fluctuations. In addition, the fair value of such instruments is also affected
by investors' assessments of the risks associated with industries in which the
Company operates as well as the Company's overall creditworthiness and ability
to satisfy such obligations upon their maturity. However, the Company's
sensitivity to interest rate declines and other market risks that might result
in a corresponding increase in the fair value of its fixed-rate debt portfolio
would only have an unfavorable effect on the Company's result of operations and
cash flows to the extent that the Company elected to repurchase or retire all or
a portion of its fixed-rate debt portfolio at an amount in excess of the
corresponding carrying value.
The Company has entered into an interest rate swap for certain of its
variable-rate debt. The swap agreement covers a notional amount of $125 million
and converts $125 million of its variable-rate debt to fixed rate with
22
28
Citibank, N.A. New York. The fixed rate is 4.53%, effective January 4, 1999,
with a termination date of January 5, 2004; however, Citibank may designate July
5, 2000 as the termination date.
See Note I to the consolidated financial statements for additional
information concerning the Company's long-term arrangements.
SAFE HARBOR
The Company's quantitative and qualitative disclosures about market risk
include forward-looking statements with respect to management's opinion about
the risk associated with the Company's financial instruments. These statements
are based on certain assumptions with respect to market prices, interest rates
and other industry-specific risk factors. To the extent these assumptions prove
to be inaccurate, future outcomes may differ materially from those discussed
above.
23
29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of WHX Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of WHX Corporation and its subsidiaries (the "Company") at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and the
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 10, 2000
24
30
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE)
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---------- ---------- ---------
REVENUES:
Net sales................................................... $1,716,800 $1,645,498 $ 642,096
COST AND EXPENSES:
Cost of products sold, excluding depreciation............... 1,430,389 1,376,431 720,722
Depreciation and amortization............................... 104,856 96,870 49,445
Selling, administrative and general expense................. 142,388 120,981 68,190
Special charge.............................................. -- -- 92,701
---------- ---------- ---------
1,677,633 1,594,282 931,058
Operating income (loss)..................................... 39,167 51,216 (288,962)
Interest expense on debt.................................... 87,851 78,096 29,047
Other income................................................ 26,420 89,696 50,668
---------- ---------- ---------
Income (loss) before taxes and extraordinary items.......... (22,264) 62,816 (267,341)
Tax provision (benefit)..................................... (6,430) 23,386 (93,569)
---------- ---------- ---------
Income (loss) before extraordinary items.................... (15,834) 39,430 (173,772)
Extraordinary items -- net of tax........................... 896 2,241 (25,990)
---------- ---------- ---------
Net income (loss)........................................... (14,938) 41,671 (199,762)
Dividend requirement for preferred stock.................... 20,608 20,608 20,657
---------- ---------- ---------
Net income (loss) available to common stock................. $ (35,546) $ 21,063 $(220,419)
========== ========== =========
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK
Income (loss) before extraordinary item................... $ (2.30) $ 1.04 $ (8.83)
Extraordinary item -- net of tax.......................... .06 .12 (1.18)
---------- ---------- ---------
Net income (loss) per share....................... $ (2.24) $ 1.16 $ (10.01)
========== ========== =========
INCOME (LOSS) PER SHARE OF COMMON STOCK -- ASSUMING DILUTION
Income (loss) before extraordinary item................... $ (2.30) $ .99 $ (8.83)
Extraordinary item -- net of tax.......................... .06 .12 (1.18)
---------- ---------- ---------
Net income (loss) per share -- assuming
dilution........................................ $ (2.24) $ 1.11 $ (10.01)
========== ========== =========
- ---------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WHX CORPORATION
25
31
CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,775 $ 16,004
Short term investments.................................... 659,356 702,082
Trade receivables, less allowance for doubtful accounts of
$2,306 and $2,366...................................... 141,091 97,552
Inventories............................................... 441,869 467,130
Prepaid expenses and deferred charges..................... 14,622 11,136
---------- ----------
Total current assets.............................. 1,267,713 1,293,904
Investment in associated companies.......................... 80,490 84,978
Property, plant and equipment, at cost less accumulated
depreciation and amortization............................. 816,501 819,077
Intangibles, net of amortization............................ 280,766 288,216
Deferred income taxes....................................... 123,033 110,935
Intangible asset -- pensions................................ -- 50,449
Prepaid pension............................................. 40,336 --
Deferred charges and other assets........................... 64,727 64,525
---------- ----------
$2,673,566 $2,712,084
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables............................................ $ 171,229 $ 132,412
Short term debt........................................... 599,447 559,501
Payroll and employee benefits............................. 78,162 69,845
Federal, state and local taxes............................ 14,473 12,516
Deferred income taxes -- current.......................... 67,793 69,551
Interest and other........................................ 40,523 40,589
Long-term debt due in one year............................ 1,810 612
---------- ----------
Total current liabilities......................... 973,437 885,026
Long-term debt.............................................. 847,720 893,356
Pension liability........................................... -- 5,952
Other employee benefit liabilities.......................... 400,425 423,225
Other liabilities........................................... 71,181 54,383
---------- ----------
2,292,763 2,261,942
---------- ----------
Redeemable common stock -- 282 shares and 298 shares........ 3,332 3,630
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock -- $.10 par value; authorized 10,000 shares;
issued and outstanding: 5,883 shares...................... 589 589
Common stock $.01 par value; authorized 60,000 shares;
issued and outstanding: 14,145 and 17,545 shares.......... 141 175
Accumulated other comprehensive income...................... 945 5,472
Additional paid-in capital.................................. 553,861 582,795
Accumulated earnings (deficit).............................. (178,065) (142,519)
---------- ----------
377,471 446,512
---------- ----------
$2,673,566 $2,712,084
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WHX CORPORATION
26
32
CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998* 1997*
-------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $(14,938) $ 41,671 $(199,762)
Items not affecting cash from operating activities:
Depreciation and amortization............................. 104,856 96,870 49,776
Other postretirement benefits............................. (8,065) (8,409) 2,322
Extraordinary items, net of tax........................... (896) (2,241) 25,990
Income taxes.............................................. (9,264) 19,575 (94,029)
(Gain) loss on asset dispositions......................... 408 (8,998) 2,335
Special charges, net of current portion................... -- -- 69,137
Pension expense........................................... 4,341 9,236 9,327
Equity loss (income) in affiliated companies.............. (4,343) (5,699) 1,644
Decrease (increase) in working capital elements, net of
effect of acquisitions:
Trade receivables......................................... (47,427) (7,487) (43,188)
Trade receivables sold.................................... 5,000 26,000 24,000
Inventories............................................... 26,214 (4,821) (69,355)
Short term investments-trading............................ 51,638 (142,069) (70,239)
Investment account borrowings............................. 8,040 212,012 206,649
Other current assets...................................... (3,406) 38,383 (12,639)
Other current liabilities................................. 46,600 (38,661) 69,411
Other items -- net.......................................... 5,098 613 15,705
-------- --------- ---------
Net cash provided by (used in) operating activities......... 163,856 225,975 (12,916)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant additions and improvements.......................... (104,035) (48,250) (36,779)
Short term investments -- available for sale.............. (14,971) 6,740 (26,290)
Handy & Harman acquisition, net of cash acquired.......... -- (402,632) (13,222)
Clinch-on acquisition..................................... -- (8,335) --
Vinyl Corp acquisition, net of cash acquired.............. (12,827) -- --
Other investments......................................... 3,212 -- (7,150)
Proceeds from sales of assets............................. 11,222 835 1,217
Dividends from affiliated companies....................... 5,594 5,000 2,500
-------- --------- ---------
Net cash used in investing activities....................... (111,805) (446,642) (79,724)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt proceeds, net of issuance cost............. -- 561,749 340,455
Long-term debt retirement................................. (44,438) (267,321) (268,766)
Premium on early debt retirement.......................... -- -- (32,600)
Letter of credit collateralization........................ 8,229 1,520 16,984
Short-term borrowings (payments).......................... 31,906 (18,929) 89,546
Common stock purchases.................................... (30,591) (20,228) (55,604)
Preferred stock purchases................................. -- -- (9,839)
Preferred stock dividends................................. (20,608) (20,608) (20,657)
Redemption of equity issues............................... (209) 300 (897)
Dividends on minority interest in consolidated
subsidiaries........................................... (1,569) (814) --
-------- --------- ---------
Net cash provided by (used in) financing activities......... (57,280) 235,669 58,622
-------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (5,229) 15,002 (34,018)
Cash and cash equivalents at beginning of year.............. 16,004 1,002 35,020
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 10,775 $ 16,004 $ 1,002
======== ========= =========
- ---------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WHX CORPORATION
* Reclassified to conform to 1999 presentation
27
33
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS AND SHARES IN
THOUSANDS)
ACCUMULATED
OTHER ACCUMULATED CAPITAL IN
COMMON PREFERRED TREASURY COMPREHENSIVE COMPREHENSIVE EARNINGS EXCESS OF
STOCK STOCK STOCK INCOME INCOME (DEFICIT) PAR VALUE
------ --------- -------- ------------- ------------- ----------- ----------
Balance January 1, 1997................ $245 $614 $ (1,382) -- $ 56,837 $658,123
Net loss............................... -- -- -- (199,762) (199,762) --
Other comprehensive income, net of tax
Unrealized gains arising during
period................................. 15,754
Foreign currency translation
adjustments............................ --
--------
Other comprehensive income............. 15,754 15,754
--------
Comprehensive income................... (184,008)
========
EIP shares sold (4 shares)............. -- -- -- 67
Stock options exercised (1,735
shares).............................. 2 -- -- 1,388
WPN stock option....................... -- -- -- 6,678
401K contribution (107 shares)......... 1 -- -- 927
Purchase of treasury stock (5,537
shares).............................. -- -- (55,602) -- --
Retirement of treasury stock (5,489
shares).............................. (55) -- 54,766 -- (54,712)
Retirement of preferred stock (254
shares).............................. -- (25) -- -- (9,814)
Preferred dividends.................... -- -- -- (20,657) --
---- ---- -------- -------- --------- --------
Balance December 31, 1997.............. 193 589 (2,218) 15,754 (163,582) 602,657
Net income............................. -- -- -- 41,671 41,671 --
Other comprehensive income, net of tax
Unrealized gains arising during
period........................... 6,200
Reclassification adjustment for
gains included in net income..... (16,565)
Foreign currency translation
adjustments...................... 83
--------
Other comprehensive income........... (10,282) (10,282)
--------
Comprehensive income................... 31,389
========
EIP shares sold (9 shares)............. -- -- -- -- 137
Stock options exercised (161 shares)... 1 -- -- -- 1,339
401K contribution (89 shares).......... 1 -- -- -- 1,088
Purchase of treasury stock (1,780
shares).............................. -- -- (20,228) -- (22,426)
Retirement of treasury stock (1,985
shares).............................. (20) -- 22,446 -- --
Preferred dividends.................... -- -- -- (20,608) --
---- ---- -------- -------- --------- --------
Balance December 31, 1998.............. 175 589 0 5,472 (142,519) 582,795
Net loss............................... -- -- -- (14,938) (14,938) --
Other comprehensive income, net of tax
Unrealized gains arising during
period............................. 3,393
Reclassification adjustment for gains
included in net income............. (7,332)
Foreign currency translation
adjustments........................ (588)
--------
Other comprehensive income........... (4,527) (4,527)
--------
Comprehensive income................... (19,465)
========
EIP shares sold (1 share).............. -- -- -- 10
Stock options exercised (11 shares).... -- -- -- -- 78
401k contribution (182 shares)......... 2 -- -- -- 1,533
Purchase of treasury stock (3,594
shares).............................. -- -- (30,591) -- --
Retirement of treasury stock (3,594
shares).............................. (36) -- 30,591 -- (30,555)
Preferred dividends.................... -- -- -- (20,608) --
---- ---- -------- -------- --------- --------
Balance December 31, 1999.............. $141 $589 $ 0 $ 945 $(178,065) $553,861
==== ==== ======== ======== ========= ========
- ---------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WHX CORPORATION
28
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
The accounting policies presented below have been followed in preparing the
accompanying consolidated financial statements.
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiary companies. All significant intercompany accounts and transactions are
eliminated in consolidation. The Company uses the equity method of accounting
for investments in unconsolidated companies owned 20% or more.
BUSINESS SEGMENT
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
businesses include Handy & Harman ("H&H"), a diversified industrial
manufacturing company whose strategic business units encompass (a) manufacturing
and selling of non-precious metal wire, cable and tubing products including
carbon steel, stainless steel and specialty alloys; (b) manufacturing and
selling of precious metals products and precision electroplated material and
stamped parts; and (c) manufacturing and selling of other specialty products
supplied to roofing, construction, 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
disclosure in Note R.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit and highly
liquid debt instruments with original maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts of cash and cash equivalents, receivables, short-term
borrowings, accounts payable, accrued interest, and variable-rate long-term debt
approximate fair value because of the short maturity of those instruments or the
variable nature of underlying interest rates. Short-term investments are
recorded at fair market value based on trading in the public market. Redeemable
common stock is recorded at the redemption amount which is considered to
approximate fair value. See Note I for a description of fair value of debt
instruments.
INVENTORIES
Inventories are stated at cost which is lower than market. Cost is
determined by the last-in first-out ("LIFO") method for substantially all
inventories. H&H's non-precious metals inventories are stated at the lower of
cost (principally average) or market. For precious metals inventories no
segregation among raw materials, work in process and finished goods is
practicable. In 1999 and 1998, approximately 80% and 75%, respectively, of
inventories are valued using the LIFO method.
PROPERTY, PLANT AND EQUIPMENT
WPC's depreciation is computed on the straight-line and the modified units
of production methods for financial statement purposes and accelerated methods
for income tax purposes. The modified units of production method adjusts the
straight-line method based on an activity factor for operating assets. Adjusted
annual depreciation is not less than 60% nor more than 110% of straight-line
depreciation. Accumulated depreciation after adjustment is not less than 75% nor
more than 110% of straight-line depreciation. Interest cost is capitalized for
qualifying assets during the assets' acquisition period. Capitalized interest
cost is amortized over the life of the asset. Depreciation on H&H and Unimast
property, plant and equipment is provided principally on the straight-line
method over the estimated useful lives of the assets.
29
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maintenance and repairs are charged to income. Renewals and betterments
made through replacements are capitalized. Profit or loss on property
dispositions is credited or charged to income.
INTANGIBLES AND AMORTIZATION
The excess of purchase price over net assets acquired in business
combinations is being amortized on the straight-line method for periods ranging
from 15 to 40 years. Purchased patents are stated at cost, which is amortized
over the respective remaining lives of the patents.
The Company uses estimated future undiscounted cash flows when evaluating
the recoverability of the unamortized balance of excess purchase price over net
assets acquired in a business combination. The assessment of the recoverability
of goodwill will be impacted if estimated future operating cash flows are not
achieved.
PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT PLANS
The Company has tax qualified defined benefit pension plans covering United
Steelworkers of America ("USWA")-represented hourly employees and substantially
all salaried employees and tax qualified defined contribution pension plans
covering other hourly employees. The defined benefit plan covering
USWA-represented employees provides for a defined monthly benefit based on years
of service. The defined benefit plan covering salaried employees is based on
contributions based on a percentage of compensation with a minimum based on
years of service. The defined contribution plans provide for contributions based
on a rate per hour worked for hourly employees. Costs for the defined
contribution plans are being funded currently. Unfunded accumulated benefit
obligations under the defined benefit plan are subject to annual minimum cash
funding requirements under the Employees Retirement Income Security Act
("ERISA").
The Company sponsors medical and life insurance programs for substantially
all employees. Similar group medical programs extend to a group of pensioners
and dependents. The management plan provides basic medical and major medical
benefits on a non-contributory basis through age 65.
STOCK-BASED COMPENSATION
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation," the Company
accounts for employee stock-based compensation under Accounting Principle Board
No. 25, "Accounting for Stock Issued to Employees."
ENVIRONMENTAL MATTERS
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study.
Such accruals are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt
is deemed probable.
EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128") "Earnings per Share." Pursuant to SFAS 128, basic earnings
per share is based on the weighted average number of shares of Common Stock
outstanding during each year, excluding redeemable common shares. Diluted
earnings per share gives effect to dilutive potential common shares outstanding
during the period.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Resulting cumulative
translation adjustments have been recorded as a separate component of
accumulated other comprehensive income.
30
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- COLLECTIVE BARGAINING AGREEMENT
WPC's prior labor agreement with the USWA expired on October 1, 1996. On
August 1, 1997, WPC and the USWA announced that they had reached a tentative
agreement on the terms of a new collective bargaining agreement. The tentative
agreement was ratified on August 12, 1997 by USWA-represented employees, ending
a ten month strike. The new collective bargaining agreement provided for a
defined benefit pension plan, a retirement enhancement program, short-term
bonuses and special assistance payments for employees not immediately recalled
to work and $1.50 in hourly wage increases over its term of not less than five
years. It also provided for the reduction of 850 jobs, mandatory multicrafting
as well as modification of certain work practices.
NOTE B -- HANDY & HARMAN ACQUISITION
On April 13, 1998, the Company completed the acquisition of Handy & Harman
("H&H") and merged it with a wholly-owned subsidiary of the Company (the
"Merger"). The Transaction had a total value of approximately $651.4 million,
including the assumption of approximately $229.6 million in debt. The
acquisition was accounted for as a purchase business combination in accordance
with Accounting Principles Board Opinion No. 16 ("APB 16"). Accordingly, the
assets and liabilities of Handy & Harman 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 totaled $292 million and 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 of the Company.
See Note S.
The following pro forma disclosure is presented as if the Handy & Harman
acquisition had occurred on January 1 of the respective periods.
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN MILLIONS, EXCEPT PER
SHARE)
Revenue..................................................... $1,765.8 $1,093.2
Income (loss) before extra-ordinary items................... 36.5 (194.6)
Net income (loss)........................................... 38.8 (220.6)
Basic income (loss) per share:.............................. $ 1.00 $ (10.95)
Diluted income (loss) per share:............................ $ .95 $ (10.95)
The results of Handy & Harman included in the pro forma have been adjusted
to exclude merger related transaction costs.
NOTE C -- SPECIAL CHARGE -- LABOR AGREEMENT
The Company recorded a special charge of $92.7 million in 1997. The special
charge is primarily related to certain benefits included in its new collective
bargaining agreement.
The special charge included enhanced retirement benefits paid under the
defined benefit pension program which totaled $66.7 million and were recorded
under the provisions of Statement of Financial Accounting Standard No. 88,
"Employers' Accounting For Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" ("SFAS No. 88"), and various other
charges which totaled $26.0 million. These charges included $15.5 million for
signing and retention bonuses, $3.8 million for special assistance payments to
laid-off employees and other employee benefits and $6.7 million for the fair
value of a stock option grant to WPN Corp. for its performance in negotiating a
new labor agreement.
NOTE D -- PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
PENSION PROGRAMS
On August 12, 1997 the Company established a defined benefit pension plan
for most USWA represented employees pursuant to a new labor agreement. The plan
includes individual participant accounts of those USWA represented employees
from the prior hourly defined contribution plan and merges those accounts into
the defined benefit plan.
The Company also established a supplemental defined benefit pension plan
for salaried employees and provides defined contribution pension plans for
salaried and certain other hourly employees. These tax qualified defined
contribution plans provide, in the case of the salaried employees an increasing
company contribution based on age
31
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and in certain cases an increasing contribution based on age an service. For the
hourly employees, company contributions are made for each hour worked based on
the age of its employees.
As of December 31, 1999, $131.1 million of fully vested funds were held in
trust for benefits earned under the hourly defined contribution pension plans.
Approximately 87% of the trust assets were invested in equities, 12% in fixed
income investments, and 1% in cash and cash equivalents.
As of December 31, 1999, $41.6 million of fully vested funds are held in
trust for benefits earned under the salaried employees defined contribution
plan. Approximately 87% of the assets are invested in equities, 12% are in fixed
income investments, and 1% in cash and cash equivalents. All plan assets are
invested by professional investment managers.
All pension provisions charged against income totaled $12.6 million, $14.2
million and $9.8 million in 1997, 1998 and 1999, respectively. In 1997, the
Company also recorded a $66.7 million charge for enhanced retirement benefits
paid under the defined benefit pension plan, pursuant to a new labor agreement.
THE DEFINED BENEFIT PLANS
The plan covering most USWA -- represented employees was established
pursuant to a collective bargaining agreement ratified on August 12, 1997. Prior
to that date, benefits were provided through a defined contribution plan, the
Wheeling-Pittsburgh Steel Corporation Retirement Security Plan ("Retirement
Security Plan"). The plan also includes individual participant accounts from the
Retirement Security Plan. The assets of the Retirement Security Plan were merged
into the defined benefit pension plan as of December 1, 1997.
Since the plan includes the account balances from the Retirement Security
Plan, the plan includes both defined benefit and defined contribution features.
The gross benefit, before offsets, is calculated based on years of service and
the current benefit multiplier under the plan. This gross amount is then offset
for benefits payable from the Retirement Security Plan and benefits payable by
the Pension Benefit Guaranty Corporation from previously terminated plans.
Individual employee accounts established under the Retirement Security Plan are
maintained until retirement. Upon retirement, the account balances are converted
into monthly benefits that serve as an offset to the gross benefit, as described
above. Aggregate account balances held in trust in individual employee accounts,
which will be available upon retirement to offset the gross benefit, totaled
$130.3 million at December 31, 1999.
As part of the new labor agreement, the Company offered a limited program
of Retirement Enhancements. The Retirement Enhancement program provided for
unreduced retirement benefits to the first 850 employees who retired after
October 1, 1996. In addition, each retiring participant could elect a lump sum
payment of $25,000 or a $400 monthly supplement payable until age 62. More than
850 employees applied for retirement under this program by December 31, 1998.
The Retirement Enhancement program represented a Curtailment and Special
Termination Benefits under SFAS No. 88. The Company recorded a charge of $66.7
million in 1997 to cover the retirement enhancement program.
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 WPC 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 eliminated both the
underfunding in the WHX pension plan and the Company's balance sheet liability
at the merger date, and materially reduced the Company's net periodic pension
expense in future periods. Furthermore, based on the Company's current actuarial
assumptions, the merged pension plan is substantially funded and will therefore
eliminate approximately $135 million of cash funding obligations of the Company.
In addition to the aforementioned defined benefit plans, for certain
operations, H&H has a non-qualified pension plan for current and retired
employees.
The Company's funding policy is to contribute annually an amount that
satisfies the minimum funding standards of ERISA.
In 1998 the Company established a supplemental defined benefit plan
covering WPC salaried employees employed as of January 31, 1998 which provides a
guaranteed minimum benefit based on years of service and
32
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation. The gross benefit from this plan is offset by the annuitized value
of the defined contribution plan account balance and any benefits payable from
the Pension Benefit Guaranty Corporation from the previously terminated defined
benefit pension plan.
The following table presents a reconciliation of beginning and ending
balances of the projected benefit obligation.
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Benefit obligation at January 1............................. $309,723 $172,431
Service cost................................................ 6,683 6,163
Interest cost............................................... 20,122 16,495
Actuarial (gain)/loss....................................... (25,879) 6,771
Benefits paid............................................... (23,541) (30,232)
Plan amendments -implementation............................. 10 813
Business combinations....................................... -- 122,442
Transfers from DC plans..................................... 3,242 14,270
-------- --------
Benefit obligation at December 31........................... $290,360 $309,153
======== ========
The following table presents a reconciliation of beginning and ending
balances of the fair value of plan assets.
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Fair value of plan assets at January 1...................... $297,740 $ 5,180
Actual return on plan assets................................ 30,161 33,390
Employer Contributions...................................... -- --
Benefits paid............................................... (23,531) (30,232)
Business combinations....................................... -- 275,132
Transfers from DC plans..................................... 3,242 14,270
-------- --------
Fair value of plan assets at December 31.................... $307,612 $297,740
======== ========
Funded status............................................... $ 17,252 $(11,413)
Unrecognized prior service cost............................. 64,716 71,017
Unrecognized actuarial (gain)/loss.......................... (42,090) (15,107)
-------- --------
Net amount recognized....................................... $ 39,878 $ 44,497
======== ========
The following table presents the amounts recognized in the statement of
financial position.
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Prepaid benefit cost........................................ $39,878 $ --
Accrued benefit liability................................... -- (5,952)
Intangible asset............................................ -- 50,449
Accumulated other comprehensive income...................... -- --
------- -------
Net amount recognized....................................... $39,878 $44,497
======= =======
33
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the components of net periodic pension cost.
1999 1998 1997
-------- ------- -------
(DOLLARS IN THOUSANDS)
Service cost.............................................. $ 6,683 $ 6,163 $ 2,278
Interest cost............................................. 20,122 16,494 4,172
Expected return on plan assets............................ (28,994) (18,619) --
Curtailment loss.......................................... -- -- 66,676
Amortization of prior service cost........................ 6,524 6,509 2,877
Recognized actuarial (gain)/loss.......................... 6 (1,401) --
-------- ------- -------
Total..................................................... $ 4,341 $ 9,146 $76,003
======== ======= =======
The following table presents the weighted-average assumptions at December
31,
1999 1998 1997
---- ---- ----
Discount rate............................................... 8.0% 6.5% 7.0%
Expected return on assets................................... 10.0% 10.0% 10.0%
Rate of compensation increase............................... 4.0% 4.0% N/A
The following table presents the plans with the accumulated benefit
obligation in excess of plan assets.
1999 1998
------ ----------
(DOLLARS IN THOUSANDS)
Projected benefit obligation................................ $619 $309,153
Accumulated benefit obligation.............................. 308 303,692
Fair value of assets........................................ 0 297,740
401(K) PLANS
The Company matches salaried employee contributions to the WPC and H&H
401(k) plans with shares of the Company's Common Stock. WPC matches 50% of the
employees contributions with a limit of 3% of the employee's salary. H&H matches
50% of the first 3% of the employee's contribution. At December 31, 1997, 1998
and 1999, the 401(k) plans held 275,537 shares, 301,252 shares and 452,769
shares of the Company's Common Stock, respectively.
POSTEMPLOYMENT BENEFITS
The Company provides benefits to former or inactive employees after
employment but before retirement. Those benefits include, among others,
disability, severance and workers' compensation. The assumed discount rate used
to measure the benefit liability was 6.5% at December 31, 1998 and, 8.0% at
December 31, 1999.
OTHER POSTRETIREMENT BENEFITS
The Company sponsors postretirement benefit plans that cover certain
management and hourly retirees and dependents. The plans provide medical
benefits including hospital, physicians' services and major medical expense
benefits and a life insurance benefit. The hourly employees' plans provide
non-contributory basic medical and a supplement to Medicare benefits, and major
medical coverage to which the Company contributes 50% of the insurance premium
cost. The management plan has provided basic medical and major medical benefits
on a non-contributory basis through age 65.
The Company accounts for these benefits in accordance with SFAS No. 106.
The cost of postretirement medical and life benefits for eligible employees is
accrued during the employee's service period through the date the employee
reaches full benefit eligibility. The Company defers and amortizes recognition
of changes to the unfunded obligation that arise from the effects of current
actuarial gains and losses and the effects of changes in assumptions. The
Company funds the plans as current benefit obligations are paid. Additionally,
in 1994 the Company began funding a qualified trust in accordance with its
collective bargaining agreement. The new collective bargaining agreement
provides for the use of those funds to pay current benefit obligations and
suspends additional funding until 2002.
34
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents a reconciliation of beginning and ending
balances of the Accumulated Postretirement Benefit Obligation ("APBO").
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
APBO at January 1........................................... $306,839 $308,812
Service cost................................................ 2,650 2,264
Interest cost............................................... 19,396 19,539
Actuarial (gain)............................................ (28,943) (3,359)
Benefits paid............................................... (22,772) (28,074)
Business combinations....................................... -- 7,657
-------- --------
APBO at December 31......................................... $277,170 $306,839
======== ========
The following table presents a reconciliation of beginning and ending
balances of the fair value of plan assets.
1999 1998
------ --------
(DOLLARS IN THOUSANDS)
Fair value of plan assets at January 1...................... $424 $7,795
Actual return on plan assets................................ 23 137
Benefits paid............................................... (447) (7,508)
---- ------
Fair value of plan assets at December 31.................... $ -- $ 424
==== ======
The following table presents the amounts recognized in the statement of
financial position as of December 31.
Funded status............................................... $(277,170) $(306,415)
Unrecognized prior service cost............................. (32,649) (36,568)
Unrecognized actuarial gain................................. (92,572) (70,094)
--------- ---------
Net amount recognized....................................... $(402,391) $(413,077)
========= =========
The following table presents the components of net periodic benefit cost.
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
Service cost............................................... $ 2,650 $ 2,264 $ 2,488
Interest cost.............................................. 19,396 19,539 20,950
Expected return on plan assets............................. (6) (156) --
Amortization of prior service cost......................... (3,309) (3,918) --
Recognized actuarial gain.................................. (3,918) (5,696) (7,490)
------- ------- -------
Total............................................ $14,813 $12,033 $15,948
======= ======= =======
The following table presents the weighted-average assumptions at December
31,
1999 1998 1997
---- ---- ----
Discount rate.............................................. 8.0% 6.5% 7.0%
Expected return on assets.................................. 8.0% 8.0% 8.0%
Health care cost trend rate................................ 8.0% 8.5% 9.0%
For measurement purposes, medical costs are assumed to increase at annual
rates as stated above and declining gradually to 5.5% in 2004 and beyond. The
health care cost trend rate assumption has significant effect on the costs and
obligation reported. A 1% increase in the health care cost trend rate in each
year would result in approximate increases in the APBO of $20.4 million, and net
periodic benefit cost of $3.8 million. A 1% decrease in the health care cost
trend rate would result in approximate decreases of $18.2 million in APBO and
net periodic benefit cost of $3.4 million.
35
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COAL INDUSTRY RETIREE HEALTH BENEFIT ACT
The Coal Industry Retiree Health Benefit Act of 1992 (the "Act") created a
new United Mine Workers of America postretirement medical and death benefit plan
to replace two existing plans which had developed significant deficits. The Act
assigns companies the remaining benefit obligations for former employees and
beneficiaries, and a pro rata allocation of benefits related to unassigned
beneficiaries ("orphans"). The Company's obligation under the Act relates to its
previous ownership of coal mining operations.
At December 31, 1999 the actuarially determined liability discounted at
8.0% covering 460 assigned retirees and dependents and 166 orphans, totaled $9.5
million. At December 31, 1998, the actuarially determined liability discounted
at 6.5% covering 494 assigned retirees and dependents and 188 orphans, totaled
$11.0 million. The Company recorded an extraordinary charge of $1.7 million (net
of tax) in 1997 related to assignment of additional orphans.
NOTE E -- INCOME TAXES
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
------- ------- ---------
(DOLLARS IN THOUSANDS)
INCOME TAXES BEFORE EXTRAORDINARY ITEMS
Current
Federal tax provision (benefit)........................... $ (96) $ 1,854 $ --
State tax provision....................................... 3,055 1,573 460
Foreign tax provision (benefit)........................... (125) 22 --
------- ------- ---------
Total income taxes current........................ 2,834 3,449 460
------- ------- ---------
Deferred
Federal tax provision (benefit)........................... (9,264) 19,575 (94,029)
State tax provision....................................... -- 362 --
------- ------- ---------
Income tax provision (benefit).............................. $(6,430) $23,386 $ (93,569)
======= ======= =========
TOTAL INCOME TAXES
Current
Federal tax provision (benefit)........................... $ (96) $ 1,854 $ --
State tax provision....................................... 3,055 1,573 460
Foreign tax provision (benefit)........................... (125) 22 --
------- ------- ---------
Total income taxes current........................ 2,834 3,449 460
------- ------- ---------
Deferred
Federal tax provision (benefit)........................... (8,782) 20,781 (108,024)
State tax provision....................................... -- 362 --
------- ------- ---------
Income tax provision (benefit).............................. $(5,948) $24,592 $(107,564)
======= ======= =========
COMPONENTS OF TOTAL INCOME TAXES
Operations.................................................. $(6,430) $23,386 $ (93,569)
Extraordinary items......................................... 482 1,206 (13,995)
------- ------- ---------
Income tax provision (benefit).............................. $(5,948) $24,592 $(107,564)
======= ======= =========
36
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences in the financial
basis and tax basis of assets and liabilities. The type of differences that give
rise to deferred income tax liabilities or assets are shown in the following
table:
DEFERRED INCOME TAX SOURCES
1999 1998
--------- ---------
(DOLLARS IN MILLIONS)
ASSETS
Postretirement and postemployment employee benefits......... $142.7 $146.5
Operating loss carryforwards (expiring in 2005 to 2019)..... 72.8 67.6
Minimum tax credit carryforwards (indefinite
carryforward)............................................. 52.0 52.1
Provision for expenses and losses........................... 47.2 49.0
Leasing activities.......................................... 20.3 22.2
State income taxes.......................................... 1.2 2.5
Miscellaneous other......................................... 7.5 5.8
------ ------
DEFERRED TAX ASSETS............................... $343.7 $345.7
------ ------
LIABILITIES
Property plant and equipment................................ $160.7 $173.1
Inventory................................................... 69.0 66.3
Pension..................................................... 23.4 25.6
State income taxes.......................................... 4.1 8.5
Miscellaneous other......................................... 6.5 2.7
------ ------
DEFERRED TAX LIABILITY............................ $263.7 $276.2
------ ------
Valuation allowance......................................... (24.8) (28.1)
------ ------
DEFERRED INCOME TAX ASSET -- NET............................ $ 55.2 $ 41.4
====== ======
As of December 31, 1999, for financial statement reporting purposes, a
balance of approximately $20.0 million of prereorganization tax benefits exist.
These benefits will be reported as a direct addition to equity as they are
recognized. No prereorganization tax benefits have been recorded in 1997, 1998
or 1999.
During 1999, the valuation allowance decreased $3.2 million due to the
expiration of tax credit carryovers and a change in judgement about the
realizability of net operating losses in future periods.
During 1998, the valuation allowance increased $8.1 million, primarily due
to a change in judgment about the realizability of certain tax credit
carryforwards in future years as well as the addition of H&H's valuation
allowance of $3.2 million against the realizability of foreign operating loss
carryforwards.
Deferred income taxes have not been provided on the undistributed earnings
of foreign subsidiaries and other foreign investments carried at equity. These
earnings have been substantially reinvested and the Company does not plan to
initiate any action that would precipitate the payment of income taxes thereon.
During 1994, the Company experienced an ownership change as defined by
Section 382 of the Internal Revenue Code. As the result of this event,
pre-change of control net operating losses that can be used to offset post-
change of control pretax income will be limited to approximately $32 million in
any year. Post-change of control net operating losses do not have an annual
offset limitation.
Total federal and state income taxes paid in 1997, 1998 and 1999 were $0.7
million, $1.2 million and $3.5 million, respectively.
Federal tax returns have been examined by the Internal Revenue Service
("IRS") through 1987. The Company is currently undergoing an IRS examination of
tax returns for the years 1995-1997. Management believes that there will be no
material adjustments to the income tax returns filed in those years. The statute
of limitations has expired for years through 1995. Management believes it has
adequately provided for all taxes on income.
37
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- ------- ---------
(DOLLARS IN THOUSANDS)
Income (loss) before taxes and extraordinary item........... $(22,264) $62,816 $(267,341)
======== ======= =========
Tax provision (benefit) at statutory rate................... $ (7,792) $21,986 $ (93,569)
Increase (reduction) in tax due to:
Percentage depletion...................................... (530) (829) (1,092)
Equity earnings........................................... (1,300) (1,484) 338
Goodwill amortization..................................... 2,375 1,983 --
State income tax net of federal effect.................... 1,986 1,258 299
Recognition of pre-acquisition benefits................... -- (4,519) --
Change in valuation allowance............................. (3,246) 4,904 --
Net effect of foreign tax rate............................ 624 94 --
Adjustment of prior year's tax............................ 575 -- --
Other miscellaneous....................................... 878 (7) 455
-------- ------- ---------
Tax provision (benefit)..................................... $ (6,430) $23,386 $ (93,569)
======== ======= =========
NOTE F--SHORT TERM INVESTMENTS
The composition of the Company's short-term investments are as follows:
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Trading Securities:
U. S. Treasury Securities................................. $581,250 $640,125
U. S. Government Agency Mortgage Backed Obligations....... 2,038 3,880
Equities.................................................. 45,238 30,308
Other..................................................... 13,628 4,537
Available-for-sale securities:
Equities.................................................. 17,202 23,232
-------- --------
$659,356 $702,082
======== ========
These investments are subject to price volatility associated with any
interest bearing instrument. Fluctuations in general interest rates affect the
value of these investments.
The Company recognizes gains and losses based on specific identification of
the securities that comprise the investment balance with the exception of equity
securities, for which average cost is used. At December 31, 1999 and 1998,
unrealized holding gains on available-for-sale securities of $2.2 million and
$8.3 million, respectively were reported, net of the related tax effect, as a
separate component of accumulated other comprehensive income. Net unrealized
holding gains and losses on trading securities held at period end and included
in other income for 1999 and 1998 were a gain of $10.6 million and a loss of
$8.0 million, respectively. At December 31, 1999 and 1998 the Company had short
term margin borrowings of $495.5 million and $487.5 million, respectively,
related to the short term investments.
In 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. As a result of the reclassification, the Company
recorded an unfavorable reclassification adjustment within other comprehensive
income of $7.3 million, net of related income tax benefit of $3.8 million.
During 1998, the Company sold available-for-sale securities for $21.7 million,
recording a realized gain of $8.8 million. In 1998, the Company reclassified
$30.3 million of available-for-sale investments to the trading category and
recorded an unrealized gain upon transfer of $16.9 million. As a result of the
sale and reclassification, the Company recorded an unfavorable reclassification
adjustment with in other comprehensive income of $16.6 million, net of related
income tax benefit of $9.1 million.
38
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- INVENTORIES
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Finished products......................................... $ 86,724 $ 80,021
In-process................................................ 131,626 130,204
Raw materials............................................. 81,210 98,710
Precious metals........................................... 117,639 122,653
Other materials and supplies.............................. 28,033 33,373
-------- --------
445,232 464,961
LIFO reserve.............................................. (3,363) 2,169
-------- --------
$441,869 $467,130
======== ========
During 1997, 1998 and 1999, certain inventory quantities were reduced,
resulting in liquidations of LIFO inventories, the effect of which increased
income by approximately, $.6 million, $1.8 million and $2.1 million in 1997,
1998 and 1999, respectively.
NOTE H -- PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
Land and mineral properties............................... $ 42,151 $ 42,583
Buildings, machinery and equipment........................ 1,270,212 1,221,534
Construction in progress.................................. 51,197 24,273
---------- ----------
1,363,560 1,288,390
Accumulated depreciation and amortization................. 547,059 469,313
---------- ----------
$ 816,501 $ 819,077
========== ==========
WPC utilizes the modified units of production method of depreciation which
recognizes that the depreciation of steelmaking machinery is related to the
physical wear of the equipment as well as a time factor. The modified units of
production method provides for straight-line depreciation charges modified
(adjusted) by the level of raw steel production. In 1998 and 1999 depreciation
under the modified units of production method was $1.1 million or 2.0% more and
$0.7 million or 1.3% more respectively, than straight-line depreciation.
Depreciation on H&H and Unimast property, plant and equipment is provided
principally on the straight-line method over the estimated useful lives of the
assets.
39
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- LONG-TERM DEBT
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Senior Unsecured Notes due 2007, 9 1/4%................... $274,175 $274,071
Term Loan Agreement due 2006, floating rate............... 75,000 75,000
Senior Unsecured Notes due 2005, 10 1/2%.................. 281,490 302,000
Handy & Harman Senior Secured Credit Facility............. 201,064 228,654
Other..................................................... 17,801 14,243
-------- --------
849,530 893,968
Less portion due within one year.......................... 1,810 612
-------- --------
Total Long-Term Debt (1).......................... $847,720 $893,356
======== ========
- ---------------
(1) The fair value of long-term debt at December 31, 1998 and December 31, 1999
was $851.5 million and $828.2 million, respectively. Fair value of long-term
debt is estimated based on trading in the public market.
Long-term debt maturing in each of the next five years is as follows: 2000,
$1,810; 2001, $10,621; 2002, $17,872; 2003, $11,493; and 2004, $46,322.
A summary of the financial agreements at December 31, 1999 follows:
REVOLVING CREDIT FACILITY
On April 30, 1999, WPSC entered into a Third Amended and Restated Revolving
Credit Facility ("RCF") with Citibank, N.A., as agent. The RCF, as amended,
provides for borrowings for general corporate purposes up to $150 million,
including a $25 million sub-limit for Letters of Credit.
The RCF agreement expires May 3, 2003. Interest rates are based on the
Citibank prime rate plus 1.25% and/or a Eurodollar rate plus 2.25%, but the
margin over the prime rate and the Eurodollar rate can fluctuate based upon
performance. A commitment fee of 0.5% is charged on the unused portion. The
letter of credit fee is 2.25% and is also performance based.
Borrowings are secured primarily by 100% of the eligible inventory of WPSC,
Pittsburgh-Canfield Corporation ("PCC") and Wheeling Construction Products, Inc.
("WCPI") and the terms of the RCF contain various restrictive covenants,
limiting among other things dividend payments or other distribution of assets,
as defined in the RCF. WPSC, PCC and WCPI are wholly-owned subsidiaries of WPC.
Certain financial covenants associated with leverage, net worth, capital
spending, cash flow and interest coverage must be maintained. WPC, PCC and WCPI
have each guaranteed all of the obligations of WPSC under the RCF. Borrowings
outstanding against the RCF at December 31, 1999 totaled $79.9 million, which
are included within short-term borrowings in the consolidated balance sheet.
Letters of credit outstanding under the RCF were $0.1 million at December 31,
1999.
9 3/8% SENIOR NOTES DUE 2003
On November 23, 1993, WPC issued $325 million of 9 3/8% Senior Notes.
Interest on the 9 3/8% Senior Notes is payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1994. The 9 3/8% Senior Notes
mature on November 15, 2003.
On November 26, 1997, WPC, under the terms of the 9 3/8% Indenture, legally
defeased the remaining $266.2 million 9 3/8% Senior Notes outstanding at a total
cost of $298.8 million. The 9 3/8% Senior Notes were placed into trusteeship
where they will be held until redemption on November 15, 2000.
9 1/4% SENIOR NOTES DUE 2007
On November 26, 1997, WPC issued $275 million principal amount of 9 1/4%
Senior Notes. Interest on the 9 1/4% Senior Notes is payable semi-annually on
May 15 and November 15 of each year. The 9 1/4% Senior Notes mature on November
15, 2007.
40
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 9 1/4% Senior Notes are redeemable at the option of WPC, in whole or in
part, on or after November 15, 2002 at specified redemption prices, plus accrued
interest and liquidated damages, if any, thereon to the date of redemption.
Upon the occurrence of a Change of Control (as defined therein), WPC will
be required to make an offer to repurchase all or any part of each holder's
9 1/4% Senior Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if any, thereon to the date of
repurchase.
The 9 1/4% Senior Notes are unsecured obligations of WPC, ranking senior in
right of payment to all existing and future subordinated indebtedness of WPC,
and pari passu with all existing and future senior unsecured indebtedness of
WPC, including borrowings under the Term Loan Agreement.
The 9 1/4% Senior Notes are fully and unconditionally guaranteed on a joint
and several and senior basis by the guarantors, which consist of all of the
Company's present and future operating subsidiaries. The 9 1/4% Senior Notes
indenture contains certain covenants, including, but not limited to, covenants
with respect to: (i) limitations on indebtedness; (ii) limitations on restricted
payments; (iii) limitations on transactions with affiliates; (iv) limitations on
liens; (v) limitations on sales of assets; (vi) limitations on issuance and sale
of capital stock of subsidiaries; (vii) limitations on dividends and other
payment restrictions affecting subsidiaries; and (viii) restrictions on
consolidations, mergers and sales of assets.
TERM LOAN AGREEMENT
On November 26, 1997, WPC entered into the Term Loan Agreement with DLJ
Capital Funding Inc., as syndication agent, pursuant to which it borrowed $75
million.
Interest on the Term Loan Agreement is payable on March 15, June 15,
September 15 and December 15 as to Base Rate Loans, and with respect to LIBOR
loans on the last day of each applicable interest period, and if such interest
period shall exceed three months, at intervals of three months after the first
day of such interest period. Amounts outstanding under the Term Loan Agreement
bear interest at the Base Rate (as defined therein) plus 2.25% or the LIBO Rate
(as defined therein) plus 3.25%
WPC's obligations under the Term Loan Agreement are guaranteed by its
present and future operating subsidiaries. WPC may prepay the obligations under
the Term Loan Agreement after November 15, 1999, subject to a premium of 1.0% of
the principal amount thereof or after November 15, 2000 with no premium.
10 1/2% SENIOR NOTES DUE 2005
On April 7, 1998, WHX issued $350 million principal amount of 10 1/2%
Senior Notes. Interest on the 10 1/2% Senior Notes is payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1998. The 10 1/2%
Senior Notes mature on April 15, 2005.
The 10 1/2% Senior Notes are redeemable at the option of WHX, in whole or
in part, on or after April 15, 2002 at specified prices, plus accrued interest
and liquidated damages, if any, thereon to the date of redemption.
Upon the occurrence of a Change of Control (as defined therein), the
Company will be required to make an offer to repurchase all or any part of each
holder's 10 1/2% Senior Notes at 101% of the principal amount thereof, plus
accrued interest and liquidated damages, if any, thereon to the date of
repurchase.
The 10 1/2% Senior Notes are unsecured obligations of WHX, ranking senior
in right of payment to all existing and future subordinated indebtedness of WHX,
and pari passu with all existing and future senior unsecured indebtedness of
WHX.
The 10 1/2% Senior Notes indenture contains certain covenants, including,
but not limited to, covenants with respect to: (i) limitations on indebtedness
and preferred stock; (ii) limitations on restricted payments; (iii) limitations
on transactions with affiliates; (iv) limitations on liens; (v) limitations on
sales of assets; (vi) limitations on dividends and other payment restrictions
affecting subsidiaries; and (vii) restrictions on consolidations, mergers and
sales of assets.
During the third quarter of 1998, the Company purchased $48.0 million
aggregate principal amount of 10 1/2% Senior Notes in the open market for $43.2
million.
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.
41
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HANDY & HARMAN SENIOR SECURED CREDIT FACILITY
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) 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 at December
31, 1999 are (a) in the case of the Term A Facility, the Delayed Draw Facility
and the Revolving Credit Facility, calculated at LIBOR + 1.50% and (b) in the
case of the Term B facility, calculated at LIBOR + 2.25%. 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. Letters of credit outstanding under the facilities totaled $14.6
million at December 31, 1999.
UNIMAST REVOLVING CREDIT AGREEMENT
On November 24, 1998, Unimast Incorporated ("Unimast") entered into a
Revolving Credit Agreement ("RCA") with The First National Bank of Chicago
("First"), 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 on either First's current corporate base rate plus .625% or a
Eurodollar rate plus 2.125%. Each of these rates can fluctuate based upon
performance. An aggregate commitment fee of .5% is charged on the unused
portion. 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,
accounts receivable, and fixed assets of Unimast, and its subsidiaries. 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 December 31, 1999 totaled $24.0 million, and were included
within short-term borrowings in the consolidated balance sheet. No letters of
credit were outstanding under the RCA.
INTEREST COST
Aggregate interest costs on debt and amounts capitalized during the three
years ended December 31, 1999, are as follows:
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
Aggregate interest expense on debt.......................... $90,885 $80,159 $31,274
Less: Capitalized interest.................................. 3,034 2,063 2,227
------- ------- -------
Interest expense............................................ $87,851 $78,096 $29,047
======= ======= =======
Interest paid............................................... $89,006 $73,070 $29,589
======= ======= =======
NOTE J -- STOCKHOLDERS' EQUITY
The authorized capital stock of WHX consists of 60,000,000 shares of Common
Stock, $.01 par value, of which 14,427,212 shares (including redeemable Common
Stock) were outstanding as of December 31, 1999 and 10,000,000 shares of
Preferred Stock, $0.10 par value, of which 2,907,825 shares of Series A
Convertible Preferred Stock and 2,975,100 shares of Series B Convertible
Preferred Stock were outstanding as of December 31, 1999. In
42
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 and 1999, the Company purchased 1,780,307 shares and 3,594,300 shares,
respectively, of Common Stock in open market purchases.
SERIES A CONVERTIBLE PREFERRED STOCK
In July 1993, the Company issued 3,000,000 shares of Series A Convertible
Preferred Stock for net proceeds of $145.0 million. Dividends on the shares of
the Series A Convertible Preferred Stock are cumulative, are payable quarterly
in arrears on January 1, April 1, July 1 and October 1 of each year, in an
amount equal to $3.25 per share per annum.
Each share of the Series A Convertible Preferred Stock is convertible at
the option of the holder thereof at any time into shares of Common Stock of the
Company, par value $.01 per share, at a conversion price of $15.78 per share of
Common Stock (equivalent to a conversion rate of approximately 3.1686 shares of
Common Stock for each share of Series A Convertible Preferred Stock), subject to
adjustment under certain conditions.
The Series A Convertible Preferred Stock was not redeemable prior to July
1, 1996. On and after such date, the Series A Convertible Preferred Stock is
redeemable at the option of the Company, in whole or in part, for cash,
initially at $52.275 per share and thereafter at prices declining ratably to
$50.00 per share on and after July 1, 2003, plus in each case accrued and unpaid
dividends to the redemption date. The Series A Convertible Preferred Stock is
not entitled to the benefit of any sinking fund. In 1996 and 1997, the Company
purchased and retired 92,000 shares of Series A Convertible Preferred Stock on
the open market. No additional shares were purchased during 1998 or 1999. During
1999, an additional 175 shares have been converted into Common Stock.
SERIES B CONVERTIBLE PREFERRED STOCK
The Company issued 3,500,000 shares of Series B Convertible Preferred Stock
in September 1994 for net proceeds of $169.8 million. Dividends on the shares of
the Series B Convertible Preferred Stock, are cumulative, are payable quarterly
in arrears on January 1, April 1, July 1 and October 1 of each year, in an
amount equal to $3.75 per share per annum.
Each share of the Series B Convertible Preferred Stock is convertible at
the option of the holder thereof at any time into shares of Common Stock of the
Company, par value $.01 per share, at a conversion price of $20.40 per share of
Common Stock (equivalent to a conversion rate of approximately 2.4510 shares of
Common Stock for each share of Series B Convertible Preferred Stock), subject to
adjustment under certain conditions.
The Series B Convertible Preferred Stock was not redeemable prior to
October 1, 1997. On and after such date, the Series B Convertible Preferred
Stock is redeemable at the option of the Company, in whole or in part, for cash,
initially at $52.625 per share and thereafter at prices declining ratably to
$50.00 per share on and after October 1, 2004, plus in each case accrued and
unpaid dividends to the redemption date. The Series B Convertible Preferred
Stock is not entitled to the benefit of any sinking fund. In 1996 and 1997, the
Company purchased and retired 524,900 shares of Series B Convertible Preferred
Stock in open market purchases. No additional shares were purchased during 1998
or 1999.
REDEEMABLE COMMON STOCK
Certain present and former employees of the Company were issued preferred
shares of the Company prior to the Chapter 11 proceeding of the Company's
predecessor in exchange for wage and salary concessions. Such preferred shares
were exchanged for 1,279,935 shares of Common Stock under the Chapter 11 Plan of
Reorganization, these shares were issued to an Employee Stock Ownership Plan
("ESOP") on such employees' behalf. Beneficial owners of such shares who were
active employees on August 15, 1990 and who have either retired, died or become
disabled, or who reach 30 years of service, may sell their Common Stock to the
Company at a price of $15 or, upon qualified retirement, $20 per share. These
contingent obligations are expected to extend over many years, as participants
in the ESOP satisfy the criteria for selling shares to the Company. In addition,
each beneficiary can direct the ESOP to sell any or all of its Common Stock into
the public markets at any time; provided, however, that the ESOP will not on any
day sell in the public markets more than 20% of the number of shares of Common
Stock traded during the previous day. As of December 31, 1999, 282,177 shares of
redeemable Common Stock remained outstanding.
43
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
The WHX Corporation Stock Option Plan ("1991 Plan") is intended to assist
the Company in securing and retaining key employees by allowing them to
participate in the ownership and growth of the Company through the grant of
incentive and non-qualified options (collectively, the "Options") to full-time
employees of the Company and its subsidiaries. Incentive stock options granted
under the Option Plan are intended to be "Incentive Stock Options" as defined by
Section 422 of the Code.
An aggregate of 3,500,000 shares of Common Stock has been reserved for
issuance upon exercise of Options under the 1991 Plan, as amended. The 1991 Plan
is administered by a committee (the "Committee") consisting of not less than
three nonemployee members appointed by the Board of Directors. The term of
Options granted under the 1991 Plan may not exceed 10 years (five years in the
case of an incentive Option granted to an optionee owning more than 10% of the
voting stock of the Company (a "10% Holder")). The Option price for Options
shall not be less than 100% of the "fair market value" of the shares of Common
Stock at the time the Option is granted; provided, however, that with respect to
an incentive option, in the case of a 10% Holder, the purchase price per share
shall be at least 110% of such fair market value. The aggregate fair market
value of the shares of Common Stock as to which an optionee may first exercise
incentive stock options in any calendar year may not exceed $100,000. Payment
for shares purchased upon exercise of Options is to be made in cash, but, at the
discretion of the Committee, may be made by delivery of other shares of Common
Stock of comparable value. The 1991 Plan will terminate on September 24, 2001
and may be terminated at any time by the Board of Directors prior to that date.
DIRECTORS OPTION PLANS
The 1993 Directors D&O Plan (the "1993 D&O Plan") is authorized to issue
shares of Common Stock pursuant to the exercise of options with respect to a
maximum of 400,000 shares of Common Stock. The options vest over three years
from the date of grant. The 1997 Directors Stock Option Plan ("1997 D&O Plan")
is authorized to issue an additional 400,000 shares of Common Stock.
OPTION GRANTS TO WPN CORP.
On July 29, 1993 (the "Approval Date"), the Board of Directors approved the
grant of options to WPN Corp. to purchase 1,000,000 shares of Common Stock (the
"Option Grants"). The Option Grants were approved by the stockholders on March
31, 1994.
On August 4, 1997 the compensation committee of the Board of Directors
granted an option to purchase 1,000,000 shares of Common Stock to WPN Corp, at
the then market price per share, subject to stockholder approval. The Board of
Directors approved such grant on September 25, 1997, and the stockholders
approved it on December 1, 1997 (measurement date).
The options under each plan are exercisable with respect to one-third of
the shares of Common Stock issuable upon the exercise thereunder at any time on
or after the date of stockholder approval of the Option Grants. The options with
respect to an additional one-third of the shares of Common Stock may be
exercised on the first and second anniversaries of the Approval Date,
respectively. The options, to the extent not previously exercised, will expire
on April 29, 2003 and August 4, 2007, respectively.
The Company is required to record a charge for the fair value of the 1997
option grants under SFAS 123. The fair value of the option grant is estimated on
the measurement date using the Black-Scholes option-pricing model. The following
assumptions were used in the Black-Scholes calculation: expected volatility of
48.3%, risk-free interest rate of 5.83%, an expected life of 5 years and a
dividend yield of zero. The resulting estimated fair value of the shares granted
in 1997 was $6.7 million which was recorded as part of the special charge
related to the new labor agreement.
44
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A SUMMARY OF THE OPTION PLANS:
NUMBER OF OPTIONS
---------------------------------
1991 D & O WPN OPTION PRICE WEIGHTED AVERAGE
PLAN PLAN GRANTS OR RANGE OPTION PRICE
--------- ------- --------- --------------- ----------------
Balance 12/31/96.............. 1,049,330 326,000 1,000,000 $11.054
Granted..................... 982,500 166,000 1,000,000 $6.875-13.8125 11.641
Cancelled................... (222,802) (5,334) -- 8.75-14.625 13.648
Exercised................... (172,639) -- -- 6.125-8.75 8.048
--------- ------- ---------
Balance 12/31/97.............. 1,636,389 486,666 2,000,000 11.342
--------- ------- ---------
Granted..................... 1,198,527 25,000 -- 10.00-16.625 15.516
Cancelled................... (309,989) -- -- 8.75-14.625 13.865
Exercised................... (160,890) -- -- 6.125-14.625 8.335
--------- ------- ---------
Balance 12/31/98.............. 2,364,037 511,666 2,000,000 12.277
--------- ------- ---------
Granted..................... 484,500 25,000 -- 7.625-12.4375 9.192
Cancelled................... (108,610) -- -- 8.75-14.625 13.580
Exercised................... (10,650) -- -- 7.25-8.75 7.342
--------- ------- ---------
Balance 12/31/99.............. 2,729,277 536,666 2,000,000 12.01
========= ======= =========
Options outstanding at December 31, 1999 which are exercisable totaled
3,517,206 and have a weighted average option price of $11.68. Options
outstanding at December 31, 1999 had a weighted-average remaining life of 6.5
years.
In 1996, the Company adopted SFAS No. 123, and elected to continue to
account for such compensation under the provisions of APB 25. Therefore, no
compensation costs have been recognized for the stock option plans in 1997, 1998
or 1999. Had the Company elected to account for stock-based compensation under
the provisions of SFAS No. 123 during 1997, the effect on net income and
earnings per share would not be material. Had the Company elected to account for
stock-based compensation under the provision of SFAS No. 123 during 1998, the
effect on net income would have been an additional expense of $2.1 million, net
of related income tax benefit of $1.1 million or $.11 per share of Common Stock
after deduction of Preferred Stock Dividends on a basic and diluted basis. Had
the Company elected to account for stock-based compensation under the provision
of SFAS No. 123 during 1999, the effect on net income would have been an
additional expense of $2.9 million, net of related income tax benefit of $1.6
million, or $.18 per share of common stock after deduction of preferred stock
dividends, on a basic and diluted basis. The fair value of the option grants is
estimated on the measurement date using the Black-Scholes option-pricing model.
The following weighted-average assumptions were used in the Black-Scholes
calculation: expected volatility of 53.2%, risk-free interest rate of 6.6%, an
expected life of 5 years and a dividend yield of zero.
EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, Earnings per Share. The
computation of basic earnings per common share is based upon the average shares
of Common Stock outstanding. In 1997 and 1999, the conversion of redeemable
common stock and exercise of options and warrants would have had an
anti-dilutive effect. The computation of earnings per common share -- assuming
dilution in 1998 assumes conversion of redeemable
45
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock and exercise of outstanding stock options. A reconciliation of the
income and shares used in the computation follows:
RECONCILIATION OF INCOME AND SHARES IN EPS CALCULATION
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ---------
(DOLLARS AND SHARES IN THOUSANDS)
Loss before extraordinary item........................... $(15,834)
Less: Preferred stock dividends.......................... 20,608
--------
Basic EPS and Diluted EPS
Loss available to common stockholders.................. $(36,442) 15,866 $(2.30)
======== ====== ======
The assumed conversion of stock options, preferred stock and redeemable
common stock would have an anti-dilutive effect on earnings per share.
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS AND SHARES IN THOUSANDS)
Income before extraordinary item.......................... $39,430
Less: Preferred stock dividends........................... 20,608
-------
Basic EPS
Income available to common stockholders................. 18,822 18,198 $1.04
Effect of Dilutive Securities
Options and warrants.................................... -- 566
Convertible preferred stock............................. -- --
Redeemable common stock................................. -- 298
------- -------
Diluted EPS
Income available to common stockholders plus assumed
conversions.......................................... $18,822 $19,062 $ .99
======= ======= =====
The assumed conversion of preferred stock would have an anti-dilutive
effect on earnings per share.
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS AND SHARES IN THOUSANDS)
Loss before extraordinary item.............................. $(173,772)
Less: Preferred stock dividends............................. 20,657
---------
Basic EPS and Diluted EPS
Loss available to common stockholders..................... $(194,429) 22,028 $(8.83)
========= ====== ======
The assumed conversion of stock options, preferred stock and redeemable
common stock would have an anti-dilutive effect on earnings per share.
NOTE K -- COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state statutes at several waste sites. The Company is
subject to joint and several liability imposed by CERCLA 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 CERCLA. The
Company believes, based upon information currently available, that the Company's
liability for clean up and remediation costs in connection with the Buckeye
46
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclamation Landfill will be between $1.5 and $2.0 million. At several other
sites the Company estimates costs to 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 $7.7 million for 1997, 1998 and
1999, respectively. The Company anticipates spending approximately $13.6 million
in the aggregate on major environmental compliance projects through the year
2002, estimated to be spent as follows: $6.7 million in 2000, $3.1 million in
2001, and $3.8 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 $12.7 million at
December 31, 1998 and $14.7 million at December 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 its present
environmental obligations.
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 L -- RELATED PARTY TRANSACTIONS
The Chairman of the Board of the Company is the president and sole
shareholder of WPN Corp. ("WPN"). Pursuant to a management agreement effective
as of January 3, 1991, as amended January 1, 1993, April 11, 1994, January 1,
1998 and April 13, 1998, approved by a majority of the disinterested directors
of the Company, WPN provides certain financial, management advisory and
consulting services to the Company. Such services include, among others,
identification, evaluation and negotiation of acquisitions, responsibility for
financing matters for the Company and its subsidiaries, review of annual and
quarterly budgets, supervision and administration, as appropriate, of all the
Company's accounting and financial functions and review and supervision of
reporting obligations under Federal and state securities laws. In exchange for
such services, WPN received a monthly fee of $520,833 in 1999. In 1998, WPN
received a monthly fee of $458,333 from January 1 until April 13 and $520,833
from April 14 until December 31. In addition, in October 1999, the Board of
Directors awarded WPN an additional bonus of $3,280,000 and in September 1998,
the Board of Directors awarded WPN an additional bonus of $3,750,000, each in
recognition of the returns earned by WPN on behalf of the Company in its
management of the Company's cash and marketable securities. The management
agreement has a two year term and is renewable automatically for successive one
year periods, unless terminated by either party upon 60 days' prior written
notice of the renewal date.
In 1997, the stockholders approved a grant of an option to purchase
1,000,000 shares of Common Stock to WPN for their performance in obtaining a new
labor agreement. The options were valued using the Black-Scholes formula at $6.7
million and recorded as a special charge related to the labor contract.
NOTE M -- OTHER INCOME
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
Interest and investment income.............................. $26,499 $88,781 $52,092
Equity income (loss)........................................ 4,343 5,699 (1,644)
Receivables securitization fees............................. (5,876) (6,192) (3,826)
Other, net.................................................. 1,454 1,408 4,046
------- ------- -------
$26,420 $89,696 $50,668
======= ======= =======
47
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- SALE OF RECEIVABLES
In 1994, a special purpose wholly-owned subsidiary of WPSC entered into an
agreement to sell (up to $75 million on a revolving basis) an undivided
percentage ownership in a designated pool of accounts receivable generated by
WPSC and two of the Company's subsidiaries: WCPI and PCC (the "Receivables
Facility"). In 1995, WPSC entered into an agreement to include the receivables
generated by Unimast in the pool of accounts receivable sold. In May 1999, the
Receivables Facility was extended through May 2003 and increased to $100 million
on a revolving basis. Effective June of 1999, Unimast withdrew from
participation in the facility. Accounts receivable at December 31, 1999 exclude
$100 million representing uncollected accounts receivable sold with recourse
limited to the extent of uncollectible balances. Fees paid by WPSC under this
Receivables Facility were based upon variable rates that range from 4.94% to
7.42%. Based on the Company's collection history, the Company believes that
credit risk associated with the above arrangement is immaterial.
NOTE O -- SUMMARIZED FINANCIAL INFORMATION OF 50 PERCENT OR LESS OWNED
INVESTMENTS
The following financial information of affiliates accounted for by the
equity method of accounting follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
INCOME DATA
Net sales................................................. $510,421 $504,529 $472,923
Operating Income.......................................... 14,654 34,675 17,342
Net income................................................ 7,647 19,401 3,657
BALANCE SHEET DATA
Current assets............................................ 129,542 117,012 105,233
Non-current assets........................................ 185,422 190,082 207,109
Current liabilities....................................... (71,125) (52,068) (52,678)
Non-current liabilities................................... (76,545) (80,788) (89,418)
Dividends received from equity affiliates were $5.6 million in 1999 and
$5.0 million in 1998.
The Company's sales to equity affiliates totaled $274,795, $229,115 and
$30,199 in 1999, 1998 and 1997, respectively.
Amounts due to equity affiliates at December 31, 1999 and 1998, aggregated
$8.1 million and $7.3 million, respectively. Amounts due from equity affiliates
at December 31, 1999 and 1998, aggregated $44.1 million and $32.0 million,
respectively.
PRINCIPAL UNCONSOLIDATED AFFILIATES (UNAUDITED)
DECEMBER 31, 1999
COMPANY COUNTRY OWNERSHIP ACTIVITY
- ------- ------------- ----------------- ------------------------------------
Ohio Coatings Company......... United States 50% Tin Plating
Wheeling-Nisshin.............. United States 35.7% Galvanizing
Wheeling Downs................ United States 50% Racetrack and Video Lottery Facility
Handy & Harman Singapore...... Singapore 50% Precious Metals
NOTE P -- EXTRAORDINARY ITEMS
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
Premium (discount) on early debt retirement................. $(1,925) $(4,779) $32,600
Unamortized debt issuance cost.............................. 547 1,332 4,770
Coal retiree medical benefits............................... -- -- 2,615
Income tax effect........................................... 482 1,206 (13,995)
------- ------- -------
$ (896) $(2,241) $25,990
======= ======= =======
48
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 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.
In the third quarter of 1998, the Company purchased and retired $48.0
million aggregate principal amount of 10 1/2% Senior Notes in the open market
resulting in a $2.2 million gain, net of tax.
In November 1997, the Company paid a premium of $32.6 million to defease
the remaining $266.2 million of WPC's 9 3/8% Senior Notes at a total cost of
$298.8 million.
In 1997, a 7% discount rate was used to calculate the actuarially
determined coal retiree medical benefit liability compared to 7.5% in 1996. In
1997 the Company also incurred higher premiums for additional retirees and
orphans assigned in 1995. See Note D.
NOTE Q -- SUPPLEMENTAL WHX PARENT COMPANY SUMMARIZED FINANCIAL INFORMATION
WHX Parent Company summarized financial information is included because of
certain restrictions placed on subsidiaries as a result of credit agreements
that restrict the transfer or dividend of cash or assets to the parent company.
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
INCOME DATA
Net sales................................................. $ -- $ -- $ --
Cost of products sold, excluding depreciation............. (4,380) 252 (3,000)
Depreciation.............................................. 989 1,583 1,263
Selling, general and administrative expense............... 5,883 5,843 7,428
------- ------- -------
Operating income(expense)................................. (2,492) (7,678) (5,691)
Interest expense on debt.................................. 30,855 26,385 --
Other income.............................................. 26,652 87,308 51,342
------- ------- -------
Income (loss) before tax and extraordinary item........... (6,695) 53,245 45,651
Tax provision (benefit)................................... (1,735) 18,586 15,978
------- ------- -------
Income (loss) before extraordinary item................... (4,960) 34,659 29,673
Extraordinary item (net of tax)........................... 896 2,241 --
------- ------- -------
Net income (loss)......................................... $(4,064) $36,900 $29,673
======= ======= =======
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
Assets
Current assets............................................ $ 665,745 $ 704,735 $590,011
Non-current assets........................................ 667,803 703,351 291,842
---------- ---------- --------
Total Assets...................................... $1,333,548 $1,408,086 $881,853
========== ========== ========
Liabilities and Stockholders' Equity
Current liabilities....................................... $ 506,794 $ 504,835 $282,931
Non-current liabilities................................... 284,822 305,629 4,809
Stockholder's equity...................................... 541,932 597,622 594,113
---------- ---------- --------
Total Liabilities and Stockholders' Equity........ $1,333,548 $1,408,086 $881,853
========== ========== ========
NOTE R -- REPORTED SEGMENTS
The Company's reportable operating segments consist 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
49
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
technology and marketing and distribution channels. The accounting policies of
the segments are consistent with those of the Company, as discussed in the
summary of significant accounting policies.
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 require 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 years
ending December 31:
SEGMENT CONSOLIDATED
1999 WPC H&H * UNIMAST ALL OTHER TOTAL ADJUSTMENTS TOTAL
- ---- ---------- -------- -------- ---------- ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
Revenue.................. $1,081,657 $466,116 $217,409 $ -- $1,765,182 $ (48,382) $1,716,800
Intersegment revenues.... 48,382 -- -- -- 48,382 -- 48,382
Net interest expense..... 37,931 17,755 1,900 30,855 88,441 (590) 87,851
Depreciation and
amortization........... 77,724 22,190 3,953 989 104,856 -- 104,856
Equity income (loss)..... 3,358 1,302 -- (317) 4,343 -- 4,343
Income taxes............. (20,723) 12,270 3,758 (1,735) (6,430) -- (6,430)
Extraordinary Item....... -- -- -- 896 896 -- 896
Segment net income
(loss)................. (34,485) 10,005 13,063 (4,064) (15,481) 543 (14,938)
Segment assets........... $1,278,022 $650,452 $ 98,411 $1,333,548 $3,360,433 $(686,867) $2,673,566
Investment in equity -
method subsidiaries.... 64,229 5,182 -- 11,079 80,490 -- 80,490
Capital expenditures..... $ 72,146 $ 16,981 $ 3,929 $ 10,979 $ 104,035 $ -- $ 104,035
1998
Revenue.................. $1,111,541 $350,286 $205,444 $ -- $1,667,271 $ (21,773) $1,645,498
Intersegment revenues.... 21,773 -- -- -- 21,773 -- 21,773
Net interest expense..... 36,699 13,188 2,462 26,385 78,734 (638) 78,096
Depreciation and
amortization........... 76,321 15,585 3,381 1,583 96,870 -- 96,870
Equity income (loss)..... 5,333 588 -- (222) 5,699 -- 5,699
Income taxes............. (3,101) 7,271 630 18,586 23,386 -- 23,386
Extraordinary item....... -- -- -- 2,241 2,241 -- 2,241
Segment net income
(loss)................. (6,503) 4,785 6,582 36,900 41,764 (93) 41,671
Segment assets........... $1,256,367 $668,362 $ 60,697 $1,408,086 $3,393,512 $(681,428) $2,712,084
Investment in equity -
method subsidiaries.... 69,075 4,507 -- 11,396 84,978 -- 84,978
Capital expenditures..... $ 33,595 $ 10,701 $ 3,954 $ -- $ 48,250 $ -- $ 48,250
1997
Revenue.................. $ 489,662 -- $156,678 $ -- $ 646,340 $ (4,244) $ 642,096
Intersegment revenues.... 4,244 -- -- -- 4,224 -- 4,244
Net interest expense..... 27,204 -- 2,296 -- 29,500 (453) 29,047
Depreciation and
amortization........... 46,203 -- 1,979 1,263 49,445 -- 49,445
Equity income (loss)..... (1,206) -- -- (438) (1,644) -- (1,644)
Income taxes............. (110,035) -- 488 15,978 (93,569) -- (93,569)
Extraordinary item....... (25,990) -- -- -- (25,990) -- (25,990)
Segment net income
(loss)................. (230,453) -- 1,086 29,673 (199,694) (68) (199,762)
Segment assets........... $1,424,568 -- $ 54,538 $ 881,853 $2,360,959 $(299,039) $2,061,920
Investment in equity-
method subsidiaries.... 68,742 -- -- 11,667 80,409 -- 80,409
Capital expenditures..... $ 33,755 $ -- $ 3,024 $ -- $ 36,779 $ -- $ 36,779
- ---------------
* Results prior to April 13, 1998 are not reported in WHX consolidations and
therefore have been omitted from this comparison.
50
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is sales and long-lived asset information by geographic area
as of and for the years ended December 31:
GEOGRAPHIC INFORMATION
REVENUES LONG-LIVED ASSETS
------------------------------------ ----------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- -------- -------- ---------- --------
United States............................. $1,690,841 $1,596,831 $642,096 $878,692 $887,659 $819,069
Foreign................................... 25,959 48,667 -- 18,299 16,396 --
---------- ---------- -------- -------- -------- --------
$1,716,800 $1,645,498 $642,096 $896,991 $904,055 $819,069
Foreign revenue is based on the country in which the legal subsidiary is
domiciled. Revenue from no single foreign county was material to the
consolidated revenues of the Company.
NOTE S -- ACQUISITION OF HANDY & HARMAN AND OTHER
The fair value of the assets acquired and liabilities assumed in
acquisitions are as follows:
1999 1998
------- -------------------------
OTHER HANDY & HARMAN OTHER
------- -------------- -------
(DOLLARS IN THOUSANDS)
Current assets....................................... $ 2,145 $ 269,374 $ 2,188
Property, plant & equipment.......................... 1,722 124,148 503
Other long-term assets............................... -- 155,426 --
Goodwill............................................. 9,627 291,931 10,121
Current liabilities.................................. (667) (120,790) (157)
Debt................................................. -- (229,600) (4,320)
Other long-term liabilities.......................... -- (74,635) --
------- --------- -------
Purchase price, net of cash acquired................. $12,827 $ 415,854 $ 8,335
======= ========= =======
NOTE T -- QUARTERLY INFORMATION (UNAUDITED)
Financial results by quarter for the two fiscal years ended December 31,
1999 and 1998 are as follows:
BASIC
EARNINGS BASIC DILUTED
(LOSS) EARNINGS EARNINGS
PER SHARE (LOSS) (LOSS)
GROSS EXTRA- NET BEFORE PER SHARE PER SHARE
NET PROFIT ORDINARY INCOME EXTRAORDINARY ON NET ON NET
SALES (LOSS) INCOME (LOSS) ITEMS INCOME INCOME
-------- ------- -------- -------- ------------- --------- ---------
(DOLLARS, EXCEPT PER SHARE, IN THOUSANDS)
1999:
1st Quarter............... $396,925 $47,788 $ 896 $(35,596) $(2.45) $(2.40) $(2.40)
2nd Quarter............... 413,783 78,158 -- 15,432 .62 .62 .46
3rd Quarter............... 447,607 79,216 -- 11,109 .38 .38 .34
4th Quarter............... 458,485 81,249 -- (5,883) (.78) (.78) (.78)
1998:(1)
1st Quarter............... $304,078 $34,421 $ -- $ 1,088 $ (.21) $ (.21) $ (.21)
2nd Quarter............... 464,455 88,523 -- 14,067 .48 .48 .39
3rd Quarter............... 459,563 79,313 2,241 24,023 .91 1.03 .68
4th Quarter............... 417,402 66,810 -- 2,493 (.15) (.15) (.15)
- ---------------
Diluted loss per share would be the same as basic loss per share in loss
quarters because conversion of stock options, convertible Series A and Series B
Preferred Stock or redeemable Common Stock would be anti-dilutive.
(1) 1998 results reflect the acquisition of H&H from April 13, 1998.
51
57
----------------------------------------------------
WHX CORPORATION
----------------------------------------------------
BOARD OF DIRECTORS
RONALD LABOW(1,4)
Chairman of the Board, WHX Corporation
President, Stonehill Investment Corporation
ROBERT A. DAVIDOW(1,2,3,4)
Vice Chairman of the Board, WHX Corporation
Private Investor
NEIL D. ARNOLD(1,3)
Private Investor
PAUL W. BUCHA(4)
Chairman of the Board, Wheeling-Pittsburgh
Steel Corporation
WILLIAM GOLDSMITH(2)
Management and Marketing Consultant
ROBERT D. LEBLANC
President and Chief Executive Officer
Handy & Harman
MARVIN L. OLSHAN(1,2,4)
Secretary, WHX Corporation
Senior Partner, Olshan Grundman Frome
Rosenzweig & Wolosky LLP
RAYMOND S. TROUBH(1,3)
Financial Consultant
CORPORATE OFFICERS
JAMES G. BRADLEY
Executive Vice President
ROBERT D. LEBLANC
Executive Vice President
HOWARD MILEAF
Vice President - General Counsel
PAUL J. MOONEY
Vice President
ARNOLD G. NANCE
Vice President - Finance
MARVIN L. OLSHAN
Secretary
STEWART E. TABIN
Assistant Treasurer
NEALE X. TRANGUCCI
Assistant Treasurer
STEVEN WOLOSKY
Assistant Secretary
(1)Member of Executive Committee
(2)Member of Compensation Committee
(3)Member of Audit Committee
(4)Member of Nominating Committee
iii
58
----------------------------------------------------
WHX CORPORATION
----------------------------------------------------
WHX CORPORATION
INVESTOR INFORMATION
CORPORATE OFFICE
WHX Corporation
110 East 59(th) Street
New York, NY 10022
WHEELING-PITTSBURGH CORPORATION
Offices
1134 Market Street
Wheeling, WV 26003
Web Site: http://www.wpsc.com
HANDY & HARMAN
Offices
555 Theodore Fremd Avenue
Rye, NY 10580
Web Site: http://www.handyharman.com
UNIMAST, INCORPORATED
Offices
4825 N. Scott Street
Schiller Park, IL 60176
Web Site: http://www.unimast.com
COUNSEL
Olshan Grundman Frome Rosenzweig
& Wolosky LLP
New York, NY
STOCK TRANSFER AGENT AND REGISTRAR OF STOCK
Bank of Boston, N.A.
Boston, MA
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Pittsburgh, PA
STOCKHOLDER INFORMATION
Our Transfer Agent is responsible for our stockholder records, issuance of our
dividends and the IRS Form 1099. Your requests, as stockholders, concerning
these matters are most efficiently answered by corresponding directly with the
BankBoston, N.A. at the following address:
BankBoston, N.A.
c/o Boston EquiServe, LP
P.O. Box 8040
Boston, MA 02266-8040
Telephone: (800) 733-5001
Web Site: http://www.equiserve.com
WHX Corporation and Wheeling-Pittsburgh Steel Corporation subscribe to a service
called "Company News-On-Call." This service provides shareholders, news media,
analysts and others a faxed copy of WHX and Wheeling-Pittsburgh Steel News
Releases. The toll-free number is 1-800-758-5804 and our company I.S. number is
967451.
ANNUAL MEETING
The Company's annual meeting of stockholders will be held on March 15, 2000
at the Dupont Hotel, Wilmington, Delaware.
STOCK EXCHANGE
The Company's common stock is listed on the New York Stock Exchange under
the symbol WHX.
59
WHX Corporation Logo
1051-AR-00